What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-02-17 compared with 2020-03-02 · 544 added, 515 removed, 816 unchanged (56% of the section changed)

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The evaluation was performed with the participation of senior management of each business segment and key corporate functions, and under the supervision of the Chief Executive Officer and Chief Financial Officer.

Based on our evaluation of our disclosure controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2019 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and to provide reasonable assurance that information required to be disclosed by us is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

specified in the SEC's rules and forms, and to provide reasonable assurance that information required to be disclosed by us is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2019 that materially affected or

are reasonably likely to materially affect our internal control over financial reporting.

We are in the process of integrating the Covey Park Energy operations into the control environment, including internal controls over financial reporting.

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting.

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As of December 31, 2020, we assessed the effectiveness of the Company's internal control over financial reporting based on the COSO criteria, and based on that assessment we determined that the Company maintained effective internal control over financial reporting as of December 31, 2020.

On July 16, 2019, we completed the acquisition of Covey Park Energy LLC.

We are in the process of integrating Covey Park Energy LLC’s operations, and, therefore, management’s evaluation and conclusion as to the effectiveness of our internal control over financial reporting as of the end of the period covered by this Annual Report on Form 10-K excludes any evaluation of internal control over financial reporting of the Covey Park Energy LLC business.

Covey Park Energy LLC accounted for approximately 48% of the Company ' s total assets and 34% of total revenues of the Company as of and for the year ended December 31, 2019.

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 Company's internal control over financial reporting as of December 31, 2020.

The report, which expresses an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2020, follows below.

Report of Independent Registered Public Accoun ting Firm

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

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and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Covey Park Energy LLC, which is included in the 2019 consolidated financial statements of the Company and constituted 48% of total assets as of December 31, 2019 and 34% of total revenues, for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Covey Park Energy LLC.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2019, the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2017 (Predecessor), the period from January 1, 2018 through August 13, 2018 (Predecessor), the period from August 14, 2018 through December 31, 2018 (Successor), and the year ended December 31, 2019 and the related notes and our report dated March 2, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2020, the related consolidated statements of operations, stockholders’ equity and cash flows for the period from January 1, 2018 through August 13, 2018 (Predecessor), the period from August 14, 2018 through December 31, 2018 (Successor), and each of the two years ended December 31, 2020 (Successor), and the related notes and our report dated February 17, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Dallas, Texas

March 2, 2020

February 17, 2021

OTHER INFORMATION

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outstanding options, warrants

Number of securities authorized

and rights Number of securities authorized

for future issuance under equity

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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements:

(a) Financial Statements:

The following consolidated financial statements and notes of Comstock Resources, Inc.

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Consolidated Balance Sheets as of December 31, 2019 and 2020

Consolidated Statements of Operations For the Year Ended December 31, 2017 (Predecessor), For the Period From January 1, 2018 Through August 13, 2018 (Predecessor), For the Period August 14, 2018 Through December 31, 2018 (Successor) and For the Year Ended December 31, 2019 (Successor)

Consolidated Statements of Operations For the Period From January 1, 2018 Through August 13, 2018 (Predecessor), For the Period August 14, 2018 Through December 31, 2018 (Successor) and For the Years Ended December 31, 2019 and 2020 (Successor)

Consolidated Statements of Stockholders' Equity

Consolidated Statements of Cash Flows For the Year Ended December 31, 2017 (Predecessor), For The Period From January 1, 2018 Through August 13, 2018 (Predecessor), For The Period from August 14, 2018 through December 31, 2018 (Successor) and For the Year Ended December 31, 2019 (Successor)

Consolidated Statements of Cash Flows For The Period From January 1, 2018 Through August 13, 2018 (Predecessor), For The Period from August 14, 2018 through December 31, 2018 (Successor) and For the Year s Ended December 31, 2019 and 2020 (Successor)

Notes to Consolidated Financial Statements

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.

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2 to the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K dated July 15, 2019).

Indenture, dated as of August 3, 2018, by and between Comstock Escrow Corporation, as issuer, and American Stock Transfer & Trust Company LLC, as trustee (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated August 3, 2018).

First Supplemental Indenture dated August 14, 2018 among the Company, the Guarantors and American Stock Transfer & Trust Company, LLC, as Trustee (incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K dated August 13, 2018).

Supplemental Indenture dated July 16, 2019 among the Company and Wells Fargo Bank, National Association for the 7½% Senior Notes due 2025 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated July 15, 2019).

Supplemental Indenture dated July 16, 2019 among the Company, the Guaranteeing Subsidiaries and Wells Fargo Bank, National Association for the 7½% Senior Notes due 2025 (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K dated July 15, 2019).

4.1 Indenture, dated as of August 3, 2018, by and between Comstock Escrow Corporation, as issuer, and American Stock Transfer & Trust Company LLC, as trustee for the 9¾% Senior Notes due 2026 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated August 3, 2018).

4.2 First Supplemental Indenture dated August 14, 2018 among the Company, the Guarantors and American Stock Transfer & Trust Company, LLC, as trustee for the 9¾% Senior Notes due 2026 (incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K dated August 13, 2018).

4.3 Supplemental Indenture dated July 16, 2019 among the Company, the Guarantors and American Stock Transfer & Trust Company, LLC for the 9¾% Senior Notes due 2026 (incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K dated July 15, 2019).

Certificate of Designations of Series A Redeemable Convertible Preferred Stock and Series B Redeemable Convertible Preferred Stock (incorporated by reference to Exhibit 4.4 to our Current Report on Form 8-K dated July 15, 2019).

4.4 Indenture dated May 3, 2017 between Covey Park Energy LLC, Covey Park Finance Corp.

and Wells Fargo Bank National Association, as Trustee, for the 7½% Senior Notes due 2025 (incorporated by reference to Exhibit 4.7 to our Quarterly Report on Form 10-Q dated August 9, 2019).

and Wells Fargo Bank National Association, as Trustee, for the 7½% Senior Notes due 2025 (incorporated by reference to Exhibit 4.7 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019).

4.5 Supplemental Indenture dated July 16, 2019 among the Company and Wells Fargo Bank, National Association for the 7½% Senior Notes due 2025 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated July 15, 2019).

4.6 Supplemental Indenture dated July 16, 2019 among the Company, the Guaranteeing Subsidiaries and Wells Fargo Bank, National Association for the 7½% Senior Notes due 2025 (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K dated July 15, 2019).

4.7 Instrument of Resignation, Appointment and Acceptance dated as of July 16, 2019 among the Company, the Subsidiary Guarantors named therein, Wells Fargo Bank, N.A.

and American Stock Transfer & Trust Company LLC (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K dated July 15, 2019).

4.8 Indenture dated June 23, 2020 by and among the Company, the Guaranteeing Subsidiaries and American Stock Transfer & Trust Company, LLC for the 9¾% Senior Notes due 2026 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated June 23, 2020).

4.9 Supplemental Indenture dated June 23, 2020 by and among the Company, the Guaranteeing Subsidiaries and American Stock Transfer & Trust Company, LLC for the 9¾% Senior Notes due 2026 (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K dated June 23, 2020).

4.10 Certificate of Designations of the Series B Redeemable Convertible Preferred Stock (incorporated by reference to Exhibit 4.4 to our Current Report on Form 8-K dated July 15, 2019).

4.11 Shareholders Agreement, dated June 7, 2019, by and among the Company, Arkoma Drilling CP, LLC, Williston Drilling CP, LLC, Arkoma Drilling, L.P., Williston Drilling, L.P., New Covey Park Energy LLC and Jerral W.

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Description of Securities.

Amended and Restated Credit Agreement dated as of July 16, 2019, among the Company, Bank of Montreal as Administrative Agent and the lenders party thereto from time to time.

(incorporated by reference to Exhibit 10.2 to our Current Report on From 8-K dated July 15, 2019).

Borrowing Base Redetermination Agreement and First Amendment to the Amended and Restated Credit Agreement, dated as of November 26, 2019, by and among the Company, Bank of Montreal as Administrative Agent and the lenders party thereto from time to time.

10.1 Amended and Restated Credit Agreement dated as of July 16, 2019, among the Company, Bank of Montreal as Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated July 15, 2019).

10.2 First Amendment to Amended and Restated Credit Agreement dated November 27, 2019, by and among the Company, Bank of Montreal as the Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.2 to our Annual Report on Form 10-K for Fiscal Year Ended December 31, 2019).

10.3 Borrowing Base Redetermination Agreement and Second Amendment to Amended and Restated Credit Agreement dated May 6, 2020 by and among the Company, Bank of Montreal as Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the Quarter ended March 31, 2020).

10.4 Third Amendment to Amended and Restated Credit Agreement dated June 12, 2020 by and among the Company, Bank of Montreal as Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated June 12, 2020).

10.5 Fourth Amendment to Amended and Restated Credit Agreement dated August 13, 2020 by and among the Company, Bank of Montreal as Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated August 13, 2020).

10.6 Fifth Amendment to Amended and Restated Credit Agreement, dated as of December 4, 2020, by and among the Company, Bank of Montreal as Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated December 8, 2020).

Sixth Amendment to Amended and Restated Credit Agreement, dated as of February 12, 2021, by and among the Company, Wells Fargo, N.A.

as Successor Agent and Bank of Montreal as Predecessor Agent and the lenders party thereto from time to time.

10.8 Amended and Restated Registration Rights Agreement, dated June 7, 2019, by and among the Company, Arkoma Drilling, L.P., Williston Drilling, L.P., Arkoma Drilling CP, LLC, Williston Drilling CP, LLC, New Covey Park Energy LLC and Jerral W.

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1 to the Amended and Restated Registration Rights Agreement, dated December 17, 2019, by and among the Company, Arkoma Drilling, L.P., Williston Drilling, L.P.

and New Covey Park Energy LLC.

and New Covey Park Energy LLC incorporated by reference to Exhibit 10.3 to our Annual Report on Form 10-K for the year ended December 31, 2019.

10.10# Comstock Resources, Inc.

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Burns (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated September 7, 2018).

Employment Agreement dated June 22, 2013 by and between the Company (as successor in interest to Covey Park) and David Terry.

Employment Agreement dated April 18, 2019 by and between the Company (as successor in interest to Covey Park) and Mark Wilson.

10.13# Employment Agreement dated June 22, 2013 by and between the Company (as successor in interest to Covey Park) and David Terry (incorporated by reference to Exhibit 10.8 to our Annual Report on Form 10-K for the year ended December 31, 2019).

10.14 Lease between Stonebriar I Office Partners, Ltd., and Comstock Resources, Inc.

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(incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011).

Sixth Amendment to the Lease Agreement dated January 21, 2021 between Stonebriar I Office Partners, Ltd.

and Comstock Resources, Inc.

Subsidiaries of the Company.

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on Proved Reserves as of December 31, 2020.

XBRL Instance Document

XBRL Schema Document

XBRL Calculation Linkbase Document

XBRL Labels Linkbase Document

XBRL Presentation Linkbase Document

XBRL Definition Linkbase Document

Report of Lee Keeling and Associates, Inc.

on Proved Reserves using Alternate Prices as of December 31, 2020.

Report of Netherland, Sewell & Associates, Inc.

on Proved Reserves using Alternate Prices as of December 31, 2020.

101.INS* XBRL Instance Document

101.SCH* XBRL Schema Document

101.CAL* XBRL Calculation Linkbase Document

101.LAB* XBRL Labels Linkbase Document

101.PRE* XBRL Presentation Linkbase Document

101.DEF* XBRL Definition Linkbase Document

104* Cover Page Interactive Data File (embedded within the Inline XBRL document)

_______________

* Filed herewith.

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Chief Executive Officer

March 2, 2020

(Principal Executive Officer)

February 17, 2021 (Principal Executive Officer)

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.

Chief Executive Officer and

March 2, 2020

Chairman of the Board of Directors

JAY ALLISON Chief Executive Officer and February 17, 2021

Jay Allison Chairman of the Board of Directors

(Principal Executive Officer)

/s/ ROLAND O.

President, Chief Financial Officer,

March 2, 2020

Secretary and Director

BURNS President, Chief Financial Officer, February 17, 2021

Burns Secretary and Director

(Principal Financial and Accounting Officer)

/s/ ELIZABETH B.

March 2, 2020

DAVIS Director February 17, 2021

/s/ MORRIS E.

March 2, 2020

/s/ JORDAN T.

March 2, 2020

FOSTER Director February 17, 2021

TURNER Director February 17, 2021

COMSTOCK RESOURCES, INC.

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Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2018 (Successor) and

December 31, 2019 (Successor)

Consolidated Statements of Operations For the Year Ended December 31, 2017 (Predecessor),

For the Period From January 1, 2018 Through August 13, 2018 (Predecessor), For the Period From August 14, 2018 Through December 31, 2018 (Successor) and For the Year Ended December 31, 2019 (Successor)

Consolidated Balance Sheets as of December 31, 2019 and 2020

Consolidated Statements of Operations For the Period From January 1, 2018 Through August 13, 2018 (Predecessor), For the Period From August 14, 2018 Through December 31, 2018 (Successor) and For the Year s Ended December 31, 2019 and 2020 (Successor)

Consolidated Statements of Stockholders' Equity

Consolidated Statements of Cash Flows For the Year Ended December 31, 2017 (Predecessor), For the Period From January 1, 2018 Through August 13, 2018 (Predecessor), For the Period From August 14, 2018 Through December 31, 2018 (Successor) and For the Year Ended December 31, 2019 (Successor)

Consolidated Statements of Cash Flows For the Period From January 1, 2018 Through August 13, 2018 (Predecessor), For the Period From August 14, 2018 Through December 31, 2018 (Successor) and For the Year s Ended December 31, 2019 and 2020 (Successor)

Notes to Consolidated Financial Statements

R EPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

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We have audited the accompanying consolidated balance sheets of Comstock Resources, Inc.

and subsidiaries (the Company) as of December 31, 2018 and 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2017 (Predecessor), the period from January 1, 2018 through August 13, 2018 (Predecessor), the period from August 14, 2018 through December 31, 2018 (Successor), and the year ended December 31, 2019 (Successor), and the related notes (collectively referred to as the “consolidated financial statements“).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2019, and the results of its operations and its cash flows for the year ended December 31, 2017 (Predecessor), the period from January 1, 2018 through August 13, 2018 (Predecessor), the period from August 14, 2018 through December 31, 2018 (Successor), and the year ended December 31, 2019 (Successor), in conformity with U.S.

and subsidiaries (the Company) as of December 31, 2019 and 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for the period from January 1, 2018 through August 13, 2018 (Predecessor), the period from August 14, 2018 through December 31, 2018 (Successor), and each the two years in the period ended December 31, 2020 (Successor), and the related notes (collectively referred to as the “consolidated financial statements“).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2020, and the results of its operations and its cash flows for the period from January 1, 2018 through August 13, 2018 (Predecessor), the period from August 14, 2018 through December 31, 2018 (Successor), and each of the two years in the period ended December 31, 2020 (Successor), in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company‘s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 2, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company‘s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 17, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Depreciation, Depletion and Amortization of Proved Oil and Gas Properties

Description of the Matter At December 31, 2020, the net book value of the Company’s proved oil and gas properties was $3,746 million, and depreciation, depletion and amortization (DD&A) expense was $417 million for the year then ended.

As described in Note 1, under the successful efforts method of accounting, capitalized costs of proved properties are depleted using the units-of-production method based on proved reserves, as estimated by the Company’s engineers.

Proved oil and gas reserve estimates are based on geological and engineering interpretation and judgment.

Significant judgment is required by the Company’s engineers in evaluating geological and engineering data when estimating proved oil and gas reserves.

Estimating reserves also requires the selection of inputs, including oil and gas price assumptions, future operating and capital cost assumptions and tax rates by jurisdiction, among others.

Because of the complexity involved in estimating oil and gas reserves, management used independent petroleum engineers to audit the estimates prepared by the Company’s engineers as of December 31, 2020.

Auditing the Company’s DD&A calculation is especially complex because of the use of the work of the Company’s engineers and the independent petroleum engineers and the evaluation of management’s determination of the inputs described above used by the engineers in estimating proved oil and gas reserves.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over its process to calculate DD&A, including management’s controls over the completeness and accuracy of the financial data provided to the engineers for use in estimating proved oil and gas reserves.

Our audit procedures included, among others, evaluating the professional qualifications and objectivity of the Company’s engineers responsible for the preparation of the reserve estimates and the independent petroleum engineers used to audit the estimates.

In addition, in assessing whether we can use of the work of the engineers, we evaluated the completeness and accuracy of the financial data and inputs described above used by the engineers in estimating proved oil and gas reserves by agreeing them to source documentation, and we identified and evaluated corroborative and contrary evidence.

For proved undeveloped reserves, we evaluated management’s development plan for compliance with SEC requirements.

We also tested the mathematical accuracy of the DD&A calculations, including comparing the proved oil and gas reserves amounts used to the Company’s reserve report.

/s/ ERNST & YOUNG LLP

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Dallas, Texas

March 2, 2020

February 17, 2021

COMSTOCK RESOURCES, INC.

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As of December 31, 2019 and 2020

(In thousands)

2019 December 31,

ASSETS (In thousands)

Cash and Cash Equivalents $ 18,532 $ 30,272

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Net property and equipment 4,008,803 4,084,550

Goodwill 335,897 335,897

Income Taxes Receivable 5,109 —

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Operating Lease Right-of-Use Assets 3,509 3,025

Other Assets 231 40

$ 4,657,122 $ 4,623,983

LIABILITIES AND STOCKHOLDERS' EQUITY

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Mezzanine Equity:

Preferred Stock — 5,000,000 shares authorized, 385,000 shares issued and outstanding at December 31, 2019:

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, 385,000 shares and 175,000 issued and outstanding at December 31, 2019 and December 31, 2020, respectively:

Series A 10 % Convertible Preferred Stock

Series B 10 % Convertible Preferred Stock

175,000 175,000

Stockholders' Equity:

Common stock—$0.50 par, 155,000,000 and 400,000,000 shares authorized, 105,871,064

and 190,006,776 shares issued and outstanding at December 31, 2018 and

December 31, 2019, respectively

Common stock—$ 0.50 par, 400,000,000 shares authorized, 190,006,776 and 232,414,718 shares issued and outstanding at December 31, 2019 and December 31, 2020, respectively

95,003 116,206

Additional paid-in capital 909,423 1,095,384

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Total stockholders' equity 1,143,022 1,266,773

$ 4,657,122 $ 4,623,983

The accompanying notes are an integral part of these statements.

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CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2017

Predecessor Successor

January 1, 2018

August 13, 2018

August 13, 2018 Period from

August 14, 2018

December 31, 2018

Year Ended December 31, 2019

2018 Year Ended December 31, 2019 Year Ended December 31, 2020

(In thousands, except per share amounts)

Natural gas sales $ 147,897 $ 144,236 $ 635,795 $ 809,399

Oil sales 18,733 79,385 132,894 48,796

Total oil and gas sales 166,630 223,621 768,689 858,195

Operating expenses:

Production taxes

Production and ad valorem taxes 5,174 12,413 35,702 36,967

Gathering and transportation 11,841 10,511 71,303 106,582

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General and administrative, net 15,699 11,399 29,244 32,040

Impairment of oil and gas properties

Loss (gain) on sale of oil and gas properties

Exploration — — 241 27

Loss (gain) on sale of assets 35,438 ( 155 ) 25 ( 17 )

Total operating expenses 155,808 107,590 493,803 695,163

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Gain from derivative financial instruments 881 10,465 51,735 9,951

Transaction costs

Other income 677 173 622 1,080

Interest expense ( 101,203 ) ( 43,603 ) ( 161,541 ) ( 234,829 )

Loss on early extinguishment of debt — — — ( 861 )

Transaction costs ( 2,866 ) — ( 41,010 ) —

Total other income (expenses) ( 102,511 ) ( 32,965 ) ( 150,194 ) ( 224,659 )

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Weighted average shares outstanding:

Basic 15,262 105,453 142,750 215,194

Diluted 15,262 105,459 187,378 215,194

The accompanying notes are an integral part of these statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Shares Common

Par Value Common

Warrants Additional

Capital Accumulated

(Deficit) Total

(In thousands)

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Stock-based compensation 623 311 — 3,601 — 3,912

Income tax withholdings related to equity awards

Common stock issued for debt conversion

Common stock warrants exercised

Balance at December 31, 2017

Stock-based compensation

Income tax withholdings related to equity awards

Income tax withholdings on equity awards ( 53 ) ( 26 ) — ( 343 ) — ( 369 )

Common stock issued for debt conversion 2 1 — 28 — 29

Common stock warrants exercised 379 189 ( 3,247 ) 3,058 — —

Net loss — — — — ( 92,754 ) ( 92,754 )

Balance at August 13, 2018 16,379 $ 8,189 $ 310 $ 553,040 $ ( 1,019,993 ) $ ( 458,454 )

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Vesting of equity awards 1,029 514 — 8,312 — 8,826

Income tax withholdings related to equity awards

Income tax withholdings on equity awards ( 547 ) ( 272 ) — ( 4,423 ) — ( 4,695 )

Stock-based compensation 415 207 — 787 — 994

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Common stock warrants exercised and expired 24 12 ( 310 ) 298 — —

Net income — — — — 64,122 64,122

Balance at December 31, 2018 105,871 $ 52,936 $ — $ 452,513 $ 64,122 $ 569,571

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Issuance of common stock 83,333 41,666 — 456,967 — 498,633

Income tax withholdings related to equity awards

Income tax withholdings on equity awards ( 38 ) ( 19 ) — ( 201 ) — ( 220 )

Equity issuance costs — — — ( 1,487 ) — ( 1,487 )

Preferred dividend accretion

Net income — — — — 96,889 96,889

Preferred stock accretion — — — — ( 4,583 ) ( 4,583 )

Payment of preferred dividends — — — — ( 17,832 ) ( 17,832 )

Balance at December 31, 2019 190,007 $ 95,003 $ — $ 909,423 $ 138,596 $ 1,143,022

Stock-based compensation 431 216 — 6,248 — 6,464

Issuance of common stock 42,092 21,046 — 190,592 — 211,638

Income tax withholdings on equity awards ( 115 ) ( 59 ) — ( 633 ) — ( 692 )

Stock issuance costs — — — ( 10,246 ) — ( 10,246 )

Net loss — — — — ( 52,417 ) ( 52,417 )

Preferred stock accretion — — — — ( 5,417 ) ( 5,417 )

Payment of preferred dividends — — — — ( 25,579 ) ( 25,579 )

Balance at December 31, 2020 232,415 $ 116,206 $ — $ 1,095,384 $ 55,183 $ 1,266,773

The accompanying notes are an integral part of these statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

Predecessor Successor

For the Period

from January 1,

For the Period

from August 14,

Year Ended December 31,

2018 Period from

August 14, 2018

2018 Year Ended December 31, 2019 Year Ended December 31, 2020

(In thousands)

3 unchanged sentences

Deferred and non-current income taxes 1,052 29,079 28,026 ( 9,409 )

Exploration — — — 27

Loss (gain) on sale of oil and gas properties 35,438 ( 155 ) 25 ( 17 )

Impairment of oil and gas properties

Depreciation, depletion and amortization 68,032 53,944 276,526 417,112

Gain on derivative financial instruments

Gain from derivative financial instruments ( 881 ) ( 10,465 ) ( 51,735 ) ( 9,951 )

Cash settlements of derivative financial instruments 2,842 ( 5,579 ) 52,684 134,496

2 unchanged sentences

Stock-based compensation 3,912 994 4,020 6,464

Loss on extinguishment of debt — — — 861

Decrease (increase) in accounts receivable 2,834 ( 61,048 ) 3,220 34,555

9 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings 865,577 450,000 927,000 157,000

Issuances of senior notes

— — — 751,500

Payments to retire debt ( 49,679 ) ( 1,291,352 ) ( 127,000 ) ( 907,000 )

Repayment of Covey Park Energy LLC obligations

Repayment of Covey Park Energy LLC preferred equity — — ( 533,390 ) —

Issuance of common stock — — 300,000 206,626

Issuance of Series B Convertible Preferred Stock — — 175,000 —

Redemption of Series A Preferred Convertible Stock — — — ( 210,000 )

Preferred stock dividends paid — — ( 17,832 ) ( 25,580 )

Jones Contribution — 40,736 — —

Debt and equity issuance costs

Debt and stock issuance costs ( 18,127 ) ( 6,351 ) ( 8,617 ) ( 24,617 )

Income tax withholdings related to equity awards ( 369 ) ( 4,695 ) ( 220 ) ( 692 )

Common stock warrants exercised

Net cash provided by (used for) financing activities 797,402 ( 811,662 ) 714,941 ( 52,763 )

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Comstock Resources, Inc.

and its subsidiaries are engaged in oil and natural gas exploration, development and production, and the acquisition of oil and natural gas properties.

and its subsidiaries are engaged in the acquisition, exploration, development and production of oil and natural gas.

The Company's operations are primarily focused in Texas, Louisiana and North Dakota.

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Net income (loss) and comprehensive income (loss) 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.

Jones Contribution

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The Jones Partnerships are wholly-owned and controlled by Dallas businessman Jerry Jones and his children (collectively, the "Jones Group").

The Company assessed the Bakken Shale Properties to determine whether they meet the definition of a business under US generally accepted accounting principles, determining that they do not meet the definition of a business.

As a result, the Jones Contribution is not being accounted for as a business combination.

The Company assessed the Bakken Shale Properties to determine whether they met the definition of a business under US generally accepted accounting principles, determining that they did not meet the definition of a business.

As a result, the Jones Contribution was not accounted for as a business combination.

Upon the issuance of the shares of Comstock common stock, the Jones Group obtained control over Comstock through their ownership of the Jones Partnerships.

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The Company's consolidated financial statements and related footnotes are presented with a black line division which delineates the lack of comparability between amounts presented after August 13, 2018 and dates prior thereto.

The following table represents the allocation of fair value related to the assets acquired and the liabilities assumed after giving consideration for final purchase accounting ad justments based on the fair value of Comstock:

Consideration:

(In thousands)

Fair Value of Common Stock Issued

Liabilities Assumed:

Current Liabilities

Long-Term Debt

Deferred Income Taxes

Reserve for Future Abandonment Costs

Liabilities Assumed

Total Consideration and Liabilities Assumed

Assets Acquired:

Current Assets

Oil and Gas Properties

Other Property & Equipment

Income Taxes Receivable

Total Assets Acquired

The goodwill that was recognized was primarily attributable to the excess of the fair value of Comstock's common stock over the identifiable assets acquired net of liabilities assumed, measured in accordance with generally accepted accounting principles in the United States.

The fair value of oil and gas properties, a Level 3 measurement, was determined using discounted cash flow valuation methodology.

Key inputs to the valuation included average oil prices of $79.72 per barrel, average natural gas prices of $3.87 per thousand cubic feet and discount rates of 10% - 25%, based on reserve classification.

The combination of the Bakken Shale Properties with Comstock's Haynesville shale properties resulted in a Company with adequate resources and liquidity to fully exploit its Haynesville/Bossier shale asset base and to continue to expand its opportunity with future drilling, acquisitions and leasing activity in the basin.

Covey Park Acquisition

On July 16, 2019, Comstock acquired Covey Park Energy LLC ("Covey Park") for total consideration of $ 700.0 million of cash, the issuance of Series A Convertible Preferred Stock with a redemption value of $ 210.0 million, and the issuance of 28,833,000 shares of common stock (the "Covey Park Acquisition").

In addition to the consideration paid, Comstock assumed $625.0 million of Covey Park's 7.5% senior notes, repaid $380.0 million of Covey Park's then outstanding borrowings under its bank credit facility and redeemed all of Covey Park's preferred equity for $153.4 million.

In addition to the consideration paid, Comstock assumed $ 625.0 million of Covey Park's 7.5 % senior notes, repaid $ 380.0 million of

Covey Park's then outstanding borrowings under its bank credit facility and redeemed all of Covey Park's preferred equity for $ 153.4 million.

Based on the fair value of the preferred stock issued and the closing price of the Company's common stock of $ 5.82 per share on July 16, 2019, the transaction was valued at approximately $ 2.2 billion.

Covey Park's operations were focused primarily in the Haynesville/Bossier shale in East Texas and North Louisiana.

Funding for the Covey Park Acquisition was provided by the sale of 50.0 million newly issued shares of common stock for $300.0 million and 175,000 shares of newly issued Series B Convertible Preferred Stock for $175.0 million to the Company's majority stockholder and by borrowings under Comstock's amended and restated bank credit facility and cash on hand.

As of December 31, 2019, the Jones Group owned approximately 73% of the Company's outstanding common stock and the former owners of Covey Park owned 15%.

The Jones Group and the former

owners of Covey Park hold Series B and Series A Convertible Preferred Stock , respectively, that is convertible into in the aggregate 96,250,000 shares of the Company ' s common stock .

In connection with the Covey Park Acquisition, Comstock incurred $41.0 million of advisory and legal fees and other acquisition-related costs.

Funding for the cash consideration was provided by the sale of 50 million newly issued shares of common stock for $ 300.0 million and 175,000 shares of newly issued Series B Convertible Preferred Stock for $ 175.0 million to the Jones Group and by borrowings under Comstock's bank credit facility and cash on hand.

Comstock incurred $ 41.0 million of advisory and legal fees and other acquisition-related costs in connection with the acquisition.

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

The transaction was accounted for as a business combination, using the acquisition method.

Certain information to finalize the purchase price is not yet available, including the final tax return of Covey Park.

The Company expects to complete the purchase price allocation within the twelve month period following the acquisition date, during which time the value of the net assets and liabilities acquired may be revised as appropriate.

The following table presents the Company's preliminary purchase price allocation of the assets acquired and liabilities assumed based on their fair values as of the acquisition date:

The purchase price allocation of the assets acquired and liabilities assumed was finalized in the third quarter of 2020.

The following table summarizes the original and final purchase price allocations of the assets acquired and liabilities assumed based on their fair values as of the acquisition date:

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

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A yield methodology using Level 2 inputs of the Company's publicly traded debt, including the assumption of Covey Park's 7.5 % senior notes, resulted in a fair value of $ 200.0 million.

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

The fair values determined for accounts receivable, accounts payable, accrued drilling costs and other current liabilities were equivalent to the carrying value due to their short-term nature.

The fair value of the proved and unproved oil and natural gas properties was derived from estimated future discounted net cash flows, a Level 3 measurement, based on existing production curves and tim ing of development of those properties.

The key factors used in deriving the estimated future cash flows include estimated recoverable reserves, production rates, future operating and development costs, and future commodity prices.

Key inputs to the valu ation included average oil prices of $74.80 per barrel and average natural gas prices of $3.32 per Mcf utilizing a combination of third-party price estimates and management price forecasts as of the acquisition date.

The resulting estimated future cash fl ows from the acquired assets were discounted at rates ranging from 10% - 25% depending on risk characteristics of reserve categories acquired.

Management utilized the assistance of an independent reserve firm and internal resources to estimate the fair va lue of the oil and natural gas properties.

Key inputs to the valuation included average oil prices of $ 74.80 per barrel and average natural gas prices of $ 3.32 per Mcf utilizing a combination of third-party price estimates and management price forecasts as of the acquisition date.

The resulting estimated future cash flows from the acquired assets were discounted at rates ranging from 10 % - 25 % depending on risk characteristics of reserve categories acquired.

Management utilized the assistance of an independent reserve firm and internal resources to estimate the fair value of the oil and natural gas properties.

The fair value measurements of long-term debt were estimated based on market prices and represent Level 2 inputs.

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The Covey Park Acquisition qualified as a tax free merger whereby the Company acquired carryover tax basis in Covey Park's assets and liabilities, adjusted for differences between the purchase price allocated to the assets acquired and liabilities assumed based on the fair value and the carryover tax basis.

The Company's results of operations from the closing date on July 16, 2019 through December 31, 2019 include approximately $264.4 million of operating revenues and approximately $93.0 million of operating income, excluding general and administrative and interest expenses, attributable to the Covey Park assets.

The Company's results of operations from the closing date on July 16, 2019 through December 31, 2019 included approximately $ 264.4 million of operating revenues and approximately $ 93.0 million of operating income, excluding general and administrative and interest expenses, attributable to the Covey Park assets.

Pro forma Results

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Pro Forma Year Ended

(In thousands, except per share amount)

(In thousands, except per share amounts)

$ 1,168,585 $ 1,147,290

Net Income $ 180,303 $ 261,406

Net income per share:

Basic $ 0.77 $ 1.00

Diluted $ 0.64 $ 0.82

On November 1, 2019, Comstock acquired a privately held company with producing properties and acreage in the Haynesville shale basin in exchange for 4,500,000 newly issued shares of the Company's common stock.

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As of December 31,

(In thousands)

Prepaid expenses $ 2,005 $ 1,829

Advance payments for drilling costs — 1,795

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Pipe and oil field equipment inventory 4,503 3,080

Other 230 220

$ 10,399 $ 14,839

Fair Value Measurements

The Company holds or has held certain financial assets and liabilities that are required to be measured at fair value.

These include cash and cash equivalents held in bank accounts and derivative financial instruments in the form of oil and natural gas price swap agreements.

These include cash and cash equivalents held in bank accounts and derivative financial instruments.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

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These values are generally determined using pricing models for which the assumptions utilize management's estimates of market participant assumptions.

The following presents the carrying amounts and the fair values of the Company ' s financial instruments as of December 31, 2018 and December 31, 2019:

For the Years Ended December 31,

Carrying Value

(In thousands)

Commodity-based derivatives (a)(b)

Bank credit facility (c)

7.5% senior notes due 2025 (d)

9.75% senior notes due 2026 (d)

_____________

The Company ' s oil and natural gas swaps, options, and basis swap agreements and its 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.

As of December 31, 2019, a portion of our natural gas derivatives contain swaptions where the counterparty has the right, but not the obligation, to extend terms of an existing swap on predetermined dates.

Due to subjectivity of the inputs used to value the counterparty rights in swaptions, these rights are classified as Level 3 in the fair value hierarchy.

The carrying value of our floating rate debt outstanding approximates fair value because of its floating rate structure.

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

The following is a reconciliation of the beginning and ending balances for derivative instruments classified as Level 3 in the fair value hierarchy:

For the Year Ended December 31, 2019

For the Years Ended December 31,

(In thousands)

Balance at December 31, 2018

Included in earnings

Balance at beginning of year $ — $ 4,351

Total gains (losses) included in earnings 4,351 15,943

Settlements, net — ( 31,252 )

Transfers out of Level 3 — ( 11,630 )

Balance at December 31, 2019

Balance at end of year $ 4,351 $ ( 22,588 )

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

For the Years Ended December 31,

Carrying Value Fair Value Carrying Value Fair Value

(In thousands)

Commodity-based derivatives (1)

$ 89,192 $ 89,192 $ 9,574 $ 9,574

Commodity-based derivatives (1)

4,442 4,442 49,369 49,369

Bank credit facility (2)

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

7 ½% senior notes due 2025 (3)

455,768 534,375 473,728 628,691

9 ¾% senior notes due 2026 (3)

820,057 765,000 1,577,824 1,769,625

_______________

(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.

The Company's natural gas swaption contracts provide the counterparty the right, but not the obligation, to extend terms of an existing swap on a predetermined dates.

Due to the subjectivity of the inputs used to value the counterparty rights in the contracts, these contracts are classified as Level 3 in the fair value hierarchy.

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

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

Property and Equipment

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This conversion ratio is not based on the price of oil or natural gas, and there may be a significant difference in price between an equivalent volume of oil versus natural gas.

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 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.

Exploration expense includes geological and geophysical expenses and delay rentals related to exploratory oil and gas properties, costs of unsuccessful exploratory drilling and impairments of unproved properties.

As of December 31, 2019, the unproved properties primarily relate to future drilling locations that were not included in proved undeveloped reserves.

These future drilling locations are located on acreage where the reservoir is known to be productive but have been excluded from proved reserves due

to uncertaint y on whether the wells would be drilled within the next five years as required by SEC rules in order to be included in proved reserves.

As of December 31, 2019 and 2020, the unproved properties primarily relate to future drilling locations that were not included in proved undeveloped reserves.

Most of these future drilling locations are located on acreage where the reservoir is known to be productive but have been excluded from proved reserves due to uncertainty on whether the wells would be drilled within the next five years as required by SEC rules in order to be included in proved reserves.

The costs of unproved properties are transferred to proved oil and gas properties when they are either drilled or they are reflected in proved undeveloped reserves and amortized on an equivalent unit-of-production basis.

Costs associated with unevaluated exploratory acreage are periodically assessed for impairment on a property by property b asis, and any impairment in value is included in exploration expense.

Exploratory drilling costs are initially capitalized as unproved property but charged to expense if and when the well is determined not to have found commercial proved oil and gas reserv es.

Costs associated with unevaluated exploratory acreage are periodically assessed for impairment on a property by property basis, and any impairment in value is included in exploration expense.

Exploratory drilling costs are initially capitalized as unproved property but charged to expense if and when the well is determined not to have found commercial proved oil and gas reserves.

Exploratory drilling costs are evaluated within a one-year period after the completion of drilling.

The Company periodically assesses the need for an impairment of the costs capitalized for its proved oil and gas properties.

The Company assesses the need for an impairment of the costs capitalized for its proved oil and gas properties when events or changes in circumstances, such as a significant drop in commodity prices, indicate that the Company may not be able to recover its capitalized costs.

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 the estimated fair value of the property.

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Unproved properties are evaluated for impairment based upon the results of drilling, planned future drilling and the terms of the oil and gas leases.

In 2017, the Company recognized an impairment of $43.8 million to adjust the carrying value of Comstock's South Texas oil properties which were classified as held for sale at December 31, 2017.

The Company's estimates of undiscounted future net cash flows attributable to its oil and gas properties may change in the future.

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Other property and equipment consists primarily of computer equipment, furniture and fixtures and an airplane which are depreciated over estimated useful lives ranging from three to 31.5 years on a straight-line basis.

The Company had goodwill of $350.2 million as of December 31, 2018 that was recorded in connection with the Jones Contribution.

The Company had goodwill of $ 335.9 million as of December 31, 2019 and 2020 that was recorded in connection with the Jones Contribution.

Goodwill represents the excess of purchase price over fair value of net tangible and identifiable intangible assets.

During the year ended December 31, 2019, the Company finalized the valuation of the Company ' s assets and liabilities in connection with the Jones Contribution, which reduced goodwill to $335.9 million as of December 31, 2019.

The Company is not required to amortize goodwill as a charge to earnings;

however, the Company is required to conduct an annual review of goodwill for impairment.

The Company performs annual assessment of goodwill on October 1 st of each year to allow sufficient time to assess goodwill for impairment.

The Company performs annual assessment of goodwill on October 1 st of each year.

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 performed its qualitative assessment of goodwill as of October 1, 2019 and determined th ere was no indicators of impairment.

On January 1, 2019, the Company adopted Financial Accounting Standards Board Accounting Standards Codification 842, Leases ("ASC 842").

Comstock adopted this standard using the modified retrospective method of adoption, and it applied ASC 842 only to contracts that were not completed as of January 1, 2019.

Upon adoption, there were no adjustments to the opening balance of stockholders' equity.

In adopting ASC 842, the Company utilized certain practical expedients available under ASC 842, including the election to not apply the recognition requirements to short term leases (defined as leases with an initial lease term of twelve months or less which do not contain a purchase option), the election to not separate lease and non-lease components, and the election to not reassess certain land easements in existence prior to January 1, 2019.

Upon adoption of ASC 842, the Company recognized right-of-use lease assets of $5.2 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 $2.0 million and $3.2 million, respectively.

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

The Company utilized a discount rate of 5.0% in computing these discounted net future cash flows.

Adoption of ASC 842 did not have a material effect our consolidated statements of operations, cash flows or stockholders' equity.

The Company performed its quantitative assessment of goodwill as of October 1, 2020 and determined there was no indication of impairment.

The Company had right-of-use lease assets of $ 3.5 million and $ 3.0 million as of December 31, 2019 and 2020, respectively, 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.

The Company determines if contracts contain a lease at inception of the contract.

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Short-term lease costs exclude expenses related to leases with a lease term of one month or less.

Leases applicable to our oil or natural gas operations that include 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 not within the scope of ASC 842.

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

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.

In applying the accounting guidance within ASC 842, the Company has determined that its corporate office lease, certain office equipment, its vehicles leased for use in operations, and its drilling rigs meet the criteria of an operating lease which require recognition upon adoption of ASC 842.

The Company's drilling operations routinely change due to changes in commodity prices, demand for oil and natural gas, and the overall operating and economic environment.

The Company's drilling operations routinely change due to changes in oil and natural gas prices, demand for oil and natural gas, and the overall operating and economic environment.

Comstock accordingly manages the terms of its contracts for drilling rigs so as to allow for maximum flexibility in responding to these changing conditions.

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 thirty days advance notice without a specified expiration date.

The Company has elected to apply the practical expedient available under ASC 842 for short-term leases and not recognize right-of-use lease assets for these rig contracts.

unless they are incurred on exploration wells that are unsuccessful, in which case they are charged to exploration expense.

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 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 twelve months ended December 31, 2020 were as follows:

For the Year Ended December 31,

Year Ended December 31,

(In thousands)

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Short-term lease cost (drilling rig costs included in proved oil and gas properties) 20,527 33,334

Cash payments for operating leases associated with right-of-use assets included in cash provided by operating activities were $2.0 million for the twelve months ended December 31, 2019.

As of December 31, 2019, the operating leases have a weighted average remaining term of 1.96 years.

Comstock had the following liabilities under contracts that contain operating leases:

$ 22,569 $ 35,814

Cash payments for operating leases associated with right-of-use assets included in cash provided by operating activities were $ 2.0 million and $ 2.5 million for the twelve months ended December 31, 2019 and 2020, respectively.

As of December 31, 2019 and 2020, the operating leases had a weighted average remaining term of 1.96 years and 1.54 years, respectively, and the weighted-average discount rate used to determine the present value of future operating lease payments was 5.0 % and 4.3 %, respectively.

The maturities of Comstock's operating lease obligations are as follows:

(In thousands)

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Accrued expenses at December 31, 2019 and 2020 consist of the following:

As of December 31,

(In thousands)

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Accrued lease operating expenses 4,990 3,466

Other 4,092 3,995

$ 137,166 $ 133,019

Reserve for Future Abandonment Costs

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The following table summarizes the changes in the Company's total estimated liability:

For the Period

from January 1,

August 13, 2018

For the Period

from August 14,

December 31, 2018

Year Ended December 31,

(In thousands)

Reserve for future abandonment costs at

beginning of the year

Reserve for future abandonment costs at beginning of the year $ 5,136 $ 18,151

Wells acquired 5,700 —

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Accretion expense 568 1,185

Reserve for future abandonment costs at

end of the year

Reserve for future abandonment costs at end of the year $ 18,151 $ 19,290

Stock-based Compensation

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Segment Reporting

The Company presently operates in one business segment, the exploration and production of oil and natural gas.

The Company presently operates in one business segment, the exploration and production of North American oil and natural gas.

Derivative Financial Instruments and Hedging Activities

The Company accounts for derivative financial instruments (including derivative instruments embedded in other contracts) as either an asset or liability measured at its fair value.

Changes in the fair value of derivatives are recognized currently in earnings unless specific hedge accounting criteria are met.

The fair value of derivative contracts that expire in less than one year are recognized as current assets or liabilities.

Changes in the fair value of derivatives are recognized currently in earnings and in net cash flows from operating activities.

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.

Major Purchasers

In 2017, the Company had four major purchasers of its oil and natural gas production that accounted for 34%, 17%, 16% and 15% of its total oil and gas sales.

In the Predecessor Period January 1, 2018 through August 13, 2018 the Company had three major purchasers of its oil and gas production that accounted for 33%, 22% and 20% of its total oil and natural gas sales.

During the Successor Period August 14, 2018 through December 31, 2018, the Company had two major purchasers of its oil and natural gas production that accounted for 32% and 18% of its total oil and natural gas sales.

In 2019, the Company had three major purchasers of its oil and natural gas production that accounted for 19%, 16% and 12% of its total oil and gas sales.

During the Successor Period August 14, 2018 through December 31, 2018, the Company had two major purchasers of its oil and gas production that accounted for 32 % and 18 % of its total oil and natural gas sales.

In 2019, the Company had three major purchasers of its oil and gas production that accounted for 19 %, 16 % and 12 % of its total oil and gas sales.

In 2020, the Company had four major purchasers of its oil and gas production that accounted for 19 %, 15 %, 15 % and 10 % of its total oil and gas sales.

The loss of any of these purchasers would not have a material adverse effect on the Company as there is an available market for its oil and natural gas production from other purchasers.

Revenue Recognition and Gas Balancing

On January 1, 2018, the Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09").

Comstock adopted this standard using the modified retrospective method of adoption, and it applied the ASU only to contracts that were not completed as of January 1, 2018.

Upon adoption, there were no adjustments to the opening balance of equity.

Comstock produces oil and natural gas and reports revenues separately for each of these two primary products in its statements of operations.

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All sales are subject to contracts that have commercial substance, contain specific pricing terms, and define the enforceable rights and obligations of both parties.

These contracts typically provide for cash settlement within 25 days following each production month and are cancellable upon 30 days' notice by either party.

These contracts typically provide for cash settlement within 25 days following each production month and are cancellable upon 30 days' notice by either party for oil and vary for natural gas based upon the terms set out in the confirmations between both parties.

Prices for sales of oil and natural gas are generally based upon terms that are common in the oil and gas industry, including index or spot prices, location and quality differentials, as well as market supply and demand conditions.

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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 has recognized accounts receivable of $120.1 million as of December 31, 2019 from customers for contracts where performance obligations have been satisfied and an unconditional right to consideration exists.

The Company has recognized accounts receivable of $ 120.1 million and $ 125.0 million as of December 31, 2019 and 2020, respectively, from customers for contracts where performance obligations have been satisfied and an unconditional right to consideration exists.

General and Administrative Expenses

General and administrative expenses are reported net of reimbursements of overhead costs that are received from working interest owners of the oil and gas properties operated by the Company of $11.7 million, $8.5 million, $4.5 million and $16.8 million in 2017, for the Predecessor Period from January 1, 2018 through August 13, 2018, for the Successor Period from August 14, 2018 through December 31, 2018 and 2019, respectively.

General and administrative expenses are reported net of reimbursements of overhead costs that are received from working interest owners of the oil and gas properties operated by the Company of $ 8.5 million, $ 4.5 million, $ 16.8 million and $ 24.7 million for the Predecessor Period from January 1, 2018 through August 13, 2018, for the Successor Period from August 14, 2018 through December 31, 2018 and for the years ended December 31, 2019 and 2020, respectively.

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 tax consequences attributable to the future utilization of existing net operating loss and other carryforwards.

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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.

Performance share units ("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.

The number of potentially dilutive shares related to PSUs is based on the number of shares, if any, which would be issuable at the end of the respective period, assuming that date was the end of the contingency period.

The treasury stock method is used to measure the dilutive effect of PSUs.

Unexercised common stock warrants represent the right to convert the warrants into common stock at an exercise price of $0.01 per share.

The treasury stock method is used to measure the dilutive effect of unexercised common stock warrants.

The shares that would be issuable upon exercise of the conversion right contained in the Company ' s convertible debt each period were based on the if-converted method for computing potentially dilutive shares of common stock that could be issued upon conversion.

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.

The Series A and Series B Convertible Preferred Stock issued in connection with the Covey Park Acquisition will become convertible into in the aggregate 96,250,000 shares of common stock beginning on July 16, 2020.

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.

For the twelve months ended December 31, 2019, the preferred stock was dilutive.

Basic and diluted earnings per share were determined as follows:

For the Period from August 14, 2018

through December 31, 2018

Twelve Months Ended

December 31, 2019

(In thousands, except per share amounts)

Net income attributable to common stock

Income allocable to unvested restricted shares

Basic and diluted net income attributable to common stock

Effect of Dilutive Securities:

Performance stock units

Preferred stock

Stock warrants

Diluted income attributable to common stock

Twelve Months Ended

December 31, 2017

For the Period January 1, 2018 through August 13, 2018

(In thousands, except per share amounts)

Basic and diluted net loss attributable to common stock

Basic and diluted per share amounts are the same for the Predecessor Periods due to the net loss in those periods.

S hares of unvested restricted stock are included in common stock outstanding as such shares have a nonforfeitable right to participate in any dividends that might be declared and have the right to vote.

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

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

December 31, 2017

Predecessor Successor

For the Period

from January 1,

August 13, 2018

For the Period

August 13, 2018 For the Period

from August 14,

December 31, 2018

December 31, 2019

December 31, 2018 Year Ended December 31, 2019 Year Ended December 31, 2020

Unvested restricted stock (in thousands)

839 410 685 1,149

The treasury stock method is used to measure the dilutive effect of PSUs.

Unexercised common stock warrants represent the right to convert the warrants into common stock at an exercise price of $ 0.01 per share.

The treasury stock method is used to measure the dilutive effect of unexercised common stock warrants.

The shares that would be issuable upon exercise of the conversion right contained in the Company's convertible notes for the Predecessor Period were based on the if-converted method for computing potentially dilutive shares of common stock that could be issued upon conversion.

For the year ended December 31, 2019, the Series A and Series B Convertible Preferred Stock issued in connection with the Covey Park Acquisition were convertible into in the aggregate 96,250,000 shares of common stock.

For the year ended December 31, 2020, the Series A Convertible Preferred Stock was convertible into 52,500,000 shares of common stock prior to their redemption on May 19, 2020 and the Series B Convertible Preferred Stock is convertible into an aggregate of 43,750,000 shares of common stock at a conversion price of $ 4.00 per share.

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.

A ll stock options, unvested PSUs, warrants exercisable into common stock and contingently issuable shares related to the convertible debt that were anti-dilutive to earnings and excluded from weighted average shares used in the computation of earnings per share were as follows:

December 31, 2017

Predecessor Successor

For the Period

from January 1,

August 13, 2018

For the Period

August 13, 2018 For the Period

from August 14,

December 31, 2018

December 31, 2019

December 31, 2018 Year Ended December 31, 2019 Year Ended December 31, 2020

(In thousands)

1 unchanged sentence

Weighted average grant date fair value per unit $ 13.83 $ 12.93 $ — $ 9.33

Weighted average convertible preferred stock — — — 63,832

Weighted average warrants for common stock 142 — — —

2 unchanged sentences

Weighted average conversion price per share $ 12.32 $ — $ — $ —

Basic and diluted earnings per share were determined as follows:

Predecessor Successor

For the Period January 1, 2018 through August 13, 2018 For the Period

from August 14,

December 31, 2018 Year Ended December 31, 2019 Year Ended December 31, 2020

(In thousands, except per share amounts)

Net income (loss) attributable to common stockholders $ ( 92,754 ) $ 64,122 $ 74,474 $ ( 83,413 )

Income allocable to unvested restricted shares — ( 248 ) ( 356 ) —

Basic net income (loss) attributable to common stockholders $ ( 92,754 ) $ 63,874 $ 74,118 $ ( 83,413 )

Income allocable to convertible preferred stock — — 22,415 —

Diluted net income (loss) attributable to common stockholders $ ( 92,754 ) $ 63,874 $ 96,533 $ ( 83,413 )

Basic weighted average shares outstanding 15,262 105,453 142,750 215,194

Effect of dilutive securities:

Performance stock units — — 63 —

Convertible preferred stock — — 44,565 —

Stock warrants — 6 — —

Diluted weighted average shares outstanding 15,262 105,459 187,378 215,194

Basic income (loss) per share $ ( 6.08 ) $ 0.61 $ 0.52 $ ( 0.39 )

Diluted income (loss) per share $ ( 6.08 ) $ 0.61 $ 0.52 $ ( 0.39 )

Basic and diluted per share amounts are the same for the Predecessor Period and the year ended December 31, 2020 due to the net loss in those periods.

Supplementary Information With Respect to the Consolidated 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.

Cash payments made for interest and income taxes were as follows:

December 31, 2017

Cash payments made for interest and income taxes and other non-cash investing and financing activities were as follows:

Predecessor Successor

For the Period

from January 1,

August 13, 2018

For the Period

August 13, 2018 For the Period

from August 14,

December 31, 2018

December 31, 2019

December 31, 2018 Year Ended December 31, 2019 Year Ended December 31, 2020

(In thousands)

1 unchanged sentence

Interest payments $ 36,187 $ 8,042 $ 149,039 $ 228,555

Income tax payments

Income tax (payments) refunds $ ( 2 ) $ — $ ( 2 ) $ 10,218

Non-cash investing activities include:

Increase (decrease) in accrued capital expenditures $ ( 3,255 ) $ 15,301 $ 24,273 $ ( 17,234 )

Liabilities assumed in exchange for right-of-use lease assets $ — $ — $ 5,372 $ 1,761

Non-cash investing and financing activities related to acquisitions

2 unchanged sentences

Assumed 7 ½% senior notes

$ — $ — $ 446,625 $ —

Acquired working capital $ — $ 36,351 $ 41,365 $ 520

The Company paid $38.1 million and $25.0 million of interest in-kind on its convertible notes in 2017 and the Predecessor Period from January 1, 2018 through August 13, 2018, respectively.

Non-cash financing activities include:

Retirement of debt in exchange for common stock $ — $ — $ — $ ( 4,151 )

Issuance of common stock in exchange for debt $ — $ — $ — $ 5,012

The Company paid $ 25.0 million of interest in-kind on its convertible notes in the Predecessor Period from January 1, 2018 through August 13, 2018.

Recent accounting pronouncements

2 unchanged sentences

Simplifying the Test for Goodwill Impairment." ASU 2017-4 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount.

ASU 2017-04 is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019 and early adoption is permitted.

We did not early adopt ASU 2017-04 and will implement ASU 2017-04 on our financial statements when we perform annual impairment assessments following adoption of this standard in 2020.

We do not expect the update to have a significant effect on our results of operations, liquidity or financial position.

In February 2016, the FASB issued ASU No.

2016-02, Leases ("ASU 2016-02").

ASU 2016-02 requires lessees to include most leases on their balance sheets, but recognize lease costs in their financial statements in a manner similar to accounting for leases prior to ASC 2016-02.

ASU 2016-02 is effective for annual periods ending after December 15, 2018 and interim periods thereafter.

We adopted ASC 2016-02 beginning January 1, 2019.

We used the modified retrospective method of adoption for this new standard and are utilizing certain practical expedients as part of our adoption.

The adoption of ASU 2016-02 did not have a significant effect on our results of operations, liquidity or financial position.

ASU 2017-4 was effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019 and early adoption was permitted.

We implemented ASU 2017-4 when we performed our annual impairment assessment during the fourth quarter of 2020 and it did not have a significant effect on our results of operations, liquidity or financial position.

In June 2016, The FASB issued Accounting Standards Update ASU No.

1 unchanged sentence

ASU 2016-13 requires the use of a forward-looking expected loss model as opposed to existing incurred loss recognition.

The update is effective for us beginning in 2020.

The guidance requires a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the standard is effective.

We are continuing to evaluate the provisions of this update, but we currently do not expect it will have a material impact on our results of operations, financial position and financial disclosures .

The update was effective for us beginning in 2020.

The guidance required a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the standard is effective.

We implemented ASU 2016-13 and concluded there was no cumulative-effect adjustment required as of January 1, 2020.

The implementation of ASU 2016-13 did not have a material impact on our results of operations, financial position and financial disclosures .

(2) Acquisitions and Dispositions of Oil and Gas Properties

In October 2017, the Company adopted a plan of sale for its Eagle Ford shale oil properties located in South Texas and recognized an impairment of $43.8 million in the fourth quarter of 2017 to adjust the carrying value of these assets to their fair value less costs to sell.

The Company determined the fair value based on estimated discounted future net cash flows of the properties appropriately risk adjusted based on indication of values received from potential acquirers in a competitive bid process.

The asset retirement liability of $4.6 million associated with these assets was reclassified to current liabilities as of December 31, 2017.

In April 2018, Comstock completed the sale of its producing Eagle Ford shale oil and gas properties for $106.4 million and retained the undeveloped acreage.

In April 2018, Comstock sold its producing Eagle Ford shale oil and gas properties for $ 106.4 million and retained the undeveloped acreage.

The Company recognized a loss on sale of these properties of $ 32.7 million during the Predecessor Period from January 1, 2018 through August 13, 2018.

2 unchanged sentences

from January 1,

August 13, 2018

2018 through August 13, 2018

(In thousands)

Total oil and gas sales $ 17,747

Total operating expenses (a)

Total operating expenses (1)

Operating income $ 11,613

_______________

(1) Includes direct operating expenses, depreciation, depletion and amortization and exploration expense.

Excludes interest expense, general and administrative expenses and depreciation, depletion and amortization expense subsequent to the date the assets were designated as held for sale.

In 2017, the Company entered agreements to jointly develop certain acreage prospective for the Haynesville shale in Louisiana and Texas with USG Properties Haynesville, LLC ("USG").

As of December 31, 2017, USG had acquired approximately 6,300 net acres prospective for Haynesville shale development for the joint development program primarily in Caddo Parish, Louisiana.

The Company operates wells drilled on USG's acreage and has the right to acquire a 25% working interest in the first twelve wells drilled on the acreage and 40% for all subsequent wells by reimbursing USG for the attributable acreage costs of the wells being drilled.

USG is also participating in a Haynesville shale drilling program on approximately 5,700 acres of Comstock's acreage in Harrison County, Texas.

Under the terms of the participation agreements, Comstock receives $1.1 million for 50% of Comstock's interest for each location for acreage and infrastructure related to each well location, with $400,000 of that amount being paid only if each well meets or exceeds established production targets.

Comstock also receives $80,000 for each well drilled as consideration for the Company's services managing the joint development program in addition to customary operating fees for each well drilled.

On July 31, 2018, the Company acquired oil and gas properties in North Louisiana and Texas for $ 41.5 million.

These properties included 22,559 acres (12,085 net) and 114 (27.8 net) producing natural gas wells, 47 (14.6 net) of which produce from the Haynesville shale.

These properties included 22,559 acres ( 12,085 net) and 114 producing natural gas wells ( 27.8 net), 47 ( 14.6 net) of which produce from the Haynesville shale.

On August 14, 2018, as part of the Jones Contribution, the strategic drilling venture previously entered into by the Company and Arkoma Drilling, LP was terminated and Comstock re-acquired working interests in wells drilled under the joint venture for $ 17.9 million, representing the costs paid by Arkoma Drilling, LP.

On September 21, 2018, the Company entered into a joint development venture with an affiliate of USG by contributing its undeveloped Eagle Ford shale acreage.

On September 21, 2018, the Company entered into a joint development venture with an affiliate of USG Properties Haynesville, LLC by contributing its undeveloped Eagle Ford shale acreage.

Under the joint development venture, Comstock can participate in drilling wells on the undeveloped acreage and can participate in any in-fill wells or refracs of existing wells on acreage owned by the joint venture partner.

Comstock subsequently sold a portion of the undeveloped acreage in the joint venture for proceeds of $ 13.7 million in September 2018.

On December 19, 2018, the Company entered into an agreement to acquire an 88% interest in the Haynesville shale rights covering 6,149 gross acres (5,301 net) in Harrison and Panola counties, Texas.

The Company will pay $20.5 million over a four year period by providing a 12% interest in each well drilled by Comstock on the acreage.

Comstock has identified 33 (22.7 net) potential drilling locations on this acreage.

On December 19, 2018, the Company entered into an agreement to acquire 5,301 net acres in Harrison and Panola counties, Texas.

The Company will pay $ 20.5 million over a four years period by providing a 12 % carried interest in each well drilled by Comstock on the acreage.

On July 16, 2019, the Company acquired Covey Park Energy LLC, for consideration valued at approximately $ 2.2 billion.

The acquisition included 317 , 142 acres (248 , 196 net ) with 1,230 ( 712.0 net) producing natural gas wells, 8 44 ( 383 .

0 net) of which produce from the Haynesville /Bossier shale s .

The acquisition included 317,142 acres ( 248,196 net) with 1,230 producing natural gas wells ( 712.0 net), 844 ( 383.0 net) of which produce from the Haynesville/Bossier shales.

On November 1, 2019, the Company acquired a privately held company in exchange for 4.5 million newly- issued shares of the Company's common stock.

The properties acquired included 7,702 acres (3,155 net) and 75 (20.1 net) producing natural gas wells, 36 (11.7 net) of which produce from the Haynesville shale.

The properties acquired included 7,702 acres ( 3,155 net) and 75 producing natural gas wells ( 20.1 net), 36 ( 11.7 net) of which produce from the Haynesville shale.

During 2020, the Company leased 13,519 net acres for a total lease cost of $ 7.9 million.

(3) Oil and Gas Producing Activities

1 unchanged sentence

Capitalized Costs

As of December 31,

(In thousands)

3 unchanged sentences

Accumulated depreciation depletion and amortization ( 485,851 ) ( 901,003 )

3,591,662 3,746,185

Unproved properties 410,897 332,765

$ 4,002,559 $ 4,078,950

Costs Incurred

December 31, 2017

Predecessor Successor

For the Period

from January 1,

August 13, 2018

For the Period

August 13, 2018 For the Period

from August 14,

December 31, 2018

December 31, 2018 Year Ended December 31, 2019

December 31, 2020

2 unchanged sentences

Exploration and development:

Development leasehold

Development drilling

Other development

Exploratory leasehold costs — — — 7,949

Development leasehold costs 2,848 1,715 7,603 13,022

Development drilling and completion costs 90,840 148,745 493,625 436,074

Other development costs 13,871 13,612 9,339 34,525

Total capital expenditures $ 146,882 $ 185,085 $ 2,608,018 $ 491,570

1 unchanged sentence

Long-term debt is comprised of the following:

As of December 31,

(In thousands)

7 ½% Senior Notes due 2025:

Principal $ 625,000 $ 619,400

Discount, net of amortization ( 169,232 ) ( 145,672 )

9 ¾% Senior Notes due 2026:

Principal 850,000 1,650,000

Discount, net of amortization ( 29,943 ) ( 72,176 )

Bank Credit Facility:

Principal 1,250,000 500,000

Debt issuance costs, net of amortization ( 25,693 ) ( 34,403 )

$ 2,500,132 $ 2,517,149

The discounts on the senior notes are being amortized over the lives of the senior notes using the effective interest rate method.

1 unchanged sentence

The following table summarizes Comstock's principal amount of debt as of December 31, 2020 by year of maturity:

2021 2022 2023 2024 2025 Thereafter Total

(In thousands)

1 unchanged sentence

7 ½% Senior Notes Due 2025

— — — — 619,400 — 619,400

9 ¾% Senior Notes Due 2026

In connection with the Jones Contribution, the Company completed a series of refinancing transactions to retire all of its then-outstanding senior secured and unsecured notes.

On August 3, 2018, the Company issued $850.0 million of new senior notes for proceeds of $815.9 million.

Interest on the notes is payable on February 15 and August 15 at an annual rate of 9¾% and the notes mature on August 15, 2026.

As a part of the Covey Park Acquisition, the Company assumed $625.0 million of senior notes.

The fair market value of the notes at the closing was $446.6 million.

Interest on the assumed notes is payable on May 15 and November 15 at an annual rate of 7½%.

The notes mature on May 15, 2025.

On August 14, 2018, the Company entered into a bank credit facility with Bank of Montreal, as administrative agent, and the participating banks.

The bank credit facility was subject to a borrowing base of $700.0 million which was re-determined on a semi-annual basis and upon the occurrence of certain other events.

Concurrent with the closing of the Covey Park Acquisition, the bank credit facility was amended and restated to provide for a $1,575.0 million borrowing base which will be re-determined on a semi-annual basis and upon the occurrence of certain other events.

— — — — — 1,650,000 1,650,000

$ — $ — $ — $ 500,000 $ 619,400 $ 1,650,000 $ 2,769,400

On August 14, 2018, the Company entered into a bank credit facility with Bank of Montreal, as administrative agent, and certain participating banks.

The bank credit facility was subject to a borrowing base of $ 700.0 million.

Concurrent with the closing of the Covey Park Acquisition, the bank credit facility was amended and restated to provide for a $ 1.6 billion borrowing base which is re-determined on a semi-annual basis and upon the occurrence of certain other events.

The maturity date was extended to July 16, 2024.

The initial committed borrowing base was set at $1,500.0 million, of which $1,250.0 million of borrowings were outstanding as of December 31, 2019.

The borrowing base was reaffirmed in November 2019 during its scheduled redetermination.

Borrowings under the bank credit facility are

secured by substantially all of the assets of the Company and its subsidiaries and bear s interest at the Company's option, at either LIBOR plus 1.75% to 2.75% or a base rate plus 0.75% to 1.75%, in each case dep ending on the utilization of the borrowing base.

The borrowing base was re-determined at $ 1.4 billion during 2020.

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.

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

The bank credit facility places certain restrictions upon the Company's and its restricted subsidiaries' ability to, amo ng other things, incur additional indebtedness, pay cash dividends, repurchase common stock, make certain loans, investments and divestitures and redeem the senior notes.

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 financial covenants are determined starting with the financial results for the three months ended December 31, 2019.

The weighted average interest rate on borrowings under the bank credit facility were 3.48 % and 4.69 % as of December 31, 2020 and 2019, respectively.

The bank credit facility places certain restrictions upon the Company's and its subsidiaries' ability to, among other things, incur additional indebtedness, pay cash dividends, repurchase common stock, make certain loans, investments and divestitures and redeem the senior notes.

The only financial covenants are the maintenance of a last twelve month 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 December 31, 2020.

On February 12, 2021, Wells Fargo Bank was appointed administrative agent.

In connection with the Jones Contribution, the Company completed a series of refinancing transactions to retire all of its then-outstanding senior secured and unsecured convertible notes.

On August 3, 2018, the Company issued $ 850.0 million principal amount of its 9 ¾% Senior Notes due 2026 in an underwritten offering and received proceeds of $ 815.9 million.

Interest on the senior notes is payable on February 15 and August 15 at an annual rate of 9.75 % and the senior notes mature on August 15, 2026.

As a part of the Covey Park Acquisition, the Company assumed $ 625.0 million of senior notes.

The fair market value of the notes at the closing was $ 446.6 million.

Interest on the assumed notes is payable on May 15 and November 15 at an annual rate of 7.5 %.

These senior notes mature on May 15, 2025.

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 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 2020.

On June 23, 2020, the Company issued $ 500.0 million principal amount of its 9 ¾% 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.

On August 19, 2020, the Company issued an additional $ 300.0 million principal amount of its 9 ¾% 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.

(5) Commitments and Contingencies

The Company rents office space and other facilities under noncancelable operating leases.

Rent expense for the year ended December 31, 2017 was $1.6 million.

Rent for the Predecessor Period of January 1, 2018 to August 13, 2018 and the Successor Period of August 14, 2018 to December 31, 2018 was $1.0 million and $0.6 million, respectively.

Rent for the year ended December 31, 2019 was $1.7 million.

Minimum future lease payments as of December 31, 2019 are $2.9 million for 2020, $2.2 million for 2021 and $0.5 million for 2022.

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

Commitments under these contracts are $10.7 million for 2020, $12.0 million for 2021, $24.9 million per year for 2022 through 2024 and $169.6 million for the remaining term of the contracts.

The Company has entered into natural gas transportation contracts which extend to 2031.

Commitments under these contracts are $ 21.5 million for 2021, $ 31.2 million for 2022 and $ 24.8 million for 2023 through 2030.

The Company has drilling rig contracts and completion service contracts.

Terms of drilling contracts vary from well to well, or are for periods of less than one year .

The service contracts are generally cancellable with 30 to 60 days ' notice.

The service contracts are generally cancellable with 45 days notice.

Existing commitments under these contracts is $ 6.0 million as of December 31, 2020.

1 unchanged sentence

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 December 31, 2018 or 2019.

(6) Preferred Stock

In connection with the Covey Park Acquisition, the Company issued 210,000 shares of Series A Convertible Preferred Stock with a redemption 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.

Holders of the newly issued convertible preferred stock are entitled to receive quarterly dividends at a rate of 10% per annum, which are paid in arrears.

At any time after July 16, 2020, each holder may convert any or all shares of preferred stock into shares of the Company's common stock at a conversion price of $4.00 per share, or an aggregate of 96,250,000 shares of the Company ' s common stock, subject to adjustment pursuant to customary anti-dilution provisions.

The Company has the right to redeem the preferred stock at any time at face value plus accrued dividends.

The Series A Convertible Preferred Stock and Series B Convertible Preferred Stock are classified as mezzanine equity based on the majority stockholder's ability to control the terms of conversion to common stock.

The difference in the fair value of the Series A Convertible Preferred Stock and the redemption value is being accreted to the redemption value of $210.0 million over a one year

period to reflect the value of the preferred stock on July 16, 2020, when the preferred shares become convertible.

The Company does not believe the resolution of these matters will have a material adverse effect on the Company's financial position, results of operations or cash flows and no material amounts are accrued relative to these matters at December 31, 2019 or 2020.

(6) Convertible 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.

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

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

The holder may convert any or all shares of such preferred stock into shares of the Company's common stock at a conversion price of $ 4.00 per share, or an aggregate of 43,750,000 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.

The Series B Convertible Preferred Stock is classified as mezzanine equity based on the majority stockholder's ability to control the terms of conversion to common stock.

(7) Stockholders' Equity

During 2018, warrants were exercised for 402,708 shares of common stock and 11,955 warrants expired without being exercised on September 7, 2018.

On July 16, 2019, the Company amended its Second Amended and Restated Articles of Incorporation to increase its authorized capital to 405,000,000 shares, of which 400,000,000 shares are common stock, $ 0.50 par value per share, and 5,000,000 are preferred stock, $ 10.00 par value per share.

In 2017, holders of the Company's convertible notes converted $9.9 million of principal amount of the notes into 826,327 shares of common stock, respectively.

During 2017 and 2018, warrants were exercised for 1,502,255 and 402,708 shares of common stock, respectively, and 11,955 warrants expired without being exercised on September 7, 2018.

All warrants for common stock were either exercised or expired unused in 2018.

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.

(8) Stock-based Compensation

The Company grants restricted shares of common stock and performance share units ("PSUs") to key employees and directors as part of their compensation.

Grants are made pursuant to the 2019 Long-term Incentive Plan (the "2019 Plan"), which was approved by the Company ' s shareholders on May 31, 2019 at the Company ' s Annual Meeting.

Upon approval of the 2019 Plan, the 2009 Long-term Incentive Plan (the "2009 Plan") was amended, restated and merged with and into the 2019 Plan.

Future awards of performance share units, restricted stock grants or other equity awards available under the 2019 Long-term Incentive Plan as of December 31, 2019 were 5,501,598 shares of common stock.

The Company grants restricted shares of common stock and PSUs to key employees and directors as part of their compensation.

Grants are made pursuant to the Company's 2019 Long-term Incentive Plan (the "2019 Plan"), which was approved by the Company's shareholders on May 31, 2019.

Future awards of performance share units, restricted stock grants or other equity awards available under the 2019 Plan as of December 31, 2020 were 4,776,556 shares of common stock.

Stock-based compensation expense is included in general and administrative expenses.

During 2017, and for the Predecessor Period from January 1, 2018 through August 13, 2018 the Company had $5.9 million and $3.9 million, respectively, in stock-based compensation expense.

For the Successor Period from August 14, 2018 through December 31, 2018, and during 2019 the Company had $1.0 million and $4.0 million, respectively, in stock-based compensation expense.

During the Predecessor Period from January 1, 2018 through August 13, 2018 the Company had $ 3.9 million in stock-based compensation expense.

For the Successor Period from August 14, 2018 through December 31, 2018, and during the years ended December 31, 2019 and 2020 the Company had $ 1.0 million, $ 4.0 million and $ 6.5 million, respectively, in stock-based compensation expense.

Restricted Stock

The fair value of restricted stock grants is amortized over the vesting period, generally one to three years, using the straight-line method.

The fair value of restricted stock grants is amortized over the vesting period, generally one year to three years , using the straight-line method.

The fair value of each restricted share on the date of grant is equal to the market price of a share of the Company's stock.

A summary of restricted stock activity is presented below:

Shares Weighted

Outstanding at January 1, 2020 1,092,309 $ 6.11

Granted 514,258 $ 5.38

Vested ( 484,647 ) $ 6.11

Forfeitures ( 83,914 ) $ 5.43

Outstanding at December 31, 2020 1,038,006 $ 5.80

Predecessor Successor

For the Period

from January 1,

For the Period

August 13, 2018 For the Period

from August 14,

December 31, 2018 Year Ended December 31, 2019

December 31, 2020

(In thousands, except per share data)

3 unchanged sentences

Unrecognized compensation expense related to unvested shares $ 4,564

Expected recognition period

Expected recognition period 1.8 years

Performance Share Units

9 unchanged sentences

Significant assumptions used to value PSUs included:

Predecessor Successor

For the Period

from January 1,

For the Period

August 13, 2018 For the Period

from August 14,

December 31, 2018 Year Ended December 31, 2019

December 31, 2020

Risk free interest rate 2.3 % 2.7 % 1.5 % 0.3 %

Range of implied volatility:

The fair value of PSUs is amortized over the vesting period of three years, using the straight-line method.

The final number of shares of common stock issued may vary depending upon the performance multiplier, and can result in the issuance of zero to 1,863,780 shares of common stock based on the achieved performance ranges from zero to two.

Minimum 42 % 30 % 32 % 39 %

Maximum 146 % 88 % 84 % 198 %

A summary of PSU activity is presented below:

PSUs Weighted

Outstanding at January 1, 2020 931,890 $ 9.56

Granted 232,088 $ 8.37

Forfeitures ( 27,490 ) $ 8.91

Outstanding at December 31, 2020 1,136,488 $ 9.33

Predecessor Successor

For the Period

from January 1,

For the Period

August 13, 2018 For the Period

from August 14,

December 31, 2018 Year Ended December 31, 2019

December 31, 2020

(In thousands, except per unit data)

4 unchanged sentences

Unrecognized compensation expense related to unvested shares $ 4,945

Expected recognition period

Expected recognition period 1.7 years

The fair value of PSUs is amortized over the vesting period of three years , using the straight-line method.

The final number of shares of common stock issued may vary depending upon the performance multiplier, and can result in the issuance of zero to 2,272,976 shares of common stock based on the achieved performance ranges from zero to two .

During the Predecessor Period from January 1, 2018 through August 13, 2018, 85,987 PSUs were earned and converted into restricted stock.

The change of control that occurred due to the Jones Contribution resulted in the vesting of all then outstanding performance share units at the maximum amount that could be earned, and a total of 1,028,672 shares of common stock were issued related to the earned PSUs with a fair value of $8.8 million.

The change of control that occurred due to the Jones Contribution resulted in the vesting of all then outstanding performance share units on August 14, 2018 at the maximum amount that could be earned, and a total of 1,028,672 shares of common stock were issued related to the earned PSUs with a fair value of $ 8.8 million.

(9) Retirement Plan

1 unchanged sentence

At its discretion, Comstock may match the employees' contributions to the plan.

Matching contributions to the plan were $761,000, $508,000, $252,000 and $1,041,000 for the years ended December 31, 2017, the Predecessor Period from January 1, 2018 through August 13, 2018, the Successor Period from August 14, 2018 through December 31, 2018, and 2019, respectively.

Matching contributions to the plan were approximately $ 508,000 , $ 252,000 , $ 1,041,000 and $ 1,261,000 for the Predecessor Period from January 1, 2018 through August 13, 2018, the Successor Period from August 14, 2018 through December 31, 2018 and the years ended December 31, 2019 and 2020, respectively.

(10) Income Taxes

1 unchanged sentence

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

Year Ended December 31,

January 1, 2018

through August 13,

August 14, 2018

through December 31,

Year Ended December 31,

Predecessor Successor

For the Period

from January 1,

August 13, 2018 For the Period

from August 14,

December 31, 2018 Year Ended December 31, 2019

December 31, 2020

(In thousands)

3 unchanged sentences

Deferred - State ( 1,360 ) 3,805 476 2,981

$ 1,065 $ 18,944 $ 27,803 $ ( 9,210 )

In recording deferred income tax assets, the Company considers whether it is more likely than not that its deferred income tax assets will be realized in the future.

9 unchanged sentences

In December 31, 2018, the Company completed its accounting for the tax effects of enactment of the Tax Cuts and Jobs Act.

The Company remeasured certain deferred federal tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%.

The amount recognized related to the remeasurement of its deferred federal tax balance was $140.4 million, which was subject to a valuation allowance.

The Tax Cuts and Jobs Act repealed the AMT for tax years beginning on or after January 1, 2018 and provides that existing AMT credit carryforwards can be utilized to offset federal taxes for any taxable year.

In addition, 50% of any unused AMT credit carryforwards can be refunded during tax years 2018 through 2020.

The Company had $20.4 million of unused AMT credit carryforwards as of December 31, 2018, of which $10.2 million was refunded during 2019.

The difference between the customary rate of 35% for 201 7, 21 % for 2018 and 2019 and the effective tax rate on income (losses) is due to the following:

Year Ended December 31,

January 1, 2018

through August 13,

August 14, 2018

through December 31,

Year Ended December 31,

(In thousands)

Tax at statutory rate

Tax effect of:

AMT credit refundable

Valuation allowance on

deferred tax assets

State income taxes, net of

federal benefit

Nondeductible transaction costs

Nondeductible stock-based

Net operating loss expirations

Year Ended December 31,

January 1, 2018

through August 13,

August 14, 2018

through December 31,

Year Ended December 31,

Tax at statutory rate

Tax effect of:

AMT credit refundable

Valuation allowance on

deferred tax assets

State income taxes, net of

federal benefit

Nondeductible transaction costs

Nondeductible stock-based

Net operating loss expirations

Effective tax rate

Due to tax law enacted in 2020 with the Coronavirus Aid, Relief and Economic Security ("CARES") Act, the Company received $ 10.2 million in refunds for outstanding AMT carryforwards in 2020.

T he tax effects of significant temporary differences representing the net deferred tax liability at December 31, 2019 and 2020 were as follows:

4 unchanged sentences

Interest expense limitation 62,552 55,026

Gain on debt exchange and original issue discount

Unrealized hedging losses — 10,452

Other 9,022 5,661

127,042 134,535

Valuation allowance on deferred tax assets ( 16,876 ) ( 15,964 )

3 unchanged sentences

Unrealized hedging income ( 10,763 ) —

Amortization of bond discount

Bond discount ( 37,458 ) ( 30,591 )

Other ( 4,130 ) ( 4,604 )

Deferred tax liabilities ( 321,938 ) ( 319,154 )

Net deferred tax liability $ ( 211,772 ) $ ( 200,583 )

The difference between the customary rate of 21% and the effective tax rate on income (losses) is due to the following:

Predecessor Successor

For the Period

from January 1,

August 13, 2018 For the Period

from August 14,

December 31, 2018 Year Ended December 31, 2019

December 31, 2020

(In thousands)

Tax at statutory rate $ ( 19,255 ) $ 17,444 $ 26,185 $ ( 12,941 )

Tax effect of:

Alternative minimum tax — ( 1,349 ) — —

Valuation allowance on deferred tax assets

22,053 ( 903 ) ( 494 ) ( 919 )

State income taxes, net of federal benefit

( 3,599 ) 3,863 ( 499 ) 3,746

Nondeductible transaction costs — — 1,417 —

Nondeductible stock-based compensation

668 ( 120 ) 886 1,109

Other 1,198 9 308 ( 205 )

Total $ 1,065 $ 18,944 $ 27,803 $ ( 9,210 )

Predecessor Successor

For the Period

from January 1,

August 13, 2018 For the Period

from August 14,

December 31, 2018 Year Ended December 31, 2019

December 31, 2020

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

Tax effect of:

Alternative minimum tax — ( 1.6 ) — —

Valuation allowance on deferred tax assets

( 24.1 ) ( 1.1 ) ( 0.4 ) 1.5

State income taxes, net of federal benefit

3.9 4.7 ( 0.4 ) ( 6.1 )

Nondeductible transaction costs — — 1.1 —

Nondeductible stock-based compensation

( 0.7 ) ( 0.1 ) 0.7 ( 1.8 )

Other ( 1.3 ) — 0.3 0.3

Effective tax rate ( 1.2 ) % 22.9 % 22.3 % 14.9 %

At December 31, 2020, Comstock had the following carryforwards available to reduce future income taxes:

Types of Carryforward

Types of Carryforward Years of

Carryforward Amount

(In thousands)

Net operating loss – U.S.

federal 2021-2037 $ 899,953

Net operating loss – U.S.

federal Unlimited $ 6,492

Net operating loss – state taxes 2021-2037 $ 1,552,582

Interest expense – U.S.

federal Unlimited $ 262,069

Interest expense – state taxes Unlimited $ 264,878

The shares of common stock issued as a result of the Jones Contribution triggered an ownership change under Section 382 of the Internal Revenue Code.

8 unchanged sentences

If the Company does not generate a sufficient level of taxable income prior to the expiration of the pre-2018 NOL carry-forward periods, then it will lose the ability to apply those NOLs as offsets to future taxable income.

The Company estimates that $ 840 .

4 million of the U.S.

federal NOL carryforward s and $ 1.4 billion of the estimated state NOL carr yforward s will expire unused.

The Company estimates that $ 844.6 million of the U.S.

federal NOL carryforwards and $ 1.4 billion of the estimated state NOL carryforwards will expire unused.

The Company's federal income tax returns for the years subsequent to December 31, 2015 remain subject to examination.

16 unchanged sentences

The Company classifies the fair value amounts of derivative financial instruments as net current or noncurrent assets or liabilities, whichever the case may be, by commodity contract.

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

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

All of Comstock's natural gas derivative financial instruments are tied to the Henry Hub-NYMEX price index and all of its oil derivative financial instruments are tied to the WTI-NYMEX index price.

1 unchanged sentence

The Company had the following outstanding commodity-based derivative financial instruments, excluding basis swaps which are discussed separately below, at December 31, 2020:

Future Production Period

Year Ending December 31, 2020

Year Ending December 31, 2021

Year Ending December 31, 2022

2021 2022 Total

Natural Gas Swap Contracts:

Volume (MMBtu) 197,383,140 (1)

10,950,000 208,333,140

Average Price per MMBtu $ 2.54 (1)

Natural Gas 2-Way Collar Contracts:

Volume (MMBtu)

Price per MMBtu:

Average Ceiling

Average Floor

Natural Gas 3-Way Collar Contracts:

$ 2.53 $ 2.54

Natural Gas Collar Contracts:

Volume (MMBtu) 115,050,000 5,400,000 120,450,000

4 unchanged sentences

Volume (MMBtu) 16,500,000 (2)

49,200,000 (3)

Average Price per MMBtu $ 2.50 (2)

Crude Oil Collar Contracts:

Volume (Barrels)

Volume (Bbls) 182,500 — 182,500

Price per Barrel:

1 unchanged sentence

Average Floor $ 40.00 $ — $ 40.00

The counterparty has the right to extend hedged volumes of 53,900,000 MMBtu of swaptions placed in 2020 into 2021 at an average price of $2.52 per MMBtu.

The counterparty has the right to extend hedged volumes of 22,750,000 MMBtu of swaptions placed in 2020 and 2021 into 2022 at an average price $2.52 per MMBtu.

In addition to the swaps, collars and swaptions above, the Company had basis swap contracts that lock-in differentials between NYMEX Henry Hub and certain physical pricing indices.

These contracts settle monthly through December 2022 and include volumes of 47,510,000 MMBtu.

_______________

(1) 2021 natural gas price swap contracts include 49,200,000 MMBtu at an average price of $ 2.51 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) The counterparties have the right to exercise a call option, which expires in March 2021, to enter into a price swap with the Company on 16,500,000 MMBtu in 2021 at an average price of $ 2.50 .

(3) The counterparties have the right to exercise a call option to enter into a price swap with the Company on 49,200,000 MMBtu in 2022 at an average price of $ 2.51 .

The call option expires for 5,400,000 MMBtu at an average price of $ 2.50 in March 2021;

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 December 31, 2020, the Company has basis swap contracts that fix the differentials between NYMEX Henry Hub and Houston Ship Channel indices.

These contracts settle monthly through December 2022 on a total volume of 25,550,000 MMBtu.

The fair value of these contracts was a net asset of $ 1.0 million at December 31, 2020.

Subsequent to December 31, 2019, the Company has added 28,000,000 MMBtu of additional natural gas swaptions agreements at an average price of $2.51 per MMBtu, with an additional 43,800,000 subject to option exercises, at an average price of $2.51 per MMBtu.

These contracts begin in January 2020, April 2020 or January 2021 with one year terms after which extensions could be executed for additional one year terms.

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

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

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 consoli dated balance sheets by type, including the classification between assets and liabilities, consists of the following:

Balance Sheet

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 $ 2.1 million at December 31, 2020.

Subsequent to December 31, 2020, the Company added natural gas collar contracts to hedge 32,880,000 MMBtu of natural gas production from July 2021 to December 2022 at an average ceiling price of $ 3.20 per MMBtu and an average floor price of $ 2.50 per MMBtu and added natural gas swap contracts to hedge 7,300,000 MMBtu of natural gas production from January 2022 to December 2022 at an average price of $ 2.70 per MMBtu.

The Company also added oil collar contracts to hedge 349,500 Bbls of oil production from January 2021 to December 2021 at an average ceiling price of $ 54.96 per Bbl and an average floor price of $ 42.39 per Bbl.

The aggregate fair value of the Company's derivative financial instruments are presented on a gross basis in the accompanying consolidated balance sheets.

The classification of derivative financial instruments between assets and liabilities, consists of the following:

As of December 31,

Type Consolidated Balance Sheet Location 2019 2020

(in thousands)

Fair Value of Derivative Instruments as of December 31, 2018

Asset Derivatives:

Natural gas price derivatives

Derivative Financial

Instruments – current

Oil price derivatives

Derivative Financial

Instruments – current

Fair Value of Derivative Instruments as of December 31, 2019

Asset Derivatives:

Natural gas price derivatives

Derivative Financial

Instruments – current

Oil price derivatives

Derivative Financial

Instruments – current

Natural gas price derivatives

Derivative Financial

Instruments – long-term

Liability Derivatives:

Oil price derivatives

Derivative Financial

Instruments – current

Natural gas price derivatives

Derivative Financial

Instruments – long-term

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

Asset Derivative Financial Instruments:

Natural gas price derivatives Derivative Financial Instruments – current $ 75,123 $ 8,913

Oil price derivatives Derivative Financial Instruments – current 181 —

$ 75,304 $ 8,913

Natural gas price derivatives Derivative Financial Instruments – long-term $ 13,888 $ 661

Liability Derivative Financial Instruments:

Natural gas price derivatives Derivative Financial Instruments – current $ — $ 45,158

Oil price derivatives Derivative Financial Instruments – current 222 831

Interest rate derivatives Derivative Financial Instruments – current — 1,016

$ 222 $ 47,005

Natural gas price derivatives Derivative Financial Instruments – long-term $ 4,220 $ 1,308

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

Interest rate derivatives Derivative Financial Instruments – long-term — 1,056

$ 4,220 $ 2,364

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

Predecessor Successor

Recognized in Earnings on

For the Period

Derivatives For the Period

from January 1,

For the Period

August 13, 2018 For the Period

from August 14,

December 31, 2018 Year Ended December 31, 2019

December 31, 2020

(In thousands)

Natural gas price derivatives $ 881 $ 528 $ 60,694 $ 353

Oil price derivatives — 9,937 ( 8,959 ) 12,059

Interest rate derivatives — — — ( 2,461 )

$ 881 $ 10,465 $ 51,735 $ 9,951

(12) Related Party Transactions

3 unchanged sentences

The purchase price paid per net acre was determined by the price paid by the Company to the third party.

As of December 31, 2019, Comstock had drilled nine wells, and completed four wells for the partnership.

The remaining five wells will be completed in 2020.

The Company operates and owns working interests in these properties along with the partnerships owned by the majority stockholder.

Comstock also drilled six wells in South Texas that the Company does not have an interest in for another partnership owned by its 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 $45.5 million from the partnerships for the year ended December 31, 2019 and had a $35.5 million receivable from the partnerships at December 31, 2019.

The December 31, 2019 receivable was collected in full in 2020.

(13) Supplementary Quarterly Financial Data (Unaudited)

(In thousands, except per share data)

Total oil and gas sales

Operating income (loss)

Net income (loss)

Income (loss) per share:

Basic and diluted

(In thousands, except per share data)

Total oil and gas sales

Operating income

Income (loss) per share:

The first quarter and second quarter of 2018 include loss on property sales of $28.6 million and $6.8 million, respectively.

Basic and diluted per share amounts are the same for each of the quarters where a net loss was reported.

The Company operates and owns working interests in these properties along with the partnership owned by the majority stockholder.

Comstock also drills and operates certain other properties for the partnership that the Company does not own working interest in.

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

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

received $ 134,000 and $ 718,000 in 2019 and 2020, respectively, for operating and marketing services provided to the partnership.

Comstock had a $ 6.2 million receivable from the partnership at December 31, 2020, which was collected in full in February 2021.

In addition, derivative financial instruments at December 31, 2020 included a $ 2.0 million payable for oil and natural gas price hedging contracts that the Company has entered into with the partnership.

(13) Oil and Gas Reserves Information (Unaudited)

Set forth below is a summary of the changes in Comstock's net quantities of oil and natural gas reserves:

Year Ended December 31, 2017

Set forth below is a summary of the Company's proved oil and natural gas reserves:

Predecessor Successor

January 1, 2018

August 13, 2018

August 13, 2018 Period from

August 14, 2018

December 31, 2018

Year Ended December 31, 2019

Proved Reserves:

Beginning of period

Revisions of previous

Extensions and

Acquisitions of

minerals in place

Sales of minerals in

End of period

Proved Developed

Beginning of period

End of period

Proved Undeveloped

Beginning of period

End of period

Reserves associated with

Assets Held for Sale:

December 31, 2018 Year Ended December 31, 2019 Year Ended December 31, 2020

(MBbls) Natural

Proved Reserves:

Beginning of period (1)

7,552 1,116,956 28,994 2,246,501 23,612 2,282,758 16,747 5,341,497

Revisions of previous estimates 4 17,778 5 23,949 ( 4,621 ) 62,697 ( 4,241 ) 306,552

Extensions and discoveries 5,651 950,032 — 30,126 259 315,286 2 365,663

Acquisitions of minerals in place — 220,088 — 33,612 240 3,023,109 — —

Sales of minerals in place ( 6,870 ) ( 54,341 ) ( 4,002 ) ( 6,399 ) ( 58 ) ( 49,520 ) — —

Production ( 287 ) ( 55,240 ) ( 1,385 ) ( 45,031 ) ( 2,685 ) ( 292,833 ) ( 1,508 ) ( 450,836 )

End of period 6,050 2,195,273 23,612 2,282,758 16,747 5,341,497 11,000 5,562,876

1 unchanged sentence

Beginning of period (1)

7,552 436,114 22,845 550,198 21,466 583,107 15,104 1,890,357

End of period 403 500,031 21,466 583,107 15,104 1,890,357 11,000 1,967,288

Proved Undeveloped

Proved Undeveloped Reserves:

Beginning of period (1)

— 680,842 6,149 1,696,303 2,146 1,699,651 1,643 3,451,140

End of period 5,647 1,695,242 2,146 1,699,651 1,643 3,451,140 — 3,595,588

The beginning proved reserves balance represents the contributed Bakken shale properties and the reserves of the Predecessor on a combined basis.

The acquisitions of minerals in place in 2019 is primarily related to the Covey Park Acquisition.

The following table sets forth the standardized measure of discounted future net cash fl ows relating to proved reserves :

(1) The beginning proved reserves balance at August 14, 2018 represents the contributed Bakken shale properties and the reserves of the Predecessor on a combined basis.

Revisions of previous estimates.

Revisions of previous estimates in 2018, 2019 and 2020 were primarily attributable to higher production performance from the Company's wells as compared to expected performance from proved undeveloped locations included in proved reserves in the previous year which exceeded downward revisions that primarily related to changes related to oil and natural gas prices that were used to determine proved reserves in that year.

Revisions of previous estimates associated with changes in oil prices were none in 2018, 0.5 MMBbls of negative revisions in 2019 and 2.9 MMBbls of negative revisions in 2020.

Revisions of previous estimates associated with changes in natural gas prices were none in 2018, 228.5 Bcfe of negative revisions in 2019 and 68.2 Bcf of negative revisions in 2020.

Extensions and discoveries.

Extensions and discoveries for 2018, 2019 and 2020 were primarily comprised of proved reserve additions attributable to the wells drilled in the current year that were not classified as proved undeveloped in prior years and additional proved undeveloped reserves added from the Company's drilling program.

Acquisitions of minerals in place.

The significant acquisitions of minerals in place in 2019 is primarily related to the Covey Park Acquisition.

The following table sets forth the standardized measure of discounted future net cash flows relating to proved reserves:

Predecessor Successor

August 13, 2018 As of December 31, 2018

December 31, 2019

December 31, 2020

(In thousands)

2 unchanged sentences

Future Costs:

Production ( 1,804,559 ) ( 2,160,912 ) ( 3,562,042 ) ( 3,173,350 )

Development and Abandonment ( 1,945,141 ) ( 1,800,335 ) ( 3,171,351 ) ( 2,592,520 )

2 unchanged sentences

10 % Discount Factor

Standardized Measure of Discounted Future

Net Cash Flows

Standardized Measure of Discounted Future

Net Cash Flows Related to Assets Held for Sale

( 1,556,927 ) ( 1,996,764 ) ( 2,754,792 ) ( 2,015,149 )

Standardized Measure of Discounted Future Net Cash Flows

$ 877,987 $ 1,473,840 $ 2,913,211 $ 1,935,725

The following table sets forth the changes in the standardized measure of discounted future net cash flows relating to proved reserves:

Year Ended December 31, 2017

January 1, 2018

August 13, 2018

August 14, 2018

Predecessor Successor

For the Period

from January 1,

August 13, 2018 For the Period

from August 14,

December 31, 2018 Year Ended December 31, 2019

December 31, 2020

Year Ended December 31, 2019

(In thousands)

13 unchanged sentences

The standardized measure of discounted future net cash flows was determined based on the simple average of the first of month market prices for oil and natural gas for each year.

Prices used in determining quantities of oil and natural gas reserves and fut ure cash inflows from oil and natural gas reserves represent prices received at the Company's sales point.

Prices used in determining quantities of oil and natural gas reserves and future cash inflows from oil and natural gas reserves represent prices received at the Company's sales point.

These prices have been adjusted from posted or index prices for both location and quality differences.

Prices used in determining oil and natural gas reserves quantities and cash flows are as follows:

Year Ended December 31, 2017

January 1, 2018

August 13, 2018

August 14, 2018

Predecessor Successor

For the Period

from January 1,

August 13, 2018 For the Period

from August 14,

December 31, 2018 Year Ended December 31, 2019

December 31, 2020

Year Ended December 31, 2019

Proved reserve information utilized in the preparation of the financial statements were based on estimates prepared by our petroleum engineering staff 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.

$/barrel $ 62.29 $ 61.21 $ 55.69 $ 39.57

$/Mcf $ 2.74 $ 2.90 $ 2.58 $ 1.99

Proved reserve information utilized in the preparation of the financial statements were based on estimates prepared by the Company's petroleum engineering staff 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 the Company's reserves are located onshore in the continental United States of America.

We retained two independent petroleum consultants to conduct audits of our 2019 reserve estimates.

The aggregate audited values of pre-tax discounted future net cash flows represented 100.0% of the pretax discounted values as of December 31, 2019.

The Company retained two independent petroleum consultants to conduct audits of the Company's 2020 reserve estimates.

The purpose of these audits was to provide additional assurance on the reasonableness of internally prepared reserve estimates.

4 unchanged sentences

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-K

Item 9A. Controls and Procedures