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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-02 · 78 added, 51 removed, 94 unchanged (58% of the section changed)

5 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands, except per unit amounts)

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Gas services expense

Natural gas and oil sales of $288.0 million for the first quarter of 2024 decreased by $92.0 million (24%) as compared to $380.0 million for the first quarter of 2023.

The decrease was due to a decrease in the average natural gas price realized in the first quarter of 2024 of 31% as compared with 2023.

Our natural gas production for the first quarter of 2024 increased 10% to 139.4 billion cubic feet ("Bcf") (1.5 Bcf per day) and was sold at an average price of $2.06 per thousand cubic feet ("Mcf").

Natural gas production for the first quarter of 2023 was 127.1 Bcf (1.4 Bcf per day) and was sold at an average price of $2.98 per Mcf.

Natural gas and oil sales of $217.6 million for the second quarter of 2024 decreased by $12.2 million (5%) as compared to $229.8 million for the second quarter of 2023.

The decrease was primarily due to a decrease in the average natural gas price realized in the second quarter of 2024 of 9% as compared with the same period in 2023.

Our natural gas production for the second quarter of 2024 increased 4% to 130.9 billion cubic feet ("Bcf") (1.4 Bcf per day) and was sold at an average price of $1.65 per thousand cubic feet ("Mcf").

Natural gas production for the second quarter of 2023 was 126.3 Bcf (1.4 Bcf per day) and was sold at an average price of $1.81 per Mcf.

Natural gas and oil sales of $505.6 million for the six months ended June 30, 2024 decreased by $104.2 million (17%) as compared to $609.7 million for the six months ended June 30, 2023, which was also primarily due to lower natural gas prices (23%) during the first six months of 2024 as compared with 2023 prices.

Our natural gas production for the first six months of 2024 increased 7% to 270.3 Bcf (1.5 Bcf per day), and was sold at an average price of $1.86 per Mcf as compared to 253.4 Bcf (1.4 Bcf per day) sold at an average price of $2.40 in the first six months of 2023.

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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Average Realized Natural Gas Price:

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Price per Mcf, including cash settlements on derivative financial instruments

Gas service revenues of $47.8 million decreased $61.8 million (56%) for the first quarter of 2024 from $109.6 million in the first quarter of 2023.

The decrease was due to lower natural gas prices on sales of natural gas purchased to utilize our excess transport capacity.

Gas service revenues of $29.2 million decreased $29.2 million (50%) for the second quarter of 2024 from $58.5 million in the second quarter of 2023.

Gas service revenues of $77.0 million decreased $91.0 million (54%) for the first six months of 2024 from $168.1 million for the first six months of 2023.

The decreases were primarily due to lower natural gas prices related to sales of natural gas purchased to utilize our excess transport capacity.

Costs and Expenses –

Our production and ad valorem taxes increased $3.0 million (20%) to $17.9 million for the first quarter of 2024 from $14.9 million in the first quarter of 2023.

The increase was attributable to the increase in production in the first quarter of 2024 and an increase in Louisiana production tax and ad valorem tax rates, partially offset by lower production taxes in Texas attributable to the decrease in natural gas and oil sales.

Gathering and transportation costs for the first quarter of 2024 increased $1.5 million (3%) to $47.1 million as compared to $45.6 million in the first quarter of 2023.

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

Our lease operating expense of $35.1 million ($0.25 per Mcfe) for the first quarter of 2024 increased $0.2 million (1%) from lease operating expense of $34.8 million ($0.27 per Mcfe) for the first quarter of 2023.

The increase was due primarily to increased production in the first quarter of 2024.

Gas service expenses of $48.7 million decreased $52.6 million (52%) for the first quarter of 2024 from $101.3 million in the first quarter of 2023.

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

Depreciation, depletion and amortization ("DD&A") increased $56.7 million to $190.7 million in the first quarter of 2024 from $134.0 million in the first quarter of 2023.

Our DD&A per equivalent Mcf produced was $1.37 per Mcfe for the quarter ended March 31, 2024 as compared to $1.05 for the quarter ended March 31, 2023.

The increase in the DD&A rate was primarily due to lower estimated proved reserves resulting from the lower natural gas price used in the determination of proved reserves at March 31, 2024.

General and administrative expenses, which are reported net of overhead reimbursements, decreased to $9.2 million for the first quarter of 2024 as compared to $12.4 million in the first quarter of 2023.

The decrease was primarily related to higher employee bonuses paid in 2023.

Our production and ad valorem taxes decreased $0.4 million (2%) to $19.2 million for the second quarter of 2024 from $19.6 million in the second quarter of 2023.

The decrease was primarily due to lower production taxes in Texas from lower natural gas and oil sales.

Production and ad valorem taxes increased $2.6 million (8%) to $37.2 million for the first six months of 2024 from $34.5 million in the first six months of 2023.

The increase was attributable to the increase in production in 2024 and an increase in Louisiana production tax and ad valorem tax rates, partially offset by lower production taxes in Texas attributable to the decrease in natural gas and oil sales.

