Ladies and gentlemen, thank you for standing by and welcome to the Comstock Resources Inc. Third Quarter 2019 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference to your speaker today, Jay Allison, Chief Executive Officer.

It's a rainy day in Dallas. So it's a good day to have an earnings call straight out like that. 21 months ago, where Jerry Jones reached out to Comstock, he saw something. Over the last 21 months, our goal has been to be the lowcost producer and have the highest margins at the same time right-sizing. The company have to be competitive in the new era of energy that we're in. The corporate report we gave you today is a good marker to where 209 employees of Comstock have taken the company in a very short timeframe. We will report today on a company that we bought for all stock during the last quarter, which is a nice positive statement towards our consolidation goal, our quality assets with no added leverage. The energy sector needs this type of freshness in the company that focuses on less corporate over add, zeros in on shareholder's return and honors those that have provided financing. I can assure you that Jerry Jones who owns 75% of Comstock, continues to use his time, talent and money to continue to create the company, you are compelled to own a piece of and support. Thank you for joining us today. We never take your time for granted. Welcome to the Comstock Resources Third Quarter 2019 Financial and Operating Results Conference Call. Today we will review our third quarter 2019 earnings and drilling results as well as update you on our acquisition of Covey Park Energy, which was closed on July, 16. You can view a slide presentation during or after this call by going to our website at www.comstockresources.com and downloading the quarterly results presentation. There you'll find a presentation titled Third Quarter 2019 Results. I'm Jay Allison, Chief Executive Officer of Comstock and with me…

On Slide 6, we show the combined Haynevilles/Bossier production of both Comstock and Covey Park. Third-quarter combined production of 1.1 billion cubic feet per day, has increased 34% from where the two companies were in the third quarter of 2018. Production was relatively flat on a combined basis in the second quarter rate. It has only turned 8.6 net wells to sales during the third quarter after adding 14.2 net wells in the second quarter and 18.2 net wells in the first quarter this year. However in the fourth quarter, we expect our Haynevilles/Bossier production to increase over 10% of the third quarter rate as we currently expect to put 19 more net wells on production before the end of this year. Slide 7 recaps the production we had set in for the quarter and we are pleased to say that our third quarter shut-in volumes decreased to 3% as compared to 4% we had in the second quarter of this year. Substantially all the shut-ins were due to offset frac activity. On Slide 8, we detail our producing cost per Mcfe. Our operating cost per Mcfe failed to $0.59 for the third quarter as compared to the second-quarter rate of $0.68 and that was all due to the Covey Park acquisition. Our gathering cost averaged $0.23. Production taxes averaged $0.07 and the overall field-level operating costs were $0.29 per unit of production. We expect to continue to improve our gathering costs with new contracts that we've negotiated or are currently negotiating and we also expect to see additional efficiencies in our field-level operating costs as we continue to integrate the Covey Park operations into Comstock. On Slide 9, we detail our corporate overhead per Mcfe. Our G&A cost per Mcfe fell to $0.07 in the third quarter as compared…

If you flip over on Slide 18, you'll see the new acreage map, which highlights on this 309,00 net acres position, which is a result of the Covey Park acquisition and our small recent bolt-on acquisition that closed on November 1. Since reentering the play in 2015, we, including Covey Park now drilled and completed 201 operated wells with an average IP rate of 23 million cubic feet a day. To-date in 2019, we have drilled 41 gross operated wells and plan to drill a total of 65 operated wells by year-end with an average lateral length of approximately 8,000 feet. These wells have been and they continue to be very successful. On Slide 19, this is a locator map showing where we have our focus of activities since our last call. Since the last date, we have now turned an additional 23 wells to sales. As you can see, the majority of the activities is going to concentrate mostly up in the northern portion of our acreage. All but one of 23 wells were drilled as long laterals with the completed links ranging from 5,450 feet up to 11,361 feet with an average lateral length of 9,343 feet. The wells were completed with sand loadings ranging from 3,000 pounds per foot to 3,800 pounds per foot and a cluster spacing ranging from 15 feet to 40 feet. The average jobs saw for all the wells was 3,550 pounds per foot and 21 foot cluster spacing. The initial production rates range from 19 million cubic feet per day up to 32 million cubic feet per day and with an average IP of 25 million cubic feet per day. We have about ten additional wells that are in the process of being completed. Over on the next slide, this illustrates the…

