UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For The Quarterly Period Ended March 31, 2007
		OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 such filing requirements for the past 90 days.

Yes þ          No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ          Accelerated filer o          Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o          No þ

     The number of shares outstanding of the registrant’s common stock, par value $.50, as of May 10, 2007 was 44,406,995.

 

 

COMSTOCK RESOURCES, INC.

QUARTERLY REPORT

For The Quarter Ended March 31, 2007

INDEX

		Page
PART I. Financial Information
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets - March 31, 2007 and December 31, 2006		4
Consolidated Statements of Operations - Three months ended March 31, 2007 and 2006		5
Consolidated Statement of Stockholders’ Equity - Three months ended March 31, 2007		6
Consolidated Statements of Cash Flows - Three months ended March 31, 2007 and 2006		7
Notes to Consolidated Financial Statements		8
Independent Accountants’ Review Report		18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosure About Market Risk		23
Item 4. Controls and Procedures		24
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders		25
Item 6. Exhibits		25
Awareness Letter of Ernst & Young LLP
Section 302 Certification of the Chief Executive Officer
Section 302 Certification of the Chief Financial Officer
Certification for the Chief Executive Officer as Required by Section 906
Certification for the Chief Financial Officer as Required by Section 906

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

INTRODUCTORY NOTE

     In the third quarter of 2006, Comstock Resources, Inc. (“Comstock” or the “Company”) acquired additional interests in Bois d’Arc Energy, Inc. (“Bois d’Arc Energy”) and, as a result, began including Bois d’Arc Energy in its financial statements as a consolidated subsidiary. In accordance with generally accepted accounting principles, Comstock has applied consolidation accounting for its ownership in Bois d’Arc Energy retroactively as of January 1, 2006. Revenues and expenses have been adjusted beginning January 1, 2006 to include Bois d’Arc Energy as a consolidated subsidiary. There was no effect on net income as a result of using the consolidation method. A summary of the impact of consolidating Bois d’Arc Energy on the previously reported financial results from the three months ended March 31, 2006 is included in Note 1 to the consolidated financial statements.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Unaudited)

		March 31,				December 31,
		2007				2006
		(In thousands)
ASSETS
Cash and Cash Equivalents		$	12,003			$	10,715
Accounts Receivable:
Oil and gas sales			61,602				56,328
Joint interest operations			18,833				19,233
Other Current Assets			10,539				12,552
Total current assets			102,977				98,828
Property and Equipment:
Unevaluated oil and gas properties			15,773				13,645
Oil and gas properties, successful efforts method			2,648,525				2,511,782
Other			9,296				8,483
Accumulated depreciation, depletion and amortization			(816,073	)			(760,284	)
Net property and equipment			1,857,521				1,773,626
Other Assets			5,361				5,671
		$	1,965,859			$	1,878,125
LIABILITIES AND STOCKHOLDERS’ EQUITY
Short-term Debt		$	—			$	3,250
Accounts Payable			140,217				132,504
Accrued Expenses			6,936				16,107
Total current liabilities			147,153				151,861
Long-term Debt			511,000				455,000
Deferred Income Taxes Payable			323,507				311,236
Reserve for Future Abandonment Costs			58,113				57,116
Minority Interest in Bois d’Arc Energy			228,006				220,349
Total liabilities			1,267,779				1,195,562
Commitments and Contingencies
Stockholders’ Equity:
Common stock — $0.50 par, 50,000,000 shares authorized, 44,406,995 and 44,395,495 shares outstanding at March 31, 2007 and December 31, 2006, respectively			22,203				22,197
Additional paid-in capital			370,276				367,323
Retained earnings			305,601				293,043
Total stockholders’ equity			698,080				682,563
		$	1,965,859			$	1,878,125

