What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-17 compared with 2022-02-17 · 110 added, 100 removed, 163 unchanged (56% of the section changed)

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We own interests in 2,393 producing oil and natural gas wells (1,464.7 net) and we operate 1,633 of these wells.

We intend to maintain an operating plan in 2022 targeting additional debt reduction and generation of free cash flow.

We use the successful efforts method of accounting, which allows only for the capitalization of costs associated with developing proven oil and natural gas properties as well as exploration costs associated with successful exploration activities.

Accordingly, our exploration costs consist of costs we incur to acquire seismic data, impairments of our unevaluated leasehold where we were not successful in discovering reserves and the costs of unsuccessful exploratory wells that we drill.

Accordingly, our exploration costs consist of costs we incur to acquire seismic data used for exploration, impairments of our unevaluated leasehold where we were not successful in discovering reserves and the costs of unsuccessful exploratory wells that we drill.

We generally sell our oil and natural gas at current market prices at the point our wells connect to third party purchaser pipelines or terminals.

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We market our products several different ways depending upon a number of factors, including the availability of purchasers for the product, the availability and cost of pipelines near our wells, market prices, pipeline constraints and operational flexibility.

Accordingly, our revenues are heavily dependent upon the prices of, and demand for, oil and natural gas.

Oil and natural gas prices have historically been volatile and are likely to remain volatile in the future.

Accordingly, our revenues are heavily dependent upon the prices of, and demand for, natural gas.

Natural gas prices have historically been volatile and are likely to remain volatile in the future.

Our operating costs are generally comprised of several components, including costs of our field personnel, insurance, repair and maintenance costs, production supplies, fuel used in operations, transportation costs, workover expenses and state production and ad valorem taxes.

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The level of our drilling activity is dependent on natural gas prices.

If we are unable to offset production declines resulting from the new wells we plan to drill in 2022 and future periods, our production volumes and cash flows from our operating activities may not be sufficient to fund our capital expenditures, and thus, we may need to either curtail drilling activity or seek additional borrowings, which would result in an increase in our interest expense in 2022 and future periods.

We may need to recognize impairments if oil and natural gas prices decline, and as a result, the expected future cash flows from these properties becomes insufficient to recover their carrying value.

If we are unable to offset production declines with the new wells we plan to drill in 2023 and future periods, our production volumes and cash flows from our operating activities may not be sufficient to fund our capital expenditures, and thus, we may need to either curtail drilling activity or seek additional borrowings, which would result in an increase in our interest expense in 2023 and future periods.

We may need to recognize impairments of our oil and natural gas properties if oil and natural gas prices decline, and as a result, the expected future cash flows from these properties becomes insufficient to recover their carrying value.

COMSTOCK RESOURCES, INC.

Results of Operations

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Year Ended December 31,

Oil and Gas Sales (in thousands) :

Natural gas $1,775,768 $809,399

Oil 74,962 48,796

Total oil and gas sales $1,850,730 $858,195

(In thousands except per unit amounts)

Net Production Data:

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Oil (MBbls) 82 1,210

Total oil and gas (MMcfe) 496,534 459,883

Natural gas equivalent (MMcfe) 501,107 496,534

Natural gas sales $ 3,117,094 $ 1,775,768

Oil sales 7,597 74,962

Total natural gas and oil sales $ 3,124,691 $ 1,850,730

Gas services $ 503,366 $ —

Production and ad valorem taxes $ 77,917 $ 49,141

Gathering and transportation $ 155,679 $ 130,940

Lease operating $ 111,134 $ 103,467

Exploration $ 8,287 $ —

Gas services $ 465,044 $ —

Average Sales Price:

Natural gas ($/Mcf) $3.63 $1.80

Oil ($/Bbl) $61.95 $32.36

Total oil and gas sales ($/Mcfe) $3.73 $1.87

Natural gas (per Mcf) $6.23 $3.63

Oil (per Bbl) $92.65 $61.95

Average equivalent (Mcfe) $6.24 $3.73

Expenses ($ per Mcfe):

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Lease operating $0.22 $0.21

Depreciation, depletion and amortization $0.95 $0.91

Oil and gas sales.

Oil and gas sales of $1.9 billion in 2021 increased $992.5 million or 116% over oil and gas sales in 2020 of $858.2 million.

The increase is due to a 9% increase in our natural gas production along with a 99% increase in realized oil and natural gas prices in 2021.

Our 2021 natural gas production was 489.3 billion cubic feet ("Bcf") (1.3 Bcf per day), which was sold at an average price of $3.63 per Mcf as compared to 450.8 Bcf (1.2 Bcf per day) sold at an average price of $1.80 in 2020.

Our 2021 oil production was 1.2 MMBbls (3,315 Bbls per day), which was sold at an average price of $61.95 per Bbl as compared to 1.5 MMBbls (4,120 Bbls per day) sold at an average price of $32.36 per Bbl in 2020.

We utilize natural gas and oil price derivative financial instruments to manage our exposure to changes in natural gas and oil prices and protect returns on investment from our drilling activities.

Natural gas and oil sales.

Natural gas and oil sales of $3.1 billion in 2022 increased by $1.3 billion, or 69%, as compared to $1.9 billion in 2021.

The increase was primarily due to higher prices received for our natural gas production and increased natural gas production.

Our 2022 natural gas production was 500.6 Bcf (1.4 Bcf per day), which was sold at an average price of $6.23 per Mcf as compared to 489.3 Bcf (1.3 Bcf per day) sold at an average price of $3.63 in 2021.

In October 2021, we sold our Bakken shale properties, which represented most of our oil production.

We utilize natural gas and oil price derivative financial instruments to manage our exposure to changes in prices of natural gas and oil and to protect returns on investment from our drilling activities.

The following table presents our natural gas and oil prices before and after the effect of cash settlements of our derivative financial instruments:

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Average Realized Oil Price:

Crude oil per Barrel $ 61.95 $ 32.36

Cash settlements on derivative financial instruments, per Barrel (6.67) 8.52

Price per Barrel, including cash settlements on derivative financial instruments $ 55.28 $ 40.88

Crude oil per Bbl $ 92.65 $ 61.95

Cash settlements on derivative financial instruments, per Bbl — (6.67)

Price per Bbl, including cash settlements on derivative financial instruments $ 92.65 $ 55.28

COMSTOCK RESOURCES, INC.

Gas services revenues.

Gas services revenues of $503.4 million in 2022 include sales of natural gas purchased from unaffiliated third parties for resale and fees received from unaffiliated third parties for natural gas transportation and treating services.

These activities commenced in 2022 with the acquisition of a pipeline and gas treating plant and the opportunity to utilize our excess transport capacity in North Louisiana.

Production and ad valorem taxes.

Our production and ad valorem taxes increased $28.8 million (59%) to $77.9 million in 2022 from $49.1 million in 2021.

This increase is primarily related to the increase in oil and natural gas sales in 2021.

This increase was primarily related to the increase in natural gas sales and higher production tax rates enacted in the state of Louisiana during 2022.

Gathering and transportation.

Gathering and transportation costs increased $24.4 million or 23% to $130.9 million in 2021 as compared to $106.6 million in 2020.

This increase was due primarily to the higher natural gas production in 2021 combined with a higher average rate.

Gathering and transportation costs increased $24.7 million (19%) to $155.7 million in 2022 as compared to $130.9 million in 2021.

This increase was due to higher average transportation rates including higher value of fuel used to transport our natural gas during 2022.

Lease operating expenses.

Our lease operating expense of $103.5 million in 2021 was $1.0 million or 1% higher than the lease operating expenses in 2020 of $102.5 million due to the higher natural gas production.

Our lease operating expense of $111.1 million in 2022 was $7.7 million or 7% higher than the lease operating expenses in 2021 of $103.5 million due to higher natural gas production.

Our lease operating expense of $0.22 per Mcfe produced for 2022 was comparable to the 2021 rate of $0.21 per Mcfe.

Gas services expenses.

Gas services expenses were $465.0 million during 2022, which include the cost of unaffiliated third party natural gas purchased for resale and the operating expenses of the pipeline and natural gas treating plant acquired in 2022.

Depreciation, depletion and amortization expense ("DD&A").

DD&A increased $52.3 million (13%) to $469.4 million in 2021 from $417.1 million in 2020 and our DD&A per equivalent Mcf produced was $0.95 per Mcfe in 2021 as compared to $0.91 per Mcfe in 2020.

The increase in DD&A is primarily due to the 9% increase in natural gas production.

DD&A expense increased $20.1 million (4%) to $489.5 million in 2022 from $469.4 million in 2021 and our DD&A expense per equivalent Mcf produced was $0.98 per Mcfe in 2022 as compared to $0.95 per Mcfe in 2021.

The increase in DD&A rate was primarily due to higher drilling costs incurred in 2022.

General and administrative expenses.

General and administrative expense, which is reported net of overhead reimbursements, increased to $39.4 million in 2022 from $34.9 million in 2021 due primarily to higher personnel costs.

Stock-based compensation was $6.8 million and $6.5 million in 2021 and 2020, respectively.

Loss on sale of assets.

We reported a loss on the sale of assets of $162.1 million for 2021 which was primarily related to our divestiture of our Bakken shale assets.

In November 2021, we divested our assets in the Bakken shale for net proceeds of $138.1 million in cash.

Stock-based compensation included in general and administrative expense was $6.6 million and $6.8 million in 2022 and 2021, respectively.

Gain (loss) on sale of assets.

We reported a gain on the sale of assets in 2022 of $0.3 million, which was primarily related to the sale of certain nonstrategic, non-operated natural gas and oil properties.

We reported a loss on the sale of assets of $162.1 million for 2021 which was primarily related to our divestiture of our Bakken shale assets in November 2021.

Derivative financial instruments.

We use derivative financial instruments as part of our price risk management program to protect our capital investments.

We had net losses on derivative financial instruments of $560.6 million for 2021 as compared to net gains of $10.0 million for 2020.

Realized net losses from our oil and natural gas price risk management program were $419.9 million in 2021 as compared to realized net gains of $134.9 million in 2020.

Realized gains from our interest rate risk management program were $163 thousand in 2021 as compared to realized losses of $389 thousand in 2020.

Unrealized losses on derivative financial instruments were $140.9 million in 2021 and $124.5 million in 2020.

We use derivative financial instruments as part of our price risk management program to protect the cash flow we generate from our operating activities.

We had net losses on derivative financial instruments of $662.5 million for 2022 as compared to $560.6 million for 2021.

Realized net losses from our oil and natural gas price risk management program were $862.7 million in 2022 as compared to $419.9 million in 2021.

We recognized unrealized gains on derivative financial instruments in 2022 of $200.2 million and unrealized losses of $140.9 million in 2021.

Interest expense.

Interest expense was $171.1 million for 2022 as compared to $218.5 million for 2021.

Included in interest expense was amortization of the discount on our senior notes and the debt cost amortization associated with our outstanding debt.

The non-cash interest expense for 2021 totaled $21.7 million compared with non-cash interest expense of $34.0 million for 2020.

The decrease in interest expense for 2021 is due primarily to the retirement of our 9.75% and 7.50% senior notes during 2021.

Included in interest expense was amortization of the premiums or discounts on our senior notes and the debt issuance cost amortization associated with our outstanding debt.

The non-cash interest expense for 2022 totaled $10.3 million compared with $21.7 million for 2021.

The decrease in interest expense in 2022 was due primarily to the refinancing of our senior notes in 2021, the early retirements of senior notes in May and June 2022 and the repayment of borrowings under our bank credit facility.

Loss on early retirement of debt.

We repurchased $375.0 million principal amount of our 7.50% senior notes and $1.65 billion principal amount of our 9.75% senior notes in 2021.

As a result of premiums paid over face value and costs associated with the repurchases, we recognized a loss on early retirement of debt of $352.6 million during 2021.

During 2020, we exchanged 767,096 shares of our common stock to retire $5.6 million aggregate principal amount of our 7.50% senior notes and recognized a $861 thousand loss on early retirement of debt.

During 2022, we retired $244.4 million principal amount of our 7.5% senior notes and $26.1 million principal amount of our 6.75% senior notes.

In 2021, we refinanced $375.0 million principal amount of our 7.5% senior notes and $1.65 billion principal amount of our 9.75% senior notes.

As a result of premiums paid over face value and costs associated with the retirements and repurchases, we recognized a loss on early retirement of debt of $46.8 million and $352.6 million during 2022 and 2021, respectively.

Income taxes.

Income taxes were a provision of $11.4 million in 2021 and a benefit of $9.2 million in 2020.

The effective tax rate of -5% in 2021 and 15% in 2020 differed from the federal income tax rate of 21% primarily due to the impact of an increase to our valuation allowance on our federal and state net operating loss carryforwards and due to higher state current taxes.

We reported a net loss available to common stockholders of $259.2 million or $1.12 per diluted share in 2021 and net loss available to common stockholders of $83.4 million or $0.39 per diluted share in 2020.

The net loss in 2021 is primarily due to losses on derivative financial instruments of $560.6 million, the loss on early retirement of debt of $352.6 million and the $162.2 million loss on the Bakken shale divestiture.

Income from operations in 2021 was $900.8 million.

Our income tax provision was $261.1 million and $11.4 million in 2022 and 2021, respectively.

Our effective tax rate of 19% in 2022 and (5)% in 2021 differed from the federal income tax rate of 21% primarily due to changes in our valuation allowance on our federal and state net operating loss carryforwards and state income taxes.

We reported net income available to common stockholders of $1.1 billion or $4.11 per diluted share in 2022 and a net loss available to common stockholders of $259.2 million or $1.12 per diluted share in 2021.

The net income in 2022 is primarily due to our higher natural gas and oil sales.

Income from operations in 2022 increased to $2.3 billion as compared to $900.8 million in 2021.

COMSTOCK RESOURCES, INC.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

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Operating activities $ 1,698,388 $ 859,005

Issuance of new senior notes 2,186,896 737,129

Proceeds from asset sales 4,186 138,394

Issuance of common stock — 196,380

Issuance of new senior notes — 2,222,500

Total $ 1,702,574 $ 3,219,899

Uses of cash and cash equivalents:

Retirement of senior notes $ (2,210,626) $ —

Capital expenditures $ 1,101,869 $ 689,210

Retirement of senior notes 273,920 2,210,626

Repayments on bank credit facility, net of borrowings 235,000 265,000

Redemption of Series A convertible preferred stock — (210,000)

Common stock dividends 34,688 —

Preferred stock dividends 16,014 17,500

Debt issuance costs 10,839 35,604

Other 6,255 1,568

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Net cash provided by our operating activities increased $839.4 million (98%) to $1,698.4 million in 2022 from $859.0 million in 2021.

The increase is primarily due to the 9% increase in our natural gas production and improved oil and natural gas prices in 2021.

The increase was primarily due to higher realized natural gas prices in 2022.

Proceeds from asset sales.

In 2022, we sold certain non-operated properties for net proceeds of $4.1 million.

In 2021, we sold our non-operated properties in the Bakken shale and certain other properties for $138.4 million after selling expenses.

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

Issuance of common stock.

In 2020, we sold 41,325,000 shares of common stock in an unwritten public offering and used the net proceeds of $196.4 million to substantially fund the redemption of our Series A convertible preferred stock for $210.0 million.

Issuance of new senior notes and retirement of senior notes.

In March and June 2021, we issued $1.25 billion and $965.0 million principal amount of 6.75% senior notes due 2029 (the "2029 Notes") and 5.875% senior notes due 2030 (the "2030 notes"), respectively, in private placement offerings.

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.

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.

The proceeds from the offerings were used to repurchase $375.0 million principal amount of our 7.5% senior notes due 2025 and to repurchase $1.65 billion principal amount of our 9.75% senior notes due 2026.

The redemption of the senior notes included $171.9 million in premiums paid over face value, accrued interest of $44.2 million and $1.1 million of costs related to the offerings.

In 2020, we issued $800.0 million principal amount of our 9.75% Senior Notes due 2026 in an underwritten public offering and received net proceeds of $737.1 million.

The proceeds were used to reduce amounts outstanding under our bank credit facility.

In 2022, we retired all of our outstanding 7.5% senior notes due in 2025 for $248.9 million, which included premiums paid over face value of $4.5 million, and we retired $26.1 million principal amount of our 6.75% senior notes for $24.9 million.

In 2021, we issued $1.25 billion principal amount of 6.75% senior notes due in 2029 and $965.0 million principal amount of 5.875% senior notes due in 2030.

The proceeds from the note offerings were used to redeem $2,025.0 million principal amount of outstanding senior notes for $2,198.1 million, including premiums paid over face value and costs related to a tender offer.

COMSTOCK RESOURCES, INC.

Capital expenditures.

The increase in capital expenditures of $412.7 million is primarily due to higher drilling, completion and acquisition activities in 2022.

We spent $57.7 million in 2021 to acquire approximately 49,000 net undeveloped acres prospective for the Haynesville and Bossier shale through acquisitions or direct leasing.

In 2020, we acquired 13,519 net acres for $7.9 million.

Our capital expenditures are summarized in the following table:

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Exploration and development:

Development leasehold costs 12,953 13,022

Developmental leasehold costs 13,727 12,953

Exploratory drilling and completion costs 63,520 6,966

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Other development costs 53,693 39,168

Change to asset retirement obligations 5,608 (47)

Asset retirement obligations 686 5,608

Total exploration and development 1,087,272 691,488

Other 192 400

Other property 18,775 192

Total capital expenditures $ 1,106,047 $ 691,680

Change in accrued capital expenditures and other (37,561) 3,138

Change in asset retirement obligations (5,608) 47

Prepaid drilling costs 34,069 —

Asset retirement obligations (686) (5,608)

Total cash capital expenditures $ 1,101,869 $ 689,210

We currently expect to spend approximately $750 million to $800 million in 2022 on our development and exploration projects primarily focused on the continued development of our Haynesville/Bossier shale properties, which includes $60 million to $65 million on infrastructure, workovers and other development costs.

We currently expect to spend approximately $950 million to $1.15 billion in 2023 on our development and exploration projects primarily focused on the continued development of our Haynesville/Bossier shale properties including our exploration and development of our Western Haynesville acreage.

We also expect to spend $75 million to $125 million on infrastructure, including upgrades to our Western Haynesville pipeline and processing facilities, and for other development costs.

Under our current operating plan, we expect to drill 67 operated horizontal wells (50.5 net) and to turn 69 wells (49.2 net) to sales in 2023.

The Company also expects to spend an additional $8 million to $12 million on leasing activities in 2022.

The Company also expects to spend an additional $25 million to $35 million on acquiring acreage in 2023.

Common stock and preferred stock dividends.

On December 15, 2022, we paid a cash dividend of $0.125 per share of common stock.

On November 30, 2022, all of the outstanding shares of our Series B Redeemable Convertible Preferred Stock were converted into 43,750,000 shares of common stock.

Debt issuance costs.

In 2022, we entered into a new five-year bank credit facility and we incurred $10.8 million of issuance costs associated with the new bank credit facility.

In 2021, we incurred $35.6 million of debt issuance costs primarily due to the issuance of our 6.75% senior notes and 5.875% senior notes.

Liquidity and Capital Resources

On November 15, 2022, we entered into an amended and restated bank credit facility with Wells Fargo Bank National Association as administrative agent, and other participating banks.

Aggregate commitments under the new credit facility were $1.5 billion and mature on November 15, 2027.

Borrowings under the new bank credit facility are subject to a borrowing base, which was initially set at $2.0 billion.

The borrowing base is re-determined on a semi-annual basis and upon the occurrence of certain other events.

Borrowings under the bank credit facility are secured by substantially all of our assets and those of our subsidiaries and bear interest at our option, at either adjusted SOFR plus 1.75% to 2.75% or an alternate base rate plus 0.75% to 1.75%, in each case depending on the utilization of the borrowing base.

We also pay a commitment fee of 0.375% to 0.5% on the unused portion of the borrowing base.

There were no outstanding borrowings as of December 31, 2022.

The bank credit facility places certain restrictions upon our and our 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 leverage ratio of less than 3.5 to 1.0 and an adjusted current ratio of at least 1.0 to 1.0.

We were in compliance with the covenants as of December 31, 2022.

As of December 31, 2022, we had $1.6 billion of liquidity, comprised of $1.5 billion of unused borrowing capacity under our bank credit facility and $54.7 million of cash and cash equivalents on hand.

Our short and long-term capital requirements consist primarily of funding our development and exploration activities, acquisitions, payments of contractual obligations, and debt service.

Our short and long-term capital requirements

COMSTOCK RESOURCES, INC.

consist primarily of funding our development and exploration activities, acquisitions, payments of contractual obligations, and debt service.

We expect to fund our future development and exploration activities with future operating cash flow.

The timing of most of our capital expenditures is discretionary because we have no material long-term capital expenditure commitments.

Consequently, we have a significant degree of flexibility to adjust the level of our capital expenditures as circumstances warrant.

The timing of most of our capital expenditures is mostly discretionary.

We have a significant degree of flexibility to adjust the level of our capital expenditures as circumstances warrant.

If our plans or assumptions change or prove to be inaccurate, we may be required to seek additional capital, including debt or equity financing.

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Our contractual obligations consist primarily of natural gas transportation and gathering contracts and drilling and completion contracts.

Our natural gas transportation and gathering contracts extend to 2031 and 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.

Terms of drilling contracts vary from well to well, or are for periods of less than one year.

Existing commitments under drilling contracts is $12.3 million for 2022.

In 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.

As of December 31, 2021, we had $235.0 million outstanding under our bank credit facility that matures on July 16, 2024.

The borrowing base, which is currently set at $1.4 billion, is re-determined on a semi-annual basis and upon the occurrence of certain other events.

Borrowings under the bank credit facility are secured by substantially all of our assets and those of our subsidiaries and bear interest at our 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.

We also pay a commitment fee of 0.375% to 0.5% on the unused portion of

the borrowing base.

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.

We were in compliance with the covenants as of December 31, 2021.

Our natural gas transportation and gathering contracts extend to 2031 and commitments under these contracts are $57.0 million for 2023, $57.5 million for 2024, $45.7 million for 2025, $40.9 million for 2026, $40.7 million for 2027 and $124.3 million for commitments thereafter.

Terms of drilling contracts vary from well to well, or are for periods ranging from less than one year to three years.

Existing commitments under drilling contracts are $34.9 million for 2023 and 2024, $36.7 million for 2025, $31.9 million for 2026 and $1.8 million for 2027.

In 2021 and 2022, we entered into hydraulic fracturing services agreements for exclusive use of two natural gas powered hydraulic fracturing fleets.

Commitments under these contracts are $33.7 million for 2023, $38.5 million for 2024, $24.3 million for 2025 and $4.7 million for 2026.

Federal and State Taxation

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As a result of a change of control in August 2018, our ability to use U.S.

federal net operating losses ("NOLs") to reduce taxable income is generally limited to an annual amount based on the fair market value of our stock immediately prior to the ownership change multiplied by the long-term tax-exempt interest rate.

Our 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 our common stock immediately prior to the ownership change, we believe that we have a net unrealized built-in gain which will increase the Section 382 limitation during the five-year recognition period from 2018 to 2023 by $117.0 million.

NOLs that exceed the Section 382 limitation in any year continue to be allowed as carryforwards 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.

Our use of new NOLs arising after the date of an ownership change would not be affected by the 382 limitation.

federal net operating losses ("NOLs") to reduce taxable income is limited.

If we do not generate a sufficient level of taxable income prior to the expiration of the pre-2018 NOL carry-forward periods, then we will lose the ability to apply those NOLs as offsets to future taxable income.

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Our income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to December 31, 2018.

We currently believe that our significant filing positions are highly certain and that all of our other significant income tax filing positions and deductions would be sustained upon audit or the final resolution would not have a material effect on our consolidated financial statements.

Currently, we are under examination with the state of Louisiana and we believe that our significant filing positions are highly certain and that all of our other significant income tax filing positions and deductions would be sustained upon audit or the final resolution would not have a material effect on our consolidated financial statements.

Therefore, we have not established any significant reserves for uncertain tax positions.

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Proved reserve estimates included in this report were prepared by the Company's engineers and audited by independent petroleum engineers.

COMSTOCK RESOURCES, INC.

The information regarding present value of the future net cash flows attributable to our proved oil and natural gas reserves are estimates only and should not be construed as the current market value of the estimated oil and natural gas reserves attributable to our properties.

Thus, such information includes revisions of certain reserve estimates attributable to proved properties included in the preceding year's estimates.

Such revisions reflect additional information from subsequent activities, production history of the properties involved and any adjustments in the projected economic life of such properties resulting from

changes in product prices.

Any future downward revisions could adversely affect our financial condition, our future prospects and the value of our common stock.

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

COMSTOCK RESOURCES, INC.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis