crk-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			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			94-1667468
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034

(Address of principal executive offices)

Telephone No.: (972) 668-8800

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.50 (per share)	CRK	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x

Emerging growth company ☐

Accelerated filer ☐

Non-accelerated ☐

Smaller reporting company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No x

The number of shares outstanding of the registrant's common stock, par value $0.50, as of August 2, 2023 was 278,480,507.

COMSTOCK RESOURCES, INC.

QUARTERLY REPORT

For the Quarter Ended June 30, 2023

INDEX


			Page
PART I. Financial Information

Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022			4
Consolidated Statements of Operations – for the three months and six months ended June 30, 2023 and 2022			5
Consolidated Statements of Stockholders' Equity – for the three months and six months ended June 30, 2023 and 2022			6
Consolidated Statements of Cash Flows – for the six months ended June 30, 2023 and 2022			7
Notes to Consolidated Financial Statements			8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			19

Item 3. Quantitative and Qualitative Disclosure About Market Risk			23

Item 4. Controls and Procedures			24

PART II. Other Information

Item 6. Exhibits			25

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

COMSTOCK RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS


	As of
	June 30, 2023		December 31, 2022
	(Unaudited)
	(In thousands)
ASSETS
Cash and cash equivalents	$	9,919	$	54,652
Accounts receivable:
Natural gas and oil sales and gas services	124,493		415,079
Joint interest operations	40,911		76,521
From affiliates	28,513		18,527
Derivative financial instruments	17,553		23,884

Other current assets	60,777		56,324
Total current assets	282,166		644,987
Property and equipment:
Natural gas and oil properties, successful efforts method:
Proved	6,483,151		5,843,409
Unproved	319,791		298,230
Other	37,710		26,475
Accumulated depreciation, depletion and amortization	(1,814,651)		(1,545,459)
Net property and equipment	5,026,001		4,622,655
Goodwill	335,897		335,897


Operating lease right-of-use assets	192,670		90,716

	$	5,836,734	$	5,694,255

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	552,315	$	530,195
Accrued costs	132,057		183,111
Operating leases	77,690		38,411
Derivative financial instruments	—		4,420
Total current liabilities	762,062		756,137
Long-term debt	2,176,418		2,152,571
Deferred income taxes	451,004		425,734
Derivative financial instruments	2,052		—
Long-term operating leases	115,048		52,385
Reserve for future abandonment costs	29,964		29,114

Total liabilities	3,536,548		3,415,941
Commitments and contingencies
Stockholders' equity:
Common stock—$0.50 par, 400,000,000 shares authorized, 278,492,648 and 277,517,087 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively	139,246		138,759
Additional paid-in capital	1,255,382		1,253,417
Accumulated earnings	905,558		886,138
Total stockholders' equity	2,300,186		2,278,314
	$	5,836,734	$	5,694,255

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands, except per share amounts)
Revenues:
Natural gas sales	$	228,892	$	858,838	$	606,924	$	1,381,795
Oil sales	860		2,504		2,802		4,388
Total natural gas and oil sales	229,752		861,342		609,726		1,386,183
Gas services	58,459		84,912		168,063		129,485
Total revenues	288,211		946,254		777,789		1,515,668
Operating expenses:
Production and ad valorem taxes	19,599		21,729		34,505		35,549
Gathering and transportation	45,395		36,964		90,969		69,057
Lease operating	34,031		25,079		68,861		51,265
Exploration	—		2,342		1,775		3,363
Depreciation, depletion and amortization	140,177		119,201		274,160		225,929
Gas services	55,390		82,778		156,685		123,453
General and administrative	10,038		9,063		22,406		17,286
Loss (gain) on sale of assets	648		(19)		(125)		(21)
Total operating expenses	305,278		297,137		649,236		525,881

