Executive Summary / Key Takeaways

• Western Haynesville as the Core Thesis: Comstock Resources is strategically transforming into a pure-play focused on its vast, derisked Western Haynesville acreage, which holds an estimated 2,559 net drilling locations and is positioned as a critical long-term natural gas supply basin.
• Operational Excellence & Technological Edge: The company has demonstrated significant operational efficiencies, particularly in the challenging Western Haynesville, with drilling costs down 33% and completion costs down 28% from 2022 levels by Q4 2024, driven by innovations like insulated drill pipe and optimized casing designs.
• Financial Discipline & Deleveraging: Despite past commodity price volatility, Comstock is committed to balance sheet strength, utilizing strategic asset divestitures, such as the $430 million sale of Shelby Trough assets, to reduce long-term debt and fund organic growth from operating cash flow.
• Integrated Midstream & Demand Alignment: The partnership with Quantum Capital Solutions for Pinnacle Gas Services provides critical, self-funding midstream infrastructure, including the recently expanded Marquez plant, strategically positioning Comstock to meet surging natural gas demand from LNG exports, AI-driven data centers, and industrial users.
• Long-Term Value Creation: Comstock's disciplined approach to developing its extensive, high-potential inventory, coupled with its integrated midstream and focus on low-carbon solutions, underpins a compelling long-term investment thesis in a demand-rich energy landscape.

The Genesis of a Natural Gas Powerhouse

Comstock Resources, Inc., established in 1919 and headquartered in Frisco, Texas, has evolved significantly, particularly with its strategic pivot into the Haynesville/Bossier shale. The company's journey in this prolific basin began in 2008 with its first Haynesville well. A transformative moment arrived in August 2018 when Jerry Jones and his family initiated a substantial investment, eventually securing a 71% ownership stake. This backing empowered Comstock to pursue an ambitious organic growth strategy, eschewing the M&A market in favor of building its own vast drilling inventory.

The cornerstone of this strategy is the Western Haynesville play, where Comstock commenced its leasing program in 2020. This initiative was not merely about geologic prospecting, as the presence of the Haynesville and Bossier shales was already known; rather, it centered on leveraging technological advancements to unlock the resource. The first Western Haynesville well, the "Circle M," was spud in Q4 2021 and turned to sales in April 2022. By 2023, Comstock had seven producing wells in this nascent play and proactively formed Pinnacle Gas Services (PGS) with Quantum Capital Solutions, committing up to $300 million to develop the essential midstream infrastructure.

The year 2024 presented a challenging macro environment with historically low natural gas prices. Comstock responded decisively by reducing capital spending, suspending its quarterly dividend, and bolstering its hedging program. Simultaneously, the company aggressively expanded its Western Haynesville footprint, acquiring an additional 265,000 net acres to reach a total of 518,000 net acres. This period also saw significant progress in reducing drilling and completion (D&C) costs in the technically demanding deep, hot environment of the Western Haynesville.

Competitive Edge Through Technology and Scale

Comstock operates in the highly competitive oil and natural gas exploration and production sector, primarily focused on natural gas assets in the U.S. While larger, more diversified players like EOG Resources (EOG), Chesapeake Energy (CHK), Devon Energy (DVN), and ConocoPhillips (COP) command significant market share, Comstock has carved out a specialized niche. Its regional focus on North Louisiana and East Texas, particularly the Haynesville and Bossier shales, allows for deep operational expertise and a concentrated asset base.

Comstock's competitive advantage is increasingly defined by its technological prowess in developing the challenging Western Haynesville. The company has successfully tackled the formidable task of drilling 10,000-foot horizontal wells at vertical depths of up to 19,000 feet, where temperatures can exceed 400 degrees Fahrenheit. This operational excellence has led to tangible, quantifiable benefits:

• Cost Reduction: Western Haynesville drilling costs were down 33% and completion costs were down 28% from 2022 levels by Q4 2024. In Q3 2025, drilling costs averaged $1,385 per foot, a 24% decrease from Q2 2025, primarily due to longer laterals. Completion costs in the Legacy Haynesville averaged an "industry-leading" $1,229 per lateral foot in Q3 2025, benefiting from lower frac pricing, reduced fuel costs from natural gas blended fuel, and longer laterals.
• Drilling Efficiency: The average drilling time in the Western Haynesville improved from 95 days in 2022 to 57 days in 2024, with the fastest well drilled in 37 days. This was achieved through innovations such as insulated drill pipe, which mitigates the impact of high temperatures on downhole tools, improved casing designs, and enhanced downhole motor performance.
• Environmental Stewardship: Comstock's dual-fuel powered frac fleets eliminated 1 million gallons of diesel, offsetting approximately 2,000 metric tonnes of CO2 equivalent. Dual-fuel drilling rigs further eliminated 250,000 gallons of diesel, offsetting around 790 metric tonnes of CO2 equivalent. The company also achieved a 28% reduction in greenhouse gas intensity and a 2.5% reduction in methane emission intensity in 2024 compared to 2023. These efforts contribute to a lower carbon footprint, enhancing its appeal in an increasingly ESG-conscious market.

Furthermore, Comstock is pioneering the "horseshoe lateral concept" in its Legacy Haynesville, which combines two shorter, adjacent laterals into a single, longer one. This innovation yields approximately 35% savings in drilling costs for a 10,000-foot lateral compared to a 5,000-foot sectional lateral well. The Legacy Haynesville inventory now includes 118 such horseshoe locations, demonstrating a commitment to continuous operational improvement.

While larger competitors like EOG and CHK benefit from greater scale and diversified portfolios, Comstock's deep regional expertise and technological advancements in the Haynesville allow it to achieve superior cost structures and operational efficiency in its core areas. This focused strategy enables Comstock to compete effectively by maximizing returns from its specialized asset base, even if its overall growth rate might lag some of the industry giants.

Financial Performance and Strategic Capital Allocation

Comstock's financial performance in 2025 reflects the impact of improving natural gas prices and strategic operational adjustments. For the three months ended September 30, 2025, total natural gas and oil sales increased to $308.6 million, up from $253.6 million in the same period of 2024. This 21.6% increase was primarily driven by a 45% rise in average realized natural gas prices, despite a 16% decrease in natural gas production. For the nine months ended September 30, 2025, total natural gas and oil sales reached $1.06 billion, a 39.6% increase over the $759.2 million reported in the prior year period.

The company generated $190 million of operating cash flow in Q3 2025, or $0.65 per diluted share, and $639 million for the first nine months of 2025. Adjusted net income for Q3 2025 was $28 million, or $0.09 per diluted share, a significant improvement from a loss in the comparable 2024 period. EBITDAX for Q3 2025 stood at $249 million.

Operational expenses showed mixed trends. Production and ad valorem taxes decreased by 11% in Q3 2025 and 34% for the nine months ended September 30, 2025, largely due to lower production and reduced Louisiana tax rates. Similarly, gathering and transportation costs declined by 26% and 17% respectively, driven by lower production volumes. Lease operating expenses remained comparable in Q3 2025 but decreased by 4% for the nine-month period. Depreciation, depletion, and amortization (DDA) decreased by $51 million in Q3 2025 and $109.6 million for the nine months ended September 30, 2025, primarily due to lower natural gas production and higher estimated proved undeveloped reserves resulting from improved natural gas prices. General and administrative expenses increased due to higher employee and stock-based compensation.

Comstock's liquidity remains robust, totaling $939.2 million as of September 30, 2025, including $920 million of unused borrowing capacity under its bank credit facility.

The company's last 12 months leverage ratio improved to 3x as of Q3 2025, and is expected to continue improving as the impact of low 2024 natural gas prices diminishes. This strong liquidity position is further bolstered by strategic asset divestitures. In September 2025, Comstock sold legacy Cotton Valley wells for $15.2 million. More significantly, the company entered an agreement on October 10, 2025, to sell its Shelby Trough properties for $430 million in cash, with the sale expected to close in Q4 2025. These proceeds are earmarked for long-term debt reduction, reinforcing the company's commitment to deleveraging. Jay Allison, Chairman and CEO, emphasized that these sales are a "win-win" that allows the company to improve its balance sheet by retiring long-term debt.

Strategic Initiatives and Future Outlook

Comstock's strategic initiatives are firmly anchored in the long-term potential of the Western Haynesville, aligning with a global surge in natural gas demand. The company's outlook for 2025 and beyond is centered on disciplined development, integrated midstream solutions, and strategic partnerships.

