Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For The Quarterly Period Ended March 31, 2007 | ||
| OR | ||
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
Commission File No. 0-16741
COMSTOCK RESOURCES, INC.
(Exact name of registrant as specified in its charter)
| NEVADA | 94-1667468 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) |
5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034
(Address of principal executive offices)
(Address of principal executive offices)
Telephone No.: (972) 668-8800
Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No þ
The number of shares outstanding of the registrant’s common stock, par value $.50,
as of May 10, 2007 was 44,406,995.
COMSTOCK RESOURCES, INC.
QUARTERLY REPORT
For The Quarter Ended March 31, 2007
INDEX
2
Table of Contents
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
INTRODUCTORY NOTE
In the third quarter of 2006, Comstock Resources, Inc. (“Comstock” or the “Company”)
acquired additional interests in Bois d’Arc Energy, Inc. (“Bois d’Arc Energy”) and, as a result,
began including Bois d’Arc Energy in its financial statements as a consolidated subsidiary. In
accordance with generally accepted accounting principles, Comstock has applied consolidation
accounting for its ownership in Bois d’Arc Energy retroactively as of January 1, 2006. Revenues
and expenses have been adjusted beginning January 1, 2006 to include Bois d’Arc Energy as a
consolidated subsidiary. There was no effect on net income as a result of using the consolidation
method. A summary of the impact of consolidating Bois d’Arc Energy on the previously reported
financial results from the three months ended March 31, 2006 is included in Note 1 to the
consolidated financial statements.
3
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COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Unaudited)
| March 31, | December 31, | |||||||
| 2007 | 2006 | |||||||
| (In thousands) | ||||||||
| ASSETS |
||||||||
Cash and Cash Equivalents |
$ | 12,003 | $ | 10,715 | ||||
Accounts Receivable: |
||||||||
Oil and gas sales |
61,602 | 56,328 | ||||||
Joint interest operations |
18,833 | 19,233 | ||||||
Other Current Assets |
10,539 | 12,552 | ||||||
Total current assets |
102,977 | 98,828 | ||||||
Property and Equipment: |
||||||||
Unevaluated oil and gas properties |
15,773 | 13,645 | ||||||
Oil and gas properties, successful efforts method |
2,648,525 | 2,511,782 | ||||||
Other |
9,296 | 8,483 | ||||||
Accumulated depreciation, depletion and amortization |
(816,073 | ) | (760,284 | ) | ||||
Net property and equipment |
1,857,521 | 1,773,626 | ||||||
Other Assets |
5,361 | 5,671 | ||||||
| $ | 1,965,859 | $ | 1,878,125 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Short-term Debt |
$ | — | $ | 3,250 | ||||
Accounts Payable |
140,217 | 132,504 | ||||||
Accrued Expenses |
6,936 | 16,107 | ||||||
Total current liabilities |
147,153 | 151,861 | ||||||
Long-term Debt |
511,000 | 455,000 | ||||||
Deferred Income Taxes Payable |
323,507 | 311,236 | ||||||
Reserve for Future Abandonment Costs |
58,113 | 57,116 | ||||||
Minority Interest in Bois d’Arc Energy |
228,006 | 220,349 | ||||||
Total liabilities |
1,267,779 | 1,195,562 | ||||||
Commitments and Contingencies |
||||||||
Stockholders’ Equity: |
||||||||
Common stock — $0.50 par, 50,000,000 shares authorized, 44,406,995 and 44,395,495
shares outstanding at March 31, 2007 and December 31, 2006, respectively |
22,203 | 22,197 | ||||||
Additional paid-in capital |
370,276 | 367,323 | ||||||
Retained earnings |
305,601 | 293,043 | ||||||
Total stockholders’ equity |
698,080 | 682,563 | ||||||
| $ | 1,965,859 | $ | 1,878,125 | |||||
The accompanying notes are an integral part of these statements.
4
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COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2007 | 2006 | |||||||
| (In thousands, except per share amounts) | ||||||||
Oil and gas sales |
$ | 146,029 | $ | 131,724 | ||||
Operating expenses: |
||||||||
Oil and gas operating |
27,083 | 26,295 | ||||||
Exploration |
11,133 | 4,875 | ||||||
Depreciation, depletion and amortization |
56,707 | 30,685 | ||||||
General and administrative, net |
9,702 | 8,135 | ||||||
Total operating expenses |
104,625 | 69,990 | ||||||
Income from operations |
41,404 | 61,734 | ||||||
Other income (expenses): |
||||||||
Interest income |
296 | 237 | ||||||
Other income |
130 | 54 | ||||||
Interest expense |
(8,449 | ) | (5,483 | ) | ||||
Gain on derivatives |
— | 8,125 | ||||||
Total other income (expenses) |
(8,023 | ) | 2,933 | |||||
Income before income taxes and minority interest |
33,381 | 64,667 | ||||||
Provision for income taxes |
(14,824 | ) | (26,299 | ) | ||||
Minority interest in earnings of Bois d’Arc Energy |
(5,999 | ) | (8,734 | ) | ||||
Net income |
$ | 12,558 | $ | 29,634 | ||||
Net income per share: |
||||||||
Basic |
$ | 0.29 | $ | 0.70 | ||||
Diluted |
$ | 0.28 | $ | 0.68 | ||||
Weighted average common and common stock equivalent shares outstanding: |
||||||||
Basic |
43,364 | 42,051 | ||||||
Diluted |
44,238 | 43,429 | ||||||
The accompanying notes are an integral part of these statements.
5
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COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Three Months Ended March 31, 2007
(Unaudited)
(Unaudited)
| Common | Common | Additional | ||||||||||||||||||
| Stock | Stock - | Paid-in | Retained | |||||||||||||||||
| (Shares) | Par Value | Capital | Earnings | Total | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
Balance at January 1, 2007 |
44,395 | $ | 22,197 | $ | 367,323 | $ | 293,043 | $ | 682,563 | |||||||||||
Stock-based compensation |
— | — | 2,654 | — | 2,654 | |||||||||||||||
Exercise of stock options |
12 | 6 | 133 | — | 139 | |||||||||||||||
Excess tax benefit from
stock-based
compensation |
— | — | 166 | — | 166 | |||||||||||||||
Net income |
— | — | — | 12,558 | 12,558 | |||||||||||||||
Balance at March 31, 2007 |
44,407 | $ | 22,203 | $ | 370,276 | $ | 305,601 | $ | 698,080 | |||||||||||
The accompanying notes are an integral part of these statements.
6
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COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2007 | 2006 | |||||||
| (In thousands) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 12,558 | $ | 29,634 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Deferred income taxes |
12,437 | 23,724 | ||||||
Dry hole costs and leasehold impairments |
8,250 | 3,381 | ||||||
Depreciation, depletion and amortization |
56,707 | 30,685 | ||||||
Debt issuance cost amortization |
281 | 315 | ||||||
Stock-based compensation |
4,312 | 3,144 | ||||||
Excess tax benefit from stock-based compensation |
(166 | ) | (197 | ) | ||||
Minority interest in earnings of Bois d’Arc Energy |
5,999 | 8,734 | ||||||
Gain on derivatives |
— | (8,125 | ) | |||||
(Increase) decrease in accounts receivable |
(4,874 | ) | 13,685 | |||||
(Increase) decrease in other current assets |
(1,237 | ) | 4,512 | |||||
Decrease in accounts payable and accrued expenses |
(15,521 | ) | (23,953 | ) | ||||
Net cash provided by operating activities |
78,746 | 85,539 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Capital expenditures |
(133,727 | ) | (93,369 | ) | ||||
Payments to settle derivatives |
— | (703 | ) | |||||
Net cash used for investing activities |
(133,727 | ) | (94,072 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Borrowings |
58,000 | 42,000 | ||||||
Principal payments on debt |
(2,000 | ) | (35,000 | ) | ||||
Proceeds from issuance of common stock |
139 | 117 | ||||||
Excess tax benefit from stock-based compensation |
166 | 197 | ||||||
Debt issuance costs |
(36 | ) | — | |||||
Net cash provided by financing activities |
56,269 | 7,314 | ||||||
Net increase (decrease) in cash and cash equivalents |
1,288 | (1,219 | ) | |||||
Cash and cash equivalents, beginning of period |
10,715 | 89 | ||||||
Bois
d’Arc Energy cash and equivalents as of January 1, 2006 |
— | 12,043 | ||||||
Cash and cash equivalents, end of period |
$ | 12,003 | $ | 10,913 | ||||
The accompanying notes are an integral part of these statements.
