What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-04 · 81 added, 39 removed, 107 unchanged (53% of the section changed)

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net Production Data:

7 unchanged sentences

$ 228,892 $ 858,838 $ 606,924 $ 1,381,795

860 2,504 2,802 4,388

Total natural gas and oil sales $ 229,752 $ 861,342 $ 609,726 $ 1,386,183

16 unchanged sentences

Lease operating $ 0.27 $ 0.20 $ 0.27 $ 0.21

Gas Services:

Gas services revenue $ 58,459 $ 84,912 $ 168,063 $ 129,485

Gas services expense $ 55,390 $ 82,778 $ 156,685 $ 123,453

Natural gas and oil sales of $380.0 million for the first quarter of 2023 decreased by $144.9 million (28%) as compared to $524.8 million for the first quarter of 2022.

The decrease was primarily due to lower natural gas prices.

Our natural gas production for the first quarter of 2023 increased 11% to 127.1 billion cubic feet ("Bcf") (1.4 Bcf per day), and was sold at an average price of $2.98 per Mcf.

Our natural gas production for the first quarter of 2022 was 114.9 Bcf (1.3 Bcf per day) and was sold at an average price of $4.55 per Mcf.

Natural gas and oil sales of $229.8 million for the second quarter of 2023 decreased by $631.6 million (73%) as compared to $861.3 million for the second quarter of 2022.

The decrease was primarily due to lower natural gas prices in the second quarter of 2023 as compared with 2022 prices.

Our natural gas production for the second quarter of 2023 increased 2% to 126.3 billion cubic feet ("Bcf") (1.4 Bcf per day), and was sold at an average price of $1.81 per Mcf.

Our natural gas production for the second quarter of 2022 was 124.0 Bcf (1.4 Bcf per day) and was sold at an average price of $6.93 per Mcf.

Natural gas and oil sales of $609.7 million for the six months ended June 30, 2023 decreased by $776.5 million (56%) as compared to $1,386.2 million for the six months ended June 30, 2022, which was also primarily due to lower natural gas prices during the first first six months of 2023 as compared with 2022 prices.

Our natural gas production for the first six months of 2023 increased 6% to 253.4 Bcf (1.4 Bcf per day), and was sold at an average price of $2.40 per Mcf as compared to 238.9 Bcf (1.3 Bcf per day) sold at an average price of $5.79 in the first six months of 2022.

COMSTOCK RESOURCES, INC.

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

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Average Realized Natural Gas Price:

2 unchanged sentences

Price per Mcf, including cash settlements on derivative financial instruments $ 2.25 $ 4.85 $ 2.66 $ 4.22

Gas service revenues of $109.6 million for the three months ended March 31, 2023 included sales of natural gas purchased from unaffiliated third parties for resale and fees received from unaffiliated third parties for natural gas transportation and treating services.

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

Gas service revenues of $58.5 million decreased $26.5 million (31%) for the second quarter of 2023 from $84.9 million in the second quarter of 2022.

Gas service revenues of $168.1 million increased $38.6 million (30%) for the first six months of 2023 from $129.5 million for the first six months of 2022.

The decrease is due primarily to lower natural gas prices realized on sales of purchased natural gas in 2023.

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

Costs and Expenses –

Our production and ad valorem taxes increased $1.1 million (8%) to $14.9 million for the first quarter of 2023 from $13.8 million in the first quarter of 2022.

The increase was primarily related to higher production tax rates enacted in Louisiana during the second half of 2022 and the 11% increase in production in the first quarter of 2023.

Gathering and transportation costs for the first quarter of 2023 increased $13.5 million (42%) to $45.6 million as compared to $32.1 million in the first quarter of 2022.

Our production and ad valorem taxes decreased $2.1 million (10%) to $19.6 million for the second quarter of 2023 from $21.7 million in the second quarter of 2022.

Production and ad valorem taxes decreased $1.0 million (3%) to $34.5 million for the first six months of 2023 from $35.5 million in the first six months of 2022.

The decrease was primarily related to lower natural gas and oil sales during 2023.

