FORM 10q 6-30-02

10-Q 1 form10q6_02.htm QUARTERLY REPORT DATED JUNE 30, 2002 FORM 10q 6-30-02

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
x THE SECURITIES EXCHANGE ACT OF 1934
----
For The Quarter Ended June 30, 2002

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
----

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)

5300 Town and Country Blvd., Suite 500, Frisco, Texas 75034
(Address of principal executive offices)

Telephone No.: (972) 668-8800

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
filing requirements for the past 90 days. Yes x No
---

The number of shares outstanding of the registrant's common stock, par
value $.50, as of August 12, 2002 was 28,833,561.

COMSTOCK RESOURCES, INC.

QUARTERLY REPORT

For The Quarter Ended June 30, 2002

INDEX

PART I. Financial Information Page

Item 1. Financial Statements:

Consolidated Balance Sheets -
June 30, 2002 and December 31, 2001...........................4
Consolidated Statements of Operations -
Three Months and Six Months ended June 30, 2002 and 2001......5
Consolidated Statement of Stockholders' Equity -
Six Months ended June 30, 2002................................6
Consolidated Statements of Cash Flows -
Six Months ended June 30, 2002 and 2001.......................7
Notes to Consolidated Financial Statements............................8
Report of Independent Public Accountants.............................14

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................15

Item 3. Quantitative and Qualitative Disclosure About Market Risks........19

PART II. Other Information

Item 6. Exhibits and Reports on Form 8-K..................................21

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

June 30, December 31,
2002 2001
--------- ---------
(Unaudited)
(In thousands)
Cash and Cash Equivalents ....................................... $ 1,267 $ 6,122
Accounts Receivable:
Oil and gas sales ....................................... 25,528 20,015
Joint interest operations ............................... 1,635 4,717
Derivatives ..................................................... 1,338 1,342
Other Current Assets ............................................ 10,109 7,418

Total current assets ..................... 39,877 39,614
Property and Equipment:
Unevaluated oil and gas properties ...................... 17,896 13,416
Oil and gas properties, successful efforts method ....... 908,301 901,206
Other ................................................... 2,565 2,633
Accumulated depreciation, depletion and amortization .... (288,677) (278,679)
--------- ---------
Net property and equipment ............... 640,085 638,576
Derivatives ..................................................... 25 254
Other Assets .................................................... 6,318 4,627
--------- ---------
$ 686,305 $ 683,071
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Portion of Long-Term Debt ............................... $ 674 $ 229
Accounts Payable and Accrued Expenses ........................... 28,990 37,389
Derivatives ..................................................... 2,973 798
--------- ---------
Total current liabilities ............... 32,637 38,416
Long-Term Debt, less current portion ............................ 384,002 372,235
Deferred Taxes Payable .......................................... 47,352 47,911
Derivatives ..................................................... -- 1,053
Reserve for Future Abandonment Costs ............................ 7,169 7,794
Stockholders' Equity:
Preferred stock--$10.00 par, 5,000,000 shares authorized,
1,757,310 shares outstanding .......................... 17,573 17,573
Common stock--$0.50 par, 50,000,000 shares authorized,
28,833,561 and 28,552,553 shares outstanding at
June 30, 2002 and December 31, 2001, respectively ..... 14,417 14,276
Additional paid-in capital .............................. 132,009 130,956
Retained earnings ....................................... 51,562 54,183
Deferred compensation-restricted stock grants ........... (1,069) (1,187)
Accumulated other comprehensive income (loss) ........... 653 (139)
--------- ---------
Total stockholders' equity .............. 215,145 215,662
--------- ---------
$ 686,305 $ 683,071
========= =========

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Three Months Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
--------- --------- --------- ---------
(In thousands, except per share amounts)
Revenues:
Oil and gas sales ........................ $ 38,004 $ 45,997 $ 64,494 $ 112,932
Other income ............................. 79 121 199 268
--------- --------- --------- ---------
Total revenues ......... 38,083 46,118 64,693 113,200
--------- --------- --------- ---------
Expenses:
Oil and gas operating .................... 8,467 8,173 16,582 17,559
Exploration .............................. 1,028 477 2,981 3,308
Depreciation, depletion and amortization . 14,057 11,997 27,515 23,931
General and administrative, net .......... 1,077 998 2,007 1,827
Interest ................................. 7,702 4,956 14,512 10,461
Loss from derivatives .................... 204 -- 2,168 --
--------- --------- --------- ---------
Total expenses ......... 32,535 26,601 65,765 57,086
--------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes ............................ 5,548 19,517 (1,072) 56,114
Income tax benefit (expense) ...................... (1,942) (6,831) 375 (19,640)
--------- --------- --------- ---------
Net income (loss) from continuing operations ...... 3,606 12,686 (697) 36,474
Preferred stock dividends ......................... (400) (400) (795) (795)
--------- --------- --------- ---------
Net income (loss) from continuing operations
attributable to common stock .................. 3,206 12,286 (1,492) 35,679
Income (loss) from discontinued operations,
including loss on disposal, net of income taxes (403) 152 (1,129) 338
--------- --------- --------- ---------
Net income (loss) attributable to common stock .... $ 2,803 $ 12,438 $ (2,621) $ 36,017
========= ========= ========= =========
Net income (loss) per share:
Basic -
Net income (loss) from
continuing operations per share............. $ 0.11 $ 0.42 $ (0.05) $ 1.22
========= ========= ========= =========
Net income (loss) per share.................. $ 0.10 $ 0.43 $ (0.09) $ 1.24
========= ========= ========= =========
Diluted -
Net income (loss) from
continuing operations per share............. $ 0.11 $ 0.36 $ 1.04
========= ========= =========
Net income (loss) per share.................. $ 0.09 $ 0.37 $ 1.05
========= ========= =========
Weighted average shares outstanding:
Basic........................................ 28,776 29,252 28,678 29,127
========= ========= ========= =========
Diluted...................................... 34,042 34,902 34,967
========= ========= =========

