(Source: PRNewswire-FirstCall)
PITTSBURGH, July 30 /PRNewswire-FirstCall/ -- CONSOL Energy Inc. , a high-Btu bituminous coal and natural gas company, reported net income attributable to CONSOL Energy shareholders for the quarter ended June 30, 2009 of $113.3 million, or $0.62 per dilutive share. This is 12% higher than the net income attributable to CONSOL Energy shareholders of $101.0 million, or $0.54 per dilutive share, for the quarter ended June 30, 2008.
"2009 continues to be a tactical year for the company," said J. Brett Harvey, president and chief executive officer. "CONSOL Energy is reacting to ensure that coal production is in line with demand in a weakened economy. As a result, we've lowered our 2009 production guidance to 58 million tons. Our goal is to preserve per ton coal margins by not building inventory and controlling costs. Our financial strength, coupled with the completion of some existing efficiency projects, should ensure that CONSOL Energy will emerge as an even stronger competitor when the economy rebounds."
"At CNX Gas," Mr. Harvey continued, "we've raised production guidance from 87 Bcf to 89 Bcf, as results from our Marcellus Shale and coalbed methane programs continue to exceed expectations."
FINANCIAL RESULTS - Period-To-Period Comparison Six Six Quarter Quarter Months Months Ended Ended Ended Ended June 30, June 30, June 30 June 30, 2009 2008 2009 2008 Total Revenue and Other Income $1,070.6 $1,210.9 $2,289.3 $2,236.6 Net Income attributable to CONSOL Energy shareholders $113.3 $101.0 $309.2 $176.1 Earnings Per Share - diluted $0.62 $0.54 $1.69 $0.95 Net Cash from Operating Activities $316.5 $323.9 $566.2 $470.0 EBITDA $281.6 $266.5 $671.1 $479.2 EBIT $174.1 $170.7 $457.4 $290.7 Capital Expenditures $196.9 $259.9 $496.4 $436.3 Cash (Provided by) Used in Other Investing Activities* ($5.7) $0.9 ($50.3) ($16.5) In millions of dollars except per share. Amounts for capital expenditures do not include amounts for equity affiliates. *Represents net cash (provided by) used in investment in Equity Affiliates and Proceeds from Sales of Assets. Quarter-To-Quarter Discussion of Financial Results
Total Revenue and Other Income was $1,070.6 million for the quarter ended June 30, 2009, compared with $1,210.9 million for the June 2008 quarter, or a decrease of 12%. The decrease was due to lower gas pricing and lower coal sales, but was partially offset by coal customer contract buyouts that resulted in $14 million of (pre-tax) other income.
Net income attributable to CONSOL Energy shareholders and earnings per share were $113.3 million, or $0.62 per dilutive share, for the just ended quarter. This compares with $101.0 million, or $0.54 per dilutive share. The improvement was due to higher coal pricing and higher gas production.
CONSOL Energy had net cash from operating activities of $316.5 million for the June 2009 quarter, with $87.6 million attributable to CNX Gas. For CONSOL Energy, this compares to $323.9 million for the June 2008 quarter, or a decrease of 2%.
CONSOL Energy had total capital expenditures of $196.9 million in the June 2009 quarter, with $80.2 million attributable to CNX Gas. For both CONSOL Energy and CNX Gas, quarterly capital expenditures in the June 2009 quarter are lower than the March 2009 quarter, as expected, as some projects already underway move toward completion.
Liquidity
As of June 30, 2009, CONSOL Energy had $371.0 million of short-term debt and $461.5 million in total liquidity, which is comprised of $100.7 million of cash and $360.8 million available to be borrowed under its $1.0 billion bank facility. As of June 30, 2009, CNX Gas Corporation had $81.0 million of short-term debt and $111.7 million in total liquidity, which is comprised of $7.6 million of cash and $104.1 million available to be borrowed under its $200.0 million bank facility.
COAL OPERATIONS- Period-To-Period Comparison Quarter Quarter Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2009 2008 2009 2008 -------- -------- -------- -------- Total Coal Sales (millions of tons) 13.4 17.5 28.8 33.5 Sales - Company Produced (millions of tons) 13.3 17.0 28.6 32.7 Coal Production (millions of tons) 14.4* 16.6* 30.4 32.8 Average Realized Price Per Ton - Company Produced $56.36 $48.50 $58.08 $46.07 Operating Costs Per Ton $35.01 $32.03 $33.58 $30.20 Non-Operating Charges Per Ton $5.75 $5.44 $5.73 $5.30 DD&A Per Ton $4.66 $4.14 $4.44 $4.03 Total Cost Per Ton - Company Produced $45.42 $41.60** $43.75 $39.52** Operating Margins Per Ton $21.35 $16.47 $24.50 $15.87 Financial Margins Per Ton** $10.94 $6.90 $14.33 $6.55 Sales and production include 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 premiums), 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 0.1 and 1.1 million tons of metallurgical grade coal for the quarters ended June 30, 2009 and 2008, respectively. **May not add due to rounding. Quarter-to-Quarter Discussion of Coal Operations
Total coal sales were down in the June 2009 quarter, as the weak economy reduced coal burn at utilities and coal needs of steel companies.
"Because of the economy, CONSOL Energy is working with some of its customers to restructure shipments. We have long term relationships with our customers that we value highly, but we expect to capture the value for our shareholders in the contracts we have signed," continued Mr. Harvey.
Coal production was 14.4 million tons in the June 2009 quarter, down from 16.6 million tons in the year-earlier quarter. Mr. Harvey continued, "We will match our production with actual customer shipments, so we will not build inventory. When shipments rebound, so will our production."
