COMSTOCK RESOURCES INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Controls and Procedures. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. We performed an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2022. The evaluation was performed with the participation of senior management of each business segment and key corporate functions, and under the supervision of the Chief Executive Officer and Chief Financial Officer. Based on our evaluation of our disclosure controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2022 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and to provide reasonable assurance that information required to be disclosed by us is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended December 31, 2022 that materially affected or are reasonably likely to materially affect our internal control over financial reporting. Management's Report on Internal Control over Financial Reporting. We are responsible for establishing and maintaining adequate internal control over financial reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, we conducted an assessment, including testing, using the criteria in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As of December 31, 2022, we assessed the effectiveness of the Company's internal control over financial reporting based on the COSO criteria, and based on that assessment we determined that the Company maintained effective internal control over financial reporting as of December 31, 2022. Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of the Company's internal control over financial reporting as of December 31, 2022. The report, which expresses an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2022, follows below. 37 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Comstock Resources, Inc. Opinion on Internal Control over Financial Reporting We have audited Comstock Resources, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Comstock Resources, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 17, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ ERNST & YOUNG LLP Dallas, Texas February 17, 2023 38 ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this item is incorporated herein by reference to "Business – Directors and Executive Officers" in this Form 10-K and to our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2022. Section 16(a) Beneficial Ownership Reporting Compliance. Our directors, executive officers and stockholders with ownership of 10% or greater are required, under Section 16(a) of the Securities Exchange Act of 1934, to file reports of their ownership and changes to their ownership of our securities with the SEC. Based solely on our review of the reports and any written representations we received that no other reports were required, we believe that, during the year ended December 31, 2022, all of our officers, directors and stockholders with ownership of 10% or greater complied with all Section 16(a) filing requirements applicable to them. Code of Ethics . We have adopted a Code of Business Conduct and Ethics that is applicable to all of our directors, officers and employees as required by New York Stock Exchange rules. We have also adopted a Code of Ethics for Senior Financial Officers that is applicable to our Chief Executive Officer and Senior Financial Officers. Both the Code of Business Conduct and Ethics and Code of Ethics for Senior Financial Officers may be found on our website at www.comstockresources.com. Both of these documents are also available, without charge, to any stockholder upon request to: Comstock Resources, Inc., Attn: Investor Relations, 5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034, (972) 668-8800. We intend to disclose any amendments or waivers to these codes that apply to our Chief Executive Officer and senior financial officers on our website in accordance with applicable SEC rules. Please see the definitive proxy statement for our 2023 annual meeting, which will be filed with the SEC within 120 days of December 31, 2022, for additional information regarding our corporate governance policies. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2022. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table summarizes certain information regarding our equity compensation plans as of December 31, 2022: Number of securities to be issued upon exercise of outstanding options, warrants and rights Number of securities authorized for future issuance under equity compensation plans (excluding outstanding options, warrants and rights) Equity compensation plans approved by stockholders 1,105,108 4,592,055 _______________ (1) Represents performance share unit awards that would be issuable based upon achievement of the maximum awards under the terms of the performance share unit awards. We do not have any equity compensation plans that were not approved by stockholders. Further information required by this item is incorporated herein by reference to our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2022. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item is incorporated herein by reference to our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2022. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated herein by reference to our definitive proxy statement which will be filed with the SEC within 120 days after December 31, 2022. 39 COMSTOCK RESOURCES, INC. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Financial Statements: 1. The following consolidated financial statements and notes of Comstock Resources, Inc. are included on Pages F-2 to F-25 of this report: Report of Independent Registered Public Accounting Firm F- 1 Consolidated Balance Sheets as of December 31, 2022 and 2021 F- 3 Consolidated Statements of Operations For the Years Ended December 31, 2022 , 2021 and 2020 F- 4 Consolidated Statements of Stockholders' Equity F- 5 Consolidated Statements of Cash Flows For the Years Ended December 31, 2022 , 2021 and 2020 F- 6 Notes to Consolidated Financial Statements F- 7 2. All financial statement schedules are omitted because they are not applicable, or are immaterial or the required information is presented in the consolidated financial statements or the related notes. (b) Exhibits: The exhibits to this report required to be filed pursuant to Item 15(c) are listed below. Exhibit No. Description 2.1 Contribution Agreement dated May 9, 2018, by and among Arkoma Drilling, L.P., Williston Drilling, L.P. and the Company (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K/A dated May 9, 2018). 2.2 Amendment No. 1 to the Contribution Agreement, dated as of August 14, 2018, by and among Arkoma Drilling, L.P., Williston Drilling, L.P. and the Company (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated August 13, 2018). 3.1 Second Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated August 13, 2018). 3.2 Amendment to Second Amended and Restated Articles of Incorporation of the Company, dated July 16, 2019 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated July 15, 2019). 3.3 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated August 21, 2014). 3.4 First Amendment to Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated August 17, 2018). 