Increasing demand for Texas natural gas - Dec 10

[dan_s]

Comstock Resources (CRK) Update from TPH & Co Equity Research

NextEra discloses plan for 8 GW of Central Texas power generation
Sector: Upstream | Ticker: CRK | Recommendation: Hold | Target: $25 | Close: $24.80 | Market Cap: $7.3B | Analyst: Jake Roberts
NextEra Energy’s (NEE – not covered) analyst day earlier this week provided incremental color on it’s early-days agreement with Comstock that was disclosed alongside CRK’s Q2 earnings update. While the partnership remains at an LOI stage, we took the update that up to ~8 GW of power development in Central Texas is being contemplated as positive as up until now the potential scale was an unknown. Further, NEE’s slide deck pointed toward a potential start date as early as 2027 and noted current negotiations with a “major hyperscaler”. Our assumption would be ~1.2bcf/d of incremental gas demand (TPHe 8 GW of total generation a longer-term plan) and compares to our CRK Western Haynesville outlook of ~1.5bcf/d from the asset FY’30. For context, our model currently assumes continual rig adds to the asset y/y with an 8-rig program in the Western Haynesville in 2030. We’ll be curious to see how this agreement develops from here, namely on a) ability to sign a downstream hyperscale counterparty and b) the ultimate structure on volumes, pricing, and duration for CRK. On our recent marketing trip clients were keenly interested in our longer-term gas fundamentals outlook and in particular our viewpoint that a structural shortage of Gulf Coast gas will materialize through the end of the decade, likely positioning regional inventory as increasingly more valuable against a growing demand number.

A lot of new natural gas fired power plants are going to be built in Texas and Louisiana to provide electricity to AI Data Centers. This is just one example of how this is going to increase demand for U.S. natural gas.