The AI boom has spiked energy demand, and as Big Tech firms and data center developers have scrounged for power, the fastest way to meet that demand has been with natural gas.
In Texas, natural gas producer Comstock Resources (CRK) is sitting on what it calls the “holy grail” of gas-rich land, company executives said during the most recent earnings call.
The key to success for the company — whose largest shareholder is Dallas Cowboys owner Jerry Jones — is a portfolio of land, acquired in 2019, throughout the far western area of the Haynesville Shale Basin in eastern Texas.
The region has become the most exciting frontier shale patch in Texas — and one of the most promising in the country — for exploration and production companies willing to take the risk on “wildcatting,” or drilling new wells in untested land.
Comstock is far and away the leader, thanks to a prescient acquisition and an aggressive approach to drilling. The company, sitting on a massive amount of natural gas in the Western Haynesville, is poised to heavily benefit from the skyrocketing demand for power from data center developers hungry for land and power.
“One hundred miles from Dallas and the same distance from Houston and really close to the [liquid natural gas] LNG corridor, you’re perfectly situated for both AI, data centers and LNG, so you couldn’t be in a better area,” Comstock COO Daniel Harrison said on the company’s third quarter earnings call.
Comstock, headquartered in Frisco, Texas, has long drilled for natural gas throughout the Haynesville area, one of the most prolific natural gas plays in the country, according to the Energy Information Agency.
But in 2019, Comstock bought the natural gas exploration and production (E&P) company Covey Park Energy in an acquisition valued at $2.2 billion. Jones, who took a controlling stake in Comstock the year before, contributed $475 million to the Covey Park deal. According to the Wall Street Journal, Jones has invested $1 billion in Comstock altogether.
The main focus of the acquisition was a swath of land tacked on to Comstock’s primary legacy Haynesville acreage. But the deal also added a few small bits of land north of Houston, farther west than Comstock’s activity had been concentrated.
The Western Haynesville region wasn’t unexplored. An E&P called Ovinitiv (OVV), previously Encana, had drilled throughout the land in the early to mid-2010s, but conditions were tough.
The gas-producing rock is located some 14,000 to 19,000 feet below the surface, according to public comments from Comstock executives — an extraordinary depth even by gas drilling standards. The pressure that far beneath the Earth’s surface is extreme.
For Ovinitiv, shale gas economics in that area weren’t as attractive as they are today, fracking technology wasn’t as advanced, and the company was pivoting away from gas and toward oil and other liquids.
Following its 2019 purchase of Covey Park, Comstock began buying up leases throughout the Western Haynesville in droves, ultimately owning the drilling rights to more than 500,000 acres of the gas-bearing rock identified in the region, with partial stakes in several hundred thousand more, according to an investor presentation.
The company also bought a pipeline and processing plant in the region, giving Comstock “midstream” capacity in the region as well. The purchases have been a rousing success.
“We expect the Western Haynesville will yield significantly more resource potential per section than our legacy Haynesville,” Comstock’s Harrison said on the company’s third quarter earnings call.
Jones believes the Western Haynesville is sitting on $100 billion worth of natural gas, he told the Wall Street Journal in October.
Comstock is now doubling down. It recently announced deals to sell off swaths of acreage in the legacy Haynesville area farther east on the Texas-Louisiana border to free up cash that can be plowed into the emerging Western Haynesville region.
The investments come at an opportune time.
Natural gas (NG=F) is set to be a major beneficiary from the explosive demand for power by the companies leading the AI data center buildout, as the US electric grid has been quickly strained by new requests for power, with years-long queues for connection. That bottleneck has pushed “behind-the-meter,” or off-grid, power solutions to the fore, and natural gas turbines have been a go-to solution for many of the largest developers.
Comstock’s Western Haynesville acreage in the eastern Texas region gives the company easy access to not only the most active LNG corridor in the country, but also a vast amount of land garnering interest from Big Tech for potential data center development, Harrison said on the third quarter earnings call.
For Texas E&P companies especially, which have struggled throughout the year on depressed oil prices, the uptick in natural gas demand could represent a lifeline.
“I don’t believe we have ever seen a brighter future for natural gas,” Harrison said. “Natural gas has become the go-to energy source in the United States, driven by the growth in LNG exports and the push to generate power for AI and data center development.”
Now other companies, including the much larger Expand Energy (EXE), are looking to follow Comstock’s lead and get in on the Western Haynesville assets. But Comstock, which is the third-largest producer throughout the entire Haynesville region, according to trade publication Hart Energy, is several years ahead due to its 2019 purchase.
“That’s why we say we’re around a big, bright lightbulb and then people are calling because of the inventory,” Harrison said. “That’s why you see people expanding to look at this play. It is the holy grail.”
Third quarter earnings results shared by Comstock this week show that its bets are beginning to pay off.
Comstock reported adjusted earnings per share (EPS) of $0.90 on $449.9 million of revenue, up from a loss of $0.17 on $304.5 million in revenue in the third quarter last year. Shares in Comstock jumped more than 4% on Monday after the earnings report and are up more than 80% from a year ago.
Leading Comstock’s earnings are three new Western Haynesville wells that began producing sales during the third quarter, bringing the company’s total count of revenue-producing wells in the basin up to eight on the year, according to investor materials. The company is projecting it will turn 13 Western Comstock wells into sales by the end of the year.
Comstock’s earnings were also given a leg up by natural gas prices that have jumped by more than 20% over the past six months as demand for LNG exports has picked up.
“We look to see what our drilling inventory looks like, we see what our performance looks like, we see what our acreage addition looks like,” Comstock CEO Miles Allison said on the company’s earnings call.
“As far as the takeaway and the demand … it has never ever looked brighter out there for what the world needs, not just America, the world needs in the form of natural gas. I think we’re right there at the right time.”
Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
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