Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2014

Accrued liabilities at March 31, 2014 and December 31, 2013 consist of the following:

	As of March 31, 2014		As of December 31, 2013
	(In thousands)
Accrued oil and gas property acquisition costs	$	1,038	$	40,128
Accrued drilling costs		24,874		34,914
Accrued interest payable		20,010		7,051
Other accrued liabilities		7,121		9,204
	$	53,043	$	91,297

Summary of Changes in 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 three months ended March 31, 2014 and 2013:

	Three Months Ended March 31,
	2014			2013
	(In thousands)
Future abandonment costs – beginning of period	$	14,534		$	17,994
Accretion expense – continuing operations		196			272
Accretion expense – discontinued operations		—			34
New wells placed on production		370			329
Liabilities settled and assets disposed of		(12	)		—
Liabilities reclassified to discontinued operations		—			(1,870	)
Future abandonment costs — end of period	$	15,088		$	16,759

Summary of Outstanding Oil Price Derivatives

As of March 31, 2014, the Company had the following outstanding commodity derivatives:

Commodity and Derivative Type

Weighted-Average
Contract Price

Volume
(barrels)

Contract Period

Crude Oil Price Swap Agreements

$96.60 per Bbl.

1,897,500

April 2014 –

December 2014

Income Tax Expense from Continuing Operations

The following is an analysis of consolidated income tax expense (benefit) from continuing operations:

	Three Months Ended March 31,
	2014		2013
	(In thousands)
Current provision	$	14	$	3
Deferred provision (benefit)		674		(12,245	)
Provision for (benefit from) income taxes	$	688	$	(12,242	)

Difference Between Customary Rate and Effective Tax Rate on Income Before Income Taxes Due

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 effective tax rate and the 35% federal statutory rate is mainly caused by non-deductible stock compensation and state taxes. The impact of these items varies based upon the Company's projected full year income or loss and the jurisdictions that are expected to generate the projected income and/or losses. The difference between the Company's customary rate of 35% and the effective tax rate on income before income taxes from continuing operations is due to the following:

	Three Months Ended March 31,
	2014			2013
Tax at statutory rate		35.0	%		35.0	%
Tax effect of:
Nondeductible stock-based compensation		1.7	%		(3.2	%)
State income taxes, net of federal benefit		—	%		1.8	%
Other		0.4	%		(0.3	%)
Effective tax rate		37.1	%		33.3	%

Summary of Financial Assets and Liabilities at Fair Value

The following table summarizes financial assets and liabilities accounted for at fair value as of March 31, 2014:

	Carrying Value Measured at Fair Value at March 31, 2014		Level 1			Level 2
			(In thousands)

Assets measured at fair value on a recurring basis:
Cash held in bank accounts	$	1,771	$	1,771	$	—
Total assets	$	1,771	$	1,771	$	—

Liabilities measured at fair value on a recurring basis:
Derivative financial instruments	$	2,679	$	—	$	2,679
Total liabilities	$	2,679	$	—	$	2,679

Carrying Amounts and Estimated Fair Value of Other Financial Instruments

The following table presents the carrying amounts and estimated fair value of the Company's other financial instruments:

	As of March 31, 2014
	Carrying Value		Fair Value
	(In thousands)
Fixed rate debt	$	589,140	$	660,000
Floating rate debt	$	360,000	$	360,000

Basic and Diluted Earnings Per Share

Basic earnings per share is determined without the effect of any outstanding potentially dilutive stock options or PSUs and diluted earnings per share is determined with the effect of outstanding stock options and PSUs 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. PSUs represent the right to receive a number of shares of the Company's common stock that may range from zero to up to three times the number of PSUs granted on the award date based on the achievement of certain performance measures during a performance period. The number of potentially dilutive shares related to PSUs is based on the number of shares, if any, which would be issuable at the end of the respective period, assuming that date was the end of the contingency period. The treasury stock method is used to measure the dilutive effect of PSUs. Basic and diluted earnings per share for the three months ended March 31, 2014 and 2013 were determined as follows:

	Three Months Ended March 31,
	2014							2013
	Income			Shares		Per Share		Loss			Shares		Per Share
		(In thousands, except per share amounts)
Net income (loss) from continuing operations	$	1,165						$	(24,517	)
Income allocable to unvested restricted stock		(139	)						—
Basic net income (loss) from continuing operations attributable to common stock	$	1,026			46,599	$	0.02	$	(24,517	)		46,730	$	(0.52	)
Effect of dilutive securities:
Stock options		—			—				—			—
Performance share units		—			150				—			—
Diluted net income (loss) from continuing operations attributable to common stock	$	1,026			46,749	$	0.02	$	(24,517	)		46,730	$	(0.52	)

Net loss from discontinued operations								$	(2,627	)
Income allocable to unvested restricted stock									—
Basic net loss from discontinued operations attributable to common stock								$	(2,627	)		46,730	$	(0.06	)
Effect of dilutive securities:
Stock options									—			—
Performance share units									—			—
Diluted net loss from discontinued operations attributable to common stock								$	(2,627	)		46,730	$	(0.06	)

Weighted Average Shares of Unvested Restricted Stock

At March 31, 2014 and December 31, 2013, 1,227,036 and 1,515,889 shares of restricted stock, respectively, 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 on matters submitted to the Company's stockholders. Weighted average shares of unvested restricted stock outstanding during the three months ended March 31, 2014 and 2013 were as follows:

	Three Months Ended March 31,
	2014		2013
		(In thousands)
Unvested restricted stock		1,113		1,573

Common Stock Stock Options Excluded as Anti-Dilutive from Determination of Diluted Earnings Per Share

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

	Three Months Ended March 31,
	2014		2013
	(In thousands except per share data)
Weighted average anti-dilutive stock options		115		157
Weighted average exercise price per share	$	32.90	$	38.36
Weighted average performance share units		—		20
Weighted average grant date fair value per unit	$	—	$	21.14

Cash Payments Made for Interest and Income Taxes

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

	Three Months Ended March 31,
	2014		2013
	(In thousands)
Cash Payments:
Interest payments	$	1,794	$	3,163
Income tax payments	$	1,408	$	2

Comprehensive Loss

Comprehensive loss consists of the following:

	Three Months Ended March 31,
	2014		2013
	(In thousands)
Net income (loss)	$	1,165	$	(27,144	)
Other comprehensive income (loss):
Realized gains on marketable securities reclassified to gain on sale of marketable securities, net of a benefit from income taxes of $2,757		—		(5,120	)
Unrealized gains on marketable securities, net of provision for income taxes of $377		—		702
Total comprehensive income (loss)	$	1,165	$	(31,562	)

Summary of Loss from Discontinued Operations

On March 14, 2013, the Company entered into an agreement to sell its oil and gas properties located in Reeves and Gaines counties in West Texas to a third party. The sale closed on May 14, 2013 with an effective date of January 1, 2013. Loss from discontinued operations for the three months ended March 31, 2013 is comprised of the following:

	(In thousands)
Revenues:
Oil and gas sales	$	16,299
Costs and expenses:
Production taxes		693
Gathering and transportation		331
Lease operating		6,308
Depletion, depreciation and amortization		8,649
Interest expense⁽¹⁾		3,499
Total costs and expenses		19,480
Loss from discontinued operations before income taxes		(3,181	)
Income tax benefit:
Current		—
Deferred		554
Total income tax benefit		554
Net loss from discontinued operations	$	(2,627	)

(1)	Interest expense was allocated to discontinued operations based on the ratio of the net assets of discontinued operations to our consolidated net assets plus long-term debt. Interest expense is net of capitalized interest of $2,010 for the three months ended March 31, 2013.