What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-04 · 93 added, 209 removed, 395 unchanged (43% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30,

2022 December 31,

22 unchanged sentences

Operating lease right-of-use assets 6,879 6,450

Other assets 37 40

$ 4,749,700 $ 4,668,229

16 unchanged sentences

Mezzanine equity:

Series B 10 % Convertible Preferred stock — 5,000,000 shares authorized, 175,000 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

Series B Convertible Preferred stock — 5,000,000 shares authorized, 175,000 shares issued and outstanding at March 31, 2022 and December 31, 2021, 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 September 30, 2021 and December 31, 2020, respectively

Common stock—$ 0.50 par, 400,000,000 shares authorized, 232,919,869 and 232,924,646 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

116,460 116,462

1 unchanged sentence

1,101,838 1,100,359

Accumulated earnings (deficit) ( 560,032 ) 55,183

Accumulated deficit ( 319,781 ) ( 204,042 )

Total stockholders' equity

5 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

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

2021 2020 2021 2020

Three Months Ended March 31,

(In thousands, except per share amounts)

1 unchanged sentence

$ 522,957 $ 323,960

22,873 9,637 61,571 35,449

Total oil and gas sales

2 unchanged sentences

Production and ad valorem taxes

16,675 9,798 36,468 27,768

Gathering and transportation

5 unchanged sentences

General and administrative

8,052 8,974 23,952 25,991

Gain on sale of assets ( 2 ) ( 70 )

4 unchanged sentences

Loss from derivative financial instruments ( 437,493 ) ( 21,749 )

Other expense 197 489 1,008 793

Other income 4,166 281

Interest expense

4 unchanged sentences

Loss before income taxes ( 143,046 ) ( 164,092 )

Benefit from (provision for) income taxes ( 23,976 ) 46,123 74,168 46,177

Benefit from income taxes 31,622 29,967

Net loss ( 111,424 ) ( 134,125 )

Preferred stock dividends and accretion ( 4,411 ) ( 4,398 ) ( 13,089 ) ( 26,596 )

Preferred stock dividends ( 4,315 ) ( 4,315 )

Net loss available to common stockholders $ ( 115,739 ) $ ( 138,440 )

16 unchanged sentences

( 4 ) — 1,690 — 1,690

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

Net income — — — 42,028 42,028

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

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

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

Stock-based compensation

507 254 1,298 — 1,552

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

Stock issuance costs — — ( 30 ) — ( 30 )

Net loss — — — ( 134,125 ) ( 134,125 )

Preferred stock accretion — — — ( 2,917 ) ( 2,917 )

Payment of preferred dividends — — — ( 4,315 ) ( 4,315 )

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

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

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

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

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

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

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

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

Balance at January 1, 2022 232,925 $ 116,462 $ 1,100,359 $ ( 204,042 ) $ 1,012,779

1 unchanged sentence

( 5 ) ( 2 ) 1,479 — 1,477

Stock issuance costs

— — ( 30 ) — ( 30 )

Net loss — — — ( 111,424 ) ( 111,424 )

2 unchanged sentences

Balance at March 31, 2022 232,920 $ 116,460 $ 1,101,838 $ ( 319,781 ) $ 898,517

Stock-based compensation

472 235 1,564 — 1,799

Income tax withholdings on equity awards

( 33 ) ( 16 ) ( 182 ) — ( 198 )

Stock issuance costs

— — ( 126 ) — ( 126 )

Net loss — — — ( 179,695 ) ( 179,695 )

Payment of preferred dividends

— — — ( 4,363 ) ( 4,363 )

Balance at June 30, 2021 232,850 $ 116,425 $ 1,098,300 $ ( 267,315 ) $ 947,410

Stock-based compensation 298 149 1,653 — 1,802

Income tax withholdings on equity awards ( 223 ) ( 112 ) ( 1,102 ) — ( 1,214 )

Net loss — — — ( 288,306 ) ( 288,306 )

Payment of preferred dividends — — — ( 4,411 ) ( 4,411 )

