10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-03262

 

COMSTOCK RESOURCES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

94-1667468

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034

(Address of principal executive offices)

Telephone No.: (972) 668-8800

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.50 (per share)

CRK

New York Stock Exchange

 

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 No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated ☐

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No

The number of shares outstanding of the registrant's common stock, par value $0.50, as of November 1, 2023 was 278,429,463.

 

 


 

COMSTOCK RESOURCES, INC.

QUARTERLY REPORT

For the Quarter Ended September 30, 2023

INDEX

 

 

 

 

 

 

Page

PART I. Financial Information

 

Item 1. Financial Statements (Unaudited):

 

Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

4

Consolidated Statements of Operations – for the three months and nine months ended September 30, 2023 and 2022

5

Consolidated Statements of Stockholders' Equity – for the three months and nine months ended September 30, 2023 and 2022

6

Consolidated Statements of Cash Flows – for the nine months ended September 30, 2023 and 2022

7

Notes to Consolidated Financial Statements

8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3. Quantitative and Qualitative Disclosure About Market Risk

23

Item 4. Controls and Procedures

24

PART II. Other Information

 

Item 1A. Risk Factors

25

Item 5. Other Information

25

Item 6. Exhibits

25

 

2


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART 1 — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


 

COMSTOCK RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

 

 

As of

 

 

September 30,
2023

 

 

December 31,
2022

 

 

(Unaudited)

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,835

 

 

$

54,652

 

Accounts receivable:

 

 

 

 

 

 

Natural gas and oil sales and gas services

 

 

157,130

 

 

 

415,079

 

Joint interest operations

 

 

36,506

 

 

 

76,521

 

From affiliates

 

 

21,168

 

 

 

18,527

 

Derivative financial instruments

 

 

23,973

 

 

 

23,884

 

Other current assets

 

 

68,572

 

 

 

56,324

 

Total current assets

 

 

327,184

 

 

 

644,987

 

Property and equipment:

 

 

 

 

 

 

Natural gas and oil properties, successful efforts method:

 

 

 

 

 

 

Proved

 

 

6,810,440

 

 

 

5,843,409

 

Unproved

 

 

323,666

 

 

 

298,230

 

Other

 

 

48,273

 

 

 

26,475

 

Accumulated depreciation, depletion and amortization

 

 

(1,962,418

)

 

 

(1,545,459

)

Net property and equipment

 

 

5,219,961

 

 

 

4,622,655

 

Goodwill

 

 

335,897

 

 

 

335,897

 

Operating lease right-of-use assets

 

 

148,066

 

 

 

90,716

 

 

$

6,031,108

 

 

$

5,694,255

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Accounts payable

 

$

503,564

 

 

$

530,195

 

Accrued costs

 

 

103,666

 

 

 

183,111

 

Operating leases

 

 

52,731

 

 

 

38,411

 

Derivative financial instruments

 

 

 

 

 

4,420

 

Total current liabilities

 

 

659,961

 

 

 

756,137

 

Long-term debt

 

 

2,503,407

 

 

 

2,152,571

 

Deferred income taxes

 

 

454,612

 

 

 

425,734

 

Derivative financial instruments

 

 

4,540

 

 

 

 

Long-term operating leases

 

 

95,397

 

 

 

52,385

 

Reserve for future abandonment costs

 

 

30,434

 

 

 

29,114

 

Total liabilities

 

 

3,748,351

 

 

 

3,415,941

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock—$0.50 par, 400,000,000 shares authorized, 278,429,463 and 277,517,087 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

 

 

139,214

 

 

 

138,759

 

Additional paid-in capital

 

 

1,258,069

 

 

 

1,253,417

 

Accumulated earnings

 

 

885,474

 

 

 

886,138

 

Total stockholders' equity

 

 

2,282,757

 

 

 

2,278,314

 

 

$

6,031,108

 

 

$

5,694,255

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these statements.

4


 

COMSTOCK RESOURCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

(In thousands, except per share amounts)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas sales

 

$

304,141

 

 

$

994,979

 

 

$

911,065

 

 

$

2,376,774

 

Oil sales

 

 

1,309

 

 

 

1,936

 

 

 

4,111

 

 

 

6,324

 

Total natural gas and oil sales

 

 

305,450

 

 

 

996,915

 

 

 

915,176

 

 

 

2,383,098

 

Gas services

 

 

71,287

 

 

 

193,090

 

 

 

239,350

 

 

 

322,575

 

Total revenues

 

 

376,737

 

 

 

1,190,005

 

 

 

1,154,526

 

 

 

2,705,673

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Production and ad valorem taxes

 

 

25,386

 

 

 

24,531

 

 

 

59,891

 

 

 

60,080

 

Gathering and transportation

 

 

47,012

 

 

 

44,740

 

 

 

137,981

 

 

 

113,797

 

Lease operating

 

 

31,664

 

 

 

28,608

 

 

 

100,525

 

 

 

79,873

 

Exploration

 

 

 