7
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COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
(Unaudited)
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES —
Basis of Presentation
In management’s opinion, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the
financial position of Comstock Resources, Inc. and subsidiaries (“Comstock” or the “Company”) as of
March 31, 2007 and the related results of operations and cash flows for the three months ended
March 31, 2007 and 2006.
The accompanying unaudited consolidated financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain information and
disclosures normally included in annual financial statements prepared in accordance with accounting
principles generally accepted in the United States have been omitted pursuant to those rules and
regulations, although Comstock believes that the disclosures made are adequate to make the
information presented not misleading. These unaudited consolidated financial statements should be
read in conjunction with the financial statements and notes thereto of the Company included in
Comstock’s Annual Report on Form 10-K for the year ended December 31, 2006.
The results of operations for the three months ended March 31, 2007 are not necessarily an
indication of the results expected for the full year.
These unaudited consolidated financial statements include the accounts of Comstock and
subsidiaries in which it has a controlling interest. Intercompany balances and transactions have
been eliminated in consolidation.
In the third quarter of 2006, Comstock purchased additional shares of common stock in Bois
d’Arc Energy, Inc. (“Bois d’Arc Energy”) increasing its ownership of Bois d’Arc Energy’s common
stock to 32,220,761 shares. As a result, as of September 30, 2006, Comstock has voting control of
Bois d’Arc Energy through the combined share ownership of the Company and members of its Board of
Directors. Upon obtaining voting control of Bois d’Arc Energy, Comstock began including Bois d’Arc
Energy in its financial statements as a consolidated subsidiary. As permitted by generally
accepted accounting principles, consolidated revenues, expenses and cash flows for 2006 have been
retroactively adjusted to reflect Bois d’Arc Energy as a consolidated subsidiary as of January 1,
2006. The inclusion of Bois d’Arc Energy as a consolidated subsidiary in the Company’s financial
statements had no impact on the Company’s net income.
8
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COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
The following summarizes the impact of retroactively consolidating the results of Bois
d’Arc Energy:
| Three Months Ended March 31, 2006 | ||||||||||||
| As | ||||||||||||
| Previously | Consolidating | As | ||||||||||
| Reported | Adjustments | Consolidated | ||||||||||
| (In thousands) | ||||||||||||
Statement of Operations: |
||||||||||||
Revenues |
$ | 69,891 | $ | 61,833 | $ | 131,724 | ||||||
Operating expenses |
(35,385 | ) | (34,605 | ) | (69,990 | ) | ||||||
Income from operations |
34,506 | 27,228 | 61,734 | |||||||||
Other income (expenses) |
3,941 | (1,008 | ) | 2,933 | ||||||||
Income before income taxes, minority interest in
earnings and equity in earnings of Bois d’Arc
Energy |
38,447 | 26,220 | 64,667 | |||||||||
Provision for income taxes |
(16,860 | ) | (9,439 | ) | (26,299 | ) | ||||||
Minority interest in earnings of Bois d’Arc Energy |
— | (8,734 | ) | (8,734 | ) | |||||||
Equity earnings in earnings of Bois d’Arc Energy |
8,047 | (8,047 | ) | — | ||||||||
Net income |
$ | 29,634 | $ | — | $ | 29,634 | ||||||
| As of March 31, 2006 | ||||||||||||
| As | ||||||||||||
| Previously | Consolidating | As | ||||||||||
| Reported | Adjustments | Consolidated | ||||||||||
| (In thousands) | ||||||||||||
Balance Sheet: |
||||||||||||
Current assets |
$ | 40,236 | $ | 39,572 | $ | 79,808 | ||||||
Property and equipment, net |
739,853 | 691,436 | 1,431,289 | |||||||||
Investment in Bois d’Arc Energy |
260,181 | (260,181 | ) | — | ||||||||
Other assets |
4,575 | 720 | 5,295 | |||||||||
Total assets |
$ | 1,044,845 | $ | 471,547 | $ | 1,516,392 | ||||||
Current liabilities |
$ | 52,904 | $ | 50,992 | $ | 103,896 | ||||||
Long-term debt |
243,000 | 76,000 | 319,000 | |||||||||
Deferred income taxes payable |
131,162 | 131,508 | 262,670 | |||||||||
Reserve for future abandonment costs |
3,291 | 35,778 | 39,069 | |||||||||
Minority interest in Bois d’Arc Energy |
— | 177,269 | 177,269 | |||||||||
Stockholders’ equity |
614,488 | — | 614,488 | |||||||||
Total liabilities and stockholders’ equity |
$ | 1,044,845 | $ | 471,547 | $ | 1,516,392 | ||||||
| Three Months Ended March 31, 2006 | ||||||||||||
| As | ||||||||||||
| Previously | Consolidating | As | ||||||||||
| Reported | Adjustments | Consolidated | ||||||||||
| (In thousands) | ||||||||||||
Statement of Cash Flows: |
||||||||||||
Cash flows provided by operating activities |
$ | 52,807 | $ | 32,732 | $ | 85,539 | ||||||
Cash flows used for investing activities |
$ | (49,890 | ) | $ | (44,182 | ) | $ | (94,072 | ) | |||
Cash flows provided by financing activities |
$ | 314 | $ | 7,000 | $ | 7,314 | ||||||
In connection with the acquisitions of additional common shares of Bois d’Arc Energy in
2006, Comstock allocated the $36.4 million purchase price paid for the shares in excess of its
underlying net book value in Bois d’Arc Energy of $18.9 million together with the related deferred
income tax liability of $10.1 million to oil and gas properties. This additional amount is being
amortized over the productive lives of Bois d’Arc Energy’s oil and gas properties using the
unit-of-production method. The pro forma impact of the acquisition of these shares was not
material to the Company’s results of operations for the three months ended March 31, 2006.
9
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COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
Asset Retirement Obligations
Comstock’s primary asset retirement obligations relate to future plugging and abandonment
expenses on its oil and gas properties and related facilities disposal. The following table
summarizes the changes in Comstock’s total estimated liability during the three months ended March
31, 2007 and 2006:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2007 | 2006 | |||||||
| (In thousands) | ||||||||
Beginning asset retirement obligations |
$ | 57,116 | $ | 3,206 | ||||
Bois d’Arc abandonment liability(1) |
— | 35,034 | ||||||
Accretion expense |
881 | 598 | ||||||
New wells placed on production and changes in estimates |
213 | 238 | ||||||
Liabilities settled |
(97 | ) | (7 | ) | ||||
Future abandonment liability — end of period |
$ | 58,113 | $ | 39,069 | ||||
| (1) | Concurrent with including Bois d’Arc Energy as a consolidated subsidiary as of January 1, 2006, the asset retirement obligations of Bois d’Arc Energy are included in the Company’s financial statements. |
Derivative Instruments and Hedging Activities
Comstock periodically uses swaps, floors and collars to hedge oil and natural gas prices and
interest rates. Swaps are settled monthly based on differences between the prices specified in the
instruments and the settlement prices of futures contracts. Generally, when the applicable
settlement price is less than the price specified in the contract, Comstock receives a settlement
from the counter party based on the difference multiplied by the volume or amounts hedged.
Similarly, when the applicable settlement price exceeds the price specified in the contract,
Comstock pays the counter party based on the difference. Comstock generally receives a settlement
from the counter party for floors when the applicable settlement price is less than the price
specified in the contract, which is based on the difference multiplied by the volume amounts
hedged. For collars, generally Comstock receives a settlement from the counter party when the
settlement price is below the floor and pays a settlement to the counter party when the settlement
price exceeds the cap. No settlement occurs when the settlement price falls between the floor and
cap.
The Company had no derivative financial instruments outstanding for the three months ended
March 31, 2007. The fair value of the Company’s derivative contracts held for price risk
management at March 31, 2006 was a liability of $2.4 million. Comstock did not designate these
instruments as cash flow hedges, and accordingly an unrealized gain on derivatives of $8.8 million
was recorded for the three months ended March 31, 2006. The Company realized losses of $0.7
million for the three months ended March 31, 2006 to settle derivative positions.
Stock-Based Compensation
Comstock Resources and Bois d’Arc Energy maintain separate incentive compensation plans under
which they grant common stock and stock options to key employees and directors.
10
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COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
Comstock accounts for employee stock-based compensation under the fair value method.
Compensation cost is measured at the grant date based on the fair value of the award and is
recognized over the award vesting period. During the three months ended March 31, 2007 and 2006,
the Company recognized $4.3 million and $3.1 million, respectively, in stock-based compensation
expense within general and administrative expenses related to stock option and restricted stock
grants, including $1.7 million and $1.5 million, respectively, attributable to Bois d’Arc Energy’s
incentive plan. The excess income tax benefit realized from tax deductions associated with
stock-based compensation totaled $166,000 in the three months ended March 31, 2007.
