UPDATE: Bottom Fishing Comstock Resources $CRK as Classic Value Play?
by royalarse13
On Feb 7th I published a post analyzing the merits of buying $CRK. It can be found here.
After a 2-day dip buyers promptly rushed in at higher prices moving $CRK modestly higher over the next few weeks. Then, on Friday March 15th $CRK announced the sale of a significant asset.
The details of the sale: Comstock Resources sells all of its 40,200 net acres in oil-rich Delaware Basin to Rosetta Resources Inc.
The oil-rich assets are in West Texas and the total proceeds of the sale are ~$768 million. Note that Comstock has ~$2.6 Billion in total assets (vs. $1.3 in total debt), so this cash infusion represents a significant influx for the company at a time when investors were penalizing the stock for being over-leveraged.
Proceeds from the sale will be used to reduce its outstanding debt and to fund an increase to its 2013 drilling program in the Eagle Ford shale. Capex was down for 2012 since they were in a tight cash flow position, so we can expect production to ramp up as Comstock is no longer as restrained in their CAPEX.
Production impacts:
Total oil production in 2012 was 6300 Boe/d. The asset sold was roughly 25% of their oil production and 1% of total natgas. However the cash will be used to enhance production elsewhere and over time their substantial reserves will be tapped to fill the output gap created.
Market Loves the Sale:
@Royal_Arse Asks 
[…] *Originally published on 7 Feb 2013, for an update on 16 Mar 2013 please click here. […]
Came for a look at your site after seeing your comment at Humble Student of the Markets. Congrats on the Comstock bottom-fishing pluck and your prose style as demonstrated in the StockTwits post of 20120801: “a saga akin to tortured, passionate lovers abruptly parting ways: intermittent fireworks amid the grinding emotional decay” — I trust you’re over the hump (pun intended!) now and engaged in the next mistake, as we usually do while we’re still young enough ;-)
Anyway, Comstock shows you’re an outside-the-box (ahem) thinker, so how about this: rather than being headed for semi-destruction and halving of US debts by halving the value of the USD, USD is actually going to go through a great revaluation upwards. Have a look at http://www.marketanthropology.com – ran across him last year and he’s an original thinker.
Specifically, I began to think after reading some of the anthropologist’s stuff that maybe that’s what the price action in gold and silver since 2011 has been telling us but we weren’t listening: the US is headed into deflation. What else would you call a rising USD and falling commodity prices?
This would explain the TSX swoon last week and reinforce your analysis of the Canadian housing market, would it not: if the USD is going ape, how’s that going to affect Canada given the US is your main market?
Just something to think about. There’s some supporting evidence elsewhere for the US deflation argument, but that should be enough (and I don’t have the evidence marshalled for easy production, although it is collected).
Hope your lovelife is going better. Or at least that you’re recovered enough to take some comfort from the quality of your work and be engaged by the challenge of an idea so counter-intuitive that most would call it something very uncomplimentary.
Regards
Malcolm
Thank you Malcolm for the comment. Like all things they come in waves and I’ve vacillated back into the happiness zone and remained for some time!
Thanks for the props re Comstock. Timing was pure luck, a little bit of charting, most interested to see if it will continue to profit this year and next, as it still could 2x-3x in dream scenario.
Your thoughtful questions have prompted me to compose a post, which I will throw up asap. Some excellent points re deflation in US (and all developed economies) and how the currencies will settle out, especially in light of the movement in the metals recently!