What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-02-17 compared with 2021-02-17 · 253 added, 486 removed, 874 unchanged (46% of the section changed)

4 unchanged sentences

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.

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.

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, 2021 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.

Changes in Internal Control over Financial Reporting.

10 unchanged sentences

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Comstock Resources, Inc.

To the Board of Directors and Stockholders of Comstock Resources, Inc.

Opinion on Internal Control over Financial Reporting

3 unchanged sentences

and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

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.

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, 2021 and 2020, the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 17, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

59 unchanged sentences

Consolidated Balance Sheets as of December 31, 2021 and 2020

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 Operations For the Years Ended December 31, 2021 , 2020 and 2019

Consolidated Statements of Stockholders' Equity

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)

Consolidated Statements of Cash Flows For the Years Ended December 31, 2021 , 2020 and 2019

Notes to Consolidated Financial Statements

15 unchanged sentences

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).

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).

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

4 unchanged sentences

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).

Indenture dated March 4, 2021, by and among the Company, each of the guarantor subsidiaries named therein, and American Stock Transfer & Trust Company, LLC for the 6.75% Senior Notes due 2029 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated March 4, 2021).

Indenture dated June 28, 2021, by and among the Company, each of the guarantor subsidiaries named therein, and American Stock Transfer & Trust Company, LLC for the 5.875% Senior Notes due 2030 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated June 28, 2021).

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).

3 unchanged sentences

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).

Borrowing Base Redetermination Agreement and First Amendment to Amended and Restated Credit Agreement dated as of 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).

Borrowing Base Redetermination Agreement and Second Amendment to Amended and Restated Credit Agreement dated as of 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).

Third Amendment to Amended and Restated Credit Agreement dated as of 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).

Fourth Amendment to Amended and Restated Credit Agreement dated as of 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).

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.

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

as Successor Agent and Bank of Montreal as Predecessor Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.7 to our Annual Report on Form 10-K for the year ended December 31, 2020).

Seventh Amendment to Amended and Restated Credit Agreement dated February 18, 2021, by and among the Company, Wells Fargo Bank, N.A.

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 February 18, 2021).

Eighth Amendment to Amended and Restated Credit Agreement, dated as of October 22, 2021, by and among the Company, Wells Fargo Bank, N.A.

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 September 30, 2021).

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.

2 unchanged sentences

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 incorporated by reference to Exhibit 10.3 to our Annual Report on Form 10-K for the year ended December 31, 2019.

and New Covey Park Energy LLC incorporated by reference to Exhibit 10.

4 to our Annual Report on Form 10-K for the year ended December 31, 2019.

Comstock Resources, Inc.

24 unchanged sentences

and Comstock Resources, Inc.

(incorporated by reference to Exhibit 10.20 to our Annual Report on Form 10-K for the year ended December 31, 2020).

Subsidiaries of the Company.

Consent of Ernst & Young LLP.

Consent of Independent Petroleum Engineers Lee Keeling and Associates, Inc.

Consent of Independent Petroleum Engineers Netherland, Sewell & Associates, Inc.

3 unchanged sentences

Chief Financial Officer certification under Section 906 of the Sarbanes-Oxley Act of 2002.

Report of Lee Keeling and Associates, Inc.

on Proved Reserves as of December 31, 2020.

Report of Netherland, Sewell & Associates, Inc.

Audit Letter of Netherland, Sewell & Associates, Inc.

on Proved Reserves as of December 31, 2021.

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

9 unchanged sentences

# Management contract or compensatory plan document.

FORM 10-K SUMMARY

Not applicable.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

18 unchanged sentences

FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 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 Operations For the Years Ended December 31, 2021 , 2020 and 2019

Consolidated Statements of Stockholders' Equity

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)

Consolidated Statements of Cash Flows For the Years Ended December 31, 2021 , 2020 and 2019

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Comstock Resources, Inc.

To the Board of Directors and Stockholders of Comstock Resources, Inc.

Opinion on the Financial Statements

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

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.

and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

generally accepted accounting principles.

25 unchanged sentences

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.

In addition, in assessing whether we can use 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.

