|
|
|
|
ITEM 1.
|
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
CNX RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except per share data)
|
Three Months Ended
|
|
Six Months Ended
|
|
(Unaudited)
|
June 30,
|
|
June 30,
|
|
Revenues and Other Operating Income:
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
342,865
|
|
|
$
|
334,517
|
|
|
$
|
778,811
|
|
|
$
|
740,140
|
|
|
Gain on Commodity Derivative Instruments
|
221,581
|
|
|
25,660
|
|
|
26,205
|
|
|
60,747
|
|
|
Purchased Gas Revenue
|
18,768
|
|
|
9,930
|
|
|
34,989
|
|
|
27,985
|
|
|
Midstream Revenue
|
18,895
|
|
|
23,483
|
|
|
37,338
|
|
|
49,737
|
|
|
Other Operating Income
|
2,923
|
|
|
8,534
|
|
|
6,120
|
|
|
19,244
|
|
|
Total Revenue and Other Operating Income
|
605,032
|
|
|
402,124
|
|
|
883,463
|
|
|
897,853
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
Operating Expense
|
|
|
|
|
|
|
|
|
Lease Operating Expense
|
19,876
|
|
|
25,338
|
|
|
38,504
|
|
|
62,148
|
|
|
Transportation, Gathering and Compression
|
84,614
|
|
|
75,767
|
|
|
164,023
|
|
|
162,028
|
|
|
Production, Ad Valorem, and Other Fees
|
7,030
|
|
|
7,703
|
|
|
13,976
|
|
|
16,936
|
|
|
Depreciation, Depletion and Amortization
|
128,999
|
|
|
119,087
|
|
|
254,159
|
|
|
243,754
|
|
|
Exploration and Production Related Other Costs
|
5,567
|
|
|
3,699
|
|
|
8,825
|
|
|
6,079
|
|
|
Purchased Gas Costs
|
18,772
|
|
|
9,747
|
|
|
34,986
|
|
|
26,801
|
|
|
Impairment of Other Intangible Assets
|
—
|
|
|
18,650
|
|
|
—
|
|
|
18,650
|
|
|
Selling, General, and Administrative Costs
|
48,970
|
|
|
34,909
|
|
|
84,709
|
|
|
66,258
|
|
|
Other Operating Expense
|
17,976
|
|
|
17,786
|
|
|
41,451
|
|
|
33,832
|
|
|
Total Operating Expense
|
331,804
|
|
|
312,686
|
|
|
640,633
|
|
|
636,486
|
|
|
Other Expense (Income)
|
|
|
|
|
|
|
|
|
Other (Income) Expense
|
(99
|
)
|
|
575
|
|
|
(681
|
)
|
|
(5,917
|
)
|
|
(Gain) Loss on Asset Sales and Abandonments
|
(387
|
)
|
|
(3,280
|
)
|
|
2,699
|
|
|
(14,622
|
)
|
|
Gain on Previously Held Equity Interest
|
—
|
|
|
—
|
|
|
—
|
|
|
(623,663
|
)
|
|
Loss on Debt Extinguishment
|
77
|
|
|
23,413
|
|
|
7,614
|
|
|
39,048
|
|
|
Interest Expense
|
40,152
|
|
|
38,438
|
|
|
75,923
|
|
|
76,989
|
|
|
Total Other Expense (Income)
|
39,743
|
|
|
59,146
|
|
|
85,555
|
|
|
(528,165
|
)
|
|
Total Costs and Expenses
|
371,547
|
|
|
371,832
|
|
|
726,188
|
|
|
108,321
|
|
|
Earnings Before Income Tax
|
233,485
|
|
|
30,292
|
|
|
157,275
|
|
|
789,532
|
|
|
Income Tax Expense (Benefit)
|
40,791
|
|
|
(31,102
|
)
|
|
29,231
|
|
|
182,592
|
|
|
Net Income
|
192,694
|
|
|
61,394
|
|
|
128,044
|
|
|
606,940
|
|
|
Less: Net Income Attributable to Noncontrolling Interest
|
30,217
|
|
|
19,380
|
|
|
52,904
|
|
|
37,363
|
|
|
Net Income Attributable to CNX Resources Shareholders
|
$
|
162,477
|
|
|
$
|
42,014
|
|
|
$
|
75,140
|
|
|
$
|
569,577
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Share
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.85
|
|
|
$
|
0.19
|
|
|
$
|
0.39
|
|
|
$
|
2.60
|
|
|
Diluted
|
$
|
0.84
|
|
|
$
|
0.19
|
|
|
$
|
0.38
|
|
|
$
|
2.57
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these financial statements.
CNX RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
(Dollars in thousands)
|
June 30,
|
|
June 30,
|
|
(Unaudited)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net Income
|
$
|
192,694
|
|
|
$
|
61,394
|
|
|
$
|
128,044
|
|
|
$
|
606,940
|
|
|
Other Comprehensive Income:
|
|
|
|
|
|
|
|
|
Actuarially Determined Long-Term Liability Adjustments (Net of tax: ($14), ($687), ($29), ($781))
|
41
|
|
|
1,812
|
|
|
85
|
|
|
1,982
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
192,735
|
|
|
63,206
|
|
|
128,129
|
|
|
608,922
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive Income Attributable to Noncontrolling Interest
|
30,217
|
|
|
19,380
|
|
|
52,904
|
|
|
37,363
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income Attributable to CNX Resources Shareholders
|
$
|
162,518
|
|
|
$
|
43,826
|
|
|
$
|
75,225
|
|
|
$
|
571,559
|
|
The accompanying notes are an integral part of these financial statements.
CNX RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
June 30,
2019
|
|
December 31,
2018
|
|
ASSETS
|
|
|
|
|
Current Assets:
|
|
|
|
|
Cash and Cash Equivalents
|
$
|
32,611
|
|
|
$
|
17,198
|
|
|
Accounts and Notes Receivable:
|
|
|
|
|
Trade
|
125,084
|
|
|
252,424
|
|
|
Other Receivables
|
11,636
|
|
|
11,077
|
|
|
Supplies Inventories
|
11,242
|
|
|
9,715
|
|
|
Recoverable Income Taxes
|
113,592
|
|
|
149,481
|
|
|
Prepaid Expenses
|
165,929
|
|
|
61,791
|
|
|
Total Current Assets
|
460,094
|
|
|
501,686
|
|
|
Property, Plant and Equipment:
|
|
|
|
|
Property, Plant and Equipment
|
10,203,489
|
|
|
9,567,428
|
|
|
Less—Accumulated Depreciation, Depletion and Amortization
|
2,863,627
|
|
|
2,624,984
|
|
|
Total Property, Plant and Equipment—Net
|
7,339,862
|
|
|
6,942,444
|
|
|
Other Assets:
|
|
|
|
|
Operating Lease Right-of-Use Assets
|
224,950
|
|
|
—
|
|
|
Investment in Affiliates
|
17,637
|
|
|
18,663
|
|
|
Goodwill
|
796,359
|
|
|
796,359
|
|
|
Other Intangible Assets
|
99,923
|
|
|
103,200
|
|
|
Other
|
207,872
|
|
|
229,818
|
|
|
Total Other Assets
|
1,346,741
|
|
|
1,148,040
|
|
|
TOTAL ASSETS
|
$
|
9,146,697
|
|
|
$
|
8,592,170
|
|
The accompanying notes are an integral part of these financial statements.
CNX RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share data)
|
June 30,
2019
|
|
December 31,
2018
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
Accounts Payable
|
$
|
305,070
|
|
|
$
|
229,806
|
|
|
Current Portion of Finance Lease Obligations
|
7,133
|
|
|
6,997
|
|
|
Current Portion of Operating Lease Obligations
|
66,209
|
|
|
—
|
|
|
Other Accrued Liabilities
|
244,833
|
|
|
286,172
|
|
|
Total Current Liabilities
|
623,245
|
|
|
522,975
|
|
|
Non-Current Liabilities:
|
|
|
|
|
Long-Term Debt
|
2,618,375
|
|
|
2,378,205
|
|
|
Finance Lease Obligations
|
10,569
|
|
|
13,299
|
|
|
Deferred Income Taxes
|
427,942
|
|
|
398,682
|
|
|
Operating Lease Obligations
|
137,464
|
|
|
—
|
|
|
Asset Retirement Obligations
|
32,951
|
|
|
37,479
|
|
|
Other
|
196,156
|
|
|
159,787
|
|
|
Total Non-Current Liabilities
|
3,423,457
|
|
|
2,987,452
|
|
|
TOTAL LIABILITIES
|
4,046,702
|
|
|
3,510,427
|
|
|
Stockholders’ Equity:
|
|
|
|
|
Common Stock, $.01 Par Value; 500,000,000 Shares Authorized, 187,559,362 Issued and Outstanding at June 30, 2019; 198,663,342 Issued and Outstanding at December 31, 2018
|
1,879
|
|
|
1,990
|
|
|
Capital in Excess of Par Value
|
2,203,969
|
|
|
2,264,063
|
|
|
Preferred Stock, 15,000,000 shares authorized, None issued and outstanding
|
—
|
|
|
—
|
|
|
Retained Earnings
|
2,127,627
|
|
|
2,071,809
|
|
|
Accumulated Other Comprehensive Loss
|
(7,819
|
)
|
|
(7,904
|
)
|
|
Total CNX Resources Stockholders’ Equity
|
4,325,656
|
|
|
4,329,958
|
|
|
Noncontrolling Interest
|
774,339
|
|
|
751,785
|
|
|
TOTAL STOCKHOLDERS' EQUITY
|
5,099,995
|
|
|
5,081,743
|
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
9,146,697
|
|
|
$
|
8,592,170
|
|
The accompanying notes are an integral part of these financial statements.
CNX RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
(Unaudited)
|
June 30,
|
|
June 30,
|
|
Dollars in Thousands
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Total Stockholders’ Equity, Beginning Balance
|
$
|
4,974,809
|
|
|
$
|
5,067,906
|
|
|
$
|
5,081,743
|
|
|
$
|
3,899,899
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock and Capital in Excess of Par Value:
|
|
|
|
|
|
|
|
|
Beginning Balance
|
2,251,475
|
|
|
2,411,665
|
|
|
2,266,053
|
|
|
2,452,564
|
|
|
Issuance of Common Stock
|
62
|
|
|
507
|
|
|
161
|
|
|
1,563
|
|
|
Purchase and Retirement of Common Stock
|
(69,022
|
)
|
|
(42,402
|
)
|
|
(93,990
|
)
|
|
(88,688
|
)
|
|
Amortization of Stock-Based Compensation Awards
|
23,333
|
|
|
5,018
|
|
|
33,624
|
|
|
9,349
|
|
|
Ending Balance
|
2,205,848
|
|
|
2,374,788
|
|
|
2,205,848
|
|
|
2,374,788
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings:
|
|
|
|
|
|
|
|
|
Beginning Balance
|
1,971,898
|
|
|
1,940,882
|
|
|
2,071,809
|
|
|
1,455,811
|
|
|
Net Income
|
162,477
|
|
|
42,014
|
|
|
75,140
|
|
|
569,577
|
|
|
Purchase and Retirement of Common Stock
|
(5,261
|
)
|
|
(42,354
|
)
|
|
(13,790
|
)
|
|
(80,031
|
)
|
|
Shares Withheld for Taxes
|
(1,487
|
)
|
|
(35
|
)
|
|
(5,532
|
)
|
|
(4,850
|
)
|
|
Ending Balance
|
2,127,627
|
|
|
1,940,507
|
|
|
2,127,627
|
|
|
1,940,507
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss:
|
|
|
|
|
|
|
|
|
Beginning Balance
|
(7,860
|
)
|
|
(8,306
|
)
|
|
(7,904
|
)
|
|
(8,476
|
)
|
|
Other Comprehensive Income
|
41
|
|
|
1,812
|
|
|
85
|
|
|
1,982
|
|
|
Ending Balance
|
(7,819
|
)
|
|
(6,494
|
)
|
|
(7,819
|
)
|
|
(6,494
|
)
|
|
|
|
|
|
|
|
|
|
|
Total CNX Resources Corporation Stockholders' Equity
|
4,325,656
|
|
|
4,308,801
|
|
|
4,325,656
|
|
|
4,308,801
|
|
|
|
|
|
|
|
|
|
|
|
Non-Controlling Interest:
|
|
|
|
|
|
|
|
|
Beginning Balance
|
759,296
|
|
|
723,665
|
|
|
751,785
|
|
|
—
|
|
|
Net Income
|
30,217
|
|
|
19,380
|
|
|
52,904
|
|
|
37,363
|
|
|
Shares Withheld for Taxes
|
(25
|
)
|
|
—
|
|
|
(690
|
)
|
|
(347
|
)
|
|
Amortization of Stock-Based Compensation Awards
|
540
|
|
|
691
|
|
|
1,152
|
|
|
1,269
|
|
|
Distributions to CNXM Noncontrolling Interest Holders
|
(15,689
|
)
|
|
(13,614
|
)
|
|
(30,812
|
)
|
|
(26,740
|
)
|
|
Acquisition of CNX Gathering, LLC
|
—
|
|
|
—
|
|
|
—
|
|
|
718,577
|
|
|
Ending Balance
|
774,339
|
|
|
730,122
|
|
|
774,339
|
|
|
730,122
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity, Ending Balance
|
$
|
5,099,995
|
|
|
$
|
5,038,923
|
|
|
$
|
5,099,995
|
|
|
$
|
5,038,923
|
|
The accompanying notes are an integral part of these financial statements.
CNX RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
Six Months Ended
|
|
Dollars in Thousands
|
June 30,
|
|
Cash Flows from Operating Activities:
|
2019
|
|
2018
|
|
Net Income
|
$
|
128,044
|
|
|
$
|
606,940
|
|
|
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
|
|
|
|
|
Depreciation, Depletion and Amortization
|
254,159
|
|
|
243,754
|
|
|
Amortization of Deferred Financing Costs
|
4,408
|
|
|
4,821
|
|
|
Impairment of Other Intangible Assets
|
—
|
|
|
18,650
|
|
|
Stock-Based Compensation
|
34,776
|
|
|
10,618
|
|
|
Loss (Gain) on Asset Sales and Abandonments
|
2,699
|
|
|
(14,622
|
)
|
|
Gain on Previously Held Equity Interest
|
—
|
|
|
(623,663
|
)
|
|
Loss on Debt Extinguishment
|
7,614
|
|
|
39,048
|
|
|
Gain on Commodity Derivative Instruments
|
(26,205
|
)
|
|
(60,747
|
)
|
|
Net Cash Paid in Settlement of Commodity Derivative Instruments
|
(30,710
|
)
|
|
(307
|
)
|
|
Deferred Income Taxes
|
29,231
|
|
|
190,194
|
|
|
Equity in Earnings of Affiliates
|
(1,030
|
)
|
|
(3,447
|
)
|
|
Return on Equity Investment
|
2,056
|
|
|
—
|
|
|
Changes in Operating Assets:
|
|
|
|
|
Accounts and Notes Receivable
|
125,991
|
|
|
44,156
|
|
|
Recoverable Income Taxes
|
35,888
|
|
|
3,743
|
|
|
Supplies Inventories
|
(1,527
|
)
|
|
243
|
|
|
Prepaid Expenses
|
4,287
|
|
|
1,327
|
|
|
Changes in Operating Liabilities:
|
|
|
|
|
Accounts Payable
|
29,346
|
|
|
(3,198
|
)
|
|
Accrued Interest
|
5,050
|
|
|
(3,358
|
)
|
|
Other Operating Liabilities
|
(36,392
|
)
|
|
1,504
|
|
|
Changes in Other Liabilities
|
(6,907
|
)
|
|
(5,374
|
)
|
|
Other
|
(105
|
)
|
|
648
|
|
|
Net Cash Provided by Operating Activities
|
560,673
|
|
|
450,930
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
Capital Expenditures
|
(628,365
|
)
|
|
(496,659
|
)
|
|
CNX Gathering LLC Acquisition, Net of Cash Acquired
|
—
|
|
|
(299,272
|
)
|
|
Proceeds from Asset Sales
|
7,087
|
|
|
153,420
|
|
|
Net Distributions from Equity Affiliates
|
—
|
|
|
3,650
|
|
|
Net Cash Used in Investing Activities
|
(621,278
|
)
|
|
(638,861
|
)
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
Payments on Miscellaneous Borrowings
|
(3,515
|
)
|
|
(3,748
|
)
|
|
Payments on Long-Term Notes
|
(405,876
|
)
|
|
(723,419
|
)
|
|
Net Proceeds from (Payments on) CNXM Revolving Credit Facility
|
124,000
|
|
|
(138,500
|
)
|
|
Proceeds from CNX Revolving Credit Facility
|
18,000
|
|
|
422,000
|
|
|
Proceeds from Issuance of CNX Senior Notes
|
500,000
|
|
|
—
|
|
|
Proceeds from Issuance of CNXM Senior Notes
|
—
|
|
|
394,000
|
|
|
Distributions to CNXM Noncontrolling Interest Holders
|
(30,812
|
)
|
|
(26,740
|
)
|
|
Proceeds from Issuance of Common Stock
|
161
|
|
|
1,563
|
|
|
Shares Withheld for Taxes
|
(6,222
|
)
|
|
(5,197
|
)
|
|
Purchases of Common Stock
|
(109,780
|
)
|
|
(166,720
|
)
|
|
Debt Repurchase and Financing Fees
|
(9,938
|
)
|
|
(19,629
|
)
|
|
Net Cash Provided by (Used in) Financing Activities
|
76,018
|
|
|
(266,390
|
)
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
15,413
|
|
|
(454,321
|
)
|
|
Cash and Cash Equivalents at Beginning of Period
|
17,198
|
|
|
509,167
|
|
|
Cash and Cash Equivalents at End of Period
|
$
|
32,611
|
|
|
$
|
54,846
|
|
The accompanying notes are an integral part of these financial statements.
CNX RESOURCES CORPORATION AND SUBSIDIARIES
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
six
months ended
June 30, 2019
are not necessarily indicative of the results that may be expected for future periods.
The Consolidated Balance Sheet at
December 31, 2018
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, 2018
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, 2019.
Certain amounts in prior periods have been reclassified to conform to the current period presentation.
The Consolidated Balance Sheet at
June 30, 2019
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 ("Noble") 50% interest in CNX Gathering LLC on January 3, 2018 (See Note 5 - Acquisitions and Dispositions for more information).
NOTE 2—EARNINGS PER SHARE:
Basic earnings per share is computed by dividing net income attributable to CNX shareholders by the weighted average shares outstanding during the reporting period. Diluted 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
three
or
six
months ended
June 30, 2019
, the
three
months ended
June 30, 2018
, or the period from January 3, 2018 through
June 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 June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Anti-dilutive Options
|
2,041,273
|
|
|
2,300,785
|
|
|
2,041,273
|
|
|
2,300,785
|
|
|
Anti-dilutive Restricted Stock Units
|
150,007
|
|
|
—
|
|
|
220,858
|
|
|
7,828
|
|
|
Anti-dilutive Performance Share Units
|
—
|
|
|
—
|
|
|
—
|
|
|
178,189
|
|
|
Anti-dilutive Performance Stock Options
|
927,268
|
|
|
927,268
|
|
|
927,268
|
|
|
927,268
|
|
|
|
3,118,548
|
|
|
3,228,053
|
|
|
3,189,399
|
|
|
3,414,070
|
|
The table below sets forth the share-based awards that have been exercised or released:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Options
|
7,093
|
|
|
73,583
|
|
|
20,841
|
|
|
227,301
|
|
|
Restricted Stock Units
|
515,265
|
|
|
7,260
|
|
|
973,234
|
|
|
178,397
|
|
|
Performance Share Units
|
—
|
|
|
—
|
|
|
342,882
|
|
|
357,597
|
|
|
|
522,358
|
|
|
80,843
|
|
|
1,336,957
|
|
|
763,295
|
|
Pursuant to the terms of the change in control severance agreements of certain employees and CNX officers, outstanding equity awards held by such employees vest upon a stockholder (or stockholder group) becoming the beneficial owner of more than
25%
of the Company's outstanding common stock. During the three months ended June 30, 2019, Southeastern Asset Management, Inc. and its affiliates ("SEAM") acquired shares of CNX's common stock in the open market which resulted in SEAM's aggregate share ownership exceeding more than
25%
of CNX's common stock outstanding. This transaction, as such, constituted a change in control event, resulting in the accelerated vesting of
473,126
restricted stock units and
903,100
performance share units held by the aforementioned employees that were issued prior to 2019. Those affected employees and officers each consented to waive the change in control vesting provision included in the change in control severance agreements with respect to their 2019 restricted stock unit and performance share unit awards. The accelerated vesting resulted in
$19,654
of additional long-term equity-based compensation expense for both the three and six months ended
June 30, 2019
, and is included in Selling, General, and Administrative Costs in the Consolidated Statements of Income. The performance share unit awards that vested continue to be subject to the attainment of performance goals as determined by the Compensation Committee of CNX's Board of Directors after the end of the applicable performance period.
The computations for basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net Income
|
$
|
192,694
|
|
|
$
|
61,394
|
|
|
$
|
128,044
|
|
|
$
|
606,940
|
|
|
Less: Net Income Attributable to Non-Controlling Interest
|
30,217
|
|
|
19,380
|
|
|
52,904
|
|
|
37,363
|
|
|
Net Income Attributable to CNX Resources Shareholders
|
$
|
162,477
|
|
|
$
|
42,014
|
|
|
$
|
75,140
|
|
|
$
|
569,577
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average Shares of Common Stock Outstanding
|
191,524,289
|
|
|
215,991,490
|
|
|
194,483,555
|
|
|
218,944,422
|
|
|
Effect of Diluted Shares
|
1,256,443
|
|
|
2,938,470
|
|
|
1,507,800
|
|
|
2,701,442
|
|
|
Weighted-average Diluted Shares of Common Stock Outstanding
|
192,780,732
|
|
|
218,929,960
|
|
|
195,991,355
|
|
|
221,645,864
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.85
|
|
|
$
|
0.19
|
|
|
$
|
0.39
|
|
|
$
|
2.60
|
|
|
Diluted
|
$
|
0.84
|
|
|
$
|
0.19
|
|
|
$
|
0.38
|
|
|
$
|
2.57
|
|
NOTE 3—CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS:
Changes in Accumulated Other Comprehensive Loss related to pension obligations, net of tax, were as follows:
|
|
|
|
|
|
|
|
|
Amount
|
|
Balance at December 31, 2018
|
$
|
(7,904
|
)
|
|
Amounts Reclassified from Accumulated Other Comprehensive Loss, net of tax
|
85
|
|
|
Balance at June 30, 2019
|
$
|
(7,819
|
)
|
The following table shows the reclassification of adjustments out of Accumulated Other Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Actuarially Determined Long-Term Liability Adjustments
|
|
|
|
|
|
|
|
|
Amortization of Prior Service Costs
|
$
|
(4
|
)
|
|
$
|
(90
|
)
|
|
$
|
(8
|
)
|
|
$
|
(181
|
)
|
|
Recognized Net Actuarial Loss
|
59
|
|
|
354
|
|
|
122
|
|
|
708
|
|
|
Total
|
55
|
|
|
264
|
|
|
114
|
|
|
527
|
|
|
Less: Tax Benefit
|
14
|
|
|
94
|
|
|
29
|
|
|
188
|
|
|
Net of Tax
|
$
|
41
|
|
|
$
|
170
|
|
|
$
|
85
|
|
|
$
|
339
|
|
NOTE 4—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.
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 Statements 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.
Disaggregation of Revenue
The following table is a disaggregation of revenue by major source:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Revenue from Contracts with Customers
|
|
|
|
|
|
|
|
|
Natural Gas Revenue
|
$
|
317,071
|
|
|
$
|
289,294
|
|
|
$
|
720,758
|
|
|
$
|
636,642
|
|
|
NGLs Revenue
|
24,025
|
|
|
39,557
|
|
|
53,790
|
|
|
90,441
|
|
|
Condensate Revenue
|
1,680
|
|
|
4,996
|
|
|
4,007
|
|
|
11,499
|
|
|
Oil Revenue
|
89
|
|
|
670
|
|
|
256
|
|
|
1,558
|
|
|
Total Natural Gas, NGLs and Oil Revenue
|
342,865
|
|
|
334,517
|
|
|
778,811
|
|
|
740,140
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Gas Revenue
|
18,768
|
|
|
9,930
|
|
|
34,989
|
|
|
27,985
|
|
|
Midstream Revenue
|
18,895
|
|
|
23,483
|
|
|
37,338
|
|
|
49,737
|
|
|
|
|
|
|
|
|
|
|
|
Other Sources of Revenue and Other Operating Income
|
|
|
|
|
|
|
|
|
Gain on Commodity Derivative Instruments
|
221,581
|
|
|
25,660
|
|
|
26,205
|
|
|
60,747
|
|
|
Other Operating Income
|
2,923
|
|
|
8,534
|
|
|
6,120
|
|
|
19,244
|
|
|
Total Revenue and Other Operating Income
|
$
|
605,032
|
|
|
$
|
402,124
|
|
|
$
|
883,463
|
|
|
$
|
897,853
|
|
The disaggregated revenue corresponds with the Company’s segment reporting found in Note 16 - Segment Information.
Contract Balances
CNX invoices its customers once a performance obligation has been satisfied, at which point payment is unconditional. Accordingly, CNX's contracts with customers do not give rise to contract assets or liabilities under Accounting Standards Codification (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 $
252,424
and $
125,084
, respectively.
Transaction Price Allocated to Remaining Performance Obligations
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 CNX's 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, CNX has 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 $
142,899
as of
June 30, 2019
. The Company expects to recognize net revenue of $
48,904
in the next 12 months and $
41,076
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, 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
CNX records 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, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. CNX records the differences between the estimate and the actual amount received in the month that payment is received from the purchaser. The Company has existing internal controls for its revenue estimation process and the related accruals, and any identified differences between its revenue estimates and the actual revenue received historically have not been significant. For the three and
six months
ended
June 30, 2019
and 2018, revenue recognized in the current reporting period related to performance obligations satisfied in a prior reporting period was not material.
NOTE 5—ACQUISITIONS AND DISPOSITIONS:
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, HG Energy (i) paid to CNX approximately
$7,000
and (ii) assigned to CNX certain undeveloped Marcellus and Utica acreage in Southwest Pennsylvania, in exchange for CNX (x) assigning its interest in certain non-core midstream assets and surface acreage and (y) releasing 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 CNXM 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 8 - 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
$4,751
and is included in Loss (Gain) on Asset Sales and Abandonments in 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 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 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 Gain on Previously Held Equity Interest in the Consolidated Statements of Income.
The fair value of the previously held equity interests was based on inputs that are not observable in the market and therefore represent Level 3 inputs (See Note 14 - Fair Value of Financial Instruments). The fair value was 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.
The 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 valuation 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 fair value estimates of the midstream facilities and equipment represents a Level 3 fair value measurement.
As part of the 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 valuation include future revenue estimates, future cost assumptions, and estimated customer retention rates. As a result, the fair value estimate of the identified intangible assets represents a Level 3 fair value measurement.
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 the amounts of identified assets acquired and liabilities assumed based on the fair value as of January 3, 2018, with any excess of the purchase price over the fair value of the identified net assets acquired recorded as goodwill. The purchase price allocation was finalized as of December 31, 2018.
Fair Value of Consideration Transferred:
|
|
|
|
|
|
|
|
|
Amount
|
|
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 fair values of the net assets acquired:
|
|
|
|
|
|
|
|
Fair Value of Assets Acquired:
|
Amount
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Midstream Revenue
|
$
|
78,450
|
|
|
$
|
61,325
|
|
|
$
|
151,019
|
|
|
$
|
125,503
|
|
|
Earnings Before Income Tax
|
$
|
44,414
|
|
|
$
|
27,795
|
|
|
$
|
76,998
|
|
|
$
|
63,329
|
|
NOTE 6—INCOME TAXES:
The effective tax rates for the three and
six
months ended
June 30, 2019
were
17.5%
and
18.6%
, respectively. The effective tax rate for the six months ended
June 30, 2019
differs from the U.S. federal statutory rate of 21% primarily due to the impact of noncontrolling interest, equity compensation and state income taxes.
The effective tax rates for the three and
six
months ended June 30, 2018 were
(102.7)%
and
23.1%
, respectively. The effective rate for the six months ended June 30, 2018 differs from the U.S. federal statutory rate of 21% primarily due to a benefit from the filing of a Federal 10-year net operating loss ("NOL") carryback which resulted in the Company being able to utilize previously valued tax attributes at a tax rate differential of 14%, as well as non-controlling interest. The benefits were partially offset by increases for both state income taxes and state valuation allowances.
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 income tax rate from 35% to 21%, repealed the corporate alternative minimum tax ("AMT"), and provided for a refund of previously accrued AMT credits. As of December 31, 2018, the Company reclassified
$102,482
from Deferred Income Taxes to Recoverable Income Taxes in the Consolidated Balance Sheets in anticipation of the AMT refund to be received in 2019.
The total amount of uncertain tax positions at
June 30, 2019
and
December 31, 2018
was
$31,516
. If these uncertain tax positions were recognized, approximately
$31,516
would affect CNX's effective tax rate. There were no changes in unrecognized tax benefits during the three and six months ended
June 30, 2019
.
CNX recognizes accrued interest related to uncertain tax positions in interest expense. As of
June 30, 2019
and
December 31, 2018
, CNX had
no
accrued liabilities for interest related to uncertain tax positions.
CNX recognizes penalties accrued related to uncertain tax positions in its income tax expense. As of
June 30, 2019
and
December 31, 2018
, 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 tax returns within various state jurisdictions. 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 the years before 2016. The Company expects the Internal Revenue Service to conclude its audit of tax years 2016 through 2017 in the third quarter of 2019.
NOTE 7—PROPERTY, PLANT AND EQUIPMENT:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Property, Plant and Equipment
|
|
|
|
|
Intangible Drilling Cost
|
$
|
4,411,513
|
|
|
$
|
4,120,283
|
|
|
Proved Gas Properties
|
1,150,723
|
|
|
1,135,411
|
|
|
Gas Gathering Equipment
|
2,324,938
|
|
|
2,126,895
|
|
|
Unproved Gas Properties
|
946,114
|
|
|
927,667
|
|
|
Gas Wells and Related Equipment
|
983,214
|
|
|
859,359
|
|
|
Surface Land and Other Equipment
|
236,141
|
|
|
238,487
|
|
|
Other Gas Assets
|
150,846
|
|
|
159,326
|
|
|
Total Property, Plant and Equipment
|
10,203,489
|
|
|
9,567,428
|
|
|
Less: Accumulated Depreciation, Depletion and Amortization
|
2,863,627
|
|
|
2,624,984
|
|
|
Total Property, Plant and Equipment - Net
|
$
|
7,339,862
|
|
|
$
|
6,942,444
|
|
NOTE 8—GOODWILL AND OTHER INTANGIBLE ASSETS:
In connection with the Midstream Acquisition that closed on January 3, 2018 (See Note 5 - Acquisitions and Dispositions for more information), CNX recorded
$796,359
of goodwill and
$128,781
of other intangible assets which are comprised of customer relationships.
All goodwill is attributed to the Midstream reportable segment and there have been no changes in the carrying amount since the date of the Midstream Acquisition.
The carrying amount and accumulated amortization of other intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31, 2018
|
|
Other Intangible Assets
|
|
|
|
|
Gross Amortizable Asset - Customer Relationships
|
$
|
109,752
|
|
|
$
|
109,752
|
|
|
Less: Accumulated Amortization - Customer Relationships
|
9,829
|
|
|
6,552
|
|
|
Total Other Intangible Assets, net
|
$
|
99,923
|
|
|
$
|
103,200
|
|
During the second quarter of 2018, CNX determined that the carrying value of a portion of the customer relationship intangible assets exceeded their fair value as a result of an Asset Exchange Agreement with HG Energy II Appalachia, LLC. Accordingly, CNX recognized an impairment on this intangible asset of $
18,650
. There were
no
such impairments in the current period.
Amortization expense related to other intangible assets for the
three
and
six months
ended
June 30, 2019
was
$1,639
and
$3,277
, respectively. Amortization expense for other intangible assets was
$1,733
and
$3,655
for the
three
and
six months
ended
June 30, 2018
, respectively.
The customer relationship intangible asset is being amortized on a straight-line basis over approximately
17
years. The estimated annual amortization expense is expected to approximate
$6,552
per year for each of the next five years.
NOTE 9—REVOLVING CREDIT FACILITIES:
CNX Resources Corporation (CNX)
In April 2019, CNX amended its senior secured revolving credit facility ("Credit Facility"), and extended its maturity to April 2024. The lenders' commitments remained unchanged at $
2,100,000
, with an accordion feature that allows the Company to increase the commitments to $
3,000,000
. The borrowing base was reaffirmed at
$2,100,000
, including a
$650,000
letters of credit aggregate sub-limit. In addition, the Cumulative Credit Basket for dividends and distributions was replaced with a basket for dividends and distributions subject to a pro forma net leverage ratio of at least
3.00
to 1.00 and availability under the credit facility of at least
15%
of the aggregate commitments. If the aggregate principal amount of the existing
5.875%
Senior Notes due in April 2022 and certain other publicly traded debt securities outstanding
91 days
prior to the earliest maturity of such debt (the "Springing Maturity Date") is greater than $
500,000
, then the Credit Facility will mature on the Springing Maturity Date.
Under the terms of the amended agreement, borrowings under the revolving credit facility will bear interest at CNX's option at either:
|
|
|
|
•
|
the base rate, which is the highest of (i) the federal funds open rate plus
0.50%
, (ii) PNC Bank, N.A.’s prime rate, or (iii) the one-month LIBOR rate plus
1.0%
, in each case, plus a margin ranging from
0.25%
to
1.25%
; or
|
•
the LIBOR rate, which is the LIBOR rate plus a margin ranging from
1.25%
to
2.25%
.
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 Credit 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 including those 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 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 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
June 30, 2019
.
At
June 30, 2019
, the CNX Credit Facility had $
630,000
of borrowings outstanding and $
198,581
of letters of credit outstanding, leaving $
1,271,419
of unused capacity. At
December 31, 2018
, the Credit Facility had $
612,000
of borrowings outstanding and $
198,396
of letters of credit outstanding, leaving $
1,289,604
of unused capacity.
CNX Midstream Partners LP (CNXM)
In April 2019, CNXM amended its senior secured revolving credit facility and extended its maturity to April 2024. The lenders’ commitments remained unchanged at
$600,000
, with an accordion feature that allows the Company to increase the available borrowings by up to an additional
$250,000
under certain terms and conditions. Among other things, the revolving credit facility now includes (i) the addition of a restricted payment basket permitting cash repurchases of Incentive Distribution Rights (IDRs) subject to a secured leverage ratio of
3.00
to 1.00, a pro forma total leverage ratio of
4.00
to 1.00 and pro forma availability of
20%
of commitments and (ii) a restricted payment basket for the repurchase of LP units not to exceed Available Cash (as defined in the partnership agreement) in any quarter, of up to
$150,000
per year and up to
$200,000
during the life of the facility.
Under the terms of the amended agreement, borrowings under the revolving credit facility will bear interest at CNXM's option at either:
|
|
|
|
•
|
the base rate, which is the highest of (i) the federal funds open rate plus
0.50%
, (ii) PNC Bank, N.A.’s prime rate, or (iii) the one-month LIBOR rate plus
1.0%
, in each case, plus a margin ranging from
0.50%
to
1.50%
; or
|
|
|
|
|
•
|
the LIBOR rate, plus a margin ranging from
1.50%
to
2.50%
.
|
Fees and interest rate spreads under the CNXM credit facility are based on the total leverage ratio, measured quarterly. The CNXM credit facility includes the ability to issue letters of credit up to
$100,000
in the aggregate.
The CNXM revolving credit facility contains a number of affirmative and negative covenants that include, among others, covenants that, except in certain circumstances, restrict 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 revolving 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; and (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 (w) for so long as at least
$150,000
of the CNXM senior notes are outstanding, a maximum total leverage ratio of no greater than
5.25
to
1.00
(which increases to no greater than
5.50
to
1.00
during qualifying acquisition periods); (x) if less than
$150,000
of the CNXM senior notes are outstanding, a maximum total leverage ratio of no greater than
4.75
to
1.00
(which increases to no greater than
5.25
to 1.00 during qualifying acquisition periods); (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
June 30, 2019
.
The CNXM revolving 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 revolving credit facility are secured by substantially all of the assets of CNXM and its wholly-owned subsidiaries. CNX is not a guarantor under the revolving credit facility.
At
June 30, 2019
, the CNXM credit facility had
$208,000
of borrowings outstanding. CNXM had the maximum amount of revolving credit available for borrowing at
June 30, 2019
, or
$392,000
. At
December 31, 2018
, the CNXM credit facility had
$84,000
of borrowings outstanding.
NOTE 10—LONG-TERM DEBT:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Senior Notes due April 2022 at 5.875% (Principal of $894,307 and $1,294,307
plus Unamortized Premium of $1,215 and $2,069, respectively)
|
$
|
895,522
|
|
|
$
|
1,296,376
|
|
|
CNX Credit Facility
|
630,000
|
|
|
612,000
|
|
|
Senior Notes due March 2027 at 7.25%, Issued at Par Value
|
500,000
|
|
|
—
|
|
|
CNX Midstream Partners LP Senior Notes due March 2026 at 6.50% (Principal of $400,000 less Unamortized Discount of $5,000 and $5,375, respectively)
|
395,000
|
|
|
394,625
|
|
|
CNX Midstream Partners LP Revolving Credit Facility
|
208,000
|
|
|
84,000
|
|
|
Less: Unamortized Debt Issuance Costs
|
10,147
|
|
|
8,796
|
|
|
Long-Term Debt
|
$
|
2,618,375
|
|
|
$
|
2,378,205
|
|
During the
six months
ended
June 30, 2019
, CNX completed a private offering of
$500,000
of
7.25%
senior notes due in March 2027. The notes are guaranteed by most of CNX's subsidiaries but do not include CNXM's general partner or CNXM.
During the
six months
ended
June 30, 2019
, CNX purchased
$400,000
of its outstanding
5.875%
senior notes due in April 2022
. As part of this transaction, a loss of
$7,614
was included in Loss on Debt Extinguishment in the Consolidated Statements of Income, which includes an adjustment to the final settlement amount of
$77
that was included in Loss on Debt Extinguishment in the Consolidated Statements of Income during the
three
months ended
June 30, 2019
.
During the
six months
ended
June 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
six months
ended
June 30, 2018
, CNX purchased $
391,375
of its outstanding
5.875%
senior notes due in April 2022
. As part of this transaction, a loss of $
15,635
was included in Loss on Debt Extinguishment in the Consolidated Statements of Income.
During the
three
and
six months
ended
June 30, 2018
, CNX purchased $
300,000
of its outstanding
8.00%
senior notes due in April 2023
. As part of this transaction, a loss of $
23,413
was included in Loss on Debt Extinguishment in the Consolidated Statements of Income.
NOTE 11—LEASES:
On January 1, 2019, the Company adopted Accounting Standard Update (ASU) 2016-02, and all related amendments, using the transition method, which allows for a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. CNX has elected the transition relief package of practical expedients by applying previous accounting conclusions under ASC 840 to all leases that existed prior to the transition date. As a result, CNX did not reassess 1) whether existing or expired contracts contain leases 2) lease classification for any existing or expired leases or 3) whether lease origination costs qualified as initial direct costs. Additionally, the Company elected the short-term practical expedient for all asset classes by establishing an accounting policy to exclude leases with a term of
12 months
or less. CNX will not separate lease components from non-lease components for any asset class. Lastly, CNX adopted the easement practical expedient, which allows the Company to apply ASC 842 prospectively to land easements after the adoption date. Easements that existed or expired prior to the adoption date that were not previously assessed under ASC 840 will not be reassessed.
CNX's leasing activities primarily consist of operating and finance leases for electric fracturing equipment, natural gas drilling rigs, CNX's corporate headquarters as well as field offices, a natural gas gathering pipeline and commercial vehicles. Some leases include options to renew ranging from a period of
1
to
10 years
, which are not recognized as part of the lease right-of-use (ROU) assets or liabilities as they are not reasonably certain to be exercised.
Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. As most of CNX's leases do not provide an implicit rate, an incremental borrowing rate is used to determine the present value of lease payments.
The components of lease cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
|
June 30, 2019
|
|
June 30, 2019
|
|
Operating Lease Cost
|
$
|
21,441
|
|
|
$
|
31,356
|
|
|
Finance Lease Cost:
|
|
|
|
|
Amortization of Right-of-Use Assets
|
1,309
|
|
|
2,626
|
|
|
Interest on Lease Liabilities
|
324
|
|
|
676
|
|
|
Short-term Lease Cost
|
2,543
|
|
|
4,367
|
|
|
Variable Lease Cost*
|
7,539
|
|
|
11,539
|
|
|
Total Lease Cost
|
$
|
33,156
|
|
|
$
|
50,564
|
|
*Amounts recognized on the balance sheet for natural gas drilling rigs are measured using the rates that would be paid if the rigs were idle, as this represents the minimum payment that could be made under the contract. Variable lease cost represents amounts paid for natural gas drilling rigs above this minimum when the rigs are in use. Amounts recognized on the balance sheet for electric fracturing equipment are measured using minimum pumping hours under the contract; however, pumping hours may exceed the minimum and vary period to period. Any such amounts paid related to pumping hours in excess of the minimum represent variable lease cost.
Amounts recognized in the Consolidated Balance Sheet are as follows:
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
2019
|
|
Operating Leases:
|
|
|
Operating Lease Right-of-Use Asset
|
$
|
224,950
|
|
|
|
|
|
Current Portion of Operating Lease Obligations
|
66,209
|
|
|
Operating Lease Obligations
|
137,464
|
|
|
Total Operating Lease Liabilities
|
$
|
203,673
|
|
|
|
|
|
Finance Leases:
|
|
|
Property, Plant and Equipment
|
$
|
72,932
|
|
|
Less—Accumulated Depreciation, Depletion and Amortization
|
61,102
|
|
|
Property, Plant and Equipment—Net
|
$
|
11,830
|
|
|
|
|
|
Current Portion of Finance Lease Obligations
|
$
|
7,133
|
|
|
Finance Lease Obligations
|
10,569
|
|
|
Total Finance Lease Liabilities
|
$
|
17,702
|
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
June 30, 2019
|
|
Cash Paid for Amounts Included in the Measurement of Lease Liabilities:
|
|
|
Operating Cash Flows from Operating Leases
|
$
|
21,153
|
|
|
Operating Cash Flows from Finance Leases
|
$
|
676
|
|
|
Financing Cash Flows from Finance Leases
|
$
|
3,515
|
|
|
Right-of-Use Assets Obtained in Exchange for Lease Obligations:
|
|
|
Operating Leases
|
$
|
15,347
|
|
|
Finance Leases
|
$
|
994
|
|
Maturities of lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Finance
|
|
|
Leases
|
|
Leases
|
|
Twelve months ended June 30,
|
|
|
|
|
2020
|
$
|
74,712
|
|
|
$
|
8,171
|
|
|
2021
|
59,536
|
|
|
7,627
|
|
|
2022
|
51,288
|
|
|
3,258
|
|
|
2023
|
5,465
|
|
|
243
|
|
|
2024
|
5,446
|
|
|
128
|
|
|
Thereafter
|
33,257
|
|
|
—
|
|
|
Total Lease Payments
|
229,704
|
|
|
19,427
|
|
|
Less: Interest
|
26,031
|
|
|
1,725
|
|
|
Present Value of Lease Liabilities
|
$
|
203,673
|
|
|
$
|
17,702
|
|
Lease terms and discount rates are as follows:
|
|
|
|
|
|
|
|
June 30,
|
|
|
2019
|
|
Weighted Average Remaining Lease Term (years):
|
|
|
Operating Leases
|
4.54
|
|
|
Finance Leases
|
2.47
|
|
|
|
|
|
Weighted Average Discount Rate:
|
|
|
Operating Leases
|
4.94
|
%
|
|
Finance Leases
|
7.10
|
%
|
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, climate change, governmental regulations including environmental violations and 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
June 30, 2019
, CNX has provided the following financial guarantees, unconditional purchase 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 the commitments in the following table 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
|
$
|
198,316
|
|
|
$
|
162,443
|
|
|
$
|
35,873
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other
|
265
|
|
|
265
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total Letters of Credit
|
198,581
|
|
|
162,708
|
|
|
35,873
|
|
|
—
|
|
|
—
|
|
|
Surety Bonds:
|
|
|
|
|
|
|
|
|
|
|
Employee-Related
|
1,850
|
|
|
1,850
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Environmental
|
11,296
|
|
|
11,237
|
|
|
59
|
|
|
—
|
|
|
—
|
|
|
Financial Guarantees
|
81,670
|
|
|
81,670
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
9,337
|
|
|
7,840
|
|
|
1,497
|
|
|
—
|
|
|
—
|
|
|
Total Surety Bonds
|
104,153
|
|
|
102,597
|
|
|
1,556
|
|
|
—
|
|
|
—
|
|
|
Total Commitments
|
$
|
302,734
|
|
|
$
|
265,305
|
|
|
$
|
37,429
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Excluded from the above table are commitments and guarantees entered into in conjunction with the spin-off of the Company's coal business (See CNX's 2018 Annual Report on Form 10-K as filed with the SEC on February 7, 2019 for further information). Although CONSOL Energy has agreed to indemnify CNX to the extent that CNX would be called upon to pay any of these liabilities, there is no assurance that CONSOL Energy will satisfy its obligations to indemnify CNX in the event that CNX is so called upon.