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 2002
(Unaudited)

Deferred Accumulated
Additional Compensation- Other
Preferred Common Paid-In Retained Restricted Comprehensive
Stock Stock Capital Earnings Stock Grants Income (Loss) Total
---------- ---------- ---------- ---------- ---------- ----------- ----------
(In thousands)
Balance at December 31, 2001... $ 17,573 $ 14,276 $ 130,956 $ 54,183 $ (1,187) $ (139) $ 215,662
Restricted stock grants....... -- -- -- -- 118 -- 118
Value of warrants issued
for exploration prospects.... -- -- 213 -- -- -- 213
Exercise of stock options..... -- 141 840 -- -- -- 981
Net loss attributable to
common stock................ -- -- -- (2,621) -- -- (2,621)
Unrealized hedge gains........ -- -- -- -- -- 792 792
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 2002....... $ 17,573 $ 14,417 $ 132,009 $ 51,562 $ (1,069) $ 653 $ 215,145
========== ========== ========== ========== ========== ========== ==========

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Six Months
Ended June 30,
2002 2001
-------- --------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................... $ (1,826) $ 36,812
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Compensation paid in common stock ............................ 118 112
Exploration .................................................. 2,981 3,308
Depreciation, depletion and amortization ..................... 27,515 23,931
Deferred income taxes ........................................ (375) 16,040
Unrealized losses from derivatives ........................... 2,499 --
Non-cash effect of discontinued operations, net .............. 1,467 (36)
Gain on sale of properties ................................... -- (12)
-------- --------
Working capital provided by operations ..................... 32,379 80,155
Decrease in accounts receivable ................................. 747 8,128
Increase in other current assets ................................ (2,691) (29)
Increase (decrease) in accounts payable and
accrued expenses .............................................. (8,203) 420
-------- --------
Net cash provided by operating activities .................. 22,232 88,674
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of properties ............................... 300 46
Capital expenditures and acquisitions ........................... (37,568) (59,092)
-------- --------
Net cash used for operating activities ..................... (37,268) (59,046)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings ...................................................... 20,736 8,730
Proceeds from issuance of senior notes .......................... 75,000 --
Debt issuance costs ............................................. (2,217) --
Proceeds from common stock issuance ............................. 981 2,010
Principal payments on debt ...................................... (83,524) (46,226)
Preferred stock dividends paid .................................. (795) (795)
-------- --------
Net cash provided by (used for) financing activities............. 10,181 (36,281)
-------- --------
Net decrease in cash and cash equivalents .................. (4,855) (6,653)
Cash and cash equivalents, beginning of period ............. 6,122 7,105
-------- --------
Cash and cash equivalents, end of period ................... $ 1,267 $ 452
======== ========

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2002
(Unaudited)

(1) SIGNIFICANT ACCOUNTING POLICIES -

Basis of Presentation -

In management's opinion, the accompanying consolidated financial statements
contain all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial position of Comstock Resources, Inc.
and subsidiaries ("Comstock") as of June 30, 2002 and the related results of
operations for the three months and six months ended June 30, 2002 and 2001 and
cash flows for the six months ended June 30, 2002 and 2001.

The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to those rules and regulations, although
Comstock believes that the disclosures made are adequate to make the information
presented not misleading. These consolidated financial statements should be read
in conjunction with the financial statements and notes thereto included in
Comstock's Annual Report on Form 10-K for the year ended December 31, 2001.

The results of operations for the three months and six months ended June
30, 2002 are not necessarily an indication of the results expected for the full
year.

