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Item 9A. Controls and Procedures

2023-02-17 compared with 2022-02-17 · 203 added, 250 removed, 877 unchanged (34% of the section changed)

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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, 2022.

COMSTOCK RESOURCES, INC.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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and the Company (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated August 13, 2018).

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).

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).

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).

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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).

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).

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).

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).

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).

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

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

Certificate of Designations of the Series B Redeemable Convertible Preferred Stock (incorporated by reference to Exhibit 4.4 to our Current Report on Form 8-K dated July 15, 2019).

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.

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Description of Securities.

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).

Borrowing Base Redetermination Agreement and First Amendment to Amended and Restated Credit Agreement dated as of November 27, 2019, by and among the Company, Bank of Montreal as the Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.2 to our Annual Report on Form 10-K for Fiscal Year Ended December 31, 2019).

Borrowing Base Redetermination Agreement and Second Amendment to Amended and Restated Credit Agreement dated as of May 6, 2020 by and among the Company, Bank of Montreal as Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the Quarter ended March 31, 2020).

Third Amendment to Amended and Restated Credit Agreement dated as of June 12, 2020 by and among the Company, Bank of Montreal as Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated June 12, 2020).

Fourth Amendment to Amended and Restated Credit Agreement dated as of August 13, 2020 by and among the Company, Bank of Montreal as Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated August 13, 2020).

Fifth Amendment to Amended and Restated Credit Agreement, dated as of December 4, 2020, by and among the Company, Bank of Montreal as Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated December 8, 2020).

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

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

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

as Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated February 18, 2021).

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

as Administrative Agent and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the Quarter ended September 30, 2021).

Amended and Restated Registration Rights Agreement, dated June 7, 2019, by and among the Company, Arkoma Drilling, L.P., Williston Drilling, L.P., Arkoma Drilling CP, LLC, Williston Drilling CP, LLC, New Covey Park Energy LLC and Jerral W.

Jones (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K dated June 7, 2019).

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.

Second Amended and Restated Credit Agreement dated as of November 15, 2022, among the Company, Wells Fargo Bank National Association 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 November 15, 2022).

Comstock Resources, Inc.

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Burns (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated September 7, 2018).

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).

Separation and Release Agreement dated as of November 18, 2022 between Comstock Resources, Inc.

COMSTOCK RESOURCES, INC.

Lease between Stonebriar I Office Partners, Ltd., and Comstock Resources, Inc.

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Not applicable.

COMSTOCK RESOURCES, INC.

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.

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COMSTOCK RESOURCES, INC.

AND SUBSIDIARIES

FINANCIAL STATEMENTS

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical Audit Matter

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:

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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.

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.

Description of the Matter At December 31, 2022, the net book value of the Company’s proved oil and natural gas properties was $4,300 million, and depreciation, depletion and amortization expense ("DD&A") was $489 million for the year then ended.

As described in Note 1 to the consolidated financial statements, the Company follows the successful efforts method of accounting for its oil and natural gas properties.

Under this method, the capitalized costs of proved properties are depleted using the unit-of-production method based on proved reserves, as estimated by the Company's engineers.

Proved oil and natural gas reserves are prepared using standard geological and engineering methods generally recognized in the petroleum industry based on evaluations of estimated in-place hydrocarbon volumes using financial and non-financial inputs.

Judgment is required by the Company's engineers in interpreting the data used to estimate reserves.

Estimating proved oil and natural gas reserves requires the selection and evaluation of inputs, including historical production, oil and natural 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 natural gas reserves, management used independent petroleum engineers to audit the proved reserve estimates prepared by the Company's engineers as of December 31, 2022.

Auditing the Company's DD&A calculation is 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 these engineers in estimating proved oil and natural gas reserves.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls that address the risks of material misstatement relating to the DD&A calculation, including controls over the completeness and accuracy of the financial data used in estimating proved oil and natural gas reserves.

Our testing of the Company's DD&A calculation included, among other procedures, 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.

On a sample basis, we tested the completeness and accuracy of the financial data used in the estimation of proved oil and natural gas reserves by agreeing significant inputs to source documentation, where applicable, and assessing the inputs for reasonableness based on our review of corroborative evidence and consideration of any contrary evidence.

