form10qsept302009.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 Quarter Ended September 30, 2009
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 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).
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):
Large
accelerated filer
þ
|
|
Accelerated
filer
o
|
|
Non-accelerated
filer
o
|
|
Smaller
reporting company
o
|
|
(Do
not check if a smaller reporting company)
|
|
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 November 4, 2009 was 46,621,445.
COMSTOCK
RESOURCES, INC.
QUARTERLY
REPORT
For
the Quarter Ended September 30, 2009
|
Page
|
|
PART
I. Financial Information
|
|
|
|
|
|
|
|
Item
1. Financial Statements (Unaudited):
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets -
September 30, 2009 and December
31, 2008
|
|
4
|
|
Consolidated
Statements of Operations -
Three Months and Nine months
ended September 30, 2009 and 2008
|
|
5
|
|
Consolidated
Statement of Stockholders' Equity and Comprehensive Loss -
Nine months ended September 30,
2009
|
|
6
|
|
Consolidated
Statements of Cash Flows -
Nine months ended September 30,
2009 and 2008
|
|
7
|
|
Notes to Consolidated Financial
Statements
|
|
8
|
|
Report of Independent Registered
Public Accounting Firm
|
|
19
|
|
|
|
|
|
Item 2. Management's Discussion
and Analysis of Financial Condition and Results of
Operations
|
|
20
|
|
|
|
|
|
Item 3. Quantitative and
Qualitative Disclosure About Market Risk
|
|
24
|
|
|
|
|
|
Item 4. Controls and
Procedures
|
|
25
|
|
|
|
|
|
|
|
|
|
PART
II. Other Information |
|
|
|
|
|
|
|
Item
6. Exhibits |
|
25 |
|
|
|
|
|
Awareness
Letter of Ernst & Young LLP
|
|
|
|
Section
302 Certification of the Chief Executive Officer
|
|
|
|
Section
302 Certification of the Chief Financial Officer
|
|
|
|
Certification
for the Chief Executive Officer as required by Section 906
|
|
|
|
Certification
for the Chief Financial Officer as required by Section 906
|
|
|
|
PART
I — FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS (UNAUDITED)
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
ASSETS
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
3,094
|
|
|
$
|
6,281
|
|
Accounts
Receivable:
|
|
|
|
|
|
|
|
|
Oil
and gas sales
|
|
|
21,890
|
|
|
|
34,401
|
|
Joint
interest operations
|
|
|
8,344
|
|
|
|
7,876
|
|
Marketable
Securities
|
|
|
86,721
|
|
|
|
48,868
|
|
Derivative
Financial Instruments
|
|
|
5,264
|
|
|
|
13,974
|
|
Current
Income Taxes Receivable
|
|
|
37,796
|
|
|
|
1,824
|
|
Deferred
Income Tax Asset
|
|
|
—
|
|
|
|
4,995
|
|
Other
Current Assets
|
|
|
4,295
|
|
|
|
11,809
|
|
Total
current assets
|
|
|
167,404
|
|
|
|
130,028
|
|
Property
and Equipment:
|
|
|
|
|
|
|
|
|
Unevaluated
oil and gas properties
|
|
|
118,638
|
|
|
|
116,489
|
|
Oil
and gas properties, successful efforts method
|
|
|
2,212,239
|
|
|
|
1,960,544
|
|
Other
property and equipment
|
|
|
6,172
|
|
|
|
6,162
|
|
Accumulated
depreciation, depletion and amortization
|
|
|
(790,304
|
)
|
|
|
(638,480
|
)
|
Net
property and equipment
|
|
|
1,546,745
|
|
|
|
1,444,715
|
|
Other
Assets
|
|
|
2,545
|
|
|
|
3,147
|
|
|
|
$
|
1,716,694
|
|
|
$
|
1,577,890
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
Accounts
Payable
|
|
$
|
73,505
|
|
|
$
|
99,460
|
|
Deferred
Income Tax Liability
|
|
|
5,192
|
|
|
|
—
|
|
Accrued
Expenses
|
|
|
14,339
|
|
|
|
14,995
|
|
Total
current liabilities
|
|
|
93,036
|
|
|
|
114,455
|
|
Long-term
Debt
|
|
|
340,000
|
|
|
|
210,000
|
|
Deferred
Income Taxes Payable
|
|
|
212,327
|
|
|
|
185,870
|
|
Reserve
for Future Abandonment Costs
|
|
|
6,030
|
|
|
|
5,480
|
|
Total
liabilities
|
|
|
651,393
|
|
|
|
515,805
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
|
Common
stock – $0.50 par, 75,000,000 shares authorized, 46,621,445 and
46,442,595
shares
outstanding at September 30, 2009 and December 31, 2008,
respectively
|
|
|
23,311
|
|
|
|
23,221
|
|
Additional
paid-in capital
|
|
|
429,762
|
|
|
|
415,875
|
|
Retained
earnings
|
|
|
584,202
|
|
|
|
613,906
|
|
Accumulated
other comprehensive income
|
|
|
28,026
|
|
|
|
9,083
|
|
Total
stockholders' equity
|
|
|
1,065,301
|
|
|
|
1,062,085
|
|
|
|
$
|
1,716,694
|
|
|
$
|
1,577,890
|
|
The
accompanying notes are an integral part of these statements.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas sales
|
|
$
|
67,436
|
|
|
$
|
163,852
|
|
|
$
|
200,662
|
|
|
$
|
463,595
|
|
Gain
on sale of assets
|
|
|
—
|
|
|
|
5,356
|
|
|
|
—
|
|
|
|
26,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas operating
|
|
|
16,019
|
|
|
|
21,556
|
|
|
|
50,463
|
|
|
|
66,120
|
|
Exploration
|
|
|
227
|
|
|
|
2,794
|
|
|
|
371
|
|
|
|
5,032
|
|
Depreciation,
depletion and amortization
|
|
|
53,933
|
|
|
|
45,943
|
|
|
|
152,001
|
|
|
|
131,870
|
|
Impairment
of oil and gas properties
|
|
|
115
|
|
|
|
—
|
|
|
|
115
|
|
|
|
—
|
|
General
and administrative, net
|
|
|
8,689
|
|
|
|
7,242
|
|
|
|
27,559
|
|
|
|
20,328
|
|
Total
operating expenses
|
|
|
78,983
|
|
|
|
77,535
|
|
|
|
230,509
|
|
|
|
223,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) from continuing operations
|
|
|
(11,547
|
)
|
|
|
91,673
|
|
|
|
(29,847
|
)
|
|
|
266,805
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
3
|
|
|
|
587
|
|
|
|
35
|
|
|
|
953
|
|
Other
income
|
|
|
23
|
|
|
|
29
|
|
|
|
115
|
|
|
|
87
|
|
Interest
expense
|
|
|
(3,244
|
)
|
|
|
(4,751
|
)
|
|
|
(8,307
|
)
|
|
|
(23,248
|
)
|
Total
other income (expenses)
|
|
|
(3,218
|
)
|
|
|
(4,135
|
)
|
|
|
(8,157
|
)
|
|
|
(22,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before income taxes
