e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| |
|
|
| þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarter Ended September 30, 2010
OR
| |
|
|
| o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 001-03262
COMSTOCK RESOURCES, INC.
(Exact name of registrant as specified in its charter)
| |
|
|
|
| NEVADA
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|
94-1667468 |
| (State or other jurisdiction of
|
|
(I.R.S. Employer |
| incorporation or organization)
|
|
Identification Number) |
5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034
(Address of principal executive offices)
Telephone No.: (972) 668-8800
Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to submit and post
such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
| |
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|
Large accelerated filer þ
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|
Accelerated filer o
|
|
Non-accelerated filer o
(Do not check if a smaller reporting company)
|
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes o No þ
The number of shares outstanding of the registrant’s common stock, par value
$.50, as of November 4, 2010 was 47,317,356.
COMSTOCK RESOURCES, INC.
QUARTERLY REPORT
For the Quarter Ended September 30, 2010
INDEX
2
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
3
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2010 |
|
|
2009 |
|
| |
|
(In thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
4,350 |
|
|
$ |
90,472 |
|
Accounts Receivable: |
|
|
|
|
|
|
|
|
Oil and gas sales |
|
|
25,013 |
|
|
|
31,435 |
|
Joint interest operations |
|
|
7,171 |
|
|
|
8,845 |
|
Marketable Securities |
|
|
70,661 |
|
|
|
95,973 |
|
Income Taxes Receivable |
|
|
— |
|
|
|
42,402 |
|
Other Current Assets |
|
|
3,577 |
|
|
|
4,259 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
110,772 |
|
|
|
273,386 |
|
Property and Equipment: |
|
|
|
|
|
|
|
|
Unevaluated oil and gas properties |
|
|
226,954 |
|
|
|
130,364 |
|
Oil and gas properties, successful efforts method |
|
|
2,586,057 |
|
|
|
2,289,571 |
|
Other property and equipment |
|
|
18,229 |
|
|
|
6,477 |
|
Accumulated depreciation, depletion and amortization |
|
|
(1,013,278 |
) |
|
|
(850,125 |
) |
|
|
|
|
|
|
|
Net property and equipment |
|
|
1,817,962 |
|
|
|
1,576,287 |
|
Other Assets |
|
|
7,856 |
|
|
|
9,288 |
|
|
|
|
|
|
|
|
|
|
$ |
1,936,590 |
|
|
$ |
1,858,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable |
|
$ |
76,479 |
|
|
$ |
67,488 |
|
Accrued Expenses |
|
|
27,729 |
|
|
|
20,695 |
|
Deferred Income Taxes Payable |
|
|
369 |
|
|
|
6,588 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
104,577 |
|
|
|
94,771 |
|
Long-term Debt |
|
|
528,238 |
|
|
|
470,836 |
|
Deferred Income Taxes Payable |
|
|
224,686 |
|
|
|
220,682 |
|
Reserve for Future Abandonment Costs |
|
|
6,975 |
|
|
|
6,561 |
|
Other Non-current Liabilities |
|
|
2,600 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
867,076 |
|
|
|
792,850 |
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
Common stock – $0.50 par, 75,000,000
shares authorized, 47,317,356 and
47,103,770 shares outstanding at
September 30, 2010 and December 31,
2009, respectively |
|
|
23,659 |
|
|
|
23,552 |
|
Additional paid-in capital |
|
|
450,124 |
|
|
|
434,505 |
|
Retained earnings |
|
|
578,458 |
|
|
|
577,435 |
|
Accumulated other comprehensive income |
|
|
17,273 |
|
|
|
30,619 |
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
1,069,514 |
|
|
|
1,066,111 |
|
|
|
|
|
|
|
|
|
|
$ |
1,936,590 |
|
|
$ |
1,858,961 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
4
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
| |
|
(In thousands, except per share amounts) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales |
|
$ |
79,720 |
|
|
$ |
67,436 |
|
|
$ |
276,491 |
|
|
$ |
200,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production taxes |
|
|
3,062 |
|
|
|
1,848 |
|
|
|
9,543 |
|
|
|
5,486 |
|
Gathering and transportation |
|
|
4,101 |
|
|
|
1,368 |
|
|
|
12,308 |
|
|
|
3,962 |
|
Lease operating |
|
|
13,002 |
|
|
|
12,803 |
|
|
|
41,150 |
|
|
|
41,015 |
|
Exploration |
|
|
1,238 |
|
|
|
227 |
|
|
|
2,506 |
|
|
|
371 |
|
Depreciation, depletion and amortization |
|
|
46,796 |
|
|
|
53,933 |
|
|
|
163,603 |
|
|
|
152,001 |
|
Impairment of oil and gas properties |
|
|
26 |
|
|
|
115 |
|
|
|
213 |
|
|
|
115 |
|
General and administrative, net |
|
|
9,400 |
|
|
|
8,689 |
|
|
|
28,965 |
|
|
|
27,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
77,625 |
|
|
|
78,983 |
|
|
|
258,288 |
|
|
|
230,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
2,095 |
|
|
|
(11,547 |
) |
|
|
18,203 |
|
|
|
(29,847 |
) |
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
5 |
|
|
|
3 |
|
|
|
263 |
|
|
|
35 |
|
Other income |
|
|
100 |
|
|
|
23 |
|
|
|
145 |
|
|
|
115 |
|
Gain on sale of assets |
|
|
— |
|
|
|
— |
|
|
|
4,895 |
|
|
|
— |
|
Interest expense |
|
|
(7,108 |
) |
|
|
(3,244 |
) |
|
|
(22,551 |
) |
|
|
(8,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expenses) |
|
|
(7,003 |
) |
|
|
(3,218 |
) |
|
|
(17,248 |
) |
|
|
(8,157 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(4,908 |
) |
|
|
(14,765 |
) |
|
|
955 |
|
|
|
(38,004 |
) |
Benefit from income taxes |
|
|
208 |
|
|
|
2,193 |
|
|
|
68 |
|
|
|
8,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(4,700 |
) |
|
$ |
(12,572 |
) |
|
$ |
1,023 |
|
|
$ |
(29,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.10 |
) |
|
$ |
(0.28 |
) |
|
$ |
0.02 |
|
|
$ |
(0.66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.10 |
) |
|
$ |
(0.28 |
) |
|
$ |
0.02 |
|
|
$ |
(0.66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
45,623 |
|
|
|
45,032 |
|
|
|
45,537 |
|
|
|
44,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
45,623 |
|
|
|
45,032 |
|
|
|
45,589 |
|
|
|
44,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
5
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE LOSS
For the Nine Months Ended September 30, 2010
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
| |
|
Common |
|
|
Common |
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
| |
|
Stock |
|
|
Stock – |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
| |
|
(Shares) |
|
|
Par Value |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Total |
|
| |
|
(In thousands) |
|
Balance at January 1, 2010 |
|
|
47,104 |
|
|
$ |
23,552 |
|
|
$ |
434,505 |
|
|
$ |
577,435 |
|
|
$ |
30,619 |
|
|
$ |
1,066,111 |
|
Exercise of stock options |
|
|
177 |
|
|
|
89 |
|
|
|
1,204 |
|
|
|
— |
|
|
|
— |
|
|
|
1,293 |
|
Stock-based compensation |
|
|
36 |
|
|
|
18 |
|
|
|
12,912 |
|
|
|
— |
|
|
|
— |
|
|
|
12,930 |
|
Tax benefit from
stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,503 |
|
|
|
— |
|
|
|
— |
|
|
|
1,503 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,023 |
|
|
|
— |
|
|
|
1,023 |
|
Net change in unrealized
gains and losses on
marketable securities, net of
income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(13,346 |
) |
|
|
(13,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010 |
|
|
47,317 |
|
|
$ |
23,659 |
|
|
$ |
450,124 |
|
|
$ |
578,458 |
|
|
$ |
17,273 |
|
|
$ |
1,069,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
6
