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

February 08, 2013 | About:
10qk

10qk

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CONSOL Energy Inc. (CNX) filed Annual Report for the period ended 2012-12-31.

Consol Energy Inc has a market cap of $7.24 billion; its shares were traded at around $31.72 with a P/E ratio of 18.6567 and P/S ratio of 1.3389. The dividend yield of Consol Energy Inc stocks is 1.58%. Consol Energy Inc had an annual average earning growth of 16.4% over the past 10 years.

Highlight of Business Operations:

Shallow oil and gas sales revenues were $135 million for the year ended December 31, 2012 compared to $155 million for the year ended December 31, 2011. The $20 million decrease was primarily due to the 9.3% decrease in volumes sold as well as the 3.9% decrease in average sales price. The decrease in shallow oil and gas average sales price is the result of lower average market prices, offset, in part, by various gas swap transactions that matured in each period. These gas swap transactions qualify as financial cash flow hedges that exist parallel to the underlying physical transactions. These financial hedges represented approximately18.5 billion cubic feet of our produced shallow oil and gas sales volumes for the year ended December 31, 2012 at an average price of $5.23 per thousand cubic feet. For the year ended December 31, 2011, these financial hedges represented 11.5 billion cubic feet at an average price of $4.97 per thousand cubic feet. Shallow oil and gas sales volumes decreased 3.0 billion cubic feet primarily due to normal well declines without corresponding increase in wells drilled.

The Marcellus segment sales revenues were $134 million for the year ended December 31, 2012 compared to $119 million for the year ended December 31, 2011. The $15 million increase was primarily due to a 35.7% increase in volumes sold, offset, in part, by a 16.9% decrease in average sales price per thousand cubic feet sold. The decrease in Marcellus average sales price was the result of the decline in general market prices; offset, in part, by various gas swap transactions that matured in the year ended December 31, 2012. These gas swap transactions qualify as financial cash flow hedges that exist parallel to the underlying physical transactions. These hedges represented approximately 12.4 billion cubic feet of our produced Marcellus gas sales volumes for the year ended December 31, 2012 at an average price of $4.99 per thousand cubic feet. For the year ended December 31, 2011, these financial hedges represented 10.6 billion cubic feet at an average price of $4.64 per thousand cubic feet. Marcellus sales volumes increased 9.6 billion cubic feet due to our on-going drilling program.

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.

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.

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, 2012, 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, or subsequent remeasurement date, if applicable. The discount rate is determined using a Company-specific yield curve model (above-mean) developed with assistance of an external actuary. The discount rate yield curve was updated to expand the high quality bond universe to address the significant decline in the number of bonds referenced in the establishment of the yield curve in the 10-30 year time period. The Company-specific yield curve model (above-mean) uses a subset of the expanded bond universe to determine the Company-specific discount rate. Bonds used in the yield curve are rated AA by Moody's or Standard & Poor's as of the measurement date. The yield curve model parallels the plans' projected cash flows, and the underlying cash flows of the bonds included in the model exceed the cash flows needed to satisfy the Company plans'. For the years ended December 31, 2012 and 2011, the discount rate used to calculate the period end liability and the following year's expense was 4.00% and 4.50%, respectively. A 0.25% increase in the discount rate would have decreased the 2012 net periodic pension cost by $2.4 million. A 0.25% decrease in the discount rate would have increased the 2012 net periodic pension cost by $2.5 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, 2012 the average

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