Natural gas producer
Comstock Resources, Inc.
CRK
recently announced its plans to divest its assets in the prolific Bakken shale field of the United States to Minnetonka, MN-based independent upstream operator
Northern Oil and Gas, Inc.
NOG
for $154 million. The deal became effective on Oct 1, 2021, and the parties plan to complete the transaction within 40 days.
The transaction involves the sale of non-operated interests in more than 400 producing wells (65.9 net) spanning Williams, McKenzie, Mountrail and Dunn counties. The assets are managed by a number of different firms, and Northern Oil and Gas currently owns 84% of the wellbores that will be purchased.
The sale of Frisco, Texas-based Comstock’s Bakken assets coincides with the ramped-up transaction activity in Louisiana’s Haynesville Shale where the firm produces the majority of its natural gas. The company intends to use the sale proceeds to support an increase in the completion activities at its Haynesville Shale holdings in Louisiana and Texas.
The goal is to complete 13 gross (9.4 net) drilled and uncompleted wells that were initially scheduled for completion in 2022. Management also aims to invest part of the funds generated from the sale to buy further land and spend on more drilling next year. The divestment is anticipated to result in a pre-tax loss of $130-140 million for Comstock.
As a result of improving gas prices,
Southwestern Energy Company
SWN
and
Chesapeake Energy Corporation
CHK
, two of Comstock’s Louisiana rivals, recently purchased Indigo Natural Resources and Vine Energy, respectively, with the goal of expanding in the Haynesville basin, which is close to the liquefied natural gas export hubs.
What’s in the Deal for Northern Oil and Gas?
Northern Oil and Gas anticipates a considerable rise in its borrowing base as a result of the acquired and existing assets, and will begin the process of expanding its chosen commitment during its regularly scheduled borrowing base redetermination in November this year.
Management intends to submit a request to the board for a 33.3% hike in the common stock dividend for the fourth quarter of 2021 to reward shareholders of record as of Dec 31, 2021, citing the strong, low-risk cash flows from the acquired properties. This projected rise to a payout of 6 cents per share implies a 100% increment since the inception of the dividend program.
Northern Oil and Gas plans to finance the aforementioned purchase with cash on hand, operational free cash flow and borrowings from its revolving credit line.
Company Summary
Comstock Resources is an independent oil and gas exploration and production company primarily engaged in acquisition, exploration and development of natural gas properties. The company’s operations are concentrated primarily in two regions in Texas and Louisiana. As of Dec 31, 2020, the company had 5.6 trillion cubic feet of natural gas equivalent and 17 million barrels of oil equivalent of proved reserves.
The company is scheduled to release third-quarter earnings results on Nov 2, 2021. The current Zacks Consensus Estimate for the to-be-reported quarter’s earnings is pegged at 35 cents per share while the same for revenues is $409.15 million.
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