Comstock Resources, Inc. — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022. This is an annual filing; it does not provide standalone fourth-quarter results. Comstock is an independent oil and natural gas producer, concentrated in the Haynesville and Bossier shales of North Louisiana and East Texas.
Key financial and operating metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | $3.628 billion | $1.851 billion |
| Natural gas and oil sales | $3.125 billion | $1.851 billion |
| Operating income | $2.281 billion | $901 million |
| Net income (loss) available to common stockholders | $1.125 billion | $(259) million |
| Diluted EPS | $4.11 | $(1.12) |
| Cash provided by operating activities | $1.698 billion | $859 million |
| Cash capital expenditures | $1.102 billion | $689 million |
| Cash and cash equivalents at year-end | $54.7 million | $30.7 million |
Operating margin was approximately 63% of revenue and net income available to common stockholders was approximately 31% of revenue. Operating cash flow less cash capital expenditures was approximately $597 million. These are calculated figures, not separately reported company measures.
- Natural gas production was 500.6 Bcf, or about 1.4 Bcf/day, versus 489.3 Bcf in 2021. Average realized gas price before derivative settlements rose to $6.23/Mcf from $3.63; after cash derivative settlements it was $4.50/Mcf versus $2.79.
- Gas services contributed $503 million of revenue and $465 million of expense. The activity began in 2022 following the acquisition of a pipeline and treating plant and included third-party gas resale and transportation/treating services.
- Year-end proved reserves were 6.7 Tcfe, 99% in the Haynesville/Bossier. Proved-reserve PV10 was $15.5 billion (pre-tax, non-GAAP); the after-tax standardized measure was $12.6 billion. Approximately 38% of proved reserves were developed.
- Year-end principal debt was approximately $2.189 billion, primarily fixed-rate senior notes due 2029 and 2030; balance-sheet long-term debt, net of accounting adjustments, was $2.153 billion. No bank-credit-facility borrowings were outstanding.
- Liquidity was reported at $1.6 billion: $1.5 billion of unused credit capacity and $54.7 million cash. The new $1.5 billion revolving facility matures in November 2027; the initial borrowing base was $2.0 billion. The company reported compliance with its financial covenants.
Material changes versus FY2021
- Total revenue nearly doubled, driven by higher realized natural gas prices and modestly higher gas production, as well as the new gas-services business. Natural gas and oil sales increased 69%.
- Operating income rose to $2.281 billion from $901 million, and the company returned to substantial net income from a FY2021 loss. FY2022 results included $662.5 million of derivative losses and a $46.8 million loss on early debt retirement; FY2021 included a $352.6 million debt-retirement loss and a $162.1 million loss on asset sales.
- Operating cash flow increased 98%, mainly reflecting higher realized gas prices. Cash capital spending increased by approximately $413 million to support drilling, completions, and development.
- The company retired all remaining 7.5% notes due 2025 and repurchased $26.1 million principal of 6.75% notes. It entered a new five-year bank facility and ended the year with no revolver borrowings.
- All Series B preferred shares converted into 43.75 million common shares in November 2022. Comstock reinstated a quarterly common dividend of $0.125 per share and paid $34.7 million in common dividends during the year.
Outlook, management commentary, and risks
- For 2023, management expected $950 million–$1.15 billion of exploration and development spending, plus $75 million–$125 million for infrastructure and other development costs, and $25 million–$35 million for acreage. The plan called for drilling 67 operated horizontal wells and turning 69 wells to sales.
- Management’s stated priorities were to fund development from operating cash flow, maintain a strong balance sheet, develop the Haynesville/Bossier inventory, and explore the Western Haynesville extension. The company planned eight additional wells in that extension in 2023 after two successful exploratory wells in 2022.
- Commodity prices remain a central exposure. At year-end, gas collars covered about 174.9 Bcf of expected 2023 production, with an average floor of $2.99 and ceiling of $9.96/MMBtu. FY2022 derivative losses included $862.7 million of realized net losses, partly offset by $200.2 million of unrealized gains. Hedges can constrain gains, may not match realized prices, and can expose the company to losses if actual output is below hedged volumes.
- Other significant risks include drilling and reserve-estimation uncertainty, service-cost inflation, transportation commitments and capacity, debt covenants and refinancing needs, environmental and climate regulation, extreme weather, operational hazards, and cybersecurity. Future development capital estimated for proved undeveloped reserves increased to $4.1 billion from $2.7 billion, primarily due to higher drilling and completion costs.
- Transportation and gathering commitments extend through 2031; drilling and hydraulic-fracturing fleet contracts also create multiyear obligations. The company reported no legal proceedings it believed would materially adversely affect results or financial condition and no material litigation accrual.
- The company estimated $909.9 million of federal and $1.5 billion of state NOL carryforwards, but expects $766.2 million of federal and $1.2 billion of state NOLs to expire unused, in part due to ownership-change limitations. It was under Louisiana state tax examination.
- EY issued unqualified opinions on the financial statements and internal control over financial reporting. The reserve auditor’s estimates of proved reserves and PV10 did not differ from management’s estimates by more than 1% in aggregate.
Important facts for investors to verify
- How 2023 gas prices, hedge settlements, and production volumes compare with the filing’s operating plan and hedged volumes.
- Whether drilling, completion, and infrastructure spending stays within guidance and whether the Western Haynesville wells deliver expected results.
- Debt balances, liquidity, borrowing-base redeterminations, covenant headroom, and the company’s ability to fund capital needs and dividends from cash flow.
- Reserve revisions, development costs, and the assumptions underlying the $15.5 billion PV10 estimate; PV10 is not current market value and is price- and cost-sensitive.
- The profitability and cash-flow contribution of gas services, given its substantial reported revenue and associated expense.
- Potential impacts of NOL limitations, environmental requirements, transportation commitments, and other operating or contractual obligations.