GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

CONSOL Energy Inc. Reports Operating Results (10-K)

February 10, 2012 | About:
10qk

10qk

18 followers
CONSOL Energy Inc. (CNX) filed Annual Report for the period ended 2011-12-31.

Consol Energy Inc. has a market cap of $8.33 billion; its shares were traded at around $36.79 with a P/E ratio of 12.1 and P/S ratio of 1.4. The dividend yield of Consol Energy Inc. stocks is 1.3%. Consol Energy Inc. had an annual average earning growth of 24.9% over the past 10 years. GuruFocus rated Consol Energy Inc. the business predictability rank of 2-star.

Highlight of Business Operations:

Shallow Oil and Gas sales revenues were $155 million for the year ended December 31, 2011 compared to $116 million for the year ended December 31, 2010. The $39 million increase was primarily due to the 30.4% increase in volumes sold as well as the 2.1% increase in average sales price. Shallow Oil and Gas sales volumes increased 7.5 billion cubic feet in the year ended December 31, 2011 compared to the 2010 period primarily due to the Dominion Acquisition, which closed on April 30, 2010. Approximately 95% of the acquired producing wells were Shallow Oil and Gas type wells. Average sales price increased primarily as the result of various gas swap transactions that matured in the year ended December 31 2011, offset, in part by lower average market prices. These gas swap transactions qualify as financial cash flow hedges that exist parallel to the underlying physical transactions. These financial hedges represented approximately 11.5 billion cubic feet of our produced Shallow Oil and Gas gas sales volumes for the year ended December 31, 2011 at an average price of $4.97 per thousand cubic feet. There were no Shallow Oil and Gas gas swap transactions that occurred in the year ended December 31, 2010. There were 8,041 and 8,016 shallow oil and gas wells in production at December 31, 2011 and 2010, respectively.

The Marcellus segment sales revenues were $119 million for the year ended December 31, 2011 compared to $49 million for the year ended December 31, 2010. The $70 million increase was primarily due to a 158.7% increase in average volumes sold, offset, in part, by a 5.5% decrease in average sales price per thousand cubic feet sold. The increase in sales volumes is primarily due to additional wells coming on-line from our on-going drilling program, partially offset by 6.6 billion cubic feet related to the Noble joint venture and 1.0 billion cubic feet related to the Antero sale. The decrease in Marcellus average sales price was the result of the decline in general market prices. These decreases were offset, in part, by various gas swap transactions that matured in the year ended December 31, 2011. These gas swap transactions qualify as financial cash flow hedges that exist parallel to the underlying physical transactions. These hedges represented approximately 10.6 billion cubic feet of our produced Marcellus gas sales volumes for the year ended December 31, 2011 at an average price of $4.64 per thousand cubic feet. For the year ended December 31, 2010, these financial hedges represented 1.6 billion cubic feet at an average price of $5.05 per thousand cubic feet. At December 31, 2011 and 2010, there were 110 and 52 gross Marcellus Shale wells in production, respectively.

Other income was $59 million for the year ended December 31, 2011 compared to $5 million for the year ended December 31, 2010. The $54 million increase was primarily due to a gain on the Hess transaction of $53 million, a gain on the sale of the Antero overriding royalty interest of $41 million, $8 million of additional interest income related to the notes receivable related to the Noble joint venture transaction, $5 million due to various transactions that occurred throughout both periods, none of which were individually material and $4 million due to increased earnings from equity affiliates. These improvements were partially offset by a loss on the Noble transaction of $57 million.

CBM sales revenues were $573 million for the year ended December 31, 2010 compared to $597 million for the year ended December 31, 2009. The decrease was primarily due to the 8.7% reduction in average price per thousand cubic feet sold, offset, in part, by the 5.2% increase in volumes sold. The decrease in CBM average sales price was the result of various gas swap transactions at a lower average price as compared to the prior year. These gas swap transactions qualify as financial cash flow hedges that exist parallel to the underlying physical transactions. These financial hedges represented approximately 50.5 billion cubic feet of our produced CBM gas sales volumes for the year ended December 31, 2010 at an average price of $7.73 per thousand cubic feet. These financial hedges represented approximately 51.6 billion cubic feet of our produced CBM gas sales volumes for the year ended December 31, 2009 at an average price of $8.76 per thousand cubic feet. Average gas sales prices excluding the impact of hedging were $4.47 per thousand cubic feet in 2010 compared to $4.13 per thousand cubic feet in 2009. CBM sales volumes increased 4.5 billion cubic feet primarily due to additional wells coming online from our on-going drilling program. We had 3,945 net CBM Wells at December 31, 2010 compared to 3,688 net CBM wells at December 31, 2009. Also, 2009 CBM volumes were lower by approximately 1.2 billion cubic feet of deferrals related to the idling of the Buchanan Mine for approximately five months during 2009.

Our independent actuaries calculate the actuarial present value of the estimated retirement obligation based on assumptions including rates of compensation, mortality rates, retirement age and interest rates. For the year ended December 31, 2011, compensation increases are assumed to range from 3% to 6% depending on age and job classification. The discount rate is determined each year at the measurement date. The discount rate is determined by utilizing a corporate yield curve model developed from corporate bond data using only bonds rated Aa by Moody's as of the measurement date. All expected benefit payments from the CONSOL Energy retirement plan were discounted using a spot rate yield curve as of December 31, 2011. The appropriate equivalent discount rate was then selected for the resulting discounted pension cash flows. For the years ended December 31, 2011 and 2010, the discount rate used to calculate the period end liability and the following year's expense was 4.50% and 5.30%, respectively. A 0.25% increase in the discount rate would have decreased the 2011 net periodic pension cost by $1.9 million. A 0.25% decrease in the discount rate would have increased the 2011 net periodic pension cost by $2.0 million. Deferred gains and losses are primarily due to historical changes in the discount rate and earnings on assets differing from expectations. At December 31, 2011 the average remaining service period is approximately 10 years. Changes to any of these assumptions introduce substantial volatility to our costs.

Read the The complete Report

About the author:

10qk
GuruFocus - Stock Picks and Market Insight of Gurus

Rating: 1.0/5 (3 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK