What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-05 compared with 2020-08-07 · 310 added, 132 removed, 397 unchanged (53% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(In thousands)

September 30,

2020 December 31,

ASSETS (In thousands)

Cash and cash equivalents $ 28,268 $ 18,532

1 unchanged sentence

Oil and gas sales

87,965 120,111

Joint interest operations

10,792 24,761

From affiliates

3 unchanged sentences

Total current assets

149,830 289,685

Property and equipment:

Oil and natural gas properties, successful efforts method:

4,419,285 4,077,513

384,763 410,897

Accumulated depreciation, depletion and amortization

( 798,288 ) ( 486,473 )

Net property and equipment

4,012,348 4,008,803

Goodwill 335,897 335,897

Income taxes receivable — 5,109

1 unchanged sentence

Operating lease right-of-use assets 3,554 3,509

Other assets 40 231

$ 4,502,854 $ 4,657,122

LIABILITIES AND STOCKHOLDERS' EQUITY

4 unchanged sentences

Total current liabilities

380,782 392,376

Long-term debt 2,507,669 2,500,132

5 unchanged sentences

Total liabilities

3,140,174 3,134,517

Commitments and contingencies

Mezzanine equity:

Preferred Stock — 5,000,000 shares authorized, 175,000 shares and 385,000 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively:

Series A 10 % Convertible Preferred Stock, 210,000 shares issued and outstanding

Series B 10 % Convertible Preferred Stock, 175,000 shares issued and outstanding

Preferred stock — 5,000,000 shares authorized, 175,000 shares and 385,000 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively:

Series A 10 % convertible preferred stock

Series B 10 % convertible preferred stock

175,000 175,000

Stockholders' equity:

Common stock—$ 0.50 par, 400,000,000 shares authorized, 232,579,863 and 190,006,776 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

Common stock—$ 0.50 par, 400,000,000 shares authorized, 232,421,385 and 190,006,776 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

116,210 95,003

Additional paid-in capital

Accumulated earnings

1,093,811 909,423

Accumulated earnings (deficit)

( 22,341 ) 138,596

Total stockholders' equity

1,187,680 1,143,022

$ 4,502,854 $ 4,657,122

The accompanying notes are an integral part of these statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

(In thousands, except per share amounts)

Natural gas sales

$ 168,374 $ 193,506 $ 547,975 $ 375,589

9,637 30,938 35,449 103,852

Total oil and gas sales

178,011 224,444 583,424 479,441

Operating expenses:

Production taxes

Production and ad valorem taxes

9,798 9,381 27,768 22,703

Gathering and transportation

22,422 23,414 77,423 41,346

Lease operating

25,412 26,696 79,110 54,477

Depreciation, depletion and amortization

99,056 80,247 312,828 164,684

General and administrative

Loss on sale of oil and gas properties

8,974 8,105 25,991 22,760

(Gain) loss on sale of assets

( 16 ) — ( 16 ) 25

Total operating expenses

165,646 148,084 523,131 306,236

Operating income 12,365 76,360 60,293 173,205

1 unchanged sentence

Gain (loss) from derivative financial instruments

Other income (expense)

( 121,579 ) 24,858 ( 71,978 ) 31,945

489 92 793 340

Transaction costs

— ( 39,657 ) — ( 41,100 )

Interest expense

( 63,890 ) ( 51,015 ) ( 168,764 ) ( 107,434 )

Loss on early extinguishment of debt

— — ( 861 ) —

Total other income (expenses)

( 184,980 ) ( 65,722 ) ( 240,810 ) ( 116,249 )

Income (loss) before income taxes ( 172,615 ) 10,638 ( 180,517 ) 56,956

4 unchanged sentences

Net income (loss) per share:

$ ( 0.57 ) $ ( 0.01 ) $ ( 0.77 ) $ 0.26

Weighted average shares outstanding:

231,223 171,487 209,760 127,709

The accompanying notes are an integral part of these statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Par Value Additional

Capital Accumulated

Earnings (Deficit) Total

(In thousands)

1 unchanged sentence

Stock-based compensation

( 3 ) ( 2 ) 650 — 648

— — — 13,575 13,575

Balance at March 31, 2019 105,868 52,934 453,163 77,697 583,794

Stock-based compensation

74 37 586 — 623

— — — 21,407 21,407

Balance at June 30, 2019 105,942 52,971 453,749 99,104 605,824

Issuance of common stock 78,833 39,416 428,392 — 467,808

Stock-based compensation 780 391 697 — 1,088

Income tax withholdings on equity awards ( 31 ) ( 16 ) ( 151 ) — ( 167 )

Jones contribution adjustment — — ( 1,969 ) — ( 1,969 )

Equity issuance costs — — ( 1,049 ) — ( 1,049 )

Net income — — — 6,791 6,791

Payment of preferred dividends — — — ( 8,128 ) ( 8,128 )

Balance at September 30, 2019 185,524 $ 92,762 $ 879,669 $ 97,767 $ 1,070,198

Balance at January 1, 2020 190,007 $ 95,003 $ 909,423 $ 138,596 $ 1,143,022

Stock-based compensation

Income tax withholdings related to equity awards

( 24 ) ( 12 ) 1,442 — 1,430

Income tax withholdings on equity awards

( 2 ) ( 1 ) ( 14 ) — ( 15 )

— — — 42,028 42,028

Preferred dividend accretion

— — — ( 2,500 ) ( 2,500 )