Operating income (loss)	(17,067)		649,117		128,553		989,787
Other income (expenses):
Gain (loss) from derivative financial instruments	(4,495)		(72,826)		61,914		(510,319)
Other income	598		182		1,058		450

Interest expense	(39,188)		(44,320)		(77,458)		(90,811)
Loss on early retirement of debt	—		(46,840)		—		(46,840)
Total other expenses	(43,085)		(163,804)		(14,486)		(647,520)
Income (loss) before income taxes	(60,152)		485,313		114,067		342,267
(Provision for) benefit from income taxes	14,446		(108,422)		(25,270)		(76,800)
Net income (loss)	(45,706)		376,891		88,797		265,467
Preferred stock dividends	—		(4,363)		—		(8,678)
Net income (loss) available to common stockholders	$	(45,706)	$	372,528	$	88,797	$	256,789

Net income (loss) per share:
Basic	$	(0.17)	$	1.60	$	0.32	$	1.10
Diluted	$	(0.17)	$	1.36	$	0.32	$	0.96
Weighted average shares outstanding:
Basic	276,669		232,045		276,610		232,011
Diluted	276,669		277,614		276,610		277,485
Dividends per share	$	0.125	$	—	$	0.25	$	—

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)


	Common Shares	Common Stock- Par Value		Additional Paid-in Capital		Accumulated Earnings (Deficit)		Total
	(In thousands)

Balance at January 1, 2022	232,925	$	116,462	$	1,100,359	$	(204,042)	$	1,012,779
Stock-based compensation	(5)	(2)		1,479		—		1,477


Net loss	—	—		—		(111,424)		(111,424)
Payment of preferred stock dividends	—	—		—		(4,315)		(4,315)
Balance at March 31, 2022	232,920	$	116,460	$	1,101,838	$	(319,781)	$	898,517
Stock-based compensation	239	119		115		—		234


Net income	—	—		—		376,891		376,891
Payment of preferred stock dividends	—	—		—		(4,363)		(4,363)
Balance at June 30, 2022	233,159	$	116,579	$	1,101,953	$	52,747	$	1,271,279







Balance at January 1, 2023	277,517	$	138,759	$	1,253,417	$	886,138	$	2,278,314
Stock-based compensation	(7)	(4)		2,050		—		2,046


Net income	—	—		—		134,503		134,503
Payment of common stock dividends	—	—		—		(34,688)		(34,688)
Balance at March 31, 2023	277,510	$	138,755	$	1,255,467	$	985,953	$	2,380,175
Stock-based compensation	983	491		(85)		—		406


Net loss	—	—		—		(45,706)		(45,706)
Payment of common stock dividends	—	—		—		(34,689)		(34,689)
Balance at June 30, 2023	278,493	$	139,246	$	1,255,382	$	905,558	$	2,300,186

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2023		2022
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	88,797	$	265,467
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes	25,270		70,329

Gain on sale of assets	(125)		(21)
Depreciation, depletion and amortization	274,160		225,929
(Gain) loss on derivative financial instruments	(61,914)		510,319
Cash settlements of derivative financial instruments	65,877		(374,549)
Amortization of debt discount and issuance costs	3,991		7,098
Stock-based compensation	4,351		3,076
Loss on early retirement of debt	—		46,840
(Increase) decrease in accounts receivable	316,210		(203,918)
Decrease in other current assets	1,201		881
Increase in accounts payable and accrued expenses	56		145,083
Net cash provided by operating activities	717,874		696,534
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and acquisitions	(743,858)		(515,454)
Prepaid drilling costs	(8,624)		(10,601)
Proceeds from sales of assets	41,295		93
Net cash used for investing activities	(711,187)		(525,962)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on bank credit facility	160,000		595,000
Repayments of bank credit facility	(140,000)		(480,000)

Retirement of Senior Notes	—		(273,920)