3.5 Amendment No. 2 to the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K dated July 15, 2019). 4. 1 Indenture dated 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). 4. 2 Indenture dated June 28, 2021, by and among the Company, each of the guarantor subsidiaries named therein, and American Stock Transfer & Trust Company, LLC for the 5.875% Senior Notes due 2030 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated June 28, 2021). 4. 3 Shareholders Agreement, dated June 7, 2019, by and among the Company, Arkoma Drilling CP, LLC, Williston Drilling CP, LLC, Arkoma Drilling, L.P., Williston Drilling, L.P., New Covey Park Energy LLC and Jerral W. Jones (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated June 10, 2019). 4. 4 * Description of Securities. 10.1 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). 10. 2 # Comstock Resources, Inc. 2019 Long-term Incentive Plan Effective as of May 31, 2019 (incorporated by reference to Exhibit 99 to our Registration Statement on Form S-8 dated June 4, 2019). 10. 3 # Employment Agreement dated September 7, 2018 by and between the Company and M. Jay Allison (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated September 7, 2018). 10. 4 # Employment Agreement dated September 7, 2018 by and between the Company and Roland O. Burns (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated September 7, 2018). 10.5#* Separation and Release Agreement dated as of November 18, 2022 between Comstock Resources, Inc. and David J. Terry. 40 COMSTOCK RESOURCES, INC. Exhibit No. Description 10. 6 Lease between Stonebriar I Office Partners, Ltd., and Comstock Resources, Inc. dated May 6, 2004 (incorporated by reference to Exhibit 10.24 to our Annual Report on Form 10-K for the year ended December 31, 2004). 10. 7 First Amendment to the Lease Agreement dated August 25, 2005, between Stonebriar I Office Partners, Ltd. and Comstock Resources, Inc. (incorporated by reference to Exhibit 10.19 to our Annual Report on Form 10-K for the year ended December 31, 2005). 10 . 8 Second Amendment to the Lease Agreement dated October 15, 2007 between Stonebriar I Office Partners, Ltd. and Comstock Resources, Inc. (incorporated by reference to Exhibit 10.10 to our Annual Report on Form 10-K for the year ended December 31, 2008). 10. 9 Third Amendment to the Lease Agreement dated September 30, 2008 between Stonebriar I Office Partners, Ltd. and Comstock Resources, Inc. (incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K for the year ended December 31, 2008). 10. 10 Fourth Amendment to the Lease Agreement dated May 8, 2009 between Stonebriar I Office Partners, Ltd. and Comstock Resources, Inc. (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009). 10. 12 Fifth Amendment to the Lease Agreement dated June 15, 2011 between Stonebriar I Office Partners, Ltd. and Comstock Resources, Inc. (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011). 10. 13 Sixth Amendment to the Lease Agreement dated January 21, 2021 between Stonebriar I Office Partners, Ltd. and Comstock Resources, Inc. (incorporated by reference to Exhibit 10.20 to our Annual Report on Form 10-K for the year ended December 31, 2020). 21* Subsidiaries of the Company. 23.1* Consent of Ernst & Young LLP. 23.2* Consent of Independent Petroleum Engineers Netherland, Sewell & Associates, Inc. 31.1* Chief Executive Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Chief Financial Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002. 32.1+ Chief Executive Officer certification under Section 906 of the Sarbanes-Oxley Act of 2002. 32.2+ Chief Financial Officer certification under Section 906 of the Sarbanes-Oxley Act of 2002. 99.1* Audit Letter of Netherland, Sewell & Associates, Inc. on Proved Reserves as of December 31, 202 2 . 101.INS* XBRL Instance Document 101.SCH* XBRL Schema Document 101.CAL* XBRL Calculation Linkbase Document 101.LAB* XBRL Labels Linkbase Document 101.PRE* XBRL Presentation Linkbase Document 101.DEF* XBRL Definition Linkbase Document 104* Cover Page Interactive Data File (embedded within the Inline XBRL document) _______________ * Filed herewith. + Furnished herewith. # Management contract or compensatory plan document. ITEM 16. FORM 10-K SUMMARY Not applicable. 41 COMSTOCK RESOURCES, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMSTOCK RESOURCES, INC. By: /s/ M. JAY ALLISON M. Jay Allison Chief Executive Officer Date: February 17, 2023 (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ M. JAY ALLISON Chief Executive Officer and February 17, 2023 M. Jay Allison Chairman of the Board of Directors (Principal Executive Officer) /s/ ROLAND O. BURNS President, Chief Financial Officer, February 17, 2023 Roland O. Burns Secretary and Director (Principal Financial and Accounting Officer) /s/ ELIZABETH B. DAVIS Director February 17, 2023 Elizabeth B. Davis /s/ MORRIS E. FOSTER Director February 17, 2023 Morris E. Foster /s/ JIM L. TURNER Director February 17, 2023 Jim L. Turner 42 COMSTOCK RESOURCES, INC. FINANCIAL STATEMENTS INDEX Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) F- 1 Consolidated Balance Sheets as of December 31, 2022 and 2021 F- 3 Consolidated Statements of Operations For the Years Ended December 31, 2022 , 2021 and 2020 F- 4 Consolidated Statements of Stockholders' Equity F- 5 Consolidated Statements of Cash Flows For the Years Ended December 31, 2022 , 2021 and 2020 F- 6 Notes to Consolidated Financial Statements F- 7 43 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Comstock Resources, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Comstock Resources, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 17, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit 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: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Depreciation, Depletion and Amortization of Proved Oil and Gas Properties Description of the Matter At December 31, 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. F-1 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. 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 We have served as the Company's auditor since 2003. Dallas, Texas February 17, 2023 F-2 COMSTOCK RESOURCES, INC. CONSOLIDATED BALANCE SHEETS As of December 31, 2022 2021 ASSETS (In thousands) Cash and cash equivalents $ 54,652 $ 30,663 Accounts receivable: Oil and gas sales and gas services 415,079 217,149 Joint interest operations 76,521 29,755 From affiliates 18,527 20,834 Derivative financial instruments 23,884 5,258 Other current assets 56,324 15,077 Total current assets 644,987 318,736 Property and equipment: Oil and natural gas properties, successful efforts method: Proved 5,843,409 4,756,394 Unproved 298,230 302,129 Other 26,475 6,690 Accumulated depreciation, depletion and amortization ( 1,545,459 ) ( 1,058,067 ) Net property and equipment 4,622,655 4,007,146 Goodwill 335,897 335,897 Operating lease right-of-use assets 90,716 6,450 $ 5,694,255 $ 4,668,229 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 530,195 $ 314,569 Accrued expenses 183,111 135,026 Operating leases 38,411 2,444 Derivative financial instruments 4,420 181,945 Total current liabilities 756,137 633,984 Long-term debt 2,152,571 2,615,235 Deferred income taxes 425,734 197,417 Derivative financial instruments — 4,042 Long-term operating leases 52,385 4,075 Reserve for future abandonment costs 29,114 25,673 Other non-current liabilities — 24 Total liabilities 3,415,941 3,480,450 Commitments and contingencies Mezzanine equity: 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 — 175,000 Stockholders' equity: Common stock—$ 0.50 par, 400,000,000 shares authorized, 277,517,087 and 232,924,646 shares issued and outstanding at December 31, 2022 and 2021, respectively 138,759 116,462 Additional paid-in capital 1,253,417 1,100,359 Accumulated earnings (deficit) 886,138 ( 204,042 ) Total stockholders' equity 2,278,314 1,012,779 $ 5,694,255 $ 4,668,229 The accompanying notes are an integral part of these statements. F-3 COMSTOCK RESOURCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2022 2021 2020 (In thousands, except per share amounts) Revenues: Natural gas sales $ 3,117,094 $ 1,775,768 $ 809,399 Oil sales 7,597 74,962 48,796 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: Production and ad valorem taxes 77,917 49,141 36,967 Gathering and transportation 155,679 130,940 106,582 Lease operating 111,134 103,467 102,452 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 (Gain) loss on sale of assets ( 340 ) 162,077 ( 17 ) Total operating expenses 1,346,576 949,956 695,163 Operating income 2,281,481 900,774 163,032 Other income (expenses): Gain (loss) from derivative financial instruments ( 662,522 ) ( 560,648 ) 9,951 Other income 916 636 1,080 Interest expense ( 171,092 ) ( 218,485 ) ( 234,829 ) Loss on early extinguishment of debt ( 46,840 ) ( 352,599 ) ( 861 ) Total other expenses ( 879,538 ) ( 1,131,096 ) ( 224,659 ) Income (loss) before income taxes 1,401,943 ( 230,322 ) ( 61,627 ) (Provision for) benefit from income taxes ( 261,061 ) ( 11,403 ) 9,210 Net income (loss) 1,140,882 ( 241,725 ) ( 52,417 ) Preferred stock dividends and accretion ( 16,014 ) ( 17,500 ) ( 30,996 ) Net income (loss) available to common stockholders $ 1,124,868 $ ( 259,225 ) $ ( 83,413 ) 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: Basic 236,045 231,633 215,194 Diluted 277,465 231,633 215,194 Dividends per share $ 0.125 $ — $ — The accompanying notes are an integral part of these statements. F-4 COMSTOCK RESOURCES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Shares Common Stock- Par Value Additional Paid-in Capital Accumulated Earnings (Deficit) Total (In thousands) Balance at December 31, 2019 190,007 $ 95,003 $ 909,423 $ 138,596 $ 1,143,022 Stock-based compensation 431 216 6,248 — 6,464 Income tax withholdings on equity awards ( 115 ) ( 59 ) ( 633 ) — ( 692 ) Issuance of common stock 42,092 21,046 190,592 — 211,638 Stock issuance costs — — ( 10,246 ) — ( 10,246 ) Net loss — — — ( 52,417 ) ( 52,417 ) Preferred stock accretion — — — ( 5,417 ) ( 5,417 ) Payment of preferred dividends — — — ( 25,579 ) ( 25,579 ) Balance at December 31, 2020 232,415 $ 116,206 $ 1,095,384 $ 55,183 $ 1,266,773 Stock-based compensation 766 384 6,415 — 6,799 Income tax withholdings on equity awards ( 256 ) ( 128 ) ( 1,284 ) — ( 1,412 ) Stock issuance costs — — ( 156 ) — ( 156 ) Net loss — — — ( 241,725 ) ( 241,725 ) Payment of preferred dividends — — — ( 17,500 ) ( 17,500 ) Balance at December 31, 2021 232,925 $ 116,462 $ 1,100,359 $ ( 204,042 ) $ 1,012,779 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 ) 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 The accompanying notes are an integral part of these statements. F-5 COMSTOCK RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2022 2021 2020 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 1,140,882 $ ( 241,725 ) $ ( 52,417 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Deferred and non-current income taxes 228,317 ( 3,565 ) ( 9,409 ) Exploration — — 27 (Gain) loss on sale of assets ( 340 ) 162,077 ( 17 ) Depreciation, depletion and amortization 489,450 469,388 417,112 (Gain) loss on derivative financial instruments 662,522 560,648 ( 9,951 ) Cash settlements of derivative financial instruments ( 862,715 ) ( 419,714 ) 134,496 Amortization of debt discount, premium and issuance costs 10,255 21,703 34,038 Stock-based compensation 6,610 6,799 6,464 Loss on early extinguishment of debt 46,840 352,599 861 (Increase) decrease in accounts receivable ( 242,389 ) ( 121,952 ) 34,555 (Increase) decrease in other current assets ( 10,296 ) ( 2,033 ) 7,019 Increase in accounts payable and accrued expenses 229,252 74,780 12,923 Net cash provided by operating activities 1,698,388 859,005 575,701 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 1,067,800 ) ( 689,210 ) ( 509,690 ) Prepaid drilling costs ( 34,069 ) — ( 1,795 ) Proceeds from sales of assets 4,186 138,394 287 Net cash used for investing activities ( 1,097,683 ) ( 550,816 ) ( 511,198 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on bank credit facility 755,000 555,000 157,000 Repayments on bank credit facility ( 990,000 ) ( 820,000 ) ( 907,000 ) Issuance of Senior Notes — 2,222,500 751,500 Retirement of Senior Notes ( 273,920 ) ( 2,210,626 ) — Issuance of common stock — — 206,626 Redemption of Series A Convertible Preferred Stock — — ( 210,000 ) Debt and stock issuance costs ( 10,839 ) ( 35,760 ) ( 24,617 ) 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 Cash and cash equivalents, end of the year $ 54,652 $ 30,663 $ 30,272 The accompanying notes are an integral part of these statements. F-6 COMSTOCK RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies Accounting policies used by Comstock Resources, Inc. and subsidiaries reflect oil and natural gas industry practices and conform to accounting principles generally accepted in the United States of America. Basis of Presentation and Principles of Consolidation Comstock Resources, Inc. and its subsidiaries are engaged in the acquisition, exploration, development and production of oil and natural gas. The consolidated financial statements include the accounts of Comstock Resources, Inc. and its wholly owned or controlled subsidiaries (collectively, "Comstock" or the "Company"). The Company's operations are primarily focused in North Louisiana and East Texas. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company accounts for its undivided interest in oil and gas properties using the proportionate consolidation method, whereby its share of assets, liabilities, revenues and expenses are included in its financial statements. Net income (loss) and comprehensive income (loss) are the same in all periods presented. All adjustments are of a normal recurring nature unless otherwise disclosed. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. Changes in the future estimated oil and natural gas reserves or the estimated future cash flows attributable to the reserves that are utilized for impairment analyses could have a significant impact on the future results of operations. Concentration of Credit Risk, 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. The Company places its cash with high credit quality financial institutions and its derivative financial instruments with financial institutions and other firms that management believes have high credit ratings. Substantially all of the Company's accounts receivable are due from either purchasers of oil and gas or participants in oil and gas wells for which the Company serves as the operator. Generally, operators of oil and gas wells have the right to offset future revenues against unpaid charges related to operated wells. Oil and gas sales are generally unsecured. The Company's policy is to assess the collectability of its receivables based upon their age, the credit quality of the purchaser or participant and the potential for revenue offset. The Company has not had any significant credit losses in the past and believes its accounts receivable are fully collectible. Accordingly, no allowance for doubtful accounts has been recorded for the years ended December 31, 2022, 2021 and 2020, respectively. Other Current Assets Other current assets at December 31, 2022 and 2021 consist of the following: As of December 31, 2022 2021 (In thousands) Pipe and well equipment inventory $ 34,819 $ 5,015 Production tax refunds receivable 11,156 7,879 Prepaid drilling costs 4,265 — Accrued proceeds from sale of oil and gas properties 3,118 — Prepaid expenses 2,455 2,183 Other 511 — $ 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 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 F-7 COMSTOCK RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS date. A three-level hierarchy is followed for disclosure to show the extent and level of judgment used to estimate fair value measurements: Level 1 — Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date. Level 2 — Inputs used to measure fair value, other than quoted prices included in Level 1, are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument. Level 3 — Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management's estimates of market participant assumptions. The following is a reconciliation of the beginning and ending balances for derivative instruments classified as Level 3 in the fair value hierarchy: Year Ended December 31, 2021 (In thousands) Balance at beginning of year $ ( 22,588 ) Total gains (losses) included in earnings ( 162,421 ) Settlements, net 58,448 Transfers out of Level 3 126,561 Balance at end of year $ — The following presents the carrying amounts and the fair values of the Company's financial instruments as of December 31, 2022 and 2021: As of December 31, 2022 2021 Carrying Value Fair Value Carrying Value Fair Value Assets: (In thousands) Commodity-based derivatives (1) $ 23,884 $ 23,884 $ 5,258 $ 5,258 Liabilities: Commodity-based derivatives (1) 4,420 4,420 185,987 185,987 Bank credit facility (2) — — 235,000 235,000 7.50 % senior notes due 2025 (3) — — 196,998 248,066 6.75 % senior notes due 2029 (3) 1,229,836 1,129,029 1,256,874 1,337,500 5.875 % senior notes due 2030 (3) 965,000 846,788 965,000 989,125 _______________ (1) The Company's commodity-based derivatives are classified as Level 2 and measured at fair value using a market approach using third party pricing services and other active markets or broker quotes that are readily available in the public markets. (2) The carrying value of our floating rate debt outstanding approximates fair value. (3) The fair value of the Company's fixed rate debt was based on quoted prices as of December 31, 2022 and 2021, respectively, a Level 1 measurement. Property and Equipment The Company follows the successful efforts method of accounting for its oil and gas properties. Costs incurred to acquire oil and gas leasehold are capitalized. Acquisition costs for proved oil and gas properties, costs of drilling and equipping productive wells, and costs of unsuccessful development wells are capitalized and amortized on an equivalent unit-of-production basis over the life of the remaining related oil and gas reserves. Equivalent units are determined by converting oil to natural gas at the ratio of one barrel of oil for six thousand cubic feet of natural gas. This conversion ratio is not based on the F-8 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, 2022 2021 (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. Exploration expense includes geological and geophysical expenses and delay rentals related to exploratory oil and gas properties, costs of unsuccessful exploratory drilling and impairments of unproved properties. As of December 31, 2022 and 2021, the unproved properties primarily relate to future drilling locations that were not included in proved undeveloped reserves. Most of these future drilling locations are located on acreage where the reservoir is known to be productive but have been excluded from proved reserves due to uncertainty on whether the wells would be drilled within the next five years as required by SEC rules in order to be included in proved reserves. The costs of unproved properties are transferred to proved oil and gas properties when they are either drilled or they are reflected in proved undeveloped reserves and amortized on an equivalent unit-of-production basis. Costs associated with unevaluated exploratory acreage are periodically assessed for impairment on a property by property basis, and any impairment in value is included in exploration expense. Exploratory drilling costs are initially capitalized as proved property but charged to expense if and when the well is determined not to have found commercial proved oil and gas reserves. Exploratory drilling costs are evaluated within a one-year period after the completion of drilling. The Company assesses the need for an impairment of the costs capitalized for its proved oil and gas properties when events or changes in circumstances, such as a significant drop in commodity prices, indicate that the Company may not be able to recover its capitalized costs. If impairment is indicated based on undiscounted expected future cash flows attributable to the property, then a provision for impairment is recognized to the extent that net capitalized costs exceed the estimated fair value of the property. The Company determines the fair values of its oil and gas properties using a discounted cash flow model and proved and risk-adjusted probable reserves. Significant Level 3 assumptions associated with the calculation of discounted future cash flows included in the cash flow model include management's outlook for oil and natural gas prices, future oil and natural gas production, production costs, capital expenditures, and the total proved and risk-adjusted probable oil and natural gas reserves expected to be recovered. Management's oil and natural gas price outlook is developed based on third-party longer-term price forecasts as of each measurement date. The expected future net cash flows are discounted using an appropriate discount rate in determining a property's fair value. The oil and natural gas prices used for determining asset impairments will generally differ from those used in the standardized measure of discounted future net cash flows because the standardized measure requires the use of an average price based on the first day of each month of the preceding year. Unproved properties are evaluated for impairment based upon the results of drilling, planned future drilling and the terms of the oil and gas leases. The Company's estimates of undiscounted future net cash flows attributable to its oil and gas properties may change in the future. The primary factors that may affect estimates of future cash flows include future adjustments, both positive and negative, to proved and appropriate risk-adjusted probable oil and natural gas reserves, results of future drilling activities, future prices for oil and natural gas, and increases or decreases in production and capital costs. As a result of these changes, there may be impairments in the carrying values of our oil and gas properties. Other property and equipment consists primarily of 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. F-9 COMSTOCK RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Goodwill The Company had goodwill of $ 335.9 million as of December 31, 2022 and 2021. Goodwill represents the excess of purchase price over fair value of net tangible and identifiable intangible assets in a business combination. The Company is required to conduct an annual review of goodwill for impairment and performs the assessment of goodwill on October 1st of each year. If the carrying value of goodwill exceeds the fair value, an impairment charge would be recorded for the difference between fair value and carrying value. The Company performed its quantitative assessment of goodwill as of October 1, 2022 and determined there was no indication of impairment. Leases 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. Comstock currently has no finance-type leases. Right-of-use lease assets representing the Company's right to use an underlying asset for the lease term and the related lease liabilities represent its obligation to make lease payments under the terms of the contracts. Short-term leases that have an initial term of one year or less are not capitalized; however, amounts paid for those leases are included as part of its lease cost disclosures. Short-term lease costs exclude expenses related to leases with a lease term of one month or less. Comstock contracts for a variety of equipment used in its oil and natural gas exploration and development operations. Contract terms for this equipment vary broadly, including the contract duration, pricing, scope of services included along with the equipment, cancellation terms, and rights of substitution, among others. The Company's drilling operations routinely change due to changes in oil and natural gas prices, demand for oil and natural gas, and the overall operating and economic environment. Comstock accordingly manages the terms of its contracts for drilling rigs so as to allow for maximum flexibility in responding to these changing conditions. 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. 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: Year Ended December 31, 2022 2021 2020 (In thousands) Operating lease cost included in general and administrative expense $ 1,749 $ 1,732 $ 1,665 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 $ 115,504 $ 35,346 $ 35,814 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. F-10 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. As of December 31, 2022, expected future payments related to contracts that contain operating leases were as follows: (In thousands) 2023 $ 41,007 2024 40,609 2025 13,004 2026 88 2027 17 Total lease payments 94,725 Imputed interest ( 3,929 ) Total lease liability $ 90,796 Accrued Expenses Accrued expenses at December 31, 2022 and 2021 consist of the following: As of December 31, 2022 2021 (In thousands) Accrued interest payable $ 54,867 $ 60,305 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 Accrued lease operating expenses 2,412 2,036 Other 473 1,856 $ 183,111 $ 135,026 Reserve for Future Abandonment Costs The Company's asset retirement obligations relate to future plugging and abandonment costs of its oil and gas properties and related facilities disposal. The Company records a liability in the period in which an asset retirement obligation is incurred, in an amount equal to the estimated fair value of the obligation that is capitalized. Thereafter, this liability is accreted up to the final retirement cost. Accretion of the discount is included as part of depreciation, depletion and amortization in the accompanying consolidated statements of operations. The following table summarizes the changes in the Company's total estimated liability: Year Ended December 31, 2022 2021 (In thousands) Reserve for future abandonment costs at beginning of the year $ 25,673 $ 19,290 New wells placed on production 1,537 1,994 Acquisitions 1,211 637 Changes in estimates and timing 182 3,008 Liabilities settled ( 80 ) ( 31 ) Divestitures ( 944 ) ( 466 ) Accretion expense 1,535 1,241 Reserve for future abandonment costs at end of the year $ 29,114 $ 25,673 F-11 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 ("PSUs"), are issued to employees and non-employee directors. The Company follows the fair value-based method in accounting for equity-based compensation. Under the fair value based method, compensation cost is measured at the grant date based on the fair value of the award and is recognized on a straight-line basis over the award vesting period. Segment Reporting The Company presently operates in one business segment, the exploration and production of North American oil and natural gas. Derivative Financial Instruments and Hedging Activities The Company accounts for derivative financial instruments (including derivative instruments embedded in other contracts) as either an asset or liability measured at its fair value. Changes in the fair value of derivatives are recognized currently in earnings and in net cash flows from operating activities. The fair value of derivative contracts that expire in less than one year are recognized as current assets or liabilities. Those that expire in more than one year are recognized as long-term assets or liabilities. Major Purchasers 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 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. 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. Prices for sales of oil and natural gas are generally based upon terms that are common in the oil and gas industry, including index or spot prices, location and quality differentials, as well as market supply and demand conditions. As a result, prices for oil and natural gas routinely fluctuate based on changes in these factors. 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 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 F-12 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 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. 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. General and Administrative Expenses General and administrative expenses are reported net of reimbursements of overhead costs that are received from working interest owners of the oil and gas properties operated by the Company of $ 27.5 million, $ 25.3 million and $ 24.7 million for the years ended December 31, 2022, 2021 and 2020, respectively. Income Taxes The Company accounts for income taxes using the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis, as well as the tax consequences attributable to the future utilization of existing net operating loss and other carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the change in rate is enacted. Earnings Per Share Unvested restricted stock 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, 2022 2021 2020 (in thousands) Unvested restricted stock 926 1,057 1,149 F-13 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. The treasury stock method is used to measure the dilutive effect of PSUs. Year Ended December 31, 2022 2021 2020 (In thousands, except per unit amounts) Weighted average PSUs 925 1,146 1,044 Weighted average grant date fair value per unit $ 15.11 $ 8.11 $ 9.33 The Series A and Series B Convertible Preferred Stock were convertible into 52,500,000 and 43,750,000 shares of common stock, respectively. The Company redeemed all of the shares of Series A Convertible Preferred Stock on May 19, 2020. 