|
|
|
(14,765
|
)
|
|
|
87,538
|
|
|
|
(38,004
|
)
|
|
|
244,597
|
|
Benefit
from (provision for) income taxes
|
|
|
2,193
|
|
|
|
(32,774
|
)
|
|
|
8,300
|
|
|
|
(90,003
|
)
|
Income
(loss) from continuing operations
|
|
|
(12,572
|
)
|
|
|
54,764
|
|
|
|
(29,704
|
)
|
|
|
154,594
|
|
Income
from discontinued operations after income taxes and
minority interest
|
|
|
—
|
|
|
|
169,853
|
|
|
|
—
|
|
|
|
193,745
|
|
Net
income (loss)
|
|
$
|
(12,572
|
)
|
|
$
|
224,617
|
|
|
$
|
(29,704
|
)
|
|
$
|
348,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(0.28
|
)
|
|
$
|
1.19
|
|
|
$
|
(0.66
|
)
|
|
$
|
3.38
|
|
Discontinued
operations
|
|
|
—
|
|
|
|
3.69
|
|
|
|
—
|
|
|
|
4.24
|
|
|
|
$
|
(0.28
|
)
|
|
$
|
4.88
|
|
|
$
|
(0.66
|
)
|
|
$
|
7.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(0.28
|
)
|
|
$
|
1.18
|
|
|
$
|
(0.66
|
)
|
|
$
|
3.36
|
|
Discontinued
operations
|
|
|
—
|
|
|
|
3.67
|
|
|
|
—
|
|
|
|
4.21
|
|
|
|
$
|
(0.28
|
)
|
|
$
|
4.85
|
|
|
$
|
(0.66
|
)
|
|
$
|
7.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
45,032
|
|
|
|
44,748
|
|
|
|
44,992
|
|
|
|
44,448
|
|
Diluted
|
|
|
45,032
|
|
|
|
44,971
|
|
|
|
44,992
|
|
|
|
44,776
|
|
The
accompanying notes are an integral part of these statements.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
AND
COMPREHENSIVE LOSS
For
the Nine Months Ended September 30, 2009
(Unaudited)
|
|
Common
Stock
(Shares)
|
|
|
Common
Stock
–
Par
Value
|
|
|
Additional
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other Comprehensive Income
|
|
Total
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2009
|
|
$
|
46,442
|
|
|
$
|
23,221
|
|
|
$
|
415,875
|
|
|
$
|
613,906
|
|
|
$
|
9,083
|
|
$
|
1,062,085
|
|
Exercise
of stock options and warrants
|
|
|
84
|
|
|
|
42
|
|
|
|
1,428
|
|
|
|
—
|
|
|
|
—
|
|
|
1,470
|
|
Stock-based
compensation
|
|
|
95
|
|
|
|
48
|
|
|
|
11,485
|
|
|
|
—
|
|
|
|
—
|
|
|
11,533
|
|
Tax
benefit from stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
974
|
|
|
|
—
|
|
|
|
—
|
|
|
974
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(29,704
|
)
|
|
|
—
|
|
|
(29,704
|
)
|
Unrealized
hedging loss, net of income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,662
|
)
|
|
(5,662
|
)
|
Unrealized
gain on marketable securities, net of income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,605
|
|
|
24,605
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2009
|
|
$
|
46,621
|
|
|
$
|
23,311
|
|
|
$
|
429,762
|
|
|
$
|
584,202
|
|
|
$
|
28,026
|
|
$
|
1,065,301
|
|
The
accompanying notes are an integral part of these statements.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine
Months Ended
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM CONTINUING OPERATIONS:
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(29,704
|
)
|
|
$
|
348,339
|
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
—
|
|
|
|
(193,745
|
)
|
Deferred
income taxes
|
|
|
22,318
|
|
|
|
85,171
|
|
Dry
hole costs and lease impairments
|
|
|
—
|
|
|
|
4,113
|
|
Depreciation,
depletion and amortization
|
|
|
152,001
|
|
|
|
131,870
|
|
Impairment
of oil and gas properties
|
|
|
115
|
|
|
|
—
|
|
Gain
on sales of assets
|
|
|
—
|
|
|
|
(26,560
|
)
|
Debt
issuance cost amortization
|
|
|
608
|
|
|
|
608
|
|
Stock-based
compensation
|
|
|
11,533
|
|
|
|
8,968
|
|
Excess
tax benefit from stock-based compensation
|
|
|
(974
|
)
|
|
|
(8,805
|
)
|
(Increase)
decrease in accounts receivable
|
|
|
12,043
|
|
|
|
(14,738
|
)
|
Increase
in other current assets
|
|
|
(23,378
|
)
|
|
|
(8,758
|
)
|
Increase
(decrease) in accounts payable and accrued expenses
|
|
|
(26,712
|
)
|
|
|
4,573
|
|
Net
cash provided by operating activities from continuing
operations
|
|
|
117,850
|
|
|
|
331,036
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(253,475
|
)
|
|
|
(298,812
|
)
|
Proceeds
from asset sales
|
|
|
—
|
|
|
|
129,541
|
|
Net
cash used for investing activities from continuing
operations
|
|
|
(253,475
|
)
|
|
|
(169,271
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
130,000
|
|
|
|
50,000
|
|
Principal
payments on debt
|
|
|
—
|
|
|
|
(555,000
|
)
|
Proceeds
from issuance of common stock
|
|
|
1,470
|
|
|
|
8,278
|
|
Excess
tax benefit from stock-based compensation
|
|
|
974
|
|
|
|
8,805
|
|
Debt
issuance costs
|
|
|
(6
|
)
|
|
|
(16
|
)
|
Net
cash provided by (used for) financing activities from continuing
operations
|
|
|
132,438
|
|
|
|
(487,933
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash used for continuing operations
|
|
|
(3,187
|
)
|
|
|
(326,168
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
—
|
|
|
|
240,332
|
|
Proceeds
from sale of Bois d'Arc Energy, Inc.
|
|
|
—
|
|
|
|
438,960
|
|
Capital
expenditures
|
|
|
—
|
|
|
|
(159,368
|
)
|
Net
cash provided by investing activities
|
|
|
—
|
|
|
|
279,592
|
|
Net
cash used for financing activities
|
|
|
—
|
|
|
|
(80,964
|
)
|
Net
cash provided by discontinued operations
|
|
|
—
|
|
|
|
438,960
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(3,187
|
)
|
|
|
112,792
|
|
Cash
and cash equivalents, beginning of period
|
|
|
6,281
|
|
|
|
5,565
|
|
Cash
and cash equivalents, end of period
|
|
$
|
3,094
|
|
|
$
|
118,357
|
|
The accompanying notes are an integral
part of these statements.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(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, 2009 and the related results of operations for the three months and nine
months ended September 30, 2009 and 2008 and cash flows for the nine months
ended September 30, 2009 and 2008.
