These unaudited consolidated financial statements include the accounts of Comstock Resources, Inc. and its wholly-owned subsidiaries (collectively, "Comstock" or the "Company"). In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of Comstock as of September 30, 2019, and the related results of operations and cash flows for the Predecessor and Successor periods being presented. Net income (loss) and comprehensive income (loss) are the same in all periods presented. All adjustments are of a normal recurring nature unless otherwise disclosed.

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to those rules and regulations, although Comstock believes that the disclosures made are adequate to make the information presented not misleading. These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in Comstock's Annual Report on Form 10-K for the year ended December 31, 2018.

The results of operations for the period through September 30, 2019 are not necessarily an indication of the results expected for the full year.

On August 14, 2018, Arkoma Drilling, L.P. and Williston Drilling, L.P. (collectively, the "Jones Partnerships") contributed certain oil and gas properties in North Dakota and Montana (the "Bakken Shale Properties") in exchange for 88,571,429 newly issued shares of common stock representing 84% of the Company's then outstanding common stock (the "Jones Contribution"). The Jones Partnerships are wholly owned and controlled by Dallas businessman Jerry Jones and his children (collectively, the "Jones Group").

The Company assessed the Bakken Shale Properties to determine whether they met the definition of a business under US generally accepted accounting principles, determining that they did not meet the definition of a business. As a result, the Jones Contribution was not accounted for as a business combination. Upon the issuance of the shares of Comstock common stock, the Jones Group obtained control over Comstock through their ownership of the Jones Partnerships. Through the Jones Partnerships, the Jones Group owns a majority of the voting common stock as well as the ability to control the composition of the majority of the board of directors of Comstock. As a result of the change of control that occurred upon the issuance of the common stock, the Jones Group controls Comstock and, thereby, continues to control the Bakken Shale Properties.

Accordingly, the basis of the Bakken Shale Properties recognized by Comstock was the historical basis of the Jones Group. The historical cost basis of the Bakken Shale Properties contributed was $397.6 million, which was comprised of $554.3 million of capitalized costs less $156.7 million of accumulated depletion, depreciation and amortization. The change in control of Comstock resulted in a new basis for Comstock as the Company elected to apply pushdown accounting pursuant to ASC 805, Business Combinations. The new basis was pushed down to Comstock for financial reporting purposes, resulting in Comstock's assets, liabilities and equity accounts being recognized at fair value upon the closing of the Jones Contribution.

References to "Successor" or "Successor Company" relate to the financial position and results of operations of the Company subsequent to August 13, 2018. Reference to "Predecessor" or "Predecessor Company" relate to the financial position and results of operations of the Company on or prior to August 13, 2018. The Company's consolidated financial statements and related footnotes are presented with a black line division which delineates the lack of comparability between amounts presented after August 13, 2018 and dates prior thereto.

The following table represents the allocation of fair value related to the assets acquired and the liabilities assumed after giving consideration for final purchase accounting adjustments based on the fair value of Comstock:

	(In thousands)

Fair Value of Comstock's Common Stock	$	149,357

Fair Value of Liabilities Assumed –
Current Liabilities		180,452
Long-Term Debt		2,059,560
Deferred Income Taxes		49,391
Reserve for Future Abandonment Costs		4,440
Net Liabilities Assumed		2,293,843

Fair Value of Assets Acquired –
Current Assets		936,026
Oil and Gas Properties		1,147,749
Other Property & Equipment		4,440
Income Taxes Receivable		19,086
Other Assets		2
Total Assets		2,107,303
Goodwill	$	335,897

The goodwill that was recognized was primarily attributable to the excess of the fair value of Comstock's common stock over the identifiable assets acquired net of liabilities assumed, measured in accordance with generally accepted accounting principles in the United States. The fair value of oil and gas properties, a Level 3 measurement, was determined using discounted cash flow valuation methodology. Key inputs to the valuation included average oil prices of $79.72 per barrel, average natural gas prices of $3.87 per thousand cubic feet and discount factors of 10% - 25%. The combination of the Bakken Shale Properties with Comstock's Haynesville shale properties results in a Company with adequate resources and liquidity to fully exploit its Haynesville/Bossier shale asset base and to continue to expand its opportunity set with future acquisitions and leasing activity in the basin.

During the quarter ended September 30, 2019, the Company finalized the deferred income taxes that were related to the Jones Contribution. Deferred income taxes and goodwill were reduced by $14.3 million in the final valuation.

Covey Park Acquisition

On July 16, 2019, Comstock acquired Covey Park Energy LLC ("Covey Park") for total consideration of $700.0 million of cash, the issuance of Series A Convertible Preferred Stock with a redemption value of $210.0 million, and the issuance of 28,833,000 shares of common stock (the "Covey Park Acquisition"). In addition to the consideration paid, Comstock assumed $625.0 million of Covey Park's 7.5% senior notes, repaid $380.0 million of Covey Park's then outstanding borrowings under its bank credit facility and redeemed all of Covey Park's preferred equity for $153.4 million. Based on the fair value of the preferred stock issued and the closing price of the Company's common stock of $5.82 per share on July 16, 2019, the transaction was valued at approximately $2.2 billion. Covey Park's operations are focused primarily in the Haynesville / Bossier shale in East Texas and North Louisiana.