Preferred stock dividends paid	—		(8,678)
Common stock dividends paid	(69,377)		—
Debt and stock issuance costs	(144)		—
Income tax withholdings on equity awards	(1,899)		(1,365)
Net cash used for financing activities	(51,420)		(168,963)
Net increase (decrease) in cash and cash equivalents	(44,733)		1,609
Cash and cash equivalents, beginning of period	54,652		30,663
Cash and cash equivalents, end of period	$	9,919	$	32,272

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –

Basis of Presentation

These unaudited consolidated financial statements include the accounts of Comstock Resources, Inc. and its wholly-owned subsidiaries (collectively, "Comstock" or the "Company"). In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of Comstock as of June 30, 2023, and the related results of operations and cash flows for the periods being presented. Net income and comprehensive income are the same in all periods presented. All adjustments are of a normal recurring nature unless otherwise disclosed.

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, 2022. The results of operations for the period through June 30, 2023 are not necessarily an indication of the results expected for the full year.

Other Current Assets

Other current assets at June 30, 2023 and December 31, 2022 consisted of the following:


	As of
	June 30, 2023		December 31, 2022
	(In thousands)
Pipe and well equipment inventory	$	44,738	$	34,819
Production tax refunds receivable	13,852		11,156
Prepaid expenses	2,187		2,455
Prepaid drilling costs	—		4,265
Accrued proceeds from sale of natural gas and oil properties	—		3,118
Other	—		511
	$	60,777	$	56,324

Property and Equipment

The Company follows the successful efforts method of accounting for its natural gas and oil properties. Costs incurred to acquire natural gas and oil leases and to drill and complete developmental wells are capitalized.

COMSTOCK RESOURCES, INC.

Exploratory well costs are initially capitalized as proved property in the consolidated balance sheets but charged to exploration expense if and when the well is determined not to have found commercial proved natural gas and oil reserves. The changes in capitalized exploratory well costs are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Beginning capitalized exploratory well costs	$	30,557	$	18,523	$	867	$	6,966
Additions to exploratory well costs pending the determination of proved reserves	74,622		18,840		104,312		30,397
Determined to have found proved reserves	(70,983)		(27,592)		(70,983)		(27,592)


Ending capitalized exploratory well costs	$	34,196	$	9,771	$	34,196	$	9,771

As of June 30, 2023 and December 31, 2022, the Company had no exploratory wells for which costs have been capitalized for a period greater than one year.

The Company assesses the need for an impairment of the capitalized costs for its proved natural gas and oil properties on a property basis. No impairments were recognized to adjust the carrying value of the Company's proved natural gas and oil properties during any of the periods presented. Unproved natural gas and oil properties are also periodically assessed and any impairment in value is charged to expense. The costs related to unproved properties are transferred to proved natural gas and oil properties and amortized on an equivalent unit-of-production basis when they are reflected in proved natural gas and oil reserves.

The Company determines the fair values of its natural gas and oil properties using a discounted cash flow model and proved and risk-adjusted probable natural gas and oil reserves. Undrilled acreage can also be valued based on sales transactions in comparable areas. Significant Level 3 assumptions associated with the calculation of discounted future cash flows included in the cash flow model include management's outlook for natural gas and oil prices, production costs, capital expenditures, and future production as well as estimated proved natural gas and oil reserves and risk-adjusted probable natural gas and oil reserves. Management's natural gas and oil price outlook is developed based on third-party longer-term price forecasts as of each measurement date. The expected future net cash flows are discounted using an appropriate discount rate in determining a property's fair value.

It is reasonably possible that the Company's estimates of undiscounted future net cash flows attributable to its natural gas and oil properties may change in the future. The primary factors that may affect estimates of future cash flows include future adjustments, both positive and negative, to proved and appropriate risk-adjusted probable natural gas and oil reserves, results of future drilling activities, future prices for natural gas and oil, and increases or decreases in production and capital costs. As a result of these changes, there may be future impairments in the carrying values of these or other properties.

