Comstock Resources Inc. (NYSE: CRK) is unloading conventional gas assets in South Texas with proceeds earmarked for the Haynesville Shale, the company said Oct. 17.

The Frisco, Texas-based agreed to sell the properties to an undisclosed company for $28 million. The sale includes 9,904 net acres of legacy gas assets in Duval, Hidalgo, Kenedy, McMullen and Zapata counties, Texas.

Proceeds from the sale will fund additional 2016 drilling in the Haynesville, where the company recently restarted operations.

“This sale strengthens our balance sheet by providing additional liquidity and helps fund our Haynesville shale drilling program,” M. Jay Allison, Comstock’s CEO, said in a statement.

Although the sale slightly improves Comstock’s liquidity, Capital One Securities estimates it is actually slightly dilutive to the company's leverage ratios. The sale price is also less than the firm’s $35 million to $45 million estimated for the properties, Capital One said in an Oct. 17 report.

“The price equals about 2% of CRK’s enterprise value and the deal reduces CRK’s current production by about 6%,” the report said.

The company expects a $10 million pre-tax loss on the divestiture.

The divestiture includes production of about 9.6 million cubic feet per day (MMcf/d) of natural gas and 22 barrels per day (bbl/d) of oil. Proved reserves include about 57,000 bbl of oil and 48.9 Bcf of natural gas as of Sept. 30.

The acreage is located in the heart of the Tertiary-aged Wilco and Vicksburg plays where the major operated fields include the prolific Fandango, Rosita, Javelina and Las Hermanitas. Together, the fields have produced more than 1 trillion cubic feet equivalent.

However, the assets have been undercapitalized in Comstock's portfolio, with just three wells drilled since 2009.

In the Haynesville, where the company’s operations are focused, Comstock has drilled three (2.8 net) successful horizontal wells since commencing drilling in March 2016.

On Sept. 28, Comstock spudded its fourth well in 2016. The company plans to add a second operated drilling rig by early November.

Comstock retains about 26,000 gross (19,000 net) acres in the Eagle Ford Shale in Atascosa, Frio, La Salle and McMullen counties in South Texas. The company also holds about 81,000 gross (76,000 net) acres in the Tuscaloosa Marine Shale in Louisiana and Mississippi, according to its October investor presentation.

In addition, Comstock has started its 2017 hedging program with the recent improvement in natural gas prices. So far, the company reported hedging 30 MMcf/d of its 2017 natural gas production at $3.25 per million British thermal unit.

The conventional gas sale is expected to close December and will have an effective date of Aug. 1.

BMO Capital Markets was exclusive financial adviser to Comstock on the transaction. Locke Lord LLP was the company's legal adviser.

Emily Moser can be reached at emoser@hartenergy.com.

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