CONSOL Energy Inc. First Quarter 2012 Earnings Call

Transcription

1 CONSOL Energy Inc. First Quarter 2012 Earnings Call J. Brett Harvey, Chairman and CEO Nicholas J. DeIuliis, President William J. Lyons, CFO Robert F. Pusateri, EVP, Sales, Marketing, & Transportation April 26, 2012

2 Cautionary Language This presentation contains statements, estimates and projections which are forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended). Such statements include estimates of reserves and resources, projections and estimates concerning the timing and rates of return of future projects, and our future production, revenues, income and capital spending. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those statements, estimates and projections. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of future actual results. Factors that could cause future actual results to differ from the forward-looking statements are described in detail under the captions "Forward Looking Statements" and "Risk Factors" in CONSOL Energy Inc. s annual report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission (SEC), as updated by any subsequent Form 10-Qs. The forwardlooking statements in this presentation speak only as of the date of this presentation; we disclaim any obligation to update the statements, and we caution you not to rely on them unduly. The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible oil and gas reserves that a company anticipates as of a given date to be economically and legally producible and deliverable by application of development projects to known accumulations. We may use certain terms in this press release, such as EUR (estimated ultimate recovery), unproved reserves and total resource potential, that the SEC's rules strictly prohibit us from including in filings with the SEC. These measures are by their nature more speculative than estimates of reserves prepared in accordance with SEC definitions and guidelines and accordingly are less certain. We also note that the SEC strictly prohibits us from aggregating proved, probable and possible reserves in filings with the SEC due to the different levels of certainty associated with each reserve category. Except for proved reserve data, the information this presentation is based on a summary review of the title to the gas rights we hold, as well as a summary review of the title to the coal from which many of our coalbed methane rights derive. As is customary in the gas industry, prior to the commencement of gas drilling operations on our properties, we conduct a thorough title examination and perform curative work with respect to significant defects. We are typically responsible for curing any title defects at our expense. This curative work may include the acquisition of additional property rights in order to perfect our ownership for development and production of the gas estate. This presentation does not constitute an offer to sell or a solicitation of offers to buy securities of CONSOL Energy Inc. 2

3 Investment Thesis and Scorecard Tier One Coal and E&P Assets Provide Synergies and Risk Reduction Low cost, high-btu coal that can travel and transform target markets Low cost E&P assets; adding liquid targets to the 2012 program Long-Lived Assets Enable Strategic Value Enhancements Integration with partners going well Monetized underutilized assets to pull value forward Solid Balance Sheet and Liquidity To Capitalize on Our Organic Projects $2.7B of liquidity and solid debt leverage ratios Consistent Operating and Financial Results Solid earnings and operational cash flow hit our 1Q12 production guidance Reinstated 2012 Guidance Trimmed sales guidance by 1 MTs Exports raised to MTs from 9-11 MTs CONSOL Continues to Respond to Challenging Market Conditions Blacksville and Buchanan longwall operations will be restarted Increased focus on cost 3

4 Adjusting To Weak Energy Markets Energy Markets Experienced a slowdown in both sides of our business and CONSOL is adjusting Coal Idled mines kept our inventories at manageable levels E&P Shifted capital to higher return areas and prepared to expand our product lines to include liquids Actions Intensified focus on costs 4

5 Coal and Gas: Rich Asset Base With Some Vertical Integration CONSOL Energy Inc Coal. 4.5 billion tons of proven and probable coal reserves Raising 2012 estimated coal exports of approximately to MTs from 9-11 MTs Trimming 2012 sales guidance by about 1 MTs to MTs New 2Q12 sales guidance of MTs Natural Gas 3.5 Tcfe of proved reserves 628,000 gross Marcellus Shale acres in the JV with Noble Energy 200,000 gross Utica Shale acres in Ohio in the JV with Hess Corporation 2Q12 production guidance of Bcf 50% of shale wells targeting liquids-rich strata Other Midstream CNX Land Resources Inc. Research & Development Fairmont Supply Company River & Dock Services CNX Marine Terminals Inc. Manages gas gathering assets of the Company Manages land assets of the Company R&D facility devoted to coal, gas, and energy utilization and production Distributor of mining, gas drilling, and industrial supplies Fleet of 625 barges, 22 towboats and 5 harbor boats Baltimore Port with capacity to load 14 million tons of coal per year 5

6 Posted Solid Quarterly Results Operated Our Coal and Gas Operations Efficiently We Faced Challenging Energy & Coking Coal Markets As a Result, CONSOL Energy: Earned $97 million, or $0.42 per diluted share Generated $229 million of cash flow from operations, and Generated $324 million in EBITDA (a non-gaap financial measure)* Year-Over-Year Measures are Lower Driven By: Blacksville and Buchanan longwalls idled for a combined seven weeks, and Unusual weather exacerbated the decline in natural gas prices for our unhedged production *See first quarter 2012 earnings release for reconciliation. 6

