Comstock Resources Sells Pinnacle Stake as Gas Prices Slide
Comstock Resources reported adjusted net income of $8.3 million, an 81% sequential drop, as realized gas prices fell to $2.93/Mcfe.
Comstock Resources (CRK) reported a sharp sequential decline in profitability for the second quarter, even as the natural-gas producer restored production growth and closed a $600 million equity sale in its gas-services unit.
The quarter marked a reversal from the pricing and margin gains Comstock had posted over the prior several quarters. Realized natural gas prices after hedging fell to $2.93 per Mcfe, down from $3.46 in the first quarter and below the $3.07 posted a year earlier, undoing the higher-price narrative that had supported results into early 2024. Unhedged operating margin compressed to 70% from 78% in the first quarter, reversing two straight quarters of expansion.
Adjusted net income fell to $8.3 million, or $0.03 a share, from $44.5 million, or $0.15 a share, in the first quarter and $34.2 million a year earlier — a roughly 81% sequential decline. Adjusted EBITDAX slipped to $244.8 million from $251 million in the first quarter and $259.7 million a year ago, the third straight quarter in the $245 million-to-$277 million range but down from a $277 million peak in the fourth quarter of 2023. Net income available to the company totaled just $8.8 million, compared with $124.8 million a year earlier, when a $231.6 million derivative gain inflated results; the anchor quarter carried no comparable hedging or asset-sale gain.
Production, the one clear bright spot, rebounded 16% sequentially to 113.1 Bcfe from a Q1 dip, even though first-half 2024 volumes remained down 7% from the same period a year earlier. The rebound was due to well turn-in-line activity in the Western Haynesville, where average initial production rates rose to 33 MMcf/day in the second quarter from 29 MMcf/day in the first, though the figures have moved quarter to quarter rather than tracked a steady climb. Production costs eased to $0.77 per Mcfe from $0.93 in the prior quarter, a return to normal levels.
The gas-services segment, a growth driver in recent quarters, nearly stalled: margin fell to $0.5 million from $3.6 million in the first quarter as segment revenue dropped to $63.5 million from $166.5 million. For the first half of 2024 the segment still posted a $4.1 million margin, an improvement from a $13.3 million loss in the same period of 2023.
Comstock sold a 27% noncontrolling equity interest in Pinnacle Gas Services LLC for $600 million during the quarter, a transaction not disclosed in any prior release, and used the proceeds to retire all of Pinnacle's preferred equity and outstanding debt. The deal shifts Comstock's divestiture activity away from the legacy exploration-and-production asset sales that characterized late 2023, when the company closed a Shelby Trough sale for $417 million to $430 million in net proceeds, toward monetizing minority stakes in its midstream infrastructure.
Even with the Pinnacle proceeds, long-term debt rose to $3.10 billion at June 30 from $2.81 billion at year-end 2023, while cash increased to $45.0 million from $23.9 million. Exploration and development capital spending climbed to $390.4 million from $343.3 million in the first quarter and $268.2 million a year earlier, a 45% year-over-year increase tied to the drilling ramp in the Western Haynesville and Legacy Haynesville.
The capital outlay outpaced the cash Comstock generated from operations this quarter, leaving the Pinnacle sale as the balance sheet's main offset against rising debt and a softer gas-price environment.