What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2020-11-05 · 125 added, 283 removed, 424 unchanged (49% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30,

2021 December 31,

8 unchanged sentences

Derivative financial instruments 4,627 8,913

Income taxes receivable — 5,109

Other current assets 9,163 14,839

10 unchanged sentences

Goodwill 335,897 335,897

Income taxes receivable — 5,109

Derivative financial instruments 3,524 661

19 unchanged sentences

Mezzanine equity:

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

Series A 10 % convertible preferred stock

Series B 10 % convertible preferred stock

Series B 10 % Convertible Preferred stock — 5,000,000 shares authorized, 175,000 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

175,000 175,000

Stockholders' equity:

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

Common stock—$ 0.50 par, 400,000,000 shares authorized, 232,411,218 and 232,414,718 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

116,206 116,206

10 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

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

2020 2019 2020 2019

Three Months Ended March 31,

(In thousands, except per share amounts)

6 unchanged sentences

Production and ad valorem taxes

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

Gathering and transportation

5 unchanged sentences

General and administrative

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

(Gain) loss on sale of assets

( 16 ) — ( 16 ) 25

Loss (gain) on sale of assets

Total operating expenses

4 unchanged sentences

( 21,749 ) 61,899

489 92 793 340

Transaction costs

— ( 39,657 ) — ( 41,100 )

Interest expense

( 63,811 ) ( 52,810 )

Loss on early extinguishment of debt

Loss on early retirement of debt

( 238,539 ) —

23 unchanged sentences

( 24 ) ( 12 ) 1,442 — 1,430

— — — 13,575 13,575

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

Stock-based compensation

74 37 586 — 623

— — — 21,407 21,407

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

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

Stock-based compensation 780 391 697 — 1,088

Income tax withholdings on equity awards ( 2 ) ( 1 ) ( 14 ) — ( 15 )

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

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

Net income — — — 6,791 6,791

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

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

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

Stock-based compensation

— — — 42,028 42,028

Income tax withholdings on equity awards

( 2 ) ( 1 ) ( 14 ) — ( 15 )

— — — 42,028 42,028

Preferred dividend accretion

— — — ( 2,500 ) ( 2,500 )

Preferred stock accretion — — — ( 2,500 ) ( 2,500 )

Payment of preferred dividends — — — ( 9,572 ) ( 9,572 )

— — — ( 9,572 ) ( 9,572 )

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

Balance at January 1, 2021 232,415 $ 116,206 $ 1,095,384 $ 55,183 $ 1,266,773

Stock-based compensation

( 4 ) — 1,690 — 1,690

Issuances of common stock

42,092 21,046 190,592 — 211,638

Stock issuance costs

1 unchanged sentence

— — — ( 134,125 ) ( 134,125 )

Preferred dividend accretion

— — — ( 2,917 ) ( 2,917 )

Payment of preferred dividends

— — — ( 4,315 ) ( 4,315 )

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

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

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

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

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

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

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

Balance at March 31, 2021 232,411 $ 116,206 $ 1,097,044 $ ( 83,257 ) $ 1,129,993

The accompanying notes are an integral part of these statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

5 unchanged sentences

( 30,150 ) 11,330

(Gain) loss on sale of assets

Gain on sale of assets

Depreciation, depletion and amortization

6 unchanged sentences

Stock-based compensation

Loss on early extinguishment of debt

Decrease in accounts receivable

Loss on early retirement of debt

(Increase) decrease in accounts receivable

( 7,032 ) 54,297

Decrease in other current assets

(Increase) decrease in other current assets

4,778 ( 3,828 )

Decrease in accounts payable and accrued expenses

5 unchanged sentences

( 165,751 ) ( 143,490 )

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

Prepaid drilling costs

Proceeds from sales of assets

6 unchanged sentences

( 95,000 ) ( 57,000 )

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

Issuance of 6.75% Senior Notes 1,257,500 —

Issuance of common stock

206,626 300,000

Issuance of Series B Preferred Stock — 175,000

Redemption of Series A Preferred Stock

Retirement of 7.50% and 9.75% Senior Notes

( 1,263,651 ) —

3 unchanged sentences

( 20,092 ) ( 47 )

Income tax withholdings related to equity awards

( 692 ) ( 167 )

Income tax withholdings on equity awards

Net cash provided by (used for) financing activities

19,442 ( 9,634 )

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

47,163 ( 3,005 )

Cash and cash equivalents, beginning of period

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

March 31, 2021

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –

2 unchanged sentences

and its wholly-owned subsidiaries (collectively, "Comstock" or the "Company").

In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of Comstock as of September 30, 2020, and the related results of operations and cash flows for the periods being presented.

In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of Comstock as of March 31, 2021, and the related results of operations and cash flows for the periods being presented.

Net income and comprehensive income are the same in all periods presented.

4 unchanged sentences

These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in Comstock's Annual Report on Form 10-K for the year ended December 31, 2020.

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

Covey Park Acquisition

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 7½% 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 North Louisiana and East Texas.

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 bank credit facility and cash on hand.

In connection with the Covey Park Acquisition, Comstock incurred $ 41.0 million of advisory and legal fees and other acquisition-related costs during the year ended December 31, 2019.

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

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

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

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

In addition, the pro forma earnings exclude acquisition-related costs.

The unaudited pro forma results do not reflect any cost savings or other synergies that may arise in the future.

Three Months Ended

September 30, 2019 Nine Months Ended

September 30, 2019

(In thousands, except per share amounts)

$ 247,192 $ 858,042

Net Income $ 36,755 $ 201,338

Net income per share:

$ 0.15 $ 0.93

$ 0.13 $ 0.72

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

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

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

Original Allocation Measurement Period Adjustments Final Allocation

(In thousands)

Consideration:

Cash Paid $ 700,000 $ — $ 700,000

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

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

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

Liabilities Assumed:

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

Derivative Financial Instruments 388 — 388

Other Current Liabilities 9,930 706 10,636

Long Term Debt 826,625 — 826,625

Covey Park Preferred Equity 153,390 — 153,390

Non-current Derivative Financial Instruments 186 — 186

Asset Retirement Obligations 5,374 — 5,374

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

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

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

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

Assets Acquired:

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

Accounts Receivable 86,285 — 86,285

Current Derivative Financial Instruments 51,004 — 51,004

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

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

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

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

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

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

The results of operations for the period through March 31, 2021 are not necessarily an indication of the results expected for the full year.

Property and Equipment

5 unchanged sentences

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

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 quantities of proved oil and gas reserves.

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

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

7 unchanged sentences

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

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

The Company had goodwill of $ 335.9 million as of March 31, 2021 that was recorded in 2018.

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

1 unchanged sentence

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 impairment and performs interim assessments if indicators of impairment are present.

The Company performs an annual assessment of goodwill on October 1 st of each year and performs interim assessments if indicators of impairment are present.

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

The Company has right-of-use lease assets of $ 7.2 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.

In January 2021, the corporate office lease was extended for three additional years which added $ 4.7 million to operating lease right-of-use assets during the three months ended March 31, 2021.

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

12 unchanged sentences

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

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

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 three months and nine months ended September 30, 2020 were as follows:

Lease costs recognized during the three months ended March 31, 2021 were as follows:

Three Months Ended

September 30, 2020 Nine Months Ended

September 30, 2020

March 31, 2021

(In thousands)

2 unchanged sentences

Short-term lease cost (drilling rig costs included in proved oil and gas properties) 11,458

$ 7,975 $ 28,432

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

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

Cash payments for operating leases associated with right-of-use assets included in cash provided by operating activities were $ 661 thousand for the three months ended March 31, 2021.

As of March 31, 2021, expected future payments related to contracts that contain operating leases were as follows:

(In thousands)

October 1 to December 31, 2020 $ 647

April 1 to December 31, 2021 $ 1,670

Total lease payments

2 unchanged sentences

The weighted average term of these operating leases was 3.4 years and the weighted average interest rate used in lease computations was 2.8 %.

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

As of March 31, 2021, the Company also had expected future payments for contracted drilling services of $ 5.9 million.

Accrued Costs

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

As of September 30,

2020 As of December 31,

Accrued costs at March 31, 2021 and December 31, 2020 consisted of the following:

March 31, 2021

December 31, 2020

(In thousands)

Accrued capital expenditures $ 26,839 $ 24,959

Accrued interest payable 24,597 67,265

Accrued transportation costs 23,867 25,353

Accrued capital expenditures 25,422 42,193

Accrued lease operating expenses 11,817 4,990

Accrued employee compensation 4,562 7,519

Other 4,445 4,457

Accrued transaction costs 1,088 10,830

Accrued ad valorem taxes 3,000 —

Accrued lease operating expenses 2,613 3,466

$ 89,923 $ 133,019

2 unchanged sentences

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

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

1 unchanged sentence

New wells placed on production

Wells acquired — 5,374

Liabilities settled and assets disposed of

( 80 ) ( 40 )

Accretion expense

5 unchanged sentences

None of the Company's derivative financial instruments involve payment or receipt of premiums.

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.

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.

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

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

The Company had the following oil and natural gas price derivative financial instruments at March 31, 2021:

Future Production Period

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

Nine Months Ending December 31, 2021 Year Ending December 31, 2022 Total

Natural Gas Swap Contracts:

3 unchanged sentences

$ 2.53 (1) $ 2.58 $ 2.54

Natural Gas 2-Way Collar Contracts:

Natural Gas Collar Contracts:

Volume (MMBtu)

5 unchanged sentences

$ 2.47 $ 2.51 $ 2.48

Natural Gas 3-Way Collar Contracts:

Natural Gas Swaptions Contracts:

Volume (MMBtu)

— 43,800,000 (2) 43,800,000 (2)

Price per MMBtu:

Average Ceiling

$ 2.99 — — $ 2.99

Average Floor

$ 2.63 — — $ 2.63

Average Price per MMBtu

— $ 2.51 (2) $ 2.51 (2)

Natural Gas Swaptions Call Contracts:

Natural Gas Basis Swap Contracts:

Volume (MMBtu)

1 unchanged sentence

Average Price per MMBtu ($ 0.12 ) ($ 0.16 ) ($ 0.14 )

— $ 2.52 (3) $ 2.51 (4) $ 2.52

Crude Oil Collar Contracts:

Volume (Barrels)

Volume (Bbls)

412,500 412,500

Price per Barrel:

Price per Bbl:

Average Ceiling

3 unchanged sentences

_____________________________

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

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

(3) The counterparty has the right to exercise a call option to enter into a price swap with the Company on 71,250,000 MMBtu in 2021 at an average price of $ 2.52 .

The call option expires for 47,450,000 MMBtu at an average price of $ 2.53 in October 2020;

for 7,300,000 MMBtu at an average price of $ 2.50 in November 2020 and for 16,500,000 MMBtu at an average price of $ 2.50 in March 2021.

(1) For the nine months ending December 31, 2021, natural gas price swap contracts include 33,000,000 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 (2) below.

(2) The counterparty has the right to exercise a call option to enter into a price swap with the Company on 43,800,000 MMBtu in 2022 at an average price $ 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 September 30, 2020, the Company has basis swap contracts that fix the differential between NYMEX Henry Hub and Houston Ship Channel indices.

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

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

The call option expires 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.

(3) Contracts fix the differential between NYMEX Henry Hub and the Houston Ship Channel indices.

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 $ 2.5 million at September 30, 2020.

The fair value of these contracts was a net liability of $ 1.1 million at March 31, 2021.

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

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

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

The aggregate fair value of the Company's derivative 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:

Type Consolidated Balance Sheet Location March 31, 2021 December 31, 2020

(in thousands)

10 unchanged sentences

Natural gas price derivatives Derivative Financial Instruments – long-term $ 21 $ 1,308

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

Interest rate derivatives Derivative Financial Instruments – long-term 177 1,056

3 unchanged sentences

Gain (Loss) on Derivatives

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

2020 2019 2020 2019

Recognized in Earnings Three Months Ended March 31,

(In thousands)

3 unchanged sentences

$ ( 21,749 ) $ 61,899

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

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

Subsequent to March 31, 2021, the Company entered into natural gas swap contracts to hedge 14,600,000 MMBtu of natural gas production from January 2022 to December 2022 at an average price of $ 2.70 per MMBtu.

Stock-Based Compensation

1 unchanged sentence

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

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

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

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

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

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

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

The Company recognized $ 1.7 million and $ 1.4 million of stock-based compensation expense within general and administrative expenses related to awards of restricted stock and PSUs to its employees and directors during the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, Comstock had 1,034,506 shares of unvested restricted stock outstanding at a weighted average grant date fair value of $ 5.80 per share.

Total unrecognized compensation cost related to unvested restricted stock grants of $ 3.7 million as of March 31, 2021 is expected to be recognized over a period of 1.6 years.

As of March 31, 2021, Comstock had 1,136,488 PSUs outstanding at a weighted average grant date fair value of $ 9.33 per unit.

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

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

Total unrecognized compensation cost related to these grants of $ 4.1 million as of March 31, 2021 is expected to be recognized over a period of 1.5 years.

Revenue Recognition

12 unchanged sentences

The amount of oil or natural gas sold may differ from the amount to which the Company is entitled based on its revenue interests in the properties.

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

The Company did not have any significant imbalance positions at March 31, 2021.

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

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

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

The Company recognized accounts receivable of $ 126.5 million as of March 31, 2021 from customers for contracts where performance obligations have been satisfied and an unconditional right to consideration exists.

Credit Losses

On January 1, 2020, the Company adopted Financial Accounting Standards Board Accounting Standards Codification 326, Credit Losses ("ASC 326").

In adopting ASC 326, the Company determined Topic 326 is limited to the trade accounts receivables relating to purchaser receivables and joint interest receivables of the Company.

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

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

Substantially all of the Company's accounts receivable are due from either purchasers of oil and gas or participants in oil and gas wells for which the Company serves as the operator.

Generally, operators of oil and gas wells have the right to offset future revenues against unpaid charges related to operated wells.

Oil and gas sales are generally unsecured.

Comstock assesses the collectibility of its receivables based upon their age, the credit quality of the purchaser or participant and the potential for revenue offset.

The Company has not had any significant credit losses in the past and believes its accounts receivable are fully collectible.

Accordingly, no allowance for doubtful accounts has been recorded for the three months ended March 31, 2021 and 2020.

Deferred income taxes are provided to reflect the future tax consequences or benefits of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements using enacted tax rates.

3 unchanged sentences

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

federal and state

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

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

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

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In thousands)

6 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Tax at statutory rate 21.0 % 21.0 %

1 unchanged sentence

Valuation allowance on deferred tax assets

1.5 4.5 1.0 2.3

State income taxes, net of federal benefit

5.2 ( 1.8 ) 4.3 —

Nondeductible stock-based compensation

( 1.0 ) 1.2 ( 0.8 ) 1.5

Transaction costs — 8.6 — 1.9

Effective tax rate 18.3 % 21.3 %

13 unchanged sentences

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

The Company's natural gas price swap agreements, basis swap agreements, interest rate swap agreements and its crude oil and natural gas price collars were not traded on a public exchange, and their value is determined utilizing a discounted cash flow model based on inputs that are readily available in public markets and, accordingly, the valuation of these derivative financial instruments, is categorized as a Level 2 measurement.

cash flow model based on inputs that are readily available in public markets and, accordingly, the valuation of these derivative financial instruments, is categorized as a Level 2 measurement.

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

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

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

Nine Months Ended

September 30, 2020

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

Three Months Ended

March 31, 2021

(In thousands)

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Settlements, net

Transfers out of Level 3 ( 6,418 )

Balance at end of period $ ( 17,375 )

Fair Values – Reported

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

September 30, 2020 December 31, 2019

The following presents the carrying amounts and the fair values of the Company's financial instruments as of March 31, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020

Carrying Value Fair Value Carrying Value Fair Value

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$ 844,068 $ 951,498 $ 1,577,824 $ 1,769,625

6.75% senior notes due 2029 (3)

$ 1,257,443 $ 1,275,000 $ — $ —

______________

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

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(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 September 30, 2020 and December 31, 2019, respectively, a Level 1 measurement.

(3) The fair value of the Company's fixed rate debt was based on quoted prices as of March 31, 2021 and December 31, 2020, respectively, a Level 1 measurement.

Earnings Per Share

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

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

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.

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

The Series B Convertible Preferred Stock became convertible into an aggregate

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

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

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

Unvested restricted stock containing non-forfeitable 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.

At March 31, 2021 and December 31, 2020, 1,034,506 and 1,038,006 shares of restricted stock, respectively, are included in common stock outstanding as such shares have a non-forfeitable right to participate in any dividends that might be declared and have the right to vote on matters submitted to the Company's stockholders.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands)

Unvested restricted stock 1,035 1,085

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 performance period.

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

Weighted average unearned PSUs outstanding were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In thousands, except per unit amounts)

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Weighted average grant date fair value per unit $ 9.33 $ 9.58

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

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

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

Weighted average shares of convertible preferred stock outstanding were as follows:

Three Months Ended

(In thousands)

Weighted average convertible preferred stock 43,750 96,250

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 PSUs were anti-dilutive in the three months ended March 31, 2020.

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

Three Months Ended September 30,

Loss Shares Per Share Income Shares Per Share

(In thousands, except per share amounts)

Net income (loss) attributable to common stock $ ( 130,890 ) $ ( 1,337 )

Income allocable to unvested restricted shares — —

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

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

Nine Months Ended September 30,

Three Months Ended March 31,

Loss Shares Per Share Income Shares Per Share

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Basic income (loss) attributable to common stock ( 138,440 ) 231,377 $ ( 0.60 ) 29,919 188,916 $ 0.16

Effect of Dilutive Securities:

Convertible preferred stock — — 12,072 96,250

Diluted income (loss) attributable to common stock $ ( 138,440 ) 231,377 $ ( 0.60 ) $ 41,991 285,166 $ 0.15

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

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

Basic and diluted per share amounts are the same for the three months ended March 31, 2021 due to the net loss in the period.

Supplementary Information with Respect to the Consolidated Statements of Cash Flows

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

Nine Months Ended

September 30,

Cash payments made for interest and income taxes and other non-cash investing activities for the three months ended March 31, 2021 and 2020, respectively, were as follows:

Three Months Ended

(In thousands)

1 unchanged sentence

Interest payments $ 97,990 $ 55,207

Income tax payments $ — $ 2

Non-cash investing activities include:

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

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

Issuance of common stock $ — $ 167,808

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

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

Acquired working capital $ 520 $ 41,624

Non-cash financing activities include:

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

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

Recent Accounting Pronouncements

In January 2017, the FASB issued Accounting Standards Update No.

2017-4 (ASU 2017-4) "Intangibles-Goodwill and Other (Topic 350):

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 2017-4 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 2017-4 and will implement ASU 2017-4 when we perform our annual impairment assessments following adoption of this standard in 2020.

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

Increase (decrease) in accrued capital expenditures $ 1,880 $ ( 13,190 )

(2) LONG-TERM DEBT

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

At March 31, 2021, long-term debt was comprised of the following:

(In thousands)

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Net discount, net of amortization ( 28,866 )

6.75% Senior Notes due 2029:

Principal 1,250,000

Premium, net of amortization 7,443

Bank Credit Facility:

Debt issuance costs, net of amortization ( 40,337 )

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

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

As of March 31, 2021, the Company had $ 550.0 million outstanding under a bank credit facility with a $ 1.4 billion committed borrowing base which is re-determined on a semi-annual basis and upon the occurrence of certain other events which matures on July 16, 2024.

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 portion of the borrowing base.

1 unchanged sentence

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

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

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

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

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

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

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

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

The Company was in compliance with the covenants as of March 31, 2021.

On March 4, 2021, the Company issued $ 1.25 billion principal amount of its 6.75 % senior notes due 2029 in a private placement and received net proceeds after offering costs of $ 1.24 billion, which were used to repurchase a portion of the Company's 7.50 % senior notes due 2025 and 9.75 % senior notes due 2026 pursuant to a tender offer.

The new senior notes mature on March 1, 2029 and accrue interest at a rate of 6.75 % per annum, payable semi-annually on March 1 and September 1 of each year.

Pursuant to the tender offer, Comstock repurchased $ 375.0 million principal amount of its 7.50 % senior notes due 2025 and $ 777.1 million principal amount of its 9.75 % senior notes due 2026 for and aggregate amount of $ 1.26 billion, which included premiums paid over face value of $ 97.9 million, accrued interest of $ 12.5 million and $ 1.1 million of costs related to the tender offer.

As a result of the early retirement of the senior notes repurchased in the tender offer, the Company recognized a $ 238.5 million loss on early retirement of debt in the three months ended March 31, 2021.

(3) PREFERRED STOCK

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

In connection with the acquisition of Covey Park Energy LLC, 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 the 210,000 outstanding shares of the Series A Preferred Stock for an aggregate redemption price of $ 210.0 million plus accrued and unpaid dividends of approximately $ 2.9 million.

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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.

(4) COMMON STOCK –

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.

(4) COMMITMENTS AND CONTINGENCIES

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

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

The Company has drilling rig contracts and completion service contracts.

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 45 days' notice.

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

From time to time, the Company is involved in certain litigation that arises in the normal course of its operations.

The Company records a loss contingency for these matters when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

The Company does not believe the resolution of these matters will have a material effect on the Company's financial position, results of operations or cash flows and no material amounts are accrued relative to these matters at September 30, 2020 or 2019.

(5) RELATED PARTY TRANSACTIONS

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

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

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

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

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

Comstock operates oil and gas properties held by a partnership owned by our majority stockholder.

We charge the partnership for the costs incurred to drill, complete and produce the wells, as well as drilling and operating overhead fees that we charge other interest owners.

We also provide natural gas marketing services to the partnership, including evaluating potential markets and providing hedging services, in return for a fee equal to $ 0.02 per Mcf for natural gas marketed.

We received $ 412 thousand and $ 324 thousand for the three months ended March 31, 2021 and 2020, respectively, for operating and marketing services provided to the partnership.

In connection with our operation of the wells, we had a $ 13.0 million receivable from the partnership at March 31, 2021, which was collected in full in May 2021.

We also had a $ 1.9 million receivable for the fair market value of oil and natural gas price hedging contracts that we have entered into with the partnership.

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

What changed 10-Q

Item 1. Financial Statements