Comstock Q3 Production Rises 9% as SOCAR Deal Targets Debt Cut

Comstock Resources (CRK) reported a 9% year-over-year increase in third-quarter production and outlined a $1.65 billion asset transaction with SOCAR that is expected to cut its debt roughly in half. The natural gas producer also said a separate $450 million drilling venture should allow it to generate free cash flow in the fourth quarter while continuing to develop its Haynesville acreage.

Production increased 9% from the third quarter of 2025 and 8% from the second quarter of 2026, driven by Comstock’s drilling program. Natural gas and oil sales, including realized hedging gains and losses, totaled $359 million for the quarter.

Cash flow from operating activities was $180.2 million, up from $153.1 million a year earlier. Operating cash flow before working-capital changes rose to $208.0 million, or $0.71 per share, from $190.4 million. Adjusted EBITDAX increased to $266.5 million from $249.1 million.

Adjusted net income, however, declined to $5.9 million, or $0.02 per share, from $20.9 million, or $0.07 per share, in the prior-year quarter. For the first nine months of 2026, adjusted net income was $53.6 million compared with $103.0 million a year earlier, while adjusted EBITDAX was $762.6 million versus $801.9 million.

Comstock realized an average natural gas price of $2.61 per Mcf before hedging in the third quarter, compared with $2.75 a year earlier and $2.54 in the second quarter. The realized price after hedging was $2.93 per Mcf, down from $2.99 a year earlier and unchanged sequentially. About 59% of third-quarter gas production was hedged.

Drilling Lifts Haynesville Production

Comstock turned 16 operated Legacy Haynesville wells to sales during the quarter. Those wells had an average lateral length of 10,812 feet and an average initial production rate of 25 MMcf per day per well; six used a horseshoe design.

The company also turned six Western Haynesville wells to sales, with an average lateral length of 9,829 feet and an average initial production rate of 33 MMcf per day. Comstock’s year-to-date Western Haynesville results included 17 operated wells with an average initial rate of 31 MMcf per day.

Third-quarter drilling and completion spending totaled $382.9 million, bringing the nine-month total to $1.12 billion. Comstock said its primary operating objective remains the delineation and development of its 547,000 net acres in the Western Haynesville. It has five operated rigs working there and four operated rigs in the Legacy Haynesville.

The company expects to drill 19 Western Haynesville wells and turn 20 to sales during 2026. In the Legacy Haynesville, it expects to drill 52 wells and turn 45 to sales. Management said drilling efficiencies and completion-design changes are expected to support productivity and reduce drilling and completion costs.

SOCAR Transaction Set to Reduce Leverage

Comstock signed a definitive purchase and sale agreement with SOCAR on November 4. Under the agreement, SOCAR will pay $1.65 billion in cash, subject to customary adjustments, for a 20% non-operated working interest in Comstock’s Legacy Haynesville assets, a 15% interest in its Western Haynesville assets and 15% of Comstock’s 73% ownership interest in Pinnacle Gas Services.

Comstock will remain the operator. SOCAR’s Western Haynesville interest is structured to decline to 7.5% after five years and once SOCAR has achieved a 15% return on its investment in those assets. The companies also plan to participate jointly in further Haynesville leasing and acquisitions, while SOCAR is expected to offer future LNG marketing opportunities to Comstock.

The transaction has an effective date of July 1, 2026, and is expected to close by the end of 2026. Comstock plans to use the proceeds to repay debt. On a pro forma basis, total debt would fall to about $1.70 billion from $3.39 billion as of September 30, while total net debt to last-12-month EBITDAX would decline to 2.0 times from 3.2 times. Pro forma liquidity would rise to approximately $1.56 billion from $869 million.

The maturity of Comstock’s upstream revolving credit facility has been extended to November 15, 2028. Following completion of the SOCAR transaction and the planned debt repayment, the maturity is expected to extend further to November 15, 2031.

Separately, Comstock entered a drilling venture with Arkoma III, a partnership owned by the family of majority stockholder Jerry Jones. Beginning September 1, Arkoma III agreed to fund the drilling and completion costs for 85% of 18 Western Haynesville wells and 80% of nine Legacy Haynesville wells. The venture is expected to fund about $300 million of capital expenditures in 2026 and another $150 million in 2027.

Comstock had spent $180 million on the wells before the venture began and will recover that amount from the initial net revenue. Arkoma III will then receive net revenue until it recovers its costs and earns a 15% return, after which 50% of the well interests will revert to Comstock. The company said the structure should support fourth-quarter free cash flow while maintaining development activity.

Fourth-Quarter Guidance and Risks

Comstock guided to fourth-quarter production of 1,375 MMcfe to 1,500 MMcfe per day and total capital expenditures of $125 million to $225 million. Its guidance also includes $15 million to $25 million for Pinnacle Gas Services. Cash interest expense is expected to be between $57 million and $60 million.

The outlook remains sensitive to natural gas and oil prices, well decline assumptions, drilling results and operating performance. Comstock also identified liquidity and debt-related risks, regulatory and political developments, and uncertainty in reserve estimates as factors that could cause actual results to differ from its forecasts.