Gathering and transportation costs for the second quarter of 2023 increased $8.4 million (23%) to $45.4 million as compared to $37.0 million in the second quarter of 2022.

Gathering and transportation costs for the first six months of 2023 increased $21.9 million (32%) to $91.0 million as compared to $69.1 million for the first six months of 2022.

The increase is due to production growth in areas with higher average gathering and transportation rates.

Our lease operating expense of $34.8 million ($0.27 per Mcfe) for the first quarter of 2023 increased $8.6 million (33%) from lease operating expense of $26.2 million ($0.23 per Mcfe) for the first quarter of 2022.

The increase was due primarily to increased personnel and other production costs.

Gas service expenses were $101.3 million for the three months ended March 31, 2023, which include the cost of unaffiliated third party natural gas purchased for resale and the operating expenses of the pipeline and natural gas treating plant acquired in April 2022.

Depreciation, depletion and amortization ("DD&A") increased $27.3 million to $134.0 million in the first quarter of 2023 from $106.7 million in the first quarter of 2022.

Our DD&A per equivalent Mcf produced was $1.05 per Mcfe for the quarter ended March 31, 2023 as compared to $0.93 for the quarter ended March 31, 2022.

The increase in the DD&A rate was primarily due to higher drilling and completion costs incurred for wells turned to sales in the first quarter of 2023.

General and administrative expenses, which are reported net of overhead reimbursements, increased to $12.4 million for the first quarter of 2023 as compared to $8.2 million in the first quarter of 2022.

Our lease operating expense of $34.0 million ($0.27 per Mcfe) for the second quarter of 2023 increased $9.0 million (36%) from lease operating expense of $25.1 million ($0.20 per Mcfe) for the second quarter of 2022.

Lease operating expense of $68.9 million ($0.27 per Mcfe) for the first six months of 2023 increased $17.6 million (34%) from lease operating expense of $51.3 million ($0.21 per Mcfe) for the first six months of 2022.

The increase was due primarily to increased water disposal and other production costs.

Gas service expenses of $55.4 million decreased $27.4 million (33%) for the second quarter of 2023 from $82.8 million in the second quarter of 2022.

The decrease is due primarily to lower natural gas prices realized on purchases of third party natural gas for resale in the second quarter of 2023.

Gas service expenses of $156.7 million increased $33.2 million (27%) for the first six months of 2023 from $123.5 million for the first six months of 2022.

Depreciation, depletion and amortization ("DD&A") increased $21.0 million to $140.2 million in the second quarter of 2023 from $119.2 million in the second quarter of 2022.

Our DD&A per equivalent Mcf produced was $1.11 per Mcfe for the quarter ended June 30, 2023 as compared to $0.96 for the quarter ended June 30, 2022.

DD&A increased $48.2 million to $274.2 million for the first six months of 2023 from $225.9 million during the first six months of 2022.

Our DD&A per equivalent Mcf produced was $1.08 per Mcfe for the six months ended June 30, 2023 as compared to $0.94 for the six months ended June 30, 2022.

The increase in the DD&A rate was primarily due to higher drilling and completion costs incurred for wells turned to sales in the three months and six months ended June 30, 2023 and lower natural gas and oil reserves due to lower natural gas pricing utilized in reserve estimates.

General and administrative expenses, which are reported net of overhead reimbursements, increased to $10.0 million for the second quarter of 2023 as compared to $9.1 million in the second quarter of 2022.

General and administrative expenses increased to $22.4 million for the first six months of 2023 as compared to $17.3 million during the first six months of 2022.

The increases were primarily related to higher personnel costs.

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

During the quarter ended March 31, 2023, we had net gains related to our derivative financial instruments of $66.4 million, as compared to net losses on derivative financial instruments of $437.5 million during the quarter ended March 31, 2022.

Realized net gains from our oil and natural gas price risk management program were $10.4 million for the quarter ended March 31, 2023 as compared to realized net losses of $117.2 million for the quarter ended March 31, 2022.

Interest expense was $38.3 million and $46.5 million for the quarters ended March 31, 2023 and 2022, respectively.

The decrease in interest expense is due primarily to the early retirements of senior notes in May and June 2022 and the repayment of outstanding borrowings under the bank credit facility in 2022.

Income taxes for the quarter ended March 31, 2023 and 2022 were a provision of $39.7 million and a benefit of $31.6 million, respectively.

Income tax expense for the three months ended March 31, 2023 reflects an effective tax rate of 22.9% and the income tax benefit for the three months ended March 31, 2022 reflects an effective tax rate of 22.1%.

During the quarter ended June 30, 2023, we had net losses related to our derivative financial instruments of $4.5 million, as compared to net losses on derivative financial instruments of $72.8 million during the quarter ended June 30, 2022.

Realized net gains from our price risk management program were $55.5 million for the quarter ended June 30, 2023 as compared to realized net losses of $257.4 million for the quarter ended June 30, 2022.

Net gains on derivative financial

COMSTOCK RESOURCES, INC.

instruments were $61.9 million for the first six months of 2023 as compared to net losses of $510.3 million for the first six months of 2022.

Realized net gains from our price risk management program were $65.9 million for the first six months of 2023 as compared to realized net losses of $374.5 million for the first six months of 2022.

Interest expense was $39.2 million and $44.3 million for the quarters ended June 30, 2023 and 2022, respectively, and $77.5 million and $90.8 million for the six months ended June 30, 2023 and 2022, respectively.

The decreases in interest expense are due primarily to the early retirements of senior notes in May and June 2022 and the repayment of outstanding borrowings under the bank credit facility in 2022.

Loss on extinguishment of debt was $46.8 million for the quarter and six months ended June 30, 2022.

In May and June 2022, we retired $244.4 million and $26.1 million, respectively, principal amount of our 7.5% senior notes due in 2025 and 6.75% senior notes due in 2029.

Income taxes for the quarter ended June 30, 2023 and 2022 were a benefit of $14.4 million and a provision of $108.4 million, respectively.

Income taxes for the six months ended June 30, 2023 and 2022 were a provision of $25.3 million and $76.8 million, respectively.

Income tax benefit/expense for the quarters ended June 30, 2023 and 2022 reflect an effective tax rate of 24.0% and 22.3%, respectively.

Income tax expense for the six months ended June 30, 2023 and 2022 reflect an effective tax rate of 22.2% and 22.4%, respectively.

The difference between the federal statutory tax rate of 21% and our effective rate is primarily attributable to the impact of state income taxes and revisions to the estimated future utilization of federal and state net operating loss carryforwards.

We reported net income available to common stockholders of $134.5 million or $0.49 per diluted share, for the quarter ended March 31, 2023 which included a $66.4 million net gain from derivative financial instruments.

Income from operations for the first quarter of 2023 was $145.6 million.

We reported net loss available to common stockholders of $115.7 million or $0.50 per share for the quarter ended March 31, 2022.

We reported net loss available to common stockholders of $45.7 million or $0.17 per share, for the quarter ended June 30, 2023.

Loss from operations for the second quarter of 2023 was $17.1 million.

We reported net income available to common stockholders of $372.5 million or $1.36 per diluted share for the quarter ended June 30, 2022.

In the first six months of 2023, we reported net income available to common stockholders of $88.8 million or $0.32 per diluted share.

Income from operations for the first six months of 2023 was $128.6 million.

We reported net income available to common stockholders of $256.8 million or $0.96 per diluted share for the six months ended June 30, 2022.

Cash Flows, Liquidity and Capital Resources

The following table summarizes sources and uses of cash and cash equivalents:

Three Months Ended

Six Months Ended

(In thousands)

1 unchanged sentence

Operating activities $ 717,874 $ 696,534

Borrowings on bank credit facility, net of repayments 20,000 115,000

Proceeds from asset sales 41,295 93

2 unchanged sentences

Capital expenditures $ 752,482 $ 526,055

Repayments of bank credit facility, net of borrowings — 85,000

Retirement of senior notes — 273,920

Common stock dividends 69,377 —

Preferred stock dividends — 8,678

Other 2,043 1,365

Total $ 823,902 $ 810,018

Cash flows from operating activities.

Net cash provided by our operating activities increased $100.7 million (35%) to $386.4 million in the first three months of 2023 from $285.6 million in the same period in 2022.

Net cash provided by our operating activities increased $21.3 million (3%) to $717.9 million in the first six months of 2023 from $696.5 million in the same period in 2022.

Proceeds from asset sales.

In the second quarter of 2023, we sold our interest in certain non-operated properties for net proceeds of $41.3 million.

COMSTOCK RESOURCES, INC.

Retirement of senior notes.

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

During June 2022, we retired $26.1 million principal amount of our 6.75% senior notes for $24.9 million.

Common stock dividends.

During the first six months of 2023, we paid quarterly cash dividends of $0.125 per common share to stockholders of record as of March 1, 2023 and June 1, 2023, respectively.

Capital expenditures.

The increase in capital expenditures of $157.8 million is primarily due to our higher drilling and completion activity in the first quarter of 2023 and $40.7 million of unproved property acquisitions.

The increase in capital expenditures of $226.4 million is primarily due to our higher drilling and completion activity in the first six months of 2023 and $56.6 million of unproved property acquisitions.

Our capital expenditures are summarized in the following table:

Three Months Ended

Six Months Ended

(In thousands)

5 unchanged sentences

Exploratory drilling and completion costs 104,312 30,397

Drilling and completion costs 280,176 189,048

Development drilling and completion costs 511,214 414,419

Other development costs

17,450 36,937

Asset retirement obligations 24 816

7 unchanged sentences

Total cash capital expenditures $ 752,482 $ 526,055

We drilled 44 (16.3 net) wells and completed 29 (12.8 net) Haynesville and Bossier shale wells during the first three months of 2023.

We currently expect to spend an additional $750 million to $850 million in the remaining nine months of 2023 on drilling, completion, infrastructure and other activity.

We drilled 39 (30.9 net) wells and completed 36 (24.9 net) Haynesville and Bossier shale operated wells during the first six months of 2023.

We currently expect to spend an additional $400 million to $600 million in the remaining six months of 2023 on drilling, completion, infrastructure and other activity.

Liquidity and Capital Resources

As of March 31, 2023, we had $1.5 billion of liquidity, comprised of unused borrowing capacity under our bank credit facility and $33.7 million of cash and cash equivalents on hand.

As of June 30, 2023, we had $1.5 billion of liquidity, comprised of $1.48 billion of unused borrowing capacity under our bank credit facility and $9.9 million of cash and cash equivalents on hand.

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

6 unchanged sentences

We intend to use our cash flows from operations, borrowings under our bank credit facility, or other debt or equity financings to the extent available, to finance such acquisitions.

The availability and attractiveness of these sources of financing will depend upon a number of factors, some of which will relate to our financial condition and performance and some of which will be beyond our control, such as prevailing interest rates, natural gas and oil prices and other market conditions.

The availability and attractiveness of these sources of

COMSTOCK RESOURCES, INC.

financing will depend upon a number of factors, some of which will relate to our financial condition and performance and some of which will be beyond our control, such as prevailing interest rates, natural gas and oil prices and other market conditions.

Lack of access to the debt or equity markets due to general economic conditions could impede our ability to complete acquisitions.

At March 31, 2023, we had no borrowings outstanding under our bank credit facility.

At June 30, 2023, we had $20.0 million of borrowings outstanding under our bank credit facility.

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

5 unchanged sentences

The only financial covenants are the maintenance of a leverage ratio of less than 3.5 to 1.0 and an adjusted current ratio of at least 1.0 to 1.0.

We were in compliance with the covenants as of March 31, 2023.

At March 31, 2023, we had $767.5 million in U.S.

We were in compliance with the covenants as of June 30, 2023.

At June 30, 2023, we had $767.5 million in U.S.

federal net operating loss ("NOL") carryforwards and $1.5 billion in certain state NOL carryforwards.

11 unchanged sentences

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 2. Management’s Discussion and Analysis