Marcellus Success Continues; Production Guidance Raised PITTSBURGH,
April 23 /PRNewswire-FirstCall/ -- CNX Gas Corporation (NYSE: CXG)
reported net income attributable to CNX Gas shareholders for the
quarter ended March 31, 2009 of $54.9 million, or $0.36 per diluted
share. This was 10% higher than the net income attributable to CNX
Gas shareholders of $49.9 million, or $0.33 per diluted share, for
the quarter ended March 31, 2008. Production was 22.0 billion cubic
feet (Bcf), or 244.8 million cubic feet (MMcf) per day, for the
quarter ended March 31, 2009, or 38% higher than the 15.9 Bcf, or
174.4 MMcf per day, for the year-ago quarter. J. Brett Harvey,
chairman and chief executive officer, said, "CNX Gas continued to
achieve outstanding results, despite the weak economy and its
effect on spot gas pricing. Our production in the first quarter
showed significant quarter-over-quarter gains. Net income was very
strong, thanks to our robust hedging program and higher production.
Most importantly, our employees continued to work without a
lost-time accident. We remain excited about our unfolding
exploration success in our Marcellus Shale play. Based on the
cumulative impact of these results, we are raising our 2009
production guidance from 85 Bcf to 87 Bcf." TABLE 1 FINANCIAL AND
OPERATIONAL RESULTS - Quarter-To-Quarter Quarter Ended Quarter
Ended March 31, 2009 March 31, 2008 -------------- --------------
Total Revenue and Other Income $178.4 $160.6 Net Income
attributable to CNX Gas shareholders $54.9 $49.9 Earnings per Share
- Diluted $0.36 $0.33 Net Cash from Operating Activities $126.4
$76.2 EBITDA $114.1 $98.2 EBIT $91.3 $82.2 Total Period Production
(Bcf) 22.0 15.9 Average Daily Production (MMcf) 244.8 174.4 Capital
Expenditures $133.6 $86.6 Financial results are in millions of
dollars except per share amounts. Production results are net of
royalties. The average price realized for the company's gas
production was $7.37 per Mcf for the quarter ended March 31, 2009,
or $0.86 lower than the $8.23 per Mcf received for the quarter
ended March 31, 2008. The average realized price for the just-ended
quarter included 10.7 Bcf hedged at $9.85 per Mcf. Unit operating
costs for company production, exclusive of royalties, were $3.29
per Mcf in the just-ended quarter, or 6% lower than the $3.49 per
Mcf for the quarter ended March 31, 2008. Pre-tax unit margins for
company production were $4.08 per Mcf in the March 31, 2009
quarter, a decrease of 14% from $4.74 per Mcf in the March 31, 2008
quarter. Unit production taxes were lower in the just-ended quarter
because of the reversal of a $2.5 million accrual due to a pending
litigation settlement. Unit production taxes would have been $0.11
per Mcf higher without the reversal. Lower gas prices in the March
2009 quarter also contributed to lower production taxes. Firm
transportation costs have increased $0.10 per thousand cubic feet
due to acquiring additional capacity in the Northern Appalachian
region. TABLE 2 PRICE AND OPERATING COST DATA PER NET MCF -
Quarter-To-Quarter Comparison Quarter Ended Quarter Ended March 31,
2009 March 31, 2008 -------------- -------------- Average Sales
Price/Mcf $7.37 $8.23 Costs - Production Lifting $0.49 $0.48
Production Taxes $0.03 $0.24 DD&A $0.81 $0.69 ----- ----- Total
Production Costs $1.33 $1.41 Costs - Gathering Operating Costs
$0.78 $0.85 Transportation $0.21 $0.11 DD&A $0.23 $0.31 -----
----- Total Gathering Costs $1.22 $1.27 ----- ----- Administration
$0.74 $0.81 Total Operating Costs $3.29 $3.49 ----- ----- Margin
$4.08 $4.74 Note: Administration costs for both quarters now
exclude incentive compensation and other corporate items.