7 unchanged sentences

CONSOLIDATED BALANCE SHEETS

As of December 31, 2019 and 2020

2019 December 31,

As of December 31,

ASSETS (In thousands)

5 unchanged sentences

Derivative financial instruments 5,258 8,913

Income Taxes Receivable 5,109 —

Other current assets 15,077 14,839

2 unchanged sentences

Oil and natural gas properties, successful efforts method:

Proved properties 4,077,513 4,647,188

Unproved properties 410,897 332,765

Other property and equipment 6,866 6,858

Proved 4,756,394 4,647,188

Unproved 302,129 332,765

Other 6,690 6,858

Accumulated depreciation, depletion and amortization ( 1,058,067 ) ( 902,261 )

1 unchanged sentence

Goodwill 335,897 335,897

Income Taxes Receivable 5,109 —

Derivative financial instruments — 661

17 unchanged sentences

Mezzanine equity:

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

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

175,000 175,000

Stockholders' equity:

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

Common stock—$ 0.50 par, 400,000,000 shares authorized, 232,924,646 and 232,414,718 shares issued and outstanding at December 31, 2021 and 2020, respectively

116,462 116,206

Additional paid-in capital 1,100,359 1,095,384

Accumulated earnings 138,596 55,183

Accumulated earnings (deficit) ( 204,042 ) 55,183

Total stockholders' equity 1,012,779 1,266,773

4 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

Predecessor Successor

January 1, 2018

August 13, 2018 Period from

August 14, 2018

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

Year Ended December 31,

2021 2020 2019

(In thousands, except per share amounts)

11 unchanged sentences

Total operating expenses 949,956 695,163 493,803

Operating income (loss) 10,822 116,031 274,886 163,032

Operating income 900,774 163,032 274,886

Other income (expenses):

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

Gain (loss) from derivative financial instruments ( 560,648 ) 9,951 51,735

Other income 636 1,080 622

2 unchanged sentences

Transaction costs — — ( 41,010 )

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

Total other expenses ( 1,131,096 ) ( 224,659 ) ( 150,194 )

Income (loss) before income taxes ( 230,322 ) ( 61,627 ) 124,692

(Provision for) benefit from income taxes ( 1,065 ) ( 18,944 ) ( 27,803 ) 9,210

Benefit from (provision for) income taxes ( 11,403 ) 9,210 ( 27,803 )

Net income (loss) ( 241,725 ) ( 52,417 ) 96,889

10 unchanged sentences

Shares Common

Par Value Common

Warrants Additional

Par Value Additional

Capital Accumulated

1 unchanged sentence

(In thousands)

Predecessor Company:

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

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

Stock-based compensation 841 420 3,600 — 4,020

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

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 )

Successor Company:

Balance at August 13, 2018 16,379 $ 8,189 $ 310 $ 132,032 $ — $ 140,531

Jones Contribution 88,571 44,286 — 315,902 — 360,188

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

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

Stock-based compensation 415 207 — 787 — 994

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

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

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

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

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

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

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

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

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

Net income — — — — 96,889 96,889

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

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

Net loss — — — ( 52,417 ) ( 52,417 )

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

2 unchanged sentences

Stock-based compensation 766 384 6,415 — 6,799

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

Income tax withholdings on equity awards ( 256 ) ( 128 ) ( 1,284 ) — ( 1,412 )

1 unchanged sentence

Net loss — — — ( 241,725 ) ( 241,725 )

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

Payment of preferred dividends — — — ( 17,500 ) ( 17,500 )

4 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Predecessor Successor

For the Period

from January 1,

2018 Period from

August 14, 2018

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

Year Ended December 31,

2021 2020 2019

(In thousands)

4 unchanged sentences

Exploration — 27 —

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

Loss (gain) on sale of assets 162,077 ( 17 ) 25

Depreciation, depletion and amortization 469,388 417,112 276,526

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

Loss (gain) on derivative financial instruments 560,648 ( 9,951 ) ( 51,735 )

Cash settlements of derivative financial instruments ( 419,714 ) 134,496 52,684

Amortization of debt discount, premium and issuance costs 21,703 34,038 16,274

Interest paid in-kind 25,004 — — —

Stock-based compensation 6,799 6,464 4,020

Loss on extinguishment of debt — — — 861

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

Decrease (increase) in other current assets 337 ( 12,527 ) 9,823 7,019

Loss on early extinguishment of debt 352,599 861 —

(Increase) decrease in accounts receivable ( 121,952 ) 34,555 3,220

(Increase) decrease in other current assets ( 2,033 ) 7,019 9,823

Increase in accounts payable and accrued expenses 74,780 12,923 15,485

4 unchanged sentences

Advance payments for drilling costs — ( 1,795 ) 9,336

Proceeds from sales of oil and gas properties 103,593 13,796 475 287

Proceeds from sales of assets 138,394 287 475

Net cash used for investing activities ( 550,816 ) ( 511,198 ) ( 1,170,839 )

CASH FLOWS FROM FINANCING ACTIVITIES:

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

Issuances of senior notes

Borrowings on bank credit facility 555,000 157,000 927,000

Repayments on bank credit facility ( 820,000 ) ( 907,000 ) ( 127,000 )

Issuance of Senior Notes

2,222,500 751,500 —

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

Retirement of Senior Notes ( 2,210,626 ) — —

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

1 unchanged sentence

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

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

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

Preferred stock dividends paid ( 17,500 ) ( 25,580 ) ( 17,832 )

Jones Contribution — 40,736 — —

Debt and stock issuance costs ( 35,760 ) ( 24,617 ) ( 8,617 )

14 unchanged sentences

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.