The fair value of stock option grants is estimated on the date of the grant using a
Black-Scholes option pricing model. Some of the inputs to the option valuation model are
subjective, including assumptions regarding expected stock price volatility. Comstock Resources
did not make any stock option grants during the first quarter ended March 31, 2007. Bois d’Arc
Energy granted options to purchase 30,000 shares at an exercise price of $12.88 per share during
the three months ended March 31, 2007. The fair value of the options awarded was determined to be
$4.92 per option share.
As of March 31, 2007, total unrecognized compensation cost related to nonvested Comstock stock
options of $2.9 million is expected to be recognized over a weighted average period of 3.7 years.
As of March 31, 2007, Comstock had 1,033,000 shares of unvested restricted stock outstanding at a
weighted average grant date fair value of $28.46 per share. Total unrecognized compensation cost
related to Comstock unvested restricted stock grants of $29.4 million as of March 31, 2007 is
expected to be recognized over a period of 3.8 years.
As of March 31, 2007, total unrecognized compensation cost related to nonvested Bois d’Arc
Energy stock options of $9.9 million is expected to be recognized over a weighted average period of
5.0 years. As of March 31, 2007, Bois d’Arc Energy had 1,306,000 shares of unvested restricted
stock outstanding at a weighted average grant date fair value of $6.97 per share. Total
unrecognized compensation cost related to Bois d’Arc Energy unvested restricted stock grants of
$7.0 million as of March 31, 2007 is expected to be recognized over a period of 4.0 years.
Income Taxes
Deferred income taxes are provided to reflect the future tax consequences or benefits of
differences between the tax basis of assets and liabilities and their reported amounts in the
financial statements using enacted tax rates. The difference between the Company’s customary rate
of 35% and the effective tax rate on income before income taxes and minority interest is due to the
following:
| Three Months Ended | ||||||||||
| March 31, | ||||||||||
| 2007 | 2006 | |||||||||
Tax at statutory rate |
35 | % | 35 | % | ||||||
Tax effect of: |
||||||||||
Undistributed earnings of Bois d’Arc Energy,
not consolidated for federal income tax
purposes |
6.3 | % | 4.4 | % | ||||||
Nondeductible stock-based compensation |
2.9 | % | 1.2 | % | ||||||
State income taxes, net of federal benefit |
0.7 | % | 0.2 | % | ||||||
Other |
(0.5 | %) | (0.1 | %) | ||||||
Effective tax rate |
44.4 | % | 40.7 | % | ||||||
11
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COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
The following is an analysis of consolidated income tax expense:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2007 | 2006 | |||||||
| (In thousands) | ||||||||
Current provision |
$ | 2,387 | $ | 2,575 | ||||
Deferred provision |
12,437 | 23,724 | ||||||
Provision for Income Taxes |
$ | 14,824 | $ | 26,299 | ||||
Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48), which
clarifies the accounting and disclosure for uncertainty in tax positions. The Company has analyzed
its filing positions in all jurisdictions where it is required to file income tax returns for the
open tax years in such jurisdictions. The Company has identified its federal income tax return and
its state income tax returns in Texas, Louisiana, Mississippi and Oklahoma in which it operates as
“major” tax jurisdictions. The Company’s federal income tax returns for the years subsequent to
December 31, 2004 remain subject to examination. The Company’s income tax returns in major state
income tax jurisdictions remain subject to examination for various periods subsequent to December
31, 2002. The Company currently believes that all significant filing positions are highly certain
and that all of its significant income tax filing positions and deductions would be sustained upon
audit. Therefore, the Company has no significant reserves for uncertain tax positions and no
adjustments to such reserves were required upon adoption of FIN 48. Interest and penalties
resulting from audits by tax authorities have been immaterial and are included in the provision for
income taxes in the consolidated statements of operations.
Earnings Per Share
Basic earnings per share is determined without the effect of any outstanding potentially
dilutive stock options, unvested restricted stock or other convertible securities and diluted
earnings per share is determined with the effect of outstanding stock options, unvested restricted
stock and other convertible securities that are potentially dilutive. Basic and diluted earnings
per share for the three months ended March 31, 2007 and 2006, respectively, were determined as
follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||
| 2007 | 2006 | |||||||||||||||||||||||
| Per | Per | |||||||||||||||||||||||
| Income | Shares | Share | Income | Shares | Share | |||||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||||||
Basic Earnings Per Share: |
||||||||||||||||||||||||
Net Income |
$ | 12,558 | 43,364 | $ | 0.29 | $ | 29,634 | 42,051 | $ | 0.70 | ||||||||||||||
Diluted Earnings Per Share: |
||||||||||||||||||||||||
Net Income |
$ | 12,558 | 43,364 | $ | 29,634 | 42,051 | ||||||||||||||||||
Effect of Dilutive Securities: |
||||||||||||||||||||||||
Stock Grants and Options |
(95 | ) | 874 | (158 | ) | 1,378 | ||||||||||||||||||
Net Income Available to Common Stockholders
With Assumed Conversions |
$ | 12,463 | 44,238 | $ | 0.28 | $ | 29,476 | 43,429 | $ | 0.68 | ||||||||||||||
12
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COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
Stock options to purchase common stock at exercise prices in excess of the average actual
stock price for the period that were anti-dilutive and that were excluded from the determination of
diluted earnings per share are as follows:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2007 | 2006 | |||||||
| (In thousands except per share data) | ||||||||
Weighted average anti-dilutive stock options |
231 | 102 | ||||||
Weighted average exercise price |
$ | 32.81 | $ | 32.50 | ||||
Supplementary Information With Respect to the Consolidated Statements of Cash Flows -
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2007 | 2006 | |||||||
| (In thousands) | ||||||||
Cash Payments - |
||||||||
Interest payments |
$ | 11,771 | $ | 8,686 | ||||
Income tax payments |
$ | 3,910 | $ | 3,078 | ||||
(2) LONG-TERM DEBT —
At March 31, 2007, long-term debt was comprised of the following:
| (In thousands) | ||||
Comstock Revolving Bank Credit Facility |
$ | 216,000 | ||
Bois d’Arc Energy Revolving Bank Credit Facility |
120,000 | |||
Comstock 67/8% Senior Notes due 2012 |
175,000 | |||
| $ | 511,000 | |||
Comstock has a $600.0 million bank credit facility with Bank of Montreal, as the
administrative agent. The credit facility is a five-year revolving credit commitment that matures
on December 15, 2011. Indebtedness under the credit facility is secured by Comstock and its
wholly-owned subsidiaries’ oil and gas properties and is guaranteed by all of its wholly-owned
subsidiaries. The credit facility is subject to borrowing base availability, which is redetermined
semiannually based on the banks’ estimates of the future net cash flows of Comstock’s oil and
natural gas properties. The borrowing base may be affected by the performance of Comstock’s
properties and changes in oil and natural gas prices. The determination of the borrowing base is
at the sole discretion of the administrative agent and the bank group. As of March 31, 2007, the
borrowing base was $400.0 million, $184.0 million of which was available. Borrowings under the
credit facility bear interest, based on the utilization of the borrowing base, at Comstock’s option
at either (1) LIBOR plus 1.0% to 1.75% or (2) the base rate (which is the higher of the prime rate
or the federal funds rate) plus 0% to 0.25%. A commitment fee of 0.25% to 0.375%, based on the
utilization of the borrowing base, is payable on the unused borrowing base. The credit facility
contains covenants that, among other things, restrict the payment of cash dividends in excess of
$40.0 million, limit the amount of consolidated debt that Comstock may incur and limit the
Company’s ability to make certain loans and investments. The only financial covenants are the
maintenance of a ratio of current assets, including availability under the bank credit facility, to
current liabilities of at least one-to-one and maintenance of a minimum tangible net worth. The
Company was in compliance with these covenants as of March 31, 2007.
