Comstock Resources(US:CRK)2023-02-16 16:00Part I Items 1 and 2. Business and Properties Comstock Resources is an independent natural gas producer focused on Haynesville and Bossier shale plays, developing extensive drilling inventory and maintaining financial discipline - Comstock is a leading independent natural gas producer with 99% of its proved reserves located in the Haynesville and Bossier shale plays as of December 31, 2022149 Proved Reserves and PV-10 Value (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Proved Reserves | 6.7 Tcfe | | PV-10 Value | $15.5 billion | | Developed Percentage | 38% | | Average Reserve Life | ~13 years | - The company's business strategy focuses on prudently growing cash flow and reserves through developing its drilling locations, pursuing strategic acquisitions, focusing on environmental stewardship (MiQ certified), and maintaining a disciplined financial strategy with an active hedging program127128129 2022 Drilling Program Summary | Metric | Value | | :--- | :--- | | Exploration & Development Spending | $1.0 billion | | Wells Drilled (Gross/Net) | 118 / 60.6 | | Average Lateral Length | 10,138 feet | | Production Replacement Rate | 216% | Production, Price, and Cost Summary (2020-2022) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Natural Gas Production (Mcf) | 500,616 | 489,274 | 450,836 | | Oil Production (Bbl) | 82 | 1,210 | 1,508 | | Avg. Gas Price ($/Mcf) | $6.23 | $3.63 | $1.80 | | Avg. Oil Price ($/Bbl) | $92.65 | $61.95 | $32.36 | | Lifting Costs ($/Mcfe) | $0.69 | $0.57 | $0.53 | - As of December 31, 2022, the company had 244 employees and utilized contractors for certain drilling, completion, and production operations8 Item 1A. Risk Factors The company faces significant risks from volatile natural gas prices, reserve depletion, high capital needs, environmental regulations, and substantial debt - The business is heavily dependent on the price of natural gas, which is historically volatile and subject to numerous factors beyond the company's control, such as supply/demand, weather, and government regulation4243 - The company is subject to stringent and frequently changing environmental laws governing operations, waste disposal, and site remediation These regulations increase costs and could have a material adverse effect on capital expenditures and earnings1253 - Climate change poses physical risks (e.g., extreme weather damaging assets) and financial risks (e.g., reduced demand for products, negative impact on access to capital)345 - As of December 31, 2022, the company had $2.2 billion in principal debt This debt requires significant cash flow for service payments and contains covenants that restrict activities such as paying dividends and incurring more debt273228229 - The company's hedging activities, designed to mitigate price volatility, carry their own risks, including potential financial losses, counterparties failing to perform, and the inability to fully benefit from price increases258286 Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments288 Item 3. Legal Proceedings The company is not party to any material legal proceedings that would adversely affect its financial condition - The company is not party to any material legal proceedings289 Item 4. Mine Safety Disclosures This section is not applicable to the company - Not applicable290 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Comstock's common stock trades on the NYSE, and the company reinstated a quarterly cash dividend in Q4 2022 - The company's common stock is listed on the NYSE under the symbol "CRK" As of February 16, 2023, there were 277,510,165 shares outstanding26293 - A quarterly cash dividend of $0.125 per share was reinstated in Q4 2022, with the first payment of $34.7 million made on December 15, 2022262 5-Year Cumulative Total Return Comparison (Assumes $100 Invested on 12/31/2017) | Year | Comstock | NYSE Composite | SPDR S&P Oil and Gas E&P ETF | | :--- | :--- | :--- | :--- | | 2017 | $100.00 | $100.00 | $100.00 | | 2018 | $53.55 | $91.05 | $71.90 | | 2019 | $97.28 | $114.28 | $65.11 | | 2020 | $51.65 | $122.26 | $41.41 | | 2021 | $95.63 | $147.54 | $69.05 | | 2022 | $163.16 | $133.75 | $100.37 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section details the company's improved 2022 financial performance, strong liquidity, capital expenditure plans, and critical accounting estimates Results of Operations Natural gas and oil sales surged by 69% to $3.1 billion in 2022, driven by higher prices, leading to $1.1 billion net income Financial and Operational Highlights (2022 vs. 