Comstock Resources - 10-Q quarterly report FY

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 September 30, 2007


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 (State or other jurisdiction of		94-1667468 (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

Noo

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 filero

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

Yeso

No þ

The number of shares outstanding of the registrant's common stock, par value $.50, as of November 7, 2007 was 44,432,345.

COMSTOCK RESOURCES, INC.

QUARTERLY REPORT

For The Quarter Ended September 30, 2007

INDEX

	Page
PART I. Financial Information

Item 1. Financial Statements (Unaudited):

Consolidated Balance Sheets - September 30, 2007 and December 31, 2006		4
Consolidated Statements of Operations - Three months and nine months ended September 30, 2007 and 2006		5
Consolidated Statement of Stockholders' Equity - Nine months ended September 30, 2007		6
Consolidated Statements of Cash Flows - Nine months ended September 30, 2007 and 2006		7
Notes to Consolidated Financial Statements		8
Independent Accountants' Review Report		23

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		24

Item 3. Quantitative and Qualitative Disclosure About Market Risk		30

Item 4. Controls and Procedures		31


PART II. Other Information

Item 6. Exhibits		32

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)

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30,			December 31,
	2007			2006

ASSETS
	(In thousands)

Cash and Cash Equivalents	$	17,032		$	10,715
Accounts Receivable:
Oil and gas sales		59,384			56,328
Joint interest operations		17,407			19,233
Other Current Assets		17,066			12,552
Total current assets		110,889			98,828
Property and Equipment:
Unevaluated oil and gas properties		14,024			13,645
Oil and gas properties, successful efforts method		2,913,019			2,511,782
Other property and equipment		9,552			8,483
Accumulated depreciation, depletion and amortization		(915,859	)		(760,284	)
Net property and equipment		2,020,736			1,773,626
Other Assets		4,734			5,671
	$	2,136,359		$	1,878,125

LIABILITIES AND STOCKHOLDERS' EQUITY

Short-term Debt	$	5,176	$	3,250
Accounts Payable		116,300		132,504
Accrued Expenses		11,402		16,107
Total current liabilities		132,878		151,861
Long-term Debt		597,000		455,000
Deferred Income Taxes Payable		356,050		311,236
Reserve for Future Abandonment Costs		60,436		57,116
Minority Interest in Bois d'Arc Energy		251,443		220,349
Total liabilities		1,397,807		1,195,562
Commitments and Contingencies
Stockholders' Equity:
Common stock – $0.50 par, 50,000,000 shares authorized, 44,432,345 and 44,395,495 shares outstanding at September 30, 2007 and December 31, 2006, respectively		22,216		22,197
Additional paid-in capital		376,090		367,323
Retained earnings		340,246		293,043
Total stockholders' equity		738,552		682,563
	$	2,136,359	$	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 September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(In thousands, except per share amounts)

Oil and gas sales	$	171,074		$	129,251		$	491,309		$	385,153
Operating expenses:
Oil and gas operating		34,005			26,904			91,268			78,220
Exploration		5,710			8,069			36,709			16,662
Depreciation, depletion and amortization		62,420			40,709			178,887			104,457
Impairment		826			1,389			826			10,169
General and administrative, net		8,676			7,370			26,540			22,738
Total operating expenses		111,637			84,441			334,230			232,246

Income from operations		59,437			44,810			157,079			152,907
Other income (expenses):
Interest income		410			258			1,041			724
Other income		154			187			505			616
Interest expense		(11,225	)		(6,733	)		(29,880	)		(18,322	)
Gain on derivatives		—			1,180			—			10,608
Total other income (expenses)		(10,661	)		(5,108	)		(28,334	)		(6,374	)

Income before income taxes and minority interest		48,776			39,702			128,745			146,533
Provision for income taxes		(21,570	)		(16,662	)		(55,955	)		(61,847	)
Minority interest in earnings of Bois d'Arc Energy		(10,778	)		(6,004	)		(25,587	)		(22,433	)
Net income	$	16,428		$	17,036		$	47,203		$	62,253

Net income per share:
Basic	$	0.38		$	0.40		$	1.09		$	1.48
Diluted	$	0.37		$	0.39		$	1.05		$	1.42

Weighted average common and common stock equivalent shares outstanding:
Basic		43,379			42,243			43,372			42,128
Diluted		44,434			43,553			44,345			43,505

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

For the Nine Months Ended September 30, 2007

(Unaudited)

	Common Stock (Shares)		Common Stock – Par Value		Additional Paid-in Capital		Retained Earnings		Total
	(In thousands)
Balance at January 1, 2007		44,395	$	22,197	$	367,323	$	293,043	$	682,563
Exercise of stock options		19		10		269		—		279
Stock-based compensation		18		9		7,896		—		7,905
Excess tax benefit from stock-based compensation		—		—		602		—		602
Net income		—		—		—		47,203		47,203
Balance at September 30, 2007		44,432	$	22,216	$	376,090	$	340,246	$	738,552

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	September 30,
	2007			2006

	(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	47,203		$	62,253
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes		45,942			55,078
Dry hole costs and leasehold impairments		31,442			13,246
Depreciation, depletion and amortization		178,887			104,457
Impairment		826			10,169
Debt issuance cost amortization		854			878
Stock-based compensation		12,910			9,834
Excess tax benefit from stock-based compensation		(602	)		(922	)
Minority interest in earnings of Bois d'Arc Energy		25,587			22,433
Gain on derivatives		—			(10,608	)
(Increase) decrease in accounts receivable		(1,230	)		10,774
Increase in other current assets		(2,588	)		(139	)
Decrease in accounts payable and accrued expenses		(14,346	)		(3,153	)
Net cash provided by operating activities		324,885			274,300


CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(461,824	)		(404,295	)
Payments to settle derivatives		—			(703	)
Net cash used for investing activities		(461,824	)		(404,998	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings		174,000			182,000
Principal payments on debt		(32,000	)		(39,000	)
Proceeds from issuance of common stock		789			1,756
Excess tax benefit from stock-based compensation		602			922
Debt issuance costs		(135	)		(28	)
Net cash provided by financing activities		143,256			145,650

Net increase in cash and cash equivalents		6,317			14,952
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	$	17,032		$	27,084

The accompanying notes are an integral part of these statements.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

(1) SUMMARY OF 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 September 30, 2007 and the related results of operations for the three months and nine months ended September 30, 2007 and 2006 and cash flows for the nine months ended September 30, 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 and nine months ended September 30, 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.