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		Three Months Ended
		March 31,
		2007				2006
		(In thousands, except per share amounts)
Oil and gas sales		$	146,029			$	131,724
Operating expenses:
Oil and gas operating			27,083				26,295
Exploration			11,133				4,875
Depreciation, depletion and amortization			56,707				30,685
General and administrative, net			9,702				8,135
Total operating expenses			104,625				69,990
Income from operations			41,404				61,734
Other income (expenses):
Interest income			296				237
Other income			130				54
Interest expense			(8,449	)			(5,483	)
Gain on derivatives			—				8,125
Total other income (expenses)			(8,023	)			2,933
Income before income taxes and minority interest			33,381				64,667
Provision for income taxes			(14,824	)			(26,299	)
Minority interest in earnings of Bois d’Arc Energy			(5,999	)			(8,734	)
Net income		$	12,558			$	29,634
Net income per share:
Basic		$	0.29			$	0.70
Diluted		$	0.28			$	0.68
Weighted average common and common stock equivalent shares outstanding:
Basic			43,364				42,051
Diluted			44,238				43,429

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

		Common				Common				Additional
		Stock				Stock -				Paid-in				Retained
		(Shares)				Par Value				Capital				Earnings				Total
		(In thousands)
Balance at January 1, 2007			44,395			$	22,197			$	367,323			$	293,043			$	682,563
Stock-based compensation			—				—				2,654				—				2,654
Exercise of stock options			12				6				133				—				139
Excess tax benefit from stock-based compensation			—				—				166				—				166
Net income			—				—				—				12,558				12,558
Balance at March 31, 2007			44,407			$	22,203			$	370,276			$	305,601			$	698,080

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Three Months Ended
		March 31,
		2007				2006
		(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	12,558			$	29,634
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes			12,437				23,724
Dry hole costs and leasehold impairments			8,250				3,381
Depreciation, depletion and amortization			56,707				30,685
Debt issuance cost amortization			281				315
Stock-based compensation			4,312				3,144
Excess tax benefit from stock-based compensation			(166	)			(197	)
Minority interest in earnings of Bois d’Arc Energy			5,999				8,734
Gain on derivatives			—				(8,125	)
(Increase) decrease in accounts receivable			(4,874	)			13,685
(Increase) decrease in other current assets			(1,237	)			4,512
Decrease in accounts payable and accrued expenses			(15,521	)			(23,953	)
Net cash provided by operating activities			78,746				85,539
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(133,727	)			(93,369	)
Payments to settle derivatives			—				(703	)
Net cash used for investing activities			(133,727	)			(94,072	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings			58,000				42,000
Principal payments on debt			(2,000	)			(35,000	)
Proceeds from issuance of common stock			139				117
Excess tax benefit from stock-based compensation			166				197
Debt issuance costs			(36	)			—
Net cash provided by financing activities			56,269				7,314
Net increase (decrease) in cash and cash equivalents			1,288				(1,219	)
Cash and cash equivalents, beginning of period			10,715				89
Bois d’Arc Energy cash and equivalents as of January 1, 2006			—				12,043
Cash and cash equivalents, end of period		$	12,003			$	10,913

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007
(Unaudited)

(1) SIGNIFICANT ACCOUNTING POLICIES —

     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 March 31, 2007 and the related results of operations and cash flows for the three months ended March 31, 2007 and 2006.

          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 of the Company included in Comstock’s Annual Report on Form 10-K for the year ended December 31, 2006.

          The results of operations for the three months ended March 31, 2007 are not necessarily an indication of the results expected for the full year.

          These unaudited consolidated financial statements include the accounts of Comstock and subsidiaries in which it has a controlling interest. Intercompany balances and transactions have been eliminated in consolidation.

          In the third quarter of 2006, Comstock purchased additional shares of common stock in Bois d’Arc Energy, Inc. (“Bois d’Arc Energy”) increasing its ownership of Bois d’Arc Energy’s common stock to 32,220,761 shares. As a result, as of September 30, 2006, Comstock has voting control of Bois d’Arc Energy through the combined share ownership of the Company and members of its Board of Directors. Upon obtaining voting control of Bois d’Arc Energy, Comstock began including Bois d’Arc Energy in its financial statements as a consolidated subsidiary. As permitted by generally accepted accounting principles, consolidated revenues, expenses and cash flows for 2006 have been retroactively adjusted to reflect Bois d’Arc Energy as a consolidated subsidiary as of January 1, 2006. The inclusion of Bois d’Arc Energy as a consolidated subsidiary in the Company’s financial statements had no impact on the Company’s net income.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

          The following summarizes the impact of retroactively consolidating the results of Bois d’Arc Energy:

		Three Months Ended March 31, 2006
		As
		Previously				Consolidating				As
		Reported				Adjustments				Consolidated
		(In thousands)
Statement of Operations:
Revenues		$	69,891			$	61,833			$	131,724
Operating expenses			(35,385	)			(34,605	)			(69,990	)
Income from operations			34,506				27,228				61,734
Other income (expenses)			3,941				(1,008	)			2,933
Income before income taxes, minority interest in earnings and equity in earnings of Bois d’Arc Energy			38,447				26,220				64,667
Provision for income taxes			(16,860	)			(9,439	)			(26,299	)
Minority interest in earnings of Bois d’Arc Energy			—				(8,734	)			(8,734	)
Equity earnings in earnings of Bois d’Arc Energy			8,047				(8,047	)			—
Net income		$	29,634			$	—			$	29,634

		As of March 31, 2006
		As
		Previously				Consolidating				As
		Reported				Adjustments				Consolidated
		(In thousands)
Balance Sheet:
Current assets		$	40,236			$	39,572			$	79,808
Property and equipment, net			739,853				691,436				1,431,289
Investment in Bois d’Arc Energy			260,181				(260,181	)			—
Other assets			4,575				720				5,295
Total assets		$	1,044,845			$	471,547			$	1,516,392
Current liabilities		$	52,904			$	50,992			$	103,896
Long-term debt			243,000				76,000				319,000
Deferred income taxes payable			131,162				131,508				262,670
Reserve for future abandonment costs			3,291				35,778				39,069
Minority interest in Bois d’Arc Energy			—				177,269				177,269
Stockholders’ equity			614,488				—				614,488
Total liabilities and stockholders’ equity		$	1,044,845			$	471,547			$	1,516,392

		Three Months Ended March 31, 2006
		As
		Previously				Consolidating				As
		Reported				Adjustments				Consolidated
		(In thousands)
Statement of Cash Flows:
Cash flows provided by operating activities		$	52,807			$	32,732			$	85,539
Cash flows used for investing activities		$	(49,890	)		$	(44,182	)		$	(94,072	)
Cash flows provided by financing activities		$	314			$	7,000			$	7,314

          In connection with the acquisitions of additional common shares of Bois d’Arc Energy in 2006, Comstock allocated the $36.4 million purchase price paid for the shares in excess of its underlying net book value in Bois d’Arc Energy of $18.9 million together with the related deferred income tax liability of $10.1 million to oil and gas properties. This additional amount is being amortized over the productive lives of Bois d’Arc Energy’s oil and gas properties using the unit-of-production method. The pro forma impact of the acquisition of these shares was not material to the Company’s results of operations for the three months ended March 31, 2006.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

     Asset Retirement Obligations

          Comstock’s primary 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, 2007 and 2006:

		Three Months Ended
		March 31,
		2007				2006
		(In thousands)
Beginning asset retirement obligations		$	57,116			$	3,206
Bois d’Arc abandonment liability(1)			—				35,034
Accretion expense			881				598
New wells placed on production and changes in estimates			213				238
Liabilities settled			(97	)			(7	)
Future abandonment liability — end of period		$	58,113			$	39,069

     Derivative Instruments and Hedging Activities

          Comstock periodically uses swaps, floors and collars to hedge oil and natural gas prices and interest rates. Swaps are settled monthly based on differences between the prices specified in the instruments and the settlement prices of futures contracts. Generally, when the applicable settlement price is less than the price specified in the contract, Comstock receives a settlement from the counter party based on the difference multiplied by the volume or amounts hedged. Similarly, when the applicable settlement price exceeds the price specified in the contract, Comstock pays the counter party based on the difference. Comstock generally receives a settlement from the counter party 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 volume amounts hedged. For collars, generally Comstock receives a settlement from the counter party when the settlement price is below the floor and pays a settlement to the counter party when the settlement price exceeds the cap. No settlement occurs when the settlement price falls between the floor and cap.