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. Weighted average shares of convertible preferred stock outstanding were as follows: Year Ended December 31, 2022 2021 2020 (In thousands) Weighted average convertible preferred stock 40,034 43,750 63,832 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 income (loss) per share were determined as follows: Year Ended December 31, 2022 2021 2020 (In thousands, except per share amounts) Net income (loss) available to common stockholders $ 1,124,868 $ ( 259,225 ) $ ( 83,413 ) 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 ) Basic weighted average shares outstanding 236,045 231,633 215,194 Effect of dilutive securities: PSUs 911 — — Restricted stock 475 — — Convertible preferred stock 40,034 — — Diluted weighted average shares outstanding 277,465 231,633 215,194 Basic income (loss) per share $ 4.75 $ ( 1.12 ) $ ( 0.39 ) Diluted income (loss) per share $ 4.11 $ ( 1.12 ) $ ( 0.39 ) 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. F-14 COMSTOCK RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Supplementary Information With Respect to the Consolidated Statements of Cash Flows For the purpose of the consolidated statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash payments made for interest and income taxes and other non-cash investing and financing activities were as follows: Year Ended December 31, 2022 2021 2020 (In thousands) Cash payments for: Interest $ 166,275 $ 203,742 $ 228,555 Income tax payments (refunds) $ 16,524 $ 149 $ ( 10,218 ) Non-cash investing activities include: Increase (decrease) in accrued capital expenditures $ 34,443 $ ( 4,964 ) $ ( 17,234 ) Liabilities assumed in exchange for right-of-use lease assets $ 110,090 $ 5,847 $ 1,761 Non-cash investing and financing activities related to acquisitions: 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 ) Issuance of common stock in exchange for debt $ — $ — $ 5,012 (2) Acquisitions and Dispositions of Oil and Gas Properties Acquisitions 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. Dispositions 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. F-15 COMSTOCK RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) Oil and Gas Producing Activities Set forth below is certain information regarding the aggregate capitalized costs of oil and gas properties and costs incurred by the Company for its oil and natural gas property acquisition, development and exploration activities: Capitalized Costs As of December 31, 2022 2021 (In thousands) Proved properties: Leasehold costs $ 3,117,028 $ 3,053,783 Wells and related equipment and facilities 2,726,381 1,702,611 Accumulated depreciation depletion and amortization ( 1,543,003 ) ( 1,056,317 ) 4,300,406 3,700,077 Unproved properties 298,230 302,129 $ 4,598,636 $ 4,002,206 Costs Incurred Year Ended December 31, 2022 2021 2020 (In thousands) Property acquisitions: Proved property $ 500 $ 21,781 $ — Unproved property 54,120 35,871 7,949 Exploration and development: Developmental leasehold costs 13,727 12,953 13,022 Exploratory drilling and completion costs 63,520 6,966 — Development drilling and completion costs 901,026 569,141 436,074 Other development costs 53,693 39,168 34,572 Asset retirement obligations 686 5,608 ( 47 ) Total capital expenditures $ 1,087,272 $ 691,488 $ 491,570 (4) Long-term Debt Long-term debt is comprised of the following: As of December 31, 2022 2021 (In thousands) Bank Credit Facility: Principal $ — $ 235,000 6.75 % Senior Notes Due 2029: Principal 1,223,880 1,250,000 Premium, net of amortization 5,956 6,874 5.875 % Senior Notes Due 2030: Principal 965,000 965,000 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 F-16 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: 2023 2024 2025 2026 2027 Thereafter Total (In thousands) 6.75 % Senior Notes due 2029 — — — — — 1,223,880 1,223,880 5.875 % Senior Notes due 2030 — — — — — 965,000 965,000 $ — $ — $ — $ — $ — $ 2,188,880 $ 2,188,880 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 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 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 The Company has natural gas transportation and gathering contracts which extend to 2031. 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 2028 through 2031. The Company has drilling rig contracts and completion service contracts. 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. F-17 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. The Company records a loss contingency for these matters when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company does not believe the resolution of these matters will have a material adverse effect on the Company's financial position, results of operations or cash flows and no material amounts are accrued relative to these matters at December 31, 2022 or 2021. (6) Convertible Preferred 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. (8) Stock-based Compensation The Company grants restricted shares of common stock and PSUs to key employees and directors as part of their compensation. Grants are made pursuant to the Company's 2019 Long-term Incentive Plan (the "2019 Plan"), which was approved by the Company's shareholders on May 31, 2019. Future 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. During the years ended December 31, 2022, 2021 and 2020 the Company had $ 6.6 million, $ 6.8 million and $ 6.5 million, respectively, in stock-based compensation expense. Restricted Stock The fair value of restricted stock grants is amortized over the vesting period, generally one year to three years , using the straight-line method. The fair value of each restricted share on the date of grant is equal to the market price of a share of the Company's stock. A summary of restricted stock activity is presented below: Number of Restricted Shares Weighted Average Grant Price Outstanding at January 1, 2022 952,971 $ 5.74 Granted 627,791 $ 17.70 Vested ( 549,363 ) $ 5.67 Forfeitures ( 65,341 ) $ 8.85 Outstanding at December 31, 2022 966,058 $ 13.34 Year Ended December 31, 2022 2021 2020 (In thousands, except per share data) Fair value of vested restricted stock $ 11,080 $ 3,070 $ 2,852 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 Unrecognized compensation expense related to unvested shares $ 10,301 Expected recognition period 2.3 years F-18 COMSTOCK RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Performance Share Units The Company issues PSUs as part of its long-term equity incentive compensation. PSU awards can result in the issuance of common stock to the holder if certain performance criteria are met during a performance period. The performance periods consist of three years . The performance criteria for the PSUs are based on the Company's annualized total stockholder return ("TSR") for the performance period as compared with the TSR of certain peer companies for the performance period. The costs associated with PSUs are recognized as general and administrative expense over the performance periods of the awards. The fair value of PSUs was measured at the grant date using the Geometric Brownian Motion Model ("GBM Model"). Significant assumptions used in this simulation include the Company's expected volatility and a risk-free interest rate based on U.S. Treasury yield curve rates with maturities consistent with the vesting periods, as well as the volatilities for each of the Company's peers. Assumptions regarding volatility included the historical volatility of each company's stock and the implied volatilities of publicly traded stock options. Significant assumptions used to value PSUs included: Year Ended December 31, 2022 2021 2020 Risk free interest rate 3.6 % 0.3 % 0.3 % Range of implied volatility: Minimum 50 % 37 % 39 % Maximum 83 % 83 % 198 % A summary of PSU activity is presented below: Number of PSUs Weighted Average Grant Price Outstanding at January 1, 2022 1,049,910 $ 8.11 Granted 237,407 $ 25.92 Earned ( 596,893 ) $ 7.85 Forfeitures ( 137,870 ) $ 10.95 Outstanding at December 31, 2022 552,554 $ 15.11 Year Ended December 31, 2022 2021 2020 (In thousands, except per unit data) Number of PSUs granted 237 221 232 Grant date fair value $ 6,023 $ 1,891 $ 1,943 Grant date fair value per unit $ 25.92 $ 8.56 $ 8.37 Compensation expense recognized for PSUs $ 2,439 $ 3,392 $ 3,217 Unrecognized compensation expense related to unvested shares $ 5,520 Expected recognition period 2.3 years The fair value of PSUs is amortized over the vesting period of three years , using the straight-line method. The final number of shares of common stock issued may vary depending upon the performance multiplier, and can result in the issuance of zero to 1,105,108 shares of common stock based on the achieved performance ranges from zero to two hundred percent. (9) Retirement Plan The Company has a 401(k) profit sharing plan which covers all of its employees. At its discretion, Comstock may match the employees' contributions to the plan. Matching contributions to the plan were approximately $ 1.5 million, $ 1.3 million and $ 1.3 million for the years ended December 31, 2022, 2021 and 2020, respectively. F-19 COMSTOCK RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) Income Taxes Deferred income taxes are provided to reflect the future tax consequences or benefits of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements using enacted tax rates. The following is an analysis of the consolidated income tax provision (benefit): Year Ended December 31, 2022 2021 2020 (In thousands) Current - Federal $ 40,445 $ — $ — Current - State ( 7,701 ) 14,968 ( 154 ) Deferred - Federal 209,705 ( 16,721 ) ( 12,037 ) Deferred - State 18,612 13,156 2,981 $ 261,061 $ 11,403 $ ( 9,210 ) In recording deferred income tax assets, the Company considers whether it is more likely than not that its deferred income tax assets will be realized in the future. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those deferred income tax assets would be deductible. The Company believes that after considering all the available objective evidence, historical and prospective, with greater weight given to historical evidence, management is not able to determine that it is more likely than not that all of its deferred tax assets will be realized. As a result, the Company established valuation allowances for its deferred tax assets and U.S. federal and state net operating loss carryforwards that are not expected to be utilized due to the uncertainty of generating taxable income prior to the expiration of the carryforward periods. The Company will continue to assess the valuation allowances against deferred tax assets considering all available information obtained in future periods. The tax effects of significant temporary differences representing the net deferred tax liabilities were as follows: As of December 31, 2022 2021 (In thousands) Deferred tax assets: Interest expense limitation $ 101,104 $ 103,771 Net operating loss carryforwards 49,740 53,112 Unrealized hedging losses — 37,953 Asset retirement obligation 5,714 4,312 Other 4,932 7,771 161,490 206,919 Valuation allowance on deferred tax assets ( 2,145 ) ( 46,474 ) Deferred tax assets 159,345 160,445 Deferred tax liabilities: Property and equipment ( 570,833 ) ( 340,722 ) Unrealized hedging gains ( 4,087 ) — Amortization of debt issuance costs and bond discount — ( 9,954 ) Other ( 10,162 ) ( 7,186 ) Deferred tax liabilities ( 585,082 ) ( 357,862 ) Net deferred tax liability $ ( 425,737 ) $ ( 197,417 ) F-20 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: Year Ended December 31, 2022 2021 2020 (In thousands) Tax at statutory rate $ 294,408 $ ( 48,368 ) $ ( 12,941 ) Tax effect of: Valuation allowance on deferred tax assets ( 47,077 ) 30,504 ( 919 ) State income taxes, net of federal benefit 14,680 28,117 3,746 Other ( 950 ) 1,150 904 Total $ 261,061 $ 11,403 $ ( 9,210 ) Year Ended December 31, 2022 2021 2020 Tax at statutory rate 21.0 % 21.0 % 21.0 % Tax effect of: Valuation allowance on deferred tax assets ( 3.4 ) ( 13.3 ) 1.5 State income taxes, net of federal benefit 1.1 ( 12.2 ) ( 6.1 ) Other ( 0.1 ) ( 0.5 ) ( 1.5 ) Effective tax rate 18.6 % ( 5.0 ) % 14.9 % At December 31, 2022, Comstock had the following carryforwards available to reduce future income taxes: Types of Carryforward Years of Expiration Carryforward Amount (In thousands) Net operating loss – U.S. federal 2023-2037 $ 899,953 Net operating loss – U.S. federal Unlimited $ 9,931 Net operating loss – state taxes Unlimited $ 1,486,685 Interest expense – U.S. federal Unlimited $ 481,449 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 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. 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. 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. The Company estimates that $ 766.2 million of the U.S. federal NOL carryforwards and $ 1.2 billion of the estimated state NOL carryforwards will expire unused. F-21 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 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 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. Generally, when the applicable settlement price is less than the price specified in the contract, Comstock receives a settlement from the counterparty based on the difference multiplied by the volume or amounts hedged. Similarly, when the applicable settlement price exceeds the price specified in the contract, Comstock pays the counterparty based on the difference. Comstock generally receives a settlement from the counterparty for floors when the applicable settlement price is less than the price specified in the contract, which is based on the difference multiplied by the volumes hedged. For collars, generally Comstock receives a settlement from the counterparty when the settlement price is below the floor and pays a settlement to the counterparty when the settlement price exceeds the cap. No settlement occurs when the settlement price falls between the floor and cap. All of the Company's derivative financial instruments are used for risk management purposes and, by policy, none are held for trading or