COMSTOCK RESOURCES INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Controls and Procedures. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. We performed an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2021. The evaluation was performed with the participation of senior management of each business segment and key corporate functions, and under the supervision of the Chief Executive Officer and Chief Financial Officer. Based on our evaluation of our disclosure controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 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. There were no changes in our internal control over financial reporting during the quarter ended December 31, 2021 that materially affected or are reasonably likely to materially affect our internal control over financial reporting. Management's Report on Internal Control over Financial Reporting. We are responsible for establishing and maintaining adequate internal control over financial reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, we conducted an assessment, including testing, using the criteria in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As of December 31, 2021, we assessed the effectiveness of the Company's internal control over financial reporting based on the COSO criteria, and based on that assessment we determined that the Company maintained effective internal control over financial reporting as of December 31, 2021. Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of the Company's internal control over financial reporting as of December 31, 2021. The report, which expresses an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2021, follows below. 37 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Comstock Resources, Inc. Opinion on Internal Control over Financial Reporting We have audited Comstock Resources, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Comstock Resources, Inc. 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, 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 The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ ERNST & YOUNG LLP Dallas, Texas February 17, 2022 ITEM 9B. OTHER INFORMATION None. 38 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this item is incorporated herein by reference to "Business – Directors and Executive Officers" in this Form 10-K and to our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2021. Section 16(a) Beneficial Ownership Reporting Compliance. Our directors, executive officers and stockholders with ownership of 10% or greater are required, under Section 16(a) of the Securities Exchange Act of 1934, to file reports of their ownership and changes to their ownership of our securities with the SEC. Based solely on our review of the reports and any written representations we received that no other reports were required, we believe that, during the year ended December 31, 2021, all of our officers, directors and stockholders with ownership of 10% or greater complied with all Section 16(a) filing requirements applicable to them. Code of Ethics . We have adopted a Code of Business Conduct and Ethics that is applicable to all of our directors, officers and employees as required by New York Stock Exchange rules. We have also adopted a Code of Ethics for Senior Financial Officers that is applicable to our Chief Executive Officer and Senior Financial Officers. Both the Code of Business Conduct and Ethics and Code of Ethics for Senior Financial Officers may be found on our website at www.comstockresources.com. Both of these documents are also available, without charge, to any stockholder upon request to: Comstock Resources, Inc., Attn: Investor Relations, 5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034, (972) 668-8800. We intend to disclose any amendments or waivers to these codes that apply to our Chief Executive Officer and senior financial officers on our website in accordance with applicable SEC rules. Please see the definitive proxy statement for our 2021 annual meeting, which will be filed with the SEC within 120 days of December 31, 2021, for additional information regarding our corporate governance policies. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2021. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table summarizes certain information regarding our equity compensation plans as of December 31, 2021: Number of securities to be issued upon exercise of outstanding options, warrants and rights Number of securities authorized for future issuance under equity compensation plans (excluding outstanding options, warrants and rights) Equity compensation plans approved by stockholders 2,099,820 (1) 4,439,784 _______________ (1) Represents performance share unit awards that would be issuable based upon achievement of the maximum awards under the terms of the performance share unit awards. We do not have any equity compensation plans that were not approved by stockholders. Further information required by this item is incorporated herein by reference to our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2021. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item is incorporated herein by reference to our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2021. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated herein by reference to our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2021. 39 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Financial Statements: 1. The following consolidated financial statements and notes of Comstock Resources, Inc. are included on Pages F-2 to F-26 of this report: Report of Independent Registered Public Accounting Firm F- 1 Consolidated Balance Sheets as of December 31, 2021 and 2020 F- 3 Consolidated Statements of Operations For the Years Ended December 31, 2021 , 2020 and 2019 F- 4 Consolidated Statements of Stockholders' Equity F- 5 Consolidated Statements of Cash Flows For the Years Ended December 31, 2021 , 2020 and 2019 F- 6 Notes to Consolidated Financial Statements F- 7 2. All financial statement schedules are omitted because they are not applicable, or are immaterial or the required information is presented in the consolidated financial statements or the related notes. (b) Exhibits: The exhibits to this report required to be filed pursuant to Item 15(c) are listed below. Exhibit No. Description 2.1 Contribution Agreement dated May 9, 2018, by and among Arkoma Drilling, L.P., Williston Drilling, L.P. and the Company (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K/A dated May 9, 2018). 2.2 Amendment No. 1 to the Contribution Agreement, dated as of August 14, 2018, by and among Arkoma Drilling, L.P., Williston Drilling, L.P. and the Company (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated August 13, 2018). 2.3 Agreement and Plan of Merger, dated June 7, 2019, by and among the Company, Covey Park Energy LLC, New Covey Park Energy LLC and Covey Park Energy Holdings LLC (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated June 7, 2019). 2.4 First Amendment to Agreement and Plan of Merger dated as of July 15, 2019 by and among the Company, New Covey Park Energy LLC, Covey Park Energy LLC and Covey Park Energy Holdings LLC (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated July 15, 2019). 3.1 Second Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated August 13, 2018). 3.2 Amendment to Second Amended and Restated Articles of Incorporation of the Company, dated July 16, 2019 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated July 15, 2019). 3.3 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated August 21, 2014). 3.4 First Amendment to Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated August 17, 2018). 3.5 Amendment No. 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 May 3, 2017 between Covey Park Energy LLC, Covey Park Finance Corp. and Wells Fargo Bank National Association, as Trustee, for the 7.50% Senior Notes due 2025 (incorporated by reference to Exhibit 4.7 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019). 4.2 Supplemental Indenture dated July 16, 2019 among the Company and Wells Fargo Bank, National Association for the 7.50% Senior Notes due 2025 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated July 15, 2019). 4.3 Supplemental Indenture dated July 16, 2019 among the Company, the Guaranteeing Subsidiaries and Wells Fargo Bank, National Association for the 7.50% Senior Notes due 2025 (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K dated July 15, 2019). 