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Item 2. Management’s Discussion and Analysis

2025-05-01 compared with 2024-10-31 · 50 added, 87 removed, 92 unchanged (60% of the section changed)

5 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands, except per unit amounts)

18 unchanged sentences

Gas services expense

Natural gas and oil sales of $253.6 million for the three months ended September 30, 2024 decreased by $51.8 million (17%) as compared to $305.5 million for the third quarter of 2023.

The decrease was primarily due to lower natural gas prices realized in the third quarter of 2024 as compared to 2023.

Our natural gas production for the third quarter of 2024 increased 2% to 133.1 billion cubic feet ("Bcf") (1.4 Bcf per day) and was sold at an average price of $1.90 per thousand cubic feet ("Mcf"), which declined 18% from the average realized natural gas price in the third quarter of 2023.

Natural gas production for the third quarter of 2023 was 130.5 Bcf (1.4 Bcf per day) and was sold at an average price of $2.33 per Mcf.

Natural gas and oil sales of $759.2 million for the nine months ended September 30, 2024 decreased by $156.0 million (17%) as compared to $915.2 million for the nine months ended September 30, 2023, which was primarily due to 21% lower natural gas prices during the first nine months of 2024 as compared with 2023 prices.

Our natural gas production for the first nine months of 2024 increased 5% to 403.4 Bcf (1.5 Bcf per day), and was sold at an average price of $1.87 per Mcf as compared to 383.9 Bcf (1.4 Bcf per day) sold at an average price of $2.37 per Mcf in the first nine months of 2023.

Natural gas and oil sales of $413.0 million for the three months ended March 31, 2025 increased by $125.0 million (43%) as compared to $288.0 million for the first quarter of 2024.

The increase was due to higher natural gas prices realized in the first quarter of 2025 as compared to the same period in 2024.

The average realized price for our natural gas was $3.58 per thousand cubic feet ("Mcf"), which increased 74% from the average realized natural gas price in the first quarter of 2024.

Our natural gas production for the first quarter of 2025 decreased 18% to 115.0 billion cubic feet ("Bcf") (1.3 Bcf per day).

Natural gas production for the first quarter of 2024 was 139.4 Bcf (1.5 Bcf per day) and was sold at an average price of $2.06 per Mcf.

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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Average Realized Natural Gas Price:

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Price per Mcf, including cash settlements on derivative financial instruments

Gas service revenues of $50.8 million decreased $20.4 million (29%) for the third quarter of 2024 from $71.3 million in the third quarter of 2023.

Gas service revenues of $127.9 million decreased $111.5 million (47%) for the first nine months of 2024 from $239.4 million for the first nine 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.

Gas service revenues of $99.9 million increased $52.1 million (109%) for the first quarter of 2025 from $47.8 million in the first quarter of 2024.

The increases were primarily due to higher 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 decreased $12.8 million (50%) to $12.6 million for the third quarter of 2024 from $25.4 million in the third quarter of 2023.

Production and ad valorem taxes decreased $10.2 million (17%) to $49.7 million for the first nine months of 2024 from $59.9 million in the first nine months of 2023.

The decreases were primarily due to a lower statutory production tax rate in Louisiana and lower production taxes in Texas from lower natural gas and oil sales.

Gathering and transportation costs for the third quarter of 2024 increased $7.0 million (15%) to $54.0 million as compared to $47.0 million in the third quarter of 2023.

Gathering and transportation costs for the first nine months of 2024 increased $12.5 million (9%) to $150.5 million as compared to $138.0 million for the first nine months of 2023.

The increases were due to production growth in areas with higher average gathering and transportation rates.

Our lease operating expense of $29.2 million ($0.22 per Mcfe) for the third quarter of 2024 decreased $2.4 million (8%) from lease operating expense of $31.7 million ($0.24 per Mcfe) for the third quarter of 2023.

Lease operating expense of $99.1 million ($0.25 per Mcfe) for the first nine months of 2024 decreased $1.4 million (1%) from lease operating expense of $100.5 million ($0.26 per Mcfe) for the first nine months of 2023.

The decreases for both periods were primarily due to lower water disposal and other production costs in 2024 as compared to the same periods in 2023.

Gas service expenses of $52.6 million decreased $15.0 million (22%) for the third quarter of 2024 from $67.6 million in the third quarter of 2023.

Gas service expenses of $132.8 million decreased $91.5 million (41%) for the first nine months of 2024 from $224.3 million for the first nine 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 $60.2 million to $208.4 million in the third quarter of 2024 from $148.2 million in the third quarter of 2023.

Our DD&A per equivalent Mcf produced was $1.56 per Mcfe for the quarter ended September 30, 2024 as compared to $1.13 for the quarter ended September 30, 2023.

DD&A increased $170.9 million to $593.3 million for the first nine months of 2024 from $422.4 million during the first nine months of 2023.

Our DD&A per equivalent Mcf produced was $1.47 per Mcfe for the nine months ended September 30, 2024 as compared to $1.10 for the nine months ended September 30, 2023.

