form10qcrkmarch3108.htm
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 Quarterly Period Ended March 31, 2008
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
(State
or other jurisdiction of
|
|
94-1667468
(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.
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 definition of "large accelerated filer, accelerated
filer and smaller reporting company" in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer
þ
|
|
Accelerated
filer
o
|
|
Non-accelerated
filer
o
|
|
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).
The
number of shares outstanding of the registrant's common stock, par value $.50,
as of May 9, 2008 was 45,550,245.
COMSTOCK
RESOURCES, INC.
QUARTERLY
REPORT
For
The Quarter Ended March 31, 2008
|
Page
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PART
I. Financial Information
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|
|
|
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|
|
|
Item
1. Financial Statements (Unaudited):
|
|
|
|
|
|
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Consolidated
Balance Sheets -
March 31, 2008 and December 31,
2007
|
|
4
|
|
Consolidated
Statements of Operations -
Three months ended March 31, 2008
and 2007
|
|
5
|
|
Consolidated
Statement of Stockholders' Equity and Comprehensive Income -
Three months ended March 31,
2008
|
|
6
|
|
Consolidated
Statements of Cash Flows -
Three months ended March 31, 2008
and 2007
|
|
7
|
|
Notes to Consolidated Financial
Statements
|
|
8
|
|
Independent Accountants' Review
Report
|
|
20
|
|
|
|
|
|
Item 2. Management's Discussion
and Analysis of Financial Condition and Results of
Operations
|
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21
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|
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Item 3. Quantitative and
Qualitative Disclosure About Market Risk
|
|
26
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|
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|
Item 4. Controls and
Procedures
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26
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PART
II. Other Information
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Item 6.
Exhibits
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27
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|
First
Amendment to Second Amendment and Restated Credit
Agreement
|
|
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|
Awareness
Letter of Ernst & Young LLP
|
|
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|
Section
302 Certification of the Chief Executive Officer
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Section
302 Certification of the Chief Financial Officer
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Certification
for the Chief Executive Officer as required by Section 906
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Certification
for the Chief Financial Officer as required by Section 906
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|
PART
I — FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS (UNAUDITED)
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
|
|
March
31,
2008
|
|
|
December
31,
2007
|
|
|
|
|
|
|
|
(In
thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
15,520
|
|
|
$
|
24,406
|
|
Accounts
Receivable:
|
|
|
|
|
|
|
|
|
Oil
and gas sales
|
|
|
98,234
|
|
|
|
73,873
|
|
Joint
interest operations
|
|
|
14,539
|
|
|
|
16,788
|
|
Other
Current Assets
|
|
|
12,836
|
|
|
|
9,438
|
|
Total
current assets
|
|
|
141,129
|
|
|
|
124,505
|
|
Property
and Equipment:
|
|
|
|
|
|
|
|
|
Unevaluated
oil and gas properties
|
|
|
28,483
|
|
|
|
18,880
|
|
Oil
and gas properties, successful efforts method
|
|
|
3,282,217
|
|
|
|
3,173,646
|
|
Other
|
|
|
10,217
|
|
|
|
9,777
|
|
Accumulated
depreciation, depletion and amortization
|
|
|
(1,048,935
|
)
|
|
|
(979,428
|
)
|
Net
property and equipment
|
|
|
2,271,982
|
|
|
|
2,222,875
|
|
Other
Assets
|
|
|
6,505
|
|
|
|
7,007
|
|
|
|
$
|
2,419,616
|
|
|
$
|
2,354,387
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
Short-term
Debt
|
|
$
|
—
|
|
|
$
|
2,588
|
|
Accounts
Payable
|
|
|
101,162
|
|
|
|
109,195
|
|
Accrued
Expenses
|
|
|
15,517
|
|
|
|
19,017
|
|
Short-term
Derivative Instruments
|
|
|
13,125
|
|
|
|
—
|
|
Total
current liabilities
|
|
|
129,804
|
|
|
|
130,800
|
|
Long-term
Debt
|
|
|
736,000
|
|
|
|
760,000
|
|
Deferred
Income Taxes Payable
|
|
|
400,964
|
|
|
|
371,896
|
|
Reserve
for Future Abandonment Costs
|
|
|
53,435
|
|
|
|
52,606
|
|
Long-term
Derivative Instruments
|
|
|
4,533
|
|
|
|
—
|
|
Minority
Interest in Bois d'Arc Energy
|
|
|
287,819
|
|
|
|
267,441
|
|
Total
liabilities
|
|
|
1,612,555
|
|
|
|
1,582,743
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
|
Common
stock – $0.50 par, 50,000,000 shares authorized, 45,550,245 and
45,428,095
shares
outstanding at March 31, 2008 and December 31, 2007,
respectively
|
|
|
22,775
|
|
|
|
22,714
|
|
Additional
paid-in capital
|
|
|
392,725
|
|
|
|
386,986
|
|
Retained
earnings
|
|
|
403,039
|
|
|
|
361,944
|
|
Other
comprehensive loss
|
|
|
(11,478
|
)
|
|
|
—
|
|
Total
stockholders' equity
|
|
|
807,061
|
|
|
|
771,644
|
|
|
|
$
|
2,419,616
|
|
|
$
|
2,354,387
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these statements.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas sales
|
|
$
|
240,987
|
|
|
$
|
146,029
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Oil
and gas operating
|
|
|
36,640
|
|
|
|
27,083
|
|
Exploration
|
|
|
8,655
|
|
|
|
11,133
|
|
Depreciation,
depletion and amortization
|
|
|
70,562
|
|
|
|
56,707
|
|
General
and administrative, net
|
|
|
9,339
|
|
|
|
9,702
|
|
Loss
on disposal of assets, net
|
|
|
240
|
|
|
|
—
|
|
Total
operating expenses
|
|
|
125,436
|
|
|
|
104,625
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
115,551
|
|
|
|
41,404
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
244
|
|
|
|
296
|
|
Other
income
|
|
|
157
|
|
|
|
130
|
|
Interest
expense
|
|
|
(11,314
|
)
|
|
|
(8,449
|
)
|
Total
other income (expenses)
|
|
|
(10,913
|
)
|
|
|
(8,023
|
)
|
|
|
|
|
|
|
|
|
|
Income
before income taxes and minority interest
|
|
|
104,638
|
|
|
|
33,381
|
|
Provision
for income taxes
|
|
|
(44,073
|
)
|
|
|
(14,824
|
)
|
Minority
interest in earnings of Bois d'Arc Energy
|
|
|
(19,470
|
)
|
|
|
(5,999
|
)
|
Net
income
|
|
$
|
41,095
|
|
|
$
|
12,558
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.93
|
|
|
$
|
0.29
|
|
Diluted
|
|
$
|
0.91
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common and common stock equivalent shares
outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
44,179
|
|
|
|
43,364
|
|
Diluted
|
|
|
44,994
|
|
|
|
44,238
|
|
The
accompanying notes are an integral part of these statements.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
AND
COMPREHENSIVE INCOME
For
the Three Months Ended March 31, 2008
(Unaudited)
|
|
Common
Stock (Shares)
|
|
|
Common
Stock Par Value
|
|
|
Additional
Paid-in Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other Comprehensive Loss
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
$
|
45,428
|
|
|
$
|
22,714
|
|
|
$
|
386,986
|
|
|
$
|
361,944
|
|
|
|
—
|
|
|
$
|
771,644
|
|
Exercise of stock options
|
|
|
125
|
|
|
|
63
|
|
|
|
2,389
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,452
|
|
Tax benefit from stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
670
|
|
|
|
—
|
|
|
|
—
|
|
|
|
670
|
|
Stock-based
compensation
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
2,680
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,678
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
41,095
|
|
|
|
—
|
|
|
|
41,095
|
|
Unrealized hedging
losses, net of income
taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,478
|
)
|
|
|
(11,478
|
)
|
Comprehensive
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,617
|
|
Balance
at March 31, 2008
|
|
$
|
45,550
|
|
|
$
|
22,775
|
|
|
$
|
392,725
|
|
|
$
|
403,039
|
|
|
$
|
(11,478
|
)
|
|
$
|
807,061
|
|
The
accompanying notes are an integral part of these statements.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
(In
thousands)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
41,095
|
|
|
$
|
12,558
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
31,821
|
|
|
|
12,437
|
|
Dry
hole costs and leasehold impairments
|
|
|
2,666
|
|
|
|
8,250
|
|
Depreciation,
depletion and amortization
|
|
|
70,562
|
|
|
|
56,707
|
|
Loss
on disposal of assets, net
|
|
|
240
|
|
|
|
—
|
|
Debt
issuance cost amortization
|
|
|
329
|
|
|
|
281
|
|
Stock-based
compensation
|
|
|
4,052
|
|
|
|
4,312
|
|
Excess
tax benefit from stock-based compensation
|
|
|
(670
|
)
|
|
|
(166
|
)
|
Minority
interest in earnings of Bois d'Arc Energy
|
|
|
19,470
|
|
|
|
5,999
|
|
Increase in
accounts receivable
|
|
|
(22,112
|
)
|
|
|
(4,874
|
)
|
Increase
in other current assets
|
|
|
(1,392
|
)
|
|
|
(1,237
|
)
|
Decrease
in accounts payable and accrued expenses
|
|
|
(18,124
|
)
|
|
|
(15,521
|
)
|
Net
cash provided by operating activities
|
|
|
127,937
|
|
|
|
78,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(114,220
|
)
|
|
|
(133,727
|
)
|
Proceeds
from asset sales
|
|
|
11
|
|
|
|
—
|
|
Net
cash used for investing activities
|
|
|
(114,209
|
)
|
|
|
(133,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
—
|
|
|
|
58,000
|
|
Principal
payments on debt
|
|
|
(24,000
|
)
|
|
|
(2,000
|
)
|
Proceeds
from issuance of common stock
|
|
|
2,452
|
|
|
|
139
|
|
Excess
tax benefit from stock-based compensation
|
|
|
670
|
|
|
|
166
|
|
Proceeds
from issuance of shares by Bois d'Arc Energy
|
|
|
1,273
|
|
|
|
—
|
|
Repurchase
of common shares by Bois d'Arc Energy
|
|
|
(3,009
|
)
|
|
|
—
|
|
Debt
issuance costs
|
|
|
—
|
|
|
|
(36
|
)
|
Net
cash provided by (used for) financing activities
|
|
|
(22,614
|
)
|
|
|
56,269
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(8,886
|
)
|
|
|
1,288
|
|
Cash
and cash equivalents, beginning of period
|
|
|
24,406
|
|
|
|
10,715
|
|
Cash
and cash equivalents, end of period
|
|
$
|
15,520
|
|
|
$
|
12,003
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these statements.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2008
(Unaudited)
(1) 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 March 31,
2008 and the related results of operations and cash flows for the three months
ended March 31, 2008 and 2007.
