CONSOL Energy's CEO Discusses Q1 2012 Results - Earnings Call Transcript


Q1 2012 Earnings Call

April 26, 2012 10:00 am ET


Dan Zajdel - Vice President of Investor Relations & Public Relations

J. Brett Harvey - Chairman and Chief Executive Officer

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

Nicholas J. DeIuliis - President

Robert F. Pusateri - Executive Vice President of Energy Sales & Transportation Services


James M. Rollyson - Raymond James & Associates, Inc., Research Division

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Mitesh Thakkar - FBR Capital Markets & Co., Research Division

Lucas Pipes - Brean Murray, Carret & Co., LLC, Research Division

David Lipschitz - Credit Agricole Securities (USA) Inc., Research Division

John D. Bridges - JP Morgan Chase & Co, Research Division

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Brian D. Gamble - Simmons & Company International, Research Division

David Katz - JP Morgan Chase & Co, Research Division



Ladies and gentlemen, thank you for standing by and welcome to the CONSOL Energy's First Quarter 2012 Earnings Conference Call. As a reminder, today's call is being recorded. I would now like to turn the conference call over to the Vice President of Investor Relations, Mr. Dan Zajdel. Please go ahead, sir.

Dan Zajdel

Thank you, John. I'd like to welcome everyone to CONSOL Energy's first quarter conference call. We have in the room today Brett Harvey, our Chairman and CEO; Nicholas Deluliis, our President; Bill Lyons, our Chief Financial Officer; Bob Pusateri, our Executive Vice President of Sales, Marketing and Transportation; as well as David Khani, our Vice President of Finance.

Today, we will be discussing our first quarter results. Obviously, any forward-looking statements we make or comments about future expectations are subject to the business risks we have laid out for you in our press release today, as well as in our previous SEC filings. We will also have slides that I should make you aware of. We will be referring to our slides, which you can find on our website. We will be referring to those off and on today.

And with that, let me start the call with Brett Harvey. Brett?

J. Brett Harvey

Thank you, Dan. It's good to be with you all again and talk about CONSOL Energy's quarter, as well as how we see the energy market futures going forward.

CONSOL Energy has a portfolio of assets that no standalone coal company or gas company can match. Having this portfolio enables us to allocate labor and capital to develop these most valuable assets in a timely manner for our shareholders. So in both coal and gas, we continue to invest in the most profitable markets: in thermal coal, in met coal, in high-vol met coal, that means selling into a very expanding global market.

All 3 of CONSOL's coal expansion projects are geared, at least in part, to serve these global markets. The Amonate project that is now in operation is a mid-vol project and different than low-vol projects in a different marketplace.

The Baltimore Terminal expansion is valuable in terms of expanding our coal into the world markets. Our BMX project is also a very low-cost, high-volume mine that will expand into the world markets.

In Gas, we've already moved twice away from the dry shale gas areas and towards liquid-rich areas and the oil windows that we see. We know that energy markets are soft now due to the very warm record winter, the continued weak economy, and the demand for power continues to lag. In some case, we're clear back -- from some customers, cleared back to the demand of 2007.

We have a decade low natural gas prices, but what we do know is all this will change. Everybody knows this. We've all begun to trim our capital budgets in response to where the markets are today. We also idled 2 longwalls in response to pricing issues. Energy markets have always been very volatile. My challenge as a CEO is to manage the downturn in such a way that we don't miss the upside when it begins, especially how powerful assets like CONSOL has.

Already, we're starting to see signs that the low-vol coal market has bottomed. This is consistent with what we said during the January earnings call. And while I'm not ready to call a bottom in the thermal coal or gas markets, production cuts and reduced drilling, mostly by our peers, will eventually bring the market back in balance.

I will talk later about natural gas. In the meantime, CONSOL Energy should fare better than most of our peers due to our having nearly sold out position in thermal coals for 2012. Even though they've been pushed back, that values is still in place.

Having 1/2 of our 2012 gas production hedged at $5.25 and having the strongest balance sheet of any of our coal or gas peers, CONSOL will emerge from this downturn stronger than its peers as long as we can continue to operate safely and efficiently to keep our license.

Marketing astutely across the globe is very important to us and we need to prudently invest and be ready for the upcycle. Now let's look into the details of the last quarter, and I'll turn it over to Bill right now.

William J. Lyons

Thank you, Brett, and good morning to everyone. As you've seen in our press release and Slide #6, CONSOL Energy posted solid operational and financial results in the quarter, beset by record unseasonable weather, a continued weak economy and a decade low level of natural gas prices.

One of the lessons learned from the quarter is the inescapability of risk. The 3 areas of risk that I just mentioned, the weather, the economy and natural gas prices are areas of risk CONSOL Energy can neither influence nor control.

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