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, 2008.
The
results of operations for the three months and nine months ended September 30,
2009 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.
Discontinued
Operations
The
Company's offshore operations were conducted through its subsidiary Bois d'Arc
Energy, Inc. ("Bois d'Arc Energy"). On August 28, 2008, Bois d'Arc
Energy completed a merger with Stone Energy Corporation ("Stone") pursuant to
which each outstanding share of Bois d'Arc Energy was exchanged for cash in the
amount of $13.65 per share and 0.165 shares of Stone common stock. As
a result of this transaction, Comstock received net proceeds of $439.0 million
in cash and 5,317,069 shares of Stone common stock in exchange for its interest
in Bois d'Arc Energy.
As a
result of the merger, the consolidated financial statements and the related
notes thereto for 2008 present the Company's offshore operations as discontinued
operations. No general and administrative or interest costs incurred
by Comstock have been allocated to the discontinued operations during the
periods presented. Unless indicated otherwise, the amounts presented
in the accompanying notes to the consolidated financial statements relate to the
Company's continuing operations.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Income
from discontinued operations for the three months and nine months ended
September 30, 2008 is comprised of the following:
|
|
Three
Months Ended
September
30, 2008
|
|
|
|
Nine
Months Ended
September
30, 2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas sales
|
|
$
|
99,463
|
|
|
|
$
|
360,719
|
|
Total
operating expenses
|
|
|
(57,768
|
)
|
|
|
|
(198,894
|
)
|
Operating
income from discontinued operations
|
|
|
41,695
|
|
|
|
|
161,825
|
|
Other
income (expense)
|
|
|
(740
|
)
|
|
|
|
(2,630
|
)
|
Provision
for income taxes
|
|
|
(22,040
|
)
|
|
|
|
(76,626
|
)
|
Minority
interest in earnings
|
|
|
(7,121
|
)
|
|
|
|
(46,883
|
)
|
Income
from discontinued operations
|
|
|
11,794
|
|
|
|
|
35,686
|
|
Gain
on sale of discontinued operation, net of income taxes
of $85,327
|
|
|
158,059
|
|
|
|
|
158,059
|
|
Income
from discontinued operations
|
|
$
|
169,853
|
|
|
|
$
|
193,745
|
|
Reclassifications
Certain
reclassifications have been made to prior periods' financial statements to
conform to the current presentation.
Marketable
Securities
The
Company received shares of Stone common stock as a portion of the proceeds from
the sale of its interest in Bois d'Arc Energy. The Company does not
exert influence over the operating and financial policies of Stone, 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. Prior to August 28, 2009 the fair value of the
Stone common stock included a discount to the public market price to reflect
certain trading restrictions. Subsequent to that date, the fair value
of the Stone common stock is based on the public market price. The
Company utilizes the specific identification method to determine the cost of any
securities sold.
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, 2009, the estimated fair value of the
Stone shares, based on the market price for the shares, was $86.7 million after
recognizing an unrealized gain before income taxes of $37.9
million.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Asset
Retirement Obligations
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, 2009 and 2008:
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Beginning
asset retirement obligations
|
|
$
|
5,480
|
|
|
$
|
7,512
|
|
Accretion
expense
|
|
|
233
|
|
|
|
333
|
|
New
wells placed on production and changes in estimates
|
|
|
342
|
|
|
|
484
|
|
Liabilities
settled and properties sold
|
|
|
(25
|
)
|
|
|
(960
|
)
|
Future
abandonment liability — end of period
|
|
$
|
6,030
|
|
|
$
|
7,369
|
|
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 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 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 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.
A
benefit from hedge ineffectiveness of $0.4 million before income taxes was
recognized during the three months ended September 30, 2008 which resulted in
hedge ineffectiveness being zero for the nine months ended September 30,
2008. The Company realized gains of $7.3 million and $20.3 million
during the three and nine months ended September 30, 2009, respectively, which
are included in oil and gas sales in the accompanying Consolidated Statements of
Operations. The Company realized losses of $2.7 million and $7.4
million during the three and nine months ended September 30, 2008, respectively,
which are included in oil and gas sales in the accompanying Consolidated
Statements of Operations. The change in the market value of
derivative financial instruments recognized in other comprehensive income
(loss), net of income taxes, was a loss of $5.7 million for the nine months
ended September 30, 2009 and a gain of $1.8 million for the nine months ended
September 30, 2008. As of September 30, 2009, the estimated fair
value of the Company's derivative financial instruments, which equals their
carrying value, was a net asset of $5.3 million, which is classified as a
current asset.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On May
19, 2009, the stockholders of the Company approved the 2009 Long-term Incentive
Plan to replace the 1999 Long-term Incentive Plan which terminated on March 31,
2009. The 2009 Long-term Incentive Plan provides for the award of
stock options, restricted shares of common stock and performance units to key
employees and non-employee directors. The new incentive plan has a
term of ten years and authorizes the award of up to 4 million shares of common
stock.
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, 2009 and 2008,
the Company recognized $4.0 million and $3.3 million, respectively, in
stock-based compensation expense within general and administrative expenses
related to stock option and restricted stock grants. Stock-based
compensation expense for the nine months ended September 30, 2009 and 2008 was
$11.5 million and $9.0 million, respectively. The excess income tax
benefit realized from the deductions associated with stock-based compensation
for the nine months ended September 30, 2009 and 2008 was $1.0 million and $8.8
million, 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 stock options issued during the nine
months ended September 30, 2009. Total unrecognized compensation cost
related to nonvested stock options of $0.6 million as of September 30, 2009 is
expected to be recognized over a period of 1.1 years. There were
453,620 stock options outstanding at September 30, 2009, of which 385,995 were
exercisable.
