EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

LOGO

CNX Gas Reports Quarterly Net Income of $45.6 Million, or $0.30 per Share;

Marcellus Shale Wells Continue to Set Company Production Records

Pittsburgh, PA (April 29, 2010) – CNX Gas Corporation (NYSE: CXG), a leading Appalachian producer, reported net income attributable to CNX Gas shareholders of $45.6 million, or $0.30 per diluted share, for the quarter ended March 31, 2010. This compares to $54.9 million, or $0.36 per diluted share, for the quarter ended March 31, 2009.

Production was 24.0 billion cubic feet (Bcf), or 267 million cubic feet (MMcf) per day, for the quarter ended March 31, 2010. This was 9% higher than the 22.0 Bcf, or 245 MMcf per day, for the year-ago quarter, but slightly lower than the 25.1 Bcf produced in the fourth quarter of 2009. Approximately 0.6 Bcf of production was deferred due to the loss of power for several days related to a severe winter storm in our Northern Appalachia producing region in the quarter ended March 31, 2010.

“CNX Gas has drilled its best ever horizontal Marcellus Shale wells during the first quarter,” said J. Brett Harvey, chairman and chief executive officer. “One well, GH 2B CV, has averaged 5.0 MMcf per day for the first 47 days of production. It peaked at 5.7 MMcf per day. This production is remarkable when one considers that the lateral is only 2,300 feet. Based on this early production, we think it is reasonable to assume reserves for this well in excess of 5 Bcf.

“A second well, GH 10 CV, has only 1,500 feet of lateral, but has a current daily production rate of 4.3 MMcf. This well is still inclining after being on line for 17 days, with an average production rate of 4.1 MMcf per day.

“A third well, GH 11B CV, had its last three stages fraced, as had been anticipated in the prior earnings release,” continued Mr. Harvey. “This well, with only 1,800 feet of lateral, is now producing 2.2 MMcf per day from only those three stages. As we move to our new drilling area on June 1,” continued Mr. Harvey, “we expect to see proportionate increases in production and reserves as we increase our laterals to 3,000 feet and beyond.”

CNX Gas increased production by 9% in the first quarter of 2010, as compared with the prior year’s first quarter, while paying down about $9 million of short term debt. The daily production rate of 267 MMcf was down 6 MMcf from the 2009 fourth quarter, as unusually heavy snows slowed the pace of drilling.

TABLE 1

FINANCIAL AND OPERATIONAL RESULTS—Quarter-To-Quarter Comparison

 

     Quarter
Ended
Mar. 31, 2010
   Quarter
Ended
Mar. 31, 2009

Total Revenue and Other Income

   $ 192.3    $ 178.4

Net Income attributable to CNX Gas shareholders

   $ 45.6    $ 54.9

Earnings per Share - Diluted

   $ 0.30    $ 0.36

Net Cash from Operating Activities

   $ 75.2    $ 126.4

EBITDA

   $ 107.6    $ 114.1

EBIT

   $ 75.5    $ 91.3

Total Period Production (Bcf)

     24.0      22.0

Average Daily Production (MMcf)

     267      245

Capital Expenditures

   $ 65.3    $ 133.6

Financial results are in millions of dollars except per share amounts. Production results are net of royalties.


Quarter-to-Quarter Analysis

The average price realized for the company’s gas production was $7.24 per Mcf for the quarter ended March 31, 2010, or $0.13 lower than the $7.37 per Mcf received for the quarter ended March 31, 2009. The average realized price for the just-ended quarter included 13.0 Bcf hedged at $8.76 per Mcf.

All-in unit costs for company production, exclusive of royalties, were $3.75 per Mcf in the just-ended quarter, or an increase of $0.46 from the $3.29 per Mcf for the quarter ended March 31, 2009. Unit production taxes were higher in the just-ended quarter because the prior year’s first quarter contained a favorable revision to an estimate of a pending litigation settlement. Unit production DD&A was higher in the just-ended quarter as the increase in 2009 drilling capital exceeded the increase in proved developed producing reserves in Northern Appalachia.

As a result of slightly lower average sales prices and higher unit costs, pre-tax unit margins for company production were $3.49 per Mcf in the just-ended quarter, a decrease of $0.59 from the $4.08 per Mcf in the quarter ended March 31, 2009.

TABLE 2

PRICE AND COST DATA PER NET MCF - Quarter-To-Quarter Comparison

 

     Quarter
Ended
Mar. 31, 2010
   Quarter
Ended
Mar. 31, 2009

Average Sales Price

   $ 7.24    $ 7.37

Costs – Production

     

Lifting

   $ 0.48    $ 0.49

Production Taxes

   $ 0.11    $ 0.03

DD&A

   $ 1.09    $ 0.81
             

Total Production Costs

   $ 1.68    $ 1.33

Costs – Gathering

     

Operating Costs

   $ 0.87    $ 0.78

Transportation

   $ 0.28    $ 0.21

DD&A

   $ 0.24    $ 0.23
             

Total Gathering Costs

   $ 1.39    $ 1.22
             

Costs – Administration

   $ 0.68    $ 0.74

Total Costs

   $ 3.75    $ 3.29
             

Margin

   $ 3.49    $ 4.08

Note: Costs – Administration exclude incentive compensation and other corporate items.

Safety

During the first quarter, CNX Gas employees continued to work without incurring a lost time accident. As of March 31, the cumulative time worked by employees without a lost time incident was 4.2 million hours.

Central Appalachia Operations

Total production in Central Appalachia, which includes Virginia CBM and Chattanooga Shale, was 18.5 Bcf in the quarter ended March 31, 2010. This was 1.3 Bcf higher than the 17.2 Bcf produced in the quarter ended March 31, 2009. The Central Appalachia March run rate was 210 MMcf per day.

 

- 2 -


CNX Gas drilled 30 vertical frac wells in its Virginia CBM Operations during the quarter. The company expects to drill 175 wells in Virginia in 2010 with a drilling budget of $50 million.

CNX Gas drilled 13 horizontal wells in the Chattanooga Shale during the quarter. For 2010, CNX Gas expects to drill 25 Chattanooga Shale wells for about $28 million, and three-to-five Huron Shale wells for about $8-12 million.

Northern Appalachia Operations

Total production in Northern Appalachia, which includes Mountaineer CBM, Nittany CBM, and Marcellus Shale, was 5.5 Bcf in the quarter ended March 31, 2010. This was 0.7 Bcf more than the 4.8 Bcf produced in the quarter ended March 31, 2009. The Northern Appalachia March run rate was 64 MMcf per day.

Of this Northern Appalachian production, 1.4 Bcf was from the Marcellus Shale in the just-ended quarter, versus a minimal amount in the same quarter last year.

No coalbed methane wells were drilled in Northern Appalachia during the quarter. For 2010, CNX Gas expects to drill 5 horizontal CBM wells in Mountaineer and some ancillary wells for about $17 million.

For the entire horizontal Marcellus Shale program to date, 18 horizontal wells have been drilled. The reserves associated with the first 11 wells total 35.6 Bcf, or about 3.3 Bcf per well. The laterals on these wells averaged less than 2,000 feet.

Upcoming drilling in the Marcellus Shale is expected to be predominantly horizontal and on multiple-well pads, with laterals closer to 3,000-3,500 feet. For 2010, the company expects to drill approximately two dozen horizontal wells, with a drilling budget of about $110 million.

CNX Gas successfully increased its acreage with Marcellus Shale potential by 10,000 in the quarter, to a total of 260,000. Of this, approximately 180,000 acres is considered to be Tier 1.

Financial Update

CNX Gas intends to invest $400 million in 2010, with $221 for drilling, $121 million for midstream, and the remainder for land.

The company ended the quarter with $49.2 million drawn on its $200 million credit facility. The amount drawn is down $8.7 million from December 31, 2009. Cash on hand was $1.1 million.

CNX Gas also has outstanding letters of credit of $14.9 million. Total funds available are $137.0 million.

Annualized return on capital employed for the quarter was 11.7%, on an after tax basis.

Guidance

The 2010 production guidance remains at 100 Bcf.

Total hedged production in the 2010 second quarter is 13.6 Bcf, at an average price of $8.15 per Mcf.

TABLE 3

GUIDANCE

 

     Actual 2009    2010    2011    2012

Total Yearly Production (Bcf)

     94.4      100      NA      NA

Volumes Hedged (Bcf)

     51.6      48.4      22.6      15.1

Average Hedge Price ($/Mcf)

   $ 8.76    $ 7.85    $ 6.84    $ 6.84

 

- 3 -


Natural Gas Outlook

At the close of the winter heating season, natural gas in storage was at 1,638 Bcf. This was 160 Bcf above the five-year average, but 16 Bcf below last year’s level. Gas prices have weakened to about the $4.00 per Mcf level, as rising rig counts have caused concern that rising production could more than offset rising demand from an economic recovery. CNX Gas will add a second horizontal rig to its Marcellus Shale drilling program on June 1. CNX Gas, with its low costs and rising production volumes, is expected to outperform its peers during this period of price weakness.