Additionally, we performed analytic procedures on select inputs into the oil and natural gas reserve estimate as well as lookback procedures on the output.

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.

Finally, we tested that the DD&A calculation is based on the appropriate proved oil and natural gas reserve amounts from the Company's reserve report.

/s/ ERNST & YOUNG LLP

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COMSTOCK RESOURCES, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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Accounts receivable:

Oil and gas sales 217,149 125,016

Oil and gas sales and gas services 415,079 217,149

Joint interest operations 76,521 29,755

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Goodwill 335,897 335,897

Derivative financial instruments — 661

Operating lease right-of-use assets 90,716 6,450

Other assets — 40

$ 5,694,255 $ 4,668,229

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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

Series B Convertible Preferred Stock — 5,000,000 shares authorized, none and 175,000 shares issued and outstanding at December 31, 2022 and 2021, respectively

Stockholders' equity:

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COMSTOCK RESOURCES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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Oil sales 7,597 74,962 48,796

Total oil and gas sales 1,850,730 858,195 768,689

Total natural gas and oil sales 3,124,691 1,850,730 858,195

Gas services 503,366 — —

Total revenues 3,628,057 1,850,730 858,195

Operating expenses:

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Depreciation, depletion and amortization 489,450 469,388 417,112

Gas services 465,044 — —

General and administrative, net 39,405 34,943 32,040

Exploration 8,287 — 27

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

(Gain) loss on sale of assets ( 340 ) 162,077 ( 17 )

Total operating expenses 1,346,576 949,956 695,163

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Loss on early extinguishment of debt ( 46,840 ) ( 352,599 ) ( 861 )

Transaction costs — — ( 41,010 )

Total other expenses ( 879,538 ) ( 1,131,096 ) ( 224,659 )

Income (loss) before income taxes 1,401,943 ( 230,322 ) ( 61,627 )

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

(Provision for) benefit from income taxes ( 261,061 ) ( 11,403 ) 9,210

Net income (loss) 1,140,882 ( 241,725 ) ( 52,417 )

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Net income (loss) available to common stockholders $ 1,124,868 $ ( 259,225 ) $ ( 83,413 )

Net income (loss) per share — basic and diluted $ ( 1.12 ) $ ( 0.39 ) $ 0.52

Net income (loss) per share — basic $ 4.75 $ ( 1.12 ) $ ( 0.39 )

Net income (loss) per share — diluted $ 4.11 $ ( 1.12 ) $ ( 0.39 )

Weighted average shares outstanding:

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Diluted 277,465 231,633 215,194

Dividends per share $ 0.125 $ — $ —

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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Balance at December 31, 2019 190,007 $ 95,003 $ 909,423 $ 138,596 $ 1,143,022

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

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

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

Net income — — — 96,889 96,889

Net loss — — — ( 52,417 ) ( 52,417 )

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

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

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

Stock issuance costs — — ( 156 ) — ( 156 )

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

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

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

Conversion of Series B convertible preferred stock 43,750 21,875 153,125 — 175,000

Stock-based compensation 1,159 580 6,030 — 6,610

Income tax withholdings on equity awards ( 317 ) ( 158 ) ( 6,097 ) — ( 6,255 )

Stock issuance costs — — ( 156 ) — ( 156 )

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

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

Net income — — — 1,140,882 1,140,882

Payment of preferred stock dividends — — — ( 16,014 ) ( 16,014 )

Payment of common stock dividends — — — ( 34,688 ) ( 34,688 )

Balance at December 31, 2022 277,517 $ 138,759 $ 1,253,417 $ 886,138 $ 2,278,314

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COMSTOCK RESOURCES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Exploration — — 27

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

(Gain) loss on sale of assets ( 340 ) 162,077 ( 17 )

Depreciation, depletion and amortization 489,450 469,388 417,112

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

(Gain) loss on derivative financial instruments 662,522 560,648 ( 9,951 )

Cash settlements of derivative financial instruments ( 862,715 ) ( 419,714 ) 134,496