Funding for the Covey Park Acquisition was provided by the sale of 50.0 million newly issued shares of common stock for $300.0 million and 175,000 shares of newly issued Series B Convertible Preferred Stock for $175.0 million to the Company's majority stockholder and by borrowings under Comstock's amended and restated bank credit facility and cash on hand.

In connection with the Covey Park Acquisition, Comstock incurred $41.1 million of advisory and legal fees and other acquisition-related costs. These acquisition costs are included in transaction costs in the Company's consolidated statements of operations.

The transaction has been accounted for as a business combination, using the acquisition method. Certain information to finalize the purchase price is not yet available, including the final tax return of Covey Park. The Company expects to complete the purchase price allocation within the twelve month period following the acquisition date, during which time the value of the net assets and liabilities acquired may be revised as appropriate. The following table presents the Company's preliminary purchase price allocation of the assets acquired and liabilities assumed based on their fair values as of the acquisition date:

	(In thousands)

Consideration:
Cash Paid	$	700,000
Fair Value of Common Stock Issued		167,808
Fair Value of Series A Preferred Stock Issued		200,000
Total Consideration		1,067,808

Liabilities Assumed:
Accounts Payable and Accrued Liabilities		129,622
Derivative Financial Instruments		388
Other Current Liabilities		9,930
Long Term Debt		826,625
Covey Park Preferred Equity		153,390
Non-current Derivative Financial Instruments		186
Asset Retirement Obligations		5,374
Deferred Income Taxes		23,466
Other Non-current Liabilities		9,893
Liabilities Assumed		1,158,874
Total Consideration and Liabilities Assumed	$	2,226,682

Assets Acquired:
Cash and Cash Equivalents	$	6,131
Accounts Receivable		86,285
Current Derivative Financial Instruments		51,004
Other Current Assets		5,511
Proved Oil and Natural Gas Properties		1,818,413
Unproved Oil and Natural Gas Properties		237,210
Other Property, Plant and Equipment		2,262
Non-current Derivative Financial Instruments		19,866
Total Assets Acquired	$	2,226,682

The Series A Convertible Preferred Stock was issued with a face value of $210.0 million. Management retained a third-party valuation firm to assess the fair value of the preferred stock. A yield methodology using Level 2 inputs of the Company's publicly traded debt, including the assumption of Covey Park's 7.5% senior notes, resulted in a fair value of $200.0 million.

The fair values determined for accounts receivable, accounts payable, accrued drilling costs and other current liabilities were equivalent to the carrying value due to their short-term nature.

The fair value of the proved and unproved oil and natural gas properties was derived from estimated future discounted net cash flows, a Level 3 measurement, based on existing production curves and timing of development of those properties. The key factors used in deriving the estimated future cash flows include estimated recoverable reserves, production rates, future operating and development costs, and future commodity prices. Key inputs to the valuation included average oil prices of $74.80 per barrel and average natural gas prices of $3.32 per Mcf utilizing a combination of third-party price estimates and management price forecasts as of the acquisition date. The resulting estimated future cash flows from the acquired assets were discounted at rates ranging from 10% - 25% depending on risk characteristics of reserve categories acquired. Management utilized the assistance of an independent reserve firm and internal resources to estimate the fair value of the oil and natural gas properties.

The fair value measurements of long-term debt were estimated based on market prices and represent Level 2 inputs. The fair value measurements of derivative instruments assumed were determined based on fair value measurements consistent with managements valuation methodologies including implied market volatility, contract terms and prices and discount factors as of the close date. These inputs represent Level 2 inputs. The fair values of commodity derivative instruments in an asset position include a measure of counterparty nonperformance risk and the derivative instruments in a liability position include a measure of the Company's own nonperformance risk, each based on the current published credit default swap rates.

The fair value of the asset retirement obligations of $5.4 million is included in the oil and natural gas properties with the corresponding liability in the table above. The fair value was based on a discounted cash flow model that included assumptions of current abandonment costs, inflation rates, discount rates and timing of actual abandonment and restoration activities. Due to the inputs and significant assumptions associated with the estimation of asset retirement obligations, the estimates made by management represent Level 3 inputs.

The Covey Park Acquisition qualified as a tax free merger whereby the Company acquired carryover tax basis in Covey Park's assets and liabilities, adjusted for differences between the purchase price allocated to the assets acquired and liabilities assumed based on the fair value and the carryover tax basis.

The Company's results of operations from the closing date on July 16, 2019 through September 30, 2019 include approximately $117.2 million of operating revenues and approximately $20.6 million of operating income, excluding general and administrative and interest expenses, attributable to the Covey Park assets.

