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

Financial Performance:

• Q3 2026 production averaged 1.3 BCFE/d, up 9% year-over-year and 8% sequentially.
• Oil and gas sales (hedged) reached $359 million in Q3; EBITDAX was $266 million.
• Generated $208 million in cash flow ($0.71/share) pre-working capital changes; $588 million YTD ($2.02/share).
• Reported net income of $22 million ($0.08/share), including a $35 million unrealized hedge gain; adjusted net income was $6 million ($0.02/share).
• YTD adjusted net income was $54 million ($0.18/share), excluding a $119 million unrealized hedge gain.
• Operating costs averaged $0.80/MCFE in Q3; EBITDAX margin was 73%.
• Realized gas price averaged $2.61/MCFE (59% hedged); basis differentials were roughly 32-34 cents below NYMEX.
• Ended Q3 with $800 million in upstream borrowings; leverage ratio stood at 3.2x.

Guidance and Future Outlook:

• Projected to generate free cash flow in Q4 2026 driven by the Jerry Jones drilling venture.
• 2026 Western Hainesville outlook: 19 wells drilled, 20 wells turned to sales.
• 2027 Legacy Hainesville outlook: 52 wells drilled, 45 wells turned to sales.
• Long-term goal: Reduce net debt to ~$1.7 billion (post-SOCAR close) and target leverage below 1.5x before considering dividend reinstatement.
• Anticipates natural gas undersupply by 2029, with LNG demand growing to 35 BCF/d by 2032.
• Plans to upgrade two additional rigs to 10,000 PSI capability in Q2 2027 to further improve drilling efficiency.

Business Segments and Product Lines:

• Upstream: Operates 4 rigs in Legacy Hainesville and 5 in Western Hainesville; total net acreage of 1.08M gross (809k net).
• Midstream: Owns Pinnacle Gas Service (PGS), which supplies the upcoming Anderson County Power Hub (1 GW initial, 5.2 GW long-term target).
• Drilling Programs: Implemented "Big Hole" lateral design in Western Hainesville (4th well) and "Horseshoe" wells in Legacy Hainesville (avg IP 29 MMcf/d).
• Partnerships: Executed definitive agreement for SOCAR to acquire 20% Legacy, 15% Western Hainesville, and 15% PGS interests for $1.65 billion; closed "Jerry Jones" drilling venture for 27 wells to fund ~$450M capex.
• Well Performance: Average lateral lengths in Legacy Hainesville exceeded 11,500 feet; Western Hainesville averages ~8,600-10,100 feet depending on the quarter.

Market and Competitive Landscape:

• Positioned as a partner for global LNG markets via SOCAR's marketing platform and access to European export opportunities.
• Capitalizing on the "Anderson County Power Hub" federal project for direct long-term gas sales to power generators.
• Management views the Western Hainesville inventory as distinct from the historical "Core" Haynesville, citing superior resource rock quality (1,500-2,000 ft pay vs. 200 ft) and de-risked development.
• Competitors are reportedly less equipped regarding scale, balance sheet strength, and LNG infrastructure alignment compared to Comstock.

Risks and Challenges:

• Inflation: 2026 costs saw 8-10% inflation, primarily driven by diesel prices; management expects costs to flatten or retreat slightly in 2027.
• Development Stage: Western Hainesville costs are currently higher than Legacy due to shorter laterals and single-well pad efficiency; costs expected to decrease as laterals extend to 15,000+ feet.
• Uncertainty: Market volatility regarding gas prices and potential political impacts on energy policy (elections).
• Execution Risk: Need to validate repeatability of "Big Hole" and larger frac designs (5,000-6,000 lbs/ft) to ensure EUR uplift.

Management Commentary and Tone:

• Tone is highly confident, emphasizing strong operational momentum, successful partnership execution, and long-term strategic alignment.
• CEO Jay Ellison highlighted the "winning team" of strategic partners (Jones Family, SOCAR, NextEra, Sixth Street) as a key differentiator.
• Management expressed unwavering faith in the asset's value and the inevitability of future natural gas demand for power and LNG.
• Emphasized responsible capital discipline, targeting leverage reduction before shareholder returns.

Analyst Questions and Answers:

• Big Hole Design: Confirmed as repeatable and preferred for the majority of future wells; crossover point for optimal design estimated between 10,000-11,000 feet laterals.
• Completion Design: Larger fracs (5k-6k lbs/ft) justified by incremental EURs; early data suggests >10% EUR improvement.
• SOCAR Marketing: Specific offtake deals still being developed; SOCAR aims to buy production to support its LNG trade; Comstock will have optionality to follow.
• Western Hainesville Costs: Higher current costs attributed to shorter laterals and early-stage development; expected to converge with Legacy levels as efficiency improves and laterals extend.
• Dividend Policy: No immediate reinstatement; dividend return contingent on maintaining leverage below 1.5x and sustained favorable gas prices.
• Power Hub: Anderson County Hub phase 1 is 1 GW (production starts early 2028); long-term plan is 5.2 GW.

Other Key Points:

• The SOCAR transaction is expected to close by year-end 2026, utilizing proceeds to repay ~50% of outstanding debt.
• Drilling efficiency in Legacy Hainesville improved 14% (ft/day) in Q3 2026 compared to Q2.
• Western Hainesville completed its second "Big Hole" lateral in the Hainesville formation with expected results.
• Management plans to deploy a 10,000 PSI rig in the Western Hainesville immediately to reduce drilling days.
• The company has secured over 1 billion in equity investment from the Jones family since 2018.