Earnings Call: Q3 2019

Nov 7, 2019

Ladies and gentlemen, thank you for standing by, and welcome to the Comstock Resources Incorporated Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference to your speaker today, Jay Allison, Chief Executive Officer. Please go ahead, sir. Thank you, Joelle. It's a rainy day in Dallas, so it's a good day to have an earnings call, start out like that. 21 months ago, when Jerry Jones reached out to Comstock, he saw something. Over the last 21 months, our goal has been to be the low cost producer and have the highest margins. At the same time, rightsizing the company up to be competitive in the new era of energy that we're in. The corporate report we gave you today is a good marker to where our 209 employees of Comstock have taken the company in a very short timeframe. We will report today on a company that we bought for all stock during the last quarter, which is a nice positive statement toward our consolidation goal of quality assets with no added leverage. The energy sector needs this type of freshness in a company that focuses on less corporate overhead and zeroes in on shareholders' return and honors those that have provided us financing. I can assure you that Jerry Jones, who owns 75% of Comstock, intends to use his time, talent and money to continue to create the company you are compelled to own a piece of and support. Thank you for joining us today. We never take your time for granted. Welcome to the Comstock Resources Q3 2019 financial and operating results conference call. Today, we will review our Q3 2019 earnings and drilling results as well as update you on our acquisition of Covey Park Energy, which was closed on July 16. You can view a slide presentation during or after this call by going to our Web site at www.topstockresources.com and downloading the quarterly results presentation. There, you'll find a presentation titled 3rd Quarter 2019 Results. I have Jay Allison, Chief Executive Officer of Comstock, and with me is Roland Burns, our President and Chief Financial Officer and Dan Harrison, our Chief Operating Officer. Please refer to Slide 2 in our presentation, and note that our discussions today will include forward looking statements within the meaning of securities laws. While we believe the expectations of such statements to be reasonable, there can be no assurance that such expectations will prove to be correct. If you go to Slide 3, the 2019 Q3 summary. On Slide 3, we cover some of the highlights of the 3rd quarter. For much of the Q3, we were very focused on the transformative Covey Park Energy acquisition, which we closed on July 16. Combining Comstock and Covey Park created the basin later in the Haynesville Shale, which is the premier natural gas space in North America with superior economics given its geographic proximity to the Gulf Coast. The 3rd quarter results included the operations of Covey Park for 77 days. Our HaynesvilleBossier Shale drilling program continues to deliver strong production growth. Comstock and Covey Park have drilled and completed a combined 201 operated wells since 2015, which had an average IP rate of 23,000,000 cubic foot per day. The wells we completed in the 3rd quarter averaged 25,000,000 cubic foot per day. Our combined pro form a Haynesville shale production in the 3rd quarter was up 4% from the Q3 of last year. We have also been driving down our well cost in the Haynesville. Our latest well cost per lateral foot are 19 percent lower than what we averaged in the Q4 of 2018. The strong natural gas production growth was offset by weaker natural gas prices in the 3rd quarter. For the quarter, we reported oil and gas sales of $251,000,000 adjusted EBITDAX of $189,000,000 operating cash flow of $143,000,000 or $0.60 per share and adjusted net income of $34,000,000 or $0.17 per share. Slide 4, if you'll flip there, is a good summary of the Covey Park Energy acquisition. The combination created a company with substantial scale in the Haynesville. We produced over 1,200,000,000 cubic feet of natural gas equivalent per day and have 5.4 Tcfe of SCC proved reserves and 309,000 net acres in the Haynesville. We have more than 2,000 net drilling locations, which gives us over 30 years of inventory and our planned 2020 activity level of 6 operated rigs. Our 3rd quarter pro form a unit cost structure is only $0.66 per Mcfe, which is one of the lowest in the industry and our 3rd quarter pro form a EBITDAX margins of 74% is one of the highest in the industry. With the merger closed, we materially changed our leadership team with half of our department heads coming from each company. Our department heads are selecting best practices from each company and have put together their teams with a focus on creating an efficient, low overhead company. With favorable proximity to the Gulf Coast demand and over 500 miles of owned gas gathering infrastructure, we have higher natural gas price realizations. The Covet Park assets achieved higher gas price realizations and Comstocks, and we recently renegotiated new gathering contracts and marketing arrangements to give us greater access to the premium Gulf Coast markets. We will complete the consolidation of the Dallas area corporate offices later this month and have implemented a 41% reduction in the combined corporate staff. We are targeting go forward annual G and A of $30,000,000 which is about half of the combined annual G and A of the 2 companies of $61,000,000 in 2018. With the merger, we have added data sets to the staff and implemented a tailored drawdown for every new well, which we feel will further improve the economics of the Haynesville wells. Lastly, we're very focused on the balance sheet as we should be. Our leverage metrics immediately improved as a result of the transaction. As Roland will go over later, we have reduced our planned drilling activity to 6 operated rigs in 2020. This will protect our balance sheet and liquidity and ensure we can hit our target to generate free cash flow in 2020 of over $200,000,000 We will also consider potential divestitures of our non core assets in order to pay down our debt and improve our current liquidity. If you go to Slide 5, it's our bolt on acquisition. On November 1, we closed a $31,000,000 bolt on acquisition of a private Haynesville shale company as shown on Slide 5. We issued 4,500,000 shares in an all stock acquisition. The properties are primarily in DeSoto Parish, Louisiana, as shown on the map, and include 3,000 net acres and 75 gross or 20.1 net producing wells. You can see how well the properties fit with our existing properties. 