Comstock Resources, Inc. - 2002 Annual Report (10-K) Summary
Business Context and Reporting Period
Company: Comstock Resources, Inc.
Filing Type: Form 10-K
Reporting Period: Fiscal year ended December 31, 2002
Business Overview: Comstock is an independent energy company engaged in the acquisition, development, production, and exploration of oil and natural gas. Operations are concentrated in the Gulf of Mexico, East Texas/North Louisiana, Southeast Texas, and South Texas. The company utilizes the successful efforts method of accounting.
Key Financial Metrics (Year Ended Dec 31, 2002)
| Metric | 2002 Value | Unit |
|---|---|---|
| Oil and Gas Sales | $142,085 | Thousands |
| Net Income (Attributable to Common Stock) | $9,901 | Thousands |
| Net Income Per Share (Diluted) | $0.34 | Per Share |
| Operating Cash Flow | $84,437 | Thousands |
| Total Debt | $366,272 | Thousands |
| Cash and Cash Equivalents | $1,682 | Thousands |
| Proved Reserves | 613.9 | Bcfe |
| Present Value of Proved Reserves | $1,280,293 | Thousands |
| Average Realized Price (Gas) | $3.30 | Per Mcf (incl. hedging) |
| Average Realized Price (Oil) | $24.95 | Per Barrel |
Material Changes vs. Prior Period (2001)
- Revenue Decline: Oil and gas sales decreased 14% to $142.1 million from $166.1 million in 2001. This was primarily driven by a 28% decrease in average natural gas prices and a 2% decrease in average oil prices, partially offset by an 11% increase in total production volume.
- Profitability Drop: Net income attributable to common stock fell significantly to $9.9 million from $33.3 million in 2001. This decline was due to lower commodity prices, increased interest expense ($30.0 million vs. $20.7 million), and a loss on discontinued operations ($1.1 million).
- Production Mix: Natural gas production increased 19% (driven by the DevX Energy acquisition), while oil production decreased 14% due to normal depletion.
- Restatement: Financial statements for 1998–2001 were restated to reclassify seismic data acquisition advances from assets to exploration expenses, reducing previously reported net income for those years.
Guidance, Outlook, and Risks
- 2003 Capital Budget: Management has budgeted approximately $100.0 million for development and exploration projects in 2003 ($49.0 million for development, $51.0 million for exploration). Funding is expected to come primarily from operating cash flow.
- Acquisition Strategy: No specific acquisition budget is set for 2003; the company intends to pursue opportunistic acquisitions funded by borrowings or equity/debt financings.
- Market Risks: Financial results are highly sensitive to oil and natural gas prices. A $1.00 change in oil price impacts cash flow by ~$1.2 million; a $1.00 change in gas price impacts cash flow by ~$31.8 million.
- Liquidity: The company maintains a $350.0 million revolving credit facility with a borrowing base of $240.0 million. As of year-end, $146.0 million was outstanding. The company also has $220.0 million in senior notes due 2007.
- Contingencies: The company accrued $1.5 million in 2002 for estimated losses related to certain contingencies but does not believe resolution will have a material effect.
Investor Verification Checklist
- Restatement Impact: Verify the full extent of the accounting restatement regarding seismic data advances and its effect on historical comparability.
- Debt Covenants: Review compliance with financial covenants (current ratio, tangible net worth, interest coverage) under the bank credit facility and senior notes indenture.
- Reserve Estimates: Confirm the independent engineering firm's (Lee Keeling and Associates) reserve estimates and the sensitivity of the Present Value of Proved Reserves to price changes.
- Derivative Positions: Assess the exposure and fair value of outstanding commodity price hedges (floors, swaps) and interest rate swaps.
- Preferred Stock: Note the reclassification of Series 1999 Preferred Stock to temporary equity and the mandatory redemption schedule beginning May 1, 2005.