CONSOL Energy Inc. (NYSE: CNX) reported a net loss for the quarter ended Sept. 30 of $64 million, or a loss of $0.28 per diluted share, compared to a loss of $11 million, or $0.05 per diluted share from the year-earlier quarter.
Pre-tax income for the third quarter was $11 million. After adjusting for five discrete items adjusted pre-tax income in the third quarter, a non-GAAP financial measure, was $22 million. The effective tax rate in the third quarter reflects an expectation of profitability in 4Q 2013. The effective tax rate of the company over the past three years has varied between 20% to 23%.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), which is a non-GAAP financial measure, was $244 million for the quarter ended Sept.30, compared to $210 million in the year-earlier quarter.
CONSOL's gas division showed unit margin expansion, quarter-over-quarter, as the average sales price was nearly unchanged, while unit costs were lower, mostly due to higher volumes. Overall natural gas production was up 17%, quarter-over-quarter, aided by the 72% growth in the Marcellus shale component. The gas division is on track to meet its 2014 production guidance of 210 to 225 Bcfe. For 2015 and 2016, CONSOL has announced annual production guidance increases of between 25% to 30%.
"CONSOL's gas division continues to see the Marcellus shale become a greater portion of the production mix," J. Brett Harvey, chairman and CEO, said in the release. "This is important for two main reasons: the first is the lower-cost nature of the Marcellus resulting from drilling efficiencies such as pad drilling, and the second is sales price uplift associated with a higher concentration of liquids. CONSOL is not only on track to meet its 2014 overall gas production guidance but is also on track to more than double its Marcellus Shale production in 2014, compared to 2013."
Coal and gas production results, which were announced on Oct. 15, exceeded previous guidance provided in the second quarter. In the coal division, margins decreased primarily as a result of lower sale prices per ton, reflecting a decrease in the global metallurgical and thermal coal markets. Partially offsetting lower sales prices was approximately a 10 percent improvement in costs per ton.
CONSOL Energy's coal division costs per ton sold, across all tons, were $50.46 during the quarter, compared to $55.84 per ton from the year-earlier quarter. Per unit costs improved due to higher sales volumes and completed efficiency programs at the mines.
CONSOL Energy's liquidity remains strong at $2.3 billion, while the company continues to invest in value creating projects. Third quarter capital investments were $438 million, which is flat with the year-earlier quarter. BMX Mine remains on track to begin operations in April of 2014 with an expected total capital cost of $710 million.
Cash flow from operations in the quarter was $196 million, as compared to $162 million in the year-earlier quarter.
Yesterday, CONSOL Energy announced a transformative step to advance its E&P growth strategy. The company entered into an agreement to sell its Consolidation Coal Co. (CCC) subsidiary, which contains all five of its longwall coal mines in West Virginia, to Murray Energy Corp. for $4.4 billion in value.
"While this transaction furthers CONSOL's E&P growth strategy," Harvey said, "the sale of these five mines - assets that have long contributed to America's economic strength and our company's legacy - was a very difficult decision for our team. The employees at these mines are among the safest and most productive miners anywhere in the world. In the end, we concluded that the time had come to sell these mature assets to ownership whose strategic direction is more aligned with those mines."
Gas Division Results:
CONSOL's gas production in the quarter came from the following categories:
Coalbed Methane (CBM): Total production was 21 Bcfe, or a decrease of 3% from the 21.7 Bcfe produced in the year-earlier quarter. The company has reduced CBM drilling to focus on higher return projects.
Marcellus shale: Total production was 17.4 Bcfe, or an increase of 72% from the 10.1 Bcfe produced in the year-earlier quarter. The increase is primarily due to additional wells coming on-line from the company's on-going drilling program.
Shallow: Total production was 6.8 Bcfe, or a decrease of 3% from the 7 Bcfe produced in the year-earlier quarter. The company continues to shift rigs and capital toward higher potential return Marcellus and Utica drilling prospects.
Other: The other category had production of 0.9 Bcfe, or an increase of 50% from the 0.6 Bcfe produced in the year-earlier quarter.
CONSOL Energy 2013 - 2015 Guidance
Fourth quarter gas production, net to CONSOL, is expected to be 46 to 48 Bcfe. If achieved, this would result in 2013 annual production of 170 to 172 Bcfe.
CONSOL Energy expects its 2014 annual gas production to be between 210 to 225 Bcfe with annual production growth, thereafter, between 25% to 30% through 2016.
Total hedged gas production in 4Q 2013 is 24 Bcf, at an average price of $4.64 per Mcf.
Total company liquidity as of Sept.30 was $2.3 billion, including cash of $21.1 million.
As of Sept. 30, CONSOL Energy had $1.413 billion in total liquidity, which is comprised of $17.2 million of cash and $1,395.9 million available to be borrowed under its $1.5 billion bank facility. CONSOL Energy's credit facility has no borrowings. Outstanding letters of credit are $104.1 million.
As of Sept. 30, CNX Gas Corp. had $886.8 million in total liquidity, which is comprised of $3.9 million of cash and $882.9 million available to be borrowed under its $1 billion bank facility. CNX Gas' credit facility has $47 million drawn. Outstanding letters of credit are $70.1 million.
CONSOL Energy Inc. produces coal and natural gas for energy and raw material markets in the U.S. The company is headquartered in Canonsburg, Pa.