Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2011

Summary of Significant Accounting Policies (Policies) [Abstract]

Basis of Presentation

          In management’s opinion, the accompanying unaudited 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” or the “Company”) as of June 30, 2011 and the related results of operations for the three months and six months ended June 30, 2011 and 2010 and cash flows for the six months ended June 30, 2011 and 2010.

          The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to those rules and regulations, although Comstock believes that the disclosures made are adequate to make the information presented not misleading. These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in Comstock’s Annual Report on Form 10-K for the year ended December 31, 2010.

          The results of operations for the three months and six months ended June 30, 2011 are not necessarily an indication of the results expected for the full year.

          These unaudited consolidated financial statements include the accounts of Comstock and its wholly owned and controlled subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

          Certain reclassifications have been made to prior periods’ financial statements to conform to the current presentation.

Marketable Securities

          As of June 30, 2011 the Company held 2,056,000 shares of Stone Energy Corporation common stock which was reflected in the consolidated balance sheets as marketable securities. As of June 30, 2011, the cost basis of the marketable securities was $18.9 million and the estimated fair value was $62.5 million, after recognizing an unrealized gain after income taxes of $28.3 million. The Company does not exert influence over the operating and financial policies of Stone Energy Corporation, and has classified its investment in these shares as an available-for-sale security in the consolidated balance sheets. Available-for-sale securities are accounted for at fair value, with any unrealized gains and unrealized losses not determined to be other than temporary reported in the consolidated balance sheet within accumulated other comprehensive income as a separate component of stockholders’ equity. The Company utilizes the specific identification method to determine the cost of any securities sold. During the three months and six months ended June 30, 2011 the Company sold 370,000 and 1,741,000 shares, respectively, of Stone Energy Corporation for $11.9 million and $45.7 million, respectively. Comstock realized a gain before income taxes on these sales of $8.5 million and $29.7 million, for the three months and six months ended June 30, 2011, respectively. During the three months and six months ended June 30, 2010, the Company sold 520,000 shares of Stone Energy Corporation for $10.5 million and realized gains before income taxes of $5.7 million on these sales.

Property and Equipment

          The Company follows the successful efforts method of accounting for its oil and natural gas properties. Costs incurred to acquire oil and gas leasehold are capitalized. Unproved oil and gas properties are periodically assessed and any impairment in value is charged to exploration expense. The costs of unproved properties which are determined to be productive are transferred to oil and gas properties and amortized on an equivalent unit-of-production basis. An impairment charge of $9.5 million related to certain leases that were expected to expire prior to the Company conducting drilling operations was recognized in exploration expense in the six months ended June 30, 2011.

          The Company also assesses the need for an impairment of the costs capitalized for its oil and gas properties on a property or cost center basis. The Company recognized impairment charges related to its oil and gas properties of $0.2 million during the six months ended June 30, 2010. There were no impairment charges related to oil and gas properties recognized during the three months and six months ended June 30, 2011.

Reserve for Future Abandonment Costs

          Comstock’s asset retirement obligations relate to future plugging and abandonment expenses on its oil and gas properties and related facilities disposal. The following table summarizes the changes in Comstock’s total estimated liability during the six months ended June 30, 2011 and 2010:

	Six Months Ended
	June 30,
	2011			2010
	(In thousands)
Beginning future abandonment costs	$	6,674		$	6,561
Accretion expense		186			191
New wells placed on production and changes in estimates		191			131
Liabilities settled		(42	)		(43	)
Future abandonment costs — end of period	$	7,009		$	6,840

Revenue Recognition and Gas Balancing

          Comstock utilizes the sales method of accounting for oil and natural gas revenues whereby revenues are recognized at the time of delivery based on the amount of oil or natural gas sold to purchasers. Revenue is typically recorded in the month of production based on an estimate of the Company’s share of volumes produced and prices realized. Revisions to such estimates are recorded as actual results are known. The amount of oil or natural gas sold may differ from the amount to which the Company is entitled based on its revenue interests in the properties. The Company did not have any significant imbalance positions at June 30, 2011 or December 31, 2010.

Derivative Financial Instruments

          The Company did not have any derivative financial instruments outstanding during the three months and six months ended June 30, 2011 or June 30, 2010.

Stock-Based Compensation

          Comstock accounts for employee stock-based compensation under the fair value method. Compensation cost is measured at the grant date based on the fair value of the award and is recognized over the award vesting period. During the three months ended June 30, 2011 and 2010, the Company recognized $3.9 million and $4.3 million, respectively, of stock-based compensation expense within general and administrative expenses related to awards of restricted stock or stock options to its employees and directors. During the six months ended June 30, 2011 and 2010, the Company recognized $7.0 million and $8.5 million, respectively, of stock-based compensation expense within general and administrative expenses related to awards of restricted stock or stock options.

          As of June 30, 2011, Comstock had 1,638,400 shares of unvested restricted stock outstanding at a weighted average grant date fair value of $35.17 per share. Total unrecognized compensation cost related to unvested restricted stock grants of $28.0 million as of June 30, 2011 is expected to be recognized over a period of 2.4 years. During the six months ended June 30, 2011 the Company awarded a total of 26,000 shares of restricted stock to its independent directors which will vest three years from the date of the grant. The grant date fair value was $26.52 per share for the 2011 awards.

     As of June 30, 2011, Comstock had outstanding options to purchase 203,150 shares of common stock at a weighted average exercise price of $36.64 per share. All of the stock options were exercisable and there were no unrecognized costs related to the options as of June 30, 2011. The Company received $1.3 million in cash proceeds from the exercise of stock options during the six months ended June 30, 2010. No stock options were exercised during the six months ended June 30, 2011.

Income Taxes

          The following is an analysis of consolidated income tax expense:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2011		2010			2011		2010
			(In thousands)
Current provision (benefit)	$	410	$	(33	)	$	569	$	183
Deferred provision (benefit)		2,172		12			2,621		(43	)
Provision for (benefit from) income taxes	$	2,582	$	(21	)	$	3,190	$	140

          Deferred income taxes are provided to reflect the future tax consequences or benefits of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements using enacted tax rates. The difference between the Company’s customary rate of 35% and the effective tax rate on income before income taxes is due to the following:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Tax at statutory rate		35.0	%		35.0	%		35.0	%		35.0	%
Tax effect of:
Nondeductible stock-based compensation		4.3	%		(35.7	%)		(2.0	%)		(24.2	%)
State income taxes, net of federal benefit		(0.1	%)		(0.5	%)		0.2	%		(1.2	%)
Net operating loss carryback adjustments		—	%		—	%		—	%		(6.3	%)
Domestic production activities deduction		—	%		3.2	%		—	%		0.3	%
Other		0.3	%		(0.7	%)		0.2	%		(1.2	%)
Effective tax rate		39.5	%		1.3	%		33.4	%		2.4	%

          The Company’s non-deductible stock-based compensation has the effect of increasing the Company’s annualized effective tax rate in the case of an income tax provision or decreasing the effective tax rate in the case of an income tax benefit. The effective tax rate for the six months ended June 30, 2011 reflects the benefit from a decrease in non-deductible compensation which resulted from the early retirement of one of the Company’s executives. The 2010 effective tax rate was based on an expected income tax benefit for the full year and reflects a benefit from adjustments related to refund claims resulting from net operating loss carrybacks.

     The Company’s federal income tax returns for the years subsequent to December 31, 2006 remain subject to examination. The Company’s income tax returns in major state income tax jurisdictions remain subject to examination from various periods subsequent to December 31, 2005. State tax returns in one state jurisdiction are currently under review. The Company has evaluated the preliminary findings in this jurisdiction and believes it is more likely than not that the ultimate resolution of these matters will not have a material effect on its financial statements. The Company currently believes that all other significant filing positions are highly certain and that all of its other significant income tax positions and deductions would be sustained under audit or the final resolution would not have a material effect on the consolidated financial statements. Therefore the Company has not established any significant reserves for uncertain tax positions.

Fair Value Measurements

          As of June 30, 2011, the Company held certain items that are required to be measured at fair value. These included cash equivalents held in money market funds and marketable securities comprised of shares of Stone Energy Corporation common stock. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The estimated fair value for the items in the Company’s financial statement were based on Level 1 inputs where the inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.

          The following table summarizes financial assets and liabilities accounted for at fair value as of June 30, 2011:

	Carrying
	Value
	Measured at
	Fair Value
	(In thousands)
Items measured at fair value on a recurring basis:
Cash equivalents — money market funds	$	3,556
Marketable securities		62,482
Total assets	$	66,038

          The following table presents the carrying amounts and estimated fair value of the Company’s other financial instruments as of June 30, 2011 and December 31, 2010:

	As of June 30, 2011				As of December 31, 2010
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
			(In thousands)
Long-term debt, including current portion	$	691,640	$	705,500	$	513,372	$	518,930

The fair market value of the Company’s fixed rate debt was based on their market prices as of June 30, 2011 and December 31, 2010. The fair value of the floating rate debt outstanding at June 30, 2011 and December 31, 2010 approximated its carrying value.

