What changed in this filing

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Item 1. Financial Statements

2023-05-04 compared with 2022-11-03 · 101 added, 227 removed, 372 unchanged (47% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30,

2023 December 31,

2 unchanged sentences

Accounts receivable:

Oil and gas sales

Oil and gas sales and gas services

177,751 415,079

11 unchanged sentences

324,773 298,230

30,801 26,475

Accumulated depreciation, depletion and amortization

14 unchanged sentences

Deferred income taxes 464,914 425,734

Derivative financial instruments — 4,042

Long-term operating leases 43,504 52,385

Reserve for future abandonment costs 29,553 29,114

Other non-current liabilities 8 24

Total liabilities

1 unchanged sentence

Commitments and contingencies

Mezzanine equity:

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

175,000 175,000

Stockholders' equity:

Common stock—$ 0.50 par, 400,000,000 shares authorized, 233,757,678 and 232,924,646 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Common stock—$ 0.50 par, 400,000,000 shares authorized, 277,510,165 and 277,517,087 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

138,755 138,759

1 unchanged sentence

1,255,467 1,253,417

Accumulated earnings (deficit) 403,932 ( 204,042 )

Accumulated earnings 985,953 886,138

Total stockholders' equity

6 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In thousands, except per share amounts)

1 unchanged sentence

$ 378,032 $ 522,957

1,936 22,873 6,324 61,571

Total oil and gas sales

Total natural gas and oil sales

379,974 524,841

12 unchanged sentences

General and administrative

10,165 8,052 27,451 23,952

Gain on sale of assets ( 773 ) ( 2 )

3 unchanged sentences

Other income (expenses):

Loss from derivative financial instruments ( 271,335 ) ( 510,319 ) ( 781,654 ) ( 756,026 )

Gain (loss) from derivative financial instruments 66,409 ( 437,493 )

Other income 460 4,166

1 unchanged sentence

( 38,270 ) ( 46,491 )

Loss on early retirement of debt

— — ( 46,840 ) ( 352,599 )

Total other expenses ( 312,672 ) ( 560,076 ) ( 960,192 ) ( 1,278,262 )

Total other income (expenses) 28,599 ( 479,818 )

Income (loss) before income taxes 174,219 ( 143,046 )

9 unchanged sentences

276,551 231,976

Dividends per share $ 0.125 $ —

The accompanying notes are an integral part of these statements.

9 unchanged sentences

( 5 ) ( 2 ) 1,479 — 1,477

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

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

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

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

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

Stock-based compensation

472 235 1,564 — 1,799

Income tax withholdings on equity awards ( 33 ) ( 16 ) ( 182 ) — ( 198 )

Stock issuance costs — — ( 126 ) — ( 126 )

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

Payment of preferred dividends — — — ( 4,363 ) ( 4,363 )

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

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

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

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

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

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

Balance at January 1, 2023 277,517 $ 138,759 $ 1,253,417 $ 886,138 $ 2,278,314

1 unchanged sentence

( 7 ) ( 4 ) 2,050 — 2,046

Income tax withholdings on equity awards

( 2 ) ( 1 ) ( 17 ) — ( 18 )

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

Payment of preferred dividends

— — — ( 4,315 ) ( 4,315 )

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

Stock-based compensation

304 151 1,429 — 1,580

Income tax withholdings on equity awards

( 65 ) ( 32 ) ( 1,314 ) — ( 1,346 )

Net income — — — 134,503 134,503

Payment of preferred dividends

Payment of common stock dividends

— — — ( 34,688 ) ( 34,688 )

Balance at June 30, 2022 233,159 $ 116,579 $ 1,101,953 $ 52,747 $ 1,271,279

Stock-based compensation 849 425 1,418 — 1,843

Income tax withholdings on equity awards ( 250 ) ( 125 ) ( 4,766 ) — ( 4,891 )

Net income — — — 355,596 355,596

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

Balance at September 30, 2022 233,758 $ 116,879 $ 1,098,605 $ 403,932 $ 1,619,416

Balance at March 31, 2023 277,510 $ 138,755 $ 1,255,467 $ 985,953 $ 2,380,175

The accompanying notes are an integral part of these statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

7 unchanged sentences

133,983 106,728

Loss on derivative financial instruments 781,654 756,026

(Gain) loss on derivative financial instruments ( 66,409 ) 437,493

Cash settlements of derivative financial instruments

2 unchanged sentences

Stock-based compensation

Loss on early retirement of debt

46,840 352,599

Increase in accounts receivable ( 359,600 ) ( 97,379 )

