Comstock Resources (CRK) Q2 2025: Western Hainesville Lowers Well Costs 15%, Unlocks 30-Year Inventory

2025-07-31 | By EarningsIQ Research

Comstock’s Q2 2025 marks a pivotal phase as Western Hainesville well costs drop 15% and drilling efficiency unlocks over 30 years of inventory runway. The company’s strategic shift to organic growth—eschewing M&A in favor of de-risking and optimizing its vast Western Hainesville acreage—has started to yield operational and financial leverage. With a sharpened focus on capital discipline, cost containment, and high-graded drilling, Comstock is positioning itself for long-term exposure to rising LNG and data center-driven gas demand, while maintaining robust balance sheet flexibility and transparent management of its asset base.

Summary

• Western Hainesville Optimization: Well costs fell sharply as drilling and completion design improvements compound.
• Inventory Depth Secured: Over 1,200 net operated locations and 30 years of runway anchor future growth.
• Balance Sheet Deleveraging: Non-core asset sales and disciplined hedging reinforce financial flexibility for the next phase.

Performance Analysis

Comstock’s Q2 performance reflects a deliberate pivot toward capital efficiency and organic inventory expansion. Despite a 14% YoY decline in production, the company delivered a 24% increase in oil and gas sales, driven by improved realized natural gas prices and hedging. Operating cash flow rebounded, supporting $210 million in quarterly generation and a return to positive adjusted net income. The EBITDAX margin remained robust at 74%, even as production volume lagged due to last year’s rig reductions and deferred completions.

Cost discipline surfaced as a key differentiator. Operating costs per MCFE dropped to $0.80, down 4 cents YoY, reinforcing Comstock’s claim of industry-leading cost structure. Notably, completion costs in the legacy Hainesville fell 15% sequentially, benefiting from lower frac and fuel costs, while Western Hainesville completion costs also declined. The company’s $1.1 billion liquidity and leverage ratio improvement to 3x underscore a strengthening balance sheet, with further deleveraging expected from upcoming non-core asset divestitures.

• Drilling Efficiency Headline: Horseshoe lateral wells reduced drilling costs 35% compared to shorter laterals, unlocking capital efficiency.
• Inventory Expansion: Operated inventory now exceeds 1,200 net locations, with average lateral length climbing to nearly 9,700 feet.
• Production Mix Evolution: Legacy Hainesville remains over 80% of output, but Western Hainesville’s contribution and well performance are rising.

Overall, the quarter demonstrates the payoff of Comstock’s patience in organic inventory build and cost focus, positioning the company for scalable growth as demand for natural gas accelerates.

Executive Commentary

Strategic Positioning

1. Western Hainesville: Core Growth Engine

Comstock’s Western Hainesville acreage, now at 525,000 net acres, is the company’s primary growth lever. The area’s thick, high-pressure shales and organic content have proven highly productive, with recent wells (Elijah 1, Bellmire) delivering some of the best results to date. Ongoing drilling and completion design tweaks—such as tighter stage spacing—are driving down costs and improving well performance, with per-lateral-foot costs now below $2,000 in some cases. The company’s new gas treating plant has doubled treating capacity, supporting future production growth and establishing a scalable midstream backbone.

2. Horseshoe Lateral Wells: Capital Efficiency Catalyst

The horseshoe well concept—combining two adjacent laterals into a single, longer lateral—has delivered 35% drilling cost savings over conventional designs, and now represents 149 locations in the company’s inventory. These wells are prioritized for their superior capital efficiency and are central to Comstock’s legacy Hainesville maintenance strategy, allowing the company to sustain output while freeing up capital for Western Hainesville delineation.

3. Balance Sheet and Asset Management

Comstock is taking a disciplined approach to capital allocation and deleveraging. The company is preparing to sell non-core legacy assets—particularly lower-priority inventory in the Angelina River trend—to accelerate debt reduction and fund high-return growth. Management emphasized that this strategy does not reflect diminished confidence in Western Hainesville, but rather prudent portfolio optimization given the depth of inventory and robust market demand for drilling locations.

4. Demand-Driven Optionality: LNG and Data Centers

Strategic alignment with NextEra Energy positions Comstock to benefit from rising natural gas demand tied to LNG and data center expansion. The Western Hainesville’s proximity to the Dallas Metroplex and major grid infrastructure offers a compelling site for gas-fired power generation assets, with ongoing discussions to supply future data centers. This forward-looking optionality is a key differentiator as gas demand intensifies.

5. Operational Adaptation and Hedging Discipline

Comstock’s production management—such as testing restricted choke management in Western Hainesville—reflects a focus on maximizing well EURs and long-term value, even at the expense of near-term volumes. The company remains 50% hedged for 2025 and 2026, balancing risk and upside as gas market volatility persists.

Key Considerations

Comstock’s Q2 reflects a company executing a long-cycle, organic inventory build while keeping a sharp eye on cost and capital discipline. The strategic context is one of maximizing future leverage to gas demand, while maintaining operational and financial flexibility.

Key Considerations:

• Inventory Longevity: Over 1,200 net operated locations and an average lateral length of nearly 9,700 feet underpin a 30-year drilling runway at current activity levels.
• Cost Compression: Horseshoe wells and completion design changes are structurally lowering drilling and completion costs, supporting higher returns.
• Capital Allocation Discipline: Management is prioritizing organic growth and deleveraging over M&A or equity issuance, with non-core asset sales earmarked for debt paydown.
• Demand Optionality: Proximity to LNG terminals and data center growth corridors could unlock premium pricing and long-term offtake agreements.
• Operational Flexibility: The company’s ability to flex rigs and adjust completion cadence enables rapid response to market conditions and internal learnings.

Risks

Comstock faces execution risk as it scales Western Hainesville development, including potential delays from midstream buildout, drilling difficulties in over-pressured zones, and the need to continually optimize completion design. Market risks include sustained gas price volatility, cost inflation (notably if tariffs on pipe or equipment rise), and the possibility that non-core asset sales do not achieve targeted proceeds or timing. The long feedback loop for well performance optimization (12-24 months) adds uncertainty to production forecasts and capital efficiency realization.

Forward Outlook

For Q3 2025, Comstock guided to:

• Continued ramp in Western Hainesville drilling and completions, with 13 net wells to sales targeted for the year.
• Stable legacy Hainesville activity, with 32 net wells to sales projected in 2025.

For full-year 2025, management maintained guidance:

• CapEx expected to remain flat to slightly lower in H2 despite higher rig count, due to sustained cost reductions and completion cadence management.

Management highlighted several factors that will shape the remainder of the year:

• Non-core asset sales are expected to accelerate deleveraging and fund high-return drilling.
• Ongoing optimization of well design and choke management will drive incremental improvements in EUR and capital efficiency.

Takeaways

Comstock’s Q2 demonstrates the value of organic inventory build, cost discipline, and capital flexibility in a volatile gas market.

• Inventory Depth as Strategic Moat: The company’s 30-year drilling runway and growing Western Hainesville productivity underpin a durable growth profile, with optionality for future demand surges.
• Cost Structure as Competitive Edge: Horseshoe wells and completion design innovation are driving sustained cost reductions, supporting margin stability even in lower price environments.
• Watch for Asset Sale Execution: Successful non-core divestitures and continued drilling efficiency will be key to maintaining financial flexibility and funding the next phase of growth.

Conclusion

Comstock’s disciplined approach—prioritizing organic growth, cost efficiency, and balance sheet strength—positions it to capitalize on the next wave of natural gas demand. The Western Hainesville’s maturation, combined with strategic asset management and operational innovation, offers investors a clear line of sight to scalable, high-return growth.

Industry Read-Through

Comstock’s results signal a renewed focus on organic inventory expansion, capital efficiency, and operational flexibility across the gas E&P sector. The success of horseshoe laterals and completion optimization will likely influence peers facing similar cost and inventory challenges. The pivot toward asset divestitures—monetizing non-core drilling locations rather than PDP—reflects a broader shift as buyers seek future inventory in anticipation of LNG and data center-driven demand. Companies with deep, contiguous acreage and low-cost structures are best positioned to navigate price volatility and capitalize on the next cycle of gas demand growth.

CRK Energy Oil & Gas Natural Gas Inventory Deleveraging LNG Drilling