ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CNX RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except per share data)
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
(Unaudited)
|
June 30,
|
|
|
|
June 30,
|
|
|
|
Revenue and Other Operating Income:
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Natural Gas, NGL and Oil Revenue
|
$
|
175,776
|
|
|
$
|
342,865
|
|
|
$
|
427,270
|
|
|
$
|
778,811
|
|
|
(Loss) Gain on Commodity Derivative Instruments
|
(63,303)
|
|
|
221,581
|
|
|
51,839
|
|
|
26,205
|
|
|
Purchased Gas Revenue
|
20,424
|
|
|
18,768
|
|
|
46,783
|
|
|
34,989
|
|
|
Midstream Revenue
|
12,191
|
|
|
18,895
|
|
|
30,597
|
|
|
37,338
|
|
|
Other Operating Income
|
3,753
|
|
|
2,923
|
|
|
8,711
|
|
|
6,120
|
|
|
Total Revenue and Other Operating Income
|
148,841
|
|
|
605,032
|
|
|
565,200
|
|
|
883,463
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
Operating Expense
|
|
|
|
|
|
|
|
|
Lease Operating Expense
|
10,244
|
|
|
19,876
|
|
|
20,277
|
|
|
38,504
|
|
|
Transportation, Gathering and Compression
|
60,025
|
|
|
84,614
|
|
|
143,267
|
|
|
164,023
|
|
|
Production, Ad Valorem, and Other Fees
|
5,384
|
|
|
7,030
|
|
|
11,546
|
|
|
13,976
|
|
|
Depreciation, Depletion and Amortization
|
113,545
|
|
|
128,999
|
|
|
242,709
|
|
|
254,159
|
|
|
Exploration and Production Related Other Costs
|
3,310
|
|
|
5,567
|
|
|
7,197
|
|
|
8,825
|
|
|
Purchased Gas Costs
|
19,989
|
|
|
18,772
|
|
|
44,987
|
|
|
34,986
|
|
|
Impairment of Exploration and Production Properties
|
—
|
|
|
—
|
|
|
61,849
|
|
|
—
|
|
|
Impairment of Goodwill
|
—
|
|
|
—
|
|
|
473,045
|
|
|
—
|
|
|
Selling, General, and Administrative Costs
|
23,419
|
|
|
48,970
|
|
|
53,657
|
|
|
84,709
|
|
|
Other Operating Expense
|
26,596
|
|
|
17,976
|
|
|
47,277
|
|
|
41,451
|
|
|
Total Operating Expense
|
262,512
|
|
|
331,804
|
|
|
1,105,811
|
|
|
640,633
|
|
|
Other Expense
|
|
|
|
|
|
|
|
|
Other Expense (Income)
|
4,799
|
|
|
(99)
|
|
|
9,985
|
|
|
(681)
|
|
|
(Gain) Loss on Asset Sales and Abandonments
|
(5,938)
|
|
|
(387)
|
|
|
(17,992)
|
|
|
2,699
|
|
|
|
|
|
|
|
|
|
|
|
Loss (Gain) on Debt Extinguishment
|
344
|
|
|
77
|
|
|
(10,919)
|
|
|
7,614
|
|
|
Interest Expense
|
46,256
|
|
|
40,152
|
|
|
95,252
|
|
|
75,923
|
|
|
Total Other Expense
|
45,461
|
|
|
39,743
|
|
|
76,326
|
|
|
85,555
|
|
|
Total Costs and Expenses
|
307,973
|
|
|
371,547
|
|
|
1,182,137
|
|
|
726,188
|
|
|
(Loss) Earnings Before Income Tax
|
(159,132)
|
|
|
233,485
|
|
|
(616,937)
|
|
|
157,275
|
|
|
Income Tax (Benefit) Expense
|
(28,646)
|
|
|
40,791
|
|
|
(181,228)
|
|
|
29,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
(130,486)
|
|
|
192,694
|
|
|
(435,709)
|
|
|
128,044
|
|
|
Less: Net Income Attributable to Noncontrolling Interest
|
15,263
|
|
|
30,217
|
|
|
39,126
|
|
|
52,904
|
|
|
Net (Loss) Income Attributable to CNX Resources Shareholders
|
$
|
(145,749)
|
|
|
$
|
162,477
|
|
|
$
|
(474,835)
|
|
|
$
|
75,140
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings per Share
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.78)
|
|
|
$
|
0.85
|
|
|
$
|
(2.54)
|
|
|
$
|
0.39
|
|
|
Diluted
|
$
|
(0.78)
|
|
|
$
|
0.84
|
|
|
$
|
(2.54)
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these financial statements.
CNX RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
(Dollars in thousands)
|
June 30,
|
|
|
|
June 30,
|
|
|
|
(Unaudited)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net (Loss) Income
|
$
|
(130,486)
|
|
|
$
|
192,694
|
|
|
$
|
(435,709)
|
|
|
$
|
128,044
|
|
|
Other Comprehensive Income:
|
|
|
|
|
|
|
|
|
Actuarially Determined Long-Term Liability Adjustments (Net of tax: ($39), ($14), ($79), ($29))
|
111
|
|
|
41
|
|
|
223
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (Loss) Income
|
(130,375)
|
|
|
192,735
|
|
|
(435,486)
|
|
|
128,129
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive Income Attributable to Noncontrolling Interest
|
15,263
|
|
|
30,217
|
|
|
39,126
|
|
|
52,904
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (Loss) Income Attributable to CNX Resources Shareholders
|
$
|
(145,638)
|
|
|
$
|
162,518
|
|
|
$
|
(474,612)
|
|
|
$
|
75,225
|
|
The accompanying notes are an integral part of these financial statements.
CNX RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
June 30,
2020
|
|
December 31,
2019
|
|
ASSETS
|
|
|
|
|
Current Assets:
|
|
|
|
|
Cash and Cash Equivalents
|
$
|
19,607
|
|
|
$
|
16,283
|
|
|
Restricted Cash
|
738
|
|
|
—
|
|
|
Accounts and Notes Receivable:
|
|
|
|
|
Trade, net
|
69,174
|
|
|
133,480
|
|
|
Other Receivables, net
|
7,669
|
|
|
13,679
|
|
|
Supplies Inventories
|
10,317
|
|
|
6,984
|
|
|
|
|
|
|
|
Recoverable Income Taxes
|
114,440
|
|
|
62,425
|
|
|
Derivative Instruments
|
197,804
|
|
|
247,794
|
|
|
Prepaid Expenses
|
10,973
|
|
|
17,456
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
430,722
|
|
|
498,101
|
|
|
Property, Plant and Equipment:
|
|
|
|
|
Property, Plant and Equipment
|
10,814,035
|
|
|
10,572,006
|
|
|
Less—Accumulated Depreciation, Depletion and Amortization
|
3,730,232
|
|
|
3,435,431
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Property, Plant and Equipment—Net
|
7,083,803
|
|
|
7,136,575
|
|
|
Other Non-Current Assets:
|
|
|
|
|
|
|
|
|
|
Operating Lease Right-of-Use Assets
|
141,198
|
|
|
187,097
|
|
|
Investment in Affiliates
|
15,159
|
|
|
16,710
|
|
|
Derivative Instruments
|
212,657
|
|
|
314,096
|
|
|
Goodwill
|
323,314
|
|
|
796,359
|
|
|
Other Intangible Assets
|
93,371
|
|
|
96,647
|
|
|
Restricted Cash
|
5,576
|
|
|
—
|
|
|
Other
|
13,884
|
|
|
15,221
|
|
|
|
|
|
|
|
Total Other Non-Current Assets
|
805,159
|
|
|
1,426,130
|
|
|
TOTAL ASSETS
|
$
|
8,319,684
|
|
|
$
|
9,060,806
|
|
The accompanying notes are an integral part of these financial statements.
CNX RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share data)
|
June 30,
2020
|
|
December 31,
2019
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
Accounts Payable
|
$
|
148,345
|
|
|
$
|
202,553
|
|
|
Derivative Instruments
|
83,527
|
|
|
41,466
|
|
|
Current Portion of Finance Lease Obligations
|
7,295
|
|
|
7,164
|
|
|
Current Portion of Long-Term Debt
|
22,430
|
|
|
—
|
|
|
|
|
|
|
|
Current Portion of Operating Lease Obligations
|
52,110
|
|
|
61,670
|
|
|
Other Accrued Liabilities
|
162,817
|
|
|
216,086
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
476,524
|
|
|
528,939
|
|
|
Non-Current Liabilities:
|
|
|
|
|
Long-Term Debt
|
2,540,768
|
|
|
2,754,443
|
|
|
Finance Lease Obligations
|
4,225
|
|
|
7,706
|
|
|
Operating Lease Obligations
|
79,701
|
|
|
110,466
|
|
|
Derivative Instruments
|
178,187
|
|
|
115,862
|
|
|
Deferred Income Taxes
|
370,412
|
|
|
476,108
|
|
|
Asset Retirement Obligations
|
62,543
|
|
|
63,377
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
40,370
|
|
|
41,596
|
|
|
|
|
|
|
|
Total Non-Current Liabilities
|
3,276,206
|
|
|
3,569,558
|
|
|
TOTAL LIABILITIES
|
3,752,730
|
|
|
4,098,497
|
|
|
Stockholders’ Equity:
|
|
|
|
|
Common Stock, $.01 Par Value; 500,000,000 Shares Authorized, 187,431,492 Issued and Outstanding at June 30, 2020; 186,642,962 Issued and Outstanding at December 31, 2019
|
1,878
|
|
|
1,870
|
|
|
Capital in Excess of Par Value
|
2,261,729
|
|
|
2,199,605
|
|
|
Preferred Stock, 15,000,000 shares authorized, None issued and outstanding
|
—
|
|
|
—
|
|
|
Retained Earnings
|
1,495,197
|
|
|
1,971,676
|
|
|
Accumulated Other Comprehensive Loss
|
(12,382)
|
|
|
(12,605)
|
|
|
|
|
|
|
|
Total CNX Resources Stockholders’ Equity
|
3,746,422
|
|
|
4,160,546
|
|
|
Noncontrolling Interest
|
820,532
|
|
|
801,763
|
|
|
TOTAL STOCKHOLDERS' EQUITY
|
4,566,954
|
|
|
4,962,309
|
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
8,319,684
|
|
|
$
|
9,060,806
|
|
The accompanying notes are an integral part of these financial statements.
CNX RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
(Unaudited)
|
Common Stock
|
|
Capital in
Excess
of Par
Value
|
|
Retained Earnings (Deficit)
|
|
Accumulated Other Comprehensive Income
(Loss)
|
|
Total
CNX Resources Stockholders’ Equity
|
|
Non- Controlling Interest
|
|
Total Equity
|
|
March 31, 2020
|
$
|
1,874
|
|
|
$
|
2,205,941
|
|
|
$
|
1,641,009
|
|
|
$
|
(12,493)
|
|
|
$
|
3,836,331
|
|
|
$
|
808,379
|
|
|
$
|
4,644,710
|
|
|
Net (Loss) Income
|
—
|
|
|
—
|
|
|
(145,749)
|
|
|
—
|
|
|
(145,749)
|
|
|
15,263
|
|
|
(130,486)
|
|
|
Issuance of Common Stock
|
4
|
|
|
1,646
|
|
|
—
|
|
|
—
|
|
|
1,650
|
|
|
—
|
|
|
1,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Withheld for Taxes
|
—
|
|
|
—
|
|
|
(63)
|
|
|
—
|
|
|
(63)
|
|
|
—
|
|
|
(63)
|
|
|
Amortization of Stock-Based Compensation Awards
|
—
|
|
|
2,186
|
|
|
—
|
|
|
—
|
|
|
2,186
|
|
|
380
|
|
|
2,566
|
|
|
Equity Component of Convertible Senior Notes, net of Issuance Costs
|
—
|
|
|
78,307
|
|
|
—
|
|
|
—
|
|
|
78,307
|
|
|
—
|
|
|
78,307
|
|
|
Purchase of Capped Call
|
—
|
|
|
(26,351)
|
|
|
—
|
|
|
—
|
|
|
(26,351)
|
|
|
—
|
|
|
(26,351)
|
|
|
Other Comprehensive Income
|
—
|
|
|
—
|
|
|
—
|
|
|
111
|
|
|
111
|
|
|
—
|
|
|
111
|
|
|
Distributions to CNXM Noncontrolling Interest Holders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,490)
|
|
|
(3,490)
|
|
|
June 30, 2020
|
$
|
1,878
|
|
|
$
|
2,261,729
|
|
|
$
|
1,495,197
|
|
|
$
|
(12,382)
|
|
|
$
|
3,746,422
|
|
|
$
|
820,532
|
|
|
$
|
4,566,954
|
|
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
$
|
1,964
|
|
|
$
|
2,249,511
|
|
|
$
|
1,971,898
|
|
|
$
|
(7,860)
|
|
|
$
|
4,215,513
|
|
|
$
|
759,296
|
|
|
$
|
4,974,809
|
|
|
Net Income
|
—
|
|
|
—
|
|
|
162,477
|
|
|
—
|
|
|
162,477
|
|
|
30,217
|
|
|
192,694
|
|
|
Issuance of Common Stock
|
3
|
|
|
59
|
|
|
—
|
|
|
—
|
|
|
62
|
|
|
—
|
|
|
62
|
|
|
Purchase and Retirement of Common Stock
|
(88)
|
|
|
(68,934)
|
|
|
(5,261)
|
|
|
—
|
|
|
(74,283)
|
|
|
—
|
|
|
(74,283)
|
|
|
Shares Withheld for Taxes
|
—
|
|
|
—
|
|
|
(1,487)
|
|
|
—
|
|
|
(1,487)
|
|
|
(25)
|
|
|
(1,512)
|
|
|
Amortization of Stock-Based Compensation Awards
|
—
|
|
|
23,333
|
|
|
—
|
|
|
—
|
|
|
23,333
|
|
|
540
|
|
|
23,873
|
|
|
Other Comprehensive Income
|
—
|
|
|
—
|
|
|
—
|
|
|
41
|
|
|
41
|
|
|
—
|
|
|
41
|
|
|
Distributions to CNXM Noncontrolling Interest Holders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,689)
|
|
|
(15,689)
|
|
|
June 30, 2019
|
$
|
1,879
|
|
|
$
|
2,203,969
|
|
|
$
|
2,127,627
|
|
|
$
|
(7,819)
|
|
|
$
|
4,325,656
|
|
|
$
|
774,339
|
|
|
$
|
5,099,995
|
|
The accompanying notes are an integral part of these financial statements.
CNX RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Common
Stock
|
|
Capital in
Excess
of Par
Value
|
|
Retained
Earnings
(Deficit)
|
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
|
Total
CNX Resources
Stockholders’
Equity
|
|
Non-
Controlling
Interest
|
|
Total
Equity
|
|
December 31, 2019
|
$
|
1,870
|
|
|
$
|
2,199,605
|
|
|
$
|
1,971,676
|
|
|
$
|
(12,605)
|
|
|
$
|
4,160,546
|
|
|
$
|
801,763
|
|
|
$
|
4,962,309
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
—
|
|
|
—
|
|
|
(474,835)
|
|
|
—
|
|
|
(474,835)
|
|
|
39,126
|
|
|
(435,709)
|
|
|
Issuance of Common Stock
|
8
|
|
|
1,646
|
|
|
—
|
|
|
—
|
|
|
1,654
|
|
|
—
|
|
|
1,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Withheld for Taxes
|
—
|
|
|
—
|
|
|
(1,644)
|
|
|
—
|
|
|
(1,644)
|
|
|
(309)
|
|
|
(1,953)
|
|
|
Amortization of Stock-Based Compensation Awards
|
—
|
|
|
8,522
|
|
|
—
|
|
|
—
|
|
|
8,522
|
|
|
884
|
|
|
9,406
|
|
|
Equity Component of Convertible Senior Notes, net of Issuance Costs
|
—
|
|
|
78,307
|
|
|
—
|
|
|
—
|
|
|
78,307
|
|
|
—
|
|
|
78,307
|
|
|
Purchase of Capped Call
|
—
|
|
|
(26,351)
|
|
|
—
|
|
|
—
|
|
|
(26,351)
|
|
|
—
|
|
|
(26,351)
|
|
|
Other Comprehensive Income
|
—
|
|
|
—
|
|
|
—
|
|
|
223
|
|
|
223
|
|
|
—
|
|
|
223
|
|
|
Distributions to CNXM Noncontrolling Interest Holders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,932)
|
|
|
(20,932)
|
|
|
June 30, 2020
|
$
|
1,878
|
|
|
$
|
2,261,729
|
|
|
$
|
1,495,197
|
|
|
$
|
(12,382)
|
|
|
$
|
3,746,422
|
|
|
$
|
820,532
|
|
|
$
|
4,566,954
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
$
|
1,990
|
|
|
$
|
2,264,063
|
|
|
$
|
2,071,809
|
|
|
$
|
(7,904)
|
|
|
$
|
4,329,958
|
|
|
$
|
751,785
|
|
|
$
|
5,081,743
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
—
|
|
|
—
|
|
|
75,140
|
|
|
—
|
|
|
75,140
|
|
|
52,904
|
|
|
128,044
|
|
|
Issuance of Common Stock
|
8
|
|
|
153
|
|
|
—
|
|
|
—
|
|
|
161
|
|
|
—
|
|
|
161
|
|
|
Purchase and Retirement of Common Stock
|
(119)
|
|
|
(93,871)
|
|
|
(13,790)
|
|
|
—
|
|
|
(107,780)
|
|
|
—
|
|
|
(107,780)
|
|
|
Shares Withheld for Taxes
|
—
|
|
|
—
|
|
|
(5,532)
|
|
|
—
|
|
|
(5,532)
|
|
|
(690)
|
|
|
(6,222)
|
|
|
Amortization of Stock-Based Compensation Awards
|
—
|
|
|
33,624
|
|
|
—
|
|
|
—
|
|
|
33,624
|
|
|
1,152
|
|
|
34,776
|
|
|
Other Comprehensive Income
|
—
|
|
|
—
|
|
|
—
|
|
|
85
|
|
|
85
|
|
|
—
|
|
|
85
|
|
|
Distributions to CNXM Noncontrolling Interest Holders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(30,812)
|
|
|
(30,812)
|
|
|
June 30, 2019
|
$
|
1,879
|
|
|
$
|
2,203,969
|
|
|
$
|
2,127,627
|
|
|
$
|
(7,819)
|
|
|
$
|
4,325,656
|
|
|
$
|
774,339
|
|
|
$
|
5,099,995
|
|
The accompanying notes are an integral part of these financial statements.
CNX RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
Six Months Ended
|
|
|
|
Dollars in Thousands
|
June 30,
|
|
|
|
Cash Flows from Operating Activities:
|
2020
|
|
2019
|
|
Net (Loss) Income
|
$
|
(435,709)
|
|
|
$
|
128,044
|
|
|
Adjustments to Reconcile Net (Loss) Income to Net Cash Provided by Operating Activities:
|
|
|
|
|
|
|
|
|
|
Depreciation, Depletion and Amortization
|
242,709
|
|
|
254,159
|
|
|
Amortization of Deferred Financing Costs
|
8,795
|
|
|
4,408
|
|
|
Impairment of Exploration and Production Properties
|
61,849
|
|
|
—
|
|
|
Impairment of Goodwill
|
473,045
|
|
|
—
|
|
|
Stock-Based Compensation
|
9,406
|
|
|
34,776
|
|
|
(Gain) Loss on Asset Sales and Abandonments
|
(17,992)
|
|
|
2,699
|
|
|
|
|
|
|
|
(Gain) Loss on Debt Extinguishment
|
(10,919)
|
|
|
7,614
|
|
|
Gain on Commodity Derivative Instruments
|
(51,839)
|
|
|
(26,205)
|
|
|
Loss on Other Derivative Instruments
|
14,237
|
|
|
—
|
|
|
Net Cash Received (Paid) in Settlement of Commodity Derivative Instruments
|
293,417
|
|
|
(30,710)
|
|
|
Deferred Income Taxes
|
(125,429)
|
|
|
29,231
|
|
|
Equity in Loss (Earnings) of Affiliates
|
1,421
|
|
|
(1,030)
|
|
|
Return on Equity Investment
|
131
|
|
|
2,056
|
|
|
Changes in Operating Assets:
|
|
|
|
|
Accounts and Notes Receivable
|
68,270
|
|
|
125,991
|
|
|
Recoverable Income Taxes
|
(52,015)
|
|
|
35,888
|
|
|
Supplies Inventories
|
(3,333)
|
|
|
(1,527)
|
|
|
Prepaid Expenses
|
6,542
|
|
|
4,287
|
|
|
Changes in Other Assets
|
396
|
|
|
(105)
|
|
|
Changes in Operating Liabilities:
|
|
|
|
|
Accounts Payable
|
(15,488)
|
|
|
29,346
|
|
|
Accrued Interest
|
(5,558)
|
|
|
5,050
|
|
|
Other Operating Liabilities
|
(49,620)
|
|
|
(36,392)
|
|
|
Changes in Other Liabilities
|
(1,131)
|
|
|
(6,907)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
411,185
|
|
|
560,673
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
Capital Expenditures
|
(286,901)
|
|
|
(628,365)
|
|
|
|
|
|
|
|
Proceeds from Asset Sales
|
26,126
|
|
|
7,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
(260,775)
|
|
|
(621,278)
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
Payments on Miscellaneous Borrowings
|
(3,569)
|
|
|
(3,515)
|
|
|
Payments on Long-Term Notes
|
(468,865)
|
|
|
(405,876)
|
|
|
Net Proceeds from CNXM Revolving Credit Facility
|
7,250
|
|
|
124,000
|
|
Net (Payments on) Proceeds from CNX Revolving Credit Facility
|
(111,000)
|
|
|
18,000
|
|
|
Proceeds from Issuance of CNX Senior Notes
|
—
|
|
|
500,000
|
|
|
|
|
|
|
|
Net Proceeds from CSG Non-Revolving Credit Facilities
|
169,583
|
|
|
—
|
|
|
Proceeds from Issuance of Convertible Senior Notes
|
334,650
|
|
|
—
|
|
|
Purchase of Capped Call Related to Convertible Senior Notes
|
(35,673)
|
|
|
—
|
|
|
Distributions to CNXM Noncontrolling Interest Holders
|
(20,932)
|
|
|
(30,812)
|
|
|
Proceeds from Issuance of Common Stock
|
1,654
|
|
|
161
|
|
|
Shares Withheld for Taxes
|
(1,953)
|
|
|
(6,222)
|
|
|
Purchases of Common Stock
|
—
|
|
|
(109,780)
|
|
|
Debt Issuance and Financing Fees
|
(11,917)
|
|
|
(9,938)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used in) Provided by Financing Activities
|
(140,772)
|
|
|
76,018
|
|
|
Net Increase in Cash, Cash Equivalents and Restricted Cash
|
9,638
|
|
|
15,413
|
|
|
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
|
16,283
|
|
|
17,198
|
|
|
Cash, Cash Equivalents, and Restricted Cash at End of Period
|
$
|
25,921
|
|
|
$
|
32,611
|
|
The accompanying notes are an integral part of these financial statements.
CNX RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 1—BASIS OF PRESENTATION:
The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for future periods.
The Consolidated Balance Sheet at December 31, 2019 has been derived from the Audited Consolidated Financial Statements at that date but does not include all the notes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Consolidated Financial Statements and related notes for the year ended December 31, 2019 included in CNX Resources Corporation's ("CNX," "CNX Resources," the "Company," "we," "us," or "our") Annual Report on Form 10-K as filed with the Securities and Exchange Commission (SEC) on February 10, 2020.
Certain amounts in prior periods have been reclassified to conform to the current period presentation.
Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash to amounts shown in the statement of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
2020
|
|
2019
|
|
Cash and Cash Equivalents
|
$
|
19,607
|
|
|
$
|
32,611
|
|
|
Restricted Cash, Current Portion
|
738
|
|
|
—
|
|
|
Restricted Cash, Less Current Portion
|
5,576
|
|
|
—
|
|
|
Total Cash, Cash Equivalents, and Restricted Cash
|
$
|
25,921
|
|
|
$
|
32,611
|
|
Restricted Cash
Consists of cash that the Company is contractually obligated to maintain in accordance with the terms of the Cardinal States Gathering LLC and CSG Holdings II LLC Credit Agreement dated March 13, 2020 (See Note 9 - Long-Term Debt for more information).
Receivables
On January 1, 2020, CNX adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. CNX adopted Topic 326 using the prospective transition method.
Prior to adopting Topic 326, CNX reserved for specific accounts receivable when it was probable that all or a part of an outstanding balance would not be collected, such as customer bankruptcies. Collectability was determined based on terms of sale, credit status of customers and various other circumstances. CNX regularly reviewed collectability and established or adjusted the allowance as necessary using the specific identification method. Account balances were charged off against the allowance after all means of collection had been exhausted and the potential for recovery was considered remote. Reserves for uncollectable amounts were not material in the periods presented.
Under Topic 326, management records an allowance for credit losses related to the collectability of third-party customers receivables using the historical aging of the customer receivable balance. The collectability is determined based on past events, including historical experience, customer credit rating, as well as current market conditions. CNX monitors customer ratings
and collectability on an on-going basis. Account balances will be charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for credit losses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
Accounts Receivable - Trade
|
$
|
69,252
|
|
|
$
|
133,480
|
|
|
Allowance for Credit Losses
|
(78)
|
|
|
—
|
|
|
Accounts Receivable - Trade, net
|
$
|
69,174
|
|
|
$
|
133,480
|
|
|
|
|
|
|
|
Other Receivables
|
$
|
12,800
|
|
|
$
|
16,142
|
|
|
Allowance for Credit Losses
|
(5,131)
|
|
|
(2,463)
|
|
|
Other Receivables, net
|
$
|
7,669
|
|
|
$
|
13,679
|
|
NOTE 2—EARNINGS PER SHARE:
Basic earnings per share is computed by dividing net income attributable to CNX shareholders by the weighted average shares outstanding during the reporting period. Diluted earnings per share is computed similarly to basic earnings per share, except that the weighted average shares outstanding are increased to include, if dilutive, additional shares from stock options, performance stock options, restricted stock units, performance share units, and shares issuable upon conversion of the Convertible Notes. The number of additional shares is calculated by assuming that outstanding stock options and performance share options were exercised, that outstanding restricted stock units and performance share units were released, and that the proceeds from such activities were used to acquire shares of common stock at the average market price during the reporting period. CNX Midstream Partners LP's ("CNXM") dilutive units did not have a material impact on the Company's earnings per share calculations for the three or six months ended June 30, 2020 or June 30, 2019.
The table below sets forth the share-based awards that have been excluded from the computation of diluted earnings per share because their effect would be antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Anti-Dilutive Options
|
4,256,409
|
|
|
2,041,273
|
|
|
4,256,409
|
|
|
2,041,273
|
|
|
Anti-Dilutive Restricted Stock Units
|
2,009,678
|
|
|
150,007
|
|
|
2,009,678
|
|
|
220,858
|
|
|
Anti-Dilutive Performance Share Units
|
651,131
|
|
|
—
|
|
|
651,131
|
|
|
—
|
|
|
Anti-Dilutive Performance Stock Options
|
—
|
|
|
927,268
|
|
|
—
|
|
|
927,268
|
|
|
|
6,917,218
|
|
|
3,118,548
|
|
|
6,917,218
|
|
|
3,189,399
|
|
Additionally, the 32,242,975 shares underlying CNX's Convertible Notes (See Note 10 - Long-Term Debt) are not considered in the calculation of diluted net loss per share for the three and six months ended June 30, 2020 as these Notes were not convertible as of June 30, 2020. The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election, and therefore will use the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable.
The table below sets forth the share-based awards that have been exercised or released:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Options
|
239,839
|
|
|
7,093
|
|
|
239,839
|
|
|
20,841
|
|
|
Restricted Stock Units
|
163,157
|
|
|
515,265
|
|
|
504,040
|
|
|
973,234
|
|
|
Performance Share Units
|
—
|
|
|
—
|
|
|
274,716
|
|
|
342,882
|
|
|
|
402,996
|
|
|
522,358
|
|
|
1,018,595
|
|
|
1,336,957
|
|
Pursuant to the terms of the change in control severance agreements of certain employees and CNX officers, outstanding equity awards held by such employees vest upon a stockholder (or stockholder group) becoming the beneficial owner of more than 25% of the Company's outstanding common stock. During the three months ended June 30, 2019, Southeastern Asset Management, Inc. and its affiliates ("SEAM") acquired shares of CNX's common stock in the open market which resulted in SEAM's aggregate share ownership exceeding more the 25% of CNX's common stock outstanding. This transaction, as such, constituted a change in control event under the severance agreements, resulting in the accelerated vesting of 473,126 restricted stock units and 903,100 performance share units held by the aforementioned employees that were issued prior to 2019. Those affected employees and officers each consented to waive the change in control vesting provision included in the change in control severance agreements with respect to their restricted stock unit and performance share unit awards that were issued during 2019. The accelerated vesting resulted in $19,654 of additional long-term equity-based compensation expense for the three and six months ended June 30, 2019, and is included in Selling, General and Administrative Costs in the Consolidated Statements of Income. The performance share unit awards that vested continue to be subject to the attainment of performance goals as determined by the Compensation Committee of CNX's Board of Directors after the end of the applicable performance period.