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 in the Consolidated Balance Sheets. As of
June 30, 2019
, the purchase obligations for each of the next five years and beyond were as follows:
|
|
|
|
|
|
|
|
Obligations Due
|
Amount
|
|
Less than 1 year
|
$
|
251,384
|
|
|
1 - 3 years
|
492,206
|
|
|
3 - 5 years
|
423,726
|
|
|
More than 5 years
|
1,159,534
|
|
|
Total Purchase Obligations
|
$
|
2,326,850
|
|
NOTE 13—DERIVATIVE INSTRUMENTS:
In June 2019, CNX entered into an interest rate swap agreement to manage its exposure to interest rate volatility. The interest rate swap agreement relates to
$160,000
of borrowings under CNX’s senior secured revolving credit facility (See Note 9 - Revolving Credit Facilities) and has the economic effect of modifying the variable-interest obligation into a fixed-interest obligation over a three-year period.
The change in fair value of the interest rate swap agreement is accounted for on a mark-to-market basis with changes in fair value recorded in current period earnings. The fair value at June 30, 2019 and the corresponding change in fair value from inception through June 30, 2019 was nominal.
CNX enters into financial derivative instruments to manage its exposure to commodity price volatility. These natural gas 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 in 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 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
Forecasted to
|
|
|
2019
|
|
2018
|
|
Settle Through
|
|
Natural Gas Commodity Swaps (Bcf)
|
1,515.8
|
|
|
1,484.4
|
|
|
2024
|
|
Natural Gas Basis Swaps (Bcf)
|
1,166.1
|
|
|
1,056.6
|
|
|
2024
|
The gross fair value of CNX's derivative instruments was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivative Instruments
|
|
Liability Derivative Instruments
|
|
|
June 30,
|
|
December 31,
|
|
|
June 30,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
|
Commodity Swaps:
|
|
|
|
|
|
|
|
|
|
Prepaid Expense
|
$
|
144,771
|
|
|
$
|
28,612
|
|
|
Other Accrued Liabilities
|
$
|
1,606
|
|
|
$
|
34,640
|
|
|
Other Assets
|
176,794
|
|
|
164,310
|
|
|
Other Liabilities
|
37,603
|
|
|
52,011
|
|
|
Total Asset
|
$
|
321,565
|
|
|
$
|
192,922
|
|
|
Total Liability
|
$
|
39,209
|
|
|
$
|
86,651
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Only Swaps:
|
|
|
|
|
|
|
|
|
|
Prepaid Expense
|
$
|
4,934
|
|
|
$
|
11,628
|
|
|
Other Accrued Liabilities
|
$
|
46,250
|
|
|
$
|
27,021
|
|
|
Other Assets
|
13,225
|
|
|
48,788
|
|
|
Other Liabilities
|
97,893
|
|
|
40,210
|
|
|
Total Asset
|
$
|
18,159
|
|
|
$
|
60,416
|
|
|
Total Liability
|
$
|
144,143
|
|
|
$
|
67,231
|
|
The effect of derivative instruments on the Company's Consolidated Statements of Income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Cash Received (Paid) in Settlement of Commodity Derivative Instruments:
|
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
|
Commodity Swaps
|
$
|
18,567
|
|
|
$
|
17,058
|
|
|
$
|
(8,383
|
)
|
|
$
|
16,624
|
|
|
Basis Swaps
|
(7,895
|
)
|
|
(374
|
)
|
|
(22,327
|
)
|
|
(16,931
|
)
|
|
Total Cash Received (Paid) in Settlement of Commodity Derivative Instruments
|
10,672
|
|
|
16,684
|
|
|
(30,710
|
)
|
|
(307
|
)
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain (Loss) on Commodity Derivative Instruments:
|
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
|
Commodity Swaps
|
226,845
|
|
|
46,450
|
|
|
176,084
|
|
|
49,250
|
|
|
Basis Swaps
|
(15,936
|
)
|
|
(37,474
|
)
|
|
(119,169
|
)
|
|
11,804
|
|
|
Total Unrealized Gain on Commodity Derivative Instruments
|
210,909
|
|
|
8,976
|
|
|
56,915
|
|
|
61,054
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on Commodity Derivative Instruments:
|
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
|
Commodity Swaps
|
245,412
|
|
|
63,508
|
|
|
167,701
|
|
|
65,874
|
|
|
Basis Swaps
|
(23,831
|
)
|
|
(37,848
|
)
|
|
(141,496
|
)
|
|
(5,127
|
)
|
|
Total Gain on Commodity Derivative Instruments
|
$
|
221,581
|
|
|
$
|
25,660
|
|
|
$
|
26,205
|
|
|
$
|
60,747
|
|
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 normal 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 1 - Quoted prices for identical instruments in active markets.
Level 2 - 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 3 - 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 instrument measured at fair value on a recurring basis is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2019
|
|
Fair Value Measurements at December 31, 2018
|
|
Description
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Gas Derivatives
|
$
|
—
|
|
|
$
|
156,372
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
99,456
|
|
|
$
|
—
|
|
The carrying amounts and fair values of financial instruments for which the fair value option was not elected are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Cash and Cash Equivalents
|
$
|
32,611
|
|
|
$
|
32,611
|
|
|
$
|
17,198
|
|
|
$
|
17,198
|
|
|
Long-Term Debt (Excluding Debt Issuance Costs)
|
$
|
2,628,522
|
|
|
$
|
2,495,223
|
|
|
$
|
2,387,001
|
|
|
$
|
2,290,537
|
|
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. As a result of the Midstream Acquisition (see Note 5 - 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 consolidated 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, 2018 filed with the SEC on February 7, 2019.
The following table presents amounts included in the Company's Consolidated Balance Sheets that were for the use or obligation of CNXM:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Assets:
|
|
|
|
|
Cash
|
$
|
11,677
|
|
|
3,966
|
|
|
Receivables - Related Party
|
19,028
|
|
|
17,073
|
|
|
Receivables - Third Party
|
6,681
|
|
|
7,028
|
|
|
Other Current Assets
|
1,648
|
|
|
2,383
|
|
|
Property, Plant and Equipment, net
|
1,076,977
|
|
|
891,775
|
|
|
Operating Lease ROU Asset
|
7,875
|
|
|
—
|
|
|
Other Assets
|
3,731
|
|
|
3,203
|
|
|
Total Assets
|
$
|
1,127,617
|
|
|
$
|
925,428
|
|
|
Liabilities:
|
|
|
|
|
Accounts Payable and Accrued Liabilities
|
$
|
96,295
|
|
|
$
|
43,919
|
|
|
Accounts Payable - Related Party
|
3,425
|
|
|
4,980
|
|
|
Revolving Credit Facility
|
208,000
|
|
|
84,000
|
|
|
Long-Term Debt
|
393,688
|
|
|
393,215
|
|
|
Long-Term Operating Lease Liabilities
|
1,171
|
|
|
—
|
|
|
Total Liabilities
|
$
|
702,579
|
|
|
$
|
526,114
|
|
The following table summarizes CNXM's Consolidated Statements of Operations and Cash Flows, inclusive of affiliate amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Revenue
|
|
|
|
|
|
|
|
|
Gathering Revenue - Related Party
|
$
|
59,205
|
|
|
$
|
37,576
|
|
|
$
|
112,981
|
|
|
$
|
75,306
|
|
|
Gathering Revenue - Third Party
|
18,896
|
|
|
23,438
|
|
|
37,339
|
|
|
49,577
|
|
|
Total Revenue
|
78,101
|
|
|
61,014
|
|
|
150,320
|
|
|
124,883
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Operating Expense - Related Party
|
6,514
|
|
|
5,079
|
|
|
12,062
|
|
|
9,514
|
|
|
Operating Expense - Third Party
|
6,188
|
|
|
7,406
|
|
|
12,162
|
|
|
15,874
|
|
|
General and Administrative Expense - Related Party
|
4,027
|
|
|
3,620
|
|
|
7,994
|
|
|
7,232
|
|
|
General and Administrative Expense - Third Party
|
1,364
|
|
|
2,319
|
|
|
2,900
|
|
|
4,868
|
|
|
(Gain) Loss on Asset Sales and Abandonments
|
—
|
|
|
(254
|
)
|
|
7,229
|
|
|
2,501
|
|
|
Depreciation Expense
|
5,860
|
|
|
5,443
|
|
|
11,510
|
|
|
11,299
|
|
|
Interest Expense
|
7,685
|
|
|
7,119
|
|
|
15,024
|
|
|
9,608
|
|
|
Total Expense
|
31,638
|
|
|
30,732
|
|
|
68,881
|
|
|
60,896
|
|
|
Net Income
|
$
|
46,463
|
|
|
$
|
30,282
|
|
|
$
|
81,439
|
|
|
$
|
63,987
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
$
|
74,753
|
|
|
$
|
53,674
|
|
|
$
|
124,666
|
|
|
$
|
95,541
|
|
|
Net Cash Used in Investing Activities
|
$
|
(104,310
|
)
|
|
$
|
(24,969
|
)
|
|
$
|
(182,867
|
)
|
|
$
|
(35,125
|
)
|
|
Net Cash Provided by (Used in) Financing Activities
|
$
|
41,164
|
|
|
$
|
(29,964
|
)
|
|
$
|
65,912
|
|
|
$
|
(62,903
|
)
|
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
6.50%
senior notes due 2026 (See Note 10 - Long-Term Debt).
At
June 30, 2019
and
December 31, 2018
, CNX had a net payable of $
15,584
and $
12,202
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 due to sale of substantially all of CNX's shallow oil and gas assets in the 2018 period (See Note 5 - Acquisitions and Dispositions for more information). It also includes the Company's purchased gas activities, unrealized gain or loss on commodity derivative instruments, exploration and production related other costs, as well as various other operating activities assigned to the E&P Division but not allocated to each individual segment.
CNX's Midstream Division's principal activity 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. As a result of the Midstream Acquisition (See Note 5 - Acquisitions and Dispositions for more information), CNX owns and controls 100% of CNX Gathering, making CNXM a single-sponsor master limited partnership and thus the Company began consolidating CNXM on January 3, 2018.
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
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed Methane
|
|
Other
Gas
|
|
Total
E&P
|
|
Midstream
|
|
Unallocated
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
237,257
|
|
|
$
|
65,213
|
|
|
$
|
39,638
|
|
|
$
|
757
|
|
|
$
|
342,865
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
342,865
|
|
(A)
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
18,768
|
|
|
18,768
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,768
|
|
|
|
Midstream Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
78,450
|
|
|
—
|
|
|
(59,555
|
)
|
|
18,895
|
|
|
|
Gain on Commodity Derivative Instruments
|
6,831
|
|
|
2,747
|
|
|
1,085
|
|
|
210,918
|
|
|
221,581
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
221,581
|
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
3,038
|
|
|
3,038
|
|
|
—
|
|
|
—
|
|
|
(115
|
)
|
|
2,923
|
|
(B)
|
|
Total Revenue and Other Operating Income
|
$
|
244,088
|
|
|
$
|
67,960
|
|
|
$
|
40,723
|
|
|
$
|
233,481
|
|
|
$
|
586,252
|
|
|
$
|
78,450
|
|
|
$
|
—
|
|
|
$
|
(59,670
|
)
|
|
$
|
605,032
|
|
|
|
Earnings Before Income Tax
|
$
|
50,381
|
|
|
$
|
17,941
|
|
|
$
|
7,603
|
|
|
$
|
112,335
|
|
|
$
|
188,260
|
|
|
$
|
44,414
|
|
|
$
|
811
|
|
|
$
|
—
|
|
|
$
|
233,485
|
|
|
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,887,043
|
|
|
$
|
2,116,492
|
|
|
$
|
146,203
|
|
|
$
|
(3,041
|
)
|
|
$
|
9,146,697
|
|
(C)
|
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
120,705
|
|
|
$
|
8,294
|
|
|
$
|
—
|
|
|
|
|
|
$
|
128,999
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
224,684
|
|
|
$
|
104,543
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
329,227
|
|
|
|
|
|
|
(A)
|
Included in Total Natural Gas, NGLs and Oil Revenue are sales of
$48,476
to Direct Energy Business Marketing LLC, which comprises over 10% of revenue from contracts with customers for the period.
|
|
|
|
|
(B)
|
Includes equity in earnings of unconsolidated affiliates of
$527
for Total E&P.
|
|
|
|
|
(C)
|
Includes investments in unconsolidated equity affiliates of
$17,637
for Total E&P.
|
Industry segment results for the
three months
ended
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed Methane
|
|
Other
Gas
|
|
Total
E&P
|
|
Midstream
|
|
Unallocated
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
178,305
|
|
|
$
|
107,758
|
|
|
$
|
46,882
|
|
|
$
|
1,572
|
|
|
$
|
334,517
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
334,517
|
|
(D)
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
9,930
|
|
|
9,930
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,930
|
|
|
|
Midstream Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
61,325
|
|
|
—
|
|
|
(37,842
|
)
|
|
23,483
|
|
|
|
Gain on Commodity Derivative Instruments
|
9,128
|
|
|
5,371
|
|
|
2,155
|
|
|
9,006
|
|
|
25,660
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,660
|
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
8,595
|
|
|
8,595
|
|
|
—
|
|
|
—
|
|
|
(61
|
)
|
|
8,534
|
|
(E)
|
|
Total Revenue and Other Operating Income
|
$
|
187,433
|
|
|
$
|
113,129
|
|
|
$
|
49,037
|
|
|
$
|
29,103
|
|
|
$
|
378,702
|
|
|
$
|
61,325
|
|
|
$
|
—
|
|
|
$
|
(37,903
|
)
|
|
$
|
402,124
|
|
|
|
Earnings (Loss) Before Income Tax
|
$
|
47,273
|
|
|
$
|
46,486
|
|
|
$
|
12,405
|
|
|
$
|
(64,039
|
)
|
|
$
|
42,125
|
|
|
$
|
27,795
|
|
|
$
|
(39,628
|
)
|
|
$
|
—
|
|
|
$
|
30,292
|
|
|
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,055,545
|
|
|
$
|
1,830,007
|
|
|
$
|
333,372
|
|
|
$
|
(11,166
|
)
|
|
$
|
8,207,758
|
|
(F)
|
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
111,125
|
|
|
$
|
7,962
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
119,087
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
238,889
|
|
|
$
|
25,285
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
264,174
|
|
|
|
|
|
|
(D)
|
Included in Total Natural Gas, NGLs and Oil Revenue are sales of
$36,849
to NJR Energy Services Company and
$34,644
to Direct Energy Business Marketing LLC, each of which comprises over 10% of revenue from contracts with customers for the period.
|
|
|
|
|
(E)
|
Includes equity in earnings of unconsolidated affiliates of
$1,669
for Total E&P.
|
|
|
|
|
(F)
|
Includes investments in unconsolidated equity affiliates of
$22,347
for Total E&P.
|
Industry segment results for the
six months
ended
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed Methane
|
|
Other
Gas
|
|
Total
E&P
|
|
Midstream
|
|
Unallocated
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
530,514
|
|
|
$
|
158,164
|
|
|
$
|
89,473
|
|
|
$
|
660
|
|
|
$
|
778,811
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
778,811
|
|
(A)
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
34,989
|
|
|
34,989
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34,989
|
|
|
|
Midstream Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
151,019
|
|
|
—
|
|
|
(113,681
|
)
|
|
37,338
|
|
|
|
(Loss) Gain on Commodity Derivative Instruments
|
(20,627
|
)
|
|
(6,854
|
)
|
|
(3,217
|
)
|
|
56,903
|
|
|
26,205
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26,205
|
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
6,296
|
|
|
6,296
|
|
|
—
|
|
|
—
|
|
|
(176
|
)
|
|
6,120
|
|
(B)
|
|
Total Revenue and Other Operating Income
|
$
|
509,887
|
|
|
$
|
151,310
|
|
|
$
|
86,256
|
|
|
$
|
98,848
|
|
|
$
|
846,301
|
|
|
$
|
151,019
|
|
|
$
|
—
|
|
|
$
|
(113,857
|
)
|
|
$
|
883,463
|
|
|
|
Earnings (Loss) Before Income Tax
|
$
|
137,312
|
|
|
$
|
49,945
|
|
|
$
|
20,502
|
|
|
$
|
(125,929
|
)
|
|
$
|
81,830
|
|
|
$
|
76,998
|
|
|
$
|
(1,553
|
)
|
|
$
|
—
|
|
|
$
|
157,275
|
|
|
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,887,043
|
|
|
$
|
2,116,492
|
|
|
$
|
146,203
|
|
|
$
|
(3,041
|
)
|
|
$
|
9,146,697
|
|
(C)
|
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
237,780
|
|
|
$
|
16,379
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
254,159
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
448,475
|
|
|
$
|
179,890
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
628,365
|
|
|
|
|
|
|
(A)
|
Included in Total Natural Gas, NGLs and Oil Revenue are sales of
$116,245
to Direct Energy Business Marketing LLC and
$94,447
to NJR Energy Services Company, each of which comprise over 10% of revenue from contracts with customers for the period.
|
|
|
|
|
(B)
|
Includes equity in earnings of unconsolidated affiliates of
$1,030
for Total E&P.
|
|
|
|
|
(C)
|
Includes investments in unconsolidated equity affiliates of
$17,637
for Total E&P.
|
Industry segment results for the
six months
ended
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed Methane
|
|
Other
Gas
|
|
Total
E&P
|
|
Midstream
|
|
Unallocated
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
383,321
|
|
|
$
|
238,080
|
|
|
$
|
104,383
|
|
|
$
|
14,356
|
|
|
$
|
740,140
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
740,140
|
|
(D)
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
27,985
|
|
|
27,985
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27,985
|
|
|
|
Midstream Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
125,503
|
|
|
—
|
|
|
(75,766
|
)
|
|
49,737
|
|
|
|
(Loss) Gain on Commodity Derivative Instruments
|
(385
|
)
|
|
897
|
|
|
(275
|
)
|
|
60,510
|
|
|
60,747
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60,747
|
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
19,386
|
|
|
19,386
|
|
|
—
|
|
|
—
|
|
|
(142
|
)
|
|
19,244
|
|
(E)
|
|
Total Revenue and Other Operating Income
|
$
|
382,936
|
|
|
$
|
238,977
|
|
|
$
|
104,108
|
|
|
$
|
122,237
|
|
|
$
|
848,258
|
|
|
$
|
125,503
|
|
|
$
|
—
|
|
|
$
|
(75,908
|
)
|
|
$
|
897,853
|
|
|
|
Earnings (Loss) Before Income Tax
|
$
|
91,515
|
|
|
$
|
102,593
|
|
|
$
|
25,522
|
|
|
$
|
(77,695
|
)
|
|
$
|
141,935
|
|
|
$
|
63,329
|
|
|
$
|
584,268
|
|
|
$
|
—
|
|
|
$
|
789,532
|
|
|
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,055,545
|
|
|
$
|
1,830,007
|
|
|
$
|
333,372
|
|
|
$
|
(11,166
|
)
|
|
$
|
8,207,758
|
|
(F)
|
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
226,991
|
|
|
$
|
16,763
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
243,754
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
455,397
|
|
|
$
|
41,262
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
496,659
|
|
|
|
|
|
|
(D)
|
Included in Total Natural Gas, NGLs and Oil Revenue are sales of
$115,845
to NJR Energy Services Company and
$92,571
to Direct Energy Business Marketing LLC, each of which comprises over 10% of revenue from contracts with customers for the period.
|
|
|
|
|
(E)
|
Includes equity in earnings of unconsolidated affiliates of
$3,447
for Total E&P.
|
|
|
|
|
(F)
|
Includes investments in unconsolidated equity affiliates of
$22,347
for Total E&P.
|
Reconciliation of Segment Information to Consolidated Amounts:
Revenue and Other Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Total Segment Revenue from Contracts with External Customers
|
$
|
380,528
|
|
|
$
|
367,930
|
|
|
$
|
851,138
|
|
|
$
|
817,862
|
|
|
Gain on Commodity Derivative Instruments
|
221,581
|
|
|
25,660
|
|
|
26,205
|
|
|
60,747
|
|
|
Other Operating Income
|
2,923
|
|
|
8,534
|
|
|
6,120
|
|
|
19,244
|
|
|
Total Consolidated Revenue and Other Operating Income
|
$
|
605,032
|
|
|
$
|
402,124
|
|
|
$
|
883,463
|
|
|
$
|
897,853
|
|
Earnings Before Income Tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Segment Income Before Income Taxes for Reportable Business Segments:
|
|
|
|
|
|
|
|
|
Total E&P
|
$
|
188,260
|
|
|
$
|
42,125
|
|
|
$
|
81,830
|
|
|
$
|
141,935
|
|
|
Midstream
|
44,414
|
|
|
27,795
|
|
|
76,998
|
|
|
63,329
|
|
|
Total Segment Income Before Income Taxes for Reportable Business Segments
|
$
|
232,674
|
|
|
$
|
69,920
|
|
|
$
|
158,828
|
|
|
$
|
205,264
|
|
|
Unallocated Expenses:
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
501
|
|
|
(575
|
)
|
|
1,531
|
|
|
5,917
|
|
|
Gain on Certain Asset Sales
|
387
|
|
|
3,010
|
|
|
4,530
|
|
|
12,386
|
|
|
Gain on Previously Held Equity Interest
|
—
|
|
|
—
|
|
|
—
|
|
|
623,663
|
|
|
Loss on Debt Extinguishment
|
(77
|
)
|
|
(23,413
|
)
|
|
(7,614
|
)
|
|
(39,048
|
)
|
|
Impairment of Other Intangible Assets
|
—
|
|
|
(18,650
|
)
|
|
—
|
|
|
(18,650
|
)
|
|
Earnings Before Income Tax
|
$
|
233,485
|
|
|
$
|
30,292
|
|
|
$
|
157,275
|
|
|
$
|
789,532
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2019
|
|
2018
|
|
Segment Assets for Total Reportable Business Segments:
|
|
|
|
|
E&P
|
$
|
6,887,043
|
|
|
$
|
6,055,545
|
|
|
Midstream
|
2,116,492
|
|
|
1,830,007
|
|
|
Intercompany Eliminations
|
(3,041
|
)
|
|
(11,166
|
)
|
|
Items Excluded from Segment Assets:
|
|
|
|
|
Cash and Cash Equivalents
|
32,611
|
|
|
54,846
|
|
|
Recoverable Income Taxes
|
113,592
|
|
|
27,780
|
|
|
Assets Held for Sale
|
—
|
|
|
250,746
|
|
|
Total Consolidated Assets
|
$
|
9,146,697
|
|
|
$
|
8,207,758
|
|
NOTE 17—STOCK REPURCHASE:
Since the October 30, 2017 inception of the current stock repurchase program, CNX's Board of Directors has approved in total a
$750,000
stock repurchase program, which is not subject to an expiration date. The repurchases may be effected 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
six months
ended
June 30, 2019
,
11,929,487
shares were repurchased and retired at an average price of $
9.01
per share for a total cost of
$107,780
.