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
| |
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
| |
|
(In thousands) |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,023 |
|
|
$ |
(29,704 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
131 |
|
|
|
22,318 |
|
Depreciation, depletion and amortization |
|
|
163,603 |
|
|
|
152,001 |
|
Impairment of oil and gas properties |
|
|
213 |
|
|
|
115 |
|
Gain on sale of assets |
|
|
(4,895 |
) |
|
|
— |
|
Debt issuance costs and discount amortization |
|
|
1,834 |
|
|
|
608 |
|
Stock-based compensation |
|
|
12,930 |
|
|
|
11,533 |
|
Excess tax benefit from stock-based compensation |
|
|
(1,503 |
) |
|
|
(974 |
) |
Decrease in accounts receivable |
|
|
8,096 |
|
|
|
12,043 |
|
(Increase) decrease in other current assets |
|
|
49,428 |
|
|
|
(23,378 |
) |
Increase (decrease) in accounts payable and accrued expenses |
|
|
18,376 |
|
|
|
(26,712 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
249,236 |
|
|
|
117,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(406,778 |
) |
|
|
(253,475 |
) |
Proceeds from sales of assets |
|
|
11,624 |
|
|
|
— |
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(395,154 |
) |
|
|
(253,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Borrowings |
|
|
60,000 |
|
|
|
130,000 |
|
Principal payments on debt |
|
|
(3,000 |
) |
|
|
— |
|
Proceeds from issuance of common stock |
|
|
1,293 |
|
|
|
1,470 |
|
Excess tax benefit from stock-based compensation |
|
|
1,503 |
|
|
|
974 |
|
Debt issuance costs |
|
|
— |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
59,796 |
|
|
|
132,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(86,122 |
) |
|
|
(3,187 |
) |
Cash and cash equivalents, beginning of period |
|
|
90,472 |
|
|
|
6,281 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
4,350 |
|
|
$ |
3,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
7
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
(Unaudited)
(1) SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES –
Basis of Presentation
In management’s opinion, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the
financial position of Comstock Resources, Inc. and subsidiaries (“Comstock” or the “Company”) as of
September 30, 2010 and the related results of operations for the three and nine months ended
September 30, 2010 and 2009, and cash flows for the nine months ended September 30, 2010 and 2009.
The accompanying unaudited consolidated financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain information and
disclosures normally included in annual financial statements prepared in accordance with accounting
principles generally accepted in the United States have been omitted pursuant to those rules and
regulations, although Comstock believes that the disclosures made are adequate to make the
information presented not misleading. These unaudited consolidated financial statements should be
read in conjunction with the financial statements and notes thereto included in Comstock’s Annual
Report on Form 10-K for the year ended December 31, 2009.
The results of operations for the three months and nine months ended September 30, 2010 are
not necessarily an indication of the results expected for the full year.
These unaudited consolidated financial statements include the accounts of Comstock and its
wholly owned and controlled subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to prior periods’ financial statements to conform to
the current presentation.
Marketable Securities
As of September 30, 2010 the Company owned 4,797,069 shares of Stone Energy Corporation common
stock. The Company does not exert influence over the operating and financial policies of Stone
Energy Corporation, and has classified its investment in these shares as an available-for-sale
security in the consolidated balance sheets. Available-for-sale securities are accounted for at
fair value, with any unrealized gains and unrealized losses not determined to be other than
temporary reported in the consolidated balance sheet within accumulated other comprehensive income
as a separate component of stockholders’ equity. The Company utilizes the specific identification
method to determine the cost of any securities sold. In April 2010 the Company sold 520,000 shares
of Stone Energy Corporation and received proceeds of $10.5 million. Comstock realized a gain
before income taxes on this sale of $5.7 million which is included in other income (expense) in the
consolidated statements of operations.
8
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company reviews its available-for-sale securities to determine whether a decline in
fair value below the respective cost basis is other than temporary. If the decline in fair value
is judged to be other than temporary, the cost basis of the security is written down to fair value
and the amount of the write-down is included in the consolidated statement of operations. As of
September 30, 2010, the estimated fair value of the Stone Energy Corporation shares, based on the
market price for the shares, was $70.7 million after recognizing an unrealized gain after income
taxes of $17.3 million.
Reserve for Future Abandonment Costs
Comstock’s asset retirement obligations relate to future plugging and abandonment expenses on
its oil and gas properties and related facilities disposal. The following table summarizes the
changes in Comstock’s total estimated liability during the nine months ended September 30, 2010 and
2009:
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
| |
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
| |
|
(In thousands) |
|
Beginning future abandonment costs |
|
$ |
6,561 |
|
|
$ |
5,480 |
|
Accretion expense |
|
|
290 |
|
|
|
233 |
|
New wells placed on production and changes in estimates |
|
|
190 |
|
|
|
342 |
|
Liabilities settled |
|
|
(66 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
|
Future abandonment costs — end of period |
|
$ |
6,975 |
|
|
$ |
6,030 |
|
|
|
|
|
|
|
|
Revenue Recognition and Gas Balancing
Comstock utilizes the sales method of accounting for oil and natural gas revenues whereby
revenues are recognized at the time of delivery based on the amount of oil or natural gas sold to
purchasers. Revenue is typically recorded in the month of production based on an estimate of the
Company’s share of volumes produced and prices realized. Revisions to such estimates are recorded
as actual results are known. The amount of oil or natural gas sold may differ from the amount to
which the Company is entitled based on its revenue interests in the properties. The Company did
not have any significant imbalance positions at September 30, 2010 or December 31, 2009.
Derivative Financial Instruments
Comstock periodically uses swaps, floors and collars to hedge oil and natural gas prices and
interest rates. Swaps are settled monthly based on differences between the prices specified in the
instruments and the settlement prices of futures contracts. Generally, when the applicable
settlement price is less than the price specified in the contract, Comstock receives a settlement
from the counterparty based on the difference multiplied by the volume or amounts hedged.