The computations for basic and diluted (loss) earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net (Loss) Income
|
$
|
(130,486)
|
|
|
$
|
192,694
|
|
|
$
|
(435,709)
|
|
|
$
|
128,044
|
|
|
Less: Net Income Attributable to Non-Controlling Interest
|
15,263
|
|
|
30,217
|
|
|
39,126
|
|
|
52,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income Attributable to CNX Resources Shareholders
|
$
|
(145,749)
|
|
|
$
|
162,477
|
|
|
$
|
(474,835)
|
|
|
$
|
75,140
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Shares of Common Stock Outstanding
|
187,316,463
|
|
|
191,524,289
|
|
|
187,117,412
|
|
|
194,483,555
|
|
|
Effect of Diluted Shares*
|
—
|
|
|
1,256,443
|
|
|
—
|
|
|
1,507,800
|
|
|
Weighted-Average Diluted Shares of Common Stock Outstanding
|
187,316,463
|
|
|
192,780,732
|
|
|
187,117,412
|
|
|
195,991,355
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.78)
|
|
|
$
|
0.85
|
|
|
$
|
(2.54)
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
$
|
(0.78)
|
|
|
$
|
0.84
|
|
|
$
|
(2.54)
|
|
|
$
|
0.38
|
|
*During periods in which the Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the effect of all equity awards is antidilutive.
NOTE 3—REVENUE FROM CONTRACTS WITH CUSTOMERS:
Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company has elected to exclude all taxes from the measurement of transaction price.
For natural gas, NGL and oil, and purchased gas revenue, the Company generally considers the delivery of each unit (MMBtu or Bbl) to be a separate performance obligation that is satisfied upon delivery. Payment terms for these contracts typically require payment within 25 days of the end of the calendar month in which the hydrocarbons are delivered. A significant number of these contracts contain variable consideration because the payment terms refer to market prices at future delivery dates. In these situations, the Company has not identified a standalone selling price because the terms of the variable payments relate specifically to the Company’s efforts to satisfy the performance obligations. A portion of the contracts contain fixed consideration (i.e. fixed price contracts or contracts with a fixed differential to NYMEX or index prices). The fixed consideration is allocated to each performance obligation on a relative standalone selling price basis, which requires judgment from management. For these contracts, the Company generally concludes that the fixed price or fixed differentials in the contracts are representative of the standalone selling price. Revenue associated with natural gas, NGL and oil as presented on the accompanying Consolidated Statements of Income represent the Company’s share of revenues net of royalties and excluding revenue interests owned by others. When selling natural gas, NGL and oil on behalf of royalty owners or working interest owners, the Company is acting as an agent and thus reports the revenue on a net basis.
Midstream revenue consists of revenues generated from natural gas gathering activities. The gas gathering services are interruptible in nature and include charges for the volume of gas actually gathered and do not guarantee access to the system. Volumetric based fees are based on actual volumes gathered. The Company generally considers the interruptible gathering of each unit (MMBtu) of natural gas as a separate performance obligation. Payment terms for these contracts typically require payment within 25 days of the end of the calendar month in which the hydrocarbons are gathered.
Disaggregation of Revenue
The following table is a disaggregation of revenue by major source:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Revenue from Contracts with Customers
|
|
|
|
|
|
|
|
|
Natural Gas Revenue
|
$
|
168,510
|
|
|
$
|
317,071
|
|
|
$
|
398,108
|
|
|
$
|
720,758
|
|
|
NGL Revenue
|
6,226
|
|
|
24,025
|
|
|
25,638
|
|
|
53,790
|
|
|
Condensate Revenue
|
781
|
|
|
1,680
|
|
|
2,682
|
|
|
4,007
|
|
|
Oil Revenue
|
259
|
|
|
89
|
|
|
842
|
|
|
256
|
|
|
Total Natural Gas, NGL and Oil Revenue
|
175,776
|
|
|
342,865
|
|
|
427,270
|
|
|
778,811
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Gas Revenue
|
20,424
|
|
|
18,768
|
|
|
46,783
|
|
|
34,989
|
|
|
Midstream Revenue
|
12,191
|
|
|
18,895
|
|
|
30,597
|
|
|
37,338
|
|
|
|
|
|
|
|
|
|
|
|
Other Sources of Revenue and Other Operating Income
|
|
|
|
|
|
|
|
|
(Loss) Gain on Commodity Derivative Instruments
|
(63,303)
|
|
|
221,581
|
|
|
51,839
|
|
|
26,205
|
|
|
Other Operating Income
|
3,753
|
|
|
2,923
|
|
|
8,711
|
|
|
6,120
|
|
|
Total Revenue and Other Operating Income
|
$
|
148,841
|
|
|
$
|
605,032
|
|
|
$
|
565,200
|
|
|
$
|
883,463
|
|
The disaggregated revenue corresponds with the Company’s segment reporting found in Note 14 - Segment Information.
Contract Balances
CNX invoices its customers once a performance obligation has been satisfied, at which point payment is unconditional. Accordingly, CNX's contracts with customers do not give rise to contract assets or liabilities under ASC 606. The Company has no contract assets recognized from the costs to obtain or fulfill a contract with a customer. The opening and closing balances of the Company’s receivables related to contracts with customers were $133,480 and $69,174, respectively, as of June 30, 2020.
Transaction Price Allocated to Remaining Performance Obligations
ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied. However, the guidance provides certain practical expedients that limit this requirement, including when variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a series.
A significant portion of CNX's natural gas, NGL and oil and purchased gas revenue is short-term in nature with a contract term of one year or less. For those contracts, CNX has utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
For revenue associated with contract terms greater than one year, a significant portion of the consideration in those contracts is variable in nature and the Company allocates the variable consideration in its contract entirely to each specific performance obligation to which it relates. Therefore, any remaining variable consideration in the transaction price is allocated entirely to wholly unsatisfied performance obligations. As such, the Company has not disclosed the value of unsatisfied performance obligations pursuant to the practical expedient.
For revenue associated with contract terms greater than one year with a fixed price component, the aggregate amount of the transaction price allocated to remaining performance obligations was $137,995 as of June 30, 2020. The Company expects
to recognize net revenue of $46,189 in the next 12 months and $45,754 over the following 12 months, with the remainder recognized thereafter.
For revenue associated with CNX's midstream contracts, which also have terms greater than one year, the interruptible gathering of each unit of natural gas represents a separate performance obligation; therefore, future volumes are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required.
Prior-Period Performance Obligations
CNX records revenue in the month production is delivered to the purchaser. However, settlement statements for certain natural gas and NGL revenue may not be received for 30 to 90 days after the date production is delivered, and as a result, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. CNX records the differences between the estimate and the actual amounts received in the month that payment is received from the purchaser. The Company has existing internal controls for its revenue estimation process and the related accruals, and any identified differences between its revenue estimates and the actual revenue received historically have not been significant. For the three and six months ended June 30, 2020 and 2019, revenue recognized in the current reporting period related to performance obligations satisfied in a prior reporting period was not material.
NOTE 4—INCOME TAXES:
The effective tax rates for the three and six months ended June 30, 2020 were 18.0% and 29.4%, respectively. The effective tax rates for the three and six months ended June 30, 2019 were 17.5% and 18.6%, respectively. The effective tax rate for the three and six months ended June 30, 2020 and 2019 differ from the U.S. federal statutory rate of 21% primarily due to the impact of noncontrolling interest, equity compensation and state taxes.
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (the "Act") which, among other things, removed the 80% taxable income limitation for utilization of net operating losses generated in tax years 2018 through 2020, allowing for 5-year net operating loss carrybacks, increased the adjusted taxable income limitation for the disallowance of interest expense from 30% to 50%, and provided for refunds of any remaining alternative minimum tax (“AMT”) credits. As a result of the Act, the Company recorded AMT refunds of $102,482 in Recoverable Income Taxes in the Consolidated Balance Sheets in anticipation of the AMT refund being received in 2020. The impact of other tax implications of the Act on the financial statements and related disclosures are immaterial.
In December 2019, the FASB issued Accounting Standards Update (ASU) 2019-12 - Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. This ASU removes the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items; (2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in this ASU also improve consistency and simplify other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU will be applied using different approaches depending on what the specific amendment relates to and, for public entities, are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company early adopted ASU 2019-12 as of January 1, 2020.
The total amount of uncertain tax positions at June 30, 2020 and December 31, 2019 was $33,243 and $31,516, respectively. If these uncertain tax positions were recognized, approximately $33,243 would affect CNX's effective tax rate at June 30, 2020 and December 31, 2019. The increase in the unrecognized tax benefits during the six months ended June 30, 2020 is due to additional tax credits to be claimed on the 2019 federal income tax return.
CNX recognizes accrued interest and penalties related to uncertain tax positions in interest expense and income tax expense, respectively. As of June 30, 2020 and December 31, 2019, CNX had no accrued liabilities for interest and penalties related to uncertain tax positions.
CNX and its subsidiaries file federal income tax returns with the United States and tax returns within various state jurisdictions. With few exceptions, the Company is no longer subject to United States federal, state, local, or non-U.S. income tax examinations by tax authorities for the years before 2016. The Company expects the Internal Revenue Service and the Joint Committee on Taxation to conclude its audit of tax years 2016 through 2017 during 2020.
NOTE 5—PROPERTY, PLANT AND EQUIPMENT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Intangible Drilling Cost
|
$
|
4,844,817
|
|
|
$
|
4,688,497
|
|
|
Gas Gathering Equipment
|
2,492,834
|
|
|
2,463,866
|
|
|
Proved Gas Properties
|
1,212,247
|
|
|
1,208,046
|
|
|
Gas Wells and Related Equipment
|
1,086,934
|
|
|
1,042,000
|
|
|
Unproved Gas Properties
|
758,787
|
|
|
755,590
|
|
|
Surface Land and Other Equipment
|
225,375
|
|
|
226,285
|
|
|
Other
|
193,041
|
|
|
187,722
|
|
|
Total Property, Plant and Equipment
|
10,814,035
|
|
|
10,572,006
|
|
|
Less: Accumulated Depreciation, Depletion and Amortization
|
3,730,232
|
|
|
3,435,431
|
|
|
|
|
|
|
|
Total Property, Plant and Equipment - Net
|
$
|
7,083,803
|
|
|
$
|
7,136,575
|
|
|
|
|
|
|
Impairment of Proved Property
CNX performs a quantitative impairment test whenever events or changes in circumstances indicate that an asset group's carrying amount may not be recoverable, over proved properties using the published forward prices, timing, methods and other assumptions consistent with historical periods. When indicators of impairment are present, tests require that the Company first compare expected future undiscounted cash flows by asset group to their respective carrying values. If the carrying amount exceeds the estimated undiscounted future cash flows, a reduction of the carrying amount of the natural gas properties to their estimated fair values is required, which is determined based on discounted cash flow techniques using significant assumptions including projected revenues, future commodity prices, and a market-specific weighted average cost of capital which are affected by expectations about future market and economic conditions.
During the six months ended June 30, 2020, CNX recognized certain indicators of impairment specific to our Southwest Pennsylvania (SWPA) CBM asset group and determined that carrying value of that asset group was not recoverable. The fair value of the asset group was estimated by using level 3 inputs which consisted of discounting the estimated future cash flows using discount rates and other assumptions that market participants would use in their estimates of fair value. As a result, an impairment of $61,849 was recognized and is included in Impairment of Exploration and Production Properties in the Consolidated Statements of Income. The impairment was related to an economic decision to temporarily idle certain wells and the related processing facility during the first quarter.
NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS:
In December 2017, CNX Gas entered into a purchase agreement with Noble Energy, pursuant to which CNX Gas acquired Noble’s 50% membership interest in CNX Gathering (then named "CONE Gathering LLC"), for a cash purchase price of $305,000 (the "Midstream Acquisition").
Prior to the Midstream Acquisition, the Company accounted for its 50% interest in CNX Gathering as an equity method investment as the Company had the ability to exercise significant influence, but not control, over the operating and financial policies of the midstream operations. In conjunction with the Midstream Acquisition, the Company obtained a controlling interest in CNX Gathering and control over the Partnership. Accordingly, the Midstream Acquisition was accounted for as a business combination using the acquisition method of accounting pursuant to ASC Topic 805, Business Combinations, or ASC 805. ASC 805 requires that, in circumstances where a business combination is achieved in stages (or step acquisition), previously held equity interests are remeasured at fair value. The fair value assigned to the previously held equity interest in CNX Gathering and CNXM was $799,033 and was determined using the income approach, based on a discounted cash flow methodology.
As part of the allocation of purchase price and in connection with the fair value of consideration transferred at closing on January 3, 2018, CNX recorded $796,359 of goodwill and $128,781 of other intangible assets which are comprised of customer relationships.
Impairment of Goodwill
All goodwill is attributed to the Midstream reportable segment. Goodwill is evaluated for impairment at least annually and whenever events or changes in circumstance indicate that the fair value of a reporting unit is less than its carrying amount. In connection with the evaluation of goodwill for impairment, CNX may first consider qualitative factors to assess whether there are indicators that it is more likely than not that the fair value of a reporting unit may not exceed its carrying amount. If after assessing such factors or circumstances, CNX determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then a quantitative assessment is not required. If CNX chooses to bypass the qualitative assessment, or if it chooses to perform a qualitative assessment but is unable to qualitatively conclude that no impairment has occurred, then CNX will perform a quantitative assessment. If the estimated fair value of a reporting unit is less than its carrying value, an impairment charge is recognized for the excess of the reporting unit's carrying value over its fair value. The Company uses a combination of the income approach (generally a discounted cash flow method) and market approach (which may include the guideline public company method and/or the guideline transaction method) to estimate the fair value of a reporting unit.
During the first quarter of 2020, the Company identified indicators of impairment in the form of deteriorating macroeconomic conditions, and the decline in the observable market value of CNXM securities both in relation to the COVID-19 pandemic and the overall decline in the MLP market space. Management concluded that these factors presented indications that the fair value of the midstream reporting unit was more likely than not below the reporting unit’s carrying value. CNX bypassed the qualitative assessment and performed a quantitative test that utilized a combination of the income and market approaches as described above to estimate the fair value of the Midstream reporting unit. As a result of this assessment, CNX concluded that the carrying value exceeded its estimated fair value, and a corresponding impairment of $473,045 was recorded, which was included in Impairment of Goodwill in the accompanying Consolidated Statements of Income. Any additional adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that could trigger future impairment charges relating to the Midstream reporting unit.
In estimating the fair value of the midstream reporting unit, the Company used the income approach’s discounted cash flow method, which applies significant inputs not observable in the public market (Level 3), including estimates and assumptions related to the use of an appropriate discount rate, future throughput volumes, operating costs and capital spending, discounted to present value using an industry rate adjusted for company-specific risk, which management feels reflects the overall level of inherent risk of the reporting unit. These assumptions are affected by expectations about future market, industry and economic conditions. Cash flow projections were derived from board approved budgeted amounts, a five-year operating forecast and an estimate of future cash flows. Subsequent cash flows were developed using growth or contraction rates that management believes are reasonably likely to occur. The Company used the market approach’s comparable company method. The comparable company method evaluates the value of a company using metrics of other businesses of similar size and industry.
The estimates of future cash flows are subjective in nature and are subject to impacts from business risks as described in “Item 1A. Risk Factors” in CNX's 2019 Annual Report on Form 10-K as filed with the SEC on February 10, 2020 ("2019 Form 10-K"). The fair value estimation process requires considerable judgment and determining the fair value is sensitive to changes in assumptions impacting management’s estimates of future financial results. Although CNX believes the estimates and assumptions used in estimating the fair value are reasonable and appropriate, different assumptions and estimates could materially impact the estimated fair value. Future results could differ from our current estimates and assumptions.
Changes in the carrying amount of goodwill consist of the following activity:
|
|
|
|
|
|
|
|
|
Amount
|
|
December 31, 2019
|
$
|
796,359
|
|
|
Impairment
|
473,045
|
|
|
June 30, 2020
|
$
|
323,314
|
|
Other Intangible Assets
The carrying amount and accumulated amortization of other intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Other Intangible Assets
|
|
|
|
|
Gross Amortizable Asset - Customer Relationships
|
$
|
109,752
|
|
|
$
|
109,752
|
|
|
Less: Accumulated Amortization - Customer Relationships
|
16,381
|
|
|
13,105
|
|
|
Total Other Intangible Assets, net
|
$
|
93,371
|
|
|
$
|
96,647
|
|
The customer relationship intangible asset is being amortized on a straight-line basis over approximately 17 years. Amortization expense related to other intangible assets was $1,638 for the three months ended June 30, 2020 and 2019, and $3,276 for the six months ended June 30, 2020 and 2019. The estimated annual amortization expense is expected to approximate $6,552 per year for each of the next five years.
NOTE 7—REVOLVING CREDIT FACILITIES:
CNX Resources Corporation (CNX)
In April 2019, CNX amended its senior secured revolving credit facility ("Credit Facility") and extended its maturity to April 2024. The lenders' commitments remained unchanged at $2,100,000, with an accordion feature that allows the Company to increase commitments to $3,000,000. In addition, the Cumulative Credit Basket for dividends and distributions was replaced with a basket for dividends and distributions subject to a pro forma net leverage ratio of at least 3.00 to 1.00 and availability under the Credit Facility of at least 15% of the aggregate commitments. In April 2020, as part of the semi-annual borrowing base redetermination, both the lenders' commitments and borrowing base decreased to $1,900,000, and the $650,000 letters of credit aggregate sub-limit remained unchanged. The amount of balance sheet cash that CNX may have on hand is also limited to $150,000 when loans under the credit agreement are outstanding, subject to certain exceptions. If the aggregate principal amount of the existing 5.875% Senior Notes due in April 2022 and certain other publicly traded debt securities outstanding 91 days prior to the earliest maturity of such debt (the "Springing Maturity Date") is greater than $500,000, then the Credit Facility will mature on the Springing Maturity Date.
Under the terms of the redetermined agreement, borrowings under the revolving credit facility will bear interest at CNX's option at either:
•the base rate, which is the highest of (i) the federal funds open rate plus 0.50%, (ii) PNC Bank, N.A.’s prime rate, or (iii) the one-month LIBOR rate plus 1.0%, in each case, plus a margin ranging from 0.75% to 1.75%; or
•the LIBOR rate, which is the LIBOR rate plus a margin ranging from 1.75% to 2.75%.
The CNX Credit Facility is secured by substantially all of the assets of CNX and certain of its subsidiaries (excluding the Excluded Subsidiaries, which includes Cardinal States Gathering LLC, CNX Midstream GP LLC and CNXM and their respective subsidiaries). Fees and interest rate spreads are based on the percentage of facility utilization, measured quarterly. Availability under the Credit Facility is limited to a borrowing base, which is determined by the lenders' syndication agent and approved by the required number of lenders in good faith by calculating a value of CNX's proved natural gas reserves.
The CNX Credit Facility contains a number of affirmative and negative covenants including those that, except in certain circumstances, limit the Company and the subsidiary guarantors' ability to create, incur, assume or suffer to exist indebtedness, create or permit to exist liens on properties, dispose of assets, make investments, purchase or redeem CNX common stock, pay dividends, merge with another corporation or amend the senior unsecured notes. The Company must also mortgage 85% of the value of its proved reserves and 85% of the value of its proved developed producing reserves, in each case, which are included in the borrowing base, maintain applicable deposit, securities and commodities accounts with the lenders or affiliates thereof, and enter into control agreements with respect to such applicable accounts.
The CNX Credit Facility contains customary events of default, including, but not limited to, a cross-default to certain other debt, breaches of representations and warranties, change of control events and breaches of covenants.
The CNX Credit Facility also requires that CNX maintain a maximum net leverage ratio of no greater than 4.00 to 1.00, which is calculated as the ratio of debt less cash on hand to consolidated EBITDA, measured quarterly. CNX must also maintain a minimum current ratio of no less than 1.00 to 1.00, which is calculated as the ratio of current assets, plus revolver
availability, to current liabilities, excluding borrowings under the revolver, measured quarterly. The calculation of all of the ratios exclude CNXM. CNX was in compliance with all financial covenants as of June 30, 2020.
At June 30, 2020, the CNX Credit Facility had $550,000 of borrowings outstanding and $204,839 of letters of credit outstanding, leaving $1,145,161 of unused capacity. At December 31, 2019, the CNX Credit Facility had $661,000 of borrowings outstanding and $204,726 of letters of credit outstanding, leaving $1,234,274 of unused capacity.
CNX Midstream Partners LP (CNXM)
In April 2019, CNXM amended its senior secured revolving credit facility and extended its maturity to April 2024. The lenders’ commitments remained unchanged at $600,000, with an accordion feature that allows CNXM to increase the available borrowings by up to an additional $250,000 under certain terms and conditions. Among other things, the revolving credit facility now includes (i) the addition of a restricted payment basket permitting cash repurchases of Incentive Distribution Rights (IDRs) subject to a pro forma secured leverage ratio of 3.00 to 1.00, a pro forma total leverage ratio of 4.00 to 1.00 and pro forma availability of 20% of commitments and (ii) a restricted payment basket for the repurchase of LP units not to exceed Available Cash (as defined in the partnership agreement) in any quarter, of up to $150,000 per year and up to $200,000 during the life of the facility.
Under the terms of the amended agreement, borrowings under the revolving credit facility will bear interest at CNXM's option at either:
•the base rate, which is the highest of (i) the federal funds open rate plus 0.50%, (ii) PNC Bank, N.A.’s prime rate, or (iii) the one-month LIBOR rate plus 1.0%, in each case, plus a margin ranging from 0.50% to 1.50%; or
•the LIBOR rate, plus a margin ranging from 1.50% to 2.50%.
Fees and interest rate spreads under the CNXM credit facility are based on the total leverage ratio, measured quarterly. The CNXM credit facility includes the ability to issue letters of credit up to $100,000 in the aggregate.
The CNXM revolving credit facility contains a number of affirmative and negative covenants that include, among others, covenants that, except in certain circumstances, restrict the ability of CNXM, its subsidiary guarantors and certain of its non-guarantor, non-wholly-owned subsidiaries, except in certain circumstances, to: (i) create, incur, assume or suffer to exist indebtedness; (ii) create or permit to exist liens on their properties; (iii) prepay certain indebtedness unless there is no default or event of default under the revolving facility; (iv) make or pay any dividends or distributions in excess of certain amounts; (v) merge with or into another person, liquidate or dissolve; or acquire all or substantially all of the assets of any going concern or going line of business or acquire all or a substantial portion of another person’s assets; (vi) make particular investments and loans; (vii) sell, transfer, convey, assign or dispose of its assets or properties other than in the ordinary course of business and other select instances; (viii) deal with any affiliate except in the ordinary course of business on terms no less favorable to CNXM than it would otherwise receive in an arm’s length transaction; and (ix) amend in any material manner its certificate of incorporation, bylaws, or other organizational documents without giving prior notice to the lenders and, in some cases, obtaining the consent of the lenders.
In addition, CNXM is obligated to maintain at the end of each fiscal quarter (w) for so long as at least $150,000 of the CNXM senior notes are outstanding, a maximum total leverage ratio of no greater than 5.25 to 1.00 (which increases to no greater than 5.50 to 1.00 during qualifying acquisition periods); (x) if less than $150,000 of the CNXM senior notes are outstanding, a maximum total leverage ratio of no greater than 4.75 to 1.00 (which increases to no greater than 5.25 to 1.00 during qualifying acquisition periods); (y) a maximum secured leverage ratio of no greater than 3.50 to 1.00 and (z) a minimum interest coverage ratio of no less than 2.50 to 1.00. CNXM was in compliance with all financial covenants as of June 30, 2020.
The CNXM revolving credit facility also contains customary events of default, including, but not limited to, a cross-default to certain other debt, breaches of representations and warranties, change of control events and breaches of covenants. The obligations under the revolving credit facility are secured by substantially all of the assets of CNXM and its wholly-owned subsidiaries. CNX is not a guarantor under the CNXM revolving credit facility.
At June 30, 2020, the CNXM credit facility had $319,000 of borrowings outstanding and $30 of letters of credit outstanding, leaving $280,970 of unused capacity. At December 31, 2019, the CNXM credit facility had $311,750 of borrowings outstanding, leaving $288,250 of unused capacity.
NOTE 8—OTHER ACCRUED LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Royalties
|
$
|
50,831
|
|
|
$
|
74,061
|
|
|
Accrued Interest
|
25,304
|
|
|
30,862
|
|
|
Transportation Charges
|
22,353
|
|
|
16,533
|
|
|
Accrued Other Taxes
|
11,660
|
|
|
9,115
|
|
|
Accrued Payroll & Benefits
|
6,608
|
|
|
6,248
|
|
|
Short-Term Incentive Compensation
|
5,178
|
|
|
21,030
|
|
|
Deferred Revenue
|
3,423
|
|
|
13,964
|
|
|
Other
|
30,755
|
|
|
37,610
|
|
|
Current Portion of Long-Term Liabilities:
|
|
|
|
|
Asset Retirement Obligations
|
5,076
|
|
|
5,076
|
|
|
Salary Retirement
|
1,629
|
|
|
1,587
|
|
|
Total Other Accrued Liabilities
|
$
|
162,817
|
|
|
$
|
216,086
|
|
NOTE 9—LONG-TERM DEBT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
CNX Revolving Credit Facility
|
$
|
550,000
|
|
|
$
|
661,000
|
|
|
Senior Notes due March 2027 at 7.25%, Issued at Par Value
|
500,000
|
|
|
500,000
|
|
Senior Notes due April 2022 at 5.875% (Principal of $413,348 and $894,307
plus Unamortized Premium of $363 and $1,001, respectively)
|
413,711
|
|
|
895,308
|
|
|
CNX Midstream Partners LP Senior Notes due March 2026 at 6.50% (Principal of $400,000 less Unamortized Discount of $4,250 and $4,625, respectively)*
|
395,750
|
|
|
395,375
|
|
|
CNX Midstream Partners LP Revolving Credit Facility*
|
319,000
|
|
|
311,750
|
|
|
Convertible Senior Notes due May 2026 at 2.25% (Principal of $345,000 less Unamortized Discount and Issuance Costs of $115,420)
|
229,580
|
|
|
—
|
|
|
Cardinal States Gathering Company Credit Facility maturing in March 2028 (Principal of $122,517 less Unamortized Discount of $1,204)
|
121,313
|
|
|
—
|
|
|
CSG Holdings II LLC Credit Facility maturing in December 2026 (Principal of $48,815 less Unamortized Discount of $478)
|
48,337
|
|
|
—
|
|
|
Less: Unamortized Debt Issuance Costs
|
14,493
|
|
|
8,990
|
|
|
|
2,563,198
|
|
|
2,754,443
|
|
|
Less: Amounts Due in One Year
|
22,430
|
|
|
—
|
|
|
Long-Term Debt
|
$
|
2,540,768
|
|
|
$
|
2,754,443
|
|
*CNX is not a guarantor of CNXM's 6.50% senior notes due in March 2026 or CNXM's senior secured revolving credit facility.
In April 2020, CNX issued $345,000 in aggregate principal amount of 2.25% convertible senior notes due May 2026 (the "Convertible Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, including $45,000 aggregate principal amount of Convertible Notes issued pursuant to the exercise in full of the initial purchasers’ option to purchase additional Convertible Notes. The Convertible Notes were issued pursuant to an indenture and are senior, unsecured obligations of the Company. The Convertible Notes bear interest at a fixed rate of 2.25% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2020. Proceeds from the issuance of the Convertible Notes totaled $334,650, net of initial purchaser discounts and issuance costs.
The initial conversion rate is 77.8816 shares of CNX's common stock per $1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately $12.84 per share, subject to adjustment upon the occurrence of specified events. The Convertible Notes will mature on May 1, 2026, unless earlier repurchased, redeemed or converted. Before February 1, 2026, note holders will have the right to convert their Notes only upon the occurrence of the following events:
•during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on June 30, 2020, if the Last Reported Sale Price per share of Common Stock exceeds one hundred and thirty percent (130%) of the Conversion Price for each of at least twenty (20) Trading Days (whether or not consecutive) during the
thirty (30) consecutive Trading Days ending on, and including, the last Trading Day of the immediately preceding calendar quarter.
•during the five (5) consecutive Business Days immediately after any ten (10) consecutive trading day period (such ten (10) consecutive Trading Day period, the “Measurement Period”) if the trading Price per $1,000 principal amount of Notes, as determined following a request by a Holder in accordance with the procedures set forth below, for each trading day of the Measurement Period was less than ninety eight percent (98%) of the product of the last reported sale price per share of common stock on such trading day and the conversion rate on such trading day.
•if we call any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
•upon the occurrence of certain specified corporate events as set forth in the indenture governing the Convertible Notes.
From and after February 1, 2026, note holders may convert their Convertible Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date.
Upon conversion, the Company may satisfy its conversion obligation by paying and/or delivering, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the indenture governing the Convertible Notes. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the indenture governing the Convertible Notes. In addition, following certain corporate events, as described in the indenture governing the Convertible Notes, that occur prior to the maturity date, the Company will increase the conversion rate, in certain circumstances, for a holder who elects to convert its Convertible Notes in connection with such a corporate event.
The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. The Company’s current intent is to settle the principle amount of the Convertible Notes in cash upon conversion.
If certain corporate events that constitute a “Fundamental Change” (as defined in the indenture governing the Convertible Notes) occur, then noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock. During the three and six months ended June 30, 2020, the conditions allowing holders of the Convertible Notes to exercise their conversion right were not met and as of June 30, 2020, the notes were not convertible. The Convertible Notes are therefore are classified as long-term debt at June 30, 2020.
