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

Explicit Guidance:

• 2026 Western Haynesville Activity: Expect to drill 19 wells and turn 20 wells to sales.
• 2027 Western Haynesville Activity: No explicit 2027 drilling count given, but management expects drilling efficiencies to continue driving productivity.
• 2027 Legacy Haynesville Activity: Expect to drill 52 wells and turn 45 wells to sales.
• 2026 Capital Expenditures (Jones Venture): $300 million funded by Arcoma III for 27 wells; $150 million additional funding in 2027.
• 2027 Capital Expenditures (Jones Venture): $150 million additional funding from Arcoma III on 27 wells.
• 2026 Free Cash Flow: Anticipated generation in Q4 2026 due to the Jones drilling venture structure.
• 2027 Balance Sheet Targets: Pro forma net debt of approximately $1.7 billion post-SOCAR deal; target leverage ratio below 1.5x.
• Dividend Policy: No immediate dividend reinstatement; will be considered only after maintaining leverage below 1.5x, achieving top strategic priorities (Western Haynesville development, midstream support), and in a favorable gas price environment.

Business-Segment Outlook:

• Western Haynesville: Positioning for long-term growth driven by natural gas demand; 547,000 net acres under development; 5 operated rigs deployed (up from 4) to support delineation; goal to transition from "HBP" (holdback) drilling to "value-driven" infill development in 2027 to lower costs and increase productivity.
• Legacy Haynesville: 4 operated rigs deployed to support production growth in 2026-2027; 899 gross operated locations (78% WI); average lateral length trending longer (15,000+ feet) to reduce costs per MCFE.
• Midstream (Pinnacle Gas Service): Supporting the Anderson County Power Generation Hub; initial capacity of 1 GW with long-term potential of 5.2–5.3 GW; gas supply contracts expected to begin early 2028, strengthening through late 2028.
• Productivity & Technology: Transitioning to "big hole" lateral designs (repeatability expected for majority of future wells); adoption of 10,000 PSI rigs (first in Western Haynesville end of current month) with two more rigs upgrading in Q2 2027; expectation for 20,000 PSI fleets in the future to further reduce costs.
• Completion Design: Standardizing on 5,000–6,000 lbs of proppant per foot (up from 4,000) to drive incremental EURs; expectation of 10%+ EUR improvement with larger fracs.

Market and Competitive Outlook:

• Demand Trends: Anticipated natural gas undersupply by 2029; LNG demand projected to grow from 20 BCF/day currently to 35 BCF/day by 2032; additional 12 BCF/day required to power data center turbines.
• Pricing & Marketing: Significant margin opportunity via international LNG markets; focus on securing long-term supply agreements with power generators (e.g., Anderson County hub) to capture premiums over domestic spot prices.
• Competitive Position: SOCAR partnership validates asset quality and provides access to global LNG marketing; Jones family and SOCAR alignment creates a "winning team" for long-term development; unique advantage in having a full value chain (production, midstream, and international marketing access).
• Cost Trends: DNC costs in Western Haynesville are currently higher than Legacy (approx. 2x) due to shorter laterals and early development stage; costs expected to decline significantly with longer laterals (15,000+ ft), infill drilling, and higher power rigs.

Macro / Industry Outlook:

• Commodity Prices: Management views natural gas prices favorably for the future; break-even price currently estimated in the $35–$40 range for 10,000-foot laterals in Western Haynesville; expects break-even to potentially decrease as performance improves.
• Inflation & Costs: Experienced 8–10% cost inflation in Q3 2026 (driven largely by diesel); expecting costs to flatten in Q4 and potentially retreat in 2027.
• Regulatory/Policy: Mention of federal government involvement in the Anderson County power generation hub; political election impacts noted as an unknown variable for cost trajectories.
• Interest Rates/FX: No specific macro commentary beyond general balance sheet management; primary focus on debt reduction and liquidity.

Strategic Initiatives:

• SOCAR Transaction: Definitive agreement signed Nov 9, 2026; $1.65 billion divestiture for 20% Legacy Haynesville, 15% Western Haynesville, and 15% Pinnacle Gas Service; expected to close by year-end 2026; proceeds used for debt repayment.
• Jones Family Venture: Entered Sept 1, 2026; Arcoma III (Jones family) funds 85% of 18 Western Haynesville wells and 80% of 9 Legacy Haynesville wells; Comstock recovers pre-venture costs first, then splits 50/50 until 15% IRR is achieved for Arcoma III, after which interest reverts to Comstock.
• Credit Facility Extension: Maturity extended to November 2028; further extension to November 2031 upon SOCAR transaction closing.
• Rig Upgrades: First 10,000 PSI rig deployment in Western Haynesville end of current month; two additional rigs to be upgraded in Q2 2027.
• Drilling Techniques: Continued deployment of rotary steerable technology; exploration of 10,000 PSI rigs to improve motor efficiency and ROP; plan to drill more "big hole" laterals for better steering and longer runs.

Risks and Headwinds to Outlook:

• Cost Inflation: Diesel and service costs remain a risk, though management expects them to flatten or retreat.
• Technical Execution: "Big hole" design requires more data to pinpoint the exact lateral length crossover point with standard designs; drilling speeds in Western Haynesville currently lag Legacy due to harder rock and shorter laterals.
• Completion Economics: Higher proppant loading (12% increase) and service costs temporarily increased completion costs in Q3; requires sufficient EUR uplift to justify.
• Market Volatility: Natural gas pricing and basis differentials could impact realized prices; future LNG off-take terms not yet fully finalized (expected to take a year to settle).
• Debt & Liquidity: Balance sheet strength depends on the timely closing of the SOCAR transaction; dividend reinstatement is conditional on maintaining leverage <1.5x and favorable market conditions.
• Regulatory/Political: Election outcomes could impact cost trajectories and regulatory environments.

Management Tone on the Future:

• Confidence: Highly confident in the "sweet spot" of the Western Haynesville asset base and the demand outlook (LNG + data centers); describes the partnership structure with Jones, SOCAR, and Sixth Street as a "winning team."
• Long-Term Focus: Emphasis on "forever partner" status with SOCAR and long-term capital allocation over short-term returns; priority on de-risking the Western Haynesville asset.
• Hedging/Caveats: Acknowledges that "more data" is needed to fully validate the big hole design repeatability and exact EUR uplift, but early data is "super pleasing."
• Strategic Shift: Transitioning from a pure acreage-holding strategy (HBP) to a development-focused strategy with infill drilling to capture cost synergies and operational learning.

Miscellaneous:

• Horseshoe Program: 17 wells turned to sales with average IP of 29 MMcf/day; 108 remaining horseshoe locations; average lateral length recently reached 13,518 feet.
• HBP Program: With 9 rigs now active, management can drill infill development wells alongside HBP wells, leading to material cost savings in 2027.
• Partnership Returns: SOCAR's 15% interest in Western Haynesville reduces to 7.5% after 5 years and upon achieving 15% return, increasing Comstock's participation to 92.5%.
• Anderson County Hub: Gas supply contracts for the 1-5.2 GW power hub will begin early 2028; Comstock's midstream arm is currently constructing necessary facilities.