Similarly, when the applicable settlement price exceeds the price specified in the contract,
Comstock pays the counterparty based on the difference. Comstock generally receives a settlement
from the counterparty for floors when the applicable settlement price is less than the price
specified in the contract, which is based on the difference multiplied by the volume hedged. For
collars, generally Comstock receives a settlement from the counterparty when the settlement price
is below the floor and pays a settlement to the counterparty when the settlement price exceeds the
cap. No settlement occurs when the settlement price falls between the floor and cap.
For the three months and nine months ended September 30, 2009, the Company had natural gas swaps
which fixed the price at $8.00 per Mmbtu (at the Houston Ship Channel) for 520,000 Mmbtu’s per
month of production. The Company designated these swaps as cash flow hedges. Realized gains of
$7.3 million and $20.3 million were included in
9
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
oil and gas sales for the three months and nine months ended September 30, 2009, respectively,
related to these swaps. Changes in the fair value of derivative instruments designated as cash
flow hedges, to the extent they were effective in offsetting cash flows attributable to the hedged
risk, were recorded in other comprehensive income until the hedged item was recognized in earnings.
Any change in fair value resulting from ineffectiveness was recognized in oil and gas sales as an
unrealized gain or loss. No amounts relating to the hedge ineffectiveness were recognized in oil
and gas sales during the three months and nine months ended September 30, 2009. The Company did
not have any derivative financial instruments outstanding during the three months or nine months
ended September 30, 2010.
Stock-Based Compensation
Comstock accounts for employee stock-based compensation under the fair value method.
Compensation cost is measured at the grant date based on the fair value of the award and is
recognized over the award vesting period. During the three months ended September 30, 2010 and
2009, the Company recognized $4.4 million and $4.0 million, respectively, of stock-based compensation
expense within general and administrative expenses related to stock option and restricted stock
grants. During the nine months ended September 30, 2010 and
2009, the Company recognized $12.9 million and
$11.5 million, respectively, of stock-based compensation expense within general and administrative
expenses related to stock option and restricted stock grants.
The Company had 246,870 stock options outstanding at September 30, 2010, of which 223,370 were
exercisable. Total unrecognized compensation cost related to nonvested stock options of $0.1
million as of September 30, 2010 is expected to be recognized over a period of 0.2 years. The
Company received cash proceeds from the exercise of stock options of $1.3 million and $1.5 million
for the nine months ended September 30, 2010 and 2009, respectively.
As of September 30, 2010, Comstock had 1,688,000 shares of unvested restricted stock
outstanding at a weighted average grant date fair value of $37.22 per share. Total unrecognized compensation cost
related to unvested restricted stock grants of $31.9 million as of September 30, 2010 is expected
to be recognized over a period of 2.5 years. During the nine
months ended September 30, 2010, the Company awarded a total of 36,000 shares of restricted stock
to its independent directors which will vest three years from the date of grant. The grant
date fair value was $30.49 per share for the 2010 awards.
Income Taxes
The following is an analysis of consolidated income tax expense:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
| |
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Current benefit |
|
$ |
(382 |
) |
|
$ |
(26,495 |
) |
|
$ |
(199 |
) |
|
$ |
(30,618 |
) |
Deferred provision |
|
|
174 |
|
|
|
24,302 |
|
|
|
131 |
|
|
|
22,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes |
|
$ |
(208 |
) |
|
$ |
(2,193 |
) |
|
$ |
(68 |
) |
|
$ |
(8,300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
10
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Deferred income taxes are provided to reflect the future tax consequences or benefits of
differences between the tax basis of assets and liabilities and their reported amounts in the
financial statements using enacted tax rates. The difference between the Company’s customary rate
of 35% and the effective tax rate on income before income taxes is due to the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Tax at statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Tax effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nondeductible stock-based compensation |
|
|
(26.6 |
%) |
|
|
(14.5 |
%) |
|
|
(11.9 |
%) |
|
|
(10.6 |
%) |
State income taxes, net of federal benefit |
|
|
(3.1 |
%) |
|
|
(3.7 |
%) |
|
|
9.0 |
% |
|
|
(1.2 |
%) |
Net operating loss carryback adjustments |
|
|
— |
% |
|
|
— |
% |
|
|
(38.7 |
%) |
|
|
— |
% |
Other |
|
|
(1.0 |
%) |
|
|
(1.9 |
%) |
|
|
(0.5 |
%) |
|
|
(1.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
4.3 |
% |
|
|
14.9 |
% |
|
|
(7.1 |
%) |
|
|
21.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
In determining the 2010 full year effective tax rate, the Company is projecting a pre-tax
loss. The Company’s non-deductible stock-based compensation has the effect of lowering the
Company’s annualized expected tax benefit. In addition, the 2010 effective tax rate reflects a
benefit from adjustments related to refund claims resulting from the finalized net operating loss
carrybacks in the Company’s 2009 tax returns.
The Company’s income tax returns in major state income tax jurisdictions remain subject to
examination from various periods subsequent to December 31, 2005. State tax returns in two state
jurisdictions are currently under review. The Company has evaluated
the preliminary findings in these jurisdictions and believes it is more likely than not that the ultimate resolution of these matters will not have a material impact on its financial statements. The Company currently
believes that all other significant filing positions are highly
certain and that all of its other significant
income tax positions and deductions would be sustained under audit therefore the Company has no
significant reserves for uncertain tax positions.
Fair Value Measurements
As of September 30, 2010, the Company held certain items that are required to be measured at
fair value. These included cash equivalents held in money market funds and marketable securities
comprised of shares of Stone Energy Corporation common stock. Fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. The estimated fair value for the items in the
Company’s financial statement were based on Level 1 inputs where the inputs used to measure fair
value are unadjusted quoted prices that are available in active markets for the identical assets or
liabilities as of the reporting date.
The following table summarizes financial assets and liabilities accounted for at fair
value as of September 30, 2010:
| |
|
|
|
|
| |
|
Carrying
Value
Measured
at Fair Value |
|
| |
|
(In thousands) |
|
Items measured at fair value on a
recurring basis: |
|
|
|
|
Cash equivalents — money market funds |
|
$ |
4,350 |
|
Marketable securities |
|
|
70,661 |
|
|
|
|
|
Total assets |
|
$ |
75,011 |
|
|
|
|
|
11
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table presents the carrying amounts and estimated fair value of the
Company’s other financial instruments as of September 30, 2010 and December 31, 2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of September 30, 2010 |
|
|
As of December 31, 2009 |
|
| |
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
| |
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
| |
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Long-term debt, including current portion |
|
$ |
528,238 |
|
|
$ |
538,750 |
|
|
$ |
470,836 |
|
|
$ |
479,938 |
|
The fair market value of the Company’s fixed rate debt was based on their market prices as of
September 30, 2010 and December 31, 2009. The fair value of the Company’s floating rate debt
approximates its carrying value.
