NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 1—BASIS OF PRESENTATION:
The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and
nine
months ended
September 30, 2018
are not necessarily indicative of the results that may be expected for future periods.
The Consolidated Balance Sheet at
December 31, 2017
has been derived from the Audited Consolidated Financial Statements at that date but does not include all the notes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Consolidated Financial Statements and related notes for the year ended
December 31, 2017
included in CNX Resources Corporation's ("CNX," "CNX Resources," the "Company," "we," "us," or "our") Annual Report on Form 10-K as filed with the Securities and Exchange Commission (SEC) on February 7, 2018.
Certain amounts in prior periods have been reclassified to conform to the current period presentation. On November 28, 2017, the Company spun-off the coal operations previously held by CNX, which were comprised of the Pennsylvania Mining Complex, Baltimore Marine Terminal, its direct and indirect ownership interest in CONSOL Coal Resources LP, formerly known as CNXC Coal Resources LP, and other related coal assets. The financial position, results of operations and cash flows of the coal operations are reflected as discontinued operations for all periods presented through the date of the spin-off. See Note 5 - Discontinued Operations for further details regarding the spin-off.
The Consolidated Balance Sheet at
September 30, 2018
reflects the full consolidation of CNX Gathering LLC's assets and liabilities as a result of the acquisition by CNX Gas Company LLC "CNX Gas," an indirect wholly owned subsidiary of CNX, of NBL Midstream, LLC's 50% interest in CNX Gathering LLC on January 3, 2018 (See Note 6 - Acquisitions and Dispositions for more information). The purchase accounting remains preliminary as contemplated by Generally Accepted Accounting Principles (GAAP) and, as a result, there may be upon further review future changes to the value, as well as allocation, of the acquired assets and liabilities, associated amortization expense, goodwill and the gain on the previously held equity interest. These changes may be material.
NOTE 2—EARNINGS PER SHARE:
Basic earnings per share are computed by dividing net income attributable to CNX shareholders by the weighted average shares outstanding during the reporting period. Dilutive earnings per share are computed similarly to basic earnings per share, except that the weighted average shares outstanding are increased to include additional shares from stock options, performance stock options, restricted stock units and performance share units, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and performance share options were exercised, that outstanding restricted stock units and performance share units were released, and that the proceeds from such activities were used to acquire shares of common stock at the average market price during the reporting period. CNX Midstream Partners LP's "CNXM" dilutive units did not have a material impact on the Company's earnings per share calculations for the period from January 3, 2018 through
September 30, 2018
.
The table below sets forth the share-based awards that have been excluded from the computation of diluted earnings per share because their effect would be antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Antidilutive Options
|
2,288,274
|
|
|
5,407,465
|
|
|
2,288,274
|
|
|
2,731,362
|
|
Antidilutive Restricted Stock Units
|
—
|
|
|
1,102,180
|
|
|
55,936
|
|
|
183,479
|
|
Antidilutive Performance Share Units
|
157,120
|
|
|
1,793,302
|
|
|
157,120
|
|
|
—
|
|
Antidilutive Performance Stock Options
|
927,268
|
|
|
802,804
|
|
|
927,268
|
|
|
802,804
|
|
|
3,372,662
|
|
|
9,105,751
|
|
|
3,428,598
|
|
|
3,717,645
|
|
The table below sets forth the share-based awards that have been exercised or released:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Options
|
18,546
|
|
|
17,048
|
|
|
245,847
|
|
|
107,510
|
|
Restricted Stock Units
|
184,176
|
|
|
14,776
|
|
|
362,573
|
|
|
349,037
|
|
Performance Share Units
|
192,926
|
|
|
—
|
|
|
550,523
|
|
|
560,936
|
|
|
395,648
|
|
|
31,824
|
|
|
1,158,943
|
|
|
1,017,483
|
|
The computations for basic and dilutive earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Income (Loss) from Continuing Operations
|
$
|
146,756
|
|
|
$
|
(21,796
|
)
|
|
$
|
753,696
|
|
|
$
|
9,005
|
|
Less: Net Income Attributable to Non-Controlling Interest
|
21,727
|
|
|
—
|
|
|
59,090
|
|
|
—
|
|
Net Income (Loss) from Continuing Operations Attributable to CNX Resources Shareholders
|
$
|
125,029
|
|
|
$
|
(21,796
|
)
|
|
$
|
694,606
|
|
|
$
|
9,005
|
|
(Loss) Income from Discontinued Operations
|
—
|
|
|
(4,645
|
)
|
|
—
|
|
|
95,099
|
|
Net Income (Loss) Attributable to CNX Resources Shareholders
|
$
|
125,029
|
|
|
$
|
(26,441
|
)
|
|
$
|
694,606
|
|
|
$
|
104,104
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding
|
210,238,509
|
|
|
230,080,797
|
|
|
216,010,561
|
|
|
229,986,428
|
|
Effect of dilutive shares
|
2,469,573
|
|
|
—
|
|
|
2,288,301
|
|
|
1,473,392
|
|
Weighted-average diluted shares of common stock outstanding
|
212,708,082
|
|
|
230,080,797
|
|
|
218,298,862
|
|
|
231,459,820
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per Share:
|
|
|
|
|
|
|
|
Basic (Continuing Operations)
|
$
|
0.59
|
|
|
$
|
(0.09
|
)
|
|
$
|
3.22
|
|
|
$
|
0.04
|
|
Basic (Discontinued Operations)
|
—
|
|
|
(0.02
|
)
|
|
—
|
|
|
0.41
|
|
Total Basic
|
$
|
0.59
|
|
|
$
|
(0.11
|
)
|
|
$
|
3.22
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
Dilutive (Continuing Operations)
|
$
|
0.59
|
|
|
$
|
(0.09
|
)
|
|
$
|
3.18
|
|
|
$
|
0.04
|
|
Dilutive (Discontinued Operations)
|
—
|
|
|
(0.02
|
)
|
|
—
|
|
|
0.41
|
|
Total Dilutive
|
$
|
0.59
|
|
|
$
|
(0.11
|
)
|
|
$
|
3.18
|
|
|
$
|
0.45
|
|
NOTE 3—CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS:
Changes in Accumulated Other Comprehensive Loss related to pension obligations, net of tax, were as follows:
|
|
|
|
|
|
|
Balance at December 31, 2017
|
$
|
(8,476
|
)
|
Other Comprehensive Income before Reclassifications
|
1,643
|
|
Amounts Reclassified from Accumulated Other Comprehensive Loss, net of tax
|
361
|
|
Current Period Other Comprehensive Income
|
2,004
|
|
Balance at September 30, 2018
|
$
|
(6,472
|
)
|
The following table shows the reclassification of adjustments out of Accumulated Other Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Actuarially Determined Long-Term Liability Adjustments*
|
|
|
|
|
|
|
|
Amortization of Prior Service Costs
|
$
|
(6
|
)
|
|
$
|
(749
|
)
|
|
$
|
(186
|
)
|
|
$
|
(2,247
|
)
|
Recognized Net Actuarial Loss
|
41
|
|
|
6,247
|
|
|
749
|
|
|
18,798
|
|
Total
|
35
|
|
|
5,498
|
|
|
563
|
|
|
16,551
|
|
Less: Tax Benefit
|
13
|
|
|
2,034
|
|
|
202
|
|
|
6,121
|
|
Net of Tax
|
$
|
22
|
|
|
$
|
3,464
|
|
|
$
|
361
|
|
|
$
|
10,430
|
|
*Excludes amounts related to the remeasurement of the actuarially determined pension obligations for the
nine
months ended
September 30, 2018
.
NOTE 4—REVENUE FROM CONTRACTS WITH CUSTOMERS:
On January 1, 2018, the Company adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) using the modified retrospective method, which did not result in any changes to previously reported financial information. The updates related to the new revenue standard were applied only to contracts that were not complete as of January 1, 2018.
Revenue from Contracts with Customers
Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company has elected to exclude all taxes from the measurement of transaction price.
Nature of Performance Obligations
At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promised good or service that is distinct. To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices.
For natural gas, NGLs and oil, and purchased gas revenue, the Company generally considers the delivery of each unit (MMBtu or Bbl) to be a separate performance obligation that is satisfied upon delivery. Payment terms for these contracts typically require payment within
25 days
of the end of the calendar month in which the hydrocarbons are delivered. A significant number of these contracts contain variable consideration because the payment terms refer to market prices at future delivery dates. In these situations, the Company has not identified a standalone selling price because the terms of the variable payments relate specifically to the Company’s efforts to satisfy the performance obligations. A portion of the contracts contain fixed consideration (i.e. fixed price contracts or contracts with a fixed differential to NYMEX or index prices). The fixed consideration is allocated to each performance obligation on a relative standalone selling price basis, which requires judgment from management. For these contracts, the Company generally concludes that the fixed price or fixed differentials in the contracts are representative of the standalone selling price. Revenue associated with natural gas, NGLs and oil as presented on the accompanying Consolidated Statement of Income represent the Company’s share of revenues net of royalties and excluding revenue interests owned by others. When selling natural gas, NGLs and oil on behalf of royalty owners or working interest owners, the Company is acting as an agent and thus reports the revenue on a net basis.
Midstream revenue consists of revenues generated from natural gas gathering activities. The gas gathering services are interruptible in nature and include charges for the volume of gas actually gathered and do not guarantee access to the system. Volumetric based fees are based on actual volumes gathered. The Company generally considers the interruptible gathering of each unit (MMBtu) of natural gas as a separate performance obligation. Payment terms for these contracts typically require payment within
25 days
of the end of the calendar month in which the hydrocarbons are gathered.
Transaction price allocated to remaining performance obligations
Accounting Standards Codification (ASC) 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied. However, the guidance provides certain practical expedients that limit this requirement, including when variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a series.
A significant portion of our natural gas, NGLs and oil and purchased gas revenue is short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
For revenue associated with contract terms greater than one year, a significant portion of the consideration in those contracts is variable in nature and the Company allocates the variable consideration in its contract entirely to each specific performance obligation to which it relates. Therefore, any remaining variable consideration in the transaction price is allocated entirely to wholly unsatisfied performance obligations. As such, the Company has not disclosed the value of unsatisfied performance obligations pursuant to the practical expedient.
