Diversified fuel producer CONSOL Energy Inc. (CNX) posted third quarter 2010 adjusted earnings of 44 cents per share, falling short of the Zacks Consensus Estimate of 58 cents. Lower earnings in the quarter were a result of increased expenses, offset in part by robust fuel volumes produced at both the segments.
The company boasted a record revenue growth of 23%, which propelled revenues to $1.319 billion, driven by increased contribution from the Coal Division. Compared to the Zacks Consensus Estimate CONSOL’s revenue fell 1.9% (negative surprise) from $1.345 billion.
Segmental Performance
Coal Division
Revenue at the Coal Division improved 22% to $1.019 billion from $837 million in the year-ago quarter.
In the quarter, CONSOL produced 1.3 million tons of low-volatile metallurgical coal, 0.4 million tons of high-volatility met coal, and 13.0 million tons of thermal coal, a total of 14.7 million tons. Of the thermal coal production, 11.5 million tons were from Northern Appalachia, 1.3 million tons from Central Appalachia, and 0.2 million tons from Western Bituminous. Produced coal sold in the quarter was 15.6 million tons.
The average realized price for low-volatile metallurgical coal was $165.61 per ton (up 70.6%), while realized prices for high-volatile metallurgical coal were $71.16 per ton. Realized prices for the company’s thermal coal production declined 7.8% to $53.55 per ton in the quarter.
Gas Division
The company’s Gas Division posted a revenue increase of 37% year over year, a total of $227.8 million. Total production at the Gas Division shot up 44% year over year to 35.8 billion cubic feet (Bcf) or 389 million cubic feet per day (MMcf/d) in the quarter. Average realized gas price, including hedged production of 13.6 Bcf, was $7.39 per Mcf.
Liquidity
As of September 30, 2010, CONSOL’s total liquidity was $1.11 billion, with cash of $14.5 million and $1.1 billion available under its credit facility. CNX Gas had $77.9 million of short-term debt and $608.3 million in liquidity, with $1.1 million of cash and $607.2 million of available credit facility.
Guidance
CONSOL Energy reaffirmed its previously announced production guidance of 127 Bcf for 2010 and its 2011 production guidance of 170 Bcf, implying a 21% increase over the 2010 annualized run rate of 141 Bcf (expected production from the 12-month operation of Dominion assets).
The company has hedged about 11.9 Bcf of its gas production for the fourth quarter of 2010 at an average price of $6.18 per Mcf.
For the fourth quarter of 2010, CONSOL Energy’s Coal Division has guided a production target of 16.5 million tons and plans to sell at least 17.0 million tons. Going forward, the Coal Division expects to produce and sell between 59 and 61 million tons in both 2011 and 2012.
For 2011, the Coal Division estimates total low-volatile production to be 4.5 million tons. The company indicated that it has 1.2 million tons of low-volatile coal priced at $151 per ton for 2011.
On the thermal coal side, CONSOL Energy is contracted to sell 56.3 million tons of thermal coal at average prices of $53.51 in 2010, 40.3 million tons at $55.74 in 2011 and 19.1 million tons at $59.78 in 2012.
CONSOL plans to invest nearly $1.1 billion in 2010, with about $500 million each slated for its Coal and Gas Divisions and $100 million for other (non-gas) activities.
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