e10vk
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File
No. 001-03262
COMSTOCK RESOURCES,
INC.
(Exact name of registrant as
specified in its charter)
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NEVADA
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94-1667468
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification
Number)
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5300 Town and Country Blvd.,
Suite 500, Frisco, Texas 75034
(Address of principal
executive offices including zip code)
(972) 668-8800
(Registrants telephone
number and area code)
Securities registered pursuant to
Section 12 (b) of the Act:
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Common Stock, $.50 Par Value
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New York Stock Exchange
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Preferred Stock Purchase Rights
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New York Stock Exchange
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(Title of class)
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(Name of exchange on which
registered)
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Securities registered pursuant to
Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined in Exchange Act
Rule 12b-2). Yes o No þ
As of February 28, 2008, there were 45,511,845 shares
of common stock outstanding.
The aggregate market value of the Common Stock held by
non-affiliates of the registrant, based on the closing price of
the Common Stock on the New York Stock Exchange on June 29,
2007 (the last business day of the registrants most
recently completed second fiscal quarter), was $1.3 billion.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Proxy Statement for the 2008 Annual Meeting of
Stockholders to be held
May 13, 2008 are incorporated
by reference into Part III of this report.
COMSTOCK
RESOURCES, INC.
ANNUAL
REPORT ON
FORM 10-K
For the Fiscal Year Ended December 31, 2007
CONTENTS
2
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information contained in this report includes
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are identified by their use of terms
such as expect, estimate,
anticipate, project, plan,
intend, believe and similar terms. All
statements, other than statements of historical facts, included
in this report, are forward-looking statements, including
statements mentioned under Risk Factors and
Managements Discussion and Analysis of Financial
Condition and Results of Operations, regarding:
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amount and timing of future production of oil and natural gas;
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the availability of exploration and development opportunities;
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amount, nature and timing of capital expenditures;
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the number of anticipated wells to be drilled after the date
hereof;
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our financial or operating results;
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our cash flow and anticipated liquidity;
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operating costs including lease operating expenses,
administrative costs and other expenses;
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finding and development costs;
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our business strategy; and
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other plans and objectives for future operations.
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Any or all of our forward-looking statements in this report may
turn out to be incorrect. They can be affected by a number of
factors, including, among others:
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the risks described in Risk Factors and elsewhere in
this report;
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the volatility of prices and supply of, and demand for, oil and
natural gas;
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the timing and success of our drilling activities;
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the numerous uncertainties inherent in estimating quantities of
oil and natural gas reserves and actual future production rates
and associated costs;
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our ability to successfully identify, execute or effectively
integrate future acquisitions;
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the usual hazards associated with the oil and natural gas
industry, including fires, well blowouts, pipe failure, spills,
explosions and other unforeseen hazards;
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our ability to effectively market our oil and natural gas;
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the availability of rigs, equipment, supplies and personnel;
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our ability to discover or acquire additional reserves;
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our ability to satisfy future capital requirements;
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changes in regulatory requirements;
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general economic and competitive conditions;
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our ability to retain key members of our senior management and
key employees; and
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hostilities in the Middle East and other sustained military
campaigns and acts of terrorism or sabotage that impact the
supply of crude oil and natural gas.
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3
DEFINITIONS
The following are abbreviations and definitions of terms
commonly used in the oil and gas industry and this report.
Natural gas equivalents and crude oil equivalents are determined
using the ratio of six Mcf to one barrel. All references to
us, our, we or
Comstock mean the registrant, Comstock Resources,
Inc. and where applicable, its consolidated subsidiaries.
Bbl means a barrel of U.S. 42 gallons of
oil.
Bcf means one billion cubic feet of natural
gas.
Bcfe means one billion cubic feet of natural
gas equivalent.
Btu means British thermal unit, which is the
quantity of heat required to raise the temperature of one pound
of water from 58.5 to 59.5 degrees Fahrenheit.
Completion means the installation of
permanent equipment for the production of oil or gas.
Condensate means a hydrocarbon mixture that
becomes liquid and separates from natural gas when the gas is
produced and is similar to crude oil.
Development well means a well drilled within
the proved area of an oil or gas reservoir to the depth of a
stratigraphic horizon known to be productive.
Dry hole means a well found to be incapable
of producing hydrocarbons in sufficient quantities such that
proceeds from the sale of such production exceed production
expenses and taxes.
Exploratory well means a well drilled to find
and produce oil or natural gas reserves not classified as
proved, to find a new productive reservoir in a field previously
found to be productive of oil or natural gas in another
reservoir or to extend a known reservoir.
GAAP means generally accepted accounting
principles in the United States of America.
Gross when used with respect to acres or
wells, production or reserves refers to the total acres or wells
in which we or another specified person has a working interest.
MBbls means one thousand barrels of oil.
MBbls/d means one thousand barrels of oil per
day.
Mcf means one thousand cubic feet of natural
gas.
Mcfe means one thousand cubic feet of natural
gas equivalent.
MMBbls means one million barrels of oil.
MMcf means one million cubic feet of natural
gas.
MMcf/d
means one million cubic feet of natural gas per day.
MMcfe/d means one million cubic feet of
natural gas equivalent per day.
MMcfe means one million cubic feet of natural
gas equivalent.
Net when used with respect to acres or wells,
refers to gross acres of wells multiplied, in each case, by the
percentage working interest owned by us.
Net production means production we own less
royalties and production due others.
Oil means crude oil or condensate.
Operator means the individual or company
responsible for the exploration, development, and production of
an oil or gas well or lease.
4
PV 10 Value means the present value of
estimated future revenues to be generated from the production of
proved reserves calculated in accordance with the Securities and
Exchange Commission guidelines, net of estimated production and
future development costs, using prices and costs as of the date
of estimation without future escalation, without giving effect
to non-property related expenses such as general and
administrative expenses, debt service, future income tax expense
and depreciation, depletion and amortization, and discounted
using an annual discount rate of 10%. This amount is the same as
the standardized measure of discounted future net cash flows
related to proved oil and natural gas reserves except that it is
determined without deducting future income taxes. Although PV 10
Value is not a financial measure calculated in accordance with
GAAP, management believes that the presentation of PV 10 Value
is relevant and useful to our investors because it presents the
discounted future net cash flows attributable to our proved
reserves prior to taking into account corporate future income
taxes and our current tax structure. We use this measure when
assessing the potential return on investment related to our oil
and gas properties. Because many factors that are unique to any
given company affect the amount of estimated future income
taxes, the use of a pre-tax measure is helpful to investors when
comparing companies in our industry.
Proved developed reserves means reserves that
can be expected to be recovered through existing wells with
existing equipment and operating methods. Additional oil and gas
expected to be obtained through the application of fluid
injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary
recovery will be included as proved developed
reserves only after testing by a pilot project or after
the operation of an installed program has confirmed through
production response that increased recovery will be achieved.
Proved developed non-producing means reserves
(i) expected to be recovered from zones capable of
producing but which are shut-in because no market outlet exists
at the present time or whose date of connection to a pipeline is
uncertain or (ii) currently behind the pipe in existing
wells, which are considered proved by virtue of successful
testing or production of offsetting wells.
Proved developed producing means reserves
expected to be recovered from currently producing zones under
continuation of present operating methods. This category may
also include recently completed shut-in gas wells scheduled for
connection to a pipeline in the near future.
Proved reserves means the estimated
quantities of crude oil, natural gas, and natural gas liquids
which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating
conditions, i.e., prices and costs as of the date the estimate
is made. Prices include consideration of changes in existing
prices provided only by contractual arrangements, but not on
escalations based upon future conditions.
Proved undeveloped reserves means reserves
that are expected to be recovered from new wells on undrilled
acreage, or from existing wells where a relatively major
expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting
productive units that are reasonably certain of production when
drilled. Proved reserves for other undrilled units can be
claimed only where it can be demonstrated with certainty that
there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved
undeveloped reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery
technique is contemplated, unless such techniques have been
proved effective by actual tests in the area and in the same
reservoir.
Recompletion means the completion for
production of an existing well bore in another formation from
which the well has been previously completed.
Reserve life means the calculation derived by
dividing year-end reserves by total production in that year.
5
Reserve replacement means the calculation
derived by dividing additions to reserves from acquisitions,
extensions, discoveries and revisions of previous estimates in a
year by total production in that year.
Royalty means an interest in an oil and gas
lease that gives the owner of the interest the right to receive
a portion of the production from the leased acreage (or of the
proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or
operating the wells on the leased acreage. Royalties may be
either landowners royalties, which are reserved by the
owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of
the leasehold in connection with a transfer to a subsequent
owner.
3-D
seismic means an advanced technology method of
detecting accumulations of hydrocarbons identified by the
collection and measurement of the intensity and timing of sound
waves transmitted into the earth as they reflect back to the
surface.
Working interest means an interest in an oil
and gas lease that gives the owner of the interest the right to
drill for and produce oil and gas on the leased acreage and
requires the owner to pay a share of the costs of drilling and
production operations. The share of production to which a
working interest owner is entitled will always be smaller than
the share of costs that the working interest owner is required
to bear, with the balance of the production accruing to the
owners of royalties. For example, the owner of a 100% working
interest in a lease burdened only by a landowners royalty
of 12.5% would be required to pay 100% of the costs of a well
but would be entitled to retain 87.5% of the production.
Workover means operations on a producing well
to restore or increase production.
6
PART I
ITEMS 1.
and 2. BUSINESS AND PROPERTIES
Comstock Resources, Inc. (Comstock) is a Nevada
corporation whose common stock is listed and traded on the New
York Stock Exchange and is engaged in the acquisition,
development, production and exploration of oil and natural gas.
Our oil and gas operations are concentrated onshore in the East
Texas/North Louisiana and South Texas regions and offshore in
state and federal waters of the Gulf of Mexico. Our offshore
operations are conducted exclusively through Bois dArc
Energy, Inc. (Bois dArc Energy), a separate
publicly-held company. Combined with the ownership by members of
our Board of Directors, we own a controlling interest in the
common stock of Bois dArc Energy and are consolidating the
results of Bois dArc Energy. Our oil and natural gas
properties are estimated to have proved reserves of
1,048.7 Bcfe with an estimated PV 10 Value of
$3.8 billion as of December 31, 2007 and a
standardized measure of discounted future net cash flows of
$2.9 billion. Our consolidated proved oil and natural gas
reserve base is 80% natural gas and 68% proved developed on a
Bcfe basis as of December 31, 2007.
Our proved reserves at December 31, 2007 and our 2007
average daily production are summarized below:
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Reserves at December 31, 2007
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2007 Daily Production
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Oil
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Gas
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Total
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% of
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Oil
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Gas
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Total
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% of
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(MMBbls)
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(Bcf)
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(Bcfe)
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Total
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(MBbls/d)
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(MMcf/d)
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(MMcfe/d)
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Total
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East Texas / North Louisiana
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1.8
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312.5
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323.4
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30.8
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0.4
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66.9
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69.5
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29.0
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South Texas
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2.9
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227.3
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244.9
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23.4
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0.6
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32.3
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35.8
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14.9
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Other Regions
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5.8
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48.0
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82.5
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7.9
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1.7
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8.3
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18.7
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7.8
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Total Onshore
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10.5
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587.8
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650.8
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62.1
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2.7
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107.5
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124.0
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51.7
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Offshore (Bois dArc Energy)
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24.6
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250.1
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397.9
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37.9
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4.6
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88.2
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115.7
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48.3
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Total
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35.1
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837.9
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1,048.7
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100.0
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7.3
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195.7
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239.7
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100.0
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Strengths
High Quality Properties. Our onshore
operations, which comprise 62% of our total proved reserves, are
focused in two primary operating areas, the East Texas/North
Louisiana and South Texas regions. Our onshore properties have
an average reserve life of approximately 14.4 years and
have extensive development and exploration potential. Our
offshore reserves, which represent approximately 38% of our
total proved reserves, are located in the outer continental
shelf of the Gulf of Mexico and include properties located in
Louisiana state and federal waters. These offshore reserves have
an average reserve life of 9.4 years.
Successful Exploration and Development
Program. In 2007 we spent $541.3 million on
exploration and development of our oil and natural gas
properties. We drilled 180 wells in 2007, 138.2 net to
us, at a cost of $452.3 million. In 2007 we also spent
$89.0 million for leasehold costs, recompletions,
workovers, abandonment and production facilities. Our drilling
activities in 2007 added 143 Bcfe to our proved reserves
and accounted for substantially all of our production growth.
Successful Acquisitions. We have had
significant growth over the years as a result of acquisitions.
Since 1991, we have added 991 Bcfe of proved oil and
natural gas reserves from 37 acquisitions at an average cost of
$1.15 per Mcfe. In 2007 we acquired 79 Bcfe of proved oil
and natural gas reserves for $191.3 million. Our
application of strict economic and reserve risk criteria have
enabled us to successfully evaluate and integrate acquisitions.
7
Efficient Operator. We operate 84% of our
proved oil and natural gas reserve base as of December 31,
2007. This allows us to control operating costs, the timing and
plans for future development, the level of drilling and lifting
costs and the marketing of production. As an operator, we
receive reimbursements for overhead from other working interest
owners, which reduces our general and administrative expenses.
Business
Strategy
Acquire High Quality Properties at Attractive
Costs. We have a successful track record of
increasing our oil and natural gas reserves through
opportunistic acquisitions. Since 1991, we have added
991 Bcfe of proved oil and natural gas reserves from 37
acquisitions at a total cost of $1.1 billion, or $1.15 per
Mcfe. The acquisitions were acquired at an average of 67% of
their PV 10 Value in the year the acquisitions were completed.
In 2007 we acquired 79 Bcfe of proved oil and natural gas
reserves for $191.3 million or $2.41 per Mcfe. The PV 10
Value of the acquired reserves in 2007 was $220.4 million.
We apply strict economic and reserve risk criteria in evaluating
acquisitions. We target properties in our core operating areas
with established production and low operating costs that also
have potential opportunities to increase production and reserves
through exploration and exploitation activities.
Exploit Existing Reserves. We seek to maximize
the value of our oil and natural gas properties by increasing
production and recoverable reserves through active workover,
recompletion and exploitation activities. We utilize advanced
industry technology, including
3-D seismic
data, horizontal drilling, improved logging tools, and formation
stimulation techniques. During 2007, we spent approximately
$348.8 million to drill 168 development wells,
130.5 net to us, all but six of which were successful. In
addition, we spent approximately $89.0 million for
leasehold costs, recompletions, workover activities and
facilities. We have budgeted $239.0 million for development
drilling and for recompletion and workover activities in 2008 on
our onshore properties. We also plan to spend approximately
$82.0 million in 2008 for development drilling,
recompletions, workover activities and production facilities on
our offshore properties.
Pursue Exploration Opportunities. We conduct
exploration activities to grow our reserve base and to replace
our production each year. Most of our exploration efforts are
conducted through Bois dArc Energy. Bois dArc
Energys 2008 budget includes $144.0 million to drill
thirteen offshore exploratory wells. We have also budgeted
$37.0 million for onshore exploration in 2008 in our South
Texas region.
Maintain Flexible Capital Expenditure
Budget. The timing of most of our capital
expenditures is discretionary because we have not made any
significant long-term capital expenditure commitments.
Consequently, we have a significant degree of flexibility to
adjust the level of such expenditures according to market
conditions. We anticipate spending approximately
$526.0 million on our development and exploration projects
in 2008. We intend to primarily use operating cash flow to fund
our development and exploration expenditures in 2008 and to a
lesser extent borrowings under our bank credit facilities. We
may also make additional property acquisitions in 2008 that
would require additional sources of funding. Such sources may
include borrowings under our bank credit facility or sales of
our equity or debt securities.
8
Primary
Operating Areas
The following table summarizes the estimated proved oil and
natural gas reserves for our twenty largest onshore field areas
and our five largest offshore operating areas as of
December 31, 2007:
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Net Oil
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Net Gas
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(MBbls)
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(MMcf)
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MMcfe
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%
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PV 10
Value(1)
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%
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East Texas / North Louisiana
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Beckville
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109
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67,510
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68,165
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10.5
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$
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181,757
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11.5
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Logansport
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130
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54,908
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55,688
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8.6
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87,680
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5.6
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Waskom
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459
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38,380
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41,131
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6.3
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65,225
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4.1
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Blocker
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95
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30,392
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30,961
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4.8
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58,439
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3.7
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Gilmer
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93
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28,446
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29,002
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4.5
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52,564
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3.3
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Hico-Knowles
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535
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16,780
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19,990
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3.1
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56,201
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3.6
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Darco
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52
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16,124
|
|
|
|
16,437
|
|
|
|
2.5
|
|
|
|
29,431
|
|
|
|
1.9
|
|
Cadeville
|
|
|
67
|
|
|
|
15,209
|
|
|
|
15,612
|
|
|
|
2.4
|
|
|
|
34,251
|
|
|
|
2.2
|
|
Douglass
|
|
|
6
|
|
|
|
15,508
|
|
|
|
15,542
|
|
|
|
2.4
|
|
|
|
27,791
|
|
|
|
1.8
|
|
Other
|
|
|
266
|
|
|
|
29,176
|
|
|
|
30,772
|
|
|
|
4.6
|
|
|
|
71,805
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,812
|
|
|
|
312,433
|
|
|
|
323,300
|
|
|
|
49.7
|
|
|
|
665,144
|
|
|
|
42.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Double A Wells
|
|
|
1,614
|
|
|
|
46,867
|
|
|
|
56,553
|
|
|
|
8.7
|
|
|
|
182,429
|
|
|
|
11.6
|
|
Las Hermanitas
|
|
|
|
|
|
|
35,464
|
|
|
|
35,464
|
|
|
|
5.4
|
|
|
|
83,672
|
|
|
|
5.3
|
|
Fandango
|
|
|
|
|
|
|
34,443
|
|
|
|
34,443
|
|
|
|
5.3
|
|
|
|
102,149
|
|
|
|
6.5
|
|
Rosita
|
|
|
|
|
|
|
32,589
|
|
|
|
32,589
|
|
|
|
5.0
|
|
|
|
70,445
|
|
|
|
4.5
|
|
Javelina
|
|
|
140
|
|
|
|
29,466
|
|
|
|
30,304
|
|
|
|
4.7
|
|
|
|
75,559
|
|
|
|
4.8
|
|
J.C. Martin
|
|
|
|
|
|
|
12,980
|
|
|
|
12,980
|
|
|
|
2.0
|
|
|
|
29,109
|
|
|
|
1.8
|
|
Markham
|
|
|
180
|
|
|
|
8,883
|
|
|
|
9,966
|
|
|
|
1.5
|
|
|
|
25,236
|
|
|
|
1.6
|
|
Sugar Creek
|
|
|
101
|
|
|
|
8,275
|
|
|
|
8,878
|
|
|
|
1.4
|
|
|
|
11,236
|
|
|
|
0.7
|
|
Other
|
|
|
900
|
|
|
|
18,353
|
|
|
|
23,754
|
|
|
|
3.6
|
|
|
|
83,389
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,935
|
|
|
|
227,320
|
|
|
|
244,931
|
|
|
|
37.6
|
|
|
|
663,224
|
|
|
|
42.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Onshore
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laurel
|
|
|
5,386
|
|
|
|
23
|
|
|
|
32,338
|
|
|
|
5.0
|
|
|
|
143,388
|
|
|
|
9.1
|
|
San Juan
|
|
|
31
|
|
|
|
12,451
|
|
|
|
12,636
|
|
|
|
1.9
|
|
|
|
27,222
|
|
|
|
1.7
|
|
Kentucky
|
|
|
|
|
|
|
8,862
|
|
|
|
8,862
|
|
|
|
1.4
|
|
|
|
6,104
|
|
|
|
0.4
|
|
Other
|
|
|
346
|
|
|
|
26,629
|
|
|
|
28,708
|
|
|
|
4.4
|
|
|
|
72,724
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,763
|
|
|
|
47,965
|
|
|
|
82,544
|
|
|
|
12.7
|
|
|
|
249,438
|
|
|
|
15.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Onshore
|
|
|
10,510
|
|
|
|
587,718
|
|
|
|
650,775
|
|
|
|
100.0
|
|
|
|
1,577,806
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ship Shoal 111 and the Ship Shoal 113 Unit
|
|
|
13,495
|
|
|
|
97,629
|
|
|
|
178,598
|
|
|
|
45.0
|
|
|
|
1,000,578
|
|
|
|
46.0
|
|
South Pelto 5, South Timbalier 9, 11 and 16
|
|
|
833
|
|
|
|
28,216
|
|
|
|
33,215
|
|
|
|
8.0
|
|
|
|
174,915
|
|
|
|
8.0
|
|
South Pelto 22
|
|
|
1,125
|
|
|
|
19,782
|
|
|
|
26,532
|
|
|
|
7.0
|
|
|
|
165,702
|
|
|
|
8.0
|
|
Ship Shoal 66, 67, 68, 69 and South Pelto 1
|
|
|
3,217
|
|
|
|
6,685
|
|
|
|
25,985
|
|
|
|
7.0
|
|
|
|
165,840
|
|
|
|
8.0
|
|
Ship Shoal 97, 98, 99, 106, 107, 109, and 110
|
|
|
389
|
|
|
|
23,447
|
|
|
|
25,779
|
|
|
|
6.0
|
|
|
|
112,296
|
|
|
|
5.0
|
|
Other Offshore
|
|
|
5,573
|
|
|
|
74,375
|
|
|
|
107,816
|
|
|
|
27.0
|
|
|
|
577,217
|
|
|
|
25.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Offshore(2)
|
|
|
24,632
|
|
|
|
250,134
|
|
|
|
397,925
|
|
|
|
100.0
|
|
|
|
2,196,548
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated
|
|
|
35,142
|
|
|
|
837,852
|
|
|
|
1,048,700
|
|
|
|
|
|
|
|
3,774,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discounted Future Income Taxes
|
|
|
(830,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized Measure of Discounted Future Cash Flows
|
|
$
|
2,943,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The PV 10 Value represents the
discounted future net cash flows attributable to our proved oil
and gas reserves before income tax, discounted at 10%. Although
it is a non-GAAP measure, we believe that the presentation of
the PV 10 Value is relevant and useful to our investors because
it presents the discounted future net cash flows attributable to
our proved reserves prior to taking into account corporate
future income taxes and our current tax structure. We use this
measure when assessing the potential return on investment
related to our oil and gas properties. The standardized measure
of discounted future net cash flows represents the present value
of future cash flows attributable to our proved oil and natural
gas reserves after income tax, discounted at 10%.
|
(2)
|
|
The reserves attributed to the
minority interest ownership in Bois dArc Energy were
12,558 MBbls of oil and 127,522 MMcf of natural gas or
202,867 MMcfe of natural gas equivalent with a PV10 value
of $1,119.8 million and a standardized measure of future
net cash flows of $908.1 million.
|
9
East
Texas/North Louisiana
Approximately 50% or 323.3 Bcfe of our onshore proved
reserves are located in East Texas and North Louisiana where we
own interests in 881 producing wells, 503.6 net to us, in
31 field areas. We operate 539 of these wells. The largest of
our fields in this region are the Beckville, Logansport, Waskom,
Blocker, Gilmer, Hico-Knowles, Darco, Cadeville and Douglass
fields. Production from this region averaged 66.9 MMcf of
natural gas per day and 443 barrels of oil per day during
2007. Most of the reserves in this area produce from the
Cretaceous aged Travis Peak/Hosston formation and the Jurassic
aged Cotton Valley formation. The total thickness of these
formations range from 2,000 to 4,000 feet of sand, shale
and limestone sequences in the East Texas Basin and the North
Louisiana Salt Basin, at depths ranging from 6,000 to
12,000 feet. In 2007, we spent $215.6 million drilling
128 wells, 100.2 net to us, and $6.0 million on
leasehold costs, workovers and recompletions in this region. We
plan to spend approximately $149.0 million in 2008 for
development activities in this region.
Beckville
The Beckville field, located in Panola and Rusk Counties, Texas,
is our largest field area in this region with total estimated
proved reserves of 68.2 Bcfe which represents approximately
11% of our onshore reserves. We operate 191 wells in this
field and own interests in 92 additional wells for a total of
283 wells, 160.0 net to us. During December 2007,
production attributable to our interest from this field averaged
18 MMcf of natural gas per day and 100 barrels of oil
per day. The Beckville field produces from the Cotton Valley
formation at depths ranging from 9,000 to 10,000 feet.
Logansport
The Logansport field produces from multiple sands in the Hosston
formation at an average depth of 8,000 feet and is located
in DeSoto Parish, Louisiana. Our proved reserves of
55.7 Bcfe in the Logansport field represent approximately
9% of our onshore reserves. We own interests in 122 wells,
70.5 net to us, and operate 79 of these wells. During
December 2007, net daily production attributable to our interest
from this field averaged 13 MMcf of natural gas and
15 barrels of oil.
Waskom
The Waskom field, located in Harrison and Panola Counties in
Texas, represents approximately 6% (41.1 Bcfe) of our
onshore proved reserves as of December 31, 2007. We own
interests in 75 wells in this field, 43.8 net to us,
and operate 50 wells in this field. During December 2007,
net daily production attributable to our interest averaged
7 MMcf of natural gas and 90 barrels of oil from this
field. The Waskom field produces from the Cotton Valley
formation at depths ranging from 9,000 to 10,000 feet.
During the fourth quarter of 2007, we drilled our first
successful horizontal Cotton Valley well in the Waskom field in
East Texas. This well was drilled to a total vertical depth of
9,490 feet with a 2,548 foot horizontal leg drilled through
the upper and lower Taylor Cotton Valley sands and was
successfully completed with a seven stage frac.
Blocker
Our proved reserves of 31.0 Bcfe in the Blocker field
located in Harrison County, Texas represent approximately 5% of
our onshore reserves. We own interests in 69 wells,
65.9 net to us, and operate 64 of these wells. During
December 2007, net daily production attributable to our interest
from this field averaged 7 MMcf of natural gas and
45 barrels of oil. Most of this production is from the
Cotton Valley formation between 8,500 and 10,100 feet.
10
Gilmer
We own interests in 74 natural gas wells, 28.1 net to us,
in the Gilmer field in Upshur County in East Texas. These wells
produce primarily from the Cotton Valley Lime formation at a
depth of approximately 11,500 to 12,000 feet. Proved
reserves attributable to our interests in the Gilmer field are
29.0 Bcfe which represents 5% of our onshore reserve base.
During December 2007, production attributable to our interest
from this field averaged 5 MMcf of natural gas per day and
55 barrels of oil per day.
Hico-Knowles
Our proved reserves of 20.0 Bcfe in the Hico-Knowles field
located in Lincoln County, Louisiana represent approximately 3%
of our onshore reserves. We own interests in 24 wells,
11.7 net to us, and operate twelve of these wells. During
December 2007, net daily production attributable to our interest
from this field averaged 3 MMcf of natural gas and
10 barrels of oil. This production is primarily from the
Hosston/Cotton Valley formations between 7,200 and
11,000 feet.
Darco
The Darco field is located in Harrison County, Texas and
produces from the Cotton Valley formation at depths from
approximately 9,800 to 10,200 feet. Our proved reserves of
16.4 Bcfe in the Darco Field represent approximately 3% of
our onshore reserves. We own interests in 22 wells,
17.3 net to us, and operate all of these wells. During
December 2007, net daily production attributable to our interest
from this field averaged 2 MMcf of natural gas and
15 barrels of oil.
Cadeville
Our proved reserves of 15.6 Bcfe in the Cadeville field
located in Ouachita Parrish, Louisiana represent approximately
2% of our onshore reserves. We own interests in 7 wells,
3.8 net to us, and operate 5 of these wells. During
December 2007, net daily production attributable to our interest
from this field averaged 1 MMcf of natural gas and
4 barrels of oil. This production is primarily from the
Cotton Valley formation between 9,800 and 10,700 feet.
Douglass
The Douglass field is located in Nacogdoches County, Texas and
is productive from stratigraphically trapped reservoirs in the
Pettet Lime and Travis Peak formations. These reservoirs are
found at depths from 9,200 to 10,300 feet. Our proved
reserves of 15.5 Bcfe in the Douglass field represent
approximately 2% of our onshore reserves. We own interests in
39 wells, 24.7 net to us, and operate 31 of these
wells. During December 2007, net daily production attributable
to our interest from this field averaged 4 MMcf of natural
gas.
South
Texas
Approximately 38%, or 245.0 Bcfe, of our onshore proved
reserves are located in South Texas, where we own interests in
461 producing wells, 176.6 net to us. We own interests in
fifteen field areas in the region, the largest of which are the
Double A Wells, Las Hermanitas, Fandango, Rosita, Javelina, J.C.
Martin, Markham and Sugar Creek fields. Net daily production
rates from the area averaged 32.3 MMcf of natural gas and
588 barrels of oil during 2007, excluding the properties we
acquired in this region in late December, 2007 which were
producing 20.7 MMcf of natural gas per day in December
2007. We spent $79.7 million in this region in 2007 to
drill 22 wells, 14.2 net to us, and for other
development activity. During 2007 we also spent
$31.2 million to acquire additional working interests in
the Javelina field and $160.1 million to
11
acquire producing properties in the Fandango, Rosita and Dinn
Ranch fields. In 2008, we plan to spend approximately
$122.0 million for development and exploration activity in
this region.
Double
A Wells
Our properties in the Double A Wells field have proved reserves
of 56.6 Bcfe, which represent 9% of our onshore reserves.
We own interests in 62 wells and operate 61 producing
wells, 29.7 net to us, in this field in Polk County, Texas.
Net daily production from the Double A Wells area averaged
8.4 MMcf of natural gas and 290 barrels of oil during
December 2007. These wells produce from the Woodbine formation
at an average depth of 14,300 feet.
Las
Hermanitas
We own interests in twelve natural gas wells, 12.0 net to
us, in the Las Hermanitas field, located in Duval County, Texas.
These wells produce from the Wilcox formation at depths from
approximately 11,400 to 11,800 feet. Our proved reserves of
35.5 Bcfe in this field represent approximately 5% of our
onshore reserves. During December 2007, net daily production
attributable to our interest from this field averaged
11.2 MMcf of natural gas.
Fandango
We acquired interests in 18 natural gas wells, 18.0 net to
us, in the Fandango field, located in Zapata County, Texas in
December 2007. We operate all of these wells which produce from
the Wilcox formation at depths from approximately 13,000 to
18,000 feet. Our proved reserves of 34.4 Bcfe in this
field represent approximately 5% of our onshore reserves.
Production from this field averaged 13.5 MMcf of natural
gas per day during December 2007.
Rosita
We acquired interests in 31 natural gas wells, 17.0 net to
us, in the Rosita field, located in Duval County, Texas in
December 2007. We operate three of these wells which produce
from the Wilcox formation at depths from approximately 9,300 to
17,000 feet. Our proved reserves of 32.6 Bcfe in this
field represent approximately 5% of our onshore reserves.
Production from this field averaged 6.5 MMcf of natural gas
per day during December 2007.
Javelina
We own interests in 11 natural gas wells and 1 oil well,
12 net to us, in the Javelina field in Hidalgo County in
South Texas. During 2007 we acquired additional working
interests in 9 wells (4.5 net) and drilled an additional 3
(3.0 net) wells in this field. These wells produce primarily
from the Vicksburg formation at a depth of approximately 10,900
to 12,500 feet. Proved reserves attributable to our
interests in the Javelina field are 30.3 Bcfe, which
represents 5% of our onshore reserve base. During December 2007,
production attributable to our interest from this field averaged
10 MMcf of natural gas per day and 55 barrels of oil
per day.
J.C.
Martin
The J.C. Martin field is located in the Wilcox Lobo trend in
Zapata County, Texas on the Mexico border. This field produces
primarily from Eocene Wilcox Lobo sands at depths ranging from
7,000 to 9,000 feet. The Lobo section is characterized by
geopressured, multiple pay sands occurring in a highly faulted
area. We own interests in 90 wells in this field,
14.4 net to us, with proved reserves of 13.0 Bcfe or
12
2% of our onshore reserves. During December 2007, net daily
production attributable to our interest from this field averaged
2.5 MMcf of natural gas.
Markham
The Markham field is located in Matagorda County, Texas. We own
interests in and operate 22 producing wells, 22.0 net to
us, in the Ohio-Sun Unit. The fields estimated proved
reserves of 10.0 Bcfe represent 2% of our onshore reserves.
The fields active wells produce from more than twenty
reservoirs of Oligocene Frio age at depths ranging from 6,500 to
9,000 feet. During December 2007, net daily production
attributable to our interests from this field average
35 barrels of oil and 0.1 MMcf of natural gas per day.
Sugar
Creek
Our proved reserves of 8.9 Bcfe in the Sugar Creek field
located in Tyler County, Texas represent approximately 1% of our
onshore reserves. We own interests in 4 wells, 2.6 net
to us, and operate 2 of these wells. During December 2007, net
daily production attributable to our interest from this field
averaged 0.4 MMcf of natural gas and 6 barrels of oil.
Other
Onshore
Approximately 13%, or 82.5 Bcfe, of our onshore proved
reserves are in various other areas, primarily in Mississippi,
New Mexico, Kentucky and the Mid-Continent region. Within these
areas we own interests in 522 producing wells, 235.8 net to
us in 24 fields. Fields with the largest proved reserves in
these areas include the Laurel field in Laurel, Mississippi, our
San Juan Basin properties in New Mexico and our New Albany
Shale Gas properties in Kentucky. Net daily production from our
other onshore fields totaled 8.3 MMcf of natural gas and
1,732 barrels of oil during 2007. We drilled fifteen wells,
11.8 net to us on these properties in 2007. In 2008, we
plan to spend approximately $5.0 million for development
and exploration activity on these properties.
Laurel
The Laurel field is located in Jones County, Mississippi near a
structurally complex salt dome. We own interests in and operate
61 producing wells, 58.1 net to us, in the Laurel field.
This fields estimated proved reserves of 32.3 Bcfe
represent 5% of our onshore reserves. The field produces from
more than 42 horizons that range in depth from 6,600 feet
in the Stanley Sand to 13,100 feet in the Middle Hosston
formation. Recovery of low viscosity crude oil from this field
is being enhanced through waterflood operations. During December
2007, net daily production attributable to our interests in this
field averaged 1,439 barrels of oil per day.
San Juan
Our San Juan Basin properties are located in the
west-central portion of the basin in San Juan County, New
Mexico. These wells produce from multiple sands of the
Cretaceous Dakota formation and the Fruitland Coal seams. The
Dakota is generally found at about 6,000 feet with the
shallower Fruitland seams encountered at 2,500 to
3,000 feet. Our proved reserves of 12.6 Bcfe in the
San Juan field represent approximately 2% of our onshore
reserves. We own interests in 95 wells, 13.9 net to
us. During December 2007, net daily production attributable to
our interest from this field averaged 1.2 MMcf of natural
gas and 3 barrels of oil.
13
Kentucky
Our New Albany Shale Gas properties are located in north-central
Kentucky immediately north of the regionally extensive Rough
Creek Fault Zone. Gas is produced from fractured Devonian New
Albany Shale. The New Albany is generally about 100 feet in
thickness and is found at approximately 850 feet from the
surface. Our proved reserves of 8.9 Bcfe in the New Albany
Shale Gas field represent approximately 1% of our onshore
reserves. We own interests in and operate 92 wells,
82.5 net to us in this area. During December 2007, net
daily production attributable to our interest from this field
averaged 0.8 MMcf of natural gas.
Offshore
Gulf of Mexico
Prior to July 2004, substantially all of our exploration
activities in the Gulf of Mexico were conducted under a joint
exploration venture with Bois dArc Offshore, Ltd. and its
principals, which we collectively refer to as Bois
dArc. Under the exploration venture, Bois dArc
was responsible for generating exploration prospects in the Gulf
of Mexico. From 1997 when the exploration venture was commenced
until July 16, 2004 when it was terminated, we participated
in drilling approximately 40 exploratory wells to test prospects
generated under the exploration venture. Of these exploratory
wells drilled, 34 or 85% were successful discoveries. In July
2004, we together with Bois dArc and certain participants
in their exploration activities, which are collectively referred
to as the Bois dArc Participants, formed Bois
dArc Energy, LLC to replace the joint exploration venture.
We and each of the Bois dArc Participants contributed to
Bois dArc Energy substantially all of our respective Gulf
of Mexico related assets and assigned our related liabilities,
including certain debt, in exchange for equity interests in Bois
dArc Energy.
We initially owned 60% of Bois dArc Energy, and we
accounted for our share of the Bois dArc Energy financial
and operating results using proportionate consolidation
accounting until Bois dArc Energy converted into a
corporation and completed its initial public offering in May
2005. Subsequent to the conversion of Bois dArc Energy
into a corporation and its public offering, we owned 48% of Bois
dArc Energy and we changed our accounting method for our
investment in Bois dArc Energy to the equity method
through December 31, 2005. During 2006, we acquired
additional shares of common stock of Bois dArc Energy,
which increased our direct ownership interest in Bois dArc
Energy. As a result, we obtained voting control of Bois
dArc Energy through our direct share ownership combined
with the share ownership of members of our Board of Directors.
Upon obtaining voting control of Bois dArc Energy, we
began including Bois dArc Energy in our financial
statements as a consolidated subsidiary.
Bois dArc Energy has total proved reserves in the outer
continental shelf of the Gulf of Mexico of 397.9 Bcfe,
which represents approximately 38% of our total reserves. Bois
dArc Energy owns interests in 145 gross (108.3 net)
and operates 122 of these wells. Production from Bois dArc
Energys properties in 2007 averaged 88.2 MMcf per day
of natural gas and 4,578 barrels per day of oil for a total
of 115.7 MMcfe per day. During 2007, Bois dArc Energy
spent $89.2 million drilling seven (4.6 net) exploratory
wells and $46.5 million drilling eight (7.4 net)
development wells. Bois dArc Energy also spent
$62.2 million on production facilities, recompletions,
abandonments and workovers, and $9.7 million on acquiring
exploration acreage and seismic data during 2007. In 2008, Bois
dArc Energy plans to spend $250.0 million for
exploration and development activities.
Ship
Shoal 111 and the Ship Shoal 113 Unit
The Ship Shoal 113 unit is located in federal waters having
water depths from 20 to 50 feet, offshore of Terrebonne
Parish, Louisiana and is comprised of 33,125 acres of
federal leases covering portions of Ship Shoal blocks 93,
94, 112, 113, 114, 117, 118, 119 and 120. This unit was
discovered in the late 1940s and has had cumulative production
of 951 Bcfe of natural gas. These properties have 70
productive sands occurring at depths from 2,500 to
16,000 feet. We acquired a 50% working interest in these
properties in December
14
2002, acquired an additional 30% working interest in October
2003 and the remaining 20% interest during 2006. We acquired the
adjacent Ship Shoal block 111 in 2005 together with an
existing production platform. Since 2003 we have drilled
22 wells (20.7 net to us) in this area. We operate the
four production platforms and the 36 producing wells
(35.7 net to us) comprising these properties. Production
from these properties net to our interest averaged
22.9 MMcf of natural gas per day and 1,856 barrels of
oil per day during December 2007.
South
Pelto 5 and South Timbalier 9, 11, 16
We own interests in 15 producing wells, 10.6 net to us, in
South Pelto block 5 and South Timbalier blocks 9, 11
and 16. These blocks are located in Louisiana state waters and
in federal waters, offshore of Terrebonne Parish, Louisiana in
water depths from 30 to 50 feet. These wells share common
production facilities comprised of a four-pile main production
platform and a tripod satellite production platform. We acquired
our lease position in South Pelto block 5 and South
Timbalier block 11 through a farm-in in 1998. We leased
adjacent acreage in South Timbalier blocks 9, 11 and 16
from the State of Louisiana from 1998 through 2002. We have
drilled 19 wells, including redrills of existing wells
(13.4 net to us), in these blocks. These wells have 18
productive sands occurring at depths from 8,000 to
17,000 feet. Production from these properties net to our
interest averaged 8.3 MMcf of natural gas per day and
328 barrels of oil per day during December 2007.
South
Pelto 22
South Pelto block 22 is located in federal waters with
depths from 50 to 60 feet, offshore of Terrebonne Parish,
Louisiana. We farmed-in this acreage from another offshore
operator in 2003 and have subsequently drilled four wells
(2.5 net to us). These wells have 14 productive sands
occurring at depths from 13,400 to 17,000 feet. Production
from these properties net to our interest averaged
15.8 MMcf of natural gas per day and 370 barrels of
oil per day during December 2007.
Ship
Shoal 66, 67, 68, 69 and South Pelto 1
Ship Shoal blocks 66, 67, 68, 69 and South Pelto
block 1 are located in Louisiana state waters and in
federal waters with depths from 20 to 35 feet, offshore of
Terrebonne Parish, Louisiana. These properties produce from ten
sands occurring at depths from 9,000 to 13,500 feet. We own
interests in 21 wells (13.3 net to us) on Louisiana
state leases partially covering Ship Shoal blocks 66 and 67
and South Pelto 1, and federal leases covering Ship Shoal
blocks 68 and 69. We acquired these properties in December
1997 from Bois dArc Resources and other interest owners.
These wells are connected to four production platforms and share
common oil terminal facilities. Production from these properties
net to our interest averaged 406 barrels of oil per day
during December 2007.
Ship
Shoal 97, 98, 99, 107, 109 and 110
Ship Shoal blocks 99, 107, 109 and 110 are located in
federal waters with depths from 20 to 25 feet, offshore of
Terrebonne Parish, Louisiana. We acquired these leases in
federal lease sales in 2000 and 2001 and subsequently drilled
eleven successful wells (8.4 net to us). These wells have
15 productive sands occurring at depths from 8,800 to
12,300 feet. Production from these properties net to our
interest averaged 10.4 MMcf of natural gas per day,
121 barrels of oil per day during December 2007.
Major
Property Acquisitions
As a result of our acquisitions, we have added 991 Bcfe of
proved oil and natural gas reserves since 1991 including
79 Bcfe we acquired in 2007.
15
Our largest acquisitions are the following:
Shell Wilcox Acquisition. In December 2007, we
completed the acquisition of certain oil and natural gas
properties and related assets from SWEPI LP, an affiliate of
Shell Oil Company (Shell) for $160.1 million.
The properties acquired had estimated proved reserves of
approximately 70.1 Bcfe. Major fields acquired in the
acquisition include the Fandango and Rosita fields. The
acquisition was funded with borrowings under our bank credit
facility.
Javelina Acquisition. In June 2007 we acquired
additional working interests in oil and gas properties in the
Javelina field in South Texas from Abaco Operating LLC for
$31.2 million. The properties acquired had estimated proved
reserves of approximately 9.1 Bcfe. The transaction was
funded with borrowings under our bank credit facility.
Denali Acquisition. In September 2006 we
acquired proved and unproved oil and gas properties in the Las
Hermanitas field in South Texas from Denali Oil & Gas
Partners LP and other working interest owners for
$67.2 million. The properties acquired had estimated proved
reserves of approximately 16.5 Bcfe. The transaction was
funded with borrowings under our bank credit facility.
Ensight Acquisition. In May 2005, we completed
the acquisition of certain oil and natural gas properties and
related assets from Ensight Energy Partners, L.P., Laurel
Production, LLC, Fairfield Midstream Services, LLC and Ensight
Energy Management, LLC (collectively, Ensight) for
$190.9 million. We also purchased additional interests in
those properties from other owners for $10.9 million in
July 2005. The properties acquired had estimated proved reserves
of approximately 121.5 billion cubic feet of natural gas
equivalent and included 312 active wells, of which 119 are
operated by us. Major fields acquired include the Darco,
Cadeville, Douglass, and Laurel fields. The acquisition was
funded with proceeds from a public stock offering completed in
April 2005 and borrowings under our bank credit facility.
Ovation Energy Acquisition. In October 2004,
we acquired producing oil and gas properties in the East Texas,
Arkoma, Anadarko and San Juan basins from Ovation Energy,
L.P. for $62.0 million. The properties acquired had
estimated proved reserves of approximately 41.0 billion
cubic feet of gas equivalent and include 165 active wells, of
which 69 are operated by us. The acquisition was funded by
borrowings under our bank credit facility.
DevX Energy Acquisition. In December 2001, we
completed the acquisition of DevX Energy, Inc.
(DevX) by acquiring 100% of the common stock of DevX
for $92.6 million. The total purchase price including debt
and other liabilities assumed in the acquisition was
$160.8 million. As a result of the acquisition of DevX, we
acquired interests in 600 producing oil and natural gas wells
located onshore primarily in East and South Texas, Kentucky,
Oklahoma and Kansas. Major fields acquired include the Gilmer
field in East Texas and the J.C. Martin field in South Texas.
DevXs properties had 1.2 MMBbls of oil reserves and
156.5 Bcf of natural gas reserves at the time of the
acquisition.
Bois dArc Acquisition. In December 1997,
Comstock acquired working interests in certain producing
offshore Louisiana oil and gas properties as well as interests
in undeveloped offshore oil and natural gas leases for
approximately $200.9 million from Bois dArc Resources
and certain of its affiliates and working interest partners. We
acquired interests in 43 wells, 29.6 net to us, and
eight separate production complexes located in the Gulf of
Mexico offshore of Plaquemines and Terrebonne Parishes,
Louisiana. The acquisition included interests in the Louisiana
state and federal offshore areas of Main Pass Block 21,
Ship Shoal Blocks 66, 67, 68 and 69 and South Pelto
Block 1. The net proved reserves acquired in this
acquisition were estimated at 14.3 MMBbls of oil and
29.4 Bcf of natural gas.
16
Black Stone Acquisition. In May 1996, we
acquired 100% of the capital stock of Black Stone Oil Company
and interests in producing and undeveloped oil and gas
properties located in South Texas for $100.4 million. We
acquired interests in 19 wells, 7.7 net to us, that
were located in the Double A Wells field in Polk County, Texas
and we became the operator of most of the wells in the field.
The net proved reserves acquired in this acquisition were
estimated at 5.9 MMBbls of oil and 100.4 Bcf of
natural gas.
Sonat Acquisition. In July 1995, we purchased
interests in certain producing oil and gas properties located in
East Texas and North Louisiana from Sonat Inc. for
$48.1 million. We acquired interests in 319 producing
wells, 188.0 net to us. The acquisition included interests
in the Beckville, Logansport, Waskom, Blocker and Hico-Knowles
fields. The net proved reserves acquired in this acquisition
were estimated at 0.8 MMBbls of oil and 104.7 Bcf of
natural gas.
Oil and
Natural Gas Reserves
The following table sets forth our estimated proved oil and
natural gas reserves and the PV10 Value as of December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
|
|
|
Gas
|
|
|
Total
|
|
|
PV10 Value
|
|
|
|
(MBbls)
|
|
|
(MMcf)
|
|
|
(MMcfe)
|
|
|
(000s)
|
|
|
Proved Developed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Producing
|
|
|
14,535
|
|
|
|
396,697
|
|
|
|
483,908
|
|
|
$
|
1,839,988
|
|
Non-producing
|
|
|
10,304
|
|
|
|
162,891
|
|
|
|
224,714
|
|
|
|
1,065,362
|
|
Proved Undeveloped
|
|
|
10,303
|
|
|
|
278,264
|
|
|
|
340,078
|
|
|
|
869,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proved
|
|
|
35,142
|
|
|
|
837,852
|
|
|
|
1,048,700
|
|
|
|
3,774,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discounted Future Income Taxes
|
|
|
(830,517
|
)
|
|
|
|
|
|
Standardized Measure of Discounted Future Net Cash
Flows(1)
|
|
$
|
2,943,837
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The PV 10 Value represents the
discounted future net cash flows attributable to our proved oil
and gas reserves before income tax, discounted at 10%. Although
it is a non-GAAP measure, we believe that the presentation of
the PV 10 Value is relevant and useful to our investors because
it presents the discounted future net cash flows attributable to
our proved reserves prior to taking into account corporate
future income taxes and our current tax structure. We use this
measure when assessing the potential return on investment
related to our oil and gas properties. The standardized measure
of discounted future net cash flows represents the present value
of future cash flows attributable to our proved oil and natural
gas reserves after income tax, discounted at 10%.
|
The reserves attributed to the minority interest ownership in
Bois dArc Energy as of December 31, 2007 were
12,558 MBbls of oil and 127,522 MMcf of natural gas or
202,867 MMcfe of natural gas equivalent with a PV10 Value
of $1,119.8 million and a standardized measure of future
net cash flows of $908.1 million.
Proved oil and gas reserves are the estimated quantities of
crude oil, natural gas and natural gas liquids which geological
and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions (i.e., prices and costs as of
the date the estimate is made). Proved developed reserves are
reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. Proved
undeveloped reserves are reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing
wells where a relatively major expenditure is required for
recompletion.
The PV 10 Value and standardized measure of discounted future
net cash flows was determined based on the market prices for oil
and natural gas on December 31, 2007. The market price for
our oil production on December 31, 2007, after basis
adjustments, was $90.67 per barrel as compared to $56.17 per
barrel on December 31, 2006. The market price received for
our natural gas production on December 31, 2007, after
basis adjustments, was $6.87 per Mcf as compared to $5.70 per
Mcf on December 31, 2006.
17
We did not provide estimates of total proved oil and natural gas
reserves during the years ended December 31, 2005, 2006 or
2007 to any federal authority or agency, other than the SEC.
Drilling
Activity Summary
During the three-year period ended December 31, 2007, we
drilled development and exploratory wells as set forth in the
table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Onshore
|
|
|
Offshore
|
|
|
Total
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
|
|
|
2
|
|
|
|
1.9
|
|
|
|
8
|
|
|
|
7.6
|
|
|
|
5
|
|
|
|
4.8
|
|
|
|
3
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4.0
|
|
|
|
5
|
|
|
|
4.9
|
|
|
|
8
|
|
|
|
7.6
|
|
|
|
9
|
|
|
|
8.8
|
|
Gas
|
|
|
70
|
|
|
|
46.5
|
|
|
|
105
|
|
|
|
75.9
|
|
|
|
152
|
|
|
|
115.7
|
|
|
|
6
|
|
|
|
5.2
|
|
|
|
2
|
|
|
|
1.7
|
|
|
|
1
|
|
|
|
1.0
|
|
|
|
76
|
|
|
|
51.7
|
|
|
|
107
|
|
|
|
77.6
|
|
|
|
153
|
|
|
|
116.7
|
|
Dry
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
2.2
|
|
|
|
3
|
|
|
|
2.6
|
|
|
|
2
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
2.4
|
|
|
|
2
|
|
|
|
2.0
|
|
|
|
4
|
|
|
|
2.2
|
|
|
|
6
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
|
|
|
|
48.4
|
|
|
|
117
|
|
|
|
85.7
|
|
|
|
160
|
|
|
|
123.1
|
|
|
|
11
|
|
|
|
10.2
|
|
|
|
2
|
|
|
|
1.7
|
|
|
|
8
|
|
|
|
7.4
|
|
|
|
83
|
|
|
|
58.6
|
|
|
|
119
|
|
|
|
87.4
|
|
|
|
168
|
|
|
|
130.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploratory:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
|
|
|
1
|
|
|
|
.2
|
|
|
|
3
|
|
|
|
2.0
|
|
|
|
1
|
|
|
|
0.6
|
|
|
|
8
|
|
|
|
6.4
|
|
|
|
8
|
|
|
|
7.0
|
|
|
|
2
|
|
|
|
1.6
|
|
|
|
9
|
|
|
|
6.6
|
|
|
|
11
|
|
|
|
9.0
|
|
|
|
3
|
|
|
|
2.2
|
|
Dry
|
|
|
2
|
|
|
|
1.2
|
|
|
|
2
|
|
|
|
2.0
|
|
|
|
4
|
|
|
|
2.5
|
|
|
|
1
|
|
|
|
0.6
|
|
|
|
3
|
|
|
|
2.5
|
|
|
|
5
|
|
|
|
3.0
|
|
|
|
3
|
|
|
|
1.8
|
|
|
|
5
|
|
|
|
4.5
|
|
|
|
9
|
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
1.4
|
|
|
|
5
|
|
|
|
4.0
|
|
|
|
5
|
|
|
|
3.1
|
|
|
|
11
|
|
|
|
8.5
|
|
|
|
11
|
|
|
|
9.5
|
|
|
|
7
|
|
|
|
4.6
|
|
|
|
14
|
|
|
|
9.9
|
|
|
|
16
|
|
|
|
13.5
|
|
|
|
12
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
75
|
|
|
|
49.8
|
|
|
|
122
|
|
|
|
89.7
|
|
|
|
165
|
|
|
|
126.2
|
|
|
|
22
|
|
|
|
18.7
|
|
|
|
13
|
|
|
|
11.2
|
|
|
|
15
|
|
|
|
12.0
|
|
|
|
97
|
|
|
|
68.5
|
|
|
|
135
|
|
|
|
100.9
|
|
|
|
180
|
|
|
|
138.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008 to the date of this report, we have drilled twenty-three
wells, 15.3 net to us, all of which have been successful. As of
the date of this report, we have seven wells, 5.3 net to us,
that are in the process of drilling.
Producing
Well Summary
The following table sets forth the gross and net producing oil
and natural gas wells in which we owned an interest at
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
|
|
|
Gas
|
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Onshore:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arkansas
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
8.0
|
|
Kansas
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
4.5
|
|
Kentucky
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
82.5
|
|
Louisiana
|
|
|
5
|
|
|
|
2.4
|
|
|
|
274
|
|
|
|
137.2
|
|
Mississippi
|
|
|
71
|
|
|
|
60.9
|
|
|
|
3
|
|
|
|
1.1
|
|
New Mexico
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
13.9
|
|
Oklahoma
|
|
|
3
|
|
|
|
.4
|
|
|
|
137
|
|
|
|
19.7
|
|
Texas
|
|
|
63
|
|
|
|
39.5
|
|
|
|
1,062
|
|
|
|
543.6
|
|
Wyoming
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Onshore
|
|
|
142
|
|
|
|
103.2
|
|
|
|
1,722
|
|
|
|
812.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore Gulf of Mexico:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Louisiana
|
|
|
15
|
|
|
|
13.7
|
|
|
|
9
|
|
|
|
6.4
|
|
Federal
|
|
|
46
|
|
|
|
30.5
|
|
|
|
75
|
|
|
|
57.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Offshore
|
|
|
61
|
|
|
|
44.2
|
|
|
|
84
|
|
|
|
64.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
203
|
|
|
|
147.4
|
|
|
|
1,806
|
|
|
|
876.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
We operate 1,014 of the 2,009 producing wells presented in the
above table. As of December 31, 2007 we owned interests
in 42 wells containing multiple completions, which means
that a well is producing from more than one completed zone.
Wells with more than one completion are reflected as one well in
the table above.
Acreage
The following table summarizes our developed and undeveloped
leasehold acreage at December 31, 2007. We have excluded
acreage in which our interest is limited to a royalty or
overriding royalty interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
|
|
|
Undeveloped
|
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Onshore:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arkansas
|
|
|
1,280
|
|
|
|
684
|
|
|
|
|
|
|
|
|
|
Kansas
|
|
|
6,400
|
|
|
|
4,064
|
|
|
|
|
|
|
|
|
|
Kentucky
|
|
|
7,206
|
|
|
|
5,773
|
|
|
|
785
|
|
|
|
785
|
|
Louisiana
|
|
|
100,960
|
|
|
|
64,590
|
|
|
|
5,541
|
|
|
|
2,456
|
|
Mississippi
|
|
|
4,304
|
|
|
|
1,777
|
|
|
|
7,485
|
|
|
|
5,101
|
|
New Mexico
|
|
|
7,120
|
|
|
|
697
|
|
|
|
4,803
|
|
|
|
2,113
|
|
Oklahoma
|
|
|
38,080
|
|
|
|
5,707
|
|
|
|
|
|
|
|
|
|
Texas
|
|
|
267,652
|
|
|
|
165,552
|
|
|
|
36,298
|
|
|
|
9,083
|
|
Wyoming
|
|
|
13,440
|
|
|
|
927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Onshore
|
|
|
446,442
|
|
|
|
249,771
|
|
|
|
54,912
|
|
|
|
19,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore Gulf of Mexico:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Louisiana
|
|
|
6,660
|
|
|
|
5,574
|
|
|
|
1,399
|
|
|
|
1,399
|
|
Federal
|
|
|
231,271
|
|
|
|
170,920
|
|
|
|
150,202
|
|
|
|
149,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Offshore
|
|
|
237,931
|
|
|
|
176,494
|
|
|
|
151,601
|
|
|
|
150,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
684,373
|
|
|
|
426,265
|
|
|
|
206,513
|
|
|
|
170,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our offshore undeveloped acreage, which represents 89% of our
total net undeveloped acreage, expires as follows:
|
|
|
|
|
Expires in 2008
|
|
|
24
|
%
|
Expires in 2009
|
|
|
28
|
%
|
Expires in 2010
|
|
|
11
|
%
|
Expires in 2011
|
|
|
13
|
%
|
Expires in 2012
|
|
|
7
|
%
|
Expires in 2013
|
|
|
10
|
%
|
Expires in 2017
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
Title to our oil and natural gas properties is subject to
royalty, overriding royalty, carried and other similar interests
and contractual arrangements customary in the oil and gas
industry, liens incident to operating agreements and for current
taxes not yet due and other minor encumbrances. All of our oil
and natural gas properties are pledged as collateral under our
bank credit facilities. As is customary in the oil and gas
industry, we are generally able to retain our ownership interest
in undeveloped acreage by production of existing wells, by
drilling activity which establishes commercial reserves
sufficient to maintain the lease or by payment of delay rentals.
19
Markets
and Customers
The market for oil and natural gas produced by us depends on
factors beyond our control, including the extent of domestic
production and imports of oil and natural gas, the proximity and
capacity of natural gas pipelines and other transportation
facilities, demand for oil and natural gas, the marketing of
competitive fuels and the effects of state and federal
regulation. The oil and gas industry also competes with other
industries in supplying the energy and fuel requirements of
industrial, commercial and individual consumers.
Our oil production is sold at prices tied to the spot oil
markets. Our natural gas production is primarily sold under
short-term contracts and priced on first of the month index
prices or on daily spot market prices. Approximately 65% of our
2007 natural gas sales were priced utilizing index prices and
approximately 35% were priced utilizing daily spot prices. Two
subsidiaries of Shell Oil Company accounted for approximately
53% of our total 2007 sales. The loss of these customers would
not have a material adverse effect on us as there is an
available market for our crude oil and natural gas production
from other purchasers.
Competition
The oil and gas industry is highly competitive. Competitors
include major oil companies, other independent energy companies
and individual producers and operators, many of which have
financial resources, personnel and facilities substantially
greater than we do. We face intense competition for the
acquisition of oil and natural gas properties and leases for oil
and gas exploration.
Regulation
General. Various aspects of our oil and
natural gas operations are subject to extensive and continually
changing regulation, as legislation affecting the oil and
natural gas industry is under constant review for amendment or
expansion. Numerous departments and agencies, both federal and
state, are authorized by statute to issue, and have issued,
rules and regulations binding upon the oil and natural gas
industry and its individual members. The Federal Energy
Regulatory Commission, or FERC, regulates the
transportation and sale for resale of natural gas in interstate
commerce pursuant to the Natural Gas Act of 1938, or
NGA, and the Natural Gas Policy Act of 1978, or
NGPA. In 1989, however, Congress enacted the Natural
Gas Wellhead Decontrol Act, which removed all remaining price
and nonprice controls affecting all first sales of
natural gas, effective January 1, 1993, subject to the
terms of any private contracts that may be in effect. While
sales by producers of natural gas and all sales of crude oil,
condensate and natural gas liquids can currently be made at
uncontrolled market prices, in the future Congress could reenact
price controls or enact other legislation with detrimental
impact on many aspects of our business. Under the provisions of
the Energy Policy Act of 2005 (the 2005 Act), the
NGA has been amended to prohibit any form of market manipulation
with the purchase or sale of natural gas, and the FERC has
issued new regulations that are intended to increase natural gas
pricing transparency. The 2005 Act has also significantly
increased the penalties for violations of the NGA.
Regulation and transportation of natural
gas. Our sales of natural gas are affected by the
availability, terms and cost of transportation. The price and
terms for access to pipeline transportation are subject to
extensive regulation. In recent years, the FERC has undertaken
various initiatives to increase competition within the natural
gas industry. As a result of initiatives like FERC Order
No. 636, issued in April 1992, the interstate natural gas
transportation and marketing system has been substantially
restructured to remove various barriers and practices that
historically limited non-pipeline natural gas sellers, including
producers, from effectively competing with interstate pipelines
for sales to local distribution companies and large industrial
and commercial customers. The most significant provisions of
Order No. 636 require that interstate pipelines provide
firm and interruptible transportation service on an open access
basis that is equal
20
for all natural gas supplies. In many instances, the results of
Order No. 636 and related initiatives have been to
substantially reduce or eliminate the traditional role of
interstate pipelines as wholesalers of natural gas in favor of
providing storage and transportation services.
In 2000, the FERC issued Order No. 637 and subsequent
orders, which imposed additional reforms designed to enhance
competition in natural gas markets. Among other things, Order
No. 637 revised the FERCs pricing policy by waiving
price ceilings for short-term released capacity for an
experimental period, and effected changes in the FERC
regulations relating to scheduling procedures, capacity
segmentation, penalties, rights of first refusal and information
reporting. While most major aspects of Order No. 637 have
been upheld on judicial review, certain issues such as capacity
segmentation and right of first refusal are pending further
consideration by the FERC. We cannot predict what action the
FERC will take on these matters in the future or whether the
FERCs actions will survive further judicial review.
Intrastate natural gas regulation is subject to regulation by
state regulatory agencies. The Texas Railroad Commission has
been changing its regulations governing transportation and
gathering services provided by intrastate pipelines and
gatherers. While the changes by these state regulators affect us
only indirectly, they are intended to further enhance
competition in natural gas markets. We cannot predict what
further action the FERC or state regulators will take on these
matters; however, we do not believe that we will be affected
differently than other natural gas producers with which we
compete by any action taken.
The Outer Continental Shelf Lands Act, or OCSLA,
which the FERC implements as to transportation and pipeline
issues, requires that all pipelines operating on or across the
outer continental shelf, or OCS, provide open
access, non-discriminatory transportation service. One of
FERCs principal goals in carrying out OCSLAs mandate
is to increase transparency in the market to provide producers
and shippers on the OCS with greater assurance of open access
service on pipelines located on the OCS and to help ensure
non-discriminatory rates and conditions of service on such
pipelines.
Although the FERC has historically imposed light-handed
regulation on offshore facilities that meet its traditional test
of gathering status, it has the authority under the OCSLA to
exercise jurisdiction over gathering facilities, if necessary,
to permit non-discriminatory access to service. In an effort to
heighten its oversight of the OCS, the FERC recently attempted
to promulgate reporting requirements for all OCS service
providers, including gatherers, but the regulations were
struck down as ultra vires by a federal district court,
which decision was affirmed by the U.S. Court of Appeals in
October 2003. The FERC withdrew those regulations in March 2004.
Subsequently, in April 2004, the Minerals Management Service, or
MMS, initiated an inquiry into whether it should
amend its regulations to assure that pipelines provide open and
non-discriminatory access over OCS pipeline facilities. For
those facilities transporting natural gas across the OCS that
are not considered to be gathering facilities, the rates, terms
and conditions applicable to this transportation are generally
regulated by the FERC under the NGA and NGPA, as well as the
OCSLA.
Additional proposals and proceedings that might affect the
natural gas industry are pending before Congress, the FERC,
state commissions and the courts. The natural gas industry
historically has been very heavily regulated; therefore, there
is no assurance that the less stringent regulatory approach
recently pursued by the FERC, Congress and state regulatory
authorities will continue.
Federal leases. Substantially all of our
offshore operations are located on federal oil and natural gas
leases that are administered by the MMS pursuant to the OCSLA.
These leases are issued through competitive bidding and contain
relatively standardized terms. These leases require compliance
with detailed Department of Interior and MMS regulations and
orders that are subject to interpretation and change.
For offshore operations, lessees must obtain MMS approval for
exploration, development and production plans prior to the
commencement of such operations. In addition to permits required
from
21
other agencies such as the Coast Guard, the Army Corps of
Engineers and the Environmental Protection Agency, lessees must
obtain a permit from the MMS prior to the commencement of
drilling. The MMS has promulgated regulations requiring offshore
production facilities located on the OCS to meet stringent
engineering and construction specifications. The MMS also has
regulations restricting the flaring or venting of natural gas,
and has proposed to amend such regulations to prohibit the
flaring of liquid hydrocarbons and oil without prior
authorization. Similarly, the MMS has promulgated other
regulations governing the plug and abandonment of wells located
offshore and the installation and removal of all production
facilities.
To cover the various obligations of lessees on the OCS, the MMS
generally requires that lessees have substantial net worth or
post bonds or other acceptable assurances that such obligations
will be satisfied. The cost of these bonds or assurances can be
substantial, and there is no assurance that they can be obtained
in all cases. We are currently exempt from supplemental bonding
requirements by the MMS. Under some circumstances, the MMS may
require any of our operations on federal leases to be suspended
or terminated. Any such suspension or termination could
materially adversely affect our financial condition and results
of operations.
The MMS also administers the collection of royalties under the
terms of the OCSLA and the oil and natural gas leases issued
thereunder. The amount of royalties due is based upon the terms
of the oil and natural gas leases as well as the regulations
promulgated by the MMS. The MMS regulations governing the
calculation of royalties and the valuation of crude oil produced
from federal leases currently rely on arms-length sales
prices and spot market prices as indicators of value. Although
the method of calculating royalties on production from federal
leases has been the subject of much public discussion in recent
years, the basis for calculating royalty payments established or
to be established by the MMS is generally applicable to all
federal lessees. Accordingly, we believe that the impact of
royalty regulation on our operations should generally be the
same as the impact on our competitors.
Oil and Natural Gas Liquids Transportation
Rates. Our sales of crude oil, condensate and
natural gas liquids are not currently regulated and are made at
market prices. In a number of instances, however, the ability to
transport and sell such products is dependent on pipelines whose
rates, terms and conditions of service are subject to FERC
jurisdiction under the Interstate Commerce Act. In other
instances, the ability to transport and sell such products is
dependent on pipelines whose rates, terms and conditions of
service are subject to regulation by state regulatory bodies
under state statutes. The price received from the sale of these
products may be affected by the cost of transporting the
products to market.
The regulation of pipelines that transport crude oil, condensate
and natural gas liquids is generally more light-handed than the
FERCs regulation of natural gas pipelines under the NGA.
Regulated pipelines that transport crude oil, condensate and
natural gas liquids are subject to common carrier obligations
that generally ensure non-discriminatory access. With respect to
interstate pipeline transportation subject to regulation of the
FERC under the Interstate Commerce Act, rates generally must be
cost-based, although market-based rates or negotiated settlement
rates are permitted in certain circumstances. Pursuant to FERC
Order No. 561, issued in October 1993, the FERC implemented
regulations generally grandfathering all previously unchallenged
interstate pipeline rates and made these rates subject to an
indexing methodology. Under this indexing methodology, pipeline
rates are subject to changes in the Producer Price Index for
Finished Goods, minus one percent. A pipeline can seek to
increase its rates above index levels provided that the pipeline
can establish that there is a substantial divergence between the
actual costs experienced by the pipeline and the rate resulting
from application of the index. A pipeline can seek to charge a
market-based rate if it establishes that it lacks significant
market power. In addition, a pipeline can establish rates
pursuant to settlement if agreed upon by all current shippers. A
pipeline can seek to establish initial rates for new services
through a
cost-of-service
proceeding, a market-based rate proceeding, or through an
agreement between the pipeline and at least one shipper not
affiliated with the pipeline. As provided for in Order
No. 561, in July 2000, the FERC issued a Notice of Inquiry
seeking comment on whether to retain or to
22
change the existing oil rate-indexing method. In December 2000,
the FERC issued an order concluding that the rate index
reasonably estimated the actual cost changes in the pipeline
industry and should be continued for another five-year period,
subject to review in July 2005. In February 2003, on remand of
its December 2000 order from the D.C. Circuit, the FERC
increased its index slightly. A challenge to FERCs remand
order was denied by the D.C. Circuit in April 2004.
With respect to intrastate crude oil, condensate and natural gas
liquids pipelines subject to the jurisdiction of state agencies,
such state regulation is generally less rigorous than the
regulation of interstate pipelines. State agencies have
generally not investigated or challenged existing or proposed
rates in the absence of shipper complaints or protests.
Complaints or protests have been infrequent and are usually
resolved informally.
We do not believe that the regulatory decisions or activities
relating to interstate or intrastate crude oil, condensate or
natural gas liquids pipelines will affect us in a way that
materially differs from the way it affects other crude oil,
condensate and natural gas liquids producers or marketers.
Environmental regulations. We are subject to
stringent federal, state and local laws. These laws, among other
things, govern the issuance of permits to conduct exploration,
drilling and production operations, the amounts and types of
materials that may be released into the environment, the
discharge and disposition of waste materials, the remediation of
contaminated sites and the reclamation and abandonment of wells,
sites and facilities. Numerous governmental departments issue
rules and regulations to implement and enforce such laws, which
are often difficult and costly to comply with and which carry
substantial civil and even criminal penalties for failure to
comply. Some laws, rules and regulations relating to protection
of the environment may, in certain circumstances, impose strict
liability for environmental contamination, rendering a person
liable for environmental damages and cleanup cost without regard
to negligence or fault on the part of such person. Other laws,
rules and regulations may restrict the rate of oil and natural
gas production below the rate that would otherwise exist or even
prohibit exploration and production activities in sensitive
areas. In addition, state laws often require various forms of
remedial action to prevent pollution, such as closure of
inactive pits and plugging of abandoned wells. The regulatory
burden on the oil and natural gas industry increases our cost of
doing business and consequently affects our profitability. These
costs are considered a normal, recurring cost of our on-going
operations. Our domestic competitors are generally subject to
the same laws and regulations.
We believe that we are in substantial compliance with current
applicable environmental laws and regulations and that continued
compliance with existing requirements will not have a material
adverse impact on our operations. However, environmental laws
and regulations have been subject to frequent changes over the
years, and the imposition of more stringent requirements could
have a material adverse effect upon our capital expenditures,
earnings or competitive position, including the suspension or
cessation of operations in affected areas. As such, there can be
no assurance that material cost and liabilities will not be
incurred in the future.
The Comprehensive Environmental Response, Compensation and
Liability Act, or CERCLA, imposes liability, without
regard to fault, on certain classes of persons that are
considered to be responsible for the release of a
hazardous substance into the environment. These
persons include the current or former owner or operator of the
disposal site or sites where the release occurred and companies
that disposed or arranged for the disposal of hazardous
substances. Under CERCLA, such persons may be subject to joint
and several liability for the cost of investigating and cleaning
up hazardous substances that have been released into the
environment, for damages to natural resources and for the cost
of certain health studies. In addition, companies that incur
liability frequently also confront third party claims because it
is not uncommon for neighboring landowners and other third
parties to file claims for personal injury and
23
property damage allegedly caused by hazardous substances or
other pollutants released into the environment from a polluted
site.
The Federal Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976, or RCRA,
regulates the generation, transportation, storage, treatment and
disposal of hazardous wastes and can require cleanup of
hazardous waste disposal sites. RCRA currently excludes drilling
fluids, produced waters and other wastes associated with the
exploration, development or production of oil and natural gas
from regulation as hazardous waste. Disposal of such
non-hazardous oil and natural gas exploration, development and
production wastes usually are regulated by state law. Other
wastes handled at exploration and production sites or used in
the course of providing well services may not fall within this
exclusion. Moreover, stricter standards for waste handling and
disposal may be imposed on the oil and natural gas industry in
the future. From time to time, legislation is proposed in
Congress that would revoke or alter the current exclusion of
exploration, development and production wastes from RCRAs
definition of hazardous wastes, thereby potentially
subjecting such wastes to more stringent handling, disposal and
cleanup requirements. If such legislation were enacted, it could
have a significant impact on our operating cost, as well as the
oil and natural gas industry in general. The impact of future
revisions to environmental laws and regulations cannot be
predicted.