In accounting for the transaction, the Notes were separated into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated conversion feature. The fair value was based on market data available for publicly traded, senior, unsecured corporate bonds with similar maturity. Assumptions used in the estimate represent what market participants would use in pricing the equity component, including market interest rates, credit standing, and yield curves, all of which are defined as Level 2 observable inputs. The carrying amount of the equity component representing the Conversion Option was determined by deducting the fair value of the liability component from the proceeds received upon issuance of the Convertible Notes. The equity component was recorded in Capital in Excess of Par Value in the Consolidated Statement of Stockholders Equity and is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the Convertible Notes over the liability component and the debt issuance costs are amortized to interest expense over the contractual term of the Notes using the effective interest method.
In accounting for the debt issuance costs of $10,350 related to the Convertible Notes, the Company allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds of the Notes. Issuance costs attributable to the liability component were $7,024 and will be amortized to interest expense using the effective interest method over the contractual term of the Convertible Notes. Issuance costs attributable to the equity component were $3,326 and were netted with the equity component in Capital in Excess of Par Value in the Consolidated Statement of Stockholders Equity and are not subject to amortization.
As of June 30, 2020, the if-converted value of the Notes did not exceed the outstanding principal amount.
The net carrying amount of the liability and equity components of the Notes was as follows:
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
Liability Component:
|
|
|
Principal
|
$
|
345,000
|
|
|
Unamortized Discount
|
(108,558)
|
|
|
Unamortized Issuance Costs
|
(6,862)
|
|
|
Net Carrying Amount
|
229,580
|
|
|
|
|
|
Equity Component, net of Purchase Discounts and Issuance Costs
|
$
|
78,307
|
|
Interest expense related to the Notes is as follows:
|
|
|
|
|
|
|
|
|
For the Three and Six Months Ended June 30, 2020
|
|
Contractual Interest Expense
|
$
|
1,294
|
|
|
Amortization of Debt Discount
|
2,325
|
|
|
Amortization of Issuance Costs
|
161
|
|
|
Total Interest Expense
|
$
|
3,780
|
|
In connection with the offering of the Notes, the Company entered into privately negotiated capped call transactions with certain counterparties, (the “Capped Calls”). The Capped Calls each have an initial strike price of $12.84 per share, subject to certain adjustments, which correspond to the initial conversion price of the Notes. The Capped Calls have an initial cap price of $18.19 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that initially underlie the Notes, and are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the Capped Call Transactions. The conditions that cause adjustments to the initial strike price of the Capped Calls mirror the conditions that result in corresponding adjustments for the Notes. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $35,673 incurred in connection with the Capped Calls was recorded as a reduction to Capital in Excess of Par Value. The impact of the Capped Calls related to stockholders’ equity has been included in Capital in Excess of Par Value in the Consolidated Statement of Stockholders Equity and includes taxes in the amount of $9,322, for a net impact of $26,351.
During the three and six months ended June 30, 2020, CNX purchased and retired $409,625 and $480,959, respectively, of its outstanding 5.875% senior notes due in April 2022. As part of these transactions, a loss of $344 and a gain of $10,919 were included in Loss (Gain) on Debt Extinguishment in the Consolidated Statements of Income during the three and six months ended June 30, 2020, respectively. During the six months ended June 30, 2019, CNX purchased and retired $400,000 of its outstanding 5.875% senior notes due in April 2022. As part of this transaction, a loss of $7,614 was included in Loss (Gain) on Debt Extinguishment in the Consolidated Statements of Income, which includes an adjustment to the final settlement amount of $77 that was included in Loss (Gain) on Debt Extinguishment in the Consolidated Statements of Income during the three months ended June 30, 2019.
During the six months ended June 30, 2020, CNX's wholly-owned subsidiary Cardinal States Gathering Company LLC ("Cardinal States") entered into a $125,000 non-revolving credit facility agreement (the "Cardinal States Facility"). The Cardinal States Facility matures in 2028, has an interest rate of 3-month LIBOR + 475 basis points and includes an excess cash flow sweep in an amount required to achieve a quarterly targeted debt balance. The facility is secured by substantially all of the Cardinal States assets, requires a minimum level of hedging of the variable interest rate exposure and is non-recourse to CNX.
Additionally, during the six months ended June 30, 2020, CNX's wholly-owned subsidiary CSG Holdings II LLC (CSG Holdings) entered into a $50,000 non-revolving credit facility agreement (the "CSG Holdings Facility"). The CSG Holdings Facility matures in 2026, has interest rate of 3-month LIBOR + 675 basis points and includes a full excess cash sweep. The facility is secured by substantially all of the CSG Holding assets, requires a minimum level of hedging of the variable interest rate exposure and is non-recourse to CNX.
During the six months ended June 30, 2019, CNX completed a private offering of $500,000 of 7.25% senior notes due in March 2027. The notes are guaranteed by most of CNX's subsidiaries but do not include CNXM's general partner or CNXM.
NOTE 10—COMMITMENTS AND CONTINGENT LIABILITIES:
CNX and its subsidiaries are subject to various lawsuits and claims with respect to such matters as personal injury, royalty accounting, damage to property, climate change, governmental regulations including environmental violations and remediation, employment and contract disputes and other claims and actions arising out of the normal course of business. CNX accrues the estimated loss for these lawsuits and claims when the loss is probable and can be estimated. The Company's current estimated accruals related to these pending claims, individually and in the aggregate, are immaterial to the financial position, results of operations or cash flows of CNX. It is possible that the aggregate loss in the future with respect to these lawsuits and claims could ultimately be material to the financial position, results of operations or cash flows of CNX; however, such amounts cannot be reasonably estimated.
The 1992 Coal Industry Retiree Health Benefit Act (“Coal Act”), in Section 9711, requires coal companies that were providing health benefits to United Mine Workers of America (“UMWA”) retirees as of February 1993 to continue providing health benefits to such individuals, in substantially the same coverages, for as long as the last signatory operator remains in business. Section 9711 also requires any “related person” to be joint and severally liable for the provision of these health benefits. On May 1, 2020, the court in the Murray Energy Corporation (“Murray”) bankruptcy proceedings approved a settlement agreement between Murray and the UMWA that transferred to the UMWA 1992 Benefit Plan the Coal Act liabilities for retirees in Murray’s Section 9711 plan. The retirees transferred by Murray to the 1992 Benefit Plan include approximately 2,159 retirees allegedly traced to the December 2013 sale by CONSOL Energy Inc. to Murray Energy of the following possible last signatory operators: Consolidation Coal Company, McElroy Coal Company, Southern Ohio Coal Company, Central Ohio Coal Company, Keystone Coal Mining Corp., and Eight-Four Coal Mining Company (the “Sold Subsidiaries”). On May 2, 2020, the Trustees of the UMWA 1992 Benefit Plan sued CNX Resources Corporation and CONSOL Energy Inc. (“CONSOL”) in federal court contending that the Sold Subsidiaries were last signatory operators and that CNX and CEIX are related persons to the Sold Subsidiaries and, as such, CNX and CONSOL are jointly and severally liable for the Coal Act health benefits allegedly owed to the eligible retirees traced to the Sold Subsidiaries. The 1992 Plan seeks, among other relief, a declaration that the CNX and CONSOL are obligated to enroll the eligible retirees attributed to the Sold Subsidiaries in a Section 9711 Plan; that CNX and CONSOL are liable to post the security required by Section 9712; and, that CNX and CONSOL are liable to pay per beneficiary premiums until the eligible retirees are enrolled in a Section 9711 plan, and other fees, costs and disbursements under the Coal Act. We disagree with the suit filed by the UMWA 1992 Plan, have filed a Motion to Dismiss and intend to defend this action. Further, under the Separation and Distribution Agreement that was entered into at the time we spun our coal business in 2017, CONSOL agreed to indemnify CNX for all coal-related liabilities, including this lawsuit.
At June 30, 2020, CNX has provided the following financial guarantees, unconditional purchase obligations, and letters of credit to certain third-parties as described by major category in the following tables. These amounts represent the maximum potential of total future payments that the Company could be required to make under these instruments. These amounts have not been reduced for potential recoveries under recourse or collateralization provisions. Generally, recoveries under reclamation bonds would be limited to the extent of the work performed at the time of the default. No amounts related to these unconditional purchase obligations and letters of credit are recorded as liabilities in the financial statements. CNX management believes that the commitments in the following table will expire without being funded, and therefore will not have a material adverse effect on financial condition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration Per Period
|
|
|
|
|
|
|
|
|
|
|
Total
Amounts
Committed
|
|
Less Than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
Beyond
5 Years
|
|
Letters of Credit:
|
|
|
|
|
|
|
|
|
|
|
Firm Transportation
|
$
|
197,919
|
|
|
$
|
167,897
|
|
|
$
|
30,022
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
6,950
|
|
|
6,950
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total Letters of Credit
|
204,869
|
|
|
174,847
|
|
|
30,022
|
|
|
—
|
|
|
—
|
|
|
Surety Bonds:
|
|
|
|
|
|
|
|
|
|
|
Employee-Related
|
2,600
|
|
|
2,600
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Environmental
|
12,262
|
|
|
12,203
|
|
|
59
|
|
|
—
|
|
|
—
|
|
|
Financial Guarantees
|
81,670
|
|
|
81,670
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
9,275
|
|
|
7,766
|
|
|
1,509
|
|
|
—
|
|
|
—
|
|
|
Total Surety Bonds
|
105,807
|
|
|
104,239
|
|
|
1,568
|
|
|
—
|
|
|
—
|
|
|
Total Commitments
|
$
|
310,676
|
|
|
$
|
279,086
|
|
|
$
|
31,590
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Excluded from the above table are commitments and guarantees entered into in conjunction with the spin-off of the Company's coal business in November 2017. Although CONSOL Energy has agreed to indemnify CNX to the extent that CNX would be called upon to pay any of these liabilities, there is no assurance that CONSOL Energy will satisfy its obligations to indemnify CNX in the event that CNX is so called upon. (See Part II, Item 1A – Risk Factors for additional information).
CNX enters into long-term unconditional purchase obligations to procure major equipment purchases, natural gas firm transportation, gas drilling services and other operating goods and services. These purchase obligations are not recorded in the Consolidated Balance Sheets. As of June 30, 2020, the purchase obligations for each of the next five years and beyond are as follows:
|
|
|
|
|
|
|
|
Obligations Due
|
Amount
|
|
Less than 1 year
|
$
|
243,817
|
|
|
1 - 3 years
|
441,947
|
|
|
3 - 5 years
|
373,821
|
|
|
More than 5 years
|
976,664
|
|
|
Total Purchase Obligations
|
$
|
2,036,249
|
|
NOTE 11—DERIVATIVE INSTRUMENTS:
CNX enters into interest rate swap agreements to manage its exposure to interest rate volatility. These swaps change the variable-rate cash flow exposure on the debt obligations to fixed cash flows. The change in fair value of the interest rate swap agreements are accounted for on a mark-to-market basis with the changes in fair value recorded in current period earnings.
In March 2020, CNX entered into interest rate swap related to $175,000 of borrowings under the Cardinal States Facility and CSG Holdings Facility (See Note 9 - Long-Term Debt). In order to manage exposure to interest rate volatility, each respective entity entered into an interest rate swap for the full outstanding principal amounts inclusive of a put option at 25 basis points. The underlying notional for each swap and put option reduces over time based upon an expected amortization profile for each respective credit facility. In addition, CSG Holdings entered into a call option commencing March 31, 2023.
In June 2019, CNX entered into an interest rate swap agreement related to $160,000 of borrowings under CNX’s Credit Facility (See Note 7 - Revolving Credit Facilities) which has the economic effect of modifying the variable-interest obligation into a fixed-interest obligation over a three-year period. In March 2020, this swap was blended and extended via a new interest rate swap, effective April 3, 2020, into a new four-year interest rate swap inclusive of a put option at zero basis points. Also executed in March 2020 was a new four-year $250,000 interest rate swap inclusive of a put option at zero basis points, effective April 3, 2020. Consistent with the previous interest rate swap agreement, the $250,000 interest rate swap was entered into to manage CNX's exposure to interest rate volatility.
CNX enters into financial derivative instruments (over-the-counter swaps) to manage its exposure to commodity price volatility. Typically, CNX “sells” swaps under which it receives a fixed price from counterparties and pays a floating market
price. During the second quarter of 2020, CNX purchased, rather than sold, financial swaps for the period May through November of 2020 under which CNX will pay a fixed price to and receive a floating price from its hedge counterparties. Swaps purchased have the effect of reducing total hedged volumes for the period of the swap. Natural gas commodity hedges are accounted for on a mark-to-market basis with changes in fair value recorded in current period earnings.
CNX is exposed to credit risk in the event of non-performance by counterparties. The creditworthiness of counterparties is subject to continuing review. The Company has not experienced any issues of non-performance by derivative counterparties.
None of the Company's counterparty master agreements currently require CNX to post collateral for any of its positions. However, as stated in the counterparty master agreements, if CNX's obligations with one of its counterparties cease to be secured on the same basis as similar obligations with the other lenders under the credit facility, CNX would have to post collateral for instruments in a liability position in excess of defined thresholds. All of the Company's derivative instruments are subject to master netting arrangements with our counterparties. CNX recognizes all financial derivative instruments as either assets or liabilities at fair value in the Consolidated Balance Sheets on a gross basis.
Each of the Company's counterparty master agreements allows, in the event of default, the ability to elect early termination of outstanding contracts. If early termination is elected, CNX and the applicable counterparty would net settle all open hedge positions.
The total notional amounts of CNX's derivative instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
Forecasted to
|
|
|
2020
|
|
2019
|
|
Settle Through
|
|
Natural Gas Commodity Swaps (Bcf)
|
1,248.5
|
|
*
|
1,460.6
|
|
|
2025
|
|
Natural Gas Basis Swaps (Bcf)
|
1,179.4
|
|
*
|
1,290.4
|
|
|
2025
|
|
Interest Rate Swaps
|
$
|
581,218
|
|
|
$
|
160,000
|
|
|
2028
|
*Net of purchased natural gas commodity swaps and natural gas basis swaps of 21.9 Bcf and 12.7 Bcf, respectively.
The gross fair value of CNX's derivative instruments was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
Current Assets:
|
|
|
|
|
Commodity Derivative Instruments:
|
|
|
|
|
Commodity Swaps
|
$
|
187,567
|
|
|
$
|
234,238
|
|
|
Basis Only Swaps
|
10,032
|
|
|
13,556
|
|
|
Interest Rate Swaps
|
205
|
|
|
—
|
|
|
Total Current Assets
|
$
|
197,804
|
|
|
$
|
247,794
|
|
|
|
|
|
|
|
Other Non-Current Assets:
|
|
|
|
|
Commodity Derivative Instruments:
|
|
|
|
|
Commodity Swaps
|
$
|
197,584
|
|
|
$
|
288,543
|
|
|
Basis Only Swaps
|
13,851
|
|
|
25,553
|
|
|
Interest Rate Swaps
|
1,222
|
|
|
—
|
|
|
Total Other Non-Current Assets
|
$
|
212,657
|
|
|
$
|
314,096
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
Commodity Derivative Instruments:
|
|
|
|
|
Commodity Swaps
|
$
|
24,675
|
|
|
$
|
345
|
|
|
Basis Only Swaps
|
54,711
|
|
|
40,626
|
|
|
Interest Rate Swaps
|
4,141
|
|
|
495
|
|
|
Total Current Liabilities
|
$
|
83,527
|
|
|
$
|
41,466
|
|
|
|
|
|
|
|
Non-current Liabilities:
|
|
|
|
|
Commodity Derivative Instruments:
|
|
|
|
|
Commodity Swaps
|
$
|
29,305
|
|
|
$
|
9,693
|
|
|
Basis Only Swaps
|
136,140
|
|
|
105,445
|
|
|
Interest Rate Swaps
|
12,742
|
|
|
724
|
|
|
Total Non-current Liabilities
|
$
|
178,187
|
|
|
$
|
115,862
|
|
The effect of commodity derivative instruments on the Company's Consolidated Statements of Income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
For the Six Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Cash Received (Paid) in Settlement of Commodity Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
|
|
Commodity Swaps
|
|
$
|
153,149
|
|
|
$
|
18,567
|
|
|
$
|
310,728
|
|
|
$
|
(8,383)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Swaps
|
|
(10,893)
|
|
|
(7,895)
|
|
|
(17,311)
|
|
|
(22,327)
|
|
|
Total Cash Received (Paid) in Settlement of Commodity Derivative Instruments
|
|
142,256
|
|
|
10,672
|
|
|
293,417
|
|
|
(30,710)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (Loss) Gain on Commodity Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
|
|
Commodity Swaps
|
|
(182,119)
|
|
|
226,845
|
|
|
(181,573)
|
|
|
176,084
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Swaps
|
|
(23,440)
|
|
|
(15,936)
|
|
|
(60,005)
|
|
|
(119,169)
|
|
|
Total Unrealized (Loss) Gain on Commodity Derivative Instruments
|
|
(205,559)
|
|
|
210,909
|
|
|
(241,578)
|
|
|
56,915
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Gain on Commodity Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
|
|
Commodity Swaps
|
|
(28,970)
|
|
|
245,412
|
|
|
129,155
|
|
|
167,701
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Swaps
|
|
(34,333)
|
|
|
(23,831)
|
|
|
(77,316)
|
|
|
(141,496)
|
|
|
Total (Loss) Gain on Commodity Derivative Instruments
|
|
$
|
(63,303)
|
|
|
$
|
221,581
|
|
|
$
|
51,839
|
|
|
$
|
26,205
|
|
During the three and six months ended June 30, 2020, cash of $536 and $592, respectively, was paid in settlement of interest rate swaps. An unrealized loss of $3,598 and $14,237 was recognized during the three and six months ended June 30, 2020, respectively, resulting in a total loss on interest rate swaps of $4,134 and $14,829, respectively, which is included in Interest Expense in the Consolidated Statements of Income.
Cash Received in Settlement of Commodity Derivative Instruments for the three and six months ended June 30, 2020 includes $29,015 related to the monetization and termination of approximately 39 million MMBtus of NYMEX natural gas hedges and a similar quantity of financial basis hedges that were to settle at various times from May through November of 2020. Net proceeds received from the monetization are classified as operating cash flows in the Consolidated Statements of Cash Flows.
Cash Received in Settlement of Commodity Derivative Instruments for the six months ended June 30, 2020, in addition to the amount discussed above, also includes $54,982 related to the monetization of certain NYMEX commodity swaps. The monetization resulted from reducing the contract swap prices of certain 2022, 2023, and 2024 NYMEX natural gas swap contracts. The notional quantities of the contracts were not changed by the monetization. Net proceeds received from the monetization are classified as operating cash flows in the Consolidated Statements of Cash Flows.
The Company also enters into fixed price natural gas sales agreements that are satisfied by physical delivery. These physical commodity contracts qualify for the normal purchases and normal sales exception and are not subject to derivative instrument accounting.
NOTE 12—FAIR VALUE OF FINANCIAL INSTRUMENTS:
CNX determines the fair value of assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. The fair value hierarchy is based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources (including NYMEX forward curves, LIBOR-based discount rates and basis forward curves), while unobservable inputs reflect the Company's own assumptions of what market participants would use.
The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below:
Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - The fair value of the assets and liabilities included in Level 2 are based on standard industry income approach models that use significant observable inputs, including NYMEX forward curves, LIBOR-based discount rates and basis forward curves.
Level 3 - Unobservable inputs significant to the fair value measurement supported by little or no market activity.
In those cases when the inputs used to measure fair value meet the definition of more than one level of the fair value hierarchy, the lowest level input that is significant to the fair value measurement in its totality determines the applicable level in the fair value hierarchy.
The financial instrument measured at fair value on a recurring basis is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2020
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019
|
|
|
|
|
|
Description
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Gas Derivatives
|
$
|
—
|
|
|
$
|
164,203
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
405,781
|
|
|
$
|
—
|
|
|
Interest Rate Swaps
|
$
|
—
|
|
|
$
|
(15,456)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,219)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying amounts and fair values of financial instruments for which the fair value option was not elected are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Cash and Cash Equivalents
|
$
|
19,607
|
|
|
$
|
19,607
|
|
|
$
|
16,283
|
|
|
$
|
16,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt (Excluding Debt Issuance Costs)
|
$
|
2,577,691
|
|
|
$
|
2,555,917
|
|
|
$
|
2,763,433
|
|
|
$
|
2,619,676
|
|
Cash and cash equivalents represent highly-liquid instruments and constitute Level 1 fair value measurements. Certain of the Company’s debt is actively traded on a public market and, as a result, constitute Level 1 fair value measurements. The portion of the Company’s debt obligations that is not actively traded is valued through reference to the applicable underlying benchmark rate and, as a result, constitute Level 2 fair value measurements.
NOTE 13—VARIABLE INTEREST ENTITIES:
The Company determined CNXM to be a variable interest entity. The Company has the power through its ownership and control of CNXM's general partner (CNX Midstream GP LLC) to direct the activities that most significantly impact CNXM's economic performance. In addition, through its limited partner interest in CNXM, the Company has the obligation to absorb the losses of CNXM and the right to receive benefits in accordance with such interests. As the Company has a controlling financial interest and is the primary beneficiary of CNXM, the Company consolidates CNXM.
The risks associated with the operations of CNXM are discussed in its Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 10, 2020 and its other periodic reports filed thereafter.
On July 26, 2020, CNX entered into an Agreement and Plan of Merger (the “Merger Agreement”). See Note 17 - Subsequent Event for more information.
On January 29, 2020, CNX and CNXM executed definitive agreements to eliminate CNXM's incentive distribution rights, or IDRs, held by its general partner and to convert the 2.0% general partner interest in CNXM into a non-economic general partnership interest (collectively, the "IDR Elimination Transaction").
CNX received the following consideration under the IDR Elimination Transaction in exchange for the cancellation of the IDRs and conversion of the 2.0% general partner interest:
•26 million CNXM common units;
•3 million new CNXM Class B units, which will not receive or accrue distributions until January 1, 2022 at which time they will automatically convert into CNXM common units on a one-for-one basis; and
•$135,000 to be paid in three installments as follows: $50,000 due December 31, 2020, $50,000 due December 31, 2021 and $35,000 due December 31, 2022.
As a result of the IDR Elimination Transaction, CNX owns 47.7 million CNXM common units, or approximately 53%, of the outstanding limited partner interests in CNXM, excluding the CNXM Class B units. Prior to the IDR Elimination Transaction, the Company owned approximately 34% of the outstanding limited partner interest and 100% of the general partner interest. Upon conversion of the CNXM Class B units to CNXM common units on January 1, 2022, CNX's ownership will increase to 50.7 million CNXM common units, or approximately 54.6% of the outstanding limited partner interest in CNXM on a proforma basis.
The following table presents amounts included in the Company's Consolidated Balance Sheets that were for the use or obligation of CNXM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
Assets:
|
|
|
|
|
Cash
|
$
|
989
|
|
|
$
|
31
|
|
|
Receivables - Related Party
|
16,583
|
|
|
21,076
|
|
|
Receivables - Third Party
|
8,615
|
|
|
7,935
|
|
|
Other Current Assets
|
1,672
|
|
|
1,976
|
|
|
Property, Plant and Equipment, net
|
1,206,739
|
|
|
1,195,591
|
|
|
Operating Lease ROU Asset
|
1,594
|
|
|
4,731
|
|
|
Other Assets
|
2,698
|
|
|
3,262
|
|
|
Total Assets
|
$
|
1,238,890
|
|
|
$
|
1,234,602
|
|
|
Liabilities:
|
|
|
|
|
Accounts Payable and Accrued Liabilities
|
$
|
31,931
|
|
|
$
|
67,290
|
|
|
Accounts Payable - Related Party
|
52,191
|
|
|
4,787
|
|
|
Revolving Credit Facility
|
319,000
|
|
|
311,750
|
|
|
Long-Term Debt
|
394,635
|
|
|
394,162
|
|
|
Long-Term Liabilities - Related Party
|
85,000
|
|
|
—
|
|
|
Total Liabilities
|
$
|
882,757
|
|
|
$
|
777,989
|
|
The following table summarizes CNXM's Consolidated Statements of Operations and Cash Flows, inclusive of affiliate amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Revenue
|
|
|
|
|
|
|
|
|
Gathering Revenue - Related Party
|
$
|
54,203
|
|
|
$
|
59,205
|
|
|
$
|
116,381
|
|
|
$
|
112,981
|
|
|
Gathering Revenue - Third Party
|
11,749
|
|
|
18,896
|
|
|
29,702
|
|
|
37,339
|
|
|
Miscellaneous Income
|
86
|
|
|
—
|
|
|
151
|
|
|
—
|
|
|
Total Revenue
|
66,038
|
|
|
78,101
|
|
|
146,234
|
|
|
150,320
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Operating Expense - Related Party
|
4,367
|
|
|
6,514
|
|
|
8,195
|
|
|
12,062
|
|
|
Operating Expense - Third Party
|
6,049
|
|
|
6,188
|
|
|
14,645
|
|
|
12,162
|
|
|
General and Administrative Expense - Related Party
|
2,748
|
|
|
4,027
|
|
|
5,605
|
|
|
7,994
|
|
|
General and Administrative Expense - Third Party
|
1,585
|
|
|
1,364
|
|
|
4,350
|
|
|
2,900
|
|
|
Loss on Asset Sales and Abandonments
|
1,663
|
|
|
—
|
|
|
1,652
|
|
|
7,229
|
|
|
Depreciation Expense
|
8,209
|
|
|
5,860
|
|
|
15,787
|
|
|
11,510
|
|
|
Interest Expense
|
8,617
|
|
|
7,685
|
|
|
17,410
|
|
|
15,024
|
|
|
Total Expense
|
33,238
|
|
|
31,638
|
|
|
67,644
|
|
|
68,881
|
|
|
Net Income
|
$
|
32,800
|
|
|
$
|
46,463
|
|
|
$
|
78,590
|
|
|
$
|
81,439
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
$
|
45,495
|
|
|
$
|
74,753
|
|
|
$
|
85,618
|
|
|
$
|
124,666
|
|
|
Net Cash Used in Investing Activities
|
$
|
(14,297)
|
|
|
$
|
(104,310)
|
|
|
$
|
(46,956)
|
|
|
$
|
(182,867)
|
|
|
Net Cash (Used in) Provided by Financing Activities
|
$
|
(35,444)
|
|
|
$
|
41,164
|
|
|
$
|
(37,704)
|
|
|
$
|
65,912
|
|
At June 30, 2020 and December 31, 2019, excluding amounts related to the IDR Elimination Transaction, CNX had a net payable of $14,453 and $16,362 respectively, due to CNX Gathering and CNXM, primarily for accrued but unpaid gathering services.
NOTE 14—SEGMENT INFORMATION:
CNX consists of two principal business divisions: Exploration and Production (E&P) and Midstream. The principal activity of the E&P Division, which includes four reportable segments, is to produce pipeline quality natural gas for sale primarily to gas wholesalers. The E&P Division's reportable segments are Marcellus Shale, Utica Shale, Coalbed Methane, and Other Gas. The Other Gas Segment is primarily related to shallow oil and gas production which is not significant to the Company. It also includes the Company's purchased gas activities, unrealized gain or loss on commodity derivative instruments, realized gain on commodity derivative instruments that were monetized prior to their settlement dates, exploration and production related other costs, impairments of exploration and production properties, as well as various other operating activities assigned to the E&P Division but not allocated to each individual segment.
CNX's Midstream Division's principal activity is the ownership, operation, development and acquisition of natural gas gathering and other midstream energy assets of CNX Gathering and CNXM, which provide natural gas gathering services for the Company's produced gas, as well as for other independent third-parties in the Marcellus Shale and Utica Shale in Pennsylvania and West Virginia. Excluded from the Midstream Division are the gathering assets and operations of CNX that have not been contributed to CNX Gathering and CNXM. CNX owns and controls 100% of CNX Gathering, making CNXM a single-sponsor master limited partnership and thus the Company consolidates CNXM. The Midstream Division is comprised of a single Midstream segment.
The Company's unallocated expenses include other income/expense, gain on asset sales related to non-core assets, gain/loss on debt extinguishment and income taxes.
In the preparation of the following information, intersegment sales have been recorded at amounts approximating market prices. Operating profit for each segment is based on sales less identifiable operating and non-operating expenses. Assets are reflected at the division level for E&P and are not allocated between each individual E&P segment. These assets are not allocated to each individual segment due to the diverse asset base controlled by CNX, whereby each individual asset may service more than one segment within the division. An allocation of such asset base would not be meaningful or representative on a segment by segment basis.
Industry segment results for the three months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed Methane
|
|
Other
Gas
|
|
Total
E&P
|
|
Midstream
|
|
Unallocated
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
|
Natural Gas, NGL and Oil Revenue
|
$
|
123,480
|
|
|
$
|
29,147
|
|
|
$
|
22,929
|
|
|
$
|
220
|
|
|
$
|
175,776
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
175,776
|
|
(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
20,424
|
|
|
20,424
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,424
|
|
|
|
Midstream Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
66,149
|
|
|
—
|
|
|
(53,958)
|
|
|
12,191
|
|
|
|
Gain (Loss) on Commodity Derivative Instruments
|
79,006
|
|
|
21,257
|
|
|
13,005
|
|
|
(176,571)
|
|
|
(63,303)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(63,303)
|
|
(B)
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
4,248
|
|
|
4,248
|
|
|
—
|
|
|
—
|
|
|
(495)
|
|
|
3,753
|
|
(C)
|
|
Total Revenue and Other Operating Income
|
$
|
202,486
|
|
|
$
|
50,404
|
|
|
$
|
35,934
|
|
|
$
|
(151,679)
|
|
|
$
|
137,145
|
|
|
$
|
66,149
|
|
|
$
|
—
|
|
|
$
|
(54,453)
|
|
|
$
|
148,841
|
|
|
|
Total Operating Expense
|
$
|
144,857
|
|
|
$
|
42,876
|
|
|
$
|
29,420
|
|
|
$
|
74,617
|
|
|
$
|
291,770
|
|
|
$
|
25,195
|
|
|
$
|
—
|
|
|
$
|
(54,453)
|
|
|
$
|
262,512
|
|
(D)
|
|
Earnings (Loss) Before Income Tax
|
$
|
57,629
|
|
|
$
|
7,528
|
|
|
$
|
6,514
|
|
|
$
|
(263,934)
|
|
|
$
|
(192,263)
|
|
|
$
|
30,296
|
|
|
$
|
2,835
|
|
|
$
|
—
|
|
|
$
|
(159,132)
|
|
|
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,584,989
|
|
|
$
|
1,754,639
|
|
|
$
|
134,047
|
|
|
$
|
(153,991)
|
|
|
$
|
8,319,684
|
|
(E)
|
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
102,901
|
|
|
$
|
10,644
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
113,545
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
120,474
|
|
|
$
|
14,378
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
134,852
|
|
|
(A) Included in Total Natural Gas, NGL and Oil Revenue are sales of $33,711 to Direct Energy Business Marketing LLC, which comprises over 10% of revenue from contracts with external customers for the period.
(B) Included in Other Gas is a realized gain on commodity derivative instruments of $29,015 related to the monetization of hedges (see Note 11 - Derivative Instruments for more information).
(C) Includes equity in loss of unconsolidated affiliates of $1,259 for Total E&P.
(D) Included in Marcellus and Utica are $51,903 and $2,055, respectively, of intercompany gathering fees.
(E) Includes investments in unconsolidated equity affiliates of $15,159 for Total E&P.
Industry segment results for the three months ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed Methane
|
|
Other
Gas
|
|
Total
E&P
|
|
Midstream
|
|
Unallocated
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
|
Natural Gas, NGL and Oil Revenue
|
$
|
237,257
|
|
|
$
|
65,213
|
|
|
$
|
39,638
|
|
|
$
|
757
|
|
|
$
|
342,865
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
342,865
|
|
(F)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
18,768
|
|
|
18,768
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midstream Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
78,450
|
|
|
—
|
|
|
(59,555)
|
|
|
18,895
|
|
|
|
Gain on Commodity Derivative Instruments
|
6,831
|
|
|
2,747
|
|
|
1,085
|
|
|
210,918
|
|
|
221,581
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
221,581
|
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
3,038
|
|
|
3,038
|
|
|
—
|
|
|
—
|
|
|
(115)
|
|
|
2,923
|
|
(G)
|
|
Total Revenue and Other Operating Income
|
$
|
244,088
|
|
|
$
|
67,960
|
|
|
$
|
40,723
|
|
|
$
|
233,481
|
|
|
$
|
586,252
|
|
|
$
|
78,450
|
|
|
$
|
—
|
|
|
$
|
(59,670)
|
|
|
$
|
605,032
|
|
|
|
Total Operating Expense
|
$
|
193,707
|
|
|
$
|
50,019
|
|
|
$
|
33,120
|
|
|
$
|
88,673
|
|
|
$
|
365,519
|
|
|
$
|
25,955
|
|
|
$
|
—
|
|
|
$
|
(59,670)
|
|
|
$
|
331,804
|
|
(H)
|
|
Earnings Before Income Tax
|
$
|
50,381
|
|
|
$
|
17,941
|
|
|
$
|
7,603
|
|
|
$
|
112,335
|
|
|
$
|
188,260
|
|
|
$
|
44,414
|
|
|
$
|
811
|
|
|
$
|
—
|
|
|
$
|
233,485
|
|
|
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,887,043
|
|
|
$
|
2,116,492
|
|
|
$
|
146,203
|
|
|
$
|
(3,041)
|
|
|
$
|
9,146,697
|
|
(I)
|
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
120,705
|
|
|
$
|
8,294
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
128,999
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
224,684
|
|
|
$
|
104,543
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
329,227
|
|
|
(F) Included in Total Natural Gas, NGL and Oil Revenue are sales of $48,476 to Direct Energy Business Marketing LLC, which comprises over 10% of revenue from contracts with external customers for the period.
(G) Includes equity in earnings of unconsolidated affiliates of $527 for Total E&P.
(H) Included in Marcellus and Utica are $59,014 and $541, respectively, of intercompany gathering fees.
(I) Includes investments in unconsolidated equity affiliates of $17,637 for Total E&P.
Industry segment results for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed Methane
|
|
Other
Gas
|
|
Total
E&P
|
|
Midstream
|
|
Unallocated
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
|
Natural Gas, NGL and Oil Revenue
|
$
|
302,524
|
|
|
$
|
70,597
|
|
|
$
|
53,652
|
|
|
$
|
497
|
|
|
$
|
427,270
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
427,270
|
|
(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
46,783
|
|
|
46,783
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,783
|
|
|
|
Midstream Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
146,490
|
|
|
—
|
|
|
(115,893)
|
|
|
30,597
|
|
|
|
Gain (Loss) on Commodity Derivative Instruments
|
147,458
|
|
|
39,257
|
|
|
22,692
|
|
|
(157,568)
|
|
|
51,839
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51,839
|
|
(B)
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
9,714
|
|
|
9,714
|
|
|
—
|
|
|
—
|
|
|
(1,003)
|
|
|
8,711
|
|
(C)
|
|
Total Revenue and Other Operating Income
|
$
|
449,982
|
|
|
$
|
109,854
|
|
|
$
|
76,344
|
|
|
$
|
(100,574)
|
|
|
$
|
535,606
|
|
|
$
|
146,490
|
|
|
$
|
—
|
|
|
$
|
(116,896)
|
|
|
$
|
565,200
|
|
|
|
Total Operating Expense
|
$
|
328,029
|
|
|
$
|
91,693
|
|
|
$
|
63,674
|
|
|
$
|
213,202
|
|
|
$
|
696,598
|
|
|
$
|
526,109
|
|
|
$
|
—
|
|
|
$
|
(116,896)
|
|
|
$
|
1,105,811
|
|
(D)
|
|
Earnings (Loss) Before Income Tax
|
$
|
121,953
|
|
|
$
|
18,161
|
|
|
$
|
12,670
|
|
|
$
|
(391,600)
|
|
|
$
|
(238,816)
|
|
|
$
|
(399,248)
|
|
|
$
|
21,127
|
|
|
$
|
—
|
|
|
$
|
(616,937)
|
|
|
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,584,989
|
|
|
$
|
1,754,639
|
|
|
$
|
134,047
|
|
|
$
|
(153,991)
|
|
|
$
|
8,319,684
|
|
(E)
|
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
222,053
|
|
|
$
|
20,656
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
242,709
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
239,867
|
|
|
$
|
47,034
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
286,901
|
|
|
(A) Included in Total Natural Gas, NGL and Oil Revenue are sales of $79,367 to Direct Energy Business Marketing LLC, which comprises over 10% of revenue from contracts with external customers for the period.
(B) Included in Other Gas is a realized gain on commodity derivative instruments of $83,997 related to the monetization of hedges (see Note 11 - Derivative Instruments for more information).
(C) Includes equity in loss of unconsolidated affiliates of $1,421 for Total E&P.
(D) Included in Marcellus and Utica are $111,079 and $4,814 , respectively, of intercompany gathering fees. Included in Midstream is a goodwill impairment charge of $473,045 (See Note 6 - Goodwill and Other Intangible Assets for more information).
(E) Includes investments in unconsolidated equity affiliates of 15,159 for Total E&P.
Industry segment results for the six months ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed Methane
|
|
Other
Gas
|
|
Total
E&P
|
|
Midstream
|
|
Unallocated
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
|
Natural Gas, NGL and Oil Revenue
|
$
|
530,514
|
|
|
$
|
158,164
|
|
|
$
|
89,473
|
|
|
$
|
660
|
|
|
$
|
778,811
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
778,811
|
|
(F)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
34,989
|
|
|
34,989
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midstream Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
151,019
|
|
|
—
|
|
|
(113,681)
|
|
|
37,338
|
|
|
|
(Loss) Gain on Commodity Derivative Instruments
|
(20,627)
|
|
|
(6,854)
|
|
|
(3,217)
|
|
|
56,903
|
|
|
26,205
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26,205
|
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
6,296
|
|
|
6,296
|
|
|
—
|
|
|
—
|
|
|
(176)
|
|
|
6,120
|
|
(G)
|
|
Total Revenue and Other Operating Income
|
$
|
509,887
|
|
|
$
|
151,310
|
|
|
$
|
86,256
|
|
|
$
|
98,848
|
|
|
$
|
846,301
|
|
|
$
|
151,019
|
|
|
$
|
—
|
|
|
$
|
(113,857)
|
|
|
$
|
883,463
|
|
|
|
Total Operating Expense
|
$
|
372,575
|
|
|
$
|
101,365
|
|
|
$
|
65,754
|
|
|
$
|
163,877
|
|
|
$
|
703,571
|
|
|
$
|
50,919
|
|
|
$
|
—
|
|
|
$
|
(113,857)
|
|
|
$
|
640,633
|
|
(H)
|
|
Earnings (Loss) Before Income Tax
|
$
|
137,312
|
|
|
$
|
49,945
|
|
|
$
|
20,502
|
|
|
$
|
(125,929)
|
|
|
$
|
81,830
|
|
|
$
|
76,998
|
|
|
$
|
(1,553)
|
|
|
$
|
—
|
|
|
$
|
157,275
|
|
|
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,887,043
|
|
|
$
|
2,116,492
|
|
|
$
|
146,203
|
|
|
$
|
(3,041)
|
|
|
$
|
9,146,697
|
|
(I)
|
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
237,780
|
|
|
$
|
16,379
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
254,159
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
448,475
|
|
|
$
|
179,890
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
628,365
|
|
|
(F) Included in Total Natural Gas, NGL and Oil Revenue are sales of $116,245 to Direct Energy Business Marketing LLC and $94,447 to NJR Energy Services Company, each of which comprises over 10% of revenue from contracts with external customers for the period.
(G) Includes equity in earnings of unconsolidated affiliates of $1,030 for Total E&P.
(H) Included in Marcellus and Utica are $112,476 and $1,205 , respectively, of intercompany gathering fees.
(I) Includes investments in unconsolidated equity affiliates of $17,637 for Total E&P.
Reconciliation of Segment Information to Consolidated Amounts:
Revenue and Other Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Total Segment Revenue from Contracts with External Customers
|
$
|
208,391
|
|
|
$
|
380,528
|
|
|
$
|
504,650
|
|
|
$
|
851,138
|
|
|
(Loss) Gain on Commodity Derivative Instruments
|
(63,303)
|
|
|
221,581
|
|
|
51,839
|
|
|
26,205
|
|
|
Other Operating Income
|
3,753
|
|
|
2,923
|
|
|
8,711
|
|
|
6,120
|
|
|
Total Consolidated Revenue and Other Operating Income
|
$
|
148,841
|
|
|
$
|
605,032
|
|
|
$
|
565,200
|
|
|
$
|
883,463
|
|
Loss Before Income Tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Segment (Loss) Earnings Before Income Taxes for Reportable Business Segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&P
|
$
|
(192,263)
|
|
|
$
|
188,260
|
|
|
$
|
(238,816)
|
|
|
$
|
81,830
|
|
|
Midstream
|
30,296
|
|
|
44,414
|
|
|
(399,248)
|
|
|
76,998
|
|
|
Total Segment (Loss) Earnings Before Income Taxes for Reportable Business Segments
|
$
|
(161,967)
|
|
|
$
|
232,674
|
|
|
$
|
(638,064)
|
|
|
$
|
158,828
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated Expenses:
|
|
|
|
|
|
|
|
|
Other (Expense) Income
|
(4,547)
|
|
|
501
|
|
|
(9,561)
|
|
|
1,531
|
|
|
Gain on Certain Asset Sales
|
7,726
|
|
|
387
|
|
|
19,769
|
|
|
4,530
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Gain on Debt Extinguishment
|
(344)
|
|
|
(77)
|
|
|
10,919
|
|
|
(7,614)
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings Before Income Tax
|
$
|
(159,132)
|
|
|
$
|
233,485
|
|
|
$
|
(616,937)
|
|
|
$
|
157,275
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
2020
|
|
2019
|
|
Segment Assets for Total Reportable Business Segments:
|
|
|
|
|
E&P
|
$
|
6,584,989
|
|
|
$
|
6,887,043
|
|
|
Midstream
|
1,754,639
|
|
|
2,116,492
|
|
|
Intercompany Eliminations
|
(153,991)
|
|
|
(3,041)
|
|
|
Items Excluded from Segment Assets:
|
|
|
|
Cash and Cash Equivalents
|
19,607
|
|
|
32,611
|
|
Recoverable Income Taxes
|
114,440
|
|
|
113,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated Assets
|
$
|
8,319,684
|
|
|
$
|
9,146,697
|
|
NOTE 15—STOCK REPURCHASE:
Since the October 30, 2017 inception of the current stock repurchase program, CNX's Board of Directors has approved in total a $750,000 stock repurchase program, which is not subject to an expiration date. The repurchases may be affected from time-to-time through open market purchases, privately negotiated transactions, Rule 10b5-1 plans, accelerated stock repurchases, block trades, derivative contracts or otherwise in compliance with Rule 10b-18. The timing of any repurchases will be based on a number of factors, including available liquidity, the Company's stock price, the Company's financial outlook, and alternative investment options. The stock repurchase program does not obligate the Company to repurchase any dollar amount or number of shares and the Board may modify, suspend, or discontinue its authorization of the program at any time. The Board of Directors will continue to evaluate the size of the stock repurchase program based on CNX's free cash flow position, leverage ratio, and capital plans. During the six months ended June 30, 2019, 11,929,487 shares were repurchased and retired at an average price of $9.01 per share for a total cost of $107,780. There were no shares repurchased and retired during the six months ended June 30, 2020.
NOTE 16—RECENT ACCOUNTING PRONOUNCEMENTS:
In March 2020, the FASB issued ASU 2020-04 - Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This ASU provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (IBORs) and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is still evaluating the effect of adopting this guidance.
In March 2020, the FASB issued ASU 2020-03 - Codification Improvements to Financial Instruments. This ASU improves and clarifies various financial instruments topics, including the CECL standard (see Note 1 - Basis of Presentation for more information). The ASU includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments in this ASU have different effective dates. The adoption of this guidance is not expected to have a material impact on the Company's financial statements.
NOTE 17—SUBSEQUENT EVENTS:
On July 26, 2020, CNX entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CNXM, CNX Midstream GP LLC (the “General Partner”) and CNX Resources Holding LLC., a wholly owned subsidiary of CNX (“Merger Sub”), pursuant to which Merger Sub will merge with and into CNXM with CNXM surviving as an indirect wholly owned subsidiary of CNX (the “Merger”). Under the terms of the Merger Agreement, at the effective time of the Merger, each outstanding common unit of CNXM not owned by CNX and its subsidiaries will be converted into the right to receive 0.88 shares of CNX’s common stock.
Except for the Class B units of CNXM, which will automatically be canceled immediately prior to the effective time of the Merger for no consideration in accordance with CNXM’s partnership agreement, the interests in CNXM owned by CNX and its subsidiaries will remain outstanding as limited partner interests in the surviving entity. The General Partner will continue to own the non-economic general partner interest in the surviving entity.
Completion of the Merger is subject to certain customary conditions, including, among others: (i) the receipt of the Written Consent (as defined below); (ii) there being no law or injunction prohibiting consummation of the transactions contemplated under the Merger Agreement; (iii) the effectiveness of a registration statement on Form S-4 relating to the shares of CNX common stock to be issued pursuant to the Merger Agreement; (iv) approval for listing on the NYSE of the shares of CNX common stock to be issued pursuant to the Merger Agreement; (v) subject to specified materiality standards, the accuracy of certain representations and warranties of the other party; and (vi) compliance by the other party in all material respects with its covenants.
In connection with execution of the Merger Agreement, CNXM and two indirect wholly owned subsidiaries (the “Subsidiaries”) of CNX, entered into a Support Agreement, dated as of July 26, 2020 (the “Support Agreement”), pursuant to which the Subsidiaries have agreed to deliver a written consent (the “Written Consent”), covering all of the CNXM common units beneficially owned by them, approving the Merger. The Merger Agreement and any other matters necessary for consummation of the Merger and the other transactions contemplated in the Merger Agreement.
Upon completion of the Merger, CNXM’s common units will no longer be publicly traded. Subject to the satisfaction or waiver of the conditions described above, the Merger is expected to close in the fourth quarter of 2020.
In July 2020, the Company issued a notice of partial redemption to holders of its outstanding 5.875% senior notes due in April 2022 (the “2022 Notes”), pursuant to which, on August 14, 2020, the Company will redeem $50,000 of the 2022 Notes at an average price equal to 100.0% of the principal amount thereof.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Form 10-Q. The information provided below supplements, but does not form part of, CNX's financial statements. This discussion contains forward-looking statements that are based on the current views and beliefs of management, as well as assumptions and estimates made by management. Actual results could differ materially from any such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on items that could impact future operating performance or financial condition, please see “Part II. Item 1A. Risk Factors” and the section entitled “Forward-Looking Statements” and the “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2019, which we filed with the SEC on February 10, 2020. CNX does not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
General
CNX continues to monitor the current and potential impacts of the coronavirus COVID-19 ("COVID-19") pandemic on all aspects of our business and geographies, including how it has impacted, and may in the future, impact our operations, financial results, liquidity, contractors, customers, employees and vendors. The Company also continues to monitor a number of factors that may cause actual results of operations to differ from our historical results or current expectations. These factors include: the impact of the COVID-19 pandemic and the related global economic downturn, the historically low natural gas and natural gas liquids prices and ramifications of the crude oil price war between the Organization of Petroleum Exporting Countries ("OPEC")/Saudi Arabia and Russia that began in the first quarter of 2020. These and other factors could affect the Company’s operations, earnings and cash flows for any period and could cause such results to not be comparable to those of the same period in previous years. The results presented in this Form 10-Q are not necessarily indicative of future operating results.
While CNX did not incur significant disruptions to operations during the three or six months ended June 30, 2020 as a direct result of the COVID-19 pandemic, CNX is unable to predict the impact that the COVID-19 pandemic will have on us, including our financial position, operating results, liquidity and ability to obtain financing in future reporting periods, due to numerous uncertainties. These uncertainties include the volatility and severity of the virus, the duration of the outbreak, the availability of a vaccine, governmental or other actions taken to combat the virus (which could include limitations on our operations or the operations of our customers and vendors), and the effect that the COVID-19 pandemic will have on the demand for natural gas and natural gas liquids. The continued health of our employees, contractors and vendors, and our ability to meet staffing needs in our operations and certain critical functions is vital to our operations and cannot currently be predicted. Further, the continuing impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets as well as other unanticipated consequences remain unknown. In addition, CNX cannot predict the impact that COVID-19 will have on our customers, vendors and contractors; however, any material effect on these parties could adversely impact CNX. For instance, in the short term, CNX is starting to see a reduction in overall service and materials costs, due to oversupply of those services and costs, since industrial production has waned. However, if services providers to our industry are forced into bankruptcy or otherwise consolidate due to weakening economic conditions, demand could outpace supply in the long-term and cause these costs to increase. The situation surrounding COVID-19 remains fluid and unpredictable, and CNX is actively managing our response in collaboration with our contractors, customers, employees and vendors and assessing potential impacts to our financial position and operating results, as well as any adverse developments that could impact our business.
CNX has also taken, and is continuing to take, proactive steps to manage any disruption in our business caused by COVID-19. For instance, even though our operations were not required to close, CNX was an early adopter in employing a work-from-home system, even before any government mandate on non-essential businesses was enacted. CNX increased its technology platform, infrastructure and security to allow for a work-from-home environment ahead of the actual need, and therefore, once the hypothetical became a reality, we believe CNX was ahead of many companies in this respect. CNX has also deployed additional safety protocols at our field sites in order to keep our employees and contractors safe and to keep our operations running without material disruption. As CNX office employees begin to return to work, CNX has implemented certain additional safety measures and protocols in order to maintain the safety of those employees as well.
For further information regarding the impact of COVID-19 see Risk factors in Item 1A of this Form 10-Q.
Marketing Update:
The markets for natural gas, NGL, and crude oil remain volatile, and prices may continue to fluctuate in response to, among other things: Geopolitical factors, such as events that may reduce or increase production from particular oil-producing regions and/or from members of OPEC, and global events, such as the ongoing COVID-19 pandemic. Overall, 2020 NYMEX oil prices have moved downward due in part to concerns about COVID-19 and its impact on near-term worldwide oil demand and due to the increase in oil production by certain members of OPEC. This oversupply of oil and weak demand have caused a domestic oversupply of NGLs and, when combined with current export constraints, NGL prices have been driven to historic lows, although some improvement was seen in the second quarter of 2020 at Mont Belvieu. While OPEC agreed in April of 2020 to cut production, downward pressure on liquids prices has continued and could continue for the foreseeable future, particularly given concerns over available storage capacity for crude oil and other refinery inputs including condensate, C5+ and butane, that could again result in temporary reductions in CNX’s wet gas production. During the six months ended June 30, 2020, sales of natural gas liquids comprised six percent of CNX’s revenue from external customers.
Continued strength in natural gas production, along with reduced heating demand for natural gas as a result of relatively mild winter temperatures throughout most of the United States, accounted for relatively higher inventory levels. Despite an April 12 agreement by the OPEC and its allies to reduce global production by approximately 10%, the economic slowdown and global stay-at-home orders continue to suppress demand for natural gas. The U.S. Energy Information Administration’s (“EIA”) Short-Term Energy Outlook for April 2020 as well as July’s Outlook cite heightened uncertainty because of the economic slowdown, particularly industrial gas demand and changes in energy markets’ supply and demand dynamics.
For the second quarter of 2020 and 2019, CNX's average sales price for natural gas, NGLs, oil, and condensate, including the impact of cash settlements from hedging, was $2.52 per Mcfe and $2.63 per Mcfe, respectively. The average realized price for all liquids for the second quarter of 2020 was $8.73 per barrel compared to $19.14 per barrel in the 2019 quarter.
CNX's weighted average differential from NYMEX in the second quarter of 2020 was negative $0.29 per MMBtu. CNX's average sales price for natural gas before hedging decreased 15.8% to $1.54 per Mcf compared with the average sales price of $1.83 per Mcf in the first quarter of 2020. This decrease results from a lower Henry Hub price offset in part by improved basis pricing. Including the impact of cash settlements from hedging and excluding cash from the April 2020 hedge monetization, CNX's average sales price for natural gas was $0.03 per Mcf, or 1.2%, lower than the three months ended March 31, 2020, and $0.02 per Mcf, or 0.8%, lower than the three months ended June 30, 2019.
During the second quarter of 2020, CNX sold 114.5 Bcfe of produced natural gas, a decrease of 14.9% from the 134.5 Bcfe sold in the year-earlier quarter, primarily due to decreases in Marcellus Shale and Utica Shale volumes. The decrease in volumes was due to the temporary shut-in of a portion of CNX's liquids-rich Shirley-Pennsboro production in May and June of 2020 in response to low NGL prices. Additionally, two new pads of dry gas turn-in-lines from April and May were temporarily shut-in May and June due to low natural gas prices. Total quarterly production costs decreased to $1.92 per Mcfe, compared to the year-earlier quarter of $2.07 per Mcfe, driven primarily by decreases in lease operating expenses and transportation, gathering and compression. Capital expenditures decreased to $135 million in the second quarter of 2020, compared to $329 million of spend in the second quarter of 2019.
Hedging Activity:
Total hedged natural gas production in the 2020 third quarter is 88.9(1) Bcf. The annual gas hedge position is shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
Volumes Hedged (Bcf), as of 7/8/20
|
|
437.4(1)(2)
|
|
454.1
|
|
1Net of purchased swaps.
2Includes actual settlements of 254.0 Bcf.
CNX's hedged gas volumes include a combination of NYMEX financial hedges, index (NYMEX and basis) financial hedges, and physical fixed price sales. In addition, to protect the NYMEX hedge volumes from basis exposure, CNX enters into basis-only financial hedges and physical sales with fixed basis at certain sales points.
In March 2020, CNX monetized and repriced a portion of its 2022, 2023, and 2024 NYMEX natural gas hedge portfolio generating $55.0 million of net proceeds, which were included in (Loss) Gain on Commodity Derivative Instruments in the Consolidated Statements of Income for the six months ended June 30, 2020. Notional quantities were not affected by the restructuring. The remaining 2022 swap contracts with a notional quantity of 113.2 million MMBtus and a weighted average
price of $2.80 per MMBtu were repriced to a contract price of $2.40 per MMBtu, 2023 swap contracts with a notional quantity of 51.1 million MMBtus and a weighted average price of $2.69 per MMBtu were repriced to a contract price of $2.48 per MMBtu, and 2024 swap contracts with a notional quantity of 19.2 million MMBtus and a weighted average price of $2.62 per MMBtu were repriced to a contract price of $2.54 per MMBtu. The net proceeds from the monetization were used to reduce the Company’s absolute debt.
In April 2020, CNX monetized and terminated approximately 39 million MMBtus of NYMEX natural gas hedges and a similar quantity of financial basis hedges that were to settle at various times from May through November of 2020. In connection with these monetizations, CNX received $29 million of net proceeds, which are included in (Loss) Gain on Commodity Derivative Instruments in the Consolidated Statements of Income for the three and six months ended June 30, 2020. In addition, during the second quarter of 2020, CNX purchased financial swaps for May through November of 2020 under which CNX will pay a fixed price to and receive a floating price from its hedge counterparties. These transactions provided CNX with additional flexibility to move production to higher price periods while immediately taking the monetization proceeds.
Recent Business Developments:
On July 26, 2020, CNX entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CNXM, CNX Midstream GP LLC (the “General Partner”) and CNX Resources Holdings LLC, a wholly owned subsidiary of CNX (“Merger Sub”), pursuant to which Merger Sub will merge with and into CNXM with CNXM surviving as an indirect wholly owned subsidiary of CNX (the “Merger”). Under the terms of the Merger Agreement, at the effective time of the Merger, each outstanding common unit of CNXM not owned by CNX and its subsidiaries will be converted into the right to receive 0.88 shares of CNX’s common stock.
Except for the Class B units of CNXM, which will automatically be canceled immediately prior to the effective time of the Merger for no consideration in accordance with CNXM’s partnership agreement, the interests in CNXM owned by CNX and its subsidiaries will remain outstanding as limited partner interests in the surviving entity. The General Partner will continue to own the non-economic general partner interest in the surviving entity.
Completion of the Merger is subject to certain customary conditions, including, among others: (i) the receipt of the Written Consent (as defined below); (ii) there being no law or injunction prohibiting consummation of the transactions contemplated under the Merger Agreement; (iii) the effectiveness of a registration statement on Form S-4 relating to the shares of CNX common stock to be issued pursuant to the Merger Agreement; (iv) approval for listing on the NYSE of the shares of CNX common stock to be issued pursuant to the Merger Agreement; (v) subject to specified materiality standards, the accuracy of certain representations and warranties of the other party; and (vi) compliance by the other party in all material respects with its covenants.
In connection with execution of the Merger Agreement, CNXM and two indirect wholly owned subsidiaries (the “Subsidiaries”) of CNX, entered into a Support Agreement, dated as of July 26, 2020 (the “Support Agreement”), pursuant to which the Subsidiaries have agreed to deliver a written consent (the “Written Consent”), covering all of the CNXM common units beneficially owned by them, approving the Merger. The Merger Agreement and any other matters necessary for consummation of the Merger and the other transactions contemplated in the Merger Agreement.
Upon completion of the Merger, CNXM’s common units will no longer be publicly traded. Subject to the satisfaction or waiver of the conditions described above, the Merger is expected to close in the fourth quarter of 2020.
Results of Operations - Three Months Ended June 30, 2020 Compared with Three Months Ended June 30, 2019
Net (Loss) Income Attributable to CNX Resources Shareholders
CNX reported a net loss attributable to CNX Resources shareholders of $146 million, or a loss per diluted share of $0.78, for the three months ended June 30, 2020, compared to net income attributable to CNX Resources shareholders of $162 million, or earnings per diluted share of $0.84, for the three months ended June 30, 2019.