36 gross or 11.7 net wells are Haynesville shale wells, 50 gross or 16.7 net wells either operated or will be operated by us. The properties are producing approximately 12,000,000 cubic feet per day and have 89 Bcfe and proved reserves with an SEC PV-ten value of $51,000,000 We've identified 44 gross or 12.7 net future drilling locations on the properties. So now I'll have Roland cover the financial results in more detail. Roland? All right. Thanks, Jay. On Slide 6, we show the combined HaynesvilleBossier production at both Comstock and Covey Park. 3rd quarter combined production of 1,100,000,000 cubic feet per day has increased 34% from where the 2 companies were in the Q3 of 2018. Production was relatively flat on a combined basis in the second quarter rate due to us only turning 8.6 net wells to sales during the Q3. After adding 14.2 net wells in the 2nd quarter and 18.2 net wells in the Q1 of this year. However, in the Q4, we expect our Haynesville Bossier production to increase over 10% of the 3rd quarter rate as we currently expect to put 19 more net wells on production before the end of this year. Slide 7 recaps the production we had shut in for the quarter. And we're pleased to see that our 3rd quarter shut in volumes decreased to 3% as compared to the 4% we had in the Q2 of this year. Substantially, all the shut ins were due to offset frac activity. On Slide 8, we detail our producing cost per Mcfe. Our operating cost per Mcfe fell to 0 point 5 $9 in the Q3 as compared to the 2nd quarter rate of $0.68 and that was all due to the Covey Park acquisition. Our gathering cost averaged $0.23 production taxes averaged $0.07 and the overall field level operating costs were $0.29 per unit of production. We expect to continue to improve our gathering cost with the new contracts that we've either negotiated or currently negotiating. And we also expect to see additional efficiencies in our field lever operating cost as we continue to integrate the Covey Park operations into Comstocks. On Slide 9, we detail our corporate overhead per Mcfe. Our G and A cost per Mcfe fell to $0.07 in the 3rd quarter as compared to the 2nd quarter at $0.14 and our Q1 rate at $0.19 So one of the more significant benefits of the merger is the improvement of this metric due to the reduction of personnel that we had in the 2 organizations enable since we're both in the same basins and in the same city. With this very low overhead, we now have the lowest cost structure in the industry among public companies. And our merger, I think, is a great example of the benefit of combining the 2 best shale operators in the same basin and the value that can be created from such a combination. On Slide 10, we detail the depreciation, depletion and amortization per Mcfe produced. Even though this is a noncash number, it's kind of it kind of points to in an aggregate way of kind of what your finding costs have been over a long period of time. And this noncash expense decreased to $0.79 in the 3rd quarter, and this is compared to the $1.04 we were in the Q2 of this year and the $0.99 that we were in the Q1. On Slide 11, we summarize the Q3 financial results that we reported today. Our production in the 3rd quarter was 100.9 Bcfe, and that includes 603,000 barrels of oil. This is 2 45% higher than the Q3 of 20 18 and 124 percent higher than our 2nd quarter as it now includes the Covey Park operations for just 77 days of the quarter. Our oil and gas sales, including realized hedging gains, were $250,500,000 or 143 percent higher than the Q3 of last year. We did you can see that weaker oil and gas prices in the quarter did offset some of the impact of the significant production growth. In this quarter, our realized oil price was $51.27 per barrel and our realized gas price was $2.26 per Mcf, including the benefit of our realized hedging gains. But overall, our average natural gas price realization was down 15% from the Q3 of last year. Our adjusted EBITDAX came in at $189,000,000 for the quarter, and this is 146% higher than the Q3 of 2018. Operating cash flow was $143,000,000 up 178% from 2018. We did report a net loss of $1,300,000 for the quarter or $0.01 per share, but this includes many unusual items that are not part of ongoing operations. And if you exclude those items, our adjusted net income was $34,300,000 or $0.17 per diluted share. These items, net of the related income taxes, would include $28,700,000 of merger related costs, dollars 3,200,000 of the realized Covey Park hedge gains that related to the period July 16 to July 31 that were settled before the merger closed. So this not included in the realized gains that we included in the financial statements. A $2,900,000 in discount amortization resulting from adjusting the Covey Park bonds to the market value at close. So that's the amortization of the interest relating to that. And then we had an unrealized mark to market loss on our net debt of $800,000 in the quarter. On Slide 12, we summarize our financial results for the 1st 9 months of this year. Our production for the 1st 9 months was 184 Bcfe and that included 2,100,000 barrels of oil and this is about 148% higher than the same period in 2018. Our oil and gas sales, including realized hedge gains, were $513,000,000 114% higher than the same period in last year. Oil prices in this period averaged $49.44 per barrel, and our realized gas price averaged $2.39 per Mcf, including realized hedge gains. And on a 9 month basis, our overall natural gas price realization was down 12%. Adjusted EBITDAX was $379,000,000 that's 117% higher than last year. Operating cash flow was $280,000,000 140 percent higher than last year. And we reported net income of $33,600,000 for the 1st 9 months of this year or $0.26 per diluted share. However, if you adjust net income for the items that we talked about, a lot of them are relating to the merger, our adjusted net income for this period was $71,200,000 or $0.51 per diluted share. On Slide 13, we present our operating results and just pro form a for the Covey Park acquisition for all of the Q3 and then all of 2019. So pro form a production for the Q3 was 100 and 11.5 Bcfe and oil and gas sales would have been $282,000,000 The pro form a natural gas price for the Q3 had we had closed the acquisition on July 1 instead of July 16, it would have been $2.33 per Mcf, including realized hedge gains. In pro form a production for the 1st 9 months of this year, as if we had closed the acquisition on January 1, was 329.7 Bcfe with oil and gas sales including hedging gains of $904,000,000 and the pro form a natural gas price for this 9 month period would have averaged $2.55 per Mcf. On Slide 14, we summarize the hedge positions we have in place for oil and gas production. And obviously, those hedges were very contributed to the really good quarter we had in the 3rd quarter because we had very, very low gas prices during that quarter. For the remainder of 2019, we have about 702,000,000 cubic feet per day of our gas production hedged and about 3,100 barrels of our oil hedged. And then going into 2020, we have 488,000,000 cubic feet of our gas hedged and 3,100 barrels of our oil hedged. These numbers are all on a daily production basis. We recently added 100,000,000 cubic feet of gas swaps for 2020, which had a weighted average strike price of $2.53 And we sold natural gas swaptions totaling 80,000,000 cubic feet of gas per day for 2021 at a weighted average strike price of $2.54 And our plan, as always, is to have 50% to 60% of our production hedged, for the upcoming 12 month period. And we continue to roll that forward on a 12 month period basis. On Slide 15, we highlight some of our mid stream and marketing initiatives, which has resulted in the low gathering really, it's resulted in the lowest gathering cost in the basin at $0.23 per Mcfe and has also helped us limit our basis risk to the regional hubs by having gas priced directly off Henry Hub or other premium Gulf Coast indexes. We also have access to an extensive gathering and transportation pipeline network, which helps us have lower gathering cost, including 500 miles of our own gathering. We recently have entered into an agreement with Enterprise Products Partners to be a major shipper on its new 1 Bcf per day Haynesville Acadian extension, which will take our gas to the Gilles Hub. At the same time, we've also entered into medium term sales agreements for that gas to price that gas based on the premium Gulf Coast indexes. And another aspect to our strong price realizations and low gathering cost is that we have no unmet minimum volume commitments. And we have very little exposure to out of the market or above market gathering contracts, which are very prevalent in our basin and many of the other natural gas basins. On Slide 16, we recap our spending in the 1st 9 months on our drilling and development activity and then what we expect to spend for all of for the rest of 2019. And we're going to give you a first look at our budget for 2020. So far this year, we spent $356,000,000 on development activities through the end of Q3. And of course, starting on July 16, when the merger closed, we were running 9 operated rigs in the Haynesville. So $336,000,000 of our total spending was in the Haynesville Shale program. We drilled 41 or 28.8 net wells operated wells and we also completed 8 operated, 11 non operated wells or 5.2 net wells that we had drilled back in last year. In addition to the Haynesville, we spent $16,000,000 drilling 4 or 2.2 net Eagle Ford oil wells, which we're producing during the quarter and we spent $3,000,000 on our Bakken properties. For the entire year of this year, we're estimating now that we'll spend $500,000,000 on capital activity. And we expect to reduce our rig count to 6 operated rigs, as Jay mentioned earlier, by early next year. With this 6 rig program that we're currently lining up for next year, we expect to spend $475,000,000 on drilling and development activities. And almost all those dollars are going to Haynesville. And we estimate that we'll talk about 62 or 44.4 net operated Haynesville wells next year. With this lower rig count, we expect to be able to generate significant free cash flow. And our goal is to have that in excess of $200,000,000 for next year. And that's we think that's achievable even with the current low natural gas prices that are out there at this current time. So we're definitely we're going to prioritize the free cash flow over production growth. But we do expect, given the high level of activity that we've had in this year, that we still will have production growth of 6% to 8% in 2020 and that we're measuring that production growth from 2019 on a