Comstock Resources Inc. (NYSE: CRK) is adding to its holdings in the Haynesville Shale with a joint venture (JV) that requires the company to spend minimal cash, Comstock said Jan. 9.

The Frisco, Texas-based company said it entered an agreement with USG Properties Haynesville LLC to jointly develop Haynesville acreage in Louisiana and Texas outside of Comstock’s core.

USG, a subsidiary of NextEra Energy Inc., will contribute 3,315 net acres it recently acquired and an estimated 20 potential locations. From there, Comstock intends to work with USG during 2017 to acquire additional acreage for the venture.

The arrangement gives Comstock the ability to continue expanding its footprint while minimizing its upfront cash outlays and leveraging its operational expertise in the Haynesville, said Chris Stevens, an analyst at KeyBanc Capital Markets.

“We view this as a clear positive as CRK gets about 800 net acres and about five net locations for ‘free’ while the JV itself could set the groundwork to continue expanding its footprint in the Haynesville,” Stevens said.

Comstock will receive a 12.5% working interest in the acreage in consideration for serving as operator. The company has the option of acquiring an additional 12.5% working interest in each well drilled through reimbursement to USG of related acreage costs.

“The acreage associated with this JV is likely to be less productive than CRK’s legacy position in the core of the Haynesville, but it remains to be seen what that productivity difference will be given a lack of any new wells with a modern enhanced completion in this area,” Stevens said.

Comstock operates two horizontal rigs drilling Haynesville wells and plans to add a third rig in April to drill the JV wells. The company is also participating in two nonoperated wells in the Haynesville.

Comstock said it anticipates drilling 24 (18.9 net) Haynesville wells in 2017, funded primarily with operating cash flow. The company has hedged about 30% of its total 2017 gas production at $3.37 per million British thermal units.

Comstock revised its capital budget for 2017 to $168.5 million from $142.9 million. This is an increase of roughly 167% from the company’s budget in 2016 of $62.8 million. Comstock’s initial 2017 guidance already included the JV capex, Stevens said.

The company expects to deploy $5 million of its 2017 capex in the Eagle Ford in South Texas, where it holds about 26,000 gross (19,000 net) acres. The remainder of its capex in 2017 is earmarked for the Haynesville.

Pro forma the JV, Comstock’s Haynesville portfolio included about 68,000 net acres in Louisiana and Texas. The company said it expects its Haynesville assets to provide strong growth in 2017.

The company said its use of an enhanced completion design, consisting of extended laterals and a larger stimulation treatment, has transformed its Haynesville assets into one of North America's highest return natural gas basins.

Emily Patsy can be reached at epatsy@hartenergy.com.

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