Highlights of 2022‘s Second Quarter

  • Generated free cash flow from operations of $190 million in the quarter.
  • Retired $271 million in senior notes and reduced annualized leverage ratio to 1.2x.
  • Adjusted net income to common stockholders was $274 million for the quarter or $1.00 per diluted share.
  • Adjusted EBITDAX increased 105% to $515 million.
  • Operating cash flow (excluding working capital changes) increased 133% to $458 million or $1.65 per diluted share.
  • Oil and gas sales, after realized hedging losses, were $604 million, 86% higher than 2021’s second quarter.
  • Strong results from Haynesville drilling program with 16 (14.4 net) operated wells turned to sales with an average initial production of 26 MMcf per day.
  • Completed an attractive bolt-on acquisition which included approximately 60,000 net acres prospective for the Haynesville and Bossier shale in East Texas and a 145 mile high pressure pipeline and natural gas treating plant for $36 million.
  • Achieved independent certification for natural gas production under the MiQ standard during the quarter.

Financial Results for the Three Months Ended June 30, 2022

Revenues in the second quarter of 2022 totaled $604.0 million (including realized hedging losses of $257.4 million). Net cash provided by operating activities (excluding changes in working capital) generated in the second quarter was $457.9 million, and net income available to common stockholders for the second quarter of 2022 was $372.5 million or $1.36 per share. Reported net income in the quarter included a pre-tax $184.5 million unrealized gain on hedging contracts held for risk management and a $46.8 million loss on early retirement of senior notes in the quarter. Excluding these items and certain other items, adjusted net income available to common stockholders for the second quarter of 2022 was $273.6 million, or $1.00 per diluted share.

Comstock’s production cost per Mcfe in the second quarter averaged $0.74 per Mcfe, which was comprised of $0.30 for gathering and transportation costs, $0.20 for lease operating costs, $0.18 for production and other taxes and $0.06 for cash general and administrative expenses. Production cost was $0.69 per Mcfe in the first quarter of 2022 and $0.59 in the second quarter of 2021. The increase is due to higher production taxes resulting from higher natural gas prices in the quarter. Comstock’s unhedged operating margin was 89% in the second quarter of 2022 and 85% after hedging.

Financial Results for the Six Months Ended June 30, 2022

Revenues for the six months ended June 30, 2022 totaled $1.0 billion (including realized hedging losses of $374.5 million). Net cash provided by operating activities (excluding changes in working capital) generated during the first six months of 2022 was $754.5 million, and income available to common stockholders was $256.8 million or $0.96 per share. Net income during the first six months of 2022 included a pre-tax $135.8 million unrealized loss on hedging contracts held for risk management and a $46.8 million loss on early retirement of debt. Excluding these items and certain other items, adjusted net income available to common stockholders for the six months ended June 30, 2022 was $409.4 million or $1.50 per diluted share.

Comstock’s production cost per Mcfe during the six months ended June 30, 2022 averaged $0.71 per Mcfe, which was comprised of $0.29 for gathering and transportation costs, $0.21 for lease operating costs, $0.15 for production and other taxes and $0.06 for cash general and administrative expenses. Production cost was $0.59 per Mcfe for the six months ended June 30, 2021. Comstock’s unhedged operating margin was 88% during the first six months of 2022 and 83% after hedging.

Drilling Results

Comstock drilled 18 (16.5 net) operated horizontal Haynesville/Bossier shale wells in the second quarter of 2022 which had an average lateral length of 9,924 feet. The Company also participated in an additional 13 (1.9 net) non-operated Haynesville shale wells in the second quarter of 2022. Comstock turned 16 (14.4 net) wells to sales in the second quarter of 2022 and currently expects to turn an additional 14 (13.2 net) wells to sales in the third quarter of 2022.

Since its last operational update in May, Comstock has turned 14 (12.6 net) new operated Haynesville/Bossier shale wells to sales. These wells had initial daily production rates that averaged 26 MMcf per day. The completed lateral length of these wells averaged 9,577 feet. Included in the reported drilling results was Comstock’s successful Circle M well drilled in Robertson County, Texas in the Western Haynesville area. The well was completed with a 7,900 foot lateral and was tested at 37 MMcf per day.

