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Item 2. Management’s Discussion and Analysis

2025-07-31 compared with 2025-05-01 · 76 added, 43 removed, 99 unchanged (55% 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 $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.

Natural gas and oil sales of $340.0 million for the three months ended June 30, 2025 increased by $122.4 million (56%) as compared to $217.6 million for the second quarter of 2024.

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

The average realized price for our natural gas was $3.02 per thousand cubic feet ("Mcf"), which increased 83% from the average realized natural gas price in the second quarter of 2024.

Our natural gas production for the second quarter of 2025 decreased 14% to 112.2 billion cubic feet ("Bcf") (1.2 Bcf per day).

Natural gas production for the second quarter of 2024 was 130.9 Bcf (1.4 Bcf per day) and was sold at an average price of $1.65 per Mcf.

Natural gas and oil sales of $753.0 million for the six months ended June 30, 2025 increased by $247.4 million (49%) as compared to $505.6 million for the six months ended June 30, 2024, which was also primarily due to higher natural gas prices, which increased by 78% during the first six months of 2025 as compared with 2024 prices.

Our natural gas production for the first six months of 2025 decreased 16% to 227.2 Bcf (1.3 Bcf per day), and was sold at an average price of $3.31 per Mcf as compared to 270.3 Bcf (1.5 Bcf per day) sold at an average price of $1.86 in the first six months of 2024.

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

Gas service revenues of $130.3 million increased $101.1 million (346%) for the second quarter of 2025 from $29.2 million in the second quarter of 2024.

Gas service revenues of $230.2 million increased $153.1 million (199%) for the first six months of 2025 from $77.0 million for the first six months 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 $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.

Our production and ad valorem taxes decreased $8.7 million (45%) to $10.6 million for the second quarter of 2025 from $19.2 million in the second quarter of 2024.

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

Production and ad valorem taxes decreased $15.4 million (41%) to $21.7 million for the first six months of 2025 from $37.2 million in the first six months of 2024.

The decrease was also attributable to the decrease in production in 2025 and a decrease in Louisiana production tax and ad valorem tax rates.

Gathering and transportation costs for the second quarter of 2025 decreased $7.6 million (15%) to $41.8 million as compared to $49.4 million in the second quarter of 2024.

Gathering and transportation costs for the first six months of 2025 decreased $12.1 million (13%) to $84.4 million as compared to $96.5 million for the first six months 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.

Our lease operating expense of $31.1 million ($0.28 per Mcfe) for the second quarter of 2025 was comparable to our lease operating expense of $34.8 million ($0.27 per Mcfe) for the second quarter of 2024.

Lease operating expense of $66.1 million ($0.29 per Mcfe) for the first six months of 2025 decreased $3.8 million (5%) from lease operating expense of $69.9 million ($0.26 per Mcfe) for the first six months 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 six months of 2025.

Gas service expenses of $126.7 million increased $95.2 million (302%) for the second quarter of 2025 from $31.5 million in the second quarter of 2024.

Gas service expenses of $243.5 million increased $163.3 million (204%) for the first six months of 2025 from $80.2 million for the first six months of 2024.

The increase 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 $35.9 million to $158.4 million in the second quarter of 2025 from $194.2 million in the second quarter of 2024 due to lower natural gas production in the second quarter of 2025.

Our DD&A per equivalent Mcf produced was $1.41 per Mcfe for the quarter ended June 30, 2025 as compared to $1.48 for the quarter ended June 30, 2024.

The decrease was primarily due to lower natural gas production and higher estimated proved undeveloped reserves used in determining the DD&A rate, which are the result of higher natural gas prices used in the estimation of proved reserves at June 30, 2025.

DD&A decreased $58.7 million to $326.3 million for the first six months of 2025 from $384.9 million during the first six months of 2024.

Our DD&A per equivalent Mcf produced was $1.44 per Mcfe for the six months ended June 30, 2025 as compared to $1.42 for the six months ended June 30, 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.

General and administrative expenses, which are reported net of overhead reimbursements, increased to $12.3 million for the second quarter of 2025 as compared to $10.2 million in the second quarter of 2024.

General and administrative expenses increased to $23.4 million for the first six months of 2025 as compared to $19.3 million during the first six months of 2024.

The increases in both periods were primarily due to higher employee compensation, including stock-based compensation, which increased to $5.5 million in the second quarter of 2025 as compared to $4.1 million in the second quarter of 2024.

For the six months ended June 30, 2025, stock-based compensation increased to $10.0 million as compared to the same period in 2024 of $7.5 million.

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

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.

During the quarter ended June 30, 2025, we had net gains related to our derivative financial instruments of $235.8 million, as compared to net

COMSTOCK RESOURCES, INC.

losses on derivative financial instruments of $25.3 million during the quarter ended June 30, 2024, resulting from the decline in future natural gas prices since March 31, 2025.

Realized net gains from our price risk management program were $4.3 million for the quarter ended June 30, 2025 as compared to realized net gains of $60.6 million for the quarter ended June 30, 2024.

Net losses on derivative financial instruments were $94.5 million for the first six months of 2025 as compared to net gains of $14.1 million for the first six months of 2024, resulting from an increase in future natural gas prices since December 31, 2024.

Realized net losses from our price risk management program were $3.7 million for the first six months of 2025 as compared to realized net gains of $108.5 million for the first six months of 2024.

Interest expense was $55.2 million and $51.9 million for the quarters ended June 30, 2025 and 2024, respectively, and $110.0 million and $101.5 million for the six months ended June 30, 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 June 30, 2025 and 2024 were a provision of $141.5 million and a benefit of $46.1 million, respectively.

Income taxes for the six months ended June 30, 2025 and 2024 were a benefit of $1.8 million and $54.4 million, respectively.

Income taxes for the quarters ended June 30, 2025 and 2024 reflect an effective tax rate of 52.0% and 27.2%, respectively.

Income tax benefit for the six months ended June 30, 2025 and 2024 reflect an effective tax rate of (13.2)% and 28.3%, respectively.

The difference between the federal statutory tax rate of 21% and our effective rate is primarily attributable to research and development and other tax credits, state income taxes, changes in certain nondeductible items and the income attributable to noncontrolling interest.

As a result of gains related to our derivative financial instruments, we reported net income of $130.7 million, or $0.44 per diluted share for the quarter ended June 30, 2025.

Income from operations for the second quarter of 2025 was $89.4 million as compared to a loss from operations of $92.5 million for the second quarter of 2024.

We reported a net loss of $123.2 million or $0.43 per share for the quarter ended June 30, 2024.

In the first six months of 2025, we reported net income of $15.3 million or $0.05 per diluted share.

Income from operations for the first six months of 2025 was $215.6 million.

We reported a net loss of $137.7 million or $0.49 per share for the six months ended June 30, 2024.

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

Income tax withholdings on equity awards

Distributions to noncontrolling interest

Debt and stock issuance costs

Cash flows from operating activities.

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.

Net cash provided by our operating activities increased $267.2 million (105%) to $522.3 million in the first six months of 2025 from $255.1 million in the same period in 2024.

The increase was due primarily to higher 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 our bank credit facility.

COMSTOCK RESOURCES, INC.

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.

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.

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.

During the first six months of 2025 and 2024, our noncontrolling interest partner contributed $92.5 million and $17.0 million, respectively, to our midstream partnership to fund the build-out of our Western Haynesville midstream system.

Capital expenditures.

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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 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.

We drilled 19 (17.5 net) wells and completed 24 (20.3 net) Haynesville and Bossier shale operated wells during the first six months of 2025.

We currently expect to spend an additional $550 million to $650 million in the remaining six months of 2025 on drilling, completion, infrastructure and other activity.

Liquidity and Capital Resources

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.

As of June 30, 2025, we had $1.05 billion of liquidity, comprised of $1.02 billion of unused borrowing capacity under our bank credit facility and $25.9 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.

At March 31, 2025, we had $510.0 million of borrowings outstanding under our bank credit facility.

At June 30, 2025, we had $475.0 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 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 subject to a borrowing base, which was redetermined on April 29, 2025 and is currently set at $2.0 billion.

The borrowing base is

COMSTOCK RESOURCES, INC.

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 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.

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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 March 31, 2025.

The only financial covenants are the maintenance of a leverage ratio of less than 3.75 to 1.0, which reduces 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 June 30, 2025.

F ederal and State Taxation

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

At June 30, 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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Therefore, we have not established any significant reserves for uncertain tax positions.

COMSTOCK RESOURCES, INC.

In July 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into United States federal law.

While we expect to benefit from certain provisions contained within the OBBBA, including increased interest expense deductions and bonus depreciation, we are still evaluating the impact of this law on our income tax disclosures and consolidated financial statements.

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