The consolidated financial statements include the accounts of Comstock Resources, Inc.

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

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

All significant intercompany accounts and transactions have been eliminated in consolidation.

2 unchanged sentences

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

On August 14, 2018, Arkoma Drilling, L.P.

and Williston Drilling, L.P.

(collectively, the "Jones Partnerships") contributed certain oil and gas properties in North Dakota and Montana (the "Bakken Shale Properties") in exchange for 88,571,429 newly issued shares of common stock representing 84 % of the Company's then outstanding common stock (the "Jones Contribution").

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 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.

Through the Jones Partnerships, the Jones Group owns a majority of the voting common stock as well as the ability to control the composition of the majority of the board of directors of Comstock.

As a result of the change of control that occurred upon the issuance of the common stock, the Jones Group controls Comstock and, thereby, continues to control the Bakken Shale Properties.

Accordingly, the basis of the Bakken Shale Properties recognized by Comstock is the historical basis of the Jones Group.

The historical cost basis of the Bakken Shale properties contributed was $ 397.6 million, which was comprised of $ 554.3 million of capitalized costs less $ 156.7 million of accumulated depletion, depreciation and amortization.

The change in control of Comstock resulted in a new basis for Comstock and the Company elected to apply pushdown accounting pursuant to ASC 805, Business Combinations.

The new basis was pushed down to Comstock for financial reporting purposes, resulting in Comstock's assets, liabilities and equity accounts being recognized at fair value upon the closing of the Jones Contribution.

References to "Successor" or "Successor Company" relate to the financial position and results of operations of the Company subsequent to August 13, 2018.

Reference to "Predecessor" or "Predecessor Company" relate to the financial position and results of operations of the Company on or prior to August 13, 2018.

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.

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.

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 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.

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

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 Series A Convertible Preferred Stock was issued with a face value of $ 210.0 million.

Management retained a third-party valuation firm to assess the fair value of the preferred stock.

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 timing 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 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.

The fair value measurements of derivative instruments assumed were determined based on fair value measurements consistent with managements valuation methodologies including implied market volatility, contract terms and prices and discount factors as of the close date.

These inputs represent Level 2 inputs.

The fair values of commodity derivative instruments in an asset position include a measure of counterparty nonperformance risk and the derivative instruments in a liability position include a measure of the Company's own nonperformance risk, each based on the current published credit default swap rates.

The fair value of the asset retirement obligations of $ 5.4 million is included in the oil and natural gas properties with the corresponding liability in the table above.

The fair value was based on a discounted cash flow model that included assumptions of current abandonment costs, inflation rates, discount rates and timing of actual abandonment and restoration activities.

Due to the inputs and significant assumptions associated with the estimation of asset retirement obligations, the estimates made by management represent Level 3 inputs.

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 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

The pro forma condensed combined financial information for the year ended December 31, 2019 gives effect to the Covey Park Acquisition as if the acquisition had occurred on January 1, 2019.

The pro forma condensed combined financial information for year ended December 31, 2018 gives effect to the Covey Park Acquisition and the Jones Contribution as if the transactions had occurred on January 1, 2018.

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, impact of the fair value of properties acquired and related depletion other adjustments the Company believes are reasonable for the pro forma presentation.

In addition, the pro forma earnings include acquisition-related costs of $ 41.0 million for year ended December 31, 2019 and 2018, respectively.

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

Pro Forma Year Ended

(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.

The acquisition qualified as a tax-free reorganization whereby the Company acquired carryover of the sellers inside tax basis and was accounted for as an asset acquisition.

Based on the closing price of the Company's common stock of $ 6.85 per share on November 1, 2019, and the recognition of deferred income taxes associated with the acquisition, the transaction was valued at approximately $ 42.3 million.

Use of Estimates in the Preparation of Financial Statements

15 unchanged sentences

(In thousands)

Prepaid expenses $ 2,005 $ 1,829

Advance payments for drilling costs — 1,795

Production tax refunds receivable $ 7,879 $ 7,915

Pipe and oil field equipment inventory 5,015 3,080

Other 230 220

Prepaid expenses 2,183 1,829

Advance payments for drilling costs — 1,795

$ 15,077 $ 14,839

10 unchanged sentences

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 Years Ended December 31,

Year Ended December 31,

(In thousands)

4 unchanged sentences

Balance at end of year $ — $ ( 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,

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

As of December 31,

Carrying Value Fair Value Carrying Value Fair Value

10 unchanged sentences

— — 1,577,824 1,769,625

6.75 % senior notes due 2029 (3)

1,256,874 1,337,500 — —

(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.

