# TO OUR STOCKHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/NYSE_CRK_2018/NYSE_CRK_2018.mmd` · pages 2-8_

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TO OUR STOCKHOLDERS:

2018 was a transformative year for Comstock as we were able to fix our balance sheet and put the Company back on the path of creating stockholder value. The success of our drilling program in the Haynesville shale led to Jerry Jones contributing his Bakken shale properties for a stake in the Company. The cash flow from these properties allowed us to complete a comprehensive refinancing of all of our debt and expand our drilling activities in the Haynesville shale.

In 2015 we redirected our focus to our Haynesville/Bossier shale properties in North Louisiana with a plan to bring enhanced completion designs that had evolved in the oil shale plays and in the Northeast natural gas plays back to the Haynesville shale. We believed that longer lateral lengths and high intensity hydraulic fracturing techniques could more than double the production rates and ultimate recoveries of Haynesville shale wells. During the last four years we have drilled 70 operated Haynesville/Bossier wells, expanded

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our acreage footprint in the play with acreage swaps, joint ventures and acquisitions and substantially increased our drilling location inventory.

We are now well positioned to build stockholder value by developing the vast potential of our Haynesville/Bossier assets and to add to our acreage and drilling location inventory. The following recaps Comstock's major accomplishments in 2018:

## COMPLETED COMPREHENSIVE REFINANCING OF THE BALANCE SHEET

Overhanging the Company's strong Haynesville/Bossier operating results was the high debt load we had. When Jerry Jones contributed his Bakken shale properties, which were producing 14,330 barrels of oil equivalent per day, we dramatically improved our credit metrics which allowed us to enter into a new bank credit facility with a borrowing base of $700 million and to issue $850 million of new eight year senior notes. We were able to retire all of our outstanding debt and substantially lowered our interest costs and extended our debt maturities. Our leverage ratio fell from 6.0x to 2.8x based on our annualized fourth quarter results.

## STRONG DRILLING RESULTS
FROM 2018 HAYNESVILLE/
BOSSIER SHALE DRILLING
PROGRAM

The one consistent result we have been able to count on over the last four years has been our Haynesville/Bossier shale drilling program. 2018 was no different as we had another great year. We drilled 49 successful wells which had an average per well initial production rate of 25 million cubic feet of natural gas per day. The new wells drove the 36% growth in natural gas production we had in 2018.

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The combination of the successful drilling program, the Jones contributed properties, a stronger balance sheet and the bolt-on acquisitions allowed us to grow our proved oil and natural gas reserves in 2018 by 109% to 2.4 Tcf.

## COMPLETED TWO VALUE
ADDED BOLT-ON HAYNESVILLE
SHALE ACQUISITIONS

During much of 2018 we were very focused on our comprehensive refinancing which closed on August 14 \( ^{th} \) . However, along the way we were able to close two very accretive acquisitions of Haynesville shale properties near our existing properties. We acquired 17,386 net acres with 225 (66.4 net to us) undrilled locations. These acquisitions had 220 billion cubic feet ("Bcf") of proved reserves with a present value discounted at 10% ("PV 10 Value") of 72 million and an additional 505 Bcf of probable reserves with a PV 10 Value of 147 million.

## GREW PROVED RESERVE BASE
AT LOW FINDING COSTS OF
25¢ PER MCFE

The combination of the successful drilling program, the Jones contributed properties, a stronger balance sheet and the bolt-on acquisitions allowed us to grow our proved oil and natural gas reserves in 2018 by 109% to 2.4 trillion cubic feet of natural gas equivalent. The stronger balance sheet allowed us to

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expand our planned drilling activity over the next five years which allowed us to include more of our drilling locations in our proved reserves. The PV 10 Value of our proved reserves grew by 103% to 1.8 billion. The growth in proved reserves from the acquisitions and the drilling program was achieved at a very low finding cost of 25¢ per Mcfe.

## RETURNED THE COMPANY TO PROFITABILITY

Post the Jones' contribution, we have reported profitable financial results. As the result of the change in control that occurred on August 14 \( ^{th} \)  we reported our 2018 financial results in two separate periods. For the predecessor period from January 1 to August 13, we had a net loss of 92.8 million, or 6.08 per share. For the successor period from August 14 to December 31 we had net income of 64.1 million, or 61¢ per share.

After combining the predecessor and successor results, we produced 100.3 Bcf of natural gas and 1.7 million barrels of oil in 2018. Our natural gas production increased by 36% and oil production was 76% higher. Our realized natural gas price, after hedging, decreased by 3% to 2.88 per Mcf and our oil price, after hedging, of 59.07 per barrel increased by 21% from 2017. Oil and gas sales (including hedging) increased 46% to 388 million and EBITDAX grew 56% to 287 million. With the higher production, our lifting costs increased 30% to 79 million; however, our depreciation, depletion, amortization ("DD&A") expense decreased by 1% to 122 million. Over the last four years, the growth in our Haynesville production caused our lifting costs to improve to 72¢ per Mcfe as compared to 1.48 per Mcfe in 2014. Our DD&A per Mcfe produced has come down substantially to 1.10 per Mcfe as compared to 5.74 in 2014.

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## OUTLOOK FOR 2019

Our Haynesville/Bossier shale assets continue to provide us the opportunity to create value by using our operating cash flow to drill consistent, high-return and low-risk wells. In 2019, we plan to drill 58 (36.4 net to us) Haynesville/Bossier horizontal wells out of our extensive inventory of 819 net drilling locations. We expect our drilling program to drive strong growth in our natural gas production. In addition to growing our production, we are very focused on creating cost savings in 2019. We are looking to reduce well costs by 5 to 10% by changing the completion design and creating more efficiency in our

drilling program and we are working to reduce the transportation costs for our Haynesville production for potential savings of 10 to 20%. Our Bakken shale oil-weighted production provides us leverage to oil prices as we use that cash flow to fund our drilling program in the Haynesville. We will also begin to develop our 9,400 net acres in the Eagle Ford shale where we have 225 (126 net to us) potential drilling locations.

Our primary strategy is to generate disciplined growth by operating within our cash flow. We believe this is the best way to continue to improve our balance sheet. Our leverage ratio based on the 4th quarter EBITDAX improved to 2.8x. Our goal is to reduce this to 2.0x over the next several years. We are hedging approximately 50% of our next twelve months production to protect our drilling returns.

The directors and management of Comstock want to thank the stockholders for their continued support.

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M. Jay Allison
Chairman and Chief Executive Officer