speculative purposes. Comstock minimizes credit risk to counterparties of its derivative financial instruments through formal credit policies, monitoring procedures, and diversification. The Company is not required to provide any credit support to its counterparties other than cross collateralization with the assets securing its bank credit facility. None of the Company's derivative financial instruments involve payment or receipt of premiums. The Company classifies the fair value amounts of derivative financial instruments as net current or noncurrent assets or liabilities, whichever the case may be, by commodity contract. None of the Company's derivative contracts are designated as cash flow hedges. The Company recognizes cash settlements and changes in the fair value of its derivative financial instruments as a single component of other income (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 Natural Gas Collar Contracts: Volume (MMBtu) 174,925,000 Price per MMBtu: Average Ceiling $ 9.96 Average Floor $ 2.99 F-22 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. The classification of derivative financial instruments between assets and liabilities, consists of the following: As of December 31, Type Consolidated Balance Sheet Location 2022 2021 (in thousands) Asset Derivative Financial Instruments: Natural gas price derivatives Derivative Financial Instruments – current $ 23,884 $ 4,528 Oil price derivatives Derivative Financial Instruments – current — 730 $ 23,884 $ 5,258 Liability Derivative Financial Instruments: Natural gas price derivatives Derivative Financial Instruments – current $ 4,420 $ 181,215 Oil price derivatives Derivative Financial Instruments – current — 730 $ 4,420 $ 181,945 Natural gas price derivatives Derivative Financial Instruments – long-term $ — $ 4,042 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, Gain/(Loss) Recognized in Earnings on Derivatives 2022 2021 2020 (In thousands) Natural gas price derivatives $ ( 662,522 ) $ ( 555,636 ) $ 353 Oil price derivatives — ( 7,247 ) 12,059 Interest rate derivatives — 2,235 ( 2,461 ) $ ( 662,522 ) $ ( 560,648 ) $ 9,951 (12) Related Party Transactions 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 is the operator of the future drilling program on the jointly acquired acreage. F-23 COMSTOCK RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) Oil and Gas Reserves Information (Unaudited) Set forth below is a summary of the Company's proved oil and natural gas reserves: Year Ended December 31, 2022 2021 2020 Oil (MBbls) Natural Gas (MMcf) Oil (MBbls) Natural Gas (MMcf) Oil (MBbls) Natural Gas (MMcf) Proved Reserves: Beginning of period 627 6,118,083 11,000 5,562,876 16,747 5,341,497 Revisions of previous estimates ( 61 ) ( 6,870 ) 145 88,546 ( 4,241 ) 306,552 Extensions and discoveries 137 1,090,420 — 797,198 2 365,663 Acquisitions of minerals in place 6 260 — 202,588 — — Sales of minerals in place ( 78 ) ( 3,707 ) ( 9,308 ) ( 43,851 ) — — Production ( 82 ) ( 500,616 ) ( 1,210 ) ( 489,274 ) ( 1,508 ) ( 450,836 ) End of period 549 6,697,570 627 6,118,083 11,000 5,562,876 Proved Developed Reserves: Beginning of period 627 2,245,660 11,000 1,967,288 15,104 1,890,357 End of period 480 2,531,462 627 2,245,660 11,000 1,967,288 Proved Undeveloped Reserves: Beginning of period — 3,872,423 — 3,595,588 1,643 3,451,140 End of period 69 4,166,108 — 3,872,423 — 3,595,588 Revisions of previous estimates. 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 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: As of December 31, 2022 2021 2020 (In thousands) Cash Flows Relating to Proved Reserves: Future Cash Flows $ 40,405,829 $ 20,396,381 $ 9,871,616 Future Costs: Production ( 5,473,650 ) ( 3,954,726 ) ( 3,173,350 ) Development and Abandonment ( 4,175,721 ) ( 2,752,603 ) ( 2,592,520 ) Future Income Taxes ( 5,741,914 ) ( 2,065,316 ) ( 154,872 ) Future Net Cash Flows 25,014,544 11,623,736 3,950,874 10% Discount Factor ( 12,404,908 ) ( 5,848,131 ) ( 2,015,149 ) Standardized Measure of Discounted Future Net Cash Flows $ 12,609,636 $ 5,775,605 $ 1,935,725 F-24 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: Year Ended December 31, 2022 2021 2020 (In thousands) Standardized Measure, Beginning of Year $ 5,775,605 $ 1,935,725 $ 2,913,211 Net change in sales price, net of production costs 8,600,315 5,012,696 ( 1,858,026 ) Development costs incurred during the year which were previously estimated 788,450 502,674 302,135 Revisions of quantity estimates ( 42,423 ) 119,200 215,268 Accretion of discount 680,010 199,124 326,074 Changes in future development and abandonment costs ( 869,115 ) 1,505 313,191 Changes in timing and other ( 113,744 ) ( 224,617 ) ( 127,663 ) Extensions and discoveries 2,456,124 679,418 180,624 Acquisitions of minerals in place 604 150,065 — Sales of minerals in place ( 3,313 ) ( 64,032 ) — Sales, net of production costs ( 2,779,960 ) ( 1,567,182 ) ( 612,194 ) Net changes in income taxes ( 1,882,917 ) ( 968,971 ) 283,105 Standardized Measure, End of Year $ 12,609,636 $ 5,775,605 $ 1,935,725 The standardized measure of discounted future net cash flows was determined based on the simple average of the first of month market prices for oil and natural gas for each year. Prices used in determining quantities of oil and natural gas reserves and future cash inflows from oil and natural gas reserves represent prices received at the Company's sales point. These prices have been adjusted from posted or index prices for both location and quality differences. Prices used in determining oil and natural gas reserves quantities and cash flows are as follows: Year Ended December 31, 2022 2021 2020 Crude Oil: $/barrel $ 91.21 $ 62.38 $ 32.88 Natural Gas: $/Mcf $ 6.03 $ 3.33 $ 1.71 Proved reserve information utilized in the preparation of the financial statements were based on estimates prepared by the Company's petroleum engineering staff in accordance with guidelines established by the Securities and Exchange Commission and the Financial Accounting Standards Board, which require that reserve reports be prepared under existing economic and operating conditions with no provision for price and cost escalation except by contractual agreement. All of the Company's reserves are located onshore in the continental United States of America. The Company retained an independent petroleum consultant to conduct an audit of the Company's 2022 reserve estimates. The purpose of this audit was to provide additional assurance on the reasonableness of internally prepared reserve estimates. The engineering firm was selected for their geographic expertise and their historical experience. Future development and production costs are computed by estimating the expenditures to be incurred in developing and producing proved oil and gas reserves at the end of the year, based on year end costs and assuming continuation of existing economic conditions. Future income tax expenses are computed by applying the appropriate statutory tax rates to the future pre-tax net cash flows relating to proved reserves, net of the tax basis of the properties involved. The future income tax expenses give effect to permanent differences and tax credits, but do not reflect the impact of future operations. (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. F-25