Our operations are also subject to the Clean Air Act, or
CAA, and comparable state and local requirements.
Amendments to the CAA were adopted in 1990 and contain
provisions that may result in the gradual imposition of certain
pollution control requirements with respect to air emissions
from our operations. We may be required to incur certain capital
expenditures in the future for air pollution control equipment
in connection with obtaining and maintaining operating permits
and approvals for air emissions. However, we believe our
operations will not be materially adversely affected by any such
requirements, and the requirements are not expected to be any
more burdensome to us than to other similarly situated companies
involved in oil and natural gas exploration and production
activities.
The Federal Water Pollution Control Act of 1972, as amended, or
the Clean Water Act, imposes restrictions and
controls on the discharge of produced waters and other wastes
into navigable waters. Permits must be obtained to discharge
pollutants into state and federal waters and to conduct
construction activities in waters and wetlands. Certain state
regulations and the general permits issued under the Federal
National Pollutant Discharge Elimination System program prohibit
the discharge of produced waters and sand, drilling fluids,
drill cuttings and certain other substances related to the oil
and natural gas industry into certain coastal and offshore
waters, unless otherwise authorized. Further, the EPA has
adopted regulations requiring certain oil and natural gas
exploration and production facilities to obtain permits for
storm water discharges. Costs may be associated with the
treatment of wastewater or developing and implementing storm
water pollution prevention plans. The Clean Water Act and
comparable state statutes provide for civil, criminal and
administrative penalties for unauthorized discharges for oil and
other pollutants and impose liability on parties responsible for
those discharges for the cost of cleaning up any environmental
damage caused by the release and for natural resource damages
resulting from the release. We believe that our operations
comply in all material respects with the requirements of the
Clean Water Act and state statutes enacted to control water
pollution.
Federal regulators require certain owners or operators of
facilities that store or otherwise handle oil to prepare and
implement spill prevention, control, countermeasure and response
plans relating to the possible discharge of oil into surface
waters. The Oil Pollution Act of 1990 (OPA) contains
numerous requirements relating to the prevention and response to
oil spills in the waters of the United States. The OPA subjects
owners of facilities to strict joint and several liability for
all containment and cleanup costs and certain other damages
relating to a spill. Noncompliance with OPA may result in
varying civil and criminal penalties and liabilities.
24
Executive Order 13158, issued on May 26, 2000, directs
federal agencies to safeguard existing Marine Protected Areas,
or MPAs, in the United States and establish new
MPAs. The order requires federal agencies to avoid harm to MPAs
to the extent permitted by law and to the maximum extent
practicable. It also directs the EPA to propose new regulations
under the Clean Water Act to ensure appropriate levels of
protection for the marine environment. This order has the
potential to adversely affect our operations by restricting
areas in which we may carry out future exploration and
development projects
and/or
causing us to incur increased operating expenses.
Certain flora and fauna that have officially been classified as
threatened or endangered are protected
by the Endangered Species Act. This law prohibits any activities
that could take a protected plant or animal or
reduce or degrade its habitat area. If endangered species are
located in an area we wish to develop, the work could be
prohibited or delayed
and/or
expensive mitigation might be required.
Other statutes that provide protection to animal and plant
species and which may apply to our operations include, but are
not necessarily limited to, the National Environmental Policy
Act, the Coastal Zone Management Act, the Oil Pollution Act, the
Emergency Planning and Community
Right-to-Know
Act, the Marine Mammal Protection Act, the Marine Protection,
Research and Sanctuaries Act, the Fish and Wildlife Coordination
Act, the Fishery Conservation and Management Act, the Migratory
Bird Treaty Act and the National Historic Preservation Act.
These laws and regulations may require the acquisition of a
permit or other authorization before construction or drilling
commences and may limit or prohibit construction, drilling and
other activities on certain lands lying within wilderness or
wetlands and other protected areas and impose substantial
liabilities for pollution resulting from our operations. The
permits required for our various operations are subject to
revocation, modification and renewal by issuing authorities.
We maintain insurance against sudden and accidental
occurrences, which may cover some, but not all, of the risks
described above. Most significantly, the insurance we maintain
will not cover the risks described above which occur over a
sustained period of time. Further, there can be no assurance
that such insurance will continue to be available to cover all
such cost or that such insurance will be available at a cost
that would justify its purchase. The occurrence of a significant
event not fully insured or indemnified against could have a
material adverse effect on our financial condition and results
of operations.
Regulation of oil and natural gas exploration and
production. Our exploration and production
operations are subject to various types of regulation at the
federal, state and local levels. Such regulations include
requiring permits and drilling bonds for the drilling of wells,
regulating the location of wells, the method of drilling and
casing wells and the surface use and restoration of properties
upon which wells are drilled. Many states also have statutes or
regulations addressing conservation matters, including
provisions for the unitization or pooling of oil and natural gas
properties, the establishment of maximum rates of production
from oil and natural gas wells and the regulation of spacing,
plug and abandonment of such wells. Some state statutes limit
the rate at which oil and natural gas can be produced from our
properties.
State Regulation. Most states regulate the
production and sale of oil and natural gas, including
requirements for obtaining drilling permits, the method of
developing new fields, the spacing and operation of wells and
the prevention of waste of oil and gas resources. The rate of
production may be regulated and the maximum daily production
allowable from both oil and gas wells may be established on a
market demand or conservation basis or both.
Office
and Operations Facilities
Our executive offices are located at 5300 Town and Country
Blvd., Suite 500 in Frisco, Texas 75034 and our telephone
number is
(972) 668-8800.
We lease office space in Frisco, Texas covering
43,382 square
25
feet at a monthly rate of $81,341 and in Houston, Texas covering
16,285 square feet at a monthly rate of $28,600. These
leases expire on July 31, 2014 and April 30, 2012,
respectively. We also own production offices and pipe yard
facilities near Marshall, Livingston, and Zapata, Texas;
Logansport, Louisiana; Guston, Kentucky and Laurel, Mississippi.
Employees
As of December 31, 2007, we had 138 employees and
utilized contract employees for certain of our field operations.
We consider our employee relations to be satisfactory.
Directors,
Executive Officers and Other Management
The following table sets forth certain information concerning
our executive officers and directors.
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Name
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Position with Company
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Age
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M. Jay Allison
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President, Chief Executive Officer and Chairman of the Board of
Directors
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52
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Roland O. Burns
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Senior Vice President, Chief Financial Officer, Secretary,
Treasurer and Director
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47
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D. Dale Gillette
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Vice President of Land and General Counsel
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62
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Mack D. Good
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Chief Operating Officer
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57
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Stephen E. Neukom
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Vice President of Marketing
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58
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Daniel K. Presley
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Vice President of Accounting and Controller
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47
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Richard D. Singer
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Vice President of Financial Reporting
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53
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David K. Lockett
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Director
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53
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Cecil E. Martin, Jr.
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Director
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66
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David W. Sledge
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Director
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51
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Nancy E. Underwood
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Director
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56
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Executive
Officers
A brief biography of each person who serves as a director or
executive officer follows below.
M. Jay Allison has been a director since June
1987, and our President and Chief Executive Officer since 1988.
Mr. Allison was elected Chairman of the board of directors
in 1997. From 1987 to 1988, Mr. Allison served as our Vice
President and Secretary. From 1981 to 1987, he was a practicing
oil and gas attorney with the firm of Lynch,
Chappell & Alsup in Midland, Texas. He received
B.B.A., M.S. and J.D. degrees from Baylor University in 1978,
1980 and 1981, respectively. Mr. Allison also serves as
Chairman of the board of directors of Bois dArc Energy,
Inc. and currently serves as a Director of Tidewater Marine,
Inc., on the Board of Regents for Baylor University and on the
Advisory Board of the Salvation Army in Dallas, Texas.
Roland O. Burns has been our Senior Vice President
since 1994, Chief Financial Officer and Treasurer since 1990,
our Secretary since 1991 and a director since 1999.
Mr. Burns also serves as Senior Vice President, Chief
Financial Officer, Secretary and a director of Bois dArc
Energy, Inc. From 1982 to 1990, Mr. Burns was employed by
the public accounting firm, Arthur Andersen. During his tenure
with Arthur Andersen, Mr. Burns worked primarily in the
firms oil and gas audit practice. Mr. Burns received
B.A. and M.A. degrees from the University of Mississippi in 1982
and is a Certified Public Accountant.
26
D. Dale Gillette joined us as Vice President
of Land and General Counsel in September 2006. Prior to joining
us, Mr. Gillette practiced law extensively in the energy
sector for 32 years, most recently as a partner with
Gardere Wynne Sewell LLP, and before that with Locke
Liddell & Sapp LLP. During that time he represented
independent exploration and production companies and large
financial institutions in numerous oil and gas transactions.
Mr. Gillette has also served as corporate counsel in the
legal department of Mesa Petroleum Co. and in the legal
department of Enserch Corp. Mr. Gillette holds B.A. and
J.D. degrees from the University of Texas and is a member of the
State Bar of Texas.
Mack D. Good was appointed our Chief Operating
Officer in 2004. From 1999 to 2004, he served as Vice President
of Operations. From August 1997 until February 1999,
Mr. Good served as our district engineer for the East
Texas/North Louisiana region. From 1983 until July 1997,
Mr. Good was with Enserch Exploration, Inc. serving in
various operations management and engineering positions.
Mr. Good received a B.S. of Biology/Chemistry from Oklahoma
State University in 1975 and a B.S. of Petroleum Engineering
from the University of Tulsa in 1983. He is a Registered
Professional Engineer in the State of Texas.
Stephen E. Neukom has been our Vice President of
Marketing since December 1997 and has served as our manager of
crude oil and natural gas marketing since December 1996. From
October 1994 to 1996, Mr. Neukom served as vice president
of Comstock Natural Gas, Inc., our former wholly owned gas
marketing subsidiary. Prior to joining us, Mr. Neukom was
senior vice president of Victoria Gas Corporation from 1987 to
1994. Mr. Neukom received a B.B.A. degree from the
University of Texas in 1972.
Daniel K. Presley has been our Vice President of
Accounting since December 1997 and has been with us since
December 1989, serving as controller since 1991. Prior to
joining us, Mr. Presley had six years of experience with
several independent oil and gas companies including AmBrit
Energy, Inc. Prior thereto, Mr. Presley spent two and
one-half years with B.D.O. Seidman, a public accounting firm.
Mr. Presley received a B.B.A. from Texas A & M
University in 1983.
Richard D. Singer joined us in June 2005 as Vice
President of Financial Reporting. Mr. Singer has over
30 years of experience in financial accounting and
reporting. Prior to joining us, Mr. Singer most recently
served as an assistant controller for Holly Corporation from
March 2004 to May 2005 and as assistant controller for
Santa Fe International Corporation from July 1988 to
December 2002. Mr. Singer received a B.S. degree from the
Pennsylvania State University in 1976 and is a Certified Public
Accountant.
Outside
Directors
David K. Lockett has served as a director since
July 2001. Mr. Lockett has been a Vice President of Dell
Inc. and has managed Dells Small and Medium Business Group
since 1996. Mr. Lockett has been employed by Dell Inc. for
the last 16 years and has spent the past 26 years in
the technology industry. Mr. Lockett also serves as a
director of Bois dArc Energy, Inc. Mr. Lockett
received a B.B.A. degree from Texas A&M University in 1976.
Cecil E. Martin has served as a director since
October 1989. Mr. Martin is an independent commercial real
estate investor who has primarily been managing his personal
real estate investments since 1991. From 1973 to 1991, he also
served as chairman of a public accounting firm in Richmond,
Virginia. Mr. Martin also serves as a director of Bois
dArc Energy, Inc. and on the board of directors of
Crosstex Energy, Inc. and Crosstex Energy, L.P. Mr. Martin
holds a B.B.A. degree from Old Dominion University and is a
Certified Public Accountant.
David W. Sledge has served as a director since May
1996. Mr. Sledge is currently a Vice President of Basic
Energy Services, Inc. He was President and Chief Operating
Officer of Sledge Drilling Company until it was acquired by
Basic Energy Services in April 2007. He served as an area
operations manager for
27
Patterson-UTI Energy, Inc. from May 2004 until January 2006.
From October 1996 until May 2004, Mr. Sledge managed his
personal investments in oil and gas exploration activities.
Mr. Sledge is a past director of the International
Association of Drilling Contractors and is a past chairman of
the Permian Basin chapter of this association. Mr. Sledge
also serves as a director of Bois dArc Energy, Inc. He
received a B.B.A. degree from Baylor University in 1979.
Nancy E. Underwood has served as a director since
2004. Ms. Underwood is owner and President of Underwood
Financial Ltd., a position she has held since 1986.
Ms. Underwood holds B.S. and J.D. degrees from Emory
University and practiced law at an Atlanta, Georgia based law
firm before joining River Hill Development Corporation in 1981.
Ms. Underwood is involved civically in the Dallas community
and currently serves on the board of the Presbyterian Hospital
of Dallas Foundation.
Available
Information
Our executive offices are located at 5300 Town and Country
Blvd., Suite 500, Frisco, Texas 75034. Our telephone number
is
(972) 668-8800.
We file annual, quarterly and current reports, proxy statements
and other documents with the SEC under the Securities Exchange
Act of 1934. The public may read and copy any materials that we
file with the SEC at the SECs Public Reference Room at
100 F Street N.E., Washington, D.C. 20549. The
public may obtain information on the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-0330.
In addition, the SEC maintains a website that contains reports,
proxy and information statements, and other information that is
electronically filed with the SEC. The public can obtain any
documents that we file with the SEC at www.sec.gov. We also make
available free of charge on our website
(www.comstockresources.com) our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
current reports on
Form 8-K
and, if applicable, amendments to those reports filed or
furnished pursuant to Section 13(a) of the Exchange Act as
soon as reasonably practicable after we file such material with,
or furnish it to, the SEC.
You should carefully consider the following risk factors as well
as the other information contained or incorporated by reference
in this report, as these are important factors, among others,
could cause our actual results to differ from our expected or
historical results. It is not possible to predict or identify
all such factors. Consequently, you should not consider any such
list to be a complete statement of all of our potential risks or
uncertainties.
A
substantial or extended decline in oil and natural gas prices
may adversely affect our business, financial condition, cash
flow, liquidity or results of operations and our ability to meet
our capital expenditure obligations and financial commitments
and to implement our business strategy.
Our business is heavily dependent upon the prices of, and demand
for, oil and natural gas. Historically, the prices for oil and
natural gas have been volatile and are likely to remain volatile
in the future. The prices we receive for our oil and natural gas
production and the level of such production will be subject to
wide fluctuations and depend on numerous factors beyond our
control, including the following:
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the domestic and foreign supply of oil and natural gas;
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weather conditions;
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the price and quantity of imports of crude oil and natural gas;
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political conditions and events in other oil-producing and
natural gas-producing countries, including embargoes,
hostilities in the Middle East and other sustained military
campaigns, and acts of terrorism or sabotage;
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the actions of the Organization of Petroleum Exporting
Countries, or OPEC;
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28
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domestic government regulation, legislation and policies;
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the level of global oil and natural gas inventories;
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technological advances affecting energy consumption;
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the price and availability of alternative fuels; and
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overall economic conditions.
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Any continued and extended decline in the price of crude oil or
natural gas will adversely affect:
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our revenues, profitability and cash flow from operations;
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the value of our proved oil and natural gas reserves;
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the economic viability of certain of our drilling prospects;
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our borrowing capacity; and
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our ability to obtain additional capital.
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We have entered into certain natural gas price hedging
arrangements on certain of our anticipated sales. In the future
we may enter into additional hedging arrangements in order to
reduce our exposure to price risks. Such arrangements would
limit our ability to benefit from increases in oil and natural
gas prices.
We plan to pursue acquisitions as part of our growth
strategy and there are risks in connection with
acquisitions.
Our growth has been attributable in part to acquisitions of
producing properties and companies. We expect to continue to
evaluate and, where appropriate, pursue acquisition
opportunities on terms we consider favorable. However, we cannot
assure you that suitable acquisition candidates will be
identified in the future, or that we will be able to finance
such acquisitions on favorable terms. In addition, we compete
against other companies for acquisitions, and we cannot assure
you that we will successfully acquire any material property
interests. Further, we cannot assure you that future
acquisitions by us will be integrated successfully into our
operations or will increase our profits.
The successful acquisition of producing properties requires an
assessment of numerous factors beyond our control, including,
without limitation:
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recoverable reserves;
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exploration potential;
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future oil and natural gas prices;
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operating costs; and
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potential environmental and other liabilities.
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In connection with such an assessment, we perform a review of
the subject properties that we believe to be generally
consistent with industry practices. The resulting assessments
are inexact and their accuracy uncertain, and such a review may
not reveal all existing or potential problems, nor will it
necessarily permit us to become sufficiently familiar with the
properties to fully assess their merits and deficiencies.
Inspections may not always be performed on every well, and
structural and environmental problems are not necessarily
observable even when an inspection is made.
Additionally, significant acquisitions can change the nature of
our operations and business depending upon the character of the
acquired properties, which may be substantially different in
operating and geologic characteristics or geographic location
than our existing properties. While our current operations are
focused in the East Texas/North Louisiana and South Texas
regions, as well as the Gulf of Mexico through our ownership
interest in Bois dArc Energy, we may pursue acquisitions
or properties located in other geographic areas.
29
Our
future production and revenues depend on our ability to replace
our reserves.
Our future production and revenues depend upon our ability to
find, develop or acquire additional oil and natural gas reserves
that are economically recoverable. Our proved reserves will
generally decline as reserves are depleted, except to the extent
that we conduct successful exploration or development activities
or acquire properties containing proved reserves, or both. To
increase reserves and production, we must continue our
acquisition and drilling activities. We cannot assure you,
however, that our acquisition and drilling activities will
result in significant additional reserves or that we will have
continuing success drilling productive wells at low finding and
development costs. Furthermore, while our revenues may increase
if prevailing oil and natural gas prices increase significantly,
our finding costs for additional reserves could also increase.
Prospects that we decide to drill may not yield oil or
natural gas in commercially viable quantities or quantities
sufficient to meet our targeted rate of return.
A prospect is a property in which we own an interest or have
operating rights and has what our geoscientists believe, based
on available seismic and geological information, to be an
indication of potential oil or natural gas. Our prospects are in
various stages of evaluation, ranging from a prospect that is
ready to be drilled to a prospect that will require substantial
additional evaluation and interpretation. There is no way to
predict in advance of drilling and testing whether any
particular prospect will yield oil or natural gas in sufficient
quantities to recover drilling or completion costs or to be
economically viable. The use of seismic data and other
technologies and the study of producing fields in the same area
will not enable us to know conclusively prior to drilling
whether oil or natural gas will be present or, if present,
whether oil or natural gas will be present in commercial
quantities. The analysis that we perform using data from other
wells, more fully explored prospects
and/or
producing fields may not be useful in predicting the
characteristics and potential reserves associated with our
drilling prospects. If we drill additional unsuccessful wells,
our drilling success rate may decline and we may not achieve our
targeted rate of return.
The unavailability or high cost of drilling rigs,
equipment, supplies or qualified personnel and oilfield services
could adversely affect our ability to execute our exploration
and development plans on a timely basis and within our
budget.
With the increasing oil and natural gas prices, our industry has
experienced a shortage of drilling rigs, equipment, supplies and
qualified personnel. Costs and delivery times of rigs, equipment
and supplies are substantially greater than they were several
years ago. In addition, demand for, and wage rates of, qualified
drilling rig crews rise with increases in the number of active
rigs in service. Shortages of drilling rigs, equipment or
supplies or qualified personnel in the areas in which we operate
could delay or restrict our exploration and development
operations, which in turn could adversely affect our financial
condition and results of operations because of our concentration
in those areas.
We are vulnerable to operational, regulatory and other
risks associated with the Gulf of Mexico, including the effects
of adverse weather conditions such as hurricanes, because we
currently explore and produce exclusively in that area.
Our offshore operations and revenues are significantly impacted
by conditions in the Gulf of Mexico. Risks associated with the
Gulf of Mexico include:
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adverse weather conditions, including hurricanes and tropical
storms;
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delays or decreases in production, the availability of
equipment, facilities or services;
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delays or decreases in the availability of capacity to
transport, gather or process production; and
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changes in the regulatory environment.
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30
Offshore operations are also subject to a variety of operating
risks peculiar to the marine environment, such as capsizing,
collisions and damage or loss from hurricanes or other adverse
weather conditions. These conditions can cause substantial
damage to our facilities and interrupt our production. As a
result, we could incur substantial liabilities that could reduce
or eliminate the funds available for exploration and development
or result in loss of equipment and property. For example, our
offshore operations were impacted in 2005 by hurricane and
tropical storm activity.
We plan to conduct exploration, development and production
operations on the deep shelf and in the deepwater of the Gulf of
Mexico, which presents greater operating and financial risks
than conventional shelf operations.
The deep shelf of the Gulf of Mexico is an area that has had
limited historical drilling activity. This is due, in part, to
its geological complexity and depth. Deep shelf development can
be more expensive than conventional shelf projects as deep shelf
development requires more actual drilling days and higher
drilling and services costs due to extreme pressure and
temperatures associated with greater drilling depths. Moreover,
drilling expense and the risk of mechanical failure are
significantly higher because of the additional depth and adverse
conditions such as high temperature and pressure. Also, seismic
interpretation of deeper, geopressured formations is more
difficult than at shallower, normally pressured conventional
well depths. Our overall exploration success rate has been 70%.
Of the 27 deep shelf wells that we have drilled, 17 successfully
found hydrocarbons at geologic and drilling depths below
15,000 feet, for a success rate of 55%. This success rate
is lower than our overall success rate, reflecting the fact that
deep shelf drilling is inherently more risky than conventional
shelf drilling. Deepwater development costs can also be
significantly higher than shelf development costs because
deepwater drilling requires bigger installation equipment;
sophisticated sea floor production handling equipment;
expensive,
state-of-the-art
platforms
and/or
investment in infrastructure. Accordingly, we cannot assure you
that our oil and natural gas exploration activities, in the deep
shelf, the deepwater and elsewhere, will be commercially
successful.
Our
debt service requirements could adversely affect our operations
and limit our growth.
We had $760.0 million in debt as of December 31, 2007,
and our ratio of total debt to total capitalization was
approximately 50%.
Our outstanding debt will have important consequences,
including, without limitation:
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a portion of our cash flow from operations will be required to
make debt service payments;
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our ability to borrow additional amounts for working capital,
capital expenditures (including acquisitions) or other purposes
will be limited; and
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our debt could limit our ability to capitalize on significant
business opportunities, our flexibility in planning for or
reacting to changes in market conditions and our ability to
withstand competitive pressures and economic downturns.
|
In addition, future acquisition or development activities may
require us to alter our capitalization significantly. These
changes in capitalization may significantly increase our debt.
Moreover, our ability to meet our debt service obligations and
to reduce our total debt will be dependent upon our future
performance, which will be subject to general economic
conditions and financial, business and other factors affecting
our operations, many of which are beyond our control. If we are
unable to generate sufficient cash flow from operations in the
future to service our indebtedness and to meet other
commitments, we will be required to adopt one or more
alternatives, such as refinancing or restructuring our
indebtedness, selling material assets or seeking to raise
additional debt or equity capital. We cannot assure you that any
of these actions could be effected on a timely basis or on
satisfactory terms or that these actions would enable us to
continue to satisfy our capital requirements.
31
Our bank credit facility contains a number of significant
covenants. These covenants will limit our ability to, among
other things:
|
|
|
|
|
borrow additional money;
|
|
|
merge, consolidate or dispose of assets;
|
|
|
make certain types of investments;
|
|
|
enter into transactions with our affiliates; and
|
|
|
pay dividends.
|
Our failure to comply with any of these covenants would cause a
default under our bank credit facility and the indenture
governing our
67/8% senior
notes due 2012. A default, if not waived, could result in
acceleration of our indebtedness, in which case the debt would
become immediately due and payable. If this occurs, we may not
be able to repay our debt or borrow sufficient funds to
refinance it. Even if new financing is available, it may not be
on terms that are acceptable to us. Complying with these
covenants may cause us to take actions that we otherwise would
not take or not take actions that we otherwise would take.
Our business involves many uncertainties and operating
risks that can prevent us from realizing profits and can cause
substantial losses.
Our future success will depend on the success of our exploration
and development activities. Exploration activities involve
numerous risks, including the risk that no commercially
productive natural gas or oil reserves will be discovered. In
addition, these activities may be unsuccessful for many reasons,
including weather, cost overruns, equipment shortages and
mechanical difficulties. Moreover, the successful drilling of a
natural gas or oil well does not ensure we will realize a profit
on our investment. A variety of factors, both geological and
market-related, can cause a well to become uneconomical or only
marginally economical. In addition to their costs, unsuccessful
wells can hurt our efforts to replace production and reserves.
Our business involves a variety of operating risks, including:
|
|
|
|
|
unusual or unexpected geological formations;
|
|
|
fires;
|
|
|
explosions;
|
|
|
blow-outs and surface cratering;
|
|
|
uncontrollable flows of natural gas, oil and formation water;
|
|
|
natural disasters, such as hurricanes, tropical storms and other
adverse weather conditions;
|
|
|
pipe, cement,
sub-sea
pipeline or onshore pipeline failures;
|
|
|
casing collapses;
|
|
|
mechanical difficulties, such as lost or stuck oil field
drilling and service tools;
|
|
|
abnormally pressured formations; and
|
|
|
environmental hazards, such as natural gas leaks, oil spills,
pipeline ruptures and discharges of toxic gases.
|
If we experience any of these problems, well bores, gathering
systems and processing facilities could be affected, which could
adversely affect our ability to conduct operations.
We could also incur substantial losses as a result of:
|
|
|
|
|
injury or loss of life;
|
32
|
|
|
|
|
severe damage to and destruction of property, natural resources
and equipment;
|
|
|
pollution and other environmental damage;
|
|
|
clean-up
responsibilities;
|
|
|
regulatory investigation and penalties;
|
|
|
suspension of our operations; and
|
|
|
repairs to resume operations.
|
We operate in a highly competitive industry, and our
failure to remain competitive with our competitors, many of
which have greater resources than we do, could adversely affect
our results of operations.
The oil and natural gas industry is highly competitive in the
search for and development and acquisition of reserves. Our
competitors for the acquisition, development and exploration of
oil and natural gas properties and capital to finance such
activities, include companies that have greater financial and
personnel resources than we do. These resources could allow
those competitors to price their products and services more
aggressively than we can, which could hurt our profitability.
Moreover, our ability to acquire additional properties and to
discover reserves in the future will be dependent upon our
ability to evaluate and select suitable properties and to close
transactions in a highly competitive environment.
Our competitors may use superior technology that we may be
unable to afford or which would require costly investment by us
in order to compete.
If our competitors use or develop new technologies, we may be
placed at a competitive disadvantage, and competitive pressures
may force us to implement new technologies at a substantial
cost. In addition, our competitors may have greater financial,
technical and personnel resources that allow them to enjoy
technological advances and may in the future allow them to
implement new technologies before we can. We cannot be certain
that we will be able to implement technologies on a timely basis
or at a cost that is acceptable to us. One or more of the
technologies that we currently use or that we may implement in
the future may become obsolete. All of these factors may inhibit
our ability to acquire additional prospects and compete
successfully in the future.
Substantial exploration and development activities could
require significant outside capital, which could dilute the
value of our common shares and restrict our activities. Also, we
may not be able to obtain needed capital or financing on
satisfactory terms, which could lead to a limitation of our
future business opportunities and a decline in our oil and
natural gas reserves.
We expect to expend substantial capital in the acquisition of,
exploration for and development of oil and natural gas reserves.
In order to finance these activities, we may need to alter or
increase our capitalization substantially through the issuance
of debt or equity securities, the sale of non-strategic assets
or other means. The issuance of additional equity securities
could have a dilutive effect on the value of our common shares.
The issuance of additional debt would require that a portion of
our cash flow from operations be used for the payment of
interest on our debt, thereby reducing our ability to use our
cash flow to fund working capital, capital expenditures,
acquisitions, dividends and general corporate requirements,
which could place us at a competitive disadvantage relative to
other competitors. Additionally, if our revenues decrease as a
result of lower oil or natural gas prices, operating
difficulties or declines in reserves, our ability to obtain the
capital necessary to undertake or complete future exploration
and development programs and to pursue other opportunities may
be limited, which could result in a curtailment of our
operations relating to exploration and development of our
prospects, which in turn could result in a decline in our oil
and natural gas reserves.
33
If oil and natural gas prices decrease, we may be required
to write-down the carrying values and/or the estimates of total
reserves of our oil and natural gas properties, which would
constitute a non-cash charge to earnings and adversely affect
our results of operations.
Accounting rules applicable to us require that we review
periodically the carrying value of our oil and natural gas
properties for possible impairment. Based on specific market
factors and circumstances at the time of prospective impairment
reviews and the continuing evaluation of development plans,
production data, economics and other factors, we may be required
to write down the carrying value of our oil and natural gas
properties. A write-down constitutes a non-cash charge to
earnings. We may incur non-cash charges in the future, which
could have a material adverse effect on our results of
operations in the period taken. We may also reduce our estimates
of the reserves that may be economically recovered, which could
have the effect of reducing the total value of our reserves.
Such a reduction in carrying value could impact our borrowing
ability and may result in accelerating the repayment date of any
outstanding debt.
Our reserve estimates depend on many assumptions that may
turn out to be inaccurate. Any material inaccuracies in our
reserve estimates or underlying assumptions will materially
affect the quantities and present value of our reserves.
Reserve engineering is a subjective process of estimating the
recovery from underground accumulations of oil and natural gas
that cannot be precisely measured. The accuracy of any reserve
estimate depends on the quality of available data, production
history and engineering and geological interpretation and
judgment. Because all reserve estimates are to some degree
imprecise, the quantities of oil and natural gas that are
ultimately recovered, production and operating costs, the amount
and timing of future development expenditures and future oil and
natural gas prices may all differ materially from those assumed
in these estimates. The information regarding present value of
the future net cash flows attributable to our proved oil and
natural gas reserves is only estimated and should not be
construed as the current market value of the oil and natural gas
reserves attributable to our properties. Thus, such information
includes revisions of certain reserve estimates attributable to
proved properties included in the preceding years
estimates. Such revisions reflect additional information from
subsequent activities, production history of the properties
involved and any adjustments in the projected economic life of
such properties resulting from changes in product prices. Any
future downward revisions could adversely affect our financial
condition, our borrowing ability, our future prospects and the
value of our common stock.
As of December 31, 2007, 32% of our total proved reserves
are undeveloped and 21% are developed non-producing. These
reserves may not ultimately be developed or produced.
Furthermore, not all of our undeveloped or developed
non-producing reserves may be ultimately produced at the time
periods we have planned, at the costs we have budgeted, or at
all. As a result, we may not find commercially viable quantities
of oil and natural gas, which in turn may result in a material
adverse effect on our results of operations.
If we are unsuccessful at marketing our oil and gas at
commercially acceptable prices, our profitability will
decline.
Our ability to market oil and gas at commercially acceptable
prices depends on, among other factors, the following:
|
|
|
|
|
the availability and capacity of gathering systems and pipelines;
|
|
|
federal and state regulation of production and transportation;
|
|
|
changes in supply and demand; and
|
|
|
general economic conditions.
|
Our inability to respond appropriately to changes in these
factors could negatively effect our profitability.
34
Market conditions or operational impediments may hinder
our access to oil and natural gas markets or delay our
production.
Market conditions or the unavailability of satisfactory oil and
natural gas transportation arrangements may hinder our access to
oil and natural gas markets or delay our production. The
availability of a ready market for our oil and natural gas
production depends on a number of factors, including the demand
for and supply of oil and natural gas and the proximity of
reserves to pipelines and terminal facilities. Our ability to
market our production depends in a substantial part on the
availability and capacity of gathering systems, pipelines and
processing facilities, in some cases owned and operated by third
parties. Our failure to obtain such services on acceptable terms
could materially harm our business. We may be required to shut
in wells for a lack of a market or because of the inadequacy or
unavailability of pipelines or gathering system capacity. If
that were to occur, then we would be unable to realize revenue
from those wells until arrangements were made to deliver our
production to market.
We depend on our key personnel and the loss of any of
these individuals could have a material adverse effect on our
operations.
We believe that the success of our business strategy and our
ability to operate profitably depend on the continued employment
of M. Jay Allison, our President and Chief Executive Officer,
and a limited number of other senior management personnel. Loss
of the services of Mr. Allison or any of those other
individuals could have a material adverse effect on our
operations.
Our insurance coverage may not be sufficient or may not be
available to cover some liabilities or losses that we may
incur.
If we suffer a significant accident or other loss, our insurance
coverage will be net of our deductibles and may not be
sufficient to pay the full current market value or current
replacement value of our lost investment, which could result in
a material adverse impact on our operations and financial
condition. Our insurance does not protect us against all
operational risks. We do not carry business interruption
insurance. For some risks, we may not obtain insurance if we
believe the cost of available insurance is excessive relative to
the risks presented. Because third party drilling contractors
are used to drill our wells, we may not realize the full benefit
of workers compensation laws in dealing with their
employees. In addition, some risks, including pollution and
environmental risks, generally are not fully insurable.
We are subject to extensive governmental laws and
regulations that may adversely affect the cost, manner or
feasibility of doing business.
Our operations and facilities are subject to extensive federal,
state and local laws and regulations relating to the exploration
for, and the development, production and transportation of, oil
and natural gas, and operating safety. Future laws or
regulations, any adverse changes in the interpretation of
existing laws and regulations or our failure to comply with
existing legal requirements may harm our business, results of
operations and financial condition. We may be required to make
large and unanticipated capital expenditures to comply with
governmental laws and regulations, such as:
|
|
|
|
|
lease permit restrictions;
|
|
|
drilling bonds and other financial responsibility requirements,
such as plug and abandonment bonds;
|
|
|
spacing of wells;
|
|
|
unitization and pooling of properties;
|
|
|
safety precautions;
|
|
|
regulatory requirements; and
|
|
|
taxation.
|
35
Under these laws and regulations, we could be liable for:
|
|
|
|
|
personal injuries;
|
|
|
property and natural resource damages;
|
|
|
well reclamation costs; and
|
|
|
governmental sanctions, such as fines and penalties.
|
Our operations could be significantly delayed or curtailed and
our cost of operations could significantly increase as a result
of regulatory requirements or restrictions. We are unable to
predict the ultimate cost of compliance with these requirements
or their effect on our operations.
Compliance with MMS regulations could significantly delay
or curtail our operations or require us to make material
expenditures, all of which could have a material adverse effect
on our financial condition or results of operations.
Substantially all of Bois dArc Energys offshore
operations are located on federal oil and natural gas leases
that are administered by the MMS. As an offshore operator, Bois
dArc Energy must obtain MMS approval for our exploration,
development and production plans prior to commencing such
operations. The MMS has promulgated regulations that, among
other things, require Bois dArc Energy to meet stringent
engineering and construction specifications, restrict the
flaring or venting of natural gas, govern the plug and
abandonment of wells located offshore and the installation and
removal of all production facilities, and govern the calculation
of royalties and the valuation of crude oil produced from
federal leases.
Our operations may incur substantial liabilities to comply
with environmental laws and regulations.