          The Company had no derivative financial instruments outstanding for the three months ended March 31, 2007. The fair value of the Company’s derivative contracts held for price risk management at March 31, 2006 was a liability of $2.4 million. Comstock did not designate these instruments as cash flow hedges, and accordingly an unrealized gain on derivatives of $8.8 million was recorded for the three months ended March 31, 2006. The Company realized losses of $0.7 million for the three months ended March 31, 2006 to settle derivative positions.

          Stock-Based Compensation

          Comstock Resources and Bois d’Arc Energy maintain separate incentive compensation plans under which they grant common stock and stock options to key employees and directors.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

          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 March 31, 2007 and 2006, the Company recognized $4.3 million and $3.1 million, respectively, in stock-based compensation expense within general and administrative expenses related to stock option and restricted stock grants, including $1.7 million and $1.5 million, respectively, attributable to Bois d’Arc Energy’s incentive plan. The excess income tax benefit realized from tax deductions associated with stock-based compensation totaled $166,000 in the three months ended March 31, 2007.

          The fair value of stock option grants is estimated on the date of the grant using a Black-Scholes option pricing model. Some of the inputs to the option valuation model are subjective, including assumptions regarding expected stock price volatility. Comstock Resources did not make any stock option grants during the first quarter ended March 31, 2007. Bois d’Arc Energy granted options to purchase 30,000 shares at an exercise price of $12.88 per share during the three months ended March 31, 2007. The fair value of the options awarded was determined to be $4.92 per option share.

          As of March 31, 2007, total unrecognized compensation cost related to nonvested Comstock stock options of $2.9 million is expected to be recognized over a weighted average period of 3.7 years. As of March 31, 2007, Comstock had 1,033,000 shares of unvested restricted stock outstanding at a weighted average grant date fair value of $28.46 per share. Total unrecognized compensation cost related to Comstock unvested restricted stock grants of $29.4 million as of March 31, 2007 is expected to be recognized over a period of 3.8 years.

          As of March 31, 2007, total unrecognized compensation cost related to nonvested Bois d’Arc Energy stock options of $9.9 million is expected to be recognized over a weighted average period of 5.0 years. As of March 31, 2007, Bois d’Arc Energy had 1,306,000 shares of unvested restricted stock outstanding at a weighted average grant date fair value of $6.97 per share. Total unrecognized compensation cost related to Bois d’Arc Energy unvested restricted stock grants of $7.0 million as of March 31, 2007 is expected to be recognized over a period of 4.0 years.

     Income Taxes

          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 and minority interest is due to the following:

		Three Months Ended
		March 31,
		2007					2006
Tax at statutory rate			35	%			35	%
Tax effect of:
Undistributed earnings of Bois d’Arc Energy, not consolidated for federal income tax purposes			6.3	%			4.4	%
Nondeductible stock-based compensation			2.9	%			1.2	%
State income taxes, net of federal benefit			0.7	%			0.2	%
Other			(0.5	%)			(0.1	%)
Effective tax rate			44.4	%			40.7	%

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

          The following is an analysis of consolidated income tax expense:

		Three Months Ended
		March 31,
		2007				2006
		(In thousands)
Current provision		$	2,387			$	2,575
Deferred provision			12,437				23,724
Provision for Income Taxes		$	14,824			$	26,299

          Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting and disclosure for uncertainty in tax positions. The Company has analyzed its filing positions in all jurisdictions where it is required to file income tax returns for the open tax years in such jurisdictions. The Company has identified its federal income tax return and its state income tax returns in Texas, Louisiana, Mississippi and Oklahoma in which it operates as “major” tax jurisdictions. The Company’s federal income tax returns for the years subsequent to December 31, 2004 remain subject to examination. The Company’s income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to December 31, 2002. The Company currently believes that all significant filing positions are highly certain and that all of its significant income tax filing positions and deductions would be sustained upon audit. Therefore, the Company has no significant reserves for uncertain tax positions and no adjustments to such reserves were required upon adoption of FIN 48. Interest and penalties resulting from audits by tax authorities have been immaterial and are included in the provision for income taxes in the consolidated statements of operations.