The Company currently owns a controlling ownership interest in Bois d'Arc Energy, Inc. ("Bois d'Arc Energy") and currently intends to maintain its controlling interest by acquiring additional shares of Bois d'Arc Energy common stock, through open market purchases and other negotiated transactions, as appropriate. However, such actions are subject to the outcome of an evaluation of strategic alternatives by the board of directors of Bois d'Arc Energy, including the potential sale of Bois d'Arc Energy. The Company includes Bois d'Arc Energy in its consolidated financial statements.

In connection with its acquisitions of 2,288,900 additional common shares of Bois d'Arc Energy in 2006 and 2007, Comstock allocated the $36.5 million purchase price paid for the shares in excess of its underlying net book value in Bois d'Arc Energy of $19.0 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 nine months ended September 30, 2006.

Reclassifications

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

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Asset Retirement Obligations

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 nine months ended September 30, 2007 and 2006:

	Nine Months Ended
	September 30,
	2007			2006
	(In thousands)

Beginning asset retirement obligations	$	57,116		$	3,206
Bois d'Arc abandonment liability⁽¹⁾		—			35,034
Accretion expense		2,702			1,849
Acquisition liabilities assumed		94			3,314
New wells placed on production and changes in estimates		1,279			953
Liabilities settled		(755	)		(23	)
Future abandonment liability — end of period	$	60,436		$	44,333


(1)	Concurrent with including Bois d'Arc Energy as a consolidated subsidiary as of January 1, 2006, the asset retirement obligations of Bois d'Arc Energy are included in the Company's financial statements.

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 during the three months and nine months ended September 30, 2007. The fair value of the Company's derivative contracts held for price risk management at September 30, 2006 was an asset of $68,000. Comstock did not designate these instruments as cash flow hedges, and accordingly unrealized gains on derivatives of $1.2 million and $11.3 million were recorded for the three months and nine months ended September 30, 2006. The Company realized losses of $0.7 million for the nine months ended September 30, 2006 to settle derivative positions.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Stock-Based Compensation

Comstock Resources, Inc. 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 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 September 30, 2007 and 2006, the Company recognized $4.3 million and $3.3 million, respectively, in stock-based compensation expense within general and administrative expenses related to stock option and restricted stock grants, including $1.6 million and $1.7 million, respectively, attributable to Bois d'Arc Energy's incentive plan. Stock based compensation expense for the nine months ended September 30, 2007 and 2006 was $12.9 million and $9.8 million, respectively which includes $5.0 million and $4.7 million, respectively, attributable to Bois d'Arc Energy's incentive plan. The excess income tax benefit realized from the deductions associated with stock-based compensation for the nine months ended September 30, 2007 and 2006 was $0.6 million and $0.9 million, respectively.

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. During the nine months ended September 30, 2007, Comstock granted options to purchase 40,000 shares at an exercise price of $29.49 per share. The fair value of the Comstock options awarded was determined to be $10.32 per share. Assumptions used to value these Comstock stock options included expected volatility of 36.1%, expected lives of 3.9 years, a risk-free interest rate of 4.9% and an expected dividend yield of zero. Bois d'Arc Energy granted options to purchase 258,500 shares at a weighted average exercise price of $16.24 per share during the nine months ended September 30, 2007. The fair value of the Bois d'Arc Energy options awarded was determined to be $6.17 per option share. Assumptions used to value the Bois d'Arc Energy stock options included expected volatility of 36.4%, expected lives of 4.5 years, a risk free interest rate of 4.9% and a dividend yield of zero. As of September 30, 2007, total unrecognized compensation cost related to nonvested Comstock stock options of $2.4 million is expected to be recognized over a period of 3.2 years. As of September 30, 2007, total unrecognized compensation cost related to nonvested Bois d'Arc Energy stock options of $8.9 million is expected to be recognized over a period of 5.2 years.

As of September 30, 2007, Comstock had 1,041,000 shares of unvested restricted stock outstanding at a weighted average grant date fair value of $28.46 per share. During the nine months ended September 30, 2007 Comstock issued 18,000 new restricted stock grants with a weighted average grant date fair value of $29.38 per share. Total unrecognized compensation cost related to Comstock unvested restricted stock grants of $18.4 million as of September 30, 2007 is expected to be recognized over a period of 3.8 years. As of September 30, 2007, Bois d'Arc Energy had 854,000 shares of unvested restricted stock outstanding at a weighted average grant date fair value of $6.80 per share. Total unrecognized compensation cost related to Bois d'Arc Energy unvested restricted stock grants of $5.2 million as of September 30, 2007 is expected to be recognized over a period of 1.8 years.

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

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					Nine Months Ended
	September 30,					September 30,
	2007		2006			2007			2006
Tax at statutory rate	35.0%			35.0%			35.0%			35.0%
Tax effect of:
Undistributed earnings of Bois d'Arc Energy, not consolidated for federal income tax purposes	7.5%			4.9%			6.8%			5.0%
Nondeductible stock-based compensation	1.7%			2.0%			2.0%			1.7%
Changes due to tax law changes	—%			—%			(0.6%	)		0.7%
State income taxes, net of federal benefit	0.9%			(0.4%	)		0.9%			—%
Other	(0.9%	)		0.5%			(0.6%	)		(0.2%	)
Effective tax rate	44.2%			42.0%			43.5%			42.2%

The following is an analysis of consolidated income tax expense:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
	(In thousands)

Current provision	$	4,322	$	1,599	$	10,013	$	6,769
Deferred provision		17,248		15,063		45,942		55,078
Provision for Income Taxes	$	21,570	$	16,662	$	55,955	$	61,847

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, 2004. 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.