Western Haynesville Development

The Western Haynesville is the primary growth engine, with Comstock committing 4 operated rigs to delineate the play. The company expects to drill 19 wells and turn 13 wells to sales in the Western Haynesville in 2025. A key milestone was the "Olajuwon" well in Freestone County, a 24.4-mile step-out that tested at an initial production rate of 41 million cubic feet per day, significantly expanding the derisked area of the Western Haynesville. The estimated drilling inventory in this play is substantial, comprising 3,332 gross and 2,559 net locations, with approximately 60% featuring laterals greater than 8,500 feet and a 64% weighting towards the Bossier formation. The 2026 drilling plan for the Western Haynesville will be 90% focused on holding acreage, with 5-6 wells planned near the Olajuwon area.

Integrated Midstream Infrastructure

The Pinnacle Gas Services (PGS) joint venture with Quantum Capital Solutions is crucial for supporting Western Haynesville production. Midstream expenditures for 2025 are projected between $130 million and $150 million, fully funded by the midstream partner. The new Marquez gas treating plant became operational in July 2025, more than doubling the company's gas treating capacity. A second phase for the Marquez plant is already planned, with operations targeted for summer 2026, as part of an overarching goal to handle up to 2 Bcf of gross production over the next 5-7 years. This integrated approach ensures that takeaway capacity keeps pace with production growth and enhances Comstock's ability to directly serve end-users.

Strategic Partnerships and Demand Alignment

Comstock is actively pursuing partnerships to capitalize on the growing demand for natural gas. The company is exploring the development of gas-fired power generation assets near its Western Haynesville acreage with NextEra Energy (NEE), aiming to power potential data center customers. Jay Allison highlighted the strategic location, "100 miles from the Dallas Metroplex," as ideal for data center development due to access to natural gas, water, and electrical grid infrastructure. Furthermore, Comstock has partnered with BKV Corporation to study carbon capture projects at its Methylene and Marquez treating facilities, with the goal of significantly reducing greenhouse gas emissions. These initiatives position Comstock as a key supplier for the burgeoning LNG export market and the increasing power demands from AI and data centers.

Risks and Challenges

Despite a compelling growth narrative, Comstock faces several inherent risks. The company's financial performance remains highly sensitive to the volatile market prices of natural gas and oil. Global demand, foreign supply, geopolitical events, and weather patterns are unpredictable factors that can significantly impact commodity prices. While Comstock utilizes natural gas price derivatives to hedge a portion of its forecasted production, this does not eliminate all price exposure.

Operational challenges in the Western Haynesville, characterized by extreme depths and temperatures, necessitate continuous technological adaptation and investment. Although significant progress has been made in reducing D&C costs, unexpected drilling difficulties or higher-than-anticipated completion costs, as seen in Q2 2025, can impact profitability. The long-term nature of Western Haynesville development also means that definitive data on optimal choke management and well performance may take 18 months to 2 years to fully ascertain.

Financial risks include exposure to variable interest rates on its bank credit facility, which could adversely affect cash flow if rates increase. Additionally, Comstock has substantial U.S. federal ($743 million) and state ($1.80 billion) net operating loss (NOL) carryforwards, but their utilization is limited due to a 2018 change of control, with a significant portion expected to expire unused.

Conclusion

Comstock Resources is executing a bold and transformative strategy, pivoting towards its vast and increasingly derisked Western Haynesville natural gas play. The company's history, marked by strategic foresight and the unwavering support of its majority shareholder, has culminated in a commanding acreage position and an integrated midstream infrastructure. Operational excellence, driven by continuous technological innovation in drilling and completion, is unlocking the immense resource potential of this challenging yet prolific basin.

With a disciplined approach to capital allocation, supported by strategic asset divestitures for debt reduction and a commitment to funding growth from operating cash flow, Comstock is fortifying its financial foundation. The alignment of its core assets with surging natural gas demand from LNG exports, AI-driven data centers, and industrial growth positions Comstock as a critical long-term supplier. While commodity price volatility and operational complexities remain inherent risks, Comstock's strategic vision, technological leadership, and financial prudence present a compelling investment thesis for discerning investors seeking exposure to the future of North American natural gas.