4.4 Instrument of Resignation, Appointment and Acceptance dated as of July 16, 2019 among the Company, the Subsidiary Guarantors named therein, Wells Fargo Bank, N.A. and American Stock Transfer & Trust Company LLC (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K dated July 15, 2019). 4.5 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). 40 Exhibit No. Description 4.6 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). 4.7 Certificate of Designations of the Series B Redeemable Convertible Preferred Stock (incorporated by reference to Exhibit 4.4 to our Current Report on Form 8-K dated July 15, 2019). 4.8 Shareholders Agreement, dated June 7, 2019, by and among the Company, Arkoma Drilling CP, LLC, Williston Drilling CP, LLC, Arkoma Drilling, L.P., Williston Drilling, L.P., New Covey Park Energy LLC and Jerral W. Jones (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated June 10, 2019). 4. 9 * Description of Securities. 10.1 Amended and Restated Credit Agreement dated as of July 16, 2019, among the Company, Bank of Montreal as Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated July 15, 2019). 10.2 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). 10.3 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). 10.4 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). 10.5 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). 10.6 Fifth Amendment to Amended and Restated Credit Agreement, dated as of December 4, 2020, by and among the Company, Bank of Montreal as Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated December 8, 2020). 10.7 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). 10.8 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). 10.9 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). 10.1 0 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. Jones (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K dated June 7, 2019). 10.11 Amendment No. 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. 4 to our Annual Report on Form 10-K for the year ended December 31, 2019. 10.12# Comstock Resources, Inc. 2019 Long-term Incentive Plan Effective as of May 31, 2019 (incorporated by reference to Exhibit 99 to our Registration Statement on Form S-8 dated June 4, 2019). 10.13# Employment Agreement dated September 7, 2018 by and between the Company and M. Jay Allison (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated September 7, 2018). 10.14# Employment Agreement dated September 7, 2018 by and between the Company and Roland O. Burns (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated September 7, 2018). 10.15# Employment Agreement dated June 22, 2013 by and between the Company (as successor in interest to Covey Park) and David Terry (incorporated by reference to Exhibit 10.8 to our Annual Report on Form 10-K for the year ended December 31, 2019). 10.16 Lease between Stonebriar I Office Partners, Ltd., and Comstock Resources, Inc. dated May 6, 2004 (incorporated by reference to Exhibit 10.24 to our Annual Report on Form 10-K for the year ended December 31, 2004). 10.17 First Amendment to the Lease Agreement dated August 25, 2005, between Stonebriar I Office Partners, Ltd. and Comstock Resources, Inc. (incorporated by reference to Exhibit 10.19 to our Annual Report on Form 10-K for the year ended December 31, 2005). 10.18 Second Amendment to the Lease Agreement dated October 15, 2007 between Stonebriar I Office Partners, Ltd. and Comstock Resources, Inc. (incorporated by reference to Exhibit 10.10 to our Annual Report on Form 10-K for the year ended December 31, 2008). 41 Exhibit No. Description 10.19 Third Amendment to the Lease Agreement dated September 30, 2008 between Stonebriar I Office Partners, Ltd. and Comstock Resources, Inc. (incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K for the year ended December 31, 2008). 10.2 0 Fourth Amendment to the Lease Agreement dated May 8, 2009 between Stonebriar I Office Partners, Ltd. and Comstock Resources, Inc. (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009). 10.21 Fifth Amendment to the Lease Agreement dated June 15, 2011 between Stonebriar I Office Partners, Ltd. and Comstock Resources, Inc. (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011). 10.22 Sixth Amendment to the Lease Agreement dated January 21, 2021 between Stonebriar I Office Partners, Ltd. 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). 21* Subsidiaries of the Company. 23.1* Consent of Ernst & Young LLP. 23. 2 * Consent of Independent Petroleum Engineers Netherland, Sewell & Associates, Inc. 31.1* Chief Executive Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Chief Financial Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002. 32.1+ Chief Executive Officer certification under Section 906 of the Sarbanes-Oxley Act of 2002. 32.2+ Chief Financial Officer certification under Section 906 of the Sarbanes-Oxley Act of 2002. 99. 1 * Audit Letter of Netherland, Sewell & Associates, Inc. on Proved Reserves as of December 31, 2021. 101.INS* XBRL Instance Document 101.SCH* XBRL Schema Document 101.CAL* XBRL Calculation Linkbase Document 101.LAB* XBRL Labels Linkbase Document 101.PRE* XBRL Presentation Linkbase Document 101.DEF* XBRL Definition Linkbase Document 104* Cover Page Interactive Data File (embedded within the Inline XBRL document) _______________ * Filed herewith. + Furnished herewith. # Management contract or compensatory plan document. ITEM 16. FORM 10-K SUMMARY Not applicable. 42 SIGNATURES 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. COMSTOCK RESOURCES, INC. By: /s/ M. JAY ALLISON M. Jay Allison Chief Executive Officer Date: February 17, 2022 (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ M. JAY ALLISON Chief Executive Officer and February 17, 2022 M. Jay Allison Chairman of the Board of Directors (Principal Executive Officer) /s/ ROLAND O. BURNS President, Chief Financial Officer, February 17, 2022 Roland O. Burns Secretary and Director (Principal Financial and Accounting Officer) /s/ ELIZABETH B. DAVIS Director February 17, 2022 Elizabeth B. Davis /s/ MORRIS E. FOSTER Director February 17, 2022 Morris E. Foster /s/ JIM L. TURNER Director February 17, 2022 Jim L. Turner 43 COMSTOCK RESOURCES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS INDEX Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) F- 1 Consolidated Balance Sheets as of December 31, 2021 and 2020 F- 3 Consolidated Statements of Operations For the Years Ended December 31, 2021 , 2020 and 2019 F- 4 Consolidated Statements of Stockholders' Equity F- 5 Consolidated Statements of Cash Flows For the Years Ended December 31, 2021 , 2020 and 2019 F- 6 Notes to Consolidated Financial Statements F- 7 44 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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, 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. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 17, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Depreciation, Depletion and Amortization of Proved Oil and Gas Properties Description of the Matter At December 31, 2021, the net book value of the Company's proved oil and gas properties was $3,700 million, and depreciation, depletion and amortization (DD&A) expense was $469 million for the year then ended. As described in Note 1, under the successful efforts method of accounting, capitalized costs of proved properties are depleted using the units-of-production method based on proved reserves, as estimated by the Company's engineers. Proved oil and gas reserve estimates are based on geological and engineering interpretation and judgment. Significant judgment is required by the Company's engineers in evaluating geological and engineering data when estimating proved oil and gas reserves. Estimating reserves also requires the selection of inputs, including oil and gas price assumptions, future operating and capital cost assumptions and tax rates by jurisdiction, among others. Because of the complexity involved in estimating oil and gas reserves, management used independent petroleum engineers to audit the estimates prepared by the Company's engineers as of December 31, 2021. F-1 Auditing the Company's DD&A calculation is especially complex because of the use of the work of the Company's engineers and the independent petroleum engineers and the evaluation of management's determination of the inputs described above used by the engineers in estimating proved oil and gas reserves. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over its process to calculate DD&A, including management's controls over the completeness and accuracy of the financial data provided to the engineers for use in estimating proved oil and gas reserves. Our audit procedures included, among others, evaluating the professional qualifications and objectivity of the Company's engineers responsible for the preparation of the reserve estimates and the independent petroleum engineers used to audit the estimates. In addition, in assessing whether we can use the work of the engineers, we evaluated the completeness and accuracy of the financial data and inputs described above used by the engineers in estimating proved oil and gas reserves by agreeing them to source documentation, and we identified and evaluated corroborative and contrary evidence. For proved undeveloped reserves, we evaluated management's development plan for compliance with SEC requirements. We also tested the mathematical accuracy of the DD&A calculations, including comparing the proved oil and gas reserves amounts used to the Company's reserve report. /s/ ERNST & YOUNG LLP We have served as the Company's auditor since 2003. Dallas, Texas February 17, 2022 F-2 COMSTOCK RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 2021 2020 ASSETS (In thousands) Cash and cash equivalents $ 30,663 $ 30,272 Accounts receivable: Oil and gas sales 217,149 125,016 Joint interest operations 29,755 14,615 From affiliates 20,834 6,155 Derivative financial instruments 5,258 8,913 Other current assets 15,077 14,839 Total current assets 318,736 199,810 Property and equipment: Oil and natural gas properties, successful efforts method: 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 ) Net property and equipment 4,007,146 4,084,550 Goodwill 335,897 335,897 Derivative financial instruments — 661 Operating lease right-of-use assets 6,450 3,025 Other assets — 40 $ 4,668,229 $ 4,623,983 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 314,569 $ 259,284 Accrued expenses 135,026 133,019 Operating leases 2,444 2,284 Derivative financial instruments 181,945 47,005 Total current liabilities 633,984 441,592 Long-term debt 2,615,235 2,517,149 Deferred income taxes 197,417 200,583 Derivative financial instruments 4,042 2,364 Long-term operating leases 4,075 740 Reserve for future abandonment costs 25,673 19,290 Other non-current liabilities 24 492 Total liabilities 3,480,450 3,182,210 Commitments and contingencies Mezzanine equity: 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, 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 (deficit) ( 204,042 ) 55,183 Total stockholders' equity 1,012,779 1,266,773 $ 4,668,229 $ 4,623,983 The accompanying notes are an integral part of these statements. F-3 COMSTOCK RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2021 2020 2019 (In thousands, except per share amounts) Revenues: Natural gas sales $ 1,775,768 $ 809,399 $ 635,795 Oil sales 74,962 48,796 132,894 Total oil and gas sales 1,850,730 858,195 768,689 Operating expenses: Production and ad valorem taxes 49,141 36,967 35,702 Gathering and transportation 130,940 106,582 71,303 Lease operating 103,467 102,452 80,762 Depreciation, depletion and amortization 469,388 417,112 276,526 General and administrative, net 34,943 32,040 29,244 Exploration — 27 241 Loss (gain) on sale of assets 162,077 ( 17 ) 25 Total operating expenses 949,956 695,163 493,803 Operating income 900,774 163,032 274,886 Other income (expenses): Gain (loss) from derivative financial instruments ( 560,648 ) 9,951 51,735 Other income 636 1,080 622 Interest expense ( 218,485 ) ( 234,829 ) ( 161,541 ) Loss on early extinguishment of debt ( 352,599 ) ( 861 ) — Transaction costs — — ( 41,010 ) Total other expenses ( 1,131,096 ) ( 224,659 ) ( 150,194 ) Income (loss) before income taxes ( 230,322 ) ( 61,627 ) 124,692 Benefit from (provision for) income taxes ( 11,403 ) 9,210 ( 27,803 ) Net income (loss) ( 241,725 ) ( 52,417 ) 96,889 Preferred stock dividends and accretion ( 17,500 ) ( 30,996 ) ( 22,415 ) Net income (loss) available to common stockholders $ ( 259,225 ) $ ( 83,413 ) $ 74,474 Net income (loss) per share — basic and diluted $ ( 1.12 ) $ ( 0.39 ) $ 0.52 Weighted average shares outstanding: Basic 231,633 215,194 142,750 Diluted 231,633 215,194 187,378 The accompanying notes are an integral part of these statements. F-4 COMSTOCK RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Shares Common Stock- Par Value Additional Paid-in Capital Accumulated Earnings (Deficit) Total (In thousands) 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 ) Issuance of common stock 83,333 41,666 456,967 — 498,633 Stock issuance costs — — ( 1,487 ) — ( 1,487 ) Net income — — — 96,889 96,889 Preferred stock accretion — — — ( 4,583 ) ( 4,583 ) Payment of preferred dividends — — — ( 17,832 ) ( 17,832 ) Balance at December 31, 2019 190,007 $ 95,003 $ 909,423 $ 138,596 $ 1,143,022 Stock-based compensation 431 216 6,248 — 6,464 Income tax withholdings on equity awards ( 115 ) ( 59 ) ( 633 ) — ( 692 ) 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 ) Payment of preferred dividends — — — ( 25,579 ) ( 25,579 ) Balance at December 31, 2020 232,415 $ 116,206 $ 1,095,384 $ 55,183 $ 1,266,773 Stock-based compensation 766 384 6,415 — 6,799 Income tax withholdings on equity awards ( 256 ) ( 128 ) ( 1,284 ) — ( 1,412 ) Stock issuance costs — — ( 156 ) — ( 156 ) Net loss — — — ( 241,725 ) ( 241,725 ) Payment of preferred dividends — — — ( 17,500 ) ( 17,500 ) Balance at December 31, 2021 232,925 $ 116,462 $ 1,100,359 $ ( 204,042 ) $ 1,012,779 The accompanying notes are an integral part of these statements. F-5 COMSTOCK RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2021 2020 2019 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ ( 241,725 ) $ ( 52,417 ) $ 96,889 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Deferred and non-current income taxes ( 3,565 ) ( 9,409 ) 28,026 Exploration — 27 — Loss (gain) on sale of assets 162,077 ( 17 ) 25 Depreciation, depletion and amortization 469,388 417,112 276,526 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 Stock-based compensation 6,799 6,464 4,020 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 Net cash provided by operating activities 859,005 575,701 451,237 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Covey Park Energy LLC, net of cash acquired — — ( 693,869 ) Capital expenditures ( 689,210 ) ( 509,690 ) ( 486,781 ) Advance payments for drilling costs — ( 1,795 ) 9,336 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 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 — Retirement of Senior Notes ( 2,210,626 ) — — Repayment of Covey Park Energy LLC preferred equity — — ( 533,390 ) Issuance of common stock — 206,626 300,000 Issuance of Series B Convertible Preferred Stock — — 175,000 Redemption of Series A Convertible Preferred Stock — ( 210,000 ) — Preferred stock dividends paid ( 17,500 ) ( 25,580 ) ( 17,832 ) Debt and stock issuance costs ( 35,760 ) ( 24,617 ) ( 8,617 ) Income tax withholdings related to equity awards ( 1,412 ) ( 692 ) ( 220 ) Net cash provided by (used for) financing activities ( 307,798 ) ( 52,763 ) 714,941 Net increase (decrease) in cash and cash equivalents 391 11,740 ( 4,661 ) Cash and cash equivalents, beginning of the year 30,272 18,532 23,193 Cash and cash equivalents, end of the year $ 30,663 $ 30,272 $ 18,532 The accompanying notes are an integral part of these statements. F-6 COMSTOCK RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies Accounting policies used by Comstock Resources, Inc. and subsidiaries reflect oil and natural gas industry practices and conform to accounting principles generally accepted in the United States of America. Basis of Presentation and Principles of Consolidation Comstock Resources, Inc. and its subsidiaries are engaged in the acquisition, exploration, development and production of oil and natural gas. 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. The Company accounts for its undivided interest in oil and gas properties using the proportionate consolidation method, whereby its share of assets, liabilities, revenues and expenses are included in its financial statements. Net income (loss) and comprehensive income (loss) are the same in all periods presented. All adjustments are of a normal recurring nature unless otherwise disclosed. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. Changes in the future estimated oil and natural gas reserves or the estimated future cash flows attributable to the reserves that are utilized for impairment analyses could have a significant impact on the future results of operations. Concentration of Credit Risk and Accounts Receivable Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents, accounts receivable and derivative financial instruments. The Company places its cash with high credit quality financial institutions and its derivative financial instruments with financial institutions and other firms that management believes have high credit ratings. Substantially all of the Company's accounts receivable are due from either purchasers of oil and gas or participants in oil and gas wells for which the Company serves as the operator. Generally, operators of oil and gas wells have the right to offset future revenues against unpaid charges related to operated wells. Oil and gas sales are generally unsecured. The Company's policy is to assess the collectability of its receivables based upon their age, the credit quality of the purchaser or participant and the potential for revenue offset. The Company has not had any significant credit losses in the past and believes its accounts receivable are fully collectible. Accordingly, no allowance for doubtful accounts has been provided. Other Current Assets Other current assets at December 31, 2021 and 2020 consist of the following: As of December 31, 2021 2020 (In thousands) Production tax refunds receivable $ 7,879 $ 7,915 Pipe and oil field equipment inventory 5,015 3,080 Prepaid expenses 2,183 1,829 Advance payments for drilling costs — 1,795 Other — 220 $ 15,077 $ 14,839 F-7 Fair Value Measurements The Company holds or has held certain financial assets and liabilities that are required to be measured at fair value. These include cash and cash equivalents held in bank accounts and derivative financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level hierarchy is followed for disclosure to show the extent and level of judgment used to estimate fair value measurements: Level 1 — Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date. Level 2 — Inputs used to measure fair value, other than quoted prices included in Level 1, are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument. Level 3 — Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management's estimates of market participant assumptions. The following is a reconciliation of the beginning and ending balances for derivative instruments classified as Level 3 in the fair value hierarchy: Year Ended December 31, 2021 2020 (In thousands) Balance at beginning of year $ ( 22,588 ) $ 4,351 Total gains (losses) included in earnings ( 162,421 ) 15,943 Settlements, net 58,448 ( 31,252 ) Transfers out of Level 3 126,561 ( 11,630 ) 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, 2021 and 2020 : As of December 31, 2021 2020 Carrying Value Fair Value Carrying Value Fair Value Assets: (In thousands) Commodity-based derivatives (1) $ 5,258 $ 5,258 $ 9,574 $ 9,574 Liabilities: Commodity-based derivatives (1) 185,987 185,987 49,369 49,369 Bank credit facility (2) 235,000 235,000 500,000 500,000 7.50 % senior notes due 2025 (3) 196,998 248,066 473,728 628,691 9.75 % senior notes due 2026 (3) — — 1,577,824 1,769,625 6.75 % senior notes due 2029 (3) 1,256,874 1,337,500 — — 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. (3) The fair value of the Company's fixed rate debt was based on quoted prices as of December 31, 2021 and 2020, respectively, a Level 1 measurement. F-8 Property and Equipment The Company follows the successful efforts method of accounting for its oil and gas properties. Costs incurred to acquire oil and gas leasehold are capitalized. Acquisition costs for proved oil and gas properties, costs of drilling and equipping productive wells, and costs of unsuccessful development wells are capitalized and amortized on an equivalent unit-of-production basis over the life of the remaining related oil and gas reserves. Equivalent units are determined by converting oil to natural gas at the ratio of one barrel of oil for six thousand cubic feet of natural gas. 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. Exploration expense includes geological and geophysical expenses and delay rentals related to exploratory oil and gas properties, costs of unsuccessful exploratory drilling and impairments of unproved properties. As of December 31, 2021 and 2020, the unproved properties primarily relate to future drilling locations that were not included in proved undeveloped reserves. Most of these future drilling locations are located on acreage where the reservoir is known to be productive but have been excluded from proved reserves due to uncertainty on whether the wells would be drilled within the next five years as required by SEC rules in order to be included in proved reserves. The costs of unproved properties are transferred to proved oil and gas properties when they are either drilled or they are reflected in proved undeveloped reserves and amortized on an equivalent unit-of-production basis. Costs associated with unevaluated exploratory acreage are periodically assessed for impairment on a property by property basis, and any impairment in value is included in exploration expense. 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. The Company assesses the need for an impairment of the costs capitalized for its proved oil and gas properties when events or changes in circumstances, such as a significant drop in commodity prices, indicate that the Company may not be able to recover its capitalized costs. If impairment is indicated based on undiscounted expected future cash flows attributable to the property, then a provision for impairment is recognized to the extent that net capitalized costs exceed the estimated fair value of the property. The Company determines the fair values of its oil and gas properties using a discounted cash flow model and proved and risk-adjusted probable reserves. Significant Level 3 assumptions associated with the calculation of discounted future cash flows included in the cash flow model include management's outlook for oil and natural gas prices, future oil and natural gas production, production costs, capital expenditures, and the total proved and risk-adjusted probable oil and natural gas reserves expected to be recovered. Management's oil and natural gas price outlook is developed based on third-party longer-term price forecasts as of each measurement date. The expected future net cash flows are discounted using an appropriate discount rate in determining a property's fair value. The oil and natural gas prices used for determining asset impairments will generally differ from those used in the standardized measure of discounted future net cash flows because the standardized measure requires the use of an average price based on the first day of each month of the preceding year. Unproved properties are evaluated for impairment based upon the results of drilling, planned future drilling and the terms of the oil and gas leases. The Company's estimates of undiscounted future net cash flows attributable to its oil and gas properties may change in the future. The primary factors that may affect estimates of future cash flows include future adjustments, both positive and negative, to proved and appropriate risk-adjusted probable oil and natural gas reserves, results of future drilling activities, future prices for oil and natural gas, and increases or decreases in production and capital costs. As a result of these changes, there may be impairments in the carrying values of our oil and gas properties. 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. Goodwill 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. The Company performed its quantitative assessment of goodwill as of October 1, 2021 and determined there was no indication of impairment. F-9 Leases The Company had right-of-use lease assets of $ 6.5 million and $ 3.0 million as of December 31, 2021 and 2020, respectively, related to its corporate office lease, certain office equipment and leased vehicles used in oil and gas operations with corresponding short-term and long-term liabilities. The value of the lease assets and liabilities are determined based upon discounted future minimum cash flows contained within each of the respective contracts. The Company determines if contracts contain a lease at inception of the contract. To the extent that contract terms representing a lease are identified, leases are identified as being either an operating lease or a finance-type lease. 