Operations Update During the first quarter, CNX Gas employees
worked another quarter without incurring a lost time accident. This
raises the cumulative time worked by employees without a lost time
incident to over 3.7 million hours. The temporary idling of
Buchanan Mine at the beginning of March lowered production by 0.2
Bcf during the quarter. This also had a slight effect on unit costs
because Buchanan production is very low cost. CNX Gas drilled 62
wells in its Virginia CBM Operations, excluding gob wells. CNX Gas
expects to drill 175 wells in Virginia in 2009. The company drilled
19 wells during the quarter in its Mountaineer CBM play. Unless a
meaningful increase in pricing occurs later in the year, CNX Gas
expects to defer additional drilling in Mountaineer. The focus is
on lowering unit costs, with significant benefits already being
realized. Permitting efforts will continue, so that CNX Gas will be
able to quickly respond when gas prices rebound. CNX Gas drilled 8
wells in the first quarter in its Nittany CBM play. After-tax rates
of return for Nittany are economic at sub-$5.00 gas prices, however
the company has elected to defer additional drilling until gas
prices rise. The company has flexibility in regard to Nittany, and
can quickly return to earlier levels of drilling, when prices
warrant it. In the Marcellus Shale, CNX Gas brought its second and
third horizontal wells into production during the quarter. Both
wells are still de-watering and have backpressure of about 1,100
pounds. The company plans to remove excess water from these wells,
which may improve recent daily flow rates. Subsequent to the end of
the quarter, CNX Gas brought its fourth and fifth horizontal
Marcellus Shale wells into production. Within several days, the
fourth well had achieved a 24-hour production rate of 5.5 MMcf.
This well cost an estimated $4.25 million, which was improved from
the $4.7-$4.8 million cost of the second and third wells. The fifth
well, GH10ACV, was completed and turned in line on April 18 with an
expected total cost of $3.8 million. This well is now producing at
a daily rate of 4,900 MMcf. The table below summarizes results
since inception of the company's horizontal Marcellus Shale
program: TABLE 3 HORIZONTAL MARCELLUS SHALE PROGRAM STATISTICS Peak
April 19 Cumulative Daily Daily Production Well Turn in Peak
Production Production (Mcf) Through Name date date (Mcf) (Mcf)
April 9 ---- -------- ---------- ----- ---------- ---------------
1. CNX#3 10/5/2008 12/16/2008 6,623 2,500 479,639 2. CNX#2
1/28/2009 2/13/2009 2,532 1,900 145,610 3. CNX#2A 2/13/2009
3/4/2009 1,982 1,600 97,242 4. GH10CV 4/6/2009 4/9/2009 5,508 4,800
11,960 5. GH10ACV 4/18/09 4/21/2009 4,900 4,900 N/M Average Peak
4,309 J.Brett Harvey, Chairman and CEO, commented on the success,
"CNX Gas was able to quickly transfer its horizontal drilling
expertise in coalbed methane to the Marcellus Shale. We've now
drilled and brought into line five successful wells. I am proud of
our Marcellus Shale drilling team for having accomplished so much
in such a short time. For much of our Marcellus acreage, we pay no
royalty, we have no lease costs, and we have no drilling
commitments. Our production in Greene County, Pa. has not had the
butanes and propanes that other producers have had to remove from
their Marcellus flows. "As we gain more experience drilling in the
Marcellus and we continue to lower our drilling costs," Mr. Harvey
continued, "we are reworking our Marcellus economics. We will
continue to refine our techniques during this period of low gas
prices and will likely add a rig when prices rebound." In the
Chattanooga Shale in Tennessee, 7 wells were drilled. The latest
well is flowing at 700 Mcf per day. The company plans to
investigate 9-stage fracs for future wells. Financial Update The
company continues to monitor and evaluate capital spending to
ensure adequate liquidity and to preserve options for possible
external investment. With regard to capital, CNX Gas intends to
spend largely within its net cash from operating activities for
2009. Capital expenditures were $133.6 million during the first
quarter. The company ended the quarter with $80.4 million drawn on
its credit facility. This is up $7.7 million from December 31,
2008, when it had $72.7 drawn on its facility. CNX Gas also has
outstanding letters of credit of $14.9 million. Return on capital
employed for the quarter was 14.9%, on an after tax basis. Guidance
The 2009 production guidance is raised from 85 Bcf to 87 Bcf. As
2009 progresses, CNX Gas will determine if it wants to maintain its
goal of producing 100 Bcf in 2010. The company will continue to
re-invest in its core business as long as it can earn a meaningful
return on its cost of capital. TABLE 4 GUIDANCE 2009 2010 ---- ----
Total Yearly Production (Bcf) 87 N/A Volumes Hedged (Bcf) 43.7 23.3
Average Hedge Price ($/Mcf) $9.52 $9.59 CNX Gas and CONSOL Energy
will co-host a conference call today at 10:00 a.m. Eastern Daylight
Time to discuss the company's first quarter results. The
teleconference can be heard "live" at the investor relations
portion of the company web site: http://www.cnxgas.com/.