Supplementary Information With Respect to the Consolidated Statements of
Cash Flows -

For the Six Months
Ended June 30,
2002 2001
------- -------
(In thousands)
Cash Payments -
Interest payments................. $13,436 $10,680
Income tax payments............... -- 243

Noncash Investing and Financing Activities -
Value of warrants issued
under exploration agreement..... $ 327 $ 997

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.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Earnings Per Share -

Basic earnings per share is determined without the effect of any
outstanding potentially dilutive stock options or other convertible securities
and diluted earnings per share is determined with the effect of outstanding
stock options and other convertible securities that are potentially dilutive.
Due to the net loss for the six months ended June 30, 2002, common stock
equivalents and convertible securities are anti- dilutive. Therefore basic and
diluted loss per share for the six months ended June 30, 2002 are the same.
Basic and diluted earnings per share for the three months and six months ended
June 30, 2002 and 2001 were determined as follows:

For the Three Months Ended June 30,
----------------------------------------------------------------
2002 2001
------------------------------- -----------------------------
Per Per
Income Shares Share Income Shares Share
-------- -------- --------- -------- ------- -------
(Amounts in thousands except per share data)
Basic Earnings Per Share:
Income from Continuing Operations..... $ 3,606 28,776 $ 12,686 29,252
Less Preferred Stock Dividends....... (400) -- (400) --
-------- -------- -------- -------
Net Income from Continuing Operations
Available to Common Stockholders.. 3,206 28,776 $ 0.11 12,286 29,252 $ 0.42
======== =======
Income from Discontinued Operations.. (403) 28,776 (0.01) 152 29,252 0.01
-------- ======== --------- -------- ======= -------
Net Income Available to Common
Stockholders...................... $ 2,803 28,776 $ 0.10 $ 12,438 29,252 $ 0.43
======== ======== ========= ======== ======= =======
Diluted Earnings Per Share:
Income from Continuing Operations..... $ 3,606 28,776 $ 12,686 29,252
Effect of Dilutive Securities:
Stock Options....................... -- 873 -- 1,257
Convertible Preferred Stock......... -- 4,393 -- 4,393
-------- -------- --------- -------- -------
Net Income from Continuing Operations
Available to Common Stockholders
With Assumed Conversions........ 3,606 34,042 $ 0.11 12,686 34,902 $ 0.36
======== ========
Income from Discontinued Operations.. (403) 34,042 (0.02) 152 34,902 0.01
-------- ======== --------- -------- ======== -------
Net Income Available to Common
Stockholders...................... $ 3,203 34,042 $ 0.09 $ 12,838 34,902 $ 0.37
======== ======== ========= ======== ======= =======

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

For the Six Months Ended June 30,
----------------------------------------------------------------
2002 2001
------------------------------- -----------------------------
Per Per
Income Shares Share Income Shares Share
-------- -------- --------- -------- ------- -------
(Amounts in thousands except per share data)
Basic Earnings Per Share:
Income (Loss)from
Continuing Operations......... $ (697) 28,678 $ 36,474 29,127
Less Preferred Stock Dividends...... (795) -- (795) --
-------- -------- -------- -------
Net Income (Loss) from
Continuing Operations Available
to Common Stockholders.......... (1,492) 28,678 $ (0.05) 35,679 29,127 $ 1.22
======== =======
Income (Loss)from
Discontinued Operations........ (1,129) 28,678 (0.04) 338 29,127 0.02
-------- ======== --------- -------- ======= -------
Net Income (loss) Available to
Common Stockholders............ $ (2,621) 28,678 $ (0.09) $ 36,017 29,127 $ 1.24
======== ======== ========= ======== ======= =======
Diluted Earnings Per Share:
Income (loss) from Continuing Operations $ 36,474 29,127
Effect of Dilutive Securities:
Stock Options.................. -- 1,447
Convertible Preferred Stock.... -- 4,393
-------- -------
Net Income (Loss) from Continuing Operations
Available to Common Stockholders
With Assumed Conversions.. 36,474 34,967 $ 1.04
=======

Income (Loss) from Discontinued Operations... 338 34,967 0.01
-------- ======= -------
Net Income (loss) Available to Common
Stockholders........................ $ 36,812 34,967 $ 1.05
======== ======== =======

Derivative Instruments and Hedging Activities

Comstock uses swaps, floors and collars to hedge oil and natural gas
prices. Swaps are settled monthly based on differences between the prices
specified in the instruments and the settlement prices of futures contracts
quoted on the New York Mercantile Exchange. Generally, when the applicable
settlement price is less than the price specified in the contract, Comstock
receives a settlement from the counterparty based on the difference multiplied
by the volume hedged. Similarly, when the applicable settlement price exceeds
the price specified in the contract, Comstock pays the counterparty based on the
difference. Comstock generally receives a settlement from the counterparty for
floors when the applicable settlement price is less than the price specified in
the contract, which is based on the difference multiplied by the volumes hedged.
For collars, Comstock generally receives a settlement from the counterparty when
the settlement price is below the floor and pays a settlement to the
counterparty when the settlement price exceeds the cap. No settlement occurs
when the settlement price falls between the floor and cap.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

On July 9, 2002, Comstock entered into an agreement with a subsidiary of
Enron Corporation ("Enron") to settle all outstanding derivative financial
instruments between Comstock and Enron effective as of April 23, 2002. Comstock
agreed to pay $3.0 million to Enron to cancel a natural gas price swap agreement
covering 2,466,668 MMBtus at a fixed price of $2.40 and a natural gas price
floor position covering 986,668 MMBtus at $1.90. Accordingly, these positions
have been valued at the settlement price as of June 30, 2002.

