Filing Summary
Entity and period: The supplied filing is CONSOL Energy Inc.’s Form 10-K for the fiscal year ended December 31, 2015, filed February 5, 2016. It is not identified as a CNX Resources Corp. filing; investors should verify the company and filing before relying on this summary. The filing reports annual results, not standalone 2015 Q4 results.
Business context and reporting period
CONSOL Energy operated two principal divisions: Appalachian oil and gas exploration and production (E&P), and coal mining. Management’s strategy included growing E&P, monetizing assets, and ultimately separating the E&P and coal businesses. CNX Coal Resources LP completed its IPO in July 2015.
Financial and operating metrics
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Operating revenues from continuing operations | $2.894 billion | $3.476 billion |
| Loss from continuing operations | $364.5 million | Income of $168.8 million |
| Net loss attributable to CONSOL shareholders | $374.9 million; loss of $1.64 per diluted share | Income of $163.1 million; income of $0.70 per diluted share |
| Cash from operating activities | $505.8 million | $936.8 million |
| Capital expenditures | $1.023 billion | $1.493 billion |
| Cash and cash equivalents at year-end | $72.6 million | $177.0 million |
| Total long-term debt and capital leases | $2.788 billion | $3.283 billion |
Operating cash flow less capital expenditures was approximately negative $516.7 million in 2015, calculated from the reported figures. The company reported total assets of $10.930 billion and total equity of $4.856 billion at year-end.
- Gas: Production rose 39.5% to 328.7 Bcfe. Average sales price including cash derivative settlements fell 35.7% to $2.81/Mcfe, while average costs declined 17.5% to $2.73/Mcfe; reported average margin narrowed to $0.08/Mcfe.
- Coal: Sales volume fell to 29.2 million tons from 32.4 million. Average sales price declined 10.1% to $56.66/ton; average cost declined 7.0% to $43.64/ton.
- Divisions: E&P reported a $679 million pretax loss, including an $828.9 million property impairment. Coal reported $500 million of pretax earnings.
- Liquidity and debt: The $2.0 billion secured revolving facility had $952 million drawn and approximately $258 million of letters of credit outstanding, leaving approximately $790 million of unused capacity. Covenant interest coverage was 5.32x and covenant current ratio was 2.29x. These covenant measures are defined by the credit agreement and are not the same as simple balance-sheet ratios.
- Derivatives: The company reported a $392.9 million gain on commodity derivatives, including $196.3 million of cash settlements; the remainder included non-cash effects. Open derivatives had a reported net fair-value asset of about $267 million.
Material changes versus the prior comparable period
- Operating revenues fell about 16.7%, and the company moved from net income to a substantial net loss. Lower commodity prices, particularly for gas, liquids, and coal, pressured results.
- Gas production grew sharply, led by Marcellus and Utica output, but the lower realized prices more than offset volume growth. CBM volumes also declined.
- The $828.9 million E&P impairment was the largest unusual item, primarily affecting shallow oil and gas properties. The company also recorded $67.8 million of debt-extinguishment losses.
- Operating cash flow declined by $430.9 million. Capital spending was reduced by $470.9 million, reflecting lower drilling and completion activity and lower coal investment.
- CONSOL issued $500 million of 8.00% notes due 2023 and used proceeds and revolver borrowings to repurchase portions of its 2020 and 2021 notes. It also repurchased $71.7 million of its common stock.
- Cash dividends declared per share declined to $0.145 from $0.25. The reported leverage ratio was 3.63x; credit and note terms restrict dividends under specified conditions, though the company reported no defaults in 2015.
Outlook, commentary, risks, and contingencies
- Management expected 2016 gas production to grow approximately 15%. E&P capital guidance was $205–$325 million, with drilling decisions dependent on prices, returns, and assessment of dry Utica wells drilled in 2015.
- 2016 coal sales guidance was 27–32 million tons, with $170–$190 million of coal and other capital spending. The company reported 27.8 million committed tons for 2016, including 24.1 million from PA Operations; shipments remained exposed to timing and customer risks.
- Management cited low commodity prices, Appalachian gas oversupply and basis differentials, coal-market oversupply, and reduced coal demand from competing fuels and environmental rules. Other key risks include transportation constraints, permit delays, mine and drilling hazards, reserve-estimation uncertainty, and customer concentration.
- CONSOL disclosed that Noble Energy’s Marcellus drilling carry remained suspended during 2015 under a gas-price condition, shifting more near-term drilling costs to CONSOL. The filing also warned that Murray Energy’s failure to meet assumed obligations could trigger claims under guarantees; estimated maximum exposure under specified guarantees was approximately $123 million.
- Reported liabilities included approximately $550 million for reclamation, mine closure, and gas-well closure. Significant employee-related obligations included postretirement benefits, pension, workers’ compensation, and black-lung benefits. The filing described pending royalty and environmental matters; accrued amounts for identified claims were said to be immaterial, but aggregate future losses could be material and were not reasonably estimable.
- The company reported an unqualified audit opinion and effective internal control over financial reporting. Its qualified defined-benefit pension plans were frozen effective December 31, 2015.
Most important facts for investors to verify
- Confirm the registrant: this source names CONSOL Energy Inc., not CNX Resources Corp.; also confirm whether the intended period is FY 2015 or Q4 2015.
- Review the audited statements and notes for the impairment assumptions, derivative gain composition, and the effects of non-cash and actuarial items on reported earnings.
- Check debt maturities, borrowing-base redetermination, covenant definitions, revolver availability, and dividend restrictions against later filings.
- Assess whether 2016 production and coal sales guidance was achieved, and how low prices, hedges, basis differentials, customer concentration, and transportation capacity affected realized cash flows.
- Review the status and potential exposure of Murray Energy guarantees, legal claims, reclamation obligations, and other environmental or employee-benefit liabilities.