Pro forma Results

The pro forma condensed combined financial information for the three and nine months ended September 30, 2019 gives effect to the Covey Park Acquisition as if the acquisition had occurred on January 1, 2019. The pro forma condensed combined financial information for the three and nine months ended September 30, 2018 give effect to the Covey Park Acquisition and the Jones Contribution as if the transactions had occurred on January 1, 2018. The unaudited pro forma information reflects adjustments for the issuance of the Company's common stock and preferred stock, debt incurred in connection with the transaction, impact of the fair value of properties acquired and related depletion other adjustments the Company believes are reasonable for the pro forma presentation.

In addition, the pro forma earnings exclude acquisition-related costs. The unaudited pro forma results do not reflect any cost savings or other synergies that may arise in the future.

	Pro Forma Three Months Ended September 30, 2019		Pro Forma Three Months Ended September 30, 2018		Pro Forma Nine Months Ended September 30, 2019		Pro Forma Nine Months Ended September 30, 2018
	(In thousands, except per share amount)

Revenues	$	247,192	$	293,266	$	858,042	$	790,653
Net income	$	36,755	$	54,242	$	201,338	$	92,037

Net income per share:
Basic	$	0.15	$	0.24	$	0.93	$	0.34
Diluted	$	0.13	$	0.19	$	0.72	$	0.33

Subsequent Event

On November 1, 2019, the Company acquired a privately-held limited liability company which owns oil and gas properties in North Louisiana that are prospective for Haynesville and Bossier shale development in exchange for 4,500,000 newly issued shares of common stock. The properties acquired were producing 12 million cubic feet of natural gas and include approximately 3,000 net acres with 12.7 net future drilling locations.

The Company follows the successful efforts method of accounting for its oil and natural gas properties. Costs incurred to acquire oil and gas leasehold are capitalized.

In April 2018, Comstock completed the sale of its producing Eagle Ford shale oil and gas properties in McMullen, LaSalle, Frio, Atascosa, Wilson, and Karnes counties, Texas for $106.4 million. During the three and nine months ended September 30, 2018, the Company recognized a loss on sale of oil and gas properties of $35.4 million to reduce the carrying value of these assets held for sale to their fair value less costs to sell.

The Company had goodwill of $350.2 million as of December 31, 2018 that was recorded in connection with the Jones Contribution. Goodwill represents the excess of purchase price over fair value of net tangible and identifiable intangible assets. The Company is not required to amortize goodwill as a charge to earnings; however, the Company is required to conduct a review of goodwill annually and whenever indications of impairment exist.

During the three months ended September 30, 2019, the Company finalized the valuation of the Company's assets and liabilities in connection with the Jones Contribution, which reduced goodwill to $335.9 million as of September 30, 2019.

On January 1, 2019, the Company adopted Financial Accounting Standards Board Accounting Standards Codification 842, Leases ("ASC 842"). Comstock adopted this standard using the modified retrospective method of adoption, and it applied ASC 842 only to contracts that were not completed as of January 1, 2019. Upon adoption, there were no adjustments to the opening balance of stockholders' equity.

In adopting ASC 842, the Company utilized certain practical expedients available under ASC 842, including election to not apply the recognition requirements to short term leases (defined as leases with an initial lease term of twelve months or less which do not contain a purchase option), election to not separate lease and non-lease components, and election to not reassess certain land easements in existence prior to January 1, 2019.

Upon adoption of ASC 842, the Company recognized right-of-use lease assets of $5.2 million related to its corporate office lease, certain office equipment and leased vehicles used in oil and gas operations with corresponding short-term and long-term liabilities of $2.0 million and $3.2 million, respectively. The beginning value of the lease assets and liabilities was determined based upon discounted future minimum cash flows contained within each of the respective contracts. The Company utilized a discount rate of 5.0% in computing these discounted net future cash flows. Recognition of these assets and liabilities was not material to the Company's consolidated balance sheet. Adoption of ASC 842 did not impact our consolidated statements of operations, cash flows or stockholders' equity.

The Company determines if contracts contain a lease at inception of the contract. To the extent that contract terms representing a lease are identified, leases are identified as being either an operating lease or a finance-type lease. Comstock currently has no finance-type leases. Right-of-use lease assets representing the Company's right to use an underlying asset for the lease term and the related lease liabilities represent our obligation to make lease payments under the terms of the contracts. Short-term leases that have an initial term of one year or less are not capitalized; however, amounts paid for those leases are included as part of its lease cost disclosures. Short-term lease costs exclude expenses related to leases with a lease term of one month or less. Leases applicable to our oil or natural gas operations that include the right to explore for and develop oil and natural gas reserves and the related rights to use the land associated with those leases, are not within the scope of ASC 842.