The following table sets out the derivative financial instruments,
excluding the Enron positions, outstanding at June 30, 2002, which are held for
natural gas price risk management:

Volume Type Swap Floor Ceiling
Period Beginning Period Ending (MMBtu) of Instrument Price Price Price
---------------- ----------------- ----------- ------------- ---------- ---------- ----------
July 1, 2002 October 31, 2002 3,040,000 Swap $3.44 -- --
July 1, 2002 October 31, 2002 1,600,000 Swap $3.50 -- --
July 1, 2002 October 31, 2002 1,440,000 Swap $3.48 -- --
July 1, 2002 December 31, 2002 1,275,000 Floor -- $2.00 --
July 1, 2002 December 31, 2002 450,000 Collar -- $4.00 $6.75
----------
7,805,000
----------

January 1, 2003 December 31, 2003 2,250,000 Floor -- $2.00 --
----------
10,055,000
==========

Comstock has designated the swap positions which were entered into in March
2002 as cash flow hedges. The floor and collar positions acquired in the
acquisition of DevX Energy, Inc. in December 2001 have not been designated as
hedges. Comstock realized gains of $363,000 in the first six months of 2002 on
the positions designated as hedges. These gains were included in oil and gas
sales. For the three months and six months ended June 30, 2002, Comstock
realized gains of $12,000 and $403,000, respectively, on the positions not
designated as hedges.

Comstock periodically enters into interest rate swap agreements to hedge
the impact of interest rate changes on its floating rate long-term debt.
Comstock had an interest rate swap agreement covering $25.0 million of its
floating rate debt, which fixed the LIBOR rate at 4.5% for one year through
April 2002. Comstock has designated this position as a hedge. As a result of
this interest rate hedge, Comstock realized losses of $218,000 for the six
months ended June 30, 2002 which were included in interest expense. As of June
30, 2002, Comstock had no open interest rate derivative financial instruments
outstanding.

The fair value of all derivative financial instruments is included on the
consolidated balance sheet at the fair value. Comstock estimates fair value
based on quotes obtained from the counterparties to the derivative contract. The
fair value of derivative contracts that expire in less than one year are
recognized as current assets or liabilities. Those that expire in more than one
year are recognized as long-term assets or liabilities. Derivative financial
instruments that are not accounted for as hedges are adjusted to fair value
through income. If the derivative is designated as a cash flow hedge, changes in
fair value are recognized in other comprehensive income until the hedged item is
recognized in earnings.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Comstock had a loss of $204,000 and $2.2 million for the three months and
six months ended June 30, 2002, respectively related to the derivative contracts
not accounted for hedges. The loss on derivatives for the six months ended June
30, 2002 was comprised of a $2.6 million unrealized loss and a $403,000 realized
gain. For the derivative contracts designated as cash flow hedges, the change in
fair value of these instruments resulted in an unrealized after tax gain of
$792,000 which was recognized in other comprehensive income.

New Accounting Standard

In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 146, "Accounting for Costs Associated with Exit
or Disposal Activities". The Statement establishes accounting and reporting
standards that are effective for exit or disposal activities beginning after
December 31, 2002 which require that a liability be recognized for an exit or
disposal activity when that liability is incurred.

(2) LONG-TERM DEBT -

As of June 30, 2002, Comstock's long-term debt was comprised of the
following:

(In thousands)
Revolving Bank Credit Facility.... $ 164,000
11 1/4% Senior Notes due 2007..... 220,000
Other ............................ 676
---------
384,676
Less current portion............. (674)
---------
$ 384,002
=========

Comstock's bank credit facility consists of a $350.0 million three-year
revolving credit commitment provided by a syndicate of banks for which Toronto
Dominion (Texas), Inc. serves as administrative agent. The credit facility is
subject to borrowing base availability, which is redetermined semiannually based
on the banks' estimates of the future net cash flows of Comstock's oil and
natural gas properties. The borrowing base at June 30, 2002 was $250.0 million.
The revolving credit line bears interest, based on the utilization of the
borrowing base, at the option of Comstock at either (i) LIBOR plus 1.5% to
2.375% or (ii) the base rate plus 0.5% to 1.375%. The facility matures on
January 2, 2005. Indebtedness under the bank credit facility is secured by
substantially all of Comstock's assets. The bank credit facility contains
covenants that, among other things, restrict the payment of cash dividends,
limit the amount of consolidated debt and limit Comstock's ability to make
certain loans and investments. Financial covenants include the maintenance of a
current ratio, maintenance of tangible net worth and maintenance of an interest
coverage ratio. Comstock was in compliance with all the covenants during the
three months and six months ended June 30, 2002.