If you'll look at the 2020 outlook, turn to Slide 22, we'll summarize our outlook for 2020. It's pretty exciting, I mean, for the rest of this year, our primary focus is to complete the integration of Covey Park into Comstock. Our goal is to have this substantially completed by year-end and it is going, I must say, really well as I discussed earlier. We're confident that we'll deliver all these substantial values value-adding synergies of the combination of the two best Haynesville shale operators can offer. Our Haynesville drilling program continues to generate economic returns even in the low natural gas price environment that we live in today. Combined with Covey Park, Comstock now has the industry-leading low cost structure and natural gas well economics. The drilling program is delivering, as Dan said, production growth this year and we're sure to continue growth in 2020 despite a lower, intentional activity level. Our natural gas production is expected to average 1.25 Bcf per day to 1.45 Bcf per day in 2020 and our oil production is expected to average between 5,000 to 6,000 barrels per day in 2020. The conservative 2020 operating plan utilizing six operated rigs in the Haynesville that will prioritize free cash flow generation over production growth will be funded internally and will allow for a significant free cash generation. Despite the lower activity level, we still expect production to pro forma basis to grow 6% to 8% in 2020 as Roland told you earlier. And we will continue to maintain and active acreage program, targeting the next 12 months production it will be on. And lastly, we will protect our liquidity, which is currently $288 million and we'll look to enhance it with our non-core asset sales potentially and free cash flow generation so we can pay down our bank debt. Now for the rest of the call, I'll take the questions. I'll turn it back over to the operator and we'll take questions from analysts only and again, I'd like to iterate, I know there's three speakers on the call today, but there's 209 employees that make up this company and the board and you are backers. So with that, I'll turn it over for questions.

[Operator Instructions]. Our first question comes from Don McIntosh with Johnson Rice.

First off, congrats on the integration to Comstock and then it's pretty excited on that moving forward. First question comes with - seems like you're still active with bolt-on, I'm just wondering what that environment looks like in the Haynesville. Are there - is that a pretty good deal for all the smaller deals and then how are you all thinking about, maybe, larger acquisitions as you grow, going forward.

I think on the - all the acquisitions that we listed out; we've been in the Haynesville for [indiscernible]. We've got a lot of good will in the area. We got some companies that have reached out to us and we're very cautious on making sure that it's a good - but perhaps as you can see, that's a perfect footprint for us that we're involved in the wells - so that's why we might be buying and then we do add some acreage locations and particularly if there are extended laterals. We added about 13 extended laterals. This particular acquisition is something that probably we've been looking at, maybe for 4, 5 years. Even before the sector got revived back in '15, '16, '17 as for the Haynesville. So it was a great check. If you needed a company that we bought, so there - two or one people in the Haynesville area, in the seaport area, you'd be pleased if they gave us a big checkmark on stock. They know that we're trying to reduce our debt levels, we're committed to them to look at other acquisitions like this. I think there is some more of after that are this size that [Technical Difficulty] maybe we do some, maybe we don't. And then, as far as the larger ones, I mean, like in the opening statement, we are trying to be the company in this new area of energy, which means if we do have to have size, but at the same time, we have to continue to have our high margins at a lower cost. So I would expect in the future that you can see us continuing to take another step towards consolidating this basin, which I think we're the leader in. And it'll all make economic sense whether you're a bond owner or an equity owner or an employee. So I think you could go back to the Jerry Jones vision. Now is a rock in a tough market to have two or one asset if I make sense for the existing base of a great company we have, so you can expect us to be active.