Our oil and natural gas operations are subject to stringent
federal, state and local laws and regulations relating to the
release or disposal of materials into the environment and
otherwise relating to environmental protection. These laws and
regulations:
|
|
|
|
|
require the acquisition of a permit before drilling commences;
|
|
|
restrict the types, quantities and concentration of substances
that can be released into the environment in connection with
drilling and production activities;
|
|
|
limit or prohibit drilling activities on certain lands lying
within wilderness, wetlands and other protected areas; and
|
|
|
impose substantial liabilities for pollution resulting from our
operations.
|
Failure to comply with these laws and regulations may result in:
|
|
|
|
|
the assessment of administrative, civil and criminal penalties;
|
|
|
the incurrence of investigatory or remedial obligations; and
|
|
|
the imposition of injunctive relief.
|
Changes in environmental laws and regulations occur frequently,
and any changes that result in more stringent or costly waste
handling, storage, transport, disposal or cleanup requirements
could require us to make significant expenditures to reach and
maintain compliance and may otherwise have a material adverse
effect on our industry in general and on our own results of
operations, competitive position or financial condition. Under
these environmental laws and regulations, we could be held
strictly liable for the removal or remediation of previously
released materials or property contamination regardless of
whether we were responsible for the release or contamination or
if our operations met previous standards in the industry at the
time they were performed.
36
Provisions of our articles of incorporation, bylaws and
Nevada law will make it more difficult to effect a change in
control of us, which could adversely affect the price of our
common stock.
Nevada corporate law and our articles of incorporation and
bylaws contain provisions that could delay, defer or prevent a
change in control of us. These provisions include:
|
|
|
|
|
allowing for authorized but unissued shares of common and
preferred stock;
|
|
|
a classified board of directors;
|
|
|
requiring special stockholder meetings to be called only by our
chairman of the board, our chief executive officer, a majority
of the board or the holders of at least 10% of our outstanding
stock entitled to vote at a special meeting;
|
|
|
requiring removal of directors by a supermajority stockholder
vote;
|
|
|
prohibiting cumulative voting in the election of
directors; and
|
|
|
Nevada control share laws that may limit voting rights in shares
representing a controlling interest in us.
|
We have in place a stockholders rights plan. The
provisions of the stockholders rights plan and the above
provisions could make an acquisition of us by means of a tender
offer or proxy contest or removal of our incumbent directors
more difficult. As a result, these provisions could make it more
difficult for a third party to acquire us, even if doing so
would benefit our stockholders, which may limit the price that
investors are willing to pay in the future for shares of our
common stock.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
We are not a party to any legal proceedings which management
believes will have a material adverse effect on our consolidated
results of operations or financial condition.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of our security holders
during the fourth quarter of 2007.
37
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock is listed for trading on the New York Stock
Exchange under the symbol CRK. The following table
sets forth, on a per share basis for the periods indicated, the
high and low sales prices by calendar quarter for the periods
indicated as reported by the New York Stock Exchange.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
2006
|
|
|
First Quarter
|
|
$
|
34.25
|
|
|
$
|
25.43
|
|
|
|
|
|
Second Quarter
|
|
$
|
33.53
|
|
|
$
|
24.79
|
|
|
|
|
|
Third Quarter
|
|
$
|
30.99
|
|
|
$
|
24.84
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
33.80
|
|
|
$
|
23.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
First Quarter
|
|
$
|
32.49
|
|
|
$
|
25.14
|
|
|
|
|
|
Second Quarter
|
|
$
|
31.81
|
|
|
$
|
27.03
|
|
|
|
|
|
Third Quarter
|
|
$
|
32.89
|
|
|
$
|
24.62
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
39.44
|
|
|
$
|
30.85
|
|
As of February 28, 2008, we had 45,511,845 shares of
common stock outstanding, which were held by 319 holders of
record and approximately 14,700 beneficial owners who maintain
their shares in street name accounts.
We have never paid cash dividends on our common stock. We
presently intend to retain any earnings for the operation and
expansion of our business and we do not anticipate paying cash
dividends in the foreseeable future. Any future determination as
to the payment of dividends will depend upon the results of our
operations, capital requirements, our financial condition and
such other factors as our board of directors may deem relevant.
In addition, we are limited under our bank credit facility and
by the terms of the indenture for our senior notes from paying
or declaring cash dividends in excess of $40.0 million.
During the fourth quarter of 2007, we did not repurchase any of
our equity securities.
The following table summarizes certain information regarding our
equity compensation plans as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
Number of securities
|
|
|
|
authorized for future
|
|
|
to be issued upon
|
|
Weighted average
|
|
issuance under equity
|
|
|
exercise of
|
|
exercise price of
|
|
compensation plans
|
|
|
outstanding options,
|
|
outstanding options,
|
|
(excluding outstanding
|
|
|
warrants and rights
|
|
warrants and rights
|
|
options, warrants and rights)
|
|
Equity compensation plans approved by stockholders
|
|
|
914,970
|
|
|
$
|
16.68
|
|
|
|
350,306
|
(1)
|
|
|
|
(1)
|
|
Plus 1% of the outstanding shares
of common stock each year beginning on each subsequent
January 1.
|
We do not have any equity compensation plans that were not
approved by stockholders.
38
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The historical financial data presented in the table below as of
and for each of the years in the five-year period ended
December 31, 2007 are derived from our consolidated
financial statements. The financial results are not necessarily
indicative of our future operations or future financial results.
The data presented below should be read in conjunction with our
consolidated financial statements and the notes thereto and
Managements Discussion and Analysis of Financial
Condition and Results of Operations. Effective
January 1, 2006, we began including Bois dArc Energy
in our financial statements as a consolidated subsidiary. Our
financial statements for data and periods prior to
January 1, 2006 have not been adjusted. For comparative
purposes, financial information for 2005 is also presented on a
pro forma to reflect Bois dArc Energy as a consolidated
subsidiary.
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
Pro Forma
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Oil and gas sales
|
|
$
|
235,102
|
|
|
$
|
261,647
|
|
|
$
|
303,336
|
|
|
$
|
449,242
|
|
|
$
|
511,928
|
|
|
$
|
687,073
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas
operating(1)
|
|
|
45,746
|
|
|
|
52,068
|
|
|
|
50,966
|
|
|
|
81,356
|
|
|
|
107,303
|
|
|
|
123,632
|
|
Exploration
|
|
|
4,410
|
|
|
|
15,610
|
|
|
|
19,725
|
|
|
|
33,693
|
|
|
|
20,132
|
|
|
|
43,079
|
|
Depreciation, depletion and amortization
|
|
|
61,169
|
|
|
|
63,879
|
|
|
|
63,338
|
|
|
|
95,977
|
|
|
|
153,922
|
|
|
|
243,619
|
|
Impairment
|
|
|
4,255
|
|
|
|
1,648
|
|
|
|
3,400
|
|
|
|
3,990
|
|
|
|
10,444
|
|
|
|
826
|
|
General and administrative, net
|
|
|
7,006
|
|
|
|
14,569
|
|
|
|
16,533
|
|
|
|
24,017
|
|
|
|
31,769
|
|
|
|
42,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
122,586
|
|
|
|
147,774
|
|
|
|
153,962
|
|
|
|
239,033
|
|
|
|
323,570
|
|
|
|
453,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
112,516
|
|
|
|
113,873
|
|
|
|
149,374
|
|
|
|
210,209
|
|
|
|
188,358
|
|
|
|
233,235
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
73
|
|
|
|
1,207
|
|
|
|
1,604
|
|
|
|
610
|
|
|
|
1,012
|
|
|
|
1,389
|
|
Other income
|
|
|
223
|
|
|
|
166
|
|
|
|
209
|
|
|
|
209
|
|
|
|
781
|
|
|
|
685
|
|
Interest expense
|
|
|
(29,860
|
)
|
|
|
(21,182
|
)
|
|
|
(20,272
|
)
|
|
|
(21,365
|
)
|
|
|
(27,429
|
)
|
|
|
(41,326
|
)
|
Loss of disposal of assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
Formation costs of Bois dArc Energy
|
|
|
|
|
|
|
(1,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of stock by Bois dArc Energy
|
|
|
|
|
|
|
|
|
|
|
28,797
|
|
|
|
28,797
|
|
|
|
|
|
|
|
|
|
Gain (loss) from derivatives
|
|
|
(3
|
)
|
|
|
(155
|
)
|
|
|
(13,556
|
)
|
|
|
(13,556
|
)
|
|
|
10,716
|
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
(19,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(29,567
|
)
|
|
|
(40,664
|
)
|
|
|
(3,218
|
)
|
|
|
(5,394
|
)
|
|
|
(14,920
|
)
|
|
|
(39,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, equity in loss of Bois dArc
Energy, and minority interest in earnings of Bois dArc
Energy
|
|
|
82,949
|
|
|
|
73,209
|
|
|
|
146,156
|
|
|
|
204,815
|
|
|
|
173,438
|
|
|
|
193,983
|
|
Income tax expense
|
|
|
(29,682
|
)
|
|
|
(26,342
|
)
|
|
|
(35,815
|
)
|
|
|
(161,623
|
)
|
|
|
(74,339
|
)
|
|
|
(85,177
|
)
|
Equity in loss of Bois dArc Energy
|
|
|
|
|
|
|
|
|
|
|
(49,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest in earnings of Bois dArc Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,287
|
|
|
|
(28,434
|
)
|
|
|
(39,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before cumulative effect of change in accounting
principle
|
|
|
53,267
|
|
|
|
46,867
|
|
|
|
60,479
|
|
|
|
60,479
|
|
|
|
70,665
|
|
|
|
68,901
|
|
Cumulative effect of change in accounting principle
|
|
|
675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
53,942
|
|
|
|
46,867
|
|
|
|
60,479
|
|
|
|
60,479
|
|
|
$
|
70,665
|
|
|
|
68,901
|
|
Preferred stock dividends
|
|
|
(573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stock
|
|
$
|
53,369
|
|
|
$
|
46,867
|
|
|
$
|
60,479
|
|
|
$
|
60,479
|
|
|
$
|
70,665
|
|
|
$
|
68,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative effect of change in accounting principle
|
|
$
|
1.65
|
|
|
$
|
1.37
|
|
|
$
|
1.54
|
|
|
$
|
1.54
|
|
|
$
|
1.67
|
|
|
$
|
1.59
|
|
Cumulative effect of change in accounting principle
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.67
|
|
|
$
|
1.37
|
|
|
$
|
1.54
|
|
|
$
|
1.54
|
|
|
$
|
1.67
|
|
|
$
|
1.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative effect of change in accounting principle
|
|
$
|
1.51
|
|
|
$
|
1.29
|
|
|
$
|
1.47
|
|
|
$
|
1.47
|
|
|
$
|
1.61
|
|
|
$
|
1.54
|
|
Cumulative effect of change in accounting principle
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.53
|
|
|
$
|
1.29
|
|
|
$
|
1.47
|
|
|
$
|
1.47
|
|
|
$
|
1.61
|
|
|
$
|
1.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
31,964
|
|
|
|
34,187
|
|
|
|
39,216
|
|
|
|
39,216
|
|
|
|
42,220
|
|
|
|
43,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
35,275
|
|
|
|
36,252
|
|
|
|
41,154
|
|
|
|
41,154
|
|
|
|
43,556
|
|
|
|
44,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes lease operating costs and
production and ad valorem taxes.
|
39
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
Pro Forma
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
5,343
|
|
|
$
|
2,703
|
|
|
$
|
89
|
|
|
$
|
12,132
|
|
|
$
|
10,715
|
|
|
$
|
24,406
|
|
Property and equipment, net
|
|
|
698,686
|
|
|
|
827,761
|
|
|
|
706,928
|
|
|
|
1,368,859
|
|
|
|
1,773,626
|
|
|
|
2,222,875
|
|
Investment in Bois dArc Energy
|
|
|
|
|
|
|
|
|
|
|
252,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
746,356
|
|
|
|
941,476
|
|
|
|
1,016,663
|
|
|
|
1,477,307
|
|
|
|
1,878,125
|
|
|
|
2,354,387
|
|
Total debt
|
|
|
306,623
|
|
|
|
403,150
|
|
|
|
243,000
|
|
|
|
312,000
|
|
|
|
458,250
|
|
|
|
762,588
|
|
Stockholders equity
|
|
|
289,656
|
|
|
|
355,853
|
|
|
|
582,859
|
|
|
|
582,859
|
|
|
|
682,563
|
|
|
|
771,644
|
|
Cash flows provided by operating activities
|
|
|
153,785
|
|
|
|
171,351
|
|
|
|
217,954
|
|
|
|
322,744
|
|
|
|
364,605
|
|
|
|
446,305
|
|
Cash flows used for investing activities
|
|
|
(92,930
|
)
|
|
|
(258,061
|
)
|
|
|
(207,086
|
)
|
|
|
(512,692
|
)
|
|
|
(529,751
|
)
|
|
|
(745,371
|
)
|
Cash flows provided by (used for) financing activities
|
|
|
(57,194
|
)
|
|
|
84,070
|
|
|
|
(13,482
|
)
|
|
|
198,408
|
|
|
|
163,729
|
|
|
|
312,757
|
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion and analysis should be read in
conjunction with our selected historical consolidated financial
data and our accompanying consolidated financial statements and
the notes to those financial statements included elsewhere in
this report. The following discussion includes forward-looking
statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in
these forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to,
those discussed below and elsewhere in this report, particularly
in Risk Factors and Cautionary Note Regarding
Forward-Looking Statements.
Overview
We are an independent energy company engaged in the acquisition,
discovery and production of oil and natural gas in the United
States. We own interests in 2,009 (1,024.2 net to us)
producing oil and natural gas wells and we operate 1,014 of
these wells. We own a controlling interest in Bois dArc
Energy, an independent exploration company that owns interests
in offshore producing oil and natural gas wells in the Gulf of
Mexico. The results of Bois dArc Energy have been included
in our consolidated financial statements beginning
January 1, 2006. In managing our business, we are concerned
primarily with maximizing return on our stockholders
equity. To accomplish this goal, we focus on profitably
increasing our oil and natural gas reserves and production.
Our future growth will be driven primarily by acquisition,
development and exploration activities. Under our current
drilling budget, we plan to spend approximately
$526.0 million in 2008 for development and exploration
activities. We plan to drill approximately 108 development
wells, 77.7 net to us, and 23 exploratory wells,
15.4 net to us in 2008. However, the number of wells that
we drill in 2008 will be subject to the availability of drilling
rigs that we can hire. In addition, we could increase or
decrease the wells that we drill depending on oil and natural
gas prices. We do not budget for acquisitions as the timing and
size of acquisitions are not predictable. We use the successful
efforts method of accounting which allows only for the
capitalization of costs associated with developing proven oil
and natural gas properties as well as exploration costs
associated with successful exploration activities. Accordingly,
our exploration costs consist of costs we incur to acquire and
reprocess
3-D seismic
data, impairments of our unevaluated leasehold where we were not
successful in discovering reserves and the costs of unsuccessful
exploratory wells that we drill.
40
We generally sell our oil and natural gas at current market
prices at the point our wells connect to third party purchaser
pipelines. We market our products several different ways
depending upon a number of factors, including the availability
of purchasers for the product, the availability and cost of
pipelines near our wells, market prices, pipeline constraints
and operational flexibility. Accordingly, our revenues are
heavily dependent upon the prices of, and demand for, oil and
natural gas. Oil and natural gas prices have historically been
volatile and are likely to remain volatile in the future.
Our operating costs are generally comprised of several
components, including costs of field personnel, insurance,
repair and maintenance costs, production supplies, fuel used in
operations, transportation costs, workover expenses and state
production and ad valorem taxes.
Like all oil and natural gas exploration and production
companies, we face the challenge of replacing our reserves.
Although in the past we have offset the effect of declining
production rates from existing properties through successful
acquisition and drilling efforts, there can be no assurance that
we will be able to offset production declines or maintain
production at rates through future acquisitions or drilling
activity. Our future growth will depend on our ability to
continue to add new reserves in excess of production.
Our operations and facilities are subject to extensive federal,
state and local laws and regulations relating to the exploration
for, and the development, production and transportation of, oil
and natural gas, and operating safety. Future laws or
regulations, any adverse changes in the interpretation of
existing laws and regulations or our failure to comply with
existing legal requirements may harm our business, results of
operations and financial condition. Applicable environmental
regulations require us to remove our equipment after production
has ceased, to plug and abandon our wells and to remediate any
environmental damage our operations may have caused. The present
value of the estimated future costs to plug and abandon our oil
and gas wells and to dismantle and remove our production
facilities is included in our reserve for future abandonment
costs, which was $52.6 million as of December 31, 2007.
Investment
in Bois dArc Energy
Bois dArc Energy was organized in July 2004 as a limited
liability company through the contribution of substantially all
of our offshore properties together with the properties of Bois
dArc Resources, Ltd. and its partners. We initially owned
60% of Bois dArc Energy, and we accounted for our share of
Bois dArc Energys financial and operating results
using proportionate consolidation accounting until Bois
dArc Energy was converted into a corporation and completed
its initial public offering in May 2005. Subsequent to the
conversion into a corporation and as a result of the public
offering, we owned 48% of the outstanding shares of Bois
dArc Energy. Since proportionate consolidation is not a
generally accepted accounting principle applicable to an
investment in a corporation, we changed our accounting method
for our investment in Bois dArc Energy to the equity
method concurrent with Bois dArc Energys conversion
to a corporation. The offshore results for 2005 include our
proportionate interest in the operations of Bois dArc
Energy based upon our ownership interest throughout the period
presented. The equity method adjustments reflect the reductions
to our share of Bois dArc Energys operating results
that are necessary to apply the equity method of accounting for
all periods subsequent to the conversion of Bois dArc
Energy to corporation.
During 2006, we acquired additional shares of common stock of
Bois dArc Energy, which increased our direct ownership
interest in Bois dArc Energy. As a result, we obtained
voting control of Bois dArc Energy through our direct
share ownership combined with the share ownership of members of
our Board of Directors. The results of Bois dArc Energy
are included in our financial statements as a consolidated
subsidiary, and as permitted by generally accepted accounting
principles, consolidated revenues, expenses and cash flows for
2006 reflect Bois dArc Energy as a consolidated subsidiary
as of January 1, 2006. Financial statements for dates and
periods prior to January 1, 2006, have not been adjusted.
Although the
41
inclusion of Bois dArc Energy as a consolidated subsidiary
had no impact on our net income, comparisons of the separate
components of our results of operations are significantly
impacted by this change. In order to provide more meaningful
information regarding comparisons of our results for the year
ended December 31, 2006, our discussion of our operating
results and capital expenditures is presented based upon a
comparison of actual 2006 results to pro forma results for 2005
adjusted to include Bois dArc Energy as a consolidated
subsidiary.
The onshore data in the tables below contains the results of
operations for our direct ownership in our onshore oil and gas
properties. The offshore data contains the results of operations
of Bois dArc Energy. The 2007 and 2006 data and the pro
forma 2005 data reflect 100% of the operations of Bois
dArc Energy. The historical 2005 results reflect only our
proportionate share of Bois dArc Energys operations.
Results
of Operations
Year
Ended December 31, 2007 Compared to Year Ended
December 31, 2006
Our operating data for 2007 and 2006 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Onshore
|
|
|
Offshore
|
|
|
Total
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Production Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBbls)
|
|
|
1,008
|
|
|
|
1,671
|
|
|
|
2,679
|
|
Natural gas (MMcf)
|
|
|
39,231
|
|
|
|
32,186
|
|
|
|
71,417
|
|
Natural gas equivalent (MMcfe)
|
|
|
45,282
|
|
|
|
42,211
|
|
|
|
87,493
|
|
Average Sales Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil ($/Bbl)
|
|
$
|
60.96
|
|
|
$
|
74.15
|
|
|
$
|
69.18
|
|
Natural gas ($/Mcf)
|
|
$
|
6.89
|
|
|
$
|
7.19
|
|
|
$
|
7.03
|
|
Average equivalent price ($/Mcfe)
|
|
$
|
7.32
|
|
|
$
|
8.42
|
|
|
$
|
7.85
|
|
Expenses ($ per Mcfe):
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas
operating(1)
|
|
$
|
1.43
|
|
|
$
|
1.39
|
|
|
$
|
1.41
|
|
Depreciation, depletion and
amortization(2)
|
|
$
|
2.76
|
|
|
$
|
2.72
|
|
|
$
|
2.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Production Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBbls)
|
|
|
921
|
|
|
|
1,383
|
|
|
|
2,304
|
|
Natural gas (MMcf)
|
|
|
30,271
|
|
|
|
23,183
|
|
|
|
53,454
|
|
Natural gas equivalent (MMcfe)
|
|
|
35,797
|
|
|
|
31,481
|
|
|
|
67,278
|
|
Average Sales Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil ($/Bbl)
|
|
$
|
55.32
|
|
|
$
|
64.66
|
|
|
$
|
60.93
|
|
Natural gas ($/Mcf)
|
|
$
|
6.81
|
|
|
$
|
7.13
|
|
|
$
|
6.95
|
|
Average equivalent price ($/Mcfe)
|
|
$
|
7.19
|
|
|
$
|
8.09
|
|
|
$
|
7.61
|
|
Expenses ($ per Mcfe):
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas
operating(1)
|
|
$
|
1.51
|
|
|
$
|
1.70
|
|
|
$
|
1.59
|
|
Depreciation, depletion and
amortization(2)
|
|
$
|
2.10
|
|
|
$
|
2.45
|
|
|
$
|
2.28
|
|
|
|
|
(1)
|
|
Includes lease operating costs and
production and ad valorem taxes.
|
(2)
|
|
Represents depreciation, depletion
and amortization of oil and gas properties only.
|
Oil and gas sales. Our oil and gas sales
increased $175.1 million (34%) in 2007 to
$687.1 million from $511.9 million in 2006. The
increase in sales is primarily due to a 30% increase in our
production combined with stronger oil prices in 2007. Our
realized oil price increased by 14% and our realized natural gas
price increased by 1% in 2007 as compared to 2006. Oil and gas
sales from our onshore operations increased to
$331.6 million, an increase of $74.4 million or 29%,
from $257.2 million in 2006. This increase is attributable
to the 27% increase in production driven primarily by our
successful drilling activities and the higher oil and natural
gas prices we realized. Our average onshore crude oil price
increased by 10% and our average onshore natural gas price
increased by 1% in 2007 as compared to prices in 2006. Sales
from our
42
offshore operations of $355.5 million in 2007 were 40%
higher than offshore revenues in 2006 of $254.7 million
mainly due to the 34% increase in production resulting from new
wells drilled and the higher oil and natural gas prices
realized. Our average offshore crude oil price realized
increased 15% and our average offshore natural gas price
realized increased by 1% in 2007 as compared to prices in 2006.
Oil and gas operating expenses. Our oil and
gas operating expenses, including production taxes, increased
$16.3 million (15%) to $123.6 million in 2007 from
$107.3 million in 2006. Oil and gas operating expenses per
equivalent Mcf produced decreased $0.18 to $1.41 as compared to
$1.59 in 2006. Onshore operating expenses for 2007 of
$64.8 million increased by $10.9 million compared to
2006 due to the
start-up of
new wells and higher production taxes due to increased oil and
gas prices. Offshore oil and gas operating costs for 2007
increased $5.4 million to $58.8 million mainly due to
our 34% increase in production during 2007 as compared to
production in 2006. Our average offshore operating cost per Mcfe
produced decreased in 2007 as compared to 2006 due to our higher
produced volumes and lower repair and maintenance costs.
Operating costs in 2006 included $3.0 million of costs
associated with repairs associated with hurricane damage in 2005.
Exploration expense. In 2007, we incurred
$43.1 million in exploration expense as compared to
$20.1 million in 2006. The increase in exploration expense
in 2007 primarily relates to nine dry holes drilled and the
acquisition of
3-D seismic
data. Exploration expense in 2006 included costs for five dry
holes and costs incurred for seismic data acquisition.
DD&A. Depreciation, depletion and
amortization (DD&A) increased
$89.7 million (58%) to $243.6 million in 2007 from
$153.9 million in 2006. This increase resulted from our 30%
increase in production in 2007 as compared to 2006 and an
increase in our average DD&A rate per Mcfe produced.
DD&A associated with our onshore properties increased by
$52.0 million to $128.3 million in 2007. Onshore
production increased 27% and the onshore DD&A rate per Mcfe
produced increased to $2.76 in 2007 as compared to $2.10 in
2006. The increase in the DD&A rate results from the higher
costs of properties acquired in late 2006 and 2007 and an
increase in capitalized costs on our existing onshore
properties. DD&A expense for our offshore properties
increased by $37.7 million to $115.3 million in 2007.
Offshore production increased 34% in 2007 as compared to 2006
and the offshore DD&A rate per Mcfe produced increased to
$2.72 in 2007 from $2.45 in 2006. The increase in the offshore
DD&A rate resulted from higher capitalized costs associated
with our new wells drilled.
Impairment. We recorded impairments to our oil
and gas properties of $0.8 million in 2007 and
$10.4 million in 2006. The impairments in 2007 relate to
minor valued fields where an impairment was indicated based on
estimated future cash flows attributable to the fields
estimated proved oil and natural gas reserves. Impairments in
2006 included $7.9 million related to a property that was held
for resale. Subsequently the plan to sell the property was
cancelled. The impairment in 2006 reflected this propertys
estimated fair market value at the time the plan to sell the
property changed.
General and administrative expenses. General
and administrative expenses, which are reported net of overhead
reimbursements, of $42.7 million for 2007 were 34% higher
than general and administrative expenses of $31.8 million
for 2006. The increase primarily reflects higher personnel costs
resulting from increased hiring to support our operating
activities and an increase of $5.9 million in stock based
compensation in 2007 as compared to 2006, including
$1.7 million in costs for accelerated vesting for Bois
dArc Energys former chief executive officer, who
retired in November 2007.
Interest expense. Interest expense increased
$13.9 million (51%) to $41.3 million in 2007 from
$27.4 million in 2006. The increase was primarily due to
higher outstanding borrowings and an increase in interest rates.
Average borrowings under our bank credit facilities increased to
$394.0 million in 2007 as
43
compared to $188.6 million for 2006. The average interest
rate on the outstanding borrowings under our credit facilities
increased to 6.6% in 2007 as compared to 6.5% in 2006.
Minority Interest. Minority interest in
earnings of Bois dArc Energy of $39.9 million for
2007 increased $11.5 million from minority interest in
earnings of $28.4 million for 2006 due to Bois dArc
Energys higher net income in 2007.
Income taxes. Income tax expense increased in
2007 to $85.2 million from $74.3 million in 2006 due
to our higher pre-tax income in 2007. The increase in our
effective tax rate to 43.9% in 2007 from 42.9% in 2006 is
primarily due to higher deferred taxes associated with the
increased earnings of Bois dArc Energy in 2007 as compared
to 2006.
Net income. We reported net income of
$68.9 million in 2007, as compared to net income of
$70.7 million in 2006. Net income per share for 2007 was
$1.54 on 44.4 million weighted average diluted shares
outstanding as compared to $1.61 for 2006 on 43.6 million
weighted average diluted shares outstanding.
Year
Ended December 31, 2006 Compared to Pro Forma Year Ended
December 31, 2005
Our operating data for 2006 and 2005 on a pro forma basis is
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Onshore
|
|
|
Offshore
|
|
|
Total
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Production Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBbls)
|
|
|
921
|
|
|
|
1,383
|
|
|
|
2,304
|
|
Natural gas (MMcf)
|
|
|
30,271
|
|
|
|
23,183
|
|
|
|
53,454
|
|
Natural gas equivalent (MMcfe)
|
|
|
35,797
|
|
|
|
31,481
|
|
|
|
67,278
|
|
Average Sales Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil ($/Bbl)
|
|
$
|
55.32
|
|
|
$
|
64.66
|
|
|
$
|
60.93
|
|
Natural gas ($/Mcf)
|
|
$
|
6.81
|
|
|
$
|
7.13
|
|
|
$
|
6.95
|
|
Average equivalent price ($/Mcfe)
|
|
$
|
7.19
|
|
|
$
|
8.09
|
|
|
$
|
7.61
|
|
Expenses ($ per Mcfe):
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas
operating(1)
|
|
$
|
1.51
|
|
|
$
|
1.70
|
|
|
$
|
1.59
|
|
Depreciation, depletion and
amortization(2)
|
|
$
|
2.10
|
|
|
$
|
2.45
|
|
|
$
|
2.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Production Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBbls)
|
|
|
735
|
|
|
|
1,155
|
|
|
|
1,890
|
|
Natural gas (MMcf)
|
|
|
28,742
|
|
|
|
14,896
|
|
|
|
43,638
|
|
Natural gas equivalent (MMcfe)
|
|
|
33,151
|
|
|
|
21,825
|
|
|
|
54,976
|
|
Average Sales Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil ($/Bbl)
|
|
$
|
49.34
|
|
|
$
|
52.88
|
|
|
$
|
51.50
|
|
Natural gas ($/Mcf)
|
|
$
|
7.95
|
|
|
$
|
8.28
|
|
|
$
|
8.06
|
|
Average equivalent price ($/Mcfe)
|
|
$
|
7.99
|
|
|
$
|
8.45
|
|
|
$
|
8.17
|
|
Expenses ($ per Mcfe):
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas
operating(1)
|
|
$
|
1.34
|
|
|
$
|
1.70
|
|
|
$
|
1.48
|
|
Depreciation, depletion and
amortization(2)
|
|
$
|
1.60
|
|
|
$
|
1.95
|
|
|
$
|
1.74
|
|
|
|
|
(1)
|
|
Includes lease operating costs and
production and ad valorem taxes.
|
(2)
|
|
Represents depreciation, depletion
and amortization of oil and gas properties only.
|
Oil and gas sales. Our oil and gas sales
increased $62.7 million (14%) in 2006 to
$511.9 million from pro forma consolidated sales of
$449.2 million in 2005. This increase primarily reflects a
22% increase in production and higher prices for crude oil which
were partially offset by lower natural gas prices in 2006.
Prices for crude oil increased by 18% in 2006 as compared to our
prices for crude oil in 2005. Our average natural gas price
decreased by 14% in 2006 as compared to our average gas price in
2005. The higher production was primarily due to new wells
drilled and the restoration of certain of our offshore
production with the return to service of pipelines and
facilities in 2006 after being shut in due to hurricanes in
2005. Oil
44
and gas sales from our onshore operations decreased to
$257.2 million, a decrease of $7.6 million or 3%, from
sales of $264.8 million in 2005. This decrease is
attributable to the lower natural gas prices we realized in 2006
as compared to 2005, which was partially offset by an 8%
increase in production. The increase in production was mainly
due to production from the properties we acquired in 2005. Our
average onshore crude oil price increased by 12% and our average
onshore natural gas price decreased by 14% in 2006 as compared
to prices in 2005. Sales from our offshore operations of
$254.7 million in 2006 were 38% higher than offshore
revenues in 2005 of $184.4 million mainly due to the 44%
increase in production resulting from the restoration of
pipelines and facilities offshore and production from new wells
that we drilled. Our average offshore crude oil price realized
increased 22% and our average offshore natural gas price
realized decreased by 14% in 2006 as compared to prices in 2005.
Oil and gas operating expenses. Our oil and
gas operating expenses, including production taxes, increased
$25.9 million (32%) to $107.3 million in 2006 from pro
forma consolidated operating expenses of $81.4 million in
2005. Oil and gas operating expenses per equivalent Mcf produced
increased $0.11 to $1.59 as compared to $1.48 in 2005. Onshore
operating expenses for 2006 of $53.9 million increased by
$9.6 million compared to 2005 due to costs associated with
the properties we acquired in 2005 or drilled in 2006. Offshore
oil and gas operating costs for 2006 increased
$16.3 million to $53.4 million mainly due to our 44%
increase in production during 2006 as compared to production in
2005. Our average offshore operating cost per Mcfe produced
increased in 2006 as compared to 2005 due to our higher produced
volumes and increased cost of services and materials for fuel,
services and supplies, and higher insurance costs.
Exploration expense. In 2006, we incurred
$20.1 million in exploration expense as compared to pro
forma consolidated exploration expense of $33.7 million in
2005. Exploration expense in 2006 primarily relates to dry hole
expense for three offshore exploratory wells, two onshore
exploratory wells, the acquisition and reprocessing of offshore
3-D seismic
data, and impairment of unproved properties. Pro forma
exploration expense in 2005 includes $16.7 million for a
South Texas dry hole, the cost of one offshore exploratory dry
hole and offshore seismic costs.
DD&A. Depreciation, depletion and
amortization (DD&A) increased
$57.9 million (60%) to $153.9 million in 2006 from pro
forma consolidated DDA expense of $96.0 million in 2005.
Our DD&A rate per Mcfe produced averaged $2.28 in 2006 as
compared to $1.74 for 2005. DD&A expense in 2006 for
onshore operations increased $22.1 million or (42%) from
2005 due to higher production and an increase in the onshore
amortization rate caused by higher capitalized costs of the
development wells we drilled. Offshore DD&A expenses for
2006 increased $34.7 million or 81% from 2005 due to
increased production and a higher the amortization rate. The
offshore amortization rate results from higher capitalized costs
associated with the wells we drilled and the installation of new
production facilities
Impairment. We recorded impairments to our oil
and gas properties of $10.4 million in 2006 as compared to
pro forma consolidated impairment expense of $4.0 million
in 2005. Impairment of onshore properties of $8.8 million
increased in 2006 over 2005 primarily due to impairment in 2006
of a property that was held for resale. Subsequently the plan to
sell the property was cancelled. The impairment reflected this
propertys estimated fair market value at the time the plan
to sell the property changed. Offshore impairments of
$1.6 million were related to several minor valued fields.
General and administrative expenses. General
and administrative expenses, which are reported net of overhead
reimbursements, of $31.8 million for 2006 were 32% higher
than pro forma consolidated general and administrative expenses
of $24.0 million for 2005. The increase primarily reflects
higher personnel costs in 2006 due to increased staffing
necessary to support the higher activity levels in our
exploration and development programs, an increase of
$3.4 million in stock-based compensation in 2006 as
compared to 2005, and the increased costs of compliance related
to Bois dArc Energy which became a public company in May
2005.
45
Interest expense. Interest expense increased
$6.0 million (28%) to $27.4 million in 2006 from pro
forma consolidated interest expense of $21.4 million in
2005. The increase was primarily the result of higher borrowings
and higher interest rates in 2006. Average borrowings under our
bank credit facilities increased to $188.6 million in 2006
as compared to $166.4 million for 2005. The average
interest rate on the outstanding borrowings under our credit
facilities increased to 6.5% in 2006 as compared to 4.6% in 2005.
Derivative Gains and Losses. We did not
designate our derivatives we utilize as part of our price risk
management program as cash flow hedges and accordingly, we
recognize gains or losses for the changes in the fair value of
these liabilities during each period. The fair value of our
liability for these derivatives decreased during 2006 resulting
in a net unrealized gain of $11.2 million. During 2005, the
fair value of these liabilities increased due to the increase in
natural gas prices and we accordingly recognized an unrealized
loss of $11.1 million during 2005. We realized losses to
settle derivative positions of $0.7 million and
$2.5 million during 2006 and 2005, respectively.
Minority Interest. Minority interest in
earnings of Bois dArc Energy of $28.4 million for
2006 increased $45.7 million from the pro forma minority
interest in losses of $17.3 million for 2005 primarily due
to Bois dArc Energys higher net income in 2006. This
increase is mainly due to the absence of Bois dArc
Energys one time tax provision of $108.2 million in
2005 associated with recognizing cumulative deferred tax
liabilities when it converted from a limited liability company
to a corporation.
Income taxes. Income tax expense decreased in
2006 to $74.3 million from $161.6 million in 2005. The
2005 tax provision included a $108.2 million provision for
deferred taxes related to Bois dArc Energys
conversion to a corporation during 2005. Subsequent to Bois
dArc Energys conversion to a corporation, we are
including a deferred tax provision on the change in our
investment in Bois dArc Energy.
Net income. We reported net income of
$70.7 million in 2006, as compared to net income of
$60.5 million in 2005. Net income per share for 2006 was
$1.61 on 43.6 million weighted average diluted shares
outstanding as compared to $1.47 for 2005 on 41.2 million
weighted average diluted shares outstanding.
Liquidity
and Capital Resources
Funding for our activities has historically been provided by our
operating cash flow, debt or equity financings or asset
dispositions. In 2007, our net cash flow provided by operating
activities totaled $446.3 million. Our other primary source
of funds in 2007 was net borrowings of $302.0 million under
our bank credit facilities. In 2006, our net cash flow provided
by operating activities totaled $364.6 million. Our other
primary source of funds in 2006 was a net increase of
$143.0 million under our bank credit facilities. In 2005,
our net cash flow provided by operating activities totaled
$218.0 million and we received proceeds of
$121.2 million from a public offering of our common stock.
In 2005 we also increased the debt outstanding under our bank
credit facilities by $179.0 million.
Our cash flow from operating activities in 2007 increased by
$81.7 million to $446.3 million as compared to
$364.6 million in 2006 primarily due to higher revenues
which were attributable to our increased production and improved
oil and natural gas prices. Our cash flow from operating
activities in 2006 increased by $146.6 million to
$364.6 million as compared to $218.0 million in 2005
primarily due to higher revenues which were attributable to our
increased production and the consolidation of Bois dArc
Energys cash flows. Our cash flow from operating
activities in 2006 increased from pro forma 2005 cash flow from
operating activities of $322.7 million due to the higher
oil and gas production in 2006.
Our primary need 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. Our capital
46
expenditures in 2007 of $733.9 million increased by
$197.6 million over 2006 capital expenditures of
$536.3 million mostly due to acquisitions and increased
drilling activity. Capital expenditures in 2006 of
$536.3 million increased by $22.1 million over pro
forma 2005 capital expenditures of $514.2 million primarily
due to increased drilling activity.
Our annual capital expenditure activity is summarized in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2005(1)
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Exploration and development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of proved oil and gas properties
|
|
$
|
201,788
|
|
|
$
|
201,788
|
|
|
$
|
79,767
|
|
|
$
|
191,290
|
|
Acquisitions of unproved oil and gas properties
|
|
|
2,027
|
|
|
|
6,935
|
|
|
|
10,010
|
|
|
|
15,115
|
|
Developmental leasehold costs
|
|
|
3,102
|
|
|
|
3,102
|
|
|
|
2,902
|
|
|
|
2,780
|
|
Development drilling
|
|
|
98,710
|
|
|
|
77,601
|
|
|
|
211,491
|
|
|
|
348,835
|
|
Exploratory drilling
|
|
|
26,106
|
|
|
|
78,228
|
|
|
|
136,759
|
|
|
|
103,521
|
|
Workovers and recompletions
|
|
|
21,100
|
|
|
|
34,561
|
|
|
|
41,646
|
|
|
|
44,771
|
|
Other development
|
|
|
2,580
|
|
|
|
109,300
|
|
|
|
50,764
|
|
|
|
26,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
355,413
|
|
|
|
511,515
|
|
|
|
533,339
|
|
|
|
732,578
|
|
Other
|
|
|
849
|
|
|
|
2,637
|
|
|
|
2,924
|
|
|
|
1,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
356,262
|
|
|
$
|
514,152
|
|
|
$
|
536,263
|
|
|
$
|
733,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Pro forma for consolidating the
capital expenditures of Bois dArc Energy as of
January 1, 2005.
|
The timing of most of our capital expenditures is discretionary
because we have no material long-term capital expenditure
commitments. Consequently, we have a significant degree of
flexibility to adjust the level of our capital expenditures as
circumstances warrant. We currently expect to spend
approximately $526.0 million for development and
exploration projects in 2008, which will be funded primarily by
cash flows from operating activities and to a lesser extent
borrowings under our bank credit facilities. Our operating cash
flow and therefore, our capital expenditures are highly
dependent on oil and natural gas prices, and in particular
natural gas prices.
We spent $201.8 million, $79.8 million and
$191.3 million on acquisitions during 2005, 2006 and 2007,
respectively. Our acquisitions of producing oil and gas
properties in 2007 included the acquisition of certain oil and
natural gas properties and related assets from SWEPI LP, an
affiliate of Shell Oil Company for $160.1 million in
December, 2007 and the acquisition of additional working
interests in the Javelina field in Hidalgo County in South Texas
for $31.2 million in June, 2007. These acquisitions were
funded with borrowings under Comstocks bank credit
facility.
Concurrent with the December 2007 acquisition, we entered into a
transaction structured as a reverse like-kind exchange in
accordance with Section 1031 of the Internal Revenue Code.
While we intend to obtain tax deferred treatment on gains from
future sales of oil and gas properties, no assurance can be
given that we will have future transactions that will qualify as
a like-kind exchange or that we will achieve any tax-savings as
a result of this structure. In connection with this reverse
like-kind exchange, we assigned the right to acquire ownership
in the oil and gas properties that were acquired from SWEPI LP
to an exchange accommodation titleholder. We operate these
properties pursuant to lease and management agreements. Because
we are the primary beneficiary of these arrangements, the
properties acquired are included in our consolidated balance
sheet as of December 31, 2007, and we include all revenues
earned and expenses incurred related to the properties in our
results of operations during the term of the agreements. These
agreements will terminate upon the transfer of the acquired
properties from the exchange accommodation titleholder to us no
later than June 25, 2008.
47
We do not have a specific acquisition budget for 2008 since the
timing and size of acquisitions are unpredictable. Smaller
acquisitions will generally be funded from operating cash flow.
With respect to significant acquisitions, we intend to use
borrowings under our bank credit facilities, or other debt or
equity financings to the extent available, to finance such
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 $175.0 million of senior notes outstanding. The
senior notes are due March 1, 2012 and bear interest at
67/8%,
which is payable semiannually on each March 1 and
September 1. The senior notes are unsecured obligations and
are guaranteed by all of our wholly owned subsidiaries.
We have a $600.0 million bank credit facility with Bank of
Montreal, as the administrative agent. The bank credit facility
is a five-year revolving credit commitment that matures on
December 15, 2011. Indebtedness under the bank credit
facility is secured by substantially all of our and our
wholly-owned subsidiaries assets and is guaranteed by all
of our wholly-owned subsidiaries. The bank 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. As of
December 31, 2007 the borrowing base was
$575.0 million, $70.0 million of which was available.
The borrowing base may be affected by the performance of our
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. Borrowings under
the bank credit facility bear interest, based on the utilization
of the borrowing base, at our option at 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 0.25%. A commitment fee of
0.25% to 0.375%, based on the utilization of the borrowing base,
is payable on the unused portion of the borrowing base. The bank
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 ratio of current assets, including the availability under the
bank credit facility, to current liabilities of at least
one-to-one
and maintenance of a minimum tangible net worth. We were in
compliance with these covenants as of December 31, 2007.
Bois dArc Energy has a $350.0 million bank credit
facility with The Bank of Nova Scotia and several other banks.
Borrowings under the Bois dArc Energy credit facility are
limited to a borrowing base that is re-determined semi-annually
based on the banks estimates of the future net cash flows
of our oil and natural gas properties. The borrowing base was
$350.0 million, $270.0 million of which was available
as of December 31, 2007. The determination of the borrowing
base is at the sole discretion of the administrative agent and
the bank group. The Bois dArc Energy credit facility
matures on May 11, 2009. Borrowings under the credit
facility bear interest at Bois dArc Energys option
at 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 on the unused
borrowing base. Indebtedness under the Bois dArc Energy
credit facility is secured by substantially all of Bois
dArc Energys and its subsidiaries assets, and
all of Bois dArc Energys subsidiaries are guarantors
of the indebtedness. The Bois dArc 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 dArc 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
48
amortization, exploration and impairment expense of no more than
2.5 to one. Bois dArc Energy was in compliance with these
covenants as of December 31, 2007.
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
acceptable terms.
The following table summarizes our aggregate liabilities and
commitments by year of maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Bank credit facilities
|
|
$
|
|
|
|
$
|
80,000
|
|
|
$
|
|
|
|
$
|
505,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
585,000
|
|
67/8% senior
notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
|
|
|
|
|
|
175,000
|
|
Interest on debt
|
|
|
48,818
|
|
|
|
45,700
|
|
|
|
43,954
|
|
|
|
42,553
|
|
|
|
1,998
|
|
|
|
|
|
|
|
183,023
|
|
Operating leases
|
|
|
1,354
|
|
|
|
1,394
|
|
|
|
1,412
|
|
|
|
1,429
|
|
|
|
1,112
|
|
|
|
1,545
|
|
|
|
8,246
|
|
Acquisition of seismic data
|
|
|
8,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,250
|
|
Contracted drilling services
|
|
|
23,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,203
|
|
|
$
|
127,094
|
|
|
$
|
45,366
|
|
|
$
|
548,982
|
|
|
$
|
178,110
|
|
|
$
|
1,545
|
|
|
$
|
983,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future interest costs are based upon the interest rate on our
outstanding senior notes and on the December 31, 2007 rate
for our bank credit facilities.
We have obligations to incur future payments for dismantlement,
abandonment and restoration costs of oil and gas properties.
These payments are currently estimated to be incurred primarily
after 2012. We record a separate liability for the fair value of
these asset retirement obligations which totaled
$52.6 million as of December 31, 2007.
Federal
Taxation
At December 31, 2007, we had federal income tax net
operating loss carryforwards of approximately
$41.3 million. We have established a $23.0 million
valuation allowance against part of the net operating loss
carryforwards that we acquired in an acquisition due to a
change in control limitation which will prevent us
from fully realizing these carryforwards. The carryforwards
expire from 2017 through 2021. The realization of these
carryforwards depends on our ability to generate future taxable
income in order to utilize these carryforwards.
Critical
Accounting Policies
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and use assumptions that can
affect the reported amounts of assets, liabilities, revenues or
expenses.
Successful efforts accounting. We are required
to select among alternative acceptable accounting policies.
There are two generally acceptable methods for accounting for
oil and gas producing activities. The full cost method allows
the capitalization of all costs associated with finding oil and
natural gas reserves, including certain general and
administrative expenses. The successful efforts method allows
only for the capitalization of costs associated with developing
proven oil and natural gas properties as well as exploration
costs associated with successful exploration projects. Costs
related to exploration that are not successful are expensed when
it is determined that commercially productive oil and gas
reserves were not found. We have elected to use the successful
efforts method to account for our oil and gas activities and we
do not capitalize any of our general and administrative expenses.
49
Oil and natural gas reserve quantities. The
determination of depreciation, depletion and amortization
expense as well as impairments that are recognized on our oil
and gas properties are highly dependent on the estimates of the
proved oil and natural gas reserves attributable to our
properties. Reserve engineering is a subjective process of
estimating underground accumulations of oil and natural gas that
cannot be precisely measured. The accuracy of any reserve
estimate depends on the quality of available data, production
history and engineering and geological interpretation and
judgment. Because all reserve estimates are to some degree
imprecise, the quantities of oil and natural gas that are
ultimately recovered, production and operating costs, the amount
and timing of future development expenditures and future oil and
natural gas prices may all differ materially from those assumed
in these estimates. The information regarding present value of
the future net cash flows attributable to our proved oil and
natural gas reserves are estimates only and should not be
construed as the current market value of the estimated oil and
natural gas reserves attributable to our properties. Thus, such
information includes revisions of certain reserve estimates
attributable to proved properties included in the preceding
years estimates. Such revisions reflect additional
information from subsequent activities, production history of
the properties involved and any adjustments in the projected
economic life of such properties resulting from changes in
product prices. Any future downward revisions could adversely
affect our financial condition, our borrowing ability, our
future prospects and the value of our common stock.
Impairment of oil and gas properties. We
evaluate our properties on a field area basis for potential
impairment when circumstances indicate that the carrying value
of an asset may not be recoverable. If impairment is indicated
based on a comparison of the assets carrying value to its
undiscounted expected future net cash flows, then it is
recognized to the extent that the carrying value exceeds fair
value. A significant amount of judgment is involved in
performing these evaluations since the results are based on
estimated future events. Expected future cash flows are
determined using estimated future prices based on market based
forward prices applied to projected future production volumes.
The projected production volumes are based on the
propertys proved and risk adjusted probable oil and
natural gas reserve estimates at the end of the period. The oil
and natural gas prices used for determining asset impairments
will generally differ from those used in the standardized
measure of discounted future net cash flows because the
standardized measure requires the use of actual prices on the
last day of the period.
Asset retirement obligations. We have
significant obligations to remove tangible equipment and
facilities and to restore land or seafloor at the end of oil and
gas production operations. Our removal and restoration
obligations are primarily associated with plugging and
abandoning wells and removing and disposing of offshore oil and
gas platforms. Estimating the future restoration and removal
costs is difficult and requires management to make estimates and
judgments because most of the removal obligations are many years
in the future. Asset removal technologies and costs are
constantly changing, as are regulatory, political,
environmental, safety and public relations considerations.
Stock-based compensation. We follow the fair
value based method prescribed in Statement of Financial
Accounting Standards No. 123 (revised 2004),
Share-Based Payment (SFAS 123R) in
accounting for equity-based compensation. Under the fair value
based method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized on a
straight-line basis over the award vesting period. We adopted
SFAS 123R utilizing the modified prospective transition
method and accordingly the financial results for periods prior
to January 1, 2006 have not been adjusted. Prior to
adopting SFAS 123R we followed the fair value based method
prescribed in Statement of Financial Accounting Standards
No. 123, Accounting for Stock Based
Compensation for all periods beginning January 1,
2004. Under the fair value based 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. Because we
previously recorded stock-based compensation using the fair
value method, adoption of SFAS 123R did not have a
significant impact on our net income or earnings per share for
the year ended December 31, 2006.
50
New accounting standards. In June 2006, the
FASB issued FASB Interpretation (FIN) 48,
Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109
(FIN 48). FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of tax positions taken or expected
to be taken in a tax return. FIN 48 also provides guidance
on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.
FIN 48 is effective for fiscal years beginning after
December 15, 2006, and we adopted FIN 48 at the
beginning of fiscal 2007. The impact of adoption was not
material.
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 157 will be effective for financial assets and
liabilities in financial statements issued for fiscal years
beginning after November 15, 2007, and will be effective
for non-financial assets and liabilities in financial statements
issued for fiscal years beginning after November 15, 2008.
The Company is currently evaluating the impact of the adoption
of this statement on its consolidated financial statements.
In December 2007, the FASB concurrently issued
SFAS No. 141R, Business Combinations and
SFAS No. 160 (SFAS 160),
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51.
Both of these standards require measurements based on fair value
as determined under the provisions of SFAS 157 and are
effective for financial statements issued for fiscal years
beginning after December 15, 2008. In addition, both of
these standards also include expanded disclosure requirements.
SFAS 141R establishes accounting and reporting standards
for how the acquirer of a business recognizes and measures in
its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the
acquiree. This statement also provides guidance for recognizing
and measuring the goodwill acquired in the business combination
and determines what information to disclose to enable users of
the financial statement to evaluate the nature and financial
effects of the business combination. SFAS 141R will impact
the accounting and disclosures for any business combinations we
engage in after January 1, 2009. However, the nature and
magnitude of the specific effects will depend upon the nature,
terms and size of the acquisitions we consummate after that date.
SFAS 160 amends Accounting Research Bulletin 51 to
establish accounting and reporting standards for the
noncontrolling or minority interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest
in the consolidated entity that should be reported as equity in
the consolidated financial statements. It requires consolidated
net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest.
It also requires disclosure, on the face of the consolidated
statement of income, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest.
This statement establishes a single method of accounting for
changes in a parents ownership interest in a subsidiary
that do not result in deconsolidation. SFAS 160 clarifies
that all such transactions are equity transactions if the parent
retains its controlling financial interest in the subsidiary. If
there is a loss of control of the subsidiary, SFAS 160
requires the retained interest to be recorded at fair value. We
are currently evaluating the impact of the adoption of this
statement on our consolidated financial statements which is
expected to have a significant impact on our financial
statements due to our ownership of Bois dArc Energy.
Related
Party Transactions
In recent years, we have not entered into any material
transactions with our officers or directors apart from the
compensation they are provided for their services. We also have
not entered into any business
51
transactions with our significant stockholders or any other
related parties except for the purchase of 2,250,000 shares
of Bois dArc Energys common stock for
$35.9 million in August 2006.
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|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
|
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 that 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 which 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 affect 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 in 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 $2.6 million and a $1.00 change in
the price per Mcf of natural gas would have changed our cash
flow by approximately $69.7 million.
We periodically use derivative transactions with respect to a
portion of our oil and natural gas production to mitigate our
exposure to price changes. While the use of these derivative
arrangements limits the downside risk of price declines, such
use may also limit any benefits which may be derived from price
increases. We use swaps, floors and collars to hedge oil and
natural gas prices. Swaps are settled monthly based on
differences between the prices specified in the instruments and
the settlement prices of futures contracts quoted on the New
York Mercantile Exchange. Generally, when the applicable
settlement price is less than the price specified in the
contract, we receive a settlement from the counterparty based on
the difference multiplied by the volume hedged. Similarly, when
the applicable settlement price exceeds the price specified in
the contract, we pay the counterparty based on the difference.
We generally receive a settlement from the counterparty 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 volumes hedged. For collars, we
generally receive a settlement from the counterparty when the
settlement price is below the floor and pay a settlement to the
counterparty when the settlement price exceeds the cap. No
settlement occurs when the settlement price falls between the
floor and the cap. We had no derivative financial instrument
outstanding as of December 31, 2007.
In January 2008, we entered into a natural gas price hedge for
certain of our natural gas properties in South Texas. The hedge
was structured as a natural gas price swap which fixed the price
at $8.00 per Mmbtu for delivery at the Houston Ship Channel of
520,000 Mmbtus of natural gas per month for the period
February 2008 to December 2009.
Interest
Rates
At December 31, 2007, we had long-term debt of
$760.0 million. Of this amount, $175.0 million bears
interest at a fixed rate of
67/8%.
The fair market value of the fixed rate debt as of
December 31, 2007 was $165.8 million based on the
market price of 95% of the face amount. At December 31,
2007, we had $585.0 million outstanding under our bank
credit facilities, which were subject to floating market rates
of
52
interest. Borrowings under the bank credit facility bear
interest at a fluctuating rate that is tied 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
December 31, 2007, a 100 basis point change in
interest rates would change our annual interest expense on our
variable rate debt by approximately $5.9 million. We had no
interest rate derivatives outstanding during 2007 or at
December 31, 2007.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Our consolidated financial statements are included on pages F-1
to F-35 of this report.
We have prepared these financial statements in conformity with
generally accepted accounting principles. We are responsible for
the fairness and reliability of the financial statements and
other financial data included in this report. In the preparation
of the financial statements, it is necessary for us to make
informed estimates and judgments based on currently available
information on the effects of certain events and transactions.
Our independent public accountants, Ernst & Young LLP,
are engaged to audit our financial statements and to express an
opinion thereon. Their audit is conducted in accordance with
auditing standards generally accepted in the United States to
enable them to report whether the financial statements present
fairly, in all material respects, our financial position and
results of operations in accordance with accounting principles
generally accepted in the United States.
The audit committee of our board of directors is composed of
three directors who are not our employees. This committee meets
periodically with our independent public accountants and
management. Our independent public accountants have full and
free access to the audit committee to meet, with and without
management being present, to discuss the results of their audits
and the quality of our financial reporting.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLSOURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation of disclosure controls and
procedures. Our Chief Executive Officer and Chief
Financial Officer have evaluated, as required by
Rule 13a-15(b)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act), our disclosure controls and
procedures (as defined in Exchange Act
Rule 13a-15(e))
as of the end of the period covered by this Annual Report on
Form 10-K.
Based on that evaluation, our chief executive officer and chief
financial officer concluded that the design and operation of our
disclosure controls and procedures are adequate and effective in
ensuring that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms.
Changes in internal control over financial
reporting. There were no changes in our internal
control over financial reporting (as defined in
Rule 13a-15(f)
under the Exchange Act) that occurred during the fourth quarter
of 2007 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
53
Managements
Report on Internal Control Over Financial Reporting
The management of Comstock Resources, Inc. (the
Company) is responsible for establishing and
maintaining adequate internal control over financial reporting.
The Companys internal control over financial reporting is
a process designed under the supervision of the Companys
Chief Executive Officer and Chief Financial Officer to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of the Companys financial
statements for external purposes in accordance with generally
accepted accounting principles.
As of December 31, 2007, management assessed the
effectiveness of the Companys internal control over
financial reporting based on the criteria for effective internal
control over financial reporting established in Internal
Control Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on the assessment, management determined that
the Company maintained effective internal control over financial
reporting as of December 31, 2007, based on those criteria.
Ernst & Young LLP, the independent registered public
accounting firm that audited the consolidated financial
statements of the Company included in this Annual Report on
Form 10-K,
has issued an attestation report on the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2007. The report, which expresses unqualified
opinions on the effectiveness of the Companys internal
control over financial reporting as of December 31, 2007 is
included below.
54
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Comstock Resources, Inc.
We have audited Comstock Resources, Inc.s internal control
over financial reporting as of December 31, 2007, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Comstock Resources,
Inc.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed 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. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Comstock Resources, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2007, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Comstock Resources, Inc. and
subsidiaries as of December 31, 2006 and 2007, and the
related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2007 and our report
dated February 28, 2008 expressed an unqualified opinion
thereon.
Dallas, Texas
February 28, 2008
55
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
The information required by this item is incorporated herein by
reference to Business Directors, Executive
Officers and Other Management in this
Form 10-K
and to our definitive proxy statement which will be filed with
the Securities and Exchange Commission within 120 days
after December 31, 2007.
Code of Ethics. We have adopted a Code of
Business Conduct and Ethics that is applicable to all of our
directors, officers and employees as required by New York Stock
Exchange rules. We have also adopted a Code of Ethics for Senior
Financial Officers that is applicable to our Chief Executive
Officer and senior financial officers. Both the Code of Business
Conduct and Ethics and Code of Ethics for Senior Financial
Officers may be found on our website at
www.comstockresources.com. Both of these documents are also
available, without charge, to any stockholder upon request to:
Comstock Resources, Inc., Attn: Investor Relations, 5300 Town
and Country Blvd., Suite 500, Frisco, Texas 75034,
(972) 668-8800.
We intend to disclose any amendments or waivers to these codes
that apply to our Chief Executive Officer and senior financial
officers on our website in accordance with applicable SEC rules.
Please see the definitive proxy statement for our 2008 annual
meeting, which will be filed with the SEC within 120 days
of December 31, 2007, for additional information regarding
our corporate governance policies.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this item is incorporated herein by
reference to our definitive proxy statement which will be filed
with the Securities and Exchange Commission within 120 days
after December 31, 2007.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this item is incorporated herein by
reference to our definitive proxy statement which will be filed
with the Securities and Exchange Commission within 120 days
after December 31, 2007.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS
INDEPENDENCE
|
The information required by this item is incorporated herein by
reference to our definitive proxy statement which will be filed
with the Securities and Exchange Commission within 120 days
after December 31, 2007.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this item is incorporated herein by
reference to our definitive proxy statement which will be filed
with the Securities and Exchange Commission within 120 days
after December 31, 2007.
56
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) Financial Statements:
1. The following consolidated financial statements and
notes of Comstock Resources, Inc. are included on Pages F-2 to
F-35 of this report:
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Consolidated Balance Sheets as of December 31, 2006 and 2007
|
|
|
F-3
|
|
Consolidated Statements of Operations for the Years Ended
December 31, 2005, 2006 and 2007
|
|
|
F-4
|
|
Consolidated Statements of Stockholders Equity for the
Years Ended December 31, 2005, 2006 and 2007
|
|
|
F-5
|
|
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2005, 2006 and 2007
|
|
|
F-6
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7
|
|
2. All financial statement schedules are omitted because
they are not applicable, or are immaterial or the required
information is presented in the consolidated financial
statements or the related notes.
(b) Exhibits:
The exhibits to this report required to be filed pursuant to
Item 15 (c) are listed below.
|
|
|
Exhibit No.
|
|
Description
|
|
3.1(a)
|
|
Restated Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to our Annual Report on
Form 10-K
for the year ended December 31, 1995).
|
3.1(b)
|
|
Certificate of Amendment to the Restated Articles of
Incorporation dated July 1, 1997 (incorporated by reference
to Exhibit 3.1 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 1997).
|
3.2
|
|
Bylaws (incorporated by reference to Exhibit 3.2 to our
Registration Statement on
Form S-3,
dated October 25, 1996).
|
4.1
|
|
Rights Agreement dated as of December 14, 2000, by and
between Comstock and American Stock Transfer and
Trust Company, as Rights Agent (incorporated herein by
reference to Exhibit 1 to our Registration Statement on
Form 8-A
dated January 11, 2001).
|
4.2
|
|
Certificate of Designation, Preferences and Rights of
Series B Junior Participating Preferred Stock (incorporated
by reference to Exhibit 2 to our Registration Statement on
Form 8-A
dated January 11, 2001).
|
4.3
|
|
Indenture dated February 25, 2004 between Comstock, the
guarantors and The Bank of New York Trust Company, N.A.,
Trustee for debt securities issued by Comstock Resources, Inc.
(incorporated by reference to Exhibit 4.6 to our Annual
Report on
Form 10-K
for the year ended December 31, 2003).
|
4.4
|
|
First Supplemental Indenture, dated February 25, 2004
between Comstock, the guarantors and The Bank of New York
Trust Company, N.A., Trustee for the
67/8% Senior
Notes due 2012 (incorporated by reference to Exhibit 4.7 to
our Annual Report on
Form 10-K
for the year ended December 31, 2003).
|
57
|
|
|
Exhibit No.
|
|
Description
|
|
4.5
|
|
Second Supplemental Indenture, dated March 11, 2004 between
Comstock, the guarantors and The Bank of New York
Trust Company, N.A. for the
67/8 Senior
Notes due 2012 (incorporated by reference to Exhibit 4.1 to
our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2004).
|
4.6
|
|
Third Supplemental Indenture dated July 16, 2004 between
Comstock, the guarantors and The Bank of New York
Trust Company, N.A., Trustee (incorporated by reference to
Exhibit 4.1 to our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2004).
|
4.7
|
|
Fourth Supplemental Indenture dated May 20, 2005 between
Comstock, the guarantors and The Bank of New York
Trust Company, N.A., Trustee (incorporated by reference to
Exhibit 4.1 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2005).
|
10.1#
|
|
Employment Agreement dated June 1, 2002, by and between
Comstock and M. Jay Allison (incorporated by reference to
Exhibit 10.1 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2002).
|
10.2#
|
|
First Amendment to Employment Agreement dated July 16,
2004, by and between Comstock and M. Jay Allison (incorporated
by reference to Exhibit 10.8 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2004).
|
10.3#
|
|
Employment Agreement dated June 1, 2002, by and between
Comstock and Roland O. Burns (incorporated by reference to
Exhibit 10.2 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2002).
|
10.4#
|
|
First Amendment to Employment Agreement dated July 16,
2004, by and between Comstock and Roland O. Burns (incorporated
by reference to Exhibit 10.8 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2004).
|
10.5#
|
|
Comstock Resources, Inc. 1999 Long-term Incentive Plan (As
restated on April 1, 2001) (incorporated by reference to
Exhibit 10.8 to our Annual Report on
Form 10-K
for the year ended December 31, 2004).
|
10.6#
|
|
Amendment No. 2 dated April 7, 2004 to the Comstock
Resources, Inc. 1999 Long-term Incentive Plan (incorporated by
reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2004).
|
10.7#
|
|
Form of Nonqualified Stock Option Agreement between Comstock and
certain officers and directors of Comstock (incorporated by
reference to Exhibit 10.2 to our Quarterly Report on
Form 10-Q
for the year ended June 30, 1999).
|
10.8#
|
|
Form of Restricted Stock Agreement between Comstock and certain
officers of Comstock (incorporated by reference to
Exhibit 10.3 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 1999).
|
10.9
|
|
Warrant Agreement dated July 31, 2001 by and between
Comstock and Gary W. Blackie and Wayne L. Laufer (incorporated
by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2001).
|
10.10
|
|
Contribution Agreement dated July 16, 2004, among Bois
dArc Energy, LLC, Bois dArc Properties, LP, Bois
dArc Resources, Ltd., Wayne L. Laufer, Gary W. Balckie,
Haro Investments LLC, such other persons listed on the signature
pages thereto, Comstock Offshore LLC, and Comstock Resources,
Inc. (incorporated by reference to Exhibit 10.2 to our
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2004).
|
10.11
|
|
Amended and Restated Operating Agreement, dated as of
August 23, 2004, to be effective July 16, 2004, of
Bois dArc Energy, LLC (incorporated by reference to
Exhibit 3.2 to the Registration Statement on
Form S-1
[File
No. 33-119511]
filed by Bois dArc Energy, LLC on October 4, 2004).
|
10.12
|
|
Services Agreement dated July 16, 2004, between Comstock
Resources, Inc. and Bois dArc Energy, LLC (incorporated by
reference to Exhibit 10.3 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2004).
|
58
|
|
|
Exhibit No.
|
|
Description
|
|
10.13
|
|
Lease between Stonebriar I Office Partners, Ltd. and Comstock
Resources, Inc. dated May 6, 2004 (incorporated by
reference to Exhibit 10.24 to our Annual Report on
Form 10-K
for the year ended December 31, 2004).
|
10.14
|
|
First Amendment to the Lease Agreement dated August 25,
2005, between Stonebriar I Office Partners, Ltd. and Comstock
Resources, Inc.(incorporated by reference to Exhibit 10.20
to our Annual Report on
Form 10-K
for the year ended December 31, 2005).
|
10.15
|
|
Amended and Restated Operating Agreement dated as of
August 23, 2004, to be effective July 16, 2004 of Bois
dArc Energy, LLC (incorporated by reference to
Exhibit 3.2 to Bois dArc Energys Registration
Statement on
Form S-1
(File
No. 333-19511)).
|
10.16
|
|
Stock Purchase Agreement dated August 25, 2006, between
Bois dArc Energy, Inc. and Comstock Resources, Inc.
(incorporated by reference to Exhibit 2.1 to our Current
Report on
Form 8-K
dated August 25, 2006).
|
10.17
|
|
Second Amended and Restated Credit Agreement, dated
December 15, 2006, among Comstock, as the borrower, the
lenders from time to time thereto, Bank of Montreal, as
administrative agent and issuing bank, Bank of America, N.A., as
syndication agent and Comerica Bank, Fortis Capital Corp., and
Union Bank of California, N.A. as co-documentation agents
(incorporated by reference to Exhibit 10.1 to our Annual
Report on
Form 10-K
for the year ended December 31, 2006).
|
10.18*
|
|
Waiver and Borrowing Base Redetermination Agreement, dated
December 20, 2007, among Comstock, as the borrower, the
lenders from time to time thereto, Bank of Montreal, as
administrative agent and issuing bank, Bank of America, N.A., as
syndication agent and Comerica Bank, Fortis Capital Corp., and
Union Bank of California, N.A. as co-documentation agents.
|
10.19
|
|
Purchase and Sale Agreement between SWEPI LP and Comstock Oil
and Gas, LP dated November 26, 2007 (incorporated by
reference to Exhibit 2.1 to our Current Report on
Form 8-K
dated November 26, 2007).
|
21*
|
|
Subsidiaries of the Company.
|
23.1*
|
|
Consent of Ernst & Young LLP.
|
23.2*
|
|
Consent of Independent Petroleum Engineers.
|
31.1*
|
|
Chief Executive Officer certification under Section 302 of
the Sarbanes-Oxley Act of 2002.
|
31.2*
|
|
Chief Financial Officer certification under Section 302 of
the Sarbanes-Oxley Act of 2002.
|
32.1+
|
|
Chief Executive Officer certification under Section 906 of
the Sarbanes-Oxley Act of 2002.
|
32.2+
|
|
Chief Financial Officer certification under Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
*
|
|
Filed herewith.
|
+
|
|
Furnished herewith.
|
#
|
|
Management contract or compensatory
plan document.
|
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
M. Jay Allison
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 28, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
/s/ M.
JAY ALLISON
M.
Jay Allison
|
|
President, Chief Executive Officer and Chairman of the Board of
Directors (Principal Executive Officer)
|
|
February 28, 2008
|
|
|
|
|
|
/s/ ROLAND
O. BURNS
Roland
O. Burns
|
|
Senior Vice President, Chief Financial Officer, Secretary,
Treasurer and Director (Principal Financial and Accounting
Officer)
|
|
February 28, 2008
|
|
|
|
|
|
/s/ DAVID
K. LOCKETT
David
K. Lockett
|
|
Director
|
|
February 28, 2008
|
|
|
|
|
|
/s/ CECIL
E. MARTIN, JR.
Cecil
E. Martin, Jr.
|
|
Director
|
|
February 28, 2008
|
|
|
|
|
|
/s/ DAVID
W. SLEDGE
David
W. Sledge
|
|
Director
|
|
February 28, 2008
|
|
|
|
|
|
/s/ NANCY
E. UNDERWOOD
Nancy
E. Underwood
|
|
Director
|
|
February 28, 2008
|
60
COMSTOCK
RESOURCES, INC.
FINANCIAL STATEMENTS
INDEX
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Comstock Resources, Inc.
We have audited the accompanying consolidated balance sheets of
Comstock Resources, Inc. and subsidiaries as of
December 31, 2006 and 2007, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
December 31, 2007. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Comstock Resources, Inc. and subsidiaries
at December 31, 2006 and 2007, and the consolidated results
of their operations and cash flows for each of the three years
in the period ended December 31, 2007, in conformity with
accounting principles generally accepted in the United States.
As discussed in Note 1 to the consolidated financial
statements, effective January 1, 2006, the Company adopted
Statement of Financial Accounting Standards No. 123
(revised 2004), Share Based Payment in accounting
for equity-based compensation.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Comstock Resources, Inc.s internal
control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 28,
2008 expressed an unqualified opinion thereon.
Dallas, Texas
February 28, 2008
F-2
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
As of
December 31, 2006 and 2007
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Cash and Cash Equivalents
|
|
$
|
10,715
|
|
|
$
|
24,406
|
|
Accounts Receivable:
|
|
|
|
|
|
|
|
|
Oil and gas sales
|
|
|
56,328
|
|
|
|
73,873
|
|
Joint interest operations
|
|
|
19,233
|
|
|
|
16,788
|
|
Other Current Assets
|
|
|
12,552
|
|
|
|
9,438
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
98,828
|
|
|
|
124,505
|
|
Property and Equipment:
|
|
|
|
|
|
|
|
|
Unevaluated oil and gas properties
|
|
|
13,645
|
|
|
|
18,880
|
|
Oil and gas properties, successful efforts method
|
|
|
2,511,782
|
|
|
|
3,173,646
|
|
Other
|
|
|
8,483
|
|
|
|
9,777
|
|
Accumulated depreciation, depletion and amortization
|
|
|
(760,284
|
)
|
|
|
(979,428
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
1,773,626
|
|
|
|
2,222,875
|
|
Other Assets
|
|
|
5,671
|
|
|
|
7,007
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,878,125
|
|
|
$
|
2,354,387
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Short-term Debt
|
|
$
|
3,250
|
|
|
$
|
2,588
|
|
Accounts Payable
|
|
|
132,504
|
|
|
|
109,195
|
|
Accrued Expenses
|
|
|
16,107
|
|
|
|
19,017
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
151,861
|
|
|
|
130,800
|
|
Long-term Debt
|
|
|
455,000
|
|
|
|
760,000
|
|
Deferred Income Taxes Payable
|
|
|
311,236
|
|
|
|
371,896
|
|
Reserve for Future Abandonment Costs
|
|
|
57,116
|
|
|
|
52,606
|
|
Minority Interest in Bois dArc Energy
|
|
|
220,349
|
|
|
|
267,441
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Common stock $0.50 par, 50,000,000 shares
authorized, 44,395,495 and 45,428,095 shares issued and
outstanding at December 31, 2006 and 2007, respectively
|
|
|
22,197
|
|
|
|
22,714
|
|
Additional paid-in capital
|
|
|
367,323
|
|
|
|
386,986
|
|
Retained earnings
|
|
|
293,043
|
|
|
|
361,944
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
682,563
|
|
|
|
771,644
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,878,125
|
|
|
$
|
2,354,387
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these statements.