Balance at September 30, 2021 232,925 $ 116,462 $ 1,098,851 $ ( 560,032 ) $ 655,281

The accompanying notes are an integral part of these statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

11 unchanged sentences

Amortization of debt discount and issuance costs

17,587 24,231

Stock-based compensation

2 unchanged sentences

Decrease in other current assets 1,406 4,778

Increase (decrease) in accounts payable and accrued expenses 56,689 ( 64,303 )

Decrease in accounts payable and accrued expenses ( 42,033 ) ( 11,047 )

Net cash provided by operating activities 284,039 193,272

12 unchanged sentences

— ( 1,263,651 )

Issuance of common stock — 206,626

Redemption of Series A Preferred Stock

— ( 210,000 )

Preferred stock dividends paid

1 unchanged sentence

Debt and stock issuance costs

( 35,567 ) ( 24,128 )

Income tax withholdings on equity awards

( 1,412 ) ( 692 )

Net cash used for financing activities ( 113,194 ) ( 47,874 )

Net cash provided by (used for) financing activities ( 89,333 ) 19,442

Net increase (decrease) in cash and cash equivalents ( 18,526 ) 47,163

7 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

March 31, 2022

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –

2 unchanged sentences

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

In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of Comstock as of September 30, 2021, and the related results of operations and cash flows for the periods being presented.

In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of Comstock as of March 31, 2022, and the related results of operations and cash flows for the periods being presented.

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

3 unchanged sentences

These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in Comstock's Annual Report on Form 10-K for the year ended December 31, 2021.

The results of operations for the period through September 30, 2021 are not necessarily an indication of the results expected for the full year.

The results of operations for the period through March 31, 2022 are not necessarily an indication of the results expected for the full year.

Property and Equipment

15 unchanged sentences

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

The Company had goodwill of $ 335.9 million as of September 30, 2021 that was recorded in 2018.

The Company had goodwill of $ 335.9 million as of March 31, 2022 that was recorded in 2018.

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

however, the Company is required to conduct an annual review of

goodwill for impairment.

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

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

12 unchanged sentences

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

Accordingly, Comstock manages the terms of its contracts for drilling rigs and completions equipment so as to allow for maximum flexibility in responding to these changing conditions.

The Company's completion contracts do not qualify as leases.

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.

1 unchanged sentence

The costs associated with drilling rig operations are accounted for under the successful efforts method, which generally require that these costs be capitalized as part of our proved oil and natural gas properties on our balance sheet unless they are incurred on exploration wells that are unsuccessful, in which case they are charged to exploration expense.

Lease costs recognized during the three months and nine months ended September 30, 2021 and 2020 were as follows:

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

2021 2020 2021 2020

Lease costs recognized during the three months ended March 31, 2022 and 2021 were as follows:

Three Months Ended March 31,

(In thousands)

1 unchanged sentence

Operating lease cost included in lease operating expense 270 232

Short-term lease cost (drilling rig costs included in proved oil

and gas properties) 8,239 7,324 27,482 26,605

Short-term lease cost (drilling rig costs included in proved oil and gas properties) 11,035 11,458

$ 11,740 $ 12,119

Cash payments for operating leases associated with right-of-use assets included in cash provided by operating activities were $ 0.7 million in each of the three months ended September 30, 2021 and 2020, and $ 1.9 million and $ 1.8 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021, expected future payments related to contracts that contain operating leases were as follows:

Cash payments for operating leases associated with right-of-use assets included in cash provided by operating activities were $ 0.7 million for the three months ended March 31, 2022 and 2021.

As of March 31, 2022 and December 31, 2021, the operating leases had a weighted-average term of 2.5 years and 2.7 years, respectively, and the weighted-average discount rate used to determine the present value of future operating lease payments was 2.7 %.

As of March 31, 2022, the Company also had expected future payments for contracted drilling services of $ 11.6 million.

As of March 31, 2022, expected future payments related to contracts that contain operating leases were as follows:

(In thousands)

October 1 to December 31, 2021 $ 552

April 1 to December 31, 2022 $ 2,135

Total lease payments

1 unchanged sentence

Total lease liability $ 6,951

The weighted average term of these operating leases was 3.0 years and the weighted average interest rate used in lease computations was 2.7 %.

As of September 30, 2021, the Company also had expected future payments for contracted drilling services of $ 4.3 million.

Accrued Costs

Accrued costs at September 30, 2021 and December 31, 2020 consisted of the following:

As of September 30, 2021 As of

December 31, 2020

Accrued costs at March 31, 2022 and December 31, 2021 consisted of the following:

March 31, 2022 December 31, 2021

(In thousands)

Accrued drilling costs $ 34,494 $ 19,995

Accrued interest payable 26,643 60,305

Accrued transportation costs 21,119 22,859

Accrued capital expenditures 21,938 24,959

Accrued income and other taxes 12,233 15,655

Accrued ad valorem taxes 9,000 —

Accrued employee compensation 4,573 12,320

5 unchanged sentences

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

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

1 unchanged sentence

New wells placed on production

Liabilities settled and assets disposed of

Accretion expense

6 unchanged sentences

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

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

The Company had the following oil and natural gas price derivative financial instruments at September 30, 2021:

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

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

The Company had the following oil and natural gas price derivative financial instruments at March 31, 2022:

Future Production Period

Three Months Ending December 31, 2021 Year Ending December 31, 2022 Year Ending December 31, 2023 Total

Nine Months Ending December 31, 2022 Year Ending December 31, 2023 Total

Natural Gas Swap Contracts:

Volume (MMBtu) 88,000,000 — 88,000,000

51,520,000 (1) 77,500,000 — 129,020,000

Average Price per MMBtu $ 2.68 $ 2.68

$ 2.53 (1) $ 2.76 — $ 2.66

Natural Gas Collar Contracts:

Volume (MMBtu) 104,925,000 128,925,000 233,850,000

37,410,000 140,925,000 6,750,000 185,085,000

Price per MMBtu:

Average Price per MMBtu:

Average Ceiling $ 3.88 $ 9.85 $ 7.17

$ 3.05 $ 3.91 $ 4.03 $ 3.74

Average Floor $ 2.62 $ 2.98 $ 2.82

$ 2.48 $ 2.62 $ 2.67 $ 2.60

Natural Gas Swaptions Contracts:

Volume (MMBtu)

— 43,800,000 (2) — 43,800,000 (2)

Average Price per MMBtu

— 2.51 (2) — $ 2.51 (2)

Natural Gas Basis Swap Contracts:

Volume (MMBtu) 8,250,000 (1) — 8,250,000 (1)

3,680,000 (3) 10,950,000 (3) — 14,630,000 (3)

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

Crude Oil Collar Contracts:

Volume (Bbls)

_____________________________

Price per Bbl:

Average Ceiling

$ 51.67 — — $ 51.67

Average Floor

$ 41.67 — — $ 41.67

_____________________________

(1) For the three months ending December 31, 2021, natural gas price swap contracts include 11,040,000 MMBtu at an average price of $ 2.51 that are part of certain natural gas price swaption contracts which include a call to extend the price swap by the counterparty as described in (2) below.

(2) The counterparties have the right to exercise a call option to enter into a price swap with the Company on 43,800,000 MMBtu in 2022 at an average price $ 2.51 .

The call option was exercised for 36,500,000 MMBtu at an average price of $ 2.52 on October 29, 2021 and the call option on 7,300,000 MMBtu at an average price of $ 2.50 expires on November 26, 2021.

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

The Company has interest rate swap agreements that fix LIBOR at 0.33 % for $ 500.0 million of its floating rate long-term debt.

These contracts settle monthly through April 2023.

The fair value of these contracts was a net liability of $ 0.9 million at September 30, 2021.

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

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

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

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

Type Consolidated Balance Sheet Location September 30, 2021 December 31, 2020

Type Consolidated Balance Sheet Location March 31, 2022 December 31, 2021

(In thousands)

4 unchanged sentences

Natural gas price derivatives Derivative Financial Instruments – long-term $ 10,008 $ —

Interest rate derivatives Derivative Financial Instruments – long-term 106 —

Liability Derivative Financial Instruments:

1 unchanged sentence

Oil price derivatives Derivative Financial Instruments – current — 730

Interest rate derivatives Derivative Financial Instruments – current 1,019 1,016

$ 513,645 $ 181,945

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

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

$ 50,127 $ 2,364

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

1 unchanged sentence

Gain (Loss) on Derivatives

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

2021 2020 2021 2020

Recognized in Earnings Three Months Ended March 31,

(In thousands)

6 unchanged sentences

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

The Company recognized $ 1.8 million of stock-based compensation expense within general and administrative expenses related to awards of restricted stock and PSUs to its employees and directors during each of the three months ended September 30, 2021 and 2020, and $ 5.3 million and $ 4.7 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021, Comstock had 952,971 shares of unvested restricted stock outstanding at a weighted average grant date fair value of $ 5.74 per share.

Total unrecognized compensation cost related to unvested restricted stock grants of $ 4.7 million as of September 30, 2021 is expected to be recognized over a period of 1.9 years.

As of September 30, 2021, Comstock had 1,049,910 PSUs outstanding at a weighted average grant date fair value of $ 8.11 per unit.

The number of shares of common stock to be issued related to the PSUs is based on the Company's stock price

performance as compared to its peers which could result in the issuance of anywhere from zero to 2,099,820 shares of common stock.

Total unrecognized compensation cost related to these grants of $ 4.2 million as of September 30, 2021 is expected to be recognized over a period of 1.8 years.

The Company recognized $ 1.5 million and $ 1.7 million of stock-based compensation expense within general and administrative expenses related to awards of restricted stock and PSUs to its employees and directors during the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, Comstock had 943,386 shares of unvested restricted stock outstanding at a weighted average grant date fair value of $ 5.74 per share.

Total unrecognized compensation cost related to unvested restricted stock grants of $ 3.1 million as of March 31, 2022 is expected to be recognized over a period of 1.6 years.

As of March 31, 2022, Comstock had 1,049,910 PSUs outstanding at a weighted average grant date fair value of $ 8.11 per unit.

The number of shares of common stock to be issued related to the PSUs is based on the Company's stock price performance as compared to its peers which could result in the issuance of anywhere from zero to 2,099,820 shares of common stock.

Total unrecognized compensation cost related to these grants of $ 2.7 million as of March 31, 2022 is expected to be recognized over a period of 1.5 years.

Revenue Recognition

12 unchanged sentences

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

The Company did not have any significant imbalance positions at September 30, 2021.

The Company did not have any significant imbalance positions at March 31, 2022.

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

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

The Company recognized accounts receivable of $ 213.7 million as of September 30, 2021 from customers for contracts where performance obligations have been satisfied and an unconditional right to consideration exists.

The Company recognized accounts receivable of $ 198.3 million as of March 31, 2022 from customers for contracts where performance obligations have been satisfied and an unconditional right to consideration exists.

Credit Losses

2 unchanged sentences

Oil and gas sales are generally unsecured.

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

Comstock assesses 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 recorded for the nine months ended September 30, 2021 and 2020.

Accordingly, no allowance for doubtful accounts has been recorded for the three months ended March 31, 2022 and 2021.

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.

7 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(In thousands)

Current - Federal $ 3,961 $ —

Current - State 2,460 ( 136 )

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Tax at statutory rate 21.0 % 21.0 %

Tax effect of:

Change in Louisiana tax law 43.1 — 8.3 —

Valuation allowance on deferred tax assets ( 3.6 ) 0.5

State income taxes, net of federal benefit

( 14.0 ) 5.2 ( 4.7 ) 4.3

Nondeductible stock-based compensation

( 0.9 ) ( 1.0 ) ( 0.3 ) ( 0.8 )

Effective tax rate 22.1 % 18.3 %

The income tax provision for the three months ended September 30, 2021 is attributable to revisions to the estimated future utilization of federal and state net operating loss carryforwards resulting from the loss from derivative financial instruments that was recognized in the period.

The Company's federal income tax returns for the years subsequent to December 31, 2017 remain subject to examination.

12 unchanged sentences

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

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

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

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

Nine Months Ended

September 30,

During 2021, the Company had natural gas swaption agreements that were measured at fair value using a third party pricing service, categorized as a Level 3 measurement.

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

Three Months Ended

March 31, 2021

(In thousands)

Balance at beginning of year $ ( 22,588 )

Total unrealized loss included in earnings (1)

( 113,018 ) ( 27,450 )

Total loss included in earnings 9,712

Settlements, net 1,919

21,881 ( 33,143 )

Transfers out of Level 3 ( 6,418 )

Balance at end of period $ ( 17,375 )

_____________________________

(1) Unrealized gains and losses and net settlements are reported as part of loss from derivative financial instruments on the accompanying consolidated statements of operations.

Fair Values – Reported

The following presents the carrying amounts and the fair values of the Company's financial instruments as of September 30, 2021 and December 31, 2020:

September 30, 2021 December 31, 2020

The following presents the carrying amounts and the fair values of the Company's financial instruments as of March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

Carrying Value Fair Value Carrying Value Fair Value

(In thousands)

Derivative financial instruments (1)

Commodity-based derivatives (1)

$ 12,609 $ 12,609 $ 5,258 $ 5,258

Derivative financial instruments (1)

Commodity-based derivatives (1)

$ 513,645 $ 513,645 $ 185,987 $ 185,987

7 unchanged sentences

$ 965,000 $ 950,525 $ 965,000 $ 989,125

5.875 % senior notes due 2030 (3)

_____________________________

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

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

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

(1) The Company's commodity-based derivatives are classified as Level 2 and measured at fair value 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 September 30, 2021 and December 31, 2020, respectively, a Level 1 measurement.

(3) The fair value of the Company's fixed rate debt was based on quoted prices as of March 31, 2022 and December 31, 2021, respectively, a Level 1 measurement.

Earnings Per Share

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

At September 30, 2021 and December 31, 2020, 952,971 and 1,038,006 shares of restricted stock, respectively, are included in common stock outstanding as such shares have a non-forfeitable right to participate in any dividends that might be declared and have the right to vote on matters submitted to the Company's stockholders.

At March 31, 2022 and December 31, 2021, 943,386 and 952,971 shares of restricted stock, respectively, are included in common stock outstanding as such shares have a non-forfeitable right to participate in any dividends that might be declared and have the right to vote on matters submitted to the Company's stockholders.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(In thousands)

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(In thousands, except per unit amounts)

1 unchanged sentence

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

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

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

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(In thousands)

Weighted average convertible preferred stock 43,750 43,750 43,750 70,575

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 per share amounts are the same for the three months and nine months ended September 30, 2021 and 2020 due to the net losses in the periods.

Basic and diluted per share amounts are the same for the three months ended March 31, 2022 and 2021, respectively, due to the net losses in the periods.

Supplementary Information with Respect to the Consolidated Statements of Cash Flows

Cash payments made for interest and income taxes and other non-cash investing activities for the nine months ended September 30, 2021 and 2020, respectively, were as follows:

Nine Months Ended

September 30,

Cash payments made for interest and income taxes and other non-cash investing activities for the three months ended March 31, 2022 and 2021, respectively, were as follows:

Three Months Ended

(In thousands)

2 unchanged sentences

Non-cash investing activities include:

Increase (decrease) in accrued capital expenditures $ ( 3,021 ) $ 16,771

Increase in accrued capital expenditures $ 14,499 $ 1,880

Liabilities assumed in exchange for right-of-use lease assets $ 1,089 $ 4,791

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) 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:

Three Months Ended

(In thousands)

Beginning capitalized exploratory project costs $ 6,966

Additions to exploratory project costs pending the determination of proved reserves 11,557

Ending capitalized exploratory project costs $ 18,523

As of March 31, 2022 and December 31, 2021, the Company had no exploratory wells for which costs have been capitalized for a period greater than one year.

(3) LONG-TERM DEBT

At September 30, 2021, long-term debt was comprised of the following:

At March 31, 2022, long-term debt was comprised of the following:

(In thousands)

8 unchanged sentences

Debt issuance costs, net of amortization ( 36,983 )

As of September 30, 2021, the Company had $ 425.0 million outstanding under a bank credit facility with a $ 1.4 billion committed borrowing base which is re-determined on a semi-annual basis and upon the occurrence of certain other events and matures on July 16, 2024.

As of March 31, 2022, the Company had $ 150.0 million outstanding under a bank credit facility with a $ 1.4 billion committed borrowing base which is re-determined on a semi-annual basis and upon the occurrence of certain other events 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.

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

The Company was in compliance with the covenants as of September 30, 2021.

On March 4, 2021, the Company issued $ 1.25 billion principal amount of its 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 (the "2025 Notes") 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 the 2025 Notes 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.

On June 28, 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.

On June 29, 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 nine months ended September 30, 2021.

(3) PREFERRED STOCK

In connection with the acquisition of Covey Park Energy LLC in 2019, 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 Company was in compliance with the covenants as of March 31, 2022.

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

Pursuant to the tender offer, Comstock repurchased $ 375.0 million principal amount of the 7.50 % senior notes due 2025 and $ 777.1 million principal amount of the 9.75 % senior notes due 2026 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.

As a result of the early retirement of the senior notes, the Company recognized a loss of $ 238.5 million.

(4) CONVERTIBLE PREFERRED STOCK

The Company has 175,000 shares outstanding of Series B Convertible Preferred Stock, which are held by its majority stockholder.

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.

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(5) COMMITMENTS AND CONTINGENCIES

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.

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

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

The Company does not believe the resolution of these matters will have a material effect on the Company's financial position, results of operations or cash flows and no material amounts are accrued relative to these matters at September 30, 2021 or 2020.

(6) RELATED PARTY TRANSACTIONS

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

The Company 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 $ 353 thousand and $ 1.2 million for the three and nine months ended September 30, 2021, and $ 54 thousand and $ 433 thousand for the three and nine months ended September 30, 2020, respectively, for drilling, operating and marketing services provided to the partnership.

In connection with the operation of the wells, the Company had a $ 9.3 million receivable from the partnership at September 30, 2021, which is expected to be collected in full in November 2021.

The Company also had a $ 25.5 million receivable for the fair market value of oil and natural gas price hedging contracts that were entered into with the partnership.

(6) SUBSEQUENT EVENTS

On October 6, 2021, the Company entered into an agreement to sell certain wells producing from the Bakken shale for $ 154 million in cash, subject to adjustment and customary closing conditions.

The sale is expected to close in the fourth quarter of 2021 and has an effective date of October 1, 2021.

The Company expects to recognize a pre-tax loss between $ 150 million and $ 160 million on the divestiture.

Comstock operates oil and gas properties held by partnerships owned by its majority stockholder.

The Company charges the partnerships for the costs incurred to drill, complete and produce wells, as well as drilling and operating overhead fees.

Comstock also provides natural gas marketing services to the partnerships, 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 $ 0.2 million and $ 0.4 million for the three months ended March 31, 2022 and 2021, respectively, for drilling, operating and marketing services provided to the partnerships.

In connection with the operation of the wells, the Company had a $ 6.7 million and a $ 20.8 million receivable from the partnerships at March 31, 2022 and December 31, 2021, respectively.

(7) SUBSEQUENT EVENT

On April 14, 2022, the Company announced the early redemption of the remaining amount of its outstanding 7.50 % senior notes due 2025 in the aggregate principal amount of $ 244.4 million on May 15, 2022.

In accordance with the terms and conditions set forth in the indenture, the Company will pay the redemption price of 101.875 % of the principal amount plus any accrued and unpaid interest.

The Company expects to fund this redemption by using cash on hand and borrowings under its bank credit facility and expects to recognize a pre-tax loss between $ 47 million and $ 49 million on the early retirement of debt.

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

What changed 10-Q

Item 1. Financial Statements