And down that add that, we as we look at unit acquisitions, large or small, I mean, one of the criteria we're really looking at is to continue and improve the leverage. It's a really important goal for us, you know, it's obviously harder to reach with low gas prices, but to get our leverage under a few times is a major goal of the company, and so transaction, like Covey Park one or this one, I mean, they're all contributing to a better leverage profile, and we don't plan to use a lot of leverage to make acquisitions. We just want to make sure everybody's aware of that.

Yes, if you look at the last 21 months, every purchase we've made or consolidation we made has reduced our leverage. They've been transformed, and we become a basin later. But it has also given us our low cost structure and our oil economics, and you know, we have had and we're giving you today, I mean, we probably cut our budget for what 2020 would have looked like by $100 million. We plan on delivering these numbers with sort of operating plan, so, and it's really nice to be talking about free cash flow in a meaningful way, so we're not going to disrupt that at all.

Right. And that leads right into my next question. With your updated guidance, I don't have any trouble really getting to $200 million of free cash and so fair to assume that majority of that goes straight to the balance sheet and debt reduction or, you know, I guess, also on the tail off.

Yes. Our goal is to take that pay down our debt. We need to pay down our debt. If you look at all the metrics that we needed to be able to check the box on with Covey, and I mean, Covey was in an incredibly well nice feedback company. I mean, we checked the box on all of this, except our leverage. We do need to have leverage. Our goal is to get our leverage, you know, in the 2 less than 2 range. As soon as we can do that, as prudently as we can do that. We are making big strides on that. And I'm telling you, we're going make some more big strides on that. So, yes, it's going to pay down our debt.

Okay, great thanks. And then maybe one more for Dan. When you look at the impressive cost reduction Q4 2018 did, Q4 2019 down almost 20%, what have been some of the drivers and the service costs have come down quite a bit, but what are some of the other Leverage you all have pulled to further reduce your costs in the field?

I think the obviously the frac is always and will be the big the biggest one. You know, the materials, obviously, you know, with that have come down. We've forced the completion deficiencies. We've, kind of tweaked our designs a little bit. We're just trying to increase our cycle times less days on location. The less hours that you're pumping basically is how you achieve, you know, lower call structure with your service companies. And that's probably been really the other big thing that we've done, is just, we know, we're just pumping our jobs faster. Same amount of sand but we've been pumping less barrels.

Okay, great. Well, that's it from me and congrats on a great quarter, and, the integration of Covey Park, looking forward to the next quarter.

Thank you.

Our next question comes from Janet Chenoweth with Stifel. Your line is now open.

Good morning. And thanks for taking my questions. My first question is on natural gas pricing. So you previously talked about your intentions to sell more gas and bid rig pricing. Could you please update us on where you currently stand on that front?

Yes, the question Jane was one of our goals, it was to sell more in the mid-week or we call Index pricing. And I think we achieved that this quarter, moving almost 50-50 before to - we're really closer to 75% or so. And I think especially - with new six-rig program and a little bit less, you know, production growth, it'll be easier to do that. One of the reasons for, you know, selling in the daily market issue, not overselling your gas in mid-week and having flexibility if there's a delay and when new wells come on to sales. It'll be easier to get to a higher percentage with, especially in 2020, as the production growth rate is - comes down from the, you know, growing 20%-30% that it has over the last nine months to more of the 6% to 8% that we kind of see later on.

Okay, that's very helpful. A related question, so you guys have signed up for this Arcadian Expansion Project? It seems like it's scheduled for mid-2021, and correct me if I'm wrong, how should we be thinking about basis differentials for Comstock until that project is online? Should we be thinking like basis differentials being similar to 2019, any help would be appreciated.

The 2021, that's a good timeframe.