NOTE 18—RECENT ACCOUNTING PRONOUNCEMENTS:
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02 - Leases (Topic 842), which increases transparency and comparability among organizations by recognizing ROU lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Update 2016-02 maintains 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 remain similar to the previous accounting treatment. A lessee is permitted to make an accounting policy election by class of underlying asset to exclude from balance sheet recognition any ROU lease assets and lease liabilities with a term of 12 months or less, and instead to recognize lease expense on a straight-line basis over the lease term. For both financing and operating leases, the ROU asset and lease liability will be initially measured at the present value of the lease payments in the statement of financial position. As discussed in Note 11 - Leases, the Company adopted Update 2016-02 as of January 1, 2019.
In May 2019, the FASB issued ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326), which provides optional targeted transition relief to entities adopting ASU 2016-13. ASU 2016-13 replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The measurement of expected credit losses will be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2019-05 provides the option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. The amendments in this ASU will be applied using the modified-retrospective approach and, for public entities, are effective for fiscal years beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company's financial statements.
|
|
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
General
During the second quarter of 2019, CNX sold
134.5
Bcfe of natural gas, an increase of
9.7%
from the
122.6
Bcfe sold in the year-earlier quarter, primarily due to an increase in Marcellus Shale volumes. The increase was offset, in part, by a decrease in Utica Shale volumes due to the sale of substantially all of CNX's Ohio Utica joint venture ("JV") assets in the third quarter of 2018. Total quarterly production costs increased to
$2.07
per Mcfe, compared to the year-earlier quarter of
$2.00
per Mcfe, driven primarily by increases in transportation, gathering and compression, offset, in part, by reductions in lease operating expense. Capital expenditures increased to
$329 million
in the second quarter of 2019, compared to
$264 million
of spend in the second quarter of 2018.
Marketing Update:
For the second quarter of 2019, CNX's average sales price for natural gas, natural gas liquids (NGLs), oil, and condensate was
$2.63
per Mcfe. The average realized price for all liquids for the second quarter of 2019 was $19.14 per barrel.
CNX's weighted average differential from NYMEX in the second quarter of 2019 was negative $0.31 per MMBtu. CNX's average sales price for natural gas before hedging decreased 21.8% to
$2.51
per Mcf compared with the average sales price of
$3.21
per Mcf in the first quarter of 2019. This decrease resulted primarily from a lower Henry Hub price reflecting current general market conditions coupled with a wider differential. Including the impact of cash settlements from hedging, CNX's average sales price for natural gas was $0.11 per Mcf, or 4.1%, lower than last year's second quarter.
CNX Guidance:
CNX updates 2019 production volumes to 510-530 Bcfe, compared to the previous guidance of 495-515 Bcfe. CNX updates 2020 production volumes to 570-595 Bcfe, which equates to an approximately 12% annual increase, based on the midpoint of guidance.
Total hedged natural gas production in the 2019 third quarter is 103.9 Bcf. The annual gas hedge position is shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
Volumes Hedged (Bcf), as of 7/8/19
|
|
396.6*
|
|
470.5
|
|
*
Includes actual settlements of 205.8 Bcf.
CNX's hedged gas volumes include a combination of NYMEX financial hedges, index (NYMEX and basis) financial hedges, and physical fixed price sales. In addition, to protect the NYMEX hedge volumes from basis exposure, CNX enters into basis-only financial hedges and physical sales with fixed basis at certain sales points.
Results of Operations -
Three Months Ended
June 30, 2019
Compared with
Three Months Ended
June 30, 2018
Net Income Attributable to CNX Resources Shareholders
CNX reported net income attributable to CNX Resources shareholders of $
162
million, or earnings per diluted share of $
0.84
for the
three months
ended
June 30, 2019
, compared to net income attributable to CNX Resources shareholders of $
42
million, or earnings per diluted share of $
0.19
, for the
three months
ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
(Dollars in thousands)
|
2019
|
|
2018
|
|
Variance
|
|
Net Income
|
$
|
192,694
|
|
|
$
|
61,394
|
|
|
$
|
131,300
|
|
|
Less: Net Income Attributable to Noncontrolling Interest
|
30,217
|
|
|
19,380
|
|
|
10,837
|
|
|
Net Income Attributable to CNX Resources Shareholders
|
$
|
162,477
|
|
|
$
|
42,014
|
|
|
$
|
120,463
|
|
CNX consists of two principal business divisions: Exploration and Production (E&P) and Midstream.
The principal activity of the E&P Division 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.
CNX's E&P Division had
earnings
before income tax of $
188
million for the
three months
ended
June 30, 2019
, compared to
earnings
before income tax of $
42
million for the
three months
ended
June 30, 2018
. Included in the 2019 earnings was an unrealized gain on commodity derivative instruments of $
211
million. Included in the 2018 earnings was an unrealized gain on commodity derivative instruments of $
9
million.
CNX's Midstream Division's principal activity is the ownership, operation, development and acquisition of natural gas gathering and other midstream energy assets, through 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.
As a result of the Midstream Acquisition (See Note 5 - Acquisitions and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q), CNX owns and controls 100% of CNX Gathering, making CNXM a single-sponsor master limited partnership and thus the Company began consolidating on January 3, 2018. Prior to the acquisition, CNX accounted for its interests in CNX Gathering and CNXM as an equity-method investment.
CNX's Midstream Division had earnings before income tax of $
44 million
for the
three months
ended
June 30, 2019
, compared to earnings before income tax of $
28 million
for the
three months
ended
June 30, 2018
.
E&P Division Summary
Sales volumes, average sales price (including the effects of settled derivative instruments), and average costs for the E&P Division were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Sales Volumes (Bcfe)
|
134.5
|
|
|
122.6
|
|
|
11.9
|
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price (per Mcfe)
|
$
|
2.63
|
|
|
$
|
2.87
|
|
|
$
|
(0.24
|
)
|
|
(8.4
|
)%
|
|
Lease Operating Expense (per Mcfe)
|
0.15
|
|
|
0.21
|
|
|
(0.06
|
)
|
|
(28.6
|
)%
|
|
Production, Ad Valorem, and Other Fees (per Mcfe)
|
0.05
|
|
|
0.06
|
|
|
(0.01
|
)
|
|
(16.7
|
)%
|
|
Transportation, Gathering and Compression (per Mcfe)
|
0.98
|
|
|
0.82
|
|
|
0.16
|
|
|
19.5
|
%
|
|
Depreciation, Depletion and Amortization (DD&A) (per Mcfe)
|
0.89
|
|
|
0.91
|
|
|
(0.02
|
)
|
|
(2.2
|
)%
|
|
Average Costs (per Mcfe)
|
2.07
|
|
|
2.00
|
|
|
0.07
|
|
|
3.5
|
%
|
|
Average Margin (per Mcfe)
|
$
|
0.56
|
|
|
$
|
0.87
|
|
|
$
|
(0.31
|
)
|
|
(35.6
|
)%
|
Natural gas, NGLs, and oil revenue was $
343
million for the
three months
ended
June 30, 2019
, compared to $
335
million for the
three months
ended
June 30, 2018
. The increase was primarily due to the
9.7%
increase in total sales volumes, offset in part by the decrease in natural gas pricing, when excluding the impact of hedging, as well as a decrease in NGL pricing.
The decrease in average sales price per Mcfe was the result of the $
0.07
per Mcf decrease in the realized gain on commodity derivative instruments related to the Company's hedging program, a $0.14 per Mcfe decrease in the uplift from NGLs and condensate sales volumes when excluding the impact of hedging, and a
$0.04
per Mcf decrease in general natural gas prices, in the markets in which CNX sells its natural gas, during the current period.
Changes in the average costs per Mcfe were primarily related to the following items:
|
|
|
|
•
|
Lease operating expense decreased on a per unit basis primarily due to a decrease in water disposal costs in the period-to-period comparison due to an increase in the reuse of produced water in well completions in the current period.
|
|
|
|
|
•
|
Transportation, gathering, and compression expense increased on a per-unit basis primarily due to an increase in CNXM gathering fees related to an increase in our Marcellus production and an increase in firm transportation expense primarily as a result of new contracts that give CNX the ability to move and sell natural gas outside of the Appalachian basin. The decrease in production from CNX's lower cost dry Utica volumes also contributed to the increase on a per unit basis.
|
The following table presents a breakout of net liquid and natural gas sales information to assist in the understanding of the Company’s natural gas production and sales portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
in thousands (unless noted)
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent Change
|
|
LIQUIDS
|
|
|
|
|
|
|
|
|
|
NGLs:
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcfe)
|
|
7,855
|
|
|
8,365
|
|
|
(510
|
)
|
|
(6.1
|
)%
|
|
Sales Volume (Mbbls)
|
|
1,309
|
|
|
1,394
|
|
|
(85
|
)
|
|
(6.1
|
)%
|
|
Gross Price ($/Bbl)
|
|
$
|
18.36
|
|
|
$
|
28.38
|
|
|
$
|
(10.02
|
)
|
|
(35.3
|
)%
|
|
Gross Revenue
|
|
$
|
24,025
|
|
|
$
|
39,557
|
|
|
$
|
(15,532
|
)
|
|
(39.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Oil:
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcfe)
|
|
10
|
|
|
69
|
|
|
(59
|
)
|
|
(85.5
|
)%
|
|
Sales Volume (Mbbls)
|
|
2
|
|
|
11
|
|
|
(9
|
)
|
|
(81.8
|
)%
|
|
Gross Price ($/Bbl)
|
|
$
|
50.52
|
|
|
$
|
58.32
|
|
|
$
|
(7.80
|
)
|
|
(13.4
|
)%
|
|
Gross Revenue
|
|
$
|
89
|
|
|
$
|
670
|
|
|
$
|
(581
|
)
|
|
(86.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Condensate:
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcfe)
|
|
222
|
|
|
528
|
|
|
(306
|
)
|
|
(58.0
|
)%
|
|
Sales Volume (Mbbls)
|
|
37
|
|
|
88
|
|
|
(51
|
)
|
|
(58.0
|
)%
|
|
Gross Price ($/Bbl)
|
|
$
|
45.36
|
|
|
$
|
56.82
|
|
|
$
|
(11.46
|
)
|
|
(20.2
|
)%
|
|
Gross Revenue
|
|
$
|
1,680
|
|
|
$
|
4,996
|
|
|
$
|
(3,316
|
)
|
|
(66.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
GAS
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcf)
|
|
126,378
|
|
|
113,599
|
|
|
12,779
|
|
|
11.2
|
%
|
|
Sales Price ($/Mcf)
|
|
$
|
2.51
|
|
|
$
|
2.55
|
|
|
$
|
(0.04
|
)
|
|
(1.6
|
)%
|
|
Gross Revenue
|
|
$
|
317,071
|
|
|
$
|
289,294
|
|
|
$
|
27,777
|
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Hedging Impact ($/Mcf)
|
|
$
|
0.08
|
|
|
$
|
0.15
|
|
|
$
|
(0.07
|
)
|
|
(46.7
|
)%
|
|
Gain on Commodity Derivative Instruments - Cash Settlement
|
|
10,672
|
|
|
16,684
|
|
|
(6,012
|
)
|
|
(36.0
|
)%
|
Selling, General and Administrative (SG&A) - Total Company
SG&A costs include costs such as overhead, including employee labor and benefit costs, short-term incentive compensation, costs of maintaining our headquarters, audit and other professional fees, and legal compliance expenses. SG&A costs also include non-cash long-term equity-based compensation expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
(in millions)
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
SG&A
|
|
|
|
|
|
|
|
|
Salaries and Wages
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
—
|
%
|
|
Long-Term Equity-Based Compensation (Non-Cash)
|
24
|
|
|
6
|
|
|
18
|
|
|
300.0
|
%
|
|
Short-Term Incentive Compensation
|
3
|
|
|
6
|
|
|
(3
|
)
|
|
(50.0
|
)%
|
|
Other
|
12
|
|
|
13
|
|
|
(1
|
)
|
|
(7.7
|
)%
|
|
Total SG&A
|
$
|
49
|
|
|
$
|
35
|
|
|
$
|
14
|
|
|
40.0
|
%
|
Long-Term Equity-Based Compensation
- During the three months ended
June 30, 2019
, the Company incurred $20 million of additional long-term equity-based compensation (non-cash) expense, which is included in Selling, General, and Administrative Costs in the Consolidated Statements of Income, as a result of the acceleration of vesting of certain restricted stock units and performance share units held by certain employees. The expense related to the restricted stock units is based on the closing stock price on the grant date, and the expense related to the performance share units is based upon a Monte Carlo valuation as of the grant date, with any payout of such performance share units continuing to be subject to the attainment of performance goals (total shareholder return relative to the S&P 500 index and absolute stock price growth). As of June 30, 2019, in order for the expense to result in equivalent value for these certain employees, the Company stock price would have to rebound materially. See Note 2 - Earnings Per Share in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information
Unallocated Expense
Certain costs and expenses, such as other (income) expense, (gain) loss on asset sales and abandonments related to non-core assets, loss on debt extinguishment, impairment of other intangible assets and income taxes are unallocated expenses and therefore are excluded from the per unit costs above as well as segment reporting. Below is a summary of these costs and expenses:
Other (Income) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
(in millions)
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Other Income
|
|
|
|
|
|
|
|
|
Royalty Income
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
(2
|
)
|
|
(66.7
|
)%
|
|
Right of Way Sales
|
3
|
|
|
1
|
|
|
2
|
|
|
200.0
|
%
|
|
Other
|
1
|
|
|
2
|
|
|
(1
|
)
|
|
(50.0
|
)%
|
|
Total Other Income
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
(1
|
)
|
|
(16.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
Other Expense
|
|
|
|
|
|
|
|
|
Professional Services
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
—
|
%
|
|
Bank Fees
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
%
|
|
Other Corporate Expense
|
1
|
|
|
3
|
|
|
(2
|
)
|
|
(66.7
|
)%
|
|
Total Other Expense
|
$
|
5
|
|
|
$
|
7
|
|
—
|
|
$
|
(2
|
)
|
|
(28.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
Total Other (Income) Expense
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
(100.0
|
)%
|
(Gain) Loss on Asset Sales and Abandonments
A nominal gain on asset sales related to non-core assets was recognized in the
three months
ended
June 30, 2019
compared to a gain of $
3 million
in the
three months
ended
June 30, 2018
. See Note 5 - Acquisitions and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
Loss on Debt Extinguishment
Loss on debt extinguishment was nominal in the
three months
ended
June 30, 2019
compared to a loss on debt extinguishment of $
23 million
in the
three months
ended
June 30, 2018
. During the
three months
end
June 30, 2018
, CNX purchased $
300
million of its
8.00% Senior notes due in April 2023
at an average price equal to
106.0%
of the principal amount. See Note 10 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
Impairment of Other Intangible Assets
Intangible assets are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the carrying amount of the asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The impairment loss to be recorded would be the excess of the asset's carrying value over its fair value.
In connection with the AEA with HG Energy (See Note 5 - Acquisition and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information) that occurred during the
three months
ended
June 30, 2018
, CNX determined that the carrying value of the other intangible asset - customer relationship exceeded its fair value, and an impairment of $
19 million
was included in Impairment of Other Intangible Assets in the Consolidated Statement of Income. No such transactions occurred in the current period.
Income Taxes
The effective income tax rate was
17.5%
for the
three months
ended
June 30, 2019
compared to
(102.7)%
for the
three months
ended
June 30, 2018
. The effective rate for the
three months
ended
June 30, 2019
differs from the U.S. federal statutory rate of 21% primarily due to the impact of noncontrolling interest, equity compensation, and state income taxes. The effective rate for the
three months
ended
June 30, 2018
differs from the U.S. federal statutory rate of 21% primarily due to a benefit from the filing of a federal 10-year net operating loss ("NOL") carryback which resulted in the Company being able to utilize previously valued tax attributes at a tax rate differential of 14%, as well as non-controlling interest. The benefits were partially offset by increases for both state income taxes and state valuation allowances.
See Note 6 - Income Taxes in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
(in millions)
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Total Company Earnings Before Income Tax
|
$
|
233
|
|
|
$
|
30
|
|
|
$
|
203
|
|
|
676.7
|
%
|
|
Income Tax Expense (Benefit)
|
$
|
41
|
|
|
$
|
(31
|
)
|
|
$
|
72
|
|
|
(232.3
|
)%
|
|
Effective Income Tax Rate
|
17.5
|
%
|
|
(102.7
|
)%
|
|
120.2
|
%
|
|
|
TOTAL E&P DIVISION ANALYSIS for the
three months
ended
June 30, 2019
compared to the
three months
ended
June 30, 2018
:
The E&P division had
earnings
before income tax of $
188
million for the
three months
ended
June 30, 2019
compared to
earnings
before income tax of $
42
million for the
three months
ended
June 30, 2018
. Variances by individual E&P segment are discussed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
Difference to Three Months Ended
|
|
|
June 30, 2019
|
|
June 30, 2018
|
|
(in millions)
|
Marcellus
|
|
Utica
|
|
CBM
|
|
Other
Gas
|
|
Total E&P
|
|
Marcellus
|
|
Utica
|
|
CBM
|
|
Other
Gas
|
|
Total
E&P
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
237
|
|
|
$
|
66
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
343
|
|
|
$
|
59
|
|
|
$
|
(42
|
)
|
|
$
|
(7
|
)
|
|
$
|
(2
|
)
|
|
$
|
8
|
|
|
Gain on Commodity Derivative Instruments
|
7
|
|
2
|
|
|
1
|
|
|
211
|
|
|
221
|
|
|
(2
|
)
|
|
(3
|
)
|
|
(1
|
)
|
|
201
|
|
|
195
|
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
9
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
|
Total Revenue and Other Operating Income
|
244
|
|
|
68
|
|
|
41
|
|
|
233
|
|
|
586
|
|
|
57
|
|
|
(45
|
)
|
|
(8
|
)
|
|
203
|
|
|
207
|
|
|
Lease Operating Expense
|
11
|
|
|
4
|
|
|
4
|
|
|
1
|
|
|
20
|
|
|
—
|
|
|
(5
|
)
|
|
(1
|
)
|
|
1
|
|
|
(5
|
)
|
|
Production, Ad Valorem, and Other Fees
|
4
|
|
|
2
|
|
|
2
|
|
|
(1
|
)
|
|
7
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
Transportation, Gathering and Compression
|
114
|
|
|
8
|
|
|
10
|
|
|
—
|
|
|
132
|
|
|
41
|
|
|
(8
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
31
|
|
|
Depreciation, Depletion and Amortization
|
65
|
|
|
36
|
|
|
17
|
|
|
3
|
|
|
121
|
|
|
14
|
|
|
(4
|
)
|
|
(2
|
)
|
|
2
|
|
|
10
|
|
|
Exploration and Production Related Other Costs
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Purchased Gas Costs
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
9
|
|
|
Other Operating Expense
|
—
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
18
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Selling, General and Administrative Costs
|
—
|
|
|
—
|
|
|
—
|
|
|
44
|
|
|
44
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
15
|
|
|
Total Operating Costs and Expenses
|
194
|
|
|
50
|
|
|
33
|
|
|
89
|
|
|
366
|
|
|
54
|
|
|
(17
|
)
|
|
(4
|
)
|
|
27
|
|
|
60
|
|
|
Interest Expense
|
—
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
32
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Total E&P Division Costs
|
194
|
|
|
50
|
|
|
33
|
|
|
121
|
|
|
398
|
|
|
54
|
|
|
(17
|
)
|
|
(4
|
)
|
|
28
|
|
|
61
|
|
|
Earnings Before Income Tax
|
$
|
50
|
|
|
$
|
18
|
|
|
$
|
8
|
|
|
$
|
112
|
|
|
$
|
188
|
|
|
$
|
3
|
|
|
$
|
(28
|
)
|
|
$
|
(4
|
)
|
|
$
|
175
|
|
|
$
|
146
|
|
MARCELLUS SEGMENT
The Marcellus segment had
earnings
before income tax of $
50
million for the
three months
ended
June 30, 2019
compared to
earnings
before income tax of $
47
million for the
three months
ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Marcellus Gas Sales Volumes (Bcf)
|
84.3
|
|
|
58.0
|
|
|
26.3
|
|
|
45.3
|
%
|
|
NGLs Sales Volumes (Bcfe)*
|
7.9
|
|
|
6.3
|
|
|
1.6
|
|
|
25.4
|
%
|
|
Condensate Sales Volumes (Bcfe)*
|
0.2
|
|
|
0.4
|
|
|
(0.2
|
)
|
|
(50.0
|
)%
|
|
Total Marcellus Sales Volumes (Bcfe)*
|
92.4
|
|
|
64.7
|
|
|
27.7
|
|
|
42.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Gas (per Mcf)
|
$
|
2.51
|
|
|
$
|
2.47
|
|
|
$
|
0.04
|
|
|
1.6
|
%
|
|
Gain on Commodity Derivative Instruments - Cash Settlement - Gas (per Mcf)
|
$
|
0.08
|
|
|
$
|
0.16
|
|
|
$
|
(0.08
|
)
|
|
(50.0
|
)%
|
|
Average Sales Price - NGLs (per Mcfe)*
|
$
|
3.06
|
|
|
$
|
4.95
|
|
|
$
|
(1.89
|
)
|
|
(38.2
|
)%
|
|
Average Sales Price - Condensate (per Mcfe)*
|
$
|
7.52
|
|
|
$
|
9.32
|
|
|
$
|
(1.80
|
)
|
|
(19.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
Total Average Marcellus Sales Price (per Mcfe)
|
$
|
2.64
|
|
|
$
|
2.90
|
|
|
$
|
(0.26
|
)
|
|
(9.0
|
)%
|
|
Average Marcellus Lease Operating Expenses (per Mcfe)
|
0.12
|
|
|
0.16
|
|
|
(0.04
|
)
|
|
(25.0
|
)%
|
|
Average Marcellus Production, Ad Valorem, and Other Fees (per Mcfe)
|
0.04
|
|
|
0.07
|
|
|
(0.03
|
)
|
|
(42.9
|
)%
|
|
Average Marcellus Transportation, Gathering and Compression Costs (per Mcfe)
|
1.24
|
|
|
1.13
|
|
|
0.11
|
|
|
9.7
|
%
|
|
Average Marcellus Depreciation, Depletion and Amortization Costs (per Mcfe)
|
0.69
|
|
|
0.81
|
|
|
(0.12
|
)
|
|
(14.8
|
)%
|
|
Total Average Marcellus Costs (per Mcfe)
|
$
|
2.09
|
|
|
$
|
2.17
|
|
|
$
|
(0.08
|
)
|
|
(3.7
|
)%
|
|
Average Margin for Marcellus (per Mcfe)
|
$
|
0.55
|
|
|
$
|
0.73
|
|
|
$
|
(0.18
|
)
|
|
(24.7
|
)%
|
* NGLs and Condensate are converted to Mcfe at the rate of one barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not indicative of the relationship of oil, NGLs, condensate, and natural gas prices.