As of
September 30, 2009, Comstock had 1,583,125 shares of restricted stock
outstanding at a weighted average grant date fair value of $36.61 per
share. During the nine months ended September 30, 2009, the Company
awarded a total of 96,000 shares of restricted stock to its independent
directors which will vest over a three year period. The grant date
fair value was $38.42 per share for the 2009 awards. Total
unrecognized compensation cost related to the unvested restricted stock grants
was $31.0 million as of September 30, 2009 is expected to be recognized over a
period of 2.6 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 from continuing operations is due to the following:
|
|
Three
Months Ended
September
30,
|
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
2009
|
|
|
|
2008
|
|
Tax
at statutory rate
|
|
35.0%
|
|
|
|
35.0%
|
|
|
|
35.0%
|
|
|
|
35.0%
|
|
Tax
effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nondeductible
stock-based compensation
|
|
(14.5%
|
)
|
|
|
1.1%
|
|
|
|
(10.6%
|
)
|
|
|
0.9%
|
|
State
income taxes, net of federal benefit
|
|
(3.7%
|
)
|
|
|
1.2%
|
|
|
|
(1.2%
|
)
|
|
|
0.9%
|
|
Other
|
|
(1.9%
|
)
|
|
|
0.1%
|
|
|
|
(1.4%
|
)
|
|
|
—%
|
|
Effective
tax rate
|
|
14.9%
|
|
|
|
37.4%
|
|
|
|
21.8%
|
|
|
|
36.8%
|
|
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The
following is an analysis of consolidated income tax expense from continuing
operations:
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
Current
provision (benefit)
|
|
$
|
(26,495
|
)
|
|
$
|
107
|
|
|
$
|
(30,618
|
)
|
|
$
|
4,832
|
|
Deferred
provision
|
|
|
24,302
|
|
|
|
32,667
|
|
|
|
22,318
|
|
|
|
85,171
|
|
Provision
for (benefit from) income taxes
|
|
$
|
(2,193
|
)
|
|
$
|
32,774
|
|
|
$
|
(8,300
|
)
|
|
$
|
90,003
|
|
As of
September 30, 2009, the Company held certain items that are required to be
measured at fair value. These included cash equivalents held in money
market funds, marketable securities comprised of shares of Stone common stock,
and derivative financial instruments in the form of natural gas price swap
agreements. 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. A
three-level hierarchy is followed 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.
Prior to
August 28, 2009, the fair value of the Stone common stock recorded by the
Company included a discount from the quoted public market price to reflect the
impact of trading restrictions. The Company determined the impact of
the trading restrictions on the fair value of the Stone common stock utilizing a
standard option pricing model based on inputs that were either readily available
in public markets or which could be derived from information available in
publicly quoted markets. Accordingly, the Company categorized the
Stone common stock valuation as a Level 2 measurement for periods prior to
August 28, 2009. For periods subsequent to August 28, 2009, the date
at which the trading restrictions lapsed, the Company is measuring the value of
the Stone common stock based on unadjusted public market prices, and the
valuation of these shares is now categorized as a Level 1
measurement. The Company's natural gas price swap agreements
are not traded on a public exchange. The value of natural gas price
swap agreements is determined utilizing a discounted cash flow model based on
inputs that are not readily available in public markets and, accordingly, the
valuation of these swap agreements has been categorized as a Level 3
measurement.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following
table summarizes financial assets and liabilities accounted for at fair value as
of September 30, 2009:
|
|
Carrying Value Measured at
Fair Value as of September 30, 2009
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
|
|
(In
thousands)
|
|
Items
measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents – money market funds
|
|
$
|
3,094
|
|
$
|
3,094
|
|
$
|
—
|
|
$
|
—
|
|
Marketable
securities
|
|
|
86,721
|
|
|
86,721
|
|
|
—
|
|
|
—
|
|
Derivative
financial instruments – natural gas price swaps
|
|
|
5,264
|
|
|
—
|
|
|
—
|
|
|
5,264
|
|
Total
assets
|
|
$
|
95,079
|
|
$
|
89,815
|
|
$
|
—
|
|
$
|
5,264
|
|
The
following tables summarize the changes in the fair values of the natural gas
swap derivative financial instruments, which are Level 3 measurements, for the
three months and nine months ended September 30, 2008 and 2009:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
$
|
11,922
|
|
|
$
|
(40,080
|
)
|
|
$
|
13,974
|
|
|
$
|
—
|
|
Settlements
|
|
|
(7,306
|
)
|
|
|
3,089
|
|
|
|
(20,332
|
)
|
|
|
7,358
|
|
Hedge
ineffectiveness
|
|
|
—
|
|
|
|
(359
|
)
|
|
|
—
|
|
|
|
—
|
|
Total
realized or unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized
and unrealized gains (losses) included in earnings
|
|
|
7,306
|
|
|
|
(2,730
|
)
|
|
|
20,332
|
|
|
|
(7,358
|
)
|
Unrealized
gains (losses) included in other comprehensive
income
|
|
|
(6,658
|
)
|
|
|
42,836
|
|
|
|
(8,710
|
)
|
|
|
2,756
|
|
Balance,
end of period
|
|
$
|
5,264
|
|
|
$
|
2,756
|
|
|
$
|
5,264
|
|
|
$
|
2,756
|
|
The
following table presents the carrying amounts and estimated fair value of the
Company's other financial instruments as of September 30, 2009 and December 31,
2008:
|
|
As
of September 30, 2009
|
|
|
As
of December 31, 2008
|
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, including current portion
|
|
$
|
340,000
|
|
|
$
|
340,000
|
|
|
$
|
210,000
|
|
|
$
|
169,750
|
|
The fair
market value of the fixed rate debt was based on the market prices as of
September 30, 2009 and December 31, 2008. The fair market value of
the floating rate debt approximates its carrying value.