Average realized price was $56.36 per ton, or 16% higher than in the year-earlier quarter, due mainly to contracts signed earlier in a stronger market.
Operating costs were $35.01 per ton, or 9% higher than in the year-earlier quarter. In general, operating costs per ton increased due to the reduced amount of tons produced from CONSOL Energy mines. Also, the longwall at Buchanan was idle throughout most of the quarter, while the continuous mining (CMs) equipment continued to operate. Tons mined from CMs are higher cost due to their labor and supply intensity. Labor costs also increased $0.66 per ton, partially due to labor contracts negotiated in 2007. Subsidence costs also increased by $0.94 per ton, primarily due to additional estimated Pennsylvania stream remediation requirements.
Total costs were $45.42 per ton, or 9% higher than in the year-earlier quarter, with most of the increase coming from operating costs. Operating margins were $21.35 per ton in the June 2009 quarter, an increase of 30% from $16.47 per ton, due to higher realized pricing per ton. Financial margins were $10.94 per ton, a 59% increase from the $6.90 per ton, also due to higher realized pricing.
Gas Operations
CNX Gas Corporation , 83.3% of which is owned by CONSOL Energy, reported total net income attributable to CNX Gas shareholders of $33.0 million for the quarter ended June 30, 2009, compared with $64.3 million in the year earlier quarter. CNX Gas Corporation also issued its earnings release this morning. Additional information regarding CNX Gas Corporation financial and operating results for the quarter is available in its release and can be found in the investor section of its website: http://www.cnxgas.com/
Guidance
CONSOL Energy continues to expect to invest $1.0 billion in its coal and gas businesses during calendar year 2009. The company continues to monitor and evaluate capital spending to ensure adequate liquidity and to preserve options for possible external investment. The company is committed to completing capital projects in progress, including those that increase capacity and efficiency. CNX Gas expects to invest largely from cash flow generated from operating activities for 2009.
GUIDANCE 2009 2010 2011 ---- ---- ---- COAL-COMMITTED TONS W/O PRICING - 13.5 21.5 COAL-TONS WITH FIRM PRICING Tons Committed and Priced (MM tons, 7/13/09) 58.2 39.4 18.7 Avg. Realized Price/Ton Committed & Priced $58.39 $54.07 $50.77 COAL-TONS PRICED WITH COLLARS Tons 0.3 3.6 5.9 Average Ceiling $41.49 $47.63 $63.13 Average Floor $37.54 $42.20 $52.64 Note: Tons priced with ceilings and floors are not included in tons with firm pricing; they are additive. Although there is no assurance that customers with contracts will perform under these contracts, CONSOL Energy expects to capture the value of contracts through negotiated or legal means.
CONSOL Energy has revised its production target from 60 million tons to 58 million tons for calendar year 2009. For the third quarter of 2009, CONSOL Energy expects production to be approximately 13.1 million tons.
CNX Gas raised its previously announced production guidance of 87 to 89 Bcf for calendar year 2009.
Outlook Summary
The U.S. economy continued to contract in the second quarter driven by a decrease in industrial production in the manufacturing sector. This has led to a reduction in electricity generation, thereby negatively impacting demand and consumption of steam coal and natural gas. Milder weather this summer in most areas of the U.S. has further exacerbated the demand situation which has resulted in higher than normal coal stockpiles and gas storage levels across the country.
Steam Coal and Natural Gas Outlook
Many domestic coal companies have responded to the reduced coal demand by reducing production. Industry experts predict coal production will be reduced by at least 100 million tons in 2009. Mr. Harvey noted, "CONSOL Energy has a long history of being a disciplined producer. This year several other coal producers have also curtailed production due to market conditions. We believe that coal production cuts will continue into next year and that this should bode well for a sustained recovery in coal contract prices.
"In addition, natural gas producers have rapidly idled drilling rigs since the beginning of the economic downturn, with total active natural gas drilling rigs declining by more than 50 percent. Industry analysts expect gas rig counts to remain relatively flat for the remainder of 2009 and 2010.
Metallurgical Coal Outlook
"Capacity utilization at steel plants in the U.S. continues to improve following substantial inventory destocking efforts in late 2008 and early 2009. Steel plant capacity utilization in the U.S. has steadily increased since its low in December 2008. In addition, there are reports that nearly all metallurgical spot coal is sold out for 2009 due to preemptive buying by China since the beginning of the year and met coal production cutbacks." Mr. Harvey added, "Currently, the outlook is improving in the steel industry and we are cautiously optimistic regarding a recovery in metallurgical coal demand and pricing. We are seeing increased interest from South American and European steel producers who are methodically restarting previously idled blast furnaces and coking operations."
Mr. Harvey concluded, "Although there is still much uncertainty in the economy, certain leading economic indicators have shown improvement. We believe that as the overall economy improves, coal production cuts will have a profound impact on contract prices. Furthermore, our low-cost position in coal and gas should enable us to outperform our peers during this bottoming process."
CONSOL Energy Inc., a high-Btu bituminous coal and natural gas company, is a member of the Standard & Poor's 500 Equity Index and the Fortune 500. It has 16 bituminous coal mining complexes in six states and reports proven and probable coal reserves of 4.5 billion tons. It is also a majority owner of CNX Gas Corporation, a leading Appalachian gas producer, with proved reserves of over 1.4 trillion cubic feet. Additional information about CONSOL Energy can be found at its web site: http://www.consolenergy.com/.
Definition: EBIT is defined as earnings (excluding cumulative effect of accounting change) before deducting net interest expense (interest expense less interest income) and income taxes.
