SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
X THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 0-16741
COMSTOCK RESOURCES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 94-1667468
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5005 LBJ Freeway, Suite 1000, Dallas, Texas
75244 (Address of principal executive offices
including zip code)
(972) 701-2000
(Registrant's telephone number and area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.50 Par Value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
(Title of class) (Name of exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ X ]
As of March 10, 1997, there were 24,154,903 shares of common stock
outstanding.
As of March 10, 1997, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $234,375,334. (Such amount
excludes privately held convertible preferred stock which votes on an as
converted basis with common stock.)
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report is incorporated by
reference from registrant's definitive proxy statement for its 1997 annual
meeting of stockholders (to be filed with the Securities and Exchange Commission
not later than April 30, 1997).
<PAGE>
COMSTOCK RESOURCES, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 1996
CONTENTS
Page
Part I
Items 1 and 2. Business and Properties ...............................3
Item 3 Legal Proceedings ....................................17
Item 4 Submission of Matters to a Vote of Security Holders ..17
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..............................18
Item 6. Selected Historical Financial Data....................19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............20
Item 8. Financial Statements .................................25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..............25
Part III
Item 10. Directors and Executive Officers of the Registrant ...26
Item 11. Executive Compensation ...............................26
Item 12. Security Ownership of Certain Beneficial Owners
and Management...................................26
Item 13. Certain Relationships and Related Transactions........26
Part IV
Item 14. Exhibits and Reports on Form 8-K .....................27
1
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DEFINITIONS
As Used in This Report:
"Bbl" means a barrel of 42 U.S. gallons of oil.
"Bcf" means one billion cubic feet of natural gas.
"Bcfe" means one billion cubic feet of natural gas equivalent.
"EBITDA" means income (loss) from continuing operations before income taxes,
plus interest, depreciation, depletion and amortization, impairment of oil and
gas properties and exploration.
"MBbls" means one thousand barrels of oil.
"Mcf" means one thousand cubic feet of natural gas.
"Mcfe" means thousand cubic feet of natural gas equivalent.
"MMBbls" means one million of barrels of oil.
"MMcf" means one million cubic feet of natural gas.
"MMcfe" means one million cubic feet of natural gas equivalent.
"Present Value of Proved Reserves" means the present value of estimated future
revenues to be generated from the production of proved reserves calculated in
accordance with the Securities and Exchange Commission's guidelines, net of
estimated future production and development costs, using prices and costs as of
the date of estimation without future escalation, without giving effect to
future income taxes, and discounted using an annual discount rate of 10%.
All statements other than statements of historical fact contained in this
report, including statements in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business and Properties,"
are forward-looking statements. Forward-looking statements in this report
generally are accompanied by words such as "anticipate," "believe," "estimate,"
"expect," "intend," "plan," "project" or similar statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, no assurance can be given that such expectations will
prove correct. Factors that could cause the Company's results to differ
materially from the results discussed in such forward-looking statements
include, among other things, such as the fluctuations of the prices received or
demand for the Company's oil and natural gas, acquisition risks, requirements
for capital, the ability to replace depleting reserves, the uncertainty of
drilling results and reserve estimates, drilling risks, operating hazards,
competition and the effects of governmental and environmental regulation. All
forward-looking statements in this report are expressly qualified in their
entirety by the cautionary statements in this paragraph.
2
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PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
General
Comstock Resources, Inc. (together with its subsidiaries, the "Company") is
an independent energy company engaged in the acquisition, development,
production and exploration of oil and natural gas properties. As of December 31,
1996, the Company had proved oil and natural gas reserves of 288.4 Bcfe with an
estimated Present Value of Proved Reserves of $502.9 million. On a Bcfe basis,
these reserves were 81% natural gas and 79% proved developed. The Company
believes that its primary strengths include (i) its ability to acquire oil and
natural gas properties at attractive costs, (ii) its high quality, long-lived
reserve base, of which 93% is concentrated in Southeast Texas, East Texas/North
Louisiana and the Texas Gulf Coast, and (iii) its ability to efficiently operate
and develop its oil and natural gas properties.
The Company has grown primarily through the acquisition of producing
properties. Since 1991 the Company has added 355.6 Bcfe from 16 acquisitions at
a total cost of $222.0 million, or $0.62 per Mcfe. The Company's two largest
acquisitions to date have been its purchase of properties from Sonat Inc. in
July 1995 for a net purchase price of $48.1 million (the "Sonat Acquisition")
and its acquisition of Black Stone Oil Company and interests in the Double A
Wells field in May 1996 for a net purchase price of $100.4 million (the "Black
Stone Acquisition"). Primarily as a result of the Company's acquisition
activities, (i) average net daily production increased from 22.2 MMcfe in 1994
to 68.9 MMcfe in 1996 and (ii) EBITDA increased from $9.9 million for 1994 to
$54.9 million for 1996.
While continuing to pursue attractive acquisitions, the Company has
recently increased its focus on the exploitation and development of its existing
properties through the implementation of operational improvements, workovers,
recompletions and the drilling of development and exploratory wells. During 1996
the Company spent $11.4 million on development and exploration activities. As
part of its increased emphasis on such activities, the Company anticipates
spending approximately $30.0 million on currently identified development and
exploration projects in 1997.
Business Strategy
The Company's strategy is to increase cash flow and net asset value by
acquiring oil and natural gas properties at attractive costs and developing its
reserves. In addition, the Company intends to pursue selective exploration
opportunities in its core operating areas. The key elements of the Company's
business strategy are to:
Acquire High Quality Properties at Attractive Costs
The Company has a successful track record of increasing its reserves
through opportunistic acquisitions. The Company applies strict economic and
reserve risk criteria in evaluating acquisitions and targets properties with
established production where it can obtain operational control and increase
production and reserves through exploitation activities. The Black Stone
Acquisition and the Sonat Acquisition have significant development and
exploration potential and were acquired at costs per Mcfe of the proved reserves
acquired equal to $0.74 and $0.44, respectively. Due to its experience in its
core operating areas, the Company believes it is better able to identify and
evaluate potential acquisitions and negotiate and close selected acquisitions on
favorable terms.
3
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Operate Properties
The Company prefers to operate the properties it acquires, allowing it to
exercise greater control over the timing and plans for future development, the
level of drilling and lifting costs, and the marketing of production. The
Company operates properties comprising approximately 84% of its Present Value of
Proved Reserves as of December 31, 1996.
Maintain Low Cost Structure
The Company seeks to increase cash flow by carefully controlling operating
costs and general and administrative expenses. The Company targets acquisitions
that possess, among other characteristics, low per unit operating costs. In
addition, the Company has been able to reduce per unit operating costs by
eliminating unnecessary field and corporate overhead costs and by divesting
properties that have high lifting costs with little future development
potential. Through these efforts, the Company's general and administrative
expense and average oil and gas operating costs per Mcfe have decreased from
$0.19 and $0.75, respectively, for 1994 to $0.09 and $0.55, respectively, for
1996.
Exploit Existing Reserves
The Company seeks to maximize the value of its properties by increasing
production and recoverable reserves through active workover, recompletion and
exploitation activities. The Company utilizes advanced industry technology,
including 3-D seismic data, magnetic resonance imaging logging tools and newly
developed formation stimulation techniques. During 1996, the Company
participated in the drilling of 20 development and exploration wells. In 1997,
the Company expects to spend approximately $30.0 million to drill 48 development
and exploration wells that the Company has currently identified.
Pursue Selective Exploration Opportunities
The Company pursues selective exploration activities to find additional
reserves on its undeveloped acreage and anticipates spending approximately 15%
of its 1997 drilling budget on exploration. The Company recently completed a 3-D
seismic survey in the East White Point field along the Texas Gulf Coast. In
January 1997, the Company participated in drilling a successful exploratory well
in the East Point field and plans to participate in the drilling of a deeper
exploratory test well in the first half of 1997. The Company is also
participating in the exploration of undeveloped acreage near its Double A Wells
field in Southeast Texas and intends to participate in 3-D seismic surveys on
its offshore leases in the Gulf of Mexico in 1997.
The Company's executive offices are located at 5005 LBJ Freeway, Suite
1000, Dallas, Texas 75244, and its telephone number is (972) 701-2000.
4
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Oil and Natural Gas Reserves
The following tables set forth the estimated proved oil and natural gas
reserves of the Company and the Present Value of Proved Reserves as of December
31, 1996:
Present
Value of
Oil Gas Total Proved
Category (MBbls) (Mmcf) (Mmcfe) Reserves
- -------- ------- ------ ------- --------
(000's)
Proved developed producing 5,690 133,745 167,885 $336,928
Proved developed non-producing 1,263 53,502 61,080 72,058
Proved undeveloped 2,041 47,197 59,443 93,932
------ -------- -------- --------
Total proved 8,994 234,444 288,408 $502,918
====== ======== ======== ========
There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their values, including many factors beyond the control of the
producer. The reserve data set forth above represents estimates only. Reserve
engineering is a subjective process of estimating underground accumulations of
oil and natural gas that cannot be measured in an exact manner. The accuracy of
any reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. As a result, estimates
of different engineers may vary. In addition, estimates of reserves are subject
to revision based on the results of drilling, testing and production subsequent
to the date of such estimate. Accordingly, reserve estimates are often different
from the quantities of oil and gas reserves that are ultimately recovered.
In general, the volume of production from oil and natural gas properties
declines as reserves are depleted. Except to the extent the Company acquires
properties containing proved reserves or conducts successful exploration and
development activities, the proved reserves of the Company will decline as
reserves are produced. The Company's future oil and natural gas production is,
therefore, highly dependent upon its level of success in acquiring or finding
additional reserves.
Primary Operating Areas
The Company's activities are concentrated in three primary operating areas:
Southeast Texas, East Texas/North Louisiana and the Texas Gulf Coast. The
Company also owns interests in the Gulf of Mexico, South Louisiana, West Texas
and Mississippi. The following table summarizes the Company's estimated proved
oil and gas reserves by field as of December 31, 1996. The Company's 20 largest
fields, as listed below, represent approximately 95% of the Company's Present
Value of Proved Reserves as of such date.
5
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Net Oil Net Gas Present Value of
Field (MBbls) (MMcf) Proved Reserves Percentage
----- ------- ------ --------------- ----------
(In thousands)
Southeast Texas
Double A Wells 5,407 92,774 $ 256,515 51%
East Texas/North Louisiana
Logansport 76 20,888 33,746
Waskom 303 18,915 27,550
Beckville 159 24,775 27,528
Blocker 67 15,126 23,072
Longwood 147 9,356 14,776
Ada 11 4,457 10,620
Sugar Creek 79 5,487 8,484
Hico Knowles 53 2,962 5,837
Simsboro 4 3,677 5,256
Box Church 3 5,668 5,118
Sligo 12 2,428 4,174
Other 31 1,935 4,575
-------- -------- -------
945 115,674 170,736 34%
-------- -------- --------
Texas Gulf Coast
East White Point 1,102 2,973 15,483
El Campo 154 2,545 6,271
Redmond Creek 136 1,468 5,019
Mustang Island 39 2,163 3,862
Other 130 3,597 7,872
-------- -------- -------
1,561 12,746 38,507 8%
-------- -------- -------
Other Areas
West Cameron Block 238 4 3,346 8,687
Main Pass Blocks 21/25 485 628 6,266
Ship Shoal Block 66 305 191 5,867
Lake LaRose 18 3,043 4,426
Other 269 6,042 11,914
-------- -------- --------
1,081 13,250 37,160 7%
-------- -------- -------- ----
Total 8,994 234,444 $502,918 100%
======== ======== ======== ====
Southeast Texas
The Company's largest concentration of proved reserves, representing 51% of
the Company's Present Value of Proved Reserves as of December 31, 1996, is
located in the Double A Wells field in Polk County, Texas. The Company owns
interests in 23 producing wells (8.8 net) in this field and operates 22 of these
wells. The field includes high volume wells producing from the Upper Woodbine
formation with average gross production of 101.7 MMcf per day and 7.1 MBbls of
oil per day in December 1996. Since its acquisition of the properties, the
Company has participated in drilling an exploratory dry hole and has drilled or
participated in four successful development wells and one unsuccessful
development well. The Company is currently drilling one development well.
Additional wells in the Double A Wells field are planned during 1997 to further
delineate the field. The Company is currently participating in the exploration
of undeveloped acreage near the Double A Wells field.
6
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East Texas/North Louisiana
The second largest concentration of the Company's proved reserves is
located in East Texas/North Louisiana, and constitutes 34% of its Present Value
of Proved Reserves as of December 31, 1996. The Company owns interests in 343
producing wells (190.1 net) in 19 fields, including the Logansport, Waskom,
Beckville, Blocker, Longwood, Ada, Sugar Creek, Hico Knowles, Simsboro, Box
Church, and Sligo fields. A major portion of the Company's reserves are
contained in the Travis Peak (Hosston in Louisiana) formation and the Cotton
Valley formation, which exhibit several thousand feet of sand and shale
sequences. The majority of the Company's 1997 drilling program will involve
additional infill drilling to the Travis Peak and Cotton Valley formations in
this area enhanced by applying new hydraulic fracturing and completion
techniques and new magnetic resonance imaging logging tools.
The Company operates 60 wells and owns interests in 29 additional wells in
the Logansport field in DeSoto Parish, Louisiana. The Logansport field area
produces from multiple zones in the Hosston formation. In 1996 the Company
initiated an infill drilling program to develop proved undeveloped reserves from
the Hosston sands. The Company has participated in drilling 12 infill
development wells in 1996, 11 of which were successful, and currently
anticipates drilling six additional infill development wells in 1997.
The Company operates approximately 160 wells and owns interests in 50
additional wells in the Waskom, Beckville, Blocker and Longwood fields in
Northwest Louisiana and Northeast Texas. During 1996, the Company drilled two
successful Travis Peak infill wells in the Longwood field drilled two successful
Cotton Valley wells in the Blocker field. The Company currently anticipates
drilling 10 Cotton Valley development wells in this area in 1997.
Texas Gulf Coast
The Company's third largest operating area is the Texas Gulf Coast region.
The Company owns interests in 68 producing wells (36.8 net) in 10 fields, the
largest of which are the East White Point, El Campo, Redmond Creek and the
Mustang Island fields. Reserves in the Texas Gulf Coast area constitute 8% of
the Company's Present Value of Proved Reserves as of December 31, 1996. Major
producing formations include the Frio, Vicksburg, Yegua and Wilcox formations.
The Company's interest in this area focuses on fields that lie along the Frio
trend. The Company believes potential exists through the use of current
technology for additional oil and natural gas recovery in the older fields along
this trend, particularly in the deeper formations. Due to their structural
complexity, many of these fields are good candidates for the use of 3-D seismic
technology that can better define fault blocks and stratigraphic features in
order to more completely develop the remaining reserves.
In 1995, the Company and Marathon Oil Company formed a joint venture to
shoot 3-D seismic data on approximately 10,000 acres in the East White Point
area of Nueces Bay. The Company retained a 29% interest in wells to be developed
under the joint venture. The Company participated in drilling a successful
exploratory well in January 1997 which discovered reserves in the Brigham (Frio)
sand. The Company plans to participate in a deeper well which will test the deep
Frio sand in the first half of 1997.
7
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Acquisition Activities
Acquisition Strategy
The Company has concentrated its acquisition activity in Southeast Texas,
East Texas/North Louisiana and the Texas Gulf Coast regions. Using a strategy
that capitalizes on management's strong knowledge of, and experience in, these
regions, the Company seeks to selectively pursue acquisition opportunities where
the Company can evaluate the assets to be acquired in rigorous detail prior to
transaction completion. The Company evaluates a large number of prospective
properties according to certain internal criteria, including established
production and the properties' potential for operating control, future
development potential and low operating costs.
Major Property Acquisitions
As a result of its acquisitions, the Company has added 355.6 Bcfe of proved
oil and natural gas reserves since 1991 as summarized in the following table:
<TABLE>
<CAPTION>
Present Acquisition
Value of Cost as a
Proved Percentage
Reserves of Present
Acquisition Acquisition When Value of
Cost Proved Reserves When Acquired(1) Cost Per Acquired Proved
Year (000's) (MBbls) (MMcf) (MMcfe) Mcfe (000's)(1) Reserves
-------- -------- -------- -------- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $100,446 5,930 100,446 136,027 $0.74 $282,150 36%
1995 56,081 1,859 108,432 119,586 0.47 85,706 65%
1994 12,970 388 12,744 15,074 0.86 14,050 92%
1993(2) 26,928 2,250 28,349 41,848 0.64 33,502 80%
1992(2) 4,730 44 8,821 9,086 0.52 8,474 56%
1991 20,862 689 29,868 34,002 0.61 27,298 76%
-------- -------- -------- -------- ----- -------- ------
Total $222,017 11,160 288,660 355,623 $0.62 $451,180 49%
======== ======== ======== ======== ===== ======== ======
</TABLE>
(1) Based on reserve estimates and prices at the end of the year in which
the acquisition occurred, as adjusted to reflect actual production
from the closing date of the respective acquisition to such year end.