 

 

 

 

 

1,775

 

 

 

3,363

 

Depreciation, depletion and amortization

 

 

148,190

 

 

 

129,065

 

 

 

422,350

 

 

 

354,994

 

Gas services

 

 

67,632

 

 

 

181,818

 

 

 

224,317

 

 

 

305,271

 

General and administrative

 

 

9,586

 

 

 

10,165

 

 

 

31,992

 

 

 

27,451

 

Loss (gain) on sale of assets

 

 

 

 

 

 

 

 

(125

)

 

 

(21

)

Total operating expenses

 

 

329,470

 

 

 

418,927

 

 

 

978,706

 

 

 

944,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

47,267

 

 

 

771,078

 

 

 

175,820

 

 

 

1,760,865

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) from derivative financial instruments

 

 

14,276

 

 

 

(271,335

)

 

 

76,190

 

 

 

(781,654

)

Other income

 

 

409

 

 

 

56

 

 

 

1,467

 

 

 

506

 

Interest expense

 

 

(43,624

)

 

 

(41,393

)

 

 

(121,082

)

 

 

(132,204

)

Loss on early retirement of debt

 

 

 

 

 

 

 

 

 

 

 

(46,840

)

Total other expenses

 

 

(28,939

)

 

 

(312,672

)

 

 

(43,425

)

 

 

(960,192

)

Income before income taxes

 

 

18,328

 

 

 

458,406

 

 

 

132,395

 

 

 

800,673

 

Provision for income taxes

 

 

(3,608

)

 

 

(102,810

)

 

 

(28,878

)

 

 

(179,610

)

Net income

 

 

14,720

 

 

 

355,596

 

 

 

103,517

 

 

 

621,063

 

Preferred stock dividends

 

 

 

 

 

(4,411

)

 

 

 

 

 

(13,089

)

Net income available to common stockholders

 

$

14,720

 

 

$

351,185

 

 

$

103,517

 

 

$

607,974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

 

$

1.50

 

 

$

0.37

 

 

$

2.61

 

Diluted

 

$

0.05

 

 

$

1.28

 

 

$

0.37

 

 

$

2.24

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

276,999

 

 

 

232,482

 

 

 

276,741

 

 

 

232,170

 

Diluted

 

 

276,999

 

 

 

277,715

 

 

 

276,741

 

 

 

277,605

 

Dividends per share

 

$

0.125

 

 

$

 

 

$

0.375

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these statements.

5


 

COMSTOCK RESOURCES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

 

 

 

 

Common
Shares

 

 

Common
Stock-
Par Value

 

 

Additional
Paid-in
Capital

 

 

Accumulated
Earnings
(Deficit)

 

 

Total

 

 

(In thousands)

 

Balance at January 1, 2022

 

 

232,925

 

 

$

116,462

 

 

$

1,100,359

 

 

$

(204,042

)

 

$

1,012,779

 

Stock-based compensation

 

 

(5

)

 

 

(2

)

 

 

1,479

 

 

 

 

 

 

1,477

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(111,424

)

 

 

(111,424

)

Payment of preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

(4,315

)

 

 

(4,315

)

Balance at March 31, 2022

 

 

232,920

 

 

$

116,460

 

 

$

1,101,838

 

 

$

(319,781

)

 

$

898,517

 

Stock-based compensation

 

 

239

 

 

 

119

 

 

 

115

 

 

 

 

 

 

234

 

Net income

 

 

 

 

 

 

 

 

 

 

 

376,891

 

 

 

376,891

 

Payment of preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

(4,363

)

 

 

(4,363

)

Balance at June 30, 2022

 

 

233,159

 

 

$

116,579

 

 

$

1,101,953

 

 

$

52,747

 

 

$

1,271,279

 

Stock-based compensation

 

 

599

 

 

 

300

 

 

 

(3,348

)

 

 

 

 

 

(3,048

)

Net income

 

 

 

 

 

 

 

 

 

 

 

355,596

 

 

 

355,596

 

Payment of preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

(4,411

)

 

 

(4,411

)

Balance at September 30, 2022

 

 

233,758

 

 

$

116,879

 

 

$

1,098,605

 

 

$

403,932

 

 

$

1,619,416

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2023

 

 

277,517

 

 

$

138,759

 

 

$

1,253,417

 

 

$

886,138

 

 

$

2,278,314

 

Stock-based compensation

 

 

(7

)

 

 

(4

)

 

 

2,050

 

 

 

 

 

 

2,046

 

Net income

 

 

 

 

 

 

 

 

 

 

 

134,503

 

 

 

134,503

 

Payment of common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(34,688

)

 

 

(34,688

)

Balance at March 31, 2023

 

 

277,510

 

 

$

138,755

 

 

$

1,255,467

 

 

$

985,953

 

 

$

2,380,175

 

Stock-based compensation

 

 

983

 

 

 

491

 

 

 

(85

)

 

 

 

 

 

406

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(45,706

)

 

 

(45,706

)

Payment of common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(34,689

)

 

 

(34,689

)

Balance at June 30, 2023

 

 

278,493

 

 

$

139,246

 

 

$

1,255,382

 

 

$

905,558

 

 

$

2,300,186

 

Stock-based compensation

 

 

(63

)

 

 

(32

)

 

 

2,687

 

 

 

 

 

 

2,655

 

Net income

 

 

 

 

 

 

 

 

 

 

 

14,720

 

 

 

14,720

 

Payment of common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(34,804

)

 

 

(34,804

)

Balance at September 30, 2023

 

 

278,430

 

 

$

139,214

 

 

$

1,258,069

 

 

$

885,474

 

 

$

2,282,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these statements.

6


 

COMSTOCK RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

Nine Months Ended September 30,

 

 

2023

 

 

2022

 

 

(In thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

103,517

 

 

$

621,063

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Deferred income taxes

 

 

28,878

 

 

 

148,389

 

Gain on sale of assets

 

 

(125

)

 

 

(21

)

Depreciation, depletion and amortization

 

 

422,350

 

 

 

354,994

 

(Gain) loss on derivative financial instruments

 

 

(76,190

)

 

 

781,654

 

Cash settlements of derivative financial instruments

 

 

76,221

 

 

 

(679,038

)

Amortization of debt discount and issuance costs

 

 

5,980

 

 

 

8,542

 

Stock-based compensation

 

 

7,006

 

 

 

4,918

 

Loss on early retirement of debt

 

 

 

 

 

46,840

 

(Increase) decrease in accounts receivable

 

 

295,323

 

 

 

(359,600

)

(Increase) decrease in other current assets

 

 

(624

)

 

 

359

 

Increase (decrease) in accounts payable and accrued expenses

 

 

(73,697

)

 

 

301,956

 

Net cash provided by operating activities

 

 

788,639

 

 

 

1,230,056

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Capital expenditures and acquisitions

 

 

(1,088,933

)

 

 

(768,148

)

Prepaid drilling costs

 

 

(14,594

)

 

 

(25,752

)

Proceeds from sales of assets

 

 

41,295

 

 

 

93

 

Net cash used for investing activities

 

 

(1,062,232

)

 

 

(793,807

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Borrowings on bank credit facility

 

 

575,000

 

 

 

705,000

 

Repayments of bank credit facility

 

 

(230,000

)

 

 

(840,000

)

Retirement of Senior Notes

 

 

 

 

 

(273,920

)

Preferred stock dividends paid

 

 

 

 

 

(13,089

)

Common stock dividends paid

 

 

(104,181

)

 

 

 

Debt and stock issuance costs

 

 

(144

)

 

 

 

Income tax withholdings on equity awards

 

 

(1,899

)

 

 

(6,255

)

Net cash provided by (used for) financing activities

 

 

238,776

 

 

 

(428,264

)

Net increase (decrease) in cash and cash equivalents

 

 

(34,817

)

 

 

7,985

 

Cash and cash equivalents, beginning of period

 

 

54,652

 

 

 

30,663

 

Cash and cash equivalents, end of period

 

$

19,835

 

 

$

38,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these statements.

7


COMSTOCK RESOURCES, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

 

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These unaudited consolidated financial statements include the accounts of Comstock Resources, Inc. and its wholly-owned subsidiaries (collectively, "Comstock" or the "Company"). In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of Comstock as of September 30, 2023, and the related results of operations and cash flows for the periods being presented. Net income and comprehensive income are the same in all periods presented. All adjustments are of a normal recurring nature unless otherwise disclosed.

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to those rules and regulations, although Comstock believes that the disclosures made are adequate to make the information presented not misleading. These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in Comstock's Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for the period through September 30, 2023 are not necessarily an indication of the results expected for the full year.

Other Current Assets

Other current assets at September 30, 2023 and December 31, 2022 consisted of the following:

 

 

As of

 

 

September 30,
2023

 

 

December 31,
2022

 

 

(In thousands)

 

Pipe and well equipment inventory

 

$

50,708

 

 

$

34,819

 

Production tax refunds receivable

 

 

14,988

 

 

 

11,156

 

Prepaid expenses

 

 

2,876

 

 

 

2,455

 

Prepaid drilling costs

 

 

 

 

 

4,265

 

Accrued proceeds from sale of natural gas and oil properties

 

 

 

 

 

3,118

 

Other

 

 

 

 

 

511

 

 

$

68,572

 

 

$

56,324

 

 

Property and Equipment

The Company follows the successful efforts method of accounting for its natural gas and oil properties. Costs incurred to acquire natural gas and oil leases and to drill and complete developmental wells are capitalized.

 

8


COMSTOCK RESOURCES, INC.

 

Exploratory well costs are initially capitalized as proved property in the consolidated balance sheets but charged to exploration expense if and when the well is determined not to have found commercial proved natural gas and oil reserves. The changes in capitalized exploratory well costs are as follows:

 

 

Three Months Ended
September 30,