PITTSBURGH, July 31 /PRNewswire-FirstCall/ -- CONSOL Energy Inc.
(NYSE: CNX), a high-Btu bituminous coal and natural gas company, reported
earnings of $101.0 million, or $0.54 per diluted share, for its second quarter
ended June 30, 2008, compared with $153.1 million, or $0.83 per diluted share
for the same period a year earlier, which included asset sales that resulted
in the recognition of $59 million in net income in the 2007 period. Net cash
from operating activities was $323.9 million for the quarter just ended,
compared with $271.1 million for the June 2007 quarter.
FINANCIAL RESULTS - Period-To-Period Comparison
Quarter Quarter Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Total Revenue and Other
Income $1,210.9 $1,060.0 $2,236.6 $1,975.2
Net Income $101.0 $153.1 $176.1 $266.4
Earnings Per Share -
diluted $0.54 $0.83 $0.95 $1.44
Net Cash from Operating
Activities $323.9 $271.1 $470.0 $454.5
EBITDA $266.5 $310.7 $479.2 $545.3
EBIT $170.7 $235.0 $290.7 $392.8
Capital Expenditures $259.9 $194.4 $436.3 $344.6
Cash Provided by (Used in)
Other Investing Activities* ($0.9) $56.9 $16.5 $58.8
In millions of dollars except per share. Amounts for capital expenditures
do not include amounts for equity affiliates.
*Represents net cash used in investment in Equity Affiliates and Proceeds
from Sales of Assets.
For the June 2008 quarter, total revenue and other income was up more than
14 percent period-to-period. Coal sales revenue was up approximately 19
percent while revenue from gas sales was up more than 58 percent, due
primarily to higher average prices for both products and higher gas sales
volumes.
Total revenue and other income for the second quarter 2008 was adversely
impacted by an $11 million loss on mark-to-market adjustments for three free
standing coal sales options that will reverse as coal is purchased under these
options or as the options expire.
Net income for the second quarter 2008 was down 34 percent compared with
the same period a year earlier due to an asset sale and an asset exchange in
the second quarter of 2007 that totaled $100 million in pretax income and
approximately $59 million in net income which was recognized in last year's
second quarter.
'Higher energy prices were the key factor in the second quarter's
results,' said J. Brett Harvey, president and chief executive officer. 'Gas
prices period-to-period rose 24 percent, while coal prices period-to-period
rose 15 percent, allowing us to generate solid cash flows and higher revenues.
Despite mixed economic news in recent months, global energy demand still
favors this higher pricing environment for the foreseeable future.'
He said net income (excluding the prior gain from asset sales) improved
both period-to-period and sequentially. 'The period-to-period improvement is
a reflection of the higher pricing environment,' Harvey noted, 'while the
trailing quarter net income improvement primarily reflected getting Buchanan
Mine back on-line.'
Harvey also said that results for the quarter further underscored the
value created by the company's strategic decision to retain its ownership in
CNX Gas. 'CNX Gas was able to capitalize on the current pricing environment by
increasing production more than 27 percent, while limiting increases in unit
cost of goods sold and other changes to 9.4 percent,' Harvey explained.
'On the other hand, productivity at our coal operations declined for a
variety of reasons,' Harvey continued, 'while at the same time we faced rising
cost pressure. As a result, our unit costs increased substantially.
'The key factor to controlling our unit costs of production is that we
must mine the tons we forecast,' he continued. 'I expect the adjustments that
we have made to our operating plans will get us back on track in the second
half of the year.' Harvey said the company reiterated its previous production
guidance for the second half of 2008.
Period-To-Period Analysis of Financial Results for the Quarter
Total Revenue and Other Income increased 14 percent, due to higher
realized pricing and higher sales volumes for gas and higher realized pricing
for coal in the second quarter of 2008.
Net Cash from Operating Activities was $323.9 million for the quarter just
ended, compared with $271.1 million for the June 2007 quarter, an increase of
approximately 19.5 percent.
Total Costs increased 26.4 percent, primarily due to higher Cost of Goods
Sold and Other Operating Charges, and to a lesser extent, higher Depreciation,
Depletion and Amortization, and higher Taxes Other Than Income.
Total Cost of Goods Sold (including Purchased Gas Costs and Gas Royalty
Interest Costs) increased approximately 26.3 percent. Produced coal Cost of
Goods Sold and Other Charges increased in the period-to-period comparison
primarily due to the impact on the current quarter of the July 2007
acquisition of AMVEST, higher supply costs, higher labor costs, and higher
health and retirement costs.
Gas Costs of Goods Sold and Other Charges increased due primarily to a
27.4 percent increase in the volume of produced gas sold and a 9.4 percent
increase in unit Costs of Goods Sold and Other Charges.
Depreciation, Depletion and Amortization increased 26.5 percent, primarily
reflecting the additional assets acquired in the July 2007 acquisition of
AMVEST as well as various coal assets and other projects placed in service
after the 2007 period, and to a lesser extent, increases in gas production-
related Depreciation, Depletion and Amortization due to increased production
combined with an increase in units of production rates.
Interest Expense increased 38.1 percent, mainly due to interest on
outstanding borrowings from the revolving credit facility. There were no
outstanding borrowings on the revolving credit facility in the 2007 period.
Taxes Other Than Income increased 17.3 percent, primarily due to higher
severance and other taxes attributable to an increase in average sale price
for produced coal, and higher gas production taxes due to higher severances
taxes attributable to higher average sales prices for gas and higher volumes
of gas produced.
As of June 30, 2008, CONSOL Energy (excluding CNX Gas) had $180.0 million
of short-term debt and had $592.7 million in total liquidity, which is
comprised of $32.1 million of cash and $560.6 million available to be borrowed
under its $1 billion bank facility. As of June 30, 2008, CNX Gas Corporation
had $27 million of short-term debt and had $181.2 million in total liquidity,
which is comprised of $23.1 million of cash and $158.1 million available to be
borrowed under its $200 million bank facility.
Coal Operations
Quarter Quarter Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Total Coal Sales
(millions of tons) 17.5 17.1 33.5 34.2
Sales - Company
Produced (millions
of tons) 17.0 17.0 32.7 34.0
Coal Production
(millions of tons) 16.6* 16.4* 32.8 34.3
Average Realized
Price Per Ton -
Company Produced $48.50 $41.64 $46.07 $40.70
Operating Costs Per
Ton $32.03 $25.46 $30.20 $23.98
Non-Operating Charges
Per Ton $5.44 $4.64 $5.30 $4.53
DD&A Per Ton $4.14 $3.26 $4.03 $3.13
Total Cost Per Ton -
Company Produced $41.60** $33.36 $39.52** $31.64
Operating Margins Per
Ton $16.47 $16.18 $15.87 $16.72
Financial Margins Per
Ton $6.90 $8.28 $6.54** $9.06
Sales and production includes CONSOL Energy's portion from equity
affiliates and consolidated variable interest entities. Operating costs
include items such as labor, supplies, power, preparation costs, project
expenditures, subsidence costs, gas well plugging costs, charges for
employee benefits (including Combined Fund premium), royalties, as well as
production and property taxes. Non-operating charges include items such
as charges for long-term liabilities, direct administration, selling and
general administration. Operating Margins Per Ton are defined as Average
Realized Price Per Ton less Operating Costs Per Ton. Financial Margins
Per Ton are defined as Average Realized Price Per Ton less Total Costs Per
Ton - Company Produced.
*Includes 1.1 and 1.5 million tons of metallurgical grade coal for the
quarters ended June 30, 2008 and 2007 respectively. **May not add due to
rounding.
Coal segment operating margins (average realized price per ton less
operating costs per ton) were $16.47 per ton, an increase of 1.8 percent
period-to-period, while financial margins (average realized price less total
costs) were $6.90 per ton, a decline of 16.7 percent period-to-period.
Operating margins increased $0.29 per ton, for the quarter-to-quarter
comparison, primarily due to higher average realized pricing per ton of
company produced coal, offset by higher operating costs per ton. Coal segment
financial margins declined $1.38 per ton, due to higher operating and non-
operating charges per ton and higher Depreciation, Depletion and Amortization.
Operating costs were impacted, in part, by the addition of the AMVEST mines to
the mix of production. AMVEST operations are in Central Appalachia, an area
that has operating costs that typically are higher than costs in Northern
Appalachia, where CONSOL's largest mines are located.
Compared with the trailing quarter, operating margins increased 8.0
percent, while financial margins increased 11.7 percent, or $1.22 per ton and
$0.72 per ton respectively.
Sales of company-produced coal were essentially unchanged versus last
year's second quarter. Compared with the trailing quarter, sales of company
produced coal increased 1.3 million tons.
Average realized prices were up 16.5 percent for the period-to-period
comparison, reflecting an increase in market prices primarily due to increased
demand for the company's steam and metallurgical coal and a robust pricing
environment globally for coal. Compared with the trailing quarter, average
realized prices increased 11.3 percent.
Total costs for company-produced coal increased $8.24 per ton,
period-to-period. Approximately $2.00 per ton was attributable to the AMVEST
acquisition and the previously unscheduled start-up of the Shoemaker Mine
(which had been idled but was restarted in order to partially offset
production shortfalls at other mines); and approximately $0.76 per ton was
attributable to commodity price increases. The remaining unit cost increase
was attributable to lower production volumes (excluding AMVEST and Shoemaker);
higher labor costs; and higher supply usage. Lower production resulted from
lower productivity which was impacted by adverse geological conditions,
equipment moves required to avoid surface features, changes in mine plans, and
requirements related to safety compliance.
Higher unit supply costs were due to several factors including the higher
unit cost impact of the AMVEST mines, which were acquired on July 31, 2007.
The AMVEST mines are surface mines that require significant hauling of
overburden from stripping operations, require coal to be trucked from the area
of extraction to a central preparation plant, and require fuel oil for
blasting operations, all of which result in additional costs that are
exacerbated by increasing costs of diesel fuel. Supply costs were also up in
the period-to-period comparison, due to additional costs related to roof
control. Additional roof control costs were related to geological conditions,
compliance with health and safety regulations which required additional
support to be added to existing operations, and inflation-related price
increases for steel products.
Unit costs were impacted by the increased use of contract labor at several
of the company's longwall operations. The increase in contract labor also was
related to compliance with health and safety regulations in existing
operations, as well as additional belt line maintenance for the current
quarter versus the year ago period.
Higher labor costs were due to the effects of wage increases at the union
and non-union mines. Labor also increased due to the higher number of
employees in the 2008 period versus the same period a year ago. Higher health
and retirement costs were attributable to additional contributions required to
be made into employee benefit funds in 2008 compared to 2007 as a result of
the five-year labor agreement with the United Mine Workers of America (UMWA)
that commenced January 1, 2007. The contribution increase over 2007 was $1.27
per UMWA hour worked.
Compared with the trailing quarter, total costs increased $4.21 per ton.
Gas Operations
CNX Gas Corporation (NYSE: CXG), 81.7 percent of which is owned by CONSOL
Energy, reported total net income of $64.3 million for the quarter ended June
30, 2008, compared with $41.5 million in the same period a year earlier. CNX
Gas Corporation issued its earnings release on July 30, 2008. Additional
information regarding CNX Gas Corporation financial and operating results for
the quarter are available in their release and can be found in the investor
section of their website: http://www.cnxgas.com
Subsequent Events
In July, CONSOL Energy Inc. and Synthesis Energy Systems Inc. ('SES'), a
global industrial gasification company, announced plans to develop through a
joint venture their first U. S. coal gasification plant in West Virginia.
CONSOL ( through its subsidiary Terra Firma Company) and SES formed Northern
Appalachia Fuel LLC ('NAF'), as the company through which the development will
occur. The Board of Directors of both companies authorized funds for
development activities, including the front-end engineering design ('FEED')
package. Each member company will contribute equally to this phase of the
project. NAF is finalizing agreements with Aker Solutions US Inc., a
subsidiary of Aker Solutions ASA (OSL: AKSO), to perform the FEED. The FEED
will include a carbon management strategy which may focus on carbon
sequestration in a deep saline aquifer.
It is expected that the plant will be a 'mine mouth' facility with
feedstock supplied directly from CONSOL's nearby Shoemaker complex. Coal will
be converted to syngas utilizing SES's proprietary U-Gas technology. It also
is expected that syngas will be used to produce approximately 720,000 metric
tons per year of methanol which can be converted into approximately 100
million gallons/year of gasoline.
Outlook
In the tables below, the company provides certain financial and production
guidance measures. CONSOL Energy updates its production guidance on a
quarterly basis, if needed. These measures are based on the company's current
estimates and are subject to change based on changing circumstances and on
risks associated with the business that are described at the end of this news
release. The company is reiterating its previous production forecasts for the
years 2009, 2010 and 2011.
GUIDANCE
2008 2009 2010 2011
Estimate Estimate Estimate Estimate
COAL
Tons Produced
(millions of tons) 68.0 - 72.0 70.0 - 74.0 76.6 - 80.6 76.7 - 80.7
Tons Committed
(millions of tons
at July. 11, 2008) 69.2 63.3* 52.4* 43.2*
Tons Committed and
Priced (millions of
tons at July 11, 2008) 69.2 54.9 28.2 17.1
Avg.