pro form a basis, so production growth of the combined companies of 6% to 8%. We've also included on this slide some additional guidance numbers for the analysts that follow the stock for both production and cost estimates, both for the Q4 and for what we see for next year. On Slide 17, we present the balance sheet at the end of the Q3. We had $53,000,000 in cash and $2,700,000,000 in total debt, which was comprised of the amounts outstanding under our 5 year credit facility and $1,475,000,000 in senior notes. We have no debt maturities until 2024 and no senior note maturities until 20252026. And our preferred stock has no maturity. We ended this quarter with $288,000,000 in liquidity. And again, with the prioritization of free cash flow, we just don't see use of that liquidity and continue to grow that liquidity as we achieve our goals for the combined company. Looking at equity, we had we ended the quarter with common equity of $1,100,000,000 and preferred equity of $385,000,000 On the balance sheet, you'll see that we have $375,000,000 of preferred equity booked. And it's not a typo. The difference is market valuation discount that we had to apply to the Series A preferred that we issued in the Covey Park acquisition. The face value of that preferred of our total preferred outstanding is $385,000,000 So with all that, I'll turn it over to Dan to kind of report on the drilling results. Thank you, Roland. If you flip over on Slide 18, you'll see the new acreage map, which highlights our new 309,000 net acre position, which is a result of the Covey Park acquisition and our small recent bolt on acquisition that closed on November 1. Since reentering the play in 2015, we, including Covey Park, now drilled and completed 201 operated wells with an average IP rate of 23,000,000 cubic feet a day. To date in 2019, we have drilled 41 gross operated wells and plan to drill a total of 65 operated wells by year end with an average lateral length of approximately 8,000 feet. These wells have been and they continue to be very successful. On Slide 19, this is our locator map showing you where we have focused our activity since our last call. Since the last update, we have now turned an additional 23 wells to sales. As you can see, the majority of the activity has been concentrated mostly up in the northern portion of our acreage. All but one of the 23 wells were drilled as long laterals with the completed links ranging from 5,000 450 feet up to 11,361 feet with an average lateral length of 9,343 feet. The wells were completed with sand loadings ranging from 3,000 to 3,800 pounds per foot and a cluster spacing ranging from 15 feet to 40 feet. The average job size for all the wells was 3,550 pounds per foot and 21 foot cluster spacing. The initial production rates ranged from 19,000,000 cubic feet per day up to 32,000,000 cubic feet per day and with an average IP of 25,000,000 cubic feet per day. We currently have 10 additional wells that are in the process of being completed. Over on the next slide, this illustrates the results of our ongoing efforts to reduce our all in D and C cost. From 2018 to 2019, we've had a year over year reduction of 12% in our D and C cost. Since the end of 2018, we've got our D and C cost from $14.45 a foot down to $11.76 a foot, which represents a reduction of $2.69 per lateral foot or a 19% savings. The obvious factor driving our costs lower has been the soft frac market, including the downward pressure on local sand prices and complemented by drilling our longer laterals and our improved completion efficiencies. In the near term, we do anticipate this trend will continue to go down slightly. We are also evaluating testing some slightly smaller frac designs in the near future that could reduce our well cost further, and we feel very confident that we can execute these jobs while maintaining our current level of well performance. On Slide 21, this is the subpar HaynesvilleBossier drilling inventory. As of the end of the quarter, Our total gross operated inventory now stands at 2,396 locations. Our average net interest is 76%, which equates to 18 17 net operated locations. The gross operated inventory has been split out between short laterals of less than 5,000 feet, medium laterals of 5,000 to 8,000 feet and long laterals greater than 8000 feet. So within our gross operated inventory, we currently have 6 17 short laterals, 9 18 medium laterals and 861 long laterals. 61% of our gross operated locations are in the Haynesville and the remaining 39% are in the Bossier. In addition to our operated inventory, we have 14.75 non operated locations with an average net interest of 13%, which represents another 193 net non operated locations. This extensive inventory provides company with over 30 years of drilling locations based on our forecasted 2020 activity level. Repeating what we've said on past calls, we do continue to pursue additional acreage trades when possible to consolidate our core acreage position and enhance our lateral lengths. That summarizes our operations. With that, I'm going to turn it back over to Jay to wrap things up. All right, Dan and Robin. Thank you. If you look at the 2020 outlook, turn to Slide 22, we'll summarize our outlook for 2020. It's pretty exciting. I mean, for the rest of this year, our primary focus is to complete the integration of Covey Park and the Comstock. Our goal is to have this substantially completed by year end and it is going, I might say, really well, as I discussed. We're confident that we'll deliver on the substantial value adding synergies of the combination of the 2 best Haynesville shale operators can offer. Our Haynesville shale drilling program continues to generate economic returns even in the low natural gas price environment