(2) 1992 and 1993 amounts do not include amounts for acquisitions made by
Stanford prior to its acquisition by the Company, whereas amounts
presented in the Consolidated Financial Statements include amounts for
acquisitions made by Stanford prior to its acquisition by the Company
in accordance with the pooling of interests method of accounting.
Of the 16 property acquisitions completed by the Company since 1991, four
acquisitions described below account for 85% of the total acquisition cost and
total reserves acquired.
Black Stone Acquisition. In May 1996, the Company acquired 100% of the
capital stock of Black Stone Oil Company and interests in producing and
undeveloped oil and gas properties located in Southeast Texas for a net purchase
price of $100.4 million. The Company acquired interests in 19 wells (7.7 net)
that are located in the Double A Wells field in Polk County, Texas and is the
operator of the field. The net proved reserves acquired were estimated at 5.9
MMBbls of oil and 100.4 Bcf of natural gas.
Sonat Acquisition. In July 1995, the Company purchased interests in certain
producing oil and gas properties located in East Texas and North Louisiana from
Sonat Inc. for a net purchase price of $48.1 million. The Company acquired
interests in 319 producing wells (188.0 net). The acquisition included interests
8
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in the Logansport, Waskom, Beckville, Blocker, Longwood, Hico Knowles and
Simsboro fields. The net proved reserves acquired were estimated at 0.8 MMBbls
of oil and 104.7 Bcf of natural gas.
Stanford Acquisition. In November 1993, the Company acquired Stanford
Offshore Energy, Inc. ("Stanford") through a merger with a wholly owned
subsidiary, which now operates under the name Comstock Offshore Energy, Inc. The
Stanford stockholders were issued an aggregate of 1,760,000 shares of common
stock of the Company in the merger with a total value of $6.2 million and the
Company assumed approximately $16.5 million of indebtedness of Stanford.
Stanford had interests in 107 producing wells (58.8 net) located primarily along
the Texas Gulf Coast and offshore Gulf of Mexico. Major properties acquired
include interests in the East White Point, Redmond Creek and Mustang Island
fields located on the Texas Gulf Coast and West Cameron Block 238 in offshore
Gulf of Mexico. The net proved reserves acquired were estimated at 1.0 MMBbls of
oil and 17.8 Bcf of natural gas.
Goodrich Acquisition. In November 1991, the Company acquired interests in
57 producing wells (27.3 net) located in 22 fields primarily in North and South
Louisiana and East Texas from Goodrich Oil Company and certain other working
interest owners for a net purchase price of $18.3 million. Major fields
purchased in this acquisition include the Ada, Sugar Creek and Sligo fields in
North Louisiana and the Box Church field in East Texas. The net proved reserves
acquired were estimated at 0.7 MMBbls of oil and 26.8 Bcf of natural gas.
Drilling Activity Summary
During the three-year period ended December 31, 1996, the Company drilled
or participated in the drilling of development and exploratory wells as set
forth in the table below:
Year Ended December 31,
1994 1995 1996
---- ---- ----
Gross Net Gross Net Gross Net
----- ---- ----- ---- ----- ----
Development Wells:
Oil - - 2 0.5 2 1.0
Gas 2 0.6 9 2.4 16 8.4
Dry - - 2 0.7 1 1.0
---- ---- ---- ---- ---- ----
2 0.6 13 3.6 19 10.4
---- ---- ---- ---- ---- ----
Exploratory Wells:
Oil - - - - - -
Gas - - - - - -
Dry - - - - 1 0.2
---- ---- ---- ---- ---- ----
- - - - 1 0.2
---- ---- ---- ---- ---- ----
Total Wells 2 0.6 13 3.6 20 10.6
==== ==== ==== ==== ==== ====
As of December 31, 1996, four development wells (1.5 net) and one
exploratory well (.3 net) were in the process of being drilled. All five of the
wells were successful. Subsequent to December 31, 1996, the Company commenced
drilling or participated in drilling seven development wells (3.1 net) and two
exploratory wells (.6 net). Two of the seven development wells were successful,
one was a dry hole and the remaining four were still in the process of drilling.
One of the exploratory wells was a dry hole and the other was successful.
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Producing Well Summary
The following table sets forth the gross and net producing oil and natural
gas wells in which the Company owned an interest at December 31, 1996.
Oil Gas
Gross Net Gross Net
----- ----- ----- -----
Texas 39 20.5 268 140.5
Louisiana 26 10.0 171 84.3
Federal Offshore - - 23 10.4
Mississippi 1 0.1 2 0.3
---- ----- ---- -----
Total wells 66 30.6 464 235.5
==== ===== ==== =====
The Company operates 302 of the 530 producing wells presented in the above
table.
Acreage
The following table summarizes the Company's developed and undeveloped
leasehold acreage at December 31, 1996. Excluded is acreage in which the
Company's interest is limited to royalty or similar interests.
Developed Undeveloped
Gross Net Gross Net
------- ------- ------ ------
Texas 169,519 121,790 31,966 13,304
Louisiana 77,756 57,259 296 48
Federal Offshore 12,160 5,760 - -
Mississippi 1,360 210 - -
Utah - - 19,118 1,912
------- ------- ------ ------
Total 260,795 185,019 51,380 15,264
======= ======= ====== ======
Title to the Company's oil and natural gas properties is subject to
royalty, overriding royalty, carried and other similar interests and contractual
arrangements customary in the oil and gas industry, liens incident to operating
agreements and for current taxes not yet due, and other minor encumbrances. All
of the Company's oil and natural gas properties are pledged as collateral under
the Company's bank credit facility. As is customary in the oil and gas industry,
the Company is generally able to retain its ownership interest in undeveloped
acreage by production of existing wells, by drilling activity which establishes
commercial reserves sufficient to maintain the lease or by payment of delay
rentals.
Markets and Customers
The market for oil and natural gas produced by the Company depends on
factors beyond its control, including the extent of domestic production and
imports of oil and natural gas, the proximity and capacity of natural gas
pipelines and other transportation facilities, demand for oil and natural gas,
the marketing of competitive fuels and the effects of state and federal
regulation. The oil and gas industry also competes with other industries in
supplying the energy and fuel requirements of industrial, commercial and
individual consumers.
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Substantially all of the Company's natural gas production is sold either on
the spot gas market on a month-to-month basis at prevailing spot market prices
or under long-term contracts based on current spot market gas prices. Gas
production from the Company's Double A Wells field is sold under a long-term
contract to HPL Resources Company, a subsidiary of Enron Corp. ("HPL"). The
agreement with HPL is for a term expiring on October 31, 2000 with pricing based
on a percentage of spot gas prices for natural gas delivered to the Houston Ship
Channel. Total gas sales in 1996 to HPL accounted for approximately 31% of the
Company's 1996 oil and gas sales.
The Company enters into natural gas price swap agreements to reduce its
exposure to natural gas price fluctuations. In 1996, the Company hedged
approximately 15% of its natural gas production. The Company currently has none
of its natural gas production hedged.
All of the Company's oil production is sold at the well site at posted
field prices tied to the spot oil markets. Sales of oil production to Scurlock
Permian Corporation, a subsidiary of Ashland Inc., accounted for approximately
17% of the Company's 1996 oil and gas sales.
Competition
The oil and gas industry is highly competitive. Competitors include major
oil companies, other independent energy companies, and individual producers and
operators, many of which have financial resources, personnel and facilities
substantially greater than those of the Company. The Company faces intense
competition for the acquisition of oil and natural gas properties.
Regulation
The Company's operations are regulated by certain federal and state
agencies. In particular, oil and natural gas production and related operations
are or have been subject to price controls, taxes and other laws relating to the
oil and natural gas industry. The Company cannot predict how existing laws and
regulations may be interpreted by enforcement agencies or court rulings, whether
additional laws and regulations will be adopted, or the effect such changes may
have on its business or financial condition.
The Company's oil and natural gas exploration, production and related
operations are subject to extensive rules and regulations promulgated by
federal, state and local agencies. Failure to comply with such rules and
regulations can result in substantial penalties. The regulatory burden on the
oil and gas industry increases the Company's cost of doing business and affects
its profitability. Because such rules and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such laws.
The states of Texas and Louisiana require permits for drilling operations,
drilling bonds and reports concerning operations and impose other requirements
relating to the exploration and production of oil and gas. Such states also have
statutes or regulations addressing conservation matters, including provisions
for the unitization or pooling of oil and natural gas properties, the
establishment of maximum rates of production from oil and gas wells and the
regulation of spacing, plugging and abandonment of such wells. The statutes and
regulations of certain states limit the rate at which oil and gas can be
produced from the Company's properties.
Sales of natural gas by the Company are not regulated and are made at
market prices. However, the Federal Energy Regulatory Commission ("FERC")
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regulates interstate and certain intrastate natural gas transportation rates and
service conditions, which affect the marketing of natural gas produced by the
Company, as well as the revenues received by the Company for sales of such
production. Since the mid-1980s, FERC has issued a series of orders, culminating
in Order Nos. 636, 636-A and 636-B ("Order 636"), that have significantly
altered the marketing and transportation of gas. Order 636 mandates a
fundamental restructuring of interstate pipeline sales and transportation
service, including the unbundling by interstate pipelines of the sales,
transportation, storage and other components of the city-gate sales services
such pipelines previously performed. One of FERC's purposes in issuing the
orders was to increase competition within all phases of the natural gas
industry. Order 636 and subsequent FERC orders issued in individual pipeline
restructuring proceedings have been the subject of appeals, the results of which
have generally been supportive of the FERC's open-access policy. Earlier this
year the United States Court of Appeals for the District of Columbia Circuit
largely upheld Order No. 636, et seq. Because further review of certain of these
orders is still possible, and other appeals remain pending, it is difficult to
predict the ultimate impact of the orders on the Company and its gas marketing
efforts. Generally, Order 636 has eliminated or substantially reduced the
interstate pipelines' traditional role as wholesalers of natural gas, and has
substantially increased competition and volatility in natural gas markets. While
significant regulatory uncertainty remains, Order 636 may ultimately enhance the
Company's ability to market and transport its gas, although it may also subject
the Company to greater competition and the more restrictive pipeline imbalance
tolerances and greater associated penalties for violation of such tolerances.
Sales of oil and natural gas liquids by the Company are not regulated and
are made at market prices. The price the Company receives from the sale of these
products is affected by the cost of transporting the products to market.
Effective as of January 1, 1995, FERC implemented regulations establishing an
indexing system for transportation rates for interstate common carrier oil
pipelines, which, generally, would index such rates to inflation, subject to
certain conditions and limitations. These regulations could increase the cost of
transporting oil and natural gas liquids by interstate pipelines, although the
most recent adjustment generally decreased rates. These regulations have
generally been approved on judicial review. The Company is not able to predict
with certainty what effect, if any, these regulations will have on it, but,
other factors being equal, the regulations may, over time, tend to increase
transportation costs or reduce wellhead prices for oil and natural liquids.
The Company is required to comply with various federal and state
regulations regarding plugging and abandonment of oil and natural gas wells. The
Company provides reserves for the estimated costs of plugging and abandoning its
wells, to the extent such costs exceed the estimated salvage value of the wells,
on a unit of production basis.
Environmental
Various federal, state and local laws and regulations governing the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, health and safety, affect the Company's
operations and costs. These laws and regulations sometimes require governmental
authorization before certain activities, limit or prohibit other activities
because of protected areas or species, impose substantial liabilities for
pollution related to Company operations or properties, and provide penalties for
noncompliance. In particular, the Company's drilling and production operations,
its activities in connection with storage and transportation of crude oil and
other liquid hydrocarbons, and its use of facilities for treating, processing or
otherwise handling hydrocarbons and related exploration and production wastes
are subject to stringent environmental regulation. As with the industry
generally, compliance with existing and anticipated regulations increases the
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<PAGE>
Company's overall cost of business. While these regulations affect the Company's
capital expenditures and earnings, the Company believes that such regulations do
not affect its competitive position in the industry because its competitors are
similarly affected by environmental regulatory programs. Environmental
regulations have historically been subject to frequent change and, therefore,
the Company is potentially unable to predict the future costs or other future
impacts of environmental regulations on its future operations. A discharge of
hydrocarbons or hazardous substances into the environment could subject the
Company to substantial expense, including the cost to comply with applicable
regulations that require a response to the discharge, such as containment or
cleanup, claims by neighboring landowners or other third parties for personal
injury, property damage or their response costs and penalties assessed, or other
claims sought, by regulatory agencies for response cost or for natural resource
damages.
The following are examples of some environmental laws that potentially
impact the Company and its operations.
Water. The Oil Pollution Act ("OPA") was enacted in 1990 and amends
provisions of the Federal Water Pollution Control Act of 1972 ("FWPCA") and
other statutes as they pertain to prevention of and response to major oil
spills. The OPA subjects owners of facilities to strict, joint and potentially
unlimited liability for removal costs and certain other consequences of an oil
spill, where such spill is into navigable waters, or along shorelines. In the
event of an oil spill into such waters, substantial liabilities could be imposed
upon the Company. States in which the Company operates have also enacted similar
laws. Regulations are currently being developed under the OPA and similar state
laws that may also impose additional regulatory burdens on the Company.
The FWPCA imposes restrictions and strict controls regarding the discharge
of produced waters, other oil and gas wastes, any form of pollutant, and, in
some instances, storm water runoff, into waters of the United States. The FWPCA
provides for civil, criminal and administrative penalties for any unauthorized
discharges and, along with the OPA, imposes substantial potential liability for
the costs of removal, remediation or damages resulting from an unauthorized
discharge. State laws for the control of water pollution also provide civil,
criminal and administrative penalties and liabilities in the case of an
unauthorized discharge into state waters. The cost of compliance with the OPA
and the FWPCA have not historically been material to the Company's operations,
but there can be no assurance that changes in federal, state or local water
pollution control programs will not materially adversely effect the Company in
the future. Although no assurances can be given, the Company believes that
compliance with existing permits and compliance with foreseeable new permit
requirements will not have a material adverse effect on the Company's financial
condition or results of operations.
Air Emissions. Amendments to the Federal Clean Air Act enacted in late 1990
(the "1990 CAA Amendments") require or will require most industrial operations
in the United States to incur capital expenditures in order to meet air
emissions control standards developed by the Environmental Protection Agency
("EPA") and state environmental agencies. The 1990 CAA Amendments impose a new
operating permit on major sources, and several of the Company's facilities may
require permits under this new program. Although no assurances can be given, the
Company believes implementation of the 1990 CAA Amendments will not have a
material adverse effect on the Company's financial condition or results of
operations.
Solid Waste. The Company generates non-hazardous solid wastes that are
subject to the requirements of the Federal Resource Conservation and Recovery
Act ("RCRA") and comparable state statutes. The EPA and the states in which the
Company operates are considering the adoption of stricter disposal standards for
the type of non-hazardous wastes generated by the Company. RCRA also governs the
generation, management, and disposal of hazardous wastes. At present, the
Company is not required to comply with a substantial portion of the RCRA
requirements because the Company's operations generate minimal quantities of
hazardous wastes. However, it is anticipated that additional wastes, which could
include wastes currently generated during the Company's operations, could in the
13
<PAGE>
future be designated as "hazardous wastes." Hazardous wastes are subject to more
rigorous and costly disposal and management requirements than are non-hazardous
wastes. Such changes in the regulations may result in additional capital
expenditures or operating expenses by the Company.
Superfund. The Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA"), also known as "Superfund", imposes liability, without
regard to fault or the legality of the original act, on certain classes of
persons in connection with the release of a "hazardous substance" into the
environment. These persons include the current owner or operator of any site
where a release historically occurred and companies that disposed or arranged
for the disposal of the hazardous substances found at the site. CERCLA also
authorizes the EPA and, in some instances, third parties to act in response to
threats to the public health or the environment and to seek to recover from the
responsible classes of persons the costs they incur. In the course of its
ordinary operations, the Company may have managed substances that may fall
within CERCLA's definition of a "hazardous substance." The Company may be
jointly and severally liable under CERCLA for all or part of the costs required
to clean up sites where the Company disposed of or arranged for the disposal of
these substances. This potential liability extends to properties that the
Company owned or operated, as well as to properties owned and operated by others
at which disposal of the Company's hazardous substances occurred.
The Company may also fall into the category of the "current owner or
operator." The Company currently owns or leases numerous properties that for
many years have been used for the exploration and production of oil and gas.