Earnings
Per Share
At
September 30, 2009 and December 31, 2008, 1,583,125 and 1,691,750 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.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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. On January 1, 2009, the Company adopted the provisions of a
new accounting standard issued by Financial Accounting Standards Board, which requires that unvested
share-based payment awards containing nonforfeitable rights to dividends be
considered participating securities and included in the computation of basic and
diluted earnings per share pursuant to the two-class method. Earnings
per share data for all periods presented have been adjusted retrospectively for
the effects of adopting this new standard. The following table
summarizes the effect of adoption for the three months and nine months ended
September 30, 2008:
|
|
Three Months Ended September 30,
2008
|
|
|
Nine Months Ended September 30,
2008
|
|
|
|
Increase
(decrease) from previously reported amounts
|
|
Basic
net income per share:
|
|
|
|
Continuing
operations
|
|
$
|
(0.03
|
)
|
|
$
|
(0.10
|
)
|
Discontinued
operations
|
|
|
(0.11
|
)
|
|
|
(0.12
|
)
|
|
|
$
|
(0.14
|
)
|
|
$
|
(0.22
|
)
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
Discontinued
operations
|
|
|
(0.04
|
)
|
|
|
(0.04
|
)
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.08
|
)
|
Basic and
diluted earnings per share for the three months and nine months ended September
30, 2009 and 2008, respectively, were determined as follows:
|
|
Three
Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) From Continuing Operations
|
|
$
|
(12,572
|
)
|
|
|
|
|
|
|
|
|
|
$
|
54,764
|
|
|
|
|
|
|
|
|
|
Income
Allocable to Unvested Stock Grants
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(1,514
|
)
|
|
|
|
|
|
|
|
|
Basic
Income (Loss) From Continuing Operations Attributable to Common
Stock
|
|
$
|
(12,572
|
)
|
|
|
45,032
|
|
|
$
|
(0.28
|
)
|
|
$
|
53,250
|
|
|
|
44,748
|
|
|
$
|
1.19
|
|
Effect
of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
223
|
|
|
|
|
|
Diluted
Income (Loss) From Continuing Operations Attributable to Common
Stock
|
|
$
|
(12,572
|
)
|
|
|
45,032
|
|
|
$
|
(0.28
|
)
|
|
$
|
53,250
|
|
|
|
44,971
|
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
169,853
|
|
|
|
|
|
|
|
|
|
Income
Allocable to Unvested Stock Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,696
|
)
|
|
|
|
|
|
|
|
|
Basic
Income from Discontinued Operations Attributable
to Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
165,157
|
|
|
|
44,748
|
|
|
$
|
3.69
|
|
Effect
of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
223
|
|
|
|
|
|
Diluted
Income from Discontinued Operations Attributable to Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
165,157
|
|
|
|
44,971
|
|
|
$
|
3.67
|
|
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
Nine
Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) From Continuing Operations
|
|
$
|
(29,704
|
)
|
|
|
|
|
|
|
|
|
|
$
|
154,594
|
|
|
|
|
|
|
|
|
|
Income
Allocable to Unvested Stock Grants
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(4,318
|
)
|
|
|
|
|
|
|
|
|
Basic
Income (Loss) From Continuing Operations Attributable to Common
Stock
|
|
$
|
(29,704
|
)
|
|
|
44,992
|
|
|
$
|
(0.66
|
)
|
|
$
|
150,276
|
|
|
|
44,448
|
|
|
$
|
3.38
|
|
Effect
of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
328
|
|
|
|
|
|
Diluted
Income (Loss) From Continuing Operations Attributable to Common
Stock
|
|
$
|
(29,704
|
)
|
|
|
44,992
|
|
|
$
|
(0.66
|
)
|
|
$
|
150,276
|
|
|
|
44,776
|
|
|
$
|
3.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
193,745
|
|
|
|
|
|
|
|
|
|
Income
Allocable to Unvested Stock Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,412
|
)
|
|
|
|
|
|
|
|
|
Basic
Income from Discontinued Operations
Attributable
to Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
188,333
|
|
|
|
44,448
|
|
|
$
|
4.24
|
|
Effect
of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
328
|
|
|
|
|
|
Diluted
Income from Discontinued Operations Attributable to Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
188,333
|
|
|
|
44,776
|
|
|
$
|
4.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares of restricted stock included in common stock outstanding were as
follows:
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
Unvested
restricted stock
|
|
|
1,590
|
|
|
|
1,272
|
|
|
|
1,546
|
|
|
|
1,277
|
|
The
shares of unvested restricted stock were excluded as anti-dilutive to earnings
per share in 2009 due to the net loss.
Stock
options to purchase common stock that were excluded from the determination of
diluted earnings per share were as follows:
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands except per share data)
|
|
|
|
|
|
Weighted
average anti-dilutive stock options
|
|
|
454
|
|
|
|
—
|
|
|
|
490
|
|
|
|
21
|
|
Weighted
average exercise price
|
|
$
|
23.55
|
|
|
$
|
—
|
|
|
$
|
22.03
|
|
|
$
|
54.36
|
|
Such
options were excluded as anti-dilutive to earnings per share due to the net loss
in 2009. In 2008, the excluded options that were anti-dilutive were
at exercise prices in excess of the average actual stock price for the
period.
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 September 30, 2009 and December 31,
2008 the Company's cash investments consisted of prime shares in an
institutional preferred money market fund.
The
following is a summary of cash payments made for interest and income
taxes:
|
|
Nine
Months Ended
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Cash
Payments:
|
|
|
|
Interest
payments
|
|
$
|
15,100
|
|
|
$
|
26,560
|
|
Income
tax payments
|
|
$
|
1,524
|
|
|
$
|
5,199
|
|
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,
2009, the Company capitalized $1.3 million and $4.3 million, respectively, of
interest which reduced interest expense and increased the carrying value of its
unevaluated oil and gas properties. The Company capitalized interest
of $0.6 million during the three months and nine months ended September 30,
2008.
Comprehensive
Income
Comprehensive
income (loss) consists of the following:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(12,572
|
)
|
|
$
|
54,764
|
|
|
$
|
(29,704
|
)
|
|
$
|
154,594
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
hedging gains (losses), net of income tax expense (benefit) of ($2,330),
$14,867, ($3,048) and $964
|
|
|
(4,328
|
)
|
|
|
27,610
|
|
|
|
(5,662
|
)
|
|
|
1,791
|
|
Unrealized
gain (loss) on marketable securities, net of income
tax expense (benefit) of $17,718, ($10,342), $13,249 and
($10,342)
|
|
|
32,904
|
|
|
|
(19,207
|
)
|
|
|
24,605
|
|
|
|
(19,207
|
)
|
Total
from continuing operations
|
|
|
16,004
|
|
|
|
63,167
|
|
|
|
(10,761
|
)
|
|
|
137,178
|
|
Income
from discontinued operations after income taxes and
minority interest
|
|
|
—
|
|
|
|
169,853
|
|
|
|
—
|
|
|
|
193,745
|
|
Total
comprehensive income (loss)
|
|
$
|
16,004
|
|
|
$
|
233,020
|
|
|
$
|
(10,761
|
)
|
|
$
|
330,923
|
|
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Accumulated
other comprehensive income (loss), for the three and nine months ended September
30, 2009 is comprised of the following:
|
|
Three
Months Ended September 30, 2009
|
|
|
Nine
Months Ended September 30, 2009
|
|
|
|
Natural
Gas Price Swap Agreements
|
|
|
Marketable
Securities
|
|
Accumulated Other
Comprehensive Income (Loss)
|
|
|
Natural
Gas Price Swap Agreements
|
|
|
Marketable
Securities
|
|
Accumulated Other
Comprehensive Income (Loss)
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– Beginning of Period
|
|
$
|
7,749
|
|
|
$
|
(8,299
|
)
|
|
$
|
(550
|
)
|
|
$
|
9,083
|
|
|
$
|
—
|
|
|
$
|
9,083
|
|
Changes
in value
|
|
|
2,978
|
|
|
|
32,904
|
|
|
|
35,882
|
|
|
|
14,670
|
|
|
|
24,605
|
|
|
|
39,275
|
|
Reclassification
to earnings
|
|
|
(7,306
|
)
|
|
|
—
|
|
|
|
(7,306
|
)
|
|
|
(20,332
|
)
|
|
|
—
|
|
|
|
(20,332
|
)
|
Balance
– End of Period
|
|
$
|
3,421
|
|
|
$
|
24,605
|
|
|
$
|
28,026
|
|
|
$
|
3,421
|
|
|
$
|
24,605
|
|
|
$
|
28,026
|
|
(2) LONG-TERM
DEBT –
At September
30, 2009, long-term debt was comprised of:
|
|
(In
thousands)
|
|
Revolving
Bank Credit Facility
|
|
$
|
165,000
|
|
6⅞%
Senior Notes due 2012
|
|
|
175,000
|
|
|
|
$
|
340,000
|
|
Comstock
has a $850.0 million bank credit facility with a group of banks, including 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's
and its wholly-owned subsidiaries' oil and gas properties 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 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 September 30, 2009,
the borrowing base was $550.0 million, $385.0 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%) plus 0.5% to 1.25%. A
commitment fee of 0.5% 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 September 30, 2009.
The 6⅞%
senior notes are unsecured obligations of Comstock and are guaranteed by all of
Comstock's subsidiaries. As of September 30, 2009, Comstock has no
assets or operations which are independent of its subsidiaries. There
are no restrictions on the ability of Comstock to obtain funds from its
subsidiaries through dividends or loans.
COMSTOCK
RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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, 2009, the Company had commitments for contracted drilling services
of $101.8 million. The Company also has entered into natural gas
transportation agreements through July 2019. Maximum commitments
under these transportation agreements as of September 30, 2009 totaled $37.5
million.
(4) SUBSEQUENT
EVENTS –
Subsequent
events were evaluated through November 4, 2009, the date the consolidated
financial statements were issued.
On
October 9, 2009, Comstock issued $300.0 million in principal amount of 8⅜%
senior notes due 2017 at 96.571% of par. The 8⅜% senior notes will
mature on October 15, 2017, and interest is paid semi-annually on April 15
and October 15 beginning April 15, 2010. The net proceeds to the
Company of $289.2 million (net of underwriting fees and offering-related
expenses) were used to repay borrowings outstanding under the bank credit
facility and the remainder is being held for general corporate
purposes. The new senior notes are senior unsecured obligations of
the Company and rank equal in right of payment with all of the Company's other
existing and future senior unsecured indebtedness. The new senior
notes include certain covenants that limit the Company's ability to incur
additional indebtedness, pay dividends, make restricted payments, create liens,
and sell assets and are guaranteed by all of Comstock's
subsidiaries.
The 8⅜%
senior notes are redeemable, at the option of the Company, at 104.188% of the
principal amount after October 15, 2013, declining to 100% in
2015. The Company may redeem up to 35% of the aggregate principal
amount of the new senior notes at a price of 108.375% of the principal amount
plus accrued interest upon the issuance of equity securities until October 15,
2012. If a specified change of control occurs, the Company must make an offer to
purchase the notes at 101% of the principal amount plus any accrued
interest.
In
connection with the issuance of the 8⅜% senior notes, the borrowing base under
the bank credit facility was redetermined on November 2, 2009 to be $500.0
million.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors
Comstock
Resources, Inc.
We have
reviewed the consolidated balance sheet of Comstock Resources, Inc. and
subsidiaries (the Company) as of September 30, 2009, and the related
consolidated statements of operations for the three- and nine-month periods
ended September 30, 2009 and 2008, the consolidated statement of stockholders'
equity and comprehensive income (loss) for the nine months ended September 30,
2009, and the consolidated statements of cash flows for the nine months ended
September 30, 2009 and 2008. 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, 2008, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income, and cash flows for the year then ended included in the
Company's Current Report on Form 8-K dated September 22, 2009 [not presented
herein], and in our report dated February 25, 2009 (except as it relates to the
effects of the adoption of the accounting standards discussed in the first two
paragraphs of New Accounting Standards set forth in Note 1, as to which the date
is September 22, 2009), we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information
set forth in the accompanying consolidated balance sheet as of December 31,
2008, 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, 2009
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,
2008.
Discontinued
Operations
Our
offshore operations were conducted through our subsidiary, Bois d'Arc Energy,
Inc. ("Bois d'Arc Energy"). Bois d'Arc Energy was acquired by Stone
Energy Corporation ("Stone") in exchange for a combination of cash and shares of
Stone common stock on August 28, 2008. Accordingly, the offshore
operations are presented as discontinued operations in our financial statements
for all periods presented. Unless indicated otherwise, the amounts in
the accompanying tables and discussion relate to our continuing
operations.
Results
of Operations
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands, except per unit amounts)
|
|
Net
Production Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas (Mmcf)
|
|
|
15,976
|
|
|
|
13,395
|
|
|
|
42,877
|
|
|
|
40,207
|
|
Oil
(Mbbls)
|
|
|
163
|
|
|
|
264
|
|
|
|
584
|
|
|
|
775
|
|
Natural
gas equivalent (Mmcfe)
|
|
|
16,955
|
|
|
|
14,977
|
|
|
|
46,380
|
|
|
|
44,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas sales
|
|
$
|
50,675
|
|
|
$
|
138,861
|
|
|
$
|
153,232
|
|
|
$
|
395,234
|
|
Hedging
gains (losses)
|
|
|
7,306
|
|
|
|
(2,730
|
)
|
|
|
20,332
|
|
|
|
(7,358
|
)
|
Total
natural gas sales including hedging
|
|
|
57,981
|
|
|
|
136,131
|
|
|
|
173,564
|
|
|
|
387,876
|
|
Oil
sales
|
|
|
9,455
|
|
|
|
27,721
|
|
|
|
27,098
|
|
|
|
75,719
|
|
Total
oil and gas sales
|
|
$
|
67,436
|
|
|
$
|
163,852
|
|
|
$
|
200,662
|
|
|
$
|
463,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas operating expenses(1)
|
|
$
|
16,019
|
|
|
$
|
21,556
|
|
|
$
|
50,463
|
|
|
$
|
66,120
|
|
Exploration
expense
|
|
$
|
227
|
|
|
$
|
2,794
|
|
|
$
|
371
|
|
|
$
|
5,032
|
|
Depreciation,
depletion and amortization
|
|
$
|
53,933
|
|
|
$
|
45,943
|
|
|
$
|
152,001
|
|
|
$
|
131,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Sales Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas (per Mcf)
|
|
$
|
3.17
|
|
|
$
|
10.37
|
|
|
$
|
3.57
|
|
|
$
|
9.83
|
|
Natural
gas including hedging (per Mcf)
|
|
$
|
3.63
|
|
|
$
|
10.16
|
|
|
$
|
4.05
|
|
|
$
|
9.65
|
|
Oil
(per Bbl)
|
|
$
|
57.96
|
|
|
$
|
105.15
|
|
|
$
|
46.42
|
|
|
$
|
97.74
|
|
Average
equivalent (Mcfe)
|
|
$
|
3.55
|
|
|
$
|
11.12
|
|
|
$
|
3.89
|
|
|
$
|
10.50
|
|
Average
equivalent including hedging (Mcfe)
|
|
$
|
3.98
|
|
|
$
|
10.94
|
|
|
$
|
4.33
|
|
|
$
|
10.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
($ per Mcfe):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas operating(1)
|
|
$
|
0.94
|
|
|
$
|
1.44
|
|
|
$
|
1.09
|
|
|
$
|
1.47
|
|
Depreciation,
depletion and amortization(2)
|
|
$
|
3.17
|
|
|
$
|
3.06
|
|
|
$
|
3.27
|
|
|
$
|
2.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Includes lease operating costs and production and ad valorem
taxes. |
|
|
|
|
|
|
|
|
(2) Represents
depreciation, depletion and amortization of oil and gas properties
only. |
|
|
|
|
|
|
|
|
Revenues
–
Our oil and
gas sales decreased $96.5 million (59%) to $67.4 million for the three months
ended September 30, 2009 from $163.9 million for the third quarter of
2008. This decrease is primarily related to a substantial decline in
natural gas and crude oil prices. Our average realized natural gas
price decreased by 64% and our average realized crude oil price decreased by 45%
in the third quarter of 2009 as compared to the third quarter of
2008. Our natural gas sales for the three months ended September 30,
2009 benefitted from a realized gain of $7.3 million from our hedging
activities, while the three months ended September 30, 2008 included a realized
hedging loss of $2.7 million. Our production in the third quarter of
2009 of 17.0 Bcfe increased 13% as compared to the 15.0 Bcfe we produced in the
third quarter of 2008. The production increase is primarily
attributable to our drilling activity in the Haynesville shale formation in East
Texas and North Louisiana.
