CONSOL Energy (CNX)

Q4 2010 Earnings Call

January 27, 2011 10:00 am ET

Executives

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Nicholas DeIuliis - Chief Operating Officer, Executive Vice President, President of CNX Gas Corporation, Chief Operating Officer of CNX Gas Corporation and Director of CNX Gas Corporation

Robert Pusateri - Executive Vice President of Energy Sales & Transportation Services, President of CONSOL Energy Sales Company and Executive Vice President of Energy Sales & Transportation Services for CNX Gas Corporation

William Lyons - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Brandon Elliott - Vice President of Investor and Public Relations

Dan Zajdel - Vice President of Investor Relations & Public Relations

J. Harvey - Chairman, Chief Executive Officer, President, Member of Executive Committee, Chairman of CNX Gas Corporation and Chief Executive Officer of CNX Gas Corporation

Analysts

James Rollyson - Raymond James & Associates

John Bridges - JP Morgan Chase & Co

Raymond Deacon - Pritchard Capital Partners, LLC

Brian Gamble - Simmons and Company

Andre Benjamin - Goldman Sachs Group Inc.

Michael Dudas - Jefferies & Company, Inc.

David Khani - FBR Capital Markets & Co.

David Gagliano - Crédit Suisse AG

Holly Stewart - Howard Weil

Paul Forward - Stifel, Nicolaus & Co., Inc.

Jeremy Sussman - Brean Murray, Carret & Co., LLC

Mark Liinamaa - Morgan Stanley

Presentation

Operator

Ladies and gentlemen. Thank you for standing by, and welcome to CONSOL Energy's Fourth Quarter Earnings Conference Call. [Operator Instructions] I'd now like to turn the conference over to the Vice President of Investor Relations, Dan Zajdel.

Dan Zajdel

Thanks, Nick. Actually, I'll let Brandon do the introduction here. Go ahead Brandon.

Brandon Elliott

Thanks, Dan. I'd like to welcome everyone to CONSOL Energy's Fourth Quarter and Year-End Results Conference Call. We have in the room today Brett Harvey, our Chairman and CEO; Nick DeIuliis, our Chief Operating Officer; Bill Lyons, our Chief Financial Officer; Bob Pusateri our Executive Vice President of Sales and Marketing; and obviously Dan Zajdel and I are here as well.

Today, we will be discussing our fourth quarter and year-end results as well as our outlook for 2011. Obviously, any forward-looking statements we make or comments about our future expectations are subject to business risks we have laid out for you in our press release today as well as in our previous SEC filings. With that said, we will start the call today with Bill Lyons, Our CFO. Bill?

William Lyons

Thank you, Brandon, and thank you, everyone for joining us this morning for the CONSOL Energy earnings conference call. CONSOL Energy is reporting GAAP net income of $104 million or $0.46 per diluted share for the fourth quarter of 2010. On an adjusted basis, and these adjustments are for items that analysts do not usually incorporate into their models, fourth quarter earnings would be $122 million or $0.54 per share.

These adjustments totaled $18 million and relate to legal settlements, asset write-offs and adjustments due to fair value accounting. We have detailed these items in the earnings release to aid the analyst community in reconciling our actual results to their forecasted amounts.

For the year 2010, CONSOL Energy is reporting GAAP net income of $347 million or $1.60 per share. Net cash provided from operating activities for the year 2010 is a record-setting $1.13 billion, up $71 million or 6.7% from the $1.06 billion generated in the year 2009. This is the third consecutive year of generating $1 billion in cash of operations.

From a CFO's perspective, cash generated from operations could be the most important financial metric on the financial statements. This cash generation enables us not only to develop our asset base and pay dividends but also provides us with the financial flexibility to weather changes in the economic environment. And with 53 million tons of our 2011 thermal coal production locked in at favorable prices, we expect another year of strong cash generation from operations.

Let me go into the quarter the year and the coming year in more detail. For the fourth quarter 2010, total asset cooperations earned $281 million, up $75 million from the fourth quarter of 2009. Met coal operations earned $135 million, which is up $74 million or 120% from the fourth quarter of 2009. This reflects the strong worldwide demand for met coal in general and advance for the quality of our call in particular.

On the thermal side, we earned $146 million which is about the same in the fourth quarter of 2009, plus maintained some of the best margins in the industry for that market segment. For the year 2010, total active cooperations earned a record $922 million, up $126 million from 2009. Average margins increased 10% to $14.80 per ton. Net operations earned $473 million making this the first year where we have earned more from our met operations than from our thermal operations. This reflects the high quality of our coals, particularly in Northern Appalachia where we can switch our product between thermal and high-vol met depending on market demand.

Our Gas business had another outstanding quarter operationally, but was hurt by declining gas prices. Productions increased 44% quarter-over-quarter to a record 36.2 Bcf. This record production was primarily through the acquisition of the Dominion conventional gas assets. However, of significant note, our Marcellus assets produced 3.2 Bcf in the quarter, an increase of 1.7 Bcf from the 2009 fourth quarter. Coalbed methane operations produced 23.6 Bcf for the quarter, up slightly from the 2009 quarter. In the fourth quarter of 2010, we earned $32 million from our Gas operations, down $43 million from the fourth quarter of 2009.

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