CONSOL (CNX) Q3 Loss Wider Than Expected, Ups E&P View

Diversified fuel producer CONSOL Energy Inc. (NYSE:CNX) reported adjusted loss of 15 cents per share for the third quarter of 2016, wider than the Zacks Consensus Estimate of a loss of 11 cents.

Revenue

CONSOL Energy’s third-quarter revenues of $745.6 million surpassed the Zacks Consensus Estimate of $573 million by a wide 30.2% and increased 3.4% from the year-ago tally of $720.9 million.

The top-line improvement was primarily due to strong contribution from natural gas, natural gas liquids (NGL) and oil sales, which was offset by lower contribution from the Coal division.

Segment Performance

Coal Division

CONSOL Energy's Pennsylvania Operations sold 6 million tons in the reported quarter, compared with 5.7 million tons in the year-ago period.

Pennsylvania Operations’ total unit costs were $35.79 per ton, compared with $40.26 a year ago.

Total sales price per ton was $44.30, compared with $56.99 in the prior-year quarter. The 22.3% year-over-year decline in sales price was largely responsible for the decrease in the top line.

Exploration & Production (E&P) Division

CONSOL Energy registered a 12% year-over-year increase in third-quarter 2016 gas production volumes to 96.4 billion cubic feet equivalent (Bcfe).

The average sales price of $2.54 per thousand cubic feet gas equivalent (Mcfe), when combined with unit costs of $2.36 per Mcfe, resulted in a margin of 18 cents per Mcfe. This reflects an increase from the year-ago quarter, which saw an average sales price of $2.35 per Mcfe and unit costs of $2.54 per Mcfe, leading to a loss of 19 cents per Mcfe.

Financial Update

As of Sep 30, 2016, the company’s cash and cash equivalents were $80.3 million, up from $72.6 million as of Dec 31, 2015.

Total long-term debts as of Sep 30, 2016 were $2.76 billion, up marginally from $2.74 billion as of Dec 31, 2015.

Cash from operating activities in third-quarter 2016 was $162.9 million, compared with $110.1 million in third-quarter 2015.

Capital expenditure in the third quarter of 2016 was $64.1 million, down significantly from the comparable year-ago level of $247.8 million.

Guidance

CONSOL Energy expects 2016 Pennsylvania Operations sales to be nearly 23.6–24.4 million tons, up from the prior expectation of 22.5–25.5 million tons.

CONSOL lowered its PA Mining Operations capital expenditure guidance to the range of $60–$76 million from its prior expectations of $90–$100 million. The reduction is part of the company’s strategy to lower spending levels in 2016.

Meanwhile, CONSOL Energy has raised its 2016 E&P Division production guidance to 390–395 Bcfe from its earlier expectations of 380–385 Bcfe.

New Developments

Recently, CONSOL Energy announced that it has entered into a definitive agreement with Noble Energy (NYSE:NBL) to separate their Marcellus Shale 50-50 joint venture. The joint venture was formed in 2011 for the exploration, development and operation of the Marcellus Shale properties in Pennsylvania and West Virginia.

Peer Releases

SunCoke Energy Inc. (NYSE:SXC) reported earnings of 7 cents in the third quarter, while the Zacks Consensus Estimate was a loss of 9 cents. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

Cloud Peak Energy Inc. (NYSE:CLD) , another Zacks Rank #1 stock, reported earnings of 6 cents in the third quarter, while the Zacks Consensus Estimate was pegged at a loss of 12 cents.

Our View

CONSOL Energy’s focus on E&P assets is reaping benefits, even though the quarterly loss was wider than expected. We believe that the high-quality E&P assets in the Marcellus and Utica shales will help the company achieve the raised 2016 E&P production guidance.

CONSOL Energy currently has a Zacks Rank #3 (Hold).

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