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|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
Variance
|
|
Net (Loss) Income
|
$
|
(130,486)
|
|
|
$
|
192,694
|
|
|
$
|
(323,180)
|
|
|
Less: Net Income Attributable to Noncontrolling Interest
|
15,263
|
|
|
30,217
|
|
|
(14,954)
|
|
|
Net (Loss) Income Attributable to CNX Resources Shareholders
|
$
|
(145,749)
|
|
|
$
|
162,477
|
|
|
$
|
(308,226)
|
|
CNX consists of two principal business divisions: Exploration and Production (E&P) and Midstream. The operating results of the Company's reportable divisions were as follows for the three months ended June 30, 2020 and 2019:
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|
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|
|
For the Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
E&P Division
|
|
Midstream Division
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
|
|
Natural Gas, NGL and Oil Revenue
|
$
|
176
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
176
|
|
|
|
|
Loss on Commodity Derivative Instruments
|
(63)
|
|
|
—
|
|
|
—
|
|
|
(63)
|
|
|
|
|
Purchased Gas Revenue
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
|
|
Midstream Revenue - Related Party
|
—
|
|
|
54
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|
|
(54)
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|
—
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|
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|
|
Midstream Revenue - Third Party
|
—
|
|
|
12
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|
|
—
|
|
|
12
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|
|
|
|
Other Operating Income
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
|
|
Total Revenue and Other Operating Income
|
137
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|
|
66
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|
|
(54)
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|
|
149
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|
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|
|
Operating Expense:
|
|
|
|
|
|
|
|
|
|
|
Lease Operating Expense
|
10
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
|
|
Transportation, Gathering and Compression
|
104
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|
|
10
|
|
|
(54)
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|
|
60
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|
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|
|
Production, Ad Valorem, and Other Fees
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
|
|
Depreciation, Depletion and Amortization
|
103
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|
|
11
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|
|
—
|
|
|
114
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|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and Production Related Other Costs
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
|
|
Purchased Gas Costs
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
|
|
Other Operating Expense
|
28
|
|
|
—
|
|
|
—
|
|
|
28
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|
|
|
|
Selling, General and Administrative Costs
|
19
|
|
|
4
|
|
|
—
|
|
|
23
|
|
|
|
|
Total Operating Costs and Expenses
|
292
|
|
|
25
|
|
|
(54)
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|
|
263
|
|
|
|
|
Interest Expense
|
37
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|
|
9
|
|
|
—
|
|
|
46
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|
|
|
|
Loss on Asset Sales and Abandonments, net
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
|
|
Total Division Costs
|
329
|
|
|
36
|
|
|
(54)
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|
|
311
|
|
|
|
|
(Loss) Earnings Before Income Tax
|
$
|
(192)
|
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
(162)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2019
|
|
|
|
|
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|
|
(Dollars in millions)
|
E&P Division
|
|
Midstream Division
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
Natural Gas, NGL and Oil Revenue
|
$
|
343
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
343
|
|
|
Gain on Commodity Derivative Instruments
|
221
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|
|
—
|
|
|
—
|
|
|
221
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|
|
Purchased Gas Revenue
|
19
|
|
|
—
|
|
|
—
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|
|
19
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|
|
Midstream Revenue - Related Party
|
—
|
|
|
60
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|
|
(60)
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|
|
—
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|
Midstream Revenue - Third Party
|
—
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|
|
18
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|
|
—
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|
|
18
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|
|
Other Operating Income
|
3
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|
|
—
|
|
|
—
|
|
|
3
|
|
|
Total Revenue and Other Operating Income
|
586
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|
|
78
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|
|
(60)
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|
|
604
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|
|
Operating Expense:
|
|
|
|
|
|
|
|
|
Lease Operating Expense
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
Transportation, Gathering and Compression
|
132
|
|
|
13
|
|
|
(60)
|
|
|
85
|
|
|
Production, Ad Valorem, and Other Fees
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
Depreciation, Depletion and Amortization
|
121
|
|
|
8
|
|
|
—
|
|
|
129
|
|
|
Exploration and Production Related Other Costs
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
Purchased Gas Costs
|
19
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
Other Operating Expense
|
18
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
Selling, General and Administrative Costs
|
44
|
|
|
5
|
|
|
—
|
|
|
49
|
|
|
Total Operating Costs and Expenses
|
366
|
|
|
26
|
|
|
(60)
|
|
|
332
|
|
|
Interest Expense
|
32
|
|
|
8
|
|
|
—
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
Total Division Costs
|
398
|
|
|
34
|
|
|
(60)
|
|
|
372
|
|
|
Earnings Before Income Tax
|
$
|
188
|
|
|
$
|
44
|
|
|
$
|
—
|
|
|
$
|
232
|
|
The principal activity of the E&P Division is to produce pipeline quality natural gas for sale primarily to gas wholesalers. The E&P Division's reportable segments are Marcellus Shale, Utica Shale, Coalbed Methane, and Other Gas.
CNX's E&P Division had a loss before income tax of $192 million for the three months ended June 30, 2020, compared to earnings before income tax of $188 million for the three months ended June 30, 2019. Included in the loss for the three months ended June 30, 2020 was an unrealized loss on commodity derivative instruments of $205 million. Included in the earnings for the three months ended June 30, 2019 was an unrealized gain on commodity derivative instruments of $211 million.
CNX's Midstream Division's principal activity is the ownership, operation, development and acquisition of natural gas gathering and other midstream energy assets, through CNX Gathering and CNXM, which provide natural gas gathering services for the Company's produced gas, as well as for other independent third-parties in the Marcellus Shale and Utica Shale in Pennsylvania and West Virginia. Excluded from the Midstream Division are the gathering assets and operations of CNX that have not been contributed to CNX Gathering and CNXM. CNX's Midstream Division had earnings before income tax of $30 million for the three months ended June 30, 2020, compared to earnings before income tax of $44 million for the three months ended June 30, 2019.
E&P Division Summary
Sales volumes, average sales prices (including the effects of settled derivative instruments and excluding monetization), and average costs for the E&P Division were as follows:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance
|
|
Percent Change
|
|
Sales Volumes (Bcfe)
|
114.5
|
|
134.5
|
|
(20.0)
|
|
|
(14.9)
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Gas (per Mcf)
|
$
|
1.54
|
|
|
$
|
2.51
|
|
|
$
|
(0.97)
|
|
|
(38.6)
|
%
|
|
Gain on Commodity Derivative Instruments - Cash Settlement - Gas (per Mcf)*
|
$
|
1.03
|
|
|
$
|
0.08
|
|
|
$
|
0.95
|
|
|
1,187.5
|
%
|
|
Average Sales Price - NGL (per Mcfe)**
|
$
|
1.31
|
|
|
$
|
3.06
|
|
|
$
|
(1.75)
|
|
|
(57.2)
|
%
|
|
Average Sales Price - Oil (per Mcfe)**
|
$
|
5.15
|
|
|
$
|
8.42
|
|
|
$
|
(3.27)
|
|
|
(38.8)
|
%
|
|
Average Sales Price - Condensate (per Mcfe)**
|
$
|
4.20
|
|
|
$
|
7.56
|
|
|
$
|
(3.36)
|
|
|
(44.4)
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price (per Mcfe)
|
$
|
2.52
|
|
|
$
|
2.63
|
|
|
$
|
(0.11)
|
|
|
(4.2)
|
%
|
|
Lease Operating Expense (per Mcfe)
|
0.09
|
|
|
0.15
|
|
|
(0.06)
|
|
|
(40.0)
|
%
|
|
Production, Ad Valorem, and Other Fees (per Mcfe)
|
0.05
|
|
|
0.05
|
|
|
—
|
|
|
—
|
%
|
|
Transportation, Gathering and Compression (per Mcfe)
|
0.91
|
|
|
0.98
|
|
|
(0.07)
|
|
|
(7.1)
|
%
|
|
Depreciation, Depletion and Amortization (DD&A) (per Mcfe)
|
0.87
|
|
|
0.89
|
|
|
(0.02)
|
|
|
(2.2)
|
%
|
|
Average Costs (per Mcfe)
|
$
|
1.92
|
|
|
$
|
2.07
|
|
|
$
|
(0.15)
|
|
|
(7.2)
|
%
|
|
Average Margin (per Mcfe)
|
$
|
0.60
|
|
|
$
|
0.56
|
|
|
$
|
0.04
|
|
|
7.1
|
%
|
* Excluding $29 million gain from hedge monetization
**NGL and Condensate are converted to Mcfe at the rate of one barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not indicative of the relationship of oil, NGL, condensate, and natural gas prices.
Natural gas, NGL, and oil revenue was $176 million for the three months ended June 30, 2020, compared to $343 million for the three months ended June 30, 2019. The decrease was primarily due to the 4.2% decrease in the average sales price driven by lower natural gas and NGL prices.
The decrease in average sales price was primarily the result of the $0.97 per Mcf decrease in general natural gas prices, when excluding the impact of hedging, in the markets in which CNX sells its natural gas. There was also a $0.04 per Mcfe decrease in the uplift from NGL and condensate sales volumes when excluding the impact of hedging. Both decreases were offset, in-part, by the $0.95 per Mcf increase in the realized gain on commodity derivative instruments related to the Company's hedging program.
Changes in the average costs per Mcfe were primarily related to the following items:
•Lease operating expense decreased on a per unit basis primarily due to a decrease in water disposal costs in the period-to-period comparison due to an increased reuse of produced water in well completions in the current period.
•Transportation, gathering, and compression expense decreased on a per unit basis primarily due to lower processing costs due to a drier production mix and a decrease in firm transportation due to lower gas sales volumes.
The following table presents a breakout of net liquid and natural gas sales information and settled derivative information to assist in the understanding of the Company’s natural gas production and sales portfolio and information regarding settled commodity derivatives:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
|
in thousands (unless noted)
|
|
2020
|
|
2019
|
|
Variance
|
|
Percent Change
|
|
LIQUIDS
|
|
|
|
|
|
|
|
|
|
NGL:
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcfe)
|
|
4,741
|
|
|
7,855
|
|
|
(3,114)
|
|
|
(39.6)
|
%
|
|
Sales Volume (Mbbls)
|
|
790
|
|
|
1,309
|
|
|
(519)
|
|
|
(39.6)
|
%
|
|
Gross Price ($/Bbl)
|
|
$
|
7.86
|
|
|
$
|
18.36
|
|
|
$
|
(10.50)
|
|
|
(57.2)
|
%
|
|
Gross Revenue
|
|
$
|
6,226
|
|
|
$
|
24,025
|
|
|
$
|
(17,799)
|
|
|
(74.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Oil:
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcfe)
|
|
50
|
|
|
10
|
|
|
40
|
|
|
400.0
|
%
|
|
Sales Volume (Mbbls)
|
|
8
|
|
|
2
|
|
|
6
|
|
|
300.0
|
%
|
|
Gross Price ($/Bbl)
|
|
$
|
30.90
|
|
|
$
|
50.52
|
|
|
$
|
(19.62)
|
|
|
(38.8)
|
%
|
|
Gross Revenue
|
|
$
|
259
|
|
|
$
|
89
|
|
|
$
|
170
|
|
|
191.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Condensate:
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcfe)
|
|
186
|
|
|
222
|
|
|
(36)
|
|
|
(16.2)
|
%
|
|
Sales Volume (Mbbls)
|
|
31
|
|
|
37
|
|
|
(6)
|
|
|
(16.2)
|
%
|
|
Gross Price ($/Bbl)
|
|
$
|
25.20
|
|
|
$
|
45.36
|
|
|
$
|
(20.16)
|
|
|
(44.4)
|
%
|
|
Gross Revenue
|
|
$
|
781
|
|
|
$
|
1,680
|
|
|
$
|
(899)
|
|
|
(53.5)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
GAS
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcf)
|
|
109,527
|
|
|
126,378
|
|
|
(16,851)
|
|
|
(13.3)
|
%
|
|
Sales Price ($/Mcf)
|
|
$
|
1.54
|
|
|
$
|
2.51
|
|
|
$
|
(0.97)
|
|
|
(38.6)
|
%
|
|
Gross Revenue
|
|
$
|
168,510
|
|
|
$
|
317,071
|
|
|
$
|
(148,561)
|
|
|
(46.9)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Hedging Impact ($/Mcf)
|
|
$
|
1.03
|
|
|
$
|
0.08
|
|
|
$
|
0.95
|
|
|
1,187.5
|
%
|
|
Gain on Commodity Derivative Instruments - Cash Settlement*
|
|
113,241
|
|
|
10,672
|
|
|
102,569
|
|
|
961.1
|
%
|
* Excluding gain from hedge monetization
Selling, General and Administrative ("SG&A") - Total Company
SG&A costs include costs such as overhead, including employee labor and benefit costs, short-term incentive compensation, costs of maintaining our headquarters, audit and other professional fees, and legal compliance expenses. SG&A costs also include non-cash long-term equity-based compensation expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
Variance
|
|
Percent Change
|
|
SG&A
|
|
|
|
|
|
|
|
|
Long-Term Equity-Based Compensation (Non-Cash)
|
$
|
2
|
|
|
$
|
24
|
|
|
$
|
(22)
|
|
|
(91.7)
|
%
|
|
Salaries and Wages
|
7
|
|
|
10
|
|
|
(3)
|
|
|
(30.0)
|
%
|
|
Short-Term Incentive Compensation
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
%
|
|
Other
|
11
|
|
|
12
|
|
|
(1)
|
|
|
(8.3)
|
%
|
|
Total SG&A
|
$
|
23
|
|
|
$
|
49
|
|
|
$
|
(26)
|
|
|
(53.1)
|
%
|
•Long-term equity-based compensation decreased $22 million in the period-to-period comparison due to a change in control event that occurred in the second quarter of 2019 and resulted in the acceleration of vesting of certain restricted stock units and performance share units held by certain employees. See Note 2 - Earnings Per Share in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
•Salaries and Wages decreased $3 million due to an overall reduction in employees and employee related costs.
Unallocated Expense
Certain costs and expenses, such as other expense (income), gain on asset sales related to non-core assets, (gain) loss on debt extinguishment and income taxes are unallocated expenses and therefore are excluded from the per unit costs above as well as segment reporting. Below is a summary of these costs and expenses:
Other Expense (Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
Variance
|
|
Percent Change
|
|
Other Income
|
|
|
|
|
|
|
|
|
Right of Way Sales
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
(2)
|
|
|
(66.7)
|
%
|
|
Royalty Income
|
—
|
|
|
1
|
|
|
(1)
|
|
|
(100.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
Other
|
—
|
|
|
1
|
|
|
(1)
|
|
|
(100.0)
|
%
|
|
Total Other Income
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
(4)
|
|
|
(80.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
Other Expense
|
|
|
|
|
|
|
|
|
Professional Services
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
100.0
|
%
|
|
Bank Fees
|
3
|
|
|
2
|
|
|
1
|
|
|
50.0
|
%
|
|
Corporate Expense
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
%
|
|
Total Other Expense
|
$
|
6
|
|
|
$
|
4
|
|
|
$
|
2
|
|
|
50.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Other Expense (Income)
|
$
|
5
|
|
|
$
|
(1)
|
|
|
$
|
6
|
|
|
600.0
|
%
|
Gain on Asset Sales and Abandonments, net
A gain on asset sales of $8 million related to the sale of various non-core assets was recognized in the three months ended June 30, 2020 compared to a nominal gain in the three months ended June 30, 2019.
Also refer to the discussion of Loss on Asset Sales and Abandonments contained in the section "Total Midstream Division Analysis" of this Form 10-Q for additional items that are not part of Unallocated Expense.
Loss (Gain) Loss on Debt Extinguishment
A nominal loss on debt extinguishment was recognized in each of the three months ended June 30, 2020 and 2019. See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
Income Taxes
The effective income tax rate was 18.0% for the three months ended June 30, 2020 compared to 17.5% for the three months ended June 30, 2019. The effective rate for the three months ended June 30, 2020 and 2019 differs from the U.S. Federal statutory rate of 21% primarily due to the impact of noncontrolling interest, equity compensation and state income taxes.
See Note 4 - Income Taxes in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
Variance
|
|
Percent
Change
|
|
Total Company (Loss) Earnings Before Income Tax
|
$
|
(159)
|
|
|
$
|
233
|
|
|
$
|
(392)
|
|
|
(168.2)
|
%
|
|
Income Tax (Benefit) Expense
|
$
|
(29)
|
|
|
$
|
41
|
|
|
$
|
(70)
|
|
|
(170.7)
|
%
|
|
Effective Income Tax Rate
|
18.0
|
%
|
|
17.5
|
%
|
|
0.5
|
%
|
|
|
TOTAL E&P DIVISION ANALYSIS for the three months ended June 30, 2020 compared to the three months ended June 30, 2019:
The E&P division had a loss before income tax of $192 million for the three months ended June 30, 2020 compared to earnings before income tax of $188 million for the three months ended June 30, 2019. Variances by individual operating segment are discussed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
|
|
|
|
|
|
Difference to Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Marcellus
|
|
Utica
|
|
CBM
|
|
Other Gas
|
|
Total E&P
|
|
Marcellus
|
|
Utica
|
|
CBM
|
|
Other Gas
|
|
Total E&P
|
|
Natural Gas, NGL and Oil Revenue
|
$
|
123
|
|
|
$
|
29
|
|
|
$
|
23
|
|
|
$
|
1
|
|
|
$
|
176
|
|
|
$
|
(114)
|
|
|
$
|
(37)
|
|
|
$
|
(17)
|
|
|
$
|
1
|
|
|
$
|
(167)
|
|
|
Gain (Loss) on Commodity Derivative Instruments
|
79
|
|
|
21
|
|
|
13
|
|
|
(176)
|
|
|
(63)
|
|
|
72
|
|
|
19
|
|
|
12
|
|
|
(387)
|
|
|
(284)
|
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Total Revenue and Other Operating Income
|
202
|
|
|
50
|
|
|
36
|
|
|
(151)
|
|
|
137
|
|
|
(42)
|
|
|
(18)
|
|
|
(5)
|
|
|
(384)
|
|
|
(449)
|
|
|
Lease Operating Expense
|
5
|
|
|
1
|
|
|
4
|
|
|
—
|
|
|
10
|
|
|
(6)
|
|
|
(3)
|
|
|
—
|
|
|
(1)
|
|
|
(10)
|
|
|
Production, Ad Valorem, and Other Fees
|
3
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
5
|
|
|
(1)
|
|
|
(1)
|
|
|
(1)
|
|
|
1
|
|
|
(2)
|
|
|
Transportation, Gathering and Compression
|
86
|
|
|
8
|
|
|
9
|
|
|
1
|
|
|
104
|
|
|
(28)
|
|
|
—
|
|
|
(1)
|
|
|
1
|
|
|
(28)
|
|
|
Depreciation, Depletion and Amortization
|
50
|
|
|
32
|
|
|
15
|
|
|
6
|
|
|
103
|
|
|
(15)
|
|
|
(4)
|
|
|
(2)
|
|
|
3
|
|
|
(18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and Production Related Other Costs
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
(2)
|
|
|
Purchased Gas Costs
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Other Operating Expense
|
—
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
10
|
|
|
Selling, General and Administrative Costs
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25)
|
|
|
(25)
|
|
|
Total Operating Costs and Expenses
|
144
|
|
|
42
|
|
|
29
|
|
|
77
|
|
|
292
|
|
|
(50)
|
|
|
(8)
|
|
|
(4)
|
|
|
(12)
|
|
|
(74)
|
|
|
Interest Expense
|
—
|
|
|
—
|
|
|
—
|
|
|
37
|
|
|
37
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|
Total E&P Division Costs
|
144
|
|
|
42
|
|
|
29
|
|
|
114
|
|
|
329
|
|
|
(50)
|
|
|
(8)
|
|
|
(4)
|
|
|
(7)
|
|
|
(69)
|
|
|
Earnings (Loss) Before Income Tax
|
$
|
58
|
|
|
$
|
8
|
|
|
$
|
7
|
|
|
$
|
(265)
|
|
|
$
|
(192)
|
|
|
$
|
8
|
|
|
$
|
(10)
|
|
|
$
|
(1)
|
|
|
$
|
(377)
|
|
|
$
|
(380)
|
|
Note: Included in the table above is a related party transportation, gathering and compression charge of $54 million that is offset in the Midstream Division in Midstream Revenue - Related Party. Of this charge, $52 million related to Marcellus and $2 million related to Utica. See Note 14 - Segment Information in the Notes to the Audited Consolidated Financial Statements in Item 8 of this Form 10-Q for additional information.
MARCELLUS SEGMENT
The Marcellus segment had earnings before income tax of $58 million for the three months ended June 30, 2020 compared to earnings before income tax of $50 million for the three months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance
|
|
Percent Change
|
|
Marcellus Gas Sales Volumes (Bcf)
|
75.3
|
|
|
84.3
|
|
|
(9.0)
|
|
|
(10.7)
|
%
|
|
NGL Sales Volumes (Bcfe)*
|
4.7
|
|
|
7.9
|
|
|
(3.2)
|
|
|
(40.5)
|
%
|
|
Condensate Sales Volumes (Bcfe)*
|
0.1
|
|
|
0.2
|
|
|
(0.1)
|
|
|
(50.0)
|
%
|
|
Total Marcellus Sales Volumes (Bcfe)*
|
80.1
|
|
|
92.4
|
|
|
(12.3)
|
|
|
(13.3)
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Gas (per Mcf)
|
$
|
1.55
|
|
|
$
|
2.51
|
|
|
$
|
(0.96)
|
|
|
(38.2)
|
%
|
|
Gain on Commodity Derivative Instruments - Cash Settlement - Gas (per Mcf)
|
$
|
1.05
|
|
|
$
|
0.08
|
|
|
$
|
0.97
|
|
|
1212.5
|
%
|
|
Average Sales Price - NGL (per Mcfe)*
|
$
|
1.30
|
|
|
$
|
3.06
|
|
|
$
|
(1.76)
|
|
|
(57.5)
|
%
|
|
Average Sales Price - Condensate (per Mcfe)*
|
$
|
2.74
|
|
|
$
|
7.52
|
|
|
$
|
(4.78)
|
|
|
(63.6)
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Average Marcellus Sales Price (per Mcfe)
|
$
|
2.53
|
|
|
$
|
2.64
|
|
|
$
|
(0.11)
|
|
|
(4.2)
|
%
|
|
Average Marcellus Lease Operating Expenses (per Mcfe)
|
0.06
|
|
|
0.12
|
|
|
(0.06)
|
|
|
(50.0)
|
%
|
|
Average Marcellus Production, Ad Valorem, and Other Fees (per Mcfe)
|
0.04
|
|
|
0.04
|
|
|
—
|
|
|
—
|
%
|
|
Average Marcellus Transportation, Gathering and Compression Costs (per Mcfe)
|
1.07
|
|
|
1.24
|
|
|
(0.17)
|
|
|
(13.7)
|
%
|
|
Average Marcellus Depreciation, Depletion and Amortization Costs (per Mcfe)
|
0.64
|
|
|
0.69
|
|
|
(0.05)
|
|
|
(7.2)
|
%
|
|
Total Average Marcellus Costs (per Mcfe)
|
$
|
1.81
|
|
|
$
|
2.09
|
|
|
$
|
(0.28)
|
|
|
(13.4)
|
%
|
|
Average Margin for Marcellus (per Mcfe)
|
$
|
0.72
|
|
|
$
|
0.55
|
|
|
$
|
0.17
|
|
|
30.9
|
%
|
* NGLs and Condensate are converted to Mcfe at the rate of one barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not indicative of the relationship of NGL, condensate, and natural gas prices.
The Marcellus segment had natural gas, NGL and oil revenue of $123 million for the three months ended June 30, 2020 compared to $237 million for the three months ended June 30, 2019. The $114 million decrease was primarily due to a 38.2% decrease in the average sale price for natural gas and a 57.5% decrease in the average sale price of NGLs, along with a 13.3% decrease in total Marcellus sales volumes. The decrease in volumes was due to the temporary shut-in of a portion of CNX's liquids-rich Shirley-Pennsboro production in May and June of 2020 in response to low NGL prices. Additionally, two new pads of dry gas turn-in-lines from April and May were temporarily shut-in during May and June due to low natural gas prices.
The decrease in the total average Marcellus sales price was primarily due to a $0.96 per Mcf decrease in the average sales price for natural gas and a $1.76 per Mcfe decrease in the average NGL sales price, offset in part by a $0.97 per Mcf increase in the realized gain on commodity derivative instruments resulting from the Company's hedging program. The notional amounts associated with these financial hedges represented approximately 81.1 Bcf of the Company's produced Marcellus gas sales volumes for the three months ended June 30, 2020 at an average gain of $0.97 per Mcf. For the three months ended June 30, 2019, these financial hedges represented approximately 61.9 Bcf at an average gain of $0.11 per Mcf.
Total operating costs and expenses for the Marcellus segment were $144 million for the three months ended June 30, 2020 compared to $194 million for the three months ended June 30, 2019. The decrease in total dollars and decrease in unit costs for the Marcellus segment were due to the following items:
•Marcellus lease operating expenses were $5 million for the three months ended June 30, 2020 compared to $11 million for the three months ended June 30, 2019. The decrease in total dollars and in unit costs was primarily due to a decrease in water disposal costs in the current period due to an increase in the reuse of produced water in well completions activity.
•Marcellus transportation, gathering and compression costs were $86 million for the three months ended June 30, 2020 compared to $114 million for the three months ended June 30, 2019. The decrease in total dollars was primarily related to lower processing costs due to a drier production mix and a decrease in firm transportation due to lower gas sales volumes. The decrease in unit costs was driven by the drier production mix.
•Depreciation, depletion and amortization costs attributable to the Marcellus segment were $50 million for the three months ended June 30, 2020 compared to $65 million for the three months ended June 30, 2019. These amounts included depletion on a unit of production basis of $0.62 per Mcfe and $0.69 per Mcfe, respectively. The decrease in units of production depreciation, depletion and amortization rate in the current period is the result of positive reserve revisions within our core development area and lower costs reserves added in our core development area from the 2019 development program. The remaining depreciation, depletion and amortization costs were either recorded on a straight-line basis or related to asset retirement obligations.
UTICA SEGMENT
The Utica segment had earnings before income tax of $8 million for the three months ended June 30, 2020 compared to earnings before income tax of $18 million for the three months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance
|
|
Percent Change
|
|
Utica Gas Sales Volumes (Bcf)
|
21.2
|
|
|
28.1
|
|
|
(6.9)
|
|
|
(24.6)
|
%
|
|
Condensate Sales Volumes (Bcfe)*
|
0.1
|
|
—
|
|
|
0.1
|
|
100.0
|
%
|
|
Total Utica Sales Volumes
|
21.3
|
|
28.1
|
|
(6.8)
|
|
|
(24.2)
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Gas (per Mcf)
|
$
|
1.35
|
|
|
$
|
2.34
|
|
|
$
|
(0.99)
|
|
|
(42.3)
|
%
|
|
Gain on Commodity Derivative Instruments - Cash Settlement- Gas (per Mcf)
|
$
|
1.00
|
|
|
$
|
0.10
|
|
|
$
|
0.90
|
|
|
900.0
|
%
|
|
Average Sales Price - Condensate (per Mcfe)*
|
$
|
6.48
|
|
|
$
|
—
|
|
|
$
|
6.48
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Average Utica Sales Price (per Mcfe)
|
$
|
2.37
|
|
|
$
|
2.44
|
|
|
$
|
(0.07)
|
|
|
(2.9)
|
%
|
|
Average Utica Lease Operating Expenses (per Mcfe)
|
0.06
|
|
|
0.15
|
|
|
(0.09)
|
|
|
(60.0)
|
%
|
|
Average Utica Production, Ad Valorem, and Other Fees (per Mcfe)
|
0.06
|
|
|
0.05
|
|
|
0.01
|
|
|
20.0
|
%
|
|
Average Utica Transportation, Gathering and Compression Costs (per Mcfe)
|
0.40
|
|
|
0.27
|
|
|
0.13
|
|
|
48.1
|
%
|
|
Average Utica Depreciation, Depletion and Amortization Costs (per Mcfe)
|
1.50
|
|
|
1.33
|
|
|
0.17
|
|
|
12.8
|
%
|
|
Total Average Utica Costs (per Mcfe)
|
$
|
2.02
|
|
|
$
|
1.80
|
|
|
$
|
0.22
|
|
|
12.2
|
%
|
|
Average Margin for Utica (per Mcfe)
|
$
|
0.35
|
|
|
$
|
0.64
|
|
|
$
|
(0.29)
|
|
|
(45.3)
|
%
|
* Condensate is converted to Mcfe at the rate of one barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not indicative of the relationship of condensate and natural gas prices.
The Utica segment had natural gas revenue of $29 million for the three months ended June 30, 2020 compared to $66 million for the three months ended June 30, 2019. The $37 million decrease was due to the 24.2% decrease in total Utica sales volumes and a 42.3% decrease in the average sales price for natural gas. The decrease in total Utica sales volumes was primarily due to normal production declines.
The decrease in total average Utica sales price was due to a $0.99 per Mcf decrease in average gas sales price. This was offset in part by a $0.90 per Mcf increase in the realized gain on commodity derivative instruments. The notional amounts associated with these financial hedges represented approximately 21.9 Bcf of the Company's produced Utica gas sales volumes for the three months ended June 30, 2020 at an average gain of 0.97 per Mcf. For the three months ended June 30, 2019, these financial hedges represented approximately 19.3 Bcf at an average gain of $0.14 per Mcf.
Total operating costs and expenses for the Utica segment were $42 million for the three months ended June 30, 2020 compared to $50 million for the three months ended June 30, 2019. The decrease in total dollars and increase in unit costs for the Utica segment were due to the following items:
•Utica lease operating expense was $1 million for the three months ended June 30, 2020 compared to $4 million for the three months ended June 30, 2019. The decrease in total dollars was primarily due to a decrease in water disposal costs due to lower production volumes, an increase in reuse of produced water in well completions and a reduction in well operating costs due to the overall decrease in Utica volumes. The decrease in unit costs was driven by the decrease in total dollars.
•Utica transportation, gathering and compression costs remained consistent at $8 million for both the three months ended June 30, 2020 and 2019. The $0.13 per Mcfe increase in unit costs was driven by an increase in utilization of firm transportation contracts for Ohio production in 2020.