F-3
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
For the
Years Ended December 31, 2005, 2006 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Oil and gas sales
|
|
$
|
303,336
|
|
|
$
|
511,928
|
|
|
$
|
687,073
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas operating
|
|
|
50,966
|
|
|
|
107,303
|
|
|
|
123,632
|
|
Exploration
|
|
|
19,725
|
|
|
|
20,132
|
|
|
|
43,079
|
|
Depreciation, depletion and amortization
|
|
|
63,338
|
|
|
|
153,922
|
|
|
|
243,619
|
|
Impairment
|
|
|
3,400
|
|
|
|
10,444
|
|
|
|
826
|
|
General and administrative, net
|
|
|
16,533
|
|
|
|
31,769
|
|
|
|
42,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
153,962
|
|
|
|
323,570
|
|
|
|
453,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
149,374
|
|
|
|
188,358
|
|
|
|
233,235
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,604
|
|
|
|
1,012
|
|
|
|
1,389
|
|
Other income
|
|
|
209
|
|
|
|
781
|
|
|
|
685
|
|
Interest expense
|
|
|
(20,272
|
)
|
|
|
(27,429
|
)
|
|
|
(41,326
|
)
|
Gain on sale of shares by Bois dArc Energy
|
|
|
28,797
|
|
|
|
|
|
|
|
|
|
Gain (loss) on derivatives
|
|
|
(13,556
|
)
|
|
|
10,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expenses)
|
|
|
(3,218
|
)
|
|
|
(14,920
|
)
|
|
|
(39,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and
|
|
|
|
|
|
|
|
|
|
|
|
|
equity in earnings of Bois dArc Energy
|
|
|
146,156
|
|
|
|
173,438
|
|
|
|
193,983
|
|
Provision for income taxes
|
|
|
(35,815
|
)
|
|
|
(74,339
|
)
|
|
|
(85,177
|
)
|
Equity in loss of Bois dArc Energy
|
|
|
(49,862
|
)
|
|
|
|
|
|
|
|
|
Minority interest in earnings of Bois dArc Energy
|
|
|
|
|
|
|
(28,434
|
)
|
|
|
(39,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
60,479
|
|
|
$
|
70,665
|
|
|
$
|
68,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.54
|
|
|
$
|
1.67
|
|
|
$
|
1.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.47
|
|
|
$
|
1.61
|
|
|
$
|
1.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
39,216
|
|
|
|
42,220
|
|
|
|
43,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
41,154
|
|
|
|
43,556
|
|
|
|
44,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these statements.
F-4
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Earnings
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at December 31, 2004
|
|
|
35,649
|
|
|
$
|
17,824
|
|
|
$
|
176,130
|
|
|
$
|
161,899
|
|
|
$
|
355,853
|
|
Public offering of common stock
|
|
|
4,545
|
|
|
|
2,273
|
|
|
|
118,977
|
|
|
|
|
|
|
|
121,250
|
|
Stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
(175
|
)
|
|
|
|
|
|
|
(175
|
)
|
Exercise of stock options and warrants
|
|
|
2,433
|
|
|
|
1,217
|
|
|
|
24,376
|
|
|
|
|
|
|
|
25,593
|
|
Tax benefit of stock option exercises
|
|
|
|
|
|
|
|
|
|
|
15,609
|
|
|
|
|
|
|
|
15,609
|
|
Stock-based compensation
|
|
|
342
|
|
|
|
171
|
|
|
|
4,079
|
|
|
|
|
|
|
|
4,250
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,479
|
|
|
|
60,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
42,969
|
|
|
|
21,485
|
|
|
|
338,996
|
|
|
|
222,378
|
|
|
|
582,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and warrants
|
|
|
1,083
|
|
|
|
541
|
|
|
|
15,407
|
|
|
|
|
|
|
|
15,948
|
|
Tax benefit of stock option exercises
|
|
|
|
|
|
|
|
|
|
|
6,218
|
|
|
|
|
|
|
|
6,218
|
|
Stock-based compensation
|
|
|
343
|
|
|
|
171
|
|
|
|
6,702
|
|
|
|
|
|
|
|
6,873
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,665
|
|
|
|
70,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
44,395
|
|
|
|
22,197
|
|
|
|
367,323
|
|
|
|
293,043
|
|
|
|
682,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and warrants
|
|
|
596
|
|
|
|
298
|
|
|
|
2,571
|
|
|
|
|
|
|
|
2,869
|
|
Tax benefit of stock option exercises
|
|
|
|
|
|
|
|
|
|
|
6,522
|
|
|
|
|
|
|
|
6,522
|
|
Stock-based compensation
|
|
|
437
|
|
|
|
219
|
|
|
|
10,570
|
|
|
|
|
|
|
|
10,789
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,901
|
|
|
|
68,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
45,428
|
|
|
$
|
22,714
|
|
|
$
|
386,986
|
|
|
$
|
361,944
|
|
|
$
|
771,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these statements.
F-5
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
60,479
|
|
|
$
|
70,665
|
|
|
$
|
68,901
|
|
Adjustments to reconcile net income to net cash provided by
operating activities, net of acquisition effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
5,419
|
|
|
|
13,249
|
|
|
|
19,162
|
|
Excess tax benefit from stock based compensation
|
|
|
|
|
|
|
(6,218
|
)
|
|
|
(6,522
|
)
|
Depreciation, depletion and amortization
|
|
|
63,338
|
|
|
|
153,922
|
|
|
|
243,619
|
|
Debt issuance costs amortization
|
|
|
942
|
|
|
|
1,649
|
|
|
|
1,158
|
|
Impairment of oil and gas properties
|
|
|
3,400
|
|
|
|
10,444
|
|
|
|
826
|
|
Deferred income taxes
|
|
|
31,201
|
|
|
|
66,550
|
|
|
|
67,780
|
|
Equity in loss of Bois dArc Energy
|
|
|
49,862
|
|
|
|
|
|
|
|
|
|
Minority interest in earnings of Bois dArc Energy
|
|
|
|
|
|
|
28,434
|
|
|
|
39,905
|
|
Gain on sale of shares by Bois dArc Energy
|
|
|
(28,797
|
)
|
|
|
|
|
|
|
|
|
Dry hole costs and leasehold impairments
|
|
|
16,889
|
|
|
|
14,351
|
|
|
|
35,899
|
|
Loss (gain) on derivatives
|
|
|
13,556
|
|
|
|
(10,716
|
)
|
|
|
|
|
Increase in accounts receivable
|
|
|
(13,030
|
)
|
|
|
(2,917
|
)
|
|
|
(15,100
|
)
|
Decrease in other current assets
|
|
|
616
|
|
|
|
3,526
|
|
|
|
2,452
|
|
Increase (decrease) in accounts payable and accrued expenses
|
|
|
14,079
|
|
|
|
21,666
|
|
|
|
(11,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
217,954
|
|
|
|
364,605
|
|
|
|
446,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and acquisitions
|
|
|
(356,262
|
)
|
|
|
(529,225
|
)
|
|
|
(743,041
|
)
|
Advances to Bois dArc Energy
|
|
|
(6,421
|
)
|
|
|
|
|
|
|
|
|
Repayments from Bois dArc Energy
|
|
|
158,066
|
|
|
|
|
|
|
|
|
|
Payments to settle derivatives
|
|
|
(2,469
|
)
|
|
|
(526
|
)
|
|
|
|
|
Deposits paid for offshore leases
|
|
|
|
|
|
|
|
|
|
|
(2,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(207,086
|
)
|
|
|
(529,751
|
)
|
|
|
(745,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
179,000
|
|
|
|
190,000
|
|
|
|
357,000
|
|
Debt issuance costs
|
|
|
|
|
|
|
(1,563
|
)
|
|
|
(385
|
)
|
Principal payments on debt
|
|
|
(339,150
|
)
|
|
|
(47,000
|
)
|
|
|
(52,000
|
)
|
Proceeds from common stock issuances
|
|
|
146,843
|
|
|
|
15,948
|
|
|
|
2,869
|
|
Proceeds from common stock issuances by Bois dArc Energy
|
|
|
|
|
|
|
126
|
|
|
|
693
|
|
Stock issuance costs
|
|
|
(175
|
)
|
|
|
|
|
|
|
|
|
Repurchase of common stock by Bois dArc Energy
|
|
|
|
|
|
|
|
|
|
|
(1,942
|
)
|
Excess tax benefit from stock based compensation
|
|
|
|
|
|
|
6,218
|
|
|
|
6,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities
|
|
|
(13,482
|
)
|
|
|
163,729
|
|
|
|
312,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(2,614
|
)
|
|
|
(1,417
|
)
|
|
|
13,691
|
|
Cash and cash equivalents, beginning of year
|
|
|
2,703
|
|
|
|
89
|
|
|
|
10,715
|
|
Bois dArc Energy cash and equivalents as of
January 1, 2006
|
|
|
|
|
|
|
12,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
89
|
|
|
$
|
10,715
|
|
|
$
|
24,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these statements.
F-6
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
|
|
(1)
|
Summary
of Significant Accounting Policies
|
Accounting policies used by Comstock Resources, Inc. (the
Company) reflect oil and natural gas industry
practices and conform to accounting principles generally
accepted in the United States of America.
Basis
of Presentation and Principles of Consolidation
The Company is engaged in oil and natural gas exploration,
development and production, and the acquisition of producing oil
and natural gas properties. The consolidated financial
statements include the accounts of Comstock Resources, Inc. and
its wholly owned subsidiaries (Comstock) and,
effective January 1, 2006, Bois dArc Energy, Inc.
(collectively, the Company). The consolidated
financial statements also include the accounts of a variable
interest entity where the Company is the primary beneficiary of
the arrangements. See Note 2. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The Company accounts for its undivided interest in properties
using the proportionate consolidation method, whereby its share
of assets, liabilities, revenues and expenses are included in
its financial statements.
Investment
in Bois dArc Energy
In July 2004 the Company contributed its interests in its Gulf
of Mexico properties and assigned to Bois dArc Energy, LLC
$83.2 million of related debt in exchange for an
approximate 60% ownership in Bois dArc Energy, LLC. On
May 10, 2005 Bois dArc Energy, LLC was converted to a
corporation and changed its name to Bois dArc Energy, Inc.
(Bois dArc Energy). On May 11, 2005 Bois
dArc Energy completed an initial public offering of
13.5 million shares of common stock at $13.00 per share to
the public. Bois dArc Energy sold 12.0 million shares
of common stock and received net proceeds of $145.1 million
and a selling stockholder sold 1.5 million shares. Bois
dArc Energy used the proceeds from its initial public
offering together with borrowings under a new bank credit
facility to repay $158.0 million in outstanding advances
from Comstock. As a result of Bois dArc Energys
conversion to a corporation and the offering, Comstocks
ownership in Bois dArc Energy decreased to 48% and
Comstock discontinued accounting for its interest in Bois
dArc Energy using the proportionate consolidation method
and began using the equity method to account for its investment
in Bois dArc Energy.
At the time that Bois dArc Energy converted to a
corporation, it recorded a tax provision of $108.2 million
to record a deferred tax liability. Comstock recognized its
proportionate share of this provision for taxes of
$64.6 million in its equity in loss of Bois dArc
Energy in the consolidated statement of operations. In
connection with the initial public offering completed by Bois
dArc Energy, Comstock recognized a gain of
$28.8 million on its investment in Bois dArc Energy
based on Comstocks share of the amount that Bois
dArc Energys equity was increased as a result of the
sale of shares in the offering. Comstock did not previously own
interests in a subsidiary which had sold shares. The Company has
no present plans for any future sale of Bois dArc Energy
common stock and has adopted a policy of recognizing its
proportional share of the gain when Bois dArc Energy sells
shares to third parties.
During 2006 and 2007, Comstock acquired 2,288,900 additional
shares of Bois dArc Energy for $36.5 million which
increased its ownership of Bois dArc Energys common
stock to 32,224,661 shares or 49%. Comstock also has voting
agreements with each of its directors that own shares of Bois
dArc Energys common stock pursuant to which Comstock
has the right to vote such shares on behalf of the directors. As
a result, the Company has voting control of Bois dArc
Energy through the combined share ownership by Comstock and the
members of its Board of Directors. Upon obtaining voting control
of Bois dArc Energy,
F-7
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comstock began including Bois dArc Energy in its financial
statements as a consolidated subsidiary. The Company currently
intends to maintain its controlling interest by acquiring
additional shares of Bois dArc Energy common stock,
through open market purchases and other negotiated transactions,
as appropriate. Consolidated revenues, expenses and cash flows
for 2006 reflect Bois dArc Energy as a consolidated
subsidiary as of January 1, 2006. The Companys
financial statements for dates and periods prior to
January 1, 2006, have not been adjusted. The inclusion of
Bois dArc Energy as a consolidated subsidiary in the
Companys financial statements had no impact on the
Companys net income.
The following table summarizes the pro forma results as if Bois
dArc Energy was consolidated in 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
Consolidating
|
|
|
Pro Forma
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Statement of Operations -
|
|
|
|
|
|
|
|
|
|
|
|
|
Total oil and gas sales
|
|
$
|
303,336
|
|
|
$
|
145,906
|
|
|
$
|
449,242
|
|
Income from operations
|
|
|
149,374
|
|
|
|
60,835
|
|
|
|
210,209
|
|
Income before income taxes, minority interest and equity in
earnings of Bois dArc Energy
|
|
|
146,156
|
|
|
|
58,659
|
|
|
|
204,815
|
|
Provision for income taxes
|
|
|
(35,815
|
)
|
|
|
(125,808
|
)
|
|
|
(161,623
|
)
|
Minority interest in losses of Bois dArc Energy
|
|
|
|
|
|
|
17,287
|
|
|
|
17,287
|
|
Equity interest in losses of Bois dArc Energy
|
|
|
(49,862
|
)
|
|
|
49,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
60,479
|
|
|
$
|
|
|
|
$
|
60,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with its acquisitions of 2,288,900 additional
common shares of Bois dArc Energy in 2006 and 2007,
Comstock allocated the $36.5 million purchase price paid
for the shares in excess of its underlying net book value in
Bois dArc Energy of $19.0 million together with the
related deferred income tax liability of $10.1 million to
oil and gas properties in the accompanying consolidated balance
sheet. This additional amount is being amortized over the
productive lives of Bois dArc Energys 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 Companys historical results of
operations.
In December 2007, the board of directors of Bois dArc
Energy approved a repurchase plan providing for repurchases of
up to $100.0 million of Common Stock. During 2007, Bois
dArc Energy repurchased 100,000 shares of outstanding
common stock for $1.9 million.
Reclassifications
Certain reclassifications have been made to prior periods
financial statements to conform to the current presentation.
Use of
Estimates in the Preparation of Financial
Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual amounts could differ from
F-8
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
those estimates. Changes in the future estimated oil and natural
gas reserves or the estimated future cash flows attributable to
the reserves that are utilized for impairment analysis could
have a significant impact on the future results of operations.
Concentration
of Credit Risk and Accounts Receivable
Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of cash and
cash equivalents, accounts receivable and derivative financial
instruments, the Company places its cash with high credit
quality financial institutions and its derivative financial
instruments with financial institutions and other firms that
management believes have high credit rating. Substantially all
of the Companys accounts receivable are due from either
purchasers of oil and gas or participants in oil and gas wells
for which the Company serves as the operator. Generally,
operators of oil and gas wells have the right to offset future
revenues against unpaid charges related to operated wells. Oil
and gas sales are generally unsecured. The Company has not had
any significant credit losses in the past and believes its
accounts receivable are fully collectable. Accordingly, no
allowance for doubtful accounts has been provided.
Schedule II, Valuation and Qualifying Accounts, was omitted
because there were no allowances or other valuation or
qualifying accounts.
Fair
Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximate
fair value due to the short maturity of these instruments.
The following table presents the carrying amounts and estimated
fair value of the Companys financial instruments as of
December 31, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Long-term debt, including current portion
|
|
$
|
455,000
|
|
|
$
|
450,406
|
|
|
$
|
760,000
|
|
|
$
|
750,813
|
|
The fair market value of the fixed rate debt was based on the
market prices as of December 31, 2006 and 2007. The fair
market value of the floating rate date approximates its carrying
value.
The Company had no derivatives outstanding as of
December 31, 2006 and 2007.
Other
Current Assets
Other current assets at December 31, 2006 and 2007 consist
of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Prepaid expenses
|
|
$
|
9,889
|
|
|
$
|
5,873
|
|
Pipe inventory
|
|
|
1,251
|
|
|
|
1,520
|
|
Income taxes receivable
|
|
|
1,386
|
|
|
|
1,367
|
|
Other
|
|
|
26
|
|
|
|
678
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,552
|
|
|
$
|
9,438
|
|
|
|
|
|
|
|
|
|
|
F-9
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property
and Equipment
The Company follows the successful efforts method of accounting
for its oil and natural gas properties. Acquisition costs for
proved oil and natural gas properties, costs of drilling and
equipping productive wells, and costs of unsuccessful
development wells are capitalized and amortized on an equivalent
unit-of-production
basis over the life of the remaining related oil and gas
reserves. Equivalent units are determined by converting oil to
natural gas at the ratio of six barrels of oil for one thousand
cubic feet of natural gas. Cost centers for amortization
purposes for onshore properties are determined on a field area
basis and for offshore properties are determined based on wells
sharing common production platforms and facilities. Costs
incurred to acquire oil and gas leasehold are capitalized.
Unproved oil and gas properties are periodically assessed and
any impairment in value is charged to exploration expense. The
estimated future costs of dismantlement, restoration, plugging
and abandonment of oil and gas properties and related facilities
disposal are capitalized when asset retirement obligations are
incurred and amortized as part of depreciation, depletion and
amortization expense. The costs of unproved properties which are
determined to be productive are transferred to proved oil and
gas properties and amortized on an equivalent
unit-of-production
basis. Exploratory expenses, including geological and
geophysical expenses and delay rentals for unevaluated oil and
gas properties, are charged to expense as incurred. Exploratory
drilling costs are initially capitalized as unproved property
but charged to expense if and when the well is determined not to
have found proved oil and gas reserves. Exploratory drilling
costs are evaluated within a one-year period after the
completion of drilling.
The Company assesses the need for an impairment of the costs
capitalized for its oil and gas properties costs on a property
or cost center basis. If impairment is indicated based on
undiscounted expected future cash flows attributable to the
property, then a provision for impairment is recognized to the
extent that net capitalized costs exceed discounted expected
future cash flows. Expected future cash flows are determined
using estimated future prices based on market based forward
prices applied to projected future production volumes. The
projected production volumes are based on the propertys
proved and risk adjusted probable oil and natural gas reserve
estimates at the end of the period. The oil and natural gas
prices used for determining asset impairments will generally
differ from those used in the standardized measure of discounted
future net cash flows because the standardized measure requires
the use of actual prices on the last day of the period. The
Company recognized impairment charges related to its oil and gas
properties of $3.4 million, $10.4 million and
$0.8 million in 2005, 2006, and 2007, respectively. The
impairment in 2006 includes $7.9 million related to a
property that was held for resale. Subsequently, the plan to
sell the property was cancelled. The impairment reflected the
propertys estimated fair market value at the time the plan
to sell the property changed.
Other property and equipment consists primarily of gas gathering
systems, computer equipment, furniture and fixtures and
interests in private aircraft which are depreciated over
estimated useful lives ranging from five to
311/2
years on a straight-line basis.
Asset
Retirement Obligation
The Company records a liability in the period in which an asset
retirement obligation (ARO) is incurred, in an
amount equal to the discounted estimated fair value of the
obligation that is capitalized. Thereafter this liability is
accreted up to the final retirement cost. Accretion of the
discount is included as part of depreciation, depletion and
amortization in the accompanying consolidated financial
statements. The Companys AROs relate to future
plugging and abandonment costs of its oil and gas properties and
related facilities disposal.
F-10
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the changes in the Companys
total estimated liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Beginning asset retirement obligations
|
|
$
|
19,248
|
|
|
$
|
3,206
|
|
|
$
|
57,116
|
|
Bois dArc Energy abandonment
liability(1)
|
|
|
(16,915
|
)
|
|
|
35,034
|
|
|
|
|
|
New wells placed on production and changes in estimates
|
|
|
266
|
|
|
|
18,134
|
|
|
|
(8,161
|
)
|
Acquisition liabilities assumed
|
|
|
455
|
|
|
|
3,346
|
|
|
|
774
|
|
Liabilities settled
|
|
|
|
|
|
|
(5,145
|
)
|
|
|
(759
|
)
|
Accretion expense
|
|
|
152
|
|
|
|
2,541
|
|
|
|
3,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending asset retirement obligations
|
|
$
|
3,206
|
|
|
$
|
57,116
|
|
|
$
|
52,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Companys share of the
asset retirement obligations of Bois dArc Energy was
reclassified to the Investment in Bois dArc Energy upon
the change to the equity accounting method in 2005. Concurrent
with including Bois dArc Energy as a consolidated
subsidiary as of January 1, 2006, the asset retirement
obligations of Bois dArc Energy are included in the
Companys financial statements.
|
Other
Assets
Other assets primarily consist of deferred costs associated with
issuance of the senior notes and the bank credit facilities.
These costs are amortized over the eight year life of the senior
notes and the life of the bank credit facility on a
straight-line basis which approximates the amortization that
would be calculated using an effective interest rate method.
Stock-based
Compensation
The Company follows the fair value based method prescribed in
Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment
(SFAS 123R) in accounting for equity-based
compensation. Under the fair value based method, compensation
cost is measured at the grant date based on the fair value of
the award and is recognized on a straight-line basis over the
award vesting period. The Company adopted SFAS 123R
utilizing the modified prospective transition method and
accordingly the financial results for periods prior to
January 1, 2006 have not been adjusted. Prior to adopting
SFAS 123R the Company followed the fair value based method
prescribed in Statement of Financial Accounting Standards
No. 123, Accounting for Stock Based
Compensation for all periods beginning January 1,
2004. Because the Company previously recorded stock-based
compensation using the fair value method, adoption of
SFAS 123R did not have a significant impact on the
Companys net income or earnings per share for the year
ended December 31, 2006.
Prior to adopting SFAS 123R, the Company presented all tax
benefits of the deductions that resulted from stock-based
compensation as cash flows from operating activities.
SFAS 123R requires that excess tax benefits on stock-based
compensation be recognized as a part of cash flows from
financing activities. Comstocks excess income tax benefit
realized from tax deductions associated with stock-based
compensation totaled $15.6 million, $6.2 million and
$6.5 million for the years ended December 31, 2005,
2006 and 2007, respectively.
F-11
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segment
Reporting
The Company presently operates in one business segment, the
exploration and production of oil and natural gas.
Derivative
Instruments and Hedging Activities
The Company follows Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS 133), which
requires that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded
on the balance sheet as either an asset or liability measured at
its fair value. SFAS 133 requires that changes in the
derivatives fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. The Company
estimates fair value based on quotes obtained from the
counterparties to the derivative contract. The fair value of
derivative contracts that expire in less than one year are
recognized as current assets or liabilities. Those that expire
in more than one year are recognized as long-term assets or
liabilities. Derivative financial instruments that are not
accounted for as hedges are adjusted to fair value through
income. If the derivative is designated as a cash flow hedge,
changes in fair value are recognized in other comprehensive
income until the hedged item is recognized in earnings.
Major
Purchasers
In 2007, the Company had one purchaser of its oil and natural
gas production that accounted for 53% of total oil and gas
sales. In 2006, the Company had two purchases that accounted for
42% and 13% of total 2006 oil and gas sales. In 2005, Comstock
had two purchasers that accounted for 15% and 12% of total 2005
oil and gas sales. The loss of any of these customers would not
have a material adverse effect on the Company as there is an
available market for its crude oil and natural gas production
from other purchasers.
Revenue
Recognition and Gas Balancing
Comstock utilizes the sales method of accounting for oil and
natural gas revenues whereby revenues are recognized at the time
of delivery based on the amount of oil or natural gas sold to
purchasers. The amount of oil or natural gas sold may differ
from the amount to which the Company is entitled based on its
revenue interests in the properties. The Company did not have
any significant imbalance positions at December 31, 2005,
2006 or 2007.
General
and Administrative Expenses
General and administrative expenses are reported net of
reimbursements of overhead costs that are allocated to working
interest owners of the oil and gas properties operated by the
Company.
Income
Taxes
The Company accounts for income taxes using the asset and
liability method, whereby deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
assets and liabilities and their respective tax basis, as well
as the future tax consequences attributable to the future
utilization of existing tax net operating loss and other types
of carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences and
carryforwards are expected to be
F-12
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Earnings
Per Share
Basic and diluted earnings per share for 2005, 2006 and 2007
were determined as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
Income
|
|
|
Shares
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
Per Share
|
|
|
|
(In thousands except per share data)
|
|
|
Basic Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
60,479
|
|
|
39,216
|
|
$
|
1.54
|
|
|
$
|
70,665
|
|
|
42,220
|
|
$
|
1.67
|
|
|
$
|
68,901
|
|
|
43,415
|
|
$
|
1.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
60,479
|
|
|
39,216
|
|
$
|
1.54
|
|
|
$
|
70,665
|
|
|
42,220
|
|
$
|
1.67
|
|
|
$
|
68,901
|
|
|
43,415
|
|
$
|
1.59
|
|
Effect of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Grants and Stock Options
|
|
|
|
|
|
1,938
|
|
|
|
|
|
|
(488
|
)
|
|
1,336
|
|
|
|
|
|
|
(697
|
)
|
|
990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
60,479
|
|
|
41,154
|
|
$
|
1.47
|
|
|
$
|
70,177
|
|
|
43,556
|
|
$
|
1.61
|
|
|
$
|
68,204
|
|
|
44,405
|
|
$
|
1.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands
|
|
|
|
except per share data)
|
|
|
Weighted average anti-dilutive stock options
|
|
|
7
|
|
|
|
117
|
|
|
|
235
|
|
Weighted average exercise price
|
|
$
|
32.50
|
|
|
$
|
32.52
|
|
|
$
|
32.60
|
|
Statements
of Cash Flows
For the purpose of the consolidated statements of cash flows,
the Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents. At December 31, 2006 the Companys cash
investments consisted of overnight Eurodollar deposits with a
bank and at December 31, 2007 the Companys cash
investments consisted of prime shares in an institutional
preferred money market fund with a bank and overnight Eurodollar
deposits with a bank.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash Payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments
|
|
$
|
19,848
|
|
|
$
|
25,620
|
|
|
$
|
40,530
|
|
Income tax payments
|
|
$
|
2,578
|
|
|
$
|
5,871
|
|
|
$
|
15,817
|
|
New
Accounting Standards
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 157, Fair Value Measurements
(SFAS 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 157 will be effective for financial assets and
liabilities in
F-13
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
financial statements issued for fiscal years beginning after
November 15, 2007, and will be effective for non-financial
assets and liabilities in financial statements issued for fiscal
years beginning after November 15, 2008. The Company is
currently evaluating the impact of the adoption of this
statement on its consolidated financial statements.
In December 2007, the FASB concurrently issued Statement of
Financial Accounting Standards No. 141(R), Business
Combinations (SFAS 141R) and Statement of
Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51
(SFAS 160). Both of these standards require
measurements based on fair value as determined under the
provisions of SFAS 157 and are effective for financial
statements issued for fiscal years beginning after
December 15, 2008. In addition, both of these standards
also include expanded disclosure requirements.
SFAS 141R establishes accounting and reporting standards
for how the acquirer of a business recognizes and measures in
its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the
acquiree. This statement also provides guidance for recognizing
and measuring the goodwill acquired in the business combination
and determines what information to disclose to enable users of
the financial statement to evaluate the nature and financial
effects of the business combination. SFAS 141R will impact
the accounting and disclosures for any business combinations the
Company engages in after January 1, 2009. However, the
nature and magnitude of the specific effects will depend upon
the nature, terms and size of the acquisitions we consummate
after that date.
SFAS 160 amends Accounting Research Bulletin 51 to
establish accounting and reporting standards for the
noncontrolling or minority interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest
in the consolidated entity that should be reported as equity in
the consolidated financial statements. It requires consolidated
net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest.
It also requires disclosure, on the face of the consolidated
statement of income, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest.
This statement establishes a single method of accounting for
changes in a parents ownership interest in a subsidiary
that do not result in deconsolidation. SFAS 160 clarifies
that all such transactions are equity transactions if the parent
retains its controlling financial interest in the subsidiary. If
there is a loss of control of the subsidiary, SFAS 160
requires the retained interest to be recorded at fair value. The
Company is currently evaluating the impact of the adoption of
this statement on its consolidated financial statements which is
expected to have a significant impact on the Companys
financial statements due to its ownership of Bois dArc
Energy.
In December 2007, the Company acquired certain oil and gas
properties in South Texas for $160.1 million in cash. The
Company acquired proved oil and gas reserves of
70.1 billion cubic feet (Bcf) of natural gas.
The transaction was funded with borrowings under the
Companys bank credit facility and the pro forma effect of
the transaction was not material to the Companys
historical results of operations. Concurrent with the December,
2007 acquisition, Comstock entered into a transaction structured
as a reverse like-kind exchange in accordance with
Section 1031 of the Internal Revenue Code. While the
Company intends to obtain tax deferred treatment on gains from
future sales of oil and gas properties, no assurance can be
given that future sales transactions will qualify as a like-kind
exchange or that the Company will achieve any tax-savings as a
result of this structure. In connection with this reverse
like-kind exchange, Comstock assigned the right to acquire
ownership in the oil and gas properties that were acquired in
December 2007 to an exchange accommodation titleholder. Comstock
operates these properties pursuant
F-14
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to lease and management agreements. Because the Company is the
primary beneficiary of these arrangements, the properties
acquired are included in its consolidated balance sheet as of
December 31, 2007, and all revenues earned and expenses
incurred related to the properties will be included in the
Companys consolidated results of operations during the
term of the agreements. These agreements will terminate upon the
transfer of the acquired properties from the exchange
accommodation titleholder to Comstock no later than
June 25, 2008.
In June 2007, the Company acquired additional working interests
in the Javelina field in Hildalgo County in South Texas for
$31.2 million. The additional interests acquired had proved
reserves of approximately 9.1 Bcf of natural gas. The
transaction was funded with borrowings under the Companys
bank credit facility, and the pro forma impact of this
acquisition was not material to the Companys historical
results of operations.
In September 2006 the Company acquired oil and gas properties in
South Texas for $67.2 million in cash. The Company acquired
proved oil and gas reserves of 16.5 Bcfe as well as
interest in unevaluated oil and gas reserves. The transaction
was funded with borrowings under Comstocks bank credit
facility. The pro forma impact of this acquisition was not
material to the Companys historical results of operations.
On May 12, 2005, the Company completed an acquisition of
certain oil and gas properties in East Texas, Louisiana and
Mississippi and related assets for $190.9 million. The
acquisition was funded with proceeds from a public offering of
common stock completed in April 2005 and borrowings under
Comstocks bank credit facility. Set forth in the following
table is certain unaudited pro forma financial information for
the year ended December 31, 2005. This information has been
prepared assuming the acquisition in May 2005 was consummated on
January 1, 2005 and is based on estimates and assumptions
deemed appropriate by the Company. The pro forma unaudited
information is presented for illustrative purposes only. If the
transaction had occurred in the past, the Companys
operating results might have been different from those presented
in the following table. The unaudited pro forma information
should not be relied upon as an indication of the operating
results that the Company would have achieved if the transaction
had occurred on January 1, 2005. The unaudited pro forma
information also should not be used as an indication of the
future results that the Company will achieve after the
acquisition.
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2005
|
|
|
|
(In thousands,
|
|
|
|
except per share data)
|
|
|
Oil and gas sales
|
|
$
|
312,673
|
|
Income from operations
|
|
|
152,326
|
|
Net income
|
|
|
61,669
|
|
Net income per share:
|
|
|
|
|
Basic
|
|
$
|
1.53
|
|
Diluted
|
|
$
|
1.46
|
|
Weighted average common and common stock equivalent shares
outstanding:
|
|
|
|
|
Basic
|
|
|
40,374
|
|
Diluted
|
|
|
42,312
|
|
On July 6, 2005, Comstock acquired from certain parties
additional working interests in 14 producing wells (5.6 net) in
certain of the properties acquired in May 2005 for
$10.9 million. The pro forma impact of this acquisition was
not material to the Companys historical results of
operations.
F-15
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(3) Oil
and Gas Producing Activities
Set forth below is certain information regarding the aggregate
capitalized costs of oil and gas properties and costs incurred
by the Company for its oil and gas property acquisition,
development and exploration activities:
Capitalized
Costs
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Unproved properties
|
|
$
|
13,645
|
|
|
$
|
18,880
|
|
Proved properties:
|
|
|
|
|
|
|
|
|
Leasehold costs
|
|
|
1,060,050
|
|
|
|
1,262,274
|
|
Wells and related equipment and facilities
|
|
|
1,451,732
|
|
|
|
1,911,372
|
|
Accumulated depreciation depletion and amortization
|
|
|
(757,861
|
)
|
|
|
(976,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,767,566
|
|
|
$
|
2,216,333
|
|
|
|
|
|
|
|
|
|
|
Costs
Incurred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Property acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
Unproved properties
|
|
$
|
2,027
|
|
|
$
|
8,070
|
|
|
$
|
12,787
|
|
Proved properties
|
|
|
202,055
|
|
|
|
83,680
|
|
|
|
192,063
|
|
Development costs
|
|
|
126,368
|
|
|
|
321,164
|
|
|
|
416,600
|
|
Exploration costs
|
|
|
31,456
|
|
|
|
142,539
|
|
|
|
110,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
361,906
|
|
|
$
|
555,453
|
|
|
$
|
732,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of equity
investee(1)
|
|
$
|
71,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents 48% of costs incurred by
Bois dArc Energy from May 10, 2005 to
December 31, 2005.
|
(4) Long-term
Debt
Long-term debt is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Comstock bank credit facility
|
|
$
|
180,000
|
|
|
$
|
505,000
|
|
Bois dArc Energy bank credit facility
|
|
|
100,000
|
|
|
|
80,000
|
|
67/8% senior
notes due 2012
|
|
|
175,000
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
455,000
|
|
|
$
|
760,000
|
|
|
|
|
|
|
|
|
|
|
F-16
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes Comstocks debt as of
December 31, 2007 by year of maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
|
Comstock bank credit facility
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
505,000
|
|
|
$
|
|
|
|
$
|
505,000
|
|
Bois dArc Energy bank credit facility
|
|
|
|
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
67/8% senior
notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
80,000
|
|
|
$
|
|
|
|
$
|
505,000
|
|
|
$
|
175,000
|
|
|
$
|
760,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 substantially all of Comstocks
assets 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 Companys future net cash
flows of oil and natural gas properties. The borrowing base may
be affected by the performance of Comstocks 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 December 31, 2007, the
borrowing base was $575.0 million, $70.0 million of
which was available. Borrowings under the credit facility bear
interest, based on the utilization of the borrowing base, at
Comstocks 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 Companys 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 December 31, 2007.
Proceeds from the new credit facility were used to repay
outstanding indebtedness under Comstocks prior bank credit
facility.
Bois dArc 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 which is
redetermined semi-annually based on the banks estimate of
the future net cash flows of Bois dArc Energys oil
and natural gas properties. The borrowing base is re-determined
semi-annually based on the banks estimates of the future
net cash flows of Bois dArc Energys 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 $350.0 million as of
December 31, 2007, $270.0 million of which was
available. The Bois dArc Energy credit facility matures on
May 11, 2009. Borrowings under the credit facility bear
interest at the Bois dArc Energys 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 on the unused
borrowing base. Indebtedness under the credit facility is
secured by substantially all of Bois dArc Energy and its
subsidiaries assets, and all of the Bois dArc
Energys subsidiaries are guarantors of the indebtedness.