that we live in today. Combined with Kelby Park, Comstock now has the industry leading low cost structure and natural gas well economics. The drilling program is delivering, as Dan said, production growth this year and will show continued growth in 2020 despite a lower intentional activity level. Our natural gas production is expected to average 1.25 Bcf to 1.45 Bcf per day in 2020, and our oil production is expected to average between 5000, 6000 barrels per day in 2020. The conservative 2020 operating plan utilizing 6 operated rigs in the Haynesville that will prioritize free cash flow generation over production growth will be funded internally and will allow for significant free cash generation. Despite the lower activity level, we still expect production on a pro form a basis to grow 6% to 8% in 2020, as Roland told you earlier. And we will continue to maintain an active hedging program targeting the next 12 months production and beyond. And lastly, we will protect our liquidity, which is currently $288,000,000 and we'll look to enhance it with our non core assets held potentially in free cash flow generation, so we can pay down our bank debt. Now for the rest of the call, I'll take the questions. I'll turn it back over to the operator. We'll take questions from analysts only. And again, I'd like to reiterate, I know there's 3 speakers on the call today, but there's 2 0 9 employees that make up this company and the board and then you, our backers. So with that, I'll turn it over big feather in Nelson moving forward. First question I guess comes with, it looks like you are still active with bolt ons. And I was wondering what that environment looks like in the Haynesville. Are there is that a pretty good deal flow out there on these smaller deals? Then how are you all thinking about maybe larger acquisitions as you grow going forward? Well, I think on the acquisition that we just announced, we've been in the Haynesville since 'seven, 'eight. We've got a lot of goodwill in the area. We've got some companies that had reached out to us. And we're very cautious on making sure that it's a good footprint. As you can see, that's a perfect footprint for us that we're involved in the wells so that we might be buying. And then we do add some accretive locations and particularly if they're extended laterals. We added about 13 extended laterals. This particular acquisition is something that probably we have been looking at maybe for 4 or 5 years, even before the sector got revived back in 'fifteen, 'sixteen, 'seventeen as far as the Haynesville. So it was a great check. If you knew the company that we bought, they're Tier 1 people in the Haynesville area, in the Shreveport area. You'd be pleased that they gave us a big check mark on stock. They know that we're trying to reduce our debt levels. We've committed to them to look at other acquisitions like this. I think there are some more out there that are kind of of this size that we're looking at. Maybe we do some, maybe we don't. And then as far as the larger ones, I mean, like in the opening statement, we are trying to be the company in this new era of energy, which means that we do have to have sides, but at the same time, we have to continue to have our high margins and our low costs. So I would expect in the future that you can see us continuing to take another step toward consolidating this basin, which I think we're the leader in. And it will all make economic sense, whether you're a bondholder, an equity owner or an employee. So I think if you go back to the Jerry Jones vision, now is a rough time in a tough market to have Tier 1 assets, if they make sense, for the existing base of the great company we have. So you can expect us to be active. And Don, I'd add that we as we look at doing any acquisitions, large or small, I mean one of the criteria we're really looking at is continue to improve the leverage. It's a real important goal for us. It's obviously harder to reach with low gas prices, but get our leverage under a few times is a major goal of the company. And so a transaction like the Covey Park 1 or this one, I mean, they're all contributing to a better leverage profile. And we don't plan to use a lot of leverage to make acquisitions. We just want to make sure everybody is aware of that. Yes. If you look at the last 21 months, every purchase we've made or consolidation we've made has reduced our leverage. I mean, they've been transformative. We've become a basin leader, but it has also given us our low cost structure and our well economics. And we have had and we're giving you today, I mean, we probably cut our budget for what 20 20 would have looked like by $100,000,000 We plan on delivering these numbers with conservative operating plans. So and it's really nice to be talking about free cash flow in a meaningful way. So we're not going to disrupt that at all. Right. And that leads right into my next question. With your updated guidance, I don't have any trouble really getting to $200,000,000 of free cash. And so fair to assume that majority of that goes straight to the balance sheet and debt reduction or in and I guess also on the tail off Yes, our goal is to take that and pay down our debt. I mean, we need to pay down our debt. If you look at all the metrics that we needed to be able to check the box on with Covey, and I mean Covey was an incredibly well run, nice PE backed company. I mean, we check the box on all of this except for our leverage. We do need to have leverage. Our goal is to get our leverage in the 2 less than 2 range as soon as we can do that, as prudently as we can do that. And we've made some big strides on that. And I'm telling you, we're going to make some more big strides on that. So yes, it's going to pay down our