For revenue associated with contract terms greater than one year with a fixed price component, the aggregate amount of the transaction price allocated to remaining performance obligations was $
172,177
as of
September 30, 2018
. The Company expects to recognize net revenue of $
52,253
in the next 12 months and $
38,043
over the following 12 months, with the remainder recognized thereafter.
For revenue associated with our midstream contracts, which also have terms greater than one year, we have utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under our midstream contracts, the interruptible gathering of each unit of natural gas represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.
Prior-period performance obligations
We record revenue in the month production is delivered to the purchaser. However, settlement statements for certain natural gas and NGL revenue may not be received for 30 to 90 days after the date production is delivered, and as a result, we are required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. We record the differences between our estimates and the actual amounts received in the month that payment is received from the purchaser. We have existing internal controls for our revenue estimation process and related accruals, and any identified differences between our revenue estimates and actual revenue received historically have not been significant. For each of the
three
and
nine months
ended
September 30, 2018
, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was not material.
Disaggregation of Revenue
The following table is a disaggregation of our revenue by major sources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenue from Contracts with Customers
|
|
|
|
|
|
|
|
Natural Gas Revenue
|
$
|
293,864
|
|
|
$
|
196,285
|
|
|
$
|
930,505
|
|
|
$
|
703,556
|
|
NGLs Revenue
|
46,663
|
|
|
33,220
|
|
|
137,104
|
|
|
94,139
|
|
Condensate Revenue
|
3,426
|
|
|
4,306
|
|
|
14,925
|
|
|
12,495
|
|
Oil Revenue
|
759
|
|
|
631
|
|
|
2,317
|
|
|
2,321
|
|
Total Natural Gas, NGLs and Oil Revenue
|
344,712
|
|
|
234,442
|
|
|
1,084,851
|
|
|
812,511
|
|
|
|
|
|
|
|
|
|
Purchased Gas Revenue
|
10,560
|
|
|
13,384
|
|
|
38,546
|
|
|
32,678
|
|
Midstream Revenue
|
19,946
|
|
|
—
|
|
|
69,684
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other Sources of Revenue and Other Operating Income
|
|
|
|
|
|
|
|
Gain on Commodity Derivative Instruments
|
18,005
|
|
|
19,183
|
|
|
78,752
|
|
|
80,508
|
|
Other Operating Income
|
3,903
|
|
|
20,176
|
|
|
23,146
|
|
|
52,483
|
|
Total Revenue and Other Operating Income
|
$
|
397,126
|
|
|
$
|
287,185
|
|
|
$
|
1,294,979
|
|
|
$
|
978,180
|
|
The disaggregated revenue information corresponds with the Company’s segment reporting.
Contract balances
We invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our contracts with customers do not give rise to contract assets or liabilities under ASC 606. The Company has no contract assets recognized from the costs to obtain or fulfill a contract with a customer.
The opening and closing balances of the Company’s receivables related to contracts with customers were $
156,817
and $
147,724
, respectively. Included in the opening balance are receivables of
$9,353
related to the January 3, 2018 acquisition by CNX Gas of NBL Midstream's interests (see Note 6 - Acquisitions and Dispositions for more information).
NOTE 5—DISCONTINUED OPERATIONS:
On November 28, 2017, CNX announced that it had completed the tax-free spin-off of its coal business resulting in
two
independent, publicly traded companies: (i) a coal company, CONSOL Energy, formerly known as CONSOL Mining Corporation and (ii) CNX, a natural gas exploration and production company. Following the separation, CONSOL Energy and its subsidiaries hold the coal assets previously held by CNX, including its Pennsylvania Mining Complex, Baltimore Marine Terminal, its direct and indirect ownership interest in CONSOL Coal Resources LP, formerly known as CNX Coal Resources LP, and other related coal assets previously held by CNX. As of the close of business on November 28, 2017, CNX's shareholders received one share of CONSOL Energy common stock for every
eight
shares of CNX's common stock held as of November 15, 2017. The coal business has been reclassified to discontinued operations for all periods presented.
The following table details selected financial information for the divested business included within discontinued operations:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
September 30, 2017
|
|
September 30, 2017
|
Coal Revenue
|
$
|
279,245
|
|
|
$
|
899,400
|
|
Other Outside Sales
|
15,065
|
|
|
42,806
|
|
Freight-Outside Coal
|
21,803
|
|
|
51,847
|
|
Miscellaneous Other Income
|
19,365
|
|
|
45,696
|
|
(Loss) Gain on Sale of Assets
|
(513
|
)
|
|
13,024
|
|
Total Revenue and Other Income
|
$
|
334,965
|
|
|
$
|
1,052,773
|
|
Total Costs
|
322,592
|
|
|
928,212
|
|
Income from Operations Before Income Taxes
|
$
|
12,373
|
|
|
$
|
124,561
|
|
Income Tax Expense
|
16,228
|
|
|
18,895
|
|
Less: Net Income Attributable to Noncontrolling Interest
|
790
|
|
|
10,567
|
|
(Loss) Income from Discontinued Operations, net
|
$
|
(4,645
|
)
|
|
$
|
95,099
|
|
There were no remaining major classes of assets or liabilities of discontinued operations at
September 30, 2018
and
December 31, 2017
.
NOTE 6—ACQUISITIONS AND DISPOSITIONS:
On August 31, 2018 CNX closed on the sale of substantially all of its Ohio Utica Joint Venture Assets in the wet gas Utica Shale areas of Belmont, Guernsey, Harrison, and Noble Counties, which included approximately
26,000
net undeveloped acres. The net cash proceeds of
$381,214
are included in Proceeds from Asset Sales on the Consolidated Statements of Cash Flows and the net gain on the transaction of
$130,849
is included in the Gain on Asset Sales on the Consolidated Statements of Income.
On
May 2, 2018 CNX closed on an Asset Exchange Agreement (the “AEA”), with HG Energy II Appalachia, LLC (“HG Energy”), pursuant to which, among other things, (i) HG Energy paid approximately
$7,000
to CNX and assigned to CNX certain undeveloped Marcellus and Utica acreage in Southwest Pennsylvania, and (ii) CNX assigned its interest in certain non-core midstream assets and surface acreage to HG Energy and released certain HG Energy oil and gas acreage from dedication under a gathering agreement that is partially held, indirectly, by CNX.
In connection with the transaction, CNX also agreed to certain transactions with CNXM, including the amendment of the existing gas gathering agreement between CNX and CNX Midstream Partners LP to increase the existing well commitment by an additional
forty
wells. The net gain on the sale was
$286
and is included in the Gain on Asset Sales line of the Consolidated Statements of Income.
As a result of the AEA, CNX determined that the carrying value of a portion of the customer relationship intangible assets that were acquired in connection with the Midstream Acquisition discussed below (see also Note 19 - Goodwill and Other Intangible Assets) exceeded their fair value, and recognized an impairment of approximately
$18,650
, which is included in the Impairment of Other Intangible Assets line of the Consolidated Statements of Income.
On March 30, 2018, CNX Gas completed the sale of substantially all of its shallow oil and gas assets and certain Coalbed Methane (CBM) assets in Pennsylvania and West Virginia for
$89,296
in cash consideration. In connection with the sale, the buyer assumed approximately
$196,514
of asset retirement obligations. The net gain on the sale was
$4,432
and is included in the Gain on Asset Sales line of the Consolidated Statements of Income.
On December 14, 2017, CNX Gas entered into a purchase agreement with Noble, pursuant to which CNX Gas acquired Noble’s
50%
membership interest in CONE Gathering LLC ("CNX Gathering"), for a cash purchase price of
$305,000
and the mutual release of all outstanding claims (the "Midstream Acquisition"). CNX Gathering owns a
100%
membership interest in CONE Midstream GP LLC (the "general partner"), which is the general partner of CONE Midstream Partners LP ("CNXM" or the Partnership), which is a publicly traded master limited partnership formed in May 2014 by CNX Gas and Noble. In conjunction with the Midstream Acquisition, which closed on January 3, 2018, the general partner, the Partnership and CONE Gathering LLC changed their names to CNX Midstream GP LLC, CNX Midstream Partners LP, and CNX Gathering LLC, respectively.
Prior to the Midstream Acquisition, the Company accounted for its
50%
interest in CNX Gathering LLC as an equity method investment as the Company had the ability to exercise significant influence, but not control, over the operating and financial policies of the midstream operations. In conjunction with the Midstream Acquisition, the Company obtained a controlling interest in CNX Gathering LLC and, through CNX Gathering's ownership of the general partner, control over the Partnership. Accordingly,
the Midstream Acquisition has been accounted for as a business combination using the acquisition method of accounting pursuant to ASC Topic 805,
Business Combinations
, or ASC 805. ASC 805 requires that, in circumstances where a business combination is achieved in stages (or step acquisition), previously held equity interests are remeasured at fair value and any difference between the fair value and the carrying value of the equity interest held be recognized as a gain or loss on the statement of income.
The fair value assigned to the previously held equity interest in CNX Gathering and CNXM for purposes of calculating the gain or loss was
$799,033
and was determined using the income approach, based on a discounted cash flow methodology. The resulting gain on remeasurement to fair value of the previously held equity interest in CNX Gathering and CNXM of
$623,663
is included in the Gain on Previously Held Equity Interest line of the Consolidated Statements of Income.
The fair values of the previously held equity interests were based on inputs that are not observable in the market and therefore represent Level 3 inputs (See Note 14 - Fair Value of Financial Instruments). These fair values were measured using valuation techniques that convert future cash flows into a single discounted amount. Significant inputs to the valuation included estimates of: (i) gathering volumes; (ii) future operating costs; and (iii) a market-based weighted average cost of capital. These inputs required significant judgments and estimates by management, are still under review, and are subject to change. These inputs have a significant impact on the valuation of the previously held equity interests and future changes may occur.
The estimated fair value of midstream facilities and equipment, generally consisting of pipeline systems and compression stations, were estimated using the cost approach. Significant unobservable inputs in the estimate of fair value include management's assumptions about the replacement costs for similar assets, the relative age of the acquired assets and any potential economic or functional obsolescence associated with the acquired assets. As a result, the estimated fair value of the midstream facilities and equipment represents a Level 3 fair value measurement.