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 of the Company included in Comstock's
Annual Report on Form 10-K for the year ended December 31, 2007.
The
results of operations for the three months ended March 31, 2008 are not
necessarily an indication of the results expected for the full
year.
These
unaudited consolidated financial statements include the accounts of Comstock and
subsidiaries in which it has a controlling interest. Intercompany
balances and transactions have been eliminated in
consolidation. Comstock has voting control of Bois d'Arc Energy, Inc.
("Bois d'Arc Energy") through the combined share ownership of the Company and
members of its board of directors.
Asset
Retirement Obligations
Comstock's
primary 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 three months ended March 31, 2008 and
2007:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Reserve
for future abandonment costs — Beginning of period
|
|
$
|
52,606
|
|
|
$
|
57,116
|
|
Accretion
expense
|
|
|
797
|
|
|
|
881
|
|
New
wells placed on production and changes in estimates
|
|
|
643
|
|
|
|
213
|
|
Liabilities
settled
|
|
|
(611
|
)
|
|
|
(97
|
)
|
Reserve
for future abandonment costs — end of period
|
|
$
|
53,435
|
|
|
$
|
58,113
|
|
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Derivative
Instruments and Hedging Activities
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 counter party 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 counter party
based on the difference. Comstock generally receives a settlement
from the counter party 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 amounts hedged. For collars, generally
Comstock receives a settlement from the counter party when the settlement price
is below the floor and pays a settlement to the counter party when the
settlement price exceeds the cap. No settlement occurs when the
settlement price falls between the floor and cap.
In
January 2008, Comstock entered into natural gas swaps which fix the price at
$8.00 per Mmbtu (at the Houston Ship Channel) for 520,000 Mmbtu's per month of
production from certain properties in South Texas for the period February 2008
through December 2009. The Company designated these swaps at their
inception as cash flow hedges. Realized gains and losses are included
in oil and natural gas sales in the month of production. Changes in
the fair value of derivative instruments designated as cash flow hedges to the
extent they are effective in offsetting cash flows attributable to the hedged
risk are recorded in other comprehensive income until the hedged item is
recognized in earnings. Any change in fair value resulting from
ineffectiveness is recognized currently in oil and natural gas sales as
unrealized gains (losses). The Company realized losses of $244,000 on
the swaps during the three months ended March 31, 2008, which are included in
oil and gas sales in the accompanying Consolidated Statements of
Operations. As of March 31, 2008, the estimated fair value of the
Company's derivative financial instruments, which equals their carrying value,
was a liability of $17.7 million, of which $13.1 million was classified as
current and $4.6 million was classified as long-term.
The
Company had no derivative financial instruments outstanding during the three
months ended March 31, 2007.
Stock-Based
Compensation
Comstock
and Bois d'Arc Energy maintain separate incentive compensation plans under which
they grant common stock and stock options to key employees and
directors.
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 March 31, 2008 and 2007, the
Company recognized $4.1 million and $4.3 million, respectively,
in stock-based compensation expense within general and administrative expenses
related to stock option and restricted stock grants, including $1.4 million and
$1.7 million, respectively, attributable to Bois d'Arc Energy's incentive
plan. The excess income tax benefit realized from tax deductions
associated with stock-based compensation totaled $0.7 million and $0.2 million
in the three months ended March 31, 2008 and March 31, 2007,
respectively.
The fair
value of stock option grants is estimated on the date of the grant using a
Black-Scholes option pricing model. Some of the inputs to the option
valuation model are subjective, including assumptions regarding expected stock
price volatility. There were no grants of options to purchase shares
or restricted stock by either Comstock or Bois d'Arc Energy during the three
months ended March 31, 2008.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As of
March 31, 2008, total unrecognized compensation cost related to nonvested
Comstock stock options of $1.8 million is expected to be recognized over a
weighted average period of 2.7 years. As of March 31, 2008, Comstock
had 1,280,000 shares of unvested restricted stock outstanding at a weighted
average grant date fair value of $31.58 per share. Total unrecognized
compensation cost related to Comstock unvested restricted stock grants of $27.7
million as of March 31, 2008 is expected to be recognized over a period of 3.8
years.
As of
March 31, 2008, total unrecognized compensation cost related to nonvested Bois
d'Arc Energy stock options of $6.2 million is expected to be recognized over a
weighted average period of 4.7 years. As of March 31, 2008, Bois
d'Arc Energy had 650,000 shares of unvested restricted stock outstanding at a
weighted average grant date fair value of $6.80 per share. Total
unrecognized compensation cost related to Bois d'Arc Energy unvested restricted
stock grants of $2.8 million as of March 31, 2008 is expected to be recognized
over a period of 1.3 years.
Income
Taxes
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 and minority interest is due to the
following:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Tax
at statutory rate
|
|
|
35.0%
|
|
|
|
35.0%
|
|
Tax
effect of:
|
|
|
|
|
|
|
|
|
Undistributed
earnings of Bois d'Arc Energy, not consolidated for federal income tax
purposes
|
|
|
6.3%
|
|
|
|
6.3%
|
|
Nondeductible
stock-based compensation
|
|
|
0.8%
|
|
|
|
2.9%
|
|
State
income taxes, net of federal benefit
|
|
|
0.4%
|
|
|
|
0.7%
|
|
Other
|
|
|
(0.4%
|
)
|
|
|
(0.5%
|
)
|
Effective
tax rate
|
|
|
42.1%
|
|
|
|
44.4%
|
|
The
following is an analysis of consolidated income tax expense:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
Current
provision
|
|
$
|
12,252
|
|
|
$
|
2,387
|
|
Deferred
provision
|
|
|
31,821
|
|
|
|
12,437
|
|
Provision
for Income Taxes
|
|
$
|
44,073
|
|
|
$
|
14,824
|
|
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Comprehensive
Income
Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. The Company's other comprehensive income consists of
unrealized gains or losses on cash flow hedges.
