CONSOL ENERGY INC. 
By | CONSOL Energy Reports Fourth Quarter Net Income of $196 Million, or $0.85 per Diluted Share; Record Annual 2011 Net Income of $632 Million, or $2.76 per Diluted Share | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PITTSBURGH, Jan. 26, 2012/PRNewswire/ -- CONSOL Energy Inc. (NYSE: CNX), the leading diversified fuel producer in the Eastern United States, reported net income for the quarter ended December 31, 2011of $196 million, or $0.85per diluted share, compared to $104 million, or $0.46per diluted share from the year-earlier quarter. Record net income for 2011 was $632 million, or $2.76per diluted share, compared to $347 million, or $1.60per diluted share for 2010. The company set other annual records in 2011, including:
"CONSOL Energy has a world class set of assets," commented J. Brett Harvey, chairman and CEO. "In our Coal Division for 2011, we were able to combine reliable operations with astute marketing to generate record net income. Our record results were even more impressive when one realizes that, on the gas side, weakening gas prices throughout 2011 largely offset our record gas production. For CONSOL, 2011 was a year characterized by our ability to seize opportunities and, in some cases, to create opportunities." Strategically, CONSOL Energy was successful in participating in the growth of world coal markets and in selling more of its crossover coal into lucrative met coal markets. CONSOL's coal is currently being sold on four continents. In gas, the company formed one strategic partnership with Noble Energy, Inc. to jointly develop 628,000 acres in the Marcellus Shale, and a second partnership with Hess Corporation to explore for and develop oil, liquids, and gas on 200,000 acres of Utica Shale in Ohio. The two partnerships, along with the sale of an overriding royalty interest to Antero generated gross proceeds to CONSOL Energy of $841 millionin 2011, and are expected to generate proceeds and carry of nearly $3.3 billionin the coming years. The influx of cash from the gas transactions, along with the record cash flow from operations in 2011 of $1.5 billion, considerably strengthened the company's financial position during a time of economic uncertainty. During 2011, the company extended and expanded its revolvers, paid off all of its short term debt, and ended the year with a cash balance of $376 million. With 2011 capital expenditures of $1.4 billionand dividends paid of $96 million, the company was slightly cash flow positive, even before considering the proceeds received from the gas transactions. In response to the improved financial condition, CONSOL Energy's Board of Directors increased the regular quarterly dividend by 25%, with the annual dividend now set at $0.50per share. In safety, CONSOL Energy logged its best year, when measured by incident rates. The one fatality, however, indicates that we have work to do to get to Absolute Zero. 2012 Capital Spending Revision CONSOL Energy has trimmed its 2012 spending outlook to $1.5 billion, down from an earlier projected $1.7 billion. The revisions from the January 10, 2012announcement are occurring mostly because a combination of mild weather and high production, which has caused natural gas prices to drop to a 10-year low. Gas investment in the Marcellus Shale has been reduced by approximately $130 million, as 23 (gross) wells have been deferred. CONSOL Energy and its joint development partner, Noble Energy, now expect to drill 99 Marcellus Shale wells. The reduction is not expected to impact 2012 estimated production of approximately 160 Bcf. Less drilling in 2012, however, coupled with the postponement of some pad development spending for the 2013 drilling program is causing the company to reduce its 2013 production guidance to 190 - 210 Bcfe, which would be 10 Bcfe lower than the earlier projection. CONSOL's 2015 goal of 350 Bcfe, however, remains unchanged because the drilling schedule in the out years has enough flexibility in it to accommodate a slightly reduced production goal in 2013. In coal, CONSOL Energy has determined that some efficiency projects will be postponed, resulting in a reduction in coal capital spending of approximately $44 million. The company will continue to monitor its level of investment with macro and industry-specific events during 2012. 2011 Fourth Quarter Discussion Reported net income for the quarter was $196 million, or $0.85per diluted share. This included (after-tax) net income of $33 million, or $0.15per diluted share from the closing of the Hess transaction on October 21. Total company sales revenue was nearly $1.4 billion. This was the highest ever achieved for CONSOL in a fourth quarter. As has been the case throughout 2011, most of the increase came from higher average realized prices across all three coal segments. The company's low-vol, high-vol and thermal coal categories had realized prices of $191, $78, and $59per short ton, FOB mine, respectively. Coal margins, across all of the company's sales, were $17.95per ton, an increase of $1.18per ton from the year-earlier quarter. Expanding coal margins drove an increase in EBITDA(1) and cash flow from operations. EBITDA in the quarter ended December 31, 2011was $440 million. Cash flow from operations was $275 millionwhile capital expenditures were $385 millionfor the December 2011quarter. For the third consecutive quarter, CONSOL's coal division has generated more cash from its met business than from its thermal business. This demonstrates the company's significant presence in the growing metallurgical markets. While the gas division reported net income of $43.0 millionfor the fourth quarter, this includes a $33 million(after-tax) gain from the Hess transaction. Excluding the transaction, net income was higher than the year-earlier quarter because lower prices were more than offset by higher volumes. The company is encouraged that within the overall cost structure, the (fully-loaded) costs associated with its Marcellus Shale operations were $2.74per Mcf, an improvement of $0.51versus the $3.25per Mcf reported in the 2011 third quarter. (1) The term "EBITDA" is a non-GAAP financial measure, which is defined and reconciled to the GAAP net income below, under the caption "Non-GAAP Financial Measures."