Although the Company believes it has utilized operating and disposal practices
that were standard in the industry at the time, hydrocarbons or other wastes may
have been disposed of or released by the Company on or under the properties
owned or leased by the Company. In addition, many of these properties have been
previously owned or operated by third parties who may have disposed of or
released hydrocarbons or other wastes at these properties. Under CERCLA, and
analogous state laws, the Company could be subject to certain liabilities and
obligations, such as being required to remove or remediate previously disposed
wastes (including wastes disposed of or released by prior owners or operators),
to clean up contaminated property (including contaminated groundwater) or to
perform remedial plugging operations to prevent future contamination.
Office and Operations Facilities
The Company leases office space in Dallas, Texas. The Dallas lease covers
13,525 square feet at an average monthly rate of $18,575 during 1997. The lease
expires on September 30, 1999. The Company also owns or leases four production
offices and yard facilities near Marshall, Bay City, and Livingston, Texas and
Logansport, Louisiana.
14
<PAGE>
Directors, Executive Officers and Other Management
The following table sets forth certain information concerning the executive
officers, directors and other management of the Company.
Name Age Position with Company
Directors and Executive Officers
M. Jay Allison 41 President, Chief Executive Officer and
Director
Roland O. Burns 36 Senior Vice President, Chief Financial
Officer, Secretary and Treasurer
Richard S. Hickok 71 Director
Franklin B. Leonard 69 Director
Harold R. Logan 75 Chairman of the Board of Directors
Cecil E. Martin, Jr. 55 Director
James L. Menke 45 Vice President of Operations
David W. Sledge 40 Director
Other Management
Stephen E. Neukom 47 Manager of Crude Oil and Natural Gas Marketing
Richard G. Powers 42 Land Manager
Daniel K. Presley 36 Controller and Assistant Treasurer
Michael W. Taylor 43 Director of Acquisitions and Chief
Reservoir Engineer
M. Jay Allison has been a director of the Company since 1987, and President
and Chief Executive Officer of the Company since 1988. From 1987 to 1988, Mr.
Allison served as Vice President and Secretary of the Company. From 1981 to
1987, he was a practicing oil and gas attorney with the firm of Lynch, Chappell
& Alsup in Midland, Texas. In 1983, Mr. Allison co-founded a private independent
oil and gas company, Midwood Petroleum, Inc., which was active in the
acquisition and development of oil and gas properties from 1983 to 1987. He
received B.B.A., M.S. and J.D. degrees from Baylor University in 1978, 1980 and
1981, respectively. Mr. Allison currently serves on the Board of Trustees of
Howard Payne University.
Roland O. Burns has been Senior Vice President of the Company since 1994,
Chief Financial Officer and Treasurer since 1990 and Secretary since 1991. From
1982 to 1990, Mr. Burns was employed by the public accounting firm, Arthur
Andersen LLP. During his tenure with Arthur Andersen LLP, Mr. Burns worked
primarily in the firm's oil and gas audit practice. Mr. Burns received B.A. and
M.A. degrees from the University of Mississippi in 1982 and is a Certified
Public Accountant.
Richard S. Hickok has been a director of the Company since 1987. From 1948
to 1983, he was employed by the international accounting firm of Main Hurdman
where he retired as Chairman. From 1978 to 1980, Mr. Hickok served as a Trustee
of the Financial Accounting Foundation and has extensive involvement serving on
various committees of the American Institute of Certified Public Accountants. He
currently serves as a director of Marsh & McLennan Company, Inc., Alpine Lace
Brands, Inc., Marcam, Inc. and Projectavision, Inc. Mr. Hickok holds a B.S.
degree from the Wharton School of the University of Pennsylvania.
15
<PAGE>
Mr. Franklin B. Leonard has been a director of the Company since 1960. From
1961 to 1994, Mr. Leonard served as President of Crossley Surveys, Inc., a New
York based company which conducted statistical surveys. Mr. Leonard's family's
involvement in the Company spans four generations dating back to the 1880's when
Leonard's great grandfather was a significant shareholder of the Company. Mr.
Leonard also served as a director of Glen Ridge Savings and Loan Association
from 1968 to 1990. Mr. Leonard holds a B.S. degree from Yale University.
Harold R. Logan has served as Chairman of the Board of Directors since
1987. From 1960 to 1986, Mr. Logan was employed by W.R. Grace & Co. at various
positions including Vice Chairman of the Board of Directors and head of the W.R.
Grace & Co. Energy Division. From 1953 to 1960 Mr. Logan was a Budget Director
in the Department of Defense during the Eisenhower Administration. He is
currently serving as a trustee of the Neuberger and Berman Income Funds and is a
past director of the Whitman Corporation and Chelsea Industries. Mr. Logan holds
a B.S. degree from Oklahoma State University.
Cecil E. Martin, Jr. has been a director of the Company since 1988. Mr.
Martin has been a significant investor in the Company since 1987. From 1973 to
1991 he served as Chairman of a public accounting firm in Richmond, Virginia.
Mr. Martin also serves as a director for Ten-Key, Inc. Mr. Martin holds a B.B.A.
degree from Old Dominion University and is a Certified Public Accountant.
James L. Menke has been Vice President of Operations of the Company since
March 1994. From 1987 to 1994, Mr. Menke was Manager of Engineering for Atropos
Exploration Company. From 1973 to 1986, Mr. Menke held engineering positions
with Pennzoil Company, Gruy Management Services Company, Maynard Oil Company,
and Santa Fe Minerals. Mr. Menke received a B.S. degree in Petroleum Engineering
from Texas A & M University in 1973 and is a Registered Professional Engineer.
David W. Sledge was elected to the Board of Directors of the Company in
1996. Mr. Sledge served as President of Gene Sledge Drilling Corporation, a
privately held contract drilling company based in Midland, Texas until its sale
in October 1996. Mr. Sledge served Gene Sledge Drilling Corporation in various
capacities from 1979 to 1996. Mr. Sledge is director of the International
Association of Drilling Contractors and is a past chairman of the Permian Basin
chapter of this association. He received a B.B.A. degree from Baylor University
in 1979.
Stephen E. Neukom has been Manager of Crude Oil and Natural Gas Marketing
since December 1996. From September 1994 to 1996, Mr. Neukom served as Vice
President of Comstock Natural Gas, Inc., the Company's wholly owned gas
marketing subsidiary. Prior to joining the Company, Mr. Neukom was Senior Vice
President of Victoria Gas Corporation from 1987 to 1994. Mr. Neukom received a
B.B.A. degree from the University of Texas in 1972.
Richard G. Powers joined the Company as Land Manager in October 1994. Mr.
Powers has over 17 years experience as a petroleum landman. Prior to joining the
Company, Mr. Powers was employed for 10 years as Land Manager for Bridge Oil
(U.S.A.), Inc. and its predecessor Pinoak Petroleum, Inc. Mr. Powers received a
B.B.A. degree in 1976 from Texas Christian University.
Daniel K. Presley is the Controller and Assistant Treasurer and has been
with the Company since December 1989. Prior to joining the Company, Mr. Presley
had six years of experience with several independent oil and gas companies
including AmBrit Energy, Inc. Prior thereto, Mr. Presley spent two and one-half
years with B.D.O. Seidman, a public accounting firm. Mr. Presley has a B.B.A.
from Texas A & M University.
Michael W. Taylor is Director of Acquisitions and Chief Reservoir Engineer
for the Company. Prior to joining the Company in September 1994, Mr. Taylor had
been an independent oil and gas producer and petroleum consultant for the
previous fifteen years. Mr. Taylor is a registered professional engineer and he
received a B.S. degree in Petroleum Engineering from Texas A & M University in
1974.
16
<PAGE>
Employees
At December 31, 1996, the Company had 47 employees and utilized contract
employees for certain of its field operations. The Company considers its
employee relations to be satisfactory.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings which management
believes will have a material adverse effect on the Company's consolidated
results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 1996.
17
<PAGE>
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock was listed for trading on the New York Stock
Exchange under the symbol "CRK" on December 17, 1996. Prior to December 17,
1996, the Company's common stock traded on the Nasdaq National Market tier of
the Nasdaq Stock Market. The following table sets forth, on a per share basis
for the periods indicated, the high and low sales prices by calendar quarter for
the periods indicated as reported by the Nasdaq Stock Market or the New York
Stock Exchange, as applicable.
High Low
1995 - First Quarter $ 3.69 $ 2.75
Second Quarter 4.94 3.38
Third Quarter 4.88 3.75
Fourth Quarter 5.63 4.00
1996 - First Quarter $ 5.75 $ 4.56
Second Quarter 10.50 4.69
Third Quarter 12.13 8.63
Fourth Quarter 14.63 11.13
As of March 10, 1997, the Company had 24,154,903 shares of common stock
outstanding, which were held by 759 holders of record and approximately 9,000
beneficial owners who maintain their shares in "street name" accounts.
The Company has never paid cash dividends on its common stock. The Company
presently intends to retain any earnings for the operation and expansion of its
business and does not anticipate paying cash dividends in the foreseeable
future. Any future determination as to the payment of dividends will depend upon
results of operations, capital requirements, the financial condition of the
Company and such other factors as the Board of Directors of the Company may deem
relevant. In addition, the Company is limited under its bank credit facility and
the provisions of its outstanding preferred stock series from paying or
declaring cash dividends.
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<PAGE>
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The historical financial data presented in the table below as of and for
each of the years in the five-year period ended December 31, 1996 are derived
from the Consolidated Financial Statements of the Company. The data presented
below should be read in conjunction with the Company's Consolidated Financial
Statements and the notes thereto included elsewhere herein and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
STATEMENT OF OPERATIONS DATA(1):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
($ in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales ..............................$ 10,680 $ 21,805 $ 16,855 $ 22,091 $ 68,915
Gain on sales of property ...................... -- 26 328 19 1,447
Other income ................................... 220 430 416 264 593
-------- -------- -------- -------- --------
Total revenues ........................ 10,900 22,261 17,599 22,374 70,955
-------- -------- -------- -------- --------
Expenses:
Oil and gas operating(2) ....................... 3,150 6,673 6,099 7,427 13,838
Exploration .................................... -- 423 -- -- 436
Depreciation, depletion and amortization ....... 3,743 8,322 7,350 8,379 18,269
General and administrative, net ................ 1,485 1,834 1,569 1,301 2,239
Interest ....................................... 1,037 2,184 2,869 5,542 10,086
Impairment of oil and gas properties(3) ........ -- -- -- 29,150 --
-------- -------- -------- -------- --------
Total expenses ........................ 9,415 19,436 17,887 51,799 44,868
-------- -------- -------- -------- --------
Income (loss) from continuing operations before
income taxes and extraordinary item ............. 1,485 2,825 (288) (29,425) 26,087
Provision for income taxes ..................... -- -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) from continuing operations
before extraordinary item ....................... 1,485 2,825 (288) (29,425) 26,087
Preferred stock dividends ...................... (56) (173) (818) (1,908) (2,021)
-------- -------- -------- -------- --------
Net income (loss) from continuing operations
attributable to common stock before
extraordinary item .............................. 1,429 2,652 (1,106) (31,333) 24,066
Income from discontinued operations ............ 38 89 229 3,264 1,866
Extraordinary loss ............................. -- (417) (615) -- --
-------- -------- -------- -------- --------
Net income (loss) attributable to common stock ....$ 1,467 $ 2,324 $ (1,492) $(28,069) $ 25,932
======== ======== ======== ======== ========
Weighted average common shares outstanding:
Primary ........................................ 8,180 10,762 12,065 12,546 16,370
======== ======== ======== ======== ========
Fully diluted .................................. 21,408
========
Primary earnings per share:
Net income (loss) from continuing operations
before extraordinary item ....................$ 0.17 $ 0.25 $ (0.09) $ (2.50) $ 1.47
Net income (loss) after
extraordinary item ............................. 0.18 0.22 (0.12) (2.24) 1.58
Fully diluted earnings per share:
Net income (loss) from continuing operations
before extraordinary item .................... $ 1.22
Net income (loss) after extraordinary item ..... 1.31
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
OTHER FINANCIAL DATA:
Year Ended December 31,
-----------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Cash provided (used) by:
Operating activities ..............................$ (1,020) $ 16,488 $ 7,376 $ 8,407 $ 45,919
Investing activities ........................... (12,472) (17,415) (23,972) (58,724) (99,910)
Financing activities ........................... 12,910 790 19,266 48,809 68,236
EBITDA ............................................ 6,265 13,754 9,931 13,646 54,878
Capital expenditures .............................. 12,457 21,779 16,386 61,809 111,962
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
As of December 31,
------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Property and equipment, net.....................$ 53,474 $ 66,068 $ 77,989 $102,116 $185,928
Total assets.................................... 66,185 74,095 91,571 120,099 222,002
Total debt...................................... 19,164 21,930 37,932 71,811 80,108
Stockholders' equity............................ 23,110 27,646 41,205 30,128 118,216
(1) Significant acquisitions of producing oil and gas properties affect the
comparability of the historical financial and operating data for the
periods presented.
(2) Includes lease operating costs and production and ad valorem taxes.
(3) Represents the impairment provision for the adoption of a new accounting
standard regarding the carrying value of long-lived assets.
</TABLE>
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
General
The Company's results of operations have been significantly affected by its
success in acquiring producing oil and natural gas properties. Fluctuations in
oil and natural gas prices have also influenced the Company's financial results.
Relatively minor movements in natural gas prices can lead to a change in the
Company's results of operations and cash flow and could have an impact on the
Company's borrowing base under its bank credit facility. Based on the 1996
operating results, a change in the average natural gas price realized by the
Company of $0.10 per Mcf would result in a change in net income attributable to
common stock of approximately $1.8 million, or $0.08 per share (on a fully
diluted basis).
20
<PAGE>
The following table reflects certain summary operating data for the periods
presented:
Year Ended December 31,
1994 1995 1996
---- ---- ----
Net Production Data:
Oil (MBbls) 263 356 952
Natural gas (MMcf) 6,514 9,297 19,427
Average Sales Price:
Oil (per Bbl) $15.22 $16.81 $21.96
Natural gas (per Mcf) 1.97 1.73 2.47
Expenses ($ per Mcfe):
Oil and gas operating(1) $ 0.75 $ 0.65 $ 0.55
General and administrative, net 0.19 0.11 0.09
Depreciation, depletion and
amortization(2) 0.88 0.72 0.72
(1) Includes lease operating costs and production and ad valorem taxes.
(2) Represents depreciation, depletion and amortization of oil and gas
properties only.
Average oil and natural gas prices received by the Company generally
fluctuate with changes in the posted prices for oil and spot market prices for
natural gas. Historically, the Company has entered into price swap agreements to
reduce its exposure to natural gas price fluctuations. In 1995, the Company
hedged approximately 25% of its natural gas production and realized a 5% higher
average gas price than it otherwise would have without hedging. In 1996, the
Company hedged approximately 15% of its natural gas production and realized a 2%
lower gas price than it otherwise would have without hedging.
Adoption of New Accounting Standard
Prior to the fourth quarter of 1995, the Company periodically reviewed the
carrying value of its proved oil and gas properties for impairment in value on a
company-wide basis by comparing the capitalized costs of proved oil and gas
properties with the undiscounted future cash flows after income taxes
attributable to such properties. Under this policy, no impairment in carrying
value was required during 1994. In the fourth quarter of 1995, the Company
adopted the Statement of Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of"
("SFAS 121"). SFAS 121 requires the Company to assess the need for an impairment
of capitalized costs of oil and gas properties on a property-by-property basis.
If an impairment is indicated based on undiscounted expected future cash flows,
then an impairment is recognized to the extent that net capitalized costs exceed
discounted expected future cash flows. In connection with the adoption of SFAS
121, the Company provided an impairment of approximately $29.2 million in 1995.
Of the total impairment provision, $20.0 million related to a writedown of the
carrying value of the Company's undeveloped acreage in the Texas Panhandle field
acquired from 1988 to 1990.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Oil and gas sales increased $46.8 million (212%), to $68.9 million for 1996
from $22.1 million in 1995 due primarily to a 109% increase in natural gas
production and a 168% increase in oil production as well as higher oil and
natural gas prices. The production increases related primarily to production
from properties acquired in 1995 and the Black Stone Acquisition, which closed
in May 1996. The Company's average gas price increased 43% and its average oil
price increased 31% during 1996 as compared to 1995.
During 1996, the Company sold certain of its non-strategic oil and gas
properties for cash of $9.0 million. The sales resulted in a gain of
approximately $1.4 million.
21
<PAGE>
Other income increased $329,000 (125%) to $593,000 in 1996 from $264,000 in
1995 due primarily to additional interest income earned on an increased level of
short-term cash deposits in 1996.
Oil and gas operating expenses, including production taxes, increased $6.4
million (86%) to $13.8 million in 1996 from $7.4 million in 1995 due primarily
to the 120% increase in oil and natural gas production (on an Mcfe basis)
resulting primarily from the acquisitions in 1995 and the Black Stone
Acquisition. Oil and gas operating expenses per Mcfe produced decreased 15% to
$0.55 in 1996 from $0.65 in 1995 due to the lower lifting costs associated with
the properties acquired in 1995 and 1996.