Goodwill

The Company had goodwill of $335.9 million as of June 30, 2023 that was recorded in 2018. The Company is not required to amortize goodwill as a charge to earnings; however, the Company is required to conduct an annual review of goodwill for impairment. The Company performs an annual assessment of goodwill on October 1 of each year and performs interim assessments if indicators of impairment are present. If the carrying value of goodwill exceeds the fair value, an impairment charge would be recorded for the difference between fair value and carrying value.

Leases

The Company has right-of-use lease assets of $192.7 million related to its corporate office, certain office equipment, vehicles and hydraulic fracturing fleets used to complete natural gas wells with corresponding short-term and long-term liabilities. The value of the lease assets and liabilities are determined based upon discounted future minimum cash flows contained within each of the respective contracts. The Company determines if contracts contain a lease at inception of the contract. To the extent that contract terms representing a lease are identified, leases are identified as being either an operating lease or a finance-type lease. Comstock currently has no finance-type leases. Right-of-use lease assets representing the Company's right to use an underlying asset for the lease term and the related lease liabilities represent our obligation to make lease payments under the terms of the contracts. Short-term leases that have an initial term of one year or less are not capitalized; however, amounts paid for those leases are included as part of its lease cost disclosures. Short-term lease costs exclude expenses related to leases with a lease term of one month or less. Leases for the right to explore for and develop natural

COMSTOCK RESOURCES, INC.

gas and oil reserves and the related rights to use the land associated with those leases are reflected as natural gas and oil properties.

Comstock contracts for a variety of equipment used in its natural gas and oil exploration and development activities. Contract terms for this equipment vary broadly, including the contract duration, pricing, scope of services included along with the equipment, cancellation terms, and rights of substitution, among others. The Company's drilling and completion operations routinely change due to changes in commodity prices, demand for natural gas and oil, and the overall operating and economic environment. Accordingly, Comstock manages the terms of its contracts for drilling rigs and completion equipment so as to allow for maximum flexibility in responding to these changing conditions. The Company has two hydraulic fracturing fleet lease contracts with a three year term. The Company's other hydraulic fracturing fleet contracts are on terms less than one year and include rights of substitution. The Company's drilling rig contracts are presently either for periods of less than one year, or they are on terms that provide for cancellation with 45 days advance notice without a specified expiration date. The Company has elected not to recognize right-of-use lease assets for contracts less than one year. The costs associated with drilling and completion operations are accounted for under the successful efforts method, which generally require that these costs be capitalized as part of our proved natural gas and oil properties on our balance sheet unless they are incurred on exploration wells that are unsuccessful, in which case they are charged to exploration expense.

Lease costs recognized during the three months and six months months ended June 30, 2023 and 2022 were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Operating lease cost included in general and administrative expense	$	444	$	436	$	889	$	871
Operating lease cost included in lease operating expense	502		329		1,010		599
Operating lease cost included in natural gas and oil properties	13,230		6,300		22,680		6,300
Variable lease cost (completion costs included in natural gas and oil properties)	3,301		11,127		5,062		11,127
Short-term lease cost (drilling rig costs included in natural gas and oil properties)	24,496		17,105		53,888		28,140
	$	41,973	$	35,297	$	83,529	$	47,037

Cash payments for operating leases associated with right-of-use assets included in cash provided by operating activities were $0.9 million and $0.8 million for the three months ended June 30, 2023 and 2022, respectively, and $1.9 million and $1.5 million for the six months ended June 30, 2023 and 2022, respectively. Cash payments for operating leases associated with right-of-use assets included in cash used for investing activities were $41.0 million and $34.5 million for the three months ended June 30, 2023 and 2022, respectively and $81.6 million and $45.6 million for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023 and December 31, 2022, the operating leases had a weighted-average term of 2.5 years and 2.2 years, respectively, and the weighted-average discount rate used to determine the present value of future operating lease payments was 5.8% and 3.5%, respectively. As of June 30, 2023, the Company also had expected future payments for contracted drilling services of $117.8 million.

