CONSOL Happy With Utica Shale as It Announces 4th Quarter 2014 Results, 2015 Plans
CONSOL Energy Reports Fourth Quarter Net Income of $74 million, or $0.32 per Diluted Share; Record Quarterly E&P Production of 70.5 Bcfe; E&P Division 2015 Capital Budget of $1.0 billion; Annual E&P Production Growth Guidance Remains 30% through 2016
PITTSBURGH, Jan. 30, 2015 /PRNewswire/ -- CONSOL Energy Inc. (NYSE: CNX) reported net income of $74 million for the quarter, or $0.32 per diluted share. This is compared to net income of $738 million, or $3.20 per diluted share from the year-earlier quarter, which included income from discontinued operations of $591 million. On a non-GAAP basis, the company had adjusted net income1 in the 2014 fourth quarter of $58 million, or $0.25 per share, after adjusting for certain one-time items, which are listed in the EBITDA reconciliation table. Adjusted EBITDA1 from continuing operations was$262 million for the 2014 fourth quarter, compared to $179 million in the year-earlier quarter. Cash flow from operations in the just-ended quarter was $87 million, as compared to $70 million in the year-earlier quarter.
CONSOL's E&P Division had another outstanding quarter by achieving record production of 70.5 Bcfe, or an increase of 45% from the 48.5 Bcfe produced in the year-earlier quarter. CONSOL's annual 2014 production was 235.7 Bcfe, which exceeded its goal of 30% production growth over 2013. CONSOL Energy's annual gas production guidance remains 30% growth for 2015 and 2016.
During the quarter, a midstream company that handles and processes some of CONSOL's gas and liquids had a fatality on one of their sites, during their operations. This tragedy unearthed operational standards that led CONSOL to question the safety procedures of the company. As a result, over the course of the quarter CONSOL elected to shut-in pads serviced by this midstream provider while safety processes and procedures were evaluated and validated by CONSOL. As a result of this process, CONSOL estimated that the shut-in pads accounted for 2.7 Bcfe worth of lost production in the quarter. Operations are ramping-up in this area and should be back to normal levels by the end of January.
"Even though we have set high operational and production targets for the company, make no mistake about it, we are not willing to compromise our number one core value of 'safety,' just to reach or exceed operational goals," commented Nicholas J. DeIuliis, president and CEO. "CONSOL's core values represent the foundation of this company, and there is nothing more important than upholding them. I'm really proud of our team and how they handled this situation, ultimately demanding something better from this particular company."
Marcellus Shale production volumes in the 2014 fourth quarter were 36.5 Bcfe, or 88% higher than the 19.4 Bcfe produced in the 2013 fourth quarter. Marcellus Shale costs were $2.83 per Mcfe in the just-ended quarter, which is a $0.18 per Mcfe improvement from the fourth quarter of 2013 costs of $3.01 per Mcfe. The company achieved all-in cash costs of only $1.71per Mcfe in the Marcellus Shale.
CONSOL Energy's Utica Shale continues to become a bigger part of the production mix, and in the 2014 fourth quarter, volumes were 7.1 Bcfe, up from 0.5 Bcfe in the year-earlier quarter. Utica Shale costs were an impressive $2.24 per Mcfe in the just-ended quarter, which is a substantial improvement from the fourth quarter 2013. Rapidly increasing volumes and lower gathering and transportation costs have contributed to lower unit costs. The Utica Shale continues to benefit from higher-value condensate and NGL production, which in the quarter was 1.0 Bcfe and 1.9 Bcfe, respectively, up from negligible amounts in the year-earlier quarter.
"Despite the current commodity price environment, CONSOL continues to realize strong rates of return due to our tier one asset base, which allows us to drive efficiency improvements and continue to benefit from being a low-cost producer," commented Nicholas J. DeIuliis, president and CEO. "CONSOL will not only continue to manage through these types of commodity cycles, but we will also capitalize on them as well through share repurchase opportunities. Our strong balance sheet and substantial liquidity position will help fuel these types of opportunities."
CONSOL's Coal Division produced 8.0 million tons in the 2014 fourth quarter. In the Pennsylvania Operations, the Bailey Mine had a record year in 2014 and annual production was 12.3 million tons, which exceeded the mines previous annual production record of 11.1 million tons in 2005. In the Virginia Operations, CONSOL's premier Buchanan Mine, again, repeated its stellar cost performance. Total costs per ton sold at Buchanan Mine were $53.96 per ton in the just-ended quarter, or a reduction of $12.64 per ton from the year-earlier quarter.
In the fourth quarter, CONSOL received $270 million in cash proceeds from the sale of assets and return on equity investments, including $252 million in cash proceeds from the sale of: an industrial supply subsidiary, coal reserves in theIllinois Basin to two strategic buyers, surface properties in Illinois, and a 50% working interest in 3,433 gross Utica Shaleacres in the Moundsville, West Virginia area to our joint venture partner, Noble Energy. These asset sales have a total value to CONSOL of $294 million when including the estimated value of future royalties, liabilities assumed by the buyers and tax benefits. For 2014, CONSOL received a total of $459 million in cash proceeds from asset sales and return on equity investments, including $252 million in cash proceeds from the sale of assets referred to above. The balance of cash proceeds in 2014 were primarily comprised of sale leaseback transactions for mine shields and a payment from our joint venture partner for their portion of the acquired acreage in a Marcellus farm-in transaction. In addition to the total cash proceeds from asset sales and return on equity investments in 2014, the company also received $204 million of proceeds from the initial public offering of CONE Midstream Partners LP, of which $47 million is included in return on equity investments disclosed above. The company's asset sales program is ahead of schedule based on the previously stated goal of selling $1.0 billion of assets over five years, ending in 2019.
In early December 2014, CONSOL announced its intent to pursue transactions for a Thermal Coal MLP and MetCo IPO. Since then, the company has hired advisers for the Thermal Coal MLP and expects timing to remain around mid-year 2015. The company expects the MetCo IPO to occur around early fourth quarter 2015.
The fourth quarter earnings results included the following after-tax items related to recent transactions completed by the company:
The company recorded $12.3 million in net income related to the sales of certain non-core assets as a part of its ongoing non-core asset divestiture program.
The company recorded $6.0 million in net income related to the settlement of an insurance claim for a mine fire that occurred in 2013.
The company incurred a $2.2 million impairment to net income in association with pension settlement accounting.
1The terms "adjusted net income" and "adjusted EBITDA" are non-GAAP financial measures, which are defined and reconciled to GAAP net income below, under the caption "Non-GAAP Financial Measures."
E&P Division:
E&P Fourth Quarter Summary:
The tables below summarize the quarterly comparison of key metrics for the E&P Division. Production increased by over 45% in the just-ended quarter, when compared to the year-earlier quarter, while revenue increased by over 30% for the same period. These metrics enabled the E&P Division to post net income of $36.5 million in the current quarter, compared to net income of $1.9 million in the year-earlier quarter.
During the quarter, the E&P Division's capital expenditures of $251.6 million helped the company continue drilling and completion investments to achieve its production growth targets. CONSOL's quarterly capital expenditures were net of$82.3 million of drilling carry from its joint venture partner in the Marcellus Shale and $29.2 million of carry from its joint venture partner in the Utica Shale. For the full year 2014, CONSOL received $185.4 million and $100.4 million from its joint venture partners in the Marcellus and Utica shales, respectively.
CONSOL continued to successfully develop its core operating areas in the Marcellus and Utica shales throughout the quarter. In the Marcellus Shale, CONSOL drilled four wells in the Philippi Field in Barbour County, West Virginia, and the company was also able to confirm previous positive results at the Audra Field along the corridor of the planned Tygart Valley pipeline. CONSOL also drilled four Burkett wells in Washington County during the quarter. These new Upper Devonian wells were drilled on existing Marcellus pads, which allowed CONSOL to benefit from cost efficiencies associated with stacked pays. In addition to Upper Devonian, a second stacked pay opportunity is progressing in the dryUtica in Monroe County, Ohio. The company is drilling its first pad with four Utica wells and one wet Marcellus well, and the company expects production in the third quarter of 2015. In Marshall County, West Virginia, CONSOL's joint venture partner is drilling a dry Utica well on a seven well Marcellus pad. CONSOL also plans to drill two additional dry Utica wells: one in both Greene and Westmoreland Counties, Pennsylvania. CONSOL's geological view, along with existing industry data, will help delineate CONSOL's sizable leasehold in West Virginia and Pennsylvania for additional stacked pay opportunities. CONSOL expects production for these three dry Utica wells in the second and third quarters of 2015.
CONSOL Energy and Columbia Energy Ventures, LLC (CEVCO) recently completed a transaction involving the oil and gas rights in CEVCO's Majorsville gas storage field. The storage field spans approximately 20,000 acres and is located inWashington and Greene Counties, Pennsylvania, and Marshall and Ohio Counties, West Virginia. CONSOL has the exclusive right to explore, drill, and develop oil, gas and other hydrocarbons in the Utica Shale formation within the storage field. CEVCO has a minor, non-operating participation interest in the development of the Utica rights in the storage field. According to CONSOL's analysis, the storage field suggests that the company can drill up to 125 Utica wells from 23 pad sites.Read the whole release by clicking here.
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