     Earnings Per Share

          Basic earnings per share is determined without the effect of any outstanding potentially dilutive stock options, unvested restricted stock or other convertible securities and diluted earnings per share is determined with the effect of outstanding stock options, unvested restricted stock and other convertible securities that are potentially dilutive. Basic and diluted earnings per share for the three months ended March 31, 2007 and 2006, respectively, were determined as follows:

		Three Months Ended March 31,
		2007												2006
										Per												Per
		Income				Shares				Share				Income				Shares				Share
		(In thousands, except per share amounts)
Basic Earnings Per Share:
Net Income		$	12,558				43,364			$	0.29			$	29,634				42,051			$	0.70
Diluted Earnings Per Share:
Net Income		$	12,558				43,364							$	29,634				42,051
Effect of Dilutive Securities:
Stock Grants and Options			(95	)			874								(158	)			1,378
Net Income Available to Common Stockholders With Assumed Conversions		$	12,463				44,238			$	0.28			$	29,476				43,429			$	0.68

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

          Stock options to purchase common stock at exercise prices in excess of the average actual stock price for the period that were anti-dilutive and that were excluded from the determination of diluted earnings per share are as follows:

		Three Months Ended
		March 31,
		2007				2006
		(In thousands except per share data)
Weighted average anti-dilutive stock options			231				102
Weighted average exercise price		$	32.81			$	32.50

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

		Three Months Ended
		March 31,
		2007				2006
		(In thousands)
Cash Payments -
Interest payments		$	11,771			$	8,686
Income tax payments		$	3,910			$	3,078

(2) LONG-TERM DEBT — 

          At March 31, 2007, long-term debt was comprised of the following:

		(In thousands)
Comstock Revolving Bank Credit Facility		$	216,000
Bois d’Arc Energy Revolving Bank Credit Facility			120,000
Comstock 67/8% Senior Notes due 2012			175,000
		$	511,000

          Comstock has a $600.0 million bank credit facility with Bank of Montreal, as the administrative agent. The credit facility is a five-year revolving credit commitment that matures on December 15, 2011. Indebtedness under the credit facility is secured by Comstock and its wholly-owned subsidiaries’ oil and gas properties and is guaranteed by all of its wholly-owned subsidiaries. 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 may be affected by the performance of Comstock’s properties and changes in oil and natural gas prices. The determination of the borrowing base is at the sole discretion of the administrative agent and the bank group. As of March 31, 2007, the borrowing base was $400.0 million, $184.0 million of which was available. Borrowings under the credit facility bear interest, based on the utilization of the borrowing base, at Comstock’s option at either (1) LIBOR plus 1.0% to 1.75% or (2) the base rate (which is the higher of the prime rate or the federal funds rate) plus 0% to 0.25%. A commitment fee of 0.25% to 0.375%, based on the utilization of the borrowing base, is payable on the unused borrowing base. The credit facility contains covenants that, among other things, restrict the payment of cash dividends in excess of $40.0 million, limit the amount of consolidated debt that Comstock may incur and limit the Company’s ability to make certain loans and investments. The only financial covenants are the maintenance of a ratio of current assets, including availability under the bank credit facility, to current liabilities of at least one-to-one and maintenance of a minimum tangible net worth. The Company was in compliance with these covenants as of March 31, 2007.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

          Bois d’Arc Energy has a bank credit facility with The Bank of Nova Scotia and several other banks. Borrowings under the credit facility are limited to a borrowing base that is re-determined semi-annually based on the banks’ estimate of the future net cash flows of Bois d’Arc Energy’s oil and natural gas properties. The determination of the borrowing base is at the sole discretion of the administrative agent and the bank group. The borrowing base was $200.0 million as of March 31, 2007 and was increased to $225.0 million on May 7, 2007. Availability under this credit facility was $80.0 million as of March 31, 2007. The Bois d’Arc Energy credit facility matures on May 11, 2009. Borrowings under the credit facility bear interest at Bois d’Arc Energy’s option of either (1) LIBOR plus a margin that varies from 1.25% to 2.0% depending upon the ratio of the amounts outstanding to the borrowing base or (2) the base rate (which is the higher of the prime rate or the federal funds rate) plus a margin that varies from 0% to 0.75% depending upon the ratio of the amounts outstanding to the borrowing base. A commitment fee ranging from 0.375% to 0.50% (depending upon the ratio of the amounts outstanding to the borrowing base) is payable the unused borrowing base. Indebtedness under the credit facility is secured by substantially all of Bois d’Arc Energy and its subsidiaries’ assets, and all of the Bois d’Arc Energy’s subsidiaries are guarantors of the indebtedness. The Bois d’Arc Energy credit facility contains covenants that restrict the payment of cash dividends in excess of $5.0 million, borrowings, sales of assets, loans to others, capital expenditures, investments, merger activity, hedging contracts, liens and certain other transactions without the prior consent of the lenders and requires Bois d’Arc Energy to maintain a ratio of current assets, including the availability under the bank credit facility, to current liabilities of at least one-to-one and a ratio of indebtedness to earnings before interest, taxes, depreciation, depletion, and amortization, exploration and impairment expense of no more than 2.5-to-one. Bois d’Arc Energy was in compliance with these covenants as of March 31, 2007.