Earnings Per Share
Basic earnings per share is determined without the effect of any outstanding potentially
dilutive stock options and diluted earnings per share is determined with the effect of outstanding
stock options that are potentially dilutive. Unvested share-based payment awards containing
nonforfeitable rights to dividends are considered to be participatory securities and are included
in the computation of basic and diluted earnings per share pursuant to the two-class method. Basic
and diluted earnings per share for the three months and nine months ended September 30, 2010 and
2009, respectively, were determined as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, |
|
| |
|
2010 |
|
|
2009 |
|
| |
|
|
|
|
|
|
|
|
|
Per |
|
|
|
|
|
|
|
|
|
|
Per |
|
| |
|
Loss |
|
|
Shares |
|
|
Share |
|
|
Loss |
|
|
Shares |
|
|
Share |
|
| |
|
(In thousands, except per share amounts) |
|
Net Income (Loss) |
|
$ |
(4,700 |
) |
|
|
|
|
|
|
|
|
|
$ |
(12,572 |
) |
|
|
|
|
|
|
|
|
Income Allocable to Unvested Stock Grants |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income (Loss) Attributable to Common Stock |
|
$ |
(4,700 |
) |
|
|
45,623 |
|
|
$ |
(0.10 |
) |
|
$ |
(12,572 |
) |
|
|
45,032 |
|
|
$ |
(0.28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Income (Loss) Attributable to Common Stock |
|
$ |
(4,700 |
) |
|
|
45,623 |
|
|
$ |
(0.10 |
) |
|
$ |
(12,572 |
) |
|
|
45,032 |
|
|
$ |
(0.28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
| |
|
2010 |
|
|
2009 |
|
| |
|
|
|
|
|
|
|
|
|
Per |
|
|
|
|
|
|
|
|
|
|
Per |
|
| |
|
Income |
|
|
Shares |
|
|
Share |
|
|
Loss |
|
|
Shares |
|
|
Share |
|
| |
|
(In thousands, except per share amounts) |
|
Net Income (Loss) |
|
$ |
1,023 |
|
|
|
|
|
|
|
|
|
|
$ |
(29,704 |
) |
|
|
|
|
|
|
|
|
Income Allocable to Unvested Stock Grants |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income (Loss) Attributable to
Common Stock |
|
$ |
1,023 |
|
|
|
45,537 |
|
|
$ |
0.02 |
|
|
$ |
(29,704 |
) |
|
|
44,992 |
|
|
$ |
(0.66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
— |
|
|
|
52 |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Income (Loss) Attributable to
Common Stock |
|
$ |
1,023 |
|
|
|
45,589 |
|
|
$ |
0.02 |
|
|
$ |
(29,704 |
) |
|
|
44,992 |
|
|
$ |
(0.66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
At September 30, 2010 and December 31, 2009, 1,688,000 and 2,036,450 shares of restricted
stock are included in common stock outstanding as such shares have a nonforfeitable right to
participate in any dividends that might be declared and have the right to vote. Weighted average
shares of unvested restricted stock were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
Nine Months Ended |
| |
|
September 30, |
|
September 30, |
| |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
| |
|
|
|
|
|
(In thousands) |
|
|
|
|
Unvested restricted stock |
|
|
1,695 |
|
|
|
1,590 |
|
|
|
1,697 |
|
|
|
1,546 |
|
The shares of unvested restricted stock were excluded as anti-dilutive to earnings per share
in the three months ended September 30, 2010 and the three and nine months ended September 30, 2009 due to the net loss in
such periods.
Stock options to purchase common stock that were outstanding were excluded as anti-dilutive
from the determination of diluted earnings per share as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
| |
|
(In thousands except per share data) |
|
Weighted average
anti-dilutive stock options |
|
|
240 |
|
|
|
454 |
|
|
|
210 |
|
|
|
490 |
|
Weighted average exercise price |
|
$ |
36.01 |
|
|
$ |
23.55 |
|
|
$ |
36.94 |
|
|
$ |
22.03 |
|
In
the three months ended September 30, 2010 and the three and nine
months ended September 30, 2009, all stock options were excluded as
anti-dilutive to earnings per share due to the net loss in such periods.
Supplementary Information With Respect to the Consolidated Statements of Cash Flows
For the purpose of the consolidated statements of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less to be cash
equivalents. At September 30, 2010 and December 31, 2009 the Company’s cash investments consisted
of prime shares held in institutional preferred money market funds.
The following is a summary of cash payments made for interest and income taxes:
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
| |
|
2010 |
|
2009 |
| |
|
(In thousands) |
Cash Payments: |
|
|
|
|
|
|
|
|
Interest payments |
|
$ |
26,940 |
|
|
$ |
15,100 |
|
Income tax payments (refunds) |
|
$ |
(48,844 |
) |
|
$ |
1,524 |
|
The Company capitalizes interest on its unevaluated oil and gas property costs during
periods when it is conducting exploration activity on this acreage. For the three months and nine
months ended September 30, 2010, the Company capitalized interest of $3.5 million and $9.0 million,
respectively, which reduced interest expense and increased the carrying value of its unevaluated
oil and gas properties. The Company capitalized interest of $1.3 million and $4.3 million during
the three and nine months ended September 30, 2009.
13
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Comprehensive Loss
Comprehensive income (loss) consists of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
| |
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Net income (loss) |
|
$ |
(4,700 |
) |
|
$ |
(12,572 |
) |
|
$ |
1,023 |
|
|
$ |
(29,704 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized hedging loss, net of income tax
benefit of $2,330, and $3,048 |
|
|
— |
|
|
|
(4,328 |
) |
|
|
— |
|
|
|
(5,662 |
) |
Realized gain on marketable securities, net of income
tax expense of $1,558 |
|
|
— |
|
|
|
— |
|
|
|
(2,893 |
) |
|
|
— |
|
Unrealized gain (loss) on marketable securities, net of
income tax expense (benefit) of $5,994, $17,718, $(5,629)
and $13,249 |
|
|
11,132 |
|
|
|
32,904 |
|
|
|
(10,453 |
) |
|
|
24,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
6,432 |
|
|
$ |
16,004 |
|
|
$ |
(12,323 |
) |
|
$ |
(10,761 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income, for the three and nine months ended September 30,
2010, which is related solely to changes in the fair value of our marketable securities, is
comprised of the following:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months |
|
|
Nine Months |
|
| |
|
Ended |
|
|
Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2010 |
|
|
2010 |
|
| |
|
(In thousands) |
|
Balance as of beginning of the period |
|
$ |
6,141 |
|
|
$ |
30,619 |
|
Realized gain on sale of
marketable securities, net of income
taxes |
|
|
— |
|
|
|
(2,893 |
) |
Changes in the value of
marketable securities, net of income
taxes |
|
|
11,132 |
|
|
|
(10,453 |
) |
|
|
|
|
|
|
|
Balance as of September 30, 2010 |
|
$ |
17,273 |
|
|
$ |
17,273 |
|
|
|
|
|
|
|
|
(2) LONG-TERM
DEBT –
At September 30, 2010, long-term debt was comprised of:
| |
|
|
|
|
| |
|
(In thousands) |
|
Revolving Bank Credit Facility |
|
$ |
60,000 |
|
8⅜% Senior Notes due 2017 |
|
|
296,238 |
|
6⅞% Senior Notes due 2012 |
|
|
172,000 |
|
|
|
|
|
|
|
$ |
528,238 |
|
|
|
|
|
The Company has a $850.0 million bank credit facility with Bank of Montreal, as the
administrative agent. The credit facility is a five-year revolving credit commitment that matures
on December 15, 2011. Indebtedness under the credit facility is secured by substantially all of
Comstock’s assets and is guaranteed by all of its subsidiaries. The credit facility is subject to
borrowing base availability, which is redetermined semiannually based on the banks’ estimates of
the Company’s future net cash flows of oil and natural gas properties. The borrowing base may be
affected by the performance of Comstock’s properties and changes in oil and natural gas prices.