As part of the preliminary purchase price allocation, the Company identified intangible assets for customer relationships with third party customers. The fair value of the identified intangible assets was determined using the income approach, which requires a forecast of the expected future cash flows generated and an estimated market-based weighted average cost of capital. Significant unobservable inputs in the determination of fair value include future revenue estimates, future cost assumptions, and estimated customer retention rates. As a result, the estimated fair value of the identified intangible assets represents a Level 3 fair value measurement. Differences between the preliminary purchase price allocation and the final purchase price allocation may change the amount of intangible assets and goodwill ultimately recognized in conjunction with the Midstream Acquisition.
The noncontrolling interest in the acquired business is comprised of the limited partner units in CNXM, which were not acquired by the Company. The CNXM limited partner units are actively traded on the New York Stock Exchange, and were valued based on observable market prices as of the transaction date and therefore represent a Level 1 fair value measurement.
Allocation of Purchase Price (Midstream Acquisition)
The following table summarizes the purchase price and estimated values of assets and liabilities assumed based on the fair value as of January 3, 2018, with any excess of the purchase price over the estimated fair value of the identified net assets acquired recorded as goodwill. The preliminary purchase price allocation will be subject to further refinement, which may result in material changes.
Estimated Fair Value of Consideration Transferred:
|
|
|
|
|
Cash Consideration
|
$
|
305,000
|
|
CNX Gathering Cash on Hand at January 3, 2018 Distributed to Noble
|
2,620
|
|
Fair Value of Previously Held Equity Interest
|
799,033
|
|
Total Estimated Fair Value of Consideration Transferred
|
$
|
1,106,653
|
|
The following is a summary of the preliminary estimated fair values of the net assets acquired:
|
|
|
|
|
Fair Value of Assets Acquired:
|
|
Cash and Cash Equivalents
|
$
|
8,348
|
|
Accounts and Notes Receivable
|
21,199
|
|
Prepaid Expense
|
2,006
|
|
Other Current Assets
|
163
|
|
Property, Plant and Equipment, Net
|
1,043,340
|
|
Intangible Assets
|
128,781
|
|
Other
|
593
|
|
Total Assets Acquired
|
1,204,430
|
|
|
|
Fair Value of Liabilities Assumed:
|
|
Accounts Payable
|
26,059
|
|
CNXM Revolving Credit Facility
|
149,500
|
|
Total Liabilities Assumed
|
175,559
|
|
|
|
Total Identifiable Net Assets
|
1,028,871
|
|
Fair Value of Noncontrolling Interest in CNXM
|
(718,577
|
)
|
Goodwill
|
796,359
|
|
Net Assets Acquired
|
$
|
1,106,653
|
|
Post-Acquisition Operating Results
(Midstream Acquisition)
The Midstream Acquisition contributed the following to the Company's Midstream segment for the three and nine months ended September 30, 2018.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30, 2018
|
|
September 30, 2018
|
Midstream Revenue
|
$
|
61,372
|
|
|
$
|
186,875
|
|
Earnings from Continuing Operations Before Income Tax
|
$
|
31,173
|
|
|
$
|
94,502
|
|
Unaudited Pro Forma Information
(Midstream Acquisition)
The following table presents unaudited pro forma combined financial information for the three and nine months ended September 30, 2017, which presents the Company’s results as though the Midstream Acquisition had been completed at January 1, 2017. The pro forma combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the acquisition been completed at January 1, 2017; furthermore, the financial information is not intended to be a projection of future results.
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
(in thousands, except per share data) (unaudited)
|
Three Months Ended September 30, 2017
|
|
Nine Months Ended September 30, 2017
|
Pro Forma Total Revenue and Other Operating Income
|
$
|
311,272
|
|
|
$
|
1,051,683
|
|
Pro Forma Net Income from Continuing Operations
|
$
|
11,240
|
|
|
$
|
104,219
|
|
Less: Pro Forma Net income Attributable to Noncontrolling Interests
|
$
|
18,670
|
|
|
$
|
56,804
|
|
Pro Forma Net Income(Loss) from Continuing Operations Attributable to CNX
|
$
|
(7,430
|
)
|
|
$
|
47,415
|
|
Pro Forma Income(Loss) per Share from Continuing Operations (Basic)
|
$
|
(0.03
|
)
|
|
$
|
0.21
|
|
Pro Forma Income(Loss) per Share from Continuing Operations (Diluted)
|
$
|
(0.04
|
)
|
|
$
|
0.20
|
|
In September 2017, CNX Resources closed on the sale of approximately
22,000
acres of surface land in Colorado. CNX Resources received net cash proceeds of
$23,703
which is included in the cash flows from investing activities. The net gain on the sale was
$18,758
and was included in the Gain on Sale of Assets in the Consolidated Statements of Income.
In a two part closing in July and September 2017, CNX executed the sale of approximately
7,500
net undeveloped acres of the Marcellus Shale in Allegheny and Westmoreland Counties, Pennsylvania. The Company received total cash proceeds of
$36,649
, which was included in the cash flows from investing activities. The net gain on the sale of these assets was
$15,251
and was included in the Gain on Sale of Assets in the Consolidated Statements of Income.
In June 2017, CNX closed on the sale of approximately
11,100
net undeveloped acres of the Marcellus and Utica Shale in Allegheny, Washington, and Westmoreland Counties, Pennsylvania. The Company received total cash proceeds of
$83,500
, which was included in cash flows from investing activities. The net gain on the sale of these assets was
$58,541
and was included in the Gain on Sale of Assets in the Consolidated Statements of Income.
In June 2017, the Company finalized the sale of
12
producing wells,
15
drilled but uncompleted wells (DUCs), and approximately
11,000
net developed and undeveloped Marcellus and Utica acres in Doddridge and Wetzel Counties in West Virginia that were previously classified as Held for Sale. CNX Resources received total cash proceeds of
$129,651
, which was included in cash flows from investing activities. The net loss on the sale was
$8,591
and was included in the Gain on Sale of Assets in the Consolidated Statements of Income.
In May 2017, CNX finalized the sale of approximately
6,300
net undeveloped acres of the Utica-Point Pleasant Shale in Jefferson, Belmont, and Guernsey Counties, Ohio that were previously classified as Held for Sale. The Company received total cash proceeds of
$76,585
, which was included in cash flows from investing activities. The net gain on the sale of these assets was
$72,346
and was included in the Gain on Sale of Assets in the Consolidated Statements of Income.
In April 2017, CNX finalized the sale of its Knox Energy LLC and Coalfield Pipeline Company subsidiaries that were previously classified as Held for Sale. At closing, CNX received net cash proceeds of
$18,944
, which was included in cash flows from investing activities. Due to various post closing adjustments, the net gain on the sale of these assets was
$606
and was included in the Gain on Sale of Assets in the Consolidated Statements of Income.
NOTE 7—COMPONENTS OF PENSION PLAN NET PERIODIC BENEFIT COST:
Components of Net Periodic Benefit Cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Service Cost
|
$
|
54
|
|
|
$
|
96
|
|
|
$
|
247
|
|
|
$
|
289
|
|
Interest Cost
|
333
|
|
|
308
|
|
|
932
|
|
|
927
|
|
Amortization of Prior Service Credits
|
(6
|
)
|
|
(93
|
)
|
|
(187
|
)
|
|
(279
|
)
|
Recognized Net Actuarial Loss
|
59
|
|
|
390
|
|
|
806
|
|
|
1,176
|
|
Curtailment Gain
|
—
|
|
|
—
|
|
|
(416
|
)
|
|
—
|
|
Net Periodic Benefit Cost
|
$
|
440
|
|
|
$
|
701
|
|
|
$
|
1,382
|
|
|
$
|
2,113
|
|
The benefits for the Defined Contribution Restoration Plan were frozen effective July 1, 2018. Employees hired after this date are not eligible for this benefit plan. In addition, current participants receive no further compensation credits after that date, with the last award year being 2017. Annual interest credits will continue to be made in accordance with the terms of the plan. This freezing of the plan triggered a curtailment gain of
$416
. The curtailment resulted in a plan remeasurement, decreasing the plan liabilities by
$2,235
at June 30, 2018.
NOTE 8—INCOME TAXES:
The effective tax rates for the
three
and
nine
months ended
September 30, 2018
were
27.9%
and
24.1%
, respectively. The effective tax rate for the
nine
months ended
September 30, 2018
differs from the U.S. federal statutory rate of 21% primarily due to increases for state taxes and state valuation allowances, offset by the benefits from the filing of a Federal
10
-year net operating loss (“NOL”) carryback as well as non-controlling interest.
The effective tax rates for the three and nine months ended
September 30, 2017
were
(93.5)%
and
70%
, respectively. The effective rate for the nine months ended
September 30, 2017
differs from the U.S. federal statutory rate of 35% primarily due to state income taxes and equity compensation.
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the "Act") which, among other things, lowered the U.S. Federal corporate income tax rate from 35% to 21%, repealed the corporate alternative minimum tax ("AMT"), and provided for a refund of previously accrued AMT credits. The Company recorded a net tax benefit to reflect the impact of the Act as of December 31, 2017, as it is required to reflect the change in the period in which the law is enacted. Largely, the benefits recorded in the period ending December 31, 2017 related to the Act are in recognition of the revaluation of deferred tax assets and liabilities, a benefit of
$115,291
, and a benefit for the reversal of a valuation allowance previously recorded against a deferred tax asset for AMT credits which are now refundable, a benefit of
$154,384
.
The net benefits for the Act, recorded as of
September 30, 2018
represent the Company's best estimate using information available to the Company as of
September 30, 2018
. The Company anticipates U.S. regulatory agencies will potentially issue further regulations prior to year-end which may alter this estimate. The IRS issued rules during the quarter pertaining to the application of limitations for executive compensation related to contracts existing prior to November 2, 2017, and provisions in the Act addressing the deductibility of interest expense after January 1, 2018. During the three and nine months ended
September 30, 2018
, no adjustments were recorded to the provisional amounts recognized in 2017. The Company will refine its estimates to incorporate new or better information as it comes available. During the second quarter of 2018, the company filed a Federal NOL carryback resulting in a financial statement benefit of $
20,000
through the realization of the Federal NOLs at a 35% tax rate as a carryback versus the current 21% tax rate as a carryforward.
The total amount of uncertain tax positions at
September 30, 2018
and
December 31, 2017
were
$39,953
and
$37,813
, respectively. If these uncertain tax positions were recognized, approximately
$31,516
and
$29,376
would affect CNX's effective tax rate at
September 30, 2018
and
December 31, 2017
, respectively. There was a
$2,140
change to the unrecognized tax benefits during the nine months ended
September 30, 2018
.
CNX recognizes accrued interest related to uncertain tax positions in interest expense. As of
September 30, 2018
and
December 31, 2017
, the Company reported an accrued interest liability relating to uncertain tax positions of
$897
and
$644
, respectively, in Other Liabilities on the Consolidated Balance Sheets. The accrued interest liability includes
$252
of accrued interest expense that is reflected in the Company's Consolidated Statements of Income for the
nine
months ended
September 30, 2018
.
CNX recognizes penalties accrued related to uncertain tax positions in its income tax expense. As of
September 30, 2018
and
December 31, 2017
, CNX had no accrued liabilities for tax penalties related to uncertain tax positions.
CNX and its subsidiaries file federal income tax returns with the United States and income tax returns within various states. With few exceptions, the Company is no longer subject to United States federal, state, local, or non-U.S. income tax examinations by tax authorities for tax years before 2014. The Joint Committee on Taxation concluded its review of the audit of tax year 2015 on March 21, 2018. The audit resulted in a
$108,651
reduction to CNX's net operating loss, primarily due to a reduction in the depreciation as an offset to the bonus depreciation taken in the 2010-2013 IRS audit. There was no cash impact from the audit.
NOTE 9—PROPERTY, PLANT AND EQUIPMENT:
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
Property, Plant and Equipment
|
|
|
|
Intangible drilling cost
|
$
|
3,980,330
|
|
|
$
|
3,849,689
|
|
Proved gas properties
|
939,815
|
|
|
1,999,891
|
|
Gas gathering equipment
|
2,080,909
|
|
|
1,182,234
|
|
Unproved gas properties
|
1,105,813
|
|
|
919,733
|
|
Gas wells and related equipment
|
789,333
|
|
|
834,120
|
|
Surface land and other equipment
|
308,397
|
|
|
309,602
|
|
Other gas assets
|
72,203
|
|
|
221,226
|
|
Total Property, Plant and Equipment
|
9,276,800
|
|
|
9,316,495
|
|
Less: Accumulated Depreciation, Depletion and Amortization
|
2,508,188
|
|
|
3,526,742
|
|
Total Property, Plant and Equipment - Net
|
$
|
6,768,612
|
|
|
$
|
5,789,753
|
|
Property, Plant and Equipment Impairment
In February 2017, the Company approved a plan to sell subsidiaries Knox Energy LLC and Coalfield Pipeline Company (collectively, "Knox"). Knox met all of the criteria to be classified as held for sale in February 2017. The potential disposal of Knox did not represent a strategic shift that would have a major effect on the Company's operations and financial results and was, therefore, not classified as discontinued operations in accordance with ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360). As part of the required evaluation under the held for sale guidance, the asset's book value was evaluated and adjusted to the lower of its carrying amount or fair value less cost to sell. The Company determined that the approximate fair value less costs to sell Knox was less than the carrying value of the net assets which resulted in an impairment of
$137,865
in February 2017, included in Impairment of Exploration and Production Properties within the Consolidated Statements of Income. The sale of Knox closed in the second quarter of 2017.
NOTE 10—REVOLVING CREDIT FACILITIES:
CNX Resources Corporation (CNX)
On March 8, 2018, CNX amended and restated its senior secured revolving credit facility, which expires on March 8, 2023.
The CNX credit facility increased lenders' commitments from $
1,500,000
to $
2,100,000
with an accordion feature that allows the Company to increase the commitments to $
3,000,000
. The initial borrowing base increased from $
2,000,000
to $
2,500,000
, and the letters of credit aggregate sub-limit remained unchanged at $
650,000
. Effective August 20,2018, as part of the semi-annual redetermination, the borrowing base was reduced to $
2,100,000
primarily based on the sale of substantially all of CNX's Ohio Utica Joint Venture Assets and shallow oil and gas assets (See Note 6 - Acquisitions and Dispositions for additional information). The credit facility matures on March 8, 2023, provided that if the aggregate principal amount of our existing
5.875%
Senior Notes due 2022 and certain other publicly traded debt securities outstanding
91 days
prior to the earliest maturity of such debt (such date, the "Springing Maturity Date") is greater than $
500,000
, then the credit facility will mature on the Springing Maturity Date.
The CNX credit facility is secured by substantially all of the assets of CNX and certain of its subsidiaries. Fees and interest rate spreads are based on the percentage of facility utilization, measured quarterly. Availability under the facility is limited to a borrowing base, which is determined by the lenders' syndication agent and approved by the required number of lenders in good faith by calculating a value of CNX's proved natural gas reserves.
The CNX credit facility contains a number of affirmative and negative covenants that include, among others, covenants that, except in certain circumstances, limit the Company and the subsidiary guarantors' ability to create, incur, assume or suffer to exist indebtedness, create or permit to exist liens on properties, dispose of assets, make investments, purchase or redeem CNX common stock, pay dividends, merge with another corporation and amend the senior unsecured notes. The Company must also mortgage
80%
of the value of its proved reserves and
80%
of the value of its proved developed producing reserves, in each case, which are included in the borrowing base, maintain applicable deposit, securities and commodities accounts with the lenders or affiliates thereof, and enter into control agreements with respect to such applicable accounts.
The CNX credit facility also requires that CNX maintain a maximum net leverage ratio of no greater than
4.00
to 1.00, which is calculated as the ratio of debt less cash on hand to consolidated EBITDA, measured quarterly. CNX must also maintain a
minimum current ratio of no less than
1.00
to 1.00, which is calculated as the ratio of current assets, plus revolver availability, to current liabilities, excluding borrowings under the revolver, measured quarterly. The calculation of all of the ratios exclude CNXM. CNX was in compliance with all financial covenants as of
September 30, 2018
.
At
September 30, 2018
, the CNX credit facility had $
439,000
of borrowings outstanding and $
251,342
of letters of credit outstanding, leaving $
1,409,658
of unused capacity. At
December 31, 2017
, the facility had
no
borrowings outstanding and $
239,072
of letters of credit outstanding, leaving $
1,260,928
of unused capacity.
CNX Midstream Partners LP (CNXM)
On March 8, 2018, CNXM entered into a new
$600,000
senior secured revolving credit facility that matures on March 8, 2023. The CNXM credit facility replaced its prior
$250,000
senior secured revolving credit facility.
The CNXM credit facility includes restrictions on the ability of CNXM, its subsidiary guarantors and certain of its non-guarantor, non-wholly-owned subsidiaries, except in certain circumstances, to: (i) create, incur, assume or suffer to exist indebtedness; (ii) create or permit to exist liens on their properties; (iii) prepay certain indebtedness unless there is no default or event of default under the facility; (iv) make or pay any dividends or distributions in excess of certain amounts; (v) merge with or into another person, liquidate or dissolve; or acquire all or substantially all of the assets of any going concern or going line of business or acquire all or a substantial portion of another person’s assets; (vi) make particular investments and loans; (vii) sell, transfer, convey, assign or dispose of its assets or properties other than in the ordinary course of business and other select instances; (viii) deal with any affiliate except in the ordinary course of business on terms no less favorable to CNXM than it would otherwise receive in an arm’s length transaction; (ix) amend in any material manner its certificate of incorporation, bylaws, or other organizational documents without giving prior notice to the lenders and, in some cases, obtaining the consent of the lenders.
In addition, CNXM is obligated to maintain at the end of each fiscal quarter (x) a maximum total leverage ratio of no greater than between
4.75
to
1.00
ranging to no greater than
5.50
to
1.00
in certain circumstances; (y) a maximum secured leverage ratio of no greater than
3.50
to
1.00
and (z) a minimum interest coverage ratio of no less than
2.50
to
1.00
. CNXM was in compliance with all financial covenants as of
September 30, 2018
.
The CNXM credit facility also contains customary events of default, including, but not limited to, a cross-default to certain other debt, breaches of representations and warranties, change of control events and breaches of covenants. The obligations under the facility are secured by substantially all of the assets of CNXM and its wholly-owned subsidiaries. CNX is not a guarantor under the facility.
At
September 30, 2018
, the CNXM credit facility had
$44,000
of borrowings outstanding.
NOTE 11—LONG-TERM DEBT:
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
Debt:
|
|
|
|
Senior Notes due April 2022 at 5.875% (Principal of $1,314,307 and $1,705,682
plus Unamortized Premium of $2,258 and $3,544, respectively)
|
$
|
1,316,565
|
|
|
$
|
1,709,226
|
|
CNX Revolving Credit Facility
|
439,000
|
|
|
—
|
|
CNX Midstream Partners LP Senior Notes due March 2026 at 6.50% (Principal of $400,000 less Unamortized Discount of $5,562 at September 30, 2018)
|
394,438
|
|
|
—
|
|
CNX Midstream Partners LP Revolving Credit Facility
|
44,000
|
|
|
—
|
|
Senior Notes due April 2023 at 8.00% (Principal of $500,000 less Unamortized Discount of $4,751 at December 31, 2017)
|
—
|
|
|
495,249
|
|
Other Note Maturing in 2018 (Principal of $358 less Unamortized Discount of $8 at December 31, 2017)
|
—
|
|
|
350
|
|
Less: Unamortized Debt Issuance Costs
|
9,522
|
|
|
17,536
|
|
|
2,184,481
|
|
|
2,187,289
|
|
Less: Amounts Due in One Year*
|
—
|
|
|
263
|
|
Long-Term Debt
|
$
|
2,184,481
|
|
|
$
|
2,187,026
|
|
* Excludes current portion of Capital Lease Obligations of
$6,958
and $
6,848
at
September 30, 2018
and
December 31, 2017
, respectively.
During the
nine months
ended
September 30, 2018
, CNXM completed a private offering of $
400,000
of
6.50%
senior notes
due in March 2026 less $
6,000
of unamortized bond discount. CNX is not a guarantor of CNXM's
6.50%
senior notes due in March 2026 or CNXM's senior secured revolving credit facility.