Comstock issued $150.0 million in aggregate principal amount of 11 1/4%
Senior Notes due in 2007 (the "Notes") on April 29, 1999. Interest on the Notes
is payable semiannually on May 1 and November 1, commencing on November 1, 1999.
The Notes are unsecured obligations of Comstock. The Notes can be redeemed
beginning on May 1, 2004. Comstock repurchased $5.0 million of the Notes in July
2001.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

On March 7, 2002, Comstock closed on a private placement of $75.0 million
of the Notes at a net price of 97.25% after placements agents' discount. As a
result of this transaction, $220.0 million of the aggregate principal amount of
the Notes are outstanding. The net proceeds from the offering were used to
reduce amounts outstanding under the bank credit facility.

(3) DISCONTINUED OPERATIONS -

In April 2002, Comstock sold certain marginal oil and gas properties for
cash proceeds of $300,000 plus forgiveness of certain accounts payable related
to the properties. The properties sold include various interests in nonoperated
properties in Nueces, Hardeman and Montague counties in Texas. The properties
sold were written down to the net realizable value in March 2002 resulting in a
loss of $769,000, net of income taxes. In July 2002, Comstock sold certain oil
and gas properties in Wharton County, Texas for cash proceeds of $3.2 million.
These properties were written down to their net realizable value as of June 30,
2002 resulting in an after tax loss of $387,000. The sold properties, including
the losses on disposal, have been presented as discontinued operations in the
accompanying consolidated statements of operations.

INDEPENDENT ACCOUNTANTS' REVIEW REPORT

The Board of Directors and Shareholders of
Comstock Resources, Inc.:

We have reviewed the accompanying consolidated balance sheet of Comstock
Resources, Inc. and subsidiaries (a Nevada corporation) as of June 30, 2002, and
the related consolidated statements of operations for the three and six month
periods ended June 30, 2002, and the consolidated statement of cash flows for
the six month period ending June 30, 2002. These consolidated financial
statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.

(signed) KPMG LLP

Dallas, Texas
August 6, 2002

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Results of Operations

The following table reflects certain summary operating data for the periods
presented:

Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
------- ------- ------- -------
Net Production Data:
Oil (Mbbls)................................. 335 392 676 804
Natural gas (Mmcf).......................... 8,534 7,037 16,756 14,440
Natural gas equivalent (Mmcfe).............. 10,543 9,392 20,812 19,265
Average Sales Price:
Oil (per Bbl)............................... $ 24.95 $ 26.97 $ 22.79 $ 27.60
Natural gas (per Mcf)....................... 3.47 5.03 2.93 6.28
Average equivalent price (per Mcfe)......... 3.60 4.90 3.10 5.86
Expenses ($ per Mcfe):
Oil and gas operating(1).................... $ 0.80 $ 0.87 $ 0.80 $ 0.91
General and administrative.................. 0.10 0.11 0.10 0.09
Depreciation, depletion and amortization(2). 1.30 1.24 1.29 1.20
Cash Margin ($ per Mcfe)(3)................... $ 2.70 $ 3.92 $ 2.21 $ 4.86
---------
(1) Includes lease operating costs and production and ad valorem taxes.
(2) Represents depreciation, depletion and amortization of oil and gas
properties only.
(3) Represents average equivalent price per Mcfe less oil and gas operating
expenses per Mcfe and general and administrative expenses per Mcfe.

Revenues -

Our sales of oil and natural gas decreased $8.0 million (17%) in the second
quarter of 2002 to $38.0 million, from $46.0 million in 2001's second quarter
due to a significant drop in our realized crude oil and natural gas prices. Our
average natural gas price decreased by 31% and our average crude oil price fell
by 7% in the second quarter of 2002 as compared to 2001. Production in the
second quarter of 2002 increased 12% over production in the second quarter of
2001. For the first half of 2002, our oil and gas sales decreased $48.4 million
(43%) to $64.5 million from $112.9 million for the six months ended June 30,
2001. The decrease is primarily attributable to 53% lower realized natural gas
prices and the 17% lower realized crude oil prices in 2002 as compared to 2001.
In the first six months of 2002, production on an equivalent basis, increased by
8%. The increases in production relate to the acquisition of DevX Energy, Inc.
("DevX") which was completed in December 2001.

Other income decreased to $79,000 in the second quarter of 2002 from
$121,000 from the second quarter of 2001. Other income for the six months ended
June 30, 2002 decreased to $199,000 in 2002 from $268,000 in 2001. The decreases
relate to a decrease in interest earned on our cash deposits resulting from the
decline in interest rates.

Costs and Expenses -

Our oil and gas operating expenses, including production taxes, increased
$0.3 million (4%) to $8.5 million in the second quarter of 2002 from $8.2
million in the second quarter of 2001. Oil and gas operating expenses per

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)

equivalent Mcf produced decreased $0.07 to $0.80 in the second quarter of 2002
from $0.87 in the second quarter of 2001. The increase in operating expenses is
related to the lifting costs of properties acquired in the acquisition of DevX,
which was partially offset by lower production taxes resulting from the lower
oil and gas prices. Oil and gas operating costs for the six months ended June
30, 2002 decreased $1.0 million (6%) to $16.6 million from $17.6 million for the
six months ended June 30, 2001. Oil and gas operating expenses per equivalent
Mcf produced decreased $0.11 to $0.80 for six months ended June 30, 2002 from
$0.91 for the same period in 2001. The decrease is primarily due to lower
production taxes as a result of the significantly lower oil and gas prices which
is partially offset by the additional operating costs related to the DevX
properties.

In the second quarter of 2002, we had a $1.0 million provision for
exploration expense as compared to a $0.5 million in 2001's second quarter. The
provision in the second quarter of 2002 primarily relates to an exploratory dry
hole drilled at South Pelto Block 1. For the six months ended June 30, 2002 we
had a provision for exploration expenses totaling $3.0 million as compared to
$3.3 million in the same period in 2001. The 2002 provision primarily related to
two offshore exploratory dry holes drilled in 2002.

Depreciation, depletion and amortization ("DD&A") increased $2.0 million
(17%) to $14.1 million in the second quarter of 2002 from $12.0 million in the
second quarter of 2001 due to a 12% increase in our production and a 5% increase
in average amortization rate. DD&A per equivalent Mcf produced increased by
$0.06 to $1.30 for the three months ended June 30, 2002 from $1.24 for the
quarter ended June 30, 2001. For the six months ended June 30, 2002, DD&A
increased $3.6 million (15%) to $27.5 million from $23.9 million for the six
months ended June 30, 2001. The increase is also due to the 8% increase in
production and a higher average amortization rate. DD&A per equivalent Mcf
increased by $0.09 to $1.29 for the six months ended June 30, 2002 from $1.20
for the six months ended June 30, 2001.

General and administrative expenses, which are reported net of overhead
reimbursements, of $1.1 million for the second quarter of 2002 were 8% higher
than general and administrative expenses of $1.0 million for the second quarter
of 2001. For the first six months of 2002, general and administrative expenses
increased to $2.0 million from $1.8 million for the six months ended June 30,
2001. The increases are due primarily to an increase in our personnel costs in
2002.

Interest expense increased $2.7 million (55%) to $7.7 million for the
second quarter of 2002 from $5.0 million in the second quarter of 2001. Interest
expense for the six months ended June 30, 2002 increased $4.0 million (39%) to
$14.5 million from $10.5 million for the six months ended June 30, 2001. The
increases are attributable to higher borrowings outstanding under our bank
credit facility and the issuance of an additional $75.0 million of our 11 1/4%
Senior Notes on March 7, 2002. The increase in debt is attributable to
borrowings made to finance the DevX acquisition. The average outstanding balance
under our bank credit facility increased to $165.9 million and $182.9 million in
the second quarter of 2002 and the six months ended June 30, 2002, respectively,
as compared to $52.4 million and $61.4 million in the second quarter of 2001 and
six months ended June 30, 2001, respectively. The higher debt was offset
partially by a lower interest rate on our bank credit facility. The weighted
average annual interest rate for borrowings under our bank credit facility
decreased to 3.6% for the second quarter of 2002 as compared to 5.8% for the
second quarter of 2001. The weighted average annual rate for the first half of
2002 was 3.9% as compared to 6.6% for the first half of 2001.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)

Comstock reported net income from continuing operations of $3.2 million for
the three months ended June 30, 2002, as compared to net income from continuing
operations of $12.3 million for the three months ended June 30, 2001. Net income
per share from continuing operations for the second quarter was $0.11 on
weighted average diluted shares outstanding of 34.0 million as compared to $0.36
for the second quarter of 2001 on weighted average diluted shares outstanding of
34.9 million. The net loss from continuing operations for the six months ended
June 30, 2002 was $1.5 million, as compared to net income of $35.7 million for
the six months ended June 30, 2001. The net loss from continuing operations per
common share for the six months ended June 30, 2002 was $0.05 as compared to
$1.22 ($1.04 per diluted common share) for the six months ended June 30, 2001.

In April 2002 and July 2002, we sold certain oil and gas properties, which
resulted in a loss of $1.8 million. The operating results of these properties
have been reflected as discontinued operations in the consolidated financial
statements including the losses on disposal.

Liquidity and Capital Resources

Funding for our activities has historically been provided by our operating
cash flow, debt or equity financings or asset dispositions. For the six months
ended June 30, 2002, our net cash flow provided by operating activities before
changes to other working capital accounts totaled $32.4 million. Our other
primary funding sources in the first six months of 2002 were borrowings of $20.0
million under our bank credit facility and proceeds of $75.0 million received
from the issuance of our 11 1/4% Senior Notes.

Our primary needs for capital, in addition to funding our ongoing
operations, relate to the acquisition, development and exploration of our oil
and gas properties and the repayment of our debt. For the six months ended June
30, 2002, we incurred capital expenditures of $37.6 million for development and
exploration activities. We also repaid $83.0 million of borrowings under our
bank credit facility.

