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.


	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


	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

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.

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.

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 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.


	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		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


	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

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.


	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


		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:

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.

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.

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.

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.

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.


	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.

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 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.


	As of
	June 30, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:	(In thousands)
Commodity-based derivatives (1)	$	17,553	$	17,553	$	23,884	$	23,884
Liabilities:
Commodity-based derivatives (1)	$	2,052	$	2,052	$	4,420	$	4,420
Bank credit facility (2)	$	20,000	$	20,000	$	—	$	—


6.75% senior notes due 2029 (3)	$	1,229,437	$	1,122,910	$	1,229,836	$	1,129,029
5.875% senior notes due 2030 (3)	$	965,000	$	832,313	$	965,000	$	846,788

Unvested restricted stock containing non-forfeitable rights to dividends are included in common stock outstanding and are considered to be participating securities and included in the computation of basic and diluted earnings per share pursuant to the two-class method. At June 30, 2023 and December 31, 2022, 1,494,134 and 966,058 shares of restricted stock, respectively, are included in common stock outstanding as such shares have a non-forfeitable right to participate in any dividends that might be declared and have the right to vote on matters submitted to the Company's stockholders.

PSUs represent the right to receive a number of shares of the Company's common stock that may range from zero to up to two times the number of PSUs granted on the award date based on the achievement of certain performance measures during a performance period. The number of potentially dilutive shares related to PSUs is based on the number of shares, if any, which would be issuable at the end of the respective period, assuming that date was the end of the performance period. The treasury stock method is used to measure the dilutive effect of PSUs.


	Three Months Ended June 30,
	2023					2022
	Income		Shares	Per Share		Loss		Shares	Per Share
	(In thousands, except per share amounts)
Net income (loss) attributable to common stock	$	(45,706)				$	372,528
Income allocable to unvested restricted shares	—					(1,447)
Basic income (loss) attributable to common stock	(45,706)		276,669	$	(0.17)	371,081		232,045	$	1.60
Effect of Dilutive Securities:
Restricted stock	—		—			1,447		680
Performance stock units	—		—			—		1,139
Convertible preferred stock	—		—			4,363		43,750
Diluted income (loss) attributable to common stock	$	(45,706)	276,669	$	(0.17)	$	376,891	277,614	$	1.36


	Six Months Ended June 30,
	2023					2022
	Income		Shares	Per Share		Loss		Shares	Per Share
	(In thousands, except per share amounts)
Net income attributable to common stock	$	88,797				$	256,789
Income allocable to unvested restricted shares	(73)					(1,021)
Basic income attributable to common stock	88,724		276,610	$	0.32	255,768		232,011	$	1.10
Effect of Dilutive Securities:
Restricted stock	—		—			1,021		640
Performance stock units	—		—			—		1,084
Convertible preferred stock	—		—			8,678		43,750
Diluted income attributable to common stock	$	88,724	276,610	$	0.32	$	265,467	277,485	$	0.96


	Six Months Ended June 30,
	2023		2022
	(In thousands)
Cash payments for:
Interest payments	$	73,957	$	89,641
Income tax payments	$	29,182	$	169
Non-cash investing activities include:
Increase (decrease) in accrued capital expenditures	$	(29,046)	$	13,813
Liabilities assumed in exchange for right-of-use lease assets	$	124,383	$	108,881