CONSOL Energy Inc., the leading diversified fuel producer in the Eastern United States, reported net income for the quarter ended December 31, 2011 of $196 million, or $0.85 per diluted share, compared to $104 million, or $0.46 per diluted share from the year-earlier quarter. Record net income for 2011 was $632 million, or $2.76 per diluted share, compared to $347 million, or $1.60 per diluted share for 2010.

The company set other annual records in 2011, including:

  • Record gas production of 153.5 Bcf (net to CONSOL), an increase of 20% from the 127.9 Bcf produced in 2010. Gas production in 2011 would have been approximately 160 Bcf, or a 25% increase, had the company not sold assets to Noble Energy and Antero Resources during the year.
  • Record overseas coal sales of 11.4 million tons, an increase of 68% from the 6.8 million tons sold overseas in 2010.
  • Record sales revenue of $5.7 billion, an increase of 14% from the $5.0 billion in 2010.
  • Record cash flow from operations of $1.5 billion, an increase of 36% from the $1.1 billion in 2010.
  • Baltimore Terminal shipped a record 12.6 million tons in 2011, besting the 1995 shipments of 12.4 million tons.

"CONSOL Energy has a world class set of assets," commented J. Brett Harvey, chairman and CEO. "In our Coal Division for 2011, we were able to combine reliable operations with astute marketing to generate record net income. Our record results were even more impressive when one realizes that, on the gas side, weakening gas prices throughout 2011 largely offset our record gas production. For CONSOL, 2011 was a year characterized by our ability to seize opportunities and, in some cases, to create opportunities."

Strategically, CONSOL Energy was successful in participating in the growth of world coal markets and in selling more of its crossover coal into lucrative met coal markets. CONSOL's coal is currently being sold on four continents.

In gas, the company formed one strategic partnership with Noble Energy, Inc. to jointly develop 628,000 acres in the Marcellus Shale, and a second partnership with Hess Corporation to explore for and develop oil, liquids, and gas on 200,000 acres of Utica Shale in Ohio. The two partnerships, along with the sale of an overriding royalty interest to Antero generated gross proceeds to CONSOL Energy of $841 million in 2011, and are expected to generate proceeds and carry of nearly $3.3 billion in the coming years.

The influx of cash from the gas transactions, along with the record cash flow from operations in 2011 of $1.5 billion, considerably strengthened the company's financial position during a time of economic uncertainty. During 2011, the company extended and expanded its revolvers, paid off all of its short term debt, and ended the year with a cash balance of $376 million. With 2011 capital expenditures of $1.4 billion and dividends paid of $96 million, the company was slightly cash flow positive, even before considering the proceeds received from the gas transactions. In response to the improved financial condition, CONSOL Energy's Board of Directors increased the regular quarterly dividend by 25%, with the annual dividend now set at $0.50 per share.

In safety, CONSOL Energy logged its best year, when measured by incident rates. The one fatality, however, indicates that we have work to do to get to Absolute Zero.

2012 Capital Spending Revision

CONSOL Energy has trimmed its 2012 spending outlook to $1.5 billion, down from an earlier projected $1.7 billion. The revisions from the January 10, 2012 announcement are occurring mostly because a combination of mild weather and high production, which has caused natural gas prices to drop to a 10-year low. Gas investment in the Marcellus Shale has been reduced by approximately $130 million, as 23 (gross) wells have been deferred. CONSOL Energy and its joint development partner, Noble Energy, now expect to drill 99 Marcellus Shale wells. The reduction is not expected to impact 2012 estimated production of approximately 160 Bcf. Less drilling in 2012, however, coupled with the postponement of some pad development spending for the 2013 drilling program is causing the company to reduce its 2013 production guidance to 190 - 210 Bcfe, which would be 10 Bcfe lower than the earlier projection. CONSOL's 2015 goal of 350 Bcfe, however, remains unchanged because the drilling schedule in the out years has enough flexibility in it to accommodate a slightly reduced production goal in 2013.

In coal, CONSOL Energy has determined that some efficiency projects will be postponed, resulting in a reduction in coal capital spending of approximately $44 million.

The company will continue to monitor its level of investment with macro and industry-specific events during 2012.

2011 Fourth Quarter Discussion

Reported net income for the quarter was $196 million, or $0.85 per diluted share. This included (after-tax) net income of $33 million, or $0.15 per diluted share from the closing of the Hess transaction on October 21.

Total company sales revenue was nearly $1.4 billion. This was the highest ever achieved for CONSOL in a fourth quarter. As has been the case throughout 2011, most of the increase came from higher average realized prices across all three coal segments. The company's low-vol, high-vol and thermal coal categories had realized prices of $191, $78, and $59 per short ton, FOB mine, respectively. Coal margins, across all of the company's sales, were $17.95 per ton, an increase of $1.18 per ton from the year-earlier quarter. Expanding coal margins drove an increase in EBITDA(1) and cash flow from operations. EBITDA in the quarter ended December 31, 2011 was $440 million. Cash flow from operations was $275 million while capital expenditures were $385 million for the December 2011 quarter.

For the third consecutive quarter, CONSOL's coal division has generated more cash from its met business than from its thermal business. This demonstrates the company's significant presence in the growing metallurgical markets.

While the gas division reported net income of $43.0 million for the fourth quarter, this includes a $33 million (after-tax) gain from the Hess transaction. Excluding the transaction, net income was higher than the year-earlier quarter because lower prices were more than offset by higher volumes. The company is encouraged that within the overall cost structure, the (fully-loaded) costs associated with its Marcellus Shale operations were $2.74 per Mcf, an improvement of $0.51 versus the $3.25 per Mcf reported in the 2011 third quarter.