13
Table of Contents
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
Bois d’Arc Energy has a bank credit facility with The Bank of Nova Scotia and several
other banks. Borrowings under the credit facility are limited to a borrowing base that is
re-determined semi-annually based on the banks’ estimate of the future net cash flows of Bois d’Arc
Energy’s oil and natural gas properties. The determination of the borrowing base is at the sole
discretion of the administrative agent and the bank group. The borrowing base was $200.0 million
as of March 31, 2007 and was increased to $225.0 million on May 7, 2007. Availability under this
credit facility was $80.0 million as of March 31, 2007. The Bois d’Arc Energy credit facility
matures on May 11, 2009. Borrowings under the credit facility bear interest at Bois d’Arc
Energy’s option of either (1) LIBOR plus a margin that varies from 1.25% to 2.0% depending upon the
ratio of the amounts outstanding to the borrowing base or (2) the base rate (which is the higher of
the prime rate or the federal funds rate) plus a margin that varies from 0% to 0.75% depending upon
the ratio of the amounts outstanding to the borrowing base. A commitment fee ranging from 0.375%
to 0.50% (depending upon the ratio of the amounts outstanding to the borrowing base) is payable the
unused borrowing base. Indebtedness under the credit facility is secured by substantially all of
Bois d’Arc Energy and its subsidiaries’ assets, and all of the Bois d’Arc Energy’s subsidiaries are
guarantors of the indebtedness. The Bois d’Arc Energy credit facility contains covenants that
restrict the payment of cash dividends in excess of $5.0 million, borrowings, sales of assets,
loans to others, capital expenditures, investments, merger activity, hedging contracts, liens and
certain other transactions without the prior consent of the lenders and requires Bois d’Arc Energy
to maintain a ratio of current assets, including the availability under the bank credit facility,
to current liabilities of at least one-to-one and a ratio of indebtedness to earnings before
interest, taxes, depreciation, depletion, and amortization, exploration and impairment expense of
no more than 2.5-to-one. Bois d’Arc Energy was in compliance with these covenants as of March 31,
2007.
(3) COMMITMENTS AND CONTINGENCIES —
From time to time, Comstock is involved in certain litigation that arises in the normal course
of its operations. The Company records a loss contingency for these matters when it is probable
that a liability has been incurred and the amount of the loss can be reasonably estimated. The
Company does not believe the resolution of these matters will have a material effect on the
Company’s financial position or results of operations. In connection with its exploration and
development activities, the Company contracts for drilling rigs and for the acquisition of seismic
data under terms of up to three years. The Company has commitments to acquire seismic data
totaling $11.0 million through December 2008. As of March 31, 2007, the Company had commitments
for contracted drilling services of $77.0 million through September 2008.
(4) CONSOLIDATING FINANCIAL STATEMENTS —
Comstock Resources, Inc. (“Parent”) has $175.0 million of 67/8% senior notes outstanding which
are guaranteed by all of the Parent’s wholly-owned subsidiaries. There are no restrictions on the
Parent’s ability to obtain funds from any of the guarantor subsidiaries or on a guarantor
subsidiary’s ability to obtain funds from the Parent or their direct or indirect subsidiaries. The
67/8% senior notes are not guaranteed by Bois d’Arc Energy and its subsidiaries (the non-guarantor
subsidiaries). The following condensed consolidating balance sheet, statements of operations and
statement of cash flows are provided for the Parent, all guarantor subsidiaries and all
non-guarantor subsidiaries. The information has been presented as if the Parent accounted for its
ownership of the guarantor and non-guarantor subsidiaries using the equity method of accounting.
14
Table of Contents
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
Balance Sheet:
| As of March 31, 2007 | ||||||||||||||||||||
| Comstock | Guarantor | Non-Guarantor | Eliminating | |||||||||||||||||
| Resources | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | 561 | $ | 11,442 | $ | — | $ | 12,003 | ||||||||||
Accounts receivable |
— | 41,512 | 38,923 | — | 80,435 | |||||||||||||||
Other current assets |
1,027 | 1,813 | 7,699 | — | 10,539 | |||||||||||||||
Total current assets |
1,027 | 43,886 | 58,064 | — | 102,977 | |||||||||||||||
Net property and equipment |
30,128 | 972,064 | 855,329 | — | 1,857,521 | |||||||||||||||
Investment in subsidiaries |
657,400 | — | — | (657,400 | ) | — | ||||||||||||||
Intercompany receivables |
417,936 | — | — | (417,936 | ) | — | ||||||||||||||
Other assets |
4,490 | 1 | 870 | — | 5,361 | |||||||||||||||
Total assets |
$ | 1,110,981 | $ | 1,015,951 | $ | 914,263 | $ | (1,075,336 | ) | $ | 1,965,859 | |||||||||
Liabilities and Stockholders’ Equity: |
||||||||||||||||||||
Accounts payable |
$ | 13 | $ | 84,812 | $ | 55,392 | $ | — | $ | 140,217 | ||||||||||
Accrued expenses |
2,358 | 1,946 | 2,632 | — | 6,936 | |||||||||||||||
Total current liabilities |
2,371 | 86,758 | 58,024 | — | 147,153 | |||||||||||||||
Long-term debt |
391,000 | — | 120,000 | — | 511,000 | |||||||||||||||
Intercompany payables |
— | 417,936 | — | (417,936 | ) | — | ||||||||||||||
Deferred income taxes payable |
19,530 | 146,948 | 157,029 | — | 323,507 | |||||||||||||||
Reserve for future abandonment costs |
— | 9,044 | 49,069 | — | 58,113 | |||||||||||||||
Minority interest |
— | — | — | 228,006 | 228,006 | |||||||||||||||
Total liabilities |
412,901 | 660,686 | 384,122 | (189,930 | ) | 1,267,779 | ||||||||||||||
Stockholders’ equity |
698,080 | 355,265 | 530,141 | (885,406 | ) | 698,080 | ||||||||||||||
Total liabilities and
stockholders’ equity |
$ | 1,110,981 | $ | 1,015,951 | $ | 914,263 | $ | (1,075,336 | ) | $ | 1,965,859 | |||||||||
| As of December 31, 2006 | ||||||||||||||||||||
| Comstock | Guarantor | Non-Guarantor | Eliminating | |||||||||||||||||
| Resources | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | 1,228 | $ | 9,487 | $ | — | $ | 10,715 | ||||||||||
Accounts receivable |
— | 37,049 | 38,512 | — | 75,561 | |||||||||||||||
Other current assets |
210 | 3,547 | 8,795 | — | 12,552 | |||||||||||||||
Total current assets |
210 | 41,824 | 56,794 | — | 98,828 | |||||||||||||||
Net property and equipment |
30,345 | 915,486 | 827,795 | — | 1,773,626 | |||||||||||||||
Investment in subsidiaries |
636,303 | — | — | (636,303 | ) | — | ||||||||||||||
Intercompany receivables |
393,395 | — | — | (393,395 | ) | — | ||||||||||||||
Other assets |
4,757 | 2 | 912 | — | 5,671 | |||||||||||||||
Total assets |
$ | 1,065,010 | $ | 957,312 | $ | 885,501 | $ | (1,029,698 | ) | $ | 1,878,125 | |||||||||
Liabilities and Stockholders’ Equity: |
||||||||||||||||||||
Short-term debt |
$ | — | $ | — | $ | 3,250 | $ | — | $ | 3,250 | ||||||||||
Accounts payable |
9,687 | 62,041 | 60,776 | — | 132,504 | |||||||||||||||
Accrued expenses |
— | 11,265 | 4,842 | — | 16,107 | |||||||||||||||
Total current liabilities |
9,687 | 73,306 | 68,868 | — | 151,861 | |||||||||||||||
Long-term debt |
355,000 | — | 100,000 | — | 455,000 | |||||||||||||||
Intercompany payables |
— | 393,395 | — | (393,395 | ) | — | ||||||||||||||
Deferred income taxes payable |
17,760 | 141,517 | 151,959 | — | 311,236 | |||||||||||||||
Reserve for future abandonment costs |
— | 9,052 | 48,064 | — | 57,116 | |||||||||||||||
Minority interest |
— | — | — | 220,349 | 220,349 | |||||||||||||||
Total liabilities |
382,447 | 617,270 | 368,891 | (173,046 | ) | 1,195,562 | ||||||||||||||
Stockholders’ equity |
682,563 | 340,042 | 516,610 | (856,652 | ) | 682,563 | ||||||||||||||
Total liabilities and
stockholders’ equity |
$ | 1,065,010 | $ | 957,312 | $ | 885,501 | $ | (1,029,698 | ) | $ | 1,878,125 | |||||||||
15
Table of Contents
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
Statement of Operations:
| Three Months Ended March 31, 2007 | ||||||||||||||||||||
| Comstock | Guarantor | Non-Guarantor | Eliminating | |||||||||||||||||
| Resources | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
Oil and gas sales |
$ | — | $ | 69,847 | $ | 76,182 | $ | — | $ | 146,029 | ||||||||||
Operating expenses: |
||||||||||||||||||||
Oil and gas operating |