General and administrative expenses increased $938,000 (72%) to $2.2
million in 1996 from $1.3 million in 1995. The increase is attributable to a
$600,000 litigation settlement incurred by the Company in 1996 and an increase
in the number of employees of the Company in 1996.
Depreciation, depletion and amortization ("DD&A") increased $9.9 million
(118%) to $18.3 million in 1996 from $8.4 million in 1995 due to the 120%
increase in oil and natural gas production (on an Mcfe basis). Oil and gas
property DD&A per Mcfe produced of $0.72 in 1996 remained unchanged from $0.72
in 1995.
Interest expense increased $4.5 million (82%) to $10.1 million for 1996
from $5.5 million for 1995 due primarily to an increase in the average
outstanding advances under the Company's bank credit facility. The average
annual interest rate paid under the Company's bank credit facility decreased to
8.1% in 1996 as compared to 10.5% in 1995.
The Company reported net income of $24.1 million from continuing
operations, after preferred stock dividends of $2.0 million, for the year ended
December 31, 1996, as compared to a net loss of $31.3 million from continuing
operations, after preferred stock dividends of $1.9 million, for the year ended
December 31, 1995.
In December 1996, the Company sold its third party natural gas marketing
operations and substantially all of its related gas gathering and gas processing
assets for cash of approximately $3.0 million and discontinued its gas
gathering, processing and marketing segment. Net income from this segment in
1996 was $1.9 million including a gain on the sale of $818,000.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Oil and gas sales increased $5.2 million (31%) to $22.1 million in 1995
from $16.9 million in 1994 due primarily to a 43% increase in natural gas
production and a 35% increase in oil production. The production increases
related primarily to production from certain oil and natural gas property
acquisitions completed in late 1994 and in 1995. The production increases were
partially offset by a 12% decrease in the Company's average gas price. The
Company's average oil price for the period increased by 10%.
Oil and gas operating expenses, including production taxes, increased $1.3
million (22%) to $7.4 million in 1995 from $6.1 million in 1994 due primarily to
the 41% increase in oil and natural gas production (on an Mcfe basis) resulting
from the 1994 and 1995 property acquisitions. Lease operating expenses per Mcfe
produced decreased 13% to $0.65 in 1995 from $0.75 in 1994 due to the lower
lifting costs associated with the properties acquired in 1995.
General and administrative expenses decreased $268,000 (17%) to $1.3
million in 1995 from $1.6 million in 1994. The decrease is primarily
attributable to the increase in operating fee income received by the Company
after the Sonat Acquisition, which is accounted for as a reduction to general
and administrative expenses.
22
<PAGE>
DD&A increased $1.0 million (14%) to $8.4 million in 1995 from $7.4 million
in 1994 due primarily to the 41% increase in oil and natural gas production (on
an Mcfe basis). Oil and gas property DD&A per Mcfe produced decreased 18% to
$0.72 in 1995 from $0.88 in 1994.
Interest expense increased $2.7 million (93%) to $5.5 million in 1995 from
$2.8 million in 1994 due primarily to an increase in the average outstanding
advances under the Company's bank credit facility and an increase in interest
rates. The average annual interest rate paid under the Company's bank credit
facility was 10.5% in 1995 as compared to 8.6% in 1994.
The Company reported a loss of $31.3 million from continuing operations,
after preferred stock dividends of $1.9 million, for the year ended December 31,
1995, as compared to a loss from continuing operations of $1.1 million, after
preferred stock dividends of $818,000, for the year ended December 31, 1994. The
increase in the loss in 1995 is attributable to the Company's adoption of SFAS
121 which resulted in the Company recording an impairment of its oil and gas
properties of $29.2 million relating to the adoption of SFAS 121. Income from
the discontinued gas gathering, marketing and processing operations of $3.3
million for 1995 included a $2.6 million gain from the sale of a gas processing
plant for $3.0 million.
Liquidity and Capital Resources
Funding for the Company's activities has historically been provided by
operating cash flows, debt and equity financings and asset dispositions. Net
cash flows provided by operating activities totaled $8.4 million for the year
ended December 31, 1995 and $45.9 million for the year ended December 31, 1996.
In addition to operating cash flow, primary source of funds for the Company in
1996 included borrowings under a new bank credit facility of $172.2 million,
proceeds from the sale of common stock of $60.6 million and proceeds from the
sale of assets of $12.1 million.
On December 2, 1996, the Company completed a public offering of 5,795,000
shares of common stock, of which 4,000,000 (4,869,250 including the over-
allotment option which was exercised on December 12, 1996) shares were sold by
the Company and 1,795,000 shares were sold by certain stockholders. Net proceeds
to the Company, after the underwriting discount and other expenses, were
approximately $57.0 million and were used to reduce a portion of the
indebtedness incurred under the Company's revolving bank credit facility in
connection with the Black Stone Acquisition. During 1996, the Company issued
1,007,177 shares of common stock in connection with the exercise of certain
stock purchase warrants and options yielding net proceeds to the Company of
approximately $3.6 million.
The Company's primary needs for capital, in addition to funding of ongoing
operations, are for the acquisition, development and exploration of oil and gas
properties, and the repayment of principal and interest on its bank credit
facility. In 1996, the Company repaid $163.9 million of indebtedness and had
capital expenditures of $112.0 million.
23
<PAGE>
The Company's annual capital expenditure activity is summarized as follows:
Year Ended December 31,
1994 1995 1996
-------- -------- --------
(In thousands)
Acquisition of oil and gas reserves $ 12,970 $ 56,081 $100,446
Other leasehold costs 607 12 93
Workovers and recompletions 1,271 2,152 2,972
Development drilling 218 1,514 7,964
Exploratory drilling -- -- 436
Acquisition of gas marketing,
processing and gathering assets 1,099 2,009 5
Other 221 41 46
-------- -------- --------
Total $ 16,386 $ 61,809 $111,962
======== ======== ========
The timing of most of the Company's capital expenditures is discretionary
with no material long-term capital expenditure commitments. Consequently, the
Company has a significant degree of flexibility to adjust the level of such
expenditures as circumstances warrant. For the years ended December 31, 1995 and
1996, the Company spent $3.7 million and $11.4 million, respectively, on
development and exploration activities. As part of its increased emphasis on
such activities, the Company currently anticipates spending approximately $30.0
million on development and exploration projects in 1997. The increase in capital
expenditures for 1996 and 1997 over prior year levels is primarily attributable
to the increased opportunities available to the Company after recent
acquisitions. The Company does not have a specific acquisition budget as a
result of the unpredictability of the timing and size of forthcoming acquisition
activities.
The Company intends to primarily use internally generated cash flow to fund
capital expenditures other than significant acquisitions. The Company
anticipates that such sources will be sufficient to fund the expected 1997
development and exploration expenditures. The Company primarily intends to use
borrowings under its bank credit facility to finance significant acquisitions.
In addition, the Company may seek to obtain other debt or equity financing. The
availability and attractiveness of these sources of financing will depend upon a
number of factors, some of which will relate to the financial condition and
performance of the Company, and some of which will be beyond the Company's
control, such as prevailing interest rates, oil and natural gas prices and other
market conditions.
The Company's bank credit facility consists of a $166.0 million revolving
credit commitment provided by a syndicate of 11 banks in which The First
National Bank of Chicago serves as agent. All indebtedness under the bank credit
facility is secured by substantially all of the Company's assets. The bank
credit facility is subject to borrowing base availability as determined from
time to time by the lenders, in the exercise of their sole discretion. As of
December 31, 1996, the borrowing base was $166.0 million. Such borrowing base
may be affected from time to time by the performance of the Company's oil and
natural gas properties and changes in oil and natural gas prices. Beginning on
February 4, 1997, the revolving credit line bears interest at the option of the
Company at either (i) LIBOR plus 0.75% to 1.5% or (ii) the "corporate base rate"
plus 0% to 0.25%, depending on the utilization of the available borrowing base.
The Company incurs a commitment fee of up to 0.25% to 0.375% per annum,
depending on the utilization of the available borrowing base, on the unused
portion of the borrowing base. The average annual interest rate as of December
31, 1996, of all outstanding indebtedness under the bank credit facility was
approximately 6.9%. The revolving credit line will convert to a term loan on
24
<PAGE>
August 13, 1999 or such earlier date as the Company may elect. The term loan is
to be repaid in consecutive quarterly installments of 5% of the original
outstanding principal amount of the term loan; the balance of the term loan will
be due and payable in full on August 13, 2001. The bank credit facility contains
covenants which, among other things, restrict the payment of cash dividends,
limit the amount of consolidated debt, and limit the Company's ability to make
certain loans and investments.
Federal Taxation
At December 31, 1996, the Company had federal income tax net operating loss
("NOL") carryforwards of approximately $17.9 million. The NOL carryforwards
expire from 1997 through 2011. The value of these carryforwards depends on the
ability of the Company to generate federal taxable income and to utilize the
carryforwards to reduce such income. The Company has recognized substantially
all of the NOL carryforwards for financial reporting purposes as of December 31,
1996.
Inflation
In recent years inflation has not had a significant impact on the Company's
operations or financial condition.
ITEM 8. FINANCIAL STATEMENTS
The Consolidated Financial Statements for Comstock Resources, Inc. and
Subsidiaries are included on pages F-1 to F-20 of this report.
The financial statements have been prepared by the management of the
Company in conformity with generally accepted accounting principles. Management
is responsible for the fairness and reliability of the financial statements and
other financial data included in this report. In the preparation of the
financial statements, it is necessary to make informed estimates and judgments
based on currently available information on the effects of certain events and
transactions.
The Company maintains accounting and other controls which management
believes provide reasonable assurance that financial records are reliable,
assets are safeguarded, and that transactions are properly recorded in
accordance with management's authorizations. However, limitations exist in any
system of internal control based upon the recognition that the cost of the
system should not exceed benefits derived.
The Company's independent public accountants, Arthur Andersen LLP, are
engaged to audit the financial statements of the Company and to express an
opinion thereon. Their audit is conducted in accordance with generally accepted
auditing standards to enable them to report whether the financial statements
present fairly, in all material respects, the financial position and results of
operations of the Company in accordance with generally accepted accounting
principles.
The Audit Committee of the Board of Directors of the Company, composed of
three directors who are not employees, meets periodically with the independent
public accountants and management. The independent public accountants have full
and free access to the Audit Committee to meet, with and without management
being present, to discuss the results of their audits and the quality of
financial reporting.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
25
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference
to the Company's definitive proxy statement which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the Company's definitive proxy statement which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to the Company's definitive proxy statement which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the Company's definitive proxy statement which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1996.
26
<PAGE>
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
The following exhibits are included on pages E-1 to E-19 of this report.
Exhibit
No. Description
- ------- ----------------------------------------------------------------------
3.1 Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 (the "1995 Form 10-K").
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-3, dated October 25, 1996).
4.2(a) Rights Agreement dated as of December 10, 1990, by and between the
Company and Society National Bank, as Rights Agent (incorporated
herein by reference to Exhibit 1 to the Company's Registration
Statement on Form 8-A, dated December 14, 1990).
4.2(b) First Amendment to the Rights Agreement, by and between the Company
and Society National Bank (successor to Ameritrust Texas, N.A.), as
Rights Agent, dated January 7, 1994 (incorporated herein by reference
to Exhibit 3.6 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
4.2(c) Second Amendment to the Rights Agreement, by and between the Company
and Bank One, Texas N.A. (successor to Society National Bank), as
Rights Agent, dated April 1, 1995 (incorporated by reference to
Exhibit 4.7 to the Company's 1995 Form 10-K).
4.2(d) Third Amendment to the Rights Agreement, by and between the Company
and Bank One, Texas N.A. (successor to Society National Bank), as
Rights Agent, dated April 1, 1995 (incorporated by reference to
Exhibit 4.8 to the Company's 1995 Form 10-K).
4.2(e) Fourth Amendment to the Rights Agreement, by and between the Company
and Bank One, Texas N.A. (successor to Society National Bank), as
Rights Agent, dated April 1, 1995 (incorporated by reference to
Exhibit 4.9 to the Company's 1995 Form 10-K).
4.3 Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock dated December 6, 1990 (incorporated by
reference to Exhibit 4.3 to the Company's Registration Statement on
Form S-3, dated October 25, 1996).
4.4 Certificate of Voting Powers, Designations, Preferences, and Relative,
Participating, Optional or Other Special Rights of the Series 1995
Convertible Preferred Stock (incorporated herein by reference to
Exhibit 3(a) to the Company's Current Report on Form 8-K dated June
19, 1995).
10.1(a) Credit Agreement, dated as of August 13, 1996, between the Company,
the Banks Party thereto and The First National Bank of Chicago, as
agent (incorporated herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).
10.1(b)* Amendment No. 1 to the Credit Agreement dated November 26, 1996,
between the Company, the Banks party thereto and The First National
Bank of Chicago, as agent.
27
<PAGE>
Exhibit
No. Description
10.1(c)* Amendment No. 2 to the Credit Agreement dated February 4, 1997 between
the Company, the Banks party thereto and the First National Bank of
Chicago as agent.
10.2# Employment Agreement dated July 1, 1996, by and between the Company
and M. Jay Allison (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).
10.3# Employment Agreement dated July 1, 1996, by and between the Company
and Roland O. Burns (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).
10.4(a)# Comstock Resources, Inc. 1991 Long-term Incentive Plan, dated as of
April 1, 1991 (incorporated herein by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991).
10.4(b)# Amendment No. 1 to the Comstock Resources, Inc. 1991 Long-term
Incentive Plan (incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).
10.5# Form of Nonqualified Stock Option Agreement, dated April 2, 1991,
between the Company and certain officers and directors of the Company
(incorporated herein by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991).
10.6# Form of Restricted Stock Agreement, dated April 2, 1991, between the
Company and certain officers of the Company (incorporated herein by
reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991).
10.7 Form of Stock Option Agreement, dated October 12, 1994 by and between
the Company and Christopher T. H. Pell, et al (incorporated herein by
reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.8 Lease Agreement, dated as of December 20, 1994, by and between the
Company and Occidental Tower Corporation (incorporated herein by
reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
21 * Subsidiaries of the Company.
23 * Consent of Arthur Andersen LLP.
27 * Financial Data Schedule.
- --------------------
*Filed herewith.
#Management contract or compensatory plan document.
Reports on Form 8-K:
There were no Form 8-K Reports filed subsequent to September 30, 1996 to
the date of this report.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/M. JAY ALLISON
--------------------
M. Jay Allison
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 11, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/M. JAY ALLISON President, Chief Executive Officer and March 11, 1997
- ------------------ Director (Principal Executive Officer)
M. Jay Allison
/s/ROLAND O. BURNS Senior Vice President, Chief Financial March 11, 1997
- ------------------ Officer, Secretary and Treasurer
Roland O. Burns (Principal Financial and Accounting Officer)
/s/HAROLD R. LOGAN Chairman of the Board of Directors March 11, 1997
- ------------------
Harold R. Logan
/s/RICHARD S. HICKOK Director March 11, 1997
- --------------------
Richard S. Hickok
/s/FRANKLIN B. LEONARD Director March 11, 1997
- ----------------------
Franklin B. Leonard
/s/CECIL E. MARTIN, JR. Director March 11, 1997
- -----------------------
Cecil E. Martin, Jr.
