CNX Resources Corp. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited results. CNX produces natural gas and operates Shale and Coalbed Methane segments. Unless otherwise noted, financial amounts below are in millions of dollars.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue and other operating income | $66 | $530 | $631 | $1,413 |
| Natural gas, NGL and oil revenue | $182 | $265 | $609 | $1,044 |
| Net income (loss) attributable to CNX shareholders | $(205) | $116 | $(680) | $191 |
| Diluted earnings (loss) per share | $(1.03) | $0.61 | $(3.56) | $1.01 |
| Cash provided by operating activities | Not stated separately | Not stated separately | $634 | $866 |
| Capital expenditures | Not stated separately | Not stated separately | $395 | $965 |
Q3 total revenue was sharply affected by a $169 million commodity-derivative loss, compared with a $214 million gain in Q3 2019. The quarter included a $259 million unrealized derivative loss, partly offset by $90 million in cash settlements received. For the first nine months, the $680 million shareholder loss included a $473 million goodwill impairment, a $62 million property impairment, and a $501 million unrealized commodity-derivative loss.
- Production and margins: Q3 sales volumes were 115.7 Bcfe, down from 128.3 Bcfe. The company’s average margin was $0.65 per Mcfe versus $0.79. For the nine months, volumes were 364.6 Bcfe versus 395.8 Bcfe and average margin was $0.82 per Mcfe versus $0.96.
- Balance sheet and liquidity: At September 30, cash and cash equivalents were $150 million; current assets were $332 million and current liabilities $508 million. Debt, excluding issuance costs, was about $2.62 billion. CNX reported $1.30 billion of unused capacity on its revolving facility and was in compliance with financial covenants. CNXM’s separate revolver had $257 million of unused capacity.
- Shareholder returns: No dividend was declared. CNX made no share repurchases in the first nine months of 2020; approximately $148.5 million remained authorized under its repurchase program at quarter-end.
Material changes and developments
- On September 28, CNX completed its acquisition of the remaining CNX Midstream Partners (CNXM) units, issuing 37.1 million CNX shares. CNXM became a wholly owned subsidiary; the transaction was recorded as an equity transaction, with no gain or loss recognized. CNX’s reported shares outstanding were 224.5 million as of October 15.
- Natural gas and NGL prices and sales volumes declined year over year. CNX temporarily shut in certain wells in response to low prices; management said the COVID-19 pandemic had not caused significant direct operating disruptions through the period.
- Operating cash flow declined to $634 million from $866 million, while capital expenditures fell to $395 million from $965 million, primarily reflecting reduced drilling and completion activity.
- CNX issued $345 million principal amount of 2.25% convertible notes due 2026, issued $200 million of additional 7.25% senior notes due 2027, and retired $531 million principal amount of 5.875% notes due 2022 during the first nine months. On October 8, 2020, it repurchased the remaining $363 million principal amount of those 2022 notes.
Outlook, risks and contingencies
- Outlook: No formal earnings or production guidance is provided in the supplied filing text. As of October 8, CNX reported 124.0 Bcf of hedged natural gas production for Q4 2020 and 459.1 Bcf for 2021. Management said cash from operations, asset sales and borrowing capacity were expected to cover working capital, anticipated capital expenditures and scheduled debt payments for the next fiscal year, while noting results depend on market and operating conditions.
- Market and operating risks: Management highlighted COVID-19 uncertainty, weak and volatile natural gas prices, demand and service-provider risks, potential effects on liquidity and access to capital, and possible production impacts from further shut-ins. Commodity hedges reduce some price exposure but can also limit participation in price increases; open gas derivatives were a net liability of $95 million at quarter-end.
- Impairments: The $473 million goodwill impairment followed adverse macroeconomic conditions and a decline in CNXM market values. CNX said further adverse changes in assumptions or conditions could result in additional impairment. The $62 million property impairment related to temporarily idled Southwest Pennsylvania coalbed methane wells and a processing facility.
- Legal and contractual exposure: The UMWA 1992 Benefit Plan sued CNX and CONSOL over alleged Coal Act retiree-benefit obligations. CNX disputes the claim and intends to defend it; management considered a loss possible but not probable and recorded no accrual. The filing also lists $1.97 billion of purchase obligations and $291 million of letters of credit and surety-bond commitments. CNX said it believed the commitments would expire without funding.
Important facts for investors to verify
- How commodity prices, derivative mark-to-market changes, and cash hedge settlements affect reported earnings and realized prices.
- Whether production volumes and margins recover, and how long temporarily shut-in wells remain offline.
- CNX’s ability to meet debt, transportation and other contractual obligations while maintaining covenant compliance.
- Whether the CNXM merger delivers expected benefits and whether further goodwill impairment is warranted.
- Developments in the UMWA litigation and the ability of CONSOL to meet its indemnification obligations.