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 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; however, amounts paid for those leases are included as part of its lease cost disclosures. Short-term lease costs exclude expenses related to leases with a lease term of one month or less. Comstock contracts for a variety of equipment used in its oil and natural gas exploration and development operations. Contract terms for this equipment vary broadly, including the contract duration, pricing, scope of services included along with the equipment, cancellation terms, and rights of substitution, among others. The Company's drilling operations routinely change due to changes in oil and natural gas prices, demand for oil and natural gas, and the overall operating and economic environment. Comstock accordingly manages the terms of its contracts for drilling rigs so as to allow for maximum flexibility in responding to these changing conditions. The Company's rig contracts are presently either for periods of less than one year, or they are on terms that provide for cancellation with 45 days advance notice without a specified expiration date. Accordingly, the Company has elected not to recognize right-of-use lease assets for these rig contracts. The costs associated with drilling rig operations are accounted for under the successful efforts method, which generally require that these costs be capitalized as part of our proved oil and natural gas properties on our balance sheet unless they are incurred on exploration wells that are unsuccessful, in which case they are charged to exploration expense. Lease costs recognized during the years ended December 31, 2021, 2020 and 2019 were as follows: Year Ended December 31, 2021 2020 2019 (In thousands) Operating lease cost included in general and administrative expense $ 1,732 $ 1,665 $ 1,646 Operating lease cost included in lease operating expense 879 815 396 Short-term lease cost (drilling rig costs included in proved oil and gas properties) 32,735 33,334 20,527 $ 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 $ 2.6 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. The maturities of Comstock's operating lease obligations are as follows: (In thousands) 2022 $ 2,589 2023 2,256 2024 1,921 2025 3 Total lease payments 6,769 Imputed interest ( 250 ) Total lease liability $ 6,519 F-10 Accrued Expenses Accrued expenses at December 31, 2021 and 2020 consist of the following: As of December 31, 2021 2020 (In thousands) Accrued interest payable $ 60,305 $ 67,265 Accrued transportation costs 22,859 25,353 Accrued drilling costs 19,995 24,959 Accrued income and other taxes 15,655 — Accrued employee compensation 12,320 7,519 Accrued lease operating expenses 2,036 3,466 Other 1,856 3,995 Accrued transaction costs — 462 $ 135,026 $ 133,019 Reserve for Future Abandonment Costs The Company's asset retirement obligations relate to future plugging and abandonment costs of its oil and gas properties and related facilities disposal. The Company records a liability in the period in which an asset retirement obligation is incurred, in an amount equal to the estimated fair value of the obligation that is capitalized. Thereafter, this liability is accreted up to the final retirement cost. Accretion of the discount is included as part of depreciation, depletion and amortization in the accompanying consolidated statements of operations. The following table summarizes the changes in the Company's total estimated liability: Year Ended December 31, 2021 2020 (In thousands) Reserve for future abandonment costs at beginning of the year $ 19,290 $ 18,151 Acquisitions 637 — New wells placed on production 1,994 733 Changes in estimates and timing 3,008 ( 699 ) Liabilities settled ( 31 ) ( 80 ) Divestitures ( 466 ) — Accretion expense 1,241 1,185 Reserve for future abandonment costs at end of the year $ 25,673 $ 19,290 Stock-based Compensation The Company has stock-based employee compensation plans under which stock awards, comprised primarily of restricted stock and performance share units, are issued to employees and non-employee directors. The Company follows the fair value-based method in accounting for equity-based compensation. Under the fair value based method, compensation cost is measured at the grant date based on the fair value of the award and is recognized on a straight-line basis over the award vesting period. Segment Reporting The Company presently operates in one business segment, the exploration and production of North American oil and natural gas. Derivative Financial Instruments and Hedging Activities The Company accounts for derivative financial instruments (including derivative instruments embedded in other contracts) as either an asset or liability measured at its fair value. Changes in the fair value of derivatives are recognized currently in earnings and in net cash flows from operating activities. The fair value of derivative contracts that expire in less than one year are recognized as current assets or liabilities. Those that expire in more than one year are recognized as long-term assets or liabilities. F-11 Major Purchasers 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. Revenue Recognition and Gas Balancing Comstock produces oil and natural gas and reports revenues separately for each of these two primary products in its statements of operations. Revenues are recognized upon the transfer of produced volumes to the Company's customers, who take control of the volumes and receive all the benefits of ownership upon delivery at designated sales points. Payment is reasonably assured upon delivery of production. All sales are subject to contracts that have commercial substance, contain specific pricing terms, and define the enforceable rights and obligations of both parties. These contracts typically provide for cash settlement within 25 days following each production month and are cancellable upon 30 days' notice by either party for oil and vary for natural gas based upon the terms set out in the confirmations between both parties. Prices for sales of oil and natural gas are generally based upon terms that are common in the oil and gas industry, including index or spot prices, location and quality differentials, as well as market supply and demand conditions. As a result, prices for oil and natural gas routinely fluctuate based on changes in these factors. Each unit of production (barrel of crude oil and thousand cubic feet of natural gas) represents a separate performance obligation under the Company's contracts since each unit has economic benefit on its own and each is priced separately according to the terms of the contracts. Comstock has elected to exclude all taxes from the measurement of transaction prices, and its revenues are reported net of royalties and exclude revenue interests owned by others because the Company acts as an agent when selling crude oil and natural gas, on behalf of royalty owners and working interest owners. Revenue is recorded in the month of production based on an estimate of the Company's share of volumes produced and prices realized. The Company recognizes any differences between estimates and actual amounts received in the month when payment is received. Historically, differences between estimated revenues and actual revenue received have not been significant. The amount of oil or natural gas sold may differ from the amount to which the Company is entitled based on its revenue interests in the properties. The Company did not have any significant imbalance positions at December 31, 2021 or 2020. Sales of oil and natural gas generally occur at or near the wellhead. When sales of oil and gas occur at locations other than the wellhead, the Company accounts for costs incurred to transport the production to the delivery point as gathering and transportation expenses. The Company has recognized accounts receivable of $ 217.1 million and $ 125.0 million as of December 31, 2021 and 2020, respectively, from customers for contracts where performance obligations have been satisfied and an unconditional right to consideration exists. General and Administrative Expenses General and administrative expenses are reported net of reimbursements of overhead costs that are received from working interest owners of the oil and gas properties operated by the Company of $ 25.3 million, $ 24.7 million and $ 16.