•Depreciation, depletion and amortization costs attributable to the Utica segment were $32 million for the three months ended June 30, 2020 compared to $36 million for the three months ended June 30, 2019. These amounts included depletion on a unit of production basis of $1.49 per Mcfe and $1.18 per Mcfe, respectively. The increase in the units of production depreciation, depletion and amortization rate was due to negative reserve revisions in the current period and higher cost reserves added from the 2019 development program. The remaining depreciation, depletion and amortization costs were either recorded on a straight-line basis or related to asset retirement obligations.
COALBED METHANE (CBM) SEGMENT
The CBM segment had earnings before income tax of $7 million for the three months ended June 30, 2020 compared to earnings before income tax of $8 million for the three months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance
|
|
Percent Change
|
|
CBM Gas Sales Volumes (Bcf)
|
13.1
|
|
|
13.9
|
|
|
(0.8)
|
|
|
(5.8)
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Gas (per Mcf)
|
$
|
1.75
|
|
|
$
|
2.85
|
|
|
$
|
(1.10)
|
|
|
(38.6)
|
%
|
|
Gain on Commodity Derivative Instruments - Cash Settlement - Gas (per Mcf)
|
$
|
0.99
|
|
|
$
|
0.08
|
|
|
$
|
0.91
|
|
|
1137.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Average CBM Sales Price (per Mcf)
|
$
|
2.74
|
|
|
$
|
2.93
|
|
|
$
|
(0.19)
|
|
|
(6.5)
|
%
|
|
Average CBM Lease Operating Expenses (per Mcf)
|
0.31
|
|
|
0.32
|
|
|
(0.01)
|
|
|
(3.1)
|
%
|
|
Average CBM Production, Ad Valorem, and Other Fees (per Mcf)
|
0.09
|
|
|
0.13
|
|
|
(0.04)
|
|
|
(30.8)
|
%
|
|
Average CBM Transportation, Gathering and Compression Costs (per Mcf)
|
0.65
|
|
|
0.71
|
|
|
(0.06)
|
|
|
(8.5)
|
%
|
|
Average CBM Depreciation, Depletion and Amortization Costs (per Mcf)
|
1.19
|
|
|
1.22
|
|
|
(0.03)
|
|
|
(2.5)
|
%
|
|
Total Average CBM Costs (per Mcf)
|
$
|
2.24
|
|
|
$
|
2.38
|
|
|
$
|
(0.14)
|
|
|
(5.9)
|
%
|
|
Average Margin for CBM (per Mcf)
|
$
|
0.50
|
|
|
$
|
0.55
|
|
|
$
|
(0.05)
|
|
|
(9.1)
|
%
|
The CBM segment had natural gas revenue of $23 million for the three months ended June 30, 2020 compared to $40 million for the three months ended June 30, 2019. The $17 million decrease was due to the 5.8% decrease in total CBM sales volumes and the 38.6% decrease in the average sales price for natural gas. The decrease in CBM sales volumes was primarily due to normal production declines.
The total average CBM sales price decreased $0.19 per Mcf due to a $1.10 per Mcf decrease in average gas sales price, offset in part by a $0.91 per Mcf increase in the gain on commodity derivative instruments resulting from the Company's hedging program. The notional amounts associated with these financial hedges represented approximately 13.5 Bcf of the Company's produced CBM sales volumes for the three months ended June 30, 2020 at an average gain of $0.96 per Mcf. For the three months ended June 30, 2019, these financial hedges represented approximately 9.5 Bcf at an average gain of $0.11 per Mcf.
Total operating costs and expenses for the CBM segment were $29 million for the three months ended June 30, 2020 compared to $33 million for the three months ended June 30, 2019. The decrease in total dollars and decrease in unit costs for the CBM segment were due to the following items:
•CBM lease operating expense remained consistent at $4 million for both the three months ended June 30, 2020 and 2019. The decrease in unit costs was driven by the decrease in employee costs allocated to the CBM segment.
•CBM transportation, gathering and compression costs were $9 million for the three months ended June 30, 2020 compared to $10 million for the three months ended June 30, 2019. The decrease in total dollars as well as the decrease in unit costs were primarily related to decreases in electrical power expense, compressor rentals and operations labor, offset in part by an increase in non-routine repairs.
•Depreciation, depletion and amortization costs attributable to the CBM segment were at $15 million for the three months ended June 30, 2020 compared to $17 million for the three months ended June 30, 2019. These amounts included depletion on a unit of production basis of $0.67 per Mcfe and $0.70 per Mcfe, respectively. The decrease in the units of production depreciation, depletion and amortization rate was due to positive reserve revisions. The remaining depreciation, depletion and amortization costs were either recorded on a straight-line basis or related to asset retirement obligations.
OTHER GAS SEGMENT
The Other Gas segment had a loss before income tax of $265 million for the three months ended June 30, 2020 compared to earnings before income tax of $112 million for the three months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance
|
|
Percent Change
|
|
Other Gas Sales Volumes (Bcf)
|
—
|
|
|
0.1
|
|
|
(0.1)
|
|
|
(100.0)
|
%
|
The Other Gas segment includes activity not assigned to the Marcellus, Utica, or CBM segments. This segment also includes unrealized gain or loss on commodity derivative instruments, realized gain on commodity derivative instruments that were monetized prior to their settlement dates, purchased gas activity, exploration and production related other costs and other operational activity not assigned to a specific segment.
There was nominal natural gas revenue related to the Other Gas segment for the three months ended June 30, 2020 and June 30, 2019. Total operating costs and expenses related to these other gas sales volumes were $3 million for the three months ended June 30, 2020 compared to $1 million for the three months ended June 30, 2019.
Gain or Loss on Commodity Derivative Instruments and Monetization
For the three months ended June 30, 2020, the Other Gas segment recognized an unrealized loss on commodity derivative instruments of $205 million as well as cash settlements received of $29 million for commodity derivative instruments that were monetized prior to their settlement dates. For the three months ended June 30, 2019, the Other Gas segment recognized an unrealized gain on commodity derivative instruments of $211 million. The unrealized loss/gain on commodity derivative instruments represents changes in the fair value of all of the Company's existing commodity hedges on a mark-to-market basis.
In April 2020, CNX monetized and terminated approximately 39 million MMBtus of NYMEX natural gas hedges and a similar quantity of financial basis hedges that were to settle at various times from May through November of 2020. In connection with these monetizations, CNX received $29 million of net proceeds, which are included in (Loss) Gain on Commodity Derivative Instruments in the Consolidated Statements of Income for the three months ended June 30, 2020. In addition, during the second quarter of 2020, CNX purchased financial swaps for May through November of 2020 under which CNX will pay a fixed price to and receive a floating price from its hedge counterparties. These transactions provided CNX with additional flexibility to move production to higher price periods while immediately taking the monetization proceeds.
Purchased Gas
Purchased gas volumes represent volumes of gas purchased at market prices from third-parties and then resold in order to fulfill contracts with certain customers and to balance supply. Purchased gas revenues were $20 million for the three months ended June 30, 2020 compared to $19 million for the three months ended June 30, 2019. Purchased gas costs were $20 million for the three months ended June 30, 2020 compared to $19 million for the three months ended June 30, 2019. The period-to-period increase in purchased gas revenue was due to an increase in purchased gas sales volumes, offset in part by a decrease in averages sales price.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance
|
|
Percent Change
|
|
Purchased Gas Sales Volumes (in Bcf)
|
14.4
|
|
|
7.8
|
|
|
6.6
|
|
|
84.6
|
%
|
|
Average Sales Price (per Mcf)
|
$
|
1.42
|
|
|
$
|
2.40
|
|
|
$
|
(0.98)
|
|
|
(40.8)
|
%
|
|
Average Cost (per Mcf)
|
$
|
1.39
|
|
|
$
|
2.40
|
|
|
$
|
(1.01)
|
|
|
(42.1)
|
%
|
Other Operating Income
Other operating income was $4 million for the three months ended June 30, 2020 compared to $3 million for the three months ended June 30, 2019. The $1 million increase was due to the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
Variance
|
|
Percent Change
|
|
Water Income
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
100.0
|
%
|
|
Gathering Income
|
3
|
|
|
2
|
|
|
1
|
|
|
50.0
|
%
|
|
Equity in (Loss) Earnings of Affiliates
|
(1)
|
|
|
1
|
|
|
(2)
|
|
|
(200.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Other Operating Income
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
1
|
|
|
33.3
|
%
|
•Water income increased $2 million due to increased sales of freshwater to third-parties for hydraulic fracturing in the 2020 period and revenue for accepting deliveries of produced water from third-parties for reuse in the Company's hydraulic fracturing.
Exploration and Production Related Other Costs
Exploration and production related other costs were $3 million for the three months ended June 30, 2020 compared to $5 million for the three months ended June 30, 2019. The $2 million decrease was due to the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
Variance
|
|
Percent Change
|
|
Lease Expiration Costs
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
(1)
|
|
|
(33.3)
|
%
|
|
Land Rentals
|
1
|
|
|
2
|
|
|
(1)
|
|
|
(50.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Exploration and Production Related Other Costs
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
(2)
|
|
|
(40.0)
|
%
|
Other Operating Expense
Other operating expense was $28 million for the three months ended June 30, 2020 compared to $18 million for the three months ended June 30, 2019. The $10 million increase was due to the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
Variance
|
|
Percent Change
|
|
Unutilized Firm Transportation and Processing Fees
|
$
|
21
|
|
|
$
|
14
|
|
|
$
|
7
|
|
|
50.0
|
%
|
|
Idle Equipment and Service Charges
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
%
|
|
Insurance Expense
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
%
|
|
Other
|
3
|
|
|
—
|
|
|
3
|
|
|
100.0
|
%
|
|
Total Other Operating Expense
|
$
|
28
|
|
|
$
|
18
|
|
|
$
|
10
|
|
|
55.6
|
%
|
•Unutilized firm transportation and processing fees represent pipeline transportation capacity obtained to enable gas production to flow uninterrupted as sales volumes increase, as well as additional processing capacity for NGLs. The increase of $7 million in the period-to-period comparison was primarily due to previously acquired capacity which was not utilized during the current period to transport the Company's flowing production production or to process the Company’s wet natural gas production. The increase in unutilized capacity results in part from the temporary shut-in of a portion of CNX's liquids-rich Shirley-Pennsboro production in May and June of 2020 in response to low NGL prices. In some instances, the Company may have the opportunity to realize more favorable net pricing by strategically choosing to sell natural gas into a market or to a customer that does not require the use of the Company’s own firm transportation capacity. Such sales would increase unutilized firm transportation expense. The Company attempts to minimize this expense by releasing (selling) unutilized firm transportation capacity to other parties when possible and when beneficial. The revenue received when this capacity is released (sold) is included in Gathering Income in Total Other Operating Income above. There were no unutilized fees related to the Midstream Division during the three months ended June 30, 2020 or 2019.
Selling, General and Administrative
SG&A costs represent direct charges for the management and operation of CNX's E&P division. SG&A costs were $19 million for the three months ended June 30, 2020 compared to $44 million for the three months ended June 30, 2019. Refer to the discussion of total company SG&A costs contained in the section "Net (Loss) Income Attributable to CNX Resources Shareholders" of this Form 10-Q for a detailed cost explanation.
Interest Expense
Interest expense of $37 million was recognized in the three months ended June 30, 2020 compared to $32 million in the three months ended June 30, 2019. The $5 million increase was primarily due to the addition of $345 million of convertible senior notes due 2026 during the three months ended June 30, 2020 and of the $125 million Cardinal States Facility and $50 million CSG Holdings Facility during the three months ended March 31, 2020. Realized and unrealized losses on interest rate swap agreements also contributed to the increase. These increases were offset in part by the purchase of $71 million of the outstanding 5.875% senior notes due in April 2022 during the three months ended March 31, 2020, as well as lower borrowings on the CNX credit facility. See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
TOTAL MIDSTREAM DIVISION ANALYSIS for the three months ended June 30, 2020 compared to the three months ended June 30, 2019:
CNX's Midstream Division's principal activity is the ownership, operation, development and acquisition of natural gas gathering and other midstream energy assets of CNX Gathering and CNXM, which provide natural gas gathering services for the Company's produced gas, as well as for other independent third-parties in the Marcellus Shale and Utica Shale in Pennsylvania and West Virginia. Excluded from the Midstream Division are the gathering assets and operations of CNX that have not been contributed to CNX Gathering and CNXM.
Prior to the IDR Elimination Transaction, CNX Gathering held all of the interests in CNX Midstream GP LLC, which held both the general partner and limited partner interests in CNXM. CNX has owned and controlled 100% of CNX Gathering LLC, since January 2018 making CNXM a single-sponsor master limited partnership and thus the Company consolidates CNXM.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
Variance
|
|
Midstream Revenue - Related Party
|
$
|
54
|
|
|
$
|
60
|
|
|
$
|
(6)
|
|
|
Midstream Revenue - Third Party
|
12
|
|
|
18
|
|
|
(6)
|
|
|
Total Revenue
|
$
|
66
|
|
|
$
|
78
|
|
|
$
|
(12)
|
|
|
|
|
|
|
|
|
|
Transportation, Gathering and Compression
|
$
|
10
|
|
|
$
|
13
|
|
|
$
|
(3)
|
|
|
Depreciation, Depletion and Amortization
|
11
|
|
|
8
|
|
|
3
|
|
|
|
|
|
|
|
|
Selling, General, and Administrative Costs
|
4
|
|
|
5
|
|
|
(1)
|
|
|
Total Operating Costs and Expenses
|
25
|
|
|
26
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
Loss on Asset Sales and Abandonments, net
|
2
|
|
|
—
|
|
|
2
|
|
|
Interest Expense
|
9
|
|
|
8
|
|
|
1
|
|
|
Total Midstream Division Costs
|
36
|
|
|
34
|
|
|
2
|
|
|
Earnings Before Income Tax
|
$
|
30
|
|
|
$
|
44
|
|
|
$
|
(14)
|
|
Midstream Revenue
Midstream revenue consists of revenue related to volumes gathered on behalf of CNX and other third-party natural gas producers. CNXM charges a higher fee for natural gas that is shipped on its wet system compared to gas shipped through its dry system. CNXM revenue can also be impacted by the relative mix of gathered volumes by area, which may vary depending upon delivery point and may change dynamically depending on commodity prices at time of shipment. Total Midstream revenue decreased $12 million primarily due to a 49.0% decrease in gathered volumes of wet gas, offset in part by an increase of 18.0% in gathered volumes of dry gas in the period-to-period comparison. The decrease in wet gas volumes was the result of temporary production curtailments by related party and third party customers. This decrease was offset in part by well turn-in-line activity that occurred over the past twelve months.
The table below summarizes volumes gathered by gas type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance
|
|
Dry Gas (BBtu/d) (*)
|
1,047
|
|
|
891
|
|
|
156
|
|
|
Wet Gas (BBtu/d) (*)
|
373
|
|
|
731
|
|
|
(358)
|
|
|
Other (BBtu/d) (*)(**)
|
273
|
|
|
178
|
|
|
95
|
|
|
Total Gathered Volumes
|
1,693
|
|
|
1,800
|
|
|
(107)
|
|
(*) Classification as dry or wet is based upon the shipping destination of the related volumes. Because CNXM's customers have the option to ship a portion of their natural gas to destinations associated with either our wet system or our dry system, due to any number of factors, volumes may be classified as “wet” in one period and as “dry” in the comparative period.
(**) Includes condensate handling and third-party volumes under high-pressure short-haul agreements.
Transportation, Gathering and Compression
Transportation, Gathering and Compression costs were $10 million for the three months ended June 30, 2020 compared to $13 million for the three months ended June 30, 2019, and are comprised of items directly related to the cost of gathering natural gas at the wellhead and transporting it to interstate pipelines or other local sales points. These costs include items such as electrically-powered compression, compressor rental, repairs and maintenance, supplies, treating and contract services.
Selling, General and Administrative Expense
SG&A expense is comprised of direct charges for the management and operation of CNXM assets. SG&A costs were $4 million for the three months ended June 30, 2020 compared to $5 million for the three months ended June 30, 2019. Refer to the discussion of total Company SG&A costs contained in the section "Net (Loss) Income Attributable to CNX Resources Shareholders" of this Form 10-Q for a detailed cost explanation.
Depreciation, Depletion and Amortization Expense
Depreciation expense is recognized on gathering and other equipment on a straight-line basis, with useful lives ranging from 25 years to 40 years.
Loss on Asset Sales and Abandonments, net
During the three months ended June 30, 2020, due to ongoing assessments of projects that generate the highest returns on invested capital, CNXM abandoned the construction of a pipeline project that was designed to support additional production within certain operating areas, as well as land right-of-ways, resulting in a loss of $2 million that is included in (Gain) Loss on Assets Sales and Abandonments, net in the Consolidated Statements of Income. No such transactions occurred in the prior period.
Interest Expense
Interest expense is comprised of interest on the outstanding balance under CNXM's senior notes due 2026 and its revolving credit facility. Interest expense was $9 million for the three months ended June 30, 2020 compared to $8 million for the three months ended June 30, 2019.
Results of Operations - Six Months Ended June 30, 2020 Compared with Six Months Ended June 30, 2019
Net (Loss) Income Attributable to CNX Resources Shareholders
CNX reported a net loss attributable to CNX Resources shareholders of $475 million, or a loss per diluted share of $2.54, for the six months ended June 30, 2020, compared to net income attributable to CNX Resources shareholders of $75 million, or earnings per diluted share of $0.38, for the six months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
Variance
|
|
Net (Loss) Income
|
$
|
(435,709)
|
|
|
$
|
128,044
|
|
|
$
|
(563,753)
|
|
|
Less: Net Income Attributable to Noncontrolling Interest
|
39,126
|
|
|
52,904
|
|
|
(13,778)
|
|
|
Net (Loss) Income Attributable to CNX Resources Shareholders
|
$
|
(474,835)
|
|
|
$
|
75,140
|
|
|
$
|
(549,975)
|
|
CNX consists of two principal business divisions: Exploration and Production (E&P) and Midstream. The operating results of the Company's reportable divisions were as follows for the six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
(Dollars in millions)
|
E&P Division
|
|
Midstream Division
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
Natural Gas, NGL and Oil Revenue
|
$
|
427
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
427
|
|
|
Gain on Commodity Derivative Instruments
|
52
|
|
|
—
|
|
|
—
|
|
|
52
|
|
|
Purchased Gas Revenue
|
47
|
|
|
—
|
|
|
—
|
|
|
47
|
|
|
Midstream Revenue - Related Party
|
—
|
|
|
117
|
|
|
(117)
|
|
|
—
|
|
|
Midstream Revenue - Third Party
|
—
|
|
|
30
|
|
|
—
|
|
|
30
|
|
|
Other Operating Income
|
9
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
Total Revenue and Other Operating Income
|
535
|
|
|
147
|
|
|
(117)
|
|
|
565
|
|
|
Operating Expense:
|
|
|
|
|
|
|
|
|
Lease Operating Expense
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
Transportation, Gathering and Compression
|
237
|
|
|
23
|
|
|
(117)
|
|
|
143
|
|
|
Production, Ad Valorem, and Other Fees
|
12
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
Depreciation, Depletion and Amortization
|
222
|
|
|
21
|
|
|
—
|
|
|
243
|
|
|
Impairment of Exploration and Production Properties
|
62
|
|
|
—
|
|
|
—
|
|
|
62
|
|
|
Impairment of Goodwill
|
—
|
|
|
473
|
|
|
—
|
|
|
473
|
|
|
Exploration and Production Related Other Costs
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
Purchased Gas Costs
|
45
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
Other Operating Expense
|
47
|
|
|
—
|
|
|
—
|
|
|
47
|
|
|
Selling, General and Administrative Costs
|
44
|
|
|
9
|
|
|
—
|
|
|
53
|
|
|
Total Operating Costs and Expenses
|
696
|
|
|
526
|
|
|
(117)
|
|
|
1,105
|
|
|
Interest Expense
|
78
|
|
|
17
|
|
|
—
|
|
|
95
|
|
|
Loss on Asset Sales and Abandonments, net
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
Other Expense
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Total Division Costs
|
774
|
|
|
546
|
|
|
(117)
|
|
|
1,203
|
|
|
Loss Before Income Tax
|
$
|
(239)
|
|
|
$
|
(399)
|
|
|
$
|
—
|
|
|
$
|
(638)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
(Dollars in millions)
|
E&P Division
|
|
Midstream Division
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
Natural Gas, NGL and Oil Revenue
|
$
|
779
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
779
|
|
|
Gain on Commodity Derivative Instruments
|
26
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
Purchased Gas Revenue
|
35
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
Midstream Revenue - Related Party
|
—
|
|
|
114
|
|
|
(114)
|
|
|
—
|
|
|
Midstream Revenue - Third Party
|
—
|
|
|
37
|
|
|
—
|
|
|
37
|
|
|
Other Operating Income
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
Total Revenue and Other Operating Income
|
846
|
|
|
151
|
|
|
(114)
|
|
|
883
|
|
|
Operating Expense:
|
|
|
|
|
|
|
|
|
Lease Operating Expense
|
39
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
Transportation, Gathering and Compression
|
253
|
|
|
24
|
|
|
(114)
|
|
|
163
|
|
|
Production, Ad Valorem, and Other Fees
|
15
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
Depreciation, Depletion and Amortization
|
238
|
|
|
16
|
|
|
—
|
|
|
254
|
|
|
Exploration and Production Related Other Costs
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
Purchased Gas Costs
|
35
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
Other Operating Expense
|
41
|
|
|
—
|
|
|
—
|
|
|
41
|
|
|
Selling, General and Administrative Costs
|
74
|
|
|
11
|
|
|
—
|
|
|
85
|
|
|
Total Operating Costs and Expenses
|
703
|
|
|
51
|
|
|
(114)
|
|
|
640
|
|
|
Interest Expense
|
61
|
|
|
15
|
|
|
—
|
|
|
76
|
|
|
Loss on Asset Sales and Abandonments, net
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
|
Other Expense
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Total Division Costs
|
764
|
|
|
74
|
|
|
(114)
|
|
|
724
|
|
|
Earnings Before Income Tax
|
$
|
82
|
|
|
$
|
77
|
|
|
$
|
—
|
|
|
$
|
159
|
|
The principal activity of the E&P Division is to produce pipeline quality natural gas for sale primarily to gas wholesalers. The E&P Division's reportable segments are Marcellus Shale, Utica Shale, Coalbed Methane, and Other Gas.
CNX's E&P Division had a loss before income tax of $239 million for the six months ended June 30, 2020, compared to earnings before income tax of $82 million for the six months ended June 30, 2019. Included in the loss for the six months ended June 30, 2020 was a $62 million non-cash impairment charge related to exploration and production properties and an unrealized loss on commodity derivative instruments of $241 million. Included in the earnings for the six months ended June 30, 2019 was an unrealized gain on commodity derivative instruments of $57 million.
CNX's Midstream Division's principal activity is the ownership, operation, development and acquisition of natural gas gathering and other midstream energy assets, through CNX Gathering and CNXM, which provide natural gas gathering services for the Company's produced gas, as well as for other independent third-parties in the Marcellus Shale and Utica Shale in Pennsylvania and West Virginia. Excluded from the Midstream Division are the gathering assets and operations of CNX that have not been contributed to CNX Gathering and CNXM. CNX's Midstream Division had a loss before income tax of $399 million for the six months ended June 30, 2020, compared to earnings before income tax of $77 million for the six months ended June 30, 2019. Included in the loss for the six months ended June 30, 2020 was a $473 million non-cash impairment charge related to goodwill. No such impairments occurred in the six months ended June 30, 2019.
E&P Division Summary
Sales volumes, average sales prices (including the effects of settled derivative instruments and excluding monetization), and average costs for the E&P Division were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance
|
|
Percent Change
|
|
Sales Volumes (Bcfe)
|
248.9
|
|
267.5
|
|
(18.6)
|
|
|
(7.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Gas (per Mcf)
|
$
|
1.69
|
|
|
$
|
2.86
|
|
|
$
|
(1.17)
|
|
|
(40.9)
|
%
|
|
Gain (Loss) on Commodity Derivative Instruments - Cash Settlement - Gas (per Mcf)*
|
$
|
0.89
|
|
|
$
|
(0.12)
|
|
|
$
|
1.01
|
|
|
841.7
|
%
|
|
Average Sales Price - NGL (per Mcfe)**
|
$
|
1.97
|
|
|
$
|
3.70
|
|
|
$
|
(1.73)
|
|
|
(46.8)
|
%
|
|
Average Sales Price - Oil (per Mcfe)**
|
$
|
6.77
|
|
|
$
|
7.63
|
|
|
$
|
(0.86)
|
|
|
(11.3)
|
%
|
|
Average Sales Price - Condensate (per Mcfe)**
|
$
|
5.49
|
|
|
$
|
6.91
|
|
|
$
|
(1.42)
|
|
|
(20.5)
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price (per Mcfe)
|
$
|
2.56
|
|
|
$
|
2.80
|
|
|
$
|
(0.24)
|
|
|
(8.6)
|
%
|
|
Lease Operating Expense (per Mcfe)
|
0.08
|
|
|
0.14
|
|
|
(0.06)
|
|
|
(42.9)
|
%
|
|
Production, Ad Valorem, and Other Fees (per Mcfe)
|
0.04
|
|
|
0.05
|
|
|
(0.01)
|
|
|
(20.0)
|
%
|
|
Transportation, Gathering and Compression (per Mcfe)
|
0.95
|
|
|
0.95
|
|
|
—
|
|
|
—
|
%
|
|
Depreciation, Depletion and Amortization (DD&A) (per Mcfe)
|
0.88
|
|
|
0.89
|
|
|
(0.01)
|
|
|
(1.1)
|
%
|
|
Average Costs (per Mcfe)
|
$
|
1.95
|
|
|
$
|
2.03
|
|
|
$
|
(0.08)
|
|
|
(3.9)
|
%
|
|
Average Margin (per Mcfe)
|
$
|
0.61
|
|
|
$
|
0.77
|
|
|
$
|
(0.16)
|
|
|
(20.8)
|
%
|
* Excluding gain from hedge monetization
**NGL and Condensate are converted to Mcfe at the rate of one barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not indicative of the relationship of oil, NGL, condensate, and natural gas prices.
Natural gas, NGL, and oil revenue was $427 million for the six months ended June 30, 2020, compared to $779 million for the six months ended June 30, 2019. The decrease was primarily due to the 8.6% decrease in the average sales price driven by lower natural gas and NGL prices and a 7.0% decrease in sales volumes.
The decrease in average sales price was primarily the result of the $1.17 per Mcf decrease in general natural gas prices, when excluding the impact of hedging, in the markets in which CNX sells its natural gas. There was also a $0.02 per Mcfe decrease in the uplift from NGL and condensate sales volumes when excluding the impact of hedging. Both decreases were offset, in-part, by the $1.01 per Mcf increase in the realized gain (loss) on commodity derivative instruments related to the Company's hedging program.
Changes in the average costs per Mcfe were primarily related to the following items:
•Lease operating expense decreased on a per unit basis primarily due to a decrease in water disposal costs in the period-to-period comparison due to an increased reuse of produced water in well completions in the current period.
The following table presents a breakout of net liquid and natural gas sales information and settled derivative information to assist in the understanding of the Company’s natural gas production and sales portfolio and information regarding settled commodity derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
in thousands (unless noted)
|
|
2020
|
|
2019
|
|
Variance
|
|
Percent Change
|
|
LIQUIDS
|
|
|
|
|
|
|
|
|
|
NGL:
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcfe)
|
|
13,042
|
|
|
14,536
|
|
|
(1,494)
|
|
|
(10.3)
|
%
|
|
Sales Volume (Mbbls)
|
|
2,174
|
|
|
2,423
|
|
|
(249)
|
|
|
(10.3)
|
%
|
|
Gross Price ($/Bbl)
|
|
$
|
11.82
|
|
|
$
|
22.20
|
|
|
$
|
(10.38)
|
|
|
(46.8)
|
%
|
|
Gross Revenue
|
|
$
|
25,638
|
|
|
$
|
53,790
|
|
|
$
|
(28,152)
|
|
|
(52.3)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Oil:
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcfe)
|
|
124
|
|
|
34
|
|
|
90
|
|
|
264.7
|
%
|
|
Sales Volume (Mbbls)
|
|
21
|
|
|
6
|
|
|
15
|
|
|
250.0
|
%
|
|
Gross Price ($/Bbl)
|
|
$
|
40.62
|
|
|
$
|
45.78
|
|
|
$
|
(5.16)
|
|
|
(11.3)
|
%
|
|
Gross Revenue
|
|
$
|
842
|
|
|
$
|
256
|
|
|
$
|
586
|
|
|
228.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Condensate:
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcfe)
|
|
489
|
|
|
580
|
|
|
(91)
|
|
|
(15.7)
|
%
|
|
Sales Volume (Mbbls)
|
|
81
|
|
|
97
|
|
|
(16)
|
|
|
(16.5)
|
%
|
|
Gross Price ($/Bbl)
|
|
$
|
32.94
|
|
|
$
|
41.46
|
|
|
$
|
(8.52)
|
|
|
(20.5)
|
%
|
|
Gross Revenue
|
|
$
|
2,682
|
|
|
$
|
4,007
|
|
|
$
|
(1,325)
|
|
|
(33.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
GAS
|
|
|
|
|
|
|
|
|
|
Sales Volume (MMcf)
|
|
235,212
|
|
|
252,316
|
|
|
(17,104)
|
|
|
(6.8)
|
%
|
|
Sales Price ($/Mcf)
|
|
$
|
1.69
|
|
|
$
|
2.86
|
|
|
$
|
(1.17)
|
|
|
(40.9)
|
%
|
|
Gross Revenue
|
|
$
|
398,108
|
|
|
$
|
720,758
|
|
|
$
|
(322,650)
|
|
|
(44.8)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Hedging Impact ($/Mcf)
|
|
$
|
0.89
|
|
|
$
|
(0.12)
|
|
|
$
|
1.01
|
|
|
841.7
|
%
|
|
Gain (Loss) on Commodity Derivative Instruments - Cash Settlement*
|
|
209,419
|
|
|
(30,710)
|
|
|
240,129
|
|
|
781.9
|
%
|
* Excluding gain from hedge monetization
Selling, General and Administrative ("SG&A") - Total Company
SG&A costs include costs such as overhead, including employee labor and benefit costs, short-term incentive compensation, costs of maintaining our headquarters, audit and other professional fees, and legal compliance expenses. SG&A costs also include non-cash long-term equity-based compensation expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
Variance
|
|
Percent
Change
|
|
SG&A
|
|
|
|
|
|
|
|
|
Long-Term Equity-Based Compensation (Non-Cash)
|
$
|
9
|
|
|
$
|
35
|
|
|
$
|
(26)
|
|
|
(74.3)
|
%
|
|
Salaries and Wages
|
15
|
|
|
21
|
|
|
(6)
|
|
|
(28.6)
|
%
|
|
Short-Term Incentive Compensation
|
5
|
|
|
7
|
|
|
(2)
|
|
|
(28.6)
|
%
|
|
Other
|
24
|
|
|
22
|
|
|
2
|
|
|
9.1
|
%
|
|
Total SG&A
|
$
|
53
|
|
|
$
|
85
|
|
|
$
|
(32)
|
|
|
(37.6)
|
%
|
•Long-term equity-based compensation decreased $26 million in the period-to-period comparison due to a change in control event that occurred in the 2019 period and resulted in the acceleration of vesting of certain restricted stock units and performance share units held by certain employees. See Note 2 - Earnings Per Share in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
•Salaries and Wages decreased $6 million due to an overall reduction in employees and employee related costs.
•Short-term incentive compensation decreased $2 million due to lower projected payouts in the current period.
Unallocated Expense
Certain costs and expenses, such as other expense (income), gain on asset sales related to non-core assets, (gain) loss on debt extinguishment and income taxes are unallocated expenses and therefore are excluded from the per unit costs above as well as segment reporting. Below is a summary of these costs and expenses:
Other Expense (Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
Variance
|
|
Percent
Change
|
|
Other Income
|
|
|
|
|
|
|
|
|
Royalty Income
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
(4)
|
|
|
(100.0)
|
%
|
|
Right of Way Sales
|
1
|
|
|
4
|
|
|
(3)
|
|
|
(75.0)
|
%
|
|
Interest Income
|
—
|
|
|
1
|
|
|
(1)
|
|
|
(100.0)
|
%
|
|
Other
|
2
|
|
|
1
|
|
|
1
|
|
|
100.0
|
%
|
|
Total Other Income
|
$
|
3
|
|
|
$
|
10
|
|
|
$
|
(7)
|
|
|
(70.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
Other Expense
|
|
|
|
|
|
|
|
|
Professional Services
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
4
|
|
|
400.0
|
%
|
|
Bank Fees
|
6
|
|
|
6
|
|
|
—
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
Other Corporate Expense
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
%
|
|
Total Other Expense
|
$
|
13
|
|
|
$
|
9
|
|
|
$
|
4
|
|
|
44.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Other Expense (Income)
|
$
|
10
|
|
|
$
|
(1)
|
|
|
$
|
11
|
|
|
1,100.0
|
%
|
Gain on Asset Sales and Abandonments, net
A gain on asset sales of $20 million related to the sale of various non-core assets was recognized in the six months ended June 30, 2020 compared to a gain of $5 million in the six months ended June 30, 2019.
Also refer to the discussion of Loss on Asset Sales and Abandonments contained in the section "Total Midstream Division Analysis" of this Form 10-Q for additional items that are not part of Unallocated Expense.
Loss (Gain) on Debt Extinguishment
A gain on debt extinguishment of $11 million was recognized in the six months ended June 30, 2020 compared to a loss on debt extinguishment of $8 million in the six months ended June 30, 2019. During the six months ended June 30, 2020, CNX purchased $481 million of its 5.875% Senior notes due in April 2022 at an average price equal to 97.5% of the principal amount. During the six months end June 30, 2019 CNX purchased $400 million of its 5.875% Senior notes due in April 2022 at an average price equal to 101.5% of the principal amount. See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
Income Taxes
The effective income tax rate was 29.4% for the six months ended June 30, 2020 compared to 18.6% for the six months ended June 30, 2019. The effective rate for the six months ended June 30, 2020 and 2019 differs from the U.S. Federal statutory rate of 21% primarily due to the impact of noncontrolling interest, equity compensation and state income taxes.
See Note 4 - Income Taxes in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
Variance
|
|
Percent
Change
|
|
Total Company (Loss) Earnings Before Income Tax
|
$
|
(617)
|
|
|
$
|
157
|
|
|
$
|
(774)
|
|
|
(493.0)
|
%
|
|
Income Tax (Benefit) Expense
|
$
|
(181)
|
|
|
$
|
29
|
|
|
$
|
(210)
|
|
|
(724.1)
|
%
|
|
Effective Income Tax Rate
|
29.4
|
%
|
|
18.6
|
%
|
|
10.8
|
%
|
|
|
TOTAL E&P DIVISION ANALYSIS for the six months ended June 30, 2020 compared to the six months ended June 30, 2019:
The E&P division had a loss before income tax of $239 million for the six months ended June 30, 2020 compared to earnings before income tax of $82 million for the six months ended June 30, 2019. Variances by individual operating segment are discussed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
|
|
|
|
|
|
|
Difference to Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Marcellus
|
|
Utica
|
|
CBM
|
|
Other
Gas
|
|
Total E&P
|
|
Marcellus
|
|
Utica
|
|
CBM
|
|
Other
Gas
|
|
Total
E&P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas, NGL and Oil Revenue
|
$
|
303
|
|
|
$
|
71
|
|
|
$
|
54
|
|
|
$
|
(1)
|
|
|
$
|
427
|
|
|
$
|
(228)
|
|
|
$
|
(87)
|
|
|
$
|
(35)
|
|
|
$
|
(2)
|
|
|
$
|
(352)
|
|
|
Gain (Loss) on Commodity Derivative Instruments
|
147
|
|
|
39
|
|
|
23
|
|
|
(157)
|
|
|
52
|
|
|
168
|
|
|
46
|
|
|
26
|
|
|
(214)
|
|
|
26
|
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
47
|
|
|
47
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
12
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue and Other Operating Income
|
450
|
|
|
110
|
|
|
77
|
|
|
(102)
|
|
|
535
|
|
|
(60)
|
|
|
(41)
|
|
|
(9)
|
|
|
(201)
|
|
|
(311)
|
|
|
Lease Operating Expense
|
10
|
|
|
3
|
|
|
8
|
|
|
(1)
|
|
|
20
|
|
|
(11)
|
|
|
(6)
|
|
|
(1)
|
|
|
(1)
|
|
|
(19)
|
|
|
Production, Ad Valorem, and Other Fees
|
6
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
12
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
(1)
|
|
|
(3)
|
|
|
Transportation, Gathering and Compression
|
200
|
|
|
18
|
|
|
19
|
|
|
—
|
|
|
237
|
|
|
(18)
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
(16)
|
|
|
Depreciation, Depletion and Amortization
|
112
|
|
|
68
|
|
|
34
|
|
|
8
|
|
|
222
|
|
|
(15)
|
|
|
(5)
|
|
|
1
|
|
|
3
|
|
|
(16)
|
|
Impairment of Exploration and Production Properties
|
—
|
|
|
—
|
|
|
—
|
|
|
62
|
|
|
62
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
62
|
|
|
62
|
|
|
Exploration and Production Related Other Costs
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
(1)
|
|
|
Purchased Gas Costs
|
—
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
45
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
10
|
|
|
Other Operating Expense
|
—
|
|
|
—
|
|
|
—
|
|
|
47
|
|
|
47
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
6
|
|
Selling, General and Administrative Costs
|
—
|
|
|
—
|
|
|
—
|
|
|
44
|
|
|
44
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(30)
|
|
|
(30)
|
|
|
Total Operating Costs and Expenses
|
328
|
|
|
92
|
|
|
64
|
|
|
212
|
|
|
696
|
|
|
(45)
|
|
|
(9)
|
|
|
(1)
|
|
|
48
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
—
|
|
|
—
|
|
|
—
|
|
|
78
|
|
|
78
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
17
|
|
|
Total E&P Division Costs
|
328
|
|
|
92
|
|
|
64
|
|
|
290
|
|
|
774
|
|
|
(45)
|
|
|
(9)
|
|
|
(1)
|
|
|
65
|
|
|
10
|
|
|
Earnings (Loss) Before Income Tax
|
$
|
122
|
|
|
$
|
18
|
|
|
$
|
13
|
|
|
$
|
(392)
|
|
|
$
|
(239)
|
|
|
$
|
(15)
|
|
|
$
|
(32)
|
|
|
$
|
(8)
|
|
|
$
|
(266)
|
|
|
$
|
(321)
|
|
Note: Included in the table above is a related party transportation, gathering and compression charge of $116 million that is offset in the Midstream Division in Midstream Revenue - Related Party. Of this charge, $111 million related to Marcellus and $5 million related to Utica. See Note 14 - Segment Information in the Notes to the Audited Consolidated Financial Statements in Item 8 of this Form 10-Q for additional information.
MARCELLUS SEGMENT
The Marcellus segment had earnings before income tax of $122 million for the six months ended June 30, 2020 compared to earnings before income tax of $137 million for the six months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance
|
|
Percent
Change
|
|
Marcellus Gas Sales Volumes (Bcf)
|
162.9
|
|
|
166.0
|
|
|
(3.1)
|
|
|
(1.9)
|
%
|
|
NGL Sales Volumes (Bcfe)*
|
13.0
|
|
|
14.5
|
|
|
(1.5)
|
|
|
(10.3)
|
%
|
|
Oil Sales Volumes (Bcfe)*
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
100.0
|
%
|
|
Condensate Sales Volumes (Bcfe)*
|
0.4
|
|
|
0.6
|
|
|
(0.2)
|
|
|
(33.3)
|
%
|
|
Total Marcellus Sales Volumes (Bcfe)*
|
176.4
|
|
|
181.1
|
|
|
(4.7)
|
|
|
(2.6)
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Gas (per Mcf)
|
$
|
1.68
|
|
|
$
|
2.85
|
|
|
$
|
(1.17)
|
|
|
(41.1)
|
%
|
|
Gain (Loss) on Commodity Derivative Instruments - Cash Settlement - Gas (per Mcf)
|
$
|
0.91
|
|
|
$
|
(0.12)
|
|
|
$
|
1.03
|
|
|
858.3
|
%
|
|
Average Sales Price - NGL (per Mcfe)*
|
$
|
1.96
|
|
|
$
|
3.70
|
|
|
$
|
(1.74)
|
|
|
(47.0)
|
%
|
|
Average Sales Price - Oil (per Mcfe)*
|
$
|
6.70
|
|
|
$
|
—
|
|
|
$
|
6.70
|
|
|
100.0
|
%
|
|
Average Sales Price - Condensate (per Mcfe)*
|
$
|
5.16
|
|
|
$
|
6.88
|
|
|
$
|
(1.72)
|
|
|
(25.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Average Marcellus Sales Price (per Mcfe)
|
$
|
2.55
|
|
|
$
|
2.82
|
|
|
$
|
(0.27)
|
|
|
(9.6)
|
%
|
|
Average Marcellus Lease Operating Expenses (per Mcfe)
|
0.05
|
|
|
0.11
|
|
|
(0.06)
|
|
|
(54.5)
|
%
|
|
Average Marcellus Production, Ad Valorem, and Other Fees (per Mcfe)
|
0.04
|
|
|
0.04
|
|
|
—
|
|
|
—
|
%
|
|
Average Marcellus Transportation, Gathering and Compression Costs (per Mcfe)
|
1.13
|
|
|
1.21
|
|
|
(0.08)
|
|
|
(6.6)
|
%
|
|
Average Marcellus Depreciation, Depletion and Amortization Costs (per Mcfe)
|
0.64
|
|
|
0.70
|
|
|
(0.06)
|
|
|
(8.6)
|
%
|
|
Total Average Marcellus Costs (per Mcfe)
|
$
|
1.86
|
|
|
$
|
2.06
|
|
|
$
|
(0.20)
|
|
|
(9.7)
|
%
|
|
Average Margin for Marcellus (per Mcfe)
|
$
|
0.69
|
|
|
$
|
0.76
|
|
|
$
|
(0.07)
|
|
|
(9.2)
|
%
|
* NGLs, Oil and Condensate are converted to Mcfe at the rate of one barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not indicative of the relationship of oil, NGL, condensate, and natural gas prices.
The Marcellus segment had natural gas, NGL and oil revenue of $303 million for the six months ended June 30, 2020 compared to $531 million for the six months ended June 30, 2019. The $228 million decrease was due primarily to a 41.1% decrease in the average sale price for natural gas and a 47.0% decrease in the average sales price of NGLs.
The 2.6% decrease in total Marcellus sales volumes is due to the temporary shut-in of a portion of CNX's liquids-rich Shirley-Pennsboro production in May and June of 2020 in response to low NGL prices. Additionally, two new pads of dry gas turn-in-lines from April and May were temporarily shut-in May and June due to low natural gas prices.
The decrease in the total average Marcellus sales price was primarily due to a $1.17 per Mcf decrease in the average sales price for natural gas and a $1.74 per Mcfe decrease in the average NGL sales price, offset in part by a $1.03 per Mcf increase in the realized gain (loss) on commodity derivative instruments resulting from the Company's hedging program. The notional amounts associated with these financial hedges represented approximately 163.7 Bcf of the Company's produced Marcellus gas sales volumes for the six months ended June 30, 2020 at an average gain of $0.90 per Mcf. For the six months ended June 30, 2019, these financial hedges represented approximately 117.2 Bcf at an average loss of $0.18 per Mcf.
Total operating costs and expenses for the Marcellus segment were $328 million for the six months ended June 30, 2020 compared to $373 million for the six months ended June 30, 2019. The decrease in total dollars and decrease in unit costs for the Marcellus segment were due to the following items:
•Marcellus lease operating expenses were $10 million for the six months ended June 30, 2020 compared to $21 million for the six months ended June 30, 2019. The decrease in total dollars was primarily due to a decrease in water disposal costs in the current period resulting from an increase in the reuse of produced water in well completions activity. The decrease in unit costs was driven by the decrease in total dollars, along with the 2.6% decrease in total Marcellus sales volumes.
•Marcellus transportation, gathering and compression costs were $200 million for the six months ended June 30, 2020 compared to $218 million for the six months ended June 30, 2019. The decrease in total dollars was primarily related to lower processing costs due to a drier production mix. The decrease in unit costs was driven by the decreased total dollars described above.
•Depreciation, depletion and amortization costs attributable to the Marcellus segment were $112 million for the six months ended June 30, 2020 compared to $127 million for the six months ended June 30, 2019. These amounts included depletion on a unit of production basis of $0.61 per Mcfe and $0.69 per Mcfe, respectively. The decrease in units of production depreciation, depletion and amortization rate in the current period are the result of positive reserve revisions within our core development area and lower costs reserves added in our core development area from the 2019 development program. The remaining depreciation, depletion and amortization costs were either recorded on a straight-line basis or related to asset retirement obligations.
UTICA SEGMENT
The Utica segment had earnings before income tax of $18 million for the six months ended June 30, 2020 compared to earnings before income tax of $50 million for the six months ended June 30, 2019.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance
|
|
Percent
Change
|
|
Utica Gas Sales Volumes (Bcf)
|
46.0
|
|
|
58.6
|
|
|
(12.6)
|
|
|
(21.5)
|
%
|
|
NGLs Sales Volumes (Bcfe)*
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Condensate Sales Volumes (Bcfe)*
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
100.0
|
%
|
|
Total Utica Sales Volumes (Bcfe)*
|
46.2
|
|
|
58.6
|
|
|
(12.4)
|
|
|
(21.2)
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Gas (per Mcf)
|
$
|
1.52
|
|
|
$
|
2.70
|
|
|
$
|
(1.18)
|
|
|
(43.7)
|
%
|
|
Gain (Loss) on Commodity Derivative Instruments - Cash Settlement- Gas (per Mcf)
|
$
|
0.85
|
|
|
$
|
(0.12)
|
|
|
$
|
0.97
|
|
|
808.3
|
%
|
|
Average Sales Price - NGLs (per Mcfe)*
|
$
|
2.50
|
|
|
$
|
—
|
|
|
$
|
2.50
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Condensate (per Mcfe)*
|
$
|
6.89
|
|
|
$
|
—
|
|
|
$
|
6.89
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Average Utica Sales Price (per Mcfe)
|
$
|
2.38
|
|
|
$
|
2.58
|
|
|
$
|
(0.20)
|
|
|
(7.8)
|
%
|
|
Average Utica Lease Operating Expenses (per Mcfe)
|
0.07
|
|
|
0.15
|
|
|
(0.08)
|
|
|
(53.3)
|
%
|
|
Average Utica Production, Ad Valorem, and Other Fees (per Mcfe)
|
0.06
|
|
|
0.05
|
|
|
0.01
|
|
|
20.0
|
%
|
|
Average Utica Transportation, Gathering and Compression Costs (per Mcfe)
|
0.38
|
|
|
0.28
|
|
|
0.10
|
|
|
35.7
|
%
|
|
Average Utica Depreciation, Depletion and Amortization Costs (per Mcfe)
|
1.48
|
|
|
1.25
|
|
|
0.23
|
|
|
18.4
|
%
|
|
Total Average Utica Costs (per Mcfe)
|
$
|
1.99
|
|
|
$
|
1.73
|
|
|
$
|
0.26
|
|
|
15.0
|
%
|
|
Average Margin for Utica (per Mcfe)
|
$
|
0.39
|
|
|
$
|
0.85
|
|
|
$
|
(0.46)
|
|
|
(54.1)
|
%
|
* NGLs and Condensate are converted to Mcfe at the rate of one barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not indicative of the relationship of NGL, condensate, and natural gas prices.
The Utica segment had natural gas revenue of $71 million for the six months ended June 30, 2020 compared to $158 million for the six months ended June 30, 2019. The $87 million decrease was due to the 21.2% decrease in total Utica sales volumes and a 43.7% decrease in the average sales price for natural gas. The decrease in total Utica sales volumes was primarily due to normal production declines.
The decrease in total average Utica sales price was due to a $1.18 per Mcf decrease in average gas sales price. This was offset in part by a $0.97 per Mcf increase in the realized gain (loss) on commodity derivative instruments. The notional amounts associated with these financial hedges represented approximately 43.6 Bcf of the Company's produced Utica gas sales volumes for the six months ended June 30, 2020 at an average gain of $0.90 per Mcf. For the six months ended June 30, 2019, these financial hedges represented approximately 38.9 Bcf at an average loss of $0.18 per Mcf.
Total operating costs and expenses for the Utica segment were $92 million for the six months ended June 30, 2020 compared to $101 million for the six months ended June 30, 2019. The decrease in total dollars and increase in unit costs for the Utica segment were due to the following items:
•Utica lease operating expense was $3 million for the six months ended June 30, 2020 compared to $9 million for the six months ended June 30, 2019. The decrease in total dollars was primarily due to a decrease in water disposal costs and a reduction in well operating costs due to lower production volumes, as well as an increase in the reuse of produced water. The decrease in unit costs was driven by the decrease in total dollars.
•Utica transportation, gathering and compression costs were $18 million for the six months ended June 30, 2020 compared to $16 million for the six months ended June 30, 2019. The increases in total dollars and unit costs was driven by an increase in utilization of firm transportation contracts for Ohio production in 2020 and annual rate escalations from third-party providers.
•Depreciation, depletion and amortization costs attributable to the Utica segment were $68 million for the six months ended June 30, 2020 compared to $73 million for the six months ended June 30, 2019. These amounts included depletion on a unit of production basis of $1.49 per Mcfe and $1.18 per Mcfe, respectively. The increase in the units of production depreciation, depletion and amortization rate was due to negative reserve revisions in the current period and higher cost reserves added from the 2019 development program. The remaining depreciation, depletion and amortization costs were either recorded on a straight-line basis or related to asset retirement obligations.
COALBED METHANE (CBM) SEGMENT
The CBM segment had earnings before income tax of $13 million for the six months ended June 30, 2020 compared to earnings before income tax of $21 million for the six months ended June 30, 2019.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance
|
|
Percent
Change
|
|
CBM Gas Sales Volumes (Bcf)
|
26.3
|
|
|
27.6
|
|
|
(1.3)
|
|
|
(4.7)
|
%
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price - Gas (per Mcf)
|
$
|
2.04
|
|
|
$
|
3.24
|
|
|
$
|
(1.20)
|
|
|
(37.0)
|
%
|
|
Gain (Loss) on Commodity Derivative Instruments - Cash Settlement - Gas (per Mcf)
|
$
|
0.86
|
|
|
$
|
(0.11)
|
|
|
$
|
0.97
|
|
|
881.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Average CBM Sales Price (per Mcf)
|
$
|
2.90
|
|
|
$
|
3.13
|
|
|
$
|
(0.23)
|
|
|
(7.3)
|
%
|
|
Average CBM Lease Operating Expenses (per Mcf)
|
0.29
|
|
|
0.31
|
|
|
(0.02)
|
|
|
(6.5)
|
%
|
|
Average CBM Production, Ad Valorem, and Other Fees (per Mcf)
|
0.10
|
|
|
0.14
|
|
|
(0.04)
|
|
|
(28.6)
|
%
|
|
Average CBM Transportation, Gathering and Compression Costs (per Mcf)
|
0.74
|
|
|
0.70
|
|
|
0.04
|
|
|
5.7
|
%
|
|
Average CBM Depreciation, Depletion and Amortization Costs (per Mcf)
|
1.29
|
|
|
1.24
|
|
|
0.05
|
|
|
4.0
|
%
|
|
Total Average CBM Costs (per Mcf)
|
$
|
2.42
|
|
|
$
|
2.39
|
|
|
$
|
0.03
|
|
|
1.3
|
%
|
|
Average Margin for CBM (per Mcf)
|
$
|
0.48
|
|
|
$
|
0.74
|
|
|
$
|
(0.26)
|
|
|
(35.1)
|
%
|
The CBM segment had natural gas revenue of $54 million for the six months ended June 30, 2020 compared to $89 million for the six months ended June 30, 2019. The $35 million decrease was due to the 4.7% decrease in total CBM sales volumes and the 37.0% decrease in the average sales price for natural gas. The decrease in CBM sales volumes was primarily due to normal production declines.
The total average CBM sales price decreased $0.23 per Mcf due to a $1.20 per Mcf decrease in average gas sales price, offset in part by a $0.97 per Mcf increase in the gain (loss) on commodity derivative instruments resulting from the Company's hedging program. The notional amounts associated with these financial hedges represented approximately 25.2 Bcf of the Company's produced CBM sales volumes for the six months ended June 30, 2020 at an average gain of $0.90 per Mcf. For the six months ended June 30, 2019, these financial hedges represented approximately 18.3 Bcf at an average loss of $0.18 per Mcf.
Total operating costs and expenses for the CBM segment were $64 million for the six months ended June 30, 2020 compared to $65 million for the six months ended June 30, 2019. The decrease in total dollars and increase in unit costs for the CBM segment were due to the following items:
•CBM lease operating expense was $8 million for the six months ended June 30, 2020 compared to $9 million for the six months ended June 30, 2019. The decrease in total dollars was due to a decrease in water disposal costs as well as a decrease in repairs and maintenance. The decrease in unit costs was driven by the decrease in total dollars.
•CBM transportation, gathering and compression costs remained consistent at $19 million for both the six months ended June 30, 2020 and 2019. The $0.04 per Mcf increase in unit costs was driven by the overall decrease in CBM volumes.
•Depreciation, depletion and amortization costs attributable to the CBM segment were at $34 million for the six months ended June 30, 2020 compared to $33 million for the six months ended June 30, 2019. These amounts included depletion on a unit of production basis of $0.69 per Mcfe and $0.70 per Mcfe, respectively. The decrease in the units of production depreciation, depletion and amortization rate was due to reduced production, offset in part by negative reserve revisions. The remaining depreciation, depletion and amortization costs were either recorded on a straight-line basis or related to asset retirement obligations.
OTHER GAS SEGMENT
The Other Gas segment had a loss before income tax of $392 million for the six months ended June 30, 2020 compared to a loss before income tax of $126 million for the six months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance
|
|
Percent
Change
|
|
Other Gas Sales Volumes (Bcf)
|
—
|
|
|
0.2
|
|
|
(0.2)
|
|
|
(100.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Other Gas segment includes activity not assigned to the Marcellus, Utica, or CBM segments. This segment also includes unrealized gain or loss on commodity derivative instruments, realized gain on commodity derivative instruments that were partially monetized prior to their settlement dates, purchased gas activity, impairment of exploration and production properties, exploration and production related other costs and other operational activity not assigned to a specific segment.
There was nominal natural gas revenue related to the Other Gas segment for the six months ended June 30, 2020 and June 30, 2019. Total operating costs and expenses related to these other gas sales volumes were $3 million for both the six months ended June 30, 2020 and 2019.
Gain or Loss on Commodity Derivative Instruments and Monetization
For the six months ended June 30, 2020, the Other Gas segment recognized an unrealized loss on commodity derivative instruments of $241 million as well as cash settlements received of $84 million for commodity derivative instruments that were partially monetized prior to their settlement dates. For the six months ended June 30, 2019, the Other Gas segment recognized an unrealized gain on commodity derivative instruments of $57 million. The unrealized gain/loss on commodity derivative instruments represents changes in the fair value of all of the Company's existing commodity hedges on a mark-to-market basis.
In March 2020, CNX monetized and repriced a portion of its 2022, 2023, and 2024 NYMEX natural gas hedge portfolio generating $55 million of net proceeds, which are included in (Loss) Gain on Commodity Derivative Instruments in the Consolidated Statements of Income for the six months ended June 30, 2020. Notional quantities were not affected by the restructuring. The remaining 2022 swap contracts with a notional quantity of 113.2 million MMBtu and a weighted average price of $2.80 per MMBtu were repriced to a contract price of $2.40 per MMBtu, 2023 swap contracts with a notional quantity of 51.1 million MMBtu and a weighted average price of $2.69 per MMBtu were repriced to a contract price of $2.48 per MMBtu, and 2024 swap contracts with a notional quantity of 19.2 million MMBtu and a weighted average price of $2.62 per MMBtu were repriced to a contract price of $2.54 per MMBtu. The net proceeds from the monetization was used to reduce the Company's absolute debt.
In April 2020, CNX monetized and terminated approximately 39 million MMBtus of NYMEX natural gas hedges and a similar quantity of financial basis hedges that were to settle at various times from May through November of 2020. In connection with these monetizations, CNX received $29 million of net proceeds, which are included in (Loss) Gain on Commodity Derivative Instruments in the Consolidated Statements of Income for the six months ended June 30, 2020. In addition, during the second quarter of 2020, CNX purchased financial swaps for May through November of 2020 under which CNX will pay a fixed price to and receive a floating price from its hedge counterparties. These moves gave CNX additional flexibility to move production to higher price periods while immediately taking the monetization proceeds.
Purchased Gas
Purchased gas volumes represent volumes of gas purchased at market prices from third-parties and then resold in order to fulfill contracts with certain customers and to balance supply. Purchased gas revenues were $47 million for the six months ended June 30, 2020 compared to $35 million for the six months ended June 30, 2019. Purchased gas costs were $45 million for the six months ended June 30, 2020 compared to $35 million for the six months ended June 30, 2019. The period-to-period increase in purchased gas revenue was due to an increase in purchased gas sales volumes, offset in part by a decrease in averages sales price.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance
|
|
Percent
Change
|
|
Purchased Gas Sales Volumes (in Bcf)
|
27.5
|
|
|
13.2
|
|
|
14.3
|
|
|
108.3
|
%
|
|
Average Sales Price (per Mcf)
|
$
|
1.70
|
|
|
$
|
2.64
|
|
|
$
|
(0.94)
|
|
|
(35.6)
|
%
|
|
Average Cost (per Mcf)
|
$
|
1.64
|
|
|
$
|
2.64
|
|
|
$
|
(1.00)
|
|
|
(37.9)
|
%
|
Other Operating Income
Other operating income was $9 million for the six months ended June 30, 2020 compared to $6 million for the six months ended June 30, 2019. The $3 million increase was due to the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
Variance
|
|
Percent
Change
|
|
Water Income
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
100.0
|
%
|
|
Gathering Income
|
6
|
|
|
5
|
|
|
1
|
|
|
20.0
|
%
|
|
Equity in (Loss) Earnings of Affiliates
|
(1)
|
|
|
1
|
|
|
(2)
|
|
|
(200.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Operating Income
|
$
|
9
|
|
|
$
|
6
|
|
|
$
|
3
|
|
|
50.0
|
%
|
•Water income increased $4 million due to increased sales of freshwater to third-parties for hydraulic fracturing in the 2020 period and revenue for accepting deliveries of produced water from third-parties for reuse in the Company's hydraulic fracturing.
Impairment of Exploration and Production Properties
During the six months ended June 30, 2020, CNX recognized certain indicators of impairments specific to our Southwest Pennsylvania (SWPA) CBM asset group and determined that carrying value of that asset group was not recoverable. The fair value of the asset group was estimated by discounting the estimated future cash flows using discount rates and other assumptions that market participants would use in their estimates of fair value. As a result, an impairment of $62 million was recognized and is included in Impairment of Exploration and Production Properties in the Consolidated Statements of Income. The impairment was related to an economic decision to temporarily idle certain wells and the related processing facility during the first quarter.
Exploration and Production Related Other Costs
Exploration and production related other costs were $7 million for the six months ended June 30, 2020 compared to $8 million for the six months ended June 30, 2019. The $1 million decrease was due to the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
Variance
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
Land Rentals
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
(2)
|
|
|
(66.7)
|
%
|
|
Lease Expiration Costs
|
4
|
|
|
5
|
|
|
(1)
|
|
|
(20.0)
|
%
|
|
Permitting Expense
|
2
|
|
|
—
|
|
|
2
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Exploration and Production Related Other Costs
|
$
|
7
|
|
|
$
|
8
|
|
|
$
|
(1)
|
|
|
(12.5)
|
%
|
Other Operating Expense
Other operating expense was $47 million for the six months ended June 30, 2020 compared to $41 million for the six months ended June 30, 2019. The $6 million increase was due to the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
Variance
|
|
Percent
Change
|
|
Unutilized Firm Transportation and Processing Fees
|
$
|
34
|
|
|
$
|
28
|
|
|
$
|
6
|
|
|
21.4
|
%
|
|
Water Expense
|
1
|
|
|
—
|
|
|
1
|
|
|
100.0
|
%
|
|
Insurance Expense
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Idle Equipment and Service Charges
|
6
|
|
|
8
|
|
|
(2)
|
|
|
(25.0)
|
%
|
|
Other
|
5
|
|
|
4
|
|
|
1
|
|
|
25.0
|
%
|
|
Total Other Operating Expense
|
$
|
47
|
|
|
$
|
41
|
|
|
$
|
6
|
|
|
14.6
|
%
|
•Unutilized firm transportation and processing fees represent pipeline transportation capacity obtained to enable gas production to flow uninterrupted as sales volumes increase, as well as additional processing capacity for NGLs. The increase of $6 million in the period-to-period comparison was primarily due to previously acquired capacity which was not utilized during the current period to transport the Company's flowing production or to process the Company’s wet natural gas production. The increase in unutilized capacity results in part from the temporary shut-in of a portion of CNX's liquids-rich Shirley-Pennsboro production in May and June of 2020 in response to low NGL prices. In some instances, the Company may have the opportunity to realize more favorable net pricing by strategically choosing to sell natural gas into a market or to a customer that does not require the use of the Company’s own firm transportation capacity. Such sales would increase unutilized firm transportation expense. The Company attempts to minimize this expense by releasing (selling) unutilized firm transportation capacity to other parties when possible and when beneficial. The revenue received when this capacity is released (sold) is included in Gathering Income in Total Other Operating Income above. There were no unutilized fees related to the Midstream Division during the six months ended June 30, 2020 or 2019.
Selling, General and Administrative
SG&A costs represent direct charges for the management and operation of CNX's E&P division. SG&A costs were $44 million for the six months ended June 30, 2020 compared to $74 million for the six months ended June 30, 2019. Refer to the discussion of total company SG&A costs contained in the section "Net (Loss) Income Attributable to CNX Resources Shareholders" of this Form 10-Q for a detailed cost explanation.
Interest Expense
Interest expense of $78 million was recognized in the six months ended June 30, 2020 compared to $61 million in the six months ended June 30, 2019. The $17 million increase was primarily due to realized and unrealized losses on interest rate swap agreements during the six months ended June 30, 2020. The addition of $345 million of convertible senior notes due 2026, the addition of the $125 million Cardinal States Facility and the $50 million CSG Holdings Facility all in the current period also contributed to the increase. These increases were offset in part by the purchase of $400 million of the outstanding 5.875% senior notes due in April 2022 during the three months ended March 31, 2019 and the purchase of $71 million during the three months ended March 31, 2020, as well as lower borrowings on the CNX credit facility. See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
TOTAL MIDSTREAM DIVISION ANALYSIS for the six months ended June 30, 2020 compared to the six months ended June 30, 2019:
CNX's Midstream Division's principal activity is the ownership, operation, development and acquisition of natural gas gathering and other midstream energy assets of CNX Gathering and CNXM, which provide natural gas gathering services for the Company's produced gas, as well as for other independent third-parties in the Marcellus Shale and Utica Shale in Pennsylvania and West Virginia. Excluded from the Midstream Division are the gathering assets and operations of CNX that have not been contributed to CNX Gathering and CNXM.
Prior to the IDR Elimination Transaction, CNX Gathering held all of the interests in CNX Midstream GP LLC, which held both the general partner and limited partner interests in CNXM. CNX has owned and controlled 100% of CNX Gathering LLC, since January 2018 making CNXM a single-sponsor master limited partnership and thus the Company consolidates CNXM.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
Variance
|
|
Midstream Revenue - Related Party
|
$
|
117
|
|
|
$
|
114
|
|
|
$
|
3
|
|
|
Midstream Revenue - Third Party
|
30
|
|
|
37
|
|
|
(7)
|
|
|
Total Revenue
|
$
|
147
|
|
|
$
|
151
|
|
|
$
|
(4)
|
|
|
|
|
|
|
|
|
|
Transportation, Gathering and Compression
|
$
|
23
|
|
|
$
|
24
|
|
|
$
|
(1)
|
|
|
Depreciation, Depletion and Amortization
|
21
|
|
|
16
|
|
|
5
|
|
|
Impairment of Goodwill
|
473
|
|
|
—
|
|
|
473
|
|
Selling, General, and Administrative Costs
|
9
|
|
|
11
|
|
|
(2)
|
|
|
Total Operating Costs and Expenses
|
526
|
|
|
51
|
|
|
475
|
|
|
Other Expense
|
1
|
|
|
1
|
|
|
—
|
|
|
Loss on Asset Sales and Abandonments, net
|
2
|
|
|
7
|
|
|
(5)
|
|
|
Interest Expense
|
17
|
|
|
15
|
|
|
2
|
|
|
Total Midstream Division Costs
|
546
|
|
|
74
|
|
|
472
|
|
|
(Loss) Earnings Before Income Tax
|
$
|
(399)
|
|
|
$
|
77
|
|
|
$
|
(476)
|
|
Midstream Revenue
Midstream revenue consists of revenue related to volumes gathered on behalf of CNX and other third-party natural gas producers. CNXM charges a higher fee for natural gas that is shipped on its wet system compared to gas shipped through its dry system. CNXM revenue can also be impacted by the relative mix of gathered volumes by area, which may vary depending upon delivery point and may change dynamically depending on commodity prices at time of shipment. Total Midstream revenue decreased $4 million primarily due to a 32.2% decrease in gathered volumes of wet gas, offset in part by an increase of 25.1% in gathered volumes of dry gas in the period-to-period comparison. The decrease was the result of temporary production curtailments by related party and third party customers that reduced the wet gas gathering revenue. This decrease was offset in part by well turn-in-line activity that occurred over the past twelve months.
The table below summarizes volumes gathered by gas type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance
|
|
Dry Gas (BBtu/d) (*)
|
1,076
|
|
|
865
|
|
|
211
|
|
|
Wet Gas (BBtu/d) (*)
|
485
|
|
|
715
|
|
|
(230)
|
|
|
Other (BBtu/d) (*)(**)
|
286
|
|
|
156
|
|
|
130
|
|
|
Total Gathered Volumes
|
1,847
|
|
|
1,736
|
|
|
111
|
|
(*) Classification as dry or wet is based upon the shipping destination of the related volumes. Because CNXM's customers have the option to ship a portion of their natural gas to destinations associated with either our wet system or our dry system, due to any number of factors, volumes may be classified as “wet” in one period and as “dry” in the comparative period.
(**) Includes condensate handling and third-party volumes under high-pressure short-haul agreements.
Transportation, Gathering and Compression
Transportation, Gathering and Compression costs were $23 million for the six months ended June 30, 2020 compared to $24 million for the six months ended June 30, 2019, and are comprised of items directly related to the cost of gathering natural gas at the wellhead and transporting it to interstate pipelines or other local sales points. These costs include items such as electrically-powered compression, compressor rental, repairs and maintenance, supplies, treating and contract services.
Selling, General and Administrative Expense
SG&A expense is comprised of direct charges for the management and operation of CNXM assets. SG&A costs were $9 million for the six months ended June 30, 2020 compared to $11 million for the six months ended June 30, 2019. Refer to the discussion of total Company SG&A costs contained in the section "Net (Loss) Income Attributable to CNX Resources Shareholders" of this Form 10-Q for a detailed cost explanation.
Depreciation, Depletion and Amortization Expense
Depreciation expense is recognized on gathering and other equipment on a straight-line basis, with useful lives ranging from 25 years to 40 years.
Impairment of Goodwill
In connection with the Midstream Acquisition that closed on January 3, 2018, CNX recorded $796 million of goodwill.
Goodwill is tested for impairment annually during the fourth quarter, or more frequently if recent events or prevailing conditions indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount using the qualitative assessment, a quantitative impairment test is performed. From time to time, CNX may also bypass the qualitative assessment and proceed directly to the quantitative impairment test.
In connection with CNX's assessment of goodwill in the first quarter of 2020 in relation to the deteriorating macroeconomic conditions, and the decline in the observable market value of CNXM securities both in relation to the COVID-19 pandemic and the overall decline in the MLP market space, CNX bypassed the qualitative assessment and performed a quantitative test that utilized a combination of the income and market approaches to estimate the fair value of the Midstream reporting unit. As a result of this assessment, CNX concluded that the carrying value exceed its estimated fair value, and as a result, an impairment of $473 million was included in Impairment of Goodwill in the Consolidated Statement of Income. No such impairment occurred in the prior period. See Note 6 - Goodwill and Other Intangible Assets in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
Loss on Asset Sales and Abandonments, net
During the six months ended June 30, 2020, due to ongoing assessments of projects that generate the highest returns on invested capital, CNXM abandoned the construction of a pipeline project that was designed to support additional production within certain operating areas, as well as land right-of-ways, resulting in a loss of $2 million that is included in (Gain) Loss on Assets Sales and Abandonments, net in the Consolidated Statements of Income.
During the six months ended June 30, 2019, CNXM abandoned the construction of a compressor station that was designed to support additional production within certain areas of their "Anchor Systems," incurring a loss of $7 million that is included in (Gain) Loss on Asset Sales and Abandonments, net in the Consolidated Statements of Income.
Interest Expense
Interest expense is comprised of interest on the outstanding balance under CNXM's senior notes due 2026 and its revolving credit facility. Interest expense was $17 million for the six months ended June 30, 2020 compared to $15 million for the six months ended June 30, 2019. The increase in the period-to-period comparison was due to additional borrowings on the revolving credit facility.
Liquidity and Capital Resources
CNX generally has satisfied its working capital requirements and funded its capital expenditures and debt service obligations with cash generated from operations and proceeds from borrowings. CNX currently believes that cash generated from operations, asset sales and the Company's borrowing capacity will be sufficient to meet the Company's working capital requirements, anticipated capital expenditures (other than major acquisitions), scheduled debt payments, anticipated dividend payments and to provide required letters of credit for the next fiscal year. Nevertheless, the ability of CNX to satisfy its working capital requirements, to service its debt obligations, to fund planned capital expenditures, or to pay dividends will depend upon future operating performance, which will be affected by prevailing economic conditions in the natural gas industry and other financial and business factors, including the current COVID 19 pandemic, some of which are beyond CNX’s control.
From time to time, CNX is required to post financial assurances to satisfy contractual and other requirements generated in the normal course of business. Some of these assurances are posted to comply with federal, state or other government agencies' statutes and regulations. CNX sometimes uses letters of credit to satisfy these requirements and these letters of credit reduce the Company's borrowing facility capacity.
CNX continuously reviews its liquidity and capital resources. If market conditions were to change, for instance due to the significant decline in oil prices or uncertainty created by the COVID-19 pandemic, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced.
As of June 30, 2020, CNX was in compliance with all of its debt covenants. After considering the current and potential effect of the significant decline in oil prices, current and expected future natural gas prices, and uncertainty created by the COVID-19 pandemic on its operations, CNX currently expects to remain in compliance with its debt covenants.
In order to manage the market risk exposure of volatile natural gas prices in the future, CNX enters into various physical natural gas supply transactions with both gas marketers and end users for terms varying in length. CNX has also entered into various natural gas swap and option transactions, which exist parallel to the underlying physical transactions. The fair value of these contracts was a net asset of $164 million at June 30, 2020 and a net asset of $406 million at December 31, 2019. The Company has not experienced any issues of non-performance by derivative counterparties.
CNX frequently evaluates potential acquisitions. CNX has funded acquisitions with cash generated from operations and a variety of other sources, depending on the size of the transaction, including debt and equity financing. There can be no assurance that additional capital resources, including debt and equity financing, will be available to CNX on terms which CNX finds acceptable, or at all.
Cash Flows (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
Cash Provided by Operating Activities
|
$
|
411
|
|
|
$
|
561
|
|
|
$
|
(150)
|
|
|
Cash Used in Investing Activities
|
$
|
(261)
|
|
|
$
|
(621)
|
|
|
$
|
360
|
|
|
Cash (Used in) Provided by Financing Activities
|
$
|
(141)
|
|
|
$
|
76
|
|
|
$
|
(217)
|
|
Cash flows from operating activities changed in the period-to-period comparison primarily due to the following items:
•Net income decreased $564 million in the period-to-period comparison.
•Adjustments to reconcile net income to cash provided by operating activities primarily consisted of a $473 million impairment of goodwill, a $62 million impairment of exploration and production properties, a $155 million change in deferred income taxes, a $298 million net change in commodity derivative instruments, a $25 million decrease in stock-based compensation expense, a $21 million increase in gain on asset sales and abandonments, and a $19 million increase in the gain on debt extinguishment.
Cash flows from investing activities changed in the period-to-period comparison primarily due to the following items:
•Capital expenditures decreased $341 million in the period-to-period comparison primarily due to decreased expenditures in the Utica and Marcellus Shale segments resulting from decreased drilling and completions activity. CNXM's capital expenditures decreased due primarily to the substantial build out that was completed during 2019.
•Proceeds from asset sales increased $19 million mainly due to increased surface sales and oil and gas assignment sales in the six months ended June 30, 2020.
Cash flows from financing activities changed in the period-to-period comparison primarily due to the following items:
•During the six months ended June 30, 2020, CNX paid $469 million to purchase $481 million of senior notes due in 2022 at 97.5% of the principal amount. During the six months ended June 30, 2019, CNX paid $406 million to purchase $400 million of the senior notes due in 2022 at 101.5% of the principal amount. See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
•In the six months ended June 30, 2020, there were $7 million of net proceeds from the CNXM credit facility compared to $124 million of net proceeds during the six months ended June 30, 2019.
•In the six months ended June 30, 2020, there were $111 million of net payments on the CNX credit facility compared to $18 million of net proceeds during the six months ended June 30, 2019.
•During the six months ended June 30, 2019, CNX received proceeds of $500 million from the issuance of senior notes due in 2027. See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
•In the six months ended June 30, 2020 there were $170 million of net proceeds from the Cardinal States Gathering LLC and CSG Holdings II LLC non-revolving credit facilities. See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
•During the six months ended June 20, 2020, CNX received proceeds of $335 million from the issuance of convertible senior notes due in 2026. See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
•During the six months ended June 20, 2020, CNX paid $36 million for capped call transactions related to the issuance of the convertible debt as mentioned above. See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
•In the six months ended June 30, 2019, CNX repurchased $110 million of its common stock on the open market compared to no purchases in the six months ended June 30, 2020.
•Debt issuance and financing fees increased $2 million primarily due to the fees associated with the borrowings on the Cardinal States Gathering LLC and CSG Holdings II LLC non-revolving credit facilities as well as the issuance of the convertible senior notes.
The following is a summary of the Company's significant contractual obligations at June 30, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Year
|
|
|
|
|
|
|
|
|
|
|
Less Than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More Than
5 Years
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Order Firm Commitments
|
$
|
806
|
|
|
$
|
1,293
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,099
|
|
|
Gas Firm Transportation and Processing
|
243,011
|
|
|
440,654
|
|
|
373,821
|
|
|
976,664
|
|
|
2,034,150
|
|
|
Long-Term Debt
|
22,430
|
|
|
461,095
|
|
|
915,430
|
|
|
1,178,736
|
|
|
2,577,691
|
|
|
Interest on Long-Term Debt
|
124,723
|
|
|
221,675
|
|
|
165,167
|
|
|
111,933
|
|
|
623,498
|
|
|
Finance Lease Obligations
|
7,295
|
|
|
3,857
|
|
|
368
|
|
|
—
|
|
|
11,520
|
|
|
Interest on Finance Lease Obligations
|
525
|
|
|
111
|
|
|
27
|
|
|
—
|
|
|
663
|
|
|
Operating Lease Obligations
|
52,110
|
|
|
48,154
|
|
|
7,283
|
|
|
24,264
|
|
|
131,811
|
|
|
Interest on Operating Lease Obligations
|
4,588
|
|
|
4,475
|
|
|
2,802
|
|
|
4,131
|
|
|
15,996
|
|
|
Long-Term Liabilities—Employee Related (a)
|
1,840
|
|
|
3,950
|
|
|
4,538
|
|
|
31,574
|
|
|
41,902
|
|
|
Other Long-Term Liabilities (b)
|
216,603
|
|
|
15,875
|
|
|
14,250
|
|
|
32,418
|
|
|
279,146
|
|
|
Total Contractual Obligations (c)
|
$
|
673,931
|
|
|
$
|
1,201,139
|
|
|
$
|
1,483,686
|
|
|
$
|
2,359,720
|
|
|
$
|
5,718,476
|
|
_________________________
(a)Employee related long-term liabilities include salaried retirement contributions and work-related injuries and illnesses.
(b)Other long-term liabilities include royalties and other long-term liability costs.
(c)The significant obligation table does not include obligations to taxing authorities due to the uncertainty surrounding the ultimate settlement of amounts and timing of these obligations.
Debt
At June 30, 2020, CNX had total long-term debt of $2,578 million, including the current portion of long-term debt of $22 million and excluding unamortized debt issuance costs. This long-term debt consisted of:
•An aggregate principal amount of $550 million in outstanding borrowings under the CNX Revolving Credit Facility.
•An aggregate principal amount of $500 million of 7.25% senior notes due in March 2027. Interest on the notes is payable March 14 and September 14 of each year. Payment of the principal and interest on the notes is guaranteed by most of CNX's subsidiaries but does not include CNXM or CSG Holdings III LLC (or its subsidiaries).
•An aggregate principal amount of $413 million of 5.875% senior notes due in April 2022 plus a nominal unamortized bond premium. Interest on the notes is payable April 15 and October 15 of each year. Payment of the principal and interest on the notes is guaranteed by most of CNX's subsidiaries but does not include CNXM (or its subsidiaries or general partner) or CSG Holdings III LLC (or its subsidiaries).
•An aggregate principal amount of $400 million of 6.50% senior notes due in March 2026 issued by CNXM, less $4 million of unamortized bond discount. Interest on the notes is payable March 15 and September 15 of each year. Payment of the principal and interest on the notes is guaranteed by certain of CNXM's subsidiaries. CNX is not a guarantor of these notes.
•An aggregate principal amount of $345 million of 2.25% senior notes due in May 2026, unless earlier redeemed, repurchased, or converted, less $115 million of unamortized bond discount and issuance costs. Interest on the notes is payable May 1 and November 1 of each year. Payment of the principal and interest on the notes is guaranteed by most of CNX's subsidiaries but does not include CNXM (or its subsidiaries or general partner) or CSG Holdings III LLC (or its subsidiaries).
•An aggregate principal amount of $319 million in outstanding borrowings under the CNXM revolver. CNX is not a guarantor of CNXM's revolving credit facility.
•Cardinal States Gathering Company Credit Facility of $123 million less $1 million of unamortized discount. Interest and a portion of the obligation are paid quarterly.
•CSG Holdings II LLC Credit Facility of $49 million less $1 million unamortized discount. Interest and a portion of the obligation are paid quarterly.
Total Equity and Dividends
CNX had total equity of $4,567 million at June 30, 2020 compared to $4,962 million at December 31, 2019. See the Consolidated Statements of Stockholders' Equity in Item 1 of this Form 10-Q for additional details.
The declaration and payment of dividends by CNX is subject to the discretion of CNX's Board of Directors, and no assurance can be given that CNX will pay dividends in the future. CNX's Board of Directors determines whether dividends will be paid quarterly. CNX suspended its quarterly dividend in March 2016 to further reflect the Company's increased emphasis on growth. The determination to pay dividends in the future will depend upon, among other things, general business conditions, CNX's financial results, contractual and legal restrictions regarding the payment of dividends by CNX, planned investments by CNX, and such other factors as the Board of Directors deems relevant. The Company's Credit Facility limits CNX's ability to pay dividends in excess of an annual rate of $0.10 per share when the Company's net leverage ratio exceeds 3.00 to 1.00 and is subject to availability under the Credit Facility of at least 15% of the aggregate commitments. The net leverage ratio was 2.38 to 1.00 at June 30, 2020. The Credit Facility does not permit dividend payments in the event of default. The indentures to the 5.875% senior notes due in April 2022 and the 7.25% senior notes due in March 2027 limit dividends to $0.50 per share annually unless several conditions are met. These conditions include no defaults, ability to incur additional debt and other payment limitations under the indentures. There were no defaults in the six months ended June 30, 2020.
On July 27, 2020 the Board of Directors of CNX Midstream GP LLC, the general partner of CNX Midstream Partners LP, announced the declaration of a cash distribution of $0.50 per unit with respect to the second quarter of 2020. The distribution will be made on August 14, 2020 to unitholders of record as of the close of business on August 7, 2020.
Off-Balance Sheet Transactions
CNX does not maintain off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources which are not disclosed in the Notes to the Unaudited Consolidated Financial Statements. CNX uses a combination of surety bonds, corporate guarantees and letters of credit to secure the Company's financial obligations for employee-related, environmental, performance and various other items which are not reflected in the Consolidated Balance Sheet at June 30, 2020. Management believes these items will expire without being funded. See Note 10 - Commitments and Contingent
Liabilities in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional details of the various financial guarantees that have been issued by CNX.
Critical Accounting Policies (Interim Update)
Convertible Senior Notes
The Convertible Senior Notes due May 2026 ("Convertible Notes") are accounted for in accordance with FASB ASC Subtopic 470-20, Debt with Conversion and Other Options. Pursuant to ASC Subtopic 470-20, issuers of certain convertible debt instruments, such as the Convertible Notes, that have a net settlement feature and may be settled wholly or partially in cash upon conversion are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of the instrument is computed by estimating the fair value of a similar liability without the conversion option. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the instrument. The difference between the principal amount and the liability component represents a debt discount that is amortized to interest expense over the respective term of the Convertible Notes using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the Convertible Notes, the allocation of issuance costs incurred between the liability and equity components was based on their relative values.
Forward-Looking Statements
We are including the following cautionary statement in this Quarterly Report on Form 10-Q to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of us. With the exception of historical matters, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements (as defined in Section 21E of the Exchange Act) that involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. When we use the words “believe,” “intend,” “expect,” “may,” “should,” “anticipate,” “could,” “estimate,” “plan,” “predict,” “project,” "will," or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe a strategy that involves risks or uncertainties, we are making forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q; we disclaim any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following:
•prices for natural gas and natural gas liquids are volatile and can fluctuate widely based upon a number of factors beyond our control including oversupply relative to the demand for our products, weather and the price and availability of alternative fuels;
•our dependence on gathering, processing and transportation facilities and other midstream facilities owned by CNX Midstream Partners LP (NYSE: CNXM) (CNXM) and others;
•uncertainties in estimating our economically recoverable natural gas reserves, and inaccuracies in our estimates;
•the high-risk nature of drilling, developing and operating natural gas wells;
•our identified drilling locations are scheduled out over multiple years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their development or drilling;
•challenges associated with strategic determinations, including the allocation of capital and other resources to strategic opportunities;
•the substantial capital expenditures required for our development and exploration projects, as well as CNXM’s midstream system development;
•the impact of potential, as well as any adopted, environmental regulations, including those relating to greenhouse gas emissions;
•environmental regulations can increase costs and introduce uncertainty that could adversely impact the market for natural gas with potential short and long-term liabilities;
•decreases in the availability of, or increases in the price of, required personnel, services, equipment, parts and raw materials in sufficient quantities or at reasonable costs to support our operations;
•if natural gas prices decrease or drilling efforts are unsuccessful, we may be required to record write-downs of our proved natural gas properties;
•the availability of storage capacity for refined products such as crude, and refinery inputs including condensate, c5+ and butane;
•changes in assumptions impacting management’s estimates of future financial results as well as other assumptions such as movement in our stock price, weighted-average cost of capital, terminal growth rates and industry multiples, could cause goodwill and other intangible assets we hold to become impaired and result in material non-cash charges to earnings;
•a loss of our competitive position because of the competitive nature of the natural gas industry, consolidation within the industry or overcapacity in the industry adversely affecting our ability to sell our products and midstream services;
•deterioration in the economic conditions in any of the industries in which our customers operate, a domestic or worldwide financial downturn, or negative credit market conditions;
•the impact of outbreaks of communicable diseases such as the novel highly transmissible and pathogenic coronavirus (“COVID-19”) on business activity, the Company’s operations and national and global economic conditions, generally;
•hedging activities may prevent us from benefiting from price increases and may expose us to other risks;
•existing and future government laws, regulations and other legal requirements and judicial decisions that govern our business may increase our costs of doing business and may restrict our operations;
•significant costs and liabilities may be incurred as a result of pipeline operations and related increase in the regulation of gas gathering pipelines;
•our ability to find adequate water sources for our use in shale gas drilling and production operations, or our ability to dispose of, transport or recycle water used or removed in connection with our gas operations at a reasonable cost and within applicable environmental rules;
•failure to successfully estimate the rate of decline or existing reserves or to find or acquire economically recoverable natural gas reserves to replace our current natural gas reserves;
•risks associated with our current long-term debt obligations;
•a decrease in our borrowing base, which could decrease for a variety of reasons including lower natural gas prices, declines in natural gas proved reserves, asset sales and lending requirements or regulations;
•changes in federal or state income tax laws;
•cyber-incidents could have a material adverse effect on our business, financial condition or results of operations;
•construction of new gathering, compression, dehydration, treating or other midstream assets by CNXM may not result in revenue increases and may be subject to regulatory, environmental, political, legal and economic risks;
•our success depends on key members of our management and our ability to attract and retain experienced technical and other professional personnel;
•terrorist activities could materially adversely affect our business and results of operations;
•we may operate a portion of our business with one or more joint venture partners or in circumstances where we are not the operator, which may restrict our operational and corporate flexibility and we may not realize the benefits we expect to realize from a joint venture;
•acquisitions and divestitures, we anticipate may not occur or produce anticipated benefits;
•the outcomes of various legal proceedings, including those which are more fully described in our reports filed under the Exchange Act;
•there is no guarantee that we will continue to repurchase shares of our common stock under our current or any future share repurchase program at levels undertaken previously or at all;
•negative public perception regarding our industry could have an adverse effect on our operations;
•CONSOL Energy may not be able to satisfy its indemnification obligations in the future and such indemnities may not be sufficient to hold us harmless from the full amount of liabilities for which CONSOL Energy will be allocated responsibility;
•Risks associated with our issuance of Convertible Notes, including the potential impact that the Convertible Notes may have on our reported financial results, potential dilution, our ability to raise funds to repurchase the Convertible Notes, and that provisions of the Convertible Notes could delay or prevent a beneficial takeover of the Company;
•the potential impact of the capped call transaction undertaken in tandem with the Convertible Note issuance, including counterparty risk;
• the possibility that the market price of the Company's common stock will fluctuate prior to the completion of the Merger causing the value of the merger consideration to change;
•the risk that a condition to the closing of the Merger may not be satisfied on a timely basis, if at all;
•the timing of the completion of the Merger;
•the substantial transaction-related costs that may be incurred by the Company and the Partnership in connection with the Merger;
•the possibility that the Company and the Partnership may, under certain specified circumstances, be responsible for the other party's expenses;
•the possibility that Company and the Partnership may be the targets of securities class actions and derivative lawsuits;
•the limited duties the partnership agreement places on the General Partner for actions taken by the General Partner;
•the risk that certain officers and directors of the Company and the General Partner have interests in the Merger that are different from, or in addition to, the interests they may have as the Partnership's unitholders or the Company's stockholders, respectively;
•the possibility that financial projections by the Company and the Partnership may not prove to be reflective of actual future results; and
•certain other factors addressed in this report.
Although forward-looking statements reflect our good faith beliefs at the time they are made, they involve known and unknown risks, uncertainties and other factors. For more information concerning factors that could cause actual results to differ materially from those conveyed in the forward-looking statements, including, among others, that our business plans may change as circumstances warrant, please refer to the “Risk Factors” and “Forward-Looking Statements” sections of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Commission on February 10, 2020 and subsequent Quarterly Reports on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, unless required by law.