The determination of the borrowing base is at the sole discretion of the administrative agent and
the bank group. As of September 30, 2010, the borrowing base was $500.0 million, $440.0 million of
which was available. Borrowings under the credit facility bear interest, based on the utilization
of the borrowing base, at Comstock’s option at either (1) LIBOR plus 2% to 2.75% or (2) the base
rate (which is the higher of the administrative agent’s prime rate, the federal funds rate plus
0.5% or 30 day LIBOR plus 1.5%)
14
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
plus 0.5% to 1.25%. A commitment fee of 0.5% is payable annually
on the unused borrowing base. The credit facility contains covenants that, among other things,
restrict the payment of cash dividends in excess of $40.0 million, limit the amount of consolidated
debt that Comstock may incur and limit the Company’s ability to make certain loans and investments.
The only financial covenants are the maintenance of a ratio of current assets, including
availability under the bank credit facility, to current liabilities of at least one-to-one and
maintenance of a minimum tangible net worth. The Company was in compliance with these covenants as
of September 30, 2010.
Comstock
has $172.0 million of
67/8% senior notes outstanding which mature on March 1, 2012.
Interest is payable semiannually on each March 1 and September 1. In May 2010, the Company
repurchased $3.0 million in principal amount of the 67/8% Senior Notes at 99% of the par value. The
Company also has $300.0 million of
83/8% senior notes outstanding which mature on October 15, 2017.
Interest is payable semiannually on each April 15 and October 15. The senior notes are unsecured
obligations of Comstock and are guaranteed by all of Comstock’s material subsidiaries. The
subsidiary guarantors are 100% owned and all of the guarantees are full and conditional and joint
and several. As of September 30, 2010, Comstock had no material assets or operations which are
independent of its wholly-owned subsidiaries. There are no restrictions on the ability of Comstock
to obtain funds from its wholly-owned subsidiaries through dividends or loans.
(3) COMMITMENTS
AND CONTINGENCIES –
From time to time, Comstock is involved in certain litigation that arises in the normal course
of its operations. The Company records a loss contingency for these matters when it is probable
that a liability has been incurred and the amount of the loss can be reasonably estimated. The
Company does not believe the resolution of these matters will have a material effect on the
Company’s financial position or results of operations.
In connection with its exploration and development activities, the Company contracts for
drilling rigs under terms of up to three years. As of September 30, 2010, the Company had
commitments for contracted drilling services of $60.7 million. The Company also has entered into
natural gas transportation agreements through July 2019. Maximum commitments under these
transportation agreements as of September 30, 2010 totaled $49.7 million.
(4) SUBSEQUENT EVENTS-
Subsequent events were evaluated through the issuance date of these consolidated financial
statements. In October, 2010, the Company entered into an agreement to sell certain oil and gas
properties in Mississippi for $75.0 million with an effective date of July 1, 2010. The sale is
expected to close in December 2010 and is subject to completion of due diligence by the purchaser
and certain closing conditions. The Company estimates that it will realize a loss of $26.5 million
($16.6 million after income taxes) on the divestiture in the fourth quarter of 2010.
15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors of
Comstock Resources, Inc.
We have reviewed the consolidated balance sheet of Comstock Resources, Inc. and subsidiaries (the
Company) as of September 30, 2010, and the related consolidated statements of operations for the
three- and nine-month periods ended September 30, 2010 and 2009, the consolidated statement of
stockholders’ equity and comprehensive loss for the nine-month period ended September 30, 2010, and
the consolidated statements of cash flows for the nine-month periods ended September 30, 2010 and
2009. These financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the
consolidated interim financial statements referred to above for them to be in conformity with U.S.
generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Comstock Resources, Inc. and
subsidiaries as of December 31, 2009, and the related consolidated statements of operations,
stockholders’ equity and comprehensive income, and cash flows for the year then ended [not
presented herein] and in our report dated February 26, 2010, we expressed an unqualified opinion on
those consolidated financial statements and included an explanatory paragraph for new accounting
standards relating to the manner in which basic and diluted earnings per share are calculated and
the presentation of noncontrolling interests in consolidated subsidiaries, and a change in oil and
gas reserves and related disclosures as a result of adopting new oil and gas reserve estimation and
disclosure requirements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 2009, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Dallas, Texas
November 4, 2010
16
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements that involve risks and uncertainties that are
made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Actual results may differ materially from those anticipated in our forward-looking
statements due to many factors. 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 filed on Form 10-K for the year ended December 31, 2009.
Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
| |
|
(In thousands, except per unit amounts) |
|
|
|
|
|
Net Production Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (Mmcf) |
|
|
16,154 |
|
|
|
15,976 |
|
|
|
52,657 |
|
|
|
42,877 |
|
Oil (Mbbls) |
|
|
171 |
|
|
|
163 |
|
|
|
557 |
|
|
|
584 |
|
Natural gas equivalent (Mmcfe) |
|
|
17,185 |
|
|
|
16,955 |
|
|
|
56,002 |
|
|
|
46,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas sales |
|
$ |
68,557 |
|
|
$ |
50,675 |
|
|
$ |
239,399 |
|
|
$ |
153,232 |
|
Hedging gains |
|
|
— |
|
|
|
7,306 |
|
|
|
— |
|
|
|
20,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total natural gas sales including hedging |
|
|
68,557 |
|
|
|
57,981 |
|
|
|
239,399 |
|
|
|
173,564 |
|
Oil sales |
|
|
11,163 |
|
|
|
9,455 |
|
|
|
37,092 |
|
|
|
27,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total oil and gas sales |
|
$ |
79,720 |
|
|
$ |
67,436 |
|
|
$ |
276,491 |
|
|
$ |
200,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production taxes |
|
$ |
3,062 |
|
|
$ |
1,848 |
|
|
$ |
9,543 |
|
|
$ |
5,486 |
|
Gathering and transportation |
|
|
4,101 |
|
|
|
1,368 |
|
|
|
12,308 |
|
|
|
3,962 |
|
Lease operating(1) |
|
|
13,002 |
|
|
|
12,803 |
|
|
|
41,150 |
|
|
|
41,015 |
|
Exploration expense |
|
|
1,238 |
|
|
|
227 |
|
|
|
2,506 |
|
|
|
371 |
|
Depreciation, depletion and amortization |
|
|
46,796 |
|
|
|
53,933 |
|
|
|
163,603 |
|
|
|
152,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (per Mcf) |
|
$ |
4.24 |
|
|
$ |
3.17 |
|
|
$ |
4.55 |
|
|
$ |
3.57 |
|
Natural gas including hedging (per Mcf) |
|
$ |
4.24 |
|
|
$ |
3.63 |
|
|
$ |
4.55 |
|
|
$ |
4.05 |
|
Oil (per Bbl) |
|
$ |
64.97 |
|
|
$ |
57.96 |
|
|
$ |
66.54 |
|
|
$ |
46.42 |
|
Average equivalent (Mcfe) |
|
$ |
4.64 |
|
|
$ |
3.55 |
|
|
$ |
4.94 |
|
|
$ |
3.89 |
|
Average equivalent including hedging (Mcfe) |
|
$ |
4.64 |
|
|
$ |
3.98 |
|
|
$ |
4.94 |
|
|
$ |
4.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses ($ per Mcfe): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production taxes |
|
$ |
0.18 |
|
|
$ |
0.11 |
|
|
$ |
0.17 |
|
|
$ |
0.12 |
|
Gathering and transportation |
|
$ |
0.24 |
|
|
$ |
0.08 |
|
|
$ |
0.22 |
|
|
$ |
0.09 |
|
Lease operating(1) |
|
$ |
0.75 |
|
|
$ |
0.75 |
|
|
$ |
0.73 |
|
|
$ |
0.88 |
|
Depreciation, depletion and amortization(2) |
|
$ |
2.71 |
|
|
$ |
3.17 |
|
|
$ |
2.91 |
|
|
$ |
3.27 |
|
|
|
|
| (1) |
|
Includes ad valorem taxes. |
| |
| (2) |
|
Represents depreciation, depletion and amortization of oil and gas properties only. |
Revenues —
Our oil and natural gas sales increased $12.3 million (18%) to $79.7 million for the three
months ended September 30, 2010 from $67.4 million for the third quarter of 2009. This increase
primarily resulted from increased natural gas and oil prices. Our production of 17.2 Bcfe in the
third quarter of 2010 was comparable to the 17.0 Bcfe that we produced in the third quarter of
2009. Production in the third quarter of 2010, which averaged 187 MMcfe per day, was down from production in the second quarter of 2010 which averaged 219 MMcfe per day. The decline
related to the unavailability of
17
high pressure pumping services used to complete our Haynesville
shale wells. At September 30, 2010, we had 26 Haynesville shale wells which were drilled and were
waiting to be completed. Starting in October we have obtained adequate high pressure pumping
services allowing us to complete the wells we are drilling. Accordingly, we anticipate that
production will again increase starting in the fourth quarter of 2010. Our average realized
natural gas price increased by 17% and our average realized oil price increased by 12% in the third
quarter of 2010 as compared to the third quarter of 2009. Our realized natural gas prices in 2009
include a hedging gain of $7.3 million which increased our realized natural gas price by $0.46 per
Mcf.
Our oil and natural gas sales increased $75.8 million (38%) to $276.5 million for the nine
months ended September 30, 2010 from $200.7 million for the nine months ended September 30, 2009.
This increase primarily resulted from an increase in natural gas production as well as stronger
natural gas and oil prices. Our production in the first nine months of 2010 of 56.0 Bcfe increased
21% as compared to 46.4 Bcfe that we produced in the first nine months of 2009. The production
increase is primarily attributable to our drilling activity in the Haynesville shale formation in
East Texas and North Louisiana. Our average realized natural gas price increased by 12% and our
average realized oil price increased by 43% in the first nine months of 2010 as compared to the
first nine months of 2009. Our realized natural gas prices in 2009 include a hedging gain of $20.3
million which increased our realized natural gas price by $0.48 per Mcf.
Costs and Expenses —
Production taxes increased $1.3 million to $3.1 million for the third quarter of 2010 from
$1.8 million in the third quarter of 2009. Production taxes increased by $4.0 million to $9.5
million for the first nine months of 2010 from $5.5 million in the first nine months of 2009. The
increase resulted primarily from higher oil and natural gas prices and from higher production in
2010.
Gathering and transportation costs for the third quarter of 2010 increased $2.7 million to
$4.1 million as compared to $1.4 million in the third quarter of 2009. Gathering and
transportation costs for the first nine months of 2010 increased $8.3 million to $12.3 million as
compared to $4.0 million in the first nine months of 2009. The increases mainly reflect the
transportation costs relating to production from our Haynesville shale drilling program.
Our lease operating expenses increased by $0.2 million to $13.0 million for the third quarter
of 2010 as compared to $12.8 million for the third quarter of 2009, and our lease operating expense
per Mcfe produced was unchanged at $0.75 per Mcfe for the three months ended September 30, 2010 and
2009. Our lease operating expenses for the first nine months of 2010 of $41.2 million increased by
$0.2 million from $41.0 million for the first nine months of 2009. As a result of the growth in
our production, our lease operating expense per Mcfe produced decreased by 17% to $0.73 per Mcfe
for the nine months ended September 30, 2010 as compared to $0.88 per Mcfe for the nine months
ended September 30, 2009.
Exploration costs of $1.2 million and $0.2 million in the third quarter of 2010 and 2009
related to seismic costs incurred with respect to our exploratory activity. Exploration expense of
$2.5 million and $0.4 million in the first nine months of 2010 and 2009, respectively, also related
to geological and geophysical costs incurred.
Depreciation, depletion and amortization (“DD&A”) decreased $7.1 million (13%) to $46.8
million in the third quarter of 2010 from $53.9 million in the third quarter of 2009. The decrease
was primarily the result of our lower DD&A rate in 2010. Our DD&A per equivalent Mcf produced
decreased $0.46 (15%) to $2.71 for the three months ended September 30, 2010 from $3.17 for the
three months ended September 30, 2009. DD&A for the first nine months of 2010 increased $11.6
million (8%) to $163.6 million from $152.0 million for the nine months ended September 30, 2009
primarily as the result of our increased production in 2010. Our DD&A rate per Mcfe for the first
nine months of 2010 of $2.91 decreased $0.36 (11%) from the DD&A rate of $3.27 for the first nine
months of 2009. The lower DD&A rates per Mcfe reflect the growth in our oil and natural gas
reserves primarily from our Haynesville shale drilling program.
