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CONSOL Energy Q3 2010 Earnings Call Transcript

CONSOL Energy Q3 2010 Earnings Call Transcript

CONSOL Energy (CNX)

Q3 2010 Earnings Call

October 29, 2010 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

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

Brian Singer - Goldman Sachs Group Inc.

John Bridges - JP Morgan Chase & Co

William Eagan - Raymond James

Brett Levy - Jefferies & Company

Shneur Gershuni - UBS Investment Bank

TheStreet Recommends

Michael Dudas - Jefferies & Company, Inc.

Justin Fisher - Goldman Sachs

David Gagliano - Crédit Suisse AG

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 the CONSOL Energy's Third Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference call over to the Vice President of Investor and Public Relations, Brandon Elliott.

Brandon Elliott

Thank you, John. I'd like to welcome everyone to CONSOL Energy's Third Quarter Earnings Conference Call. We have a full house in here today to help answer your question. In the room, we have Brett Harvey, our Chairman and CEO; Bill Lyons, our Chief Financial Officer; Nick Deluliis, our Chief Operating Officer; Bob Pusateri, our Executive Vice President of Sales and Marketing; and Dan and I are here representing our IR team.

Today, we will be discussing our third quarter results as well as our outlook for the remainder of 2010 and some comments about 2011. Obviously, any forward-looking statements we make or comments about our future expectations are subject to the business risk we have laid out for you on our press release today as well as in our previous SEC filings.

With that said, we will start the call today with Bill Lyons.

J. Harvey

Thank you, Brandon, and thank you, everyone, for joining us this morning for CONSOL Energy's Third Quarter 2010 Earnings Conference Call. The third quarter 2010 continued our string of financially strong and operationally significant quarters. Revenues continued at a record pace with third quarter revenues of $1.3 billion, which is up 23% from the third quarter of 2009. This growth was driven by over $1 billion of revenue from our Coal division, which was up 22% from the third quarter of 2009. For the nine months ended September 30, our total revenue was up $3.8 billion, up 15% from the nine months ended September 30 of 2009. Now revenue growth is critical as it provides us the capability to expand and develop our large asset position.

Net income was $75 million or $0.33 per diluted share for the third quarter of 2010. This compares with $87 million or $0.48 per diluted share in the 2009 quarter. For the quarter, adjusted EBITDA was up $347 million or 45% higher than the adjusted EBITDA of the third quarter of 2009.

We are pleased with the third quarter operating results. On the Coal side, the third quarter is usually the most challenging financial quarter for us because of normal vacation shutdowns. In addition, these vacation periods provide us with the opportunity to do a wide range of maintenance while the mines are not in operation. These conditions normally result in lower production and higher operating costs in the third quarter.

The Coal segment produced a total of 14.7 million tons in the third quarter of 2010 compared with 13.5 million tons in the third quarter of 2009. The quarterly production, combined with a reduction of steam coal inventories, resulted in 15.6 million tons of sales in this quarter compared to 13.7 million tons in the 2009 quarter. Coal inventories were 2.2 million tons at September 30, of 2010, and we currently plan to reduce Coal inventories by another 500,000 tons before the end of this year.

On a GAAP side of the business, the quarterly production record of 35.8 Bcf was attained. This was 44% higher than the 24.8 Bcf achieved in the third quarter of 2009. The record was achieved due to the addition of the Dominion E&P business, which occurred on April 30 of 2010, as well as the ongoing drilling program in our coalbed methane in Marcellus Shale operations. Our production record was also been achieved in the third quarter without the Dominion E&P business.

Now the Dominion E&P business, this acquisition has changed the mix of our production makeup. Historically, CNX Gas production has been about approximately 90% coalbed methane, with the acquisition of approximately 65% of our production is now Coalbed Methane. So just to summarize that, in 2009, 90% was coalbed methane, about 10% was Marcellus Shale. In 2010, coalbed methane will be about 65%, Marcellus remains 10% and now conventional gas is 25%.

Now this conventional gas is higher cost operations, and this filtered in into the increased cost we had on the Gas side. Now the Gas segment operating cost were $4.08 per Mcf in the third quarter of 2010 and this was compared to $3.44 per Mcf for 2009. The increase was primarily attributable to the 40% per Mcf higher depreciation, depletion and amortization cost, $0.14 per Mcf higher lifting costs and $0.07 per Mcf higher severance cost in a period-to-period comparison.

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