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CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of Covey Park Energy LLC, net of cash acquired — — ( 693,869 )

Capital expenditures ( 1,067,800 ) ( 689,210 ) ( 509,690 )

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

Prepaid drilling costs ( 34,069 ) — ( 1,795 )

Proceeds from sales of assets 4,186 138,394 287

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Retirement of Senior Notes ( 273,920 ) ( 2,210,626 ) —

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

Issuance of common stock — — 206,626

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 ( 10,839 ) ( 35,760 ) ( 24,617 )

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 )

Income tax withholdings on equity awards ( 6,255 ) ( 1,412 ) ( 692 )

Preferred stock dividends paid ( 16,014 ) ( 17,500 ) ( 25,580 )

Common stock dividends paid ( 34,688 ) — —

Net cash used for financing activities ( 576,716 ) ( 307,798 ) ( 52,763 )

Net increase in cash and cash equivalents 23,989 391 11,740

Cash and cash equivalents, beginning of the year 30,663 30,272 18,532

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COMSTOCK RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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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

Concentration of Credit Risk, Accounts Receivable and Credit Losses

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.

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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.

Accordingly, no allowance for doubtful accounts has been recorded for the years ended December 31, 2022, 2021 and 2020, respectively.

Other Current Assets

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(In thousands)

Pipe and well equipment inventory $ 34,819 $ 5,015

Production tax refunds receivable 11,156 7,879

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

Prepaid drilling costs 4,265 —

Accrued proceeds from sale of oil and gas properties 3,118 —

Prepaid expenses 2,455 2,183

Advance payments for drilling costs — 1,795

$ 56,324 $ 15,077

Fair Value Measurements

The Company holds or has held certain financial assets and liabilities that are required to be measured at fair value.

The Company holds or has held certain financial assets and liabilities that are required to be measured at fair value in the financial statements.

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.

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A three-level hierarchy is followed for disclosure to show the extent and level of judgment used to estimate fair value measurements:

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965,000 846,788 965,000 989,125

5.875 % senior notes due 2030 (3)

_______________

(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.

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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.

This conversion ratio is not based on the

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

price of oil or natural gas, and there may be a significant difference in price between an equivalent volume of oil versus natural gas.

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.

The changes in capitalized exploratory well costs are as follows:

Year Ended December 31,

(in thousands)

Beginning capitalized exploratory project costs $ 6,966 $ —

Additions to exploratory well costs pending the determination of proved reserves 63,520 6,966

Determined to have found proved reserves ( 69,619 ) —

Ending capitalized exploratory well costs $ 867 $ 6,966

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

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.

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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.

Other property and equipment consists primarily of pipelines, natural gas treating plants, computer equipment, furniture and fixtures and an airplane which are depreciated over estimated useful lives ranging from three to 50 years on a straight-line basis.

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company had goodwill of $ 335.9 million as of December 31, 2022 and 2021.

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The Company performed its quantitative assessment of goodwill as of October 1, 2022 and determined there was no indication of impairment.

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 Company had right-of-use lease assets of $ 90.7 million and $ 6.5 million as of December 31, 2022 and 2021, respectively, related to its corporate office lease, certain office equipment, vehicles and a hydraulic fracturing fleet used to complete natural gas wells 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.

Since most of the Company's lease contracts do not provide an implicit discount rate, the Company uses its incremental borrowing rate at the commencement date of the lease.

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.

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Comstock accordingly manages the terms of its contracts for drilling rigs so as to allow for maximum flexibility in responding to these changing conditions.

In April 2022, the Company took delivery of a natural gas powered hydraulic fracturing fleet, which has been leased with a three year term.

The Company's other hydraulic fracturing fleet contracts are on terms less than one year and include rights of substitution.

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.

The Company has elected not to recognize right-of-use lease assets for contracts less than one year.

The costs associated with drilling and completion operations are accounted for under the successful efforts method, which 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.

For hydraulic fracturing fleet and drilling rig leases, the Company has elected the practical expedient to not separate lease components from nonlease components in the determination of their lease asset and liability values.

Lease costs recognized during the years ended December 31, 2022, 2021 and 2020 were as follows:

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Operating lease cost included in lease operating expense 1,383 879 815

Operating lease cost included in proved oil and gas properties 25,200 — —

Variable lease cost (completion costs included in proved oil and gas properties) 25,095 — —

Short-term lease cost (drilling rig costs included in proved oil and gas properties) 62,077 32,735 33,334

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Cash payments for operating leases associated with right-of-use assets included in cash provided by operating activities were $ 3.1 million, $ 2.6 million and $ 2.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Cash payments for operating leases associated with right-of-use assets included in cash used for investing activities were $ 112.4 million, $ 32.7 million and $ 33.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022 and 2021, the operating leases had a weighted average remaining term of 2.2 years and 2.7 years, respectively, and the weighted-average discount rate used to determine the present value of future operating lease payments was 3.5 % and 2.7 %, respectively.

The maturities of Comstock's operating lease obligations are as follows:

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

(In thousands)

2023 $ 41,007

Total lease payments 94,725

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Accrued interest payable $ 54,867 $ 60,305

Accrued transportation costs 22,859 25,353

Accrued drilling costs 54,438 19,995

Accrued income and other taxes 31,256 15,655

Accrued transportation costs 28,357 22,859

Accrued employee compensation 11,308 12,320

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Other 473 1,856

Accrued transaction costs — 462

$ 183,111 $ 135,026

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Reserve for future abandonment costs at beginning of the year $ 25,673 $ 19,290

Acquisitions 637 —

New wells placed on production 1,537 1,994

Acquisitions 1,211 637

Changes in estimates and timing 182 3,008

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Reserve for future abandonment costs at end of the year $ 29,114 $ 25,673

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 has stock-based employee compensation plans under which stock awards, comprised primarily of restricted stock and performance share units ("PSUs"), are issued to employees and non-employee directors.

The Company follows the fair value-based method in accounting for equity-based compensation.

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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.

In 2022, the Company had three major purchasers of its natural gas production that accounted for 27 %, 21 %, and 12 % of its total oil and natural gas sales.

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

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

Comstock produces natural gas and oil 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.

Costs incurred to gather or transport each product prior to the transfer of control are recognized as operating expenses.

Gas services revenues represent sales of natural gas purchased for resale and fees received for gathering and treating services provided to unaffiliated third parties.

Revenues are recognized upon completion of the gathering and treating of contracted natural gas volumes and delivery of purchased natural gas volumes to the Company's customers.

Revenues and expenses associated with natural gas purchased for resale are presented on a gross basis in the Company's consolidated statements of operations as the Company acts as the principal in the transaction by assuming the risks and rewards from ownership of the natural gas volumes purchased and the responsibility to deliver the natural gas volumes to their sales point.

All oil and natural gas and gas services revenues 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.

1 unchanged sentence

As a result, prices for oil and natural gas routinely fluctuate based on changes in these factors.

Prices for gathering and treating services are generally fixed in nature but can vary due to the quality of the gas being treated.

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.

Comstock has elected to exclude all taxes from the measurement of transaction prices, and its oil and natural gas 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.

Oil and natural gas revenue is recorded in the month of production based on an estimate of the Company's share of volumes produced and prices realized.

Gas services revenue is recorded in the month the services are performed or purchased gas is sold based on an estimate of natural gas volumes and contract prices.

The Company recognizes any differences between estimates and actual amounts received in

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 amount of natural gas or oil 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, 2022 or 2021.

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 $ 415.1 million and $ 217.1 million as of December 31, 2022 and 2021, respectively, from customers for contracts where performance obligations have been satisfied and an unconditional right to consideration exists.

5 unchanged sentences

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.

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

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 December 31, 2022 and 2021, 966,058 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 shareholders.

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

Year Ended December 31,

2 unchanged sentences

Unvested restricted stock 926 1,057 1,149

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.

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

7 unchanged sentences

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

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

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.

5 unchanged sentences

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:

Basic and diluted income (loss) per share were determined as follows:

Year Ended December 31,

2 unchanged sentences

Net income (loss) available to common stockholders $ 1,124,868 $ ( 259,225 ) $ ( 83,413 )

Income allocable to unvested restricted shares — — ( 356 )

Income allocable to unvested restricted stock ( 4,278 ) — —

Basic net income (loss) available to common stockholders $ 1,120,590 $ ( 259,225 ) $ ( 83,413 )

Income allocable to convertible preferred stock 16,014 — —

Income allocable to unvested restricted stock 4,278 — —

Diluted net income (loss) available to common stockholders $ 1,140,882 $ ( 259,225 ) $ ( 83,413 )

1 unchanged sentence

Effect of dilutive securities:

Performance stock units — — 63

Restricted stock 475 — —

Convertible preferred stock 40,034 — —

2 unchanged sentences

Diluted income (loss) per share $ 4.11 $ ( 1.12 ) $ ( 0.39 )

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.

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

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplementary Information With Respect to the Consolidated Statements of Cash Flows

5 unchanged sentences

Cash payments for:

Interest payments $ 203,742 $ 228,555 $ 149,039

Interest $ 166,275 $ 203,742 $ 228,555

Income tax payments (refunds) $ 16,524 $ 149 $ ( 10,218 )

3 unchanged sentences

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

Non-cash financing activities include:

Conversion of preferred stock into common stock $ 175,000 $ — $ —

Retirement of debt in exchange for common stock $ — $ — $ ( 4,151 )

1 unchanged sentence

(2) Acquisitions and Dispositions of Oil and Gas Properties

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

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.

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.

In 2022, the Company acquired a 145 -mile pipeline and natural gas treating plant from an unaffiliated third party and the undeveloped deep rights on approximately 68,000 net undeveloped acres in East Texas for $ 35.6 million including transaction costs.

The purchase price was allocated as follows:

$ 18.8 million was allocated to unproved oil and gas properties and $ 16.8 million to other property and equipment.

In 2021, the Company acquired approximately 17,500 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.

During 2022 and 2021, the Company acquired an additional 36,100 and 32,556 net acres through direct leasing for $ 35.6 million and $ 22.9 million , respectively.

In December 2022, the Company sold its interest in certain nonstrategic, non-operated properties for $ 4.1 million.

In November 2021, the Company sold its non-operated properties in the Bakken shale for $ 138.1 million after selling expenses and incurred a $ 162.2 million pre-tax loss on the divestiture.

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) Oil and Gas Producing Activities

18 unchanged sentences

Exploration and development:

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

Developmental leasehold costs 13,727 12,953 13,022

Exploratory drilling and completion costs 63,520 6,966 —

1 unchanged sentence

Other development costs 53,693 39,168 34,572

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

Asset retirement obligations 686 5,608 ( 47 )

Total capital expenditures $ 1,087,272 $ 691,488 $ 491,570

(4) Exploratory Well Costs

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.

(4) Long-term Debt

4 unchanged sentences

Principal $ — $ 235,000

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

6.75 % Senior Notes Due 2029:

Principal 1,223,880 1,250,000

Discount, net of amortization ( 47,402 ) ( 145,672 )

9.75 % Senior Notes due 2026:

Principal — 1,650,000

Discount, net of amortization — ( 72,176 )

Premium, net of amortization 5,956 6,874

5.875 % Senior Notes Due 2030:

Principal 965,000 965,000

Premium, net of amortization 6,874 —

7.5 % Senior Notes due 2025:

Principal — 244,400

Discount, net of amortization — ( 47,402 )

Debt issuance costs, net of amortization ( 42,265 ) ( 38,637 )

$ 2,152,571 $ 2,615,235

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.

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The premium on the 6.75 % senior notes due 2029 is being amortized over its life using the effective interest rate method.

Debt issuance costs are amortized over the lives of the bank credit facility and 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, 2022 by year of maturity:

1 unchanged sentence

(In thousands)

Bank credit facility $ — $ — $ 235,000 $ — $ — $ — $ 235,000

6.75 % Senior Notes due 2029

2 unchanged sentences

— — — — — 965,000 965,000

5.875 % Senior Notes due 2030

$ — $ — $ — $ — $ — $ 2,188,880 $ 2,188,880

$ — $ — $ 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.

On November 15, 2022, the Company entered into an amended and restated bank credit facility with Wells Fargo Bank National Association, as administrative agent, and other participating banks with an aggregate commitment of $ 1.5 billion.

The new bank credit facility is subject to a borrowing base of $ 2.0 billion, which is redetermined on a semi-annual basis and upon the occurrence of certain other events and matures on November 15, 2027.

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 adjusted SOFR plus 1.75 % to 2.75 % or an alternative base rate plus 0.75 % to 1.75 %, in each case depending on the utilization of the borrowing base.

There were no borrowings outstanding at December 31, 2022.

The Company pays a commitment fee of 0.375 % to 0.5 %, which is dependent on the utilization of the borrowing base.

The weighted average interest rate on borrowings under the bank credit facility were 3.61 % and 2.71 % during the years ended December 31, 2022 and 2021, 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 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 .

The Company was in compliance with the covenants as of December 31, 2022.

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.

In May 2022, the Company completed the early redemption of all of its outstanding 7.5 % senior notes due in 2025 for an aggregate amount of $ 258.1 million, which included principal of $ 244.4 million, premiums paid over face value of $ 4.5 million and accrued interest of $ 9.2 million.

As a result of the redemption, the Company recognized a loss of $ 47.8 million on early retirement of debt including the write-off of $ 43.3 million of unamortized discount resulting from adjusting the senior notes to fair value on the date that they were assumed by the Company.

In June 2022, the Company repurchased $ 26.1 million principal amount of its 6.75 % senior notes due in 2029 for $ 24.9 million.

The Company recognized a gain of $ 1.0 million on early retirement of debt relating to the repurchase.

In 2021, the Company refinanced $ 375.0 million principal amount of its 7.5 % senior notes due in 2025 and $ 1,650.0 million principal amount of its 9.75 % senior notes due 2026 with proceeds from the issuance of $ 1,250.0 million principal amount of its 6.75 % senior notes due in 2029 and $ 965.0 million principal amount of its 5.875 % senior notes due in 2030.

The Company recognized a loss of $ 352.6 million on early retirement of debt for the year ended December 31, 2021.

(5) Commitments and Contingencies

2 unchanged sentences

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.

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

The service contracts with terms less than one year are generally for terms ranging from 45 days to six months .

In December 2022, the Company entered into agreements for three new drilling rigs with a three year term and a minimum annual commitment of $ 12.2 million per drilling rig.

The Company expects to take delivery of two of the rigs in the second half of 2023 and the third rig in early 2024.

Existing commitments under these 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, the Company entered into hydraulic fracturing services agreements for exclusive use of two natural gas powered hydraulic fracturing fleets.

The term of the agreements are three years and the minimum commitment under these agreements are $ 19.2 million per year.

The Company took delivery of the first fleet in the second quarter of 2022 and expects delivery of the second fleet in the second quarter of 2023.

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.

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2 unchanged sentences

(6) 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.

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.

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

(7) 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.

(8) Stock-based Compensation

1 unchanged sentence

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.

Future authorized equity awards available under the 2019 Plan as of December 31, 2022 were 4,592,055 shares of common stock.

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

14 unchanged sentences

Fair value of vested restricted stock $ 11,080 $ 3,070 $ 2,852

Per share weighted average fair value $ 6.05 $ 5.38 $ 5.40

Grant date weighted average fair value $ 17.70 $ 6.05 $ 5.38

Compensation expense recognized for restricted stock grants $ 4,171 $ 3,406 $ 3,247

1 unchanged sentence

Expected recognition period 2.3 years

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Performance Share Units

19 unchanged sentences

Granted 237,407 $ 25.92

Earned ( 596,893 ) $ 7.85

Forfeitures ( 137,870 ) $ 10.95

15 unchanged sentences

Matching contributions to the plan were approximately $ 1.5 million, $ 1.3 million and $ 1.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(10) Income Taxes

29 unchanged sentences

Property and equipment ( 570,833 ) ( 340,722 )

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

Unrealized hedging gains ( 4,087 ) —

Amortization of debt issuance costs and bond discount — ( 9,954 )

Other ( 10,162 ) ( 7,186 )

1 unchanged sentence

Net deferred tax liability $ ( 425,737 ) $ ( 197,417 )

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The difference between the customary rate of 21% and the effective tax rate on income (losses) is due to the following:

6 unchanged sentences

State income taxes, net of federal benefit 14,680 28,117 3,746

Nondeductible transaction costs — — 1,417

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

Other ( 950 ) 1,150 904

6 unchanged sentences

State income taxes, net of federal benefit 1.1 ( 12.2 ) ( 6.1 )

Nondeductible transaction costs — — 1.1

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

Other ( 0.1 ) ( 0.5 ) ( 1.5 )

12 unchanged sentences

Interest expense – state taxes Unlimited $ 531,058

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.

The Company's ability to use net operating losses ("NOLs") generated before its ownership change in 2018 to reduce taxable income is limited under IRC Section 382.

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.

1 unchanged sentence

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.

NOLs arising after the date of an ownership change are not 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.

1 unchanged sentence

federal NOL carryforwards and $ 1.2 billion of the estimated state NOL carryforwards will expire unused.

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's federal income tax returns for the years subsequent to December 31, 2018 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, 2019.

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.

The Company is currently under examination with the state of Louisiana and believe 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.

(11) 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.

Comstock generally 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.

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

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

(expenses) 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 recognizes cash settlements and changes in the fair value of its derivative financial instruments as a single component of other income (expenses) in the consolidated statements of operations and as separate components within cash flows from operating activities in the consolidated statements of cash flows.

All of Comstock's natural gas derivative financial instruments are tied to the Henry Hub-NYMEX price index.

The Company had the following outstanding natural gas price derivative financial instruments at December 31, 2022:

Future Production Period Ending December 31, 2023

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:

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Average Floor $ 2.99

Natural Gas Basis Swap Contracts:

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

Average Price per MMBtu ($ 0.16 ) (1)

_______________

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

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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$ 23,884 $ 5,258

Natural gas price derivatives Derivative Financial Instruments – long-term $ — $ 661

Liability Derivative Financial Instruments:

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Oil price derivatives Derivative Financial Instruments – current — 730

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

$ 4,420 $ 181,945

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

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

$ 4,042 $ 2,364

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:

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

Gains and losses related to cash settlements and changes in the fair value recognized on the Company's derivative contracts recognized in the consolidated statement of operations were as follows:

Year Ended December 31,

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(12) 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.

The Company operates oil and natural gas properties held by a partnerships owned by its majority stockholder.

Comstock charges the partnership for the costs incurred to drill, complete and produce the 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 $ 0.9 million, $ 1.4 million and $ 0.7 million in 2022, 2021 and 2020, respectively, for operating and marketing services provided to the partnership.

The fees received for the services are reflected as a reduction of general and administrative expenses in the accompanying consolidated statements of operations.

In connection with the operation of the wells, the Company had a $ 18.5 million and $ 20.8 million receivable from the partnerships at December 31, 2022 and 2021, respectively.

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.

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

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13) Oil and Gas Reserves Information (Unaudited)

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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 2021 and 2020 were primarily attributable to higher production performance from the Company's wells as compared to expected performance from proved undeveloped locations included in proved reserves in the previous year.

Revisions of previous estimates for oil in 2020 were primarily related to changes in oil prices.

Revisions of previous estimates in other years were insignificant.

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.

Extensions and discoveries for 2022, 2021 and 2020 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 locations that are planned to be drilled in the Company's current development plan.

The following table sets forth the standardized measure of discounted future net cash flows relating to proved reserves:

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Standardized Measure of Discounted Future Net Cash Flows $ 12,609,636 $ 5,775,605 $ 1,935,725

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the changes in the standardized measure of discounted future net cash flows relating to proved reserves:

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The future income tax expenses give effect to permanent differences and tax credits, but do not reflect the impact of future operations.

(14) Subsequent Event

On February 13, 2023, Comstock's Board of Directors declared a quarterly cash dividend of $ 0.125 per common share to stockholders of record at the close of business of March 1, 2023, with a payment date of March 15, 2023.

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

What changed 10-K

Item 9A. Controls and Procedures