Payment of preferred dividends

— — — ( 9,572 ) ( 9,572 )

Balance at March 31, 2020 189,981 94,990 910,851 168,552 1,174,393

Stock-based compensation

507 254 1,298 — 1,552

Issuances of common stock

42,092 21,046 190,592 — 211,638

Stock issuance costs

— — ( 10,079 ) — ( 10,079 )

— — — ( 49,876 ) ( 49,876 )

Preferred dividend accretion

— — — ( 2,917 ) ( 2,917 )

Payment of preferred dividends

— — — ( 7,210 ) ( 7,210 )

Balance at June 30, 2020 232,580 116,290 1,092,662 108,549 1,317,501

Stock-based compensation ( 46 ) ( 22 ) 1,774 — 1,752

Income tax withholdings on equity awards ( 113 ) ( 58 ) ( 619 ) — ( 677 )

Stock issuance costs — — ( 6 ) — ( 6 )

Net loss — — — ( 126,492 ) ( 126,492 )

Payment of preferred dividends — — — ( 4,398 ) ( 4,398 )

Balance at September 30, 2020 232,421 $ 116,210 $ 1,093,811 $ ( 22,341 ) $ 1,187,680

The accompanying notes are an integral part of these statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

1 unchanged sentence

Net income (loss)

$ ( 134,340 ) $ 41,773

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Deferred income taxes

Loss on sale of oil and gas properties

( 46,443 ) 15,205

(Gain) loss on sale of assets

Depreciation, depletion and amortization

Gain on derivative financial instruments

312,828 164,684

(Gain) loss on derivative financial instruments

71,978 ( 31,945 )

Cash settlements of derivative financial instruments

132,725 33,382

Amortization of debt discount and issuance costs

2 unchanged sentences

Decrease in accounts receivable

Decrease (increase) in other current assets

Increase (decrease) in accounts payable and accrued expenses

79,382 48,404

Decrease in other current assets

Decrease in accounts payable and accrued expenses

( 64,303 ) ( 7,424 )

Net cash provided by operating activities

389,955 282,806

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

( 332,628 ) ( 308,742 )

Acquisition of Covey Park Energy LLC, net of cash acquired — ( 693,869 )

Prepaid drilling costs

Proceeds from sales of oil and gas properties

Proceeds from sales of assets

Net cash used for investing activities

( 332,345 ) ( 992,902 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings on bank credit facility

157,000 887,000

Repayments on bank credit facility

( 907,000 ) ( 72,000 )

Repayments of Covey Park Energy LLC debt and preferred equity — ( 533,390 )

Issuance of 9¾% Senior Notes

Issuance of common stock

Redemption of Preferred Series A Convertible Stock

206,626 300,000

Issuance of Series B Preferred Stock — 175,000

Redemption of Series A Preferred Stock

( 210,000 ) —

Preferred stock dividends paid

( 21,180 ) ( 8,128 )

Debt and stock issuance costs

( 24,128 ) ( 8,169 )

Income tax withholdings related to equity awards

( 692 ) ( 167 )

Net cash provided by (used for) financing activities

Net increase (decrease) in cash and cash equivalents

( 47,874 ) 740,146

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

18,532 23,193

Cash and cash equivalents, end of period

$ 28,268 $ 53,243

The accompanying notes are an integral part of these statements.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

September 30, 2020

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –

2 unchanged sentences

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 June 30, 2020, and the related results of operations and cash flows for the periods being presented.

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, 2020, 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.

Certain amounts in prior periods have been reclassified to conform with current period presentation.

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.

1 unchanged sentence

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, 2019.

The results of operations for the period through June 30, 2020 are not necessarily an indication of the results expected for the full year.

The results of operations for the period through September 30, 2020 are not necessarily an indication of the results expected for the full year.

Covey Park Acquisition

6 unchanged sentences

These acquisition costs were included in transaction costs in the Company's consolidated statements of operations.

The operations of Covey Park are included in the financial results for the three and six months ended June 30, 2020.

The following pro forma condensed combined financial information for the three and six months ended June 30, 2019 gives effect to the Covey Park Acquisition as if the acquisition had occurred on January 1, 2019.

The operations of Covey Park are included in the financial results for the three and nine months ended September 30, 2020.

The following pro forma condensed combined financial information for the three and nine months ended September 30, 2019 gives effect to the Covey Park Acquisition as if the acquisition had occurred on January 1, 2019.

The unaudited pro forma information reflects adjustments for the issuance of the Company's common stock and preferred stock, debt incurred in connection with the transaction, the impact of the fair value of properties acquired on depletion and other adjustments the Company believes are reasonable for the pro forma presentation.

2 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2019

(In thousands, except per share amount)

September 30, 2019 Nine Months Ended

September 30, 2019

(In thousands, except per share amounts)

$ 247,192 $ 858,042

Net Income $ 36,755 $ 201,338

Net income per share:

$ 0.15 $ 0.93

$ 0.13 $ 0.72

The Covey Park Acquisition was accounted for as a business combination using the acquisition method.

During the three months ended September 30, 2020, the Company completed the final purchase allocation of the assets acquired and liabilities assumed based on their fair value at the acquisition date.

The following table summarizes the preliminary and final fair value allocations of the assets acquired and liabilities assumed in the Covey Park Acquisition:

Original Allocation Measurement Period Adjustments Final Allocation

(In thousands)

Consideration:

Cash Paid $ 700,000 $ — $ 700,000

Fair Value of Common Stock Issued 167,808 — 167,808

Fair Value of Series A Preferred Stock Issued 200,000 — 200,000

Total Consideration 1,067,808 — 1,067,808

Liabilities Assumed:

Accounts Payable and Accrued Liabilities 129,622 — 129,622

Derivative Financial Instruments 388 — 388

Other Current Liabilities 9,930 706 10,636

Long Term Debt 826,625 — 826,625

Covey Park Preferred Equity 153,390 — 153,390

Non-current Derivative Financial Instruments 186 — 186

Asset Retirement Obligations 5,374 — 5,374

Deferred Income Taxes 23,466 ( 1,780 ) 21,686

Other Non-current Liabilities 9,893 — 9,893

Liabilities Assumed 1,158,874 ( 1,074 ) 1,157,800

Total Consideration and Liabilities Assumed $ 2,226,682 $ ( 1,074 ) $ 2,225,608

Assets Acquired:

Cash and Cash Equivalents $ 6,131 $ — $ 6,131

Accounts Receivable 86,285 — 86,285

Current Derivative Financial Instruments 51,004 — 51,004

Other Current Assets 5,511 ( 554 ) 4,957

Proved Oil and Natural Gas Properties 1,818,413 ( 520 ) 1,817,893

Unproved Oil and Natural Gas Properties 237,210 — 237,210

Other Property, Plant and Equipment 2,262 — 2,262

Non-current Derivative Financial Instruments 19,866 — 19,866

Total Assets Acquired $ 2,226,682 $ ( 1,074 ) $ 2,225,608

Property and Equipment

15 unchanged sentences

As a result of these changes, there may be future impairments in the carrying values of these or other properties.

The Company had goodwill of $ 335.9 million as of June 30, 2020 that was recorded in 2018.

The Company had goodwill of $ 335.9 million as of September 30, 2020 that was recorded in 2018.

Goodwill represents the excess of value of the Company over fair value of net tangible and identifiable intangible assets at the time of the change in control, which occurred on August 14, 2018.

3 unchanged sentences

If the carrying value of goodwill exceeds the fair value, an impairment charge would be recorded for the difference between fair value and carrying value.

The Company has right-of-use lease assets of $ 4.0 million related to its corporate office lease, certain office equipment and leased vehicles used in oil and gas operations with corresponding short-term and long-term liabilities of $ 2.3 million and $ 1.7 million, respectively.

The Company has right-of-use lease assets of $ 3.6 million related to its corporate office lease, certain office equipment and leased vehicles used in oil and gas operations with corresponding short-term and long-term liabilities.

The value of the lease assets and liabilities are determined based upon discounted future minimum cash flows contained within each of the respective contracts.

7 unchanged sentences

Leases for the right to explore for and develop oil and natural gas reserves and the related rights to use the land associated with those leases are reflected as oil and gas properties.

Comstock contracts for a variety of equipment used in its oil and natural gas exploration and development operations.

Comstock contracts for a variety of equipment used in its oil and natural gas exploration and development activities.

Contract terms for this equipment vary broadly, including the contract duration, pricing, scope of services included along with the equipment, cancellation terms, and rights of substitution, among others.

2 unchanged sentences

The Company's rig contracts are presently either for periods of less than one year, or they are on terms that provide for cancellation with 45 days advance notice without a specified expiration date.

Accordingly, the Company has elected not to recognize right-of-use lease assets for these rig contracts.

the Company has elected not to recognize right-of-use lease assets for these rig contracts.

The costs associated with drilling rig operations are accounted for under the successful efforts method, which generally require that these costs be capitalized as part of our proved oil and natural gas properties on our balance sheet unless they are incurred on exploration wells that are unsuccessful, in which case they are charged to exploration expense.

Lease costs recognized during the three months and six m onths ended June 30 , 2020 were as follows:

June 30, 2020

Lease costs recognized during the three months and nine months ended September 30, 2020 were as follows:

Three Months Ended

September 30, 2020 Nine Months Ended

September 30, 2020

(In thousands)

2 unchanged sentences

Short-term lease cost (drilling rig costs included in proved oil and gas properties) 7,324 26,605

Cash payments for operating leases associated with right-of-use assets included in cash provided by operating activities were $ 0.6 million and $ 1.2 million for the three months and six months ended June 30, 2020, respectively.

As of June 30, 2020, Comstock had the following liabilities under contracts that contain operating leases:

$ 7,975 $ 28,432

Cash payments for operating leases associated with right-of-use assets included in cash provided by operating activities were $ 0.7 million and $ 1.8 million for the three months and nine months ended September 30, 2020, respectively.

As of September 30, 2020, expected future payments related to contracts that contain operating leases were as follows:

(In thousands)

July 1 to December 31, 2020

October 1 to December 31, 2020 $ 647

Total lease payments

1 unchanged sentence

Total lease liability $ 3,554

The weighted average term of these operating leases was 1.8 years and the weighted average rate used in lease computations was 4.5 %.

As of June 30, 2020, the Company also had expected future payments for contracted drilling services of $ 3.5 million.

The weighted average term of these operating leases was 1.7 years and the weighted average interest rate used in lease computations was 4.4 %.

As of September 30, 2020, the Company also had expected future payments for contracted drilling services of $ 5.2 million.

Accrued Costs

Accrued costs at June 30, 2020 and December 31, 2019 consisted of the following:

Accrued costs at September 30, 2020 and December 31, 2019 consisted of the following:

As of September 30,

2020 As of December 31,

(In thousands)

Accrued interest payable $ 38,910 $ 39,501

Accrued capital expenditures

Accrued transportation costs 25,465 26,907

Accrued transaction costs

Accrued employee compensation

Accrued capital expenditures 25,422 42,193

Accrued lease operating expenses 11,817 4,990

Accrued employee compensation 6,508 8,653

Other 3,485 4,092

Accrued transaction costs 1,088 10,830

$ 112,695 $ 137,166

Reserve for Future Abandonment Costs

1 unchanged sentence

The following table summarizes the changes in Comstock's total estimated liability for such obligations during the periods presented:

Six Months Ended June 30,

Nine Months Ended

September 30,

(In thousands)

1 unchanged sentence

New wells placed on production

Wells acquired — 5,374

Liabilities settled and assets disposed of

( 80 ) ( 40 )

Accretion expense

7 unchanged sentences

All of Comstock's natural gas derivative financial instruments, except for certain basis swaps, are tied to the Henry Hub-NYMEX price index and all of its crude oil derivative financial instruments are tied to the WTI-NYMEX index price.

The Company had the following oil and natural gas price derivative financial instruments, excluding basis swaps which are discussed separately below, at June 30, 2020:

The Company had the following oil and natural gas price derivative financial instruments, excluding basis swaps which are discussed separately below, at September 30, 2020:

Future Production Period

Six Months Ending December 31, 2020

Year Ending December 31, 2021

Year Ending December 31, 2022

Three Months Ending December 31, 2020 Year Ending December 31, 2021 Year Ending December 31, 2022 Total

Natural Gas Swap Contracts:

Volume (MMBtu)

47,658,438 (1) 142,633,140 (2) 10,950,000 201,241,578

Average Price per MMBtu

$ 2.63 (1) $ 2.55 (2) $ 2.53 $ 2.57

Natural Gas 2-Way Collar Contracts:

Volume (MMBtu)

8,720,000 109,550,000 3,600,000 121,870,000

Price per MMBtu:

Average Ceiling

$ 2.95 $ 2.93 $ 3.36 $ 2.94

Average Floor

$ 2.43 $ 2.45 $ 2.50 $ 2.45

Natural Gas 3-Way Collar Contracts:

Volume (MMBtu)

4,600,000 — — 4,600,000

Price per MMBtu:

Average Ceiling

$ 2.99 — — $ 2.99

Average Floor

$ 2.63 — — $ 2.63

$ 2.32 — — $ 2.32

Natural Gas Swaptions Call Contracts:

Volume (MMBtu)

— 71,250,000 (3) 49,200,000 (4) 120,450,000

Average Price per MMBtu

— $ 2.52 (3) $ 2.51 (4) $ 2.52

Crude Oil Collar Contracts:

Volume (Barrels)

259,500 182,500 — 442,000

Price per Barrel:

Average Ceiling

$ 63.83 $ 45.00 — $ 56.06

Average Floor

For the six months ending December 31, 2020, natural gas price swap contracts include 38,640,000 MMBtu at an average price of $ 2.52 that are part of certain natural gas price swaption contracts which include a call to extend the price swap by the counterparty as described in (3) below.

$ 49.35 $ 40.00 — $ 45.49

_____________________________

(1) For the three months ending December 31, 2020, natural gas price swap contracts include 19,320,000 MMBtu at an average price of $ 2.52 that are part of certain natural gas price swaption contracts which include a call to extend the price swap by the counterparty as described in (3) below.

(2) For the year ending December 31, 2021, natural gas price swap contracts include 23,650,000 MMBtu at an average price of $ 2.52 that are part of certain natural gas price swaption contracts which include a call to extend the price swap by the counterparty as described in (4) below.

5 unchanged sentences

for 36,500,000 MMBtu at an average price of $ 2.52 in October 2021 and 7,300,000 MMBtu at an average price of $ 2.50 in November 2021.

In addition to the swaps, collars and swaptions above, at June 30, 2020, the Company has basis swap contracts that fix the differential between NYMEX Henry Hub and Houston Ship Channel indices.

In addition to the swaps, collars and swaptions above, at September 30, 2020, the Company has basis swap contracts that fix the differential between NYMEX Henry Hub and Houston Ship Channel indices.

These contracts settle monthly through December 2022 on a total volume of 31,070,000 MMBtu.

The fair value of these contracts was a net asset of $ 1.1 million at June 30, 2020.

The fair value of these contracts was a net asset of $ 1.3 million at September 30, 2020.

The Company has interest rate swap agreements that fix LIBOR at 0.33 % for $ 500.0 million of its floating rate long-term debt.

These contracts settle monthly through April 2023.

The fair value of these contracts was a net liability of $ 2.8 million at June 30, 2020.

The fair value of these contracts was a net liability of $ 2.5 million at September 30, 2020.

None of the Company's derivative contracts were designated as cash flow hedges.

The aggregate fair value of the Company's derivative instruments reported in the accompanying consolidated balance sheets by type, including the classification between assets and liabilities, consists of the following:

Consolidated Balance Sheet Location

June 30, 2020

December 31, 2019

Type Consolidated Balance Sheet Location September 30, 2020 December 31, 2019

(in thousands)

Asset Derivative Financial Instruments:

Natural gas price derivatives

Derivative Financial Instruments – current

Oil price derivatives

Derivative Financial Instruments – current

Natural gas price derivatives

Derivative Financial Instruments – long-term

Natural gas price derivatives Derivative Financial Instruments – current $ 6,405 $ 75,123

Oil price derivatives Derivative Financial Instruments – current 2,425 181

$ 8,830 $ 75,304

Natural gas price derivatives Derivative Financial Instruments – long-term $ 1,185 $ 13,888

Liability Derivative Financial Instruments:

Natural gas price derivatives

Derivative Financial Instruments – current

Oil price derivatives

Derivative Financial Instruments – current

Interest rate derivatives

Derivative Financial Instruments – current

Natural gas price derivatives

Derivative Financial Instruments – long-term

Interest rate derivatives

Derivative Financial Instruments – long-term

Natural gas price derivatives Derivative Financial Instruments – current $ 62,652 $ —

Oil price derivatives Derivative Financial Instruments – current — 222

Interest rate derivatives Derivative Financial Instruments – current 943 —

$ 63,595 $ 222

Natural gas price derivatives Derivative Financial Instruments – long-term $ 64,814 $ 4,220

Oil price derivatives Derivative Financial Instruments – long-term 20 —

Interest rate derivatives Derivative Financial Instruments – long-term 1,539 —

$ 66,373 $ 4,220

The Company recognized cash settlements and changes in the fair value of its derivative financial instruments as a single component of other income (expenses).

Gains and losses related cash settlements and changes in the fair value recognized on the Company's derivative contracts recognized in the consolidated statement of operations were as follows:

Gain (Loss) Recognized in

Three Months Ended June 30,

Six Months Ended June 30,

Earnings on Derivatives

Gains and losses related to cash settlements and changes in the fair value recognized on the Company's derivative contracts recognized in the consolidated statement of operations were as follows:

Gain (Loss) on Derivatives

Recognized in Earnings Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

(In thousands)

2 unchanged sentences

Interest rate derivatives 116 — ( 2,635 ) —

Subsequent to June 30, 2020, the Company entered into additional natural gas 2-way collar contracts to hedge 10,000 MMBtu per day of natural gas production from April 2021 to March 2022 at an average ceiling price of $ 3.00 per MMBtu and an average floor price of $ 2.50 per MMBtu and crude oil collar contracts to hedge 182,500 barrels of oil production in 2021 with an average ceiling price of $ 45.00 per barrel and an average floor price of $ 40.00 per barrel.

$ ( 121,579 ) $ 24,858 $ ( 71,978 ) $ 31,945

Subsequent to September 30, 2020, the Company entered into additional natural gas 2-way collar contracts to hedge 20,000 MMBtu per day of natural gas production from March 2021 to February 2022 at an average ceiling price of $ 3.70 per MMBtu and an average floor price of $ 2.60 per MMBtu.

In addition, counterparties to the Company's swaption contracts exercised their option to enter into additional natural gas swap contracts to hedge 47,450,000 MMBtu of the Company's 2021 natural gas production at an average price of $ 2.53 .

Stock-Based Compensation

1 unchanged sentence

Compensation cost is measured at the grant date based on the fair value of the award and is recognized over the award vesting period and included in general and administrative expenses for awards of restricted stock and performance stock units ("PSUs") to the Company's employees and directors.

The Company recognized $ 1.6 million and $ 0.6 million of stock-based compensation expense within general and administrative expenses related to awards of restricted stock and PSUs to its employees and directors during the three months ended June 30, 2020 and 2019, respectively, and $ 3.0 million and $ 1.3 million for the six months ended June 30, 2020 and 2019, respectively.

The Company recognized $ 1.8 million and $ 1.1 million of stock-based compensation expense within general and administrative expenses related to awards of restricted stock and PSUs to its employees and directors during the three months ended September 30, 2020 and 2019, respectively, and $ 4.7 million and $ 2.4 million for the nine months ended September 30, 2020 and 2019, respectively.

In June 2020, the Company granted 514,258 shares of restricted stock to its directors and employees.

The 2020 grants had a weighted average fair value of $ 5.38 per share on the grant date.

As of June 30, 2020, Comstock had 1,481,889 shares of unvested restricted stock outstanding at a weighted average grant date fair value of $ 5.96 per share.

Total unrecognized compensation cost related to unvested restricted stock grants of $ 6.6 million as of June 30, 2020 is expected to be recognized over a period of 2.1 years.

As of June 30, 2020, Comstock had 1,136,488 PSUs outstanding at a weighted average grant date fair value of $ 9.33 per unit.

As of September 30, 2020, Comstock had 1,044,673 shares of unvested restricted stock outstanding at a weighted average grant date fair value of $ 5.80 per share.

Total unrecognized compensation cost related to unvested restricted stock grants of $ 5.4 million as of September 30, 2020 is expected to be recognized over a period of 1.9 years.

As of September 30, 2020, Comstock had 1,136,488 PSUs outstanding at a weighted average grant date fair value of $ 9.33 per unit.

The number of shares of common stock to be issued related to the PSUs is based on the Company's stock price performance as compared to its peers which could result in the issuance of anywhere from zero to 2,272,976 shares of common stock.

Total unrecognized compensation cost related to these grants of $ 6.7 million as of June 30, 2020 is expected to be recognized over a period of 2.1 years .

Total unrecognized compensation cost related to these grants of $ 5.8 million as of September 30, 2020 is expected to be recognized over a period of 1.9 years.

Revenue Recognition

12 unchanged sentences

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 June 30, 2020.

The Company did not have any significant imbalance positions at September 30, 2020.

Sales of oil and natural gas generally occur at or near the wellhead.

When sales of oil and gas occur at locations other than the wellhead, the Company accounts for costs incurred to transport the production to the delivery point as gathering and transportation expenses.

The Company recognized accounts receivable of $ 75.4 million as of June 30, 2020 from customers for contracts where performance obligations have been satisfied and an unconditional right to consideration exists.

The Company recognized accounts receivable of $ 88.0 million as of September 30, 2020 from customers for contracts where performance obligations have been satisfied and an unconditional right to consideration exists.

Credit Losses

2 unchanged sentences

The Company performs quarterly impairment analysis using the Current Expected Credit Losses ("CECL") impairment model.

The Company concluded there is no cumulative-effect adjustment required as of January 1, 2020 and credit impairment at June 30, 2020 was immaterial.

The Company concluded there is no cumulative-effect adjustment required as of January 1, 2020 and credit impairment at September 30, 2020 was immaterial.

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.

3 unchanged sentences

As a result, the Company established valuation allowances for its deferred tax assets and U.S.

federal and state net operating loss carryforwards that are not expected to be utilized due to the uncertainty of generating taxable income prior to the expiration of the carryforward periods.

federal and state

net operating loss carryforwards that are not expected to be utilized due to the uncertainty of generating taxable income prior to the expiration of the carryforward periods.

The Company will continue to assess the valuation allowances against deferred tax assets considering all available information obtained in future periods.

The following is an analysis of the consolidated income tax provision:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In thousands)

3 unchanged sentences

Deferred - State ( 10,545 ) 591 ( 8,731 ) 1,246

$ ( 46,123 ) $ 3,847 $ ( 46,177 ) $ 15,183

The difference between the federal statutory rate of 21% and the effective tax rate is due to the following:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Tax at statutory rate 21.0 % 21.0 % 21.0 % 21.0 %

1 unchanged sentence

Valuation allowance on deferred tax assets

1.5 4.5 1.0 2.3

State income taxes, net of federal benefit

5.2 ( 1.8 ) 4.3 —

Nondeductible stock-based compensation

( 1.0 ) 1.2 ( 0.8 ) 1.5

Transaction costs — 8.6 — 1.9

Effective tax rate 26.7 % 36.2 % 25.6 % 26.7 %

15 unchanged sentences

The Company's natural gas swaption agreements are measured at fair value using a third-party pricing service, categorized as a Level 3 measurement.

The Company had no derivative instruments classified as Level 3 as of June 30, 2019.

The Company had no derivative instruments classified as Level 3 as of September 30, 2019.

The following is a reconciliation of the beginning and ending balances for derivative instrument assets (liabilities) classified as Level 3 in the fair value hierarchy:

Six Months Ended

June 30, 2020

Nine Months Ended

September 30, 2020

(In thousands)

Balance at beginning of year $ 4,351

Total gain (loss) included in earnings

Total loss included in earnings

Settlements, net

1 unchanged sentence

Fair Values – Reported

The following presents the carrying amounts and the fair values of the Company's financial instruments as of June 30, 2020 and December 31, 2019:

June 30, 2020

December 31, 2019

Carrying Value

The following presents the carrying amounts and the fair values of the Company's financial instruments as of September 30, 2020 and December 31, 2019:

September 30, 2020 December 31, 2019

Carrying Value Fair Value Carrying Value Fair Value

(In thousands)

Derivative financial instruments (1)

$ 10,015 $ 10,015 $ 89,192 $ 89,192

Derivative financial instruments (1)

$ 129,968 $ 129,968 $ 4,442 $ 4,442

Bank credit facility (2)

$ 500,000 $ 500,000 $ 1,250,000 $ 1,250,000

7½% senior notes due 2025 (3)

$ 467,917 $ 586,882 $ 455,768 $ 534,375

9¾% senior notes due 2026 (3)

$ 1,575,554 $ 1,687,125 $ 820,057 $ 765,000

______________

(1) The Company's natural gas price swaps and basis swap agreements, its interest rate swap agreements and its crude oil and natural gas price collars are classified as Level 2 and measured at fair value using a market approach using third party pricing services and other active markets or broker quotes that are readily available in the public markets.

2 unchanged sentences

(2) The carrying value of our floating rate debt outstanding approximates fair value.

The fair value of the Company ' s fixed rate debt was based on quoted prices as of June 30, 2020 and December 31, 2019, respectively, a Level 1 measurement.

(3) The fair value of the Company's fixed rate debt was based on quoted prices as of September 30, 2020 and December 31, 2019, respectively, a Level 1 measurement.

Earnings Per Share

Unvested share-based payment awards containing nonforfeitable rights to dividends are considered to be participating securities and included in the computation of basic and diluted earnings per share pursuant to the two-class method.

Unvested share-based payment awards containing non-forfeitable rights to dividends are considered to be participating securities and included in the computation of basic and diluted earnings per share pursuant to the two-class method.

PSUs represent the right to receive a number of shares of the Company's common stock that may range from zero to up to two times the number of PSUs granted on the award date based on the achievement of certain performance measures during a performance period.

2 unchanged sentences

None of the Company's participating securities participate in losses and as such are excluded from the computation of basic earnings per share during periods of net losses.

T he Company redeemed all of the shares of Series A Convertible Preferred Stock during the three months ended June 30, 2020.

The Series B Convertible Preferred Stock became convertible into an aggregate of 43,750,000 shares of common stock on July 16, 2020 at a conversion price of $ 4.00 per share.

The Company redeemed all of the shares of Series A Convertible Preferred Stock on May 19, 2020.

The Series B Convertible Preferred Stock became convertible into an aggregate

of 43,750,000 shares of common stock on July 16, 2020 at a conversion price of $ 4.00 per share.

The dilutive effect of preferred stock is computed using the if-converted method as if conversion of the preferred shares had occurred at the earlier of the date of issuance or the beginning of the period.

At June 30, 2020 and December 31, 2019, 1,481,889 and 1,092,309 shares of restricted stock, respectively, are included in common stock outstanding as such shares have a non-forfeitable right to participate in any dividends that might be declared and have the right to vote on matters submitted to the Company's stockholders.

At September 30, 2020 and December 31, 2019, 1,044,673 and 1,092,309 shares of restricted stock, respectively, are included in common stock outstanding as such shares have a non-forfeitable right to participate in any dividends that might be declared and have the right to vote on matters submitted to the Company's stockholders.

Weighted average shares of unvested restricted stock outstanding were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands)

1 unchanged sentence

Weighted average unearned PSUs outstanding were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In thousands, except per unit amounts)

1 unchanged sentence

Weighted average grant date fair value per unit $ 9.33 $ 9.60 $ 9.33 $ 9.60

The convertible preferred stock, unvested restricted shares and the PSUs were anti-dilutive in the three months and six months ended June 30, 2020 and 2019.

The convertible preferred stock, unvested restricted shares and the PSUs were anti-dilutive in the three months and nine months ended September 30, 2020 and 2019.

Basic and diluted income (loss) per share were determined as follows:

Three Months Ended June 30,

Three Months Ended September 30,

Loss Shares Per Share Income Shares Per Share

(In thousands, except per share amounts)

3 unchanged sentences

Diluted income (loss) attributable to common stock $ ( 130,890 ) 231,223 $ ( 0.57 ) $ ( 1,337 ) 171,487 $ ( 0.01 )

Six Months Ended June 30,

Nine Months Ended September 30,

Loss Shares Per Share Income Shares Per Share

(In thousands, except per share amounts)

3 unchanged sentences

Diluted income (loss) attributable to common stock $ ( 160,936 ) 209,760 $ ( 0.77 ) $ 33,504 127,709 $ 0.26

Basic and diluted per share amounts are the same for the three and six months ended June 30, 2020 due to the net loss in those periods.

Basic and diluted per share amounts are the same for the three and nine months ended September 30, 2020 and the three months ended September 30, 2019 due to the net loss in those periods.

Basic and diluted shares for the nine months ended September 30, 2019 are the same as there was no impact from the unvested restricted shares.

Supplementary Information with Respect to the Consolidated Statements of Cash Flows

Cash payments made for interest and income taxes and other non-cash investing and financing activities for the six months ended June 30, 2020 and 2019, respectively, were as follows:

Six Months Ended June 30,

Cash payments made for interest and income taxes and other non-cash investing and financing activities for the nine months ended September 30, 2020 and 2019, respectively, were as follows:

Nine Months Ended

September 30,

(In thousands)

4 unchanged sentences

Decrease in accrued capital expenditures $ 16,771 $ 46,918

Non-cash investing activities related to the Covey Park Acquisition include:

Issuance of common stock $ — $ 167,808

Issuance of Series A Convertible Preferred Stock $ — $ 200,000

Assumed 7½% Senior Notes due 2025 $ — $ 446,625

Acquired working capital $ 520 $ 41,624

Non-cash financing activities include:

9 unchanged sentences

(2) LONG-TERM DEBT –

At June 30, 2020, long-term debt was comprised of the following:

At September 30, 2020, long-term debt was comprised of the following:

(In thousands)

2 unchanged sentences

9¾% Senior Notes due 2026:

Discount, net of amortization

Net discount, net of amortization ( 74,446 )

Bank Credit Facility:

Debt issuance costs, net of amortization ( 35,802 )

As of June 30, 2020, the Company had a bank credit facility with a $ 1.4 billion committed borrowing base which is re-determined on a semi-annual basis and upon the occurrence of certain other events which matures on July 16, 2024 .

Borrowings under the bank credit facility are secured by substantially all of the assets of the Company and its subsidiaries and bear interest at the Company's option, at either LIBOR plus 2.25 % to 3.25 % or a base rate plus 1.25 % to 2.25 %, in each case depending on the utilization of the borrowing base.

As of September 30, 2020, the Company had $ 500.0 million outstanding under a bank credit facility with a $ 1.4 billion committed borrowing base which is re-determined on a semi-annual basis and upon the occurrence of certain other events which matures on July 16, 2024.

rate plus 1.25 % to 2.25 %, in each case depending on the utilization of the borrowing base.

The Company also pays a commitment fee of 0.375 % to 0.5 % on the unused portion of the borrowing base.

1 unchanged sentence

The only financial covenants are the maintenance of a leverage ratio of less than 4.0 to 1.0 and an adjusted current ratio of at least 1.0 to 1.0.

The Company was in compliance with the covenants as of June 30, 2020.

During the three months ended June 30, 2020, the Company exchanged 767,096 shares of its common stock, valued at approximately $ 5.0 million, to retire $ 5.6 million aggregate principal amount of the Company's 7 ½ % Senior Notes due 2025, which had a carrying value of $ 4.2 million.