5.875 % senior notes due 2030 (3)

965,000 989,125 — —

_______________

(1) The Company's commodity-based derivatives are classified as Level 2 and measured at fair value using a market approach using third party pricing services and other active markets or broker quotes that are readily available in the public markets.

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

6 unchanged sentences

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.

3 unchanged sentences

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 initially capitalized as proved 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.

11 unchanged sentences

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 $ 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.

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.

The Company had goodwill of $ 335.9 million as of December 31, 2021 and 2020.

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

The Company is required to conduct an annual review of goodwill for impairment and performs the assessment of goodwill on October 1st 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.

5 unchanged sentences

Comstock currently has no finance-type leases.

Right-of-use lease assets representing the Company's right to use an underlying asset for the lease term and the related lease liabilities represent our obligation to make lease payments under the terms of the contracts.

Right-of-use lease assets representing the Company's right to use an underlying asset for the lease term and the related lease liabilities represent its obligation to make lease payments under the terms of the contracts.

Short-term leases that have an initial term of one year or less are not capitalized;

8 unchanged sentences

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:

Lease costs recognized during the years ended December 31, 2021, 2020 and 2019 were as follows:

Year Ended December 31,

2021 2020 2019

(In thousands)

3 unchanged sentences

$ 35,346 $ 35,814 $ 22,569

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.

Cash payments for operating leases associated with right-of-use assets included in cash provided by operating activities were $ 2.6 million, $ 2.5 million and $ 2.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2021 and 2020, the operating leases had a weighted average remaining term of 2.7 years and 1.5 years, respectively, and the weighted-average discount rate used to determine the present value of future operating lease payments was 2.7 % and 4.3 %, respectively.

9 unchanged sentences

Accrued interest payable $ 60,305 $ 67,265

Accrued drilling costs 42,193 24,959

Accrued transportation costs 22,859 25,353

Accrued transaction costs 10,830 462

Accrued drilling costs 19,995 24,959

Accrued income and other taxes 15,655 —

Accrued employee compensation 12,320 7,519

1 unchanged sentence

Other 1,856 3,995

Accrued transaction costs — 462

$ 135,026 $ 133,019

8 unchanged sentences

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

Wells acquired 5,700 —

Acquisitions 637 —

New wells placed on production 1,994 733

1 unchanged sentence

Liabilities settled ( 31 ) ( 80 )

Asset divestitures ( 45 ) —

Divestitures ( 466 ) —

Accretion expense 1,241 1,185

9 unchanged sentences

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.

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 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 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.

In 2021, the Company had three major purchasers of its oil and gas production that accounted for 22 %, 21 %, 13 % of its total oil and natural gas sales.

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

18 unchanged sentences

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 $ 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.

2 unchanged sentences

Earnings Per Share

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.

Unvested restricted stock are included in common stock outstanding and are considered to be participating securities 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.

Accordingly, shares of unvested restricted stock are 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:

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 Year Ended December 31, 2020

Unvested restricted stock (in thousands)

Year Ended December 31,

2021 2020 2019

(in thousands)

Unvested restricted stock 1,057 1,149 685

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.

1 unchanged sentence

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.

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.

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:

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 Year Ended December 31, 2020

(In thousands)

Year Ended December 31,

2021 2020 2019

(In thousands, except per unit amounts)

Weighted average PSUs 929 632 776

Weighted average grant date fair value per unit $ 8.11 $ 9.33 $ 9.56

The Series A and Series B Convertible Preferred Stock were convertible into 52,500,000 and 43,750,000 shares of common stock, respectively.

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

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

Year Ended December 31,

2021 2020 2019

(In thousands)

Weighted average convertible preferred stock 43,750 63,832 44,565

Weighted average warrants for common stock 142 — — —

Weighted average exercise price per share $ 0.01 $ — $ — $ —

Weighted average contingently convertible shares 39,819 — — —

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

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.

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

Year Ended December 31,

2021 2020 2019

(In thousands, except per share amounts)

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

Net income (loss) available to common stockholders $ ( 259,225 ) $ ( 83,413 ) $ 74,474

Income allocable to unvested restricted shares — — ( 356 )

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

Basic net income (loss) available to common stockholders $ ( 259,225 ) $ ( 83,413 ) $ 74,118

Income allocable to convertible preferred stock — — 22,415

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

Diluted net income (loss) available to common stockholders $ ( 259,225 ) $ ( 83,413 ) $ 96,533

Basic weighted average shares outstanding 231,633 215,194 142,750

2 unchanged sentences

Convertible preferred stock — — 44,565

Stock warrants — 6 — —

Diluted weighted average shares outstanding 231,633 215,194 187,378

1 unchanged sentence

Diluted income (loss) per share $ ( 1.12 ) $ ( 0.39 ) $ 0.52

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.