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 unvested restricted stock and diluted earnings per share is determined with the effect of outstanding stock options and unvested restricted stock that are potentially dilutive. Basic and diluted earnings per share for the three months and nine months ended September 30, 2007 and 2006, respectively, were determined as follows:

	Nine Months Ended September 30,
	2007							2006
						Per							Per
	Income			Shares		Share		Income			Shares		Share
	(In thousands, except per share amounts)
Basic Earnings Per Share:
Net Income	$	16,428			43,379	$	0.38	$	17,036			42,243	$	0.40

Diluted Earnings Per Share:
Net Income	$	16,428			43,379			$	17,036			42,243
Effect of Dilutive Securities:
Stock Grants and Options		(186	)		1,055				(88	)		1,310

Net Income Available to Common Stockholders With Assumed Conversions	$	16,242			44,434	$	0.37	$	16,948			43,553	$	0.39

	Nine Months Ended September 30,
	2007							2006
						Per							Per
	Income			Shares		Share		Income			Shares		Share
	(In thousands, except per share amounts)
Basic Earnings Per Share:
Net Income	$	47,203			43,372	$	1.09	$	62,253			42,128	$	1.48

Diluted Earnings Per Share:
Net Income	$	47,203			43,372			$	62,253			42,128
Effect of Dilutive Securities:
Stock Grants and Options		(441	)		973				(394	)		1,377

Net Income Available to Common Stockholders With Assumed Conversions	$	46,762			44,345	$	1.05	$	61,859			43,505	$	1.42

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				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
	(In thousands except per share data)

Weighted average anti-dilutive stock options		267		132		249		113
Weighted average exercise price	$	32.32	$	32.48	$	32.52	$	32.49
12

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

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

	Nine Months Ended
	September 30,
	2007		2006
	(In thousands)
Cash Payments -
Interest payments	$	32,448	$	21,017
Income tax payments	$	9,978	$	7,105

(2) LONG-TERM DEBT –

At September 30, 2007, long-term debt was comprised of the following:

	(In thousands)
Comstock Revolving Bank Credit Facility	$	322,000
Bois d'Arc Energy Revolving Bank Credit Facility		100,000
Comstock 6⅞% Senior Notes due 2012		175,000
	$	597,000

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 September 30, 2007, the borrowing base was $400.0 million, $78.0 million of which was available. On November 5, 2007 the borrowing base was increased to $500.0 million. 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 September 30, 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 redetermined 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 $225.0 million as of September 30, 2007. Availability under this credit facility was $125.0 million as of September 30, 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 on 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 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 September 30, 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 $8.3 million through December 2008. As of September 30, 2007, the Company had commitments for contracted drilling services of $30.5 million through September 2008.

(4) CONSOLIDATING FINANCIAL STATEMENTS –

Comstock Resources, Inc. ("Parent") has $175.0 million of 6⅞% 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 6⅞% senior notes are not guaranteed by Bois d'Arc Energy and its subsidiaries (the non-guarantor subsidiaries). The following condensed consolidating balance sheets, statements of operations and statements 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 September 30, 2007
	Comstock Resources		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminating Entries			Consolidated
	(In thousands)
Assets:
Cash and cash equivalents	$	—	$	2,286	$	14,746	$	—		$	17,032
Accounts receivable		—		42,793		33,998		—			76,791
Other current assets		392		6,122		10,552		—			17,066
Total current assets		392		51,201		59,296		—			110,889

Net property and equipment		28,622		1,107,822		884,292		—			2,020,736
Investment in subsidiaries		742,806		—		—		(742,806	)		—
Intercompany receivables		488,154		—		—		(488,154	)		—
Other assets		4,148		—		586		—			4,734
Total assets	$	1,264,122	$	1,159,023	$	944,174	$	(1,230,960	)	$	2,136,359

Liabilities and Stockholders' Equity:
Short-term debt	$	—	$	—	$	5,176	$	—		$	5,176
Accounts payable		28		75,822		40,450		—			116,300
Accrued expenses		3,953		6,109		1,340		—			11,402
Total current liabilities		3,981		81,931		46,966		—			132,878

Long-term debt		497,000		—		100,000		—			597,000
Intercompany payables		—		488,154		—		(488,154	)		—
Deferred income taxes payable		24,589		158,063		173,398		—			356,050
Reserve for future abandonment costs		—		9,307		51,129		—			60,436
Minority interest		—		—		—		251,443			251,443
Total liabilities		525,570		737,455		371,493		(236,711	)		1,397,807
Stockholders' equity		738,552		421,568		572,681		(994,249	)		738,552
Total liabilities and stockholders' equity	$	1,264,122	$	1,159,023	$	944,174	$	(1,230,960	)	$	2,136,359

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Balance Sheet:	As of December 31, 2006
	Comstock Resources		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminating 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		654,840		—		—		(654,840	)		—
Intercompany receivables		374,858		—		—		(374,858	)		—
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		—		374,858		—		(374,858	)		—
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		598,733		368,891		(154,509	)		1,195,562
Stockholders' equity		682,563		358,579		516,610		(875,189	)		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 September 30, 2007
	Comstock Resources			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
	(In thousands)

Oil and gas sales	$	—		$	83,087		$	87,987		$	—		$	171,074
Operating expenses:
Oil and gas operating		—			17,030			16,975			—			34,005
Exploration		—			1,375			4,335			—			5,710
Depreciation, depletion and amortization		848			33,293			28,279			—			62,420
Impairment		—			482			344						826
General and administrative, net		8,372			(2,709	)		3,013			—			8,676
Total operating expenses		9,220			49,471			52,946			—			111,637
Income from operations		(9,220	)		33,616			35,041			—			59,437
Other income (expenses):
Interest income		—			256			154			—			410
Other income		—			39			115			—			154
Interest expense		(8,772	)		—			(2,453	)		—			(11,225	)
Intercompany interest income (expense)		2,749			(2,749	)		—			—			—
Total other income (expenses)		(6,023	)		(2,454	)		(2,184	)					(10,661	)
Income (loss) before income taxes and minority interest in earnings ofBois d'Arc Energy		(15,243	)		31,162			32,857			—			48,776
(Provision for) benefit from income taxes		1,026			(10,968	)		(11,628	)		—			(21,570	)
Minority interest in earnings of Bois d'Arc Energy		—			—			—			(10,778	)		(10,778	)
Equity in earnings of subsidiaries		30,645			—			—			(30,645	)		—
Net income	$	16,428		$	20,194		$	21,229		$	(41,423	)	$	16,428

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Statement of Operations:
	Three Months Ended September 30, 2006
	Comstock Resources			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
	(In thousands)

Oil and gas sales	$	—		$	62,255		$	66,996		$	—		$	129,251
Operating expenses:
Oil and gas operating		—			13,366			13,538			—			26,904
Exploration		—			—			8,069			—			8,069
Depreciation, depletion and amortization		329			18,648			21,732			—			40,709
Impairment		—			803			586			—			1,389
General and administrative, net		6,123			(1,783	)		3,030			—			7,370
Total operating expenses		6,452			31,034			46,955			—			84,441
Income from operations		(6,452	)		31,221			20,041			—			44,810
Other income (expenses):
Interest income		—			143			115			—			258
Other income		—			45			142			—			187
Interest expense		(4,851	)		—			(1,882	)		—			(6,733	)
Gain on derivatives		—			1,180			—			—			1,180
Intercompany interest income (expense)		2,621			(2,621	)		—			—			—
Total other income (expenses)		(2,230	)		(1,253	)		(1,625	)					(5,108	)
Income (loss) before income taxes and minority interest in earnings ofBois d'Arc Energy		(8,682	)		29,968			18,416			—			39,702
Provision for income taxes		410			(10,240	)		(6,832	)		—			(16,662	)
Minority interest in earnings of Bois d'Arc Energy		—			—			—			(6,004	)		(6,004	)
Equity in earnings of subsidiaries		25,308			—			—			(25,308	)		—
Net income	$	17,036		$	19,728		$	11,584		$	(31,312	)	$	17,036

