What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-03 · 76 added, 84 removed, 104 unchanged (61% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward-looking statements that involve risks and uncertainties that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

This report contains forward-looking statements that involve risks, uncertainties and assumptions that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 including those described under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2022 (the "Annual Report").

Actual results may differ materially from those anticipated in our forward-looking statements due to many factors.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this report and in our annual report filed on Form 10-K for the year ended December 31, 2022.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this report and in our Annual Report.

Results of Operations

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net Production Data:

September 30,

Nine Months Ended

September 30,

(In thousands except per unit amounts)

Net Production Data:

Natural gas (MMcf)

126,307 123,950 253,374 238,856

Oil (MBbls) 13 24 40 45

Natural gas equivalent (MMcfe)

126,386 124,092 253,612 239,127

Natural gas sales

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

860 2,504 2,802 4,388

Total natural gas and oil sales

1 unchanged sentence

Gathering and transportation

$ 45,395 $ 36,964 $ 90,969 $ 69,057

Lease operating

$ — $ 2,342 $ 1,775 $ 3,363

Average Sales Price:

Natural gas (per Mcf)

$ 1.81 $ 6.93 $ 2.40 $ 5.79

Oil (per Bbl)

$ 66.15 $ 104.33 $ 70.05 $ 97.51

Average equivalent (Mcfe)

$ 1.82 $ 6.94 $ 2.40 $ 5.80

Expenses ($ per Mcfe):

1 unchanged sentence

Gathering and transportation

$ 0.36 $ 0.30 $ 0.36 $ 0.29

Lease operating

2 unchanged sentences

Gas services expense

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.

Revenues –

Natural gas and oil sales of $305.5 million for the third quarter of 2023 decreased by $691.5 million (69%) as compared to $996.9 million for the third quarter of 2022.

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

Our natural gas production for the third quarter of 2023 increased 1% to 130.5 billion cubic feet ("Bcf") (1.4 Bcf per day), and was sold at an average price of $2.33 per thousand cubic feet ("Mcf").

Our natural gas production for the third quarter of 2022 was 128.9 Bcf (1.4 Bcf per day) and was sold at an average price of $7.72 per Mcf.

Natural gas and oil sales of $915.2 million for the nine months ended September 30, 2023 decreased by $1.5 billion (62%) as compared to $2.4 billion for the nine months ended September 30, 2022, which was also primarily due to lower natural gas prices during the first nine months of 2023 as compared with 2022 prices.

Our natural gas production for the first nine months of 2023 increased 4% to 383.9 Bcf (1.4 Bcf per day), and was sold at an average price of $2.37 per Mcf as compared to 367.8 Bcf (1.3 Bcf per day) sold at an average price of $6.46 in the first nine months of 2022.

COMSTOCK RESOURCES, INC.

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

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

2023 2022 2023 2022

Three Months Ended September 30,

Nine Months Ended September 30,

Average Realized Natural Gas Price:

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Price per Mcf, including cash settlements on derivative financial instruments

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 revenues of $71.3 million decreased $121.8 million (63%) for the third quarter of 2023 from $193.1 million in the third quarter of 2022.

Gas service revenues of $239.4 million decreased $83.2 million (26%) for the first nine months of 2023 from $322.6 million for the first nine months of 2022.

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 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.

Gas services revenues decreased for the three and nine months ended September 30, 2023 as compared to 2022 due to lower natural gas prices on sales of natural gas purchased to utilize our excess transport capacity.

Costs and Expenses –

Our production and ad valorem taxes increased $0.9 million (3%) to $25.4 million for the third quarter of 2023 from $24.5 million in the third quarter of 2022.

The increase was primarily related to increases in Louisiana production tax and ad valorem tax rates, partially offset by lower natural gas and oil sales during 2023.

Production and ad valorem taxes decreased $0.2 million to $59.9 million for the first nine months of 2023 from $60.1 million in the first nine 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.

Gathering and transportation costs for the third quarter of 2023 increased $2.3 million (5%) to $47.0 million as compared to $44.7 million in the third quarter of 2022.

Gathering and transportation costs for the first nine months of 2023 increased $24.2 million (21%) to $138.0 million as compared to $113.8 million for the first nine months of 2022.

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

Our lease operating expense of $34.0 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.

Our lease operating expense of $31.7 million ($0.24 per Mcfe) for the third quarter of 2023 increased $3.1 million (11%) from lease operating expense of $28.6 million ($0.22 per Mcfe) for the third quarter of 2022.

Lease operating expense of $100.5 million ($0.26 per Mcfe) for the first nine months of 2023 increased $20.7 million (26%) from lease operating expense of $79.9 million ($0.22 per Mcfe) for the first nine 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.

Gas service expenses of $67.6 million decreased $114.2 million (63%) for the third quarter of 2023 from $181.8 million in the third quarter of 2022.

Gas service expenses of $224.3 million decreased $81.0 million (27%) for the first nine months of 2023 from $305.3 million for the first nine months of 2022.

The decrease is due primarily to lower natural gas prices realized on purchases of third party natural gas for resale.

Depreciation, depletion and amortization ("DD&A") increased $19.1 million to $148.2 million in the third quarter of 2023 from $129.1 million in the third quarter of 2022.