Basic and diluted per share amounts are the same for the year ended December 31, 2021 and 2020 due to the net loss in those periods.

Supplementary Information With Respect to the Consolidated Statements of Cash Flows

1 unchanged sentence

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

from August 14,

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

Year Ended December 31,

2021 2020 2019

(In thousands)

14 unchanged sentences

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

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 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.

2016-13 ("ASU 2016-13") that amends guidance on reporting credit losses for trade receivables, net investments in leases, debt securities, loans and certain other instruments.

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

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 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.

Results of operations for the properties that were sold during the Predecessor Period from January 1 through August 13, 2018 were as follows:

For the Period

from January 1,

2018 through August 13, 2018

(In thousands)

Total oil and gas sales $ 17,747

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.

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 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 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 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 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 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.

In 2021, the Company acquired a 50 % interest in approximately 35,000 net acres of predominantly undeveloped Haynesville shale acreage in East Texas from an unaffiliated third party, which also included interests in 37 producing wells for $ 34.7 million of cash consideration.

During 2021 and 2020, the Company acquired 32,556 and 13,519 net acres through acquisitions or direct leasing for $ 22.9 million and $ 7.9 million, respectively.

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

The transaction was valued at approximately $ 42.3 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.

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

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 Company's majority shareholder 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.

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

The Series A Convertible Preferred Stock was issued with a face value of $ 210.0 million.

Management retained a third-party valuation firm to assess the fair value of the preferred stock.

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.

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 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.

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.

These inputs represent Level 2 inputs.

The fair value of the asset retirement obligations of $ 5.4 million was included in oil and natural gas properties with the corresponding liability in noncurrent liabilities.

Due to the inputs and significant assumptions associated with the estimation of asset retirement obligations, the estimates made by management represent Level 3 inputs.

On November 16, 2021, the Company sold its non-operated properties in the Bakken shale for $ 138.1 million after selling expenses.

The properties sold included non-operated interests in 442 producing wells ( 68.3 net) producing approximately 4,500 barrels of oil equivalent per day.

The Company incurred a $ 162.2 million pre-tax loss on the divestiture.

(3) Oil and Gas Producing Activities

11 unchanged sentences

Costs Incurred

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,

2021 2020 2019

(In thousands)

Property acquisitions:

Proved property $ 21,781 $ — $ 1,854,541

Unproved property 35,871 7,949 237,210

Exploration and development:

Exploratory leasehold costs — — — 7,949

Development leasehold costs 12,953 13,022 7,603

Exploratory drilling and completion costs 6,966 — —

Development drilling and completion costs 569,141 436,074 493,625

Other development costs 39,168 34,572 2,490

Change to asset retirement obligations 5,608 ( 47 ) 12,549

Total capital expenditures $ 691,488 $ 491,570 $ 2,608,018

(4) Exploratory Well Costs

Exploratory well costs are initially capitalized as proved property in the consolidated balance sheets but charged to exploration expense if and when the well is determined not to have found commercial proved oil and gas reserves, it is impaired or it is sold.

The changes in capitalized exploratory well costs are as follows:

Year Ended December 31, 2021

(in thousands)

Beginning capitalized exploratory project costs $ —

Additions to exploratory well costs pending the determination of proved reserves 6,966

Ending capitalized exploratory well costs $ 6,966

As of December 31, 2021, the Company had no exploratory wells for which costs have been capitalized for a period greater than one year.

(5) Long-term Debt

2 unchanged sentences

(In thousands)

Bank Credit Facility:

Principal $ 235,000 $ 500,000

Debt issuance costs, net of amortization ( 38,637 ) ( 34,403 )

7.5 % Senior Notes due 2025:

4 unchanged sentences

Discount, net of amortization — ( 72,176 )

Bank Credit Facility:

6.75 % Senior Notes Due 2029:

Principal 1,250,000 —

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

Premium, net of amortization 6,874 —

5.875 % Senior Notes Due 2030:

Principal 965,000 —

$ 2,615,235 $ 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.

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

Issuance costs are amortized over the lives of the senior notes on a straight-line basis which approximates the amortization that would be calculated using an effective interest rate method.

