CRK - Comstock Resources - Volatility Breeds Opportunity

2024-03-12 16:56:49 ET

Summary

• Comstock Resources is facing challenges due to an oversaturated natural gas market and record-breaking warm winter temperatures.
• The company and other producers have responded to low natural gas prices by reducing production and implementing capex cutbacks and curtailments.
• The Haynesville basin is a critical US supply basin and Comstock's progress over the past five years is measurable but modest.
• New demand from LNG export terminals comes in 2025.  That massive demand pull should lift the futures curve and provide a relief rally in natural gas stocks like Comstock Resources.

Since we last wrote about it back in late December, we theorized that 2024 was not shaping up to be a banner year for Haynesville pure play driller, Comstock Resources, Inc. ( CRK ), and since that point, things have only gone from bad to worse. For starters, drillers added another record amount of natural gas to an already saturated market (green circle, right chart) and the winter in the US warmed to temperatures we haven't seen in decades breaking several heat records along the way. It's abnormal to speak of heat records in winter!

Record temperatures left a 400-600 Bcf storage surplus creating an unusual condition with stocks ending February around 2,334 Bcf (billion cubic feet), a whopping 551 Bcf (31%) above the 5-year average (blue line and arrow, left chart) and above the maximum level for this time of year for the previous 5 years. Given the near-term bearish backdrop, I don't recommend buying Comstock at this time unless you are comfortable making highly speculative bets....

For further details see: