COMSTOCK RESOURCES INC 10-Q

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Oil and Natural Gas Prices Our financial condition, results of operations and capital resources are highly dependent upon the prevailing market prices of natural gas and oil. These commodity prices are subject to wide fluctuations and market uncertainties due to a variety of factors, some of which are beyond our control. Factors influencing oil and natural gas prices include the level of global demand for oil, the foreign supply of oil and natural gas, the establishment of and compliance with production quotas by oil exporting countries, weather conditions that determine the demand for natural gas, the price and availability of alternative fuels and overall economic conditions. It is impossible to predict future oil and natural gas prices with any degree of certainty. Sustained weakness in natural gas and oil prices may adversely affect our financial condition and results of operations, and may also reduce the amount of oil and natural gas reserves that we can produce economically. Any reduction in our natural gas and oil reserves, including reductions due to price fluctuations, can have an adverse effect on our ability to obtain capital for our exploration and development activities. Similarly, any improvements in natural gas and oil prices can have a favorable impact on our financial condition, results of operations and capital resources. As of June 30, 2021, we had natural gas price swap agreements which hedge approximately 180.1 Bcf of our 2021 and 2022 natural gas production at an average price of $2.62 per MMBtu and natural gas swaption contracts where the counterparty has the right to exercise a call option to enter into a price swap with the Company on 43.8 Bcf of our 2022 natural gas production at an average price of $2.51 per MMBtu. We also had natural gas collars to hedge approximately 188.2 Bcf of our 2021 and 2022 natural gas production with an average floor price of $2.50 per MMBtu and an average ceiling price of $3.29 per MMBtu. We also have oil collars to hedge 276,000 Bbls with an average floor price of $41.67 per Bbl and an average ceiling price of $51.67 per Bbl. None of our derivative contracts have margin requirements or collateral provisions that could require funding prior to the scheduled cash settlement date. The change in the fair value of our natural gas swaps that would result from a 10% change in commodities prices at June 30, 2021 would be $49.2 million. Such a change in fair value could be a gain or a loss depending on whether prices increase or decrease. Based on our oil and natural gas production for the three months ended June 30, 2021 and our outstanding natural gas price swap agreements, a $0.10 change in the price per Mcf of natural gas would have changed our cash flow by approximately $12.7 million. Our natural gas collars, which cover the period July 1, 2021 through December 31, 2021, will result in natural gas prices on 74.2 Bcf of our future production to be subject to a floor price of $2.47 per MMBtu and an average ceiling price of $3.04 per MMBtu. Our crude oil price collars which cover the period July 1, 2021 through December 31, 2021 will result in oil prices on 276,000 Bbls of our future oil production to be subject to a floor price of $41.67 per Bbl and an average ceiling price of $51.67 per Bbl. These collars may increase or decrease our cash flow depending upon whether future prices are below the floor or above the ceiling prices. Interest Rates At June 30, 2021, we had approximately $2.5 billion principal amount of long-term debt outstanding. $965.0 million of our long-term debt bear interest at a fixed rate of 5.875%, $1.25 billion of our long-term debt bear interest at a fixed rate of 6.75% and $244.4 million of our long-term debt bear interest at a fixed rate of 7.50% (the "2025 Notes"). The fair market value of the 2030 Notes, 2029 Notes and 2025 Notes as of June 30, 2021 was $984.3 million, $1,328.1 million and $253.6 million, respectively, based on the market price of approximately 102%, 106% and 104% of the face amount of such debt. At June 30, 2021, we had $475.0 million outstanding under our bank credit facility, which is subject to variable rates of interest that are tied to LIBOR or the corporate base rate, at our option. We have interest rate swap agreements that fix LIBOR at 0.33% for $500.0 million of our floating rate long-term debt. Any increase in these interest rates would have an adverse impact on our results of operations and cash flow.