The Bois dArc 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
F-17
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
requires Bois dArc 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 dArc
Energy was in compliance with these covenants as of
December 31, 2007.
Comstock has $175.0 million of senior notes outstanding
which mature on March 1, 2012. The senior notes bear
interest at
67/8%
which is payable semiannually on each March 1 and
September 1. The notes are unsecured obligations of
Comstock and are guaranteed by all of its wholly-owned
subsidiaries.
(5) Commitments
and Contingencies
Commitments
The Company rents office space under noncancelable leases. Rent
expense for the years ended December 31, 2005, 2006 and
2007 was $0.6 million, $1.1 million and
$1.2 million, respectively. Minimum future payments under
the leases are as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
2008
|
|
$
|
1,354
|
|
2009
|
|
|
1,394
|
|
2010
|
|
|
1,412
|
|
2011
|
|
|
1,429
|
|
2012
|
|
|
1,112
|
|
Thereafter
|
|
|
1,545
|
|
|
|
|
|
|
|
|
$
|
8,246
|
|
|
|
|
|
|
The Company has commitments to acquire seismic data totaling
$8.3 million through December 2008. As of December 31,
2007, the Company had commitments for contracted drilling rigs
of $23.8 million through September 2008.
Contingencies
From time to time, the Company 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
Companys financial position or results of operations.
(6) Stockholders
Equity
The authorized capital stock of Comstock consists of
50 million shares of common stock, $.50 par value per
share (the Common Stock), and 5 million shares
of preferred stock, $10.00 par value per share. The
preferred stock may be issued in one or more series, and the
terms and rights of such stock will be determined by the Board
of Directors. There were no shares of preferred stock
outstanding at December 31, 2006 and 2007.
F-18
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comstocks Board of Directors has designated
500,000 shares of the preferred stock as Series B
Junior Participating Preferred Stock (the Series B
Junior Preferred Stock) in connection with the adoption of
a shareholder rights plan. At December 31, 2006 and 2007,
there were no shares of Series B Junior Preferred Stock
issued or outstanding. The Series B Junior Preferred Stock
is entitled to receive cumulative quarterly dividends per share
equal to the greater of $1.00 or 100 times the aggregate per
share amount of all dividends (other than stock dividends)
declared on Common Stock since the immediately preceding
quarterly dividend payment date or, with respect to the first
payment date, since the first issuance of Series B Junior
Preferred Stock. Holders of the Series B Junior Preferred
Stock are entitled to 100 votes per share (subject to adjustment
to prevent dilution) on all matters submitted to a vote of the
stockholders. The Series B Junior Preferred Stock is
neither redeemable nor convertible. The Series B Junior
Preferred Stock ranks senior to the Common Stock but junior to
all other classes of preferred stock.
On April 4, 2005, Comstock completed a public offering of
4,545,454 shares of Common Stock at a price of $27.50 per
share to the public. The net proceeds from the offering, after
deducting underwriters discounts, of $121.2 million
were used to partially fund an acquisition of oil and gas
properties.
(7) Incentive
Plans
Comstock and Bois dArc Energy maintain separate incentive
compensation plans under which they grant common stock and stock
options to key employees and directors. On June 23, 1999,
the stockholders approved the 1999 Long-term Incentive Plan for
management including officers, directors and managerial
employees which replaced the 1991 Long-term Incentive Plan. The
1999 Long-term Incentive Plan together with the 1991 Long-term
Incentive Plan authorize the grant of stock options and
restricted stock to employees and directors of Comstock. The
options under the Incentive Plans have contractual lives of up
to ten years and become exercisable after lapses in vesting
periods ranging from six months to ten years from the grant
date. As of December 31, 2007, the incentive plans provide
for future awards of stock options or restricted stock grants of
up to 350,306 shares of Common Stock plus 1% of the
outstanding shares of Common Stock each year beginning on
January 1, 2007. On July 16, 2004, Bois dArc
Energys unit holders approved the 2004 Long-term Incentive
Plan for management including officers, directors, employees and
consultants. The plan was amended and restated on May 11,
2005 to reflect Bois dArc Energys conversion to a
corporation. This incentive plan authorizes the grant of options
to purchase shares of common stock and the grant of restricted
shares of common stock in Bois dArc Energy. The options
under this incentive plan have contractual lives of up to ten
years and become exercisable after lapses in vesting periods
ranging from one to five years from the grant date. The Bois
dArc Energy incentive plan provides that awards in the
aggregate cannot exceed 11% of the total outstanding shares of
common stock of Bois dArc Energy.
During 2005, 2006 and 2007, the Company recorded
$5.4 million, $13.2 million and $19.2, respectively,
in stock-based compensation expense in general and
administrative expenses, including $1.2 million,
$6.4 million and $8.4 million in 2005, 2006 and 2007,
respectively, attributable to Bois dArc Energys
incentive plan. Bois dArc Energys stock-based
compensation in 2007 includes $1.7 million for the
acceleration in vesting in connection with the retirement of the
Companys former chief executive officer in November, 2007.
The excess income tax benefit realized from tax deductions
associated with stock-based compensation totaled
$15.6 million, $6.2 million and $6.5 million for
the years ended December 31, 2005, 2006 and 2007,
respectively.
F-19
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comstock
Stock Options
Comstock amortizes the fair value of stock options granted over
the vesting period using the straight-line method. The fair
value of each award is estimated as of the date of grant using
the Black-Scholes options pricing model. Total compensation
expense recognized for all outstanding Comstock stock options
for the years ended December 31, 2005, 2006 and 2007 was
$0.6 million, $0.9 million and $1.6 million,
respectively.
The following table summarizes the assumptions used to value
Comstocks stock options for the years ended
December 31, 2005, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Weighted average grant date fair value
|
|
|
$15.08
|
|
|
|
$17.37
|
|
|
|
$10.32
|
|
Weighted average assumptions used:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
36.8%
|
|
|
|
35.4%
|
|
|
|
36.0%
|
|
Expected lives
|
|
|
8.2 yrs
|
|
|
|
8.9 yrs.
|
|
|
|
3.9 yrs.
|
|
Risk-free interest rates
|
|
|
4.3%
|
|
|
|
4.9%
|
|
|
|
4.9%
|
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected volatility for grants is calculated using an
analysis of the historical volatility of Comstocks common
stock. Risk-free interest rates are determined using the implied
yield currently available for zero-coupon U.S. government
issues with a remaining term equal to the expected life of the
options.
The following table summarizes information related to
Comstocks stock options outstanding at December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Number of
|
|
|
Number of
|
|
Exercise
|
|
Remaining Life
|
|
|
Options
|
|
|
Options
|
|
Price
|
|
(in years)
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
$6.42
|
|
|
2.5
|
|
|
|
170,750
|
|
|
|
170,750
|
|
$8.88
|
|
|
1.5
|
|
|
|
176,250
|
|
|
|
176,250
|
|
$9.20
|
|
|
1.0
|
|
|
|
177,750
|
|
|
|
177,750
|
|
$18.17
|
|
|
1.4
|
|
|
|
40,000
|
|
|
|
40,000
|
|
$18.20
|
|
|
2.0
|
|
|
|
34,500
|
|
|
|
34,500
|
|
$20.03
|
|
|
3.0
|
|
|
|
10,720
|
|
|
|
10,720
|
|
$20.92
|
|
|
2.4
|
|
|
|
40,000
|
|
|
|
40,000
|
|
$29.49
|
|
|
4.3
|
|
|
|
40,000
|
|
|
|
40,000
|
|
$32.44
|
|
|
4.4
|
|
|
|
40,000
|
|
|
|
40,000
|
|
$32.50
|
|
|
7.9
|
|
|
|
85,000
|
|
|
|
42,500
|
|
$33.22
|
|
|
9.0
|
|
|
|
100,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.3
|
|
|
|
914,970
|
|
|
|
797,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables summarize information related to
Comstocks stock option activity under its employee
incentive plans for the years ended December 31, 2005, 2006
and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Outstanding at January 1
|
|
|
2,734,870
|
|
|
|
$9.02
|
|
|
|
1,733,970
|
|
|
|
$9.83
|
|
|
|
1,468,970
|
|
|
|
$11.59
|
|
Granted
|
|
|
141,500
|
|
|
|
$29.23
|
|
|
|
144,000
|
|
|
|
$33.00
|
|
|
|
40,000
|
|
|
|
$29.49
|
|
Exercised
|
|
|
(1,141,400
|
)
|
|
|
$10.29
|
|
|
|
(394,000
|
)
|
|
|
$10.87
|
|
|
|
(588,500
|
)
|
|
|
$4.70
|
|
Forfeited
|
|
|
(1,000
|
)
|
|
|
$20.03
|
|
|
|
(15,000
|
)
|
|
|
$32.50
|
|
|
|
(5,500
|
)
|
|
|
$33.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31
|
|
|
1,733,970
|
|
|
|
$9.83
|
|
|
|
1,468,970
|
|
|
|
$11.59
|
|
|
|
914,970
|
|
|
|
$16.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and Exercisable at December 31
|
|
|
1,567,470
|
|
|
|
$7.92
|
|
|
|
1,260,095
|
|
|
|
$8.07
|
|
|
|
797,470
|
|
|
|
$14.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash received for options exercised
|
|
$
|
11,748
|
|
|
$
|
4,283
|
|
|
$
|
2,765
|
|
Actual tax benefit realized
|
|
$
|
21,972
|
|
|
$
|
7,780
|
|
|
$
|
17,307
|
|
As of December 31, 2007, total unrecognized compensation
cost related to unvested Comstock stock options of
$2.3 million was expected to be recognized over a period of
3.0 years. The aggregate intrinsic value of Comstock
options outstanding at December 31, 2007 was
$15.8 million based on the closing price for
Comstocks common stock on December 29, 2007. The
aggregate intrinsic value of vested Comstock options was
$15.7 million on December 31, 2007. Options granted in
2005, 2006 and 2007 were granted with exercise prices equal to
the closing prices of the Companys common stock on the
respective dates. The total intrinsic value of Comstock options
exercised was $22.0 million, $7.8 million and
$17.1 million for the years ended December 31, 2005,
2006 and 2007, respectively.
Comstock
Restricted Stock
The fair value of restricted stock grants is amortized over the
vesting period using the straight-line method. Total
compensation expense recognized by Comstock for restricted stock
grants was $3.6 million, $6.0 million and
$9.2 million for the years ended December 31, 2005,
2006 and 2007, respectively. The fair
F-21
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
value of each restricted share on the date of grant is equal to
its fair market price. A summary of Comstock restricted stock
activity for the years ended December 31, 2005, 2006 and
2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
Restricted
|
|
|
Average Grant
|
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at January 1, 2005
|
|
|
807,500
|
|
|
|
$17.38
|
|
Granted
|
|
|
342,000
|
|
|
|
$32.50
|
|
Vested
|
|
|
(56,250
|
)
|
|
|
$6.42
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
1,093,250
|
|
|
|
$22.67
|
|
Granted
|
|
|
387,000
|
|
|
|
$32.85
|
|
Vested
|
|
|
(230,000
|
)
|
|
|
$16.27
|
|
Forfeitures
|
|
|
(43,500
|
)
|
|
|
$24.62
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
1,206,750
|
|
|
|
$27.08
|
|
Granted
|
|
|
436,500
|
|
|
|
$34.10
|
|
Vested
|
|
|
(183,750
|
)
|
|
|
$19.50
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
1,459,500
|
|
|
|
$30.14
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized compensation cost related to unvested
Comstock restricted stock of $44.0 million as of
December 31, 2007 is expected to be recognized over a
period of 4.0 years. The fair value of Comstock restricted
stock which vested in 2005, 2006 and 2007 was $1.5 million,
$7.0 million and $5.7 million, respectively.
Bois dArc Energy stock
options. Bois dArc Energy amortizes the
fair value of stock options granted over the vesting period
using the straight-line method. The fair value of each award is
estimated as of the date of grant using the Black-Scholes
options pricing model. Total compensation expense recognized by
Bois dArc Energy for all outstanding stock options for the
years ended December 31, 2005, 2006 and 2007 was
$2.7 million, $3.4 million and $4.4 million,
respectively.
The following table summarizes the assumptions used to value
Bois dArc Energy stock options for the years ended
December 31, 2005, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Weighted average grant date fair value
|
|
$
|
7.63
|
|
|
$
|
9.63
|
|
|
$
|
6.17
|
|
Weighted average assumptions used:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
37.0%
|
|
|
|
39.5%
|
|
|
|
36.4%
|
|
Expected lives
|
|
|
8.5 yrs.
|
|
|
|
9.8 yrs.
|
|
|
|
4.5 yrs.
|
|
Risk-free interest rates
|
|
|
4.2%
|
|
|
|
5.5%
|
|
|
|
4.9%
|
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected volatility for grants of Bois dArc options is
calculated using an analysis of historical volatility of Bois
dArc Energys common stock. The risk-free interest
rates are determined using the implied yield currently available
for zero-coupon U.S. government issues with a remaining
term equal to the expected life of the options.
F-22
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information related to Bois
dArc Energy stock options outstanding at December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Number of
|
|
Number of
|
|
Exercise
|
|
Remaining Life
|
|
|
Options
|
|
Options
|
|
Price
|
|
(in years)
|
|
|
Outstanding
|
|
Exercisable
|
|
|
$6.00
|
|
|
5.8
|
|
|
2,686,000
|
|
|
1,798,000
|
|
$12.00
|
|
|
7.4
|
|
|
10,500
|
|
|
1,500
|
|
$12.80
|
|
|
2.4
|
|
|
25,000
|
|
|
25,000
|
|
$12.88
|
|
|
9.2
|
|
|
30,000
|
|
|
|
|
$14.23
|
|
|
8.5
|
|
|
40,000
|
|
|
8,000
|
|
$15.55
|
|
|
7.6
|
|
|
182,500
|
|
|
8,500
|
|
$15.62
|
|
|
8.5
|
|
|
40,000
|
|
|
8,000
|
|
$16.47
|
|
|
7.8
|
|
|
172,500
|
|
|
27,000
|
|
$16.68
|
|
|
8.9
|
|
|
205,500
|
|
|
|
|
$16.75
|
|
|
8.6
|
|
|
30,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$8.11
|
|
|
6.3
|
|
|
3,422,000
|
|
|
1,882,000
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize information related to Bois
dArc Energy option activity for the years ended
December 31, 2005, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Outstanding at January 1
|
|
|
2,800,000
|
|
|
|
$6.00
|
|
|
|
3,105,000
|
|
|
|
$6.84
|
|
|
|
3,350,500
|
|
|
|
$7.70
|
|
Granted
|
|
|
305,000
|
|
|
|
$14.60
|
|
|
|
364,000
|
|
|
|
$16.02
|
|
|
|
258,500
|
|
|
|
$16.24
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(19,500
|
)
|
|
|
$6.46
|
|
|
|
(80,000
|
)
|
|
|
$8.66
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(99,000
|
)
|
|
|
$11.65
|
|
|
|
(107,000
|
)
|
|
|
$14.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31
|
|
|
3,105,000
|
|
|
|
$6.84
|
|
|
|
3,350,500
|
|
|
|
$7.70
|
|
|
|
3,422,000
|
|
|
|
$8.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and Exercisable at December 31
|
|
|
560,000
|
|
|
|
$6.00
|
|
|
|
1,139,000
|
|
|
|
$6.24
|
|
|
|
1,882,000
|
|
|
|
$6.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash received for options exercised
|
|
$
|
|
|
|
$
|
125
|
|
|
$
|
693
|
|
Actual tax benefit realized
|
|
$
|
|
|
|
$
|
172
|
|
|
$
|
731
|
|
As of December 31, 2007, total unrecognized compensation
cost related to the Bois dArc Energy unvested options of
$7.0 million was expected to be recognized over a period of
4.9 years. Bois dArc Energy options granted in 2005,
2006 and 2007 were granted with exercise prices equal to the
closing prices of the Bois dArc Energys common stock
on the respective dates of grant and, therefore, had no
intrinsic value on such grant dates. The aggregate intrinsic
value of Bois dArc Energy options outstanding at
December 31, 2007 was $40.2 million based on the
closing price for Bois dArc Energys common stock on
December 29, 2007. The aggregate intrinsic value of vested
Bois dArc Energy options was $25.3 million on
December 31, 2007. The total intrinsic value of Bois
dArc Energy options exercised for the year ended
December 31, 2006 and 2007 were $0.2 million and
$0.7 million, respectively. There were no options exercised
prior to 2006.
F-23
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Bois
dArc Energy Restricted Stock
The fair value of each restricted Bois dArc Energy share
on the date of grant is equal to its market price. Bois
dArc Energy amortizes the grant date fair value of the
restricted shares over the vesting period using the
straight-line method. Total compensation cost recognized for
Bois dArc Energy restricted stock grants was
$2.9 million, $3.0 million and $4.0 million for
the years ended December 31, 2005, 2006 and 2007,
respectively.
A summary of Bois dArc Energy restricted stock activity
under the long-term incentive plan for the years ended
December 31, 2005, 2006 and 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
Restricted
|
|
|
Average
|
|
|
|
Shares (Units)
|
|
|
Grant Price
|
|
|
Outstanding at January 1, 2005
|
|
|
2,145,000
|
|
|
|
$6.80
|
|
Granted
|
|
|
10,000
|
|
|
|
$12.00
|
|
Vested
|
|
|
(429,000
|
)
|
|
|
$6.80
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
1,726,000
|
|
|
|
$6.83
|
|
Granted
|
|
|
25,000
|
|
|
|
$15.48
|
|
Vested
|
|
|
(429,000
|
)
|
|
|
$6.80
|
|
Forfeitures
|
|
|
(16,000
|
)
|
|
|
$10.05
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
1,306,000
|
|
|
|
$6.97
|
|
Vested
|
|
|
(632,000
|
)
|
|
|
$6.80
|
|
Forfeitures
|
|
|
(24,000
|
)
|
|
|
$14.03
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
650,000
|
|
|
|
$6.80
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized compensation cost related to Bois dArc
Energy unvested restricted stock of $4.4 million as of
December 31, 2007, is expected to be recognized over a
period of 1.5 years. The fair value of Bois dArc
Energy restricted stock which vested during 2005, 2006 and 2007
was $6.1 million, $6.8 million and $11.6 million,
respectively.
Other
Stock Purchase Warrants
The following table summarizes the other stock purchase warrants
that were outstanding at December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Number of
|
|
|
Number of
|
|
Exercise
|
|
Remaining Life
|
|
|
Options
|
|
|
Options
|
|
Price
|
|
(in years)
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
$13.59
|
|
|
1.5
|
|
|
|
50,900
|
|
|
|
50,900
|
|
$18.70
|
|
|
1.5
|
|
|
|
8,600
|
|
|
|
8,600
|
|
$19.46
|
|
|
1.5
|
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$17.76
|
|
|
1.5
|
|
|
|
179,500
|
|
|
|
179,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes other stock purchase warrant
activity during 2005, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Weighted Average
|
|
|
|
of Shares
|
|
|
Exercise Price
|
|
|
Outstanding at January 1, 2005
|
|
|
2,167,499
|
|
|
$
|
13.29
|
|
Exercised
|
|
|
(1,291,666
|
)
|
|
$
|
10.72
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
875,833
|
|
|
$
|
17.08
|
|
Exercised
|
|
|
(688,733
|
)
|
|
$
|
16.94
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
187,100
|
|
|
$
|
17.59
|
|
Exercised
|
|
|
(7,600
|
)
|
|
$
|
13.59
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2007
|
|
|
179,500
|
|
|
$
|
17.76
|
|
|
|
|
|
|
|
|
|
|
Warrants were exercised to purchase 1,291,666, 688,733 and
7,600 shares in 2005, 2006 and 2007, respectively. Such
exercises yielded net proceeds of $13.8 million,
$11.7 million and $0.1 million in 2005, 2006 and 2007,
respectively.
The Company has 401(k) profit sharing plans which cover all of
its employees and Bois dArc Energy. At its discretion,
Comstock and Bois dArc Energy may match a certain
percentage of the employees contributions to the plans.
Matching contributions to the plans were $174,000, $240,000 and
$339,000 for the years ended December 31, 2005, 2006 and
2007, respectively.
The following is an analysis of the consolidated income tax
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Current
|
|
$
|
4,614
|
|
|
$
|
7,789
|
|
|
$
|
17,397
|
|
Deferred
|
|
|
31,201
|
|
|
|
66,550
|
|
|
|
67,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,815
|
|
|
$
|
74,339
|
|
|
$
|
85,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Companys customary rate of 35% and the
effective tax rate on income before income taxes, minority
interest and equity in earnings of Bois dArc Energy, is
due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Tax at statutory rate
|
|
$
|
51,155
|
|
|
$
|
60,703
|
|
|
$
|
67,894
|
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) on undistributed earnings (loss) of Bois
dArc Energy
|
|
|
(17,452
|
)
|
|
|
9,307
|
|
|
|
13,568
|
|
Nondeductible stock-based compensation
|
|
|
1,533
|
|
|
|
3,224
|
|
|
|
3,515
|
|
State taxes, net of federal benefit
|
|
|
333
|
|
|
|
(45
|
)
|
|
|
1,072
|
|
Deferred state taxes provided due to tax law changes
|
|
|
|
|
|
|
1,288
|
|
|
|
597
|
|
Other
|
|
|
246
|
|
|
|
(138
|
)
|
|
|
(1,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,815
|
|
|
$
|
74,339
|
|
|
$
|
85,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Tax at statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) on undistributed earnings (loss) of Bois
dArc Energy
|
|
|
(11.9
|
)
|
|
|
5.4
|
|
|
|
7.0
|
|
Nondeductible stock-based compensation
|
|
|
1.0
|
|
|
|
1.9
|
|
|
|
1.8
|
|
State taxes, net of federal benefit
|
|
|
0.2
|
|
|
|
|
|
|
|
0.6
|
|
Deferred state taxes provided due to tax law changes
|
|
|
|
|
|
|
0.7
|
|
|
|
0.3
|
|
Other
|
|
|
0.2
|
|
|
|
(0.1
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
24.5
|
%
|
|
|
42.9
|
%
|
|
|
43.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of significant temporary differences
representing the net deferred tax liability at December 31,
2006 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Non-current deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
(252,164
|
)
|
|
$
|
(300,504
|
)
|
Other assets
|
|
|
1,695
|
|
|
|
2,571
|
|
Investment in Bois dArc Energy
|
|
|
(75,808
|
)
|
|
|
(89,376
|
)
|
Net operating loss carryforwards
|
|
|
14,854
|
|
|
|
14,466
|
|
Valuation allowance on net operating loss carryforwards
|
|
|
(8,043
|
)
|
|
|
(8,043
|
)
|
Other
|
|
|
8,230
|
|
|
|
8,990
|
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax liability
|
|
$
|
(311,236
|
)
|
|
$
|
(371,896
|
)
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, Comstock had the following
carryforwards available to reduce future income taxes:
|
|
|
|
|
|
|
|
|
|
|
Years of
|
|
|
|
|
Expiration
|
|
|
Types of Carryforward
|
|
Carryforward
|
|
Amounts
|
|
|
|
|
(In thousands)
|
|
Net operating loss U.S. federal
|
|
|
2017-2021
|
|
|
$
|
41,332
|
|
Alternative minimum tax credits
|
|
|
Unlimited
|
|
|
$
|
6,974
|
|
The utilization of the net operating loss carryforward is
limited to approximately $1.1 million per year pursuant to
a prior change of control of an acquired company. Accordingly, a
valuation allowance of $23 million, with a tax effect of
$8.0 million, has been established for the estimated net
operating loss carryforwards that will not be utilized.
Realization of the net operating carryforwards requires Comstock
to generate taxable income within the carryforward period.
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 Companys federal
income tax returns for the years subsequent to December 31,
2004 remain subject to examination. The Companys income
tax returns in major state income tax jurisdictions remain
subject to examination for various periods subsequent to
December 31, 2004. 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
F-26
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
|
|
(10)
|
Derivatives
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 volumes 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 as of December 31, 2006
and 2007.
The accompanying consolidated financial statements include a
loss on derivative financial instruments of $13.6 million
in 2005 and a gain on derivative financial instruments of
$10.7 million in 2006. An unrealized loss of
$11.1 million was recorded in 2005 and an unrealized gain
of $11.2 million was recorded in 2006 to reflect the change
in fair value of these instruments. The Company realized losses
of $2.5 million and $0.5 million in 2005 and 2006,
respectively, to settle positions which expired during the year.
In January 2008, Comstock entered into a natural gas price hedge
for certain of its natural gas properties in South Texas. The
hedge was structured as a natural gas price swap which fixed the
price at $8.00 per Mmbtu for delivery at the Houston Ship
Channel for 520,000 Mmbtus of natural gas per month for the
period February 2008 to December 2009.
Comstock periodically enters into interest rate swap agreements
to hedge the impact of interest rate changes on its floating
rate long-term debt. As of December 31, 2006 and 2007,
Comstock had no interest rate financial instruments outstanding.
|
|
(11)
|
Supplementary
Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
|
|
|
Total oil and gas sales
|
|
$
|
131,724
|
|
|
$
|
124,178
|
|
|
$
|
129,251
|
|
|
$
|
126,775
|
|
|
$
|
511,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
61,734
|
|
|
$
|
46,363
|
|
|
$
|
44,810
|
|
|
$
|
35,451
|
|
|
$
|
188,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
29,634
|
|
|
$
|
15,583
|
|
|
$
|
17,036
|
|
|
$
|
8,412
|
|
|
$
|
70,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.70
|
|
|
$
|
0.37
|
|
|
$
|
0.40
|
|
|
$
|
0.20
|
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.68
|
|
|
$
|
0.35
|
|
|
$
|
0.39
|
|
|
$
|
0.19
|
|
|
$
|
1.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
|
|
|
Total oil and gas sales
|
|
$
|
146,029
|
|
|
$
|
174,206
|
|
|
$
|
171,074
|
|
|
$
|
195,764
|
|
|
$
|
687,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
41,404
|
|
|
$
|
56,238
|
|
|
$
|
59,437
|
|
|
$
|
76,156
|
|
|
$
|
233,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,558
|
|
|
$
|
18,217
|
|
|
$
|
16,428
|
|
|
$
|
21,698
|
|
|
$
|
68,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.29
|
|
|
$
|
0.42
|
|
|
$
|
0.38
|
|
|
$
|
0.50
|
|
|
$
|
1.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.28
|
|
|
$
|
0.41
|
|
|
$
|
0.37
|
|
|
$
|
0.48
|
|
|
$
|
1.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12)
|
Consolidating
Financial Statements
|
Comstock Resources, Inc. (the parent company) has
$175.0 million of
67/8 senior
notes outstanding which are guaranteed by all of the parent
companys wholly-owned consolidated subsidiaries. There are
no restrictions on the parent companys ability to obtain
funds from any of the guarantor subsidiaries or on a guarantor
subsidiarys ability to obtain funds from the parent
company or their direct or indirect subsidiaries. The
67/8% senior
notes are not guaranteed by Bois dArc Energy, Inc. 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 company, all guarantor subsidiaries and all non-guarantor
subsidiaries. The information has been presented as if the
parent company accounted for its ownership of the guarantor and
non-guarantor subsidiaries using the equity method of accounting.
F-28
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
Comstock
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminating
|
|
|
|
|
|
|
Resources
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Entries
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
5,565
|
|
|
$
|
18,841
|
|
|
$
|
|
|
|
$
|
24,406
|
|
Accounts receivable
|
|
|
|
|
|
|
48,651
|
|
|
|
42,010
|
|
|
|
|
|
|
|
90,661
|
|
Other current assets
|
|
|
1,546
|
|
|
|
2,441
|
|
|
|
5,451
|
|
|
|
|
|
|
|
9,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,546
|
|
|
|
56,657
|
|
|
|
66,302
|
|
|
|
|
|
|
|
124,505
|
|
Net property and equipment
|
|
|
28,268
|
|
|
|
1,307,337
|
|
|
|
887,270
|
|
|
|
|
|
|
|
2,222,875
|
|
Investment in subsidiaries
|
|
|
782,530
|
|
|
|
|
|
|
|
|
|
|
|
(782,530
|
)
|
|
|
|
|
Intercompany receivables
|
|
|
674,732
|
|
|
|
|
|
|
|
|
|
|
|
(674,732
|
)
|
|
|
|
|
Other assets
|
|
|
3,943
|
|
|
|
|
|
|
|
3,064
|
|
|
|
|
|
|
|
7,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,491,019
|
|
|
$
|
1,363,994
|
|
|
$
|
956,636
|
|
|
$
|
(1,457,262
|
)
|
|
$
|
2,354,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,588
|
|
|
$
|
|
|
|
$
|
2,588
|
|
Accounts payable
|
|
|
17
|
|
|
|
71,518
|
|
|
|
37,660
|
|
|
|
|
|
|
|
109,195
|
|
Accrued expenses
|
|
|
10,698
|
|
|
|
1,190
|
|
|
|
7,129
|
|
|
|
|
|
|
|
19,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
10,715
|
|
|
|
72,708
|
|
|
|
47,377
|
|
|
|
|
|
|
|
130,800
|
|
Long-term debt
|
|
|
680,000
|
|
|
|
|
|
|
|
80,000
|
|
|
|
|
|
|
|
760,000
|
|
Intercompany payables
|
|
|
|
|
|
|
674,732
|
|
|
|
|
|
|
|
(674,732
|
)
|
|
|
|
|
Deferred income taxes payable
|
|
|
28,660
|
|
|
|
161,569
|
|
|
|
181,667
|
|
|
|
|
|
|
|
371,896
|
|
Reserve for future abandonment costs
|
|
|
|
|
|
|
7,512
|
|
|
|
45,094
|
|
|
|
|
|
|
|
52,606
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267,441
|
|
|
|
267,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
719,375
|
|
|
|
916,521
|
|
|
|
354,138
|
|
|
|
(407,291
|
)
|
|
|
1,582,743
|
|
Stockholders equity
|
|
|
771,644
|
|
|
|
447,473
|
|
|
|
602,498
|
|
|
|
(1,049,971
|
)
|
|
|
771,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,491,019
|
|
|
$
|
1,363,994
|
|
|
$
|
956,636
|
|
|
$
|
(1,457,262
|
)
|
|
$
|
2,354,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Statement
of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
Comstock
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminating
|
|
|
|
|
|
|
Resources
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Entries
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Oil and gas sales
|
|
$
|
|
|
|
$
|
331,613
|
|
|
$
|
355,460
|
|
|
$
|
|
|
|
$
|
687,073
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas operating
|
|
|
|
|
|
|
64,791
|
|
|
|
58,841
|
|
|
|
|
|
|
|
123,632
|
|
Exploration
|
|
|
|
|
|
|
7,039
|
|
|
|
36,040
|
|
|
|
|
|
|
|
43,079
|
|
Depreciation, depletion and amortization
|
|
|
3,429
|
|
|
|
124,905
|
|
|
|
115,285
|
|
|
|
|
|
|
|
243,619
|
|
Impairment
|
|
|
|
|
|
|
482
|
|
|
|
344
|
|
|
|
|
|
|
|
826
|
|
General and administrative, net
|
|
|
37,022
|
|
|
|
(9,209
|
)
|
|
|
14,869
|
|
|
|
|
|
|
|
42,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
40,451
|
|
|
|
188,008
|
|
|
|
225,379
|
|
|
|
|
|
|
|
453,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
(40,451
|
)
|
|
|
143,605
|
|
|
|
130,081
|
|
|
|
|
|
|
|
233,235
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
7,263
|
|
|
|
877
|
|
|
|
512
|
|
|
|
(7,263
|
)
|
|
|
1,389
|
|
Other income
|
|
|
|
|
|
|
144
|
|
|
|
541
|
|
|
|
|
|
|
|
685
|
|
Interest expense
|
|
|
(32,291
|
)
|
|
|
(7,265
|
)
|
|
|
(9,033
|
)
|
|
|
7,263
|
|
|
|
(41,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expenses)
|
|
|
(25,028
|
)
|
|
|
(6,244
|
)
|
|
|
(7,980
|
)
|
|
|
|
|
|
|
(39,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest in
earnings of Bois dArc Energy
|
|
|
(65,479
|
)
|
|
|
137,361
|
|
|
|
122,101
|
|
|
|
|
|
|
|
193,983
|
|
Provision for (benefit from) income taxes
|
|
|
6,721
|
|
|
|
(48,467
|
)
|
|
|
(43,431
|
)
|
|
|
|
|
|
|
(85,177
|
)
|
Minority interest in earnings of Bois dArc Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,905
|
)
|
|
|
(39,905
|
)
|
Equity in earnings of subsidiaries
|
|
|
127,659
|
|
|
|
|
|
|
|
|
|
|
|
(127,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
68,901
|
|
|
$
|
88,894
|
|
|
$
|
78,670
|
|
|
$
|
(167,564
|
)
|
|
$
|
68,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
Comstock
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminating
|
|
|
|
|
|
|
Resources
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Entries
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Oil and gas sales
|
|
$
|
|
|
|
$
|
257,218
|
|
|
$
|
254,710
|
|
|
$
|
|
|
|
$
|
511,928
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas operating
|
|
|
|
|
|
|
53,903
|
|
|
|
53,400
|
|
|
|
|
|
|
|
107,303
|
|
Exploration
|
|
|
|
|
|
|
1,424
|
|
|
|
18,708
|
|
|
|
|
|
|
|
20,132
|
|
Depreciation, depletion and amortization
|
|
|
1,275
|
|
|
|
75,056
|
|
|
|
77,591
|
|
|
|
|
|
|
|
153,922
|
|
Impairment
|
|
|
|
|
|
|
8,812
|
|
|
|
1,632
|
|
|
|
|
|
|
|
10,444
|
|
General and administrative, net
|
|
|
26,802
|
|
|
|
(6,407
|
)
|
|
|
11,374
|
|
|
|
|
|
|
|
31,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
28,077
|
|
|
|
132,788
|
|
|
|
162,705
|
|
|
|
|
|
|
|
323,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
(28,077
|
)
|
|
|
124,430
|
|
|
|
92,005
|
|
|
|
|
|
|
|
188,358
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
22,709
|
|
|
|
682
|
|
|
|
330
|
|
|
|
(22,709
|
)
|
|
|
1,012
|
|
Other income
|
|
|
|
|
|
|
184
|
|
|
|
597
|
|
|
|
|
|
|
|
781
|
|
Interest expense
|
|
|
(20,980
|
)
|
|
|
(22,462
|
)
|
|
|
(6,696
|
)
|
|
|
22,709
|
|
|
|
(27,429
|
)
|
Gain on derivatives
|
|
|
|
|
|
|
10,716
|
|
|
|
|
|
|
|
|
|
|
|
10,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expenses)
|
|
|
1,729
|
|
|
|
(10,880
|
)
|
|
|
(5,769
|
)
|
|
|
|
|
|
|
(14,920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest in
earnings of Bois dArc Energy
|
|
|
(26,348
|
)
|
|
|
113,550
|
|
|
|
86,236
|
|
|
|
|
|
|
|
173,438
|
|
Provision for income taxes
|
|
|
(2,304
|
)
|
|
|
(40,823
|
)
|
|
|
(31,212
|
)
|
|
|
|
|
|
|
(74,339
|
)
|
Minority interest in earnings of Bois dArc Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,434
|
)
|
|
|
(28,434
|
)
|
Equity in earnings of subsidiaries
|
|
|
99,317
|
|
|
|
|
|
|
|
|
|
|
|
(99,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
70,665
|
|
|
$
|
72,727
|
|
|
$
|
55,024
|
|
|
$
|
(127,751
|
)
|
|
$
|
70,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Statement
of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
Comstock
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminating
|
|
|
|
|
|
|
Resources
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Entries
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net Cash Provided by (Used for) Operating
Activities
|
|
$
|
(33,159
|
)
|
|
$
|
234,697
|
|
|
$
|
244,673
|
|
|
$
|
94
|
|
|
$
|
446,305
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and acquisitions
|
|
|
(1,324
|
)
|
|
|
(530,234
|
)
|
|
|
(211,483
|
)
|
|
|
|
|
|
|
(743,041
|
)
|
Deposits paid for offshore leases
|
|
|
|
|
|
|
|
|
|
|
(2,330
|
)
|
|
|
|
|
|
|
(2,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used for Investing Activities
|
|
|
(1,324
|
)
|
|
|
(530,234
|
)
|
|
|
(213,813
|
)
|
|
|
|
|
|
|
(745,371
|
)
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
325,000
|
|
|
|
|
|
|
|
32,000
|
|
|
|
|
|
|
|
357,000
|
|
Advances (to) from subsidiaries
|
|
|
(299,874
|
)
|
|
|
299,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on debt
|
|
|
|
|
|
|
|
|
|
|
(52,000
|
)
|
|
|
|
|
|
|
(52,000
|
)
|
Proceeds from common stock issuances
|
|
|
2,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,869
|
|
Proceeds from common stock issuances by
Bois dArc Energy
|
|
|
|
|
|
|
|
|
|
|
693
|
|
|
|
|
|
|
|
693
|
|
Repurchase of common stock by Bois dArc Energy
|
|
|
|
|
|
|
|
|
|
|
(1,942
|
)
|
|
|
|
|
|
|
(1,942
|
)
|
Excess tax benefit from stock-based compensation
|
|
|
6,522
|
|
|
|
|
|
|
|
94
|
|
|
|
(94
|
)
|
|
|
6,522
|
|
Other
|
|
|
(34
|
)
|
|
|
|
|
|
|
(351
|
)
|
|
|
|
|
|
|
(385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
34,483
|
|
|
|
299,874
|
|
|
|
(21,506
|
)
|
|
|
(94
|
)
|
|
|
312,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
4,337
|
|
|
|
9,354
|
|
|
|
|
|
|
|
13,691
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
1,228
|
|
|
|
9,487
|
|
|
|
|
|
|
|
10,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
|
|
|
$
|
5,565
|
|
|
$
|
18,841
|
|
|
$
|
|
|
|
$
|
24,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
Comstock
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminating
|
|
|
|
|
|
|
Resources
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Entries
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net Cash Provided by (Used for) Operating
Activities
|
|
$
|
(4,842
|
)
|
|
$
|
191,038
|
|
|
$
|
178,409
|
|
|
$
|
|
|
|
$
|
364,605
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and acquisitions
|
|
|
(1,263
|
)
|
|
|
(280,257
|
)
|
|
|
(247,705
|
)
|
|
|
|
|
|
|
(529,225
|
)
|
Acquisition of Bois dArc Energy, Inc. common stock
|
|
|
(35,865
|
)
|
|
|
|
|
|
|
|
|
|
|
35,865
|
|
|
|
|
|
Payments to settle derivatives
|
|
|
|
|
|
|
(526
|
)
|
|
|
|
|
|
|
|
|
|
|
(526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used for Investing Activities
|
|
|
(37,128
|
)
|
|
|
(280,783
|
)
|
|
|
(247,705
|
)
|
|
|
35,865
|
|
|
|
(529,751
|
)
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
119,000
|
|
|
|
|
|
|
|
71,000
|
|
|
|
|
|
|
|
190,000
|
|
Advances (to) from subsidiaries
|
|
|
(90,912
|
)
|
|
|
90,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on debt
|
|
|
(7,000
|
)
|
|
|
|
|
|
|
(40,000
|
)
|
|
|
|
|
|
|
(47,000
|
)
|
Proceeds from common stock issuances
|
|
|
15,948
|
|
|
|
|
|
|
|
35,990
|
|
|
|
(35,990
|
)
|
|
|
15,948
|
|
Proceeds from common stock issuances by Bois dArc Energy
|
|
|
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
126
|
|
Excess tax benefit from stock-based compensation
|
|
|
6,218
|
|
|
|
|
|
|
|
29
|
|
|
|
(29
|
)
|
|
|
6,218
|
|
Other
|
|
|
(1,284
|
)
|
|
|
(28
|
)
|
|
|
(405
|
)
|
|
|
154
|
|
|
|
(1,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
41,970
|
|
|
|
90,884
|
|
|
|
66,740
|
|
|
|
(35,865
|
)
|
|
|
163,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
1,139
|
|
|
|
(2,556
|
)
|
|
|
|
|
|
|
(1,417
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
Bois dArc Energy cash and cash equivalents as of
January 1, 2006
|
|
|
|
|
|
|
|
|
|
|
12,043
|
|
|
|
|
|
|
|
12,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
|
|
|
$
|
1,228
|
|
|
$
|
9,487
|
|
|
$
|
|
|
|
$
|
10,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(13)
|
Oil and
Gas Reserves Information (Unaudited)
|
Set forth below is a summary of the changes in Comstocks
net quantities of crude oil and natural gas reserves for each of
the three years ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
Oil
|
|
|
Gas
|
|
|
Oil
|
|
|
Gas
|
|
|
Oil
|
|
|
Gas
|
|
|
|
(MBbls)
|
|
|
(MMcf)
|
|
|
(MBbls)
|
|
|
(MMcf)
|
|
|
(MBbls)
|
|
|
(MMcf)
|
|
|
Proved Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
15,881
|
|
|
|
533,554
|
|
|
|
12,043
|
|
|
|
432,416
|
|
|
|
32,409
|
|
|
|
656,971
|
|
Revisions of previous estimates
|
|
|
(118
|
)
|
|
|
(47,445
|
)
|
|
|
(13
|
)
|
|
|
(59,004
|
)
|
|
|
(2,854
|
)
|
|
|
39,411
|
|
Extensions and discoveries
|
|
|
73
|
|
|
|
17,966
|
|
|
|
2,588
|
|
|
|
111,195
|
|
|
|
2,376
|
|
|
|
128,252
|
|
Improved recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,798
|
|
|
|
6,004
|
|
Purchases of minerals in place
|
|
|
8,157
|
|
|
|
72,597
|
|
|
|
565
|
|
|
|
19,832
|
|
|
|
92
|
|
|
|
78,631
|
|
Conversion of Bois dArc Energy to Equity Investee
|
|
|
(10,913
|
)
|
|
|
(112,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation of Bois dArc Energy
|
|
|
|
|
|
|
|
|
|
|
19,530
|
|
|
|
205,986
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
(1,037
|
)
|
|
|
(32,250
|
)
|
|
|
(2,304
|
)
|
|
|
(53,454
|
)
|
|
|
(2,679
|
)
|
|
|
(71,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
12,043
|
|
|
|
432,416
|
|
|
|
32,409
|
|
|
|
656,971
|
|
|
|
35,142
|
|
|
|
837,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of equity
investee(1)
|
|
|
9,365
|
|
|
|
98,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest(2)
|
|
|
10,320
|
|
|
|
111,898
|
|
|
|
12,558
|
|
|
|
127,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved Developed Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
11,382
|
|
|
|
353,567
|
|
|
|
7,229
|
|
|
|
255,126
|
|
|
|
23,548
|
|
|
|
424,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
7,229
|
|
|
|
255,126
|
|
|
|
23,548
|
|
|
|
424,246
|
|
|
|
24,839
|
|
|
|
599,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of equity
investee(2)
|
|
|
7,344
|
|
|
|
84,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest(2)
|
|
|
7,900
|
|
|
|
92,465
|
|
|
|
8,866
|
|
|
|
96,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents 48% of reserves of Bois
dArc Energy as of December 31, 2005.