Earnings
Per Share
Basic
earnings per share is determined without the effect of any outstanding
potentially dilutive stock options, unvested restricted stock or other
convertible securities and diluted earnings per share is determined with the
effect of outstanding stock options, unvested restricted stock and other
convertible securities that are potentially dilutive. Basic and
diluted earnings per share for the three months ended March 31, 2008 and 2007
respectively, were determined as follows:
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
|
(In
thousands, except per share amounts)
|
|
Basic Earnings Per
Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
41,095
|
|
|
|
44,179
|
|
|
$
|
0.93
|
|
|
$
|
12,558
|
|
|
|
43,364
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
41,095
|
|
|
|
44,179
|
|
|
|
|
|
|
$
|
12,558
|
|
|
|
43,364
|
|
|
|
|
|
Effect of Dilutive
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Grants and
Options
|
|
|
(314
|
)
|
|
|
815
|
|
|
|
|
|
|
|
(95
|
)
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Available to Common
Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With Assumed
Conversions
|
|
$
|
40,781
|
|
|
|
44,994
|
|
|
$
|
0.91
|
|
|
$
|
12,463
|
|
|
|
44,238
|
|
|
$
|
0.28
|
|
Stock
options to purchase common stock at exercise prices in excess of the average
actual stock price for the period that were anti-dilutive and that were excluded
from the determination of diluted earnings per share are as
follows:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands except per share data)
|
|
Weighted
average anti-dilutive stock options
|
|
|
175
|
|
|
|
231
|
|
Weighted
average exercise price
|
|
$
|
32.89
|
|
|
$
|
32.81
|
|
Fair Value
Measurements
In
September 2006, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). This
statement establishes a framework for fair value measurements in the financial
statements by providing a single definition of fair value, provides guidance on
the methods used to estimate fair value and increases disclosures about
estimates of fair value. The Company adopted SFAS 157 and its related
amendments for financial assets and liabilities effective as of January 1,
2008. SFAS 157 will be effective for non-financial assets and
liabilities in financial statements issued for fiscal years beginning after
November 15, 2008.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
SFAS 157
defines fair value 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. SFAS 157 establishes a three-level
hierarchy for disclosure to show the extent and level of judgment used to
estimate fair value measurements:
Level 1 –
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.
Level 2 –
Inputs used to measure fair value, other than quoted prices included in Level 1,
are either directly or indirectly observable as of the reporting date through
correlation with market data, including quoted prices for similar assets and
liabilities in active markets and quoted prices in markets that are not
active. Level 2 also includes assets and liabilities that are valued
using models or other pricing methodologies that do not require significant
judgment since the input assumptions used in the models, such as interest rates
and volatility factors, are corroborated by readily observable data from
actively quoted markets for substantially the full term of the financial
instrument.
Level 3 –
Inputs used to measure fair value are unobservable inputs that are supported by
little or no market activity and reflect the use of significant management
judgment. These values are generally determined using pricing models
for which the assumptions utilize management's estimates of market participant
assumptions.
At
January 1, 2008, the Company had no financial assets and liabilities that were
accounted for at fair value. Accordingly, adoption of SFAS 157
had no impact on the carrying amounts of the Company's assets and
liabilities. As of March 31, 2008, the Company had derivative
instruments, in the form of natural gas swap agreements, which are required to
be measured at fair value on a recurring basis. The Company's natural
gas swaps are not traded on a public exchange. The value of natural
gas swap agreements is determined utilizing a discounted cash flow model based
on inputs that are not readily available in public markets and, accordingly,
these swap agreements have been categorized as Level 3 within the valuation
hierarchy.
The
following table summarizes the changes in the fair values of the natural gas
swaps, which are Level 3 liabilities, for the three months ended March 31,
2008:
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
$
|
—
|
|
Purchases
and settlements (net)
|
|
|
244
|
|
Total
realized or unrealized losses:
|
|
|
|
|
Included
in earnings
|
|
|
(244
|
)
|
Included
in other comprehensive income
|
|
|
(17,658
|
)
|
Balance
at March 31, 2008
|
|
$
|
(17,658
|
)
|
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 March 31, 2008 and December 31, 2007
the Company's cash investments consisted of prime shares in an institutional
preferred money market fund with a bank and overnight Eurodollar deposits with a
bank.
The
following is a summary of cash payments made for interest and income
taxes:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Cash
Payments -
|
|
|
|
|
|
|
|
|
Interest
payments
|
|
$
|
14,159
|
|
|
$
|
11,771
|
|
Income
tax payments
|
|
$
|
5,707
|
|
|
$
|
3,910
|
|
(2) LONG-TERM
DEBT –
At March
31, 2008, long-term debt was comprised of the following:
|
|
(In
thousands)
|
|
|
|
|
|
|
Comstock
Revolving Bank Credit Facility
|
|
$
|
505,000
|
|
Bois
d'Arc Energy Revolving Bank Credit Facility
|
|
|
56,000
|
|
Comstock
6⅞% Senior Notes due 2012
|
|
|
175,000
|
|
|
|
$
|
736,000
|
|
Comstock
has an $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 Comstock and its wholly-owned
subsidiaries' oil and gas properties and is guaranteed by all of its
wholly-owned subsidiaries. The credit facility is subject to
borrowing base availability, which is re-determined semiannually based on the
banks' estimates of the future net cash flows of Comstock's 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 March 31, 2008, the
borrowing base was $575.0 million, $70.0 million of which was
available. Effective April 30, 2008, the borrowing base was increased
to $625.0 million which increased the availability to $120.0
million. Borrowings under the credit facility bear interest, based on
the utilization of the borrowing base, at Comstock's option at either (1) LIBOR
plus 1.0% to 1.75% or (2) the base rate (which is the higher of the prime rate
or the federal funds rate) plus 0% to 0.25%. A commitment fee of
0.25% to 0.375%, based on the utilization of the borrowing base, is payable 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 March 31, 2008.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Bois
d'Arc Energy has a bank credit facility with The Bank of Nova Scotia and several
other banks. Borrowings under the credit facility are limited to a
borrowing base that is re-determined semi-annually based on the banks' estimate
of the future net cash flows of Bois d'Arc Energy's oil and natural gas
properties. The determination of the borrowing base is at the sole
discretion of the administrative agent and the bank group. The
borrowing base was $350.0 million as of March 31, 2008, $294.0 million of
which was available. The Bois d'Arc Energy credit facility matures on
May 11, 2009. Borrowings under the credit facility bear interest at
Bois d'Arc Energy's option of either (1) LIBOR plus a margin that varies from
1.25% to 2.0% depending upon the ratio of the amounts outstanding to the
borrowing base or (2) the base rate (which is the higher of the prime rate or
the federal funds rate) plus a margin that varies from 0% to 0.75% depending
upon the ratio of the amounts outstanding to the borrowing base. A
commitment fee ranging from 0.375% to 0.50% (depending upon the ratio of the
amounts outstanding to the borrowing base) is payable on the unused borrowing
base. Indebtedness under the credit facility is secured by
substantially all of Bois d'Arc Energy and its subsidiaries' assets, and all of
the Bois d'Arc Energy's subsidiaries are guarantors of the
indebtedness. The Bois d'Arc Energy credit facility contains
covenants that restrict the payment of cash dividends in excess of $5.0 million,
borrowings, sales of assets, loans to others, capital expenditures, investments,
merger activity, hedging contracts, liens and certain other transactions without
the prior consent of the lenders and requires Bois d'Arc Energy to maintain a
ratio of current assets, including the availability under the bank credit
facility, to current liabilities of at least one-to-one and a ratio of
indebtedness to earnings before interest, taxes, depreciation, depletion, and
amortization, exploration and impairment expense of no more than
2.5-to-one. Bois d'Arc Energy was in compliance with these covenants
as of March 31, 2008.
(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 and for the acquisition of seismic data under terms of up to three
years. The Company has commitments to acquire seismic data totaling
$5.5 million through December 2008. As of March 31, 2008, the Company
had commitments for contracted drilling services of $32.8 million through
September 2008.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(4) CONSOLIDATING
FINANCIAL STATEMENTS –
Comstock
Resources, Inc. ("Parent") has $175.0 million of 6⅞% senior notes outstanding
which are guaranteed by all of the Parent's wholly-owned
subsidiaries. There are no restrictions on the Parent's ability to
obtain funds from any of the guarantor subsidiaries or on a guarantor
subsidiary's ability to obtain funds from the Parent or their direct or indirect
subsidiaries. The 6⅞% senior notes are not guaranteed by Bois d'Arc
Energy and its subsidiaries (the non-guarantor subsidiaries). The
following condensed consolidating balance sheets, statements of operations and
statements of cash flows are provided for the Parent, all guarantor subsidiaries
and all non-guarantor subsidiaries. The information has been
presented as if the Parent accounted for its ownership of the guarantor and
non-guarantor subsidiaries using the equity method of accounting.
Balance
Sheet:
|
|
As
of March 31, 2008
|
|
|
|
Comstock
Resources
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor Subsidiaries
|
|
|
Eliminating
Entries
|
|
|
Consolidated
|
|
|
|
(In
thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
—
|
|
|
$
|
1,555
|
|
|
$
|
13,965
|
|
|
$
|
—
|
|
|
$
|
15,520
|
|
Accounts
receivable
|
|
|
—
|
|
|
|
64,307
|
|
|
|
48,466
|
|
|
|
—
|
|
|
|
112,773
|
|
Other
current assets
|
|
|
689
|
|
|
|
8,050
|
|
|
|
4,097
|
|
|
|
—
|
|
|
|
12,836
|
|
Total
current assets
|
|
|
689
|
|
|
|
73,912
|
|
|
|
66,528
|
|
|
|
—
|
|
|
|
141,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
property and equipment
|
|
|
28,601
|
|
|
|
1,325,869
|
|
|
|
917,512
|
|
|
|
—
|
|
|
|
2,271,982
|
|
Investment
in subsidiaries
|
|
|
839,569
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(839,569
|
)
|
|
|
—
|
|
Intercompany
receivables
|
|
|
665,581
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(665,581
|
)
|
|
|
—
|
|
Other
assets
|
|
|
3,741
|
|
|
|
—
|
|
|
|
2,764
|
|
|
|
—
|
|
|
|
6,505
|
|
Total
assets
|
|
$
|
1,538,181
|
|
|
$
|
1,399,781
|
|
|
$
|
986,804
|
|
|
$
|
(1,505,150
|
)
|
|
$
|
2,419,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
4
|
|
|
$
|
59,041
|
|
|
$
|
42,117
|
|
|
$
|
—
|
|
|
$
|
101,162
|
|
Accrued
expenses
|
|
|
3,951
|
|
|
|
731
|
|
|
|
10,835
|
|
|
|
—
|
|
|
|
15,517
|
|
Short-term
derivative instruments
|
|
|
—
|
|
|
|
13,125
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,125
|
|
Total
current liabilities
|
|
|
3,955
|
|
|
|
72,897
|
|
|
|
52,952
|
|
|
|
—
|
|
|
|
129,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
680,000
|
|
|
|
—
|
|
|
|
56,000
|
|
|
|
—
|
|
|
|
736,000
|
|
Intercompany
payables
|
|
|
—
|
|
|
|
665,581
|
|
|
|
—
|
|
|
|
(665,581
|
)
|
|
|
—
|
|
Deferred
income taxes payable
|
|
|
35,687
|
|
|
|
174,086
|
|
|
|
191,191
|
|
|
|
—
|
|
|
|
400,964
|
|
Reserve
for future abandonment costs
|
|
|
—
|
|
|
|
7,827
|
|
|
|
45,608
|
|
|
|
—
|
|
|
|
53,435
|
|
Long-term
derivative instruments
|
|
|
—
|
|
|
|
4,533
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,533
|
|
Minority
interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
287,819
|
|
|
|
287,819
|
|
Total
liabilities
|
|
|
719,642
|
|
|
|
924,924
|
|
|
|
345,751
|
|
|
|
(377,762
|
)
|
|
|
1,612,555
|
|
Stockholders'
equity
|
|
|
818,539
|
|
|
|
474,857
|
|
|
|
641,053
|
|
|
|
(1,127,388
|
)
|
|
|
807,061
|
|
Total
liabilities and
stockholders' equity
|
|
$
|
1,538,181
|
|
|
$
|
1,399,781
|
|
|
$
|
986,804
|
|
|
$
|
(1,505,150
|
)
|
|
$
|
2,419,616
|
|
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Balance
Sheet:
|
|
Year
Ended December 31, 2007
|
|
|
|
Comstock
Resources
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor Subsidiaries
|
|
|
Eliminating
Entries
|
|
|
Consolidated
|
|
|
|
(In
thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
—
|
|
|
$
|
5,565
|
|
|
$
|
18,841
|
|
|
$
|
—
|
|
|
$
|
24,406
|
|
Accounts
receivable
|
|
|
—
|
|
|
|
48,651
|
|
|
|
42,010
|
|
|
|
—
|
|
|
|
90,661
|
|
Other
current assets
|
|
|
1,546
|
|
|
|
2,441
|
|
|
|
5,451
|
|
|
|
—
|
|
|
|
9,438
|
|
Total
current assets
|
|
|
1,546
|
|
|
|
56,657
|
|
|
|
66,302
|
|
|
|
—
|
|
|
|
124,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
property and equipment
|
|
|
28,268
|
|
|
|
1,307,337
|
|
|
|
887,270
|
|
|
|
—
|
|
|
|
2,222,875
|
|
Investment
in subsidiaries
|
|
|
782,530
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(782,530
|
)
|
|
|
—
|
|
Intercompany
receivables
|
|
|
674,732
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(674,732
|
)
|
|
|
—
|
|
Other
assets
|
|
|
3,943
|
|
|
|
—
|
|
|
|
3,064
|
|
|
|
—
|
|
|
|
7,007
|
|
Total
assets
|
|
$
|
1,491,019
|
|
|
$
|
1,363,994
|
|
|
$
|
956,636
|
|
|
$
|
(1,457,262
|
)
|
|
$
|
2,354,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,588
|
|
|
$
|
—
|
|
|
$
|
2,588
|
|
Accounts
payable
|
|
|
17
|
|
|
|
71,518
|
|
|
|
37,660
|
|
|
|
—
|
|
|
|
109,195
|
|
Accrued
expenses
|
|
|
10,698
|
|
|
|
1,190
|
|
|
|
7,129
|
|
|
|
—
|
|
|
|
19,017
|
|
Total
current liabilities
|
|
|
10,715
|
|
|
|
72,708
|
|
|
|
47,377
|
|
|
|
—
|
|
|
|
130,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
680,000
|
|
|
|
—
|
|
|
|
80,000
|
|
|
|
—
|
|
|
|
760,000
|
|
Intercompany
payables
|
|
|
—
|
|
|
|
674,732
|
|
|
|
—
|
|
|
|
(674,732
|
)
|
|
|
—
|
|
Deferred
income taxes payable
|
|
|
28,660
|
|
|
|
161,569
|
|
|
|
181,667
|
|
|
|
—
|
|
|
|
371,896
|
|
Reserve
for future abandonment costs
|
|
|
—
|
|
|
|
7,512
|
|
|
|
45,094
|
|
|
|
—
|
|
|
|
52,606
|
|
Minority
interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
267,441
|
|
|
|
267,441
|
|
Total
liabilities
|
|
|
719,375
|
|
|
|
916,521
|
|
|
|
354,138
|
|
|
|
(407,291
|
)
|
|
|
1,582,743
|
|
Stockholders'
equity
|
|
|
771,644
|
|
|
|
447,473
|
|
|
|
602,498
|
|
|
|
(1,049,971
|
)
|
|
|
771,644
|
|
Total
liabilities and
stockholders' equity
|
|
$
|
1,491,019
|
|
|
$
|
1,363,994
|
|
|
$
|
956,636
|
|
|
$
|
(1,457,262
|
)
|
|
$
|
2,354,387
|
|
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Statement
of Operations:
|
|
|
|
|
|
Three
Months Ended March 31, 2008
|
|
|
|
Comstock
Resources
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor Subsidiaries
|
|
|
Eliminating
Entries
|
|
|
Consolidated
|
|
|
|
(In
thousands)
|
|
Oil
and gas sales
|
|
$
|
—
|
|
|
$
|
127,721
|
|
|
$
|
113,266
|
|
|
$
|
—
|
|
|
$
|
240,987
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas operating
|
|
|
—
|
|
|
|
21,202
|
|
|
|
15,438
|
|
|
|
—
|
|
|
|
36,640
|
|
Exploration
|
|
|
—
|
|
|
|
2,238
|
|
|
|
6,417
|
|
|
|
—
|
|
|
|
8,655
|
|
Depreciation,
depletion and amortization
|
|
|
823
|
|
|
|
41,371
|
|
|
|
28,368
|
|
|
|
—
|
|
|
|
70,562
|
|
General
and administrative, net
|
|
|
8,981
|
|
|
|
(2,817
|
)
|
|
|
3,175
|
|
|
|
—
|
|
|
|
9,339
|
|
Loss
on disposal of assets
|
|
|
—
|
|
|
|
240
|
|
|
|
—
|
|
|
|
—
|
|
|
|
240
|
|
Total
operating expenses
|
|
|
9,804
|
|
|
|
62,234
|
|
|
|
53,398
|
|
|
|
—
|
|
|
|
125,436
|
|
Income
from operations
|
|
|
(9,804
|
)
|
|
|
65,487
|
|
|
|
59,868
|
|
|
|
—
|
|
|
|
115,551
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
—
|
|
|
|
161
|
|
|
|
83
|
|
|
|
—
|
|
|
|
244
|
|
Other
income
|
|
|
—
|
|
|
|
22
|
|
|
|
135
|
|
|
|
—
|
|
|
|
157
|
|
Interest
expense
|
|
|
(9,950
|
)
|
|
|
(1
|
)
|
|
|
(1,363
|
)
|
|
|
—
|
|
|
|
(11,314
|
)
|
Intercompany
interest income (expense)
|
|
|
5,554
|
|
|
|
(5,554
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
other income (expenses)
|
|
776
|
(4,396
|
)
|
|
|
(5,372
|
)
|
|
|
(1,145
|
)
|
|
|
—
|
|
|
|
(10,913
|
)
|
Income
(loss) before income taxes and minority interest in earnings of
Bois
d'Arc Energy
|
|
|
(14,200
|
)
|
|
|
60,115
|
|
|
|
58,723
|
|
|
|
—
|
|
|
|
104,638
|
|
(Provision
for) benefit from income taxes
|
|
|
(2,246
|
)
|
|
|
(21,253
|
)
|
|
|
(20,574
|
)
|
|
|
—
|
|
|
|
(44,073
|
)
|
Minority
interest in earnings of Bois
d'Arc Energy
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(19,470
|
)
|
|
|
(19,470
|
)
|
Equity
in earnings of subsidiaries
|
|
|
57,541
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(57,541
|
)
|
|
|
—
|
|
Net
income
|
|
$
|
41,095
|
|
|
$
|
38,862
|
|
|
$
|
38,149
|
|
|
$
|
(77,011
|
)
|
|
$
|
41,095
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2007
|
|
|
|
Comstock
Resources
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor Subsidiaries
|
|
|
Eliminating
Entries
|
|
|
Consolidated
|
|
|
|
(In
thousands)
|
|
Oil
and gas sales
|
|
$
|
—
|
|
|
$
|
69,847
|
|
|
$
|
76,182
|
|
|
$
|
—
|
|
|
$
|
146,029
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas operating
|
|
|
—
|
|
|
|
14,055
|
|
|
|
13,028
|
|
|
|
—
|
|
|
|
27,083
|
|
Exploration
|
|
|
—
|
|
|
|
398
|
|
|
|
10,735
|
|
|
|
—
|
|
|
|
11,133
|
|
Depreciation,
depletion and amortization
|
|
|
926
|
|
|
|
27,266
|
|
|
|
28,515
|
|
|
|
—
|
|
|
|
56,707
|
|
General
and administrative, net
|
|
|
8,537
|
|
|
|
(2,287
|
)
|
|
|
3,452
|
|
|
|
—
|
|
|
|
9,702
|
|
Total
operating expenses
|
|
|
9,463
|
|
|
|
39,432
|
|
|
|
55,730
|
|
|
|
—
|
|
|
|
104,625
|
|
Income
from operations
|
|
|
(9,463
|
)
|
|
|
30,415
|
|
|
|
20,452
|
|
|
|
|
|
|
|
41,404
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
—
|
|
|
|
191
|
|
|
|
105
|
|
|
|
—
|
|
|
|
296
|
|
Other
income
|
|
|
—
|
|
|
|
38
|
|
|
|
92
|
|
|
|
—
|
|
|
|
130
|
|
Interest
expense
|
|
|
(6,284
|
)
|
|
|
(1
|
)
|
|
|
(2,164
|
)
|
|
|
—
|
|
|
|
(8,449
|
)
|
Intercompany
interest income (expense)
|
|
|
7,060
|
|
|
|
(7,060
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
other income (expenses)
|
|
|
776
|
|
|
|
(6,832
|
)
|
|
|
(1,967
|
)
|
|
|
—
|
|
|
|
(8,023
|
)
|
Income
(loss) before income taxes and minority interest in earnings of
Bois
d'Arc Energy
|
|
|
(8,687
|
)
|
|
|
23,583
|
|
|
|
18,485
|
|
|
|
—
|
|
|
|
33,381
|
|
Provision
for income taxes
|
|
|
148
|
|
|
|
(8,360
|
)
|
|
|
(6,612
|
)
|
|
|
—
|
|
|
|
(14,824
|
)
|
Minority
interest in earnings of Bois
d'Arc Energy
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,999
|
)
|
|
|
(5,999
|
)
|
Equity
in earnings of subsidiaries
|
|
|
21,097
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,097
|
)
|
|
|
—
|
|
Net
income
|
|
$
|
12,558
|
|
|
$
|
15,223
|
|
|
$
|
11,873
|
|
|
$
|
(27,096
|
)
|
|
$
|
12,558
|
|
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Statement
of Cash Flows:
|
|
|
|
|
|
Three
Months Ended March 31, 2008
|
|
|
|
Comstock
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminating
|
|
|
|
|
|
|
Resources
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Entries
|
|
|
Consolidated
|
|
|
|
(In
thousands)
|
|
Net
Cash Provided by (Used for) Operating Activities
|
|
$
|
(11,890
|
)
|
|
$
|
66,247
|
|
|
$
|
72,812
|
|
|
$
|
768
|
|
|
$
|
127,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(383
|
)
|
|
|
(61,117
|
)
|
|
|
(52,720
|
)
|
|
|
—
|
|
|
|
(114,220
|
)
|
Proceeds
from sale of assets
|
|
|
—
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
Net
Cash Used for Investing Activities
|
|
|
(383
|
)
|
|
|
(61,106
|
)
|
|
|
(52,720
|
)
|
|
|
—
|
|
|
|
(114,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
payments on debt
|
|
|
—
|
|
|
|
—
|
|
|
|
(24,000
|
)
|
|
|
—
|
|
|
|
(24,000
|
)
|
Advances
to (from) parent
|
|
|
9,151
|
|
|
|
(9,151
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Proceeds
from issuance of common stock
|
|
|
2,452
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,452
|
|
Excess
tax benefit from stock-based compensation
|
|
|
670
|
|
|
|
—
|
|
|
|
768
|
|
|
|
(768
|
)
|
|
|
670
|
|
Proceeds
from issuance of stock by Bois d'Arc Energy
|
|
|
—
|
|
|
|
—
|
|
|
|
1,273
|
|
|
|
—
|
|
|
|
1,273
|
|
Repurchase
of shares by Bois d'Arc Energy
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,009
|
)
|
|
|
—
|
|
|
|
(3,009
|
)
|
Net
Cash Provided by Financing Activities
|
|
|
12,273
|
|
|
|
(9,151
|
)
|
|
|
(24,968
|
)
|
|
|
(768
|
)
|
|
|
(22,614
|
)
|
Net
increase in cash and cash equivalents
|
|
|
—
|
|
|
|
(4,010
|
)
|
|
|
(4,876
|
)
|
|
|
—
|
|
|
|
(8,886
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
—
|
|
|
|
5,565
|
|
|
|
18,841
|
|
|
|
—
|
|
|
|
24,406
|
|
Cash
and cash equivalents, end
of period
|
|
$
|
—
|
|
|
$
|
1,555
|
|
|
$
|
13,965
|
|
|
$
|
—
|
|
|
$
|
15,520
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2007
|
|
|
|
Comstock
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminating
|
|
|
|
|
|
|
Resources
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Entries
|
|
|
Consolidated
|
|
|
|
(In
thousands)
|
|
Net
Cash Provided by (Used for) Operating Activities
|
|
$
|
(11,119
|
)
|
|
$
|
58,408
|
|
|
$
|
31,457
|
|
|
$
|
—
|
|
|
$
|
78,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(645
|
)
|
|
|
(83,616
|
)
|
|
|
(49,466
|
)
|
|
|
—
|
|
|
|
(133,727
|
)
|
Net
Cash Used for Investing Activities
|
|
|
(645
|
)
|
|
|
(83,616
|
)
|
|
|
(49,466
|
)
|
|
|
—
|
|
|
|
(133,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
36,000
|
|
|
|
—
|
|
|
|
22,000
|
|
|
|
—
|
|
|
|
58,000
|
|
Principle
payments on debt
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,000
|
)
|
|
|
—
|
|
|
|
(2,000
|
)
|
Advances
to (from) parent
|
|
|
(24,541
|
)
|
|
|
24,541
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Proceeds
from issuance of common stock
|
|
|
139
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
139
|
|
Excess
tax benefit from stock-based compensation
|
|
|
166
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
166
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
(36
|
)
|
|
|
—
|
|
|
|
(36
|
)
|
Net
Cash Provided by Financing Activities
|
|
|
11,764
|
|
|
|
24,541
|
|
|
|
19,964
|
|
|
|
—
|
|
|
|
56,269
|
|
Net
increase in cash and cash equivalents
|
|
|
—
|
|
|
|
(667
|
)
|
|
|
1,955
|
|
|
|
—
|
|
|
|
1,288
|
|
Cash
and cash equivalents, beginning of period
|
|
|
—
|
|
|
|
1,228
|
|
|
|
9,487
|
|
|
|
—
|
|
|
|
10,715
|
|
Cash
and cash equivalents, end
of period
|
|
$
|
—
|
|
|
$
|
561
|
|
|
$
|
11,442
|
|
|
$
|
—
|
|
|
$
|
12,003
|
|
(5) SUBSEQUENT
EVENTS –
On April
30, 2008, Comstock's 49% owned subsidiary Bois d'Arc Energy entered into an
agreement and plan of merger with Stone Energy Corporation ("Stone") pursuant to
which Stone will acquire Bois d'Arc Energy. Under the terms of the
merger agreement, Bois d'Arc Energy shareholders, including Comstock, will
receive $13.65 in cash and 0.165 shares of Stone common stock for each share of
Bois d'Arc Energy. Assuming the transaction is completed, Comstock
will receive approximately $439.9 million in cash and 5,317,069 shares of common
stock of Stone for its stake in Bois d'Arc Energy. Completion of the
transaction is subject to approval by the Bois d'Arc Energy and Stone
stockholders, regulatory approvals, and other customary
conditions. Concurrent with the execution of the merger agreement,
the Company entered into a stockholder agreement in which it has agreed to vote
its shares of Bois d'Arc Energy in favor of the merger.
