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Domestic energy explorer Comstock Resources Inc. (CRK - Analyst Report) has entered into an agreement to sell off its oil and gas properties in Reeves and Gaines counties in West Texas. The assets were sold to Houston-based oil and natural gas producer Rosetta Resources Inc. (ROSE - Snapshot Report) for $768 million.

The sale – with an effective date of Jan 1, 2013 – is likely to close on May 15. Comstock plans to use the proceeds to pay off its outstanding debt and to increase its 2013 drilling fund for the Eagle Ford shale.

Comstock also revised its capital spending budget for 2013 to reflect the above divestiture and an increase in drilling activity in its Eagle Ford shale in South Texas. This year, Comstock plans to spend $422 million, which includes $410 million on drilling activities and $12 million on exploratory leasehold.

Comstock will drill 82 wells in its current operations in South Texas and East Texas/North Louisiana for about $347 million. Of this, Comstock will spend $312 million in the Eagle Ford shale, where it plans to drill 72 wells. The remainder will be used for Comstock’s natural gas properties mainly in East Texas and North Louisiana.

Comstock further informed that it is increasing the number of rigs to be drilled to 6 from 3 in South Texas during the second half of 2013.

Comstock carries a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next 1 to 3 months.

Comstock’s high natural gas exposure raises its sensitivity to gas price fluctuations, compared to its more-diversified independent peers with a balanced oil/gas production profile. The company, which derives bulk of its reserves/production from natural gas, has seen its sales and income drop drastically in recent quarters on the back of a sharp drop in gas prices.

Following Comstock’s debt-financed acquisition of producing properties and acreage in the Delaware Basin, we remain worried about its incremental leverage and reduction of liquidity.

However, there are certain other energy explorers like EPL Oil & Gas, Inc. and Range Resources Corp. (RRC - Analyst Report) that offer tremendous value and are worth buying now. Both these entities sport a Zacks Rank #1 (Strong Buy).

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