(3) COMMITMENTS AND CONTINGENCIES — 

          From time to time, Comstock is involved in certain litigation that arises in the normal course of its operations. The Company records a loss contingency for these matters when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company does not believe the resolution of these matters will have a material effect on the Company’s financial position or results of operations. In connection with its exploration and development activities, the Company contracts for drilling rigs and for the acquisition of seismic data under terms of up to three years. The Company has commitments to acquire seismic data totaling $11.0 million through December 2008. As of March 31, 2007, the Company had commitments for contracted drilling services of $77.0 million through September 2008.

(4) CONSOLIDATING FINANCIAL STATEMENTS — 

          Comstock Resources, Inc. (“Parent”) has $175.0 million of 6⁷/₈% senior notes outstanding which are guaranteed by all of the Parent’s wholly-owned subsidiaries. There are no restrictions on the Parent’s ability to obtain funds from any of the guarantor subsidiaries or on a guarantor subsidiary’s ability to obtain funds from the Parent or their direct or indirect subsidiaries. The 6⁷/₈% senior notes are not guaranteed by Bois d’Arc Energy and its subsidiaries (the non-guarantor subsidiaries). The following condensed consolidating balance sheet, statements of operations and statement of cash flows are provided for the Parent, all guarantor subsidiaries and all non-guarantor subsidiaries. The information has been presented as if the Parent accounted for its ownership of the guarantor and non-guarantor subsidiaries using the equity method of accounting.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Balance Sheet:

		As of March 31, 2007
		Comstock				Guarantor				Non-Guarantor				Eliminating
		Resources				Subsidiaries				Subsidiaries				Entries				Consolidated
		(In thousands)
Assets:
Cash and cash equivalents		$	—			$	561			$	11,442			$	—			$	12,003
Accounts receivable			—				41,512				38,923				—				80,435
Other current assets			1,027				1,813				7,699				—				10,539
Total current assets			1,027				43,886				58,064				—				102,977
Net property and equipment			30,128				972,064				855,329				—				1,857,521
Investment in subsidiaries			657,400				—				—				(657,400	)			—
Intercompany receivables			417,936				—				—				(417,936	)			—
Other assets			4,490				1				870				—				5,361
Total assets		$	1,110,981			$	1,015,951			$	914,263			$	(1,075,336	)		$	1,965,859
Liabilities and Stockholders’ Equity:
Accounts payable		$	13			$	84,812			$	55,392			$	—			$	140,217
Accrued expenses			2,358				1,946				2,632				—				6,936
Total current liabilities			2,371				86,758				58,024				—				147,153
Long-term debt			391,000				—				120,000				—				511,000
Intercompany payables			—				417,936				—				(417,936	)			—
Deferred income taxes payable			19,530				146,948				157,029				—				323,507
Reserve for future abandonment costs			—				9,044				49,069				—				58,113
Minority interest			—				—				—				228,006				228,006
Total liabilities			412,901				660,686				384,122				(189,930	)			1,267,779
Stockholders’ equity			698,080				355,265				530,141				(885,406	)			698,080
Total liabilities and stockholders’ equity		$	1,110,981			$	1,015,951			$	914,263			$	(1,075,336	)		$	1,965,859