/s/DAVID W. SLEDGE Director March 11, 1997
- ------------------
David W. Sledge
29
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
INDEX
Report of Independent Public Accountants....................................F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996................F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996....................................F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1994, 1995 and 1996....................................F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996....................................F-6
Notes to Consolidated Financial Statements..................................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Comstock Resources, Inc.:
We have audited the accompanying consolidated balance sheets of Comstock
Resources, Inc. (a Nevada corporation) and subsidiaries as of December 31, 1995
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Comstock Resources, Inc. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for the impairment of long-lived assets in the fourth
quarter of 1995.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 26, 1997
F-2
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1995 and 1996
ASSETS
December 31,
1995 1996
--------- ---------
(In thousands)
Cash and Cash Equivalents ...............................$ 1,917 $ 16,162
Accounts Receivable:
Oil and gas sales ..................................... 5,385 17,309
Gas marketing sales ................................... 8,451 --
Joint interest operations ............................. 1,230 2,188
Other Current Assets .................................... 264 174
--------- ---------
Total current assets .......................... 17,247 35,833
Property and Equipment:
Oil and gas properties,
successful efforts method ........................... 154,844 239,671
Other ................................................. 2,717 401
Accumulated depreciation,
depletion and amortization .......................... (55,445) (54,144)
--------- ---------
Net property and equipment .................... 102,116 185,928
Other Assets ............................................ 736 241
--------- ---------
$ 120,099 $ 222,002
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Portion of Long-term Debt .......................$ 18,677 $ 108
Accounts Payable and Accrued Expenses ................... 16,511 22,773
--------- ---------
Total current liabilities ..................... 35,188 22,881
Long-term Debt, less current portion .................... 53,134 80,000
Other Noncurrent Liabilities ............................ 1,649 905
Stockholders' Equity:
Preferred stock--$10.00 par, 5,000,000
shares authorized, 3,100,000 and
706,323 shares outstanding at
December 31, 1995 and 1996, respectively ............ 31,000 7,063
Common stock--$0.50 par, 30,000,000
shares authorized, 12,926,672 and
24,101,430 shares outstanding at
December 31, 1995 and 1996, respectively ............ 6,463 12,051
Additional paid-in capital ............................ 38,183 118,647
Retained deficit ...................................... (45,444) (19,512)
Less: Deferred compensation--restricted
stock grants ........................................ (74) (33)
--------- ---------
Total stockholders' equity .................... 30,128 118,216
--------- ---------
$ 120,099 $ 222,002
========= =========
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<TABLE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1994, 1995 and 1996
<CAPTION>
1994 1995 1996
---- ---- ----
(In thousands, except
per share amounts)
<S> <C> <C> <C>
Revenues:
Oil and gas sales......................................$ 16,855 $ 22,091 $ 68,915
Gain on sales of property ............................. 328 19 1,447
Other income .......................................... 416 264 593
-------- -------- --------
Total revenues ................................ 17,599 22,374 70,955
-------- -------- --------
Expenses:
Oil and gas operating ................................. 6,099 7,427 13,838
Exploration ........................................... -- -- 436
Depreciation, depletion and amortization .............. 7,350 8,379 18,269
General and administrative, net ....................... 1,569 1,301 2,239
Interest .............................................. 2,869 5,542 10,086
Impairment of oil and gas properties .................. -- 29,150 --
-------- -------- --------
Total expenses ................................ 17,887 51,799 44,868
-------- -------- --------
Income (loss) from continuing operations
before income taxes and extraordinary item ............. (288) (29,425) 26,087
Provision for income taxes .............................. -- -- --
-------- -------- --------
Net income (loss) from continuing operations
before extraordinary item ............................. (288) (29,425) 26,087
Preferred stock dividends ............................... (818) (1,908) (2,021)
-------- -------- --------
Net income (loss) from continuing operations
attributable to common stock before
extraordinary item .................................... (1,106) (31,333) 24,066
Income from discontinued gas gathering,
processing and marketing operations including
gain on disposal ....................................... 229 3,264 1,866
Extraordinary item - loss on early extinguishment
of debt ................................................ (615) -- --
-------- -------- --------
Net income (loss) attributable to common stock...........$ (1,492) $(28,069) $ 25,932
======== ======== ========
Net income (loss) per share:
Primary -
From continuing operations and before
extraordinary item ............................$ (.09) $ (2.50) $ 1.47
======== ======== ========
After extraordinary item...........................$ (.12) $ (2.24) $ 1.58
======== ======== ========
Fully diluted -
From continuing operations and before
extraordinary item ............................ $ 1.22
========
After extraordinary item .......................... $ 1.31
========
Weighted average number equivalent and shares stock outstanding:
Primary ....................................... 12,065 12,546 16,370
======== ======== ========
Fully diluted ................................. 21,408
========
The accompanying notes are an integral part of these statements.
</TABLE>
F-4
<PAGE>
<TABLE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1994, 1995 and 1996
<CAPTION>
Deferred
Additional Retained Compensation-
Preferred Common Paid-In Earnings Restricted
Stock Stock Capital (Deficit) Stock Grants Total
----- ----- ------- --------- ------------ -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993............$ -- $ 5,869 $ 37,816 $(15,883) $ (156) $ 27,646
Issuance of preferred stock ......... 16,000 -- (2,000) -- -- 14,000
Issuance of common stock ............ -- 302 708 -- -- 1,010
Restricted stock grants ............. -- -- -- -- 41 41
Net loss attributable to
common stock ...................... -- -- -- (1,492) -- (1,492)
-------- -------- -------- -------- -------- -------
Balance at December 31, 1994 ........... 16,000 6,171 36,524 (17,375) (115) 41,205
-------- -------- -------- -------- -------- -------
Issuance of preferred stock ......... 15,000 -- -- -- -- 15,000
Issuance of common stock ............ -- 292 1,659 -- -- 1,951
Restricted stock grants ............. -- -- -- -- 41 41
Net loss attributable to
common stock ...................... -- -- -- (28,069) -- (28,069)
-------- -------- -------- -------- -------- -------
Balance at December 31, 1995 ........... 31,000 6,463 38,183 (45,444) (74) 30,128
-------- -------- -------- -------- -------- -------
Conversion of preferred stock ....... (23,937) 2,506 21,431 -- -- --
Issuance of common stock ............ -- 3,082 59,033 -- -- 62,115
Restricted stock grants ............. -- -- -- -- 41 41
Net income attributable to
common stock ...................... -- -- -- 25,932 -- 25,932
-------- -------- -------- -------- -------- -------
Balance at December 31, 1996............$ 7,063 $ 12,051 $118,647 $(19,512) $ (33) $118,216
======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
F-5
<PAGE>
<TABLE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1994, 1995 and 1996
<CAPTION>
1994 1995 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................$ (1,492) $(28,069) $ 25,932
Adjustments to reconcile income (loss) to
net cash provided by operating activities:
Loss on early extinguishment of debt................. 615 -- --
Compensation paid in common stock.................... 154 154 196
Depreciation, depletion and amortization............. 7,390 8,613 18,642
Impairment of oil and gas properties................. -- 29,150 --
Deferred revenue..................................... (561) 430 (430)
Preferred stock dividends............................ 818 1,908 2,021
Exploration.......................................... -- -- 436
Gain on sales of property............................ (328) (2,608) (2,265)
Other................................................ 254 -- --
-------- -------- --------
Working capital provided by operations............. 6,850 9,578 44,532
Increase in accounts receivable...................... (3,288) (6,272) (4,764)
Decrease in other current assets..................... 107 79 86
Increase in accounts payable and accrued expenses.... 3,707 5,022 6,065
-------- -------- --------
Net cash provided by operating activities.......... 7,376 8,407 45,919
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of properties.................... 396 3,085 9,016
Proceeds from sale of discontinued operations........ -- -- 3,036
Collections of notes receivable...................... 167 -- --
Capital expenditures and acquisitions................ (16,386) (61,809) (111,962)
Repurchase of volumetric production payment.......... (8,149) -- --
-------- -------- --------
Net cash used for investing activities............. (23,972) (58,724) (99,910)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings........................................... 34,880 58,404 172,150
Proceeds from preferred stock issuances.............. 6,000 15,000 --
Proceeds from common stock issuances................. 215 25 61,503
Stock issuance costs................................. (332) (95) (863)
Principal payments on debt........................... (21,497) (24,525) (163,853)
Dividends paid on preferred stock.................... -- -- (701)
-------- -------- --------
Net cash provided by financing activities.......... 19,266 48,809 68,236
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents....... 2,670 (1,508) 14,245
Cash and cash equivalents, beginning of year..... 755 3,425 1,917
-------- -------- --------
Cash and cash equivalents, end of year...........$ 3,425 $ 1,917 $ 16,162
======== ======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
F-6
<PAGE>
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business and Organization
Comstock Resources, Inc., a Nevada corporation (together with its
subsidiaries, the "Company"), was formed in 1919 as Comstock Tunnel and Drainage
Company. In 1987, the Company's name was changed to Comstock Resources, Inc. The
Company is primarily engaged in the acquisition, development, production and
exploration of oil and natural gas reserves in the United States.
(2) Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
Although the Company's cash equivalents and accounts receivable are exposed
to credit loss, the Company does not believe such risk to be significant. Cash
equivalents are high-grade, short-term securities, placed with highly rated
financial institutions. Most of the Company's accounts receivable are from a
broad and diverse group of oil and gas companies and, accordingly, do not
represent a significant credit risk.
Oil and Gas Properties
The Company follows the successful efforts method of accounting for its oil
and gas operations. Under this method, costs of productive wells, development
dry holes and productive leases are capitalized and amortized on a
unit-of-production basis over the life of the remaining related oil and gas
reserves. Cost centers for amortization purposes are determined on a
field-by-field basis. The estimated future costs of dismantlement, restoration
and abandonment are accrued as part of depreciation, depletion and amortization
expense and reflected in the accompanying Consolidated Balance Sheets in Other
Noncurrent Liabilities.
Oil and gas leasehold costs are capitalized. Unproved oil and gas
properties with significant acquisition costs are periodically assessed and any
impairment in value is charged to expense. The costs of unproved properties
which are determined to be productive are transferred to proved oil and gas
properties.
Exploratory expenses, including geological and geophysical expenses and
delay rentals for oil and gas leases, are charged to expense as incurred.
Exploratory drilling costs are initially capitalized as unproved property but
F-7
<PAGE>
charged to expense if and when the well is determined not to have found proved
oil and gas reserves.
Prior to 1995, the Company periodically reviewed the carrying value of its
proved oil and gas properties for impairment in value on a company-wide basis by
comparing the capitalized costs of proved oil and gas properties with the
undiscounted future cash flows after income taxes attributable to proved oil and
gas properties. Under this policy, no impairment in carrying value was required
during 1994. In 1995, the Company adopted the Statement of Financial Accounting
Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of." SFAS 121 requires the Company
to assess the need for an impairment of capitalized costs of oil and gas
properties on a property by property basis. If an impairment is indicated based
on undiscounted expected future cash flows, then an impairment is recognized to
the extent that net capitalized costs exceed discounted expected future cash
flows. In connection with the adoption of SFAS 121, the Company provided an
impairment of $29,150,000 in 1995. No impairment was required in 1996.
Other Property and Equipment
Other property and equipment of the Company consists primarily of a gas
gathering system, computer equipment, and furniture and fixtures which are
depreciated over estimated useful lives on a straight-line basis.
Income Taxes
Deferred income taxes are provided to reflect the future tax consequences
of differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements using enacted tax rates.
Earnings Per Share
Net income (loss) attributable to common stock represents net income (loss)
less preferred stock dividend requirements of $818,000, $1,908,000 and
$2,021,000 in 1994, 1995 and 1996, respectively. Net income (loss) attributable
to common stock per share is computed by dividing net income (loss) attributable
to common stock by the weighted average number of shares of common stock and
common stock equivalents outstanding during each period. Common stock
equivalents include, when applicable, dilutive stock options and warrants using
the treasury stock method. Fully diluted net income attributable to common stock
per share includes the dilutive effect of the Company's convertible preferred
stock using the "if converted" method and dilutive stock options and warrants
using the treasury stock method.
Stock Based Employee Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for
Stock-Based Compensation," which establishes accounting and reporting standards
for various stock based compensation plans. SFAS 123 encourages the adoption of
a fair value based method of accounting for employee stock options, but permits
continued application of the accounting method prescribed by Accounting
Principles Board Opinion No. 25 ("Opinion 25"), "Accounting for Stock Issued to
Employees." The Company has elected to continue to apply the provisions of
Opinion 25. Under Opinion 25, if the exercise price of the Company's stock
options equals the market value of the underlying stock on the date of grant, no
compensation expense is recognized. SFAS 123 requires disclosure of pro forma
information regarding net income and earnings per share as if the Company had
accounted for its employee stock options under the fair value method of the
statement. See Note 9 "Stockholders' Equity."
F-8
<PAGE>
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.
The following is a summary of all significant noncash investing and
financing activities:
For the Year Ended December 31,
1994 1995 1996
---- ---- ----
(In thousands)
Common stock issued in payment of
preferred stock dividends .......... $ 818 $1,908 $1,320
Common stock issued for compensation.... 113 113 154
Preferred stock issued to repurchase
volumetric production payment ...... 8,000 -- --
The Company made cash payments for interest of $2,600,000, $5,836,000 and
$9,934,000 in 1994, 1995 and 1996, respectively. The Company did not make any
cash payments for income taxes in any of the three years in the period ended
December 31, 1996.
(3) Acquisitions of Oil and Gas Properties
In 1995, the Company completed three acquisitions of producing oil and gas
properties. On May 15, 1995, the Company purchased interests in 14 producing
offshore oil and gas properties located in Louisiana state waters in the Gulf of
Mexico for a net purchase price of $7.0 million. On July 31, 1995, the Company
purchased interests in certain producing oil and gas properties located in East
Texas and North Louisiana for a net purchase price of $48.1 million. In 1995,
the Company acquired interests in two producing wells in South Louisiana for a
net purchase price of $1.0 million.
On May 1 and May 2, 1996, the Company purchased working interests in the
Double A Wells field in Polk County, Texas for a net purchase price of $100.4
million. The Company acquired 100% of the capital stock of Black Stone Oil
Company, the operator of the field, together with additional interests held by
other working interest owners in 19 producing oil and gas properties as well as
interests in adjacent undeveloped oil and gas leases.
The 1995 and 1996 acquisitions were accounted for utilizing the purchase
method of accounting. The accompanying consolidated statements of operations
include the results of operations from the acquired properties beginning on the
dates that the acquisitions were closed. The following table summarizes the
unaudited pro forma effect on the Company's consolidated statements of
operations as if the acquisitions consummated in 1995 and in 1996 and the
property divestitures which closed in May 1996 as described in Note 5 "Sale of
Oil and Gas Properties" had been closed on January 1, 1995. Future results may
differ substantially from pro forma results due to changes in prices received
for oil and gas sold, production declines and other factors. Therefore, the pro
forma amounts should not be considered indicative of future operations.
F-9
<PAGE>
Unaudited
1995 1996
Pro Forma Pro Forma
--------- ---------
Revenues $ 46,465 $ 79,398
Net income (loss) from continuing operations
attributable to common stock (29,183) 28,339
Net income (loss) from continuing
operations per share:
Primary (2.33) 1.73
Fully diluted 1.42
(4) Repurchase of Production Payments
On July 22, 1994, the Company exchanged one million shares of newly issued
preferred stock, with a par value of $10.0 million and an estimated market value
of $8.0 million, and $10.2 million in cash to repurchase certain production
payments previously conveyed by the Company to a major natural gas company in
November 1991. (See Note 9 "Stockholders' Equity" for further discussion of the
preferred stock.) The exchange was effective April 1, 1994. The Company had a
remaining obligation to deliver 10.7 billion cubic feet of natural gas under a
volumetric production payment and had an obligation to repay $2.5 million under
a monetary based production payment. The consideration paid to acquire the
natural gas reserves subject to the volumetric production payment exceeded the
deferred revenue associated with the original sale of the volumetric production
payment by approximately $3.0 million. This amount was capitalized as oil and
gas properties in the accompanying financial statements.
(5) Sale of Oil and Gas Properties
In 1996, the Company sold certain oil and gas properties for approximately
$9.0 million. The properties sold include interests in all of the Company's
producing wells located in Oklahoma, Arkansas, Nebraska and Kansas as well as
certain deep rights in a field in South Texas and certain of the Company's
acreage in the Texas Panhandle field. The properties sold were non-strategic
assets to the Company. A gain from the property sales of $1.4 million is
included in the accompanying statement of operations for 1996.
(6) Oil and Gas Producing Activities
Set forth below is certain information regarding the aggregate capitalized
costs of oil and gas properties and costs incurred in oil and gas property
acquisition, development and exploration activities:
Capitalized Costs
December 31,
1995 1996
---- ----
(In thousands)
Proved properties $154,844 $239,671
Accumulated depreciation, depletion and amortization (55,183) (53,953)
-------- --------
$ 99,661 $185,718
======== ========
F-10
<PAGE>
Costs Incurred
Year Ended December 31,
1994 1995 1996
---- ---- ----
(In thousands)
Acquisition of proved properties $ 13,576 $ 56,093 $ 100,539
Development costs 1,490 3,666 10,936
Exploration costs -- -- 436
--------- --------- ---------
$ 15,066 $ 59,759 $ 111,911
========= ========= =========
The following presents the results of operations of oil and gas producing
activities for the three years in the period ended December 31, 1996:
Year Ended December 31,
1994 1995 1996
---- ---- ----
(In thousands)
Oil and gas sales $ 16,855 $ 22,091 $ 68,915
Production costs (6,099) (7,427) (13,838)
Depreciation, depletion and amortization (7,149) (8,277) (18,162)
Impairment of oil and gas properties -- (29,150) --
Operating income (loss) 3,607 (22,763) 36,915
--------- --------- ---------
Income tax expense -- -- --
--------- --------- ---------
Results of operations (excluding general
and administrative and interest expenses) $ 3,607 $ (22,763) $ 36,915
========= ========= =========
(7) Long-Term Debt
Total debt at December 31, 1995 and 1996 consists of the following:
1995 1996
---- ----
(In thousands)
Bridge loan $ 10,000 $ --
Bank credit facility 61,590 80,000
12% subordinated notes 206 94
Other 15 14
-------- --------
71,811 80,108
Less current portion (18,677) (108)
-------- --------
$ 53,134 $ 80,000
======== ========
In connection with the $100.4 million oil and gas property acquisition
closed in May 1996, the Company entered into a $176.0 million credit facility
with two banks, consisting of a $166.0 million revolving credit commitment and a
$10.0 million short-term bridge loan. The Company financed the $100.4 million
acquisition and refinanced $68.7 million outstanding under its existing bank
credit facility with borrowings under the bank credit facility. On May 15, 1996,
the Company repaid the $10.0 million bridge loan primarily from proceeds from
certain asset sales. On August 13, 1996, the Company refinanced the $166.0
million credit facility with a syndication of eleven banks in which The First
National Bank of Chicago serves as agent. The new revolving credit facility will
convert to a term loan on August 13, 1999. The term loan is to be repaid in
consecutive quarterly installments of 5% of the original outstanding principal
balance with the final balance due in full on August 13, 2001.