In May
2008 the Company accepted offers to sell certain properties in East and South
Texas for $122.0 million. Comstock owns net profits interests in
these fields which are operated by other parties. The sales are
expected to close in June 2008 with an effective date of April 1,
2008.
INDEPENDENT
ACCOUNTANTS' REVIEW REPORT
We have
reviewed the consolidated balance sheet of Comstock Resources, Inc. (a Nevada
corporation) and subsidiaries (the Company) as of March 31, 2008, and the
related consolidated statements of operations for the three-month periods ended
March 31, 2008 and 2007, the consolidated statement of stockholders' equity and
comprehensive income for the three months ended March 31, 2008, and the
consolidated statements of cash flows for the three-month periods ended March
31, 2008 and 2007. 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 condensed 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, 2007, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended not presented herein, and in our report dated
February 28, 2008 we expressed an unqualified opinion on those consolidated
financial statements and included an explanatory paragraph regarding the
Company's adoption of Statement of Financial Accounting Standards No. 123
(revised 2004), "Share Based Payment," effective January 1, 2006. In
our opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 2007, 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
May 9,
2008
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,
2007.
Results
of Operations
The
following table reflects certain summary operating data for our onshore
operations and for Bois d'Arc Energy for the periods presented:
|
|
Three
Months Ended March 31, 2008
|
|
|
Three
Months Ended March 31, 2007
|
|
|
|
|
|
|
|
Bois
d'Arc
|
|
|
|
|
|
|
|
|
|
|
Bois
d'Arc
|
|
|
|
|
|
|
Onshore
|
|
|
Energy
|
|
|
Total
|
|
|
Onshore
|
|
|
Energy
|
|
|
Total
|
|
|
|
(In
thousands, except per unit amounts)
|
|
Net
Production Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
(Mbbls)
|
|
|
243
|
|
|
|
427
|
|
|
|
670
|
|
|
|
251
|
|
|
|
368
|
|
|
|
619
|
|
Natural
Gas (Mmcf)
|
|
|
13,130
|
|
|
|
7,927
|
|
|
|
21,057
|
|
|
|
8,635
|
|
|
|
7,701
|
|
|
|
16,336
|
|
Natural
Gas equivalent (Mmcfe)
|
|
|
14,586
|
|
|
|
10,486
|
|
|
|
25,072
|
|
|
|
10,140
|
|
|
|
9,909
|
|
|
|
20,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
sales
|
|
$
|
19,772
|
|
|
$
|
43,091
|
|
|
$
|
62,863
|
|
|
$
|
12,054
|
|
|
$
|
21,468
|
|
|
$
|
33,522
|
|
Gas sales (1)
|
|
|
107,949
|
|
|
|
70,175
|
|
|
|
178,124
|
|
|
|
57,793
|
|
|
|
54,714
|
|
|
|
112,507
|
|
Total
oil and gas sales
|
|
$
|
127,721
|
|
|
$
|
113,266
|
|
|
$
|
240,987
|
|
|
$
|
69,847
|
|
|
$
|
76,182
|
|
|
$
|
146,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas operating expenses(2)
|
|
$
|
21,202
|
|
|
$
|
15,438
|
|
|
$
|
36,640
|
|
|
$
|
14,055
|
|
|
$
|
13,028
|
|
|
$
|
27,083
|
|
Exploration
expense
|
|
$
|
2,238
|
|
|
$
|
6,417
|
|
|
$
|
8,655
|
|
|
$
|
398
|
|
|
$
|
10,735
|
|
|
$
|
11,133
|
|
Depreciation,
depletion and amortization
|
|
$
|
41,505
|
|
|
$
|
28,368
|
|
|
$
|
70,562
|
|
|
$
|
27,360
|
|
|
$
|
28,515
|
|
|
$
|
56,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Sales Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
(per Bbl)
|
|
$
|
81.49
|
|
|
$
|
101.01
|
|
|
$
|
93.93
|
|
|
$
|
48.03
|
|
|
$
|
58.33
|
|
|
$
|
54.15
|
|
Natural
gas excluding realized hedging losses (per Mcf)
|
|
|
8.24
|
|
|
|
8.85
|
|
|
|
8.47
|
|
|
$
|
6.69
|
|
|
$
|
7.10
|
|
|
$
|
6.89
|
|
Natural
gas including hedge losses (per
Mcf)
|
|
$
|
8.22
|
|
|
$
|
8.85
|
|
|
$
|
8.46
|
|
|
$
|
6.69
|
|
|
$
|
7.10
|
|
|
$
|
6.89
|
|
Average
equivalent including hedge losses (per Mcfe)
|
|
|
8.77
|
|
|
|
10.80
|
|
|
|
9.62
|
|
|
$
|
6.89
|
|
|
$
|
7.69
|
|
|
$
|
7.28
|
|
Average
equivalent excluding hedge losses (per Mcfe)
|
|
$
|
8.76
|
|
|
$
|
10.80
|
|
|
$
|
9.61
|
|
|
$
|
6.89
|
|
|
$
|
7.69
|
|
|
$
|
7.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
($ per Mcfe):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas operating(2)
|
|
$
|
1.45
|
|
|
$
|
1.47
|
|
|
$
|
1.46
|
|
|
$
|
1.39
|
|
|
$
|
1.31
|
|
|
$
|
1.35
|
|
Depreciation, depletion and amortization(3)
|
|
$
|
2.84
|
|
|
$
|
2.69
|
|
|
$
|
2.80
|
|
|
$
|
2.69
|
|
|
$
|
2.86
|
|
|
$
|
2.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Onshore gas sales include realized hedging losses of $244
for the three months ended March 31, 2008.
(2)
Includes
lease operating costs and production and ad valorem
taxes.
(3)
Represents
depreciation, deletion and amortization of oil and gas properties
only.
Revenues
–
Our oil
and gas sales in the first three months of 2008 of $241.0 million increased
$95.0 million (65%) over our sales of $146.0 million in the first quarter of
2007. The growth in sales resulted from higher oil and natural gas
prices and increased production. Our average realized natural gas
price of $8.46 per Mcf in the first three months of 2008 was 23% above our
average natural gas price of $6.89 per Mcf for the three months ended March 31,
2007. Realized oil prices in the first quarter of 2008 averaged
$93.93 per barrel, 73% higher than the $54.15 per barrel realized in the first
quarter of 2007. Production in the first quarter of 2008 increased
25% to 25.1 Bcfe as compared to production of 20.0 Bcfe in the first quarter of
2007.
Oil and
gas sales from our onshore properties increased $57.9 million to $127.7 million
for the three months ended March 31, 2008 from $69.8 million for the first
quarter of 2007. Our average onshore realized crude oil price
increased by 70% and our average onshore realized natural gas price increased by
23% in the first quarter of 2008 as compared to the first quarter of
2007. Our onshore production in the first quarter of 2008 increased
by 44% to 14.6 Bcfe from production in the first quarter of 2007 of 10.1
Bcfe. The production increase was attributable to new properties we
acquired in December 2007 and to our development drilling
activity. Oil and gas sales from Bois d'Arc Energy's operations for
the first quarter of 2008 of $113.3 million increased $37.1 million or 49%
compared with the first quarter of 2007. Bois d'Arc Energy's average
oil price increased by 73% and Bois d'Arc Energy's average natural gas price
increased by 25% in the first quarter of 2008 as compared to the first quarter
of 2007. Bois d'Arc Energy's production of 10.5 Bcfe in the first
quarter of 2008 increased by 6% from the production in the first quarter of 2007
of 9.9 Bcfe primarily as a result of new wells drilled in 2007.
Costs and Expenses
-
Our oil
and gas operating expenses, including production taxes, increased $9.5 million
(35%) to $36.6 million in the first quarter of 2008 from $27.1 million in the
first quarter of 2007. Oil and gas operating expenses from our
onshore operations increased $7.1 million (51%) to $21.2 million from $14.1
million in the first quarter of 2007 reflecting the higher production level in
2008, which includes production from our newly acquired properties, and higher
production taxes resulting from both increased production and higher oil and
natural gas prices. Oil and gas operating expenses per equivalent Mcf
produced for our onshore operations increased $0.06 (5%) to $1.45 in the first
quarter of 2008 from $1.39 in the first quarter of 2007 reflecting the higher
production taxes. Bois d'Arc Energy's oil and gas operating costs for
the first quarter of 2008 of $15.4 million increased $2.4 million (19%) from
$13.0 million in the first quarter of 2007. Oil and gas operating
expenses per equivalent Mcf produced for Bois d'Arc Energy's operations
increased $0.16 (12%) to $1.47 in the first quarter of 2008 from $1.31 in the
first quarter of 2007. The increase was due to higher repair and
maintenance costs in 2008.
In the
first quarter of 2008, we had $8.7 million of exploration expense as compared to
$11.1 million in the first quarter of 2007. The provision in the
first quarter of 2008 primarily related to one onshore dry hole and seismic
costs incurred by Bois d'Arc Energy. The exploration expense in 2007
included four offshore dry holes, seismic costs incurred and lease
impairments.
Depreciation,
depletion and amortization ("DD&A") increased $13.9 million (24%) to $70.6
million in the first quarter of 2008 from DD&A expense of $56.7 million in
the first quarter of 2007. DD&A for our onshore properties
increased $14.0 million to $42.2 million for the three months ended March 31,
2008 from $28.2 million in the first quarter of 2007 due to higher production
and an increase in our onshore average DD&A rate. Our onshore
DD&A per equivalent Mcf produced increased by $0.15 to $2.84 for the three
months ended March 31, 2008 from $2.69 for the three months ended March 31,
2007. This increased rate was primarily attributable to the higher
capitalized costs associated with our drilling program and our acquisition
completed in 2007. DD&A related to Bois d'Arc Energy for the
first quarter of 2008 decreased $0.1 million due primarily to the lower
amortization rate, which was partially offset by a higher production
level. The DD&A rate per Mcfe produced for Bois d'Arc Energy
operations in the first quarter of 2008 decreased $0.17 per Mcfe to $2.69 per
Mcfe from $2.86 in the first quarter of 2007 due to lower finding costs related
to Bois d'Arc Energy's exploration and exploitation program.
General
and administrative expenses, which are reported net of overhead reimbursements,
decreased by $0.4 million to $9.3 million for the first quarter of 2008 as
compared to general and administrative expenses of $9.7 million for the first
quarter of 2007. The increase was primarily due to decreased
stock-based compensation of $0.2 million.
Interest
expense increased $2.9 million (34%) to $11.3 million for the first quarter of
2008 from interest expense of $8.4 million in the first quarter of
2007. The increase was primarily due to increased borrowings under
our bank credit facilities during the first quarter of 2008. The
average borrowings outstanding increased to $577.5 million during the first
quarter of 2008 as compared to $305.3 million in the first quarter of
2007. The average interest rate we were charged on the outstanding
borrowings under our credit facilities decreased to 5.2% in the first quarter of
2008 as compared to 6.6% in the first quarter of 2007.
Income
tax expense increased $29.3 million (197%) to $44.1 million in the three months
ended March 31, 2008 from income tax expense of $14.8 million in the first three
months of 2007. The increase was mainly due to higher operating
income in the first quarter of 2008.
Minority
interest in earnings of Bois d'Arc Energy of $19.5 million for the three months
ended March 31, 2008 increased $13.5 million (225%) from the minority interest
in earnings of $6.0 million for the comparable period in 2007 primarily due to
Bois d'Arc Energy's higher net income for the three months ended March 31,
2008.
We
reported net income of $41.1 million for the three months ended March 31, 2008,
as compared to $12.6 million for the three months ended March 31,
2007. The net income per share for the first quarter of 2008 was
$0.91 on weighted average diluted shares outstanding of 45.0 million as compared
to $0.28 for the first quarter of 2007 on weighted average diluted shares
outstanding of 44.2 million.
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 three months
ended March 31, 2008, our primary source of funds was net cash flow from
operations of $127.9 million. Our net cash flow from operating
activities increased $49.2 million (63%) in the first quarter of 2008 from $78.7
million for the three months ended March 31, 2007. This increase is
primarily the result of higher oil and gas prices and our increased production
in the first quarter of 2008.
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 three months of 2008, we
incurred capital expenditures of $120.8 million primarily for our acquisition,
development and exploration activities.
The
following table summarizes our capital expenditure activity, on an accrual
basis, for the three months ended March 31, 2008 and 2007:
|
|
|
Three
Months Ended March 31, 2008
|
|
|
Three
Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
Bois
d'Arc
|
|
|
|
|
|
|
|
|
|
|
Bois
d'Arc
|
|
|
|
|
|
|
|
Onshore
|
|
|
Energy
|
|
|
Total
|
|
|
Onshore
|
|
|
Energy
|
|
|
Total
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
Leasehold
costs
|
|
|
$
|
4,034
|
|
|
$
|
8,618
|
|
|
$
|
12,652
|
|
|
$
|
3,614
|
|
|
$
|
763
|
|
|
$
|
4,377
|
|
Development
drilling
|
|
|
|
52,165
|
|
|
|
19,076
|
|
|
|
71,241
|
|
|
|
76,393
|
|
|
|
8,291
|
|
|
|
84,684
|
|
Exploratory
drilling
|
|
|
|
2,479
|
|
|
|
17,229
|
|
|
|
19,708
|
|
|
|
2,697
|
|
|
|
30,037
|
|
|
|
32,734
|
|
Other
development
|
|
|
|
3,363
|
|
|
|
13,392
|
|
|
|
16,755
|
|
|
|
1,547
|
|
|
|
23,662
|
|
|
|
25,209
|
|
|
|
|
|
62,041
|
|
|
|
58,315
|
|
|
|
120,356
|
|
|
|
84,251
|
|
|
|
62,753
|
|
|
|
147,004
|
|
Other
|
|
|
|
419
|
|
|
|
36
|
|
|
|
455
|
|
|
|
643
|
|
|
|
143
|
|
|
|
786
|
|
|
|
|
$
|
62,460
|
|
|
$
|
58,351
|
|
|
$
|
120,811
|
|
|
$
|
84,894
|
|
|
$
|
62,896
|
|
|
$
|
147,790
|
|
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 and for seismic data
acquisitions. Consequently, we have a significant degree of
flexibility to adjust the level of our capital expenditures as circumstances
warrant. As of March 31, 2008 we had contracted for the services of
onshore drilling rigs through September 2008 at an aggregate cost of $12.5
million. As of March 31, 2008 Bois d'Arc Energy had commitments for
the services of contracted offshore drilling services at an aggregate cost of
$20.3 million through September 2008 and to acquire seismic data totaling $5.5
million through December 2008. 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 2013. We record a separate liability for the fair
value of these asset retirement obligations which totaled $53.4 million as of
March 31, 2008.
We spent
$62.0 million and $84.3 million on our onshore development and exploration
activities in the three months ended March 31, 2008 and 2007,
respectively. We expect to spend approximately $322.0 million for
onshore development and exploration projects in 2008. Bois d'Arc
Energy spent $58.3 million and $62.8 million on offshore development and
exploration activities in the three months ended March 31, 2008 and 2007,
respectively, and expects to spend $275.0 million for offshore development and
exploration projects in 2008. We expect our 2008 development and exploration
activities to be funded primarily with operating cash flow.