Gathering and transportation costs for the second quarter of 2024 increased $4.0 million (9%) to $49.4 million as compared to $45.4 million in the second quarter of 2023.

Gathering and transportation costs for the first six months of 2024 increased $5.5 million (6%) to $96.5 million as compared to $91.0 million for the first six months of 2023.

The increases were 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 second quarter of 2024 increased $0.8 million (2%) from lease operating expense of $34.0 million ($0.27 per Mcfe) for the second quarter of 2023.

Lease operating expense of $69.9 million ($0.26 per Mcfe) for the first six months of 2024 increased $1.0 million (1%) from lease operating expense of $68.9 million ($0.27 per Mcfe) for the first six months of 2023.

The increases for both periods were primarily due to increased production in 2024.

Gas service expenses of $31.5 million decreased $23.9 million (43%) for the second quarter of 2024 from $55.4 million in the second quarter of 2023.

Gas service expenses of $80.2 million decreased $76.5 million (49%) for the first six months of 2024 from $156.7 million for the first six months of 2023.

The decreases in both periods were primarily due to lower natural gas prices related to purchases of third party natural gas for resale.

Depreciation, depletion and amortization ("DD&A") increased $54.1 million to $194.2 million in the second quarter of 2024 from $140.2 million in the second quarter of 2023.

Our DD&A per equivalent Mcf produced was $1.48 per Mcfe for the quarter ended June 30, 2024 as compared to $1.11 for the quarter ended June 30, 2023.

DD&A increased $110.8 million to $384.9 million for the first six months of 2024 from $274.2 million during the first six months of 2023.

Our DD&A per equivalent Mcf produced was $1.42 per Mcfe for the six months ended June 30, 2024 as compared to $1.08 for the six months ended June 30, 2023.

The increase in the DD&A rate for both periods was primarily due to lower estimated proved undeveloped reserves resulting from the lower natural gas price used in the determination of proved reserves at June 30, 2024.

General and administrative expenses, which are reported net of overhead reimbursements, increased to $10.2 million for the second quarter of 2024 as compared to $10.0 million in the second quarter of 2023.

General and administrative expenses decreased to $19.3 million for the first six months of 2024 as compared to $22.4 million during the first six months of 2023, which was primarily due to lower employee compensation.

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

During the quarter ended March 31, 2024, we had net gains related to our derivative financial instruments of $39.3 million, as compared to net gains on derivative financial instruments of $66.4 million during the quarter ended March 31, 2023.

Realized net gains from our price risk management program were $48.0 million for the quarter ended March 31, 2024 as compared to realized net gains of $10.4 million for the quarter ended March 31, 2023.

Interest expense was $49.6 million and $38.3 million for the quarters ended March 31, 2024 and 2023, respectively.

The increase in interest expense was due primarily to increased borrowings under the bank credit facility and higher interest rates.

Income taxes for the quarter ended March 31, 2024 and 2023 were a benefit of $8.3 million and a provision of $39.7 million, respectively.

Income tax expense for the quarters ended March 31, 2024 and 2023 reflect an effective tax rate of 36.4% and 22.9%, 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.

During the quarter ended June 30, 2024, we had net losses related to our derivative financial instruments of $25.3 million, as compared to net losses on derivative financial instruments of $4.5 million during the quarter ended June 30, 2023.

Realized net gains from our price risk management program were $60.6 million for the quarter ended June 30, 2024 as compared to realized net gains of $55.5 million for the quarter ended June 30, 2023.

Net gains on derivative financial instruments were $14.1 million for the first six months of 2024 as

COMSTOCK RESOURCES, INC.

As a result of the lower natural gas prices, we reported a net loss of $14.5 million or $0.05 per share, for the quarter ended March 31, 2024.

Loss from operations for the first quarter of 2024 was $12.8 million.

We reported net income of $134.5 million or $0.49 per diluted share for the quarter ended March 31, 2023.

compared to net gains of $61.9 million for the first six months of 2023.

Realized net gains from our price risk management program were $108.5 million for the first six months of 2024 as compared to realized net gains of $65.9 million for the first six months of 2023.

Interest expense was $51.9 million and $39.2 million for the quarters ended June 30, 2024 and 2023, respectively, and $101.5 million and $77.5 million for the six months ended June 30, 2024 and 2023, respectively.

The increase in interest expense for both periods was due primarily to increased borrowings under our bank credit facility, the issuance of an additional $400.0 million principal amount of 6.75% senior notes due 2029 and higher interest rates.

Income taxes for the quarters ended June 30, 2024 and 2023 were a benefit of $46.1 million and $14.4 million, respectively.

Income taxes for the six months ended June 30, 2024 and 2023 were a benefit of $54.4 million and a provision of $25.3 million, respectively.

Income tax expense for the quarters ended June 30, 2024 and 2023 reflect an effective tax rate of 27.2% and 24.0%, respectively.

Income tax expense for the six months ended June 30, 2024 and 2023 reflect an effective tax rate of 28.3% and 22.2%, respectively.

As a result of continued lower natural gas prices, we reported a net loss of $123.2 million, or $0.43 per share for the quarter ended June 30, 2024.

Loss from operations for the second quarter of 2024 was $92.5 million.

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

In the first six months of 2024, we reported a net loss of $137.7 million or $0.49 per share.

Loss from operations for the first six months of 2024 was $105.3 million.

We reported net income of $88.8 million or $0.32 per diluted share for the six months ended June 30, 2023.

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)

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Operating activities

Issuance of 6.75% Senior Notes

Issuance of common stock

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Capital expenditures

Repayments on bank credit facility, net of borrowings

Common stock dividends

Debt issuance costs

Debt and stock issuance costs

Distributions to noncontrolling interest

Cash flows from operating activities.

Net cash provided by our operating activities decreased $214.8 million (56%) to $171.5 million in the first three months of 2024 from $386.4 million in the same period in 2023.

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

Issuance of common stock.

In the first quarter of 2024, we issued 12,500,000 shares of common stock to two entities controlled by our majority stockholder in a private placement, receiving proceeds of $100.5 million.

Common stock dividends.

During the first quarter of 2023, we paid quarterly cash dividends of $0.125 per common share to stockholders of record as of March 1, 2023.

Net cash provided by our operating activities decreased $462.8 million (64%) to $255.1 million in the first six months of 2024 from $717.9 million in the same period in 2023.

The decrease was due primarily to lower natural gas prices.

Issuance of 6.75% Senior Notes.

In April 2024, we issued $400.0 million principal amount of 6.75% senior notes due 2029 in a private placement and received net proceeds after deducting the initial purchasers' discounts of $365.2 million, which were used to pay down the outstanding borrowings on the Company's bank credit facility.

Proceeds from asset sales.

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

COMSTOCK RESOURCES, INC.

Capital expenditures.

The decrease in capital expenditures of $24.4 million was primarily due to lower drilling and completion activity in the first three months of 2024, partially offset by $69.4 million of unproved property acquisitions, which included the acquisition of 189,000 net acres in the Company's Western Haynesville area from an unaffiliated third party for $50.0 million.

The decrease in capital expenditures of $176.8 million was primarily due to lower drilling and completion activity in the first six months of 2024, partially offset by $79.1 million of unproved property acquisitions, which included the acquisition of 189,000 net acres in our Western Haynesville area from an unaffiliated third party for $50.0 million.

Our capital expenditures are summarized in the following table:

Three Months Ended

Six Months Ended

(In thousands)

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Total cash capital expenditures

COMSTOCK RESOURCES, INC.

We drilled 16 (14.3 net) wells and completed 18 (16.3 net) Haynesville and Bossier shale operated wells during the first three months of 2024.

We currently expect to spend an additional $525 million to $625 million in the remaining nine months of 2024 on drilling, completion, infrastructure and other activity.

We drilled 27 (23.5 net) wells and completed 30 (27.9 net) Haynesville and Bossier shale operated wells during the first six months of 2024.

We currently expect to spend an additional $280 million to $380 million in the remaining six months of 2024 on drilling, completion, infrastructure and other activity.

Issuance of common stock.

In the first six months of 2024, we issued 12,500,000 shares of common stock to two entities controlled by our majority stockholder in a private placement, receiving proceeds of $100.5 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.

Liquidity and Capital Resources

As of March 31, 2024, we had $966.4 million of liquidity, comprised of unused borrowing capacity under our bank credit facility and $6.4 million of cash and cash equivalents on hand.

As of June 30, 2024, we had $1.2 billion of liquidity, comprised of $1,175.0 million of unused borrowing capacity under our bank credit facility and $19.3 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.

The issuance of $400.0 million additional senior notes in April 2024 increased our liquidity by $365.2 million.

We expect to fund our future development and exploration activities with future operating cash flow and borrowings under our bank credit facility.

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

At March 31, 2024, we had $540.0 million of borrowings outstanding under our bank credit facility.

COMSTOCK RESOURCES, INC.

At June 30, 2024, we had $325.0 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 30, 2024 and currently set at $2.0 billion.

Borrowings under our bank credit facility are subject to a borrowing base, which was redetermined on April 30, 2024 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.

Borrowings under the bank credit facility are secured by substantially all of our assets and those of our subsidiaries and bear interest at our option, at either adjusted 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.

Borrowings under our bank credit facility are secured by substantially all of our assets and those of our subsidiaries and bear interest at our option, at either adjusted 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.

We also pay a commitment fee of 0.375% to 0.50% on the unused portion of the borrowing base.

The bank credit facility places certain restrictions upon our and our 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.

Our bank credit facility places certain restrictions upon our and our 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.

We were in compliance with the covenants as of March 31, 2024.

We were in compliance with the covenants as of June 30, 2024.

F ederal and State Taxation

At March 31, 2024, we had $754.1 million in U.S.

At June 30, 2024, we had $754.1 million in U.S.

federal net operating loss ("NOL") carryforwards and $1.7 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