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Statement of Operations:
	Nine Months Ended September 30, 2007
	Comstock Resources			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
	(In thousands)

Oil and gas sales	$	—		$	236,094		$	255,215		$	—		$	491,309
Operating expenses:
Oil and gas operating		—			48,709			42,559			—			91,268
Exploration		—			3,651			33,058			—			36,709
Depreciation, depletion and amortization		2,621			90,693			85,573			—			178,887
Impairment		—			482			344						826
General and administrative, net		24,902			(7,401	)		9,039			—			26,540
Total operating expenses		27,523			136,134			170,573			—			334,230
Income from operations		(27,523	)		99,960			84,642			—			157,079
Other income (expenses):
Interest income		—			644			397			—			1,041
Other income		—			116			389			—			505
Interest expense		(22,831	)		(1	)		(7,048	)		—			(29,880	)
Intercompany interest income (expense)		4,130			(4,130	)		—			—			—
Total other income (expenses)		(18,701	)		(3,371	)		(6,262	)					(28,334	)
Income (loss) before income taxes and minority interest in earnings ofBois d'Arc Energy		(46,224	)		96,589			78,380			—			128,745
(Provision for) benefit from income taxes		5,492			(33,600	)		(27,847	)		—			(55,955	)
Minority interest in earnings of Bois d'Arc Energy		—			—			—			(25,587	)		(25,587	)
Equity in earnings of subsidiaries		87,935			—			—			(87,935	)		—
Net income	$	47,203		$	62,989		$	50,533		$	(113,522	)	$	47,203

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Statement of Operations:
	Nine Months Ended September 30, 2006
	Comstock Resources			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
	(In thousands)

Oil and gas sales	$	—		$	196,717		$	188,436		$	—		$	385,153
Operating expenses:
Oil and gas operating		—			40,421			37,799			—			78,220
Exploration		—			344			16,318			—			16,662
Depreciation, depletion and amortization		444			51,393			52,620			—			104,457
Impairment		—			8,737			1,432			—			10,169
General and administrative, net		18,659			(4,833	)		8,912			—			22,738
Total operating expenses		19,103			96,062			117,081			—			232,246
Income from operations		(19,103	)		100,655			71,355						152,907
Other income (expenses):
Interest income					483			241			—			724
Other income		—			147			469			—			616
Interest expense		(14,041	)		247			(4,528	)		—			(18,322	)
Gain on derivatives		—			10,608			—			—			10,608
Intercompany interest income (expense)		7,229			(7,229	)		—			—			—
Total other income (expenses)		(6,812	)		4,256			(3,818	)		—			(6,374	)
Income (loss) before income taxes and minority interest in earnings ofBois d'Arc Energy		(25,915	)		104,911			67,537			—			146,533
Provision for income taxes		280			(37,738	)		(24,389	)		—			(61,847	)
Minority interest in earnings of Bois d'Arc Energy		—			—			—			(22,433	)		(22,433	)
Equity in earnings of subsidiaries		87,888			—			—			(87,888	)		—
Net income	$	62,253		$	67,173		$	43,148		$	(110,321	)	$	62,253

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Statement of Cash Flows:
	Nine Months Ended September 30, 2007
	Comstock			Guarantor			Non-Guarantor			Eliminating
	Resources			Subsidiaries			Subsidiaries			Entries			Consolidated
	(In thousands)
Net Cash Provided by (Used for) Operating Activities	$	(28,677	)	$	177,536		$	176,003		$	23		$	324,885

Cash Flows From Investing Activities:
Capital expenditures		(874	)		(289,774	)		(171,176	)		—			(461,824	)
Net Cash Used for Investing Activities		(874	)		(289,774	)		(171,176	)		—			(461,824	)

Cash Flows From Financing Activities:
Borrowings		142,000			—			32,000			—			174,000
Principal payments on debt		—			—			(32,000	)		—			(32,000	)
Advances to (from) parent		(113,296	)		113,296			—			—			—
Proceeds from issuance of common stock		279			—			510			—			789
Excess tax benefit from stock-based compensation		602			—			23			(23	)		602
Debt issuance costs		(34	)		—			(101	)		—			(135	)
Net Cash Provided by Financing Activities		29,551			113,296			432			(23	)		143,256
Net increase in cash and cash equivalents		—			1,058			5,259			—			6,317
Cash and cash equivalents, beginning of period		—			1,228			9,487			—			10,715
Cash and cash equivalents, end of period	$	—		$	2,286		$	14,746		$	—		$	17,032

COMSTOCK RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Statement of Cash Flows:
	Nine Months Ended September 30, 2006
	Comstock			Guarantor			Non-Guarantor			Eliminating
	Resources			Subsidiaries			Subsidiaries			Entries			Consolidated
	(In thousands)
Net Cash Provided by (Used for) Operating Activities	$	(12,639	)	$	148,968		$	137,971		$	—		$	274,300

Cash Flows From Investing Activities:
Capital expenditures and acquisitions		(929	)		(207,318	)		(196,048	)		—			(404,295	)
Acquisition of Bois d'Arc Energy, Inc. common stock		(35,865	)		—			—			35,865			—
Payments to settle derivatives		—			(703	)		—			—			(703	)
Net Cash Used for Investing Activities		(36,794	)		(208,021	)		(196,048	)		35,865			(404,998	)

Cash Flows From Financing Activities:
Borrowings		111,000			—			71,000			—			182,000
Principal payments on debt		(4,000	)		—			(35,000	)		—			(39,000	)
Advances to (from) parent		(60,245	)		60,245			—			—			—
Proceeds from issuance of common stock		1,756			—			35,990			(35,990	)		1,756
Excess tax benefit from stock-based compensation		922			—			29			(29	)		922
Debt issuance costs		—			(28	)		(154	)		154			(28	)
Net Cash Provided by Financing Activities		49,433			60,217			71,865			(35,865	)		145,650
Net increase in cash and cash equivalents		—			1,164			13,788			—			14,952
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	$	—		$	1,253		$	25,831		$	—		$	27,084

INDEPENDENT ACCOUNTANTS' REVIEW REPORT

We have reviewed the consolidated balance sheet of Comstock Resources, Inc. (a Nevada corporation) and subsidiaries (the Company) as of September 30, 2007, and the related consolidated statements of operations for the three-month and nine-month periods ended September 30, 2007 and 2006, the consolidated statement of stockholders' equity for the nine months ended September 30, 2007, and the consolidated statements of cash flows for the nine-month periods ended September 30, 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

November 7, 2007

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

This report contains forward-looking statements that involve risks and uncertainties that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those anticipated in our forward-looking statements due to many factors. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this report and in our annual report filed on Form 10-K for the year ended December 31, 2006.