7 unchanged sentences

— — — — — 1,250,000 1,250,000

5.875 % Senior Notes due 2030

— — — — — 965,000 965,000

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

$ — $ — $ 235,000 $ 244,400 $ — $ 2,215,000 $ 2,694,400

As of December 31, 2021 the Company had $ 235.0 million outstanding under a bank credit facility with a $ 1.4 billion borrowing base which is re-determined on a semi-annual basis and upon the occurrence of certain other events and 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.

4 unchanged sentences

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

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 March 2021, the Company issued $ 1.25 billion principal amount of 6.75 % senior notes due 2029 (the "2029 Notes") 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 7.5 % senior notes due 2025 and 9.75 % senior notes due 2026 (the "2026 Notes") pursuant to a tender offer.

The 2029 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 the 2026 Notes for an 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.

In June 2021, the Company issued $ 965.0 million principal amount of its 5.875 % senior notes due 2030 (the "2030 Notes") in a private placement and received net proceeds after offering costs of $ 949.5 million, which were used along with cash on hand to redeem all outstanding 2026 Notes.

The 2030 Notes mature on January 15, 2030 and accrue interest at a rate of 5.875 % per annum, payable semi-annually on January 15 and July 15 of each year.

In June 2021, Comstock completed the redemption of all outstanding 2026 Notes for an aggregate amount of $ 978.6 million, which included premiums paid over face value of $ 74.0 million and accrued interest of $ 31.7 million.

As a result of the early retirement of the senior notes repurchased in the tender offer and the redemption of the 2026 Notes, the Company recognized a loss of $ 352.6 million on early retirement of debt for the year ended December 31, 2021.

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 7.5 % 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.

In 2020, the Company issued $ 800.0 million principal amount of its 9.75 % Senior Notes due 2026 in an underwritten offering and received net proceeds of $ 737.1 million, which were used to repay borrowings under the Company's bank credit facility.

(6) Commitments and Contingencies

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 natural gas transportation and gathering contracts which extend to 2031.

Commitments under these contracts are $ 41.2 million for 2022, $ 41.5 million for 2023, $ 41.6 million for 2024, $ 29.8 million for 2025, $ 25.0 million for 2026 and $ 24.8 million for 2027 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 45 days notice.

The service contracts are generally for terms ranging from 45 days to six months .

Existing commitments under these contracts is $ 12.3 million as of December 31, 2021.

In April 2021, the Company entered into a well stimulation agreement that extends to 2024 for exclusive use of a natural gas powered pressure pumping fleet.

The minimum commitment under this contract is $ 19.2 million per year from 2022 through 2024.

The fleet is expected to be put into service in April 2022.

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

3 unchanged sentences

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

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

1 unchanged sentence

(8) 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 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 authorized capital of the Company is 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 May 2020, the Company completed an underwritten public offering of its common stock and issued and sold 41,325,000 shares for net proceeds after offering costs of $ 196.4 million.

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

4 unchanged sentences

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

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.

During the years ended December 31, 2021, 2020 and 2019 the Company had $ 6.8 million, $ 6.5 million and $ 4.0 million, respectively, in stock-based compensation expense.

Restricted Stock

8 unchanged sentences

Outstanding at December 31, 2021 952,971 $ 5.74

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,

2021 2020 2019

(In thousands, except per share data)

15 unchanged sentences

Significant assumptions used to value PSUs included:

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,

2021 2020 2019

Risk free interest rate 0.3 % 0.3 % 1.5 %

8 unchanged sentences

Outstanding at December 31, 2021 1,049,910 $ 8.11

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,

2021 2020 2019

(In thousands, except per unit data)

6 unchanged sentences

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 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.

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 2,099,820 shares of common stock based on the achieved performance ranges from zero to two hundred percent.

(10) Retirement Plan

1 unchanged sentence

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

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.

Matching contributions to the plan were approximately $ 1.3 million, $ 1.3 million and $ 1.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

(11) Income Taxes

1 unchanged sentence

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

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,

2021 2020 2019

(In thousands)

10 unchanged sentences

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

The Tax Cuts and Jobs Act, which was enacted on December 22, 2017, reduced the corporate income tax rate effective January 1, 2018 from 35% to 21%.

Among the other significant tax law changes that potentially affect the Company are the elimination of the corporate alternative minimum tax ("AMT"), changes that require operating losses incurred in 2018 and beyond be carried forward indefinitely with no carryback up to 80 % of taxable income in a given year, and limitations on the deduction for interest expense incurred in 2018 or later of up to 30 % of its adjusted taxable income (defined as taxable income before interest and net operating losses) for the taxable year.

For the tax years beginning before January 1, 2022, the adjusted taxable income for these purposes is also adjusted to exclude the impact of depreciation, depletion and amortization.

