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Item 2. Management’s Discussion and Analysis

2026-05-06 compared with 2025-11-04 · 66 added, 96 removed, 97 unchanged (63% of the section changed)

7 unchanged sentences

We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in our expectations with regard thereto or any change of events, conditions or circumstances on which any such statement was based, except as required by law.

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.

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 as well as with the Risk Factors contained in our Annual Report.

Results of Operations

Three Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands, except per unit amounts)

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Gas services expense

Natural gas and oil sales of $308.6 million for the three months ended September 30, 2025 increased by $55.0 million (22%) as compared to $253.6 million for the third quarter of 2024.

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

The average realized price for our natural gas was $2.75 per thousand cubic feet ("Mcf"), which increased 45% from the average realized natural gas price in the third quarter of 2024.

Our natural gas production for the third quarter of 2025 decreased 16% to 111.8 billion cubic feet ("Bcf") (1.2 Bcf per day).

Natural gas production for the third quarter of 2024 was 133.1 Bcf (1.4 Bcf per day) and was sold at an average price of $1.90 per Mcf.

Natural gas and oil sales of $419.0 million for the three months ended March 31, 2026 increased by $6.0 million (1%) as compared to $413.0 million for the first quarter of 2025.

The increase was due to higher natural gas prices realized in the first quarter of 2026 as compared to the same period in 2025.

The average realized price for our natural gas was $4.27 per thousand cubic feet ("Mcf"), which increased 19% from the average realized natural gas price in the first quarter of 2025.

Our natural gas production for the first quarter of 2026 decreased 15% to 97.9 billion cubic feet ("Bcf") (1.1 Bcf per day).

Natural gas production for the first quarter of 2025 was 115.0 Bcf (1.3 Bcf per day) and was sold at an average price of $3.58 per Mcf.

COMSTOCK RESOURCES, INC.

Natural gas and oil sales of $1.06 billion for the nine months ended September 30, 2025 increased by $302.4 million (40%) as compared to $759.2 million for the nine months ended September 30, 2024, which was also primarily due to higher natural gas prices, which increased by 67% during the first nine months of 2025 as compared with 2024 prices.

Our natural gas production for the first nine months of 2025 decreased 16% to 339.0 Bcf (1.2 Bcf per day), and was sold at an average price of $3.13 per Mcf as compared to 403.4 Bcf (1.5 Bcf per day) sold at an average price of $1.87 in the first nine months of 2024.

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 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 $141.3 million increased $90.4 million (178%) for the third quarter of 2025 from $50.8 million in the third quarter of 2024.

Gas service revenues of $371.4 million increased $243.5 million (190%) for the first nine months of 2025 from $127.9 million for the first nine months of 2024.

Gas service revenues of $166.5 million increased $66.6 million (67%) for the first quarter of 2026 from $99.9 million in the first quarter of 2025.

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

We reported a gain on sale of assets of $1.8 million for the first quarter of 2026, which was primarily due to post-closing adjustments related to the divestiture of our Shelby Trough properties in East Texas during the fourth quarter of 2025.

Costs and Expenses –

Our production and ad valorem taxes decreased $1.4 million (11%) to $11.2 million for the third quarter of 2025 from $12.6 million in the third quarter of 2024.

The decrease was primarily due to lower production in the third quarter of 2025.

Production and ad valorem taxes decreased $16.8 million (34%) to $33.0 million for the first nine months of 2025 from $49.7 million in the first nine 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 third quarter of 2025 decreased $14.0 million (26%) to $40.0 million as compared to $54.0 million in the third quarter of 2024.

Gathering and transportation costs for the first nine months of 2025 decreased $26.1 million (17%) to $124.3 million as compared to $150.5 million for the first nine months of 2024.

Our production and ad valorem taxes decreased $0.8 million (7%) to $10.4 million for the first quarter of 2026 from $11.2 million in the first quarter of 2025.

The decrease was primarily due to lower production in the first quarter of 2026.

Gathering and transportation costs for the first quarter of 2026 decreased $0.8 million (2%) to $41.8 million as compared to $42.6 million in the first quarter of 2025.

The decrease was due primarily to lower production.

Our lease operating expense of $28.8 million ($0.26 per Mcfe) for the third quarter of 2025 was comparable to our lease operating expense of $29.2 million ($0.22 per Mcfe) for the third quarter of 2024.

Lease operating expense of $94.9 million ($0.28 per Mcfe) for the first nine months of 2025 decreased $4.2 million (4%) from lease operating expense of $99.1 million ($0.25 per Mcfe) for the first nine 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 nine months of 2025.

Gas service expenses of $141.7 million increased $89.1 million (169%) for the third quarter of 2025 from $52.6 million in the third quarter of 2024.

Gas service expenses of $385.2 million increased $252.4 million (190%) for the first nine months of 2025 from $132.8 million for the first nine months of 2024.

Our lease operating expense of $28.3 million ($0.29 per Mcfe) for the first quarter of 2026 decreased $6.7 million (19%) as compared to our lease operating expense of $35.0 million ($0.30 per Mcfe) for the first quarter of 2025.

The decrease was due to lower production in the first three months of 2026.

Gas service expenses of $162.9 million increased $46.1 million (39%) for the first quarter of 2026 from $116.8 million in the first quarter of 2025.

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 $51.0 million to $157.4 million in the third quarter of 2025 from $208.4 million in the third quarter of 2024 due to lower natural gas production in the third quarter of 2025.

Our DD&A per equivalent Mcf produced was $1.41 per Mcfe for the quarter ended September 30, 2025 as compared to $1.56 for the quarter ended September 30, 2024.

DD&A decreased $109.6 million to $483.7 million for the first nine months of 2025 from $593.3 million during the first nine months of 2024.

Our DD&A per equivalent Mcf produced was $1.43 per Mcfe for the nine months ended September 30, 2025 as compared to $1.47 for the nine months ended September 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 September 30, 2025.

COMSTOCK RESOURCES, INC.

General and administrative expenses, which are reported net of overhead reimbursements, increased to $11.5 million for the third quarter of 2025 as compared to $9.9 million in the third quarter of 2024.

General and administrative expenses increased to $34.9 million for the first nine months of 2025 as compared to $29.3 million during the first nine months of 2024.

The increases in both periods were primarily due to higher employee compensation, including stock-based compensation, which increased to $5.6 million in the third quarter of 2025 as compared to $3.9 million in the third quarter of 2024.

For the nine months ended September 30, 2025, stock-based compensation increased to $15.6 million as compared to the same period in 2024 of $11.4 million.

Depreciation, depletion and amortization ("DD&A") decreased $26.4 million to $141.5 million in the first quarter of 2026 from $167.9 million in the first quarter of 2025 due to lower natural gas production in the first quarter of 2026.

Our DD&A per equivalent Mcf produced was $1.45 per Mcfe for the quarter ended March 31, 2026 which was comparable to $1.46 for the quarter ended March 31, 2025.

General and administrative expenses, which are reported net of overhead reimbursements, increased to $18.2 million for the first quarter of 2026 as compared to $11.1 million in the first quarter of 2025.

The increase was primarily due to higher employee compensation, including stock-based compensation, which increased to $7.4 million in the first quarter of 2026 as compared to $4.4 million in the first quarter of 2025.

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

During the quarter ended September 30, 2025, we had net gains related to our derivative financial instruments of $142.8 million, as compared to net gains on derivative financial instruments of $75.2 million during the quarter ended September 30, 2024, resulting from the decline in future natural gas prices since June 30, 2025.

Realized net gains from our price risk management program were $26.4 million for the quarter ended September 30, 2025 as compared to realized net gains of $51.4 million for the quarter ended September 30, 2024.

Net gains on derivative financial instruments were $48.3 million for the first nine months of 2025 as compared to net gains of $89.2 million for the first nine months of 2024, resulting from an increase in future natural gas prices since December 31, 2024.

Realized net gains from our price risk management program were $22.7 million for the first nine months of 2025 as compared to realized net gains of $160.0 million for the first nine months of 2024.

Interest expense was $56.7 million and $54.5 million for the quarters ended September 30, 2025 and 2024, respectively, and $166.7 million and $156.0 million for the nine months ended September 30, 2025 and 2024, respectively.

The increase in interest expense was due primarily to increased borrowings on our bank credit facility.

Exploration expense was $6.6 million and $8.8 million for the three and nine months ended September 30, 2025, which was related to the acquisition of seismic data in our Western Haynesville area.

Income taxes for the quarters ended September 30, 2025 and 2024 were a provision of $18.6 million and a benefit of $14.7 million, respectively.

Income taxes for the nine months ended September 30, 2025 and 2024 were a provision of $16.8 million and a benefit of $69.1 million, respectively.

Income taxes for the quarters ended September 30, 2025 and 2024 reflect an effective tax rate of 13.6% and 36.4%, respectively.

Income taxes for the nine months ended September 30, 2025 and 2024 reflect an effective tax rate of 11.2% and 29.7%, 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.

On September 2, 2025, we divested of certain properties in East Texas and North Louisiana for net proceeds of $15.2 million and recognized a $2.5 million pre-tax loss on the divestiture for the three and nine months ended September 30, 2025.

During the three and nine months ended September 30, 2024, we sold our interest in certain non-operated properties and realized a gain of $910 thousand.

As a result of gains related to our derivative financial instruments, we reported net income of $118.1 million, or $0.40 per diluted share for the quarter ended September 30, 2025.

Income from operations for the third quarter of 2025 was $50.2 million as compared to a loss from operations of $61.3 million for the third quarter of 2024.

We reported a net loss of $25.7 million or $0.09 per share for the quarter ended September 30, 2024.

In the first nine months of 2025, we reported net income of $133.4 million or $0.45 per diluted share.

Income from operations for the first nine months of 2025 was $265.8 million.

We reported a net loss of $163.4 million or $0.57 per share for the nine months ended September 30, 2024.

During the quarter ended March 31, 2026, we had net gains related to our derivative financial instruments of $2.4 million, as compared to net losses on derivative financial instruments of $330.3 million during the quarter ended March 31, 2025, resulting from the decline in future natural gas prices since December 31, 2025.

Realized net losses from our price risk management program were $80.4 million for the quarter ended March 31, 2026 as compared to realized net losses of $8.0 million for the quarter ended March 31, 2025.

Interest expense was $53.1 million and $54.8 million for the quarters ended March 31, 2026 and 2025, respectively.

The decrease in interest expense was due primarily to decreased borrowings on our bank credit facility.

Exploration expense was $9.3 million for the first quarter of 2026 as compared to $2.2 million for the first quarter of 2025, which was related to the acquisition of seismic data in our Western Haynesville area.

COMSTOCK RESOURCES, INC.

Income taxes for the quarters ended March 31, 2026 and 2025 were a provision of $12.0 million and a benefit of $143.3 million, respectively.

Income taxes for the quarters ended March 31, 2026 and 2025 reflect an effective tax rate of 9.6% and 55.4%, 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, release of valuation allowance on deferred tax assets, state income taxes, changes in certain nondeductible items and the income attributable to noncontrolling interest.

We reported net income of $112.5 million, or $0.38 per share for the quarter ended March 31, 2026.

Income from operations for the first quarter of 2026 was $174.9 million as compared to income from operations of $126.2 million for the first quarter of 2025.

We reported a net loss of $115.4 million or $0.40 per share for the quarter ended March 31, 2025.

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

Borrowings on bank credit facility, net of repayments

Borrowings on bank credit facilities, net of repayments

Contributions from noncontrolling interest

Proceeds from asset sales

Issuance of 6.75% Senior Notes

Issuance of common stock

Uses of cash and cash equivalents:

Capital expenditures

Income tax withholdings on equity awards

Distributions to noncontrolling interest

Income tax withholdings on equity awards

Debt and stock issuance costs

Repayments on bank credit facility, net of borrowings

Cash flows from operating activities.

Net cash provided by our operating activities increased $322.1 million (91%) to $675.4 million in the first nine months of 2025 from $353.3 million in the same period in 2024.

Net cash provided by our operating activities increased $97.2 million (56%) to $272.0 million in the first three months of 2026 from $174.7 million in the same period in 2025.

The increase was due primarily to higher natural gas prices.

Contributions from noncontrolling interest.

During the first nine months of 2025 and 2024, our noncontrolling interest partner contributed $156.5 million and $36.0 million, respectively, to our midstream partnership to fund the build-out of our Western Haynesville midstream system.

Proceeds from asset sales.

In the first nine months of 2025, we sold certain properties for net proceeds of $15.2 million.

In the first nine months of 2024, we sold our interest in certain non-operated properties for net proceeds of $1.2 million.

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.

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.

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

COMSTOCK RESOURCES, INC.

Capital expenditures.

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 36 (31.8 net) wells and completed 36 (30.9 net) Haynesville and Bossier shale operated wells during the first nine months of 2025.

We currently expect to spend an additional $250 million to $350 million in the remaining three months of 2025 on drilling, completion, infrastructure and other activity.

We drilled 17 (15.3 net) wells and completed 13 (11.7 net) Haynesville and Bossier shale operated wells during the first three months of 2026.

We currently expect to spend an additional $1.1 billion to $1.2 billion in the remaining nine months of 2026 on drilling, completion, infrastructure and other activity.

Liquidity and Capital Resources

As of September 30, 2025, we had $939.2 million of liquidity, comprised of $920 million of unused borrowing capacity under our bank credit facility and $19.2 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.

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

As of March 31, 2026, we had $1.27 billion of liquidity, comprised of $1.15 billion of unused borrowing capacity under our bank credit facilities and $14.8 million of cash and cash equivalents on hand.

$103 million of unused borrowing capacity under our PGS bank credit facility is restricted to PGS midstream activities.

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

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

The timing of most of our future capital expenditures is discretionary because of our limited number of material long-term capital expenditure commitments.

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.

We believe that our cash provided by operations and borrowings available under our bank credit facilities 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 do not have a specific acquisition budget for the remainder of 2026 because the timing and size of acquisitions are unpredictable.

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

We intend to use our cash flows from operations, borrowings under our bank credit facilities, or other debt or equity financing 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.

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

As of September 30, 2025, we had $580.0 million outstanding under our bank credit facility.

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

As of March 31, 2026, we had $350.0 million outstanding under the Comstock bank credit facility.

Aggregate commitments under this 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 that is 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 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.

Borrowings under the Comstock bank credit facility are secured by substantially all of our assets and those of our subsidiaries, except for PGS, 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 0.5%, which is dependent on the utilization of the 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

Comstock's 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

COMSTOCK RESOURCES, INC.

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 September 30, 2025.

On October 10, 2025, we entered into an agreement with an unaffiliated third party to sell certain producing wells and undeveloped leasehold acreage in East Texas for $430 million in cash, subject to adjustment and customary closing conditions.

The sale is expected to close in the fourth quarter of 2025 and has an effective date of October 1, 2025.

We intend to use the net proceeds from the divestiture to reduce long-term debt.

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, 2026.

As of March 31, 2026, PGS had $47.0 million outstanding under a bank credit facility.

Aggregate commitments under the PGS bank credit facility are $150 million, which matures on March 26, 2030.

Borrowings under the PGS bank credit facility bear interest at our option, at either SOFR plus 2.5% to 3.5% or an alternate base rate plus 1.5% to 2.5%, in each case depending on a consolidated net leverage ratio.

PGS also pays a commitment fee of 0.375% to 0.5%, which is dependent on the PGS consolidated net leverage ratio.

The PGS bank credit facility contains financial covenants that require the maintenance of an interest coverage ratio of at least 2.5 to 1.0 and a consolidated net leverage ratio of less than 4.0 to 1.0.

F ederal and State Taxation

At September 30, 2025, we had $743.0 million in U.S.

At March 31, 2026, we had $1.5 billion in U.S.

federal net operating loss ("NOL") carryforwards and $1.9 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, 2022.

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.

Currently, we are under examination with the United States Internal Revenue Service 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.

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

We expect to benefit from certain provisions contained in the OBBBA, including increased interest expense deductions and bonus depreciation and have included these expected benefits in our income tax provision for the three and nine months ended September 30, 2025.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP").

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities as of the date of the financial statements.

On an ongoing basis, we evaluate our estimates and judgments.

We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ materially from these estimates under different assumptions or conditions.

In Part II, Item 7 of our 2025 Annual Report, we disclosed our critical accounting policies and estimates, which are made in accordance with GAAP, involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operation.

There have been no significant changes to our critical accounting policies and estimates during the three months ended March 31, 2026, as compared to those disclosed in the 2025 Annual Report.

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