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Comstock Resources Loosened The Collar A Little


  • The company recently raised more than $200 million (before expenses) through the sale of common shares.
  • The borrowing commitment for the bank line was reduced a minimal amount.
  • Profit margins are outstanding.
  • Leverage is on the high side of reasonable.
  • The debt due schedule is very favorable.
  • This idea was discussed in more depth with members of my private investing community, Oil & Gas Value Research. Get started today »

The liquidity at Comstock Resources (NYSE:CRK) was getting a little on the tight side. So, this management did what many successful managements have done in the past. The company sold about 40 million shares of stock to gain additional liquidity before Mr. Market became concerned enough to decimate the stock price. Most likely, the option to sell an additional six million shares will be exercised.

"Following the end of the quarter, the Company completed its scheduled semi-annual borrowing base redetermination under its revolving bank credit facility, resulting in the bank group decreasing the borrowing base from $1.575 billion to $1.4 billion. The commitment level was reduced from $1.5 billion to $1.4 billion. The decrease is related to lowered oil and natural gas prices that the banks used to determine the borrowing base."

Source: Comstock Resources First Quarter 2020, Earnings Press Release

Out of all of the above quote, the very important part is the amount the banks committed to lend. The borrowing base itself means very little to the average investor and really can be ignored. Even the committed lending amount is often limited by covenants. Any requested loan that would cause a covenant violation would not occur regardless of lender commitments.

That decrease in lending commitments may have made management feel that additional liquidity was necessary for the company to operate properly during the coronavirus challenges. Natural gas prices are the beneficiary of decreased oil production. Therefore, there is a very good chance that the next adjustment of the loan commitment will be upwards.


Still, the oil and gas industry is very volatile and unpredictable. Conservative managements have long solved problems quickly rather than waiting for the problem to resolve itself or get worse. Too many times, an unresolved challenge becomes more daunting.

Source: Comstock Resources May 2020, Investor Presentation

I analyze oil and gas companies like Comstock Resources and related companies in my service, Oil & Gas Value Research, where I look for undervalued names in the oil and gas space. I break down everything you need to know about these companies - the balance sheet, competitive position and development prospects. This article is an example of what I do. But for Oil & Gas Value Research members, they get it first and they get analysis on some companies that is not published on the free site. Interested? Sign up here for a free two-week trial.

This article was written by

Long Player profile picture

Long Player believes oil and gas is a boom-bust, cyclical industry. It takes patience, and it certainly helps to have experience. He has been focusing on this industry for years. He is a retired CPA, and holds an MBA and MA.

He leads the investing group Oil & Gas Value Research. He looks for under-followed oil companies and out-of-favor midstream companies that offer compelling opportunities. The group includes an active chat room in which Oil & Gas investors discuss recent information and share ideas. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (31)

Little, Einstein profile picture
A double bottom is usually a good omen, not so much a triple bottom, let's see if it recovers before the triple.

I am also getting more interested in SWN, it has been much more resistant to falls lately
Long Player profile picture
@Little, Einstein there is a merger there. But I would think this one with Jerry Jones at the helm is a far better idea.
Little, Einstein profile picture
@Long Player

Can the SWN be purchased?

Where did you read that?

At what price?
Long Player profile picture
SWN can be purchased. I don't follow them due to the debt. But they are merging with Montage Resources.
why is this going up when ng is going down
Long Player profile picture
Why would you be unhappy about that?
Little, Einstein profile picture
Because speculators shout that the CPE goes bankrupt with banal arguments from the sector, "like high debt and little money".

I think the CPE will fly when it reaches 5 or 4.

Maybe even more expensive
Wimal profile picture
Moody's upgrades Comstock's CFR to B3 and assigns Caa1 to new senior notes; outlook stable;
"Comstock's ratings upgrade reflects its improved liquidity, the largely equity-funded redemption of preferred stock and increased hedge position for 2021," said Jonathan Teitel, a Moody's analyst. "The enhanced liquidity and additional natural gas hedges better position Comstock to contend with a low natural gas price environment."
Long Player profile picture
I think that is the beginning of a lot of upgrades.
it's such an expensive offering? close to 10% while paying $60 million in fees and priced at 90% to par? Only a major discounted acquisition would make money from this expensive debt or gas prices have to go up much more. Just don't see how this made sense losing over 10% of capital right off the back. At least the preferred made a bit more sense, dilute at $5 instead of $4. How does this get them an upgrade?
Raising another $400 million to pay off bank debt? Interest rates a lot higher, are banks getting more strict? At this rate, gas prices really need to go higher. Gas prices not sustainable for most companies.
Long Player profile picture
True. More likely the credit markets are in the thawing stage.
rrb1981 profile picture
If, and it’s a big if, the thesis plays out as many believe, that the reduced rig count of oil directed rigs will result in a massive reduction of associated gas, then Comstock will thrive.

Jerry Jones is cobbling together a Haynesville centric player.

I would not be surprised if they acquire CHK’s Haynesville acreage.

The close proximity of their acreage to Henry Hub, Transco and the Gulf Coast means easy access to chemical plants, LNG terminals and pipelines.
I agree. If nat gas can rally and stay at $3 or better for a good amount of time crk will
Likely be the best player to capitalize in the industry. This assumes that associated gas stays down (I personally think it will) and the other indebted dry gas drillers don’t flood the market (I hope they run low on capital but I have doubts). We will see.
rrb1981 profile picture
Rig count continues to fall rapidly.

It's a big bet by Jerry Jones. Over $1.5 billion. He's buying when gas prices are near all time lows. He's using CRK to acquire other players in Haynesville basin. Very focused on dry gas. Gas doesn't need to go to $3 for him to be successful. $2.50 is probably sufficient with these prolific wells.
Long Player profile picture
Will definitely be interesting. He has got costs at rock bottom.
Little, Einstein profile picture
Expect a double bottom
Long Player profile picture
I think the key here is how much faith you have in what Jerry Jones is doing here. At some point, this will probably go past what he paid to get into this company. Knowing him, it will probably go far past what he paid.
Little, Einstein profile picture
Because you don't buy, do you think he can privatize the company
Little, Einstein profile picture
@Long Player
I like CRK, just because it performed much better than all the other companies in the oil / gas sector. While all the others, including big players like BP and etc., fell off a cliff.
Why has CRK been so strong compared to peers?
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