The following table summarizes our capital expenditure activity for the six
months ended June 30, 2002 and 2001:

Six Months Ended
June 30,
2002 2001
------- -------
(In thousands)
-----------------
Acquisitions ................. $ -- $ 250
Leasehold costs .............. 5,391 6,804
Development drilling ......... 11,504 25,178
Exploratory drilling ......... 15,510 23,539
Offshore production facilities 2,323 306
Workovers and recompletions .. 2,745 2,933
Other ........................ 95 82
------- -------
$37,568 $59,092
======= =======

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)

The timing of most of our capital expenditures is discretionary because we
have no material long-term capital expenditure commitments. Consequently, we
have a significant degree of flexibility to adjust the level of our capital
expenditures as circumstances warrant. We spent $37.5 million and $58.8 million
on development and exploration activities in the six months ended June 30, 2002
and 2001, respectively. We have budgeted approximately $75.0 million for
development and exploration projects in 2002. We expect to use internally
generated cash flow to fund development and exploration activity.

We do not have a specific acquisition budget for 2002 since the timing and
size of acquisitions are not predictable. We intend to use borrowings under our
bank credit facility, or other debt or equity financings to the extent
available, to finance significant acquisitions. The availability and
attractiveness of these sources of financing will depend upon a number of
factors, some of which will relate to our financial condition and performance
and some of which will be beyond our control, such as prevailing interest rates,
oil and natural gas prices and other market conditions.

On December 17, 2001, we entered into a new three year $350.0 million
revolving credit facility with Toronto Dominion (Texas), Inc. as administrative
agent. Indebtedness under the new bank credit facility is secured by
substantially all of our assets. The revolving credit line is subject to
borrowing base availability, which will be redetermined semiannually based on
the banks' estimates of the future net cash flows of our oil and gas properties.
The current borrowing base is $250.0 million. The borrowing base may be affected
by the performance of our properties and changes in oil and gas prices. The
determination of the borrowing base is at the sole discretion of the
administrative agent and the bank group. The revolving credit line bears
interest, based on the utilization of the borrowing base, at our option at
either (i) LIBOR plus 1.5% to 2.375% or (ii) the base rate plus 0.5% to 1.375%.
The bank credit facility matures on January 2, 2005 and contains covenants that,
among other things, restrict our ability to pay cash dividends, limit the amount
of our consolidated debt and limit our ability to make certain loans and
investments. Financial covenants include the maintenance of a current ratio,
maintenance of tangible net worth and maintenance of an interest coverage ratio.

On March 7, 2002, we closed the sale in a private placement of $75.0
million of our 11 1/4% Senior Notes due 2007 (the "Notes") at a net price of
97.25% after the placements agents' discount. As a result of this transaction,
$220.0 million of aggregate principal amount of the Notes were outstanding. The
net proceeds were used to reduce amounts outstanding under our bank credit
facility.

We believe that our cash flow from operations and our available borrowings
under the new bank credit facility will be sufficient to fund our operations and
future growth as contemplated under our current business plan. However, if our
plans or assumptions change or if our assumptions prove to be inaccurate, we may
be required to seek additional capital. We cannot provide any assurance that we
will be able to obtain such capital, or if such capital is available, that we
will be able to obtain it on acceptable terms.

On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scope. These attacks caused major instability in the
U.S. and other financial markets. Leaders of the U.S. government have announced
their intention to actively pursue those behind the attacks and to possibly
initiate broader action against global terrorism. The attacks and any response
may lead to armed hostilities or further acts of terrorism in the United States
or elsewhere, and such developments, coupled with the recent turmoil created by

various high-profile accounting scandals, would likely cause further instability
in financial markets. The prices for oil and natural gas are volatile, and the
recent terrorist attacks and future developments may increase the volatility of
such prices. These developments may subject our operations to increased risks
and, depending on their magnitude, could have a material adverse effect on our
financial condition and results of operations, which, in all likelihood, would
impair our ability to pay interest and repay the principal on our outstanding
debt. Our business success also depends somewhat on factors beyond our control,
including changes in national and local economic conditions, interest rates and
federal, state and local laws. Any substantial deterioration in any of the
foregoing conditions could have a material adverse effect on our financial
condition and results of operations, which, in all likelihood, would impair our
ability to pay interest and repay the principal on our outstanding debt.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

Oil and Natural Gas Prices

Our financial condition, results of operations and capital resources are
highly dependent upon the prevailing market prices of oil and natural gas. These
commodity prices are subject to wide fluctuations and market uncertainties due
to a variety of factors that are beyond our control. Factors influencing oil and
natural gas prices include the level of global demand for crude oil, the foreign
supply of oil and natural gas, the establishment of and compliance with
production quotas by oil exporting countries, weather conditions that determine
the demand for natural gas, the price and availability of alternative fuels and
overall economic conditions. It is impossible to predict future oil and natural
gas prices with any degree of certainty. Sustained weakness in oil and natural
gas prices may adversely affect our financial condition and results of
operations, and may also reduce the amount of oil and natural gas reserves that
we can produce economically. Any reduction in our oil and natural gas reserves,
including reductions due to price fluctuations, can have an adverse effect on
our ability to obtain capital for our exploration and development activities.
Similarly, any improvements in oil and natural gas prices can have a favorable
impact on our financial condition, results of operations and capital resources.
Based on our oil and natural gas production in the six months ended June 30,
2002, a $1.00 change in the price per barrel of oil would have resulted in a
change in our cash flow for such period by approximately $16.1 million and a
$1.00 change in the price per Mcf of natural gas would have changed our cash
flow by approximately $0.7 million.