		As of December 31, 2006
		Comstock				Guarantor				Non-Guarantor				Eliminating
		Resources				Subsidiaries				Subsidiaries				Entries				Consolidated
		(In thousands)
Assets:
Cash and cash equivalents		$	—			$	1,228			$	9,487			$	—			$	10,715
Accounts receivable			—				37,049				38,512				—				75,561
Other current assets			210				3,547				8,795				—				12,552
Total current assets			210				41,824				56,794				—				98,828
Net property and equipment			30,345				915,486				827,795				—				1,773,626
Investment in subsidiaries			636,303				—				—				(636,303	)			—
Intercompany receivables			393,395				—				—				(393,395	)			—
Other assets			4,757				2				912				—				5,671
Total assets		$	1,065,010			$	957,312			$	885,501			$	(1,029,698	)		$	1,878,125
Liabilities and Stockholders’ Equity:
Short-term debt		$	—			$	—			$	3,250			$	—			$	3,250
Accounts payable			9,687				62,041				60,776				—				132,504
Accrued expenses			—				11,265				4,842				—				16,107
Total current liabilities			9,687				73,306				68,868				—				151,861
Long-term debt			355,000				—				100,000				—				455,000
Intercompany payables			—				393,395				—				(393,395	)			—
Deferred income taxes payable			17,760				141,517				151,959				—				311,236
Reserve for future abandonment costs			—				9,052				48,064				—				57,116
Minority interest			—				—				—				220,349				220,349
Total liabilities			382,447				617,270				368,891				(173,046	)			1,195,562
Stockholders’ equity			682,563				340,042				516,610				(856,652	)			682,563
Total liabilities and stockholders’ equity		$	1,065,010			$	957,312			$	885,501			$	(1,029,698	)		$	1,878,125

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Statement of Operations:

		Three Months Ended March 31, 2007
		Comstock				Guarantor				Non-Guarantor				Eliminating
		Resources				Subsidiaries				Subsidiaries				Entries				Consolidated
		(In thousands)
Oil and gas sales		$	—			$	69,847			$	76,182			$	—			$	146,029
Operating expenses:
Oil and gas operating			—				14,055				13,028				—				27,083
Exploration			—				398				10,735				—				11,133
Depreciation, depletion and amortization			926				27,266				28,515				—				56,707
General and administrative, net			8,537				(2,287	)			3,452				—				9,702
Total operating expenses			9,463				39,432				55,730				—				104,625
Income from operations			(9,463	)			30,415				20,452				—				41,404
Other income (expenses):
Interest income			—				191				105				—				296
Other income			—				38				92				—				130
Interest expense			(6,284	)			(1	)			(2,164	)			—				(8,449	)
Intercompany interest income (expense)			7,060				(7,060	)			—				—				—
Total other income (expenses)			776				(6,832	)			(1,967	)			—				(8,023	)
Income (loss) before income taxes and minority interest in earnings of Bois d’Arc Energy			(8,687	)			23,583				18,485				—				33,381
(Provision for) benefit from income taxes			148				(8,360	)			(6,612	)			—				(14,824	)
Minority interest in earnings of Bois d’Arc Energy			—				—				—				(5,999	)			(5,999	)
Equity in earnings of subsidiaries			21,097				—				—				(21,097	)			—
Net income		$	12,558			$	15,223			$	11,873			$	(27,096	)		$	12,558

		Three Months Ended March 31, 2006
		Comstock				Guarantor				Non-Guarantor				Eliminating
		Resources				Subsidiaries				Subsidiaries				Entries				Consolidated
		(In thousands)
Oil and gas sales		$	—			$	69,891			$	61,833			$	—			$	131,724
Operating expenses:
Oil and gas operating			—				13,855				12,440				—				26,295
Exploration			—				344				4,531				—				4,875
Depreciation, depletion and amortization			57				16,235				14,393				—				30,685
General and administrative, net			6,292				(1,398	)			3,241				—				8,135
Total operating expenses			6,349				29,036				34,605				—				69,990
Income from operations			(6,349	)			40,855				27,228				—				61,734
Other income (expenses):
Interest income			—				168				69				—				237
Other income			—				54				—				—				54
Interest expense			(4,526	)			120				(1,077	)			—				(5,483	)
Gain on derivatives			—				8,125				—				—				8,125
Intercompany interest income (expense)			5,598				(5,598	)			—				—				—
Total other income (expenses)			1,072				2,869				(1,008	)			—				2,933
Income (loss) before income taxes and minority interest in earnings of Bois d’Arc Energy			(5,277	)			43,724				26,220				—				64,667
Provision for income taxes			(1,526	)			(15,334	)			(9,439	)			—				(26,299	)
Minority interest in earnings of Bois d’Arc Energy			—				—				—				(8,734	)			(8,734	)
Equity in earnings of subsidiaries			36,437				—				—				(36,437	)			—
Net income		$	29,634			$	28,390			$	16,781			$	(45,171	)		$	29,634

