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 ("GAAP") 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 months ended March 31, 2023 are not necessarily indicative of the results that may be expected for future periods.
The Consolidated Balance Sheet at December 31, 2022 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, 2022 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 9, 2023.
Certain amounts in prior periods have been reclassified to conform to the current period presentation.
Cash & Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit at banking institutions as well as all highly liquid short-term securities with original maturities of three months or less.
Receivables
As of March 31, 2023 and December 31, 2022, Accounts Receivable - Trade were $136,208 and $348,458, respectively, and Other Receivables were $8,015 and $6,184, respectively.
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. 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 are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
The following represents activity related to the allowance for credit losses for the three months ended:
| | | | | | | | | | | |
| March 31, |
| 2023 | | 2022 |
Allowance for Credit Losses - Trade, Beginning of Year | $ | 84 | | | $ | 84 | |
Provision for Expected Credit Losses | — | | | — | |
Allowance for Credit Losses - Trade, End of Period | $ | 84 | | | $ | 84 | |
| | | |
Allowance for Credit Losses - Other Receivables, Beginning of Year | $ | 2,937 | | | $ | 3,322 | |
Provision for Expected Credit Losses | (46) | | | 50 | |
Write-off of Uncollectible Accounts | — | | | (124) | |
Allowance for Credit Losses - Other Receivables, End of Period | $ | 2,891 | | | $ | 3,248 | |
NOTE 2—EARNINGS PER SHARE:
Basic earnings per share is computed by dividing net income or net loss 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, restricted stock
units, performance share units and shares issuable upon conversion of CNX's outstanding 2.25% convertible senior notes due May 2026 (the "Convertible Notes") (See Note 9 – Long-Term Debt). The number of additional shares is calculated by assuming that outstanding stock options were exercised, that outstanding restricted stock units and performance share units were released, that the shares that are issuable from the conversion of the Convertible Notes are issued (subject to the considerations discussed further in the paragraph below), and that the proceeds from such activities were used to acquire shares of common stock at the average market price during the reporting period. In periods when CNX recognizes a net loss, the impact of outstanding stock awards and the potential share settlement impact related to CNX's Convertible Notes are excluded from the diluted loss per share calculation as their inclusion would have an anti-dilutive effect.
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 anti-dilutive:
| | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Anti-Dilutive Options | | | | | 10,850 | | | 2,347,218 | |
Anti-Dilutive Restricted Stock Units | | | | | 484,301 | | | 2,493,698 | |
Anti-Dilutive Performance Share Units | | | | | — | | | 2,071,418 | |
| | | | | | | |
| | | | | 495,151 | | | 6,912,334 | |
The Convertible Notes, if converted by the holder, may be settled in cash, shares of the Company's common stock or a combination thereof, at the Company's election. The Company expects to settle the principal amount of the Convertible Notes in cash. ASU 2020-06 amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method (See Note 9 – Long-Term Debt for more information). The if-converted method assumes the conversion of convertible instruments occurs at the beginning of the reporting period and diluted weighted average shares outstanding includes the common shares issuable upon conversion of the convertible instruments. In periods where CNX recognizes net income, the conversion spread has a dilutive impact on diluted earnings per share when the average market price of the Company's common stock for a given period exceeds the initial conversion price of $12.84 per share for the Convertible Notes. In connection with the Convertible Notes' issuance, the Company entered into privately negotiated capped call transactions with certain counterparties (the "Capped Calls" and "Capped Call Transactions"), which were not included in calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.
The table below sets forth the share-based awards that have been exercised or released: | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Options | | | | | 55,993 | | | 83,424 | |
Restricted Stock Units | | | | | 877,087 | | | 915,921 | |
Performance Share Units | | | | | 567,524 | | | 72,353 | |
| | | | | 1,500,604 | | | 1,071,698 | |
The computations for basic and diluted loss per share are as follows: | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Net Income (Loss) | | | | | $ | 710,395 | | | $ | (922,941) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basic Earnings (Loss) Available to Shareholders | | | | | $ | 710,395 | | | $ | (922,941) | |
| | | | | | | |
Effect of Dilutive Securities: | | | | | | | |
Add Back Interest on Convertible Notes (Net of Tax) | | | | | $ | 1,432 | | | $ | — | |
Diluted Earnings (Loss) Available to Shareholders | | | | | $ | 711,827 | | | $ | (922,941) | |
| | | | | | | |
Weighted-Average Shares of Common Stock Outstanding | | | | | 168,452,107 | | | 199,854,257 | |
Effect of Diluted Shares:* | | | | | | | |
Options | | | | | 1,033,194 | | | — | |
Restricted Stock Units | | | | | 970,567 | | | — | |
Performance Share Units | | | | | 937,137 | | | — | |
Convertible Notes | | | | | 25,751,869 | | | — | |
Weighted-Average Diluted Shares of Common Stock Outstanding | | | | | 197,144,874 | | | 199,854,257 | |
| | | | | | | |
Earning (Loss) per Share: | | | | | | | |
| | | | | | | |
| | | | | | | |
Basic | | | | | $ | 4.22 | | | $ | (4.62) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Diluted | | | | | $ | 3.61 | | | $ | (4.62) | |
*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 and the potential share settlement impact related to CNX's Convertible Notes are 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.
Included in Other Revenue and Operating Income in the Consolidated Statements of Income and in the below table are revenues generated from natural gas gathering services provided to third parties. 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 March 31, |
| | | | 2023 | | 2022 |
Revenue from Contracts with Customers: | | | | | | | |
Natural Gas Revenue | | | | | $ | 403,810 | | | $ | 675,274 | |
NGL Revenue | | | | | 46,056 | | | 64,796 | |
Oil/Condensate Revenue | | | | | 5,773 | | | 4,555 | |
Total Natural Gas, NGL and Oil Revenue | | | | | 455,639 | | | 744,625 | |
| | | | | | | |
Purchased Gas Revenue | | | | | 36,812 | | | 45,841 | |
| | | | | | | |
Other Sources of Revenue and Other Operating Income (Loss): | | | | | | | |
Gain (Loss) on Commodity Derivative Instruments | | | | | 762,167 | | | (1,726,394) | |
Other Revenue and Operating Income | | | | | 21,359 | | | 22,830 | |
Total Revenue and Other Operating Income (Loss) | | | | | $ | 1,275,977 | | | $ | (913,098) | |
The disaggregated revenue information corresponds with the Company’s segment reporting found in Note 13 – 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 material contract assets or liabilities under Accounting Standards Codification (ASC) 606. The Company has no contract assets recognized from the costs to obtain or fulfill a contract with a customer.
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 natural gas, NGL and oil 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 $36,527 as of March 31, 2023. The Company expects to recognize net revenue of $20,620 in the next 12 months and $13,086 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, NGL and oil 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 each of the three months ended March 31, 2023 and 2022, 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 months ended March 31, 2023 and 2022 were 23.4% and 26.1%, respectively. The effective tax rate for the three months ended March 31, 2023 differs from the U.S. federal statutory rate of 21.0% primarily due to the impact of equity compensation, federal tax credits, and state taxes primarily due to a West Virginia tax law change. The effective tax rate for the three months ended March 31, 2022 differs from the U.S. federal statutory rate of 21.0% primarily due to the impact of equity compensation and state taxes.
The total amount of uncertain tax positions at March 31, 2023 and December 31, 2022 was $89,341 and $82,245, respectively. If these uncertain tax positions were recognized, approximately $89,341 and $82,245 would affect CNX's effective tax rate at March 31, 2023 and December 31, 2022, respectively. In 2023, CNX recognized an increase in unrecognized tax benefits of $7,096 for tax benefits resulting from tax positions anticipated to be taken on our 2023 federal tax return for additional federal tax credits.
CNX recognizes accrued interest and penalties related to uncertain tax positions in interest expense and income tax expense, respectively. As of March 31, 2023 and December 31, 2022, 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 states. 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 2019.