During the
nine months
ended
September 30, 2018
, CNX purchased $
391,375
of its outstanding
5.875% senior notes due April 2022
. As part of this transaction, a loss of $
15,635
was included in Loss on Debt Extinguishment on the Consolidated Statements of Income.
During the
three
and
nine months
ended
September 30, 2018
, CNX purchased $
200,000
and $
500,000
, respectively, of its outstanding
8.00% senior notes due in April 2023
. As part of these transactions, a loss of $
15,385
and $
38,798
, respectively, was included in Loss on Debt Extinguishment on the Consolidated Statements of Income.
During the
nine months
ended
September 30, 2017
, CNX purchased
$119,025
of its outstanding
5.875% senior notes due in April 2022
. As part of this transaction, a gain of $
786
was included in Loss on Debt Extinguishment on the Consolidated Statements of Income.
During the
three
and
nine months
ended
September 30, 2017
, CNX called the remaining
$74,470
balance on its
8.25% senior notes due in April 2020
and the remaining
$20,611
balance on its
6.375% senior notes due in March 2021
. As part of these transactions, a loss of $
2,019
was included in Loss on Debt Extinguishment on the Consolidated Statements of Income.
NOTE 12—COMMITMENTS AND CONTINGENT LIABILITIES:
CNX and its subsidiaries are subject to various lawsuits and claims with respect to such matters as personal injury, royalty accounting, damage to property, exposure to hazardous substances, governmental regulations including environmental remediation, employment and contract disputes and other claims and actions arising out of the normal course of business. CNX accrues the estimated loss for these lawsuits and claims when the loss is probable and can be estimated. The Company's current estimated accruals related to these pending claims, individually and in the aggregate, are immaterial to the financial position, results of operations or cash flows of CNX. It is possible that the aggregate loss in the future with respect to these lawsuits and claims could ultimately be material to the financial position, results of operations or cash flows of CNX; however, such amounts cannot be reasonably estimated.
At
September 30, 2018
, CNX has provided the following financial guarantees, unconditional purchase obligations, operating lease obligations and letters of credit to certain third parties as described by major category in the following tables. These amounts represent the maximum potential of total future payments that the Company could be required to make under these instruments. These amounts have not been reduced for potential recoveries under recourse or collateralization provisions. Generally, recoveries under reclamation bonds would be limited to the extent of the work performed at the time of the default. No amounts related to these unconditional purchase obligations and letters of credit are recorded as liabilities in the financial statements. CNX management believes that these commitments will expire without being funded, and therefore will not have a material adverse effect on financial condition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration Per Period
|
|
Total
Amounts
Committed
|
|
Less Than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
Beyond
5 Years
|
Letters of Credit:
|
|
|
|
|
|
|
|
|
|
Firm Transportation
|
$
|
251,057
|
|
|
$
|
69,538
|
|
|
$
|
181,519
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other
|
285
|
|
|
265
|
|
|
20
|
|
|
—
|
|
|
—
|
|
Total Letters of Credit
|
251,342
|
|
|
69,803
|
|
|
181,539
|
|
|
—
|
|
|
—
|
|
Surety Bonds:
|
|
|
|
|
|
|
|
|
|
Employee-Related
|
1,850
|
|
|
1,500
|
|
|
350
|
|
|
—
|
|
|
—
|
|
Environmental
|
11,136
|
|
|
11,021
|
|
|
115
|
|
|
—
|
|
|
—
|
|
Other
|
12,396
|
|
|
11,523
|
|
|
873
|
|
|
—
|
|
|
—
|
|
Total Surety Bonds
|
25,382
|
|
|
24,044
|
|
|
1,338
|
|
|
—
|
|
|
—
|
|
Total Commitments
|
$
|
276,724
|
|
|
$
|
93,847
|
|
|
$
|
182,877
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Excluded from the above table are commitments and guarantees that relate to discontinued operations, entered into in conjunction with the spin-off of the Company's coal business (See Note 5 - Discontinued Operations). Although CONSOL Energy has agreed to indemnify us to the extent that we are called upon to pay any of these liabilities, there is no assurance that CONSOL Energy will satisfy its obligations to indemnify us in these situations.
CNX uses various leased facilities and equipment in its operations. Future minimum lease payments under operating leases at
September 30, 2018
are as follows:
|
|
|
|
|
Operating Lease Obligations Due
|
Amount
|
Less than 1 year
|
$
|
13,643
|
|
1 - 3 years
|
17,693
|
|
3 - 5 years
|
10,748
|
|
More than 5 years
|
37,676
|
|
Total Operating Lease Obligations
|
$
|
79,760
|
|
CNX enters into long-term unconditional purchase obligations to procure major equipment purchases, natural gas firm transportation, gas drilling services and other operating goods and services. These purchase obligations are not recorded on the Consolidated Balance Sheets. As of
September 30, 2018
, the purchase obligations for each of the next five years and beyond were as follows:
|
|
|
|
|
Obligations Due
|
Amount
|
Less than 1 year
|
$
|
263,068
|
|
1 - 3 years
|
515,251
|
|
3 - 5 years
|
397,821
|
|
More than 5 years
|
1,080,415
|
|
Total Purchase Obligations
|
$
|
2,256,555
|
|
NOTE 13—DERIVATIVE INSTRUMENTS:
CNX enters into financial derivative instruments to manage its exposure to commodity price volatility. These natural gas and NGL commodity hedges are accounted for on a mark-to-market basis with changes in fair value recorded in current period earnings.
CNX is exposed to credit risk in the event of non-performance by counterparties. The creditworthiness of counterparties is subject to continuing review. The Company has not experienced any issues of non-performance by derivative counterparties.
None of the Company's counterparty master agreements currently require CNX to post collateral for any of its positions. However, as stated in the counterparty master agreements, if CNX's obligations with one of its counterparties cease to be secured on the same basis as similar obligations with the other lenders under the credit facility, CNX would have to post collateral for instruments in a liability position in excess of defined thresholds. All of the Company's derivative instruments are subject to master netting arrangements with our counterparties. CNX recognizes all financial derivative instruments as either assets or liabilities at fair value on the Consolidated Balance Sheets on a gross basis.
Each of the Company's counterparty master agreements allows, in the event of default, the ability to elect early termination of outstanding contracts. If early termination is elected, CNX and the applicable counterparty would net settle all open hedge positions.
The total notional amounts of production of CNX's derivative instruments at
September 30, 2018
and
December 31, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
Forecasted to
|
|
2018
|
|
2017
|
|
Settle Through
|
Natural Gas Commodity Swaps (Bcf)
|
1,096.1
|
|
|
1,067.2
|
|
|
2023
|
Natural Gas Basis Swaps (Bcf)
|
781.8
|
|
|
688.1
|
|
|
2023
|
The gross fair value of CNX's derivative instruments at
September 30, 2018
and
December 31, 2017
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivative Instruments
|
|
Liability Derivative Instruments
|
|
September 30,
|
|
December 31,
|
|
|
September 30,
|
|
December 31,
|
|
2018
|
|
2017
|
|
|
2018
|
|
2017
|
Commodity Swaps:
|
|
|
|
|
|
|
|
|
Prepaid Expense
|
$
|
34,985
|
|
|
$
|
62,369
|
|
|
Other Accrued Liabilities
|
$
|
26,371
|
|
|
$
|
5,985
|
|
Other Assets
|
153,279
|
|
|
59,281
|
|
|
Other Liabilities
|
11,648
|
|
|
42,419
|
|
Total Asset
|
$
|
188,264
|
|
|
$
|
121,650
|
|
|
Total Liability
|
$
|
38,019
|
|
|
$
|
48,404
|
|
|
|
|
|
|
|
|
|
|
Basis Only Swaps:
|
|
|
|
|
|
|
|
|
Prepaid Expense
|
$
|
10,085
|
|
|
$
|
14,965
|
|
|
Other Accrued Liabilities
|
$
|
26,293
|
|
|
$
|
35,306
|
|
Other Assets
|
29,099
|
|
|
24,223
|
|
|
Other Liabilities
|
26,952
|
|
|
17,179
|
|
Total Asset
|
$
|
39,184
|
|
|
$
|
39,188
|
|
|
Total Liability
|
$
|
53,245
|
|
|
$
|
52,485
|
|
The effect of derivative instruments on the Company's Consolidated Statements of Income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Cash Received (Paid) in Settlement of Commodity Derivative Instruments:
|
|
|
|
|
|
|
|
Commodity Swaps:
|
|
|
|
|
|
|
|
Natural Gas
|
$
|
6,916
|
|
|
$
|
(312
|
)
|
|
$
|
23,540
|
|
|
$
|
(40,428
|
)
|
Propane
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,216
|
)
|
Natural Gas Basis Swaps
|
(4,091
|
)
|
|
17,983
|
|
|
(21,022
|
)
|
|
(20,073
|
)
|
Total Cash Received (Paid) in Settlement of Commodity Derivative Instruments
|
2,825
|
|
|
17,671
|
|
|
2,518
|
|
|
(61,717
|
)
|
|
|
|
|
|
|
|
|
Unrealized Gain (Loss) on Commodity Derivative Instruments:
|
|
|
|
|
|
|
|
Commodity Swaps:
|
|
|
|
|
|
|
|
Natural Gas
|
27,749
|
|
|
(18,789
|
)
|
|
76,999
|
|
|
214,097
|
|
Propane
|
—
|
|
|
—
|
|
|
—
|
|
|
1,147
|
|
Natural Gas Basis Swaps
|
(12,569
|
)
|
|
20,301
|
|
|
(765
|
)
|
|
(73,019
|
)
|
Total Unrealized Gain on Commodity Derivative Instruments
|
15,180
|
|
|
1,512
|
|
|
76,234
|
|
|
142,225
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on Commodity Derivative Instruments:
|
|
|
|
|
|
|
|
Commodity Swaps:
|
|
|
|
|
|
|
|
Natural Gas
|
34,665
|
|
|
(19,101
|
)
|
|
100,539
|
|
|
173,669
|
|
Propane
|
—
|
|
|
—
|
|
|
—
|
|
|
(69
|
)
|
Natural Gas Basis Swaps
|
(16,660
|
)
|
|
38,284
|
|
|
(21,787
|
)
|
|
(93,092
|
)
|
Total Gain on Commodity Derivative Instruments
|
$
|
18,005
|
|
|
$
|
19,183
|
|
|
$
|
78,752
|
|
|
$
|
80,508
|
|
The Company also enters into fixed price natural gas sales agreements that are satisfied by physical delivery. These physical commodity contracts qualify for the normal purchases and sales exception and are not subject to derivative instrument accounting.
