CONSOL Energy Inc. Q1 2010 Earnings Call Transcript

CONSOL Energy Inc. Q1 2010 Earnings Call Transcript
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CONSOL Energy Inc. (CNX)

Q1 2010 Earnings Call Transcript

April 29, 2010 10:00 am ET

Executives

Dan Zajdel – VP, IR

Bill Lyons – CFO

Brett Harvey – President & CEO, CONSOL Energy and Chairman & CEO of CNX Gas

Nick DeIuliis – EVP & COO, CONSOL Energy and President and COO, CNX Gas

Bob Pusateri – EVP, Energy Sales and Transportation of CONSOL Energy and CNX Gas, and President, CONSOL Energy Sales Company

Analysts

Chris Brown – Merrill Lynch\Bank of America

Michael Dudas – Jefferies

Shneur Gershuni – UBS

Brian Singer – Goldman Sachs

John Bridges – JPMorgan

David Khani – FBR Capital Markets

Jeremy Sussman – Brean Murray Carret

David Gagliano – Credit Suisse

Pearce Hammond – Simmons & Co.

Paul Forward – Stifel Nicolaus

Presentation

Operator

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Ladies and gentlemen, thank you for standing by and welcome to CONSOL Energy and CNX Gas first quarter earnings conference call. As a reminder, today's call is being recorded.

I would now like to turn the conference call over to Vice President of Investor Relations, Mr. Dan Zajdel. Please go ahead, sir.

Dan Zajdel

Thank you John, and welcome to our joint earnings call today with CONSOL Energy and CNX Gas. With me this morning is Brett Harvey, Chief Executive Officer of CONSOL Energy and Chairman and CEO of CNX Gas. Also with us today are Bill Lyons, Chief Financial Officer, Nick DeIuliis, Chief Operator Officer and Bob Pusateri, President of Sales.

This morning, we will be discussing the first quarter results for both companies. In addition, we will be discussing our outlook for remainder of 2010. Any forward-looking statements we may express or our expectations for results as you know are subject to business risks and we have enumerated those risks in both earnings releases issued this morning and our SEC 10-K filings.

Let me start the call with you today, Bill?

Bill Lyons

Thank you very much, Dan, and thank you everyone for joining the joint CONSOL Energy and CNX Gas earnings conference call.

A new year is traditionally time for enthusiasm, excitement and often a start of change. These certainly apply to CONSOL Energy. The first quarter of 2010 continued our string of strong financial results, and with the acquisition of Dominion Resources' Appalachian E&P business, 2010 will be a year that will change the landscape of CONSOL energy.

The key event in the first quarter of course is the acquisition of the Dominion Appalachian E&P business for $3.475 billion. This is a transforming event for the company. During our deal road show and in today's release we have spoken at length on the merits of this transaction. So I won't repeat them there. However I would like to briefly comment on the financial side of the deal.

On March 26th, CONSOL energy offered $44.3 million common shares, concurrently with $2.75 billion high yield notes split between two tranches and that's of 7 and 10 year senior notes. The simultaneous offerings were marketed over four day road show that covered over 250 accounts in New York, Boston, New Orleans, Los Angeles and San Francisco, achieving a 76% hit rate on one-on-one equity meetings.

The debt security is priced at 8% and 8.25% on the 7 and 10 year offerings and the order book was multiple times oversubscribed and when you add to the $2 billion credit facility that we are in a process of completing, that's over $6.5 billion that various investors have entrusted to us.

We are both humbled and inspired by the response of the tappable markets to investment leases. The Dominion E&P acquisition complements our existing assets and will be highly correlated to value creation for our shareholders. The Dominion transaction will close tomorrow.

The second major event of the year is our launching of the tender offer for the shares of CNX gas that we don't currently own. With the Dominion acquisition almost at hand, it makes sense for us to have all our gas assets managed as one business. With a tender price of $38.25 per share and with $25 million shares outstanding, we anticipate paying $965 million for those shares. We expect the tender offer to be completed by May 26.

Now let's review our results for the quarter. We had another excellent quarter. CONSOL energy is reporting net income of $100 million or $0.54 per diluted share for the first quarter of 2010, the GAAP net income that was impaired by several items. We incurred fees of $47 million associated with the Dominion acquisition.

We also incurred noncash charges totaling another $47 million. These charges include $25 million associated with reclamation accruals at the Fola mine and $22 million associated with certain legal accruals. If you choose to adjust for these items, our adjusted net income was $156 million or $0.85 per diluted share. Our adjusted EBITDA was $349 million. These numbers show the underlying strength of our assets.

Back in October we characterized 2010 as a bridge year. Then in January we acknowledged that the bridge appears to be a lot shorter than it was in October. Our first quarter results support our optimism for 2010. What has happened, in the low-vol coating coal last October, we expected to sell un-priced 2010 coal for around $135 or $145 per ton at the mine. Our latest sales are in the $170 per ton range.

Also last October, we had an entirely new – we've added an entirely new category of sales. This is our high-vol coking coal. This coal from our Pittsburgh 8 steam mines and Northern Appalachia is selling in Asia and Brazil for prices much higher the loans you get by selling it into the domestic thermal market. So, coal for 2010, we have sold or committed 2.1 million tons at an average price of $73.

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