For service, the Gallis. And hopefully they'll beat that. But, you know, that's kind of what our expectations are. We already do have - we already before the expansion have a lot of gas in the system and we have a lot of gas that's priced on a Henry Hub basis versus a regional hub basis. So that helps out a lot. So they could - more than half our gases is priced at Gulf Coast Index, not the regional Perryville or Carthage Index. And then we're also undertaking some other measures to help – to protect us from volatility in those - in those hubs, including doing six-month sales directly to some of our purchasers where we're locking in that difference. I think as we look ahead, you know, we're comfortable with our overall new kind of weighted average differential being around 20 cents, and then as we get - hopefully as we get more and more capacity to sell directly to the Gulf Coast, we're nearing that, you know, in the future, to more of 15 cents, but I think as you look just before some of those options are open 20 cents, to maybe 23 cents. It's probably a good range for the differential.

That's perfect. Thank you so much. The last question, if I may, so looking at Slide 20, you obviously made the huge progress on digging and well costs, on the foot basis, I mean, could you maybe discuss how we should be thinking about well cost savings in 2020? On the foot basis as well?

And to give a benchmark before Dan answers. You know, we haven't budgeted. We've budgeted the numbers that you see in our presentation. You know, not at the real attractive members we achieved in the fourth quarter, but more, about 12, 25 per foot, just to give you a framework of what, so we have some cushion there, you know, as far as what we expect in the future. But hopefully, you know, Dan could lead that.

Yes, we're intentionally - because you don't know what'll happen in 2020, but we do have a bunch of work room and the numbers. Dan?

Yes. So Janet, we are going to continue to turn down slightly on those things that - as far as any big major cost reductions from the service companies, is not very likely. I mean, we'd pretty much get close to the bottom of the barrel with them, so, you know, you'll get a little bit there, but the rest of it will get from some proficiency gains. And, you know, we are going to look at, pumping some smaller jobs that will - that we think we can basically match our same well performance, which will help the rig rates. I think may inch down just a little bit more. We are - you know, I think the - just the time on location, we've basically seen that speed up. I think we'll continue to see that. I think - I think it will be a slight drop. I mean, we're already, you know, have seen several jobs that are lower than this 11.76 average. But, you know, we just need to basically do it consistently. And I think we could consistently match some of the numbers we've recently done. You know, this trend will continue to come down.

Thanks a lot. This is very helpful. Have a nice day.

Thank you, Jane.

Thank you. Our next question comes from Jeffrey Campbell with Tuohy Brothers. Your line is now open.

Good morning, Jay and Rolland and congratulations on getting that merger put together. You mentioned that you're being approached by other acreage owners. I was just wondering that some of these guys have Tier 1 acreage, but they realized that Comstock's a better operator, and that's part of a motivation to do a deal?

Well, you know, these costs are $11 million to drill a completed well, and again, we reported that we built 201 of these. So you know - it's kind of a big boy game now, and you got to have some size and even 21 months ago, that's why I said, it is a new era and I think if you can, connect yourself with the Comstock like this other private company did, and you could get the synergy and it lets - you can have the appreciation like Jerry Jones did. I mean, he owns like 138 million shares stock, and the only he way makes money is if the stock goes up. So he put his money where his mouth is, and he's a big giant equity owner. So I think they've done that. I think the Jerry Jones factor is you. I think the Jerry Jones factor is huge. I think he is totally there for us outside money. And he made his money to buy the Cowboys with oil and gas of money. So I think that synergy is very unusual. It's a depressed market. It's tier 1 well result, you can see that, and we kind of got a machine going - somebody that came in and recognized and oiled it. And I think we've got a lot of eyes here so that, you know, we've done you forever, never, never. You know, we need to perform. So, yes, I think there's a lot of opportunities out there. I think some will capitalize on and some will pass on. And like Rolland said, it's all about the leverage game now. It's not that we need, you know, more inventory. We have over 2000 locations, but we are, you know, we are leaning forward to seeing what we can do to become a better company, more the leverage, quicker. And yet at the same time, keep what we created. So, yes, I think, there's a lot of opportunities. The basin is still a stressed basin as you know.