During the second quarter, Comstock completed an acquisition which included approximately 60,000 net acres prospective for the Haynesville and Bossier shale in East Texas, a 145 mile high pressure natural gas pipeline and a natural gas treating plant for $35.6 million.

Natural Gas Certification

Comstock announced it has achieved certification for its operated natural gas production under the MiQ standard for methane emissions measurement and management. The MiQ Standard scores production, based on how well operators deploy integrated technologies to detect, measure, and abate emissions while also including a detailed assessment of policies and work practices that evaluate an operator’s preparedness to prevent future methane emissions. The certification highlights Comstock’s ongoing commitment to produce natural gas under strict environmental standards and deliver differentiated, independently certified gas based on methane intensity to both domestic and international markets. Comstock received the certification in June 2022 and the first block of the Company’s certified natural gas is available for trading. The certificates, which can be traded bundled (combined with natural gas delivery) or unbundled, will be available on MiQ’s Digital Registry in the coming weeks. The certification covers all the Company’s facilities in North Louisiana and East Texas, which currently produce approximately 2.0 billion cubic feet per day of natural gas.

Earnings Call Information

Comstock has planned a conference call for 10:00 a.m. Central Time on August 2, 2022, to discuss the second quarter 2022 operational and financial results. Investors wishing to listen should visit the Company’s website at www.comstockresources.com for a live webcast. Investors wishing to participate in the conference call telephonically will need to register at https://register.vevent.com/register/BI2b5f1d27974644e3bb8e3cae9a36c3c1. Upon registering to participate in the conference call, participants will receive the dial-in number and a personal PIN number to access the conference call. On the day of the call, please dial in at least 15 minutes in advance to ensure a timely connection to the call. The conference call will also be broadcast live in listen-only mode and can be accessed via the website URL: https://edge.media-server.com/mmc/p/cjhpy3va.

If you are unable to participate in the original conference call, a web replay will be available for twelve months beginning at 10:00 a.m. CT on August 2, 2022. The replay of the conference can be accessed using the webcast link: https://edge.media-server.com/mmc/p/cjhpy3va.

This press release may contain “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described herein. Although the Company believes the expectations in such statements to be reasonable, there can be no assurance that such expectations will prove to be correct. Information concerning the assumptions, uncertainties and risks that may affect the actual results can be found in the Company’s filings with the Securities and Exchange Commission (“SEC”) available on the Company’s website or the SEC’s website at sec.gov.

Comstock Resources, Inc. is a leading independent natural gas producer with operations focused on the development of the Haynesville shale in North Louisiana and East Texas. The Company’s stock is traded on the New York Stock Exchange under the symbol CRK.

COMSTOCK RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

Three Months Ended
June 30,
Six Months Ended
June 30,
2022 2021 2022 2021
Revenues:
Natural gas sales $         858,838 $         321,520 $         1,381,795 $         645,480
Oil sales         2,504         22,173         4,388         38,698
Total oil and gas sales         861,342         343,693         1,386,183         684,178
Gas services         84,912         —         129,485         —
Total revenues         946,254         343,693         1,515,668         684,178
Operating expenses:
Production and ad valorem taxes         21,729         10,141         35,549         19,793
Gathering and transportation         36,964         31,736         69,057         61,194
Lease operating         25,079         26,011         51,265         50,574
Exploration         2,342         —         3,363         —
Depreciation, depletion and amortization         119,201         121,446         225,929         230,574
Gas services         82,778         —         123,453         —
General and administrative         9,063         7,872         17,286         15,900
Gain on sale of assets         (19 )         (9 )         (21 )         (79 )
Total operating expenses         297,137         197,197         525,881         377,956
Operating income         649,117         146,496         989,787         306,222
Other income (expenses):
Loss from derivative financial instruments         (72,826 )         (223,958 )         (510,319 )         (245,707 )
Other income         182         530         450         811
Interest expense         (44,320 )         (56,880 )         (90,811 )         (120,691 )
Loss on early retirement of debt         (46,840 )         (114,060 )         (46,840 )         (352,599 )
Total other expenses         (163,804 )         (394,368 )         (647,520 )         (718,186 )
Income (loss) before income taxes         485,313         (247,872 )         342,267         (411,964 )
(Provision for) benefit from income taxes         (108,422 )         68,177         (76,800 )         98,144
Net income (loss)         376,891         (179,695 )         265,467         (313,820 )
Preferred stock dividends         (4,363 )         (4,363 )         (8,678 )         (8,678 )
Net income (loss) available to common stockholders $         372,528 $         (184,058 ) $         256,789 $         (322,498 )
Net income (loss) per share:
Basic $         1.60 $         (0.80 ) $         1.10 $         (1.39 )
Diluted $         1.36 $         (0.80 ) $         0.96 $         (1.39 )
Weighted average shares outstanding:
Basic         232,045         231,428         232,011         231,403
Diluted         277,614         231,428         277,485         231,403