As a result, the Company recognized a $ 0.9 million loss on early retirement of debt in the three and six months ended June 30, 2020.

The Company was in compliance with the covenants as of September 30, 2020.

In May 2020, the Company exchanged 767,096 shares of its common stock, valued at approximately $ 5.0 million, to retire $ 5.6 million aggregate principal amount of the Company's 7½% Senior Notes due 2025, which had a carrying value of $ 4.2 million.

As a result, the Company recognized a $ 0.9 million loss on early retirement of debt in the nine months ended September 30, 2020.

On June 23, 2020, the Company issued $ 500.0 million principal amount of its 9¾% Senior Notes due 2026 in an underwritten offering and received net proceeds of $ 441.1 million, which were used to repay borrowings under the Company's bank credit facility.

The senior notes mature on August 15, 2026 and accrue interest at a rate of 9¾% per annum, payable semi-annually on February 15 and on August 15 of each year.

On August 19, 2020 the Company issued an additional $ 300.0 million principal amount of its 9¾% Senior Notes due 2026 in an underwritten offering and received net proceeds of $ 296.4 million, which were used to further repay borrowings under the Company's bank credit facility.

The senior notes issued are a further issuance of the $ 500.0 million senior notes issued on June 23, 2020.

(3) PREFERRED STOCK –

In connection with the Covey Park Acquisition, the Company issued 210,000 shares of Series A Convertible Preferred Stock with a face value of $ 210.0 million and a fair value of $ 200.0 million as part of the consideration for the acquisition and sold 175,000 shares of Series B Convertible Preferred Stock for $ 175.0 million to its majority stockholder.

The holders of the preferred stock are entitled to receive quarterly dividends at a rate of 10 % per annum, which are paid in arrears.

On May 19, 2020, the Company redeemed the 210,000 outstanding shares of the Series A Preferred Stock for an aggregate redemption price of $ 210.0 million plus accrued and unpaid dividends of approximately $ 2.9 million.

At any time after July 16, 2020, the holder of the Series B Convertible Preferred Stock may convert any or all shares of such preferred stock into shares of the Company's common stock at $ 4.00 per share, subject to adjustment pursuant to customary anti-dilution provisions.

The holder of the Series B Preferred Stock is entitled to receive quarterly dividends at a rate of 10 % per annum, which are paid in arrears.

The holder of the Series B Convertible Preferred Stock may convert any or all shares of such preferred stock into shares of the Company's common stock at $ 4.00 per share, subject to adjustment pursuant to customary anti-dilution provisions.

The Company has the right to redeem the Series B Convertible Preferred Stock at any time at face value plus accrued dividends.

1 unchanged sentence

(4) COMMON STOCK –

In May 2020, the Company completed a public underwritten offering of its common stock pursuant to which it issued and sold 41,325,000 shares for net proceeds after offering costs of $ 196.5 million.

In May 2020, the Company completed an underwritten public offering of its common stock pursuant to which it issued and sold 41,325,000 shares for net proceeds after offering costs of $ 196.5 million.

The proceeds of the offering were used toward the redemption of the Series A Convertible Preferred Stock.

1 unchanged sentence

The Company has entered into natural gas transportation contracts which expire beginning February 2021 and extend through October 2031.

Commitments under these contracts are $ 7.3 million for the remainder of 2020, $ 15.1 million for 2021, $ 24.8 million per year for 2022 through 2023, $ 24.9 million for 2024 and $ 169.6 million for the remaining term of the contracts.

Commitments under these contracts are $ 4.1 million for the remainder of 2020, $ 21.5 million for 2021, $ 31.2 million for 2022, $ 24.8 million for 2023, $ 24.9 million for 2024, $ 24.8 million for 2025 and $ 144.8 million for the remaining term of the contracts.

The Company has drilling rig contracts and completion service contracts.

1 unchanged sentence

The service contracts are generally cancellable with 45 days' notice.

Existing commitments under these contracts is $ 3.5 million as of June 30, 2020.

Existing commitments under these contracts is $ 5.2 million as of September 30, 2020.

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 Company's financial position, results of operations or cash flows and no material amounts are accrued relative to these matters at June 30, 2020 or 2019.

(6) RELATED PARTY TRANSACTIONS –

Comstock operates wells for partnerships owned by the Company's majority stockholder.

As operator, Comstock charges the partnerships for the costs incurred to drill and operate the wells as well as customary drilling and operating overhead fees that it charges other working interest owners.

Comstock received $ 30.8 million and $ 76.1 million from the partnerships related to these wells for the three months and six months ended June 30, 2020, respectively, and $ 0.9 million and $ 1.6 million for the three months and six months ended June 30, 2019, respectively.

Comstock had a $ 9.9 million receivable from the partnerships at June 30, 2020, which was collected in full on August 5, 2020.

As operator, Comstock charges the partnerships for the costs incurred to drill and operate the wells in addition to customary drilling and operating overhead fees that it charges other working interest owners.

Comstock received $ 2.4 million and $ 78.4 million from the partnerships related to these wells for the three months and nine months ended September 30, 2020, respectively, and $ 12.1 million and $ 13.7 million for the three months and nine months ended September 30, 2019, respectively.

The Company also provides natural gas marketing services to the partnerships, including evaluating potential markets and providing hedging services, and receives a fee equal to $ 0.02 per Mcf for natural gas marketed.

Comstock had a $ 2.2 million receivable from the partnerships at September 30, 2020, which was collected in full on November 4, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements