CNX Reports Fourth Quarter and Full Year 2018 Results and Provides Updated 2019 Guidance

PITTSBURGH, Jan. 31, 2019 /PRNewswire/ -- CNX Resources Corporation (NYSE: CNX) ("CNX" or "the company") reports fourth quarter and full year 2018 results, share buyback update, and provides updated minimum 2019 guidance. Throughout this release, CNX distinguishes between "attributable to CNX shareholders" and "consolidated" results. The metric "attributable to CNX shareholders" excludes from consolidated results interests in CNX Midstream Partners LP (NYSE: CNXM) ("CNXM") not held by CNX, which were approximately 63.91% during the fourth quarter. The metric "consolidated" includes 100% of the results of CNX, CNX Gathering LLC, and CNXM on a consolidated basis.

GAAP - The following financial results are in accordance with generally accepted accounting principles in the U.S.:

During the fourth quarter, the company reported net income attributable to CNX shareholders of $102 million, or earnings of $0.50 per diluted share, compared to net income attributable to CNX shareholders of $277 million, or earnings of $1.21 per diluted share, in the fourth quarter of 2017. During the fourth quarter, the company reported total production costs of $1.89 per Mcfe, including $0.89 per Mcfe of Depreciation, Depletion, and Amortization ("DD&A"), compared to $2.17 per Mcfe, including $1.01 per Mcfe of DD&A, in the year-earlier quarter. For 2018, the company reported total production costs of $1.98 per Mcfe, including $0.89 per Mcfe of DD&A, compared to $2.23 per Mcfe, including $1.00 per Mcfe of DD&A, in the year-earlier quarter. On a consolidated basis, the company reported net income of $129 million for the 2018 fourth quarter, compared to net income of $277 million in the fourth quarter of 2017. During the fourth quarter, capital expenditures were $322 million, compared to $234 million spent in the year-earlier quarter. Also, for the quarter's ended December 31, 2018 and 2017, total weighted-average diluted shares of common stock outstanding were 203,741,408 and 227,827,425, respectively.

Non-GAAP - CNX's management uses non-GAAP financial measures for planning, forecasting and evaluating business and financial performance, and believes that they are useful for investors in analyzing the company. The following tables represent these non-GAAP financial measures:¹

The following table highlights operating cash and fully burdened cash margins:

"The fourth quarter and all of 2018 highlighted our philosophy in action: as a low-cost producer, coupled with a robust hedge book, the company has created tremendous, low-risk cash margins and strong rates of return on our capital," commented Nicholas J. DeIuliis, president and CEO. "The margins we are generating drive cash flow growth and a lower leverage ratio, which allows us to execute incremental drilling activity and/or opportunistic share buybacks at high rates of return. That continuous cycle produced powerful results in the fourth quarter and for the full year 2018, and since the inception of our repurchase program in October of 2017, CNX has bought back approximately 14% of our total shares outstanding at prices we believe are substantially below our internal NAV per share, while finishing the year under our 2.5x leverage ceiling. Moving forward, we will continue to invest into areas that have a strong risk-adjusted rate of return."

Operations Summary:

During the fourth quarter of 2018, CNX sold 136 Bcfe of natural gas, or an increase of 14% from the 119 Bcfe sold in the year-earlier quarter, driven primarily from an increase in Marcellus volumes. The company set a new daily production volume record of 1.64 net Bcfe per day in the quarter. Full year 2018 production was 507 Bcfe, or an increase of approximately 25% from the 407 Bcfe produced in 2017. When excluding production associated with assets divested in the year, 2018 production was 480 Bcfe.

In the fourth quarter of 2018, CNX operated four horizontal rigs and drilled 20 wells, which included: 10 Marcellus Shale wells in Greene County, Pennsylvania; nine Marcellus Shale wells in Washington County, Pennsylvania; and one dry Utica Shale well in Westmoreland County, Pennsylvania. During the quarter, the company drilled its longest ever Marcellus Shale lateral, which was over 15,000 feet and located in the Morris field in Greene County, Pennsylvania. Also, in the quarter, the company drilled a six-well Marcellus Shale pad with an average lateral length of over 12,500 feet in Washington County, Pennsylvania.

During the quarter, the company utilized three frac crews to complete 14 wells, which included: 12 Marcellus Shale wells in Greene County, Pennsylvania; and two dry Utica Shale wells in Monroe County, Ohio. Also, in the quarter, the company reached an all-time high frac efficiency on a pad in Pennsylvania of nearly 1,300 feet per day at 2,500 pounds per foot sand loading.

CNX turned-in-line 16 wells in the fourth quarter, which included: 11 Marcellus Shale wells in Greene County, Pennsylvania; four dry Utica Shale wells in Monroe County, Ohio; and one dry Utica Shale well in Westmoreland County, Pennsylvania.

Marcellus Shale volumes, including liquids, in the 2018 fourth quarter were 87.0 Bcfe, approximately 36% higher than the 64.0 Bcfe produced in the 2017 fourth quarter. Marcellus Shale total production costs were $1.98 per Mcfe in the just-ended quarter, which is a $0.34 per Mcfe decrease from the fourth quarter of 2017 of $2.32 per Mcfe. When excluding DD&A, Marcellus Shale total production cash costs were $1.20 per Mcfe in the just-ended quarter, which is a $0.16 per Mcfe decrease from the fourth quarter of 2017 of $1.36 per Mcfe, driven by decreases to lease operating expense ("LOE"), transportation, gathering, and compression costs, and taxes. During the quarter, water disposal costs improved as the company reused more produced water for fracs, avoiding the need to send that water to disposal. Also, DD&A improved due in part to increased capital efficiencies related to the Shirley-Pennsboro wells, and the production mix benefiting from lower West Virginia rates.

Utica Shale volumes, including liquids, in the 2018 fourth quarter were 34.1 Bcfe, approximately 1% higher than the 33.8 Bcfe in the year-earlier quarter, driven primarily from activity in Monroe County, Ohio, and Pennsylvania deep dry Utica Shale, offset by the sale of the Ohio Utica joint venture assets in the third quarter of 2018. The ramp in Pennsylvania deep dry Utica and Monroe County, Ohio, volumes also benefited Utica Shale total production costs, which were $1.43 per Mcfe in the just-ended quarter, or a $0.16 per Mcfe improvement from the fourth quarter of 2017 total production costs of $1.59 per Mcfe. When excluding DD&A, Utica Shale total production cash costs were $0.42 per Mcfe in the just-ended quarter, or a $0.14 per Mcfe improvement from the fourth quarter of 2017 total production cash costs of $0.56 per Mcfe.

CNX's natural gas production in the quarter came from the following categories:

The following table highlights per Mcfe price and cost data for the quarter:

In the fourth quarter of 2018, total production costs improved, compared to the year-earlier quarter, through reductions in LOE, transportation, gathering, and compression costs, taxes, and DD&A. LOE improved due to reduced well tending, well service jobs and repair and maintenance expenses related to the sale of the company's shallow oil and gas ("SOG") assets in the first quarter of 2018, and a reduction in water disposal costs due to increased reuse in well completions. Transportation, gathering, and compression costs improved due in part to a drier production mix resulting in lower processing fees.

During the past week, a subsurface pressure anomaly was observed during frac operations on the Shaw 1G Utica Shale well in Westmoreland County, Pennsylvania. While the cause of this anomaly is under investigation, frac operations on the Shaw pad have been temporarily suspended. The capital cost to complete and production associated with the delayed 4-well Shaw Utica pad are not currently included in 2019 guidance.

Marketing Update:

For the fourth quarter of 2018, CNX's average sales price for natural gas, natural gas liquids (NGLs), oil, and condensate was $3.09 per Mcfe. CNX's average price for natural gas was $3.59 per Mcf for the quarter and, including cash settlements from hedging, was $3.03 per Mcf. The average realized price for all liquids for the fourth quarter of 2018 was $25.61 per barrel.

CNX's weighted average differential from NYMEX in the fourth quarter of 2018 was negative $0.29 per MMBtu. With an improved Henry Hub price coupled with an improved differential, CNX's average sales price for natural gas before hedging increased 32% to $3.59 per Mcf compared with the average sales price of $2.71 per Mcf in the third quarter of 2018. Including the impact of cash settlements from hedging, CNX's average sales price for natural gas was $0.29 per Mcf, or 11%, higher than the third quarter of 2018 and $0.55 per Mcf, or 22%, higher than last year's fourth quarter.