The Marcellus segment had natural gas, NGLs and oil revenue of $
237
million for the
three months
ended
June 30, 2019
compared to $
178
million for the
three months
ended
June 30, 2018
. The $
59
million
increase
was primarily due to a
42.8%
increase
in total Marcellus sales volumes. The
increase
in sales volumes was primarily due to additional wells being turned in-line throughout 2018 and the first
three months
of 2019 as part of the Company's ongoing drilling and completions program.
The
decrease
in the total average Marcellus sales price was primarily due to a
$1.89
per Mcfe
decrease
in the average NGL sales price and a
$0.08
per Mcf
decrease
in the realized
gain
on commodity derivative instruments resulting from the Company's hedging program. The notional amounts associated with these financial hedges represented approximately
61.9
Bcf of the Company's produced Marcellus gas sales volumes for the
three months
ended
June 30, 2019
at an average
gain
of
$0.11
per Mcf. For the
three months
ended
June 30, 2018
, these financial hedges represented approximately
47.4
Bcf at an average
gain
of
$0.20
per Mcf.
Total operating costs and expenses for the Marcellus segment were
$194
million for the
three months
ended
June 30, 2019
compared to
$140
million for the
three months
ended
June 30, 2018
. The
increase
in total dollars and
decrease
in unit costs for the Marcellus segment were due to the following items:
•
Marcellus lease operating expenses were consistent at
$11
million for the
three months
ended
June 30, 2019
and
June 30, 2018
. The
decrease
in unit costs was driven by the
42.8%
increase
in total Marcellus sales volumes.
•
Marcellus production, ad valorem, and other fees were
$4
million for the
three months
ended
June 30, 2019
compared to
$5
million for the
three months
ended
June 30, 2018
. The
decrease
in total dollars was primarily related to a decrease in CNX's severance tax liability due to the production mix by state. The
decrease
in unit costs was driven by the
decrease
d total dollars, along with the
42.8%
increase
in total Marcellus sales volumes.
•
Marcellus transportation, gathering and compression costs were
$114
million for the
three months
ended
June 30, 2019
compared to
$73
million for the
three months
ended
June 30, 2018
. The
increase
in total dollars was primarily related to the increase in production which resulted in an increase in both CNX Midstream fees as well as an increase in utilized firm transportation
expense. The increase in firm transportation total dollars was also related to new contracts that give CNX the ability to move and sell natural gas outside of the Appalachian basin. The
increase
in unit costs was driven by the
increase
d total dollars described above, partially offset by the
42.8%
increase
in total Marcellus sales volumes.
•
Depreciation, depletion and amortization costs attributable to the Marcellus segment were
$65
million for the
three months
ended
June 30, 2019
compared to
$51
million for the
three months
ended
June 30, 2018
. These amounts included depletion on a unit of production basis of
$0.69
per Mcfe and
$0.79
per Mcfe, respectively. The decrease in units of production depreciation, depletion and amortization rate is the result of positive reserve revisions within our core development area. The remaining depreciation, depletion and amortization costs were either recorded on a straight-line basis or related to asset retirement obligations.
UTICA SEGMENT
The Utica segment had
earnings
before income tax of
$18
million for the
three months
ended
June 30, 2019
compared to
earnings
before income tax of
$46
million for the
three months
ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Utica Gas Sales Volumes (Bcf)
|
28.1
|
|
|
40.4
|
|
|
(12.3
|
)
|
|
(30.4
|
)%
|
|
NGLs Sales Volumes (Bcfe)*
|
—
|
|
|
2.1
|
|
|
(2.1
|
)
|
|
(100.0
|
)%
|
|
Condensate Sales Volumes (Bcfe)*
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
(100.0
|
)%
|
|
Total Utica Sales Volumes (Bcfe)*
|
28.1
|
|
|
42.6
|
|
|
(14.5
|
)
|
|
(34.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Gas (per Mcf)
|
$
|
2.34
|
|
|
$
|
2.43
|
|
|
$
|
(0.09
|
)
|
|
(3.7
|
)%
|
|
Gain on Commodity Derivative Instruments - Cash Settlement- Gas (per Mcf)
|
$
|
0.10
|
|
|
$
|
0.13
|
|
|
$
|
(0.03
|
)
|
|
(23.1
|
)%
|
|
Average Sales Price - NGLs (per Mcfe)*
|
$
|
—
|
|
|
$
|
4.05
|
|
|
$
|
(4.05
|
)
|
|
(100.0
|
)%
|
|
Average Sales Price - Condensate (per Mcfe)*
|
$
|
—
|
|
|
$
|
9.92
|
|
|
$
|
(9.92
|
)
|
|
(100.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
Total Average Utica Sales Price (per Mcfe)
|
$
|
2.44
|
|
|
$
|
2.66
|
|
|
$
|
(0.22
|
)
|
|
(8.3
|
)%
|
|
Average Utica Lease Operating Expenses (per Mcfe)
|
0.15
|
|
|
0.21
|
|
|
(0.06
|
)
|
|
(28.6
|
)%
|
|
Average Utica Production, Ad Valorem, and Other Fees (per Mcfe)
|
0.05
|
|
|
0.03
|
|
|
0.02
|
|
|
66.7
|
%
|
|
Average Utica Transportation, Gathering and Compression Costs (per Mcfe)
|
0.27
|
|
|
0.38
|
|
|
(0.11
|
)
|
|
(28.9
|
)%
|
|
Average Utica Depreciation, Depletion and Amortization Costs (per Mcfe)
|
1.33
|
|
|
0.95
|
|
|
0.38
|
|
|
40.0
|
%
|
|
Total Average Utica Costs (per Mcfe)
|
$
|
1.80
|
|
|
$
|
1.57
|
|
|
$
|
0.23
|
|
|
14.6
|
%
|
|
Average Margin for Utica (per Mcfe)
|
$
|
0.64
|
|
|
$
|
1.09
|
|
|
$
|
(0.45
|
)
|
|
(41.3
|
)%
|
*NGLs and Condensate are converted to Mcfe at the rate of one barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not indicative of the relationship of oil, NGLs, condensate, and natural gas prices.
The Utica segment had natural gas, NGLs and oil revenue of $
66
million for the
three months
ended
June 30, 2019
compared to $
108
million for the
three months
ended
June 30, 2018
. The $
42
million
decrease
was primarily due to the
34.0%
decrease
in total Utica sales volumes. The
decrease
in total Utica sales volumes was primarily due to the sale of substantially all of CNX's Ohio Utica JV assets in the third quarter of 2018 as well as normal production declines in the remaining dry Utica wells.
The
decrease
in total average Utica sales price was primarily due to a
$0.09
decrease
in the average gas sales price, as well as a
$0.03
per Mcf
decrease
in the realized
gain
on commodity derivative instruments. The notional amounts associated with these financial hedges represented approximately
19.3
Bcf of the Company's produced Utica gas sales volumes for the
three months
ended
June 30, 2019
at an average
gain
of
$0.14
. For the
three months
ended
June 30, 2018
, these financial hedges represented approximately
29.6
Bcf at an average
gain
of
$0.15
per Mcf. Additionally, there was a
$0.10
per Mcfe
decrease
in the uplift from NGLs and condensate sales volumes when excluding the impact of hedging due to the sale of the previously mentioned JV assets in the third quarter of 2018 which consisted primarily of wet gas production.
Total operating costs and expenses for the Utica segment were
$50
million for the
three months
ended
June 30, 2019
compared to
$67
million for the
three months
ended
June 30, 2018
. The
decrease
in total dollars and
increase
in unit costs for the Utica segment were due to the following items:
•
Utica lease operating expense was
$4
million for the
three months
ended
June 30, 2019
compared to
$9
million for the
three months
ended
June 30, 2018
. The
decrease
in total dollars was primarily due to a decrease in water disposal costs due to lower production volumes and an increase in reuse of produced water in well completions as well as a reduction in well operating costs due to the overall decrease in Utica volumes described above. The
decrease
in unit costs was driven by the
decrease
in total dollars.
•
Utica transportation, gathering and compression costs were
$8
million for the
three months
ended
June 30, 2019
compared to
$16
million for the
three months
ended
June 30, 2018
. The
$8
million
decrease
in total dollars and
$0.11
per Mcfe
decrease
in unit costs were both due to the overall
decrease
in Utica volumes as well as the shift to lower cost dry Utica production.
•
Depreciation, depletion and amortization costs attributable to the Utica segment were
$36
million for the
three months
ended
June 30, 2019
compared to
$40
million for the
three months
ended
June 30, 2018
. These amounts included depletion on a unit of production basis of
$1.18
per Mcfe and
$0.93
per Mcfe, respectively. The increase in the units of production depreciation, depletion and amortization rate was due to negative reserve revisions, an increase in capital expenditures and a higher DD&A rate on deep dry Utica wells compared to the lower capital cost Utica wells which were part of the Ohio JV asset sale in 2018. The remaining depreciation, depletion and amortization costs were either recorded on a straight-line basis or related to asset retirement obligations.
COALBED METHANE (CBM) SEGMENT
The CBM segment had
earnings
before income tax of
$8
million for the
three months
ended
June 30, 2019
compared to
earnings
before income tax of
$12
million for the
three months
ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
CBM Gas Sales Volumes (Bcf)
|
13.9
|
|
|
14.8
|
|
|
(0.9
|
)
|
|
(6.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Gas (per Mcf)
|
$
|
2.85
|
|
|
$
|
3.17
|
|
|
$
|
(0.32
|
)
|
|
(10.1
|
)%
|
|
Gain on Commodity Derivative Instruments - Cash Settlement - Gas (per Mcf)
|
$
|
0.08
|
|
|
$
|
0.15
|
|
|
$
|
(0.07
|
)
|
|
(46.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
Total Average CBM Sales Price (per Mcf)
|
$
|
2.93
|
|
|
$
|
3.31
|
|
|
$
|
(0.38
|
)
|
|
(11.5
|
)%
|
|
Average CBM Lease Operating Expenses (per Mcf)
|
0.32
|
|
|
0.36
|
|
|
(0.04
|
)
|
|
(11.1
|
)%
|
|
Average CBM Production, Ad Valorem, and Other Fees (per Mcf)
|
0.13
|
|
|
0.11
|
|
|
0.02
|
|
|
18.2
|
%
|
|
Average CBM Transportation, Gathering and Compression Costs (per Mcf)
|
0.71
|
|
|
0.77
|
|
|
(0.06
|
)
|
|
(7.8
|
)%
|
|
Average CBM Depreciation, Depletion and Amortization Costs (per Mcf)
|
1.22
|
|
|
1.23
|
|
|
(0.01
|
)
|
|
(0.8
|
)%
|
|
Total Average CBM Costs (per Mcf)
|
$
|
2.38
|
|
|
$
|
2.47
|
|
|
$
|
(0.09
|
)
|
|
(3.6
|
)%
|
|
Average Margin for CBM (per Mcf)
|
$
|
0.55
|
|
|
$
|
0.84
|
|
|
$
|
(0.29
|
)
|
|
(34.5
|
)%
|
The CBM segment had natural gas revenue of
$40
million for the
three months
ended
June 30, 2019
compared to
$47
million for the
three months
ended
June 30, 2018
. The
$7
million
decrease
was primarily due to the
6.1%
decrease
in total CBM sales volumes and the
11.5%
decrease
in total average CBM sales price. The
decrease
in CBM sales volumes was primarily due to normal well declines.
The total average CBM sales price
decrease
d
$0.38
per Mcf due to a
$0.32
decrease
in the average gas sales price, along with a
$0.07
per Mcf
decrease
in the
gain
on commodity derivative instruments resulting from the Company's hedging program. The notional amounts associated with these financial hedges represented approximately
9.5
Bcf of the Company's produced CBM sales volumes for the
three months
ended
June 30, 2019
at an average
gain
of
$0.11
per Mcf. For the
three months
ended
June 30, 2018
, these financial hedges represented approximately
11.4
Bcf at an average
gain
of
$0.21
per Mcf.
Total operating costs and expenses for the CBM segment were
$33
million for the
three months
ended
June 30, 2019
compared to
$37
million for the
three months
ended
June 30, 2018
. The
decrease
in total dollars and
decrease
in unit costs for the CBM segment were due to the following items:
•
CBM lease operating expense was $
4
million for the
three months
ended
June 30, 2019
compared to $
5
million for the
three months
ended
June 30, 2018
. The $
1
million
decrease
was primarily due to reductions in contractor services and a decrease in repairs and maintenance costs. The
decrease
in unit costs was also due to the
decrease
in total dollars.
•
CBM transportation, gathering and compression costs were $
10
million for the
three months
ended
June 30, 2019
compared to $
11
million for the
three months
ended
June 30, 2018
. The $
1
million
decrease
in total dollars as well as the
$0.06
per Mcf
decrease
in unit costs were primarily related to a decrease in electrical power expense as well as a decrease in contractor services.
•
Depreciation, depletion and amortization costs attributable to the CBM segment were $
17
million for the
three months
ended
June 30, 2019
compared to $
19
million for the
three months
ended
June 30, 2018
. These amounts included depletion on a unit of production basis of $
0.70
per Mcfe for each corresponding period. The remaining depreciation, depletion and amortization costs were either recorded on a straight-line basis or related to asset retirement obligations.
OTHER GAS SEGMENT
The Other Gas segment had
earnings
before income tax of $
112
million for the
three months
ended
June 30, 2019
compared to
a loss
before income tax of $
63
million for the
three months
ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Other Gas Sales Volumes (Bcf)
|
0.1
|
|
|
0.4
|
|
|
(0.3
|
)
|
|
(75.0
|
)%
|
|
Oil Sales Volumes (Bcfe)*
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
(100.0
|
)%
|
|
Total Other Sales Volumes (Bcfe)*
|
0.1
|
|
|
0.5
|
|
|
(0.4
|
)
|
|
(80.0
|
)%
|
*Oil is converted to Mcfe at the rate of one barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not indicative of the relationship of oil and natural gas prices.
The Other Gas segment includes activity not assigned to the Marcellus, Utica, or CBM segments. This segment also includes purchased gas activity, unrealized gain on commodity derivative instruments, exploration and production related other costs and other operational activity not assigned to a specific segment.
Other Gas sales volumes are primarily related to shallow oil and gas production. CNX sold substantially all of these assets on March 30, 2018 (See Note 5 - Acquisitions and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information). There was nominal natural gas, NGLs and oil revenue related to the Other Gas segment for the
three months
ended
June 30, 2019
and
June 30, 2018
. Total operating costs and expenses related to these other gas sales volumes were $
1
million for each of the
three months
ended
June 30, 2019
and
June 30, 2018
.
The Other Gas segment recognized an unrealized
gain
on commodity derivative instruments of $
211
million for the
three months
ended
June 30, 2019
. For the
three months
ended
June 30, 2018
, the Other Gas segment recognized an unrealized
gain
on commodity derivative instruments of $
9
million as well as cash settlements
received
of $
1
million. The unrealized
gain
on commodity derivative instruments represents changes in the fair value of all of the Company's existing commodity hedges on a mark-to-market basis.
Purchased Gas
Purchased gas volumes represent volumes of gas purchased at market prices from third-parties and then resold in order to fulfill contracts with certain customers and to balance supply. Purchased gas revenues were $
19
million for the
three months
ended
June 30, 2019
compared to $
10
million for the
three months
ended
June 30, 2018
. Purchased gas costs were $
19
million for the
three months
ended
June 30, 2019
compared to $
10
million for the
three months
ended
June 30, 2018
. The period-to-period
increase
in purchased gas revenue was due to the
increase
in purchased gas sales volumes offset in part by a decrease in average sales price.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Purchased Gas Sales Volumes (in Bcfe)
|
7.8
|
|
|
3.5
|
|
|
4.3
|
|
|
122.9
|
%
|
|
Average Sales Price (per Mcfe)
|
$
|
2.40
|
|
|
$
|
2.82
|
|
|
$
|
(0.42
|
)
|
|
(14.9
|
)%
|
|
Average Cost (per Mcfe)
|
$
|
2.40
|
|
|
$
|
2.77
|
|
|
$
|
(0.37
|
)
|
|
(13.4
|
)%
|
Other Operating Income
Other operating income was $
3
million for the
three months
ended
June 30, 2019
compared to $
8
million for the
three months
ended
June 30, 2018
. The $
5
million
decrease
was due to the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
(in millions)
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Water Income
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
(4
|
)
|
|
(100.0
|
)%
|
|
Equity in Earnings of Affiliates
|
1
|
|
|
2
|
|
|
(1
|
)
|
|
(50.0
|
)%
|
|
Gathering Income
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
%
|
|
Total Other Operating Income
|
$
|
3
|
|
|
$
|
8
|
|
|
$
|
(5
|
)
|
|
(62.5
|
)%
|
|
|
|
|
•
|
Water income
decreased
$4
million due to sales of freshwater to third-parties for hydraulic fracturing in the 2018 period. There were nominal sales in the 2019 period.
|
Exploration and Production Related Other Costs
Exploration and production related other costs were
$5
million for the
three months
ended
June 30, 2019
compared to
$4
million for the
three months
ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
(in millions)
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Lease Expiration Costs
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
200.0
|
%
|
|
Land Rentals
|
2
|
|
|
1
|
|
|
1
|
|
|
100.0
|
%
|
|
Other
|
—
|
|
|
2
|
|
|
(2
|
)
|
|
(100.0
|
)%
|
|
Total Exploration and Production Other Costs
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
1
|
|
|
25.0
|
%
|
Other Operating Expense
Other operating expense was
$18
million for the
three months
ended
June 30, 2019
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Water Expense
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
(3
|
)
|
|
(100.0
|
)%
|
|
Consulting and Professional Services
|
—
|
|
|
3
|
|
|
(3
|
)
|
|
(100.0
|
)%
|
|
Insurance Expense
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
%
|
|
Idle Equipment and Service Charges
|
3
|
|
|
1
|
|
|
2
|
|
|
200.0
|
%
|
|
Unutilized Firm Transportation and Processing Fees
|
14
|
|
|
10
|
|
|
4
|
|
|
40.0
|
%
|
|
Total Other Operating Expense
|
$
|
18
|
|
|
$
|
18
|
|
|
$
|
—
|
|
|
—
|
%
|
|
|
|
|
•
|
Water Expense
decrease
d
$3
million due to the associated costs related to the sale of freshwater to third-parties for hydraulic fracturing in the 2018 period as shown in Total Other Operating Income above. There were nominal sales in the 2019 period.
|
|
|
|
|
•
|
Consulting and Professional Services in the prior year mainly related to the sale of the majority of CNX's shallow oil and gas assets in 2018 (See Note 5 - Acquisitions and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information).
|
|
|
|
|
•
|
Idle Equipment and Service Charges primarily relate to the temporary idling of some of the Company's natural gas drilling rigs as well as related equipment and other services that may be needed in the natural gas drilling and completions process. The
increase
of
$2
million in the period-to-period comparison was primarily a result of the acceleration of five months of idle rig expense due to CNX terminating one of its drilling rig contacts early.
|
|
|
|
|
•
|
Unutilized Firm Transportation and Processing Fees represent pipeline transportation capacity obtained to enable gas production to flow uninterrupted as sales volumes increase, as well as additional processing capacity for NGLs. The
increase
in the period-to-period comparison was primarily due to previously-acquired capacity which was not utilized during the current period to transport the Company’s flowing production. The Company attempts to minimize this expense by releasing (selling) unutilized firm transportation capacity to other parties when possible and when beneficial. The
|
revenue received when this capacity is released (sold) is included in Gathering Income in Total Other Operating Income above.
Selling, General and Administrative
SG&A costs represent direct charges for the management and operation of CNX's E&P division. SG&A costs were $
44
million for the
three months
ended
June 30, 2019
compared to $
29
million for the
three months
ended
June 30, 2018
. Refer to the discussion of total company SG&A costs contained in the section "Net Income Attributable to CNX Resources Shareholders"
of this Form 10-Q for a detailed cost explanation.
Interest Expense
Interest expense of $
32
million was recognized in the
three months
ended
June 30, 2019
compared to $
31
million in the
three months
ended
June 30, 2018
. The $
1
million
increase
was primarily due to additional borrowings on the CNX credit facility, offset, in part, by the reduction in higher-cost long-term debt resulting from the $500 million purchase, in the 2018 period, of the outstanding 8.00% senior notes due in April 2023, $300 million of which was purchased during the
three months
ended
June 30, 2018
. See Note 10 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
TOTAL MIDSTREAM DIVISION ANALYSIS for the
three months
ended
June 30, 2019
compared to the
three months
ended
June 30, 2018
:
CNX's Midstream Division's principal activity 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.
On January 3, 2018, CNX completed the Midstream Acquisition (See Note 5 - Acquisitions and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information). CNX Gathering holds all of the interests in CNX Midstream GP LLC, which holds the general partner interest and incentive distribution rights in CNXM. As a result of this transaction, CNX owns and controls 100% of CNX Gathering, making CNXM a single-sponsor master limited partnership and thus the Company began consolidating CNXM on January 3, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
(in millions)
|
2019
|
|
2018
|
|
Variance
|
|
Midstream Revenue - Related Party
|
$
|
60
|
|
|
$
|
38
|
|
|
$
|
22
|
|
|
Midstream Revenue - Third Party
|
18
|
|
|
23
|
|
|
(5
|
)
|
|
Total Revenue
|
$
|
78
|
|
|
$
|
61
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
Transportation, Gathering and Compression
|
$
|
13
|
|
|
$
|
12
|
|
|
$
|
1
|
|
|
Depreciation, Depletion and Amortization
|
8
|
|
|
8
|
|
|
—
|
|
|
Selling, General, and Administrative Costs
|
5
|
|
|
6
|
|
|
(1
|
)
|
|
Total Operating Costs and Expenses
|
26
|
|
|
26
|
|
|
—
|
|
|
Interest Expense
|
8
|
|
|
7
|
|
|
1
|
|
|
Total Midstream Division Costs
|
34
|
|
|
33
|
|
|
1
|
|
|
Earnings Before Income Tax
|
$
|
44
|
|
|
$
|
28
|
|
|
$
|
16
|
|
Midstream Revenue
Midstream revenue consists of revenue related to volumes gathered on behalf of CNX and other third-party natural gas producers. CNXM charges a higher fee for natural gas that is shipped on its wet system compared to gas shipped through its dry system. CNXM revenue can also be impacted by the relative mix of gathered volumes by area, which may vary depending upon delivery point and may change dynamically depending on commodity prices at time of shipment.