Sales and production include CONSOL Energy's portion from equity affiliates. Operating costs include items such as labor, supplies, power, preparation costs, project expenses, subsidence costs, gas well plugging costs, charges for employee benefits (including Combined Fund premiums), royalties, and production and property taxes. Non-operating charges include items such as charges for long-term liabilities, direct administration, selling and general administration. Sales times Average Margin Per Ton, before DD&A is meant to approximate the amount of cash generated for the low-vol, high-vol, and thermal coal categories. This cash generation will be offset by maintenance of production (MOP) capital expenditures. N/A means not applicable; there is no inventory in the High-Vol segment. During 2011, the operating costs per ton were up less than 5% after adjusting for the effects of higher realizations, the placing in service of a new water treatment plant, and a production shift towards higher cost mines. The DD&A rate was up 20%, reflecting continued investment in safe and efficient mines, as well as a full year of depreciation from the water treatment plant. Provisions and G&A increased by 22%, reflecting the effect of a lower discount rate, various long-term liabilities assumption changes, and increased support staffing. The company added more staff to prepare for growth, which we will be scaling back in this weaker environment. Overall costs per ton in 2011 were $52.22, versus $46.55in 2010, for an increase of $5.67, or 12%. Coal production in the quarter consisted of 1.4 million tons of low-vol, 1.2 million tons of high-vol, and 12.7 million tons of thermal, for a total of 15.3 million tons. During the fourth quarter, total coal inventory increased by 0.1 million tons to 1.8 million tons as of December 31, 2011. Thermal coal inventory was unchanged at 1.6 million tons and Low-vol Buchanan inventory increased by 0.1 million tons, to 0.2 million tons. Coal Marketing Update: Low-Vol: CONSOL achieved a record revenue year at Buchanan in 2011. During the fourth quarter, two cargoes of a new high ash product were sold to China, opening up potentially new markets. Additionally, 302,000 tons were booked for 2012 and 654,000 tons were re-priced. Pricing averaged over $180per ton, FOB mine. Buchanan is 70% sold for 2012. High-Vol: Development continues on the Bailey high-vol product as it is now being used in coking blends on four continents. The coal is being tested for additional use at locations around the world. CONSOL expects 2012 high-vol sales volumes to grow beyond the 4.8 million tons shipped in 2011. Thermal: U.S. Thermal: CONSOL's thermal coals are nearly sold out for 2012. During the fourth quarter, 7.5 million tons of thermal for 2012 were re-priced at $64.22per ton. This represented an overall price improvement for these coals versus 2011. European Thermal: 2.15 million tons of additional export thermal were committed in the fourth quarter including two multi-year deals, 352,000 tons of which will be delivered in 2012. The balance will ship in future periods. Pricing (FOB mine) was favorable compared to the domestic market. For 2012, CONSOL Energy expects to export 9 - 11 million tons, across all sales categories. Gas Division Results: CONSOL Energy released detailed information on its gas operations in a release dated January 17, 2012. The table below is a quarterly comparison of key metrics for the Gas Division:
Coalbed Methane (CBM): Total production was 23.8 Bcf, an increase of 1% from the 23.6 Bcf produced in the year-earlier quarter. Marcellus Shale: Total production was 7.2 Bcf (net to CONSOL), an increase of 118% from the 3.3 Bcf produced in the year-earlier quarter. The increase is attributable to increased drilling and longer laterals. Production would have been 13.8 Bcf in the quarter, had the Noble Energy JV not been consummated. Conventional: Total production was 8.2 Bcf, a decrease of 6% from the 8.7 Bcf produced in the year-earlier quarter. The company has been shifting rigs and capital toward higher potential return Marcellus and Uticadrilling prospects. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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