West Virginia enacted legislation in March 2023 for public companies which allows for a deduction for the deferred tax adjustment as of January 1, 2022 resulting from the change in state apportionment methodology from three factor to single sales factor and elimination of the throw-out rule if the change results in an aggregate increase in net deferred tax liabilities, decrease in net deferred tax assets, or change from a net deferred tax asset to a net deferred tax liability. The deduction is available over a ten-year period beginning with the first tax year on or after January 1, 2033. The Company has recorded a discrete income tax benefit of approximately $15,983 in the Consolidated Statements of Income to reflect the recent legislative change resulting in a decrease to deferred tax liabilities in the Consolidated Balance Sheet.
NOTE 5—PROPERTY, PLANT AND EQUIPMENT: | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Intangible Drilling Cost | $ | 5,668,046 | | | $ | 5,554,021 | |
Gas Gathering Equipment | 2,557,377 | | | 2,542,587 | |
Gas Wells and Related Equipment | 1,394,507 | | | 1,342,719 | |
Proved Gas Properties | 1,362,053 | | | 1,345,114 | |
Unproved Gas Properties | 726,114 | | | 734,890 | |
Surface Land and Other Equipment | 192,905 | | | 193,153 | |
Other | 198,210 | | | 195,214 | |
Total Property, Plant and Equipment | 12,099,212 | | | 11,907,698 | |
Less: Accumulated Depreciation, Depletion and Amortization | 4,913,268 | | | 4,811,189 | |
| | | |
Total Property, Plant and Equipment - Net | $ | 7,185,944 | | | $ | 7,096,509 | |
| | | |
NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS:
Goodwill:
All goodwill is attributed to the Midstream reporting unit within the Shale 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.
The accumulated impairment loss on goodwill is $473,045, resulting in a carrying value of $323,314, at both March 31, 2023 and December 31, 2022.
Other Intangible Assets:
The carrying amount and accumulated amortization of other intangible assets consist of the following: | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Other Intangible Assets: | | | |
Gross Amortizable Asset - Customer Relationships | $ | 109,752 | | | $ | 109,752 | |
Less: Accumulated Amortization - Customer Relationships | 34,400 | | | 32,762 | |
Total Other Intangible Assets, net | $ | 75,352 | | | $ | 76,990 | |
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 March 31, 2023 and $1,639 for the three months ended March 31, 2022. 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:
On May 5, 2022, CNX amended its Third Amended and Restated Credit Agreement dated October 6, 2021, which provides for a senior secured revolving credit facility (as amended, the "CNX Credit Agreement"). Revisions were made to replace LIBOR as a benchmark interest rate with SOFR, or the secured overnight financing rate. Following the amendment, CNX remains the borrower and certain of its subsidiaries (not including CNXM, its subsidiaries or general partner) as guarantor loan parties on the CNX Credit Agreement. The CNX Credit Agreement replaced the prior CNX revolving credit facility and remains subject to semi-annual redetermination. The CNX Credit Agreement has a $2,250,000 borrowing base and $1,300,000 in elected commitments, including borrowings and letters of credit. The CNX Credit Agreement matures on October 6, 2026, provided that if at any time on or after January 30, 2026 availability under the CNX Credit Agreement minus the aggregate principal amount of any and all such outstanding Convertible Notes is less than 20% of the aggregate commitments under the CNX Credit Agreement (the first such date, the "Springing Maturity Date"), then the CNX Credit Agreement will mature on the Springing Maturity Date.
In addition to refinancing all outstanding amounts under the prior CNX revolving credit facility, borrowings under the CNX Credit Agreement may be used by CNX for general corporate purposes.
Under the terms of the CNX Credit Agreement, borrowings will bear interest at CNX's option at either:
•the highest of (i) PNC Bank, National Association’s prime rate, (ii) the federal funds open rate plus 0.50%, and (iii) the one-month SOFR rate plus 1.0%, in each case, plus a margin ranging from 0.75% to 1.75%; or
•the one-month SOFR rate plus a margin ranging from 1.85% to 2.85%.
The availability under the CNX Credit Agreement, including availability for letters of credit, is generally limited to a borrowing base, which is determined by the required number of lenders in good faith by calculating a loan value of the Company’s proved reserves.
The CNX Credit Agreement also requires that CNX maintain a maximum net leverage ratio of no greater than 3.50 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 derivative asset/liability position, and convertible note liability until one year prior to maturity, and borrowings under the revolver, measured quarterly. The calculation of all of the ratios excludes CNX Gathering and CNXM and its subsidiaries. CNX was in compliance with all financial covenants as of March 31, 2023.
At March 31, 2023, the CNX Credit Agreement had $13,800 of borrowings outstanding, with a weighted average interest rate of 8.75%, and $141,936 of letters of credit outstanding, leaving $1,144,264 of unused capacity. At December 31, 2022, the CNX Credit Agreement had no borrowings outstanding and $171,272 of letters of credit outstanding, leaving $1,128,728 of unused capacity.
CNX Midstream Partners LP (CNXM):
On May 5, 2022 CNXM amended its Amended and Restated Credit Agreement dated October 6, 2021, which provides for a $600,000 senior secured revolving credit facility (as amended, the "CNXM Credit Agreement") that matures on October 6, 2026. Revisions were made to replace LIBOR as a benchmark interest rate with SOFR. CNXM remains the borrower and certain of its subsidiaries remain as guarantor loan parties on the CNXM Credit Agreement. The CNXM Credit Agreement replaced the prior CNXM revolving credit facility and is not subject to semi-annual redetermination. CNX is not a guarantor under the CNXM Credit Agreement.
In addition to refinancing all outstanding amounts under the prior CNXM revolving credit facility, borrowings under the CNXM Credit Agreement may be used by CNXM for general corporate purposes.
Interest on outstanding indebtedness under the CNXM Credit Agreement currently accrues, at CNXM's option, at a rate based on either:
•the highest of (i) PNC Bank, National Association’s prime rate, (ii) the federal funds open rate plus 0.50%, and (iii) the one-month SOFR rate plus 1.0%, in each case, plus a margin ranging from 1.00% to 2.00%; or
•the one-month SOFR rate plus a margin ranging from 2.10% to 3.10%.
In addition, CNXM is obligated to maintain at the end of each fiscal quarter (x) a maximum net leverage ratio of no greater than between 5.00 to 1.00 ranging to no greater than 5.25 to 1.00 in certain circumstances; (y) a maximum secured leverage ratio of no greater than 3.25 to 1.00; and (z) a minimum interest coverage ratio of no less than 2.50 to 1.00; in each case as calculated in accordance with the terms and definitions determining such ratios contained in the CNXM Credit Agreement. CNXM was in compliance with all financial covenants as of March 31, 2023.
At March 31, 2023, the CNXM Credit Agreement had $136,000 of borrowings outstanding, with a weighted average interest rate of 6.87% and no letters of credit outstanding, leaving $464,000 of unused capacity. At December 31, 2022, the CNXM Credit Agreement had $153,700 of borrowings outstanding, with a weighted average interest rate of 6.45%, and $30 of letters of credit outstanding, leaving $446,270 of unused capacity.
NOTE 8—OTHER ACCRUED LIABILITIES: | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Royalties | $ | 102,054 | | | $ | 144,482 | |
Accrued Interest | 38,960 | | | 36,744 | |
Deferred Revenue | 18,596 | | | 22,095 | |
Transportation Charges | 12,788 | | | 12,808 | |
Accrued Other Taxes | 7,976 | | | 14,067 | |
Accrued Payroll & Benefits | 7,262 | | | 6,318 | |
Short-Term Incentive Compensation | 3,227 | | | 18,956 | |
Purchased Gas Payable | 1,520 | | | 5,266 | |
Other | 9,865 | | | 18,142 | |
Current Portion of Long-Term Liabilities: | | | |
Asset Retirement Obligations | 9,735 | | | 9,735 | |
Salary Retirement | 1,891 | | | 1,878 | |
Total Other Accrued Liabilities | $ | 213,874 | | | $ | 290,491 | |
NOTE 9—LONG-TERM DEBT: | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Senior Notes due January 2029 at 6.00%, Issued at Par Value | $ | 500,000 | | | $ | 500,000 | |
Senior Notes due January 2031 at 7.375% (Principal of $500,000 less Unamortized Discount of $5,873 and $6,061, respectively) | 494,127 | | | 493,939 | |
CNX Midstream Partners LP Senior Notes due April 2030 at 4.75% (Principal of $400,000 less Unamortized Discount of $4,086 and $4,231, respectively)* | 395,914 | | | 395,769 | |
Senior Notes due March 2027 at 7.25% (Principal of $350,000 plus Unamortized Premium of $2,131 and $2,266, respectively) | 352,131 | | | 352,266 | |
Convertible Senior Notes due May 2026 at 2.25% (Principal of $330,654 less Unamortized Discount and Issuance Costs of $5,997 and $6,460, respectively) | 324,657 | | | 324,194 | |
CNX Midstream Partners LP Revolving Credit Facility* | 136,000 | | | 153,700 | |
CNX Revolving Credit Facility | 13,800 | | | — | |
Less: Unamortized Debt Issuance Costs | 13,521 | | | 14,133 | |
Long-Term Debt | $ | 2,203,108 | | | $ | 2,205,735 | |
*CNX is not a guarantor of CNXM's 4.75% Senior Notes due April 2030 or CNXM's Credit Facility.
In April 2020, CNX issued $345,000 in aggregate principal amount of Convertible Notes due May 2026 ("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 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 Convertible Notes are guaranteed by most of CNX's subsidiaries but does not include CNXM (or its subsidiaries or general partner).
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 Convertible Notes only upon the occurrence of the following events:
•during any calendar quarter (and only during such calendar quarter) commencing after 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 in the indenture, 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 CNX calls any or all of the Convertible 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’s current intent is to settle the principal 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 Convertible 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. At March 31, 2023, the conditions allowing holders of the Convertible Notes to exercise their conversion right were not met and as of March 31, 2023, the Convertible Notes were not convertible. The Convertible Notes are therefore classified as long-term debt at March 31, 2023.
On January 1, 2022, the Company adopted Accounting Standards Update (ASU) 2020-06 - Accounting for Convertible Instruments and Contracts in an Entity's Own Equity using the modified transition approach with the cumulative effect recognized as an adjustment to the opening balance of retained earnings. This guidance is applicable to the Convertible Senior Notes that were issued in April 2020, for which the embedded conversion option was required to be separately accounted for as a component of stockholders’ equity. Upon adoption on January 1, 2022, long-term debt increased by $82,327 representing the net impact of two adjustments: (1) the $107,260 value of the embedded conversion, which is net of allocated offering costs, previously classified in additional paid-in-capital in stockholders’ equity, and (2) a $24,933 increase to retained earnings for the cumulative effect of adoption primarily related to the non-cash interest expense recorded for the amortization of the portion of the Convertible Notes allocated to stockholders’ equity. In addition, there was a decrease of $22,990 to deferred income taxes, a $5,986 decrease to retained earnings, and a $78,284 decrease in stockholders' equity in the Consolidated Balance Sheet. Prospectively, the reported interest expense for the Convertible Notes will no longer include the non-cash interest expense of the equity component as required under prior accounting standards and will be equal to the 2.25% cash coupon rate. Also, as required by the new accounting guidance, the Company will use the if-converted method instead of the treasury stock method for the assumed conversion of the Convertible Notes on a prospective basis when calculating diluted earnings per share.
Prior to the adoption of ASU 2020-06 - Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, the Convertible 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, which represent 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 principal value of the Convertible Notes and was recorded in Capital in Excess of Par Value in the Consolidated Statement of Stockholders Equity and was not remeasured as long as it continued 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 was amortized to interest expense over the contractual term of the Convertible Notes using the effective interest method.