Description CNX GAS CORPORATION is the leading gas producer in the
Appalachian Basin, when measured by revenue, net income, and
safety. Contact: Dan Zajdel Vice President - Investor Relations
(724) 485-4169 (THIS IS A RECENTLY CHANGED NUMBER.)
http://www.cnxgas.com/ Definition: EBIT is defined as earnings
(excluding cumulative effect of accounting change) before deducting
net interest expense (interest expense less interest income) and
income taxes. EBITDA is defined as earnings (excluding cumulative
effect of accounting change) before deducting net interest expense
(interest expense less interest income), income taxes, and
depreciation, depletion and amortization. Although EBIT and EBITDA
are not measures of performance calculated in accordance with
generally accepted accounting principles, management believes that
they are useful to an investor in evaluating CNX Gas because they
are widely used to evaluate a company's operating performance
before debt expense and its cash flow. EBIT and EBITDA do not
purport to represent cash generated by operating activities and
should not be considered in isolation or as a substitute for
measures of performance in accordance with generally accepted
accounting principles. In addition, because all companies do not
calculate EBIT and EBITDA identically, the presentation here may
not be comparable to similarly titled measures of other companies.
Reconciliation of EBITDA and EBIT to the income statement is as
follows: CNX Gas EBIT & EBITDA Reconciliation (000) Omitted
Quarter Ended Quarter Ended March 31, 2009 March 31, 2008
-------------- -------------- Net Income attributable to CNX Gas
shareholders $54,904 $49,921 Add: Interest Expense 1,957 1,472
Less: Interest Income 11 158 Add: Income Taxes 34,440 30,996 ------
------ Earnings Before Interest & Taxes (EBIT) 91,290 82,231
Add: Depreciation, Depletion, & Amortization 22,819 15,945
------ ------ EBITDA $114,109 $98,176 ======== ======= CNX Gas
Capital Employed and Return on Capital Employed (000) Omitted
Capital employed is a measure of net investment. When viewed from
the perspective of how the capital is used, it includes CNX Gas'
property, plant, and equipment and other assets less liabilities.
As of As of Capital Employed March 31, December 31, 2009 2008 ----
---- Total assets $2,216,936 $2,124,973 Less liabilities: Total
current liabilities (other than current portion of indebtedness)
(189,838) (199,888) Total long-term liabilities (other than
indebtedness) (396,881) (384,367) -------- -------- Total Capital
Employed $1,630,217 $1,540,718 ========== ========== Return on
average capital employed (ROCE) is a performance measure ratio.
ROCE is defined as net income plus after-tax interest expense,
divided by average capital employed. Below is a calculation of ROCE
for the March 2009 quarter. In order to annualize the result on a
compounded basis, a "1" is added to the quarterly ROCE, before it
is raised to the fourth power. Quarter Ended Return on Capital
Employed March 31, 2009 ---- Net Income $54,904 Financing costs
(after-tax): (1,203) ------ Earnings excluding financing costs
$56,107 Average capital employed $1,585,468 Return on average
capital employed 3.5% Return on average capital employed-annualized
14.9% Although ROCE is not a measure of performance calculated in
accordance with generally accepted accounting principles,
management believes that ROCE is a useful measure because it
indicates the return on all capital, which includes equity and
debt, employed in the business. Management believes that ROCE is an
additional measure of efficiency when considered in conjunction
with return on equity, which measures the return on only the
shareholders' equity component of total capital employed.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS Various
statements in this document, including those that express a belief,
expectation, or intention, as well as those that are not statements
of historical fact, are forward-looking statements (as defined in
Section 21E of the Securities Exchange Act of 1934 and the Private
Securities Litigation Reform Act of 1995). The forward-looking
statements may include projections and estimates concerning the
timing and success of specific projects, our future production,
revenues, income and capital spending. When we use the words
"believe," "intend," "expect," "may," "should," "anticipate,"
"could," "would," "will," "estimate," "plan," "predict," "project,"
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 document speak only as of the date of this
document; 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, uncertainties and