Investment in Bois d'Arc Energy

We own a controlling ownership interest in Bois d'Arc Energy and currently intend to maintain our controlling interest by acquiring additional shares of Bois d'Arc Energy common stock through open market purchases and other negotiated transactions, as appropriate. However, such controlling position and any further actions are subject to the outcome of an evaluation of strategic alternatives by the board of directors of Bois d'Arc Energy, including the potential sale of Bois d'Arc Energy. We include Bois d'Arc Energy in our consolidated financial statements.

Results of Operations

The following table reflects certain summary operating data for our onshore operations and for Bois d'Arc Energy for the periods presented:

	Three Months Ended September 30, 2007						Three Months Ended September 30, 2006
			Bois d'Arc						Bois d'Arc
	Onshore		Energy		Total		Onshore		Energy		Total
	(In thousands, except per unit amounts)
Net Production Data:
Oil (Mbbls)		260		448		708		231		370		601
Natural Gas (Mmcf)		10,612		8,241		18,853		7,409		6,106		13,515
Natural Gas equivalent (Mmcfe)		12,170		10,930		23,100		8,792		8,328		17,120

Revenues:
Oil sales	$	16,628	$	34,738	$	51,366	$	13,696	$	25,935	$	39,631
Gas sales		66,459		53,249		119,708		48,559		41,061		89,620
Total oil and gas sales	$	83,087	$	87,987	$	171,074	$	62,255	$	66,996	$	129,251

Expenses:
Oil and gas operating expenses⁽¹⁾	$	17,030	$	16,975	$	34,005	$	13,366	$	13,538	$	26,904
Exploration expense	$	1,375	$	4,335	$	5,710	$	—	$	8,069	$	8,069
Depreciation, depletion and amortization	$	33,413	$	28,279	$	62,420	$	18,707	$	21,732	$	40,709

Average Sales Price:
Oil (per Bbl)	$	64.06	$	77.50	$	72.57	$	59.42	$	70.01	$	65.95
Natural gas (per Mcf)	$	6.26	$	6.46	$	6.35	$	6.55	$	6.72	$	6.63
Average equivalent (Mcfe)	$	6.83	$	8.05	$	7.41	$	7.08	$	8.04	$	7.55

Expenses ($ per Mcfe):
Oil and gas operating⁽¹⁾	$	1.40	$	1.55	$	1.47	$	1.52	$	1.63	$	1.57
Depreciation, depletion and amortization⁽²⁾	$	2.73	$	2.57	$	2.69	$	2.12	$	2.60	$	2.37


(1)	Includes lease operating costs and production and ad valorem taxes.
(2)	Represents depreciation, depletion and amortization of oil and gas properties only.

	Nine Months Ended September 30, 2007						Nine Months Ended September 30, 2006
			Bois d'Arc						Bois d'Arc
	Onshore		Energy		Total		Onshore		Energy		Total
	(In thousands, except per unit amounts)
Net Production Data:
Oil (Mbbls)		766		1,233		1,999		696		1,033		1,729
Natural Gas (Mmcf)		28,462		24,136		52,598		22,327		16,388		38,715
Natural Gas equivalent (Mmcfe)		33,056		31,535		64,591		26,501		22,587		49,088

Revenues:
Oil sales	$	42,993	$	83,844	$	126,837	$	39,808	$	69,215	$	109,023
Gas sales		193,101		171,371		364,472		156,909		119,221		276,130
Total oil and gas sales	$	236,094	$	255,215	$	491,309	$	196,717	$	188,436	$	385,153

Expenses:
Oil and gas operating expenses⁽¹⁾	$	48,709	$	42,559	$	91,268	$	40,421	$	37,799	$	78,220
Exploration expense	$	3,651	$	33,058	$	36,709	$	344	$	16,318	$	16,662
Depreciation, depletion and amortization	$	91,021	$	85,573	$	178,887	$	51,567	$	52,620	$	104,457

Average Sales Price:
Oil (per Bbl)	$	56.15	$	67.99	$	63.45	$	57.22	$	67.00	$	63.06
Natural gas (per Mcf)	$	6.78	$	7.10	$	6.93	$	7.03	$	7.27	$	7.13
Average equivalent (Mcfe)	$	7.14	$	8.09	$	7.61	$	7.42	$	8.34	$	7.85

Expenses ($ per Mcfe):
Oil and gas operating⁽¹⁾	$	1.47	$	1.35	$	1.41	$	1.53	$	1.67	$	1.59
Depreciation, depletion and amortization⁽²⁾	$	2.74	$	2.70	$	2.76	$	1.94	$	2.32	$	2.12


(1)	Includes lease operating costs and production and ad valorem taxes.
(2)	Represents depreciation, depletion and amortization of oil and gas properties only.

Revenues –

Our oil and gas sales in the third quarter of 2007 of $171.1 million increased $41.8 million (32%) over our sales of $129.3 million in the third quarter of 2006. The growth in sales resulted from our higher production in the third quarter of 2007. Production in the third quarter of 2007 increased 35% to 23.1 Bcfe as compared to production of 17.1 Bcfe in the third quarter of 2006. Our realized oil prices in the third quarter of 2007 averaged $72.57 per barrel, 10% higher than the $65.95 per barrel realized in the third quarter of 2006. Our average realized natural gas price of $6.35 per Mcf in the third quarter of 2007 was 4% lower than our average natural gas price of $6.63 per Mcf for the three months ended September 30, 2006.