Right. Looking at Slide 15. I was wondering, can you discuss to what extent the Arcadian pipeline insulates Comstock from the associated gas coming into the Gulf from the Permian?

Yes, Roland?

Well, sure. I think you look at Slide 15, you know, our major markets are probably, you know, in Louisiana side, and are as far as Permian, as you know, I think Permian Gas, you know, is going to be hitting the Gulf Coast mainly, kind of west of Houston, East of Houston, you know, there's not a lot of Gulf Coast connectivity, you know, to the Louisiana side of the market. And, you know, I think - I think the initiatives we've been taking – we obviously want to be first to market and direct a market, get to where the gas - as where is the new popular hub or where the LNG, Gulf of Mexico based chippers are going to be taking their gas, and so locking up direct transportation to it, pricing that at Gulf Coast Index, being first to market, having the lowest cost structure. That's how we think we insulate ourselves from the Permian producers. We think, though, that, you know, on the western side of the Gulf, you know, that's going to connect directly in more to the Permian.

Okay, great. And if I could sneak one last thing, I just - kind of looking at the M&A the other way around. The presentation noted that there's a potential for Comstock divestitures of noncore assets to help reduce the debt and enhance liquidity. So guess what? I'm kind of thinking here. First of all, are we talking about noncore acreage within the Haynesville or outside of the Haynesville, and second of all, can you get cash - can you make cash deals in this market? You know, bearing in mind that you're buying good acreage with stock, and it seems like M&A deals that generate cash are kind of feeling far between right now.

Yes, I would agree with that. I mean that we know that - yes, M&A market is very, very soft, and capital is very hard to come by, which was driving that softness and, we don't view the divestitures of the noncore properties as a core part of our de-levering. It's just that we're open to it, giving away properties, and we're not counting on a good market there. There are properties that we will never drill in our portfolio and there are people, - their party's chasing it, and, if they can beat our price, we'd exit. Yes, we would not want to focus on that as a major source of - because we think that relying on the capital market to the M&A market. You know, you don't want to be relying on those you know in this environment and we're not in our go-forward plans.

Yes. There are several kind of outreaches to us on two or three different properties that, you know, if they were to get a certain price that we're looking for, then we would divesture of that. But there are - if your ranking them core tier 1, 2, 3, tier 3, within our portfolio, these would be the tier 3. So we would get that value now. And we would - to pay down our bank debt. So we always had some divestitures potentials, if you've got a company this size.

I appreciate your clarifying that again congratulations on the quarter.

Yes. Thank you.

Thank you. Our next question comes from Sean Sneeden with Guggenheim. Your line is now open.

Good morning, guys. This is Julia [ph] in for Sean Sneeden. And, Roland, we were wondering how you guys are thinking about the fall redetermination. I know you guys went through one with a lower debt with the Covey Park field, but has debt got in materially worse? And how much of you shared with the group about free cash flow plans going forward?

Sure, that's a good question. We wish we were finished with the redetermination, but because our deal was a late deal, you know, relatively speaking and put in place in July, we are in the middle of redetermination, we are highly confident that we're going to keep the boring base, is going to be - remain exactly like it is now. It will have that wrapped up in a couple of weeks. And, despite the fact that the bank price decks are lower than they were in July, we added a lot of reserves. We had a lot of PDP reserves and also since the same time frame. And we feel like, you know, that the numbers are very comparable to what they looked at then using a lower price deck and combined with a good hedge book that we have. So we'd like to have it totally finished. We do have the major banks signed off, and we just have to finish the routine process. I think you'll find it; it will be – the boring base will remain exactly where it is.

Yes, we've not asked for an increase – it's a new facility. We're just asking to keep it here.