— | 14,055 | 13,028 | — | 27,083 | |||||||||||||||
Exploration |
— | 398 | 10,735 | — | 11,133 | |||||||||||||||
Depreciation, depletion and amortization |
926 | 27,266 | 28,515 | — | 56,707 | |||||||||||||||
General and administrative, net |
8,537 | (2,287 | ) | 3,452 | — | 9,702 | ||||||||||||||
Total operating expenses |
9,463 | 39,432 | 55,730 | — | 104,625 | |||||||||||||||
Income from operations |
(9,463 | ) | 30,415 | 20,452 | — | 41,404 | ||||||||||||||
Other income (expenses): |
||||||||||||||||||||
Interest income |
— | 191 | 105 | — | 296 | |||||||||||||||
Other income |
— | 38 | 92 | — | 130 | |||||||||||||||
Interest expense |
(6,284 | ) | (1 | ) | (2,164 | ) | — | (8,449 | ) | |||||||||||
Intercompany interest income (expense) |
7,060 | (7,060 | ) | — | — | — | ||||||||||||||
Total other income (expenses) |
776 | (6,832 | ) | (1,967 | ) | — | (8,023 | ) | ||||||||||||
Income (loss) before income taxes and
minority interest in earnings of
Bois d’Arc Energy |
(8,687 | ) | 23,583 | 18,485 | — | 33,381 | ||||||||||||||
(Provision for) benefit from income taxes |
148 | (8,360 | ) | (6,612 | ) | — | (14,824 | ) | ||||||||||||
Minority interest in earnings of
Bois d’Arc Energy |
— | — | — | (5,999 | ) | (5,999 | ) | |||||||||||||
Equity in earnings of subsidiaries |
21,097 | — | — | (21,097 | ) | — | ||||||||||||||
Net income |
$ | 12,558 | $ | 15,223 | $ | 11,873 | $ | (27,096 | ) | $ | 12,558 | |||||||||
| Three Months Ended March 31, 2006 | ||||||||||||||||||||
| Comstock | Guarantor | Non-Guarantor | Eliminating | |||||||||||||||||
| Resources | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
Oil and gas sales |
$ | — | $ | 69,891 | $ | 61,833 | $ | — | $ | 131,724 | ||||||||||
Operating expenses: |
||||||||||||||||||||
Oil and gas operating |
— | 13,855 | 12,440 | — | 26,295 | |||||||||||||||
Exploration |
— | 344 | 4,531 | — | 4,875 | |||||||||||||||
Depreciation, depletion and
amortization |
57 | 16,235 | 14,393 | — | 30,685 | |||||||||||||||
General and administrative, net |
6,292 | (1,398 | ) | 3,241 | — | 8,135 | ||||||||||||||
Total operating expenses |
6,349 | 29,036 | 34,605 | — | 69,990 | |||||||||||||||
Income from operations |
(6,349 | ) | 40,855 | 27,228 | — | 61,734 | ||||||||||||||
Other income (expenses): |
||||||||||||||||||||
Interest income |
— | 168 | 69 | — | 237 | |||||||||||||||
Other income |
— | 54 | — | — | 54 | |||||||||||||||
Interest expense |
(4,526 | ) | 120 | (1,077 | ) | — | (5,483 | ) | ||||||||||||
Gain on derivatives |
— | 8,125 | — | — | 8,125 | |||||||||||||||
Intercompany interest income
(expense) |
5,598 | (5,598 | ) | — | — | — | ||||||||||||||
Total other income (expenses) |
1,072 | 2,869 | (1,008 | ) | — | 2,933 | ||||||||||||||
Income (loss) before income taxes and
minority interest in earnings of
Bois d’Arc Energy |
(5,277 | ) | 43,724 | 26,220 | — | 64,667 | ||||||||||||||
Provision for income taxes |
(1,526 | ) | (15,334 | ) | (9,439 | ) | — | (26,299 | ) | |||||||||||
Minority interest in earnings of
Bois d’Arc Energy |
— | — | — | (8,734 | ) | (8,734 | ) | |||||||||||||
Equity in earnings of subsidiaries |
36,437 | — | — | (36,437 | ) | — | ||||||||||||||
Net income |
$ | 29,634 | $ | 28,390 | $ | 16,781 | $ | (45,171 | ) | $ | 29,634 | |||||||||
16
Table of Contents
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Continued)
Statement of Cash Flows:
| Three Months Ended March 31, 2007 | ||||||||||||||||||||
| Comstock | Guarantor | Non-Guarantor | Eliminating | |||||||||||||||||
| Resources | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
Net Cash Provided by (Used for) Operating
Activities |
$ | (11,119 | ) | $ | 58,408 | $ | 31,457 | $ | — | $ | 78,746 | |||||||||
Cash Flows From Investing Activities: |
||||||||||||||||||||
Capital expenditures |
(645 | ) | (83,616 | ) | (49,466 | ) | — | (133,727 | ) | |||||||||||
Net Cash Used for Investing Activities |
(645 | ) | (83,616 | ) | (49,466 | ) | — | (133,727 | ) | |||||||||||
Cash Flows From Financing Activities: |
||||||||||||||||||||
Borrowings |
36,000 | — | 22,000 | — | 58,000 | |||||||||||||||
Principal payments on debt |
— | — | (2,000 | ) | — | (2,000 | ) | |||||||||||||
Advances to (from) parent |
(24,541 | ) | 24,541 | — | — | — | ||||||||||||||
Proceeds from issuance of
common stock |
139 | — | — | — | 139 | |||||||||||||||
Excess tax benefit from
stock-based compensation |
166 | — | — | — | 166 | |||||||||||||||
Other |
— | — | (36 | ) | — | (36 | ) | |||||||||||||
Net Cash Provided by Financing Activities |
11,764 | 24,541 | 19,964 | — | 56,269 | |||||||||||||||
Net increase in cash and cash equivalents |
— | (667 | ) | 1,955 | — | 1,288 | ||||||||||||||
Cash and cash equivalents, beginning of
period |
— | 1,228 | 9,487 | — | 10,715 | |||||||||||||||
Cash and cash equivalents,
end of period |
$ | — | $ | 561 | $ | 11,442 | $ | — | $ | 12,003 | ||||||||||
| Three Months Ended March 31, 2006 | ||||||||||||||||||||
| Comstock | Guarantor | Non-Guarantor | Eliminating | |||||||||||||||||
| Resources | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
Net Cash Provided by (Used for) Operating
Activities |
$ | (6,147 | ) | $ | 58,935 | $ | 32,751 | $ | — | $ | 85,539 | |||||||||
Cash Flows From Investing Activities: |
||||||||||||||||||||
Capital expenditures |
(64 | ) | (49,104 | ) | (44,201 | ) | — | (93,369 | ) | |||||||||||
Payments to settle derivatives |
— | (703 | ) | — | — | (703 | ) | |||||||||||||
Net Cash Used for Investing Activities |
(64 | ) | (49,807 | ) | (44,201 | ) | — | (94,072 | ) | |||||||||||
Cash Flows From Financing Activities: |
||||||||||||||||||||
Borrowings |
— | — | 42,000 | — | 42,000 | |||||||||||||||
Advances to (from) parent |
5,897 | (5,897 | ) | — | — | — | ||||||||||||||
Principal payments on debt |
— | — | (35,000 | ) | — | (35,000 | ) | |||||||||||||
Proceeds from issuance of
common stock |
117 | — | — | — | 117 | |||||||||||||||
Excess tax benefit from
stock-based compensation |
197 | — | — | — | 197 | |||||||||||||||
Net Cash Provided by Financing Activities |
6,211 | (5,897 | ) | 7,000 | — | 7,314 | ||||||||||||||
Net increase in cash and cash equivalents |
— | 3,231 | (4,450 | ) | — | (1,219 | ) | |||||||||||||
Cash and cash equivalents, beginning of
period |
— | 89 | — | — | 89 | |||||||||||||||
Bois d’Arc Energy cash and cash
equivalents as of January 1, 2006 |
— | — | 12,043 | — | 12,043 | |||||||||||||||
Cash and cash equivalents,
end of period |
$ | — | $ | 3,320 | $ | 7,593 | $ | — | $ | 10,913 | ||||||||||
17
Table of Contents
INDEPENDENT ACCOUNTANTS’ REVIEW REPORT
We have reviewed the consolidated balance sheet of Comstock Resources, Inc. (a Nevada corporation)
and subsidiaries (the Company) as of March 31, 2007, and the related consolidated statements of
operations for the three-month periods ended March 31, 2007 and 2006, the consolidated statement of
stockholders’ equity for the three months ended March 31, 2007, and the consolidated statements of
cash flows for the three-month periods ended March 31, 2007 and 2006. These financial statements
are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the
condensed consolidated interim financial statements referred to above for them to be in conformity
with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Comstock Resources, Inc. and
subsidiaries as of December 31, 2006, and the related consolidated statements of operations,
stockholders’ equity, and cash flows for the year then ended not presented herein, and in our
report dated February 28, 2007 we expressed an unqualified opinion on those consolidated financial
statements and included an explanatory paragraph regarding the Company’s adoption of Statement of
Financial Accounting Standards No. 123 (revised 2004), “Share Based Payment,” effective January 1,
2006. In our opinion, the information set forth in the accompanying consolidated balance sheet as
of December 31, 2006, is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Dallas, Texas
May 10, 2007
May 10, 2007
18
Table of Contents
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements that involve risks and uncertainties that are
made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Actual results may differ materially from those anticipated in our forward-looking
statements due to many factors. The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included in this report and in our annual
report filed on Form 10-K for the year ended December 31, 2006.
