CONSOL Energy Inc. (CNX) posted earnings from continuing operations of 85 cents per share in the first quarter of 2010, higher than the Zacks Consensus Estimate of 76 cents.
 
Net revenue in the quarter increased by 1.7% to $1,240.1 million compared to $1,218.8 million a year ago. The increase in revenue is attributed to improved sales in the metallurgical coal and gas segments, slightly offset by lower thermal coal sales volumes. Lower realized prices for the company’s coal and gas sales have also offset revenue.
 
In the quarter, CONSOL produced 0.9 million tons of low-volatile metallurgical coal, 0.8 million tons of high-volatility, and 14.2 million tons of thermal coal, a total of 15.9 million tons. Of the thermal coal production, 12.4 million tons were in Northern Appalachia, 1.5 million tons in Central Appalachia, and 0.3 million tons in Western Bituminous.
 
The average realized price for low-volatile metallurgical coal in the quarter declined 22% from a year ago to $113.76 per ton. Realized prices for high-volatile metallurgical coal were $75.53 per ton. Realized prices for the company’s thermal coal production declined 5.2% to $53.79 per ton in the quarter.
 
CNX Gas Corporation, 83.3% of which is owned by CONSOL Energy, reported a production of 24.0 billion cubic feet (Bcf) in the quarter, up 9% from 22.0 Bcf produced a year ago. The average realized gas price declined 1.8% to $7.24 per Mcf in the quarter.
 
During the quarter, CONSOL continued to improve in the area of safety, with the rate of incidents being one of the lowest in the industry. Its coal business decreased its lost time incidents by nearly 20% compared to last year. Majority-owned CNX Gas had another quarter without any lost time incidents by an employee.
 
On March 15, 2010, CONSOL Energy announced the $3.475 billion acquisition of the Appalachian gas exploration and production business of Dominion Resources. The company expects to close the transaction on April 30, 2010. The assets include approximately 1 trillion cubic feet of proved reserves and approximately 500,000 acres of Marcellus Shale. Additional assets include an overriding royalty interest from farm-outs, 300,000 acres of Huron Shale, and extensive Utica Shale acreage.
 
On March 22, 2010, CONSOL Energy announced its intention to acquire approximately 25 million shares of CNX Gas that it does not already own for $38.25 per share. The tender offer commenced on April 28, 2010. As previously announced, T.Rowe Price has already agreed to tender the 9.47 million shares held for its investment advisory clients into the offer at the offer price of $38.25 per share.
 
As of March 31, 2010, CONSOL’s total liquidity was $2.2 billion, with cash of $1.9 billion, $115.0 million of accounts receivable securitization facility and $220.7 million available under its credit facility. CONSOL Energy had $517.0 million drawn under its credit facility. CNX Gas had $49.2 million of short-term debt and $137.0 million in liquidity, with $1.1 million of cash and $135.9 million of credit facility.
 
Guidance
 
CONSOL Energy is contracted to sell 4.7 million tons of low-volatile metallurgical coal from Buchanan Mine at an average price of $144.06 per ton, freight on board mine in 2010. For 2011, the company has 900,000 tons of low-volatile metallurgical coal priced at $170 per ton.
 
Additionally, the company targets selling 3 million tons of high-volatile metallurgical coal in 2010, of which 2.1 million tons are currently under contract at an average price of $73.70 per ton. For 2011, CONSOL expects sales to increase provided the Chinese demand remains strong and the global economy improves.
 
CONSOL expects to sell 57.5 million tons of thermal coal in 2010. CNX Gas has reaffirmed its previously announced production guidance of 100 Bcf for calendar year 2010. Following the closure of the Dominion transaction, CONSOL Energy expects to produce 127 Bcf in 2010, consisting of 100 Bcf from CNX Gas and eight months of production from the Dominion assets, which produces at an annual rate of 41 Bcf.
 
CONSOL expects to invest $1.0 billion in its coal and gas businesses during the year 2010. Of this, $500 million will be allocated for coal operations, $400 million for CNX Gas, and $100 million for other (non-gas) activities. CNX Gas is allocating $221 for drilling, $121 million for midstream, and the remainder for land.
 
The company’s total hedged production in the 2010 second quarter is 13.6 Bcf, at an average price of $8.15 per Mcf.

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