COMSTOCK RESOURCES, INC.
OPERATING RESULTS
(In thousands, except per unit amounts)

GLJ
Three Months Ended June 30, Six Months Ended June 30,
2021 2021
2022 Pro
Forma (3)
As Reported 2022 Pro
Forma (3)
As Reported
Gas production (MMcf)         123,950         122,324         124,083         238,856         234,128         237,376
Oil production (Mbbls)         24         29         362         45         46         688
Total production (MMcfe)         124,092         122,496         126,260         239,127         234,404         241,506
Natural gas sales $         858,838 $         317,160 $         321,520 $         1,381,795 $         639,955 $         645,480
Natural gas hedging settlements (1)         (257,363 )         (16,879 )         (16,879 )         (374,549 )         (24,369 )         (24,369 )
Total natural gas including hedging         601,475         300,281         304,641         1,007,246         615,586         621,111
Oil sales         2,504         1,792         22,173         4,388         2,743         38,698
Oil hedging settlements (1)         —         —         (1,965 )         —         —         (2,883 )
Total oil including hedging         2,504         1,792         20,208         4,388         2,743         35,815
Total oil and gas sales including hedging $         603,979 $         302,073 $         324,849 $         1,011,634 $         618,329 $         656,926
Average gas price (per Mcf) $         6.93 $         2.59 $         2.59 $         5.79 $         2.73 $         2.72
Average gas price including hedging (per Mcf) $         4.85 $         2.45 $         2.46 $         4.22 $         2.63 $         2.62
Average oil price (per barrel) $         104.33 $         61.79 $         61.25 $         97.51 $         59.63 $         56.25
Average oil price including hedging (per barrel) $         104.33 $         61.79 $         55.82 $         97.51 $         59.63 $         52.06
Average price (per Mcfe) $         6.94 $         2.60 $         2.72 $         5.80 $         2.74 $         2.83
Average price including hedging (per Mcfe) $         4.87 $         2.47 $         2.57 $         4.23 $         2.64 $         2.72
Production and ad valorem taxes $         21,729 $         8,033 $         10,141 $         35,549 $         16,081 $         19,793
Gathering and transportation         36,964         31,736         31,736         69,057         61,194         61,194
Lease operating         25,079         22,807         26,011         51,265         43,866         50,574
Cash general and administrative (2)         7,482         6,073         6,073         14,210         12,411         12,411
Total production costs $         91,254 $         68,649 $         73,961 $         170,081 $         133,552 $         143,972
Production and ad valorem taxes (per Mcfe) $         0.18 $         0.06 $         0.08 $         0.15 $         0.07 $         0.08
Gathering and transportation (per Mcfe)         0.30         0.26         0.25         0.29         0.26         0.25
Lease operating (per Mcfe)         0.20         0.19         0.21         0.21         0.19         0.21
Cash general and administrative (per Mcfe)         0.06         0.05         0.05         0.06         0.05         0.05
Total production costs (per Mcfe) $         0.74 $         0.56 $         0.59 $         0.71 $         0.57 $         0.59
Unhedged operating margin 89 % 78 % 78 % 88 % 79 % 79 %
Hedged operating margin 85 % 77 % 77 % 83 % 78 % 78 %
Oil and gas capital expenditures:
Proved property acquisitions $         (69 ) $         — $         — $         205 $         — $         —
Unproved property acquisitions         21,551         7,625         7,625         25,182         13,401         13,401
Total oil and gas properties acquisitions $         21,482 $         7,625 $         7,625 $         25,387 $         13,401 $         13,401
Exploration and development:
Development leasehold $         655 $         1,995 $         2,005 $         5,287 $         6,038 $         6,061
Exploratory drilling and completion         18,840         —         —         30,397         —         —
Development drilling and completion         225,371         157,648         157,648         414,419         312,887         312,887
Other development costs         18,325         2,951         4,624         36,937         5,340         8,076
Total exploration and development capital expenditures $         263,191 $         162,594 $         164,277 $         487,040 $         324,265 $         327,024

(1)   Included in gain (loss) from derivative financial instruments in operating results.

(2)   Excludes stock-based compensation.

(3)   Excludes results of the Company’s Bakken shale assets, which were sold in October 2021.

COMSTOCK RESOURCES, INC.
NON-GAAP FINANCIAL MEASURES
(In thousands, except per share amounts)

Three Months Ended June 30, Six Months Ended
June 30,
2022 2021 2022 2021
ADJUSTED NET INCOME AVAILABLE TO COMMON STOCKHOLDERS:
Net income (loss) available to common stockholders $         372,528 $         (184,058 ) $         256,789 $         (322,498 )
Unrealized (gain) loss from derivative financial instruments         (184,537 )         204,822         135,770         217,894
Loss on early retirement of debt         46,840         114,060         46,840         352,599
Non-cash interest amortization from adjusting debt assumed in
acquisition to fair value
        1,414         2,470         4,174         7,397
Exploration expense         2,342         —         3,363         —
Gain on sale of assets         (19 )         (9 )         (21 )         (79 )
Adjustment to (provision for) benefit from income taxes         35,050         (87,875 )         (37,539 )         (142,608 )
Adjusted net income available to common stockholders (1) $         273,618 $         49,410 $         409,376 $         112,705
Adjusted net income available to common stockholders per share (2) $         1.00 $         0.20 $         1.50 $         0.44
Diluted shares outstanding         277,614         275,211         277,484         275,153

ADJUSTED EBITDAX:
Net income (loss) $         376,891 $         (179,695 ) $         265,467 $         (313,820 )
Interest expense (3)         44,320         57,172         90,811         121,252
Income taxes         108,422         (68,177 )         76,800         (98,144 )
Depreciation, depletion, and amortization         119,201         121,446         225,929         230,574
Exploration         2,342         —         3,363         —
Unrealized (gain) loss from derivative financial instruments         (184,537 )         204,822         135,770         217,894
Stock-based compensation         1,581         1,799         3,076         3,489
Loss on early extinguishment of debt         46,840         114,060         46,840         352,599
Gain on sale of assets         (19 )         (9 )         (21 )         (79 )
Total Adjusted EBITDAX (4) $         515,041 $         251,418 $         848,035 $         513,765

(1)   Adjusted net income available to common stockholders is presented because of its acceptance by investors and by Comstock management as an indicator of the Company’s profitability excluding loss on early retirement of debt, non-cash unrealized gains and losses on derivative financial instruments, gains and losses on sales of assets and other unusual items.

(2)   Adjusted net income available to common stockholders per share is calculated to include the dilutive effects of unvested restricted stock pursuant to the two-class method and performance stock units and preferred stock pursuant to the treasury stock method.

(3)   Includes realized gains or losses from interest rate derivative financial instruments.

(4)   Adjusted EBITDAX is presented in the earnings release because management believes that adjusted EBITDAX, which represents Comstock’s results from operations before interest, income taxes, and certain non-cash items, including loss on early retirement of debt, depreciation, depletion and amortization and exploration expense, is a common alternative measure of operating performance used by certain investors and financial analysts.