Results of Operations
Effective January 1, 2006 we are including Bois d’Arc Energy in our financial statements as a
consolidated subsidiary. The following table reflects certain summary operating data for our
onshore operations and for Bois d’Arc Energy for the periods presented:
| Three Months Ended March 31, 2007 | Three Months Ended March 31, 2006 | |||||||||||||||||||||||
| Bois d’Arc | Bois d’Arc | |||||||||||||||||||||||
| Onshore | Energy | Total | Onshore | Energy | Total | |||||||||||||||||||
| (In thousands, except per unit amounts) | ||||||||||||||||||||||||
Net Production Data: |
||||||||||||||||||||||||
Oil (Mbbls) |
251 | 368 | 619 | 228 | 317 | 545 | ||||||||||||||||||
Natural Gas (Mmcf) |
8,635 | 7,701 | 16,336 | 7,369 | 5,065 | 12,434 | ||||||||||||||||||
Natural Gas equivalent (Mmcfe) |
10,140 | 9,909 | 20,049 | 8,740 | 6,968 | 15,708 | ||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Oil sales |
$ | 12,054 | $ | 21,468 | $ | 33,522 | $ | 12,265 | $ | 19,337 | $ | 31,602 | ||||||||||||
Gas sales |
57,793 | 54,714 | 112,507 | 57,626 | 42,496 | 100,122 | ||||||||||||||||||
Total oil and gas sales |
$ | 69,847 | $ | 76,182 | $ | 146,029 | $ | 69,891 | $ | 61,833 | $ | 131,724 | ||||||||||||
Expenses: |
||||||||||||||||||||||||
Oil and gas operating expenses(1) |
$ | 14,055 | $ | 13,028 | $ | 27,083 | $ | 13,855 | $ | 12,440 | $ | 26,295 | ||||||||||||
Exploration expense |
$ | 398 | $ | 10,735 | $ | 11,133 | $ | 344 | $ | 4,531 | $ | 4,875 | ||||||||||||
Depreciation, depletion and amortization |
$ | 27,360 | $ | 28,515 | $ | 56,707 | $ | 16,292 | $ | 14,393 | $ | 30,685 | ||||||||||||
Average Sales Price: |
||||||||||||||||||||||||
Oil (per Bbl) |
$ | 48.03 | $ | 58.33 | $ | 54.15 | $ | 53.69 | $ | 60.95 | $ | 57.91 | ||||||||||||
Natural gas (per Mcf) |
$ | 6.69 | $ | 7.10 | $ | 6.89 | $ | 7.82 | $ | 8.39 | $ | 8.05 | ||||||||||||
Average equivalent (Mcfe) |
$ | 6.89 | $ | 7.69 | $ | 7.28 | $ | 8.00 | $ | 8.87 | $ | 8.39 | ||||||||||||
Expenses ($ per Mcfe): |
||||||||||||||||||||||||
Oil and gas operating(1) |
$ | 1.39 | $ | 1.31 | $ | 1.35 | $ | 1.59 | $ | 1.79 | $ | 1.67 | ||||||||||||
Depreciation, depletion and
amortization(2) |
$ | 2.69 | $ | 2.86 | $ | 2.82 | $ | 1.86 | $ | 2.05 | $ | 1.94 | ||||||||||||
| (1) | Includes lease operating costs and production and ad valorem taxes. |
|
| (2) | Represents depreciation, deletion and amortization of oil and gas properties only. |
Revenues –
Our oil and gas sales in the first three months of 2007 of $146.0 million increased $14.3
million (11%) over our sales of $131.7 million in the first quarter of 2006. The growth in sales
resulted from our higher production in the first quarter offset in part by lower oil and natural
gas prices. Production in the first quarter of 2007 increased 28% to 20.0 Bcfe as compared to
production of 15.7 Bcfe in the first quarter of 2006. Our average realized natural gas price of
$6.89 per Mcf in the first three months of 2007 was $1.16 or 14% below our average natural gas
price of $8.05 per Mcf for the three months ended March 31, 2006. Realized oil prices in the first quarter
of 2007 averaged $54.15 per barrel, 6% lower than the $57.91 per barrel realized in the first
quarter of 2006.
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Oil and gas sales from our onshore properties decreased $0.1 million to $69.8 million for the
three months ended March 31, 2007 from $69.9 million for the first quarter of 2006. Our onshore
production in the first quarter of 2007 increased by 16% to 10.1 Bcfe from production in the first
quarter of 2006 of 8.7 Bcfe. The production increase was attributable to our development drilling
activity. Our average onshore realized crude oil price decreased by 11% and our average onshore
realized natural gas price decreased by 14% in the first quarter of 2007 as compared to the first
quarter of 2006. Oil and gas sales from Bois d’Arc Energy’s operations for the first quarter of
2007 of $76.2 million increased $14.3 million or 23% compared with the first quarter of 2006. Bois
d’Arc Energy’s production of 9.9 Bcfe in the first quarter of 2007 increased by 42% from the
production in the first quarter of 2006 of 7.0 Bcfe. The increase was due to production from new
wells and the return to production of certain properties which were shut-in following the 2005
hurricanes. Bois d’Arc Energy’s average oil price decreased by 4% and Bois d’Arc Energy’s average
natural gas price decreased by 15% in the first quarter of 2007 as compared to the first quarter of
2006.
Costs and Expenses -
Our oil and gas operating expenses, including production taxes, increased $0.8 million (3%) to
$27.1 million in the first quarter of 2007 from $26.3 million in the first quarter of 2006. Oil
and gas operating expenses from our onshore operations increased $0.2 million (1%) to $14.1 million
from $13.9 million in the first quarter of 2006 with the higher production level in 2007. Oil and
gas operating expenses per equivalent Mcf produced for our onshore operations decreased $0.20 (13%)
to $1.39 in the first quarter of 2007 from $1.59 in the first quarter of 2006 due to the fixed
nature of our operating costs. Bois d’Arc Energy’s oil and gas operating costs for the first
quarter of 2007 of $13.0 million increased $0.6 million (5%) from $12.4 million in the first
quarter of 2006. Oil and gas operating expenses per equivalent Mcf produced for Bois d’Arc Energy
operations decreased $0.48 (27%) to $1.31 in the first quarter of 2007 from $1.79 in the first
quarter of 2006. The decrease is due to the fixed nature of a substantial portion of Bois d’Arc
Energy’s lifting costs and lower repair and maintenance costs in 2007. Operating expenses in 2006
included $1.9 million in repair costs related to the 2005 hurricanes.
In the first quarter of 2007, we had $11.1 million of exploration expense as compared to $4.9
million in the first quarter of 2006. The provision in the first quarter of 2007 primarily related
to two offshore exploratory dry holes and seismic costs incurred by Bois d’Arc Energy.
Depreciation, depletion and amortization (“DD&A”) increased $26.0 million (85%) to $56.7
million in the first quarter of 2007 from DD&A expense of $30.7 million in the first quarter of
2006. DD&A for our onshore properties increased $11.0 million to $27.3 million for the three
months ended March 31, 2007 from $16.3 million in the first quarter of 2006 due to higher
production and an increase in our onshore average DD&A rate. Our onshore DD&A per equivalent Mcf
produced increased by $0.83 to $2.69 for the three months ended March 31, 2007 from $1.86 for the
three months ended March 31, 2007. This increased rate was primarily attributable to the higher
capitalized costs associated with our drilling program and an acquisition completed in 2006. DD&A
related to Bois d’Arc Energy for the first quarter of 2007 increased $14.1 million due primarily to
the higher production level and a higher amortization rate. The DD&A rate per Mcfe produced for
Bois d’Arc Energy operations in the first quarter of 2007 increased $0.81 per Mcfe to $2.86 per
Mcfe from $2.05 in the first quarter of 2006 due to higher capitalized costs related to Bois d’Arc
Energy’s exploration program which reflect the increased costs for drilling and construction
services in the Gulf of Mexico after the 2005 hurricanes.
