Comstock Resources(CRK) - 2022 Q3 - Quarterly Report

PART I. Financial Information This section presents the company's unaudited consolidated financial statements, management's discussion and analysis, and market risk disclosures Item 1. Financial Statements (Unaudited) This section presents Comstock Resources' unaudited consolidated financial statements for Q3 and nine months ended September 30, 2022, and related accounting notes Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time | ASSETS (In thousands) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Total current assets | $708,824 | $318,736 | | Net property & equipment | $4,440,022 | $4,007,146 | | Goodwill | $335,897 | $335,897 | | Total Assets | $5,584,365 | $4,668,229 | | LIABILITIES & EQUITY | | | | Total current liabilities | $1,091,527 | $633,984 | | Long-term debt | $2,261,697 | $2,615,235 | | Total liabilities | $3,789,949 | $3,480,450 | | Total stockholders' equity | $1,619,416 | $1,012,779 | - Total assets increased by 19.6% from $4.67 billion to $5.58 billion, primarily driven by a 122% increase in total current assets and a 10.8% increase in net property and equipment[9] - Total stockholders' equity increased by 59.9% from $1.01 billion to $1.62 billion[9] Consolidated Statements of Operations This section outlines the company's financial performance over specific periods, detailing revenues, expenses, and net income or loss | (In thousands, except per share) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $1,190,005 | $511,176 | $2,705,673 | $1,195,354 | | Operating income | $771,078 | $295,746 | $1,760,865 | $601,968 | | Loss from derivative financial instruments | $(271,335) | $(510,319) | $(781,654) | $(756,026) | | Net income (loss) | $355,596 | $(288,306) | $621,063 | $(602,126) | | Net income (loss) available to common stockholders | $351,185 | $(292,717) | $607,974 | $(615,215) | | Basic EPS | $1.50 | $(1.26) | $2.61 | $(2.66) | | Diluted EPS | $1.28 | $(1.26) | $2.24 | $(2.66) | - Total revenues for Q3 2022 increased by 132.8% to $1.19 billion from $511.2 million in Q3 2021, and for the nine months, total revenues increased by 126.3% to $2.71 billion from $1.2 billion[13] - The company reported a net income of $355.6 million for Q3 2022, a significant turnaround from a net loss of $(288.3) million in the prior year, and for the nine months, net income was $621.1 million compared to a net loss of $(602.1) million in 2021[13] Consolidated Statements of Stockholders' Equity This section details changes in the company's equity accounts, including common stock, additional paid-in capital, and accumulated earnings | (In thousands) | Balance at Jan 1, 2021 | Balance at Sep 30, 2021 | Balance at Jan 1, 2022 | Balance at Sep 30, 2022 | | :------------- | :--------------------- | :---------------------- | :--------------------- | :---------------------- | | Common Stock | $116,206 | $116,462 | $116,462 | $116,879 | | Additional Paid-in Capital | $1,095,384 | $1,098,851 | $1,100,359 | $1,098,605 | | Accumulated Earnings (Deficit) | $55,183 | $(560,032) | $(204,042) | $403,932 | | Total Stockholders' Equity | $1,266,773 | $655,281 | $1,012,779 | $1,619,416 | - Accumulated earnings shifted from a deficit of $(204.0) million to positive accumulated earnings of $403.9 million by September 30, 2022, primarily due to net income[17] Consolidated Statements of Cash Flows This section reports the cash generated and used by the company's operating, investing, and financing activities over specific periods | (In thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $1,204,483 | $618,553 | | Net cash used for investing activities | $(768,234) | $(507,790) | | Net cash used for financing activities | $(428,264) | $(113,194) | | Net increase (decrease) in cash and cash equivalents | $7,985 | $(2,431) | | Cash and cash equivalents, end of period | $38,648 | $27,841 | - Net cash provided by operating activities increased by 95% to $1.2 billion for the nine months ended September 30, 2022, compared to $618.6 million in the prior year, primarily due to higher realized natural gas prices[22][100] - Net cash used for financing activities increased significantly to $(428.3) million for the nine months ended September 30, 2022, from $(113.2) million in the prior year, mainly due to repayments of bank credit facility and retirement of senior notes[22][98] Note 1: Summary of Significant Accounting Policies This section outlines the key accounting principles and methods used in preparing the financial statements, including revenue recognition and derivative instruments - The company follows the successful efforts method of accounting for its oil and natural gas properties, capitalizing costs for successful wells and expensing unsuccessful exploratory wells[28] Other Current Assets (In thousands) | Asset Type | Sep 30, 2022 | Dec 31, 2021 | | :--------- | :----------- | :----------- | | Pipe inventory | $30,588 | $5,015 | | Production tax refunds receivable | $7,084 | $7,879 | | Prepaid expenses | $1,865 | $2,183 | | Accrued treating and transportation fees | $933 | — | | Total | $40,470 | $15,077 | - Comstock utilizes derivative financial instruments (swaps and collars) for risk management, specifically to hedge natural gas and oil prices, with none designated as cash flow hedges[45] Derivative Financial Instruments (In thousands) | Type | Sep 30, 2022 | Dec 31, 2021 | | :--- | :----------- | :----------- | | Asset Derivative Financial Instruments | $2,368 | $5,258 | | Liability Derivative Financial Instruments | $285,713 | $181,945 | - The company recognized $1.8 million of stock-based compensation expense for Q3 2022 and $4.9 million for the nine months ended September 30, 2022[50] - Revenue from oil and natural gas sales is recognized upon transfer of produced volumes to customers, net of royalties, with gas services revenues from natural gas resale and gathering/treating fees[54][55][56] - The company has established valuation allowances for deferred tax assets and U.S. federal and state net operating loss carryforwards due to uncertainty of generating sufficient taxable income for their utilization[59] Note 2: Long-Term Debt This section details the company's long-term debt obligations, including senior notes and bank credit facilities, and related transactions Long-Term Debt Composition at September 30, 2022 (In thousands) | Debt Type | Amount | | :-------- | :----- | | 6.75% Senior Notes due 2029 | $1,230,037 | | 5.875% Senior Notes due 2030 | $965,000 | | Bank Credit Facility | $100,000 | | Total Long-Term Debt | $2,261,697 | - The company had $100.0 million outstanding under a bank credit facility with a $1.4 billion committed borrowing base, maturing on July 16, 2024, and was in compliance with all financial covenants as of September 30, 2022[78] - In May 2022, the company redeemed all outstanding 7.5% senior notes due 2025 for $258.1 million, resulting in a $47.8 million loss on early retirement of debt[79] - In June 2022, the company repurchased $26.1 million principal amount of its 6.75% senior notes due 2029 for $24.9 million, recognizing a $1.0 million gain on early retirement of debt[80] Note 3: Convertible Preferred Stock This section describes the terms and characteristics of the company's outstanding convertible preferred stock - The company has 175,000 shares of Series B Convertible Preferred Stock outstanding, held by its majority stockholder, entitled to 10% quarterly dividends and convertible into common stock at $4.00 per share[83] Note 4: Commitments and Contingencies This section outlines the company's contractual obligations and potential liabilities from legal proceedings or other events - In July 2022, the company entered into a three-year hydraulic fracturing services agreement with a minimum commitment of $19.2 million per year, with fleet delivery expected in 2023[84] - The company does not believe current litigation will have a material effect on its financial position, results of operations, or cash flows[85] Note 5: Related Party Transactions This section discloses transactions between the company and its related parties, including partnerships owned by its majority stockholder - Comstock operates oil and gas properties for partnerships owned by its majority stockholder, charging for drilling, completion, production costs, and marketing services[86] - The company had a $20.8 million receivable from these partnerships as of September 30, 2022, and December 31, 2021[87] Note 6: Subsequent Event This section reports significant events that occurred after the balance sheet date but before the financial statements were issued - On October 31, 2022, the board of directors authorized a dividend of $0.125 per share to common stockholders of record on December 1, 2022[88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Comstock's financial performance, condition, and liquidity, highlighting revenue growth from natural gas prices and capital expenditure strategies Results of Operations This section provides a detailed analysis of the company's revenues, expenses, and profitability for the reporting periods Key Production and Revenue Data | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Natural gas (MMcf) | 128,902 | 128,896 | 367,758 | 366,272 | | Oil (MBbls) | 21 | 346 | 66 | 1,034 | | Total oil and gas sales | $996,915 | $511,176 | $2,383,098 | $1,195,354 | | Average Natural gas price (per Mcf) | $7.72 | $3.79 | $6.46 | $3.10 | | Average Oil price (per Bbl) | $92.19 | $66.11 | $95.82 | $59.55 | - Total oil and gas sales increased by 95% to $996.9 million for Q3 2022 and by 99% to $2.4 billion for the first nine months of 2022, primarily due to higher natural gas prices[92][93] Average Realized Natural Gas Price (per Mcf) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Natural gas, per Mcf | $7.72 | $3.79 | $6.46 | $3.10 | | Cash settlements on derivative financial instruments, per Mcf | $(2.36) | $(0.89) | $(1.84) | $(0.38) | | Price per Mcf, including cash settlements | $5.36 | $2.90 | $4.62 | $2.72 | - Production and ad valorem taxes increased by 47% to $24.5 million in Q3 2022 and by 65% to $60.1 million for the first nine months of 2022, mainly due to higher natural gas sales and increased Louisiana production tax rates[95] - Net income available to common stockholders was $351.2 million ($1.28 diluted EPS) for Q3 2022, a significant improvement from a net loss of $292.7 million ($1.26 loss per share) in Q3 2021[97] Cash Flows, Liquidity and Capital Resources This section examines the company's cash generation, available liquidity, and funding sources for its operations and investments - Net cash provided by operating activities increased by $585.9 million (95%) to $1.2 billion for the first nine months of 2022, driven by higher realized natural gas prices[100] Capital Expenditure Activity (In thousands) | Category | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------- | :-------------------------- | :-------------------------- | | Acquisitions (Proved & Unproved) | $37,601 | $18,649 | | Exploration and development | $767,998 | $508,422 | | Other property and equipment | $18,815 | $69 | | Total capital expenditures | $786,813 | $508,491 | | Total cash capital expenditures | $768,327 | $508,051 | - The company had $1.3 billion in liquidity as of September 30, 2022, comprising unused borrowing capacity under its $1.4 billion bank credit facility and $38.6 million in cash[103][107] - Future development and exploration activities are expected to be funded by operating cash flow, with significant flexibility to adjust capital expenditures due to no material long-term commitments[104] Income Taxes This section discusses the company's income tax position, including net operating loss carryforwards and their utilization limitations - As of September 30, 2022, the company had $909.9 million in U.S. federal NOL carryforwards and $1.5 billion in state NOL carryforwards[108] - The ability to use NOLs is limited by IRC Section 382 due to a 2018 change of control, restricting annual usage to $3.3 million, though a net unrealized built-in gain may increase this limitation by $147.7 million through 2023[108] - An estimated $767.3 million of federal NOLs and $1.2 billion of state NOLs are expected to expire unused due to limitations and insufficient future taxable income[109] Item 3. Quantitative and Qualitative Disclosure About Market Risk This section discusses the company's exposure to market risks from oil and natural gas prices and interest rates, detailing hedging strategies and hypothetical impacts Oil and Natural Gas Prices This section analyzes the company's sensitivity to fluctuations in oil and natural gas prices and its commodity hedging strategies - The company's financial condition is highly dependent on volatile natural gas and oil prices, influenced by global demand, supply, weather, alternative fuels, and economic conditions[110] - As of September 30, 2022, the company hedged approximately 29.4 Bcf of its 2022 natural gas production at an average price of $2.68 per MMBtu using swap agreements[111] - The company also used natural gas collars to hedge approximately 162.5 Bcf of its 2022 and 2023 natural gas production, with an average floor price of $2.91 per MMBtu and an average ceiling price of $8.62 per MMBtu[111] - A 10% increase in natural gas market price would decrease the fair value of natural gas swaps and collars by approximately $56.2 million, while a 10% decrease would increase it by $54.5 million[113] Interest Rates This section details the company's exposure to interest rate risk, particularly on its variable-rate debt obligations - As of September 30, 2022, the company had approximately $2.2 billion in long-term debt, with $965.0 million at a fixed rate of 5.875% and $1.22 billion at a fixed rate of 6.75%[114] - $100.0 million outstanding under the bank credit facility is subject to variable interest rates tied to LIBOR or the corporate base rate, making it susceptible to interest rate increases[114] Item 4. Controls and Procedures The CEO and CFO evaluated disclosure controls and procedures as effective as of September 30, 2022, with no material changes in internal controls during the quarter - Disclosure controls and procedures were deemed effective as of September 30, 2022, ensuring timely and accurate reporting[115] - No material changes in internal controls over financial reporting occurred during the three months ended September 30, 2022[115] PART II. Other Information This section includes additional required disclosures such as exhibits and official signatures Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including CEO and CFO certifications and various Inline XBRL documents - Includes Section 302 and 906 Certifications from CEO and CFO[117] - Contains Inline XBRL Instance, Schema, Calculation, Labels, Presentation, and Definition Linkbase Documents[117] Signatures This section formally concludes the report with the required signatures of the registrant's authorized officers - Report signed by M. Jay Allison (Chairman and CEO) and Roland O. Burns (President, CFO, and Secretary) on November 3, 2022[122]