debt. Okay, great. Thanks. And then maybe one more for Dan. When you look at the field, you had impressive cost reduction 4Q 2018 to 4Q 2019 down almost 20%. What have been some of the drivers there? And as service costs have come down quite a bit, but what are some of the other levers you all have pulled to further reduce your costs in the field? I think the obviously, the frac is always and will be the biggest one. The materials, obviously, with that have come down. We've as far as the completion efficiencies, we've kind of tweaked our designs a little bit. We're just trying to increase our cycle times, less days on location. The less hours that you're pumping basically is how you achieve a lower cost structure with your service companies. And that's probably been really the other big thing that we've done is just we're just pumping our jobs faster. Same amount of sand, but we've been pumping less barrels. Okay, great. Well, that's it for me and congrats on a great quarter and the integration of Covey Park looking forward to next quarter. Thank you. Thank you. Our next question comes from Jane Trotsenko with Stifel. Your line is now open. Good morning and thanks for taking my questions. My first question is on natural gas pricing. So you previously talked about your intention to sell more gas at bit weak pricing. Could you please update us on where you currently stand on that front? Yes. I guess, yes, the question, Jane, was like, yes, one of our goals, it was to sell more in the midweek or we call index pricing. And I think we achieved that this quarter, moving from almost fifty-fifty before to we're really closer to 75% or so. And I think as the especially with the new 6 rig program and a little bit less production growth, it'll be easier to do that. I mean, one of the reasons for selling in the daily market is not overselling your gas in bid week and having flexibility if there's a delay and when new wells come up to sales. But it'll be easier to get to a higher percentage with especially in 2020 as the production growth rate is comes down from the growing the 20%, 30% that it has over the last 9 months to more of the 6% to 8% that we kind of see later on. Okay. That's very helpful. A related question. So you guys signed up for this Acadian expansion project. It seems like it's scheduled for mid-twenty 21 and correct me if I'm wrong. How should we be thinking about the basis differentials for Comstock until that project is online? Should we be thinking like basis differentials being similar to 2019? Any help would be appreciated. Yes. The 2021 is a that's a good time frame. For the in service to yes, to Gilles. And hopefully, they'll beat that. But yes, that's kind of what our expectations are. And we already though have we're already before the expansion have a lot of gas in the system. And we have a lot of gas that we that's priced on a Henry Hub basis versus a regional hub basis. So that helps out a lot. So I think more than half our gas is priced off coast indexes, not the regional like Currysville or Carthage index. And then we're also undertaking some other measures to help to protect us from volatility in those hubs, including doing 6 month sales directly to some of our purchasers where we're locking in that difference. So I think as we look ahead, we're comfortable with our overall new kind of weighted average differential being around $0.20 And then as we get hopefully, as we get more and more capacity to sell directly to the Gulf Coast, you have narrowing that in future to more of $0.15 But I think as you look just before some of those options are open, dollars 0.20 to maybe $0.23 is probably a good range for the differentials. That's perfect. Thank you so much. The last question, if I may. So looking at Slide 20, you obviously made a huge progress on the unit well costs on a per foot basis, I mean. Could you maybe discuss how we should be thinking about the well cost savings in 2020 on a per food basis as well? And to give a benchmark before Dan answers, we haven't budgeted we've budgeted the numbers that you see in our presentation not at the real attractive numbers he achieved in the 4th quarter, but more in about $12.25 per foot, just to give you a framework of what so we have some cushion there as far as what we expect in the future. But hopefully, Dan could beat that. Yes. We're intentionally building because you don't know what will happen in 2020, but we do have a bunch of wiggle room in the numbers, Dan. Yes. So, Johnny, we are going to continue to trend down slightly. I do think that as far as any big major cost reductions from the service companies, it's not very likely. I mean, we're pretty much get close to the bottom of the barrel with them. So you'll get a little bit there, but the rest of it, we'll get from some efficiency gains. And we are going to look at pumping some smaller jobs that will that we think we can basically match our same well performance, which will help. The rig rates, I think, may inch down just a little bit more. We are I think the just the time on location, we've basically seen that speed up. I think we'll continue to see that. But I think it'll be a slight drop. I mean, we're already seen several jobs that are lower than this 11.76 average. But we just need to basically do it consistently. And I think we can consistently match some of the numbers we recently done, this trend will continue to come down. Thanks a lot. This is very helpful. Have a nice day. Thank you, James. Thank you. Thank you. Our next question comes from Jeffrey Campbell with Tuohy Brothers. Your line is now open. Good morning, Jay and Roland and congratulations on getting that merger put together. You mentioned that you're being approached by other acreage owners. I was