Oil and gas sales from our onshore properties increased $20.8 million to $83.1 million for the three months ended September 30, 2007 from $62.3 million for the third quarter of 2006. Our onshore production in the third quarter of 2007 increased by 38% to 12.2 Bcfe over production in the third quarter of 2006 of 8.8 Bcfe. The production increase was attributable to our development drilling activity primarily in our East Texas/North Louisiana and South Texas regions. Our average onshore realized crude oil price increased by 8% and our average onshore realized natural gas price decreased by 4% in the third quarter of 2007 as compared to the third quarter of 2006. Oil and gas sales from Bois d'Arc Energy's operations for the third quarter of 2007 of $88.0 million increased $21.0 million or 31% compared with the third quarter of 2006. Bois d'Arc Energy's production of 10.9 Bcfe in the third quarter of 2007 increased by 31% from the production in the third quarter of 2006 of 8.3 Bcfe. The increase was due primarily to production from new wells we drilled. Bois d'Arc Energy's average oil price increased by 11% and Bois d'Arc Energy's average natural gas price decreased by 4% in the third quarter of 2007 as compared to the third quarter of 2006.

Our oil and gas sales in the first nine months of 2007 of $491.3 million increased $106.1 million (28%) over our sales of $385.2 million in the first nine months of 2006. The growth in sales was attributable to our higher production. Production in the first nine months of 2007 increased 32% to 64.6 Bcfe as compared to production of 49.1 Bcfe in the first nine months of 2006. Our realized oil prices in the first nine months of 2007 averaged $63.45 per barrel, slightly higher than the $63.06 per barrel realized in the first nine months of 2006. Our average realized natural gas price of $6.93 per Mcf in the first nine months of 2007 was 3% less than our average natural gas price of $7.13 per Mcf for the nine months ended September 30, 2006.

Oil and gas sales from our onshore properties increased $39.4 million to $236.1 million for the nine months ended September 30, 2007 from $196.7 million for the first nine months of 2006. Our onshore production in the first nine months of 2007 increased by 25% to 33.1 Bcfe from production in the first nine months of 2006 of 26.5 Bcfe. The production increase was attributable to our development drilling activity primarily in our East Texas/North Louisiana and South Texas regions. Our average onshore realized crude oil price decreased by 2% and our average onshore realized natural gas price decreased by 3% in the first nine months of 2007 as compared to the first nine months of 2006. Oil and gas sales from Bois d'Arc Energy's operations for the first nine months of 2007 of $255.2 million increased $66.8 million or 35% as compared with the first nine months of 2006. Bois d'Arc Energy's production of 31.5 Bcfe in the first nine months of 2007 increased by 40% from the production in the first nine months of 2006 of 22.6 Bcfe. The increase was due to production from new wells and restoration of 3.5 Bcfe of deferred production Bois d'Arc Energy had in the first half of 2006 which resulted from the 2005 hurricanes. Bois d'Arc Energy's average oil price increased by 1% and Bois d'Arc Energy's average natural gas price decreased by 2% in the first nine months of 2007 as compared to the first nine months of 2006.

Costs and Expenses -

Our oil and gas operating expenses, including production taxes, increased $7.1 million (26%) to $34.0 million in the third quarter of 2007 from $26.9 million in the third quarter of 2006. Oil and gas operating expenses from our onshore operations increased $3.6 million (27%) to $17.0 million from $13.4 million in the third quarter of 2006 primarily due to the 38% increase in production in the third quarter of 2007. Oil and gas operating expenses per equivalent Mcf produced for our onshore operations decreased $0.12 (8%) to $1.40 in the third quarter of 2007 from $1.52 in the third quarter of 2006. Bois d'Arc Energy's oil and gas operating costs for the third quarter of 2007 of $17.0 million increased $3.5 million (25%) from $13.5 million in the third quarter of 2006. Oil and gas operating expenses per equivalent Mcf produced for Bois d'Arc Energy's operations decreased $.07 (4%) to $1.55 in the third quarter of 2007 from $1.63 in the third quarter of 2006. The decrease is due to the fixed nature of a substantial portion of Bois d'Arc Energy's lifting costs and lower repair and maintenance costs in 2007.

Oil and gas operating expenses increased $13.1 million (17%) to $91.3 million in the first nine months of 2007 from $78.2 million in the first nine months of 2006. Onshore oil and gas operating expenses increased $8.3 million (21%) as the result of the higher production level and the costs associated with new wells. Onshore oil and gas operating expenses per Mcfe produced decreased $0.06 to $1.47 for the nine months ended September 30, 2007 from $1.53 for the same period in 2006. Offshore oil and gas operating expenses increased $4.8 million (13%) to $42.6 million for the first nine months of 2007 primarily due to lifting costs associated with new wells placed on production. Oil and gas operating expenses per equivalent Mcf produced for Bois d'Arc Energy operations decreased $.32 (19%) to $1.35 in the first nine months of 2007 from $1.67 in the first nine months of 2006. The decrease is due to the fixed nature of a substantial portion of Bois d'Arc Energy's lifting costs and lower repair and maintenance costs in 2007. Operating expenses in 2006 included $3.1 million of offshore repair costs related to the 2005 hurricanes.

In the third quarter of 2007, we had $5.7 million of exploration expense as compared to $8.1 million in the third quarter of 2006. Exploration expense in the third quarter of 2007 primarily related to an exploratory dry hole drilled and the acquisition of seismic data. In the third quarter of 2006, we had one offshore exploratory dry hole and the cost of seismic data acquired. In the first nine months of 2007, we had $36.7 million of exploration expense as compared to $16.7 million in the first nine months of 2006. Exploration expense in the first nine months of 2007 primarily related to five offshore and three onshore exploratory dry holes and the cost of seismic data acquired by Bois d'Arc Energy. The provision in the first nine months of 2006 primarily related to three offshore exploratory dry holes and seismic data acquired by Bois d'Arc Energy.

Depreciation, depletion and amortization ("DD&A") increased $21.7 million (53%) to $62.4 million in the third quarter of 2007 from DD&A expense of $40.7 million in the third quarter of 2006. DD&A for our onshore properties increased $14.7 million to $33.4 million for the three months ended September 30, 2007 from $18.7 million in the third quarter of 2006 due to our 38% higher production level and an increase in our onshore average DD&A rate. Our onshore DD&A per equivalent Mcf produced increased by $0.61 to $2.73 for the three months ended September 30, 2007 from $2.12 for the three months ended September 30, 2006. This increased rate was primarily attributable to the higher capitalized costs associated with our drilling program and our acquisitions completed in 2006 and 2007. DD&A related to Bois d'Arc Energy for the third quarter of 2007 increased $6.6 million to $28.3 million from $21.7 million in the third quarter of 2006 million due primarily to the 31% higher production level. The DD&A rate per Mcfe produced for Bois d'Arc Energy's operations in the third quarter of 2007 decreased to $2.57 per Mcfe from $2.60 in the third quarter of 2006.

For the nine months ended September 30, 2007, DD&A increased $74.4 million (71%) to $178.9 million from $104.5 million for the nine months ended September 30, 2006. DD&A for our onshore properties increased $39.4 million (77%) to $91.0 million from $51.6 million in the first nine months of 2006. The increase is due to the 25% increase in onshore production and the increased amortization rate of $2.74 per Mcfe in the first half of 2007 as compared to $1.94 per Mcfe for the first nine months of 2006. The higher rate is attributable to higher costs of the acquisitions we made in 2006 and 2007 and higher drilling costs associated with our onshore drilling program. The DD&A associated with Bois d'Arc Energy's offshore properties of $85.6 million for the first nine months of 2007 increased $33.0 million (63%) from $52.6 million for the nine months ended September 30, 2006 due to the 40% increase in produced volumes and a higher amortization rate. The DD&A rate per Mcfe produced for Bois d'Arc Energy's operations in the first nine months of 2007 increased $0.38 per Mcfe to $2.70 per Mcfe from $2.32 in the first nine months of 2006 due to higher capitalized costs related to Bois d'Arc Energy's drilling program.

Impairment expense of $0.8 million for the three months ended September 30, 2007 and $1.4 million for the three months ended September 30, 2006 relate to impairments of minor valued fields. Impairment expense for the first nine months of 2007 of $0.8 million decreased $9.4 million from impairment expense of $10.2 million for the nine months ended September 30, 2006 mainly as a result of the impairment in 2006 of a property held for resale for which the plan to sell the property was subsequently cancelled.

General and administrative expense, which is reported net of overhead reimbursements, increased by $1.3 million to $8.7 million for the third quarter of 2007 as compared to general and administrative expense of $7.4 million for the third quarter of 2006. Included in general and administrative expense is stock-based compensation of $4.3 million and $3.3 million for the three months ended September 30, 2007 and 2006, respectively. For the first nine months of 2007, general and administrative expense increased to $26.5 million from $22.7 million for the nine months ended September 30, 2006. These increases primarily reflect the additional personnel we have added since the beginning of 2007. Included in general and administrative expense is stock-based compensation of $12.9 million and $9.8 million for the nine months ended September 30, 2007 and 2006, respectively.

Interest expense increased $4.5 million (67%) to $11.2 million for the third quarter of 2007 from interest expense of $6.7 million in the third quarter of 2006. The increase was primarily due to increased borrowings under our bank credit facilities during the third quarter of 2007 and higher interest rates. The average borrowings outstanding increased to $427.5 million during the third quarter of 2007 as compared to $180.5 million in the third quarter of 2006. The average interest rate we were charged on the outstanding borrowings under our credit facilities increased to 6.9% in the third quarter of 2007 as compared to 6.8% in the third quarter of 2006. Interest expense for the nine months ended September 30, 2007 increased $11.6 million (63%) to $29.9 million from $18.3 million for the nine months ended September 30, 2006. The increase is attributable to higher average borrowings under the bank credit facilities and higher interest rates. Average borrowings outstanding increased to $374.0 million during the first nine months of 2007 as compared to $157.0 million for the nine months ended September 30, 2006. The average interest rate under our bank credit facilities increased to 6.7% in the first nine months of 2007 as compared to 6.4% in the first nine months of 2006.

We had no outstanding derivatives during the three months and nine months ended September 30, 2007. We had natural gas price derivatives outstanding during the three and nine months ended September 31, 2006 and we did not designate these derivatives as cash flow hedges in 2006 and, accordingly, we recognized gains from the change in the fair value of these liabilities in 2006. During 2006, the fair value of our liability for these derivatives decreased during the nine months ended September 30, 2006 resulting in net gains of $1.2 million and $10.6 million for the three months and nine months ended September 30, 2006, respectively.

Income tax expense increased $4.9 million (30%) to $21.6 million for the three months ended September 30, 2007 from income tax expense of $16.7 million for the third quarter of 2006. The increase was mainly due to higher income during the third quarter of 2007. Income tax expense decreased $5.8 million (10%) to $56.0 million for the nine months ended September 30, 2007 from income tax expense of $61.8 million for the first nine months of 2006. The decrease was primarily due to lower income during the first nine months of 2007.

Minority interest in earnings of Bois d'Arc Energy of $10.8 million for the three months ended September 30, 2007 increased $4.8 million (80%) from the minority interest in earnings of $6.0 million for the comparable period in 2006 due to Bois d'Arc Energy's higher net income for the three months ended September 30, 2007. Minority interest in earnings of Bois d'Arc Energy of $25.6 million for the first nine months of 2007 increased $3.2 million (14%) from the minority interest in earnings of $22.4 million for the comparable period in 2006 due to Bois d'Arc Energy's higher net income for the nine months ended September 30, 2007.

We reported net income of $16.4 million for the three months ended September 30, 2007, as compared to $17.0 million for the three months ended September 30, 2006. The net income per share for the third quarter of 2007 was $0.37 on weighted average diluted shares outstanding of 44.4 million as compared to $0.39 for the third quarter of 2006 on weighted average diluted shares outstanding of 43.6 million. Net income for the nine months ended September 30, 2007 was $47.2 million, as compared to net income of $62.3 million for the nine months ended September 30, 2006. Net income per share for the nine months ended September 30, 2007 was $1.05 on weighted average diluted shares outstanding of 44.3 million as compared to net income per share of $1.42 on weighted average diluted shares outstanding of 43.5 million for the nine months ended September 30, 2006. Increases in exploration expense and DD&A in the first nine months of 2007 as compared to the same period in 2006 offset the higher oil and gas sales in the first nine months of 2007. The 2006 results also included a $10.6 million gain from derivatives.

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 nine months ended September 30, 2007, our primary sources of funds were net cash flow from operations of $324.9 million and net borrowings under our credit facilities of $142.0 million. Our net cash flow from operating activities increased $50.6 million (18%) in the first nine months of 2007 from $274.3 million for the nine months ended September 30, 2006. This increase is primarily due to the higher revenues we had in the first nine months of 2007 driven by the 32% increase in our oil and gas production.

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. In the first nine months of 2007, we incurred capital expenditures of $454.8 million primarily for our acquisition, development and exploration activities.

