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Analyst Blog

Independent oil and gas exploration and production company, Comstock Resources, Inc. (CRK - Free Report) recently entered into an agreement with a third party to divest its conventional natural gas properties in South Texas for $28 million. The identity of the buyer has been kept under wraps.

The sale is expected to close in December and will have an effective date of Aug 1, 2016. The proceeds from the sale will be earmarked for drilling activities in Haynesville Shale, where the company has restarted operations, and for other similar projects.

This sale is expected to include properties with a production capacity of 9.6 MMcf/d of gas and 22 b/d of oil. Comstock is likely to realize a pre-tax loss of approximately $10.0 million due to the deal. Moreover, this divestiture is expected to strengthen the financials of the company by providing additional liquidity and will also help in funding the company’s Haynesville shale drilling program.

Frisco, TX-based Comstock is engaged in the acquisition, exploration, and development of oil and gas properties. The company’s operations are concentrated primarily in two regions in the U.S. – East Texas/North Louisiana and South Texas.

Recently, the company announced its plans to add a second operated drilling rig by early November. This apart, Comstock began hedging for 2017 with the recent improvement in natural gas prices. The company has so far hedged 30 MMcf/d of 2017 natural gas production at $3.25/MMBtu.

COMSTOCK RESOUR Price

 

Given that natural gas has recovered significantly from the 17-year lows the commodity slipped to in March, we believe that the company is poised to achieve significant share price appreciation. Thus, the company remains well positioned to maintain a strong growth trajectory in the near-to-medium term.

Comstock currently carries a Zacks Rank #2 (Buy), which implies that the stock will outperform the broader U.S. equity market over the next one to three months.

Some better-ranked players in the broader energy sector include W&T Offshore Inc. (WTI - Free Report) , Ultra Petroleum Corp. (UPLMQ - Free Report) and CONE Midstream Partners LP (CNNX - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last four quarters, W&T Offshore posted an average positive earnings surprise of 23.63%.

Ultra Petroleum, on the other hand, posted an average positive earnings surprise of 65.91% in the last four quarters.

In the current quarter, CONE Midstream Partners posted a positive earnings surprise of 19.38%.

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