Jerry Jones is making another investment in Frisco, this time investing $75 million in Comstock Resources Inc. through the Cowboys owner’s drilling company.
On April 2, Comstock (NYSE:CRK) announced a series of related transactions in support of a comprehensive refinancing of substantially all of the company’s existing debt.
Jones’ company, Arkoma Drilling LP has agreed to make a $75 million equity investment in Comstock to support the company’s refinancing plans. Under the stock purchase agreement, Arkoma will purchase 10 million shares of the company’s common stock at $7.50 per share, subject to the retirement of the Company’s secured notes as described below. Arkoma will own approximately 14 percent of the company’s pro forma outstanding shares.
Arkoma is wholly-owned by Dallas businessman and owner of the Dallas Cowboys Football Club Ltd., Jerry Jones. In the last four years, Arkoma has invested more than $1 billion in unconventional shale drilling.
“I have followed Comstock for many years and their leadership in driving the reemergence of the Haynesville shale,” said Jones. “I believe strongly in the future of Comstock and the proven track record of its management team. This significant cash investment, which will help complete their comprehensive refinancing program, reflects my desire to become one of Comstock’s largest shareholders.”
Jones noted that, in 1999, he had the opportunity to make a similar investment in Comstock, but declined.
“Had I made that investment, I could have made over $600 million in profits. Given a second opportunity to invest in Comstock’s future, I decided not to miss it this time,” he said.
Comstock has also agreed to enter into a Strategic Drilling Venture with Arkoma. Arkoma will participate in drilling projects proposed by Comstock in the Haynesville and Bossier shale in East Texas and North Louisiana and the Eagle Ford shale in South Texas. Comstock will receive a 20 percent carried interest for projects that Arkoma participates in and Arkoma will only earn an interest in the well bore for projects they participate in and will not have rights to any related acreage. The new venture will have a two-year term beginning after the refinancing transactions have been completed. Comstock will offer a minimum of $75 million in opportunities in the first 12 months and $100 million in the second 12 months.
The Strategic Drilling Venture will enable Comstock to grow its prospect inventory, increase its capital efficiency by 20 percent for venture projects, and provide capital to address drilling required to maintain leases, according to the company. The new drilling venture with Arkoma will also allow Comstock to implement a larger drilling program, which will create efficiencies and lower service costs while also keeping Comstock’s capital expenditures within operating cash flow. The investment and relationship with Jones also gives Comstock a nationally recognized partner to assist with future acquisitions.
The successful completion of these transactions substantially reduces the Company’s debt, addresses the overhang of Comstock’s current capital structure and clears the maturity runway for the next four years. As a result, Comstock will become one of the leading scaled and prudently financed public companies operating in the Haynesville shale.
Aside from the transaction with Jones, Comstock also announced other transactions, including:
• Monetizing its Eagle Ford shale production while maintaining a significant interest in the property’s future development;
• Arranging a new four year, $300 million bank credit facility from Bank of Montreal (lead arranger), Bank of America, Deutsche Bank and Regions Financial.
• Offering to retire the company’s convertible second lien secured pay-in-kind notes where investors would receive a package of cash and stock representing par value;
• Offering to purchase the company’s first lien secured notes for cash; and
• Expected offering of $600 million of new senior unsecured notes.
“This refinancing will simplify our capital structure and allow us to focus on growing stockholder value,” stated M. Jay Allison, CEO of Comstock. “The resulting lower interest expense and benefits of the new drilling venture will allow us to increase drilling activity and grow production while spending within our operating cash flow.”
Comstock also announced that it has entered into a definitive purchase and sale agreement with USG Energy Producer Holdings LLC to sell Comstock’s producing oil and gas properties in McMullen, LaSalle, Frio, Atascosa, Wilson, and Karnes counties, Texas for a sale price of $125 million, subject to customary adjustments. The properties being sold include the 191 producing oil wells that Comstock has an interest in and approximately 9,900 net acres associated with the producing wells. The properties are producing approximately 2,027 barrels of oil per day and 3 million cubic feet per day of natural gas. At December 31, 2017, Comstock’s proved reserves included approximately 7.1 million barrels of oil and 10.5 billion cubic feet of natural gas related to the interests being sold. The sale, which is subject to customary closing conditions and to final board approval by USG, is expected to close by April 30, 2018, and will have an effective date of November 1, 2017. BMO Capital Markets Corp. is acting as exclusive advisor on the sale.
Comstock is retaining approximately 8,700 net undeveloped acres that are prospective for Eagle Ford shale development. Comstock has identified 218 drilling locations on the acreage. Subsequent to the closing, Comstock and USG intend to enter into a joint development venture on this acreage and the acreage being acquired by USG and intend to start a drilling program in the third quarter of this year to develop these opportunities.
Comstock on Monday also commenced tender offers to repurchase all of its secured notes.
The company expects to close all elements of the refinancing plan by May 2018.
Comstock also said its capital spending for 2018 will be $152 million, down from $179 million in 2017.