Conference Call Information

CNX Gas and CONSOL Energy will co-host a conference call today at 10:00 a.m. Eastern Time to discuss the company’s first quarter results. The teleconference can be heard “live” at the investor relations portion of the company web site: www.cnxgas.com.

Investor Contact: Dan Zajdel at (724) 485-4169

Media Contact: Joe Cerenzia at (724) 485-4062

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. EBITDA is defined as earnings (excluding cumulative effect of accounting change) before deducting net interest expense (interest expense less interest income), income taxes, and depreciation, depletion and amortization. Although EBIT and EBITDA are not measures of performance calculated in accordance with generally accepted accounting principles, management believes that they are useful to an investor in evaluating CNX Gas because they are widely used to evaluate a company’s operating performance before debt expense and its cash flow. EBIT and EBITDA do not purport to represent cash generated by operating activities and should not be considered in isolation or as a substitute for measures of performance in accordance with generally accepted accounting principles. In addition, because all companies do not calculate EBIT and EBITDA identically, the presentation here may not be comparable to similarly titled measures of other companies. Reconciliation of EBITDA and EBIT to the income statement is as follows:

CNX Gas

EBIT & EBITDA Reconciliation

(000) Omitted

 

     Quarter
Ended
Mar. 31, 2010
   Quarter
Ended
Mar. 31, 2009

Net Income attributable to CNX Gas shareholders

   $ 45,627    $ 54,904

Add: Interest Expense

     1,915      1,957

Less: Interest Income

     11      11

Add: Income Taxes

     27,967      34,440
             

Earnings Before Interest & Taxes (EBIT)

     75,498      91,290

Add: Depreciation, Depletion, & Amortization

     32,092      22,819
             

EBITDA

   $ 107,590    $ 114,109
             

 

- 4 -


CNX Gas

Capital Employed and Return on Capital Employed

(000) Omitted

Capital employed is a measure of net investment. When viewed from the perspective of how the capital is used, it includes CNX Gas’ property, plant, and equipment and other assets less liabilities.

 

Capital Employed

   As of
March 31,
2010
    As of
December 31,
2009
 

Total assets

   $ 2,263,985      $ 2,171,382   

Less liabilities:

    

Total current liabilities (other than current portion of indebtedness)

     (155,660     (150,778

Total long-term liabilities (other than indebtedness)

     (400,534     (381,548
                

Total Capital Employed

   $ 1,707,791      $ 1,639,056   
                

Return on average capital employed (ROCE) is a performance measure ratio. ROCE is defined as net income plus after-tax interest expense, divided by average capital employed. Below is a calculation of ROCE for the March 2010 quarter. In order to annualize the result on a compounded basis, a “1” is added to the quarterly ROCE, before it is raised to the fourth power.

 

Return on Capital Employed

   Quarter Ended
March  31,
2010
 

Net Income

   $ 45,627   

Financing costs (after-tax):

     (1,187
        

Earnings excluding financing costs

   $ 46,814   

Average capital employed

   $ 1,673,423   

Return on average capital employed

     2.8

Return on average capital employed-annualized

     11.7

Although ROCE is not a measure of performance calculated in accordance with generally accepted accounting principles, management believes that ROCE is a useful measure because it indicates the return on all capital, which includes equity and debt, employed in the business. Management believes that ROCE is an additional measure of efficiency when considered in conjunction with return on equity, which measures the return on only the shareholders’ equity component of total capital employed.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Various statements in this document, including those that express a belief, expectation, or intention, as well as those that are not statements of historical fact, are forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995). The forward-looking statements may include projections and estimates concerning the timing and success of specific projects, our future production, revenues, income and capital spending. When we use the words “believe,” “intend,” “expect,” “may,” “should,” “anticipate,” “could,” “would,” “will,” “estimate,” “plan,” “predict,” “project,” or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements. The forward-looking statements in this document speak only as of the date of this document; we disclaim any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, uncertainties and contingencies include, but are not limited to: our business strategy; our financial position, cash

 

- 5 -


flow and liquidity; the deteriorating economic conditions in the United States and globally; declines in the prices we receive for our gas affecting our operating results and cash flow; uncertainties in estimating our gas reserves and replacing our gas reserves; uncertainties in exploring for and producing gas; our inability to obtain additional financing necessary in order to fund our operations, capital expenditures and to meet our other obligations; disruptions to, capacity constraints in or other limitations on the pipeline systems which deliver our gas; the cost of disposing of water from our coalbed methane and Marcellus Shale gas wells; the cost of removing impurities from the gas we produce; the availability of personnel and equipment, including our inability to retain and attract key personnel; increased costs; the effects of government regulation, permitting and other legal requirements; legal uncertainties regarding the ownership of the coalbed methane estate, and costs associated with perfecting title for gas rights in some of our properties; litigation concerning real property rights, intellectual property rights, royalty calculations and other matters; our relationships and arrangements with CONSOL Energy; and other factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 under “Risk Factors,” as updated by any subsequent Form 10-Qs, which are on file at the Securities and Exchange Commission.

 

- 6 -


CNX GAS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands, except per share data)

 

     For the Three
Months Ended
March 31,
 
     2010     2009  

Revenue and Other Income:

    

Outside Sales

   $ 172,981      $ 161,340   

Related Party Sales

     1,032        1,000   

Royalty Interest Gas Sales

     14,339        12,632   

Purchased Gas Sales

     3,016        1,465   

Other Income

     896        1,947   
                

Total Revenue and Other Income

     192,264        178,384   

Costs and Expenses:

    

Lifting Costs

     14,138        11,428   

Gathering and Compression Costs

     27,692        21,846   

Royalty Interest Gas Costs

     12,214        10,601   

Purchased Gas Costs

     2,308        1,530   

Exploration and Other Costs

     4,220        2,207   

General and Administrative

     16,331        16,250   

Other Corporate Expenses

     7,954        665   

Depreciation, Depletion and Amortization

     32,092        22,819   

Interest Expense

     1,915        1,957   
                

Total Costs and Expenses

     118,864        89,303   
                

Earnings Before Income Taxes and Noncontrolling Interest

     73,400        89,081   

Noncontrolling Interest

     (194     (263
                

Earnings Before Income Taxes

     73,594        89,344   

Income Taxes

     27,967        34,440   
                

Net Income Attributable to CNX Gas Shareholders

   $ 45,627      $ 54,904   
                

Earnings Per Share:

    

Basic

   $ 0.30      $ 0.36   
                

Dilutive

   $ 0.30      $ 0.36   
                

Weighted Average Number of

    

Common Shares Outstanding:

    

Basic

     150,990,184        150,971,679   
                

Dilutive

     151,389,003        151,232,901   
                

 

- 7 -


CNX GAS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

 

     (Unaudited)
March 31,
2010
   December 31,
2009

ASSETS

     

Current Assets:

     

Cash and Cash Equivalents

   $ 1,093    $ 1,124

Accounts and Notes Receivable:

     

Trade

     46,749      43,421

Other Receivables

     579      975

Derivatives

     124,811      99,265

Other

     4,544      3,829
             

Total Current Assets

     177,776      148,614

Property, Plant and Equipment:

     

Property, Plant and Equipment

     2,480,394      2,409,751

Less - Accumulated Depreciation, Depletion and Amortization

     466,390      433,201
             

Total Property, Plant and Equipment - Net

     2,014,004      1,976,550

Other Assets:

     

Investment in Affiliates

     24,074      24,591

Derivatives

     44,200      18,218

Other

     3,931      3,409
             

Total Other Assets

     72,205      46,218
             

TOTAL ASSETS

   $ 2,263,985    $ 2,171,382
             

 

- 8 -


CNX GAS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

 

     (Unaudited)
March 31,
2010
    December 31,
2009
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current Liabilities:

    

Accounts Payable

   $ 63,724      $ 53,516   

Accrued Royalties

     14,860        14,898   

Accrued Severance Taxes

     952        1,037   

Related Parties

     2,725        5,171   

Short-Term Notes Payable

     49,150        57,850   

Deferred Income Taxes

     44,895        34,871   

Accrued Income Taxes

     20,157        31,765   

Current Portion of Long-Term Debt

     8,756        8,616   

Other Current Liabilities

     8,347        9,520   
                

Total Current Liabilities

     213,566        217,244   

Long-Term Debt:

    

Long-Term Debt

     8,876        10,062   

Capital Lease Obligations

     54,733        55,628   
                

Total Long-Term Debt

     63,609        65,690   

Deferred Credits and Other Liabilities:

    

Deferred Income Taxes

     356,536        334,493   

Gas Well Plugging

     8,341        8,312   

Postretirement Benefits Other Than Pensions

     3,699        3,642   

Other

     31,958        35,101   
                

Total Deferred Credits and Other Liabilities

     400,534        381,548   
                

Total Liabilities

     677,709        664,482   
                

Stockholders’ Equity:

    

Common Stock, $.01 par value; 200,000,000 Shares Authorized, 151,020,666 Issued and Outstanding at March 31, 2010 and 150,986,918 Issued and Outstanding at December 31, 2009

     1,510        1,510   

Capital in Excess of Par Value

     808,683        806,527   

Preferred Stock, 5,000,000 Shares Authorized; None Issued and Outstanding

     —          —     

Retained Earnings

     679,044        633,417   

Other Comprehensive Income

     101,288        69,816   
                

Total CNX Gas Shareholders’ Equity

     1,590,525        1,511,270   

Noncontrolling Interest

     (4,249     (4,370
                

Total Equity

     1,586,276        1,506,900   
                

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 2,263,985      $ 2,171,382   
                

 

- 9 -


CNX GAS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in Thousands)

 

     Common
Stock
   Capital in
Excess of
Par Value
   Retained
Earnings
   Accumulated
Other
Compre-
hensive
Income
   Total CNX
Gas Stock-
holders’
Equity
   Non-
controlling
Interest
    Total Equity

Balance - December 31, 2009

   $ 1,510    $ 806,527    $ 633,417    $ 69,816    $ 1,511,270    $ (4,370   $ 1,506,900
                                                 

(Unaudited)

                   

Net Income Attributable to CNX Gas Shareholders

     —        —        45,627      —        45,627      —          45,627

Gas Cash Flow Hedge (net of $20,128 tax)

     —        —        —        31,451      31,451      —          31,451

Actuarially Determined Liabilities Adjustment (net of $14 tax)

     —        —        —        21      21      —          21
                                                 

Comprehensive Income

     —        —        45,627      31,472      77,099        77,099

Stock Options Exercised

     —        705      —        —        705      —          705

Tax Benefit from Stock-Based Compensation

     —        128      —        —        128      —          128

Amortization of Restricted Stock Unit Grants

     —        1,200      —        —        1,200      —          1,200

Amortization of Stock Option Grants

     —        123      —        —        123      —          123

Noncontrolling Interest

     —        —        —        —        —        121        121
                                                 

Balance - March 31, 2010

   $ 1,510    $ 808,683    $ 679,044    $ 101,288    $ 1,590,525    $ (4,249   $ 1,586,276
                                                 

 

- 10 -


CNX GAS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

     For the Three Months
Ended March 31,
 
     2010     2009  

Operating Activities:

    

Net Income Attributable to CNX Gas Shareholders

   $ 45,627      $ 54,904   

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

    

Depreciation, Depletion and Amortization

     32,092        22,819   

Stock-based Compensation

     1,323        1,121   

(Gain) Loss on the Sale of Assets

     (8     —     

Change in Noncontrolling Interest

     (194     (263

Deferred Income Taxes

     11,835        18,536   

Equity in Loss (Earnings) of Affiliates

     517        (262

Changes in Operating Assets:

    

Accounts Receivable

     (2,932     27,130   

Related Party Receivable

     (2,446     (1,961

Other Current Assets

     (715     414   

Changes in Other Assets

     (522     469   

Changes in Operating Liabilities:

    

Accounts Payable

     1,335        6,967   

Income Taxes

     (11,608     15,833   

Other Current Liabilities

     (1,296     (15,928

Changes in Other Liabilities

     (2,590     (5,294

Other

     4,785        1,952   
                

Net Cash Provided by Operating Activities

     75,203        126,437   

Investing Activities:

    

Capital Expenditures

     (65,314     (133,550

Proceeds From Sale of Assets

     8        —     
                

Net Cash Used in Investing Activities

     (65,306     (133,550

Financing Activities:

    

Capital Lease Payments

     (946     (976

Variable Interest Entity Debt

     (1,115     (1,092

(Payments on) Proceeds from Short-Term Borrowings

     (8,700     7,700   

Exercise of Stock Options

     705        1   

Noncontrolling Interest Distribution

     —          (200

Tax Benefit from Stock-Based Compensation

     128        —     
                

Net Cash (Used in) Provided by Financing Activities

     (9,928     5,433   
                

Net Decrease in Cash and Cash Equivalents

     (31     (1,680

Cash and Cash Equivalents at Beginning of Period

     1,124        1,926   
                

Cash and Cash Equivalents at End of Period

   $ 1,093      $ 246   
                

 

- 11 -