contingencies include, but are not limited to: our business
strategy; our financial position, cash flow and liquidity; the
deteriorating economic conditions in the United States and
globally; declines in the prices we receive for our gas affecting
our operating results and cash flow; uncertainties in estimating
our gas reserves and replacing our gas reserves; uncertainties in
exploring for and producing gas; our inability to obtain additional
financing necessary in order to fund our operations, capital
expenditures and to meet our other obligations; disruptions to,
capacity constraints in or other limitations on the pipeline
systems which deliver our gas; our ability to remove and dispose of
water from the coal from which we produce gas; the cost of removing
impurities from the gas we produce may outweigh the economic
benefit of selling the gas; the availability of personnel and
equipment, including our inability to retain and attract key
personnel; increased costs; the effects of government regulation,
permitting and other legal requirements; legal uncertainties
regarding the ownership of the coalbed methane estate, and costs
associated with perfecting title for gas rights in some of our
properties; litigation concerning real property rights,
intellectual property rights, royalty calculations and other
matters; our relationships and arrangements with CONSOL Energy; and
other factors discussed in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2008 under "Risk Factors," as
updated by any subsequent Form 10-Qs, which are on file at the
Securities and Exchange Commission. CNX GAS CORPORATION AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars
in thousands, except per share data) For the Three Months Ended
March 31, ------------------------- 2009 2008 ------------
----------- Revenue and Other Income: Outside Sales $161,340
$126,640 Related Party Sales 1,000 3,901 Royalty Interest Gas Sales
12,632 16,504 Purchased Gas Sales 1,465 3,539 Other Income 1,947
10,029 ------------ ----------- Total Revenue and Other Income
178,384 160,613 Costs and Expenses: Lifting Costs 11,428 11,507
Gathering and Compression Costs 21,846 15,310 Royalty Interest Gas
Costs 10,601 16,089 Purchased Gas Costs 1,530 3,421 Other 2,207 349
General and Administrative 16,250 12,838 Other Corporate Expenses
665 2,906 Depreciation, Depletion and Amortization 22,819 15,945
Interest Expense 1,957 1,472 ------------ ----------- Total Costs
and Expenses 89,303 79,837 ------------ ----------- Earnings Before
Income Taxes and Noncontrolling Interest 89,081 80,776
Noncontrolling Interest (263) (141) ------------ -----------
Earnings Before Income Taxes 89,344 80,917 Income Taxes 34,440
30,996 ------------ ----------- Net Income Attributable to CNX Gas
Shareholders $54,904 $49,921 ============ =========== Earnings Per
Share: Basic $0.36 $0.33 ===== ===== Dilutive $0.36 $0.33 =====
===== Weighted Average Number of Common Shares Outstanding: Basic
150,971,679 150,923,490 =========== =========== Dilutive
151,232,901 151,324,786 =========== =========== CNX Gas Corporation
CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited)
March 31, December 31, 2009 2008 ---------- ---------- ASSETS
Current Assets: Cash and Cash Equivalents $246 $1,926 Accounts and
Notes Receivable: Trade 36,784 61,764 Other Receivables 930 3,080
Recoverable Income Taxes 14,040 30,302 Derivatives 199,909 150,564
Other 1,808 2,222 ---------- ---------- Total Current Assets
253,717 249,858 Property, Plant and Equipment: Property, Plant and
Equipment 2,225,938 2,111,383 Less - Accumulated Depreciation,
Depletion and Amortization 346,369 322,470 ---------- ----------
Total Property, Plant and Equipment - Net 1,879,569 1,788,913 Other
Assets: Investment in Affiliates 25,466 25,204 Derivatives 53,225
55,945 Other 4,959 5,053 ---------- ---------- Total Other Assets
83,650 86,202 ---------- ---------- TOTAL ASSETS $2,216,936
$2,124,973 ========== ========== CNX Gas Corporation CONSOLIDATED
BALANCE SHEETS (Dollars in thousands) (Unaudited) March 31,
December 31, 2009 2008 --------- --------- LIABILITIES AND
STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $88,525
$100,565 Accrued Royalties 15,731 20,301 Accrued Severance Taxes
1,058 3,672 Related Parties 273 2,234 Short-Term Notes Payable
80,400 72,700 Deferred Income Taxes 74,362 55,000 Current Portion
of Long-Term Debt 8,732 8,462 Other Current Liabilities 9,889
18,116 ---------- ---------- Total Current Liabilities 278,970
281,050 Long-Term Debt: Long-Term Debt 14,238 15,386 Capital Lease
Obligations 58,710 59,296 ---------- ---------- Total Long-Term
Debt 72,948 74,682 Deferred Credits and Other Liabilities:
Derivatives Deferred Income Taxes 348,363 331,338 Asset Retirement
Obligations 7,750 7,401 Postretirement Benefits Other Than Pensions
2,791 2,728 Other 37,977 42,900 ---------- ---------- Total
Deferred Credits and Other Liabilities 396,881 384,367 Total
Liabilities 748,799 740,099 Stockholders' Equity: Common Stock,
$.01 par value; 200,000,000 Shares Authorized, 150,971,711 Issued
and Outstanding at March 31, 2009 and 150,971,636 Issued and
Outstanding at December 31, 2008 1,510 1,510 Capital in Excess of
Par Value 790,747 789,625 Preferred Stock, 5,000,000 Shares
Authorized; None Issued and Outstanding - - Retained Earnings
523,859 468,955 Other Comprehensive Income 153,466 124,784
---------- ---------- Total CNX Gas Shareholders' Equity 1,469,582
1,384,874 Noncontrolling Interest (1,445) ---------- ----------
Total Equity 1,468,137 1,384,874 TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,216,936 $2,124,973 ========== ==========
CNX GAS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (Unaudited) (Dollars in Thousands - except per
share data) Accumulated Other Compre- Capital in hensive Common
Excess of Retained Income Stock Par Value Earnings (Loss) ------
---------- -------- ---------- Balance - December 31, 2008 $1,510
$789,625 $468,955 $124,784 ------ -------- -------- --------
(Unaudited) Net Income Attributable to CNX Gas Shareholders - -
54,904 - Gas Cash Flow Hedge (net of ($18,295) tax) - - - 28,705
FAS 158 OPEB Adjustment (Net of $15 tax) - - - (23) ------ --------
-------- -------- Comprehensive Income (Loss) - - 54,904 28,682
Stock Options Exercised - 1 - - Amortization of Restricted Stock
Unit Grants - 333 - - Amortization of Stock Option Grants - 788 - -
Noncontrolling Interest - - - - ------ -------- -------- --------
Balance March 31, 2009 $1,510 $790,747 $523,859 $153,466 ======
======== ======== ======== Total CNX Non- Gas Stock- controlling
holders' (Minority) Total Equity Interest Equity -----------
----------- -------- Balance - December 31, 2008 $1,384,874 $-
$1,384,874 ----------- ------------ ---------- (Unaudited) Net
Income Attributable to CNX Gas Shareholders 54,904 - 54,904 Gas
Cash Flow Hedge (net of ($18,295) tax) 28,705 - 28,705 FAS 158 OPEB
Adjustment (Net of $15 tax) (23) - (23) ------------ ------------
---------- Comprehensive Income (Loss) 83,586 83,586 Stock Options
Exercised 1 - 1 Amortization of Restricted Stock Unit Grants 333 -
333 Amortization of Stock Option Grants 788 - 788 Noncontrolling
Interest - (1,445) (1,445) ------------ ------------ ----------
Balance - March 31, 2009 $1,469,582 (1,445) 1,468,137 ============
============ ========== CNX GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in
thousands) For the Three Months Ended March 31, -----------------
2009 2008 -------- -------- Operating Activities: Net Income
Attributable to CNX Gas Shareholders $54,904 $49,921 Adjustments to
Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation, Depletion and Amortization 22,819 15,945 Stock-based
Compensation 1,121 729 Change in Noncontrolling Interest (263) 173
Deferred Income Taxes 18,536 23,484 Equity in Earnings of
Affiliates (262) (110) Changes in Operating Assets: Accounts
Receivable 27,130 (19,555) Related Party Receivable (1,961) (9,655)
Other Current Assets 414 589 Changes in Other Assets 469 2,768
Changes in Operating Liabilities: Accounts Payable 6,967 (6,064)
Related Party Liability Income Taxes 15,833 7,186 Other Current
Liabilities (15,928) 7,285 Changes in Other Liabilities (5,294)
1,576 Other 1,952 1,945 -------- -------- Net Cash Provided by
Operating Activities 126,437 76,217 Investing Activities: Capital
Expenditures (133,550) (86,552) Investment in Equity Affiliates 954
-------- -------- Net Cash Used in Investing Activities (133,550)
(85,598) Financing Activities: Capital Lease Payments (976) (673)
Variable Interest Equity Debt (1,092) 9,962 Proceeds from
Short-Term Borrowings 7,700 Exercise of Stock Options 1 252
Noncontrolling Interest Distribution (200) Tax Benefit from Stock
Based Compensation 167 ------- -------- Net Cash Provided by
Financing Activities 5,433 9,708 Net Decrease in Cash and Cash
Equivalents (1,680) 327 Cash and Cash Equivalents at Beginning of
Period 1,926 32,048 ------- -------- Cash and Cash Equivalents at
End of Period $246 $32,375 ======= ======== DATASOURCE: CNX Gas
Corporation CONTACT: Dan Zajdel, Vice President - Investor
Relations of CNX Gas Corporation, +1-724-485-4169, Web Site:
http://www.cnxgas.com/
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