Tuesday, February 10, 2015

Comstock Retreats to Haynesville Shale to Find a Silver Lining

As we've noted previously, Comstock Resources has retreated from its oil-based business plan to find the love for natural gas again.  It's a purely economic decision, I assure you.  The company has moved two rigs from the Eagle Ford Shale to the Haynesville Shale in the past couple of months and plans to spend 60% ($185 million) of its 2015 drilling and completion capital budget on the Haynesville, where it plans to drill 14 wells and refrac 10 others.

Comstock has found religion with the enhanced recovery methods that have been pioneered by other Haynesville players in recent years and is looking at drilling wells with 7,500 foot laterals that will span one and a half sections and pour lots more proppant and fluid into the hole.

Well costs will rise from $7.5 million into the $11 to $13 million range, but estimated ultimate recoveries (EUR) are expected to go more than double to the 14 to 16 Bcf per well...

...which makes the economics look pretty darn good, even at today's cruddy prices.

Comstock is one of many producers that realizes it can make money drilling gas with the fancy new techniques and the looser cross-section drilling rules in Louisiana, even with low gas prices.  But perhaps the bigger issue here may be that Comstock followed the herd into oil but was late to the game.  Their economics in the Eagle Ford just don't work with beaten down oil prices.  The bright side is that while they were gone from the Haynesville seeking greener pastures, their competitors found a way to further drilling and completion techniques, thus improving the economics for everyone.

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