S-1/A 1 d18629a4sv1za.htm AMENDMENT TO FORM S-1 sv1za
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As filed with the Securities and Exchange Commission on April 18, 2005
Registration No. 333-119511
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 4 to
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Bois d’Arc Energy, LLC
(Exact Name of Registrant as Specified in Its Charter)
         
Nevada   1311   20-1268553
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
     
600 Travis Street, Suite 6275
Houston, Texas 77002
(713) 228-0438
  Wayne L. Laufer
Chief Executive Officer
600 Travis Street, Suite 6275
Houston, Texas 77002
(713) 228-0438
(Address, Including Zip Code, and Telephone Number, including
Area Code, of Registrant’s Principal Executive Offices)
  (Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service)
Copies to:
     
Jack E. Jacobsen
Toni Weinstein
Locke Liddell & Sapp LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Facsimile: (214) 740-8800
  Douglass M. Rayburn
Baker Botts L.L.P.
2001 Ross Avenue, Suite 600
Dallas, Texas 75201
Facsimile: (214) 661-4634
      Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
      If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.     o
      If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
      If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
      If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
      If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.     o
 
      The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
      Bois d’Arc Energy, LLC, the registrant whose name appears on the cover of this registration statement, is a Nevada limited liability company. Before the completion of the offering of shares of common stock pursuant to this registration statement, Bois d’Arc Energy, LLC will be converted into a Nevada corporation and renamed Bois d’Arc Energy, Inc. Shares of the common stock of Bois d’Arc Energy, Inc. are being offered by the prospectus included as a part of this registration statement.
 
 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission becomes effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated April 18, 2005
PROSPECTUS
13,500,000 Shares
(BOISDARC ENERGY LOGO)
Common Stock
 
      We are selling 12,000,000 shares of our common stock. The selling stockholder identified in this prospectus is selling an additional 1,500,000 shares. We will not receive any of the proceeds from the sale of shares being sold by the selling stockholder. Our common stock has been approved for listing, subject to official notice of issuance, on the New York Stock Exchange under the symbol “BDE.”
      This is our initial public offering, and no public market currently exists for our shares. We expect the public offering price to be between $12.00 and $15.00 per share.
      You should consider the risks which we have described in “Risk Factors” beginning on page 11 before buying shares of our common stock.
 
                 
    Per    
    Share   Total
         
Public offering price
  $       $    
Underwriting discount
  $       $    
Proceeds, before expenses, to us
  $       $    
Proceeds, before expenses, to the selling stockholder
  $       $    
 
      The underwriters may purchase up to an additional 1,800,000 shares from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments.
      Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
      The underwriters expect to deliver the shares to the purchasers on or before                     , 2005.
 
     
RAYMOND JAMES
 
FRIEDMAN BILLINGS RAMSEY   JOHNSON RICE & COMPANY L.L.C.
HARRIS NESBITT
  PETRIE PARKMAN & CO.
CALYON SECURITIES (USA) INC.
  HIBERNIA SOUTHCOAST CAPITAL
KEYBANC CAPITAL MARKETS
 
The date of this prospectus is                     , 2005.


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 Fifth Amendment to Amended/Restated Operating Agreement
 Consent of Ernst & Young LLP

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PROSPECTUS SUMMARY
      This prospectus summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the historical and pro forma financial statements and the notes to those financial statements. The information presented in this prospectus assumes that the underwriters’ over-allotment option is not exercised. Pro forma financial information presented in this prospectus gives pro forma effect to our formation, our conversion to a Nevada corporation and this offering. For a more detailed description of the pro forma adjustments and assumptions used in preparing the pro forma information, you should read the pro forma financial statements and the accompanying notes appearing elsewhere in this prospectus. You should read “Risk Factors” for information about important factors you should consider before buying our common stock. We include a glossary of some of the terms used in this prospectus in Appendix A.
      We were formed in July 2004 by Bois d’Arc Resources, Ltd., Bois d’Arc Offshore, Ltd., entities affiliated with Wayne L. Laufer, our Chief Executive Officer, and Gary W. Blackie, our President, and participants in their exploration activities, and Comstock Offshore, LLC, a subsidiary of Comstock Resources, Inc., or Comstock. Prior to our formation, the Bois d’Arc entities and Comstock Offshore operated a joint venture to explore for oil and natural gas in the Gulf of Mexico. Prior to the closing of this offering, we will convert from a Nevada limited liability company to a Nevada corporation and change our name to Bois d’Arc Energy, Inc. Unless specifically stated, the information in this prospectus assumes that this conversion has occurred. References in this prospectus to “Bois d’Arc Energy, Inc.,” “we,” “us” or like terms when used in the present tense, prospectively or for historical periods since July 2004 refer to the assets and operations of Bois d’Arc Energy, LLC and, upon its conversion, Bois d’Arc Energy, Inc. and, in each case, its consolidated subsidiaries. References to “our predecessors,” “we,” “us” or like terms and the discussion of our financial and operating results for periods prior to July 2004 refer to the assets and operations that were contributed to Bois d’Arc Energy, LLC in connection with our formation.
Bois d’Arc Energy, Inc.
      We are a growing independent exploration company engaged in the discovery and production of oil and natural gas in the Gulf of Mexico shelf. We focus our operations in the Gulf of Mexico shelf principally because we believe this region has significant undiscovered reserves, in both unexplored and previously explored areas. Additionally, many major integrated and large independent energy companies have redirected their human and financial resources over the last several years away from the Gulf of Mexico shelf to focus on larger projects in the deepwater Gulf of Mexico and other areas of the world. As a result of these trends, as well as improvements in seismic and drilling technology, we believe that the region offers ample exploration and development opportunities.
      During the five-year period ended December 31, 2004, we successfully completed 43 out of the 57 exploration wells that we drilled and 28 out of the 29 development wells that we drilled, for an overall success rate of 83%. During this period, we spent $474.3 million on our acquisition, development and exploration activities and we increased our estimated net proved reserves from approximately 144.8 Bcfe to 305.3 Bcfe and produced an aggregate of 103.9 Bcfe.
      Our proved reserves at December 31, 2004 were 305.3 Bcfe with a PV-10 Value of $996.7 million. Our proved reserves were 83% proved developed and were 63% natural gas on a Bcfe basis. With respect to our proved developed reserves at December 31, 2004, 23% were producing and the remaining 77% were either not producing or behind pipe. Our reserves at December 31, 2004 were approximately 5% below our predecessors’ combined reserves of 321.9 Bcfe at December 31, 2003. In connection with our formation, we performed a comprehensive reserve evaluation of all the proved reserves that were contributed to us. The decrease in proved reserves from our predecessors’ combined reserves at December 31, 2003 resulted from production and certain downward reserve revisions that were partially offset by discoveries. The downward revisions were primarily related to certain proved undeveloped reserves or nonproducing reserves that we determined would not be drilled or developed because these projects do not meet our current rate

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of return criteria and are not in our current development plan or have been revised downward based on recent drilling results or production performance of offset wells.
      As of December 31, 2004, we served as operator for approximately 97% of our properties based on the PV-10 Value of the related proved reserves. In March 2005, our net daily natural gas production averaged 48.4 MMcf and our net daily oil production averaged approximately 3,671 Bbls, or a total of 70.4 MMcfe per day. Approximately 69% of our daily production was natural gas on a Bcfe basis. Our pro forma net income was $30.5 million for the year ended December 31, 2004.
Our Business Strategy
      Our goal is to increase shareholder value by investing in exploration and development projects that generate attractive rates of return. We seek to achieve this goal through the following strategies:
      Grow Through Exploration. We focus a substantial portion of our capital investments on exploration activities because we believe that, over the long-term, exploration provides attractive risk-weighted rates of return. From the formation of our joint exploration venture in 1997 through December 31, 2004, our exploration program has achieved an average drilling success rate of 70%, with 59 successful exploration wells out of a total of 84 drilled.
      Focus on the Gulf of Mexico Shelf. We plan to continue to explore for reserves in the Gulf of Mexico shelf. We define the Gulf of Mexico shelf as the area of the Gulf of Mexico extending out to the continental shelf break, which generally occurs at a water depth of approximately 600 feet. This region is a prolific producing area that we believe has substantial future exploration potential due to favorable economic and geologic conditions for finding oil and natural gas, including multiple reservoir formations, and comprehensive geologic and seismic databases.
      Generate Prospects Internally. Substantially all of our oil and natural gas prospects are originated and developed internally through the combined efforts of our technical team. Our regional expertise, combined with a rigorous structural and stratagraphic interpretation of 3-D seismic data integrated with subsurface mapping techniques, promotes the identification of quality drilling prospects.
      Pursue Leasehold Acquisitions. We have been an active participant in the seven central Gulf of Mexico sales held since 1999, and expect to continue a high level of participation in future sales. Since 1999, we have been the high bidder on 53 of 63 blocks on which we have bid, representing an 84% success rate. However, we may not be as successful in future lease sales. In addition to bidding on blocks in the Gulf of Mexico lease sales, we actively pursue exploration prospects through farm-in opportunities and acquisitions of producing and non-producing properties that have exploration potential.
      Operate Core Properties. As of December 31, 2004, we served as operator for approximately 97% of our properties, based on the PV-10 Value of our proved reserves. As operator, we can manage all phases of a project’s drilling and development operations. We believe operating allows us to:
  •  exercise greater control over the cost, timing and scope of our activities;
 
  •  more effectively utilize our platforms, processing facilities, flowlines and pipelines; and
 
  •  maintain a lower cost structure.
Our Strengths
      We believe that we have a variety of strengths that will help us achieve our business goals.
      Experienced Management and Technical Team. Our management and technical team has an average of 24 years of experience exploring, operating and producing natural gas and oil reserves in the Gulf of Mexico region and has experience in all phases of drilling and completing wells in the Gulf of Mexico.
      Substantial Drilling Inventory. As a result of our experienced technical team and our successful exploration drilling program, we have assembled an inventory of 48 exploratory and 24 developmental

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prospects. Our inventory and our degree of operating control provide us with flexibility in project selection and the timing of our drilling projects. We believe there are opportunities to expand our exploration activities on our existing leasehold acreage position, particularly by exploring the deep shelf, which we define as prospects at geologic and drilling depths greater than 15,000 feet.
      Operational Capabilities. We operate almost all of our properties, and believe that by having operational control, we are able to more effectively control our expenses, capital allocation and the timing and method of exploration and development of our properties.
      Technical Approach. Approximately 90% of our drilling prospects have been generated internally by our technical team using advanced technology in analyzing, interpreting and visualizing 3-D seismic data.
      Strong Balance Sheet. After the application of the net proceeds from this offering, we will have little or no debt outstanding. We plan to maintain a conservative balance sheet to preserve our ability to execute our exploration program despite volatility of commodity prices.
Exploration Overview
      Our future growth will be driven primarily by exploration activities. We have 48 identified exploration prospects in our inventory that are located on our leasehold acreage and supported by 3-D seismic. We believe that by adhering to our prospect selection methodology, we have realized high historical exploration success rates. We believe that our inventory, including development wells resulting from new discoveries, will provide us with opportunities to increase our reserves and production over the next three to five years. Under our current drilling budget, we plan to drill approximately 13 of these prospects in 2005. However, the actual number of prospects that we drill over any defined time period will be determined based upon the number of rig days that we have available under our contracts with drilling contractors and the amount of time it takes to drill each prospect selected by our management and technical team.
      As a result of our exploration knowledge and success in the Gulf of Mexico shelf region, we have gradually pursued deeper drilling opportunities on the Gulf of Mexico shelf, which we refer to as deep shelf exploration. Deep shelf wells are located in shallow water areas of the Gulf of Mexico at geologic and drilling depths greater than 15,000 feet. These deep shelf prospects are often higher risk but have higher reserve potential and may qualify for recently enacted federal royalty relief. We have drilled a total of twenty deep shelf wells in the South Pelto and South Timbalier areas of the Gulf of Mexico. Of the twenty deep shelf wells drilled, eleven resulted in completions at geologic and drilling depths below 15,000 feet, seven were completed above 15,000 feet and two were unsuccessful.
Risk Factors
      We face risks in operating our business, including risks that may prevent us from achieving our business strategy. The risks include those relating to the following matters:
  •  we have an extremely limited operating history as a stand-alone entity and might not be able to operate our business or implement our operating strategy successfully;
 
  •  this offering and our continued existence is contingent upon our raising at least $164.0 million in order to be able to pay off all indebtedness owed to Comstock;
 
  •  our historical financial information may have limited relevance and you will have limited information on which to make your investment decision;
 
  •  a substantial or extended decline in oil and natural gas prices may adversely affect our business, financial condition, cash flow, liquidity or results of operations and our ability to meet our capital expenditure obligations and financial commitments and to implement our business strategy;
 
  •  prospects that we decide to drill may not yield oil or natural gas in commercially viable quantities or quantities sufficient to meet our targeted rate of return;

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  •  approximately 81% of our total proved reserves are developed non-producing or undeveloped, and those reserves may not ultimately be produced or developed;
 
  •  we need to replace our reserves at a faster rate than companies whose reserves have longer production periods, and our failure to replace our reserves would result in decreasing reserves and production over time;
 
  •  we plan to conduct exploration, development and production operations on the deep shelf of the Gulf of Mexico, which presents greater operating and financial risks than conventional shelf operations;
 
  •  if oil and natural gas prices decrease, we may be required to write-down the carrying values and/or the estimates of total reserves of our oil and natural gas properties, which would constitute a non-cash charge to earnings and adversely affect our results of operations;
 
  •  our reserve estimates depend on many assumptions that may turn out to be inaccurate, and any material inaccuracies in our reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves;
 
  •  three of our field areas comprise approximately 52% of the PV-10 Value of our total proved reserves, and if our reserve estimates in these areas turn out to be inaccurate, there may be a material adverse effect on our financial condition;
 
  •  as long as Comstock owns a substantial amount of our outstanding common stock, Comstock will have significant influence over matters to be submitted to our stockholders for approval, and this ownership may adversely affect the value of our common stock and inhibit potential changes of control;
 
  •  certain of our executive officers and directors face conflicts of interest relating to the positions they hold with other entities, which could be resolved in a manner adverse to us and harm our business; and
 
  •  Comstock is not prohibited from competing with us, which could adversely affect our ability to succeed.
      You should consider these risks before investing in our company. For a discussion of the significant risks associated with operating our business or investing in our common stock, please read the section entitled “Risk Factors.”
New Credit Facility
      We intend to enter into a new $175.0 million bank credit facility with The Bank of Nova Scotia and several other banks at the closing of this offering. The new credit facility will provide a four-year revolving credit commitment. Borrowings under the new credit facility will be limited to a borrowing base that will initially be set at $100.0 million. Indebtedness under the new credit facility will be secured by substantially all of our and our subsidiaries’ assets and will be guaranteed by all of our subsidiaries. For a description of our new credit facility, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
Our Relationship with Comstock
      In connection with our formation, we issued 59.9% of our equity to and incurred $152.4 million of indebtedness with Comstock, of which $164.0 million was outstanding as of April 15, 2005. We intend to repay this amount out of the net proceeds of this offering. In the event such proceeds are insufficient to repay all amounts under the credit facility provided by Comstock, we intend to borrow any such shortfall under our new credit facility. After the consummation of this offering, Comstock will beneficially own a total of 29,935,761 shares of our common stock, which will represent approximately

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46.7% of our outstanding shares. For a description of the formation, please see “Business and Properties — Our Company.”
Conversion to a Corporation
      Prior to the closing of this offering, we will convert from a Nevada limited liability company to a Nevada corporation and change our name to Bois d’Arc Energy, Inc.
      Bois d’Arc Energy, LLC has three classes of membership units — class A, class B and class C units. These units generally differ with respect to their relative priority to distributions and other rights. Only the class A units have voting rights. The class C units were issued to certain officers, managers and consultants pursuant to compensation and incentive arrangements established by the board of managers of Bois d’Arc Energy, LLC. All outstanding units will be converted into shares of our common stock in connection with the conversion to a corporation, other than the class A units, which we will redeem at a price of $1.00 per unit. As all of the taxable income of Bois d’Arc Energy, LLC is passed through to its members, Bois d’Arc Energy, LLC has agreed to pay its members amounts to cover their federal income tax liability on their respective share of taxable income from the company for the period from July 2004, when Bois d’Arc Energy, LLC was formed, to the date of our conversion. We will assume this liability and make such payments after the conversion. For additional information on these transactions, please see “Certain Relationships and Related Party Transactions — Conversion Transactions.”
Our Offices
      Our principal executive offices are located at 600 Travis Street, Suite 6275, Houston, Texas 77002. Our telephone number is (713) 228-0438. We intend to maintain a web site at www.boisdarcenergy.com, which will contain information about us. Our web site and the information contained on it and connected to it will not be deemed incorporated by reference into this prospectus.

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The Offering
Common stock offered by Bois d’Arc Energy, Inc.  12,000,000 shares
 
Common stock offered by the selling stockholder 1,500,000 shares
 
Common stock outstanding after the offering 64,145,000 shares
 
Use of proceeds We estimate that the net proceeds to us from this offering will be approximately $149.2 million. We intend to use the net proceeds of this offering to repay our outstanding indebtedness to Comstock and the remainder, if any, for general corporate purposes. See “Use of Proceeds” for additional information. We will not receive any proceeds from sales of shares by the selling stockholder.
 
New York Stock Exchange symbol “BDE”
      Except as otherwise noted, the number of shares to be outstanding after this offering includes 2,145,000 restricted shares issued under our long-term incentive plan but excludes 2,800,000 shares of common stock that are issuable upon exercise of outstanding options as of April 15, 2005.

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Summary Historical and Pro Forma Financial Information
      The following tables set forth summary historical financial data as of and for the periods indicated and summary pro forma financial data for the year ended December 31, 2004. The combined statement of operations data for the years ended December 31, 2002 and 2003 and the period from January 1, 2004 to July 15, 2004 is derived from our predecessors’ audited financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the period from inception (July 16, 2004) to December 31, 2004 is derived from our audited financial statements included elsewhere in this prospectus. The summary unaudited pro forma information set forth below is derived from our unaudited pro forma financial statements included elsewhere in this prospectus and should be read in conjunction with those statements including the notes thereto. The pro forma results reflect the combined results of us and our predecessors for 2004, our conversion to a corporation and this offering and the application of proceeds therefrom. The unaudited pro forma financial information is not necessarily indicative of the results that actually would have been achieved during 2004 or that may be achieved in the future. The summary historical and pro forma financial information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our and our predecessors’ financial statements and the notes to those financial statements included elsewhere in this prospectus.
Statement of Operations Data:
                                             
    Combined Bois d’Arc Energy, LLC    
    Predecessors   Bois d’Arc Energy, LLC
         
        Period   Period from    
        from   Inception   Pro Forma
    Year Ended   January 1,   (July 16,    
    December 31,   2004 to   2004) to   Year Ended
        July 15,   December 31,   December 31,
    2002   2003   2004   2004   2004
                     
    (In thousands, except per share amounts)
Oil and gas sales
  $ 76,067     $ 133,450     $ 70,341     $ 72,721     $ 143,062  
Operating expenses:
                                       
 
Oil and gas operating(1)
    14,725       22,290       15,233       16,602       31,835  
 
Exploration
    5,458       800       2,676       12,040       14,716  
 
Depreciation, depletion and amortization
    32,490       44,285       22,831       21,761       44,592  
 
Impairment
          500                    
 
General and administrative, net
    2,600       3,481       1,450       2,641       5,145  
                               
   
Total operating expenses
    55,273       71,356       42,190       53,044       96,288  
                               
Income from operations
    20,794       62,094       28,151       19,677       46,774  
Other income (expenses):
                                       
 
Interest income
    81       154       75       74       149  
 
Interest expense
    (10,818 )     (9,580 )     (4,453 )     (2,665 )      
 
Formation costs
                      (1,838 )      
                               
Income before income taxes
    10,057       52,668       23,773       15,248       46,923  
 
Provision for income taxes
                            (16,423 )
                               
Net income before cumulative effect of change in accounting principle
    10,057       52,668       23,773       15,248       30,500  
Cumulative effect of change in accounting principle
          (739 )                  
                               
Net income
  $ 10,057     $ 51,929     $ 23,773     $ 15,248     $ 30,500  
                               
Net income per share:
                                       
 
Basic
                                  $ 0.49  
                               
 
Diluted
                                  $ 0.49  
                               
Weighted average shares outstanding:
                                       
 
Basic
                                    62,000  
                               
 
Diluted
                                    62,790  
                               

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Other Financial Data:
                                 
        Bois d’Arc
    Combined Bois d’Arc Energy, LLC   Energy, LLC
    Predecessors    
        Period from
        Period from   Inception
    Year Ended   January 1,   (July 16,
    December 31,   2004 to   2004) to
        July 15,   December 31,
    2002   2003   2004   2004
                 
    (In thousands)
Capital expenditures
  $ 68,363     $ 98,974     $ 83,273     $ 59,703  
Net cash flows from operating activities
    47,851       114,001       50,988       49,449  
Net cash flows used for investing activities
    (68,363 )     (98,974 )     (83,273 )     (83,757 )
Net cash flows from (used for) financing activities
    25,779       (5,319 )     28,759       36,724  
Balance Sheet Data:
                 
    Bois d’Arc Energy, LLC
     
    As of December 31,
    2004
     
    Actual   Pro Forma
         
    (In thousands)
Cash and cash equivalents
  $ 2,416     $ 4,016  
Property and equipment, net
    511,477       511,477  
Total assets
    530,583       531,667  
Payable to parent company(2)
    148,066        
Equity
    319,485       356,198  
 
(1)  Includes lease operating costs and production and ad valorem taxes.
 
(2)  Payable to parent company represents advances made to us by Comstock in connection with our formation.

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Summary Historical Reserve and Operating Data
      The following tables present summary information regarding our estimated net proved oil and natural gas reserves as of December 31, 2002, 2003 and 2004, and our historical operating data for the years ended December 31, 2002, 2003 and 2004. All calculations of estimated net proved reserves have been made in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, and, except as otherwise indicated, give no effect to federal or state income taxes. The December 31, 2004 estimates of net proved reserves are based on a reserve report prepared by Lee Keeling and Associates, Inc., our independent petroleum consultants. Appendix B to this prospectus contains a letter prepared by Lee Keeling and Associates, Inc. summarizing the reserve report. For additional information regarding our reserves, please read the section of this prospectus entitled “Business and Properties — Oil and Natural Gas Reserves” and note 12 to our financial statements.
Reserve Data:
                             
    As of December 31,
     
    2002   2003   2004
             
Estimated net proved reserves:
                       
 
Oil (MBbls)
    18,350       19,518       18,732  
 
Natural gas (Mmcf)
    143,157       204,744       192,935  
 
Natural gas equivalent (Mmcfe)(1)
    253,257       321,855       305,326  
 
Proved developed producing (Mmcfe)
    68,051       58,742       58,126  
 
Proved developed non-producing (Mmcfe)
    102,513       179,283       195,275  
                   
   
Total proved developed (Mmcfe)
    170,564       238,025       253,401  
 
Proved undeveloped (Mmcfe)
    82,693       83,830       51,925  
                   
   
Total (Mmcfe)
    253,257       321,855       305,326  
                   
 
PV-10 Value (in thousands)(2)
  $ 655,370     $ 1,064,049     $ 996,724  
 
Standardized measure of discounted future net cash flows (in thousands)(3)
  $ 655,370     $ 1,064,049     $ 996,724  
Pro forma standardized measure of discounted future net cash flows (in thousands)(4)   $ 688,387  
 
(1)  Determined using the ratio of six Mcf of natural gas to one barrel of crude oil.
 
(2)  The present value of estimated future net revenues attributable to our reserves was prepared using constant prices, as of the calculation date, discounted at 10% per year on a pre-tax basis, and was determined based on the market prices for oil and natural gas on December 31, 2004. The market price for our oil production on December 31, 2004, after basis adjustments, was $42.14 per barrel. The market price received for our natural gas production on December 31, 2004, after basis adjustments, was $6.01 per Mcf. Prices are held constant in accordance with SEC guidelines.
 
(3)  The standardized measure of discounted future net cash flows represents the present value of future cash flows attributable to our proved oil and natural gas reserves after income tax discounted at 10%. Our predecessors are either individuals or partnerships or limited liability companies that pass through their taxable income to their owners. Accordingly, no provision for federal or state corporate income taxes has been provided for in the determination of the standardized measure of discounted future net cash flows.
 
(4)  The pro forma standardized measure of discounted future net cash flows as of December 31, 2004 is pro forma for our conversion to a corporation, and accordingly, includes a provision for corporate income taxes at an assumed rate of 35%.
     Our reserves at December 31, 2004 were approximately 5% below our predecessors’ combined reserves of 321.9 Bcfe at December 31, 2003. In connection with our formation, we performed a comprehensive reserve evaluation on all the proved reserves that were contributed to us. The decrease in proved reserves from our predecessors’ combined reserves at December 31, 2003 resulted from production and certain downward reserve revisions that were partially offset by discoveries. The downward revisions were primarily related to certain proved undeveloped reserves or nonproducing reserves that we determined would not be drilled or developed because these projects do not meet our current rate of return criteria and are not in our current development plan or have been revised downward based on recent drilling results or production

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performance of offset wells. In addition, during the three-year period ended December 31, 2003, our predecessors’ combined proved reserve estimates reflected downward reserve revisions attributable to well performance which averaged 4% per year.
Operating Data:
                           
    Year Ended December 31,
     
    2002   2003   2004
             
Net Production Data:
                       
 
Oil (MBbls)
    1,033