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Domestic energy explorer, Comstock Resources Inc. (CRK - Analyst Report) reported third quarter adjusted loss per share (from continuing operations) of 40 cents, wider than the Zacks Consensus Estimate of a loss of 30 cents, primarily due to a drop in natural gas output amid  lower drilling activity in the Haynesville and Bossier wells.

Following the disappointing results announced after market hours on Monday, Nov 4, shares of the natural gas-focused exploration and production company opened at $17.40 on Nov 5 – down as much as 6.5% from the previous close. The stock price fell further, settling at $17.14, when the market closed yesterday.

However, Comstock’s performance improved from the year-ago quarter adjusted loss of 73 cents per share. The tapered loss could be attributable to higher realized prices and the company’s increased focus on oil production that offers lucrative returns compared to natural gas.

Total revenue increased 14.9% year over year to $111.6 million amid higher price realizations and declining operating costs. However, it failed to beat the Zacks Consensus Estimate of $113.0 million.

Volume Analysis

Comstock’s quarterly volume contracted 24.2% year over year to 17.4 billion cubic feet equivalent (Bcfe), of which 78.2% was natural gas. The downtrend reflects output shrinkage from its East Texas/North Louisiana operations that comprised most of the total volume.

Production in the East Texas/North Louisiana operating region decreased 35.5% year over year to 11.5 Bcfe (99.1% gas). Output from the South Texas and Other properties came in at approximately 5.5 Bcfe and 0.4 Bcfe, respectively.

Price Realizations

Average oil price realization (before hedging) was $104.83 per barrel (versus $99.34 per barrel in the third quarter of 2012) and average natural gas realization was $3.33 per thousand cubic feet/Mcf (compared with $2.43 per Mcf in the year-earlier quarter).

Costs & Expenses

Gathering and transportation costs came in at $4.5 million, representing a decline of 25.8% from the year-ago quarter. Lease operating cost of approximately $13.0 million was almost flat year over year. Total operating expenses decreased 4.2% from the third quarter of 2012 to $120.7 million.

Cash Flow & EBITDAX

Comstock generated operating cash flow from continuing operations of $62.9 million in the reported quarter against $59.7 million in the year-earlier quarter. EBITDAX (earnings before interest, taxes, depreciation, depletion, amortization, exploration expense and other non-cash expenses) from continuing operations were $81.8 million, up 11.0% year over year.

Share Repurchase

During the reported quarter, Comstock repurchased 631,096 shares (1.3% of the outstanding shares) at $14.63 per share.  

Capital Expenditure & Balance Sheet

During the third quarter, Comstock spent $104.2 million on development drilling activities. For the full year, the company plans to spend $345 million in drilling 51.6 net wells. Comstock’s full-year plans also include an expenditure of $140 million for the purchase of additional properties in the developing oil rich plays.

As of Sep 30, 2013, Comstock had approximately $228.4 million in cash and cash equivalents and $688.3 million in long-term debt. The debt-to-capitalization ratio at the end of the quarter was approximately 41.0%.

Outlook

Comstock plans to shift to more oil-focused production as natural gas prices remain weak. The company expects oil to comprise 20% of the total production during 2013 and plans to increase it to around 40% by the end of 2014. Moreover, 96% of the 2013 budget is expected to be spent on oil-related projects.

Zacks Rating

Comstock currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider other oil and gas exploration and production firms like Memorial Production Partners LP (MEMP - Snapshot Report), VOC Energy Trust (VOC - Snapshot Report) and Clayton Williams Energy Inc. (CWEI - Snapshot Report) as attractive investment opportunities. All the firms sport a Zacks Rank #1 (Strong Buy).
 

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