The Tax Cuts and Jobs Act preserved deductibility of intangible drilling costs for federal income tax purposes, which allows the Company to deduct a portion of drilling costs in the year incurred and minimizes current taxes payable in periods of taxable income.

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

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.

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:

The tax effects of significant temporary differences representing the net deferred tax liabilities were as follows:

As of December 31,

(In thousands)

Deferred tax assets:

Asset retirement obligation $ 3,812 $ 4,061

Net operating loss carryforwards 51,656 59,335

Interest expense limitation $ 103,771 $ 55,026

Net operating loss carryforwards 53,112 59,335

Unrealized hedging losses 37,953 10,452

Asset retirement obligation 4,312 4,061

Other 7,771 5,661

4 unchanged sentences

Property and equipment ( 340,722 ) ( 283,959 )

Unrealized hedging income ( 10,763 ) —

Bond discount ( 9,954 ) ( 30,591 )

3 unchanged sentences

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

Year Ended December 31,

2021 2020 2019

(In thousands)

1 unchanged sentence

Tax effect of:

Alternative minimum tax — ( 1,349 ) — —

Valuation allowance on deferred tax assets 30,504 ( 919 ) ( 494 )

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

State income taxes, net of federal benefit 28,117 3,746 ( 499 )

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

Nondeductible transaction costs — — 1,417

Nondeductible stock-based compensation 1,825 1,109 886

668 ( 120 ) 886 1,109

Other ( 675 ) ( 205 ) 308

Total $ 11,403 $ ( 9,210 ) $ 27,803

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,

2021 2020 2019

Tax at statutory rate 21.0 % 21.0 % 21.0 %

Tax effect of:

Alternative minimum tax — ( 1.6 ) — —

Valuation allowance on deferred tax assets ( 13.3 ) 1.5 ( 0.4 )

( 24.1 ) ( 1.1 ) ( 0.4 ) 1.5

State income taxes, net of federal benefit ( 12.2 ) ( 6.1 ) ( 0.4 )

3.9 4.7 ( 0.4 ) ( 6.1 )

Nondeductible transaction costs — — 1.1

Nondeductible stock-based compensation ( 0.8 ) ( 1.8 ) 0.7

( 0.7 ) ( 0.1 ) 0.7 ( 1.8 )

Other 0.3 0.3 0.3

8 unchanged sentences

federal Unlimited $ 6,627

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

Net operating loss – state taxes Unlimited $ 1,461,613

Interest expense – U.S.

1 unchanged sentence

Interest expense – state taxes Unlimited $ 215,349

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.

As a result, the Company's ability to use net operating losses ("NOLs") generated before the change in control to reduce taxable income is generally limited to an annual amount based on the fair market value of its stock immediately prior to the ownership change multiplied by the long-term tax-exempt interest rate.

The Company's ability to use net operating losses ("NOLs") generated before its ownership change in 2018 to reduce taxable income is generally limited to an annual amount based on the fair market value of its stock immediately prior to the ownership change multiplied by the long-term tax-exempt interest rate.

The Company's NOLs are estimated to be limited to $ 3.3 million a year as a result of this limitation.

In addition to this limitation, IRC Section 382 provides that a corporation with a net unrealized built-in gain immediately before an ownership change may increase its limitation by the amount of built-in gain recognized during a recognition period, which is generally the five-year period immediately following an ownership change.

Based on the fair market value of the Company's common stock immediately prior to the ownership change, Comstock believes that it has a net unrealized built-in gain which will increase the Section 382 limitation during the five-year recognition period.

NOLs that exceed the Section 382 limitation in any year continue to be allowed as carry forwards until they expire and can be used to offset taxable income for years within the carryover period subject to the limitation in each year.

10 unchanged sentences

(12) Derivative Financial Instruments and Hedging Activities

Comstock uses commodity swaps, basis swaps, collars and swaptions to hedge oil and natural gas prices to manage price risk.

Comstock uses commodity price swaps, basis swaps and collars to hedge oil and natural gas prices to manage price risk.

Swaps are settled monthly based on differences between the prices specified in the instruments and the settlement prices of futures contracts.

4 unchanged sentences

No settlement occurs when the settlement price falls between the floor and cap.

Swaptions are a combined derivative which includes a fixed price swap and a sold option to extend the volume hedged.

All of the Company's derivative financial instruments are used for risk management purposes and, by policy, none are held for trading or speculative purposes.

4 unchanged sentences

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.

Basis swaps are tied to Henry Hub.

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

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

(expenses) in the consolidated statements of operations and as separate components within cash flows from operating activities in the consolidated statements of cash flows.

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 have been tied to the WTI-NYMEX index price.