We do not
have a specific acquisition budget for 2008 since the timing and size of
acquisitions are not predictable. We intend to use borrowings under
our bank credit facilities, or other debt or equity financings to the extent
available, to finance significant acquisitions. The availability and
attractiveness of these sources of financing will depend upon a number of
factors, some of which will relate to our financial condition and performance
and some of which will be beyond our control, such as prevailing interest rates,
oil and natural gas prices and other market conditions.
We have
an $850.0 million bank credit facility with the Bank of Montreal, as the
administrative agent. The credit facility is a five-year revolving
credit commitment that matures on December 15, 2011. The 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. As of March 31, 2008 the borrowing base was $575.0 million,
$70.0 million of which was available. Effective on April 30, 2008 the
borrowing base was increased to $625.0 million which increased our
availability to $120.0 million. Indebtedness under the bank
credit facility is secured by substantially all of our wholly-owned
subsidiaries' oil and gas properties and is guaranteed by all of our
wholly-owned subsidiaries. Borrowings under the credit facility bear
interest, based on the utilization of the borrowing base, at our option of
either LIBOR plus 1.0% to 1.75% or the base rate (which is the higher of the
prime rate or the federal funds rate) plus 0% to 0.5%. A commitment
fee of 0.25% to 0.375% based on the utilization of the borrowing base is payable
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 we may incur and limit
our ability to make certain loans and investments. The only financial
covenants are the maintenance of a current ratio and maintenance of a minimum
tangible net worth. We were in compliance with these covenants as of
March 31, 2008. We also have $175.0 million of 6⅞% senior notes due
March 1, 2012, with interest payable semiannually on each March 1 and September
1. The notes are unsecured obligations and are guaranteed by all of
our wholly-owned subsidiaries.
Bois
d'Arc Energy has a bank credit facility with the Bank of Nova Scotia and
several other banks. The credit facility matures on May 11, 2009.
Borrowings under the credit facility are limited to a borrowing base that
is redetermined semi-annually based on the banks' estimates of the future net
cash flows of Bois d'Arc Energy's oil and natural gas properties. The
determination of the borrowing base is at the sole discretion of the
administrative agent and the bank group. The borrowing base was
$350.0 million as of March 31, 2008, $294.0 million of which was
available. Indebtedness under the credit facility is secured by
substantially all of Bois d'Arc Energy and its subsidiaries' assets, and all of
Bois d'Arc Energy's subsidiaries are guarantors of the indebtedness. The
credit facility contains covenants that restrict the payment of cash dividends
in excess of $5.0 million, borrowings, sales of assets, loans to others, capital
expenditures, investments, merger activity, hedging contracts, liens and certain
other transactions without the prior consent of the lenders and requires Bois
d'Arc Energy to maintain a ratio of current assets, including the availability
under the bank credit facility, to current liabilities of at least one-to-one
and a ratio of indebtedness to earnings before interest, taxes, depreciation,
depletion, and amortization, exploration and impairment expense of no more than
2.5-to-one.
We
believe that our cash flow from operations and available borrowings under our
bank credit facilities 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 terms acceptable to
us.
Commodity
Price Risk
We hedge
a portion of our price risks associated with our natural gas sales. As of March
31, 2008, our outstanding swap agreements had a net fair value loss
of $17.7 million. A change in the fair value of our natural gas swaps that would
result from a 10% change in commodities prices at March 31, 2008 would be $9.9
million. Such a change in fair value could be a gain or a loss
depending on whether prices increase or decrease.
Because
our swap agreements have been designated as hedge derivatives, changes in their
fair value generally are reported as a component of accumulated other
comprehensive loss until the related sale of production occurs. At
that time, the realized hedge derivative gain or loss is transferred to oil and
gas sales in the consolidated income statement. None of our
derivative contracts have margin requirements or collateral provisions that
could require funding prior to the scheduled cash settlement date.
Critical
Accounting Policies
The
information included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations — Critical Accounting Policies" in our
annual report filed on Form 10-K for the year ended December 31, 2007 is
incorporated herein by reference.
In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS
157"). This statement establishes a framework for fair value
measurements in the financial statements by providing a single definition of
fair value, provides guidance on the methods used to estimate fair value and
increases disclosures about estimates of fair value. We adopted SFAS
157 and its related amendments for financial assets and liabilities effective as
of January 1, 2008. See Note 2 to the consolidated financial
statements. Adoption of SFAS 157 had no impact on the carrying values
of our assets and liabilities. SFAS 157 will be effective for
non-financial assets and liabilities in financial statements issued for fiscal
years beginning after November 15, 2008.
In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations" ("SFAS
141R") which requires measurements based on fair value as determined under the
provisions of SFAS 157 and is effective for financial statements issued for
fiscal years beginning after December 15, 2008. SFAS 141R establishes
accounting and reporting standards for how the acquirer of a business recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the
acquiree. This statement also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statement to evaluate
the nature and financial effects of the business combination. SFAS
141R will impact the accounting and disclosures for any business combinations we
engage in after January 1, 2009. However, the nature and magnitude of
the specific effects will depend upon the nature, terms and size of the
acquisitions we consummate after that date.
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities – An Amendment of FASB Statement No. 133" ("SFAS
161"). This standard applies to derivative instruments, nonderivative
instruments that are designated and qualify as hedging instruments and related
hedged items accounted for under SFAS 133. SFAS 161 does not change
the accounting for derivatives and hedging activities, but requires enhanced
disclosures concerning the effect on the financial statements from their
use. SFAS 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15,
2008. Currently, we do not have any instruments that would be
impacted by this standard.
Recent
Developments
On April
30, 2008, our 49% owned subsidiary Bois d'Arc Energy entered into an
agreement and plan of merger with Stone Energy Corporation ("Stone") pursuant to
which Stone will acquire Bois d'Arc Energy. Under the terms of the
merger agreement, Bois d'Arc Energy shareholders, including us, will receive
$13.65 in cash and 0.165 shares of Stone common stock for each share of Bois
d'Arc Energy stock. Assuming the transaction is completed, we will
receive approximately $439.9 million in cash and 5,317,069 shares of the common
stock of Stone for its stake in Bois d'Arc Energy. Completion of the
transaction is subject to approval by the Bois d'Arc Energy and Stone
stockholders, regulatory approvals, and other customary
conditions. Concurrent with the execution of the merger agreement, we
entered into a stockholder agreement in which we have agreed to vote our shares
of Bois d'Arc Energy in favor of the merger.
In May
2008 we accepted offers to sell certain properties in East and South Texas for
$122.0 million. We own net profits interests in these fields which
are operated by other parties. The sales are expected to close in
June 2008 with an effective date of April 1, 2008.
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 oil and natural
gas. 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 oil and
natural gas 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 oil and natural gas
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 oil and natural gas 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 three months ended March 31, 2008, 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 $0.6 million and a $1.00 change in the price per Mcf of natural
gas would have changed our cash flow by approximately $20.4
million.
Interest
Rates
At March
31, 2008, we had total long-term debt of $736.0 million. Of this
amount, $175.0 million bears interest at a fixed rate of 6⅞%. We had
$561.0 million outstanding under our bank credit facilities, which bear 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 March 31, 2008, a 100 basis point change in interest
rates would change our interest expense for the three month period ended March
31, 2008 by approximately $1.4 million.
ITEM
4: CONTROLS AND PROCEDURES
As of
March 31, 2008, 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 March 31, 2008 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 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 March 31, 2008, that has materially affected,
or is reasonably likely to materially affect, our internal controls over
financial reporting.
PART
II — OTHER INFORMATION
|
|
|
Exhibit
No.
|
|
Description
|
|
|
|
10.1
|
|
Stockholder
Agreement, dated as of April 30, 2008, by and among Stone Energy
Corporation and Comstock Resources, Inc. (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K dated April 30,
2008).
|
10.2*
|
|
First
Amendment to Second Amendment and Restated Credit Agreement, dated April
30, 2008, among Comstock, as the borrower, the lenders from time to time
thereto, Bank of Montreal, as administrative agent and issuing bank, Bank
of America, N.A., as syndication agent and Comerica Bank, Fortis Capital
Corp., and Union Bank of California, N.A. as co-documentation
agents.
|
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.
|
|
|
|
* Filed
herewith.
† Furnished
herewith.
|
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: May
9, 2008
|
/s/
M. JAY ALLISON
|
|
|
M. Jay Allison, Chairman,
President and Chief
|
|
|
Executive
Officer (Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
Date: May
9, 2008
|
/s/
ROLAND O. BURNS
|
|
|
Roland O. Burns, Senior
Vice President,
|
|
|
Chief
Financial Officer, Secretary, and Treasurer
(Principal
Financial and Accounting Officer)
|
|