General and administrative expenses, which are reported net of overhead reimbursements,
increased by $1.6 million to $9.7 million for the first quarter of 2007 as compared to general and
administrative expenses of $8.1 million for the first quarter of 2006. The increase was primarily
due to increased stock-based compensation of $1.3 million included in 2007’s general and
administrative expenses.
Interest expense increased $3.0 million (54%) to $8.5 million for the first quarter of 2007
from interest expense of $5.5 million in the first quarter of 2006. The increase was primarily due
increased borrowings under our bank credit facilities during the first quarter of 2007 and higher
interest rates. The average borrowings outstanding increased to $305.3 million during the first
quarter of 2007 as compared to $136.5 million in the first
quarter of 2006. The average interest rate we were charged on the outstanding borrowings under our credit facilities
increased to 6.6% in the first quarter of 2007 as compared to 5.8% in the first quarter of 2006.
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We did not designate our derivatives we utilized as part of our price risk management program
as cash flow hedges in 2006 and accordingly, we recognized a gain for the change in the fair value
of these liabilities in 2006. The fair value of our liability for these derivatives decreased
during the three months ended March 31, 2006 resulting in a gain
of $8.1 million. We had no
outstanding derivatives during the three months ended March 31, 2007.
Income tax expense decreased $11.5 million (44%) to $14.8 million in the three months ended
March 31, 2007 from income tax expense of $26.3 million in the first three months of 2006. The
decrease was mainly due to lower operating income in the first quarter of 2007.
Minority interest in earnings of Bois d’Arc Energy of $6.0 million for the three months ended
March 31, 2007 decreased $2.7 million (31%) from the minority interest in earnings of $8.7 million
for the comparable period in 2006 primarily due to Bois d’Arc Energy’s lower net income for the
three months ended March 31, 2007.
We reported net income of $12.6 million for the three months ended March 31, 2007, as compared
to $29.6 million for the three months ended March 31, 2006. The net income per share for the first
quarter of 2007 was $0.28 on weighted average diluted shares outstanding of 44.2 million as
compared to $0.68 for the first quarter of 2006 on weighted average diluted shares outstanding of
43.4 million.
Liquidity and Capital Resources
Funding for our activities has historically been provided by our operating cash flow, debt or
equity financings or asset dispositions. For the three months ended March 31, 2007, our primary
sources of funds were net cash flow from operations of $78.7 million and net borrowings under our
credit facilities of $56.0 million. Our net cash flow from operating activities decreased $6.8
million (8%) in the first quarter of 2007 from $85.5 million for the three months ended March 31,
2006. This decrease is primarily the result of working capital changes in the first quarter of
2007. Excluding changes in non-cash working capital accounts, our cash flow from operating
activities increased $9.0 million to $100.5 million as compared to $91.5 million in the first
quarter of 2006 due to the higher revenues we had in 2007.
Our primary needs for capital, in addition to funding our ongoing operations, relate to the
acquisition, development and exploration of our oil and gas properties and the repayment of our
debt. In the first three months of 2007, we incurred capital expenditures of $147.0 million
primarily for our acquisition, development and exploration activities.
The following table summarizes our capital expenditure activity, on an accrual basis, for the
three months ended March 31, 2007 and 2006:
| Three Months Ended March 31, 2007 | Three Months Ended March 31, 2006 | |||||||||||||||||||||||
| Bois d’Arc | Bois d’Arc | |||||||||||||||||||||||
| Onshore | Energy | Total | Onshore | Energy | Total | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
Leasehold costs |
$ | 3,614 | $ | 763 | $ | 4,377 | $ | 2,051 | $ | 978 | $ | 3,029 | ||||||||||||
Development drilling |
76,393 | 8,291 | 84,684 | 38,407 | 11,823 | 50,230 | ||||||||||||||||||
Exploratory drilling |
2,697 | 30,037 | 32,734 | 75 | 26,312 | 26,387 | ||||||||||||||||||
Other development |
1,547 | 23,662 | 25,209 | 8,624 | 7,344 | 15,968 | ||||||||||||||||||
| 84,251 | 62,753 | 147,004 | 49,157 | 46,457 | 95,614 | |||||||||||||||||||
Other |
643 | 143 | 786 | 30 | 3 | 33 | ||||||||||||||||||
| $ | 84,894 | $ | 62,896 | $ | 147,790 | $ | 49,187 | $ | 46,460 | $ | 95,647 | |||||||||||||
The timing of most of our capital expenditures is discretionary because we have no
material long-term capital expenditure commitments except for commitments for contract drilling
services and for seismic data acquisitions. Consequently, we have a significant degree of
flexibility to adjust the level of our capital expenditures as
circumstances warrant. As of March 31, 2007 we have contracted for the services
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of onshore drilling rigs
through September 2008 at an aggregate cost of $59.0 million. As of March 31, 2007 Bois d’Arc
Energy has commitments for the services of contracted offshore drilling services at an aggregate
cost of $18.0 million through July 2007 and to acquire seismic data totaling $11.0 million through
December 2008.
We spent $84.3 million and $49.2 million on our onshore development and exploration activities
in the three months ended March 31, 2007 and 2006, respectively. We expect to spend approximately
$278.0 million for onshore development and exploration projects in 2007. Bois d’Arc Energy spent
$62.8 million and $46.5 million on offshore development and exploration activities in the three
months ended March 31, 2007 and 2006, respectively, and expects to spend $200.0 million for
offshore development and exploration projects in 2007. Development and exploration activities are
funded primarily with operating cash flow and with borrowings under our bank credit facilities.
We do not have a specific acquisition budget for 2007 since the timing and size of
acquisitions are not predictable. We intend to use borrowings under our bank credit facilities, or
other debt or equity financings to the extent available, to finance significant acquisitions. The
availability and attractiveness of these sources of financing will depend upon a number of factors,
some of which will relate to our financial condition and performance and some of which will be
beyond our control, such as prevailing interest rates, oil and natural gas prices and other market
conditions.
We have a $600.0 million bank credit facility with the Bank of Montreal, as the administrative
agent. The credit facility is a five-year revolving credit commitment that matures on December 15,
2011. The credit facility is subject to borrowing base availability, which is redetermined
semiannually based on the banks’ estimates of the future net cash flows of our oil and natural gas
properties. The borrowing base may be affected by the performance of our properties and changes in
oil and natural gas prices. As of March 31, 2007 the borrowing base was $400.0 million, $184.0
million of which was available. Indebtedness under the bank credit facility is secured by
substantially all of our wholly-owned subsidiaries’ oil and gas properties and is guaranteed by all
of our wholly-owned subsidiaries. Borrowings under the credit facility bear interest, based on the
utilization of the borrowing base, at our option of either LIBOR plus 1.0% to 1.75% or the base
rate (which is the higher of the prime rate or the federal funds rate) plus 0% to 0.5%. A
commitment fee of 0.25% to 0.375% based on the utilization of the borrowing base is payable on the
unused borrowing base. The credit facility contains covenants that, among other things, restrict
the payment of cash dividends in excess of $40.0 million, limit the amount of consolidated debt
that we may incur and limit our ability to make certain loans and investments. The only financial
covenants are the maintenance of a current ratio and maintenance of a minimum tangible net worth.
We were in compliance with these covenants as of March 31, 2007. We also have $175.0 million of
67/8% senior notes due March 1, 2012, with interest payable semiannually on each March 1 and
September 1. The notes are unsecured obligations and are guaranteed by all of our wholly owned
subsidiaries.
Bois d’Arc Energy has a bank credit facility with the Bank of Nova Scotia and several other
banks. The credit facility matures on May 11, 2009. Borrowings under the credit facility are
limited to a borrowing base that is redetermined semi-annually based on the banks’ estimates of the
future net cash flows of Bois d’Arc Energy’s oil and natural gas properties. The determination of
the borrowing base is at the sole discretion of the administrative agent and the bank group. The
borrowing base of $200.0 million as of March 31, 2007 was increased to $225.0 million on May 7,
2007. Availability under the borrowing base was $80.0 million as of March 31, 2007. Indebtedness
under the credit facility is secured by substantially all of Bois d’Arc Energy and its
subsidiaries’ assets, and all of Bois d’Arc Energy’s subsidiaries are guarantors of the
indebtedness. The credit facility contains covenants that restrict the payment of cash dividends
in excess of $5.0 million, borrowings, sales of assets, loans to others, capital expenditures,
investments, merger activity, hedging contracts, liens and certain other transactions without the
prior consent of the lenders and requires Bois d’Arc Energy to maintain a ratio of current assets,
including the availability under the bank credit facility, to current liabilities of at least
one-to-one and a ratio of indebtedness to earnings before interest, taxes, depreciation, depletion,
and amortization, exploration and impairment expense of no more than 2.5-to-one.