F-11
<PAGE>
As of December 31, 1996, the Company had $80.0 million outstanding under
the new bank revolving credit facility. Borrowings under the new bank credit
facility cannot exceed a borrowing base determined semiannually by the banks.
The borrowing base at December 31, 1996 was $166.0 million. Amounts outstanding
under the new bank credit facility bear interest at a floating rate based on The
First National Bank of Chicago's base rate (as defined) plus 1/2% or, at the
Company's option, at a fixed rate for up to six months based on the London
Interbank Offered Rate ("LIBOR") plus 1.25% to 2% depending upon the utilization
of the available borrowing base. As of December 31, 1996, the Company had placed
the outstanding advances under the revolving credit facility under fixed rate
loans based on LIBOR at an average rate of approximately 6.9% per annum. In
addition, the Company incurs a commitment fee of 1/4% to 1/2% on the unused
portion of the borrowing bases depending upon the utilization of the available
borrowing base.
On February 4, 1997, the bank credit agreement was amended to lower the
interest rate to The First National Bank of Chicago's base rate plus 0% to 1/4%
or, at the Company's option, LIBOR plus 3/4% to 1 1/2%, depending on the
utilization of the available borrowing base. The commitment fee was lowered to
1/4% to 3/8% per annum of the unused portion of the borrowing base.
Aggregate maturities of long-term debt for the five years ending December
31, are as follows:
(In thousands)
1997 $ 108
1998 --
1999 8,000
2000 16,000
2001 56,000
-------
$80,108
=======
(8) Lease Commitments
The Company rents office space under certain noncancellable leases and also
leases data processing time under a noncancellable lease. Minimum future
payments under the leases are as follows:
(In thousands)
1997 $261
1998 236
1999 177
(9) Stockholders' Equity
Common Stock
Under a plan adopted by the Board of Directors, non-employee directors can
elect to receive shares of common stock valued at the then current market price
in payment of annual director and consulting fees. Under this plan, the Company
issued 37,667; 27,815; and 37,117 shares of common stock in 1994, 1995 and 1996,
respectively, in payment of fees aggregating $113,000; $113,000; and $154,000
for 1994, 1995 and 1996, respectively.
F-12
<PAGE>
Each of the Company's preferred stock series provides that the Company can
issue common stock in lieu of cash for payment of quarterly dividends. The
Company issued 310,298; 546,046; and 249,453 shares of common stock in 1994,
1995 and 1996, respectively, in payment of dividends on its preferred stock of
$818,000; $1,908,000; and $1,320,000 in 1994, 1995 and 1996, respectively.
On December 2, 1996, the Company completed a public offering of 5,795,000
shares of common stock of which 4,000,000 (4,869,250 including the over-
allotment option which was exercised on December 12, 1996) shares were sold by
the Company and 1,795,000 shares were sold by certain stockholders. Net proceeds
to the Company, after the undderwriting discount and other expenses, were
approximately $57.0 million and were used to reduce indebtedness under the
Company's revolving bank credit facility.
During 1996, options and warrants to purchase common stock of the Company
were exercised at prices ranging from $2.00 to $5.75 per share for 1,007,177
shares of common stock yielding net proceeds to the Company of approximately
$3.6 million.
Preferred Stock
On January 7, 1994, the Company sold 600,000 shares of its Series 1994
Convertible Preferred Stock, $10 par value per share (the "Series 1994
Preferred"), in a private placement for $6.0 million. Dividends were payable at
the quarterly rate of $0.225 on each outstanding share of the Series 1994
Preferred (9% per annum of the par value). On September 16, 1996, the holders of
the Series 1994 Preferred converted all of the shares of the Series 1994
Preferred into 1,500,000 shares of common stock of the Company.
On July 22, 1994, the Company issued 1,000,000 shares of its 1994 Series B
Convertible Preferred Stock, $10 par value per share (the "1994 Series B
Preferred"), in connection with the repurchase of certain production payments
previously conveyed by the Company to a major natural gas company. Dividends
were payable at the quarterly rate of $0.15625 on each outstanding share (6.25%
per annum of the par value). On July 11, 1996, the Company redeemed the
1,000,000 shares of the 1994 Series B Preferred by issuing 2,000,000 shares of
common stock of the Company.
On June 19, 1995, the Company sold 1,500,000 shares of its Series 1995
Convertible Preferred Stock, $10 par value per share (the "Series 1995
Preferred"), in a private placement for $15.0 million. The Series 1995 Preferred
bears quarterly dividends at the rate of $0.225 on each outstanding share (9%
per annum of the par value). Dividends are payable quarterly in cash or shares
of the Company's common stock, at the election of the Company. On December 2,
1996, holders of 793,677 shares of the Series 1995 Preferred converted their
preferred shares into 1,511,761 shares of common stock of the Company.
On June 30, 2000 and on each June 30, thereafter, so long as any shares of
the Series 1995 Preferred are outstanding, the Company is obligated to redeem
141,265 shares of the Series 1995 Preferred at $10.00 per share plus accrued and
unpaid dividends. The mandatory redemption price may be paid either in cash or
in shares of common stock, at the option of the Company. The holders of the
Series 1995 Preferred have the option to convert all or any part of such shares
into shares of common stock of the Company at any time at the initial conversion
price of $5.25 per share of common stock, subject to adjustment. The Company has
the option to redeem the shares of Series 1995 Preferred after providing the
holders of the Series 1995 Preferred a specified rate of return on the initial
purchase.
F-13
<PAGE>
Stock Options and Warrants
On July 16, 1991, the Company's stockholders approved the 1991 Long-Term
Incentive Plan (the "Incentive Plan") for the Company's management including
officers, directors and managerial employees. The Incentive Plan authorizes the
grant of non-qualified stock options and incentive stock options and the grant
of restricted stock to key executives of the Company. On May 15, 1996, the
Company's stockholders approved an amendment to the Incentive Plan increasing
the shares to be awarded by 1,240,000. As of December 31, 1996, the Incentive
Plan provided for future awards of stock options or restricted stock grants of
up to 1,064,000 shares of common stock plus 10% of any future issuances of
common stock.
Non-qualified stock options awarded under the Incentive Plan are summarized
below:
<TABLE>
<CAPTION>
Exercise Price
$ 2.00 $ 2.50 $ 3.00 $ 4.81 $ 6.56 $11.00
------ ------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December 31, 1993 525 179 85 -- -- --
Exercised in 1994 -- (21) (15) -- -- --
Forfeited in 1994 -- (49) -- -- -- --
------ ------ ------ ------ ------ ------
Outstanding at December 31, 1994 525 109 70 -- -- --
------ ------ ------ ------ ------ ------
Granted in 1995 -- -- 98 -- -- --
Exercised in 1995 -- (10) -- -- -- --
------ ------ ------ ------ ------ ------
Outstanding at December 31, 1995 525 99 168 -- -- --
Granted in 1996 -- -- -- 326 280 1,327
Exercised in 1996 (54) (14) (8) (37) -- --
Forfeited in 1996 -- -- -- -- (10) --
------ ------ ------ ------ ------ ------
Outstanding at December 31, 1996 471 85 160 289 270 1,327
------ ------ ------ ------ ------ ------
Exercisable at December 31, 1996 399 73 160 259 270 --
====== ====== ====== ====== ====== ======
</TABLE>
The exercise price of stock options under the Incentive Plan is the market
value of the stock at the date the option is granted. Accordingly, no
compensation expense is recognized by the Company with respect to such grants.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee and director stock options under the fair value method of that
statement. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996, respectively: no dividend yield,
expected volatility of 55.4% and 54.1%, and risk free interest rates of 6.8% and
6.3%.
Year of Option Exercise Expected Fair
Grant Shares Price Life Value
----- ------ ----- ---- -----
1995 98,000 $ 3.00 5.2 $1.69
1996 326,000 4.81 4.9 2.58
1996 20,000 6.56 5.0 3.54
1996 260,000 6.56 5.5 3.70
1996 1,327,000 11.00 8.9 7.60
F-14
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
1995 1996
---- ----
As Pro As Pro
Reported Forma Reported Forma
-------- ----- -------- -----
(In thousands except per share amounts)
Net income from continuing
operations $(31,333) $(31,498) $24,066 $20,296
Net income from continuing
operations per share:
Primary $(2.50) $(2.51) $1.47 $1.24
Fully diluted 1.22 0.95
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts, as SFAS 123 does not apply to awards prior to 1995
and additional awards are anticipated in future years.
The Company also has options to purchase common stock outstanding that were
issued in connection with an oil and gas property acquisition. The following
table summarizes stock options outstanding at December 31, 1996, other than
those issued under the Incentive Plan:
Number
of Shares Exercise
(In thousands) Price Expiration Date
----------- ----- ---------------
110 $5.00 October 1999
38 5.00 November 1999
138 5.00 December 1999
----
286
====
Restricted Stock Grants
Under the Incentive Plan, officers and managerial employees of the Company
may be granted a right to receive shares of the Company's common stock without
cost to the employee. The shares vest over a ten-year period with credit given
for past service rendered to the Company.
The following is a summary of shares of restricted common stock awarded
under the Incentive Plan:
1994 1995 1996
---- ---- ----
(In thousands)
Outstanding at beginning of year 330 330 330
Canceled or expired -- -- --
Outstanding at end of year 330 330 330
---- ---- ----
Vested shares 225 255 285
==== ==== ====
A provision for the restricted stock grants is made ratably over the
vesting period. Compensation expense recognized for restricted stock grants was
$41,000 for each the years ended December 31, 1994, 1995 and 1996.
F-15
<PAGE>
(10) Significant Customers
During 1994, sales to one purchaser of natural gas accounted for 21% of the
Company's 1994 oil and gas sales. During 1996, sales to one purchaser of crude
oil and one purchaser of natural gas accounted for 17% and 31%, respectively, of
the Company's 1996 oil and gas sales.. No single purchaser accounted for more
than 10% of the Company's total oil and gas sales in 1995.
(11) Income Taxes
Deferred tax assets (liabilities) at December 31, 1995 and 1996 are
comprised of the following:
1995 1996
---- ----
(In thousands)
Net deferred tax asset (liabilities):
Property and equipment $ 2,548 $ (6,399)
Net operating loss carryforwards 10,544 6,255
Other carryforwards -- 320
Valuation allowance (13,092) (176)
-------- --------
$ -- $ --
======== ========
No income tax provision was recognized in 1994, 1995 or 1996 due to the
availability of net operating loss carryforwards to offset any current or
deferred income tax liabilities.
The Company has net operating loss carryforwards of approximately $17.9
million as of December 31, 1996, for income tax reporting purposes which expire
in varying amounts from 1997 to 2011.
(12) Related Party Transactions
The Company serves as general partner of Comstock DR-II Oil & Gas
Acquisition Limited Partnership ("Comstock DR-II"). For 1994, 1995 and 1996 the
Company received $87,000 in management fees each year from Comstock DR-II and
earned acquisition fees from Comstock DR-II of approximately $56,000 in 1994.
Included in accounts receivable in the accompanying financial statements is
approximately $380,000 and $93,000 receivable from Comstock DR-II at December
31, 1995 and 1996, respectively.
In 1994, the Company purchased an additional 17% working interest in the
Bivins Ranch lease covering certain oil and gas properties in the Texas
Panhandle field from certain of the Company's shareholders, including trusts for
the benefit of two of the Company's directors' family members, certain relatives
of one of the Company's directors and other unaffiliated investors. The Company
paid for the purchase of such interests by assuming outstanding joint interest
payables on the properties aggregating $186,000, paying $365,000 in cash and by
granting the sellers options to purchase an aggregate of 503,557 shares of the
Company's common stock at a price of $5.00 per share. The options expire five
years from the date of grant.
F-16
<PAGE>
From August 1, 1995 to December 1, 1996, the Company was the managing
general partner and owned a 20.31% limited partner interest in Crosstex Pipeline
Partners, Ltd. ("Crosstex"). The Company sold its interest in connection with
the sale of its third party natural gas marketing operations (see Note 14
"Discontinued Operations"). The Company received $39,000 and $82,000 in fees for
management and construction services provided to Crosstex in 1995 and 1996,
respectively. In addition, Crosstex reimbursed the Company $104,000 and $228,000
for direct expenses incurred in connection with managing Crosstex in 1995 and
1996, respectively. The Company paid $158,000 and $477,000 to Crosstex for
transportation of its natural gas production in 1995 and 1996, respectively.
(13) Price Risk Management
The Company periodically uses derivative financial instruments to manage
natural gas price risk. The Company's realized gains and losses attributable to
its price risk management activities are as follows:
1994 1995 1996
---- ---- ----
(In thousands)
Realized Gains $ 726 $ 913 $ 509
Realized Losses 9 28 1,643
As of December 31, 1995 and 1996, the Company had no open derivative
financial instruments held for price risk management.
(14) Discontinued Operations
In December 1996, the Company sold its third party natural gas marketing
operations and substantially all of its related gas gathering and gas processing
assets for approximately $3.0 million. The Company realized a $818,000 gain from
the sale. The Company's gas gathering, processing and marketing segment is
accounted for as discontinued operations in the accompanying financial
statements, and accordingly, the results of the gas gathering, processing and
marketing operations as well as the gain on disposal are segregated in the
accompanying statements of operations.
The Consolidated Balance Sheet as of December 31, 1995 includes the
following assets and liabilities related to the discontinued segment:
(In thousands)
Accounts Receivable $ 8,025
Other Current Assets 113
Net Property and Equipment 2,251
Other Assets 421
Accounts Payable and Accrued Expenses (8,829)
Other Noncurrent Liabilities (300)
-------
$ 1,681
=======
F-17
<PAGE>
Income for discontinued gas gathering, processing and marketing operations
included in the Consolidated Statements of Operations is comprised of the
following:
Year Ended December 31,
1994 1995 1996
---- ---- ----
(In thousands)
Revenues $ 15,029 $ 50,713 $ 85,398
Operating costs (14,532) (49,118) (83,168)
Depreciation, depletion and amortization (40) (234) (373)
General and administrative, net (228) (686) (809)
Gain on sales of property -- 2,589 --
Gain on disposal of segment -- -- 818
Provision for income taxes -- -- --
-------- -------- --------
Income from discontinued operations $ 229 $ 3,264 $ 1,866
======== ======== ========
(15) Supplementary Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth Total
--------- --------- --------- --------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1996 -
Total revenues..................................$ 9,628 $ 17,890 $ 19,943 $ 23,494 $ 70,955
========= ========= ========= ========= ========
Net income attributable to common stock from
continuing operations.........................$ 1,922 $ 6,258 $ 6,590 $ 9,296 $ 24,066
Net income from discontinued operations......... 454 135 253 1,024 1,866
--------- --------- --------- --------- --------
Net income attributable to common stock.........$ 2,376 $ 6,393 $ 6,843 $ 10,320 $ 25,932
========= ========= ========= ========= ========
Primary net income per share:
Continuing operations.........................$ 0.14 $ 0.44 $ 0.39 $ 0.45 $ 1.47
Discontinued operations....................... 0.04 0.01 0.02 0.05 0.11
--------- --------- --------- --------- --------
Net income per share..........................$ 0.18 $ 0.45 $ 0.41 $ 0.50 $ 1.58
========= ========= ========= ========= ========
Fully diluted net income per share:
Continuing operations.........................$ 0.13 $ 0.33 $ 0.33 $ 0.42 $ 1.22
Discontinued operations....................... 0.02 0.01 0.01 0.04 0.09
--------- --------- --------- --------- --------
Net income per share..........................$ 0.15 $ 0.34 $ 0.34 $ 0.46 $ 1.31
========= ========= ========= ========= ========
1995 -
Total revenues..................................$ 3,886 $ 4,621 $ 5,954 $ 7,913 $ 22,374
========= ========= ========= ========= ========
Net loss attributable to common stock
from continuing operations....................$ (945) $ (290) $ (871) $ (29,227) $(31,333)
Net income from discontinued operations......... 224 188 2,687 165 3,264
--------- --------- --------- --------- --------
Net income (loss) attributable to common stock..$ (721) $ (102) $ 1,816 $ (29,062) $(28,069)
========= ========= ========= ========= ========
Net income (loss) per share:
Continuing operations.........................$ (0.08) $ (0.02) $ (0.07) $ (2.29) $ (2.50)
Discontinued operations....................... 0.02 0.01 0.21 0.01 0.26
--------- --------- --------- --------- --------
Net income (loss) per share...................$ (0.06) $ (0.01) $ 0.14 $ (2.28) $ (2.24)
========= ========= ========= ========= ========
</TABLE>
F-18
<PAGE>
(16) Oil and Gas Reserves Information (Unaudited)
The estimates of proved oil and gas reserves utilized in the preparation of
the financial statements were estimated by independent petroleum engineers in
accordance with guidelines established by the Securities and Exchange Commission
and the Financial Accounting Standards Board, which require that reserve reports
be prepared under existing economic and operating conditions with no provision
for price and cost escalation except by contractual agreement. All of the
Company's reserves are located onshore in or offshore to the continental United
States.