Our oil and
gas sales decreased $262.9 million (57%) to $200.7 million for the nine months
ended September 30, 2009 from $463.6 million for the first nine months of
2008. This decrease is also primarily attributable to the substantial
decline in natural gas and crude oil prices. Our average realized
natural gas price decreased by 58% and our average realized crude oil price
decreased by 53% in the first nine months of 2009 as compared to the first nine
months of 2008. Our natural gas sales for the nine months ended
September 30, 2009 benefitted from a realized gain of $20.3 million from our
hedging activities. The nine months ended September 30, 2008 included
a realized hedging loss of $7.4 million. Our production in the first
nine months of 2009 increased by 3% to 46.4 Bcfe, as compared to 44.9 Bcfe in
the first nine months of 2008. The increase was attributable to new
production from our drilling activity.
Costs and Expenses –
Our oil
and gas operating expenses, including production taxes, decreased $5.6 million
(26%) to $16.0 million in the third quarter of 2009 from $21.6 million in the
third quarter of 2008. Oil and gas operating expenses per equivalent
Mcf produced decreased $0.50 (34%) to $0.94 in the third quarter of 2009 from
$1.44 in the third quarter of 2008. Oil and gas operating expenses
also decreased $15.6 million (24%) to $50.5 million in the first nine months of
2009 from $66.1 million in the first nine months of 2008. Oil and gas
operating expenses per Mcfe produced decreased $0.38 (26%) to $1.09 for the nine
months ended September 30, 2009 from $1.47 for the same period in
2008. The decrease in operating expenses is primarily due to lower
production taxes resulting from lower natural gas and oil prices and the
properties which we sold during 2008.
Exploration
expense of $0.2 million for the three months ended September 30, 2009 related to
geological and geophysical costs incurred. Exploration expense in the
three months ended September 30, 2008 of $2.8 million related primarily to an
exploratory dry hole drilled in South Texas. Exploration expense of
$0.4 million for the nine months ended September 30, 2009 also related to
geological and geophysical costs incurred. Exploration expense of
$5.0 million for the nine months ended September 30, 2008 related to an
exploratory dry hole in South Texas and impairment of unevaluated leasehold
costs.
Depreciation,
depletion and amortization ("DD&A") increased $8.0 million (17%) to $53.9
million in the third quarter of 2009 from $45.9 million in the third quarter of
2008. Our DD&A per equivalent Mcf produced increased $0.11 (4%)
to $3.17 for the three months ended September 30, 2009 from $3.06 for the three
months ended September 30, 2008. DD&A for the first nine months
of 2009 increased $20.1 million (15%) to $152.0 million from $131.9 million for
the nine months ended September 30, 2008. Our DD&A rate per Mcfe
for the first nine months of 2009 of $3.27 increased $0.34 (12%) above the
DD&A rate of $2.93 for the first nine months of 2008. The higher
DD&A rates per Mcfe primarily reflect higher drilling costs and downward
revisions to our proved oil and gas reserves at the end of 2008 attributable to
lower natural gas and oil prices.
General
and administrative expense, which is reported net of overhead reimbursements,
increased by $1.5 million to $8.7 million for the third quarter of 2009 as
compared to general and administrative expense of $7.2 million for the third
quarter of 2008. Included in general and administrative expense is
stock-based compensation of $4.0 million and $3.3 million for the three months
ended September 30, 2009 and 2008, respectively. For the first nine
months of 2009, general and administrative expense increased to $27.6 million
from $20.3 million for the nine months ended September 30,
2008. Included in general and administrative expense is stock-based
compensation of $11.5 million and $9.0 million for the nine months ended
September 30, 2009 and 2008, respectively. The increases in general
and administrative costs in 2009 are due to additional professional staff that
we added throughout 2008 and the higher costs of our stock-based
compensation.
Interest
expense decreased $1.6 million (33%) to $3.2 million for the third quarter of
2009 from interest expense of $4.8 million in the third quarter of
2008. The decrease was primarily due to lower borrowings under our
bank credit facility, lower interest rates and interest that was capitalized on
our unevaluated properties. Our average borrowings outstanding under
our bank credit facility decreased to $154.6 million during the third quarter of
2009 as compared to $300.7 million in the third quarter of 2008. The
average interest rate we were charged on borrowings outstanding under our credit
facility decreased to 2.3% in the third quarter of 2009 as compared to 3.7% in
the third quarter of 2008. We capitalized interest of $1.3 million
and $0.6 million on our unevaluated properties during the three months ended
September 30, 2009 and 2008, respectively. Interest expense for the
nine months ended September 30, 2009 decreased $14.9 million (64%) to $8.3
million from interest expense of $23.2 million in the first nine months of
2008. The decrease was also due to lower borrowings under our bank
credit facility, lower interest rates and capitalized interest. Our
average borrowings outstanding under our bank credit facility decreased to
$115.3 million during the first nine months of 2009 as compared to $461.6
million in the first nine months of 2008, and the average interest rate we were
charged on borrowings outstanding under our credit facility decreased to 2.1% in
the first nine months of 2009 as compared to 4.5% in the first nine months of
2008. We capitalized interest of $4.3 million and $0.6 million on our
unevaluated properties during the nine months ended September 30, 2009 and 2008,
respectively.
Income tax
expense related to continuing operations decreased by $35.0 million to a benefit
of $2.2 million for the three months ended September 30, 2009 as compared to a
provision of $32.8 million for the three months ended September 30,
2008. The operating loss incurred during the three months ended
September 30, 2009 resulted in an income tax benefit. Income tax
expense related to continuing operations decreased by $98.3 million to a benefit
of $8.3 million for the nine months ended September 30, 2009 as compared to a
provision of $90.0 million for the nine months ended September 30,
2008. The operating loss incurred during the nine months ended
September 30, 2009 resulted in an income tax benefit. The effective
income tax rate was 22% in 2009 as compared to 37% in 2008 due to the effect of
nondeductible compensation.
We
reported a net loss of $12.6 million for the three months ended September 30,
2009, as compared to net income from continuing operations of $54.8 million for
the three months ended September 30, 2008. The loss was primarily
attributable to lower natural gas and oil prices. The loss per share
for the third quarter of 2009 was $0.28 as compared to income per share from
continuing operations of $1.18 for the third quarter of 2008. Income
from discontinued operations was $169.9 million ($3.67 per share) in the three
months ended September 30, 2008.
We
reported a net loss of $29.7 million for the nine months ended September 30,
2009, as compared to net income from continuing operations of $154.6 million for
the nine months ended September 30, 2008. The loss was also primarily
attributable to lower natural gas and oil prices. The loss per share
for the first nine months of 2009 was $0.66 as compared to income per share from
continuing operations of $3.36 for the first nine months of
2008. Income from discontinued operations was $193.7 million ($4.21
per share) for the nine months ended September 30, 2008.
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, 2009, our primary sources of funds were net cash flow from
operations of $117.9 million and borrowings under our bank credit facility of
$130.0 million. Our net cash flow from operating activities decreased
$213.1 million (64%) in the first nine months of 2009 from $331.0 million for
the nine months ended September 30, 2008. This decrease is primarily
due to the lower revenues we had in the first nine months of 2009 resulting from
the substantial decline in natural gas and oil prices.
The
following table summarizes our capital expenditure activity, on an accrual
basis, for the nine months ended September 30, 2009 and 2008:
|
|
Nine
Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Leasehold
costs
|
|
$
|
10,343
|
|
|
$
|
110,940
|
|
Development
drilling
|
|
|
143,741
|
|
|
|
182,382
|
|
Exploratory
drilling
|
|
|
90,849
|
|
|
|
3,178
|
|
Other
development
|
|
|
8,594
|
|
|
|
12,828
|
|
|
|
|
253,527
|
|
|
|
309,328
|
|
Other
|
|
|
69
|
|
|
|
507
|
|
|
|
$
|
253,596
|
|
|
$
|
309,835
|
|
We expect
to spend approximately $355.0 million for development and exploration
projects during 2009 and to fund our development and exploration activities with
operating cash flow, cash on hand and additional 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, 2009 we have contracted
for the services of drilling rigs through October 2012 at an aggregate cost of
$101.8 million and we have maximum commitments of $37.5 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 2014. We record a separate liability for the fair
value of these asset retirement obligations which totaled $6.0 million as of
September 30, 2009.
We have a
$850.0 million bank credit facility with a group of banks, including 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 September 30, 2009 the borrowing base was
$550.0 million, $385.0 million of which was available. Indebtedness
under the bank credit facility is secured by substantially all of our and our
subsidiaries' oil and gas properties and is guaranteed by all of our
subsidiaries. Borrowings under the credit facility bear interest,
based on the utilization of the borrowing base, at our option of either LIBOR
plus 2.0% to 2.75% or 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 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 September 30,
2009. 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 subsidiaries.
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.
On
October 9, 2009, we issued $300.0 million in principal amount of 8⅜% senior
notes due 2017. The 8⅜% senior notes will mature on October 15, 2017,
and interest is paid semi-annually on April 15 and October 15 beginning April
15, 2010. The net proceeds from the offering, after deducting
underwriting discounts and estimated expenses of the offering, were
approximately $289.2 million. The net proceeds were used to repay in
full borrowings outstanding under our bank credit facility and the remainder is
being held for general corporate purposes. The new senior notes are
senior unsecured obligations and rank equal in right of payment with all of our
other existing and future senior unsecured indebtedness. The new
senior notes are guaranteed by each of our operating subsidiaries and will be
guaranteed by each of our future restricted subsidiaries that guarantee or
otherwise become liable with respect to our other indebtedness. The
new senior notes include certain covenants that limit our ability to incur
additional indebtedness, pay dividends, make restricted payments, create liens,
and sell assets.
The new
senior notes are redeemable, at our option, at 104.188% of the principal amount
after October 15, 2013, declining to 100% in 2015. We may redeem up
to 35% of the aggregate principal amount of the 8⅜% senior notes at a price of
108.375% of the principal amount plus accrued interest upon the issuance of
equity securities until October 15, 2012. If a specified change of
control occurs, we must make an offer to purchase the notes at 101% of the
principal amount plus any accrued interest.
In
connection with the issuance of the 8⅜% senior notes, the borrowing base
under our bank credit facility was redetermined on November 2, 2009 to be
$500.0 million.
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, 2009, a $1.00 change in the price per
Mcf of natural gas would have changed our cash flow by approximately $37.1
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 $0.6
million.
We hedge
a portion of our price risks associated with our natural gas
sales. As of September 30, 2009, our outstanding natural gas price
swap agreements had a fair value of $5.3 million. A change in the
fair value of our natural gas swaps that would result from a 10% change in
commodities prices at September 30, 2009 would be $0.1 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 our 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.
Interest
Rates
At
September 30, 2009 we had total long-term debt of $340.0 million. Of
this amount, $175.0 million bears interest at a fixed rate of 6⅞%. We
had $165.0 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, 2009, a 100 basis point change in
interest rates would change our interest expense for the nine month period ended
September 30, 2009 by approximately $1.2 million.
ITEM
4: CONTROLS AND PROCEDURES
As of
September 30, 2009, 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, 2009 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 September 30, 2009, that has materially affected, or is reasonably likely
to materially affect, our internal controls over financial
reporting.
|
|
|
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.
|
|
|
|
* 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: November 4,
2009
|
/s/
M. JAY ALLISON
|
|
|
M. Jay Allison,
Chairman, President and Chief
|
|
|
Executive
Officer (Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
Date: November 4,
2009
|
/s/
ROLAND O. BURNS
|
|
|
Roland O. Burns, Senior
Vice President,
|
|
|
Chief
Financial Officer, Secretary, and Treasurer
(Principal
Financial and Accounting Officer)
|
|