The table below summarizes volumes gathered by gas type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Dry Gas (BBtu/d) (*)
|
891
|
|
|
698
|
|
|
193
|
|
|
Wet Gas (BBtu/d) (*)
|
731
|
|
|
653
|
|
|
78
|
|
|
Other (BBtu/d) (*)(**)
|
178
|
|
|
9
|
|
|
169
|
|
|
Total Gathered Volumes
|
1,800
|
|
|
1,360
|
|
|
440
|
|
(*) Classification as dry or wet is based upon the shipping destination of the related volumes. Because CNXM's customers have the option to ship a portion of their natural gas to destinations associated with either our wet system or our dry system, due to any number of factors, volumes may be classified as “wet” in one period and as “dry” in the comparative period.
(**) Includes condensate handling and third-party volumes under high-pressure short-haul agreements.
Transportation, Gathering and Compression
Transportation, Gathering and Compression costs were
$13 million
for the
three months
ended
June 30, 2019
compared to
$12 million
for the
three months
ended
June 30, 2018
and are comprised of items directly related to the cost of gathering natural gas at the wellhead and transporting it to interstate pipelines or other local sales points. These costs include items such as electrically-powered compression, compressor rental, repairs and maintenance, supplies, treating and contract services.
Selling, General and Administrative Expense
SG&A expense is comprised of direct charges for the management and operation of CNXM assets. SG&A costs were
$5 million
for the
three months
ended
June 30, 2019
compared to
$6 million
for the
three months
ended
June 30, 2018
. Refer to the discussion of total Company SG&A costs contained in the section "Net Income Attributable to CNX Resources Shareholders"
of this Form 10-Q for a detailed cost explanation.
Depreciation Expense
Depreciation expense is recognized on gathering and other equipment on a straight-line basis, with useful lives ranging from 25 years to 40 years.
Interest Expense
Interest expense is comprised of interest on the outstanding balance under CNXM's senior notes due 2026 and its revolving credit facility. Interest expense was
$8 million
for the
three months
ended
June 30, 2019
compared to
$7 million
for the
three months
ended
June 30, 2018
.
Results of Operations -
Six Months Ended
June 30, 2019
Compared with
Six Months Ended
June 30, 2018
Net Income Attributable to CNX Resources Shareholders
CNX reported net income attributable to CNX Resources shareholders of $
75
million, or earnings per diluted share of $
0.38
for the
six months
ended
June 30, 2019
, compared to net income attributable to CNX Resources shareholders of $
570
million, or earnings per diluted share of $
2.57
, for the
six months
ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
(Dollars in thousands)
|
2019
|
|
2018
|
|
Variance
|
|
Net Income
|
$
|
128,044
|
|
|
$
|
606,940
|
|
|
$
|
(478,896
|
)
|
|
Less: Net Income Attributable to Noncontrolling Interest
|
52,904
|
|
|
37,363
|
|
|
15,541
|
|
|
Net Income Attributable to CNX Resources Shareholders
|
$
|
75,140
|
|
|
$
|
569,577
|
|
|
$
|
(494,437
|
)
|
CNX consists of two principal business divisions: Exploration and Production (E&P) and Midstream.
The principal activity of the E&P Division 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.
CNX's E&P Division had
earnings
before income tax of $
82
million for the
six months
ended
June 30, 2019
, compared to
earnings
before income tax of $
142
million for the
six months
ended
June 30, 2018
. Included in 2019 earnings was an unrealized gain on commodity derivative instruments of $
57
million. Included in the 2018 earnings was an unrealized gain on commodity derivative instruments of $
61
million.
CNX's Midstream Division's principal activity is the ownership, operation, development and acquisition of natural gas gathering and other midstream energy assets, through 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.
As a result of the Midstream Acquisition (See Note 5 - Acquisitions and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q), CNX owns and controls 100% of CNX Gathering, making CNXM a single-sponsor master limited partnership and thus the Company began consolidating CNXM on January 3, 2018. The resulting gain on remeasurement to fair value of the previously held equity interest in CNX Gathering and CNXM of $
624 million
was included in the Gain on Previously Held Equity Interest line of the Consolidated Statements of Income in the 2018 period and was part of CNX's unallocated expenses. No such transactions occurred in the current period. Prior to the acquisition, CNX accounted for its interests in CNX Gathering and CNXM as an equity-method investment.
CNX's Midstream Division had earnings before income tax of $
77 million
for the
six months
ended
June 30, 2019
, compared to earnings before income tax of $
63 million
for the period from January 3, 2018 through
June 30, 2018
.
E&P Division Summary
Sales volumes, average sales price (including the effects of settled derivative instruments), and average costs for the E&P Division were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Sales Volumes (Bcfe)
|
267.5
|
|
|
252.1
|
|
|
15.4
|
|
|
6.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price (per Mcfe)
|
$
|
2.80
|
|
|
$
|
2.94
|
|
|
$
|
(0.14
|
)
|
|
(4.8
|
)%
|
|
Lease Operating Expense (per Mcfe)
|
0.14
|
|
|
0.25
|
|
|
(0.11
|
)
|
|
(44.0
|
)%
|
|
Production, Ad Valorem, and Other Fees (per Mcfe)
|
0.05
|
|
|
0.07
|
|
|
(0.02
|
)
|
|
(28.6
|
)%
|
|
Transportation, Gathering and Compression (per Mcfe)
|
0.95
|
|
|
0.84
|
|
|
0.11
|
|
|
13.1
|
%
|
|
Depreciation, Depletion and Amortization (DD&A) (per Mcfe)
|
0.89
|
|
|
0.89
|
|
|
—
|
|
|
—
|
%
|
|
Average Costs (per Mcfe)
|
2.03
|
|
|
2.05
|
|
|
(0.02
|
)
|
|
(1.0
|
)%
|
|
Average Margin (per Mcfe)
|
$
|
0.77
|
|
|
$
|
0.89
|
|
|
$
|
(0.12
|
)
|
|
(13.5
|
)%
|
Natural gas, NGLs, and oil revenue was $
779
million for the
six months
ended
June 30, 2019
, compared to $
740
million for the
six months
ended
June 30, 2018
. The increase was primarily due to an increase in natural gas pricing, when excluding the impact of hedging and natural gas liquids, as well as a
6.1%
increase in total sales volumes.
The decrease in average sales price per Mcfe was the result of the $
0.12
per Mcf increase in the realized loss on commodity derivative instruments related to the Company's hedging program and a $0.13 per Mcfe decrease in the uplift from NGLs and condensate sales volumes when excluding the impact of hedging, offset in part by the $
0.11
per Mcf increase in general natural gas prices, in the markets in which CNX sells its natural gas, during the current period.
Changes in the average costs per Mcfe were primarily related to the following items:
|
|
|
|
•
|
Lease operating expense decreased on a per unit basis primarily due to a decrease in water disposal costs in the period-to-period comparison due to an increase in the reuse of produced water in well completions in the current period, and also due to the sale of the majority of CNX's shallow oil and gas assets and the sale of substantially all of CNX's Ohio Utica JV assets in 2018.
|
|
|
|
|
•
|
Transportation, gathering, and compression expense increased on a per-unit basis primarily due to an increase in CNXM gathering fees related to an increase in our Marcellus production and an increase in firm transportation expense primarily as a result of new contracts that give CNX the ability to move and sell natural gas outside of the Appalachian basin. The decrease in production from CNX's lower cost dry Utica volumes as well as the third quarter 2018 sale of CNX's Ohio JV assets also contributed to the increase on a per unit basis.
|
The following table presents a breakout of net liquid and natural gas sales information to assist in the understanding of the Company’s natural gas production and sales portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
in thousands (unless noted)
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent Change
|
|
LIQUIDS
|
|
|
|
|
|
|
|
|
|
NGLs:
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcfe)
|
|
14,536
|
|
|
19,474
|
|
|
(4,938
|
)
|
|
(25.4
|
)%
|
|
Sales Volume (Mbbls)
|
|
2,423
|
|
|
3,246
|
|
|
(823
|
)
|
|
(25.4
|
)%
|
|
Gross Price ($/Bbl)
|
|
$
|
22.20
|
|
|
$
|
27.84
|
|
|
$
|
(5.64
|
)
|
|
(20.3
|
)%
|
|
Gross Revenue
|
|
$
|
53,790
|
|
|
$
|
90,441
|
|
|
$
|
(36,651
|
)
|
|
(40.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Oil:
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcfe)
|
|
34
|
|
|
163
|
|
|
(129
|
)
|
|
(79.1
|
)%
|
|
Sales Volume (Mbbls)
|
|
6
|
|
|
27
|
|
|
(21
|
)
|
|
(77.8
|
)%
|
|
Gross Price ($/Bbl)
|
|
$
|
45.78
|
|
|
$
|
57.24
|
|
|
$
|
(11.46
|
)
|
|
(20.0
|
)%
|
|
Gross Revenue
|
|
$
|
256
|
|
|
$
|
1,558
|
|
|
$
|
(1,302
|
)
|
|
(83.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Condensate:
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcfe)
|
|
580
|
|
|
1,319
|
|
|
(739
|
)
|
|
(56.0
|
)%
|
|
Sales Volume (Mbbls)
|
|
97
|
|
|
220
|
|
|
(123
|
)
|
|
(55.9
|
)%
|
|
Gross Price ($/Bbl)
|
|
$
|
41.46
|
|
|
$
|
52.32
|
|
|
$
|
(10.86
|
)
|
|
(20.8
|
)%
|
|
Gross Revenue
|
|
$
|
4,007
|
|
|
$
|
11,499
|
|
|
$
|
(7,492
|
)
|
|
(65.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
GAS
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcf)
|
|
252,316
|
|
|
231,114
|
|
|
21,202
|
|
|
9.2
|
%
|
|
Sales Price ($/Mcf)
|
|
$
|
2.86
|
|
|
$
|
2.75
|
|
|
$
|
0.11
|
|
|
4.0
|
%
|
|
Gross Revenue
|
|
$
|
720,758
|
|
|
$
|
636,642
|
|
|
$
|
84,116
|
|
|
13.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Hedging Impact ($/Mcf)
|
|
$
|
(0.12
|
)
|
|
$
|
—
|
|
|
$
|
(0.12
|
)
|
|
(100.0
|
)%
|
|
Loss on Commodity Derivative Instruments - Cash Settlement
|
|
$
|
(30,710
|
)
|
|
$
|
(307
|
)
|
|
$
|
(30,403
|
)
|
|
(9,903.3
|
)%
|
Selling, General and Administrative (SG&A) - Total Company
SG&A costs include costs such as overhead, including employee labor and benefit costs, short-term incentive compensation, costs of maintaining our headquarters, audit and other professional fees, and legal compliance expenses. SG&A costs also include non-cash long-term equity-based compensation expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
(in millions)
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
SG&A
|
|
|
|
|
|
|
|
|
Salaries and Wages
|
$
|
21
|
|
|
$
|
21
|
|
|
$
|
—
|
|
|
—
|
%
|
|
Long-Term Equity-Based Compensation (Non-Cash)
|
35
|
|
|
11
|
|
|
24
|
|
|
218.2
|
%
|
|
Short-Term Incentive Compensation
|
7
|
|
|
11
|
|
|
(4
|
)
|
|
(36.4
|
)%
|
|
Other
|
22
|
|
|
23
|
|
|
(1
|
)
|
|
(4.3
|
)%
|
|
Total SG&A
|
$
|
85
|
|
|
$
|
66
|
|
|
$
|
19
|
|
|
28.8
|
%
|
Long-Term Equity-Based Compensation
- During the
six months
ended
June 30, 2019
, the Company incurred $20 million of additional long-term equity-based compensation (non-cash) expense, which is included in Selling, General, and Administrative Costs in the Consolidated Statements of Income, as a result of the acceleration of vesting of certain restricted stock units and performance share units held by certain employees. The expense related to the restricted stock units is based on the closing stock price on the grant date, and the expense related to the performance share units is based upon a Monte Carlo valuation as of the grant date, with any payout of such performance share units continuing to be subject to the attainment of performance goals (total shareholder return relative to the S&P 500 index and absolute stock price growth). As of June 30, 2019, in order for the expense to result in equivalent value for these certain employees, the Company stock price would have to rebound materially. See Note 2 - Earnings Per Share in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information
Unallocated Expense
Certain costs and expenses, such as other (income) expense, (gain) loss on asset sales and abandonments related to non-core assets, gain on previously held equity interest, loss on debt extinguishment, impairment of other intangible assets and income taxes are unallocated expenses and therefore are excluded from the per unit costs above as well as segment reporting. Below is a summary of these costs and expenses:
Other (Income) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
(in millions)
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Other Income
|
|
|
|
|
|
|
|
|
Royalty Income
|
$
|
4
|
|
|
$
|
10
|
|
|
$
|
(6
|
)
|
|
(60.0
|
)%
|
|
Right of Way Sales
|
4
|
|
|
4
|
|
|
—
|
|
|
—
|
%
|
|
Interest Income
|
1
|
|
|
—
|
|
|
1
|
|
|
100.0
|
%
|
|
Other
|
1
|
|
|
4
|
|
|
(3
|
)
|
|
(75.0
|
)%
|
|
Total Other Income
|
$
|
10
|
|
|
$
|
18
|
|
|
$
|
(8
|
)
|
|
(44.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
Other Expense
|
|
|
|
|
|
|
|
|
Professional Services
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
(4
|
)
|
|
(80.0
|
)%
|
|
Bank Fees
|
6
|
|
|
5
|
|
|
1
|
|
|
20.0
|
%
|
|
Other Corporate Expense
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
%
|
|
Total Other Expense
|
$
|
9
|
|
|
$
|
12
|
|
|
$
|
(3
|
)
|
|
(25.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
Total Other (Income) Expense
|
$
|
(1
|
)
|
|
$
|
(6
|
)
|
|
$
|
5
|
|
|
(83.3
|
)%
|
(Gain) Loss on Asset Sales and Abandonments
A gain on asset sales of $
5 million
related to non-core assets was recognized in the
six months
ended
June 30, 2019
compared to a gain of $13 million in the
six months
ended
June 30, 2018
. See Note 5 - Acquisitions and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
Also refer to the discussion of (Gain) Loss on Asset Sales and Abandonments
contained in the section "Total Midstream Division Analysis"
of this Form 10-Q for additional items that are not part of Unallocated Expense.
Gain on Previously Held Equity Interest
CNX recognized a gain on previously held equity interest of $
624 million
in the
six months
ended
June 30, 2018
due to the Midstream Acquisition in January 2018. No such transactions occurred in the current period. See Note 5 - Acquisitions and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
Loss on Debt Extinguishment
Loss on debt extinguishment of $
8 million
was recognized in the
six months
ended
June 30, 2019
compared to a loss on debt extinguishment of $
39 million
in the
six months
ended
June 30, 2018
. During the
six months
ended
June 30, 2019
, CNX purchased
$400
million of its
5.875% Senior notes due in April 2022
at an average price equal to
101.5%
of the principal amount. During the
six months
end
June 30, 2018
CNX purchased $
391
million of its
5.875% Senior notes due in April 2022
at an average price equal to
103.8%
of the principal amount and $
300
million of its
8.00% Senior notes due in April 2023
at an average price equal to
106.0%
of the principal amount. See Note 10 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
Impairment of Other Intangible Assets
Intangible assets are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the carrying amount of the asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The impairment loss to be recorded would be the excess of the asset's carrying value over its fair value.
In connection with the AEA with HG Energy (See Note 5 - Acquisition and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information) that occurred during the
six months
ended
June 30, 2018
, CNX determined that the carrying value of the other intangible asset - customer relationship exceeded its fair value, and an impairment of $
19 million
was included in Impairment of Other Intangible Assets in the Consolidated Statement of Income. No such transactions occurred in the current period.
Income Taxes
The effective income tax rate was
18.6%
for the
six months
ended
June 30, 2019
compared to
23.1%
for the
six months
ended
June 30, 2018
. The effective rate for the
six months
ended
June 30, 2019
differs from the U.S. federal statutory rate of 21% primarily due to the impact of noncontrolling interest, equity compensation, and state income taxes. The effective rate for the
six months
ended
June 30, 2018
differs from the U.S. federal statutory 21% primarily due to a benefit from the filing of a federal 10-year net operating loss ("NOL") carryback which resulted in the Company being able to utilize previously valued tax attributes at a tax rate differential of 14%, as well as non-controlling interest. The benefits were partially offset by increases for both state income taxes and state valuation allowances.
See Note 6 - Income Taxes in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
(in millions)
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Total Company Earnings Before Income Tax
|
$
|
157
|
|
|
$
|
790
|
|
|
$
|
(633
|
)
|
|
(80.1
|
)%
|
|
Income Tax Expense
|
$
|
29
|
|
|
$
|
183
|
|
|
$
|
(154
|
)
|
|
(84.2
|
)%
|
|
Effective Income Tax Rate
|
18.6
|
%
|
|
23.1
|
%
|
|
(4.5
|
)%
|
|
|
TOTAL E&P DIVISION ANALYSIS for the
six months
ended
June 30, 2019
compared to the
six months
ended
June 30, 2018
:
The E&P division had
earnings
before income tax of $
82
million for the
six months
ended
June 30, 2019
compared to
earnings
before income tax of $
142
million for the
six months
ended
June 30, 2018
. Variances by individual E&P segment are discussed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
Difference to Six Months Ended
|
|
|
June 30, 2019
|
|
June 30, 2018
|
|
(in millions)
|
Marcellus
|
|
Utica
|
|
CBM
|
|
Other
Gas
|
|
Total E&P
|
|
Marcellus
|
|
Utica
|
|
CBM
|
|
Other
Gas
|
|
Total
E&P
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
531
|
|
|
$
|
158
|
|
|
$
|
89
|
|
|
$
|
1
|
|
|
$
|
779
|
|
|
$
|
148
|
|
|
$
|
(80
|
)
|
|
$
|
(15
|
)
|
|
$
|
(14
|
)
|
|
$
|
39
|
|
|
(Loss) Gain on Commodity Derivative Instruments
|
(21
|
)
|
|
(7
|
)
|
|
(3
|
)
|
|
57
|
|
|
26
|
|
|
(21
|
)
|
|
(8
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|
(35
|
)
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
(13
|
)
|
|
Total Revenue and Other Operating Income
|
510
|
|
|
151
|
|
|
86
|
|
|
99
|
|
|
846
|
|
|
127
|
|
|
(88
|
)
|
|
(18
|
)
|
|
(23
|
)
|
|
(2
|
)
|
|
Lease Operating Expense
|
21
|
|
|
9
|
|
|
9
|
|
|
—
|
|
|
39
|
|
|
(6
|
)
|
|
(12
|
)
|
|
(3
|
)
|
|
(2
|
)
|
|
(23
|
)
|
|
Production, Ad Valorem, and Other Fees
|
7
|
|
|
3
|
|
|
4
|
|
|
—
|
|
|
14
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
Transportation, Gathering and Compression
|
218
|
|
|
16
|
|
|
19
|
|
|
1
|
|
|
254
|
|
|
68
|
|
|
(16
|
)
|
|
(7
|
)
|
|
(3
|
)
|
|
42
|
|
|
Depreciation, Depletion and Amortization
|
127
|
|
|
73
|
|
|
33
|
|
|
5
|
|
|
238
|
|
|
23
|
|
|
(7
|
)
|
|
(3
|
)
|
|
(2
|
)
|
|
11
|
|
|
Exploration and Production Related Other Costs
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
Purchased Gas Costs
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
8
|
|
|
Other Operating Expense
|
—
|
|
|
—
|
|
|
—
|
|
|
41
|
|
|
41
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
|
Selling, General and Administrative Costs
|
—
|
|
|
—
|
|
|
—
|
|
|
74
|
|
|
74
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
20
|
|
|
Total Operating Costs and Expenses
|
373
|
|
|
101
|
|
|
65
|
|
|
164
|
|
|
703
|
|
|
82
|
|
|
(35
|
)
|
|
(13
|
)
|
|
30
|
|
|
64
|
|
|
Interest Expense
|
—
|
|
|
—
|
|
|
—
|
|
|
61
|
|
|
61
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
|
Total E&P Division Costs
|
373
|
|
|
101
|
|
|
65
|
|
|
225
|
|
|
764
|
|
|
82
|
|
|
(35
|
)
|
|
(13
|
)
|
|
24
|
|
|
58
|
|
|
Earnings (Loss) Before Income Tax
|
$
|
137
|
|
|
$
|
50
|
|
|
$
|
21
|
|
|
$
|
(126
|
)
|
|
$
|
82
|
|
|
$
|
45
|
|
|
$
|
(53
|
)
|
|
$
|
(5
|
)
|
|
$
|
(47
|
)
|
|
$
|
(60
|
)
|
MARCELLUS SEGMENT
The Marcellus segment had
earnings
before income tax of $
137
million for the
six months
ended
June 30, 2019
compared to
earnings
before income tax of $
92
million for the
six months
ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Marcellus Gas Sales Volumes (Bcf)
|
166.0
|
|
|
114.1
|
|
|
51.9
|
|
|
45.5
|
%
|
|
NGLs Sales Volumes (Bcfe)*
|
14.5
|
|
|
15.5
|
|
|
(1.0
|
)
|
|
(6.5
|
)%
|
|
Condensate Sales Volumes (Bcfe)*
|
0.6
|
|
|
1.0
|
|
|
(0.4
|
)
|
|
(40.0
|
)%
|
|
Total Marcellus Sales Volumes (Bcfe)*
|
181.1
|
|
|
130.6
|
|
|
50.5
|
|
|
38.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Gas (per Mcf)
|
$
|
2.85
|
|
|
$
|
2.66
|
|
|
$
|
0.19
|
|
|
7.1
|
%
|
|
Loss on Commodity Derivative Instruments - Cash Settlement - Gas (per Mcf)
|
$
|
(0.12
|
)
|
|
$
|
—
|
|
|
$
|
(0.12
|
)
|
|
(100.0
|
)%
|
|
Average Sales Price - NGLs (per Mcfe)*
|
$
|
3.70
|
|
|
$
|
4.60
|
|
|
$
|
(0.90
|
)
|
|
(19.6
|
)%
|
|
Average Sales Price - Condensate (per Mcfe)*
|
$
|
6.88
|
|
|
$
|
8.73
|
|
|
$
|
(1.85
|
)
|
|
(21.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
Total Average Marcellus Sales Price (per Mcfe)
|
$
|
2.82
|
|
|
$
|
2.93
|
|
|
$
|
(0.11
|
)
|
|
(3.8
|
)%
|
|
Average Marcellus Lease Operating Expenses (per Mcfe)
|
0.11
|
|
|
0.20
|
|
|
(0.09
|
)
|
|
(45.0
|
)%
|
|
Average Marcellus Production, Ad Valorem, and Other Fees (per Mcfe)
|
0.04
|
|
|
0.08
|
|
|
(0.04
|
)
|
|
(50.0
|
)%
|
|
Average Marcellus Transportation, Gathering and Compression Costs (per Mcfe)
|
1.21
|
|
|
1.15
|
|
|
0.06
|
|
|
5.2
|
%
|
|
Average Marcellus Depreciation, Depletion and Amortization Costs (per Mcfe)
|
0.70
|
|
|
0.80
|
|
|
(0.10
|
)
|
|
(12.5
|
)%
|
|
Total Average Marcellus Costs (per Mcfe)
|
$
|
2.06
|
|
|
$
|
2.23
|
|
|
$
|
(0.17
|
)
|
|
(7.6
|
)%
|
|
Average Margin for Marcellus (per Mcfe)
|
$
|
0.76
|
|
|
$
|
0.70
|
|
|
$
|
0.06
|
|
|
8.6
|
%
|
* NGLs and Condensate are converted to Mcfe at the rate of one barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not indicative of the relationship of oil, NGLs, condensate, and natural gas prices.