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Statement of Cash Flows:

		Three Months Ended March 31, 2007
		Comstock				Guarantor				Non-Guarantor				Eliminating
		Resources				Subsidiaries				Subsidiaries				Entries				Consolidated
		(In thousands)
Net Cash Provided by (Used for) Operating Activities		$	(11,119	)		$	58,408			$	31,457			$	—			$	78,746
Cash Flows From Investing Activities:
Capital expenditures			(645	)			(83,616	)			(49,466	)			—				(133,727	)
Net Cash Used for Investing Activities			(645	)			(83,616	)			(49,466	)			—				(133,727	)
Cash Flows From Financing Activities:
Borrowings			36,000				—				22,000				—				58,000
Principal payments on debt			—				—				(2,000	)			—				(2,000	)
Advances to (from) parent			(24,541	)			24,541				—				—				—
Proceeds from issuance of common stock			139				—				—				—				139
Excess tax benefit from stock-based compensation			166				—				—				—				166
Other			—				—				(36	)			—				(36	)
Net Cash Provided by Financing Activities			11,764				24,541				19,964				—				56,269
Net increase in cash and cash equivalents			—				(667	)			1,955				—				1,288
Cash and cash equivalents, beginning of period			—				1,228				9,487				—				10,715
Cash and cash equivalents, end of period		$	—			$	561			$	11,442			$	—			$	12,003

		Three Months Ended March 31, 2006
		Comstock				Guarantor				Non-Guarantor				Eliminating
		Resources				Subsidiaries				Subsidiaries				Entries				Consolidated
		(In thousands)
Net Cash Provided by (Used for) Operating Activities		$	(6,147	)		$	58,935			$	32,751			$	—			$	85,539
Cash Flows From Investing Activities:
Capital expenditures			(64	)			(49,104	)			(44,201	)			—				(93,369	)
Payments to settle derivatives			—				(703	)			—				—				(703	)
Net Cash Used for Investing Activities			(64	)			(49,807	)			(44,201	)			—				(94,072	)
Cash Flows From Financing Activities:
Borrowings			—				—				42,000				—				42,000
Advances to (from) parent			5,897				(5,897	)			—				—				—
Principal payments on debt			—				—				(35,000	)			—				(35,000	)
Proceeds from issuance of common stock			117				—				—				—				117
Excess tax benefit from stock-based compensation			197				—				—				—				197
Net Cash Provided by Financing Activities			6,211				(5,897	)			7,000				—				7,314
Net increase in cash and cash equivalents			—				3,231				(4,450	)			—				(1,219	)
Cash and cash equivalents, beginning of period			—				89				—				—				89
Bois d’Arc Energy cash and cash equivalents as of January 1, 2006			—				—				12,043				—				12,043
Cash and cash equivalents, end of period		$	—			$	3,320			$	7,593			$	—			$	10,913

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

We have reviewed the consolidated balance sheet of Comstock Resources, Inc. (a Nevada corporation) and subsidiaries (the Company) as of March 31, 2007, and the related consolidated statements of operations for the three-month periods ended March 31, 2007 and 2006, the consolidated statement of stockholders’ equity for the three months ended March 31, 2007, and the consolidated statements of cash flows for the three-month periods ended March 31, 2007 and 2006. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, 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 condensed consolidated interim financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Comstock Resources, Inc. and subsidiaries as of December 31, 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended not presented herein, and in our report dated February 28, 2007 we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph regarding the Company’s adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share Based Payment,” effective January 1, 2006. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2006, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Dallas, Texas
May 10, 2007