2019 Capital Budget and Guidance:

CNX expects a minimum base of 2019 production volumes of at least 495-515 Bcfe, which equates to an approximately 5% annual increase, based on the midpoint of the minimum guidance, compared to 2018 volumes from retained assets of 480 Bcfe.

The company expects 2019 drilling and completion ("D&C") capital of at least $575-$625 million and approximately $175 million of capital associated with land, midstream, and water infrastructure. On a consolidated basis, the company expects a 2019 capital budget of $1,000-$1,080 million, which includes $250-$280 million of capital that CNXM is responsible for. The company will evaluate multiple factors to determine incremental activity throughout the year, and CNX would expect to update guidance accordingly.

The company expects stand-alone adjusted EBITDAX, which includes approximately $55 million in distributions received from ownership interests in CNXM, of $790-$825 million, based on NYMEX as of January 15, 2019. The company expects 2019 consolidated adjusted EBITDAX of $945-$985 million.

The total cash production costs will be a function of the final activity set and weighting by segment. Current EBITDAX guidance reflects a more heavily weighted Marcellus activity set, similar to the 2018 development program.

"The company remains committed to our philosophy to maximize the long-term per share value through prudent capital allocation and continuous cost management," continued Mr. DeIuliis. "Our 2019 production and capital guidance highlights our minimum level of activity, and we will continue to evaluate this activity throughout the year under the lens of our share price, forward gas prices, Utica data set, and M&A opportunities, to name a few. Depending on those factors and the risk-adjusted returns impact, we will add activity and incremental D&C capital in the year, which could change the current production mix. We have built a plan that has a considerable amount of flexibility to adjust to these ever-changing market conditions. We believe that this flexibility differentiates CNX, as we do not believe that smart production growth and building value and returning it to our shareholders are mutually exclusive goals."

Note: CNX Resources Corporation is unable to provide a reconciliation of projected stand-alone or consolidated adjusted EBITDAX to projected operating income, the most comparable financial measure calculated in accordance with GAAP, due to the unknown effect, timing, and potential significance of certain income statement items.

Total hedged natural gas production in the 2019 first quarter is 88.7 Bcf. The annual gas hedge position is shown in the table below:

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. CNX's gas hedge position as of January 18, 2019 is shown in the table below:

During the fourth quarter of 2018, CNX added additional NYMEX natural gas hedges of 1.0 Bcf, 10.4 Bcf, 201.4 Bcf, 153.4 Bcf, 63.4 Bcf, and 19.0 for 2018, 2019, 2020, 2021, 2022, and 2023, respectively. To help mitigate basis exposure on NYMEX hedges, in the fourth quarter CNX added 2.2 Bcf, 19.4 Bcf, 157.2 Bcf, 110.2 Bcf, 39.4 Bcf, and 32.8 Bcf of basis hedges for 2018, 2019, 2020, 2021, 2022, and 2023, respectively.

Finance:

At December 31, 2018, CNX's net debt attributable to CNX shareholders to trailing-twelve-months (TTM) adjusted EBITDAX attributable to CNX Shareholders was 2.25x. On a consolidated basis, CNX's net debt to TTM adjusted EBITDAX from continuing operations was 2.29x.

At December 31, 2018, the company's credit facility had $612 million of borrowings outstanding and $198 million of letters of credit outstanding, leaving $1,290 million of unused capacity. In addition, CNX holds 21.7 million CNXM limited partnership units, with a current market value of approximately $381 million as of January 16, 2019, a 2% General Partner interest, and incentive distribution rights.

Since the October 2017 inception of the current repurchase program and as of January 18, 2019, CNX has repurchased a total of approximately 32.6 million shares for approximately $490 million life-to-date, resulting in 198,335,252 shares outstanding, which is an approximately 14% reduction to total shares outstanding. The company has approximately $260 million remaining on its current $750 million share repurchase program, which is not subject to an expiration date.

About CNX

CNX Resources Corporation (NYSE: CNX) is one of the largest independent natural gas exploration, development and production companies, with operations centered in the major shale formations of the Appalachian basin. The company deploys an organic growth strategy focused on responsibly developing its resource base. As of December 31, 2018, CNX had 7.9 trillion cubic feet equivalent of proved natural gas reserves. The company is a member of the Standard & Poor's Midcap 400 Index. Additional information may be found at www.cnx.com.

Non-GAAP Financial Measures

Definitions: EBIT is defined as earnings before deducting net interest expense (interest expense less interest income) and income taxes.  EBITDAX is defined as earnings before deducting net interest expense (interest expense less interest income), income taxes, depreciation, depletion and amortization, and exploration. Adjusted EBITDAX is defined as EBITDAX after adjusting for the discrete items listed below. Although EBIT, EBITDAX, and adjusted EBITDAX are not measures of performance calculated in accordance with generally accepted accounting principles, management believes that they are useful to an investor in evaluating CNX Resources because they are widely used to evaluate a company's operating performance. We exclude stock-based compensation from adjusted EBITDAX because we do not believe it accurately reflects the actual operating expense incurred during the relevant period and may vary widely from period to period irrespective of operating results. Investors should not view these metrics as a substitute for measures of performance that are calculated in accordance with generally accepted accounting principles.  In addition, because all companies do not calculate EBIT, EBITDAX, or adjusted EBITDAX identically, the presentation here may not be comparable to similarly titled measures of other companies. Adjusted EBITDAX per outstanding share, adjusted net income per outstanding share, and adjusted EBITDAX attributable to CNX Shareholders per outstanding share, with shares measured as of January 18, 2019, are not measures of performance calculated in accordance with generally accepted accounting principles. Management believes that these financial measures are useful to an investor in evaluating CNX Resources because (i) analysts utilize these metrics when evaluating company performance and, (ii) given that we have an active share repurchase program, analysts have requested this information as of a recent practicable date, and we want to provide updated information to investors.

Reconciliation of EBIT, EBITDAX, adjusted EBITDAX, adjusted net income (loss), adjusted net income (loss) attributable to CNX shareholders, net debt attributable to CNX shareholders, and TTM EBITDAX to financial net income attributable to CNX Resources shareholders is as follows (dollars in 000):

Management uses net debt to determine the company's outstanding debt obligations that would not be readily satisfied by its cash and cash equivalents on hand. Management believes that using net debt attributable to CNX Resources shareholders is useful to investors in determining the company's leverage ratio since the company could choose to use its cash and cash equivalents to retire debt.

Cautionary Statements

We are including the following cautionary statement in this press release 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 press release are forward-looking statements (as defined in 21E of the Securities Exchange Act of 1934 (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. These 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 press release speak only as of the date of this press release; we disclaim any obligation to update these statements. 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; an extended decline in the prices we receive for our natural gas and natural gas liquids affecting our operating results and cash flows; our dependence on gathering, processing and transportation facilities and other midstream facilities owned by CNXM and others; disruption of, capacity constraints in, or proximity to pipeline systems that could limit sales of our natural gas and natural gas liquids, and decreases in availability of third-party pipelines or other midstream facilities interconnected to CNXM's gathering systems; uncertainties in estimating our economically recoverable natural gas reserves, and inaccuracies in our estimates; the high-risk nature of drilling 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 drilling; challenges associated with strategic determinations, including the allocation of capital and other resources to strategic opportunities; our development and exploration projects, as well as CNXM's midstream system development, require substantial capital expenditures; the impact of potential, as well as any adopted environmental regulations including any relating to greenhouse gas emissions on our operating costs as well as on the market for natural gas and for our securities; environmental regulations can increase costs and introduce uncertainty that could adversely impact the market for natural gas with potential short and long-term liabilities; our operations are subject to operating risks that could increase our operating expenses and decrease our production levels which could adversely affect our results of operations. Our operations are also subject to hazards and any losses or liabilities we suffer from hazards, which occur in our operations may not be fully covered by our insurance policies; 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; changes in assumptions impacting management's estimates of future financial results as well as other assumptions such as movement in the Company's 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, which could impair our profitability; 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; 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 find or acquire economically recoverable natural gas reserves to replace our current natural gas reserves; risks associated with our debt; our borrowing base 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 and 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 fail to perform under various transaction agreements that were executed as part of the separation, including with respect to indemnification obligations; 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 has been allocated responsibility; and the separation could result in substantial tax liability.. Additional factors are described in detail under the captions "Forward Looking Statements" and "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission, as supplemented by our quarterly reports on Form 10-Q.

SOURCE CNX Resources Corporation

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