7 Operating Cash Flow - $MM Goal is to Maintain our Strong Liquidity Position Year To Date March 31, Year-Over Year Change Net Cash Provided by Operations $229 $435 ($206) Capital Expenditures ($306) ($255) ($51) Proceeds From Assets of Sales $29 $0 $29 Net Payments on Short-Term and Long-Term Debt $0 ($64) $64 Proceeds From Issuance of Common Stock $0 $0 $0 Debt Insurance & Financing Fees $0 ($5) $5 Dividends Paid ($28) ($23) ($5) Other ($12) $7 ($19) Net (Decrease)/Increase in Cash ($88) $95 ($183) 7

8 Strong Liquidity Position of $2.7 Billion Cash on Hand of $287 Million About $39 Million Available on Accounts Receivable Securitization Facility Over $2 Billion Available on Credit Facilities Amount/ Amount Letters Amount March 31, 2012 ($MM) Capacity Drawn of Credit Available Cash and Cash Equivalents $287 $0 $0 $287 Accounts Receivable Securitization $200 $0 $161 $39 Revolving Credit Facility $2,500 $0 $171 $2,329 TOTAL $2,987 $0 $332 $2,655 8

9 Revolving Credit Facilities Debt Covenants CONSOL has Two Credit Facilities for each of its Coal and E&P Businesses CONSOL Energy and CNX Gas Currently Maintain Strong Leverage Ratios CONSOL Energy Revolver: Limit March 31, 2012 Maximum Leverage Ratio > 4.75 to to 1.0 Minimum Interest Coverage Ratio < 2.50 to to 1.0 Senior Secured Leverage Ratio > 2.00 to to 1.0 CNX Gas Revolver: Maximum Leverage Ratio > 3.50 to to 1.0 Minimum Interest Coverage Ratio < 3.00 to to 1.0 9

10 E&P Division Goals Migrating Capital and Activity to High Value Areas Program Goals to Drive CBM and Marcellus Costs Lower Marcellus: multi-well pads and lengthening laterals CBM: lower contractor rates and field services Marcellus Horizon Objectives Ramp up development of our wet acreage position with our partner Noble Energy Focusing on 100% NRI acreage in Greene and Westmoreland Counties, PA Further delineate Central PA and Northern WV position 99 gross wells expected for 2012; 39 wells targeting liquids Utica Horizon Objectives Explore and exploit the Ohio Utica Formation with our partner Hess Corporation 22 gross wells expected for 2012; 22 wells targeting liquids 10

11 2012 Drilling Focuses on Liquids Exposure 22 (Gross) Utica Shale Wells 39 (Gross) Marcellus Shale Wells PA OH MD WV VA Wet Gas Dry Gas 11

12 Drilling Results and Forecast Gross Wells Drilled By Formation From 2009 Through 2012E Formation Region Q12A 2Q12E 2012E Coalbed Methane Virginia Total Shales: Marcellus Shale Central PA Southwest PA West Virginia Totals Utica Shale Conventional and Other Totals % Shales Wells: Dry gas target 100% 100% 100% 78% 63% 49% % Shales Wells: Liquids target 0% 0% 0% 22% 37% 51% % Shales Wells: Completed 100% 96% 88% NM NM 100% Total Production (Bcfe) Total Capital ($MM) NM

13 Marketing 2Q12 and 2012 Forecasts 7% Sales Tons by Product Year % 0% 85% Thermal Low Vol High Vol Mid Vol 2nd Quarter nd Quarter 2011 Year 2012 Year 2011 Thermal Low Vol High Vol Mid Vol Total Coal Sales Facts and Goals Contracted tons for 2012: 93% Priced: About 91% priced with more under negotiation Unpriced: About 50% unsold is High-Vol Approximately 80% of the Low-Vol & High-Vol met coal tons are expected to be shipped overseas Approximately 90% of the thermal coal tons are expected to be delivered domestically Developing new markets for all thermal and met 9% of the overseas thermal coal sales will be shipped to our new market in India Added three new customers Sales Tons by Product 2nd Quarter % 9% 1% 85% Thermal Low Vol High Vol Mid Vol 13

14 Our Assets, Strategy and People Create An Investment Opportunity Coal and gas operations are long-lived, low-cost, and provide solid growth Our well-capitalized assets provide more consistent operational execution Our emphasis on safety and compliance increases reliability Balance sheet remains strong with $2.7 billion of liquidity Valuation remains compelling using sum of the parts Marcellus liquids and Utica results (2Q12) to drive valuation improvement Stabilization and rebound in the met coal markets Solid Execution of our core program and coal projects to serve a rebounding market 14

15 CONSOL Energy Inc. Questions? 15