NOTE 14—FAIR VALUE OF FINANCIAL INSTRUMENTS:
CNX determines the fair value of assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. The fair value hierarchy is based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources (including NYMEX forward curves, LIBOR-based discount rates and basis forward curves), while unobservable inputs reflect the Company's own assumptions of what market participants would use.
The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below:
Level One - Quoted prices for identical instruments in active markets.
Level Two - The fair value of the assets and liabilities included in Level 2 are based on standard industry income approach models that use significant observable inputs, including NYMEX forward curves, LIBOR-based discount rates and basis forward curves.
Level Three - Unobservable inputs significant to the fair value measurement supported by little or no market activity.
In those cases when the inputs used to measure fair value meet the definition of more than one level of the fair value hierarchy, the lowest level input that is significant to the fair value measurement in its totality determines the applicable level in the fair value hierarchy.
The financial instruments measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2018
|
|
Fair Value Measurements at December 31, 2017
|
Description
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Gas Derivatives
|
$
|
—
|
|
|
$
|
136,184
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59,949
|
|
|
$
|
—
|
|
Put Option
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3,500
|
)
|
|
$
|
—
|
|
The following methods and assumptions were used to estimate the fair value for which the fair value option was not elected:
Cash and cash equivalents:
The carrying amount reported in the Consolidated Balance Sheets for cash and cash equivalents approximates its fair value due to the short-term maturity of these instruments.
Long-term debt:
The fair value of long-term debt is measured using unadjusted quoted market prices or estimated using discounted cash flow analyses. The discounted cash flow analyses are based on current market rates for instruments with similar cash flows.
The carrying amounts and fair values of financial instruments for which the fair value option was not elected are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Cash and Cash Equivalents
|
$
|
42,672
|
|
|
$
|
42,672
|
|
|
$
|
509,167
|
|
|
$
|
509,167
|
|
Long-Term Debt
|
$
|
2,194,003
|
|
|
$
|
2,169,446
|
|
|
$
|
2,204,825
|
|
|
$
|
2,281,282
|
|
Cash and cash equivalents represent highly- liquid instruments and constitute Level 1 fair value measurements. Certain of the Company’s debt is actively traded on a public market and, as a result, constitute Level 1 fair value measurements. The portion of the Company’s debt obligations that is not actively traded is valued through reference to the applicable underlying benchmark rate and, as a result, constitute Level 2 fair value measurements.
NOTE 15—VARIABLE INTEREST ENTITIES:
The Company determined CNXM, of which the company owns an approximately
34%
limited partner interest, to be a variable interest entity. Upon completion of the Midstream Acquisition (see Note 6 - Acquisitions and Dispositions), the Company has the power through the Company's ownership and control of CNXM's general partner (CNX Midstream GP LLC) to direct the activities that most significantly impact CNXM's economic performance. In addition, through its limited partner interest and incentive distribution rights, or IDRs, in CNXM, the Company has the obligation to absorb the losses of CNXM and the right to receive benefits in accordance with such interests. As the Company has a controlling financial interest and is the primary beneficiary of CNXM, the Company consolidates CNXM commencing January 3, 2018.
The risks associated with the operations of CNXM are discussed in its Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 7, 2018.
The following table presents amounts included in the Company's Consolidated Balance Sheet that were for the use or obligation of CNXM as of
September 30, 2018
:
|
|
|
|
|
|
September 30, 2018
|
Assets:
|
|
Cash
|
$
|
950
|
|
Receivables - Related Party
|
15,053
|
|
Receivables - Third Party
|
7,185
|
|
Other Current Assets
|
2,623
|
|
Property, Plant and Equipment, net
|
848,836
|
|
Other Assets
|
3,404
|
|
Total Assets
|
$
|
878,051
|
|
Liabilities:
|
|
Accounts Payable
|
$
|
53,391
|
|
Accounts Payable - Related Party
|
4,427
|
|
Revolving Credit Facility
|
44,000
|
|
Long-Term Debt
|
392,978
|
|
Total Liabilities
|
$
|
494,796
|
|
The following table summarizes CNXM's Consolidated Statements of Operations and Cash Flows for the
three
and nine months ended
September 30, 2018
, inclusive of affiliate amounts:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
September 30, 2018
|
|
September 30, 2018
|
Revenue
|
|
|
|
Gathering Revenue - Related Party
|
$
|
41,022
|
|
|
$
|
116,328
|
|
Gathering Revenue - Third Party
|
19,946
|
|
|
69,523
|
|
Total Revenue
|
60,968
|
|
|
185,851
|
|
Expenses
|
|
|
|
Operating Expense - Related Party
|
5,131
|
|
|
14,645
|
|
Operating Expense - Third Party
|
4,870
|
|
|
20,744
|
|
General and Administrative Expense - Related Party
|
3,060
|
|
|
10,292
|
|
General and Administrative Expense - Third Party
|
1,771
|
|
|
6,639
|
|
Loss on Asset Sales
|
—
|
|
|
2,501
|
|
Depreciation Expense
|
5,306
|
|
|
16,605
|
|
Interest Expense
|
7,255
|
|
|
16,863
|
|
Total Expense
|
27,393
|
|
|
88,289
|
|
Net Income
|
$
|
33,575
|
|
|
$
|
97,562
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
$
|
35,666
|
|
|
$
|
131,207
|
|
Net Cash Used in Investing Activities
|
$
|
(44,241
|
)
|
|
$
|
(79,366
|
)
|
Net Cash Provided by (Used in) Financing Activities
|
$
|
8,818
|
|
|
$
|
(54,085
|
)
|
In March 2018, CNXM closed on its acquisition of CNX's remaining
95%
interest in the gathering system and related assets commonly referred to as the Shirley-Penns System, in exchange for cash consideration in the amount of
$265,000
. CNXM funded the cash consideration with proceeds from the issuance of its
6.5%
senior notes due 2026 (See Note 11 - Long-Term Debt).
Prior to the acquisition of Noble's interest on January 3, 2018, CNX accounted for its interests in CNX Gathering and CNXM as an equity-method investment.
The following is a summary of the Company's Investment in Affiliates balances included within the Consolidated Balance Sheets associated with CNX Gathering and CNXM, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CNX Gathering
|
|
CNXM
|
|
Total
|
Balance at December 31, 2016
|
$
|
151,075
|
|
|
$
|
18,133
|
|
|
$
|
169,208
|
|
Equity in Earnings
|
9,823
|
|
|
38,523
|
|
|
48,346
|
|
Distributions
|
(17,254
|
)
|
|
(24,929
|
)
|
|
(42,183
|
)
|
Asset Transfer
|
(2,527
|
)
|
|
2,527
|
|
|
—
|
|
Balance at December 31, 2017
|
$
|
141,117
|
|
|
$
|
34,254
|
|
|
$
|
175,371
|
|
The following transactions were included in Other Operating Income and Transportation, Gathering and Compression within the Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
September 30, 2017
|
|
September 30, 2017
|
Other Operating Income:
|
|
|
|
Equity in Earnings of Affiliates - CNX Gathering
|
$
|
2,350
|
|
|
$
|
4,500
|
|
Equity in Earnings of Affiliates - CNXM
|
$
|
9,685
|
|
|
$
|
29,469
|
|
|
|
|
|
Transportation, Gathering and Compression:
|
|
|
|
Gathering Services - CNX Gathering
|
$
|
217
|
|
|
$
|
702
|
|
Gathering Services - CNXM
|
$
|
32,639
|
|
|
$
|
98,388
|
|
At September 30, 2018 and
December 31, 2017
, CNX had a net payable of $
10,473
and $
9,982
respectively due to CNX Gathering and CNXM, primarily for accrued but unpaid gathering services.
NOTE 16—SEGMENT INFORMATION:
CNX consists of
two
principal business divisions: Exploration and Production (E&P) and Midstream. The principal activity of the E&P Division, which includes
four
reportable segments, is to produce pipeline quality natural gas for sale primarily to gas wholesalers. The E&P Division's reportable segments are Marcellus Shale, Utica Shale, Coalbed Methane, and Other Gas. The Other Gas Segment is primarily related to shallow oil and gas production which is not significant to the Company. It also includes the Company's purchased gas activities, unrealized gain or loss on commodity derivative instruments, exploration and production related other costs, impairment of other intangible assets, as well as various other operating activities assigned to the E&P Division but not allocated to each individual segment.
CNX's Midstream Division is the result of CNX's acquisition of Noble's Midstream, LLC's interest in CNX Gathering (See Note 6 - Acquisitions and Dispositions). As part of the acquisition, CNX now has a controlling financial interest and is the primary beneficiary of CNXM, through its approximately
34%
ownership of the outstanding limited partner interests (See Note 15 - Variable Interest Entities for more information). The principal activity of the Midstream Division is the ownership, operation, development and acquisition of natural gas gathering and other midstream energy assets, of CNX Gathering and CNXM, which provide natural gas gathering services for the Company's produced gas, as well as for other independent third parties in the Marcellus Shale and Utica Shale in Pennsylvania and West Virginia. Excluded from the Midstream Division are the gathering assets and operations of CNX that have not been contributed to CNX Gathering and CNXM. Prior to the acquisition, the Company accounted for its
50%
interest in CNX Gathering LLC as an equity method investment.
The Company's unallocated expenses include other expense, gain on asset sales related to non-core assets, gain on previously held equity interest, loss on debt extinguishment, impairment of other intangible assets and income taxes.
In the preparation of the following information, intersegment sales have been recorded at amounts approximating market prices. Operating profit for each segment is based on sales less identifiable operating and non-operating expenses. Assets are reflected at the division level for E&P and are not allocated between each individual E&P segment. These assets are not allocated to each individual segment due to the diverse asset base controlled by CNX, whereby each individual asset may service more than one segment within the division. An allocation of such asset base would not be meaningful or representative on a segment by segment basis.