The following table summarizes our capital expenditure activity, on an accrual basis, for the nine months ended September 30, 2007 and 2006:

	Nine Months Ended September 30, 2007						Nine Months Ended September 30, 2006
			Bois d'Arc						Bois d'Arc
	Onshore		Energy		Total		Onshore		Energy		Total
	(In thousands)

Acquisitions of oil and gas properties	$	31,189	$	—	$	31,189	$	68,175	$	18,178	$	86,353
Leasehold costs		7,546		1,727		9,273		3,383		2,108		5,491
Development drilling		231,870		41,268		273,138		123,916		39,027		162,943
Exploratory drilling		10,424		82,275		92,699		75		87,771		87,846
Other development		5,775		41,799		47,574		17,389		44,714		62,103
		286,804		167,069		453,873		212,938		191,798		404,736
Other		806		83		889		388		1,595		1,983
	$	287,610	$	167,152	$	454,762	$	213,326	$	193,393	$	406,719

The timing of most of our capital expenditures is discretionary because we have no material long-term capital expenditure commitments except for commitments for contract drilling services and for seismic data acquisitions. Consequently, we have a significant degree of flexibility to adjust the level of our capital expenditures as circumstances warrant. As of September 30, 2007 we have contracted for the services of onshore drilling rigs through September 2008 at an aggregate cost of $24.4 million. As of September 30, 2007, Bois d'Arc Energy has long term commitments to acquire seismic data totaling $8.3 million through December 2008 and has commitments for drilling services through January 31, 2008 of $6.1 million. We have obligations to incur future payments for dismantlement, abandonment and restoration costs of oil and gas properties. These payments are currently estimated to be incurred primarily after 2011. We record a separate liability for the fair value of these asset retirement obligations which totaled $60.4 million and $44.3 million as of September 30, 2007 and 2006, respectively.

We spent $255.6 million and $144.8 million on our onshore development and exploration activities during the nine months ended September 30, 2007 and 2006, respectively. We expect to spend approximately $330.0 million for onshore development and exploration projects for all of 2007. Bois d'Arc Energy spent $167.1 million and $173.6 million on offshore development and exploration activities in the nine months ended September 30, 2007 and 2006, respectively, and expects to spend $215.0 million for offshore capital expenditures for all of 2007. Development and exploration activities are funded primarily with operating cash flow and with borrowings under our bank credit facilities.

We spent $31.2 million on an acquisition of oil and gas properties in South Texas that was completed in June 2007. We do not have a specific acquisition budget for 2007 since the timing and size of acquisitions are not predictable. We intend to use borrowings under our bank credit facilities, 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.

We have a $600.0 million bank credit facility with the Bank of Montreal, as the administrative agent. The credit facility is a five-year revolving credit commitment that matures on December 15, 2011. 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 our oil and natural gas properties. The borrowing base may be affected by the performance of our properties and changes in oil and natural gas prices. As of September 30, 2007 the borrowing base was $400.0 million, $78.0 million of which was available. The borrowing base was increased to $500.0 million on November 5, 2007. Indebtedness under the bank credit facility is secured by substantially all of our wholly-owned subsidiaries' oil and gas properties and is guaranteed by all of our wholly-owned subsidiaries. Borrowings under the credit facility bear interest, based on the utilization of the borrowing base, at our option of either LIBOR plus 1.0% to 1.75% or the base rate (which is the higher of the prime rate or the federal funds rate) plus 0% to 0.5%. 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 we may incur and limit our ability to make certain loans and investments. The only financial covenants are the maintenance of a current ratio and maintenance of a minimum tangible net worth. We were in compliance with these covenants as of September 30, 2007. We also have $175.0 million of 6⅞% senior notes due March 1, 2012, with interest payable semiannually on each March 1 and September 1. The notes are unsecured obligations and are guaranteed by all of our wholly owned subsidiaries.

Bois d'Arc Energy has a bank credit facility with the Bank of Nova Scotia and several other banks. The credit facility matures on May 11, 2009. Borrowings under the credit facility are limited to a borrowing base that is redetermined semi-annually based on the banks' estimates 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 $225.0 million as of September 30, 2007, and availability under the borrowing base was $125.0 million. Indebtedness under the credit facility is secured by substantially all of Bois d'Arc Energy and its subsidiaries' assets, and all of Bois d'Arc Energy's subsidiaries are guarantors of the indebtedness. The 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.

We believe that our cash flow from operations and available borrowings under our bank credit facilities 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 terms acceptable to us.

Critical Accounting Policies

The information included in "Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies" in our annual report filed on Form 10-K for the year ended December 31, 2006 is incorporated herein by reference.

Effective January 1, 2007 we 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 disclosures for uncertainty in income tax positions, as defined. The adoption of FIN 48 had no impact on the amounts recorded by us related to uncertain tax positions.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS No. 157). This statement establishes a framework for fair value measurements in the financial statements by providing a single definition of fair value, provides guidance on the methods used to estimate fair value and increases disclosures about estimates of fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and is generally applied prospectively. We are currently evaluating the impact of this statement on our consolidated financial statements.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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, some of which 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 for the nine months ended September 30, 2007, 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 $1.9 million and a $1.00 change in the price per Mcf of natural gas would have changed our cash flow by approximately $51.3 million.

Interest Rates

At September 30, 2007, we had total long-term debt of $597.0 million. Of this amount, $175.0 million bears interest at a fixed rate of 6⅞%. We had $422.0 million outstanding under our bank credit facilities, which 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. Based on borrowings outstanding at September 30, 2007, a 100 basis point change in interest rates would change our interest expense for the nine month period ended September 30, 2007 by approximately $3.2 million.

ITEM 4: CONTROLS AND PROCEDURES

As of September 30, 2007, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2007 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and to provide reasonable assurance that information required to be disclosed by us is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended September 30, 2007, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION

ITEM 6:

EXHIBITS


Exhibit No.		Description

15.1*		Awareness Letter of Ernst & Young LLP.
31.1*		Section 302 Certification of the Chief Executive Officer.
31.2*		Section 302 Certification of the Chief Financial Officer.
32.1*		Certification for the Chief Executive Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification for the Chief Financial Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

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.


Date: November 7, 2007	/s/ M. JAY ALLISON
	M.Jay Allison, Chairman, President and Chief
	Executive Officer (Principal Executive Officer)



Date: November 7, 2007	/s/ ROLAND O. BURNS
	Roland O. Burns, Senior Vice President,
	Chief Financial Officer, Secretary, and Treasurer (Principal Financial and Accounting Officer)

Comstock Resources - 10-Q quarterly report FY

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