The Marcellus segment had natural gas, NGLs and oil revenue of $
531
million for the
six months
ended
June 30, 2019
compared to $
383
million for the
six months
ended
June 30, 2018
. The $
148
million
increase
was primarily due to a
38.7%
increase
in total Marcellus sales volumes. The increase in sales volumes was primarily due to additional wells being turned in-line throughout 2018 and the first six months of 2019 as part of the Company's ongoing drilling and completions program.
The
decrease
in the total average Marcellus sales price was primarily due to a
$0.90
per Mcfe
decrease
in the average NGL sales price, as well as a
$0.12
per Mcf increase in the realized
loss
on commodity derivative instruments resulting from the Company's hedging program. The notional amounts associated with these financial hedges represented approximately
117.2
Bcf of the Company's produced Marcellus gas sales volumes for the
six months
ended
June 30, 2019
at an average
loss
of
$0.18
per Mcf. For the
six months
ended
June 30, 2018
, these financial hedges represented approximately
95.0
Bcf at a nominal
loss
. The decreases were offset, in part, by a
$0.19
per Mcfe increase average gas sales price.
Total operating costs and expenses for the Marcellus segment were $
373
million for the
six months
ended
June 30, 2019
compared to $
291
million for the
six months
ended
June 30, 2018
. The
increase
in total dollars and
decrease
in unit costs for the Marcellus segment were due to the following items:
•
Marcellus lease operating expenses were $
21
million for the
six months
ended
June 30, 2019
compared to $
27
million for the
six months
ended
June 30, 2018
. The
decrease
in total dollars was primarily due to a decrease in water disposal costs in the current period due to an increase in the reuse of produced water in well completions activity. The
decrease
in unit costs was driven by the
decrease
in total dollars, along with the
38.7%
increase
in total Marcellus sales volumes.
•
Marcellus production, ad valorem, and other fees were $
7
million for the
six months
ended
June 30, 2019
compared to $
10
million for the
six months
ended
June 30, 2018
. The
decrease
in total dollars was primarily related to a decrease in CNX's severance tax liability due to the production mix by state. The
decrease
in unit costs was driven by the
decrease
d total dollars, along with the
38.7%
increase
in total Marcellus sales volumes.
•
Marcellus transportation, gathering and compression costs were $
218
million for the
six months
ended
June 30, 2019
compared to $
150
million for the
six months
ended
June 30, 2018
. The
increase
in total dollars was primarily related to the increase in production which resulted in an increase in both CNX Midstream fees as well as an increase in utilized firm transportation expense. The increase in firm transportation total dollars was also related to new contracts that give CNX the ability to move and sell natural gas outside of the Appalachian basin. These increases were offset by lower processing costs from a drier production mix. The increase in unit costs was driven by the
increase
d total dollars described above, partially offset by the
38.7%
increase
in total Marcellus sales volumes.
•
Depreciation, depletion and amortization costs attributable to the Marcellus segment were $
127
million for the
six months
ended
June 30, 2019
compared to $
104
million for the
six months
ended
June 30, 2018
. These amounts included depletion on a unit of production basis of $
0.69
per Mcfe and $
0.79
per Mcfe, respectively. The decrease in units of production depreciation, depletion and amortization rate is the result of positive reserve revisions within our core development area. The remaining depreciation, depletion and amortization costs were either recorded on a straight-line basis or related to asset retirement obligations.
UTICA SEGMENT
The Utica segment had
earnings
before income tax of $
50
million for the
six months
ended
June 30, 2019
compared to
earnings
before income tax of $
103
million for the
six months
ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Utica Gas Sales Volumes (Bcf)
|
58.6
|
|
|
81.9
|
|
|
(23.3
|
)
|
|
(28.4
|
)%
|
|
NGLs Sales Volumes (Bcfe)*
|
—
|
|
|
3.9
|
|
|
(3.9
|
)
|
|
(100.0
|
)%
|
|
Condensate Sales Volumes (Bcfe)*
|
—
|
|
|
0.3
|
|
|
(0.3
|
)
|
|
(100.0
|
)%
|
|
Total Utica Sales Volumes (Bcfe)*
|
58.6
|
|
|
86.1
|
|
|
(27.5
|
)
|
|
(31.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Gas (per Mcf)
|
$
|
2.70
|
|
|
$
|
2.64
|
|
|
$
|
0.06
|
|
|
2.3
|
%
|
|
(Loss) Gain on Commodity Derivative Instruments - Cash Settlement- Gas (per Mcf)
|
$
|
(0.12
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.13
|
)
|
|
(1,300.0
|
)%
|
|
Average Sales Price - NGLs (per Mcfe)*
|
$
|
—
|
|
|
$
|
4.83
|
|
|
$
|
(4.83
|
)
|
|
(100.0
|
)%
|
|
Average Sales Price - Condensate (per Mcfe)*
|
$
|
—
|
|
|
$
|
8.68
|
|
|
$
|
(8.68
|
)
|
|
(100.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
Total Average Utica Sales Price (per Mcfe)
|
$
|
2.58
|
|
|
$
|
2.78
|
|
|
$
|
(0.20
|
)
|
|
(7.2
|
)%
|
|
Average Utica Lease Operating Expenses (per Mcfe)
|
0.15
|
|
|
0.25
|
|
|
(0.10
|
)
|
|
(40.0
|
)%
|
|
Average Utica Production, Ad Valorem, and Other Fees (per Mcfe)
|
0.05
|
|
|
0.04
|
|
|
0.01
|
|
|
25.0
|
%
|
|
Average Utica Transportation, Gathering and Compression Costs (per Mcfe)
|
0.28
|
|
|
0.37
|
|
|
(0.09
|
)
|
|
(24.3
|
)%
|
|
Average Utica Depreciation, Depletion and Amortization Costs (per Mcfe)
|
1.25
|
|
|
0.93
|
|
|
0.32
|
|
|
34.4
|
%
|
|
Total Average Utica Costs (per Mcfe)
|
$
|
1.73
|
|
|
$
|
1.59
|
|
|
$
|
0.14
|
|
|
8.8
|
%
|
|
Average Margin for Utica (per Mcfe)
|
$
|
0.85
|
|
|
$
|
1.19
|
|
|
$
|
(0.34
|
)
|
|
(28.6
|
)%
|
*NGLs and Condensate are converted to Mcfe at the rate of one barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not indicative of the relationship of oil, NGLs, condensate, and natural gas prices.
The Utica segment had natural gas, NGLs and oil revenue of $
158
million for the
six months
ended
June 30, 2019
compared to $
238
million for the
six months
ended
June 30, 2018
. The $
80
million
decrease
was primarily due to the
31.9%
decrease
in total Utica sales volumes. The
decrease
in total Utica sales volumes was primarily due to the sale of substantially all of CNX's Ohio Utica JV assets in the third quarter of 2018 as well as normal production declines in the remaining dry Utica wells.
The
decrease
in total average Utica sales price was primarily due to a
$0.13
per Mcf
decrease
in the realized
(loss) gain
on commodity derivative instruments. The notional amounts associated with these financial hedges represented approximately
38.9
Bcf of the Company's produced Utica gas sales volumes for the
six months
ended
June 30, 2019
at an average
loss
of
$0.18
per Mcf. For the
six months
ended
June 30, 2018
, these financial hedges represented approximately
55.6
Bcf at a nominal
gain
. Additionally, there was a
$0.13
per Mcfe
decrease
in the uplift from NGLs and condensate sales volumes when excluding the impact of hedging due to the sale of the previously mentioned Ohio JV assets in the third quarter of 2018 which consisted primarily of wet Utica production. The decreases were partially offset by an
$0.06
per Mcf
increase
in average gas sales price.
Total operating costs and expenses for the Utica segment were $
101
million for the
six months
ended
June 30, 2019
compared to $
136
million for the
six months
ended
June 30, 2018
. The
decrease
in total dollars and
increase
in unit costs for the Utica segment were due to the following items:
•
Utica lease operating expense was $
9
million for the
six months
ended
June 30, 2019
compared to $
21
million for the
six months
ended
June 30, 2018
. The
decrease
in total dollars was primarily due to a decrease in water disposal costs due to lower production volumes and an increase in reuse of produced water in well completions and a reduction in well operating costs due to the overall decrease in Utica volumes described above. The
decrease
in unit costs was driven by the
decrease
in total dollars.
•
Utica transportation, gathering and compression costs were $
16
million for the
six months
ended
June 30, 2019
compared to $
32
million for the
six months
ended
June 30, 2018
. The $
16
million
decrease
in total dollars and
$0.09
per Mcfe
decrease
in unit costs were both due to the overall decrease in Utica volumes as well as the shift to lower cost dry Utica production.
•
Depreciation, depletion and amortization costs attributable to the Utica segment were $
73
million for the
six months
ended
June 30, 2019
compared to $
80
million for the
six months
ended
June 30, 2018
. These amounts included depletion on a unit of production basis of $
1.18
per Mcfe and $
0.93
per Mcfe, respectively. The increase in the units of production depreciation, depletion and amortization rate was due to negative reserve revisions, an increase in capital expenditures and a higher DD&A rate on deep dry Utica wells compared to the lower capital cost Utica wells which were part of the Ohio JV asset sale in 2018. The remaining depreciation, depletion and amortization costs were either recorded on a straight-line basis or related to asset retirement obligations.
COALBED METHANE (CBM) SEGMENT
The CBM segment had
earnings
before income tax of $
21
million for the
six months
ended
June 30, 2019
compared to
earnings
before income tax of
$26
million for the
six months
ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
CBM Gas Sales Volumes (Bcf)
|
27.6
|
|
|
30.7
|
|
|
(3.1
|
)
|
|
(10.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Gas (per Mcf)
|
$
|
3.24
|
|
|
$
|
3.40
|
|
|
$
|
(0.16
|
)
|
|
(4.7
|
)%
|
|
Loss on Commodity Derivative Instruments - Cash Settlement - Gas (per Mcf)
|
$
|
(0.11
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.10
|
)
|
|
(1,000.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
Total Average CBM Sales Price (per Mcf)
|
$
|
3.13
|
|
|
$
|
3.39
|
|
|
$
|
(0.26
|
)
|
|
(7.7
|
)%
|
|
Average CBM Lease Operating Expenses (per Mcf)
|
0.31
|
|
|
0.39
|
|
|
(0.08
|
)
|
|
(20.5
|
)%
|
|
Average CBM Production, Ad Valorem, and Other Fees (per Mcf)
|
0.14
|
|
|
0.12
|
|
|
0.02
|
|
|
16.7
|
%
|
|
Average CBM Transportation, Gathering and Compression Costs (per Mcf)
|
0.70
|
|
|
0.84
|
|
|
(0.14
|
)
|
|
(16.7
|
)%
|
|
Average CBM Depreciation, Depletion and Amortization Costs (per Mcf)
|
1.24
|
|
|
1.21
|
|
|
0.03
|
|
|
2.5
|
%
|
|
Total Average CBM Costs (per Mcf)
|
$
|
2.39
|
|
|
$
|
2.56
|
|
|
$
|
(0.17
|
)
|
|
(6.6
|
)%
|
|
Average Margin for CBM (per Mcf)
|
$
|
0.74
|
|
|
$
|
0.83
|
|
|
$
|
(0.09
|
)
|
|
(10.8
|
)%
|
The CBM segment had natural gas revenue of $
89
million for the
six months
ended
June 30, 2019
compared to $
104
million for the
six months
ended
June 30, 2018
. The $
15
million
decrease
was primarily due to the
10.1%
decrease
in total CBM sales volumes and the
7.7%
decrease
in total average CBM sales price. The decrease in CBM sales volumes was primarily due to normal well declines, as well as the sale of certain CBM assets that were sold along with the majority of CNX's shallow oil and gas assets in 2018 (See Note 5 - Acquisitions and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information).
The total average CBM sales price
decrease
d $
0.26
per Mcf due to a
$0.16
decrease
in average gas sales price, along with a $
0.10
per Mcf increase in the
loss
on commodity derivative instruments resulting from the Company's hedging program. The notional amounts associated with these financial hedges represented approximately
18.3
Bcf of the Company's produced CBM sales volumes for the
six months
ended
June 30, 2019
at an average
loss
of
$0.18
per Mcf. For the
six months
ended
June 30, 2018
, these financial hedges represented approximately
23.0
Bcf at a nominal
loss
.
Total operating costs and expenses for the CBM segment were $
65
million for the
six months
ended
June 30, 2019
compared to $
78
million for the
six months
ended
June 30, 2018
. The
decrease
in total dollars and
decrease
in unit costs for the CBM segment were due to the following items:
•
CBM lease operating expense was $
9
million for the
six months
ended
June 30, 2019
compared to $
12
million for the
six months
ended
June 30, 2018
. The $
3
million
decrease
was primarily due to reductions in contractor services and a decrease in repairs and maintenance costs. The
decrease
in unit costs was also due to the
decrease
in total dollars.
•
CBM transportation, gathering and compression costs were $
19
million for the
six months
ended
June 30, 2019
compared to $
26
million for the
six months
ended
June 30, 2018
. The $
7
million
decrease
in total dollars as well as the
$0.14
per Mcf
decrease
in unit costs were primarily related to a decrease in electrical power expense as well as a decrease in contractor services.
•
Depreciation, depletion and amortization costs attributable to the CBM segment were $
33
million for the
six months
ended
June 30, 2019
compared to $
36
million for the
six months
ended
June 30, 2018
. These amounts both included depletion on a unit of production basis of $
0.70
per Mcfe. The remaining depreciation, depletion and amortization costs were either recorded on a straight-line basis or related to asset retirement obligations.
OTHER GAS SEGMENT
The Other Gas segment had
a loss
before income tax of $
126
million for the
six months
ended
June 30, 2019
compared to
a loss
before income tax of $
79
million for the
six months
ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Other Gas Sales Volumes (Bcf)
|
0.2
|
|
|
4.6
|
|
|
(4.4
|
)
|
|
(95.7
|
)%
|
|
Oil Sales Volumes (Bcfe)*
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
(100.0
|
)%
|
|
Total Other Sales Volumes (Bcfe)*
|
0.2
|
|
|
4.7
|
|
|
(4.5
|
)
|
|
(95.7
|
)%
|
*Oil is converted to Mcfe at the rate of one barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not indicative of the relationship of oil and natural gas prices.
The Other Gas segment includes activity not assigned to the Marcellus, Utica, or CBM segments. This segment also includes purchased gas activity, unrealized gain on commodity derivative instruments, exploration and production related other costs and other operational activity not assigned to a specific segment.
Other Gas sales volumes are primarily related to shallow oil and gas production. CNX sold substantially all of these assets on March 30, 2018 (See Note 5 - Acquisitions and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information). There was nominal natural gas, NGLs and oil revenue related to the Other Gas segment for the
six months
ended
June 30, 2019
compared to $
15
million for the
six months
ended
June 30, 2018
. The
decrease
in natural gas, NGLs and oil revenue was due to the asset sale. Total operating costs and expenses related to these other gas sales volumes were $
3
million for the
six months
ended
June 30, 2019
compared to $
13
million for the
six months
ended
June 30, 2018
.
The Other Gas segment recognized an unrealized
gain
on commodity derivative instruments of $
57
million for the
six months
ended
June 30, 2019
. For the
six months
ended
June 30, 2018
, the Other Gas segment recognized an unrealized
gain
on commodity derivative instruments of $
61
million as well as cash settlements
paid
of $
1
million. The unrealized
gain
on commodity derivative instruments represents changes in the fair value of all of the Company's existing commodity hedges on a mark-to-market basis.
Purchased Gas
Purchased gas volumes represent volumes of gas purchased at market prices from third-parties and then resold in order to fulfill contracts with certain customers and to balance supply. Purchased gas revenues were $
35
million for the
six months
ended
June 30, 2019
compared to $
28
million for the
six months
ended
June 30, 2018
. Purchased gas costs were $
35
million for the
six months
ended
June 30, 2019
compared to $
27
million for the
six months
ended
June 30, 2018
. The period-to-period
increase
in purchased gas revenue was due to an
increase
in purchased gas sales volumes offset, in part, by the decrease in averages sales price.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Purchased Gas Sales Volumes (in Bcfe)
|
13.2
|
|
|
8.8
|
|
|
4.4
|
|
|
50.0
|
%
|
|
Average Sales Price (per Mcfe)
|
$
|
2.64
|
|
|
$
|
3.19
|
|
|
$
|
(0.55
|
)
|
|
(17.2
|
)%
|
|
Average Cost (per Mcfe)
|
$
|
2.64
|
|
|
$
|
3.05
|
|
|
$
|
(0.41
|
)
|
|
(13.4
|
)%
|
Other Operating Income
Other operating income was $
6
million for the
six months
ended
June 30, 2019
compared to $
19
million for the
six months
ended
June 30, 2018
. The $
13
million
decrease
was due to the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
(in millions)
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Water Income
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
(11
|
)
|
|
(100.0
|
)%
|
|
Equity in Earnings of Affiliates
|
1
|
|
|
3
|
|
|
(2
|
)
|
|
(66.7
|
)%
|
|
Gathering Income
|
5
|
|
|
5
|
|
|
—
|
|
|
—
|
%
|
|
Total Other Operating Income
|
$
|
6
|
|
|
$
|
19
|
|
|
$
|
(13
|
)
|
|
(68.4
|
)%
|
|
|
|
|
•
|
Water income
decreased
$11
million due to sales of freshwater to third-parties for hydraulic fracturing in the 2018 period. There were nominal sales in the 2019 period.
|
Exploration and Production Related Other Costs
Exploration and production related other costs were
$8
million for the
six months
ended
June 30, 2019
compared to
$6
million for the
six months
ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
(in millions)
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Lease Expiration Costs
|
$
|
5
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
150.0
|
%
|
|
Land Rentals
|
3
|
|
|
2
|
|
|
1
|
|
|
50.0
|
%
|
|
Other
|
—
|
|
|
2
|
|
|
(2
|
)
|
|
(100.0
|
)%
|
|
Total Exploration and Production Other Costs
|
$
|
8
|
|
|
$
|
6
|
|
|
$
|
2
|
|
|
33.3
|
%
|
Other Operating Expense
Other operating expense was
$41
million for the
six months
ended
June 30, 2019
compared to
$34
million for the
six months
ended
June 30, 2018
. The
$7
million
increase
was due to the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Variance
|
|
Percent
Change
|
|
Unutilized Firm Transportation and Processing Fees
|
$
|
28
|
|
|
$
|
18
|
|
|
$
|
10
|
|
|
55.6
|
%
|
|
Idle Equipment and Service Charges
|
8
|
|
|
4
|
|
|
4
|
|
|
100.0
|
%
|
|
Insurance Expense
|
1
|
|
|
2
|
|
|
(1
|
)
|
|
(50.0
|
)%
|
|
Severance Expense
|
—
|
|
|
1
|
|
|
(1
|
)
|
|
(100.0
|
)%
|
|
Consulting and Professional Services
|
—
|
|
|
4
|
|
|
(4
|
)
|
|
(100.0
|
)%
|
|
Water Expense
|
—
|
|
|
4
|
|
|
(4
|
)
|
|
(100.0
|
)%
|
|
Other
|
4
|
|
|
1
|
|
|
3
|
|
|
300.0
|
%
|
|
Total Other Operating Expense
|
$
|
41
|
|
|
$
|
34
|
|
|
$
|
7
|
|
|
20.6
|
%
|
|
|
|
|
•
|
Unutilized Firm Transportation and Processing Fees represent pipeline transportation capacity obtained to enable gas production to flow uninterrupted as sales volumes increase, as well as additional processing capacity for NGLs. The
increase
in the period-to-period comparison was primarily due to previously-acquired capacity which was not utilized during the current period to transport the Company’s flowing production. The Company attempts to minimize this expense by releasing (selling) unutilized firm transportation capacity to other parties when possible and when beneficial. The
|
revenue received when this capacity is released (sold) is included in Gathering Income in Total Other Operating Income above.
|
|
|
|
•
|
Idle Equipment and Service Charges primarily relate to the temporary idling of some of the Company's natural gas drilling rigs as well as related equipment and other services that may be needed in the natural gas drilling and completions process. The
increase
of
$4
million in the period-to-period comparison was primarily result of the acceleration of five months of idle rig expense due to CNX terminating one of its drilling rig contacts early, as well as additional idle service expense related to the Shaw 1G Utica Shale well that occurred in the first quarter of 2019.
|
|
|
|
|
•
|
Consulting and Professional Services in the prior year mainly related to the sale of the majority of CNX's shallow oil and gas assets in 2018 (See Note 5 - Acquisitions and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information).
|
|
|
|
|
•
|
Water Expense
decrease
d
$4
million due to the associated costs related to the sales of freshwater to third-parties for hydraulic fracturing in the 2018 period in Total Other Operating Income above. There were nominal sales in the 2019 period.
|
Selling, General and Administrative
SG&A costs represent direct charges for the management and operation of CNX's E&P division. SG&A costs were $
74
million for the
six months
ended
June 30, 2019
compared to $
54
million for the
six months
ended
June 30, 2018
. Refer to the discussion of total company SG&A costs contained in the section "Net Income Attributable to CNX Resources Shareholders"
of this Form 10-Q for a detailed cost explanation.