The increase in the DD&A rate for both periods was primarily due to lower estimated proved undeveloped reserves which were determined using lower natural gas prices.

General and administrative expenses, which are reported net of overhead reimbursements, increased to $9.9 million for the third quarter of 2024 as compared to $9.6 million in the third quarter of 2023, which was primarily due to higher employee compensation.

General and administrative expenses decreased to $29.3 million for the first nine months of 2024 as compared to $32.0 million during the first nine months of 2023, which was primarily due to lower employee compensation.

Our production and ad valorem taxes decreased $6.7 million (38%) to $11.2 million for the first quarter of 2025 from $17.9 million in the first quarter of 2024.

The decrease was primarily due to a lower statutory production tax rate in Louisiana and lower production in the first quarter of 2025.

Gathering and transportation costs for the first quarter of 2025 decreased $4.5 million (10%) to $42.6 million as compared to $47.1 million in the first quarter of 2024.

The decrease was due primarily to lower production in the quarter.

Our lease operating expense of $35.0 million ($0.30 per Mcfe) for the first quarter of 2025 remained consistent with our lease operating expense of $35.1 million ($0.25 per Mcfe) for the first quarter of 2024.

The lease operating expense rate increased due to the fixed nature of much of our lease operating costs and lower production in the first quarter of 2025.

Gas service expenses of $116.8 million increased $68.1 million (140%) for the first quarter of 2025 from $48.7 million in the first quarter of 2024.

The increase in was primarily due to higher natural gas prices related to purchases of third party natural gas for resale.

Depreciation, depletion and amortization ("DD&A") decreased $22.8 million to $167.9 million in the first quarter of 2025 from $190.7 million in the first quarter of 2024 due to lower production in the first quarter of 2025.

Our DD&A per equivalent Mcf produced was $1.46 per Mcfe for the quarter ended March 31, 2025 as compared to $1.37 for the quarter ended March 31, 2024.

The increase in the rate was primarily due to higher finding and development costs.

General and administrative expenses, which are reported net of overhead reimbursements, increased to $11.1 million for the first quarter of 2025 as compared to $9.2 million in the first quarter of 2024, which was primarily due to higher employee compensation.

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

During the quarter ended September 30, 2024, we had net gains related to our derivative financial instruments of $75.2 million, as compared to net gains on derivative financial instruments of $14.3 million during the quarter ended September 30, 2023.

Realized net gains from our price risk management program were $51.4 million for the quarter ended September 30, 2024 as compared to realized net gains of $10.3 million for the quarter ended September 30, 2023.

Net gains on derivative financial instruments were $89.2 million for the first nine months of 2024 as compared to net gains of $76.2 million for the first nine months of 2023.

Realized net gains from our price risk

During the quarter ended March 31, 2025, we had net losses related to our derivative financial instruments of $330.3 million, as compared to net gains on derivative financial instruments of $39.3 million during the quarter ended March 31, 2024, which was due to the significant increase in future NYMEX natural gas prices.

Realized net losses from our price risk management program were $8.0 million for the quarter ended March 31, 2025 as compared to realized net gains of $48.0 million for the quarter ended March 31, 2024.

Interest expense was $54.8 million and $49.6 million for the quarters ended March 31, 2025 and 2024, respectively.

The increase in interest expense was due primarily to the issuance of an additional $400.0 million principal amount of senior notes in the second quarter of 2024.

Income taxes for the quarters ended March 31, 2025 and 2024 were a benefit of $143.3 million and $8.3 million, respectively.

Income tax benefit for the quarters ended March 31, 2025 and 2024 reflect an effective tax rate of 55.4% and 36.4%, 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 state net operating loss carryforwards and other items.

As a result of losses related to our derivative financial instruments, we reported a net loss of $115.4 million, or $0.40 per share for the quarter ended March 31, 2025.

Income from operations for the first quarter of 2025 was $126.2 million as compared to a loss from operations of $12.8 million for the first quarter of 2024.

We reported a net loss of $14.5 million or $0.05 per share for the quarter ended March 31, 2024.

COMSTOCK RESOURCES, INC.

management program were $160.0 million for the first nine months of 2024 as compared to realized net gains of $76.2 million for the first nine months of 2023.

Interest expense was $54.5 million and $43.6 million for the quarters ended September 30, 2024 and 2023, respectively, and $156.0 million and $121.1 million for the nine months ended September 30, 2024 and 2023, respectively.

The increase in interest expense for both periods was due primarily to the issuance of an additional $400.0 million principal amount of senior notes and higher interest rates.

Income taxes for the quarters ended September 30, 2024 and 2023 were a benefit of $14.7 million and a provision of $3.6 million, respectively.

Income taxes for the nine months ended September 30, 2024 and 2023 were a benefit of $69.1 million and a provision of $28.9 million, respectively.

Income tax expense for the quarters ended September 30, 2024 and 2023 reflect an effective tax rate of 36.4% and 19.7%, respectively.

Income tax expense for the nine months ended September 30, 2024 and 2023 reflect an effective tax rate of 29.7% and 21.8%, 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.

As a result of continued lower natural gas prices, we reported a net loss of $25.7 million, or $0.09 per share for the quarter ended September 30, 2024.

Loss from operations for the third quarter of 2024 was $61.3 million.

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

In the first nine months of 2024, we reported a net loss of $163.4 million or $0.57 per share.

Loss from operations for the first nine months of 2024 was $166.7 million.

We reported net income of $103.5 million or $0.37 per diluted share for the nine months ended September 30, 2023.

Cash Flows, Liquidity and Capital Resources

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

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

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Operating activities

Issuance of 6.75% Senior Notes

Issuance of common stock

Borrowings on bank credit facility, net of repayments

Proceeds from asset sales

Contributions from noncontrolling interest

1 unchanged sentence

Capital expenditures

Repayments on bank credit facility, net of borrowings

Common stock dividends

Debt and stock issuance costs

Distributions to noncontrolling interest

Cash flows from operating activities.

Net cash provided by our operating activities decreased $435.4 million (55%) to $353.3 million in the first nine months of 2024 from $788.6 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 nine months of 2024, we sold our interest in certain non-operated properties for net proceeds of $1.2 million.

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

COMSTOCK RESOURCES, INC.

Net cash provided by our operating activities increased $3.2 million (2%) to $174.7 million in the first three months of 2025 from $171.5 million in the same period in 2024.

The increase was due primarily to higher natural gas prices.

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.

Contributions from noncontrolling interest.

During the first three months of 2025 and 2024, our noncontrolling interest partner contributed $59.5 million and $6.0 million, respectively, to our midstream partnership to fund the build-out of our Western Haynesville midstream system.

Capital expenditures.

The decrease in capital expenditures of $315.0 million was primarily due to lower drilling and completion activity in the first nine months of 2024.

The $87.9 million of unproved property acquisitions in 2024 included the acquisition of 189,000 net acres in our Western Haynesville area from an unaffiliated third party for $50.0 million.

Our 2024 capital expenditures 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:

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

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Total cash capital expenditures

We drilled 35 (29.7 net) wells and completed 41 (35.9 net) Haynesville and Bossier shale operated wells during the first nine months of 2024.

We currently expect to spend an additional $225 million to $275 million in the remaining three months of 2024 on drilling, completion, infrastructure and other activity.

Issuance of common stock.

In the first nine 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 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.

COMSTOCK RESOURCES, INC.

We drilled seven (6.9 net) wells and completed eleven (8.3 net) Haynesville and Bossier shale operated wells during the first three months of 2025.

We currently expect to spend an additional $780 million to $880 million in the remaining nine months of 2025 on drilling, completion, infrastructure and other activity.

Liquidity and Capital Resources

As of September 30, 2024, we had $1.1 billion of liquidity, comprised of $1,085.0 million of unused borrowing capacity under our bank credit facility and $13.8 million of cash and cash equivalents on hand.

As of March 31, 2025, we had $1.0 billion of liquidity, comprised of $990 million of unused borrowing capacity under our bank credit facility and $32.9 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.

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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.

COMSTOCK RESOURCES, INC.

At September 30, 2024, we had $415.0 million of borrowings outstanding under our bank credit facility.

At March 31, 2025, we had $510.0 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 our bank credit facility are subject to a borrowing base, which was redetermined on October 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 29, 2025 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 our bank credit facility are secured by substantially all of our assets and those of our subsidiaries and bear interest at our option.

Additionally, beginning in the fourth quarter of 2024 through the second quarter of 2025, the bank credit facility will bear interest at our option at either adjusted SOFR plus 2.25% to 3.25% or an alternate base rate plus 1.25% to 2.25%, in each case depending on the utilization of the borrowing base.

Beginning in the third quarter of 2025 through maturity, borrowings under our bank credit facility will bear interest at our option, at either SOFR plus 2.0% to 3.0% or an alternate base rate plus 1.0% to 2.0%, also 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.

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 2.25% to 3.25% or an alternate base rate plus 1.25% to 2.25%, 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 committed borrowing base.

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 4.0 to 1.0, which reduces to 3.75 to 1.0 at June 30, 2025 and to 3.5 to 1.0 at September 30, 2025, and an adjusted current ratio of at least 1.0 to 1.0.

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

We were in compliance with the covenants as of March 31, 2025.

F ederal and State Taxation

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

At March 31, 2025, we had $743.0 million in U.S.

federal net operating loss ("NOL") carryforwards and $1.8 billion in certain state NOL carryforwards.

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Our income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to December 31, 2021.

Currently, we are under examination with the state of Louisiana and believe that our significant filing positions are highly certain and that all of our 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.

Currently, we are under examination with the United States Internal Revenue Service and the state of Louisiana and believe that our significant filing positions and deductions will be sustained under audit or the final resolution will not have a material effect on the consolidated financial statements.

Therefore, we have not established any significant reserves for uncertain tax positions.

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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