Decrease in accounts receivable 255,992 28,125

(Increase) decrease in other current assets ( 1,514 ) 2,985

Increase in accounts payable and accrued expenses 301,956 56,689

Decrease in accounts payable and accrued expenses ( 123,024 ) ( 42,033 )

Net cash provided by operating activities 386,364 285,618

2 unchanged sentences

( 370,953 ) ( 213,277 )

Prepaid drilling costs

( 1,684 ) ( 1,579 )

Proceeds from sales of assets

2 unchanged sentences

Borrowings on bank credit facility

705,000 275,000

Repayments of bank credit facility

— ( 180,000 )

Issuance of Senior Notes — 2,222,500

Retirement of Senior Notes

( 273,920 ) ( 2,210,626 )

Preferred stock dividends paid

( 13,089 ) ( 13,089 )

Common stock dividends paid ( 34,688 ) —

Debt and stock issuance costs

Income tax withholdings on equity awards

( 6,255 ) ( 1,412 )

Net cash used for financing activities ( 34,832 ) ( 89,333 )

Net increase (decrease) in cash and cash equivalents 7,985 ( 2,431 )

Net decrease in cash and cash equivalents ( 20,975 ) ( 18,526 )

Cash and cash equivalents, beginning of period

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

March 31, 2023

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –

2 unchanged sentences

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

In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of Comstock as of September 30, 2022, and the related results of operations and cash flows for the periods being presented.

In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of Comstock as of March 31, 2023, and the related results of operations and cash flows for the periods being presented.

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

3 unchanged sentences

These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in Comstock's Annual Report on Form 10-K for the year ended December 31, 2022.

The results of operations for the period through September 30, 2022 are not necessarily an indication of the results expected for the full year.

The results of operations for the period through March 31, 2023 are not necessarily an indication of the results expected for the full year.

Other Current Assets

Other current assets at September 30, 2022 and December 31, 2021 consisted of the following:

September 30,

Other current assets at March 31, 2023 and December 31, 2022 consisted of the following:

2023 December 31, 2022

(In thousands)

Pipe inventory $ 30,588 $ 5,015

Pipe and well equipment inventory $ 40,170 $ 34,819

Production tax refunds receivable 15,236 11,156

Prepaid expenses 2,543 2,455

Accrued treating and transportation fees 933 —

Prepaid drilling costs 598 4,265

Accrued proceeds from sale of oil and gas properties 975 3,118

$ 59,522 $ 56,324

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

March 31, Three Months Ended

(In thousands)

Beginning capitalized exploratory project costs $ 9,771 $ 6,966

Additions to exploratory project costs pending the determination of proved reserves 20,144 50,541

Determined to have found proved reserves — ( 27,592 )

Ending capitalized exploratory project costs $ 29,915 $ 29,915

As of September 30, 2022 and December 31, 2021, the Company had no exploratory wells for which costs have been capitalized for a period greater than one year.

Beginning capitalized exploratory well costs $ 867 $ 6,966

Additions to exploratory well costs pending the determination of proved reserves 29,690 11,557

Ending capitalized exploratory well costs $ 30,557 $ 18,523

As of March 31, 2023 and December 31, 2022, the Company had no exploratory wells for which costs have been capitalized for a period greater than one year.

The Company assesses the need for an impairment of the capitalized costs for its proved oil and gas properties on a property basis.

10 unchanged sentences

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

The Company had goodwill of $ 335.9 million as of September 30, 2022 that was recorded in 2018.

The Company had goodwill of $ 335.9 million as of March 31, 2023 that was recorded in 2018.

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

16 unchanged sentences

Accordingly, Comstock manages the terms of its contracts for drilling rigs and completion equipment 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 is currently utilizing 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.

