American Oil and Gas Reporter - January 2020 - 47

Producer Profile
by buying nonoperated interests there,
service costs in that play went down as
oil prices went up. Jerry wanted to put
the high profits from the Bakken wells to
work in the Haynesville."
Jones went after Comstock specifically,
Allison says. "He had watched our management team for two decades," he comments. "In 1999, I met him and asked
him to invest $30 million in convertible
preferred stock. He passed on that opportunity, but when I saw him at a Christmas party 10 years later, he remembered
it. He told my wife and I that if he had
accepted my offer, he would have made
$600 million.
"When he called us, he knew we had
core acreage that had been derisked in a
basin with strong economics and tremendous growth potential," Allison says. "He
also realized that we needed cash, which
he had. We said, 'If you put your Bakken
assets into Comstock as a source of cash
flow, we have a winner,' and he agreed."
Through that transaction, Jones secured
more than 80% of the company's stock.
Allison points out that the investment marks
the seasoned businessman's first investment
in a public company. "Jerry is a fantastic
partner," Allison says. "He has been in the
oil and gas business for 50 years, so he has
seen the peaks and valleys.
"He also is adamant that our board of
directors remain independent," Allison
adds. "It's common for a majority stockholder to put representatives on the board,
but Jerry has no plans to do that. He

wants to earn a reputation from the minority stockholders that he is a great partner, because ultimately, he will only make
money if the stock's price goes up."
So far, Jones has invested $1.1 billion
in Comstock. "Every investment he's
made in us has been above the prevailing
stock price," Allison mentions. "He believes in Comstock and puts his money
where his mouth is."
Jones has said publicly that if the opportunity is right, he has additional funds
to invest in Comstock. "Given how cold
the stock markets are toward upstream
companies, it is hard to get capital from
investors or banks for big moves," Allison
says. "Jerry has given us capital when it
otherwise would be unavailable."
A Transformative Acquisition
With a $475 million investment from
Jones, last summer Comstock acquired
Covey Park Energy, a much larger Haynesville producer backed by Denham
Capital. "When the transaction closed on
July 16, we became the basin leader
overnight," Allison says. "We went from
87,000 net acres in the Haynesville and
Bossier to 309,000 net acres in the play.
Our reserves jumped from 2.4 trillion
cubic feet of gas to 5.4 Tcf, and our production grew from 422 million cubic feet
of gas a day to 1.1 Bcf/d."
Covey Park also owned 500 miles of
gathering lines and had a strong marketing
department that knew how to leverage its
acreage's proximity to interstate gas

Rate of Return (%)

Net Present Value at 10% (Million $)

200%

$20

180%

$18

160%

$16

140%

$14

120%

4,500 ft.

100%

7,500 ft.

80%

9,500 ft.

60%

NPV @10 (in millions)

% ROR

pipelines, Allison adds.
The acquisition gives Comstock ample
room to grow, he assures. "The combined
company started with 2,000 net drilling
locations, and about 69% of those are
long-lateral wells, which offer the highest
net present values. We have a 77% working
interest in those wells, operate 90% of
them, and hold 94% by production."
Both companies knew improved scale
would be essential if they wanted to trim
operating and transportation costs even
further. Despite the compelling case for
the acquisition, it took nine months and
50 meetings before it became a reality.
"We both had great companies, and
neither management team wanted to combine them if doing so would create something mediocre or bland," Allison explains.
"We needed to make sure the combined
company would maintain a robust inventory of drilling prospects, a lean cost
structure, strong operations teams, and
access to premium markets."
The more the two management teams
talked, the more they became convinced
the combination would be beneficial, Allison says. Eventually, the question became
how to maximize its benefits. "Between
the two companies, we had drilled more
than 200 wells with enhanced completions
in the Haynesville since 2015," he mentions. "We both had strong management
teams, and we wanted to have the best of
the best with the company."
As an example, Allison says, Comstock
blended Covey's marketing team with its

$12
$10
$8
$6

40%

20%

$0
$2.00

$2.50

$3.00

$2.00

$3.50

$2.50

$3.00

$3.50

$/Mcf

4,500 ft.

7,500 ft.

9,500 ft.

By employing modern completion techniques, Comstock Resources can generate compelling returns from its Haynesville Shale acreage
even if gas prices stay in the $2-$3 range. The company says it is well-positioned to help meet growing natural gas demand in the United
States and abroad.

JANUARY 2020 47

American Oil and Gas Reporter - January 2020

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