We recorded $0.2 million of impairments to our oil and gas properties for the nine months
ended September 30, 2010.
18
General and administrative expense, which is reported net of overhead reimbursements,
increased by $0.7 million to $9.4 million for the third quarter of 2010 as compared to general and
administrative expense of $8.7 million for the third quarter of 2009. Included in general and
administrative expense is stock-based compensation of $4.4 million and $4.0 million for the three
months ended September 30, 2010 and 2009, respectively. For the first nine months of 2010, general
and administrative expense increased to $29.0 million from $27.6 million for the nine months ended
September 30, 2009. Included in general and administrative expense is stock-based compensation of
$12.9 million and $11.5 million for the nine months ended September 30, 2010 and 2009,
respectively. The increases in general and administrative costs in 2010 are mainly due to the
higher costs of our stock-based compensation.
Interest expense increased $3.9 million to $7.1 million for the third quarter of 2010 from
interest expense of $3.2 million in the third quarter of 2009. The increase was primarily related
to the issuance of senior notes in October 2009. We also had average borrowings of $54.9
outstanding under our bank credit facility during the third quarter of 2010 as compared to average
borrowings of $154.6 million in the third quarter of 2009. We capitalized interest of $3.5 million
and $1.3 million on our unevaluated properties during the three months ended September 30, 2010 and
2009, respectively. Interest expense increased $14.3 million to $22.6 million for the first nine
months of 2010 from interest expense of $8.3 million in the first nine months of 2009. The
increase is also due to the senior notes issued in October 2009. We had average borrowings
outstanding under our bank credit facility during the first nine
months of 2010 of $8.6 million,
as compared to average borrowings of $115.3 million in the first nine months of 2009. We
capitalized interest of $9.0 million and $4.3 million on our unevaluated properties during the nine
months ended September 30, 2010 and 2009, respectively.
During the nine months ended September 30, 2010 we recognized a gain of $4.9 million from the
sale of assets, comprised of a loss of $0.8 million from the sale of certain other property and
equipment and a gain of $5.7 million from the sale of 520,000 shares of common stock in Stone
Energy Corporation held as marketable securities.
Income tax expense for the third quarter of 2010 consisted of a benefit of $0.2 million as
compared to a benefit from income taxes of $2.2 million for the three months ended September 30,
2009. Income tax expense for the first nine months of 2010 consisted of a benefit of $0.1 million
as compared to a benefit from income taxes of $8.3 million for the nine months ended September 30,
2009. In determining the 2010 full year effective tax rate, we are projecting a pre-tax loss. Our
non-deductible stock-based compensation has the effect of lowering our expected annualized tax
benefit. In addition, the 2010 effective tax rate reflects a benefit from adjustments related to
refund claims resulting from the finalized net operating loss carrybacks in our 2009 tax returns.
We reported a net loss of $4.7 million for the three months ended September 30, 2010 or $0.10
per share, as compared to a net loss of $12.6 million, or $0.28 per share, for the three months
ended September 30, 2009. The lower net loss in 2010 was primarily due to improved oil and natural
gas prices.
We reported net income of $1.0 million for the nine months ended September 30, 2010 or $0.02
per diluted share, as compared to a net loss of $29.7 million or $0.66 per share for the nine
months ended September 30, 2009. The net income in 2010 was primarily due to our higher natural
gas production, higher oil and natural gas prices and the gain from the sale of marketable
securities.
Liquidity and Capital Resources
Funding for our activities has historically been provided by our operating cash flow, debt or
equity financings or asset dispositions. For the nine months ended September 30, 2010, our primary
source of funds was net cash flow from operations of $249.2 million. Our net cash flow from
operating activities increased $131.3 million (111%) in the first nine months of 2010 from $117.9
million for the nine months ended September 30, 2009. This increase was primarily due to our
higher production level, higher realized oil and natural gas prices and the receipt of $48.8
million in income tax refunds during the nine months ended September 30, 2010. The other sources
of funds during the first nine months of 2010 were $11.6 million in proceeds from sales of certain
assets and borrowings of $60.0 million under our bank credit
facility.
19
Our primary needs for capital, in addition to funding our ongoing operations, relate to the
acquisition, development and exploration of our oil and gas properties and the repayment of our
debt. In the first nine months of 2010, we incurred capital expenditures of $404.4 million
primarily for our development and exploration activities. We funded our 2010 capital program with
cash on hand, cash flow provided by operating activities and borrowings under our bank credit
facility.
The following table summarizes our capital expenditure activity, on an accrual basis, for the
nine months ended September 30, 2010 and 2009:
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
| |
|
2010 |
|
|
2009 |
|
| |
|
(In thousands) |
|
Leasehold costs |
|
$ |
130,434 |
|
|
$ |
10,343 |
|
Development drilling |
|
|
200,955 |
|
|
|
143,741 |
|
Exploratory drilling |
|
|
56,237 |
|
|
|
90,849 |
|
Other development |
|
|
5,326 |
|
|
|
8,594 |
|
|
|
|
|
|
|
|
|
|
|
392,952 |
|
|
|
253,527 |
|
Other |
|
|
11,475 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
$ |
404,427 |
|
|
$ |
253,596 |
|
|
|
|
|
|
|
|
We expect to spend approximately $385.0 million for developmental and exploratory
drilling during 2010 and an additional $130.0 million to acquire additional exploratory acreage.
We expect to fund our development and exploration activities with operating cash flow, cash on
hand, proceeds from asset sales and borrowings under our bank credit facility.
In October 2010, we entered into an agreement to sell our Mississippi oil and gas properties
for $75.0 million with an effective date of July 1, 2010. The divestiture is expected to close in
December 2010. The proceeds will be used to reduce the borrowings under our bank credit facility.
The timing of most of our capital expenditures is discretionary because we have no material
long-term capital expenditure commitments except for commitments for contract drilling services.
Consequently, we have a significant degree of flexibility to adjust the level of our capital
expenditures as circumstances warrant. As of September 30, 2010, we have contracted for the
services of drilling rigs through September 2012 at an aggregate cost of $60.7 million and we have
maximum commitments of $49.7 million to transport natural gas through July 2019. We have
obligations to incur future payments for dismantlement, abandonment and restoration costs of oil
and gas properties. These payments are currently estimated to be incurred primarily after 2015.
We record a separate liability for the fair value of these asset retirement obligations which
totaled $7.0 million as of September 30, 2010.
We have a $850.0 million bank credit facility with Bank of Montreal, as the administrative
agent. The bank credit facility is a five-year revolving credit commitment that matures on
December 15, 2011. Indebtedness under the bank credit facility is secured by all of our and our
subsidiaries’ assets and is guaranteed by all of our subsidiaries. The bank credit facility is
subject to borrowing base availability, which is redetermined semiannually based on the banks’
estimates of the future net cash flows of our oil and natural gas properties. The borrowing base
may be affected by the performance of our properties and changes in oil and natural gas prices.
The determination of the borrowing base is at the sole discretion of the administrative agent and
the bank group. As of September 30, 2010, the borrowing base was $500.0 million, $440.0 million of
which was available. Borrowings under the bank credit facility bear interest, based on the
utilization of the borrowing base, at our option at either (1) LIBOR plus 2% to 2.75% or (2) the
base rate (which is the higher of the administrative agent’s prime rate, the federal funds rate
plus 0.5% or 30 day LIBOR plus 1.5%) plus 0.5% to 1.25%. A commitment fee of 0.5% is payable on
the unused borrowing base. The bank credit facility contains covenants that, among other things,
restrict the payment of cash dividends in excess of $40.0 million, limit the amount of consolidated
debt that we may incur and limit our ability to make certain loans and investments. The only
financial covenants are the maintenance of a ratio of current assets, including the availability
under the
bank credit facility, to current liabilities of at least one-to-one and maintenance of a
minimum tangible net worth. We were in compliance with these covenants as of September 30, 2010.
20
We have $172.0 million of 67/8% senior notes outstanding which are due March 1, 2012. Interest
is payable semiannually on each March 1 and September 1. During the three months ended September
30, 2010, we repurchased $3.0 million of the 67/8% senior notes at 99% of par value. We also have
$300.0 million of
83/8% senior notes outstanding which are due October 15, 2017. Interest is payable
semiannually on each October 15 and April 15. The senior notes are unsecured obligations and are
guaranteed by all of our material subsidiaries.
We believe that our cash flow from operations, cash on hand and available borrowings under our
bank credit facility will be sufficient to fund our operations and future growth as contemplated
under our current business plan. However, if our plans or assumptions change or if our assumptions
prove to be inaccurate, we may be required to seek additional capital. We cannot provide any
assurance that we will be able to obtain such capital, or if such capital is available, that we
will be able to obtain it on acceptable terms.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Oil and Natural Gas Prices
Our financial condition, results of operations and capital resources are highly dependent upon
the prevailing market prices of natural gas and oil. These commodity prices are subject to wide
fluctuations and market uncertainties due to a variety of factors, some of which are beyond our
control. Factors influencing oil and natural gas prices include the level of global demand for
crude oil, the foreign supply of oil and natural gas, the establishment of and compliance with
production quotas by oil exporting countries, weather conditions that determine the demand for
natural gas, the price and availability of alternative fuels and overall economic conditions. It
is impossible to predict future oil and natural gas prices with any degree of certainty. Sustained
weakness in natural gas and oil prices may adversely affect our financial condition and results of
operations, and may also reduce the amount of oil and natural gas reserves that we can produce
economically. Any reduction in our natural gas and oil reserves, including reductions due to price
fluctuations, can have an adverse effect on our ability to obtain capital for our exploration and
development activities. Similarly, any improvements in natural gas and oil prices can have a
favorable impact on our financial condition, results of operations and capital resources. Based on
our oil and natural gas production for the nine months ended September 30, 2010, a $1.00 change in
the price per Mcf of natural gas would have changed our cash flow by approximately $50.8 million
and a $1.00 change in the price per barrel of oil would have resulted in a change in our cash flow
for such period by approximately $0.7 million.
Interest Rates
At September 30, 2010, we had total long-term debt of $528.2 million. Of this amount, $172.0
million bears interest at a fixed rate of 67/8% and $300.0 million bears interest of a fixed rate of
83/8%. We had $60.0 million outstanding under our bank credit facility, which bears interest at a
fluctuating rate that is linked to LIBOR or the corporate base rate, at our option. Any increases
in these interest rates can have an adverse impact on our results of operations and cash flow.
Based on borrowings outstanding at September 30, 2010, a 100 basis point change in interest rates
would change our interest expense for the nine month period ended September 30, 2010 by
approximately $0.1 million.
ITEM 4: CONTROLS AND PROCEDURES
As of September 30, 2010, we carried out an evaluation, under the supervision and with the
participation of our chief executive officer and chief financial officer, of the effectiveness of
the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934). Based on this evaluation, our chief executive officer
and chief financial officer concluded that our disclosure controls and procedures were effective as
of September 30, 2010 to provide reasonable assurance that information required to be disclosed by
us in
the reports filed or submitted by us under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms,
and to provide reasonable assurance that information required to be disclosed by us is accumulated
and communicated to our management, including our chief
21
executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required disclosure. There were no
changes in our internal controls over financial reporting (as such term is defined in Rule
13a-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended
September 30, 2010, that has materially affected, or is reasonably likely to materially affect, our
internal controls over financial reporting.
22
PART II — OTHER INFORMATION
ITEM 6: EXHIBITS
| |
|
|
| Exhibit No. |
|
Description |
15.1*
|
|
Awareness Letter of Ernst & Young LLP. |
|
|
|
31.1*
|
|
Section 302 Certification of the Chief Executive Officer. |
|
|
|
31.2*
|
|
Section 302 Certification of the Chief Financial Officer. |
|
|
|
32.1†
|
|
Certification for the Chief Executive Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2†
|
|
Certification for the Chief Financial Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101**
|
|
The following materials from the Comstock Resources, Inc.
Form 10-Q for the quarter ended September 30, 2010,
formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii)
Consolidated Statements of Operations, (iii) Consolidated Statement of Stockholders’ Equity and Comprehensive
Loss, (iv) Consolidated Statements of Cash Flows, and (v) Condensed
Notes to Consolidated Financial Statements. |
|
|
|
| * |
|
Filed herewith. |
| |
| † |
|
Furnished herewith. |
| |
| ** |
|
Submitted electronically herewith. |
In accordance with Rule 406T of Regulation S-T, the XBRL information in Exhibit 101 to this
Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability
of that section, and shall not be incorporated by reference into any registration statement or
other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as
shall be expressly set forth by specific reference in such filing.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
|
|
|
|
|
COMSTOCK RESOURCES, INC. |
|
|
|
Date: November 4, 2010
|
|
/s/ M. JAY ALLISON
M.
Jay Allison, Chairman, President and Chief |
|
|
Executive Officer (Principal Executive Officer) |
|
|
|
Date: November 4, 2010
|
|
/s/ ROLAND O. BURNS
Roland
O. Burns, Senior Vice President, |
|
|
Chief Financial Officer, Secretary, and Treasurer |
|
|
(Principal Financial and Accounting Officer) |
24