just wondering, do some of these guys have Tier 1 acreage, but they realize that Comstock is a better operator as part of a motivation to do a deal? Well, these costs are $11,000,000 to drill and complete a well. And we again, we reported that we drilled 201 of these. So it is a it's kind of a big boy game now. And you got to have some size and even 21, that's why I said it is a new era. And I think if you can connect yourself with the Comstock like this other private company did and you could get the synergy and it lets you you can have the appreciation like Jerry Jones did. I mean, he owns, I think, dollars 138,000,000 shares of stock and the only way he makes money is if the stock goes up. So he put his money where his mouth is and he's a big John equity owner. So I think they've done that. I think the Jerry Jones factor is huge. I think he is totally new, fresh outside money and he made his money to buy the Cowboys with oil and gas money. So I think that synergy is very unusual. It's a depressed market. It's Tier 1 well resolved. You can see that. And we've kind of got a machine going, but you have said somebody that came in recognized and oiled it. And I think we've got a lot of eyes here. So that's no, we've done you forever and ever and ever. We know we have to perform. So yes, I think there's a lot of opportunities out there. I think some we'll capitalize on and some we'll pass on. And like Roland said, it's all about the leverage game now. It's not that we need more inventory. We have over 2,000 locations. But we are leaning forward to seeing what we can do to become a better company, more delevered, quicker, and yet at the same time, keep what we created. So yes, I think there's a lot of opportunities. The basin is still a stressed basin, as you know. Right. Looking at Slide 15, I was wondering, can you discuss to what extent the Acadian pipeline insulates Comstock from the associated gas coming into the Gulf from the Permian? Yes. Roland? Well, sure. I mean, I think you're looking at Slide 15, I think our major markets are probably in Louisiana side. And I think as far as Permian gas, I think Permian gas is going to be hitting the Gulf Coast mainly kind of west of Houston, east of Houston. There's not a lot of Gulf Coast connectivity to the Louisiana side of the market. And I think the initiatives we've been taking is we obviously want to be first to market and direct to market to where the gas the yellow tub is where is the new popular hub for where the LNG Gulf of Mexico based shippers are going to be taking their gas. And so locking up direct transportation to it, pricing that at Gulf Coast indexes, being first to market, having the lowest cost structure, that's how we think we insulate ourselves from the Permian producers. We think though that on the western side of the Gulf, that's going to connect directly in more to the Permian. Okay. Great. And if I could sneak one last one is kind of looking at the M and A the other way around. The presentation noted that there's a potential for Comstock divestitures of non core assets to help reduce the debt and enhance liquidity. So I guess what I'm kind of thinking here is, first of all, are we talking about non core acreage within the Haynesville or outside of the Haynes can you get cash can you make cash deals in this market, bearing in mind that you're buying good acreage with stock. And it seems like M and A deals that generate cash are kind of few and far between right now. Yes. We'd agree with that. I mean, we know that M and A market is very, very soft and capital is very hard to come by, which is driving that softness. And we don't view as divestitures of the non core properties as a core part of our delevering. It's just that we're open to it, but we're not giving away properties, and we're not counting on a good market there. There are properties that we'll never drill in our portfolio. And there are people yes, and there are parties chasing it. And we if they can meet our price, we'd exit. But yes, we would not want to focus on that as a major source of because we think that relying on the capital markets and M and A market, you don't want to be relying on those in this environment. And we are not in our go forward plans. Yes. There are several kind of outreaches to us on 2 or 3 different properties that if they were to hit the certain price that we're looking for, then we would divest with that. But they are not our core properties at all. These are property relative. If you rank them core Tier 1, Tier 2, Tier 3 within our portfolio, these would be the Tier 3. So we would get that value now and we would we'd use that to pay down our bank debt. So you always have some divestitures potentials if you've got a company this size. I appreciate you clarifying that. Again, congratulations on the quarter. Yes. Thank you. Thank you. Our next question comes from Sean Sneeden with Guggenheim. Your line is now open. Good morning, guys. This is Julie Piccillo in for Sean Sneeden. And Roland, we were wondering how you guys are thinking about the fall redetermination. I know you guys went through one with lower deck with the Covey Park deal, but have decks gotten materially worse? And how much have you shared with the group about free cash flow plans going Sure. I mean, that's a good question. We wish we were finished with the redetermination, but because our deal was a late deal, relatively speaking, and put in place in July, We are in the middle of redetermination. We're highly confident that we're going to keep the borrowing base is going to be remain exactly like it is now. And we'll have that wrapped up in a couple of weeks. And despite the fact that the bank price decks are lower than they were in July, we added a lot of reserves. We