We periodically use hedging transactions with respect to a portion of our
oil and natural gas production to mitigate our exposure to price changes. While
the use of these hedging arrangements limits the downside risk of price
declines, such use may also limit any benefits that may be derived from price
increases. We use swaps, floors and collars to hedge oil and natural gas prices.
Swaps are settled monthly based on differences between the prices specified in
the instruments and the settlement prices of futures contracts quoted on the New
York Mercantile Exchange. Generally, when the applicable settlement price is
less than the price specified in the contract, we receive a settlement from the
counterparty based on the difference multiplied by the volume hedge. Similarly,
when the applicable settlement price exceeds the price specified in the
contract, we pay the counterparty based on the difference. We generally receive
a settlement from the counterparty for floors when the applicable settlement
price is less than the price specified in the contract, which is based on the
difference multiplied by the volumes hedged. For collars, we generally receive a
settlement from the counterparty when the settlement price is below the floor
and pay a settlement to the counterparty when the settlement price exceeds the
cap. No settlement occurs when the settlement price falls between the floor and
cap.

In March 2002, we hedged a portion of our natural gas production for the
period April 2002 through October 2002 in order to increase the predictability
of our cash flow from operations in order to support our planned 2002 drilling
program. The hedges cover approximately 45% to 50% of our expected 2002 natural

gas production from April 2002 to October 2002. We entered into price swaps
covering 50 MMBtus per day of our natural gas production at an average price of
$3.46. The price swaps are settled using the closing index price for natural gas
delivered to the Houston Ship Channel for 38.2 MMBtus per day and the closing
contract price for natural gas delivered to the Henry Hub on the New York
Mercantile Exchange for 11.8 MMBtus per day. For the first six months of 2002 we
realized gains of $363,000 on these hedge positions.

The following table sets out the derivative financial instruments
outstanding at June 30, 2002, excluding the Enron positions, which are held for
natural gas price risk management:

January 1, 2003 December 31, 2003 2,250,000 Floor -- $2.00 --
----------
10,055,000
==========

The fair value of the commodity price derivative financial instruments at
June 30, 2002 was a net liability of $1.6 million. Certain of the positions have
not been designated as cash flow hedges. Changes in fair value of the derivative
financial instruments not designated as cash flow hedges are recorded in
earnings.

Interest Rates

At June 30, 2002, we had long-term debt of $384.0 million. Of this amount,
$220.0 million bears interest at a fixed rate of 11 1/4%. We had $164.0 million
outstanding under our revolving bank credit facility, which is subject to
floating market rates of interest. Borrowings under the bank credit facility
bear interest at a fluctuating rate that is linked to LIBOR or the corporate
base rate, at our option. Any increases in these interest rates can have an
adverse impact on our results of operations and cash flow. In March 2001, we
entered into an interest rate swap agreement to hedge the impact of interest
rate changes on $25.0 million of our floating rate debt beginning on April 30,
2001 and expiring on April 30, 2002. As a result of this interest rate swap, we
realized a loss of $218,000 in the first six months of 2002. As of June 30,
2002, Comstock had no open interest rate derivative financial instruments
outstanding.

PART II - OTHER INFORMATION

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits
--------

10.1*# Employment Agreement dated June 1, 2002, by and between Comstock
and M. Jay Allison.

10.2*# Employment Agreement dated June 1, 2002, by and between Comstock
and Roland O. Burns.

15.1* Awareness Letter of KPMG LLP.

99.1* Certification for the Chief Executive Officer as required by
Section 906 of the Sarbanes-Oxley Act of 2002.

99.2* Certification for the Chief Financial Officer as required by
Section 906 of the Sarbanes-Oxley Act of 2002.

-------------
*Filed herewith.
# Management contract or compensatory plan document.

b. Reports on Form 8-K
------------------
Form 8-K Reports filed subsequent to March 31, 2002 are as follows:

Date Item Description
---------------- ------- ---------------------------------------------

April 26, 2002 4 Changes in registrant's certifying accountant

SIGNATURES
----------

Pursuant to the requirements 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.

/s/M. JAY ALLISON
-----------------
Date August 12, 2002 M. Jay Allison, Chairman, President and Chief
--------------- Executive Officer (Principal Executive Officer)

/s/ROLAND O. BURNS
------------------
Date August 12, 2002 Roland O. Burns, Senior Vice President,
--------------- Chief Financial Officer, Secretary, and Treasurer
(Principal Financial and Accounting Officer)