Comstock contracts for a variety of equipment used in its oil and natural gas exploration and development operations. Contract terms for this equipment vary broadly, including the contract duration, pricing, scope of services included along with the equipment, cancellation terms, and rights of substitution, among others. In applying the accounting guidance within ASC 842, the Company has determined that its corporate office lease, certain office equipment, its vehicles leased for use in operations, and its drilling rigs meet the criteria of an operating lease which require recognition upon adoption of ASC 842.

The Company's drilling operations routinely change due to changes in commodity prices, demand for oil and natural gas, and the overall operating and economic environment. Comstock accordingly manages the terms of its contracts for drilling rigs so as to allow for maximum flexibility in responding to these changing conditions. The Company's rig contracts are presently either for periods of less than one year, or they are on terms that provide for cancellation with thirty days advance notice without a specified expiration date. The Company has elected to apply the practical expedient available under ASC 842 for short-term leases and not recognize right-of-use lease assets for these rig contracts. The costs associated with drilling rig operations are accounted for under the successful efforts method, which generally require that these costs be capitalized as part of our proved oil and natural gas properties on our balance sheet unless they are incurred on exploration wells that are unsuccessful, in which case they are charged to exploration expense.

Lease costs recognized during the three months and nine months ended September 30, 2019 were as follows:

Accrued expenses at September 30, 2019 and December 31, 2018 consisted of the following:

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 for such obligations during the periods presented:

All of the Company's derivative financial instruments are used for risk management purposes and, by policy, none are held for trading or speculative purposes. Comstock minimizes credit risk to counterparties of its derivative financial instruments through formal credit policies, monitoring procedures, and diversification. The Company is not required to provide any credit support to its counterparties other than cross collateralization with the assets securing its bank credit facility. None of the Company's derivative financial instruments involve payment or receipt of premiums. The Company classifies the fair value amounts of derivative financial instruments as net current or noncurrent assets or liabilities, whichever the case may be, by commodity contract.

All of Comstock's natural gas derivative financial instruments are tied to the Henry Hub-NYMEX price index and all of its crude oil derivative financial instruments are tied to the WTI-NYMEX index price. Basis swaps are tied to Henry Hub. The Company had the following outstanding commodity-based derivative financial instruments, excluding basis swaps which are discussed separately below, at September 30, 2019:

	Future Production Period
	Three Months Ending December 31, 2019		Year Ending December 31, 2020		Year Ending December 31, 2021		Year Ending December 31, 2022		Total
Natural Gas Swap Contracts:
Volume (MMbtu)		41,818,281		99,144,209		20,908,140		10,950,000		172,820,630
Average Price per MMbtu		$2.85		$2.81		$2.87		$2.81		$2.83
Natural Gas 2-Way Collar Contracts:
Volume (MMbtu)		9,916,000		16,350,000		—		—		26,266,000
Price per MMbtu
Average Ceiling		$3.52		$3.46		—		—		$3.48
Average Floor		$2.39		$2.47		—		—		$2.44
Natural Gas 3-Way Collar Contracts:
Volume (MMbtu)		12,880,000		26,510,000		—		—		39,390,000
Price per MMbtu
Average Ceiling		$3.08		$2.99		—		—		$3.02
Average Floor		$2.79		$2.65		—		—		$2.69
Average Put		$2.41		$2.33		—		—		$2.36
Crude Oil Collar Contracts:
Volume (Barrels)		284,200		1,125,100		—		—		1,409,300
Price per Barrel						—		—
Average Ceiling		$65.63		$65.33		—		—		$65.39
Average Floor		$45.00		$48.48		—		—		$47.78

In addition to the swaps and collars above, at September 30, 2019, the Company had basis swap contracts that lock-in the differential between NYMEX Henry Hub and certain physical pricing indices. These contracts settle monthly through December 2022 and include a total volume of 53,030,000 MMbtu. The fair value of these contracts was a net asset of $3.2 million at September 30, 2019.

None of the Company's derivative contracts were designated as cash flow hedges. The aggregate fair value of the Company's derivative instruments reported in the accompanying consolidated balance sheets by type, including the classification between assets and liabilities, consists of the following:

Type	Consolidated Balance Sheet Location	Fair Value
		(in thousands)
Successor Fair Value of Derivative Instruments as of September 30, 2019
Assets:
Natural gas price derivatives	Derivative Financial Instruments – current	$	60,002
Oil price derivatives	Derivative Financial Instruments – current		2,275
		$	62,277

Natural gas price derivatives	Derivative Financial Instruments – long-term	$	21,118
Oil price derivatives	Derivative Financial Instruments – long-term		865
		$	21,983

Successor Fair Value of Derivative Instruments as of December 31, 2018
Assets:
Natural gas price derivatives	Derivative Financial Instruments – current	$	6,096
Oil price derivatives	Derivative Financial Instruments – current		9,305
		$	15,401

The Company recognized cash settlements and changes in the fair value of its derivative financial instruments as a single component of other income (expenses). Gains and losses related to the change in the fair value recognized on the Company's derivative contracts recognized in the consolidated statement of operations were as follows:

	Successor						Predecessor			Successor					Predecessor
Gain/(Loss) Recognized in Earnings on Derivatives	Three Months Ended September 30, 2019		For the Period from August 14, 2018 through September 30, 2018				For the Period from July 1, 2018 through August 13, 2018			Nine Months Ended September 30, 2019		For the Period from August 14, 2018 through September 30, 2018			For the Period from January 1, 2018 through August 13, 2018
						(In thousands)
Swaps	$	19,398	$	(166	)		$	(6	)	$	29,856	$	(166	)	$	1,267
Collars		5,460		(1,849	)			(77	)		2,089		(1,849	)		(386	)
	$	24,858	$	(2,015	)		$	(83	)	$	31,945	$	(2,015	)	$	881

Subsequent to September 30, 2019, the Company entered into natural gas swap contracts covering 80,000 MMbtu per day for calendar 2020 with a weighted average price of $2.54 per MMbtu. These contracts contain a one-time option for the counterparty to extend the period to calendar 2021 in October 2020. The Company also entered into additional natural gas swap contracts covering 20,000 MMbtu per day for calendar 2020 at $2.50 per MMbtu.

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 and included in general and administrative expenses for awards of restricted stock and performance stock units ("PSUs") to the Company's employees and directors. Stock-based compensation was $1.1 million and $2.4 million for the three months and nine months ended September 30, 2019, respectively. The Company recognized $0.3 million of stock-based compensation expense within general and administrative expenses related to awards of restricted stock and PSUs to its employees and directors during the Successor period August 14, 2018 through September 30, 2018 and $0.8 million during the Predecessor period July 1 through August 13, 2018 and $3.9 million during the Predecessor period January 1, 2018 through August 13, 2018.

During the period July 1, 2018 through August 13, 2018, the Predecessor Company granted 100,226 shares of restricted stock with a grant date fair value of $0.9 million, or $8.73 per share, to its independent directors. The change of control that occurred due to the Jones Contribution resulting in the vesting of all then outstanding restricted stock grants of 904,181 shares.

During the Successor period August 14, 2018 through September 30, 2018, the Company granted 422,545 shares of restricted stock with a grant date fair value of $3.7 million, or $8.70 per share, to its employees. During the three months and nine months ended September 30, 2019 the Company granted 789,044 and 874,661 shares of restricted stock, respectively, with a grant date fair value of $4.3 million and $4.7 million, respectively, at a per share value of $5.51 per share and $5.40 per share, respectively, to its employees and directors.

As of September 30, 2019, Comstock had 1,131,918 shares of unvested restricted stock outstanding at a weighted average grant date fair value of $6.15 per share. Total unrecognized compensation cost related to unvested restricted stock grants of $6.5 million as of September 30, 2019 is expected to be recognized over a period of 2.4 years.

As of September 30, 2019, Comstock had 942,795 PSUs outstanding at a weighted average grant date fair value of $9.60 per unit. During the three and nine months ended September 30, 2019, the Company issued 618,672 PSUs with a grant date fair value of $7.85 per unit. The number of shares of common stock to be issued related to the PSUs is based on the Company's stock price performance as compared to its peers which could result in the issuance of anywhere from zero to 1,885,590 shares of common stock. Total unrecognized compensation cost related to these grants of $7.3 million as of September 30, 2019 is expected to be recognized over a period of 2.5 years.

Comstock produces oil and natural gas and reports revenues separately for each of these two primary products in its statements of operations. Revenues are recognized upon the transfer of produced volumes to the Company's customers, who take control of the volumes and receive all the benefits of ownership upon delivery at designated sales points. Payment is reasonably assured upon delivery of production. All sales are subject to contracts that have commercial substance, contain specific pricing terms, and define the enforceable rights and obligations of both parties. These contracts typically provide for cash settlement within 25 days following each production month and are cancellable upon 30 days' notice by either party. Prices for sales of oil and natural gas are generally based upon terms that are common in the oil and gas industry, including index or spot prices, location and quality differentials, as well as market supply and demand conditions. As a result, prices for oil and natural gas routinely fluctuate based on changes in these factors. Each unit of production (barrel of crude oil and thousand cubic feet of natural gas) represents a separate performance obligation under the Company's contracts since each unit has economic benefit on its own and each is priced separately according to the terms of the contracts.

Comstock has elected to exclude all taxes from the measurement of transaction prices, and its revenues are reported net of royalties and exclude revenue interests owned by others because the Company acts as an agent when selling crude oil and natural gas, on behalf of royalty owners and working interest owners. Revenue is recorded in the month of production based on an estimate of the Company's share of volumes produced and prices realized. The Company recognizes any differences between estimates and actual amounts received in the month when payment is received. Historically, differences between estimated revenues and actual revenue received have not been significant. The amount of oil or natural gas sold may differ from the amount to which the Company is entitled based on its revenue interests in the properties. The Company did not have any significant imbalance positions at September 30, 2019. Sales of oil and natural gas generally occur at or near the wellhead. When sales of oil and gas occur at locations other than the wellhead, the Company accounts for costs incurred to transport the production to the delivery point as gathering and transportation expenses. The Company recognized accounts receivable of $97.8 million as of September 30, 2019 from customers for contracts where performance obligations have been satisfied and an unconditional right to consideration exists.