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. Income Taxes 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the change in rate is enacted. Earnings Per Share 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. F-12 Weighted average shares of unvested restricted stock included in common stock outstanding were as follows: 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. The number of potentially dilutive shares related to PSUs is based on the number of shares, if any, which would be issuable at the end of the respective period, assuming that date was the end of the performance period. The treasury stock method is used to measure the dilutive effect of PSUs. 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. 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. 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 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: Year Ended December 31, 2021 2020 2019 (In thousands, except per share amounts) Net income (loss) available to common stockholders $ ( 259,225 ) $ ( 83,413 ) $ 74,474 Income allocable to unvested restricted shares — — ( 356 ) 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) available to common stockholders $ ( 259,225 ) $ ( 83,413 ) $ 96,533 Basic weighted average shares outstanding 231,633 215,194 142,750 Effect of dilutive securities: Performance stock units — — 63 Convertible preferred stock — — 44,565 Diluted weighted average shares outstanding 231,633 215,194 187,378 Basic income (loss) per share $ ( 1.12 ) $ ( 0.39 ) $ 0.52 Diluted income (loss) per share $ ( 1.12 ) $ ( 0.39 ) $ 0.52 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. F-13 Supplementary Information With Respect to the Consolidated Statements of Cash Flows For the purpose of the consolidated statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash payments made for interest and income taxes and other non-cash investing and financing activities were as follows: Year Ended December 31, 2021 2020 2019 (In thousands) Cash payments for: Interest payments $ 203,742 $ 228,555 $ 149,039 Income tax (payments) refunds $ ( 149 ) $ 10,218 $ ( 2 ) Non-cash investing activities include: Increase (decrease) in accrued capital expenditures $ ( 4,964 ) $ ( 17,234 ) $ 24,273 Liabilities assumed in exchange for right-of-use lease assets $ 5,847 $ 1,761 $ 5,372 Non-cash investing and financing activities related to acquisitions Issuance of common stock $ — $ — $ 198,633 Issuance of Series A Convertible Preferred Stock $ — $ — $ 200,000 Assumed 7.5 % senior notes $ — $ — $ 446,625 Acquired working capital $ — $ 520 $ 41,365 Non-cash financing activities include: Retirement of debt in exchange for common stock $ — $ ( 4,151 ) $ — Issuance of common stock in exchange for debt $ — $ 5,012 $ — (2) Acquisitions and Dispositions of Oil and Gas Properties Acquisitions 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. 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 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 F-14 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 was included in oil and natural gas properties with the corresponding liability in noncurrent liabilities. 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. Dispositions 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 Set forth below is certain information regarding the aggregate capitalized costs of oil and gas properties and costs incurred by the Company for its oil and natural gas property acquisition, development and exploration activities: Capitalized Costs As of December 31, 2021 2020 (In thousands) Proved properties: Leasehold costs $ 3,053,783 $ 3,010,760 Wells and related equipment and facilities 1,702,611 1,636,428 Accumulated depreciation depletion and amortization ( 1,056,317 ) ( 901,003 ) 3,700,077 3,746,185 Unproved properties 302,129 332,765 $ 4,002,206 $ 4,078,950 F-15 Costs Incurred 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: 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 Long-term debt is comprised of the following: As of December 31, 2021 2020 (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: Principal 244,400 619,400 Discount, net of amortization ( 47,402 ) ( 145,672 ) 9.75 % Senior Notes due 2026: Principal — 1,650,000 Discount, net of amortization — ( 72,176 ) 6.75 % Senior Notes Due 2029: Principal 1,250,000 — Premium, net of amortization 6,874 — 5.875 % Senior Notes Due 2030: Principal 965,000 — $ 2,615,235 $ 2,517,149 F-16 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. The following table summarizes Comstock's principal amount of debt as of December 31, 2021 by year of maturity: 2022 2023 2024 2025 2026 Thereafter Total (In thousands) Bank credit facility $ — $ — $ 235,000 $ — $ — $ — $ 235,000 7.5 % Senior Notes due 2025 — — — 244,400 — — 244,400 6.75 % Senior Notes due 2029 — — — — — 1,250,000 1,250,000 5.875 % Senior Notes due 2030 — — — — — 965,000 965,000 $ — $ — $ 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. The Company also pays a commitment fee of 0.375 % to 0.5 % on the unused borrowing base. The weighted average interest rate on borrowings under the bank credit facility were 2.71 % and 3.48 % as of December 31, 2021 and 2020, respectively. The bank credit facility places certain restrictions upon the Company's and its subsidiaries' ability to, among other things, incur additional indebtedness, pay cash dividends, repurchase common stock, make certain loans, investments and divestitures and redeem the senior notes. The only financial covenants are the maintenance of a last twelve month leverage ratio of less than 4.0 to 1.0 and an adjusted current ratio of at least 1.0 to 1.0 . The Company was in compliance with the covenants as of December 31, 2021. 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. 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. F-17 (6) Commitments and Contingencies 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 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. The Company records a loss contingency for these matters when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company does not believe the resolution of these matters will have a material adverse effect on the Company's financial position, results of operations or cash flows and no material amounts are accrued relative to these matters at December 31, 2021 or 2020. (7) Convertible Preferred Stock In connection with the Covey Park Acquisition, the Company issued 210,000 shares of Series A Convertible Preferred Stock with a face value of $ 210.0 million and a fair value of $ 200.0 million as part of the consideration for the acquisition and sold 175,000 shares of Series B Convertible Preferred Stock for $ 175.0 million to its majority stockholder. On May 19, 2020, the Company redeemed 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 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 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. The Series B Convertible Preferred Stock is classified as mezzanine equity based on the majority stockholder's ability to control the terms of conversion to common stock. (8) Stockholders' Equity 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. (9) Stock-based Compensation The Company grants restricted shares of common stock and PSUs to key employees and directors as part of their compensation. Grants are made pursuant to the Company's 2019 Long-term Incentive Plan (the "2019 Plan"), which was approved by the Company's shareholders on May 31, 2019. Future awards of performance share units, restricted stock grants or other equity awards available under the 2019 Plan as of December 31, 2021 were 4,439,784 shares of common stock. Stock-based compensation expense is included in general and administrative expenses. 