Comstock Resources(CRK) - 2025 Q2 - Quarterly Report

PART I. Financial Information This section provides unaudited consolidated financial statements, management's discussion and analysis, and disclosures on market risks and controls Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes Consolidated Balance Sheets The Consolidated Balance Sheets show the company's financial position, with notable increases in cash, property and equipment, and total liabilities, alongside an overall increase in total stockholders' equity | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $25,859 | $6,799 | | Total current assets | $268,979 | $284,034 | | Net property and equipment | $6,002,010 | $5,688,389 | | Total liabilities | $4,259,996 | $4,048,553 | | Total stockholders' equity | $2,434,867 | $2,333,544 | Consolidated Statements of Operations The company reported a significant increase in total revenues for both the three and six months ended June 30, 2025, primarily driven by higher natural gas sales and gas services, leading to net income Revenues (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (%) | | :------------------------ | :------------------ | :------------------ | :--------- | | Natural gas sales | $339,225 | $216,527 | +56.6% | | Oil sales | $741 | $1,074 | -31.0% | | Total natural gas and oil sales | $339,966 | $217,601 | +56.2% | | Gas services | $130,296 | $29,229 | +345.1% | | Total revenues | $470,262 | $246,830 | +90.5% | Net Income (Loss) and EPS (Three Months Ended June 30) | Metric | 2025 (in thousands, except per share) | 2024 (in thousands, except per share) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | | Net income (loss) | $130,728 | $(123,249) | | Net income (loss) available to the Company | $124,842 | $(126,310) | | Basic EPS | $0.45 | $(0.43) | | Diluted EPS | $0.44 | $(0.43) | Net Income (Loss) and EPS (Six Months Ended June 30) | Metric | 2025 (in thousands, except per share) | 2024 (in thousands, except per share) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | | Net income (loss) | $15,335 | $(137,723) | | Net income (loss) available to the Company | $3,564 | $(142,631) | | Basic EPS | $0.05 | $(0.49) | | Diluted EPS | $0.05 | $(0.49) | Consolidated Statements of Stockholders' Equity The Consolidated Statements of Stockholders' Equity show an increase in total stockholders' equity from January 1, 2025, to June 30, 2025, primarily driven by net income and noncontrolling interests - Total stockholders' equity increased from $2.334 billion at January 1, 2025, to $2.435 billion at June 30, 2025[19] - Noncontrolling interest significantly increased from $92.521 million at January 1, 2025, to $191.292 million at June 30, 2025, largely due to contributions[19] - Accumulated earnings increased from $607.341 million at March 31, 2025, to $732.183 million at June 30, 2025, reflecting net income[19] Consolidated Statements of Cash Flows Net cash provided by operating activities more than doubled for the six months ended June 30, 2025, compared to the prior year, primarily due to higher natural gas prices Cash Flows (Six Months Ended June 30) | Activity | 2025 (in thousands) | 2024 (in thousands) | Change (%) | | :-------------------------------- | :------------------ | :------------------ | :--------- | | Net cash provided by operating activities | $522,310 | $255,114 | +104.7% | | Net cash used for investing activities | $(639,267) | $(575,724) | +11.0% | | Net cash provided by financing activities | $136,017 | $323,211 | -57.9% | | Net increase in cash and cash equivalents | $19,060 | $2,601 | +632.8% | | Cash and cash equivalents, end of period | $25,859 | $19,270 | +34.2% | - Operating cash flow increased primarily due to higher natural gas prices[113] - Capital expenditures increased to $639.267 million in 2025 from $575.724 million in 2024[22][117] Notes to Consolidated Financial Statements These notes provide detailed explanations of the company's accounting policies, financial instrument valuations, debt structure, commitments, and other significant financial disclosures Summary of Significant Accounting Policies This section outlines the company's basis of presentation, including the consolidation of Pinnacle Gas Services, the successful efforts method for natural gas and oil properties, and accounting for goodwill and right-of-use lease assets - Comstock consolidates Pinnacle Gas Services (PGS), a joint venture, as the primary beneficiary, with PGS assets not usable by Comstock for general corporate purposes totaling $243.2 million as of June 30, 2025[27] - The Company follows the successful efforts method for natural gas and oil properties, capitalizing costs for acquired leases and developmental wells, while expensing exploratory well costs if unsuccessful[29] - Capitalized exploratory well costs increased to $151.973 million at June 30, 2025, from $69.800 million at June 30, 2024[31] - Goodwill remained at $335.9 million as of June 30, 2025, with no impairment indicators identified[35] - Right-of-use lease assets totaled $87.8 million as of June 30, 2025, related to corporate office, equipment, vehicles, and drilling rigs[36] Accrued Costs Accrued costs increased to $151.798 million at June 30, 2025, from $146.173 million at December 31, 2024, primarily driven by a significant rise in accrued income and other taxes Accrued Costs (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Accrued interest payable | $63,404 | $64,041 | | Accrued drilling costs | $31,918 | $34,493 | | Accrued transportation costs | $28,597 | $28,031 | | Accrued income and other taxes | $16,378 | $1,350 | | Accrued employee compensation | $5,319 | $14,076 | | Accrued lease operating expenses | $3,693 | $2,630 | | Other | $2,489 | $1,552 | | Total Accrued Costs | $151,798 | $146,173 | Reserve for Future Abandonment Costs The reserve for future abandonment costs increased to $35.008 million at June 30, 2025, from $33.996 million at the beginning of the period, primarily due to accretion expense and new wells placed on production Changes in Reserve for Future Abandonment Costs (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | | :-------------------------------------- | :--- | :--- | | Reserve for future abandonment costs at beginning of period | $33,996 | $30,773 | | New wells placed on production | $51 | $87 | | Liabilities settled | $(34) | $(31) | | Accretion expense | $995 | $880 | | Reserve for future abandonment costs at end of period | $35,008 | $31,709 | Derivative Financial Instruments and Hedging Activities Comstock utilizes natural gas price swaps and collar contracts for risk management, recognizing a significant gain in Q2 2025 due to declining future natural gas prices, but a net loss for H1 2025 Natural Gas Price Derivative Instruments (June 30, 2025) | Contract Type | Future Production Period | Volume (MMBtu) | Average Price per MMBtu | | :-------------------------- | :----------------------- | :--------------- | :---------------------- | | Natural Gas Price Swap Contracts | Six Months Ending Dec 31, 2025 | 100,280,000 | $3.48 | | | Year Ending Dec 31, 2026 | 116,800,000 | $3.51 | | Natural Gas Price Collar Contracts | Six Months Ending Dec 31, 2025 | 27,600,000 | Ceiling: $3.80, Floor: $3.50 | | | Year Ending Dec 31, 2026 | 167,900,000 | Ceiling: $4.35, Floor: $3.50 | - Gain from derivative financial instruments: $235.847 million for Q2 2025 (vs. $(25.252) million in Q2 2024)[51] - Loss from derivative financial instruments: $(94.492) million for H1 2025 (vs. $14.055 million in H1 2024)[51] Stock-Based Compensation The company recognized increased stock-based compensation expense for both the three and six months ended June 30, 2025, related to grants of restricted stock and performance stock units - Stock-based compensation expense: $5.5 million (Q2 2025) vs $4.1 million (Q2 2024), and $10.0 million (H1 2025) vs $7.5 million (H1 2024)[52] - Unvested restricted stock outstanding: 1,979,667 shares with $21.3 million unrecognized compensation cost as of June 30, 2025[53] - PSUs outstanding: 1,603,916 units with $24.6 million unrecognized compensation cost as of June 30, 2025[55] Segment Reporting Comstock operates as a single business segment focused on the exploration and production of North American natural gas and oil, primarily in the Haynesville and Bossier shale - Operates in one business segment: exploration and production of North American natural gas and oil (Haynesville and Bossier shale)[56] - Consolidated net income is the primary measure of segment profit or loss[56] Revenue Recognition Revenues from natural gas and oil sales are recognized upon transfer of produced volumes, while gas services revenues are recognized upon service completion or delivery - Natural gas and oil revenues recognized upon transfer of produced volumes to customers[57] - Gas services revenues include sales of purchased natural gas for resale and gathering/treating fees, recognized upon service completion or delivery[58] - Accounts receivable from purchasers: $140.5 million (June 30, 2025) vs $145.4 million (Dec 31, 2024)[61] Credit Losses Comstock has not experienced significant credit losses historically and believes all receivables are fully collectible, thus no allowance for doubtful accounts has been recorded - No significant credit losses have been experienced in the past[63] - No allowance for doubtful accounts has been recorded for the six months ended June 30, 2025, and 2024[63] Income Taxes The company's effective tax rate for Q2 2025 was 52.0%, significantly impacted by mark-to-market changes in derivative financial instruments, and the impact of the OBBBA is being evaluated Effective Tax Rate | Period | 2025 | 2024 | | :----------------------- | :----- | :----- | | Three Months Ended June 30 | 52.0% | 27.2% | | Six Months Ended June 30 | (13.2)% | 28.3% | - Significant variance in the effective tax rate from the statutory rate primarily due to the impact of mark-to-market changes in the Company's derivative financial instruments[66] - The One Big Beautiful Bill Act (OBBBA), signed in July 2025, is expected to provide benefits (increased interest expense deductions and bonus depreciation), but its impact is still being evaluated[70] Fair Value Measurements The company measures certain financial assets and liabilities at fair value using a three-level hierarchy, classifying commodity-based derivatives as Level 2 and fixed-rate senior notes as Level 1 Fair Values of Financial Instruments (June 30, 2025) | Instrument | Carrying Value (in thousands) | Fair Value (in thousands) | Level | | :-------------------------- | :---------------------------- | :------------------------ | :---- | | Commodity-based derivatives (Asset) | $275 | $275 | Level 2 | | Commodity-based derivatives (Liability) | $161,926 | $161,926 | Level 2 | | Bank credit facility | $475,000 | $475,000 | N/A (floating rate) | | 6.75% senior notes due 2029 | $1,605,711 | $1,616,820 | Level 1 | | 5.875% senior notes due 2030 | $965,000 | $936,050 | Level 1 | Earnings Per Share Unvested restricted stock and performance stock units are included in the computation of basic and diluted earnings per share, with the company reporting positive EPS for Q2 and H1 2025 - Unvested restricted stock: 2,342 thousand shares (Q2 2025) and 2,330 thousand shares (H1 2025) included in EPS calculations[78] - Weighted average PSUs: 1,411 thousand units (Q2 2025) and 1,351 thousand units (H1 2025) for diluted EPS[79] Basic and Diluted EPS | Period | Basic EPS (2025) | Basic EPS (2024) | Diluted EPS (2025) | Diluted EPS (2024) | | :----------------------- | :--------------- | :--------------- | :----------------- | :----------------- | | Three Months Ended June 30 | $0.45 | $(0.43) | $0.44 | $(0.43) | | Six Months Ended June 30 | $0.05 | $(0.49) | $0.05 | $(0.49) | Supplementary Information with Respect to the Consolidated Statements of Cash Flows This section provides additional details on cash payments for interest and income taxes, and non-cash investing activities, noting increased interest payments and a shift to an income tax refund position Cash Payments (Six Months Ended June 30, in thousands) | Category | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Interest payments | $104,733 | $90,349 | | Income tax payments (refunds) | $(31,000) | $37 | | Liabilities assumed in exchange for right-of-use lease assets | $36,244 | $34,196 | Recent Accounting Pronouncements The company is evaluating the impact of new FASB ASUs on income tax disclosures and disaggregation of income statement expenses, neither of which is expected to materially impact reported results - ASU 2023-09, 'Improvements to Income Tax Disclosures,' effective after December 15, 2024, is not expected to materially impact reported results[82] - ASU 2024-03, 'Disaggregation of Income Statement Expenses,' effective after December 15, 2026, is still being evaluated for its impact on financial statement disclosures[83] Long-Term Debt Comstock's long-term debt includes 6.75% Senior Notes due 2029, 5.875% Senior Notes due 2030, and a bank credit facility, with $475.0 million outstanding and compliance with all financial covenants Long-Term Debt Composition (June 30, 2025, in thousands) | Debt Type | Principal | | :-------------------------- | :---------- | | 6.75% Senior Notes due 2029 | $1,623,880 | | 5.875% Senior Notes due 2030 | $965,000 | | Bank Credit Facility | $475,000 | | Total (excluding discount/costs) | $3,063,880 | - Bank credit facility: $475.0 million outstanding, $1.5 billion aggregate commitments, $2.0 billion borrowing base (redetermined April 29, 2025)[85][121] - The company was in compliance with all financial covenants (leverage ratio < 3.75 to 1.0, adjusted current ratio >= 1.0 to 1.0) as of June 30, 2025[85][123] Commitments and Contingencies Comstock entered into agreements for two new drilling rigs, one capitalized as a right-of-use lease asset and another with a remaining commitment of $9.6 million, and is involved in routine litigation - New drilling rig agreements: one three-year term rig capitalized as a right-of-use lease asset, and one one-year term rig with a remaining commitment of $9.6 million[90] - Resolution of litigation is not expected to have a material effect on the company's financial position, results of operations, or cash flows[91][135] Related Party Transactions Comstock operates natural gas and oil properties for partnerships owned by its majority stockholder, providing services for a fee, with receivables from these partnerships at $3.3 million - Provides drilling, operating, and marketing services to partnerships owned by its majority stockholder[92] - Received $260 thousand for Q2 2025 and $599 thousand for H1 2025 for services, reducing general and administrative expenses[92] - Receivable from partnerships: $3.3 million at June 30, 2025, down from $5.5 million at December 31, 2024[93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, liquidity, and capital resources, detailing the drivers behind changes in revenues, expenses, and cash flows Results of Operations The company experienced significant increases in natural gas sales and gas services revenues for both the three and six months ended June 30, 2025, primarily due to higher natural gas prices Revenues Natural gas and oil sales increased substantially due to higher realized natural gas prices, despite a decrease in production volumes, with gas service revenues also seeing significant growth - Natural gas and oil sales increased by $122.4 million (56%) to $340.0 million for Q2 2025 compared to Q2 2024[97] - Average realized natural gas price was $3.02 per Mcf for Q2 2025, an 83% increase from $1.65 per Mcf in Q2 2024[97] - Natural gas production decreased by 14% to 112.2 Bcf for Q2 2025[97] - Gas service revenues increased by $101.1 million (346%) to $130.3 million for Q2 2025[100] Costs and Expenses Production and ad valorem taxes, along with gathering and transportation costs, decreased due to lower production, while gas service expenses rose significantly with higher natural gas prices - Production and ad valorem taxes decreased by $8.7 million (45%) to $10.6 million for Q2 2025, due to lower Louisiana tax rates and reduced production[101] - Gathering and transportation costs decreased by $7.6 million (15%) to $41.8 million for Q2 2025, primarily due to lower production[102] - Lease operating expense was $31.1 million ($0.28 per Mcfe) for Q2 2025, comparable to Q2 2024, but the rate per Mcfe increased due to fixed costs and lower production[103] - Gas service expenses increased by $95.2 million (302%) to $126.7 million for Q2 2025, driven by higher natural gas prices for purchased gas[104] - Depreciation, depletion and amortization (DD&A) decreased by $35.9 million to $158.4 million for Q2 2025, due to lower natural gas production and higher estimated proved undeveloped reserves[105] - General and administrative expenses increased to $12.3 million for Q2 2025, primarily due to higher employee and stock-based compensation[106] Derivative Financial Instruments The company reported net gains of $235.8 million from derivative financial instruments in Q2 2025, a significant reversal from losses in Q2 2024, but net losses for the first six months of 2025 - Net gains related to derivative financial instruments were $235.8 million for Q2 2025, compared to net losses of $25.3 million for Q2 2024[107][109] - Net losses on derivative financial instruments were $94.5 million for H1 2025, compared to net gains of $14.1 million for H1 2024[109] - Realized net gains from price risk management were $4.3 million for Q2 2025, down from $60.6 million for Q2 2024[109] Interest Expense Interest expense increased to $55.2 million for Q2 2025 and $110.0 million for H1 2025, primarily due to the issuance of an additional $400.0 million principal amount of senior notes in Q2 2024 - Interest expense was $55.2 million for Q2 2025, up from $51.9 million for Q2 2024[110] - Interest expense was $110.0 million for H1 2025, up from $101.5 million for H1 2024[110] - The increase in interest expense was primarily due to the issuance of an additional $400.0 million principal amount of senior notes in Q2 2024[110] Income Taxes The company recorded an income tax provision of $141.5 million for Q2 2025 and a benefit of $1.8 million for H1 2025, with effective tax rates varying significantly from the statutory rate - Income tax provision was $141.5 million for Q2 2025, compared to a benefit of $46.1 million for Q2 2024[111] - Income tax benefit was $1.8 million for H1 2025, compared to $54.4 million for H1 2024[111] - Effective tax rates were 52.0% for Q2 2025 and (13.2)% for H1 2025, with significant variance from the 21% statutory rate[111] Net Income (Loss) Comstock reported net income of $130.7 million ($0.44 diluted EPS) for Q2 2025, a significant improvement from a net loss in Q2 2024, primarily driven by derivative financial instrument gains - Net income was $130.7 million ($0.44 diluted EPS) for Q2 2025, compared to a net loss of $123.2 million ($0.43 diluted EPS) for Q2 2024[112] - Net income was $15.3 million ($0.05 diluted EPS) for H1 2025, compared to a net loss of $137.7 million ($0.49 diluted EPS) for H1 2024[112] Cash Flows, Liquidity and Capital Resources This section details the company's cash flow generation, liquidity position, capital expenditure plans, and debt management, noting significantly increased operating cash flows and strong liquidity Cash Flows Net cash provided by operating activities increased significantly due to higher natural gas prices, with capital expenditures rising and financing activities including substantial noncontrolling interest contributions - Net cash provided by operating activities increased by $267.2 million (105%) to $522.3 million for H1 2025[113] - Capital expenditures increased to $639.3 million for H1 2025 from $575.7 million for H1 2024[117] - Contributions from noncontrolling interest totaled $92.5 million for H1 2025, primarily to fund the Western Haynesville midstream system build-out[116] - The company drilled 19 (17.5 net) wells and completed 24 (20.3 net) Haynesville and Bossier shale operated wells during H1 2025[117] Liquidity and Capital Resources As of June 30, 2025, Comstock had $1.05 billion in liquidity, comprising unused borrowing capacity and cash, expecting to fund future activities with operating cash flow and its bank credit facility - Total liquidity was $1.05 billion as of June 30, 2025, consisting of $1.02 billion unused borrowing capacity under the bank credit facility and $25.9 million cash[118] - Expected capital expenditures for the remaining six months of 2025 are $550 million to $650 million for drilling, completion, infrastructure, and other activities[117] - The bank credit facility has $475.0 million outstanding, $1.5 billion aggregate commitments, and a $2.0 billion borrowing base[121] - The company was in compliance with all bank credit facility covenants as of June 30, 2025[123] Federal and State Taxation Comstock holds significant U.S. federal and state net operating loss (NOL) carryforwards, but their utilization is limited due to a 2018 change of control, with a substantial portion expected to expire unused - U.S. federal net operating loss (NOL) carryforwards: $743.0 million at June 30, 2025[124] - State NOL carryforwards: $1.8 billion at June 30, 2025[124] - Estimated $740.6 million of federal and $1.2 billion of state NOL carryforwards are expected to expire unused due to change of control limitations[124] - Currently under examination by the United States Internal Revenue Service and the state of Louisiana[125] - Evaluating the impact of the One Big Beautiful Bill Act (OBBBA) on income tax disclosures and consolidated financial statements[126] Item 3. Quantitative and Qualitative Disclosure About Market Risk This section details the company's exposure to market risks, primarily from fluctuations in natural gas and oil prices and interest rates, and its use of derivative financial instruments to hedge these risks Natural Gas and Oil Prices Comstock's financial performance is highly sensitive to volatile natural gas and oil prices, which are influenced by global demand, supply, geopolitical events, and economic conditions, with hedging strategies in place - Financial condition, results of operations, and capital resources are highly dependent upon prevailing market prices of natural gas and oil, which are subject to wide fluctuations[127] - Hedged approximately 100.3 Bcf of 2025 natural gas production at an average price of $3.48 per MMBtu and 116.8 Bcf of 2026 production at $3.51 per MMBtu via natural gas price swaps[128] - Hedged approximately 27.6 Bcf of 2025 natural gas production (average ceiling $3.80, average floor $3.50) and 167.9 Bcf of 2026 production (average ceiling $4.35, average floor $3.50) via natural gas collars[128] - A 10% increase in natural gas market price would decrease the fair value of derivatives by approximately $119.2 million; a 10% decrease would increase fair value by approximately $118.5 million[129] Interest Rates Comstock has approximately $3.1 billion in long-term debt, with a significant portion bearing fixed interest rates, but $475.0 million outstanding under its bank credit facility is subject to variable interest rates - Approximately $3.1 billion principal amount of long-term debt outstanding at June 30, 2025[131] - $965.0 million of long-term debt bears a fixed interest rate of 5.875%, and $1.62 billion bears a fixed rate of 6.75%[131] - $475.0 million outstanding under the bank credit facility is subject to variable interest rates tied to SOFR or the corporate base rate[131] - Any increase in variable interest rates would adversely impact the company's results of operations and cash flow[131] Item 4. Controls and Procedures The CEO and CFO evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2025, concluding they were effective, with no material changes in internal controls - Disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance for timely and accurate financial reporting[132] - No material changes in internal controls over financial reporting occurred during the three months ended June 30, 2025[132] PART II. Other Information This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings The company is involved in certain litigation that arises in the normal course of its operations but does not anticipate any material effect on its financial position, results of operations, or cash flows - Involved in certain litigation that arises in the normal course of operations[135] - Resolution of these matters is not expected to have a material effect on the company's financial position, results of operations, or cash flows[135] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to the Risk Factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[136] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None[137] Item 3. Defaults upon Senior Securities There were no defaults upon senior securities to report for the period - None[138] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[139] Item 5. Other Information During the three months ended June 30, 2025, none of the company's directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" - No Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the three months ended June 30, 2025[140] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, incentive plans, and required certifications, along with Inline XBRL documents - Includes various corporate governance documents (Articles of Incorporation, Bylaws), incentive plans, and required certifications (Section 302, Section 906)[141] - Inline XBRL Instance Document, Taxonomy Extension Schema, and Cover Page Interactive Data File are filed herewith[141] SIGNATURES The report is duly signed on behalf of Comstock Resources, Inc. by M. Jay Allison, Chairman and Chief Executive Officer, and Roland O. Burns, President, Chief Financial Officer and Secretary - Signed by M. Jay Allison (Chairman and Chief Executive Officer) and Roland O. Burns (President, Chief Financial Officer and Secretary) on July 31, 2025[146]