had a lot of PDP reserves and also since the same time frame. And we feel like that the numbers are very comparable to what they looked at than using a lower price deck and combined with a good hedge book that we have. So we're we'd like to have it totally finished. We do have the major banks signed off, and we just have to finish the routine process. But we think you'll find that it will be the borrowing base will remain exactly where it is. Yes. We're not asking for an increase either. Just a new facility. We're just asking to keep Yes. And we're not even electing to use all of it right now. So but we say even without not electing all of it, we don't see we see it remaining exactly the same. That's great guys. Thank you. Thank you. Our next question comes from Gregg Brody with Bank of America. Your line is now open. Good morning guys and congrats on a great update. Thank you. Just a couple of questions. Just coming back to the divestiture process that you're considering, I know you said it's some non core assets. What is there is there an actual number you're trying to target in terms of how much you'd like to divest or reduce bank debt? And then you talked about the non core properties. Is there anything else infrastructure wise that could potentially be monetized? Yes. As far as other items that could be monetized, I think one of the reasons why we have the best in basin gathering cost and is because we haven't tried to monetize gathering assets at above market rates and create kind of an off balance sheet debt. And we certainly don't view that as a good source of liquidity and not interested in doing anything that would lower that would jeopardize our cost structure because we think that's critical in low price times is to be the very low cost operator. And that's what's making that's what generates good profitable results and very, very low gas prices that we have. So we really are looking when we talked about divestitures, it's really properties, non core properties, some we got in the merger, maybe some Comstock had that we'll never ever see the drilling schedule probably because there's so many things in front of it. And groups that are mainly, it's reverse inquiries, not us marketing those. So we're not targeting a number. We're not at all. And I think we recognize the weak market and these companies that like to buy these assets have a hard time getting capital. So we're not trying to say that's a major part of our plans at all. But certainly, Scott, we have those assets that could divest up, and we're not looking to give them away either because we don't think that, that really helps in the long run. So but yes, the magnitude, like we said before, and this is no different than what there's no new announcement there. We said this when we closed the Covey Park acquisition. I mean, the magnitude of those is in the $100,000,000 to $200,000,000 range, kind of the values we view if we could get them all done. And we may get none of them done in this week M and A market. And several of these are carryovers from when Covey consolidated with Comstock. There were several properties that others wanted to buy that Covey had been talking to. So we of course, we put that on the shelf until the consolidation. And so those parties are still looking at those assets. That's not something we started that we kind of inherited that from Covey. That's a good thing. And then as some of our properties have matured, we've had some parties reach out to see if they could consolidate some of what we have with what they have, which would make them better. So that's the tough things we're looking at. And it is $100,000,000 to $200,000,000 It's you cannot count on a penny of it. And we won't give away any of it if the price is not right, so. No, I appreciate you could be patient there. And then just you gave that update on the shut in production and went up this quarter because you're a bigger company now with Covey. What's the right way to think about that number going forward as to was the amount of production shut in this quarter kind of a good run rate? Or was that high or low relative to what you think you're going to Yes. And we focused yes, and you focused on the percentage really because obviously as long as you're active, you're going to have something shut in. You can't and we think that we I think 3% is a pretty good average run rate. We obviously look we always look to optimize that. And I don't know if we could get it to 2%, that'd be a goal. But 3%, we typically model 3% to 4% when we kind of look at our future. So we thought 3% was a great number. Yes, we're very pleased with that. We're very pleased with that. The only reason why the qualities are bigger is because you're just counting Covey now. They weren't in the numbers before. I appreciate that very much. Thank you for the color guys and the time. Yes. Thank you. Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Jay Allison for any further remarks. Sure. Again, we're always appreciative that you take the time to listen to the complete call. We are really working hard to deliver the comp stock that you want and that we've got a chance to deliver to you. And we do realize it's a new air of energy. We do realize we've got to get our costs down and keep them down like we have. We do realize we have to have these high margins. And we do realize that there's some opportunities out there that we have incredible backer, which is Jerry Jones tobaccus. So it's a pretty fortunate cycle that we're in, and we're thankful for that. And we're thankful for all of you who are either shareholders or bondholders or you provide our bank facility or an analyst support, whatever, we're working hard. So thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.