|
(2)
|
|
Represents minority interest in
Bois dArc Energy.
|
The following table sets forth the standardized measure of
discounted future net cash flows relating to proved reserves at
December 31, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash Flows Relating to Proved Reserves:
|
|
|
|
|
|
|
|
|
Future Cash Flows
|
|
$
|
5,566,987
|
|
|
$
|
8,938,815
|
|
Future Costs:
|
|
|
|
|
|
|
|
|
Production
|
|
|
(1,354,529
|
)
|
|
|
(1,943,223
|
)
|
Development and Abandonment
|
|
|
(573,443
|
)
|
|
|
(858,136
|
)
|
Future Income Taxes
|
|
|
(771,402
|
)
|
|
|
(1,399,148
|
)
|
|
|
|
|
|
|
|
|
|
Future Net Cash Flows
|
|
|
2,867,613
|
|
|
|
4,738,308
|
|
10% Discount Factor
|
|
|
(1,039,108
|
)
|
|
|
(1,794,471
|
)
|
|
|
|
|
|
|
|
|
|
Standardized Measure of Discounted Future Net Cash Flows
|
|
$
|
1,828,505
|
|
|
$
|
2,943,837
|
|
|
|
|
|
|
|
|
|
|
Minority
interest(1)
|
|
$
|
546,199
|
|
|
$
|
908,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents minority interest in
Bois dArc Energy.
|
F-33
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the changes in the standardized
measure of discounted future net cash flows relating to proved
reserves for the years ended December 31, 2005, 2006 and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Standardized Measure, Beginning of Year
|
|
$
|
1,084,122
|
|
|
$
|
1,113,796
|
|
|
$
|
1,828,505
|
|
Net Change in Sales Price, Net of Production Costs
|
|
|
446,054
|
|
|
|
(1,343,575
|
)
|
|
|
819,497
|
|
Development Costs Incurred During the Year Which Were Previously
Estimated
|
|
|
74,825
|
|
|
|
171,554
|
|
|
|
238,679
|
|
Revisions of Quantity Estimates
|
|
|
(162,627
|
)
|
|
|
(133,395
|
)
|
|
|
117,923
|
|
Accretion of Discount
|
|
|
115,192
|
|
|
|
351,308
|
|
|
|
229,840
|
|
Changes in Future Development and Abandonment Costs
|
|
|
(27,137
|
)
|
|
|
(143,791
|
)
|
|
|
(251,837
|
)
|
Changes in Timing
|
|
|
14,620
|
|
|
|
(92,906
|
)
|
|
|
(107,693
|
)
|
Extensions, Discoveries and Improved Recovery
|
|
|
69,467
|
|
|
|
327,893
|
|
|
|
772,614
|
|
Purchases of Reserves in Place
|
|
|
355,272
|
|
|
|
52,853
|
|
|
|
220,372
|
|
Conversion of Bois dArc Energy to Equity Investee
|
|
|
(586,014
|
)
|
|
|
|
|
|
|
|
|
Consolidation of Bois dArc Energy
|
|
|
|
|
|
|
1,282,425
|
|
|
|
|
|
Sales, Net of Production Costs
|
|
|
(252,369
|
)
|
|
|
(404,625
|
)
|
|
|
(563,441
|
)
|
Net Changes in Income Taxes
|
|
|
(17,609
|
)
|
|
|
646,968
|
|
|
|
(360,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized Measure, End of Year
|
|
$
|
1,113,796
|
|
|
$
|
1,828,505
|
|
|
$
|
2,943,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of Equity
Investee(1)
|
|
$
|
614,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
Interest(2)
|
|
$
|
546,199
|
|
|
$
|
908,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents 48% of standardized
measure of discounted future net cash flows of Bois dArc
Energy as of December 31, 2005.
|
(2)
|
|
Represents minority interest in
Bois dArc Energy.
|
The estimates of proved oil and gas reserves utilized in the
preparation of the financial statements were estimated by
independent petroleum consultants of Lee Keeling and Associates
in accordance with guidelines established by the Securities and
Exchange Commission and the Financial Accounting Standards
Board, which require that reserve reports be prepared under
existing economic and operating conditions with no provision for
price and cost escalation except by contractual agreement. All
of Comstocks reserves are located onshore in the
continental United States of America. All of Bois dArc
Energys reserves are located offshore the continental
United States of America.
Future cash inflows are calculated by applying year-end prices
adjusted for transportation and other charges to the year-end
quantities of proved reserves, except in those instances where
fixed and determinable price changes are provided by contractual
arrangements in existence at year-end.
The Companys average year-end prices used in the reserve
estimates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Crude Oil (Per Barrel)
|
|
$
|
49.17
|
|
|
$
|
56.17
|
|
|
$
|
90.67
|
|
Natural Gas (Per Mcf)
|
|
$
|
8.27
|
|
|
$
|
5.70
|
|
|
$
|
6.87
|
|
F-34
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Future development and production costs are computed by
estimating the expenditures to be incurred in developing and
producing proved oil and gas reserves at the end of the year,
based on year-end costs and assuming continuation of existing
economic conditions. Future income tax expenses are computed by
applying the appropriate statutory tax rates to the future
pre-tax net cash flows relating to proved reserves, net of the
tax basis of the properties involved. The future income tax
expenses give effect to permanent differences and tax credits,
but do not reflect the impact of future operations.
F-35
exv10w18
Exhibit 10.18
WAIVER AND BORROWING BASE REDETERMINATION AGREEMENT
This WAIVER AND BORROWING BASE REDETERMINATION AGREEMENT (this Agreement) dated as of
December 20, 2007, is among COMSTOCK RESOURCES, INC. (the Borrower), the banks named on the
signature pages hereto (together with their respective successors and assigns in such capacity,
each as a Lender), and BANK OF MONTREAL, as administrative agent for the Lenders (in such
capacity, together with its successors and assigns, the Administrative Agent).
PRELIMINARY STATEMENT
A. The Borrower, the Administrative Agent, the Lenders and certain other parties have entered
into that certain Second Amended and Restated Credit Agreement dated as of December 15, 2006 (as
amended, restated, modified or supplemented from time to time until the date hereof, the Credit
Agreement).
B. Comstock Oil & Gas, LP (a partnership wholly owned by the Borrower; hereinafter COGI), as
buyer, and SWEPI LP, a Delaware limited partnership (SWEPI), as seller, entered into a certain
Purchase and Sale Agreement, dated as of November 26, 2007 (as amended from time to time, the
SWEPI Wilcox Agreement), pursuant to which COGI will purchase, directly or indirectly, from SWEPI
certain oil and gas properties located in South Texas and described therein (the SWEPI Wilcox
Properties; and the acquisition of the SWEPI Wilcox Properties by COGI from SWEPI, the SWEPI
Wilcox Acquisition), subject to certain potential adjustments in accordance with the terms of the
SWEPI Agreement.
C. In order to achieve certain tax efficiencies, COGI expects to structure the SWEPI Wilcox
Acquisition to qualify for reverse like-kind exchange treatment under section 1031 of the Code and
the regulations and revenue procedures promulgated thereunder, including Rev. Proc. 2000-37.
D. In furtherance of the reverse like-kind exchange, COGI will assign the SWEPI Wilcox
Agreement to Comstock (Wilcox), LLC, a Delaware limited liability company (Comstock (Wilcox))
that is not affiliated with COGI, and will lend to Comstock (Wilcox) up to $170,000,000 from the
proceeds of Borrowings under the Credit Agreement.
E. The loan by COGI to Comstock (Wilcox) will be evidenced by a promissory note issued by
Comstock (Wilcox) in favor of COGI (the Comstock (Wilcox) Note) and secured by a mortgage or deed
of trust encumbering the SWEPI Wilcox Properties (the Comstock (Wilcox) Mortgage), which note and
mortgage or deed of trust will be pledged to the Administrative Agent for the benefit of itself,
the Lenders and the other secured parties to secure the Secured Obligations.
F. The Borrower has provided to the Administrative Agent and the Lenders an engineering report
prepared by the Borrower setting forth the reserves, future production and income attributable to
the SWEPI Wilcox Properties (the SWEPI Engineering Report).
G. The Borrower has requested that the Administrative Agent and the Lenders increase the
Borrowing Base in respect of the SWEPI Wilcox Acquisition, described above, as set forth herein.
H. The Administrative Agent and the Lenders have agreed to increase the Borrowing Base in
respect of the SWEPI Wilcox Acquisition as set forth herein.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements set forth herein,
the parties agree as follows:
Section 1. Definitions. Unless otherwise defined in this Agreement, each capitalized term
used in this Agreement has the meaning assigned to such term in the Credit Agreement.
Section 2. Waiver of Section 7.2. Section 7.2 of the Credit Agreement (which prohibits the
Borrower or any of its Restricted Subsidiaries from making any Investment unless otherwise
permitted therein) is hereby waived insofar as, AND ONLY INSOFAR AS, COGI shall be permitted to (a)
assign the SWEPI Wilcox Agreement to Comstock (Wilcox) and (b) make a loan to Comstock (Wilcox) in
an aggregate principal amount of up to $170,000,000 from the proceeds of Borrowings under the
Credit Agreement for the purpose financing the acquisition of the SWEPI Wilcox Properties by
Comstock (Wilcox), provided that not later than concurrently with the consummation of the
acquisition of the SWEPI Wilcox Properties by Comstock (Wilcox), COGI shall receive from Comstock
(Wilcox) the Comstock (Wilcox) Note and the Comstock (Wilcox) Mortgage.
1
Exhibit 10.18
Section 3. Redetermination of Borrowing Base.
(a) Upon the satisfaction of the conditions set forth in Section 7 below (the
Increase Date), the Borrowing Base shall be increased by $75,000,000 to
$575,000,000 (Borrowing Base Increase), which Borrowing Base shall remain in
effect until the Borrowing Base shall be (i) otherwise redetermined or adjusted in
accordance with Section 2.8 of the Credit Agreement, or (ii) otherwise agreed in
accordance with the Credit Agreement.
(b) Both the Borrower, on the one hand, and the Administrative Agent and the
Lenders, on the other hand, agree that the redetermination of the Borrowing Base
pursuant to this Section 3 shall not constitute an unscheduled redetermination of
the Borrowing Base for purposes of Section 2.8 of the Credit Agreement.
Section 4. Fees. Promptly following the Increase Date, the Borrower shall pay to the
Administrative Agent for the account of each Lender a fee equal to 0.20% of each Lenders
Percentage Share of $75,000,000.
Section 5. Ratification. The Borrower hereby ratifies and confirms all of the Obligations
under the Credit Agreement and the other Loan Documents.
Section 6. Effectiveness. This Agreement shall become effective on the first date on which
each of the conditions set forth in this Section 6 is satisfied:
(a) The Administrative Agent shall have received duly executed counterparts of this
Agreement from the Borrower, the Administrative Agent and each of the Lenders;
(b) The Administrative Agent shall have received from the Borrower a true and
complete copy of the fully executed SWEPI Wilcox Agreement, together with any
disclosure schedules delivered pursuant thereto;
(c) The Administrative Agent and the Lenders shall have received a copy of the SWEPI
Engineering Report; and
(d) The Borrower shall have confirmed and acknowledged to the Administrative Agent
and the Lenders, and by its execution and delivery of this Agreement, the Borrower
does hereby confirm and acknowledge to the Administrative Agent and the Lenders,
that (i) the execution, delivery and performance of this Agreement has been duly
authorized by all requisite corporate action on the part of the Borrower; (ii) the
Credit Agreement and each other Loan Document to which it is a party constitute
valid and legally binding agreements enforceable against the Borrower in accordance
with their respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
similar laws relating to or affecting the enforcement of creditors rights generally
and by general principles of equity, (iii) the representations and warranties by the
Borrower contained in the Credit Agreement and in the other Loan Documents are true
and correct on and as of the date hereof in all material respects as though made as
of the date hereof, and (iv) no Default or Event of Default exists under the Credit
Agreement or any of the other Loan Documents.
Section 7. Conditions to Borrowing Base Increases. The Borrowing Base Increase shall become
effective on the first date on which each of the conditions set forth in this Section 7 is
satisfied:
(a) The Administrative Agent shall have received from the Borrower a copy of all
title defect or environmental defect notices, if any, delivered by COGI to SWEPI
relating to any of the SWEPI Wilcox Properties;
(b) The Administrative Agent shall have received a Form U-1 or an amendment to any
previously delivered Form U-1, together with all annexes or schedules thereto and
any other documents or information related thereto as may be requested by the
Administrative Agent or any Lender, for each Lender duly completed and executed by
the Borrower in form and substance acceptable to each Lender (as evidenced by each
Lender having executed and returned a copy of its respective Form U-1) demonstrating
compliance with Regulation U issued by the Board after giving effect to the
Borrowing Base Increase;
(c) If, after giving effect to any Notice of Advance submitted by the Borrower the
proceeds of which are to be used to consummate the SWEPI Wilcox Acquisition, the
Outstanding Amount of all Credit Extensions would exceed $500,000,000, then the
Borrower shall deliver to the Administrative Agent a certificate of a Responsible
Officer of the Borrower with such Notice of Advance stating that the portion of the
SWEPI Wilcox Properties actually acquired by Comstock (Wilcox) (the Acquired SWEPI
Wilcox Properties) will constitute not less than ninety percent (90%) of the total
allocated value of the SWEPI Wilcox Properties in accordance with the allocation of
the Purchase Price (as defined in the SWEPI Wilcox Agreement) set forth in Exhibit
6.4 to the SWEPI Wilcox Agreement after giving effect to the application of such
Credit Extension;
2
(d) The Administrative Agent shall have received a supplement to the Pledge
Agreement heretofore delivered by COGI pursuant to which COGI shall have pledged to
the Administrative Agent for the benefit of the secured parties thereunder the
Comstock (Wilcox) Note and the Comstock (Wilcox) Mortgage;
(e) The Administrative Agent shall have received (or shall be satisfied with
arrangements pursuant to which, promptly following the consummation of the
acquisition of the SWEPI Wilcox Properties by Comstock (Wilcox) the Administrative
Agent shall receive) the original counterpart of the Comstock (Wilcox) Note duly
endorsed by COGI in favor of the Administrative Agent and complete and original
executed counterparts of the Comstock (Wilcox) Mortgage duly executed by Comstock
(Wilcox); and
(f) The Administrative Agent shall be reasonably satisfied with the progress of COGI
with the results of COGIs title and environmental due diligence with respect to the
SWEPI Wilcox Properties.
Section 8. Conditions Subsequent to Borrowing Base Increases. The Borrower covenants and
agrees that within a reasonable period of time following the consummation of the SWEPI Wilcox
Acquisition (but in no event later than forty-five (45) days thereafter), the Borrower shall have
delivered, or caused to be delivered, each of the following items to the Administrative Agent:
(a) copies of releases of all Liens, if any, in favor of others burdening the
Acquired SWEPI Wilcox Properties at the time of their acquisition by Comstock
(Wilcox) (other than Excepted Liens);
(b) true and complete copies of the fully executed conveyance documents pursuant to
which SWEPI transfers, assigns and conveys to Comstock (Wilcox) the Acquired SWEPI
Wilcox Properties, together with evidence that the SWEPI Wilcox Acquisition has
become effective in accordance with the terms of the SWEPI Wilcox Agreement and all
Requirements of Law;
(c) a certificate of a Responsible Officer of the Borrower certifying that the
Comstock (Wilcox) acquired not less than ninety percent (90%) of the
total allocated value of the SWEPI Wilcox Properties in accordance with the allocation of
the Purchase Price (as defined in the SWEPI Wilcox Agreement) set forth in Exhibit
6.4 to the SWEPI Wilcox Agreement; and
(d) favorable title opinions or other title examination and title due diligence
reports satisfactory to the Administrative Agent covering at least 80% of the value
of the Acquired SWEPI Wilcox Properties showing title vested in SWEPI, COGI or
Comstock (Wilcox).
Section 9. Governing Law. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York.
Section 10. Miscellaneous. (a) On and after the effectiveness of this Agreement, each
reference in each Loan Document to this Agreement, this Note, this
Mortgage, hereunder, hereof or words of like import, referring to such
Loan Document, and each reference in each other Loan Document to the Credit Agreement,
the Notes, the Mortgages, thereunder, thereof or words of
like import referring to the Credit Agreement, the Notes, or the Mortgage or any of them, shall
mean and be a reference to such Loan Document, the Credit Agreement, the Notes, the Mortgage or any
of them, as amended or otherwise modified by this Agreement; (b) the execution, delivery and
effectiveness of this Agreement shall not, except as expressly provided herein, operate as a waiver
of any default of the Borrower or any right, power or remedy of the Administrative Agent or the
Banks under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan
Documents; (c) this Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same agreement; and (d)
delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be
effective as delivery of a manually executed counterpart of this Agreement.
Section 11. Final Agreement. THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS, INCLUDING
THIS AGREEMENT, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, each of the parties hereto has caused this Waiver and Borrowing Base
Redetermination Agreement to be executed by its officer(s) thereunto duly authorized as of the date
first above written.
|
|
|
|
|
|
BORROWER:
COMSTOCK RESOURCES, INC.,
a Nevada corporation
|
|
|
By: |
/s/ ROLAND O. BURNS
|
|
|
|
Name: |
Roland O. Burns |
|
|
|
Title: |
Chief Financial Officer |
|
3
|
|
|
|
|
|
ADMINISTRATIVE AGENT AND LENDERS:
BANK OF MONTREAL, as Administrative Agent and a
Lender
|
|
|
By: |
/s/ JOSEPH A. BLISS
|
|
|
|
Name: |
Joseph A. Bliss |
|
|
|
Title: |
Managing Director |
|
|
|
BMO CAPITAL MARKETS FINANCING, INC., as Lender
|
|
|
By: |
/s/ MARY LOU ALLEN
|
|
|
|
Name: |
Mary Lou Allen |
|
|
|
Title: |
Vice President |
|
|
|
BANK OF AMERICA, N.A., as a Lender
|
|
|
By: |
/s/ JEFFREY H. RATHKAMP
|
|
|
|
Name: |
Jeffrey H. Rathkamp |
|
|
|
Title: |
Managing Director |
|
|
|
COMERICA BANK, as a Lender
|
|
|
By: |
/s/ PETER L. SEFZIK
|
|
|
|
Name: |
Peter L. Sefzik |
|
|
|
Title: |
Vice President |
|
|
|
FORTIS CAPITAL CORP., as a Lender
|
|
|
By: |
/s/ MICHELE JONES
|
|
|
|
Name: |
Michele Jones |
|
|
|
Title: |
Director |
|
|
|
UNION BANK OF CALIFORNIA, N.A.,
as a Lender
|
|
|
By: |
/s/ SEAN M. MURPHY
|
|
|
|
Name: |
Sean M. Murphy |
|
|
|
Title: |
Senior Vice President |
|
|
BANK OF SCOTLAND, as a Lender
|
|
|
By: |
/s/ KAREN WEICH
|
|
|
|
Name: |
Karen Weich |
|
|
|
Title: |
Vice President |
|
|
4
|
|
|
|
|
|
CALYON NEW YORK BRANCH, as a Lender
|
|
|
By: |
/s/ MICHAEL D. WILLIS
|
|
|
|
Name: |
Michael D. Willis |
|
|
|
Title: |
Director |
|
|
|
|
|
By: |
/s/ PAGE DILLEHUNT
|
|
|
|
Name: |
Page Dillehunt |
|
|
|
Title: |
Managing Director |
|
|
|
THE ROYAL BANK OF SCOTLAND plc,
as a Lender
|
|
|
By: |
/s/ LUCY WALKER
|
|
|
|
Name: |
Lucy Walker |
|
|
|
Title: |
Vice President |
|
|
|
THE BANK OF NOVA SCOTIA, as a Lender
|
|
|
By: |
/s/ ANDREW OSTROV
|
|
|
|
Name: |
Andrew Ostrov |
|
|
|
Title: |
Director |
|
|
|
REGIONS BANK, successor by merger to AmSouth Bank, as a Lender
|
|
|
By: |
/s/ WILLIAM A. PHILIPP
|
|
|
|
Name: |
William A. Philipp |
|
|
|
Title: |
Vice President |
|
|
|
COMPASS BANK, as a Lender
|
|
|
By: |
/s/ DOROTHY MARCHAND
|
|
|
|
Name: |
Dorothy Marchand |
|
|
|
Title: |
Senior Vice President |
|
|
|
CAPITAL ONE, NATIONAL ASSOCIATION,
as a Lender
|
|
|
By: |
/s/ STAN G. WEISER JR.
|
|
|
|
Name: |
Stan G. Weiser Jr. |
|
|
|
Title: |
Vice President |
|
5
|
|
|
|
|
|
|
NATIXIS, as a Lender
|
|
|
By: |
/s/ LOUIS P. LAVILLE, III
|
|
|
|
Name: |
Louis P. Laville, III |
|
|
|
Title: |
Managing Director |
|
|
|
|
|
By: |
/s/ DANIEL PAYER
|
|
|
|
Name: |
Daniel Payer |
|
|
|
Title: |
Director |
|
|
|
U.S. BANK NATIONAL ASSOCIATION,
as a Lender
|
|
|
By: |
/s/ TRACY HARNISCH
|
|
|
|
Name: |
Tracy Harnisch |
|
|
|
Title: |
Assistant Vice President |
|
|
|
KEYBANK NATIONAL ASSOCIATION,
as a Lender
|
|
|
By: |
/s/ THOMAS RAJAN
|
|
|
|
Name: |
Thomas Rajan |
|
|
|
Title: |
Director |
|
|
6
ACKNOWLEDGMENT BY GUARANTORS
Each of the undersigned Guarantors hereby (i) consents to the terms and conditions of that
certain Waiver and Borrowing Base Redetermination Agreement dated as of December 20, 2007 (the
Agreement), (ii) acknowledges and agrees that its consent is not required for the effectiveness
of the Agreement, (iii) ratifies and acknowledges its respective Obligations under each Loan
Document to which it is a party, and (iv) represents and warrants that (a) no Default or Event of
Default has occurred and is continuing, (b) it is in full compliance with all covenants and
agreements pertaining to it in the Loan Documents, and (c) it has reviewed a copy of the Agreement.
|
|
|
|
|
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COMSTOCK OIL & GAS HOLDINGS, INC.
COMSTOCK OIL & GAS LOUISIANA, LLC
COMSTOCK OFFSHORE, LLC
COMSTOCK OIL & GAS GP, LLC,
By Comstock Resources, Inc., its sole member
COMSTOCK OIL & GAS, LP,
By Comstock Oil & Gas GP, LLC,
its general partner,
By Comstock Resources, Inc., its sole member
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By: |
/s/ ROLAND O. BURNS
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Name: |
Roland O. Burns |
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Title: |
Chief Financial Officer |
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COMSTOCK OIL & GAS INVESTMENTS, LLC
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By: |
/s/ ROLAND O. BURNS
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Name: |
Roland O. Burns |
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Title: |
Manager |
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7
exv21
Exhibit 21
SUBSIDIARIES OF COMSTOCK RESOURCES, INC.
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Name |
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Incorporation |
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Business Name |
Comstock Oil & Gas GP, LLC
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Nevada
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Comstock Oil & Gas GP, LLC |
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Comstock Oil & Gas Investments, LLC
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Nevada
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Comstock Oil & Gas Investments, LLC |
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Comstock Oil & Gas, LP(1)
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Nevada
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Comstock Oil & Gas, LP |
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Comstock Oil & Gas Holdings, Inc.(2)
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Nevada
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Comstock Oil & Gas Holdings, Inc. |
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Comstock Oil & Gas Louisiana, LLC(3)
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Nevada
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Comstock Oil & Gas Louisiana, LLC |
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Comstock Offshore, LLC(4)
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Nevada
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Comstock Offshore, LLC |
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Comstock (Wilcox) LLC(5)
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Delaware
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Comstock (Wilcox) LLC |
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Bois dArc Energy, Inc.(6)
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Nevada
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Bois dArc Energy, Inc. |
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Bois dArc Oil & Gas Company, LLC(7)
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Nevada
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Bois dArc Oil & Gas Company, LLC |
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Bois dArc Holdings, LLC(8)
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Texas
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Bois dArc Holdings, LLC |
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Bois dArc Offshore, Ltd.(9)
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Nevada
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Bois dArc Offshore, Ltd. |
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Bois dArc Properties, LP(10)
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Nevada
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Bois dArc Properties, LP |
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(1) |
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Comstock Oil & Gas GP, LLC is the general partner and Comstock Oil
& Gas Investments, LLC is the limited partner of this partnership |
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(2) |
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100% owned by Comstock Oil & Gas, LP |
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(3) |
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Subsidiary of Comstock Oil & Gas Holdings, Inc. |
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(4) |
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Subsidiary of Comstock Oil & Gas Louisiana, LLC |
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(5) |
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Comstock (Wilcox) LLC is owned by an exchange intermediary pursuant
to a reverse tax-free exchange. We are consolidating this limited
liability partnership because of the contractual relationships between
this entity and Comstock Oil & Gas, LP wherein all the rights and
obligations of the oil and gas properties owned by Comstock (Wilcox)
LLC have been assigned under operating and management agreements to
Comstock Oil & Gas, LP |
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(6) |
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49.02% owned by Comstock Resources, Inc. |
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(7) |
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Subsidiary of Bois dArc Energy, Inc. |
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(8) |
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Bois dArc Oil & Gas Company, LLC is the general partner and Bois
dArc Energy, Inc. is the limited partner of this partnership |
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(9) |
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Bois dArc Holdings, LLC is the general partner and Bois dArc
Energy, Inc. is the limited partner of this partnership |
exv23w1
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement 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 the related
Prospectuses of our reports dated February 28, 2008 with respect to the
consolidated financial statements of Comstock Resources, Inc. and the
effectiveness of internal control over financial reporting of Comstock
Resources, Inc. included in this Annual Report (Form 10-K) for the year ended
December 31, 2007.
Dallas, Texas
February 28, 2008
exv23w2
Exhibit 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We consent to the incorporation by reference in the Registration Statement Nos.
33-20981 and 33-88962 filed on Form S-8 and Nos. 333-111237, 333-112100 and
333-12881 filed on Form S-3 of Comstock Resources, Inc. and the related
Prospectuses of the reference of our firm and to the reserve estimates as of
December 31, 2007 and our report thereon in the Annual Report on Form 10-K for
the year ended December 31, 2007 of Comstock Resources, Inc., filed with the
Securities and Exchange Commission.
/s/ LEE KEELING AND ASSOCIATES, INC.
Tulsa, Oklahoma
February 15, 2008
exv31w1
Exhibit 31.1
Section 302 Certification
I, M. Jay Allison, certify that:
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1. |
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I have reviewed this December 31, 2007 Form 10-K of Comstock
Resources, Inc; |
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2. |
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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; |
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3. |
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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; |
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4. |
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The registrants 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: |
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(a) |
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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; |
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(b) |
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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; |
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(c) |
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Evaluated the effectiveness of the registrants
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 |
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(d) |
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Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrants internal control over financial
reporting; and |
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5. |
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The registrants other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent
functions): |
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(a) |
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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
registrants ability to record, process, summarize and report
financial information; and |
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(b) |
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Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting. |
Date: February 28, 2008
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/s/ M. JAY ALLISON
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President and Chief Executive Officer |
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exv31w2
Exhibit 31.2
Section 302 Certification
I, Roland O. Burns, certify that:
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1. |
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I have reviewed this December 31, 2007 Form 10-K of Comstock Resources,
Inc; |
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2. |
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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; |
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3. |
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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; |
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4. |
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The registrants 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: |
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(a) |
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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; |
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(b) |
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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; |
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(c) |
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Evaluated the effectiveness of the registrants
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 |
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(d) |
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Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrants internal control over financial
reporting; and |
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5. |
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The registrants other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent
functions): |
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(a) |
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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
registrants ability to record, process, summarize and report
financial information; and |
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(b) |
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Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting. |
Date: February 28, 2008
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/s/ ROLAND O. BURNS
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Sr. Vice President and Chief Financial Officer |
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exv32w1
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
In connection with the Annual Report of Comstock Resources, Inc. (the
Company) on Form 10-K for the year ending December 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:
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(1) |
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The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and |
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(2) |
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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
M. Jay Allison
Chief Executive Officer
February 28, 2008
exv32w2
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
In connection with the Annual Report of Comstock Resources, Inc. (the
Company) on Form 10-K for the year ending December 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:
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(1) |
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The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and |
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(2) |
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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
Roland O. Burns
Chief Financial Officer
February 28, 2008