Interest Expense
Interest expense of $
61
million was recognized in the
six months
ended
June 30, 2019
compared to $
67
million in the
six months
ended
June 30, 2018
. The $
6
million
decrease
was primarily due to the reduction in higher cost long-term debt, resulting from the $500 million purchase, in the 2018 period, of the outstanding 8.00% senior notes due in April 2023, offset, in part, by additional borrowings on the CNX credit facility. In the
six months
ended
June 30, 2018
, CNX purchased $391 million of its outstanding 5.875% senior notes due in April 2022 and $300 million of its outstanding 8.00% senior notes due in April 2023. See Note 10 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
TOTAL MIDSTREAM DIVISION ANALYSIS for the
six months
ended
June 30, 2019
compared to the period January 3, 2018 through June 30, 2018:
CNX's Midstream Division's principal activity 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.
On January 3, 2018, CNX completed the Midstream Acquisition (See Note 5 - Acquisitions and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information). CNX Gathering holds all of the interests in CNX Midstream GP LLC, which holds the general partner interest and incentive distribution rights in CNXM. As a result of this transaction, CNX owns and controls 100% of CNX Gathering, making CNXM a single-sponsor master limited partnership and thus the Company began consolidating CNXM on January 3, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
For the six months ended June 30, 2019
|
|
For the period January 3, 2018 through June 30, 2018
|
|
Variance
|
|
Midstream Revenue - Related Party
|
$
|
114
|
|
|
$
|
76
|
|
|
$
|
38
|
|
|
Midstream Revenue - Third Party
|
37
|
|
|
50
|
|
|
(13
|
)
|
|
Total Revenue
|
$
|
151
|
|
|
$
|
126
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
Transportation, Gathering and Compression
|
$
|
24
|
|
|
$
|
26
|
|
|
$
|
(2
|
)
|
|
Depreciation, Depletion and Amortization
|
16
|
|
|
17
|
|
|
(1
|
)
|
|
Selling, General, and Administrative Costs
|
11
|
|
|
12
|
|
|
(1
|
)
|
|
Total Operating Costs and Expenses
|
51
|
|
|
55
|
|
|
(4
|
)
|
|
Other Expense
|
1
|
|
|
—
|
|
|
1
|
|
|
Loss (Gain) on Asset Sales and Abandonments
|
7
|
|
|
(2
|
)
|
|
9
|
|
|
Interest Expense
|
15
|
|
|
10
|
|
|
5
|
|
|
Total Midstream Division Costs
|
74
|
|
|
63
|
|
|
11
|
|
|
Earnings Before Income Tax
|
$
|
77
|
|
|
$
|
63
|
|
|
$
|
14
|
|
Midstream Revenue
Midstream revenue consists of revenue related to volumes gathered on behalf of CNX and other third-party natural gas producers. CNXM charges a higher fee for natural gas that is shipped on its wet system compared to gas shipped through its dry system. CNXM revenue can also be impacted by the relative mix of gathered volumes by area, which may vary depending upon delivery point and may change dynamically depending on commodity prices at time of shipment.
The table below summarizes volumes gathered by gas type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2019
|
|
For the period January 3, 2018 through June 30, 2018
|
|
Variance
|
|
Dry Gas (BBtu/d) (*)
|
865
|
|
|
703
|
|
|
162
|
|
|
Wet Gas (BBtu/d) (*)
|
715
|
|
|
682
|
|
|
33
|
|
|
Other (BBtu/d) (*)(**)
|
156
|
|
|
17
|
|
|
139
|
|
|
Total Gathered Volumes
|
1,736
|
|
|
1,402
|
|
|
334
|
|
(*) Classification as dry or wet is based upon the shipping destination of the related volumes. Because CNXM's customers have the option to ship a portion of their natural gas to destinations associated with either our wet system or our dry system, due to any number of factors, volumes may be classified as “wet” in one period and as “dry” in the comparative period.
(**) Includes condensate handling and third-party volumes under high-pressure short-haul agreements.
Transportation, Gathering and Compression
Transportation, Gathering and Compression costs were
$24 million
for the
six months
ended
June 30, 2019
compared to
$26 million
for the period January 3, 2018 through
June 30, 2018
and are comprised of items directly related to the cost of gathering natural gas at the wellhead and transporting it to interstate pipelines or other local sales points. These costs include items such as electrically-powered compression, compressor rental, repairs and maintenance, supplies, treating and contract services.
Selling, General and Administrative Expense
SG&A expense is comprised of direct charges for the management and operation of CNXM assets. SG&A costs were
$11 million
for the six months ended
June 30, 2019
compared to
$12 million
for the period January 3, 2018 through
June 30, 2018
. Refer to the discussion of total Company SG&A costs contained in the section "Net Income Attributable to CNX Resources Shareholders"
of this Form 10-Q for a detailed cost explanation.
Depreciation Expense
Depreciation expense is recognized on gathering and other equipment on a straight-line basis, with useful lives ranging from 25 years to 40 years.
(Gain) Loss on Asset Sales and Abandonments
During the
six months
ended
June 30, 2019
, CNXM abandoned the construction of a compressor station that was designed to support additional production within certain areas of what is referred to as their "Anchor System," incurring a loss of
$7 million
that is included in (Gain) Loss on Asset Sales and Abandonments in the Consolidated Statements of Income. CNXM continues to evaluate projects as CNX's and third-party customer development plans change in order to optimize system design and to actively manage capital investments. During the period January 3, 2018 through
June 30, 2018
, CNXM sold property and equipment to an unrelated third-party for $
6 million
in cash proceeds resulting in a gain of $
2 million
.
Interest Expense
Interest expense is comprised of interest on the outstanding balance under CNXM's senior notes due 2026 and its revolving credit facility. Interest expense was
$15 million
for the
six months
ended
June 30, 2019
compared to
$10 million
for the period January 3, 2018 through
June 30, 2018
.
Liquidity and Capital Resources
CNX generally has satisfied its working capital requirements and funded its capital expenditures and debt service obligations with cash generated from operations and proceeds from borrowings. CNX believes that cash generated from operations, asset sales and the Company's borrowing capacity will be sufficient to meet the Company's working capital requirements, anticipated capital expenditures (other than major acquisitions), scheduled debt payments, anticipated dividend payments and to provide required letters of credit. Nevertheless, the ability of CNX to satisfy its working capital requirements, to service its debt obligations, to fund planned capital expenditures, or to pay dividends will depend upon future operating performance, which will be affected by prevailing economic conditions in the natural gas industry and other financial and business factors, some of which are beyond CNX’s control.
From time to time, CNX is required to post financial assurances to satisfy contractual and other requirements generated in the normal course of business. Some of these assurances are posted to comply with federal, state or other government agencies' statutes and regulations. CNX sometimes uses letters of credit to satisfy these requirements and these letters of credit reduce the Company's borrowing facility capacity.
Uncertainty in the financial markets brings additional potential risks to CNX. These risks include declines in the Company's stock price, less availability and higher costs of additional credit, potential counterparty defaults, and commercial bank failures. Financial market disruptions may impact the Company's collection of trade receivables. As a result, CNX regularly monitors the creditworthiness of its customers and counterparties and manages credit exposure through payment terms, credit limits, prepayments and security. CNX believes that its current group of customers is financially sound and represents no abnormal business risk.
In order to manage the market risk exposure of volatile natural gas prices in the future, CNX enters into various physical natural gas supply transactions with both gas marketers and end users for terms varying in length. CNX has also entered into various natural gas swap and option transactions, which exist parallel to the underlying physical transactions. The fair value of these contracts was a net asset of $
156
million at
June 30, 2019
and a net asset of $99 million at December 31, 2018. The Company has not experienced any issues of non-performance by derivative counterparties.
CNX frequently evaluates potential acquisitions. CNX has funded acquisitions with cash generated from operations and a variety of other sources, depending on the size of the transaction, including debt and equity financing. There can be no assurance that additional capital resources, including debt and equity financing, will be available to CNX on terms which CNX finds acceptable, or at all.
Cash Flows (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Change
|
|
Cash Provided by Operating Activities
|
$
|
561
|
|
|
$
|
451
|
|
|
$
|
110
|
|
|
Cash Used in Investing Activities
|
$
|
(621
|
)
|
|
$
|
(639
|
)
|
|
$
|
18
|
|
|
Cash Provided by (Used in) Financing Activities
|
$
|
76
|
|
|
$
|
(266
|
)
|
|
$
|
342
|
|
Cash flows from operating activities changed in the period-to-period comparison primarily due to the following items:
|
|
|
|
•
|
Net income decreased $479 million in the period-to-period comparison.
|
|
|
|
|
•
|
Adjustments to reconcile net income to cash provided by operating activities primarily consisted of a $161 million change in deferred income taxes, a $624 million decrease in gain on previously held equity interest, $24 million increase in stock-based compensation, an $18 million decrease in impairment of other intangible assets, a $31 million decrease in the loss on debt extinguishment, and a $17 million change in loss (gain) on asset sales and abandonments.
|
Cash flows from investing activities changed in the period-to-period comparison primarily due to the following items:
|
|
|
|
•
|
Capital expenditures increased $132 million in the period-to-period comparison primarily due to increased expenditures in the Utica and Marcellus Shale plays resulting from increased drilling and completions activity as well as additional water expenditures due to the installation of new water pipelines. CNXM's capital expenditures increased due to additional spend in order to support both CNX's and third-party customer development plans.
|
|
|
|
|
•
|
Proceeds from asset sales decreased $146 million primarily due to the 2018 sale of substantially all of CNX's shallow oil and gas and certain CBM assets in Pennsylvania and West Virginia. See Note 5 - Acquisitions and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
|
|
|
|
|
•
|
In January 2018, CNX completed the Midstream Acquisition for a net payment of $299 million. See Note 5 - Acquisitions and Dispositions in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
|
Cash flows from financing activities changed in the period-to-period comparison primarily due to the following items:
|
|
|
|
•
|
During the six months ended June 30, 2019, CNX paid $406 million to repurchase $400 million of the senior notes due in 2022 at a 101.5% principal amount. During the six months ended June 30, 2018, CNX paid $405 million to repurchase $391 million of the senior notes due in 2022 at a 103.8% principal amount as well as $318 million to repurchase $300 million of the senior notes due in 2023 at a 106.0% principal amount. See Note 10 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
|
|
|
|
|
•
|
During the six months ended June 30, 2019, CNX received proceeds of $500 million from the issuance of senior notes due in 2027. During the six months ended June 30, 2018, CNX received proceeds of $394 million from the issuance of CNXM's senior notes due in 2026. See Note 10 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
|
|
|
|
|
•
|
In the six months ended June 30, 2019, CNX repurchased $110 million of its common stock on the open market compared to $167 million in the six months ended June 30, 2018.
|
|
|
|
|
•
|
In the six months ended June 30, 2019, there were $18 million of net proceeds from the CNX credit facility and $422 million of proceeds in the 2018 period.
|
|
|
|
|
•
|
In the six months ended June 30, 2019, there were $124 million of net proceeds from the CNXM credit facility compared to $139 million of net payments during the six months ended June 30, 2018.
|
|
|
|
|
•
|
In the six months ended June 30, 2019, there were $10 million in debt issuance and financing fees compared to $20 million during the six months ended June 30, 2018.
|
|
|
|
|
•
|
In the six months ended June 30, 2019, there were $31 million in distributions to CNXM unitholders compared to $27 million during the six months ended June 30, 2018.
|
The following is a summary of the Company's significant contractual obligations at
June 30, 2019
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Year
|
|
|
Less Than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More Than
5 Years
|
|
Total
|
|
Purchase Order Firm Commitments
|
$
|
9,143
|
|
|
$
|
2,918
|
|
|
$
|
647
|
|
|
$
|
—
|
|
|
$
|
12,708
|
|
|
Gas Firm Transportation and Processing
|
242,241
|
|
|
489,288
|
|
|
423,079
|
|
|
1,159,534
|
|
|
2,314,142
|
|
|
Long-Term Debt
|
—
|
|
|
895,522
|
|
|
838,000
|
|
|
895,000
|
|
|
2,628,522
|
|
|
Interest on Long-Term Debt
|
149,669
|
|
|
301,527
|
|
|
185,537
|
|
|
160,749
|
|
|
797,482
|
|
|
Finance Lease Obligations
|
7,133
|
|
|
10,261
|
|
|
308
|
|
|
—
|
|
|
17,702
|
|
|
Interest on Finance Lease Obligations
|
1,038
|
|
|
625
|
|
|
62
|
|
|
—
|
|
|
1,725
|
|
|
Operating Lease Obligations
|
66,209
|
|
|
102,266
|
|
|
7,484
|
|
|
27,714
|
|
|
203,673
|
|
|
Interest on Operating Lease Obligations
|
8,506
|
|
|
8,557
|
|
|
3,427
|
|
|
5,541
|
|
|
26,031
|
|
|
Long-Term Liabilities—Employee Related (a)
|
1,865
|
|
|
3,984
|
|
|
4,409
|
|
|
25,316
|
|
|
35,574
|
|
|
Other Long-Term Liabilities (b)
|
201,284
|
|
|
24,642
|
|
|
8,250
|
|
|
12,375
|
|
|
246,551
|
|
|
Total Contractual Obligations (c)
|
$
|
687,088
|
|
|
$
|
1,839,590
|
|
|
$
|
1,471,203
|
|
|
$
|
2,286,229
|
|
|
$
|
6,284,110
|
|
_________________________
|
|
|
|
(a)
|
Employee related long-term liabilities include salaried retirement contributions and work-related injuries and illnesses.
|
|
|
|
|
(b)
|
Other long-term liabilities include royalties and other long-term liability costs.
|
|
|
|
|
(c)
|
The significant obligation table does not include obligations to taxing authorities due to the uncertainty surrounding the ultimate settlement of amounts and timing of these obligations.
|
Debt
At
June 30, 2019
, CNX had total long-term debt of
$2,629 million
, excluding unamortized debt issuance costs. This long-term debt consisted of:
|
|
|
|
•
|
An aggregate principal amount of
$895 million
of
5.875%
Senior Notes due in April 2022 plus
$1 million
of unamortized bond premium. Interest on the notes is payable April 15 and October 15 of each year. Payment of the principal and interest on the notes is guaranteed by most of CNX's subsidiaries but does not include CNXM.
|
|
|
|
|
•
|
An aggregate principal amount of
$630 million
in outstanding borrowings under the CNX credit facility.
|
|
|
|
|
•
|
An aggregate principal amount of
$500 million
of
7.25%
Senior Notes due in March 2027. Interest on the notes is payable March 14 and September 14 of each year. Payment of the principal and interest on the notes is guaranteed by most of CNX's subsidiaries but does not include CNXM.
|
|
|
|
|
•
|
An aggregate principal amount of
$400 million
of
6.50%
Senior Notes due in March 2026 issued by CNXM, less
$5 million
of unamortized bond discount. Interest on the notes is payable March 15 and September 15 of each year. Payment of the principal and interest on the notes is guaranteed by certain of CNXM's subsidiaries. CNX is not a guarantor of these notes.
|
|
|
|
|
•
|
An aggregate principal amount of
$208 million
in outstanding borrowings under the CNXM revolver. CNX is not a guarantor of CNXM's revolving credit facility.
|
Total Equity and Dividends
CNX had total equity of
$5,100 million
at
June 30, 2019
compared to
$5,082 million
at
December 31, 2018
. See the Consolidated Statements of Stockholders' Equity in Item 1 of this Form 10-Q for additional details.
The declaration and payment of dividends by CNX is subject to the discretion of CNX's Board of Directors, and no assurance can be given that CNX will pay dividends in the future. CNX's Board of Directors determines whether dividends will be paid quarterly. CNX suspended its quarterly dividend in March 2016 to further reflect the Company's increased emphasis on growth. The determination to pay dividends in the future will depend upon, among other things, general business conditions, CNX's financial results, contractual and legal restrictions regarding the payment of dividends by CNX, planned investments by CNX, and such other factors as the Board of Directors deems relevant. The Company's Credit Facility limits CNX's ability to pay dividends in excess of an annual rate of $0.10 per share when the Company's net leverage ratio exceeds 3.00 to 1.00 and is subject to availability under the Credit Facility of at least
15%
of the aggregate commitments. The net leverage ratio was
2.35
to 1.00 at
June 30, 2019
. The Credit Facility does not permit dividend payments in the event of default. The indentures to the 5.875% Senior Notes due in April 2022 and the 7.25% Senior Notes due in March 2027 limit dividends to $0.50 per share annually unless several conditions are met. These conditions include no defaults, ability to incur additional debt and other payment limitations under the indentures. There were no defaults in the
six months
ended
June 30, 2019
.
On July 19, 2019 the Board of Directors of CNX Midstream GP LLC, the general partner of CNX Midstream Partners LP, announced the declaration of a cash distribution of $0.3865 per unit with respect to the second quarter of 2019. The distribution will be made on August 14, 2019 to unitholders of record as of the close of business on August 6, 2019. The distribution, which equates to an annual rate of $1.546 per unit, represents an increase of 3.6% over the prior quarter, and an increase of 15% over the distribution paid with respect to the second quarter of 2018.
Off-Balance Sheet Transactions
CNX does not maintain off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources which are not disclosed in the Notes to the Unaudited Consolidated Financial Statements. CNX uses a combination of surety bonds, corporate guarantees and letters of credit to secure the Company's financial obligations for employee-related, environmental, performance and various other items which are not reflected in the Consolidated Balance Sheet at
June 30, 2019
. Management believes these items will expire without being funded. See Note 12 - Commitments and Contingent Liabilities in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional details of the various financial guarantees that have been issued by CNX.
Forward-Looking Statements
We are including the following cautionary statement in this Quarterly Report on Form 10-Q to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of us. With the exception of historical matters, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements (as defined in Section 21E of the Exchange Act) that involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. When we use the words “believe,” “intend,” “expect,” “may,” “should,” “anticipate,” “could,” “estimate,” “plan,” “predict,” “project,” "will," or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q; we disclaim any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following:
|
|
|
|
•
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prices for natural gas and natural gas liquids are volatile and can fluctuate widely based upon a number of factors beyond our control including oversupply relative to the demand for our products, weather and the price and availability of alternative fuels;
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our dependence on gathering, processing and transportation facilities and other midstream facilities owned by CNX Midstream Partners LP (NYSE: CNXM) (CNXM) and others;
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uncertainties in estimating our economically recoverable natural gas reserves, and inaccuracies in our estimates;
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the high-risk nature of drilling and developing natural gas wells;
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our identified drilling locations are scheduled out over multiple years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling;
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challenges associated with strategic determinations, including the allocation of capital and other resources to strategic opportunities;
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our development and exploration projects, as well as CNXM’s midstream system development, require substantial capital expenditures;
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the impact of potential, as well as any adopted environmental regulations including any relating to greenhouse gas emissions on our operating costs as well as on the market for natural gas and for our securities;
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environmental regulations can increase costs and introduce uncertainty that could adversely impact the market for natural gas with potential short and long-term liabilities;
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our operations are subject to operating risks that could increase our operating expenses and decrease our production levels which could adversely affect our results of operation and our operations are also subject to hazards and any losses or liabilities we suffer from hazards, which occur in our operations may not be fully covered by our insurance policies;
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decreases in the availability of, or increases in the price of, required personnel, services, equipment, parts and raw materials in sufficient quantities or at reasonable costs to support our operations;
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if natural gas prices decrease or drilling efforts are unsuccessful, we may be required to record write-downs of our proved natural gas properties;
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changes in assumptions impacting management’s estimates of future financial results as well as other assumptions such as movement in our stock price, weighted-average cost of capital, terminal growth rates and industry multiples, could cause goodwill and other intangible assets we hold to become impaired and result in material non-cash charges to earnings;
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a loss of our competitive position because of the competitive nature of the natural gas industry, consolidation within the industry or overcapacity in the industry adversely affecting our ability to sell our products and midstream services, which could impair our profitability;
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deterioration in the economic conditions in any of the industries in which our customers operate, a domestic or worldwide financial downturn, or negative credit market conditions;
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hedging activities may prevent us from benefiting from price increases and may expose us to other risks;
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existing and future government laws, regulations and other legal requirements and judicial decisions that govern our business may increase our costs of doing business and may restrict our operations;
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significant costs and liabilities may be incurred as a result of pipeline operations and related increase in the regulation of gas gathering pipelines;
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our ability to find adequate water sources for our use in shale gas drilling and production operations, or our ability to dispose of, transport or recycle water used or removed in connection with our gas operations at a reasonable cost and within applicable environmental rules;
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failure to find or acquire economically recoverable natural gas reserves to replace our current natural gas reserves;
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risks associated with our debt;
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a decrease in our borrowing base, which could decrease for a variety of reasons including lower natural gas prices, declines in natural gas proved reserves, asset sales and lending requirements or regulations;
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changes in federal or state income tax laws;
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cyber-incidents could have a material adverse effect on our business, financial condition or results of operations;
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construction of new gathering, compression, dehydration, treating or other midstream assets by CNXM may not result in revenue increases and may be subject to regulatory, environmental, political, legal and economic risks;
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our success depends on key members of our management and our ability to attract and retain experienced technical and other professional personnel;
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terrorist activities could materially and adversely affect our business and results of operations;
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we may operate a portion of our business with one or more joint venture partners or in circumstances where we are not the operator, which may restrict our operational and corporate flexibility and we may not realize the benefits we expect to realize from a joint venture;
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acquisitions and divestitures we anticipate may not occur or produce anticipated benefits;
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the outcomes of various legal proceedings, including those which are more fully described in our reports filed under the Exchange Act;
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there is no guarantee that we will continue to repurchase shares of our common stock under our current or any future share repurchase program at levels undertaken previously or at all;
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negative public perception regarding our industry could have an adverse effect on our operations;
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CONSOL Energy may not be able to satisfy its indemnification obligations in the future and such indemnities may not be sufficient to hold us harmless from the full amount of liabilities for which CONSOL Energy will be allocated responsibility;
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the separation of CONSOL Energy could result in substantial tax liability; and
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other factors discussed in the Company's 2018 Annual Report on Form 10-K under “Risk Factors,” as updated by any subsequent Forms 10-Q, which are on file at the Securities and Exchange Commission.
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