Q3 2026 Comstock Resources, Inc. Earnings Conference Call - COMSTOCK RESOURCES INC

Explicit Guidance:

• 2026 Production & Drilling: Expect to drill 19 wells and turn 20 wells to sales in the Western Haynesville.
• 2026 Guidance (Rest of Year): Anticipated to generate free cash flow in Q4 2026 driven by the Jones drilling venture and lower capital spend.
• 2027 Production & Drilling: Expect to drill 52 wells and turn 45 wells to sales in 2027, primarily in the Legacy Haynesville to support production growth.
• 2027 CapEx: Jones family's Arcoma III will fund an estimated $150 million in capital expenditures in 2027 (on top of $300 million in 2026) for the 27-well venture.
• Balance Sheet Targets: Target net debt to reduce to approximately $1.7 billion (pro forma) and maintain a leverage ratio below 1.5x post-SOCAR transaction.
• Dividend: No immediate plan to reinstate the dividend; target leverage below 1.5x and successful Western Haynesville advancement are prerequisites before considering returns to shareholders.

Business-Segment Outlook:

• Western Haynesville: Drilling program aims to mature into a "value-driven" operation with infill development wells starting in 2027, expected to drive material cost savings and productivity gains.
• Legacy Haynesville: Inventory includes 899 gross operated locations (78% WI); 50% have laterals >10,000 ft, averaging 10,212 ft. Four rigs operating to support 2026–2027 production growth.
• Horseshoe Program: 108 remaining horseshoe locations; program converts two sectional laterals into single 2-mile laterals, unlocking stranded acreage. Recent IPs range 26–40 Mmcf/d (avg 33 Mmcf/d).
• Well Economics: Transition to "big hole" laterals (4th well currently drilling) expected for the majority of future wells, likely at lateral lengths of 10,000–11,000 ft. Larger frac designs (5,000–6,000 lbs/ft) implemented in all 2026 wells expected to yield >10% incremental EUR uplift.
• Midstream (Pinnacle Gas Service): Capacity expansion expected to meet ~1 BCF/d by 2031. Anderson County Power Hub supply contracts begin early 2028, scaling to 5.2 GW capacity.

Market and Competitive Outlook:

• Demand Trends: Natural gas market projected to be undersupplied by 2029. LNG demand expected to rise from ~20 BCF/d currently to 35 BCF/d by 2032, plus an additional 12 BCF/d required for data center power generation.
• Pricing & Margins: Expect increased exposure to international LNG markets and direct sales to power generators (including the Anderson County hub) to capture wider margins compared to domestic benchmarks.
• Competitive Positioning: Comstock positions itself in a "sweet spot" with access to decades of inventory, established midstream, and strategic partners (SOCAR, Jones, Sixth Street) to mitigate volatility.
• Cost Structure: Current Western Haynesville break-even estimated in the $3.50–$4.00 range; costs expected to decline as lateral lengths increase and 10k/20k rig fleets are deployed.

Macro / Industry Outlook:

• Inflation: Input costs rose 8–10% in Q3 due to inflation (e.g., diesel); expected to flatten in Q4 2026 and potentially retreat in 2027.
• Capital Markets: Proceeds from the $1.65 billion SOCAR divestiture will retire half of outstanding debt, significantly improving the balance sheet and extending credit facility maturity to November 2031.
• Regulatory/Geopolitical: Anderson County Power Hub is a federal government initiative, positioning the company to supply gas to regulated power generation assets.

Strategic Initiatives:

• SOCAR Divestiture ($1.65B): Sold 20% interest in Legacy Haynesville, 15% in Western Haynesville, and 15% in Pinnacle Gas Service. Closing expected by year-end 2026. SOCAR will reduce its Western Haynesville stake to 7.5% after 5 years upon achieving a 15% return, increasing Comstock's ownership to 92.5%.
• Jones Family Drilling Venture: 27-well partnership (18 Western, 9 Legacy) funded by Arcoma III (85% Western, 80% Legacy funding). Comstock recovers pre-venture costs ($180M) from first production; 50% interest reverts to Comstock after Jones recovers costs + 15% return.
• Rig Upgrades: First 10,000 psi rig to be deployed in Western Haynesville by late 2026; two additional rigs to be upgraded in Q2 2027. Expected to improve ROP and reduce days-to-TD.
• Technology Adoption: Continued deployment of rotary steerables, longer laterals (target 15k–20k ft), and 20k frac fleets to drive down unit costs.
• Inventory Expansion: Actively adding to the 547,000 net acres in the Western Haynesville footprint monthly.

Risks and Headwinds to Outlook:

• Inflation Persistence: Continued inflation in service costs could pressure D&C costs if not offset by efficiency gains.
• Operational Execution: Western Haynesville is in an early development stage with higher initial costs compared to Legacy; success relies on proving repeatability of big-hole and large-frac designs over time.
• Price Volatility: Break-even levels are sensitive to natural gas price fluctuations; the dividend reinstatement is contingent on a favorable gas price environment.
• Transaction Execution: SOCAR deal timing depends on closing conditions; revenue recognition and debt reduction are contingent on this transaction closing by year-end 2026.

Management Tone on the Future:

• Confidence: Highly confident in the long-term value of U.S. natural gas and the "winning team" structure (SOCAR, Jones, Sixth Street, NextEra).
• Strategic Focus: Prioritizing balance sheet strength and long-term asset advancement over short-term capital returns (no dividend until leverage <1.5x).
• Growth Narrative: Believes the Western Haynesville opportunity is "light years ahead" of the Haynesville core's early 2010s development phase due to superior inventory thickness (1,500–2,000 ft pay vs. 200 ft) and existing LNG infrastructure.

Miscellaneous:

• SOCAR Marketing: SOCAR is acquiring U.S. production for its global LNG trading; Comstock has optionality to follow this path once the economic framework is finalized over the next year.
• Drilling Efficiency: Legacy Haynesville benchmark well costs averaged $634/ft (drilling) and $715/ft (completion) in Q3 2026. Western Haynesville costs were higher ($1,934/ft drilling) but trending down with rig upgrades.
• Partnership Dynamics: SOCAR's stake in Western Haynesville is temporary (5-year term with return hurdles), designed to align long-term performance while providing upfront capital to Comstock.