Comstock's $2.1B SOCAR/Jones deals reshape its finances, but leverage worries linger
$2.1B SOCAR and Jones deals nearly halve debt Comstock agreed to sell minority stakes in its Haynesville gas fields to Azerbaijan's SOCAR for $1.65 billion, plus a $450 million drilling venture funded mostly by the family of majority owner Jerry Jones. Proceeds would cut debt from $3.1 billion to $1.5 billion, easing the interest-coverage worry that had weighed on the shares.
This is the period's biggest new event and the main reason the stock moved up.
Deal advances from letter of intent to framework agreement The SOCAR partnership moved forward: a nonbinding letter of intent in early September became a signed framework agreement on September 28, targeting a definitive deal by October 31 and closing by year-end. SOCAR may also market Haynesville gas as LNG abroad, a possible new outlet for Comstock's production.
Shows the capital injection is progressing toward completion, supporting the stock.
Jefferies starts coverage at Hold, flags leverage and cost Jefferies began covering Comstock with a Hold rating and a $14 target, noting it is the most sensitive stock to natural gas price swings and citing high debt and exploration costs near $3,000 per foot. Shares fell about 5% on the news, a reminder the debt problem is not fully solved.
A fresh analyst warning that acts as the main counterweight to the deal optimism.
Weak Q1 results and a Strong Sell quant rating Comstock badly missed first-quarter estimates with falling revenue and earnings that do not comfortably cover interest payments, and Seeking Alpha's model ranked it among the worst energy stocks with a Strong Sell score. These pre-deal problems explain why the stock was so beaten down before the SOCAR news.
Sets the weak starting point that the new deals are meant to fix.