Industry segment results for the
three months
ended
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed Methane
|
|
Other
Gas
|
|
Total
E&P
|
|
Midstream
|
|
Unallocated
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
207,407
|
|
|
$
|
88,039
|
|
|
$
|
48,471
|
|
|
$
|
795
|
|
|
$
|
344,712
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
344,712
|
|
(A)
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
10,560
|
|
|
10,560
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,560
|
|
|
Midstream Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
61,372
|
|
|
—
|
|
|
(41,426
|
)
|
|
19,946
|
|
|
Gain (Loss) on Commodity Derivative Instruments
|
1,796
|
|
|
(151
|
)
|
|
605
|
|
|
15,755
|
|
|
18,005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,005
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
3,969
|
|
|
3,969
|
|
|
—
|
|
|
—
|
|
|
(66
|
)
|
|
3,903
|
|
(B)
|
Total Revenue and Other Operating Income
|
$
|
209,203
|
|
|
$
|
87,888
|
|
|
$
|
49,076
|
|
|
$
|
31,079
|
|
|
$
|
377,246
|
|
|
$
|
61,372
|
|
|
$
|
—
|
|
|
$
|
(41,492
|
)
|
|
$
|
397,126
|
|
|
Earnings (Loss) From Continuing Operations Before Income Tax
|
$
|
64,408
|
|
|
$
|
41,237
|
|
|
$
|
9,642
|
|
|
$
|
(60,856
|
)
|
|
$
|
54,431
|
|
|
$
|
31,173
|
|
|
$
|
117,830
|
|
|
$
|
—
|
|
|
$
|
203,434
|
|
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,256,132
|
|
|
$
|
1,883,134
|
|
|
$
|
82,696
|
|
|
$
|
(12,926
|
)
|
|
$
|
8,209,036
|
|
(C)
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
111,844
|
|
|
$
|
7,741
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
119,585
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
253,263
|
|
|
$
|
44,202
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
297,465
|
|
|
|
|
(A)
|
Included in Total Natural Gas, NGLs and Oil Revenue are sales of
$42,901
to NJR Energy Services Company, which comprises over 10% of sales.
|
|
|
(B)
|
Includes equity in earnings of unconsolidated affiliates of
$1,241
for Total E&P.
|
|
|
(C)
|
Includes investments in unconsolidated equity affiliates of
$19,488
for Total E&P.
|
Industry segment results for the
three months
ended
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed Methane
|
|
Other
Gas
|
|
Total
E&P
|
|
Unallocated
|
|
Consolidated
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
133,792
|
|
|
$
|
43,375
|
|
|
$
|
46,744
|
|
|
$
|
10,531
|
|
|
$
|
234,442
|
|
|
$
|
—
|
|
|
$
|
234,442
|
|
(D)
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
13,384
|
|
|
13,384
|
|
|
—
|
|
|
13,384
|
|
|
Gain on Commodity Derivative Instruments
|
11,299
|
|
|
2,517
|
|
|
3,093
|
|
|
2,274
|
|
|
19,183
|
|
|
—
|
|
|
19,183
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
20,176
|
|
|
20,176
|
|
|
—
|
|
|
20,176
|
|
|
Total Revenue and Other Operating Income
|
$
|
145,091
|
|
|
$
|
45,892
|
|
|
$
|
49,837
|
|
|
$
|
46,365
|
|
|
$
|
287,185
|
|
|
$
|
—
|
|
|
$
|
287,185
|
|
|
Earnings (Loss) From Continuing Operations Before Income Tax
|
$
|
12,124
|
|
|
$
|
7,341
|
|
|
$
|
5,454
|
|
|
$
|
(71,655
|
)
|
|
$
|
(46,736
|
)
|
|
$
|
35,470
|
|
|
$
|
(11,266
|
)
|
(E)
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,191,981
|
|
|
$
|
2,787,587
|
|
|
$
|
8,979,568
|
|
(F)
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
102,012
|
|
|
$
|
—
|
|
|
$
|
102,012
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
149,500
|
|
|
$
|
—
|
|
|
$
|
149,500
|
|
|
|
|
(D)
|
Included in Total Natural Gas, NGLs and Oil Revenue are sales of
$34,660
to Direct Energy Business Marketing LLC, which comprises over 10% of sales.
|
|
|
(E)
|
Includes equity in earnings of unconsolidated affiliates of
$12,425
for Total E&P.
|
|
|
(F)
|
Includes investments in unconsolidated equity affiliates of
$190,154
for Total E&P.
|
Industry segment results for the
nine months
ended
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed Methane
|
|
Other
Gas
|
|
Total
E&P
|
|
Midstream
|
|
Unallocated
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
590,728
|
|
|
$
|
326,119
|
|
|
$
|
152,854
|
|
|
$
|
15,150
|
|
|
$
|
1,084,851
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,084,851
|
|
(A)
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
|
|
38,546
|
|
|
38,546
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38,546
|
|
|
Midstream Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
186,875
|
|
|
—
|
|
|
(117,191
|
)
|
|
69,684
|
|
|
Gain on Commodity Derivative Instruments
|
1,411
|
|
|
746
|
|
|
330
|
|
|
76,265
|
|
|
78,752
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
78,752
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
23,355
|
|
|
23,355
|
|
|
—
|
|
|
—
|
|
|
(209
|
)
|
|
23,146
|
|
(B)
|
Total Revenue and Other Operating Income
|
$
|
592,139
|
|
|
$
|
326,865
|
|
|
$
|
153,184
|
|
|
$
|
153,316
|
|
|
$
|
1,225,504
|
|
|
$
|
186,875
|
|
|
$
|
—
|
|
|
$
|
(117,400
|
)
|
|
$
|
1,294,979
|
|
|
Earnings (Loss) From Continuing Operations Before Income Tax
|
$
|
155,923
|
|
|
$
|
143,830
|
|
|
$
|
35,164
|
|
|
$
|
(138,551
|
)
|
|
$
|
196,366
|
|
|
$
|
94,502
|
|
|
$
|
702,097
|
|
|
$
|
—
|
|
|
$
|
992,965
|
|
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,256,132
|
|
|
$
|
1,883,134
|
|
|
$
|
82,696
|
|
|
$
|
(12,926
|
)
|
|
$
|
8,209,036
|
|
(C)
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
338,834
|
|
|
$
|
24,504
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
363,338
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
708,660
|
|
|
$
|
85,464
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
794,124
|
|
|
|
|
(A)
|
Included in Total Natural Gas, NGLs and Oil Revenue are sales of
$158,746
to NJR Energy Services Company, which comprises over 10% of sales.
|
|
|
(B)
|
Includes equity in earnings of unconsolidated affiliates of
$4,688
for Total E&P
|
|
|
(C)
|
Includes investments in unconsolidated equity affiliates of
$19,488
for Total E&P.
|
Industry segment results for the
nine months
ended
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed Methane
|
|
Other
Gas
|
|
Total
E&P
|
|
Unallocated
|
|
Consolidated
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
477,391
|
|
|
$
|
136,493
|
|
|
$
|
157,344
|
|
|
$
|
41,283
|
|
|
$
|
812,511
|
|
|
$
|
—
|
|
|
$
|
812,511
|
|
(D)
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
32,678
|
|
|
32,678
|
|
|
—
|
|
|
32,678
|
|
|
(Loss) Gain on Commodity Derivative Instruments
|
(42,911
|
)
|
|
(2,234
|
)
|
|
(12,894
|
)
|
|
138,547
|
|
|
80,508
|
|
|
—
|
|
|
80,508
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
52,483
|
|
|
52,483
|
|
|
—
|
|
|
52,483
|
|
|
Total Revenue and Other Operating Income
|
$
|
434,480
|
|
|
$
|
134,259
|
|
|
$
|
144,450
|
|
|
$
|
264,991
|
|
|
$
|
978,180
|
|
|
$
|
—
|
|
|
$
|
978,180
|
|
|
Earnings (Loss) From Continuing Operations Before Income Tax
|
$
|
58,504
|
|
|
$
|
34,211
|
|
|
$
|
9,026
|
|
|
$
|
(236,953
|
)
|
|
$
|
(135,212
|
)
|
|
$
|
165,283
|
|
|
$
|
30,071
|
|
(E)
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,191,981
|
|
|
$
|
2,787,587
|
|
|
$
|
8,979,568
|
|
(F)
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
289,329
|
|
|
$
|
—
|
|
|
$
|
289,329
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
399,462
|
|
|
$
|
—
|
|
|
$
|
399,462
|
|
|
|
|
(D)
|
Included in Total Natural Gas, NGLs and Oil Revenue are sales of
$121,300
to Direct Energy Business Marketing LLC and
$110,548
to NJR Energy Services Company, each of which comprises over 10% of sales.
|
|
|
(E)
|
Includes equity in earnings of unconsolidated affiliates of
$34,810
for Total E&P.
|
|
|
(F)
|
Includes investments in unconsolidated equity affiliates of
$190,154
for Total E&P.