Earnings Per Share

          Basic earnings per share is determined without the effect of any outstanding potentially dilutive stock options and diluted earnings per share is determined with the effect of outstanding stock options that are potentially dilutive. Unvested share-based payment awards containing nonforfeitable rights to dividends are considered to be participatory securities and are included in the computation of basic and diluted earnings per share pursuant to the two-class method. Basic and diluted earnings per share for the three months and six months ended June 30, 2011 and 2010, respectively, were determined as follows:

	Three Months Ended June 30,
	2011							2010
						Per		Income					Per
	Income			Shares		Share		(Loss)			Shares		Share
				(In thousands, except per share amounts)
Net Income (Loss)	$	3,949						$	(1,619	)
Income Allocable to Unvested Stock Grants		(136	)						—
Basic Net Income (Loss) Attributable to Common Stock	$	3,813			45,992	$	0.08	$	(1,619	)		45,579	$	(0.04	)
Effect of Dilutive Securities:
Stock Options		—			—				—			—
Diluted Net Income (Loss) Attributable to Common Stock	$	3,813			45,992	$	0.08	$	(1,619	)		45,579	$	(0.04	)

	Six Months Ended June 30,
	2011							2010
						Per							Per
	Income			Shares		Share		Income			Shares		Share
				(In thousands, except per share amounts)
Net Income	$	6,353						$	5,723
Income Allocable to Unvested Stock Grants		(224	)						(206	)
Basic Net Income Attributable to Common Stock	$	6,129			45,983	$	0.13	$	5,517			45,494	$	0.12
Effect of Dilutive Securities:
Stock Options		—			—				—			77
Diluted Net Income Attributable to Common Stock	$	6,129			45,983	$	0.13	$	5,517			45,571	$	0.12

          At June 30, 2011 and December 31, 2010, 1,638,400 and 2,069,275 shares of restricted stock are included in common stock outstanding as such shares have a nonforfeitable right to participate in any dividends that might be declared and have the right to vote. Weighted average shares of unvested restricted stock were as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
			(In thousands)
Unvested restricted stock		1,644		1,698		1,680		1,698

          The shares of unvested stock were excluded from the computation of earnings per share as anti-dilutive to earnings for the three month period ended June 30, 2010 due to the net loss in this period.

          Options to purchase common stock that were outstanding and that were excluded as anti-dilutive from the determination of diluted earnings per share were as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(In thousands except per share data)
Weighted average anti-dilutive stock options		216		270		226		40
Weighted average exercise price	$	36.39	$	36.38	$	36.22	$	54.36

          The excluded options that were anti-dilutive were at exercise prices in excess of the average stock price for each of the periods presented. All stock options were excluded as anti-dilutive for the three months ended June 30, 2010 due to the net loss in that period.

Supplementary Information With Respect to the Consolidated 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. At June 30, 2011 and December 31, 2010 the Company’s cash investments consisted of prime shares held in institutional preferred money market funds.

          The following is a summary of cash payments made for interest and income taxes:

	Six Months Ended June 30,
	2011		2010
	(In thousands)
Cash Payments:
Interest payments	$	20,564	$	20,284
Income tax payments (refunds)	$	19	$	(48,843	)

          The Company capitalizes interest on its unevaluated oil and gas property costs during periods when it is conducting exploration activity on this acreage. For the three months and six months ended June 30, 2011, the Company capitalized interest of $3.5 million and $6.6 million, respectively, which reduced interest expense and increased the carrying value of its unevaluated oil and gas properties. The Company capitalized interest of $2.9 million and $5.5 million during the three months and six months ended June 30, 2010, respectively.

Comprehensive Income (Loss)

     Comprehensive Income (Loss)

          Comprehensive income (loss) consists of the following:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
				(In thousands)
Net income (loss)	$	3,949		$	(1,619	)	$	6,353		$	5,723
Other comprehensive income (loss):
Realized gain on marketable securities reclassified to earnings, net of income tax expense of $2,968, $1,992, $10,405 and $1,992		(5,512	)		(3,700	)		(19,324	)		(3,700	)
Unrealized gain (loss) on marketable securities, net of income tax expense (benefit) of ($2,307), ($10,630), $8,252, and ($11,188)		(4,285	)		(19,742	)		15,325			(20,778	)
Total comprehensive income (loss)	$	(5,848	)	$	(25,061	)	$	2,354		$	(18,755	)

          Accumulated other comprehensive income for the three months and six months ended June 30, 2011, which is related solely to changes in the fair value of our marketable securities, is comprised of the following:

	Three Months			Six Months
	Ended			Ended
	June 30, 2011			June 30, 2011
	(In thousands)
Balance as of beginning of the period	$	38,128		$	32,330
Realized gain on sale of marketable securities, net of income taxes, reclassified to earnings		(5,512	)		(19,324	)
Changes in the value of marketable securities, net of income taxes		(4,285	)		15,325
Balance as of June 30, 2011	$	28,331		$	28,331

Subsequent Events

          Subsequent events were evaluated through the issuance date of these consolidated financial statements.