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. F-18 Restricted Stock The fair value of restricted stock grants is amortized over the vesting period, generally one year to three years , using the straight-line method. The fair value of each restricted share on the date of grant is equal to the market price of a share of the Company's stock. A summary of restricted stock activity is presented below: Number of Restricted Shares Weighted Average Grant Price Outstanding at January 1, 2021 1,038,006 $ 5.80 Granted 473,162 $ 6.05 Vested ( 543,695 ) $ 6.13 Forfeitures ( 14,502 ) $ 5.58 Outstanding at December 31, 2021 952,971 $ 5.74 Year Ended December 31, 2021 2020 2019 (In thousands, except per share data) Fair value of vested restricted stock $ 3,070 $ 2,852 $ 925 Per share weighted average fair value $ 6.05 $ 5.38 $ 5.40 Compensation expense recognized for restricted stock grants $ 3,406 $ 3,247 $ 2,121 Unrecognized compensation expense related to unvested shares $ 3,939 Expected recognition period 1.7 years Performance Share Units The Company issues PSUs as part of its long-term equity incentive compensation. PSU awards can result in the issuance of common stock to the holder if certain performance criteria are met during a performance period. The performance periods consist of three years . The performance criteria for the PSUs are based on the Company's annualized total stockholder return ("TSR") for the performance period as compared with the TSR of certain peer companies for the performance period. The costs associated with PSUs are recognized as general and administrative expense over the performance periods of the awards. The fair value of PSUs was measured at the grant date using the Geometric Brownian Motion Model ("GBM Model"). Significant assumptions used in this simulation include the Company's expected volatility and a risk-free interest rate based on U.S. Treasury yield curve rates with maturities consistent with the vesting periods, as well as the volatilities for each of the Company's peers. Assumptions regarding volatility included the historical volatility of each company's stock and the implied volatilities of publicly traded stock options. Significant assumptions used to value PSUs included: Year Ended December 31, 2021 2020 2019 Risk free interest rate 0.3 % 0.3 % 1.5 % Range of implied volatility: Minimum 37 % 39 % 32 % Maximum 83 % 198 % 84 % F-19 A summary of PSU activity is presented below: Number of PSUs Weighted Average Grant Price Outstanding at January 1, 2021 1,136,488 $ 9.33 Granted 220,929 $ 8.56 Forfeitures ( 307,507 ) $ 12.93 Outstanding at December 31, 2021 1,049,910 $ 8.11 Year Ended December 31, 2021 2020 2019 (In thousands, except per unit data) Number of PSUs granted 221 232 619 Grant date fair value $ 1,891 $ 1,943 $ 4,857 Grant date fair value per unit $ 8.56 $ 8.37 $ 7.85 Compensation expense recognized for PSUs $ 3,392 $ 3,217 $ 1,899 Unrecognized compensation expense related to unvested shares $ 3,444 Expected recognition period 1.6 years The fair value of PSUs is amortized over the vesting period of three years , using the straight-line method. The final number of shares of common stock issued may vary depending upon the performance multiplier, and can result in the issuance of zero to 2,099,820 shares of common stock based on the achieved performance ranges from zero to two hundred percent. (10) Retirement Plan The Company has a 401(k) profit sharing plan which covers all of its employees. At its discretion, Comstock may match the employees' contributions to the plan. 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 Deferred income taxes are provided to reflect the future tax consequences or benefits of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements using enacted tax rates. The following is an analysis of the consolidated income tax provision (benefit): Year Ended December 31, 2021 2020 2019 (In thousands) Current - Federal $ — $ — $ — Current - State 14,968 ( 154 ) ( 223 ) Deferred - Federal ( 16,721 ) ( 12,037 ) 27,550 Deferred - State 13,156 2,981 476 $ 11,403 $ ( 9,210 ) $ 27,803 In recording deferred income tax assets, the Company considers whether it is more likely than not that its deferred income tax assets will be realized in the future. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those deferred income tax assets would be deductible. The Company believes that after considering all the available objective evidence, historical and prospective, with greater weight given to historical evidence, management is not able to determine that it is more likely than not that all of its deferred tax assets will be realized. As a result, the Company established valuation allowances for its deferred tax assets and U.S. federal and state net operating loss carryforwards that are not expected to be utilized due to the uncertainty of generating taxable income prior to the expiration of the carryforward periods. The Company will continue to assess the valuation allowances against deferred tax assets considering all available information obtained in future periods. F-20 The tax effects of significant temporary differences representing the net deferred tax liabilities were as follows: As of December 31, 2021 2020 (In thousands) Deferred tax assets: 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 5,661 206,919 134,535 Valuation allowance on deferred tax assets ( 46,474 ) ( 15,964 ) Deferred tax assets 160,445 118,571 Deferred tax liabilities: Property and equipment ( 340,722 ) ( 283,959 ) Bond discount ( 9,954 ) ( 30,591 ) Other ( 7,186 ) ( 4,604 ) Deferred tax liabilities ( 357,862 ) ( 319,154 ) Net deferred tax liability $ ( 197,417 ) $ ( 200,583 ) The difference between the customary rate of 21% and the effective tax rate on income (losses) is due to the following: Year Ended December 31, 2021 2020 2019 (In thousands) Tax at statutory rate $ ( 48,368 ) $ ( 12,941 ) $ 26,185 Tax effect of: Valuation allowance on deferred tax assets 30,504 ( 919 ) ( 494 ) State income taxes, net of federal benefit 28,117 3,746 ( 499 ) Nondeductible transaction costs — — 1,417 Nondeductible stock-based compensation 1,825 1,109 886 Other ( 675 ) ( 205 ) 308 Total $ 11,403 $ ( 9,210 ) $ 27,803 Year Ended December 31, 2021 2020 2019 Tax at statutory rate 21.0 % 21.0 % 21.0 % Tax effect of: Valuation allowance on deferred tax assets ( 13.3 ) 1.5 ( 0.4 ) State income taxes, net of federal benefit ( 12.2 ) ( 6.1 ) ( 0.4 ) Nondeductible transaction costs — — 1.1 Nondeductible stock-based compensation ( 0.8 ) ( 1.8 ) 0.7 Other 0.3 0.3 0.3 Effective tax rate ( 5.0 ) % 14.9 % 22.3 % F-21 At December 31, 2021, Comstock had the following carryforwards available to reduce future income taxes: Types of Carryforward Years of Expiration Carryforward Amount (In thousands) Net operating loss – U.S. federal 2022-2037 $ 899,953 Net operating loss – U.S. federal Unlimited $ 6,627 Net operating loss – state taxes Unlimited $ 1,461,613 Interest expense – U.S. federal Unlimited $ 494,147 Interest expense – state taxes Unlimited $ 215,349 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 by $ 117.0 million. 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. NOLs incurred prior to 2018 generally have a 20-year life until they expire. NOLs generated in 2018 and after would be carried forward indefinitely. Comstock's use of new NOLs arising after the date of an ownership change would not be affected by the 382 limitation. If the Company does not generate a sufficient level of taxable income prior to the expiration of the pre-2018 NOL carry-forward periods, then it will lose the ability to apply those NOLs as offsets to future taxable income. The Company estimates that $ 834.6 million of the U.S. federal NOL carryforwards and $ 1.3 billion of the estimated state NOL carryforwards will expire unused. The Company's federal income tax returns for the years subsequent to December 31, 2016 remain subject to examination. The Company's income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to December 31, 2018. The Company currently believes that its significant filing positions are highly certain and that all of its other significant income tax filing positions and deductions would be sustained upon audit or the final resolution would not have a material effect on the consolidated financial statements. Therefore, the Company has not established any significant reserves for uncertain tax positions. (12) Derivative Financial Instruments and Hedging Activities 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. Generally, when the applicable settlement price is less than the price specified in the contract, Comstock receives a settlement from the counterparty based on the difference multiplied by the volume or amounts hedged. Similarly, when the applicable settlement price exceeds the price specified in the contract, Comstock pays the counterparty based on the difference. Comstock generally receives a settlement from the counterparty for floors when the applicable settlement price is less than the price specified in the contract, which is based on the difference multiplied by the volumes hedged. For collars, generally Comstock receives a settlement from the counterparty when the settlement price is below the floor and pays a settlement to the counterparty when the settlement price exceeds the cap. No settlement occurs when the settlement price falls between the floor and cap. 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. Comstock minimizes credit risk to counterparties of its derivative financial instruments through formal credit policies, monitoring procedures, and diversification. The Company is not required to provide any credit support to its counterparties other than cross collateralization with the assets securing its bank credit facility. None of the Company's derivative financial instruments involve payment or receipt of premiums. The Company classifies the fair value amounts of derivative financial instruments as net current or noncurrent assets or liabilities, whichever the case may be, by commodity contract. 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 F-22 (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 Natural Gas Swap Contracts: Volume (MMBtu) 121,300,000 — 121,300,000 Average Price per MMBtu $ 2.67 $ 2.67 Natural Gas Collar Contracts: Volume (MMBtu) 140,925,000 6,750,000 147,675,000 Price per MMBtu: Average Ceiling $ 3.91 $ 4.03 $ 3.92 Average Floor $ 2.62 $ 2.67 $ 2.63 Natural Gas Basis Swap Contracts: Volume (MMBtu) 10,950,000 (1) — 10,950,000 Average Price per MMBtu ($ 0.16 ) (1) ($ 0.16 ) _______________ (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. The classification of derivative financial instruments between assets and liabilities, consists of the following: As of December 31, Type Consolidated Balance Sheet Location 2021 2020 (in thousands) Asset Derivative Financial Instruments: Natural gas price derivatives Derivative Financial Instruments – current $ 4,528 $ 8,913 Oil price derivatives Derivative Financial Instruments – current 730 — $ 5,258 $ 8,913 Natural gas price derivatives Derivative Financial Instruments – long-term $ — $ 661 Liability Derivative Financial Instruments: Natural gas price derivatives Derivative Financial Instruments – current $ 181,215 $ 45,158 Oil price derivatives Derivative Financial Instruments – current 730 831 Interest rate derivatives Derivative Financial Instruments – current — 1,016 $ 181,945 $ 47,005 Natural gas price derivatives Derivative Financial Instruments – long-term $ 4,042 $ 1,308 Interest rate derivatives Derivative Financial Instruments – long-term — 1,056 $ 4,042 $ 2,364 F-23 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: Year Ended December 31, Gain/(Loss) Recognized in Earnings on Derivatives 2021 2020 2019 (In thousands) Natural gas price derivatives $ ( 555,636 ) $ 353 $ 60,694 Oil price derivatives ( 7,247 ) 12,059 ( 8,959 ) Interest rate derivatives 2,235 ( 2,461 ) — $ ( 560,648 ) $ 9,951 $ 51,735 (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. The proceeds from the sale were used to fund the purchase of a like number of net acres from a third party for $ 5.9 million. The acreage acquired was in part the acreage sold to the partnership or acreage in the same area. The purchase price paid per net acre was determined by the price paid by the Company to the third party. F-24 (14) Oil and Gas Reserves Information (Unaudited) Set forth below is a summary of the Company's proved oil and natural gas reserves: Year Ended December 31, 2021 2020 2019 Oil (MBbls) Natural Gas (MMcf) Oil (MBbls) Natural Gas (MMcf) Oil (MBbls) Natural Gas (MMcf) Proved Reserves: Beginning of period 11,000 5,562,876 16,747 5,341,497 23,612 2,282,758 Revisions of previous estimates 145 88,546 ( 4,241 ) 306,552 ( 4,621 ) 62,697 Extensions and discoveries — 797,198 2 365,663 259 315,286 Acquisitions of minerals in place — 202,588 — — 240 3,023,109 Sales of minerals in place ( 9,308 ) ( 43,851 ) — — ( 58 ) ( 49,520 ) Production ( 1,210 ) ( 489,274 ) ( 1,508 ) ( 450,836 ) ( 2,685 ) ( 292,833 ) End of period 627 6,118,083 11,000 5,562,876 16,747 5,341,497 Proved Developed Reserves: Beginning of period 11,000 1,967,288 15,104 1,890,357 21,466 583,107 End of period 627 2,245,660 11,000 1,967,288 15,104 1,890,357 Proved Undeveloped Reserves: Beginning of period — 3,595,588 1,643 3,451,140 2,146 1,699,651 End of period — 3,872,423 — 3,595,588 1,643 3,451,140 Revisions of previous estimates. 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. Extensions and discoveries for 2021, 2020 and 2019 were primarily comprised of proved reserve additions attributable to the wells drilled in the current year that were not classified as proved undeveloped in prior years and additional proved undeveloped reserves added from the Company's drilling program. Acquisitions of minerals in place. The significant acquisitions of minerals in place in 2019 is primarily related to the Covey Park Acquisition. The following table sets forth the standardized measure of discounted future net cash flows relating to proved reserves: As of December 31, 2021 2020 2019 (In thousands) Cash Flows Relating to Proved Reserves: Future Cash Flows $ 20,396,381 $ 9,871,616 $ 13,078,155 Future Costs: Production ( 3,954,726 ) ( 3,173,350 ) ( 3,562,042 ) Development and Abandonment ( 2,752,603 ) ( 2,592,520 ) ( 3,171,351 ) Future Income Taxes ( 2,065,316 ) ( 154,872 ) ( 676,759 ) Future Net Cash Flows 11,623,736 3,950,874 5,668,003 10% Discount Factor ( 5,848,131 ) ( 2,015,149 ) ( 2,754,792 ) Standardized Measure of Discounted Future Net Cash Flows $ 5,775,605 $ 1,935,725 $ 2,913,211 F-25 The following table sets forth the changes in the standardized measure of discounted future net cash flows relating to proved reserves: Year Ended December 31, 2021 2020 2019 (In thousands) Standardized Measure, Beginning of Year $ 1,935,725 $ 2,913,211 $ 1,473,840 Net change in sales price, net of production costs 5,012,696 ( 1,858,026 ) ( 716,930 ) Development costs incurred during the year which were previously estimated 502,674 302,135 311,331 Revisions of quantity estimates 119,200 215,268 16,340 Accretion of discount 199,124 326,074 175,514 Changes in future development and abandonment costs 1,505 313,191 ( 93,476 ) Changes in timing and other ( 224,617 ) ( 127,663 ) 180,314 Extensions and discoveries 679,418 180,624 442,099 Acquisitions of minerals in place 150,065 — 1,813,491 Sales of minerals in place ( 64,032 ) — ( 51,070 ) Sales, net of production costs ( 1,567,182 ) ( 612,194 ) ( 580,922 ) Net changes in income taxes ( 968,971 ) 283,105 ( 57,320 ) Standardized Measure, End of Year $ 5,775,605 $ 1,935,725 $ 2,913,211 The standardized measure of discounted future net cash flows was determined based on the simple average of the first of month market prices for oil and natural gas for each year. Prices used in determining quantities of oil and natural gas reserves and future cash inflows from oil and natural gas reserves represent prices received at the Company's sales point. These prices have been adjusted from posted or index prices for both location and quality differences. Prices used in determining oil and natural gas reserves quantities and cash flows are as follows: Year Ended December 31, 2021 2020 2019 Crude Oil: $/barrel $ 62.38 $ 32.88 $ 50.94 Natural Gas: $/Mcf $ 3.33 $ 1.71 $ 2.29 Proved reserve information utilized in the preparation of the financial statements were based on estimates prepared by the Company's petroleum engineering staff in accordance with guidelines established by the Securities and Exchange Commission and the Financial Accounting Standards Board, which require that reserve reports be prepared under existing economic and operating conditions with no provision for price and cost escalation except by contractual agreement. All of the Company's reserves are located onshore in the continental United States of America. 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. Future income tax expenses are computed by applying the appropriate statutory tax rates to the future pre-tax net cash flows relating to proved reserves, net of the tax basis of the properties involved. The future income tax expenses give effect to permanent differences and tax credits, but do not reflect the impact of future operations. F-26