|
Reconciliation of Segment Information to Consolidated Amounts:
Revenue and Other Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Total Segment Revenue from Contracts with External Customers
|
$
|
375,218
|
|
|
$
|
247,826
|
|
|
$
|
1,193,081
|
|
|
$
|
845,189
|
|
Gain on Commodity Derivative Instruments
|
18,005
|
|
|
19,183
|
|
|
78,752
|
|
|
80,508
|
|
Other Operating Income
|
3,903
|
|
|
20,176
|
|
|
23,146
|
|
|
52,483
|
|
Total Consolidated Revenue and Other Operating Income
|
$
|
397,126
|
|
|
$
|
287,185
|
|
|
$
|
1,294,979
|
|
|
$
|
978,180
|
|
Income from Continuing Operations Before Income Tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Segment Income (Loss) Before Income Taxes for reportable business segments:
|
|
|
|
|
|
|
|
Total E&P
|
$
|
54,431
|
|
|
$
|
(46,736
|
)
|
|
$
|
196,366
|
|
|
$
|
(135,212
|
)
|
Midstream
|
31,173
|
|
|
—
|
|
|
94,502
|
|
|
—
|
|
Total Segment Income (Loss) Before Income Taxes for reportable business segments
|
85,604
|
|
|
(46,736
|
)
|
|
290,868
|
|
|
(135,212
|
)
|
Unallocated Expenses:
|
|
|
|
|
|
|
|
Other (Expense) Income
|
(1,105
|
)
|
|
(8,254
|
)
|
|
4,811
|
|
|
(17,803
|
)
|
Gain on Certain Asset Sales
|
134,320
|
|
|
45,743
|
|
|
146,706
|
|
|
184,319
|
|
Gain on Previously Held Equity Interest
|
—
|
|
|
—
|
|
|
623,663
|
|
|
—
|
|
Loss on Debt Extinguishment
|
(15,385
|
)
|
|
(2,019
|
)
|
|
(54,433
|
)
|
|
(1,233
|
)
|
Impairment of Other Intangible Assets
|
—
|
|
|
—
|
|
|
(18,650
|
)
|
|
—
|
|
Income (Loss) From Continuing Operations Before Income Tax
|
$
|
203,434
|
|
|
$
|
(11,266
|
)
|
|
$
|
992,965
|
|
|
$
|
30,071
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
|
September 30,
|
2018
|
|
2017
|
Segment assets for total reportable business segments
|
|
|
|
E&P
|
$
|
6,256,132
|
|
|
$
|
6,191,981
|
|
Midstream
|
1,883,134
|
|
|
—
|
|
Intercompany Eliminations
|
(12,926
|
)
|
|
—
|
|
Items excluded from segment assets:
|
|
|
|
Cash and Cash Equivalents
|
42,672
|
|
|
281,148
|
|
Recoverable Income Taxes
|
40,024
|
|
|
101,501
|
|
Discontinued Operations
|
—
|
|
|
2,404,938
|
|
Total Consolidated Assets
|
$
|
8,209,036
|
|
|
$
|
8,979,568
|
|
NOTE 17—RELATED PARTY TRANSACTIONS:
CONSOL Energy Inc.
In connection with the spin-off of its coal business, as discussed in Note 5 - Discontinued Operations, CNX and CONSOL Energy entered into several agreements that govern the relationship of the parties following the Distribution, including the following:
•
Separation and Distribution Agreement;
•
Transition Services Agreement;
•
Tax Matters Agreement;
•
Employee Matters Agreement;
•
Intellectual Property Matters Agreement;
•
CNX Resources Corporation to CONSOL Energy Inc. Trademark License Agreement;
•
CONSOL Energy Inc. to CNX Resources Corporation Trademark License Agreement; and
•
First Amendment to Amended and Restated Omnibus Agreement ("Omnibus Amendment").
As of
September 30, 2018
and
December 31, 2017
, CNX had a receivable from CONSOL Energy of
$473
and
$12,540
, respectively, recorded in Total Current Assets on the Consolidated Balance Sheets. At
September 30, 2018
, CNX also had recorded obligations to CONSOL Energy of
$11,570
, of which
$5,282
was included in Total Current Liabilities and
$6,288
was included in Total Deferred Credits and Other Liabilities on the Consolidated Balance Sheets. At
December 31, 2017
, CNX had recorded obligations to CONSOL Energy of
$15,415
, of which
$4,500
was included in Total Current Liabilities and
$10,915
was included in Total Deferred Credits and Other Liabilities on the Consolidated Balance Sheets. These items relate to reimbursement of the one-time transaction costs as well as other reimbursements per the terms of the Separation and Distribution Agreement.
For the periods prior to the spin-off of the coal business, all significant intercompany transactions between CNX and CONSOL Energy have been included in the Consolidated Financial Statements and are considered to have been effectively settled for cash at the time the transaction was recorded. In the Consolidated Statement of Stockholders' Equity, the distribution of CONSOL Energy Inc. is the net of the variety of intercompany transactions including, but not limited to, collection of trade receivables, payment of trade payables and accrued liabilities, settlement of charges for allocated selling, general and administrative costs and payment of taxes by CNX on CONSOL Energy's behalf.
NOTE 18—STOCK REPURCHASE:
In September 2017, CNX's Board of Directors approved a one-year stock repurchase program of up to
$200,000
. On October 30, 2017, the Board approved an increase to the aggregate amount of the repurchase plan to
$450,000
. On July 30, 2018, the Board approved the extension of the stock repurchase program through December 31, 2018. On October 26, 2018, the company's Board of Directors approved an additional $
300,000
share repurchase authorization, which is not subject to an expiration date. The repurchases may be affected from time-to-time through open market purchases, privately negotiated transactions, Rule 10b5-1 plans, accelerated stock repurchases, block trades, derivative contracts or otherwise in compliance with Rule 10b-18. The timing of any repurchases will be based on a number of factors, including available liquidity, the Company's stock price, the Company's financial outlook, and alternative investment options. The stock repurchase program does not obligate the Company to repurchase any dollar amount or number of shares and the Board may modify, suspend, or discontinue its authorization of the program at any time. The Board of Directors will continue to evaluate the size of the stock repurchase program based on CNX's free cash flow position, leverage ratio, and capital plans. During the
nine months
ended
September 30, 2018
,
19,399,032
shares were repurchased and retired at an average price of $
15.28
per share for a total cost of
$296,734
NOTE 19—GOODWILL AND OTHER INTANGIBLE ASSETS:
Goodwill is not amortized, but is evaluated for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of its carrying value. The Company may first consider qualitative factors to assess whether there are indicators that it is more likely than not that the fair value of a reporting unit may not exceed its carrying amount. To the extent that such indicators exist, a goodwill impairment test is completed. If the carrying value of the goodwill of a reporting unit exceeds its implied fair value, the difference is recognized as an impairment charge. The Company uses a combination of an income and market approach to estimate the fair value of a reporting unit.
As a result of the Midstream Acquisition, CNX recorded
$796,359
of goodwill and
$128,781
of other intangible assets in conjunction with the preliminary purchase accounting. In May 2018 the Company recognized an impairment on this intangible asset of
$18,650
in connection with the AEA with HG Energy (See Note 6 - Acquisitions and Dispositions for more information).
All goodwill is attributed to the Midstream reportable segment. Changes in the carrying amount of goodwill consist of the following activity:
|
|
|
|
|
December 31, 2017
|
$
|
—
|
|
Acquisitions
|
796,359
|
|
September 30, 2018
|
$
|
796,359
|
|
The carrying amount and accumulated amortization of other intangible assets consist of the following:
|
|
|
|
|
|
September 30, 2018
|
Other Intangible Assets
|
|
Customer Relationships
|
$
|
128,781
|
|
Less: Impairment of Other Intangible Assets
|
(18,650
|
)
|
Less: Accumulated Amortization for Customer Relationships
|
(5,293
|
)
|
Total Other Intangible Assets, net
|
$
|
104,838
|
|
Amortization expense for other intangible assets was
$1,638
and
$5,293
for the three and nine months ended September 30, 2018 respectively. There was
no
amortization expense for the three and nine months ended September 30, 2017.
The customer relationships intangible asset category will be amortized on a straight-line basis over approximately
17
years. The estimated future annual amortization expense for the next five fiscal years for other intangible assets recorded at September 30, 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
Estimated Annual Amortization Expense
|
$
|
6,552
|
|
|
$
|
6,552
|
|
|
$
|
6,552
|
|
|
$
|
6,552
|
|
|
$
|
6,552
|
|
NOTE 20—RECENT ACCOUNTING PRONOUNCEMENTS:
In August 2018, the FASB issued Update 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This Update removes the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and adds a requirement to disclose an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. For public business entities, the amendments in this Update are effective for fiscal years ending after December 15, 2020, and early adoption is permitted. Entities should apply these amendments retrospectively. The adoption of this guidance is not expected to have a material impact on the Company's financial statements.
In August 2018, the FASB issued Update 2018-13 - Fair Value Measurement (Topic 820), which modifies the disclosure requirements in Topic 820. This Update removes the following disclosure requirements: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. The Update also makes the following additions: the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This Update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. Entities should apply the additions prospectively and all other amendments should be applied retrospectively. The adoption of this guidance is not expected to have a material impact on the Company's financial statements.
In July 2018, the FASB issued Update 2018-09 - Codification Improvements, which affects a wide variety of Topics in the ASC. The amendments in this Update represent changes to clarify, correct errors, or make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice. The amendments make the ASC easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments in this Update are effective at different times ranging from issuance of this Update to annual periods beginning after December 15, 2018 for public business entities, with varying transition guidance.
In February 2018, the FASB issued Update 2018-02 - Income Statement - Reporting Comprehensive Income (Topic 220), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. This Update also requires certain disclosures about stranded tax effects. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the amendments should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The adoption of this guidance is not expected to have a material impact on the Company's financial statements.
In January 2017, the FASB issued Update 2017-04 - Simplifying the Test of Goodwill Impairment. This Update simplifies the quantitative goodwill impairment test requirements by eliminating the requirement to calculate the implied fair value of goodwill (Step 2 of the current goodwill impairment test). Instead a company would record an impairment charge based on the excess of a reporting unit's carrying value over its fair value (measured in Step 1 of the current goodwill impairment test). This Update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. Entities will apply the standard's provisions prospectively. The Company adopted Update 2017-04 on January 1, 2018 and determined that this standard will not have a material quantitative effect on the financial statements, unless an impairment charge is necessary.
In February 2016, the FASB issued Update 2016-02 - Leases (Topic 842), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Update 2016-02 does retain a distinction between finance leases and operating leases, which is substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. Retaining this distinction allows the recognition, measurement and presentation of expenses and cash flows arising from a lease to not significantly change from previous GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities, but to recognize lease expense on a straight-line basis over the lease term. For both financing and operating leases, the right-to-use asset and lease liability will be initially measured at the present value of the lease payments in the statement of financial position. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. However, in July 2018, the FASB issued Update 2018-11 which provides entities with the option to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. CNX has finalized a project plan, performed an initial assessment of all agreements covered under the standard and have begun implementing changes to our information systems and internal controls. CNX is still assessing the impact to the Consolidated Financial Statements as well as planning for adoption and implementation of this standard, which includes applying practical expedients provided in the standards update that allow, among other things, for contracts that commenced prior to the adoption to not be reassessed. We also anticipate to elect a policy not to recognize right of use assets and lease liabilities related to short-term leases.