Comstock Resources Bets Big on Haynesville Growth

Comstock Resources ((CRK)) has held its Q1 earnings call. Read on for the main highlights of the call.

Comstock Resources’ latest earnings call struck a cautiously upbeat tone, with management highlighting strong drilling results, a deep Western Haynesville inventory and ample liquidity as the foundation for long‑term value. Short‑term headwinds from weather, pricing and higher unit costs were acknowledged but framed as temporary and manageable rather than structural.

Solid Cash Generation Despite Headwinds

Comstock reported Q1 natural gas and oil sales of $339 million, generating operating cash flow of $192 million, or $0.66 per share. Adjusted EBITDAX reached $251 million and adjusted net income was $44 million, or $0.15 per share, while reported net income of $107 million included a sizable unrealized hedge gain.

High-Rate Wells Point to Production Rebound

The company turned 13 wells to sales in the quarter, with an impressive average initial production rate of 31 MMcf per day. Management expects these strong well results, combined with late‑quarter ramp‑ups, to drive a roughly 13–15% increase in Q2 production and support growth over the rest of 2026.

Vast Western Haynesville Inventory Underpins Growth

Comstock emphasized its large Western Haynesville position within an 874,868‑gross‑acre footprint, now exceeding 540,000 net acres in the west alone. The company outlined more than 3,300 gross Western locations plus a sizable legacy inventory, noting that over 80% of operated locations support laterals longer than 8,500 feet.

NextEra Power Hub Could Be a Game Changer

A centerpiece of the call was the U.S. Department of Commerce’s selection of Comstock’s Western Haynesville site for a 5.2 GW gas‑fired power hub to be built by NextEra. Comstock would supply fuel to this facility, which could eventually require close to 1 Bcf per day, creating a potentially transformative long‑term demand anchor near its acreage.

Heavy Capital Deployment and Growing Scale

The company spent $343 million on drilling and completions in Q1 as it drilled 17 wells and turned 13 to sales, signaling an aggressive development posture. Comstock is running three frac fleets and plans to add a fourth, underscoring its push to scale operations across both legacy and Western Haynesville positions.

Efficiency Gains Offset Some Cost Pressures

Legacy drilling performance improved, with long‑lateral wells now reaching total depth in about 26 days and averaging 921 feet per day, a modest gain versus last year. While legacy drilling costs per foot ticked higher, completion costs fell roughly 9% quarter‑over‑quarter, suggesting service and design efficiencies are starting to flow through.

Balance Sheet Remains a Strategic Cushion

Management stressed that the company’s financial position gives it room to navigate gas‑price volatility while continuing to invest. Liquidity stood at about $1.3 billion at quarter‑end, supported by a $2.0 billion borrowing base and modest upstream borrowings, resulting in a leverage ratio under 3 times.

Horseshoe Wells Promise Meaningful Cost Savings

A key innovation is the “horseshoe” well design, which links two short laterals into a single longer lateral to cut costs. Early results, including a 41 MMcf per day IP at the Camp Tech well and roughly 35% drilling cost savings versus two separate laterals, have encouraged Comstock to plan 16 such wells in 2026.

Weather-Driven Output Decline Distorts Q1 Metrics

Average Q1 production of 1.1 Bcfe per day fell below last year and internal plans, as winter storms forced shut‑ins across the system. The lower volumes not only reduced revenue but also inflated per‑unit cost and margin metrics, making the quarter look weaker than underlying well performance suggests.

Basis and Hedges Weigh on Realized Pricing

Despite a strong benchmark environment, Comstock realized an average gas price of $4.27 per Mcf before hedges, reflecting a sizable basis discount versus Henry Hub. With about 72% of volumes hedged, realized prices slipped to around the mid‑$3 range, and buying replacement gas during weather outages further pressured margins.

Operating Costs Rise on Lower Volumes

Operating costs climbed to $0.93 per Mcfe, up $0.16 from Q4, as lower production spread fixed and semi‑fixed costs over fewer units. Lifting and G&A costs each increased while taxes and gathering fees also rose, though the company still delivered a robust 73% EBITDAX margin for the quarter.

Western Haynesville Still Working Through Variability

In the Western Haynesville, wells took longer to drill and cost more per foot than legacy locations, with completions similarly elevated. Management attributed this variability to greater vertical depth, challenging temperatures and diverse lateral lengths but framed the area as early‑stage with significant optimization potential.

Water-Heavy Wells Highlight Technical Challenges

Several newer wells, notably Hutter Rodell and Brown TrueHeart, underperformed initial production expectations due to high water volumes during flowback. Executives said these issues stem in part from uphill wellbores and deeper target depths and are being addressed through design changes and more conservative drawdown strategies.

Short-Term Cash Burn Tests Investor Nerves

The combination of heavy spending and muted production means Comstock is currently outspending cash flow, which management acknowledged could strain investor patience. Still, the company ruled out near‑term M&A or equity issuance and framed the current phase as a deliberate investment cycle to prove up its vast inventory.

High Spending in a Weak Quarter Skews Optics

With $343 million in drilling and completion spending against lower volumes, unit metrics looked worse than investors might prefer. Management argued that this is a timing issue tied to when wells are brought online and said the returns on these investments will become clearer as 2026 progresses.

Guidance Points to Rebound and Long-Term Demand

Looking ahead, Comstock expects production to rise roughly 13–15% in Q2 and remain stronger through 2026 as more wells come online and four frac fleets and nine rigs stay active. Management plans to continue a sizable development program while protecting liquidity, optimizing completions with bigger fracs and more cautious drawdown and positioning for future demand from the planned 5.2 GW power hub.

Comstock’s call painted a picture of a company in an investment‑heavy phase, accepting short‑term pain on costs and cash flow to unlock a large, strategically located gas resource. For investors, the key takeaway is whether the promised production growth, efficiency gains and new demand sources can ultimately validate today’s elevated spending and volatility.