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Natural Gas & Oil Sales | $3,124.7 M | $1,850.7 M | | Net Income (Loss) | $1,140.9 M | ($241.7 M) | | Net Income (Loss) per Diluted Share | $4.11 | ($1.12) | | Average Gas Sales Price (per Mcf) | $6.23 | $3.63 | | Realized Loss on Derivatives | ($862.7 M) | ($419.9 M) | - The increase in natural gas and oil sales was primarily due to higher prices received for natural gas production, which rose from an average of $3.63 per Mcf in 2021 to $6.23 per Mcf in 2022327 - In 2022, the company commenced gas services activities following the acquisition of a pipeline and gas treating plant, generating $503.4 million in revenue and incurring $465.0 million in related expenses299301 Liquidity and Capital Resources The company maintained strong liquidity of $1.6 billion at year-end 2022, with net cash from operations doubling to $1.7 billion, funding $1.1 billion in capital expenditures - As of December 31, 2022, the company had $1.6 billion of liquidity, comprised of $1.5 billion of unused borrowing capacity under its bank credit facility and $54.7 million of cash343 - Net cash provided by operating activities increased 98% to $1.7 billion in 2022 from $859.0 million in 2021, primarily due to higher realized natural gas prices309 2022 Capital Expenditures | Category | Amount (in thousands) | | :--- | :--- | | Acquisitions | $54,620 | | Exploration & Development | $1,032,652 | | Other Property | $18,775 | | Total Capital Expenditures | $1,106,047 | - The company expects to spend approximately $1.025 billion to $1.31 billion in 2023 on development, exploration, infrastructure, and acreage acquisition, which it plans to fund with operating cash flow312315 Critical Accounting Policies and Estimates Critical accounting policies involve significant estimates for oil and gas reserves, impacting depletion and impairment, and include goodwill impairment tests - The company uses the successful efforts method of accounting, where costs of successful exploration are capitalized, and costs of unsuccessful efforts are expensed356 - Estimating proved oil and natural gas reserves is a subjective process that is highly dependent on engineering and geological interpretation These estimates are crucial for calculating depreciation, depletion, and amortization (DD&A) and for impairment analysis347 - The company evaluates its proved properties for impairment when circumstances indicate the carrying value may not be recoverable Unproved properties are evaluated based on drilling results and future plans358 - Goodwill of $335.9 million is tested for impairment annually A quantitative assessment as of October 1, 2022, indicated no impairment358319 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is commodity price volatility, managed through derivative instruments, with limited interest rate risk due to fixed-rate debt - The company's financial condition is highly dependent on the prevailing market prices of natural gas and oil, which are subject to wide fluctuations361 - As of December 31, 2022, the company had natural gas price collars to hedge approximately 174.9 Bcf of its 2023 production with an average floor price of $2.99/MMBtu and an average ceiling of $9.96/MMBtu378 - At December 31, 2022, the company had approximately $2.2 billion of fixed-rate long-term debt, minimizing exposure to interest rate fluctuations The variable-rate bank credit facility had no outstanding borrowings363 Item 8. Financial Statements and Supplementary Data The company's consolidated financial statements, prepared in conformity with GAAP, are included and audited by Ernst & Young LLP - The company's consolidated financial statements are included on pages F-1 to F-25 of this report364 - The financial statements were audited by the registered independent public accounting firm, Ernst & Young LLP365 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting or financial disclosure matters - None reported381 Item 9A. Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with an unqualified audit opinion - Based on an evaluation as of December 31, 2022, the CEO and CFO concluded that the company's disclosure controls and procedures were effective384 - Management assessed internal control over financial reporting based on the COSO framework and determined it was effective as of December 31, 2022385 - The independent registered public accounting firm, Ernst & Young LLP, issued an attestation report with an unqualified opinion on the effectiveness of the company's internal control over financial reporting369388 Item 9B. Other Information The company reports no other information for this item - None reported419 Part III Item 10. Directors, Executive Officers and Corporate Governance This section details the company's leadership team, including executive officers and directors, and confirms the adoption of a Code of Business Conduct and Ethics Executive Officers and Directors | Name | Position | Age | | :--- | :--- | :--- | | M. Jay Allison | Chief Executive Officer and Chairman of the Board | 67 | | Roland O. Burns | President, Chief Financial Officer, Secretary and Director | 62 | | Daniel S. Harrison | Chief Operating Officer | 59 | | Elizabeth B. Davis | Director | 60 | | Morris E. Foster | Director | 80 | | Jim L. Turner | Director | 77 | - M. Jay Allison has served as CEO since 1988 and Chairman since 199715 - Roland O. Burns has served as CFO since 1990 and President since 201316 - The company has adopted a Code of Business Conduct and Ethics and a Code of Ethics for Senior Financial Officers, both available on its website376 Item 11. Executive Compensation Information for this item is incorporated by reference from the definitive proxy statement - Information is incorporated by reference to the definitive proxy statement to be filed with the SEC395 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides information on the company's stockholder-approved equity compensation plans as of December 31, 2022 Equity Compensation Plan Information (as of Dec 31, 2022) | Category | Number of Securities | | :--- | :--- | | To be issued upon exercise of outstanding options, warrants and rights | 1,105,108 | | Authorized for future issuance | 4,592,055 | - The company believes all officers, directors, and 10% stockholders complied with Section 16(a) filing requirements during 2022394 Item 13. Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the definitive proxy statement - Information is incorporated by reference to the definitive proxy statement to be filed with the SEC422 Item 14. Principal Accountant Fees and Services Information for this item is incorporated by reference from the definitive proxy statement - Information is incorporated by reference to the definitive proxy statement to be filed with the SEC423 Part IV Item 15. Exhibits and Financial Statement Schedules This section lists the consolidated financial statements and all exhibits filed as part of the Form 10-K report, including key agreements and audit letters - This item lists the consolidated financial statements and exhibits filed with the report425 - Key exhibits filed include the Second Amended and Restated Credit Agreement (10.1), employment agreements for the CEO and CFO (10.3, 10.4), and the Audit Letter on Proved Reserves from Netherland, Sewell & Associates, Inc. (99.1)400427 Item 16. Form 10-K Summary This section indicates that a summary of the Form 10-K is not applicable - The report indicates this item is not applicable427 Financial Statements Consolidated Balance Sheets As of December 31, 2022, total assets increased to $5.7 billion, liabilities decreased, and equity more than doubled Consolidated Balance Sheet Summary (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $644,987 | $318,736 | | Net Property and Equipment | $4,622,655 | $4,007,146 | | Total Assets | $5,694,255 | $4,668,229 | | Total Current Liabilities | $756,137 | $633,984 | | Long-term Debt | $2,152,571 | $2,615,235 | | Total Liabilities | $3,415,941 | $3,480,450 | | Total Stockholders' Equity | $2,278,314 | $1,012,779 | Consolidated Statements of Operations For 2022, total revenues increased to $3.63 billion, resulting in $2.28 billion operating income and $1.14 billion net income Consolidated Statement of Operations Summary (in thousands) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Revenues | $3,628,057 | $1,850,730 | $858,195 | | Operating Income | $2,281,481 | $900,774 | $163,032 | | Loss from Derivatives | ($662,522) | ($560,648) | $9,951 (Gain) | | Net Income (Loss) | $1,140,882 | ($241,725) | ($52,417) | | Net Income (Loss) per Diluted Share | $4.11 | ($1.12) | ($0.39) | Consolidated Statements of Cash Flows In 2022, the company generated $1.7 billion in operating cash, used $1.1 billion for investing, and $576.7 million for financing Consolidated Statement of Cash Flows Summary (in thousands) | Category | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $1,698,388 | $859,005 | | Net Cash used for Investing Activities | ($1,097,683) | ($550,816) | | Net Cash used for Financing Activities | ($576,716) | ($307,798) | | Net Increase in Cash | $23,989 | $391 | | Cash at End of Year | $54,652 | $30,663 |