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.

In recording deferred income tax assets, the Company considers whether it is more likely than not that its deferred income tax assets will be realized in the future. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those deferred income tax assets would be deductible. The Company believes that after considering all the available objective evidence, historical and prospective, with greater weight given to historical evidence, management is not able to determine that it is more likely than not that all of its deferred tax assets will be realized. As a result, the Company established valuation allowances for its deferred tax assets and U.S. federal and state net operating loss carryforwards that are not expected to be utilized due to the uncertainty of generating taxable income prior to the expiration of the carryforward periods. The Company will continue to assess the valuation allowances against deferred tax assets considering all available information obtained in future periods.

			Transition Period									Transition Period
	Successor		Successor			Predecessor			Successor			Successor		Predecessor
	Three Months Ended September 30, 2019		For the Period from August 14, 2018 through September 30, 2018			For the Period from July 1, 2018 through August 13, 2018			Nine Months Ended September 30, 2019			For the Period from August 14, 2018 through September 30, 2018		For the Period from January 1, 2018 through August 13, 2018
					(In thousands)
Current - State	$	72	$	57		$	(22	)	$	(22	)	$	57	$	13
- Federal		—		—			—			—			—		—

Deferred - State		591		20			(309	)		1,246			20		(1,360	)
- Federal		3,184		3,863			936			13,959			3,863		2,412
	$	3,847	$	3,940		$	605		$	15,183		$	3,940	$	1,065

The difference between the federal statutory rate of 21% and the effective tax rate is due to the following:

	Three Months ended September 30,										Nine Months ended September 30,
				Transition Period										Transition Period
	Successor			Successor				Predecessor			Successor			Successor			Predecessor
	2019			For the Period from August 14, 2018 through September 30, 2018				For the Period from July 1, 2018 through August 13, 2018			2019			For the Period from August 14, 2018 through September 30, 2018			For the Period from January 1, 2018 through August 13, 2018
							(In thousands)
Tax at statutory rate		21.0	%		21.0	%			21.0	%		21.0	%		21.0	%		21.0		%
Tax effect of:
State income taxes, net of federal benefit		(1.8	)		2.0				4.5			—			2.0			3.9
Valuation allowance on deferred tax assets		4.5			(0.6	)			(21.1	)		2.3			(0.6	)		(24.1		)
Transaction costs		8.6			—				—			1.9			—			—
Nondeductible stock-based compensation		1.2			(0.2	)			(0.7	)		1.5			(0.2	)		(0.7		)
Other		2.7			—				(7.4	)		—			—			(1.3		)
Effective tax rate		36.2	%		22.2	%			(3.7	)%		26.7	%		22.2	%			(1.2	)%

The Tax Cuts and Jobs Act, which was enacted on December 22, 2017, reduced the corporate income tax rate effective January 1, 2018 from 35% to 21%. Among the other significant tax law changes that potentially affect the Company are the elimination of the corporate alternative minimum tax ("AMT"), changes that require operating losses incurred in 2018 and beyond be carried forward indefinitely with no carryback up to 80% of taxable income in a given year, and limitations on the deduction for interest expense incurred in 2018 or later for amounts in excess of 30% of its adjusted taxable income (defined as taxable income before interest and net operating losses) for the taxable year. The Company completed its accounting for the tax effects of enactment of the Tax Cuts and Jobs Act as of December 31, 2018. The Tax Cuts and Jobs Act repealed the AMT for tax years beginning on or after January 1, 2018 and provides that existing AMT credit carryforwards can be utilized to offset federal taxes for any taxable year. In addition, 50% of any unused AMT credit carryforwards can be refunded during tax years 2018 through 2020. During the current quarter, the Company received a $10.2 million refund for unused AMT credit carryforwards. The Company had $10.2 million of unused credit carryforwards at September 30, 2019.

The shares of common stock issued as a result of the Jones Contribution triggered an ownership change under Section 382 of the Internal Revenue Code. As a result, Comstock's ability to use net operating losses ("NOLs") to reduce taxable income is generally limited to an annual amount based on the fair market value of its stock immediately prior to the ownership change multiplied by the long-term tax-exempt interest rate. The Company's NOLs are estimated to be limited to $3.3 million a year as a result of this limitation. In addition to this limitation, IRC Section 382 provides that a corporation with a net unrealized built-in gain immediately before an ownership change may increase its limitation by the amount of recognized built-in gain recognized during a recognition period, which is generally the five-year period immediately following an ownership change. Based on the fair market value of the Company's common stock immediately prior to the ownership change, Comstock believes that it has a net unrealized built-in gain which will increase the Section 382 limitation during the five-year recognition period from 2018 to 2023.

NOLs that exceed the Section 382 limitation in any year continue to be allowed as carry forwards until they expire and can be used to offset taxable income for years within the carryover period subject to the limitation in each year. NOLs incurred prior to 2018 generally have a 20-year life until they expire. NOLs generated in 2018 and after would be carried forward indefinitely. Comstock's use of new NOLs arising after the date of an ownership change would not be affected by the 382 limitation. If the Company does not generate a sufficient level of taxable income prior to the expiration of the pre-2018 NOL carry forward periods, then it will lose the ability to apply those NOLs as offsets to future taxable income.

The common stock issued in connection with the Covey Park Acquisition did not trigger an ownership change under Section 382.

The Company's federal income tax returns for the years subsequent to December 31, 2015 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, 2012. The Company currently believes that all other significant filing positions are highly certain and that all of its other significant income tax positions and deductions would be sustained under audit or the final resolution would not have a material effect on the consolidated financial statements. Therefore, the Company has not established any significant reserves for uncertain tax positions.

The Company holds or has held certain financial assets and liabilities that are required to be measured at fair value. These include cash and cash equivalents held in bank accounts and derivative financial instruments in the form of oil and natural gas price swap agreements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level hierarchy is followed for disclosure to show the extent and level of judgment used to estimate fair value measurements:

Level 1 — Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.

Level 2 — Inputs used to measure fair value, other than quoted prices included in Level 1, are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

Level 3 — Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management's estimates of market participant assumptions.

The Company's oil and natural gas price swap agreements and its natural gas price collars were not traded on a public exchange, and their value is determined utilizing a discounted cash flow model based on inputs that are readily available in public markets and, accordingly, the valuation of these swap agreements, is categorized as a Level 2 measurement. There are no financial assets or liabilities accounted for at fair value as of September 30, 2019 that are a Level 3 measurement.

The following presents the carrying amounts and the fair values of the Company’s financial instruments as of September 30, 2019 and December 31, 2018 (in thousands):

		September 30, 2019						December 31, 2018
		Carrying Value			Fair Value			Carrying Value			Fair Value
Assets:
Commodity swaps, options and basis swaps^(a)		$	84,260		$	84,260		$	15,401		$	15,401

(Liabilities):
Bank credit facility^(b)			(1,265,000	)		(1,265,000	)		(450,000	)		(450,000	)
7.50% senior notes due 2025^(c)			(450,703	)		(503,125	)		—			—
9.75% senior notes due 2026^(c)			(819,277	)		(709,750	)		(817,066	)		(720,375	)

^(a)	The Company's oil and nature gas swaps, options and basis swaps agreements and its natural gas price collars are classified as Level 2 and measured at fair value using a market approach using third party pricing services and other active markets or broker quotes that are readily available in the public markets and, accordingly, the valuation of these swap agreements, is categorized as a Level 2 measurement.
^(b)	The book value of our floating rate debt outstanding approximates fair value because of its floating rate structure.
^(c)	The fair value of the Company's fixed rate debt was based on quoted prices as of September 30, 2019, a Level 2 measurement.

Unvested share-based payment awards containing nonforfeitable rights to dividends are considered to be participating securities and included in the computation of basic and diluted earnings per share pursuant to the two-class method. PSUs represent the right to receive a number of shares of the Company's common stock that may range from zero to up to two times the number of PSUs granted on the award date based on the achievement of certain performance measures during a performance period. The number of potentially dilutive shares related to PSUs is based on the number of shares, if any, which would be issuable at the end of the respective period, assuming that date was the end of the contingency period. The treasury stock method is used to measure the dilutive effect of PSUs. The shares that would have been issuable upon exercise of the conversion rights contains in the Predecessor Company's convertible debt are based on the if-converted method for computing potentially dilutive shares of common stock that could be issued upon conversion. None of the Company's participating securities participate in losses and as such are excluded from the computation of basic earnings per share during periods of net losses.

	Successor								Successor							Predecessor
	Three Months Ended September 30, 2019								For the Period from August 14, 2018 through September 30, 2018							For the Period from July 1, 2018 through August 13, 2018
	Loss			Shares		Per Share			Income			Shares		Per Share		Loss			Shares		Per Share
	(In thousands, except per share amounts)
Net income (loss) attributable to common stock	$	(1,337	)						$	13,823						$	(16,865	)
Income allocable to unvested restricted shares		—								(51	)						—
Basic income (loss) attributable to common stock		(1,337	)		171,487	$	(0.01	)		13,772			105,448	$	0.13		(16,865	)		15,468	$	(1.09	)
Dilutive effect of performance share units		—			—					—			15				—			—
Diluted income (loss) attributable to common stock	$	(1,337	)		171,487	$	(0.01	)	$	13,772			105,463	$	0.13	$	(16,865	)		15,468	$	(1.09	)

	Successor							Successor							Predecessor
	Nine Months Ended September 30, 2019							For the Period from August 14, 2018 through September 30, 2018							For the Period from January 1, 2018 through August 13, 2018
	Income			Shares		Per Share		Income			Shares		Per Share		Loss			Shares		Per Share
	(In thousands, except per share amounts)
Net income (loss) attributable to common stock	$	33,645						$	13,823						$	(92,754	)
Income allocable to unvested restricted shares		(141	)						(51	)						—
Basic income (loss) attributable to common stock		33,504			127,709	$	0.26		13,772			105,448	$	0.13		(92,754	)		15,262	$	(6.08	)
Dilutive effect of performance share units		—			—				—			15				—			—
Diluted income (loss) attributable to common stock	$	33,504			127,709	$	0.26	$	13,772			105,463	$	0.13	$	(92,754	)		15,262	$	(6.08	)

Basic and diluted per share amounts are the same for the three months ended September 30, 2019 due to the net loss in that period. Basic and diluted shares for the nine months ended September 30, 2019 are the same as there was no impact from the unvested restricted shares. The impact from the convertible preferred stock was anti-dilutive for the three and nine months ended September 30.

At September 30, 2019 and December 31, 2018, 1,131,918 and 414,545 shares of restricted stock, respectively, are included in common stock outstanding as such shares have a non-forfeitable right to participate in any dividends that might be declared and have the right to vote on matters submitted to the Company's stockholders.

Weighted average shares of unvested restricted stock outstanding were as follows:

The dilutive effect of preferred stock is computed using the if-converted method as if conversion of the preferred shares had been outstanding throughout the three months and nine months ended September 30, 2019. For the three and nine months ended September 30, 2019, the preferred stock was antidilutive. The preferred stock can be converted to common stock any time after July 16, 2020 at a conversion price of $4.00 per share, for a total of 96,250,000 shares of common stock.

All unvested PSUs, warrants exercisable into common stock and contingently issuable shares related to the convertible debt that would be dilutive in the computation of earnings per share were as follows:

	Successor		Successor			Predecessor		Successor		Successor		Predecessor
	Three Months Ended September 30, 2019		For the Period from August 14, 2018 through September 30, 2018			For the Period from July 1, 2018 through August 13, 2018		Nine Months Ended September 30, 2019		For the Period from August 14, 2018 through September 30, 2018		For the Period from January 1, 2018 through August 13, 2018
					(In thousands except per share/unit data)
Weighted average PSUs		862		315			514		513		315		476
Weighted average grant date fair value per unit	$	9.60	$	12.93		$	13.83	$	9.60	$	12.93	$	13.83

Weighted average warrants for common stock		—		15			42		—		15		142
Weighted average exercise price per share	$	—	$	0.01		$	0.01	$	—	$	0.01	$	0.01

Weighted average contingently convertible shares		—		—			40,631		—		—		39,819
Weighted average conversion price per share	$	—	$	—		$	12.32	$	—	$	—	$	12.32

All warrants, PSUs and potentially dilutive shares from conversion of senior notes in the three months ended September 30, 2018 were anti-dilutive and excluded from the computation of loss per share. PSUs were dilutive in the predecessor period from August 14, 2018 through September 30, 2018 and are included in the computation of diluted earnings per share.

Supplementary Information With Respect to the Consolidated Statements of Cash Flows

	Successor			Successor		Predecessor
	Nine Months Ended September 30, 2019			For the Period from August 14, 2018 through September 30, 2018		For the Period from January 1, 2018 through August 13, 2018
			(In thousands)
Cash payments for:
Interest	$	110,820		$	1,999	$	36,187
Income taxes	$	2		$	—	$	2

Non-cash investing activities include:
Increase in accrued capital expenditures	$	46,918		$	16,192	$	12,937

Non-cash investing activities related to the Covey Park Acquisition include:
Issuance of common stock	$	167,808		$	—	$	—
Issuance of Series A Convertible Preferred Stock	$	200,000		$	—	$	—
Assumed 7½% senior notes	$	446,625		$	—	$	—
Acquired working capital	$	41,624		$	—	$	—

Interest paid in-kind related to the predecessor Company's convertible notes was $25.0 million during the period January 1, 2018 through August 13, 2018.

In connection with the Covey Park Acquisition, the Company issued 28.8 million shares of common stock and 210,000 shares of Series A Convertible Preferred with a redemption value of $210.0 million and a fair value of $200.0 million as non-cash consideration. In addition, the Company assumed Covey Park's $625.0 million 7½% senior notes that were outstanding at closing.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04) "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. ASU 2017-04 is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019 and early adoption is permitted The Company will assess the impact of ASU 2017-04 on its financial statements when it performs impairment assessments following adoption of this standard. The Company has elected to not early adopt ASU 2017-04.