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We believe that our cash flow from operations and available borrowings under our bank credit
facilities will be sufficient to fund our operations and future growth as contemplated under our
current business plan. However, if our plans or assumptions change or if our assumptions prove to
be inaccurate, we may be required to seek additional capital. We cannot provide any assurance that
we will be able to obtain such capital, or if such capital is available, that we will be able to
obtain it on terms acceptable to us.
Critical Accounting Policies
The information included in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Critical Accounting Policies” in our annual report filed on Form 10-K for
the year ended December 31, 2006 is incorporated herein by reference.
Effective January 1, 2007 we adopted FASB Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes,” an interpretation of FASB Statement No. 109 (“FIN 48”) which clarifies the
accounting and disclosures for uncertainty in income tax positions, as defined. The adoption of
FIN 48 had no impact on the amounts recorded by us related to uncertain tax positions.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157).
This statement establishes a framework for fair value measurements in the financial statements by
providing a single definition of fair value, provides guidance on the methods used to estimate fair
value and increases disclosures about estimates of fair value. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007 and is generally applied prospectively. We are
currently evaluating the impact of this statement on our consolidated financial statements.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Oil and Natural Gas Prices
Our financial condition, results of operations and capital resources are highly dependent upon
the prevailing market prices of oil and natural gas. These commodity prices are subject to wide
fluctuations and market uncertainties due to a variety of factors, some of which are beyond our
control. Factors influencing oil and natural gas prices include the level of global demand for
crude oil, the foreign supply of oil and natural gas, the establishment of and compliance with
production quotas by oil exporting countries, weather conditions that determine the demand for
natural gas, the price and availability of alternative fuels and overall economic conditions. It
is impossible to predict future oil and natural gas prices with any degree of certainty. Sustained
weakness in oil and natural gas prices may adversely affect our financial condition and results of
operations, and may also reduce the amount of oil and natural gas reserves that we can produce
economically. Any reduction in our oil and natural gas reserves, including reductions due to price
fluctuations, can have an adverse effect on our ability to obtain capital for our exploration and
development activities. Similarly, any improvements in oil and natural gas prices can have a
favorable impact on our financial condition, results of operations and capital resources. Based on
our oil and natural gas production for the three months ended March 31, 2007, a $1.00 change in the
price per barrel of oil would have resulted in a change in our cash flow for such period by
approximately $0.6 million and a $1.00 change in the price per Mcf of natural gas would have
changed our cash flow by approximately $16.0 million.
Interest Rates
At March 31, 2007, we had total long-term debt of $511.0 million. Of this amount, $175.0
million bears interest at a fixed rate of 67/8%. We had $336.0 million outstanding under our bank
credit facilities, which bear interest at a fluctuating rate that is linked to LIBOR or the
corporate base rate, at our option. Any increases in these interest rates can have an adverse
impact on our results of operations and cash flow. Based on borrowings outstanding at March 31,
2007, a 100 basis point change in interest rates would change our interest expense for the three
month period ended March 31, 2007 by approximately $0.8 million.
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ITEM 4: CONTROLS AND PROCEDURES
As of March 31, 2007, we carried out an evaluation, under the supervision and with the
participation of our chief executive officer and chief financial officer, of the effectiveness of
the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934). Based on this evaluation, our chief executive officer
and chief financial officer concluded that our disclosure controls and procedures were effective as
of March 31, 2007 to provide reasonable assurance that information required to be disclosed by us
in the reports filed or submitted by us under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms,
and to provide reasonable assurance that information required to be disclosed by us is accumulated
and communicated to our management, including our chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required disclosure.
During the first quarter of 2007 we implemented a new information technology system used for
accounting and financial reporting. The Company has performed a variety of reconciliations and has
implemented processes intended to ensure that financial data has been correctly reflected in our
financial statements in connection with this change. We expect these systems to improve our control
environment by automating and standardizing manual processes. There were no other changes in our
internal controls over financial reporting (as such term is defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934) that occurred during the quarter ended March 31, 2007, that has
materially affected, or is reasonably likely to materially affect, our internal controls over
financial reporting.
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Table of Contents
PART II — OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
| (a) | Our annual meeting of stockholders was held in Frisco, Texas at 10:00 a.m., local time, on May 3, 2007. | ||
| (b) | Proxies for the meeting were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934, as amended. There was no solicitation in opposition to the nominees listed in the proxy statement for election as Class A directors and such nominees were elected. | ||
| (c) | Out of a total 44,406,995 shares of our common stock outstanding and entitle to vote, 37,151,666 shares were present at the meeting in person or by proxy, representing approximately 84% of the outstanding shares. Matters voted upon at the meeting were as follows: |
| (i) | Two Class A directors were reelected to our board of directors. The vote tabulation was as follows: |
| Nominee | For | Withheld | ||
Cecil E. Martin
|
34,181,824 | 2,969,842 | ||
| Nancy E. Underwood | 36,815,478 | 336,188 |
Our other directors whose term of office as a director continued after the meeting
are as follows:
| Class B Directors | Class C Directors | |
| M. Jay Allison | Roland O. Burns | |
| David W. Sledge | David K. Lockett |
| (ii) | The appointment of Ernst & Young LLP as our independent registered public accounting firm for 2007 was ratified by a vote of 37,091,612 shares for, 51,119 shares against and 8,935 shares abstaining. |
ITEM 6: EXHIBITS
| Exhibit No. | Description | |
15.1*
|
Awareness Letter of Ernst & Young LLP. | |
31.1*
|
Section 302 Certification of the Chief Executive Officer. | |
31.2*
|
Section 302 Certification of the Chief Financial Officer. | |
32.1*
|
Certification for the Chief Executive Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2*
|
Certification for the Chief Financial Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002. |
| * | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| COMSTOCK RESOURCES, INC. | ||||
Date: May 10, 2007
|
/s/ M. JAY ALLISON | |||
| M. Jay Allison, Chairman, President and Chief | ||||
| Executive Officer (Principal Executive Officer) | ||||
Date: May 10, 2007
|
/s/ ROLAND O. BURNS | |||
| Roland O. Burns, Senior Vice President, | ||||
| Chief Financial Officer, Secretary, and Treasurer | ||||
| (Principal Financial and Accounting Officer) |
26
Exhibit 15.1
May 10, 2007
Comstock Resources, Inc.
5300 Town & Country Boulevard
Suite 500
Frisco, Texas 75034
5300 Town & Country Boulevard
Suite 500
Frisco, Texas 75034
Shareholders and Board of Directors
Comstock Resources, Inc.
Comstock Resources, Inc.
We are aware of the incorporation by reference in the Registration Statements (Nos. 33-20981 and
33-88962 filed on Form S-8 and Nos. 333-111237, 333-112100 and 333-128813 filed on Form S-3) of Comstock
Resources, Inc. and of the related Prospectuses of our report dated May 10, 2007 relating to the
unaudited consolidated interim financial statements of Comstock Resources, Inc. that are included
in its Form 10-Q for the quarter ended March 31, 2007.
| /s/ Ernst & Young LLP | ||||
Dallas, Texas
Exhibit 31.1
Section 302 Certification
I, M. Jay Allison, certify that:
| 1. | I have reviewed this March 31, 2007 Form 10-Q of Comstock Resources, Inc.; | ||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 10, 2007
| /s/ M. JAY ALLISON | ||||
| President and Chief Executive Officer | ||||
Exhibit 31.2
Section 302 Certification
I, Roland O. Burns, certify that:
| 1. | I have reviewed this March 31, 2007 Form 10-Q of Comstock Resources, Inc.; | ||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 10, 2007
| /s/ ROLAND O. BURNS | ||||
| Sr. Vice President and Chief Financial Officer | ||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Comstock Resources, Inc. (the “Company”) on Form
10-Q for the three months ending March 31, 2007 as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, M. Jay Allison, Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
/s/ M. JAY ALLISON |
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Chief Executive Officer |
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May 10, 2007 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Comstock Resources, Inc. (the “Company”) on Form
10-Q for the three months ending March 31, 2007 as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Roland O. Burns, Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
/s/ ROLAND O. BURNS |
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Chief Financial Officer |
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May 10, 2007 |