As of June 30, 2023, expected future payments related to contracts that contain operating leases were as follows:


	(In thousands)
July 1 to December 31, 2023	$	43,143
2024	86,791
2025	59,208
2026	19,151
2027	17

Total lease payments	208,310
Imputed interest	(15,572)
Total lease liability	$	192,738

COMSTOCK RESOURCES, INC.

Accrued Costs

Accrued costs at June 30, 2023 and December 31, 2022 consisted of the following:


	As of
	June 30, 2023		December 31, 2022
	(In thousands)
Accrued interest payable	$	54,377	$	54,867
Accrued transportation costs	29,449		28,357
Accrued drilling costs	25,392		54,438
Accrued income and other taxes	10,174		31,256
Accrued employee compensation	8,484		11,308

Accrued lease operating expenses	3,861		2,412
Other	320		473
	$	132,057	$	183,111

Reserve for Future Abandonment Costs

Comstock's asset retirement obligations relate to future plugging and abandonment expenses on its natural gas and oil properties and disposal of other facilities. The following table summarizes the changes in Comstock's total estimated liability for such obligations during the periods presented:


	Six Months Ended June 30,
	2023		2022
	(In thousands)
Reserve for future abandonment costs at beginning of period	$	29,114	$	25,673
New wells placed on production	67		844
Acquisitions	—		1,211
Liabilities settled and assets disposed of	(42)		(29)
Accretion expense	825		734
Reserve for future abandonment costs at end of period	$	29,964	$	28,433

Derivative Financial Instruments and Hedging Activities

All of the Company's derivative financial instruments are used for risk management purposes and, by policy, none are held for trading or speculative purposes. Comstock minimizes credit risk to counterparties of its derivative financial instruments through formal credit policies, monitoring procedures, and diversification. The Company is not required to provide any credit support to its counterparties other than cross collateralization with the assets securing its bank credit facility. None of the Company's derivative financial instruments involve payment or receipt of premiums. The Company classifies the fair value amounts of derivative financial instruments as net current or noncurrent assets or liabilities, whichever the case may be, by commodity contract. None of the Company's derivative contracts were designated as cash flow hedges. All of Comstock's natural gas derivative financial instruments are tied to the Henry Hub-NYMEX price index.

COMSTOCK RESOURCES, INC.

The Company had the following natural gas price derivative financial instruments at June 30, 2023:


	Future Production Period
	Six Months Ending December 31, 2023	Year Ending December 31, 2024	Total
Natural Gas Price Swap Contracts:
Volume (MMBtu)	—	47,580,000		47,580,000
Average Price per MMBtu		$3.50		$3.50
Natural Gas Price Collar Contracts:
Volume (MMBtu)	46,000,000			46,000,000
Average Price per MMBtu:
Average Ceiling	$10.28			$10.28
Average Floor	$3.00			$3.00

The classification of derivative financial instruments of assets or liabilities, consists of the following:


		As of
Type	Consolidated Balance Sheet Location	June 30, 2023		December 31, 2022
		(In thousands)
Asset Derivative Financial Instruments:
Natural gas price derivatives	Derivative Financial Instruments – current	$	17,553	$	23,884

		$	17,553	$	23,884





Liability Derivative Financial Instruments:
Natural gas price derivatives	Derivative Financial Instruments – current	$	—	$	4,420


		$	—	$	4,420

Natural gas price derivatives	Derivative Financial Instruments – long-term	$	2,052	$	—


		$	2,052	$	—

The Company recognized cash settlements and changes in the fair value of its derivative financial instruments as a single component of other income (expenses). Gains and losses related to cash settlements and changes in the fair value recognized on the Company's derivative contracts recognized in the consolidated statement of operations were as follows:


Gain (Loss) on Derivatives Recognized in Earnings	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Natural gas price derivatives	$	(4,495)	$	(72,826)	$	61,914	$	(510,319)


	$	(4,495)	$	(72,826)	$	61,914	$	(510,319)

Stock-Based Compensation

Comstock accounts for employee stock-based compensation under the fair value method. Compensation cost is measured at the grant date based on the fair value of the award and is recognized over the award vesting period and included in general and administrative expenses for awards of restricted stock and performance stock units ("PSUs") to the Company's employees and directors. The Company recognized $2.3 million and $1.6 million of stock-based compensation expense within general and administrative expenses related to awards of restricted stock and PSUs to its employees and directors during the three months ended June 30, 2023 and 2022, respectively, and $4.4 million and $3.1 million for the six months ended June 30, 2023 and 2022, respectively.

COMSTOCK RESOURCES, INC.

In June 2023, the Company granted an aggregate of 954,031 shares of restricted stock to its directors and employees. The grants were valued at $9.80 per share. As of June 30, 2023, Comstock had 1,494,134 shares of unvested restricted stock outstanding at a weighted average grant date fair value of $11.52 per share. Total unrecognized compensation cost related to unvested restricted stock grants of $16.6 million as of June 30, 2023 is expected to be recognized over a period of 2.4 years.

In June 2023, the Company granted an aggregate of 359,689 PSUs to its executive officers at a value of $13.64 per unit. As of June 30, 2023, Comstock had 742,425 PSUs outstanding with a weighted average grant date fair value of $15.92 per unit. The number of shares of common stock to be issued related to the PSUs is based on the Company's stock price performance as compared to its peers which could result in the issuance of anywhere from zero to 1,484,850 shares of common stock. Total unrecognized compensation cost related to these grants of $8.8 million as of June 30, 2023 is expected to be recognized over a period of 2.5 years.

Revenue Recognition

Comstock produces natural gas and oil and reports revenues separately for each of these two primary products in its statements of operations. Revenues are recognized upon the transfer of produced volumes to the Company's customers, who take control of the volumes and receive all the benefits of ownership upon delivery at designated sales points.

Gas services revenues represent sales of natural gas purchased for resale and fees received for gathering and treating services provided to unaffiliated third parties and certain natural gas wells operated by the Company. Revenues are recognized upon completion of the gathering and treating of contracted natural gas volumes and delivery of purchased natural gas volumes to the Company's customers. Profits and losses earned in the gathering and treating of natural gas produced by the Company's natural gas wells are eliminated in consolidation. Revenues and expenses associated with natural gas purchased for resale are presented on a gross basis in the Company's consolidated statements of operations as the Company acts as the principal in the transaction by assuming the risks and rewards from ownership of the natural gas volumes purchased and the responsibility to deliver the natural gas volumes to their sales point.

All natural gas and oil and gas services revenues are subject to contracts that have commercial substance, contain specific pricing terms, and define the enforceable rights and obligations of both parties. These contracts typically provide for cash settlement within 25 days following each production month and are cancellable upon 30 days' notice by either party for oil and vary for natural gas based upon the terms set out in the confirmations between both parties. Prices for sales of natural gas and oil are generally based upon terms that are common in the oil and gas industry, including index or spot prices, location and quality differentials, as well as market supply and demand conditions. As a result, prices for natural gas and oil routinely fluctuate based on changes in these factors. Prices for gathering and treating services are generally fixed in nature but can vary due to the quality of the gas being treated. Each unit of production (barrel of crude oil and thousand cubic feet of natural gas) represents a separate performance obligation under the Company's contracts since each unit has economic benefit on its own and each is priced separately according to the terms of the contracts.