And we're not even electing to use all of it right now. So but we say even without not electing all of it, we don't see, - we see it remaining exactly the same.

That's great, guys. Thank you.

Thank you. Our next question comes from Gregg Brody with Bank of America. Your line is now open.

Good morning, guys and congrats on a great update. Just a couple of questions, coming back to the divestiture process that you're considering, I know you said, it's some noncore assets. Is there an actual number you're trying to target in terms of how much you'd like to divest to reduce bank debt? And then you talked about some on core properties. Is there anything else infrastructural wise that could potentially be monetized?

Yes, as far as other items that could be monetized. I think one of the reasons why we have the best in basin, gathering cost, and is because we haven't tried to monetize, you know, gathering assets at above market rates and create kind of off balance sheet debt. And we certainly don't do that as a good source of liquidity and not interested in doing anything that would - that would lower - that would jeopardize our cost structure. Because we think that's critical and low price times, just to be the very low cost operator, and that's what's making - that's what generates you know, good, proper results and very, very low gas prices that we have, so we really are looking at when we talked about divestitures, it's really properties, noncore properties, some we got in the merger, maybe some Comstock had that - will never ever see the drilling schedule, probably because there's so many things in front of it. And, you know, groups, you know, mainly it's reversed inquiry, it is not us marketing those. So we're not targeting a number. We're not at all and, you know, I think we recognize the weak market, and these companies that like to buy these assets, you know, have a hard time getting capital, so we're not trying to say that's a major part of our plans at all, but certainly we have those assets because we're not looking to give him away, either, because we don't think that really helps in the long run. So - but yes, the magnitude like we said before and this is no different than what, there's no new announcement there. We said this when we closed the Covey Park acquisition. I mean, the magnitude of those is, you know, in the $100 million to $200 million range, you know, kind of a haze review, if we could get them all done, and we may get none of them done. You know, in this week, in the M&A.

And several of these are carryovers from when you know Covey consolidated with Comstock, there are several properties that others wanted to buy that Covey had been talking to, which we put that on the shelf until the consolidation. And so those - now those parties are still looking at those assets. I thought something we started that we kind of inherited debt recovery. That's a good thing. And then as some of our properties have matured, we had, you know, some parties reach out to see if they could consolidate some of what we have with what they have, which would make them better, so that - that's the top things we're looking at. And it is, you know, $100 million to 200 million. You cannot count on a penny of it, and we won't give away any of it if the price is not right.

I appreciate you could be patient there, and then just you gave an update on the shut-in production on, you know, went up this porter because you're a bigger company now with Covey, What's the right way to think about that number going forward as to with the amount of production shut-in this quarter, kind of a good run rate, or was that high or low? Relative to what you think.

And if I was 100%, really, because, obviously, as long as you're active, you're going to have something shut in. I think 3% is a pretty good average run rate? We obviously look - we always looked to optimize that, you know, and, I don't know if we could get it to 2% and that'd be a goal, but 3% you know, we typically model 3% to 4% when we kind of look at our future. So we thought 3% was a great number.

We're very pleased with that number.

A reason why that qualities are bigger because you just counting Covey now. You know, they weren't in the numbers before.

I appreciate that very much. Thank you for the call guys and the time.

Yes. Thank you.

Thank you. I'm not showing any further questions at this time. I would not like to turn the call back over to Jay Allison for any further remarks.

Sure. Again, you know, we're always appreciative that you take the time to listen to the complete call. We're really working hard to deliver the construct that you want and that we've got a chance to deliver to you. And we do realize it's a new era of energy. We do realize we've got to get our costs down and keep them down like we have. We do realize we have to have these high margins, and we do realize there's some opportunities out there, and we have incredible backer, which is Jerry Jones to back us. So it's a pretty fortunate cycle that we're in, and we're thankful for that. And we're thankful for all of you who are either shareholders or bondholders or you provide our bank facility or an analyst, support whatever. We're working hard, so thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.