The Company had the following outstanding natural gas price derivative financial instruments at December 31, 2021:

Future Production Period Ending December 31,

2022 2023 Total

1 unchanged sentence

Volume (MMBtu) 121,300,000 — 121,300,000

10,950,000 208,333,140

Average Price per MMBtu $ 2.67 $ 2.67

$ 2.53 $ 2.54

Natural Gas Collar Contracts:

3 unchanged sentences

Average Floor $ 2.62 $ 2.67 $ 2.63

Natural Gas Swaptions Contracts:

Natural Gas Basis Swap Contracts:

Volume (MMBtu) 10,950,000 (1)

49,200,000 (3)

Average Price per MMBtu ($ 0.16 ) (1)

Crude Oil Collar Contracts:

Volume (Bbls) 182,500 — 182,500

Price per Barrel:

Average Ceiling $ 45.00 $ — $ 45.00

Average Floor $ 40.00 $ — $ 40.00

_______________

(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.

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.

(1) Contracts fix the differentials between NYMEX Henry Hub and the Columbia Gulf Mainline indices.

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

14 unchanged sentences

Natural gas price derivatives Derivative Financial Instruments – long-term $ 4,042 $ 1,308

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

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

1 unchanged sentence

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

Derivatives 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,

Gain/(Loss) Recognized in Earnings on Derivatives 2021 2020 2019

(In thousands)

4 unchanged sentences

(13) Related Party Transactions

The Company operates oil and natural gas properties held by a partnership owned by its 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, complete and produce the wells, as well as drilling and operating overhead fees that are charged other interest owners.

Comstock also provides 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.

The Company received $ 1.4 million, $ 718 thousand and $ 134 thousand in 2021, 2020 and 2019, respectively, for operating and marketing services provided to the partnership.

Comstock had a $ 20.8 million and $ 6.2 million receivable from the partnership at December 31, 2021 and 2020, respectively.

In addition, derivative financial instruments at December 31, 2021 and 2020 included a $ 2.3 million receivable and $ 2.0 million payable, respectively, for oil and natural gas price hedging contracts that the Company has entered into with the partnership.

In 2021, the Company acquired from unaffiliated third parties a 50 % interest in approximately 35,000 net acres of predominantly undeveloped Haynesville shale acreage in East Texas, which also included interests in 37 producing wells.

An affiliate of the Company's majority stockholder acquired the remaining 50 % of the acreage and wells alongside Comstock.

Comstock will be the operator of the future drilling program on the jointly acquired acreage.

In February 2019, Comstock sold certain leases covering 1,464 undeveloped net acres in Caddo Parish, Louisiana for $ 5.9 million to a partnership owned by the Company's majority stockholder.

2 unchanged sentences

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

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.

(14) Oil and Gas Reserves Information (Unaudited)

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

Predecessor Successor

January 1, 2018

August 13, 2018 Period from

August 14, 2018

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

(MBbls) Natural

Year Ended December 31,

2021 2020 2019

(MBbls) Natural

3 unchanged sentences

Beginning of period 11,000 5,562,876 16,747 5,341,497 23,612 2,282,758

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

Revisions of previous estimates 145 88,546 ( 4,241 ) 306,552 ( 4,621 ) 62,697

6 unchanged sentences

Beginning of period 11,000 1,967,288 15,104 1,890,357 21,466 583,107

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

End of period 627 2,245,660 11,000 1,967,288 15,104 1,890,357

1 unchanged sentence

Beginning of period — 3,595,588 1,643 3,451,140 2,146 1,699,651

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

End of period — 3,872,423 — 3,595,588 1,643 3,451,140

(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.

Revisions of previous estimates for oil were primarily related to changes in oil prices.

Revisions of previous natural gas estimates in 2021 were primarily due to changes in natural gas prices.

Revisions of previous natural gas estimates in 2020 and 2019 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.

Extensions and discoveries.

3 unchanged sentences

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

As of December 31,

2021 2020 2019

(In thousands)

9 unchanged sentences

Standardized Measure of Discounted Future Net Cash Flows $ 5,775,605 $ 1,935,725 $ 2,913,211

$ 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:

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,

2021 2020 2019

(In thousands)

16 unchanged sentences

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

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,

2021 2020 2019

$/barrel $ 62.38 $ 32.88 $ 50.94

2 unchanged sentences

All of the Company's reserves are located onshore in the continental United States of America.

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.

The engineering firms were selected for their geographic expertise and their historical experience.

The Company retained an independent petroleum consultant to conduct an audit of the Company's 2021 reserve estimates.

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

The engineering firm was selected for their geographic expertise and their historical experience.

Future development and production costs are computed by estimating the expenditures to be incurred in developing and producing proved oil and gas reserves at the end of the year, based on year end costs and assuming continuation of existing economic conditions.

2 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