COMSTOCK RESOURCES, INC.
NON-GAAP FINANCIAL MEASURES
(In thousands)

Three Months Ended June 30, Six Months Ended
June 30,
2022 2021 2022 2021
OPERATING CASH FLOW (1):
Net income (loss) $         376,891 $         (179,695 ) $         265,467 $         (313,820 )
Reconciling items:
Unrealized (gain) loss from derivative financial instruments         (184,537 )         204,822         135,770         217,894
Deferred income taxes (benefit)         95,117         (71,131 )         70,329         (101,281 )
Depreciation, depletion and amortization         119,201         121,446         225,929         230,574
Loss on early retirement of debt         46,840         114,060         46,840         352,599
Amortization of debt discount and issuance costs         2,873         5,086         7,098         13,575
Stock-based compensation         1,581         1,799         3,076         3,489
Gain on sale of assets         (19 )         (9 )         (21 )         (79 )
Operating cash flow $         457,947 $         196,378 $         754,488 $         402,951
Increase in accounts receivable         (232,043 )         (33,158 )         (203,918 )         (40,190 )
(Increase) decrease in other current assets         (11,126 )         750         (9,720 )         5,528
Increase in accounts payable and accrued expenses         187,116         28,341         145,083         17,294
Net cash provided by operating activities $         401,894 $         192,311 $         685,933 $         385,583

Three Months Ended June 30, Six Months Ended
June 30,
2022 2021 2022 2021
FREE CASH FLOW (2):
Operating cash flow $         457,947 $         196,378 $         754,488 $         402,951
Less:
Exploration and development capital expenditures         (263,191 )         (164,277 )         (487,040 )         (327,024 )
Preferred dividends         (4,363 )         (4,363 )         (8,678 )         (8,678 )
Free cash flow from operations $         190,393 $         27,738 $         258,770 $         67,249
Acquisitions         (39,539 )         (7,665 )         (43,466 )         (13,447 )
Proceeds from divestitures         48         11         93         211
Free cash flow after acquisition and divestiture activity $         150,902 $         20,084 $         215,397 $         54,013

(1)   Operating cash flow is presented in the earnings release because management believes it to be useful to investors as a common alternative measure of cash flows which excludes changes to other working capital accounts.

(2)   Free cash flow from operations and free cash flow after acquisition and divestiture activity are presented in the earnings release because management believes them to be useful indicators of the Company’s ability to internally fund acquisitions and debt maturities after exploration and development capital expenditures, preferred dividend payments, proved and unproved property acquisitions, and proceeds from divestiture of oil and gas properties.

COMSTOCK RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)

As of
June 30,
2022
December 31, 2021
ASSETS
Cash and cash equivalents $         32,272 $         30,663
Accounts receivable         471,656         267,738
Derivative financial instruments         2,086         5,258
Other current assets         24,797         15,077
Total current assets         530,811         318,736
Property and equipment, net         4,313,201         4,007,146
Goodwill         335,897         335,897
Operating lease right-of-use assets         108,284         6,450
$         5,288,193 $         4,668,229
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable $         454,752 $         314,569
Accrued costs         153,763         135,026
Operating leases         37,561         2,444
Derivative financial instruments         318,585         181,945
Total current liabilities         964,661         633,984
Long-term debt         2,510,253         2,615,235
Deferred income taxes         267,746         197,417
Derivative financial instruments         —         4,042
Long-term operating leases         70,797         4,075
Asset retirement obligation         28,433         25,673
Other non-current liabilities         24         24
Total liabilities         3,841,914         3,480,450
Mezzanine Equity:
Preferred stock         175,000         175,000
Stockholders’ Equity:
Common stock         116,579         116,462
Additional paid-in capital         1,101,953         1,100,359
Accumulated earnings (deficit)         52,747         (204,042 )
Total stockholders’ equity         1,271,279         1,012,779
$         5,288,193 $         4,668,229