Was Natural Gas the Fuel for Jerry Jones’ $90 Million Bet on Zeke?


This last month, Jerry Jones, owner of Comstock Resources and the Dallas Cowboys, entered into a six-year, $90 million contract with running back Ezekiel Elliott, financed in part by natural gas.1  Jerry Jones was quoted as saying that, “the way you get 90 million [dollars] to pay Zeke Elliott is to drill wells with Comstock in the Haynesville.”

A Fox Business article goes on to say that while he’s best known for owning the Cowboys, Jerry Jones is first and foremost a businessman who made his fortune in Arkansas oil and gas exploration.  “I got into things when [industry demand] was soft, or not necessarily in favor, that’s how I bought the Cowboys,” Jones said. “Earlier in my career, I got into natural gas when everybody was getting out.”

Given that logic, Jones might consider this to be a good time to invest in natural gas.  As reported by the EIA, natural gas prices have continued their year-to-date downward trend, falling below $2.30 per MMBtu as of the end of August.2

1.  Keith Allison from Hanover, MD, USA (https://commons.wikimedia.org/wiki/File:Ezekiel_Elliott_2017.jpg), „Ezekiel Elliott 2017“, Size, https://creativecommons.org/licenses/by-sa/2.0/legalcode

E&P companies have responded to these low prices by reducing the number of rigs drilling gas wells to 160 nation-wide, a 14% decline from last year.3

This month, Jones and his family celebrated Comstock’s recent acquisition of Covey Park Energy.  The deal is valued at $2.2 billion and will double the company’s resources. Comstock shares soared 20% on the news — their biggest intraday gain in over a year. This meant that Jones’ fortune also grew by about $100 million, most of which he subsequently invested in Elliott.4

WTI Crude Oil Outlook

The price distribution below shows the crude oil spot price on September 16, 2019, and predicted crude oil prices based on option and futures markets. The blue lines are within one standard deviation (σ) of the mean, and the red lines are within two standard deviations.

The starting point of $60 per barrel reflects the market’s reaction to the bombing of the Saudi Arabian facilities this last weekend.  Based on the September 16, 2019 prices, the markets indicate that in mid-October there is a 68% chance that oil prices will be between $53.00 and $70.00 per barrel.  Likewise, there is about a 95% chance that prices will be between $45.50 and $86.00.  In mid-February 2020, the +/- 1σ price range is $46.00 to $72.50 per barrel, and the 2σ range is $33.50 to $95.00 per barrel.   In other words, there is a 95% probability that the expected price of oil will be between approximately $33 and $95 per barrel and a 97.5% probability it will not be above $95 per barrel.

Natural Gas Outlook

We can do the same thing for natural gas, which is currently trading at $2.67 per MMBTU on the Henry Hub.  Although more affected by seasonal factors than crude oil, in mid-October 2019, the +/- 1σ price range is $2.35 to $3.15 per barrel (68% probability) and the +/- 2σ range is $1.95 to $3.80 per MMBTU (95% probability).

Key Takeaways

Remember, these option analyses deal in expected probabilities, not certain outcomes—but that doesn’t make it any less useful.  If someone asks you longingly if oil will be at $100 again soon, you now can respond with “there is about a 97.5% probability that oil prices aren’t expected to get above $95 by mid-February 2020, so I wouldn’t count on it.”

[1] Natural gas investment helped pay for Ezekiel Elliott, by Eleanor Terrett, Published September 05, 2019, Business Leaders FOX Business

[2] https://www.eia.gov/naturalgas/weekly/

[3] Ibid.

[4] Natural gas investment helped pay for Ezekiel Elliott, by Eleanor Terrett, Published September 05, 2019, Business Leaders FOX Business

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