2 unchanged sentences

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

Lease costs recognized during the three months and nine months ended September 30, 2022 and 2021 were as follows:

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

2022 2021 2022 2021

Lease costs recognized during the three months ended March 31, 2023 and 2022 were as follows:

Three Months Ended March 31,

(In thousands)

1 unchanged sentence

Operating lease cost included in lease operating expense 508 270

Operating lease cost included in proved oil and gas properties 9,450 — 15,750 —

Variable lease cost (completion costs included in proved oil and gas properties) 11,730 — 22,857 —

Short-term operating lease cost (drilling rig costs included in proved oil and gas properties) 16,102 8,239 44,242 27,482

Operating lease cost included in oil and natural gas properties 9,450 —

Variable lease cost (completion costs included in oil and natural gas properties) 1,761 —

Short-term lease cost (drilling rig costs included in oil and natural gas properties) 29,392 11,035

$ 41,556 $ 11,740

Cash payments for operating leases associated with right-of-use assets included in cash provided by operating activities were $ 0.8 million and $ 0.7 million for the three months ended September 30, 2022 and 2021, respectively, and $ 2.3 million and $ 1.9 million for the nine months ended September 30, 2022 and 2021, respectively.

Cash payments for operating leases associated with right-of-use assets included in cash used for investing activities were $ 37.3 million and $ 8.2 million for the three months ended September 30, 2022 and 2021, respectively, and $ 82.8 million and $ 27.5 million for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022 and December 31, 2021, the operating leases had a weighted-average term of 2.5 years and 2.7 years, respectively, and the weighted-average discount rate used to determine the present value of future operating lease payments was 3.5 % and 2.7 %, respectively.

As of September 30, 2022, the Company also had expected future payments for contracted drilling services of $ 16.0 million.

As of September 30, 2022, expected future payments related to contracts that contain operating leases were as follows:

Cash payments for operating leases associated with right-of-use assets included in cash provided by operating activities were $ 1.0 million and $ 0.7 million for the three months ended March 31, 2023 and 2022, respectively.

Cash payments for operating leases associated with right-of-use assets included in cash used for investing activities were $ 40.6 million and $ 11.0 million for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023 and December 31, 2022, the operating leases had a weighted-average term of 2.0 years and 2.2 years, respectively, and the weighted-average discount rate used to determine the present value of future operating lease payments was 3.6 % and 3.5 %, respectively.

As of March 31, 2023, the Company also had expected future payments for contracted drilling services of $ 148.7 million.

As of March 31, 2023, expected future payments related to contracts that contain operating leases were as follows:

(In thousands)

October 1 to December 31, 2022 $ 10,279

Thereafter 17

April 1 to December 31, 2023 $ 30,753

Total lease payments

2 unchanged sentences

Accrued Costs

Accrued costs at September 30, 2022 and December 31, 2021 consisted of the following:

September 30,

Accrued costs at March 31, 2023 and December 31, 2022 consisted of the following:

2023 December 31, 2022

(In thousands)

Accrued income and other taxes $ 56,388 $ 15,655

Accrued drilling costs $ 53,429 $ 54,438

Accrued income and other taxes 36,776 31,256

Accrued transportation costs 28,135 28,357

7 unchanged sentences

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

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

1 unchanged sentence

New wells placed on production

Acquisitions 1,211 —

Liabilities settled and assets disposed of

Accretion expense

7 unchanged sentences

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

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

The Company had the following oil and natural gas price derivative financial instruments at September 30, 2022:

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

The Company had the following oil and natural gas price derivative financial instruments at March 31, 2023:

Future Production Period

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

Natural Gas Swap Contracts:

Volume (MMBtu) 29,440,000 — 29,440,000

Average Price per MMBtu $ 2.68 $ 2.68

Nine Months Ending December 31, 2023

Natural Gas Collar Contracts:

3 unchanged sentences

Average Floor $ 3.00

Natural Gas Basis Swap Contracts:

Volume (MMBtu) 2,760,000 (1) — 2,760,000 (1)

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

_____________________________

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

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

Type Consolidated Balance Sheet Location September 30,

Type Consolidated Balance Sheet Location March 31,

2023 December 31, 2022

2 unchanged sentences

Natural gas price derivatives Derivative Financial Instruments – current $ 75,490 $ 23,884

Oil price derivatives Derivative Financial Instruments – current — 730

$ 75,490 $ 23,884

1 unchanged sentence

Natural gas price derivatives Derivative Financial Instruments – current $ — $ 4,420

Oil price derivatives Derivative Financial Instruments – current — 730

$ 285,713 $ 181,945

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

The Company recognized 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:

Loss on Derivatives

Gain (Loss) on Derivatives

Recognized in Earnings Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In thousands)

Natural gas price derivatives $ 66,409 $ ( 437,493 )

Oil price derivatives — ( 287 ) — ( 7,820 )

Interest rate derivatives — ( 255 ) — 293

$ 66,409 $ ( 437,493 )

2 unchanged sentences

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

The Company recognized $ 1.8 million of stock-based compensation expense within general and administrative expenses related to awards of restricted stock and PSUs to its employees and directors during the three months ended September 30, 2022 and 2021, and $ 4.9 million and $ 5.3 million for the nine months ended September 30, 2022 and 2021, respectively.

During the nine months ended September 30, 2022, the Company granted an aggregate of 618,382 shares of restricted stock to its directors and employees.

The weighted average grant date value of the 2022 awards were $ 17.74 per share.

As of September 30, 2022, Comstock had 956,649 shares of unvested restricted stock outstanding at a weighted average grant date fair value of $ 13.33 per share.

Total unrecognized compensation cost related to unvested restricted stock grants of $ 11.6 million as of September 30, 2022 is expected to be recognized over a period of 2.5 years.

During the nine months ended September 30, 2022, the Company granted an aggregate of 223,004 PSUs to its executive officers with a weighted average grant date value of $ 26.07 per unit.

As of September 30, 2022, Comstock had 628,845 PSUs outstanding with a weighted average grant date fair value of $ 14.52 per unit.

The Company recognized $ 2.0 million and $ 1.5 million of stock-based compensation expense within general and administrative expenses related to awards of restricted stock and PSUs to its employees and directors during the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, Comstock had 959,136 shares of unvested restricted stock outstanding at a weighted average grant date fair value of $ 13.30 per share.

Total unrecognized compensation cost related to unvested restricted stock grants of $ 8.8 million as of March 31, 2023 is expected to be recognized over a period of 2.1 years.

As of March 31, 2023, Comstock had 552,126 PSUs outstanding with a weighted average grant date fair value of $ 14.76 per unit.

The number of shares of common stock to be issued related to the PSUs is based on the Company's stock price performance as compared to its peers which could result in the issuance of anywhere from zero to 1,104,252 shares of common stock.

Total unrecognized compensation cost related to these grants of $ 6.6 million as of September 30, 2022 is expected to be recognized over a period of 2.4 years.

Total unrecognized compensation cost related to these grants of $ 4.7 million as of March 31, 2023 is expected to be recognized over a period of 2.0 years.

Revenue Recognition

Comstock produces oil and natural gas and reports revenues separately for each of these two primary products in its statements of operations.

Comstock produces natural gas and oil and reports revenues separately for each of these two primary products in its statements of operations.

Revenues are recognized upon the transfer of produced volumes to the Company's customers, who take control of the volumes and receive all the benefits of ownership upon delivery at designated sales points.

Payment is reasonably assured upon delivery of production.

All sales are subject to contracts that have commercial substance, contain specific pricing terms, and define the enforceable rights and obligations of both parties.

Gas services revenues represent sales of natural gas purchased for resale and fees received for gathering and treating services provided to unaffiliated third parties and certain natural gas wells operated by the Company.

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.

Profits and losses earned in the gathering and treating of natural gas produced by the Company's natural gas wells are eliminated in consolidation.

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 natural gas and oil 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 sales of natural gas and oil 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 natural gas and oil 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.

1 unchanged sentence

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 the month when payment is received.

Historically, differences between estimated revenues and actual revenue received have not been significant.

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

The Company did not have any significant imbalance positions at September 30, 2022.

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

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

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

The Company recognizes gas services revenues at the time the performance obligations have been fulfilled.

The Company recognized accounts receivable for oil and gas sales of $ 549.0 million as of September 30, 2022 from purchasers for contracts where performance obligations have been satisfied and an unconditional right to consideration exists.

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 March 31, 2023 or December 31, 2022.

The Company recognized accounts receivable of $ 177.8 million and $ 415.1 million as of March 31, 2023 and December 31, 2022, respectively, from purchasers for contracts where performance obligations have been satisfied and an unconditional right to consideration exists.

Credit Losses

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.

Substantially all of the Company's accounts receivable are due from either purchasers of natural gas and oil or participants in natural gas and oil wells for which the Company serves as the operator.

Generally, operators of natural gas and oil wells have the right to offset future revenues against unpaid charges related to operated wells.

Natural gas and oil sales are generally unsecured.

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

The Company has not had any significant credit losses in the past and believes its accounts receivable are fully collectible.

Accordingly, no allowance for doubtful accounts has been recorded for the nine months ended September 30, 2022 and 2021.

Accordingly, no allowance for doubtful accounts has been recorded for the three months ended March 31, 2023 and 2022.

Deferred income taxes are provided to reflect the future tax consequences or benefits of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements using enacted tax rates.

7 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In thousands)

6 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Tax at statutory rate 21.0 % 21.0 %

2 unchanged sentences

State income taxes, net of federal benefit

5.8 ( 14.0 ) 5.6 ( 4.7 )

Nondeductible stock-based compensation

( 0.2 ) ( 0.9 ) ( 0.1 ) ( 0.3 )

Change in state tax law — 43.1 — 8.3

( 0.1 ) — — —

Effective tax rate 22.9 % 22.1 %

1 unchanged sentence

The Company's income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to December 31, 2019.

The Company currently believes that all other significant filing positions are highly certain and that all of its other significant income tax positions and deductions would be sustained under audit or the final resolution would not have a material effect on the consolidated financial statements.

The Company is currently under examination with the state of Louisiana and believes that its significant filing positions are highly certain and that all of its other significant income tax filing positions and deductions would be sustained under 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.

9 unchanged sentences

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

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

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

Nine Months Ended

September 30, 2021

(In thousands)

Balance at beginning of year $ ( 22,588 )

Total loss included in earnings ( 113,018 )

Settlements, net 21,881

Transfers out of Level 3 ( 6,418 )

Balance at end of period $ ( 120,143 )

Fair Values – Reported

The following presents the carrying amounts and the fair values of the Company's financial instruments as of September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

The following presents the carrying amounts and the fair values of the Company's financial instruments as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

Carrying Value Fair Value Carrying Value Fair Value

4 unchanged sentences

$ — $ — $ 4,420 $ 4,420

Bank credit facility (2)

$ 100,000 $ 100,000 $ 235,000 $ 235,000

6.75 % senior notes due 2029 (2)

2 unchanged sentences

$ 965,000 $ 822,663 $ 965,000 $ 846,788

5.875 % senior notes due 2030 (3)

_____________________________

(1) The Company's commodity-based derivatives are classified as Level 2 and measured at fair value using third party pricing services and other active markets or broker quotes that are readily available in the public markets.

(2) The carrying value of our floating rate debt outstanding approximates fair value.

(3) The fair value of the Company's fixed rate debt was based on quoted prices as of September 30, 2022 and December 31, 2021, respectively, a Level 1 measurement.

(2) The fair value of the Company's fixed rate debt was based on quoted prices as of March 31, 2023 and December 31, 2022, respectively, a Level 1 measurement.

Earnings Per Share

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

At September 30, 2022 and December 31, 2021, 956,649 and 952,971 shares of restricted stock, respectively, are included in common stock outstanding as such shares have a non-forfeitable right to participate in any dividends that might be declared and have the right to vote on matters submitted to the Company's stockholders.

At March 31, 2023 and December 31, 2022, 959,136 and 966,058 shares of restricted stock, respectively, are included in common stock outstanding as such shares have a non-forfeitable right to participate in any dividends that might be declared and have the right to vote on matters submitted to the Company's stockholders.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In thousands)

1 unchanged sentence

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 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.

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In thousands, except per unit amounts)

1 unchanged sentence

Weighted average grant date fair value per unit $ 14.76 $ 8.11

Basic and diluted income (loss) per share for the three months and nine months ended September 30, 2022 and 2021 were determined as follows:

Three Months Ended September 30,

Income Shares Per Share Loss Shares Per Share

(In thousands, except per share amounts)

Net income (loss) attributable to common stock $ 351,185 $ ( 292,717 )

Income allocable to unvested restricted shares ( 1,339 ) —

Basic income (loss) attributable to common stock 349,846 232,482 $ 1.50 ( 292,717 ) 231,747 $ ( 1.26 )

Effect of Dilutive Securities:

Restricted stock 1,339 392 — —

Performance stock units — 1,091 — —

Convertible preferred stock 4,411 43,750 — —

Diluted income (loss) attributable to common stock $ 355,596 277,715 $ 1.28 $ ( 292,717 ) 231,747 $ ( 1.26 )

Nine Months Ended September 30,

Basic and diluted income (loss) per share for the three months ended March 31, 2023 and 2022 were determined as follows:

Three Months Ended March 31,

Income Shares Per Share Loss Shares Per Share

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Basic income (loss) attributable to common stock 134,158 276,551 $ 0.49 ( 115,739 ) 231,976 $ ( 0.50 )

Effect of Dilutive Securities:

Restricted stock 2,384 541 — —

Performance stock units — 1,144 — —

Convertible preferred Stock 13,089 43,750 — —

Diluted income (loss) attributable to common stock $ 134,158 276,551 $ 0.49 $ ( 115,739 ) 231,976 $ ( 0.50 )

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

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

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.