Future prices received for production and future production costs may vary,
perhaps significantly, from the prices and costs assumed for purposes of these
estimates. There can be no assurance that the proved reserves will be developed
within the periods indicated or that prices and costs will remain constant.
There can be no assurance that actual production will equal the estimated
amounts used in the preparation of reserve projections.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures. Oil and gas reserve engineering must be recognized as
a subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact way, and estimates of other engineers might
differ materially from those shown below. The accuracy of any reserve estimate
is a function of the quality of available data and engineering and geological
interpretation and judgment. Results of drilling, testing and production after
the date of the estimate may justify revisions. Accordingly, reserve estimates
are often materially different from the quantities of oil and gas that are
ultimately recovered. Reserve estimates are integral in management's analysis of
impairments of oil and gas properties and the calculation of depreciation,
depletion and amortization on those properties.
The following unaudited table sets forth proved oil and gas reserves at
December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
Oil Gas Oil Gas Oil Gas
(MBbls) (MMcf) (MBbls) (MMcf) (MBbls) (MMcf)
------- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Proved Reserves:
Beginning of year 6,111 74,363 5,119 92,840 3,779 173,165
Revisions of previous
estimates (1,135) (3,301) (2,843) (18,810) 243 (5,926)
Extensions and discoveries 19 4,453 -- -- 613 551
Purchases of minerals
in place(1) 388 23,466 1,859 108,432 5,930 100,446
Sales of minerals in place (1) (84) -- -- (619) (14,365)
Production(1) (263) (6,057) (356) (9,297) (952) (19,427)
------ ------- ------ ------- ------ -------
End of year 5,119 92,840 3,779 173,165 8,994 234,444
====== ======= ====== ======= ====== =======
Proved Developed Reserves:
Beginning of year 1,655 42,909 1,504 62,827 2,562 130,375
====== ======= ====== ======= ====== =======
End of year 1,504 62,827 2,562 130,375 6,953 187,247
====== ======= ====== ======= ====== =======
</TABLE>
(1) 1994 excludes 457 MMcf of gas production delivered to a major natural
gas company under a volumetric production payment and 1994 purchases
of minerals in place includes 10,722 MMcf for the repurchase of the
volumetric production payment.
F-19
<PAGE>
The following table sets forth the standardized measure of discounted
future net cash flows relating to proved reserves at December 31, 1995 and 1996:
1995 1996
---- ----
(In thousands)
Cash Flows Relating to Proved Reserves:
Future Cash Flows $ 426,131 $ 1,120,601
Future Costs:
Production (121,727) (202,722)
Development (39,462) (47,548)
----------- -----------
Future Net Cash Flows Before Income Taxes 264,942 870,331
Future Income Taxes (45,175) (239,065)
----------- -----------
Future Net Cash Flows 219,767 631,266
10% Discount Factor (73,261) (240,844)
----------- -----------
Standardized Measure of Discounted Future
Net Cash Flows $ 146,506 $ 390,422
=========== ===========
In accordance with the Securities and Exchange Commission's guidelines, the
Company's independent petroleum engineers' estimates of future net cash flows
from the Company's proved properties and the present value thereof are made
using oil and natural gas sales prices in effect as of the dates of such
estimates and are held constant throughout the life of the properties. Average
prices used in estimating the future net cash flows at December 31, 1995 and
1996 were as follows: $18.00 and $24.61 per barrel for oil in 1995 and 1996,
respectively, and $2.07 and $3.84 per Mcf for natural gas in 1995 and 1996,
respectively.
The following table sets forth the changes in the standardized measure of
discounted future net cash flows relating to proved reserves for the years ended
December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Standardized Measure, Beginning of Year $ 60,757 $ 78,481 $ 146,506
Net Change in Sales Price, Net of Production Costs (3,392) 9,450 132,094
Development Costs Incurred During the Year Which
Were Previously Estimated 347 822 5,934
Revisions of Quantity Estimates (6,457) (30,298) (7,612)
Accretion of Discount 6,095 7,874 14,829
Changes in Future Development Costs 2,695 13,248 (5,801)
Changes in Timing and Other (2,883) (2,590) (13,165)
Extensions and Discoveries 3,582 -- 9,216
Purchases of Reserves In Place 28,083 85,706 282,150
Sales of Reserves In Place (84) -- (10,342)
Sales, Net of Production Costs (10,194) (14,664) (55,077)
Net Changes in Income Taxes (68) (1,523) (108,310)
--------- --------- ---------
Standardized Measure, End of Year $ 78,481 $ 146,506 $ 390,422
========= ========= =========
</TABLE>
F-20
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page
- ----------- -------------------------------------------------------- ------
3.1 Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 Form 10-K").
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-3, dated October 25, 1996).
4.2(a) Rights Agreement dated as of December 10, 1990, by and
between the Company and Society National Bank, as
Rights Agent (incorporated herein by reference to
Exhibit 1 to the Company's Registration Statement on
Form 8-A, dated December 14, 1990).
4.2(b) First Amendment to the Rights Agreement, by and between
the Company and Society National Bank (successor to
Ameritrust Texas, N.A.), as Rights Agent, dated January
7, 1994 (incorporated herein by reference to Exhibit
3.6 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
4.2(c) Second Amendment to the Rights Agreement, by and
between the Company and Bank One, Texas N.A. (successor
to Society National Bank), as Rights Agent, dated April
1, 1995 (incorporated by reference to Exhibit 4.7 to
the Company's 1995 Form 10-K).
4.2(d) Third Amendment to the Rights Agreement, by and between
the Company and Bank One, Texas N.A. (successor to
Society National Bank), as Rights Agent, dated April 1,
1995 (incorporated by reference to Exhibit 4.8 to the
Company's 1995 Form 10-K).
4.2(e) Fourth Amendment to the Rights Agreement, by and
between the Company and Bank One, Texas N.A. (successor
to Society National Bank), as Rights Agent, dated April
1, 1995 (incorporated by reference to Exhibit 4.9 to
the Company's 1995 Form 10-K).
4.3 Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock dated
December 6, 1990 (incorporated by reference to Exhibit
4.3 to the Company's Registration Statement on Form
S-3, dated October 25, 1996).
4.4 Certificate of Voting Powers, Designations,
Preferences, and Relative, Participating, Optional or
Other Special Rights of the Series 1995 Convertible
Preferred Stock (incorporated herein by reference to
Exhibit 3(a) to the Company's Current Report on Form
8-K dated June 19, 1995).
E-1
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page
- ----------- -------------------------------------------------------- ------
10.1(a) Credit Agreement, dated as of August 13, 1996, between
the Company, the Banks Party thereto and The First
National Bank of Chicago, as agent (incorporated herein
by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996).
10.1(b)* Amendment No. 1 to the Credit Agreement dated November E-4
26, 1996, between the Company, the Banks party thereto
and The First National Bank of Chicago, as agent.
10.1(c)* Amendment No. 2 to the Credit Agreement dated February E-9
4, 1997 between the Company, the Banks party thereto
and the First National Bank of Chicago, as agent.
10.2 Employment Agreement dated July 1, 1996, by and between
the Company and M. Jay Allison (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996).
10.3 Employment Agreement dated July 1, 1996, by and between
the Company and Roland O. Burns (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996).
10.4(a) Comstock Resources, Inc. 1991 Long-term Incentive Plan,
dated as of April 1, 1991 (incorporated herein by
reference to Exhibit 10.8 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1991).
10.4(b) Amendment No. 1 to the Comstock Resources, Inc. 1991
Long-term Incentive Plan (incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996).
10.5 Form of Nonqualified Stock Option Agreement, dated
April 2, 1991, between the Company and certain officers
and directors of the Company (incorporated herein by
reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1991).
10.6 Form of Restricted Stock Agreement, dated April 2,
1991, between the Company and certain officers of the
Company (incorporated herein by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991).
E-2
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page
- ----------- -------------------------------------------------------- ------
10.7 Form of Stock Option Agreement, dated October 12, 1994
by and between the Company and Christopher T. H. Pell,
et al (incorporated herein by reference to Exhibit
10.18 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
10.8 Lease Agreement, dated as of December 20, 1994, by and
between the Company and Occidental Tower Corporation
(incorporated herein by reference to Exhibit 10.19 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
21* Subsidiaries of the Company. E-17
23* Consent of Arthur Andersen LLP. E-18
27* Financial Data Schedule. E-19
- ------------------
*Filed herewith.
E-3
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of November
26, 1996 (this "Amendment"), is among COMSTOCK RESOURCES, INC. a Nevada
corporation ("CRI"), COMSTOCK OIL & GAS, INC., a Nevada corporation ("COG"),
COMSTOCK OIL & GAS - LOUISIANA, INC., a Nevada corporation ("COGL"), COMSTOCK
OFFSHORE ENERGY, INC., a Delaware corporation ("COE"), COMSTOCK NATURAL GAS,
INC., a Nevada corporation ("CNG") and BLACK STONE OIL COMPANY, a Texas
corporation ("Black Stone") (CRI, COG, COGL, COE, CNG and Black Stone may
hereinafter collectively be referred to as the "Borrowers"), the lenders party
to the Credit Agreement described below (collectively, the "Banks" and
individually, a "Bank"), BANK ONE, TEXAS, N.A., as co-agent for the Banks (in
such capacity, the "Co-Agent") and THE FIRST NATIONAL BANK OF CHICAGO, as agent
for the Banks (in such capacity, the "Agent").
RECITALS
A. The Borrowers, the Co-Agent, the Agent and the Banks are parties to a Credit
Agreement dated as of August 13, 1996 ( the "Credit Agreement").
B. The Banks desire to amend the Credit Agreement and the Agent, the Co-Agent
and the Banks are willing to do so strictly in accordance with the terms hereof.
TERMS
In consideration of the premises and of the mutual agreements
herein contained, the parties agree as follows:
ARTICLE I. AMENDMENTS. Upon fulfillment of the conditions set forth in
Article III hereof, the Credit Agreement shall be amended as follows:
1.1 The definitions of "CNG/CRI Guaranty Formula" and "Eligible CNG
Accounts Receivable" are hereby deleted.
1.2 The text of each of the following sections is hereby replaced with
"[intentionally omitted]": Sections 2.1(d), 4.1(d), 7.1(d)(xi) and
7.2(i)(iv).
1.3 The last three sentences of Section 6.4 are restated as follows:
Each of COG and COE is and will remain a wholly owned subsidiary of
CRI, COGL is and will remain a wholly owned subsidiary of COG, Black Stone
is and will remain a wholly owned subsidiary of COG. Comstock Management
Corporation, a Nevada corporation, has no material assets and the Borrowers
agree that it will not have any material assets at any time."
1.4. Section 7.2(f) is amended by adding the following to the end
thereof: "and other than a merger of CNG and COG pursuant to which COG is
the surviving corporation."
E-4
<PAGE>
1.5 Section 7.2(g) is amended by adding the following after the words
"proceeds thereof" contained in the penultimate line thereof: "(other than
proceeds from the sale of certain assets which were owned by CNG and/or CPI
prior to the merger of CNG and COG, which sale shall occur on or before
December 31, 1996)".
1.6 Section 8.1(i) is amended by deleting reference to "CNG,"
contained therein.
1.7 The Borrowers acknowledge and agree that they may not obtain any
Letters of Credit under the Credit Agreement any time after the date
hereof.
1.8 Each of the Banks hereby authorizes the Agent to release all liens
and security interests on the assets which were owned by CNG and/or CPI
prior to the merger between CNG and COG in connection with the sale of such
assets occurring on or before December 31, 1996.
ARTICLE II. REPRESENTATIONS. Each of the Borrowers represents and warrants to
the Agent, the Co-Agent and the Banks that:
2.1 The execution, delivery and performance of this Amendment is
within its powers, has been duly authorized and is not in contravention with any
law, of the terms of its Articles of Incorporation or By-laws, or any agreement
or undertaking to which it is a party or by which it is bound.
2.1 This Amendment is the legal, valid and binding obligation of it,
enforceable against it in accordance with the terms hereof.
2.2 After giving effect to the amendments herein contained, the
representations and warranties contained in Section 6 of the Credit Agreement
are true on and as of the date hereof with the same force and effect as if made
on and as of the date hereof.
2.3 No Event of Default or Default exists or has occurred and is
continuing on the date hereof.
ARTICLE III. CONDITIONS OF EFFECTIVENESS.
3.1 This Amendment shall not become effective until it is signed by
the Borrowers and the Banks.
3.2 This Amendment shall only be effective simultaneously with the
sale referenced in Section 1.8, provided that such sale occurs on or before
December 31, 1996, and the cancellation of any outstanding Letters of Credit.
ARTICLE IV. MISCELLANEOUS.
4.1 References in the Credit Agreement or in any note, certificate,
instrument or other document to the Credit Agreement shall be deemed to be
references to the Credit Agreement as amended hereby and as further amended from
time to time.
4.2 The Borrower agrees to pay and to save the Agent harmless for the
payment of all costs and expenses arising in connection with this Amendment,
including the reasonable fees of counsel to the Agent in connection with
preparing this Amendment and the related documents.
4.3 Except as expressly amended hereby, the Borrowers agree that the
Loan Documents are ratified and confirmed and shall remain in full force and
effect and that they have no set off, counterclaim, defense or any other claim
E-5
<PAGE>
or dispute with respect to any of the foregoing. Terms used but not defined
herein shall have the respective meanings ascribed thereto in the Credit
Agreement.
4.4 This Amendment may be signed upon any number of counterparts with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
IN WITNESS WHEREOF, the parties signing this Amendment have caused
this Amendment to be executed and delivered as of November 26, 1996.
COMSTOCK RESOURCES, INC.
By: /s/M. JAY ALLISON
______________________
M. Jay Allison, its president and chief
executive officer
COMSTOCK OIL & GAS, INC.
By: /s/M. JAY ALLISON
______________________
Jay Allison, its president and chief
executive officer
COMSTOCK OIL & GAS - LOUISIANA, INC.
By: /s/M. JAY ALLISON
____________________
M. Jay Allison, its president and chief
executive officer
COMSTOCK OFFSHORE ENERGY, INC.
By: /s/M. JAY ALLISON
____________________
M. Jay Allison, its president and chief
executive officer
COMSTOCK NATURAL GAS, INC.
By: /s/M. JAY ALLISON
____________________
M. Jay Allison, its chairman and chief
executive officer
BLACK STONE OIL COMPANY
By: /s/M. JAY ALLISON
________________________________
M. Jay Allison, its president and chief
executive officer
E-6
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
as a Bank and as Agent
By: /s/GEORGE R. SCHANZ
______________________________
Its: Vice President
BANK ONE, TEXAS, NA,
as a Bank and as Co-Agent
By: /s/MIKE MITCHELL
________________________________
Its: Vice President
BANK OF MONTREAL, as a Bank and a Lead
Manager
By: /s/ROBERT ROBERTS
________________________________
Its: Director, U.S. Corporate Banking
ABN-AMRO BANK N.V.
By: ABN AMRO NORTH AMERICA INC.,
as agent
By: /s/CHARLES W. RANDALL
________________________________
Its: Senior Vice President and Managing Director
And: /s/W, BRYAN CHAPMAN
________________________________
Its: Vice President and Director
THE FIRST NATIONAL BANK OF BOSTON
By: /s/RICHARD A. LOW
________________________________
Its: Division Executive
BANQUE PARIBAS
By: /s/BARTON D. SCHOUEST
________________________________
Its: Vice President
And: /s/MARK M. GREEN
________________________________
Its: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/PASCAL POUPELLE
________________________________
Its: Senior Vice President
E-7
<PAGE>
CHRISTIANIA BANK OG KREDITKASSE
By: /s/WILLIAM S. PHILLIPS
________________________________
Its: Vice President
And: /s/PETER M. DODGE
________________________________
Its: First Vice President
TORONTO DOMINION (TEXAS), INC.
By: /s/FREDERIC HAWLEY
________________________________
Its: Vice President
MEESPIERSON N.V.
By: /s/KAREL LOUMAN
________________________________
Karel Louman
Its: Vice President
NATIONAL BANK OF CANADA, NEW YORK
BRANCH
By: /s/BILL HANDLEY
________________________________
Its: Vice President
By: /s/DOUG CLARK
________________________________
Its: Vice President
E-8
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of February 4,
1997 (this "Amendment"), is among COMSTOCK RESOURCES, INC. a Nevada corporation
("CRI"), COMSTOCK OIL & GAS, INC., a Nevada corporation ("COG"), COMSTOCK OIL &
GAS - LOUISIANA, INC., a Nevada corporation ("COGL"), COMSTOCK OFFSHORE ENERGY,
INC., a Delaware corporation ("COE") and BLACK STONE OIL COMPANY, a Texas
corporation ("Black Stone") (CRI, COG, COGL, COE and Black Stone may hereinafter
collectively be referred to as the "Borrowers"), the lenders party to the Credit
Agreement described below (collectively, the "Banks" and individually, a
"Bank"), BANK ONE, TEXAS, N.A., as co-agent for the Banks (in such capacity, the
"Co-Agent") and THE FIRST NATIONAL BANK OF CHICAGO, as agent for the Banks (in
such capacity, the "Agent").
RECITAL
The Borrowers, the Co-Agent, the Agent and the Banks are parties to a
Credit Agreement dated as of August 13, 1996, as amended by a First Amendment to
Credit Agreement dated as of November 26, 1996 ( the "Credit Agreement"). The
Borrowers desire to amend the Credit Agreement and the Agent, the Co-Agent and
the Banks are willing to do so strictly in accordance with the terms hereof.
TERMS
In consideration of the premises and of the mutual agreements herein
contained, the parties agree as follows:
ARTICLE I. AMENDMENTS. Upon fulfillment of the conditions set forth in
Article III hereof, the Credit Agreement shall be amended as follows:
1.1 The table contained in the definition of Applicable Margin in
Section 1.1 is restated as follows:
Commitment
Utilization Percentage Eurodollar Floating Fee under
"UP" Rate Loan Rate Loan Section 4.3(a)
---------------------- --------- --------- ---------------
UP greater than or equal to 90% 1.50% 0.25% .375%
UP greater than or equal to 75%
and less than 90% 1.25% 0.00% .25%
UP greater than 55% and
less than 75% 1.00% 0.00% .25%
UP less than 55% 0.75% 0.00% .25%
E-9
<PAGE>
1.2 The definition of "Advances" is restated as follows:
"Advances" shall mean the Loans.
1.3 The definitions of "L/C Bank" and "L/C Commitment" are deleted and
the definitions of "Letter of Credit" and "Letter of Credit Advance" are
restated as follows:
"Letter of Credit" shall mean any standby letter of credit or
commercial letter of credit issued by any Bank at any time for the account
of any Borrower, it being acknowledged that Letters of Credit are not
issued pursuant to this Agreement or any commitment, but they must be
issued by a Bank within the limitations contained in Section 7.2(d)(iii)
and the requirements of Section 8.4 in order to be secured by the Security
Documents.
"Letter of Credit Advance" shall mean any issuance of a Letter of
Credit.
1.4 Section 3.1 is amended by replacing clause 3.1(a)(iii) with the
following: "[intentionally omitted]" and deleting the last two sentences
thereof.
1.5 The following is deleted from Section 3.2(b): "and the aggregate
outstanding principal amount of all Letter of Credit Advances, after giving
effect to the proposed Letter of Credit Advance, does not exceed the lesser of
$1,000,000 or CNG/CRI Guaranteed Formula".
1.6 The text of Sections 3.3 and 4.3(b) is replaced with the
following: "[intentionally omitted]" and the following is hereby deleted from
Section 4.3(a): "and the Borrowers agree to pay to the Agent, for the pro rata
account of the L/C Banks , a commitment fee computed at the per annum rate equal
to the Applicable Margin on the amount by which the L/C Commitments exceed the
aggregate outstanding amount of the Letter of Credit Advances, for the period
from the Effective Date until the Termination Date.".
1.7 Reference in Section 7.1(d)(iii) to "Sections 7.2(a), (b), (c),
(i), (j) and (l)" is deleted and "Sections 7.2(a), (b), (c), (i) and (j)" is
substituted in place thereof.
1.8 Sections 7.1(d)(vii) and (viii) are restated as follows:
(vii) As soon as available and in any event within 90 days after
each January 1, commencing with January 1, 1997, an annual reserve
report as of each such January 1 with respect to all Hydrocarbon
reserves of the Borrowers prepared by an independent engineering firm
of recognized standing acceptable to the Required Banks in accordance
with accepted industry practices and otherwise acceptable and in form
and substance satisfactory to the Required Banks, and including
without limitation all assets included in the Borrowing Base, and
within 90 days after each July 1 thereafter, a reserve report as of
each such July 1, as the case may be, with respect to all Hydrocarbon
reserves of the Borrowers prepared by the Borrowers in accordance with
accepted industry practices
and otherwise acceptable and in form and substance satisfactory to the
Required Banks, and including without limitation all assets included
in the Borrowing Base;
(viii) On or within 30 days after the request of the Agent or the
Required Banks in connection with a redetermination of the Borrowing
E-10
<PAGE>
Base permitted under Section 9.14, an updated reserve report with
respect to all Hydrocarbon reserves of the Borrowers prepared by an
independent engineering firm of recognized standing acceptable to the
Required Banks in accordance with accepted industry practices and
otherwise acceptable and in form and substance satisfactory to the
Required Banks, and including without limitation all assets included
in the Borrowing Base;
1.9 Reference in Section 7.2(d)(iii) to "$1,000,000" is deleted and
"$5,000,000" is substituted in place thereof.
1.10 Section 7.2(e)(iii) is restated as follows:
(iii) Liens created pursuant to the Security Documents and Liens
expressly permitted by the Security Documents, including without
limitation liens securing any reimbursement and other obligations
pursuant to any Letters of Credit issued by any Bank for the account
of any Borrower, and it is acknowledged and agreed that, without
limiting the indebtedness secured by the Security Documents, each
Security Document secures all reimbursement and other obligations
incurred at any time by any Borrower pursuant to any Letter of Credit
issued by any Bank for the account of any Borrower;
1.11 Section 7.2(f) is restated as follows:
(f) Merger; Acquisitions; Etc. Purchase or otherwise acquire,
whether in one or a series of transactions, unless the Required Banks
shall otherwise consent in writing, all or any substantial portion of
the business assets, rights, revenues or property, real, personal or
mixed, tangible or intangible, of any Person, or all or any
substantial portion of the capital stock of or other ownership
interest in any other Person, nor merge or consolidate or amalgamate
with any other Person or take any other action having a similar
effect, unless, in each of the foregoing cases, each of the following
conditions is satisfied: (i) no Default or Event of Default exists
either before or after such acquisition, merger, consolidation,
amalgamation or other action having a similar effect, (ii) if such
transaction is a merger, consolidation, amalgamation or other action
having a similar effect, a Borrower is the surviving entity and (iii)
in the case of any take-over bid or offer to acquire all or
substantially all of the outstanding voting or equity securities of a
corporation or an acquisition of all or substantially all of the
assets of any Person, the board of directors of the target corporation
or management of the target Person (if the target is not a
corporation) has recommended acceptance of such bid or offer.
1.12 Reference in Section 7.2(g) to "$5,000,000" is deleted and
"$15,000,000" is substituted in place thereof and reference therein to
"$1,000,000" is deleted and "$5,000,000" is substituted in place thereof.
1.13 Reference in Section 7.2(i) to "$5,000" is deleted and "$25,000"
is substituted in place thereof.
1.14 Clause (ii) of Section 7.2(i) is restated to read as follows:
"(ii) loans and advances among the Borrowers or any Subsidiary of any Borrower
guaranteeing all indebtedness, obligations and liabilities of the Borrowers to
the Banks and the Agent pursuant to a guaranty and other agreements satisfactory
E-11
<PAGE>
to the Agent," and reference in clause (iii) of Section 7.2(i) to "$1,000,000"
is deleted and "$5,000,000" is substituted in place thereof.
1.15 Section 7.2(j) is restated as follows:
(j) Dividends. With respect to CRI only, make, pay, declare or
authorize any dividend, payment or other distribution in respect of
any class of its capital stock or any dividend, payment or
distribution in connection with the redemption, repurchase,
defeasance, conversion, retirement or other acquisition, directly or
indirectly, of any shares of its capital stock, (all of the foregoing
defined herein as "Restricted Payments"), except (i) Restricted
Payments payable solely in shares of capital stock of CRI and (ii)
cash dividends in respect to the 1995 Preferred Stock only in an
aggregate amount not to exceed $627,000 in any twelve month period and
only if both before the payment of such dividend and after giving
effect to the payment of such dividend no Default or Event of Default
shall have occurred and be continuing. For purposes of this Agreement,
"capital stock" shall include capital stock (preferred, common or
other) and any securities exchangeable for or convertible into capital
stock and any warrants, rights or other options to purchase or
otherwise acquire capital stock or such securities.
1.16 The text of Section 7.2(l) is replaced with the following:
"[intentionally omitted]"
1.17 Section 8.3(c) is restated as follows:
(c) Third, to the Banks on a pro rata basis in accordance with
the Bank Obligations consisting of interest and principal owing to the
Banks under the Bank Obligation, with any obligations owing to any
Bank pursuant to any Swap Agreement to which it is a party (whether
pursuant to a termination thereof or otherwise) and with any
reimbursement obligations or other liabilities owing to any Bank
pursuant to any Letter of Credit, for application to payment of such
liabilities;
1.18 Section 8.4 is amended by (a) deleting reference therein to "the
L/C Banks" and substituting "any of the Banks" in place thereof and (b) and
adding the following to the end thereof: "The Borrowers acknowledge and agree
that all reimbursement and other obligations and liabilities pursuant to any
Letters of Credit issued by any Bank for the account of any Borrower are secured
by all Collateral and the Security Documents, provided that such Letter of
Credit was allowed by Section 7.2(d)(iii) and the Agent received notice of such
Letter of Credit prior to its issuance."
1.19 All parties hereto acknowledge and agree that the Borrowing Base
as of the date hereof is redetermined to be $166,000,000.
ARTICLE II. REPRESENTATIONS. Each of the Borrowers represents and warrants to
the Agent, the Co- Agent and the Banks that:
E-12
<PAGE>
2.1 The execution, delivery and performance of this Amendment is
within its powers, has been duly authorized and is not in contravention with any
law, of the terms of its Articles of Incorporation or By-laws, or any agreement
or undertaking to which it is a party or by which it is bound.
2.2 This Amendment is the legal, valid and binding obligation of it,
enforceable against it in accordance with the terms hereof.
2.3 After giving effect to the amendments herein contained, the
representations and warranties contained in Section 6 of the Credit Agreement
are true on and as of the date hereof with the same force and effect as if made
on and as of the date hereof.
2.4 No Event of Default or Default exists or has occurred and is
continuing on the date hereof.
ARTICLE III. CONDITIONS OF EFFECTIVENESS.
3.1 This Amendment shall not become effective until it is signed by
the Borrowers and the Banks and each Borrower shall have delivered to the Agent
a certified resolution approving this Amendment.
ARTICLE IV. MISCELLANEOUS.
4.1 References in the Credit Agreement or in any note, certificate,
instrument or other document to the Credit Agreement shall be deemed to be
references to the Credit Agreement as amended hereby and as further amended from
time to time.
4.2 The Borrower agrees to pay and to save the Agent harmless for the
payment of all costs and expenses arising in connection with this Amendment,
including the reasonable fees of counsel to the Agent in connection with
preparing this Amendment and the related documents.
4.3 Except as expressly amended hereby, the Borrowers agree that the
Loan Documents are ratified and confirmed and shall remain in full force and
effect and that they have no set off, counterclaim, defense or any other claim
or dispute with respect to any of the foregoing. Terms used but not defined
herein shall have the respective meanings ascribed thereto in the Credit
Agreement.
4.4 This Amendment may be signed upon any number of counterparts with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
IN WITNESS WHEREOF, the parties signing this Amendment have caused
this Amendment to be executed and delivered as of February 4, 1997.
COMSTOCK RESOURCES, INC.
By: /s/M. JAY ALLISON
________________________________
M. Jay Allison, its president and chief
executive officer
E-13
<PAGE>
COMSTOCK OIL & GAS, INC.
By: /s/M. JAY ALLISON
________________________________
Jay Allison, its president and chief
executive officer
COMSTOCK OIL & GAS - LOUISIANA, INC.
By: /s/M. JAY ALLISON
________________________________
M. Jay Allison, its president and chief
executive officer
COMSTOCK OFFSHORE ENERGY, INC.
By: /s/M. JAY ALLISON
________________________________
M. Jay Allison, its president and chief
executive officer
BLACK STONE OIL COMPANY
By: /s/M. JAY ALLISON
________________________________
M. Jay Allison, its president and chief
executive officer
THE FIRST NATIONAL BANK OF CHICAGO,
as a Bank and as Agent
By: /s/GEORGE R. SCHANZ
______________________________
Its: Vice President
BANK ONE, TEXAS, NA,
as a Bank and as Co-Agent
By: /s/MIKE MITCHELL
________________________________
Its: Vice President
BANK OF MONTREAL, as a Bank and a Lead Manager
By: /s/ROBERT ROBERTS
________________________________
Its: Director, U.S. Corporate Banking
E-14
<PAGE>
ABN-AMRO BANK N.V.
By: ABN AMRO NORTH AMERICA INC.,
as agent
By: /s/CHARLES W. RANDALL
________________________________
Its: Senior Vice President and Managing Director
And: /s/W, BRYAN CHAPMAN
________________________________
Its: Vice President and Director
THE FIRST NATIONAL BANK OF BOSTON
By: /s/RICHARD A. LOW
________________________________
Its: Division Executive
BANQUE PARIBAS
By: /s/BARTON D. SCHOUEST
________________________________
Its: Vice President
And: /s/MARK M. GREEN
________________________________
Its: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/PASCAL POUPELLE
________________________________
Its: Senior Vice President
CHRISTIANIA BANK OG KREDITKASSE
By: /s/WILLIAM S. PHILLIPS
________________________________
Its: Vice President
And: /s/PETER M. DODGE
________________________________
Its: First Vice President
TORONTO DOMINION (TEXAS), INC.
By: /s/FREDERIC HAWLEY
________________________________
Its: Vice President
E-15
<PAGE>
MEESPIERSON N.V.
By: /s/KAREL LOUMAN
________________________________
Karel Louman
Its: Vice President
NATIONAL BANK OF CANADA, NEW YORK
BRANCH
By: /s/BILL HANDLEY
________________________________
Its: Vice President
By: /s/DOUG CLARK
________________________________
Its: Vice President
E-16
EXHIBIT 21
SUBSIDIARIES OF COMSTOCK RESOURCES, INC.
<TABLE>
<CAPTION>
State of
Name Incorporation Business Name
---- ------------- -------------
<S> <C> <C>
Comstock Oil & Gas, Inc. Nevada Comstock Oil & Gas, Inc.
Comstock Oil & Gas - Louisiana, Inc. (1) Nevada Comstock Oil & Gas - Louisiana, Inc.
Comstock Management Corporation Nevada Comstock Management Corporation
Comstock Offshore Energy, Inc. Delaware Comstock Offshore Energy, Inc.
(1) Subsidiary of Comstock Oil & Gas, Inc.
</TABLE>
E-17
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into Comstock Resources, Inc.'s previously
filed registration statements (numbers 33-73452, 33-88962, 33-61303,
333-02457, 333-5259, 333-7217, 333-13675 and 333-20981).
ARTHUR ANDERSEN LLP
E-18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial data extracted from the
Consolidated Financial Statements of Comstock Resources, Inc. and Subsidiaries
for the year ended December 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 16,162
<SECURITIES> 0
<RECEIVABLES> 19,497
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,833
<PP&E> 240,072
<DEPRECIATION> (54,144)
<TOTAL-ASSETS> 222,002
<CURRENT-LIABILITIES> 22,881
<BONDS> 80,000
7,063
0
<COMMON> 12,051
<OTHER-SE> 99,102
<TOTAL-LIABILITY-AND-EQUITY> 222,002
<SALES> 68,915
<TOTAL-REVENUES> 70,955
<CGS> 0
<TOTAL-COSTS> 32,543
<OTHER-EXPENSES> 2,239
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,086
<INCOME-PRETAX> 24,066
<INCOME-TAX> 0
<INCOME-CONTINUING> 24,066
<DISCONTINUED> 1,866
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,932
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.31
</TABLE>