Our DD&A per equivalent Mcf produced was $1.13 per Mcfe for the quarter ended September 30, 2023 as compared to $1.00 for the quarter ended September 30, 2022.

DD&A increased $67.4 million to $422.4 million for the first nine months of 2023 from $355.0 million during the first nine months of 2022.

Our DD&A per equivalent Mcf produced was $1.10 per Mcfe for the nine months ended September 30, 2023 as compared to $0.96 for the nine months ended September 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 nine months ended September 30, 2023.

General and administrative expenses, which are reported net of overhead reimbursements, decreased to $9.6 million for the third quarter of 2023 as compared to $10.2 million in the third quarter of 2022.

The decrease was primarily related to lower personnel costs.

General and administrative expenses increased to $32.0 million for the first nine months of 2023 as compared to $27.5 million during the first nine months of 2022.

The increase was 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 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

During the quarter ended September 30, 2023, we had net gains related to our derivative financial instruments of $14.3 million, as compared to net losses on derivative financial instruments of $271.3 million during the quarter ended September 30, 2022.

Realized net gains from our price risk management program were $10.3 million for the quarter ended September 30, 2023 as compared to realized net losses of

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.

$304.5 million for the quarter ended September 30, 2022.

Net gains on derivative financial instruments were $76.2 million for the first nine months of 2023 as compared to net losses of $781.7 million for the first nine months of 2022.

Realized net gains from our price risk management program were $76.2 million for the first nine months of 2023 as compared to realized net losses of $679.0 million for the first nine months of 2022.

Interest expense was $43.6 million and $41.4 million for the quarters ended September 30, 2023 and 2022, respectively, and $121.1 million and $132.2 million for the nine months ended September 30, 2023 and 2022, respectively.

The increase in interest expense for the quarters ended September 30, 2023 and 2022 was due primarily to borrowings under the bank credit facility.

The decrease in interest expense for the nine months ended September 30, 2023 and 2022 was 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 nine months ended September 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.

Income taxes for the quarter ended September 30, 2023 and 2022 were a provision of $3.6 million and $102.8 million, respectively.

Income taxes for the nine months ended September 30, 2023 and 2022 were a provision of $28.9 million and $179.6 million, respectively.

Income tax expense for the quarters ended September 30, 2023 and 2022 reflect an effective tax rate of 19.7% and 22.4%, respectively.

Income tax expense for the nine months ended September 30, 2023 and 2022 reflect an effective tax rate of 21.8% and 22.5%, 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 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.

We reported net income available to common stockholders of $14.7 million or $0.05 per share, for the quarter ended September 30, 2023.

Income from operations for the third quarter of 2023 was $47.3 million.

We reported net income available to common stockholders of $351.2 million or $1.28 per diluted share for the quarter ended September 30, 2022.

In the first nine months of 2023, we reported net income available to common stockholders of $103.5 million or $0.37 per diluted share.

Income from operations for the first nine months of 2023 was $175.8 million.

We reported net income available to common stockholders of $608.0 million or $2.24 per diluted share for the nine months ended September 30, 2022.

Cash Flows, Liquidity and Capital Resources

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

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

3 unchanged sentences

Proceeds from asset sales

Total $ 779,169 $ 811,627

Uses of cash and cash equivalents:

3 unchanged sentences

Preferred stock dividends

Other 2,043 1,365

Total $ 823,902 $ 810,018

Cash flows from operating activities.

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.

Net cash provided by our operating activities decreased $441.4 million (36%) to $788.6 million in the first nine months of 2023 from $1,230.1 million in the same period in 2022.

The decrease was due primarily to lower natural gas and oil sales.

Proceeds from asset sales.

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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.

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

Capital expenditures.

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.

The increase in capital expenditures of $309.6 million is primarily due to our higher drilling and completion activity in the first nine months of 2023 and $76.6 million of unproved property acquisitions.

Our capital expenditures are summarized in the following table:

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

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Other development costs

17,450 36,937

Asset retirement obligations

2 unchanged sentences

Total capital expenditures

$ 714,879 $ 531,322

Change in accrued capital expenditures 29,046 (13,842)

Change in accrued capital expenditures and other

Prepaid drilling costs

1 unchanged sentence

Total cash capital expenditures

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.

We drilled 52 (41.3 net) wells and completed 57 (43 net) Haynesville and Bossier shale operated wells during the first nine months of 2023.

We currently expect to spend an additional $300 million to $400 million in the remaining three months of 2023 on drilling, completion, infrastructure and other activity.

Liquidity and Capital Resources

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.

As of September 30, 2023, we had $1.2 billion of liquidity, comprised of unused borrowing capacity under our bank credit facility and $19.8 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.

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

We believe that our cash provided by operations and borrowings available under our bank credit facility will be sufficient to satisfy our foreseeable liquidity needs and capital expenditure requirements for at least the next twelve months.

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

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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

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.

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.

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

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

COMSTOCK RESOURCES, INC.

At September 30, 2023, we had $345.0 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.

Borrowings under the bank credit facility are subject to a borrowing base, which was redetermined on April 20, 2023 and currently set at $2.0 billion.

Borrowings under the bank credit facility are subject to a borrowing base, which was redetermined on October 27, 2023 and 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.

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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 June 30, 2023.

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

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

At September 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.

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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