Supplementary Information with Respect to the Consolidated Statements of Cash Flows

Cash payments made for interest and income taxes and other non-cash investing activities for the nine months ended September 30, 2022 and 2021, respectively, were as follows:

Nine Months Ended

September 30,

Cash payments made for interest and income taxes and other non-cash investing activities for the three months ended March 31, 2023 and 2022, respectively, were as follows:

Three Months Ended

(In thousands)

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(2) LONG-TERM DEBT

At September 30, 2022, long-term debt was comprised of the following:

At March 31, 2023, long-term debt was comprised of the following:

(In thousands)

6 unchanged sentences

Debt issuance costs, net of amortization ( 40,215 )

As of September 30, 2022, the Company had $ 100.0 million outstanding under a bank credit facility with a $ 1.4 billion committed borrowing base which is re-determined on a semi-annual basis and upon the occurrence of certain other events and matures on July 16, 2024.

The borrowing base was last redetermined on April 15, 2022.

Borrowings under the bank credit facility are secured by substantially all of the assets of the Company and its subsidiaries and bear interest at the Company's option, at either LIBOR plus 2.25 % to 3.25 % or a base rate plus 1.25 % to 2.25 %, in each case depending on the utilization of the borrowing base.

As of March 31, 2023, the Company had no borrowings outstanding under the bank credit facility.

Aggregate commitments under the bank credit facility are $ 1.5 billion, which matures on November 15, 2027.

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

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

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

The Company also pays a commitment fee of 0.375 % to 0.5 % on the unused portion of the borrowing base.

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.

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 September 30, 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.

During the nine months ended September 30, 2021, the Company repurchased $ 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 nine months ended September 30, 2021.

The Company was in compliance with the covenants as of March 31, 2023.

(3) CONVERTIBLE PREFERRED STOCK

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

The holder of the Series B Convertible Preferred Stock is entitled to receive quarterly dividends at a rate of 10 % per annum, which are paid in arrears.

The holder of the Series B Convertible Preferred Stock may convert any or all shares of such preferred stock into shares of the Company's common stock at $ 4.00 per share, subject to adjustment pursuant to customary anti-dilution provisions.

The Company has the right to redeem the Series B Convertible Preferred Stock at any time at face value plus accrued dividends.

The Series B Convertible Preferred Stock is classified as mezzanine equity based on the majority stockholder's ability to control the terms of conversion to common stock.

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

(4) COMMITMENTS AND CONTINGENCIES

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The term of the agreement is three years and the minimum commitment under this agreement is $ 19.2 million per year.

The Company expects to take delivery of the fleet in 2023.

The Company expects to take delivery of the fleet in the second quarter of 2023.

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.

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

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

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

The Company does not believe the resolution of these matters will have a material effect on the Company's financial position, results of operations or cash flows and no material amounts are accrued relative to these matters at September 30, 2022 or 2021.

(5) RELATED PARTY TRANSACTIONS

2 unchanged sentences

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 $ 152 thousand and $ 353 thousand for the three months ended September 30, 2022 and 2021, respectively, and $ 0.7 million and $ 1.2 million for the nine months ended September 30, 2022 and 2021, respectively, for drilling, operating and marketing services provided to the partnerships.

The Company received $ 224 thousand and $ 194 thousand for the three months ended March 31, 2023 and 2022, respectively, for drilling, operating and marketing services provided to the partnerships.

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 $ 20.8 million receivable from the partnerships at September 30, 2022 and December 31, 2021, respectively.

In connection with the operation of the wells, the Company had a $ 10.6 million and $ 18.5 million receivable from the partnerships at March 31, 2023 and December 31, 2022, respectively.

(6) SUBSEQUENT EVENT

On October 31, 2022, the board of directors of the Company authorized a dividend of $ 0.125 per share to be paid to common stockholders of record on December 1, 2022.

On May 1, 2023, the board of directors of the Company authorized a dividend of $ 0.125 per share to be paid to common stockholders of record on June 1, 2023.

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

What changed 10-Q

Item 1. Financial Statements