CNX Resources Corp. — Filing Summary
Filing identity: The supplied filing is a Form 10-Q for CONSOL Energy Inc., not CNX Resources Corp. It covers the quarter and six months ended June 30, 2016; the financial statements are unaudited. Figures below are in millions of dollars unless stated otherwise.
Business context and reporting period
CONSOL Energy operated Exploration and Production (E&P) and Coal divisions. During the quarter it classified the Fola and Miller Creek mining complexes as discontinued operations and held for sale. The Buchanan Mine sale closed March 31, 2016; its results are also presented as discontinued operations.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Total revenue and other income | $285.8 | $545.6 | $818.6 | $1,306.4 |
| Net loss attributable to CONSOL shareholders | $(469.8) | $(603.3) | $(567.4) | $(524.3) |
| Diluted loss per share | $(2.05) | $(2.64) | $(2.47) | $(2.29) |
| Operating cash flow | Not presented by quarter | Not presented by quarter | $223.7 | $294.2 |
| Capital expenditures | Not presented by quarter | Not presented by quarter | $115.3 | $616.5 |
Q2 continuing-operations loss was $233.0 million, while discontinued operations contributed a $235.6 million loss, including a $355.7 million impairment of Fola and Miller Creek assets. For the first half, continuing-operations loss was $275.7 million and discontinued-operations loss was $289.4 million. The 2015 comparison included an $828.9 million E&P property impairment, which partly explains the lower Q2 loss in 2016.
Cash from operations declined by $70.5 million year over year in the first half. Investing activities provided $292.0 million, largely reflecting $394.5 million of discontinued-operation proceeds, including the Buchanan sale; financing activities used $490.6 million. Cash ended at $97.6 million.
At June 30, current assets were $526.2 million and current liabilities were $1,151.4 million, including $466.0 million of short-term revolver borrowings. The company reported $2,755.8 million of long-term debt, including capital leases and discontinued-operation debt; total long-term debt and capital lease obligations were approximately $2.79 billion. The $2.0 billion revolving facility had $1,225.0 million of unused capacity after borrowings and letters of credit. Covenant ratios were 4.79x interest coverage and 2.75x current ratio, against minimums of 2.50x and 1.00x, respectively.
Changes versus the prior comparable period
- Q2 E&P production rose 32% to a record 99.3 Bcfe. Sales volumes increased, but average E&P sales price including derivatives fell 6.7% to $2.50/Mcfe. Unit cash costs improved to $1.23/Mcfe from $1.58/Mcfe.
- Coal’s Q2 average realized price fell 27.8% to $40.61 per ton. Cost per ton fell 21.9% to $34.46, but margin narrowed 49% to $6.15 per ton. Coal division pretax earnings fell to $23 million from $71 million.
- Q2 commodity derivatives produced a $199.4 million loss versus a $17.3 million gain a year earlier; the 2016 loss primarily reflected mark-to-market changes, rather than current cash settlements alone.
- First-half E&P production increased to 196.7 Bcfe from 147.1 Bcfe, while coal sales fell to 11.4 million tons from 12.2 million. First-half coal division pretax earnings declined to $32 million from $164 million.
Outlook, commentary, risks and unusual items
- Management raised 2016 E&P production guidance to 380–385 Bcfe and set E&P capital spending guidance at $190–$205 million. Two horizontal rigs were planned to resume drilling in August 2016.
- For 2016, management expected Pennsylvania Operations coal sales of approximately 24.0–25.5 million tons and Coal division capital expenditures of $105–$125 million.
- As of July 13, 2016, reported 2016 NYMEX-plus-basis gas hedges were 263.6 Bcf at an average $3.04/Mcf; management said these would secure approximately $800 million of 2016 gas revenue. The company’s derivative portfolio had a net liability fair value of $76 million at June 30. A hypothetical 10% rise in future gas prices would reduce future derivative-related earnings by $201 million.
- Management cited improved ethane realizations through the Mariner East project as a potential revenue benefit. It also noted customer coal deferrals and legal action against a customer it alleged was breaching contract terms.
- After the quarter, agreements were signed to sell Fola and Miller Creek. The company expected to pay the buyer approximately $27 million at closing plus $17.2 million over four years; it anticipated a further $44.2 million loss upon closing. The sale remained subject to conditions.
- The company suspended its quarterly dividend following the Buchanan sale. It reported $1.1 billion of letters of credit, surety bonds and guarantees, and $1.3 billion of future purchase obligations. Management believed guarantees would expire without funding, but disclosed that future aggregate litigation losses could be material and were not reasonably estimable.
- Other notable items included a $13.7 million pension settlement expense and April amendments to the credit facility, including additional collateral and cash-sweep requirements. Commodity prices, coal-market weakness, customer credit and contract performance, environmental regulation, operating risks, debt and contingent liabilities were identified as risks.
Most important facts for investors to verify
- Confirm the issuer: the source filing identifies CONSOL Energy Inc., whereas the request names CNX Resources Corp.
- Separate cash settlements from noncash mark-to-market derivative losses when assessing operating performance and hedge protection.
- Track completion and final economics of the Fola and Miller Creek transaction, including assumed liabilities and the stated additional loss.
- Review revolver availability, borrowing-base terms, covenant headroom and the effect of the April 2016 amendments.
- Assess whether coal pricing, customer contract disputes and operating cost reductions support the company’s guidance.
- Monitor litigation, environmental matters, reclamation and employee-benefit liabilities, and the company’s ability to meet contractual commitments.