Comstock has elected to exclude all taxes from the measurement of transaction prices, and its revenues are reported net of royalties and exclude revenue interests owned by others because the Company acts as an agent when selling natural gas and oil, on behalf of royalty owners and working interest owners. Revenue is recorded in the month of production based on an estimate of the Company's share of volumes produced and prices realized. Gas services revenue is recorded in the month the services are performed or purchased gas is sold based on an estimate of natural gas volumes and contract prices. The Company recognizes any differences between estimates and actual amounts received in the month when payment is received. Historically, differences between estimated revenues and actual revenue received have not been significant. The amount of natural gas or oil sold may differ from the amount to which the Company is entitled based on its revenue interests in the properties. The Company did not have any significant imbalance positions at June 30, 2023 or December 31, 2022.

The Company recognized accounts receivable of $124.5 million and $415.1 million as of June 30, 2023 and December 31, 2022, respectively, from purchasers for contracts where performance obligations have been satisfied and an unconditional right to consideration exists.

Credit Losses

Substantially all of the Company's accounts receivable are due from either purchasers of natural gas and oil or participants in natural gas and oil wells for which the Company serves as the operator. Generally, operators of natural gas and oil wells have the right to offset future revenues against unpaid charges related to operated wells. Natural gas and oil sales are generally unsecured. Comstock assesses the collectability of its receivables based upon their age, the credit quality of the purchaser or participant and the potential for revenue offset. The Company has not had any significant credit losses in the past and believes its accounts receivable are fully collectible. Accordingly, no allowance for doubtful accounts has been recorded for the six months ended June 30, 2023 and 2022.

COMSTOCK RESOURCES, INC.

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.

In recording deferred income tax assets, the Company considers whether it is more likely than not that its deferred income tax assets will be realized in the future. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those deferred income tax assets would be deductible. The Company believes that after considering all the available objective evidence, historical and prospective, with greater weight given to historical evidence, management is not able to determine that it is more likely than not that all of its deferred tax assets will be realized. As a result, the Company established valuation allowances for its deferred tax assets and U.S. federal and state net operating loss carryforwards that are not expected to be utilized due to the uncertainty of generating taxable income prior to the expiration of the carryforward periods. The Company will continue to assess the valuation allowances against deferred tax assets considering all available information obtained in future periods.

The following is an analysis of the consolidated income tax provision (benefit):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Current - Federal	$	—	$	5,360	$	—	$	1,399
Current - State	(536)		7,969		—		5,509
Deferred - Federal	(12,414)		71,292		24,351		57,868
Deferred - State	(1,496)		23,801		919		12,024
	$	(14,446)	$	108,422	$	25,270	$	76,800

The difference between the federal statutory rate of 21% and the effective tax rate is due to the following:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Tax at statutory rate	21.0	%	21.0	%	21.0	%	21.0	%
Tax effect of:
Valuation allowance on deferred tax assets	(0.7)		(3.8)		1.1		(4.0)
State income taxes, net of federal benefit	3.8		5.0		(0.5)		5.3
Nondeductible stock-based compensation	(0.1)		0.1		0.6		0.1


Effective tax rate	24.0	%	22.3	%	22.2	%	22.4	%

The Company's federal income tax returns for the years subsequent to December 31, 2018 remain subject to examination. The Company's income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to December 31, 2019. The Company is currently under examination with the state of Louisiana and believes that its significant filing positions are highly certain and that all of its other significant income tax filing positions and deductions would be sustained under audit or the final resolution would not have a material effect on the consolidated financial statements. Therefore, the Company has not established any significant reserves for uncertain tax positions.

Fair Value Measurements

The Company holds or has held certain financial assets and liabilities that are required to be measured at fair value. These include cash and cash equivalents held in bank accounts and derivative financial instruments. 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.

COMSTOCK RESOURCES, INC.

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.

Fair Values – Reported

The following presents the carrying amounts and the fair values of the Company's financial instruments as of June 30, 2023 and December 31, 2022:

As of

June 30, 2023

December 31, 2022

Carrying Value

Fair Value

Carrying Value

Fair Value

Assets:

(In thousands)

Commodity-based derivatives (1)