In accounting for the debt issuance costs of $10,350, the Company allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds of the Convertible Notes. Issuance costs attributable to the liability component were $7,024 and were being 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.
The net carrying amount of the liability and equity components of the Convertible Notes was as follows:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Liability Component: | | | |
Principal | $ | 330,654 | | | $ | 330,654 | |
| | | |
Unamortized Issuance Costs | (5,997) | | | (6,460) | |
Net Carrying Amount | $ | 324,657 | | | $ | 324,194 | |
| | | |
Fair Value | $ | 460,548 | | | $ | 483,581 | |
Fair Value Hierarchy | Level 2 | | Level 2 |
| | | |
| | | |
Interest expense related to the Convertible Notes is as follows:
| | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Contractual Interest Expense | $ | 1,860 | | | $ | 1,941 | | | | | |
| | | | | | | |
Amortization of Issuance Costs | 463 | | | 471 | | | | | |
Total Interest Expense | $ | 2,323 | | | $ | 2,412 | | | | | |
In connection with the offering of the Convertible 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 Convertible 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 Convertible Notes, and are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Convertible 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 Convertible Notes. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Convertible 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.
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 and CONSOL Energy Inc. ("CONSOL'") in federal court contending that the Sold Subsidiaries were last signatory operators and that CNX and CONSOL 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 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. On March 29, 2022, the Court denied the Defendants’ Motions to Dismiss and we are now defending this action on the merits. Further, under the Separation and Distribution Agreement that was entered into at the time we spun-out our coal business in 2017, CONSOL agreed to indemnify CNX for all coal-related liabilities, including this lawsuit. With respect to this matter, although a loss is possible, it is not probable, and accordingly no accrual has been recognized.
On July 22, 2021, CNX received a letter from the UMWA 1974 Pension Plan requesting information related to the facts and circumstances surrounding the 2013 sale of certain of its coal subsidiaries to Murray Energy. The letter indicates that litigation related to potential withdrawal liabilities from the plan created by the 2019 bankruptcy of Murray Energy is
reasonably foreseeable. At this time, no liability has been assessed. Under the Separation and Distribution Agreement that was entered into at the time we spun-out our coal business in 2017, CONSOL agreed to indemnify CNX for all coal-related liabilities including any potential withdrawal liabilities.
At March 31, 2023, 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 CNX's 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 | $ | 138,849 | | | $ | 138,849 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | |
Other | 3,087 | | | 3,087 | | | — | | | — | | | — | |
Total Letters of Credit | 141,936 | | | 141,936 | | | — | | | — | | | — | |
Surety Bonds: | | | | | | | | | |
Employee-Related | 2,250 | | | 2,250 | | | — | | | — | | | — | |
Environmental | 11,689 | | | 10,259 | | | 1,430 | | | — | | | — | |
Firm Transportation | 29,336 | | | 29,336 | | | — | | | — | | | — | |
Financial Guarantees | 81,270 | | | 81,270 | | | — | | | — | | | — | |
Other | 8,637 | | | 7,562 | | | 1,075 | | | — | | | — | |
Total Surety Bonds | 133,182 | | | 130,677 | | | 2,505 | | | — | | | — | |
Total Commitments | $ | 275,118 | | | $ | 272,613 | | | $ | 2,505 | | | $ | — | | | $ | — | |
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 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 will satisfy its obligations to indemnify CNX in the event that CNX is so called upon (See "Item 1A. Risk Factors" in CNX's 2022 Annual Report on Form 10-K as filed with the SEC on February 9, 2023 ("2022 Form 10-K") 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 March 31, 2023, the purchase obligations for each of the next five years and beyond are as follows:
| | | | | |
Obligations Due | Amount |
Less than 1 year | $ | 246,604 | |
1 - 3 years | 445,447 | |
3 - 5 years | 361,688 | |
More than 5 years | 687,606 | |
Total Purchase Obligations | $ | 1,741,345 | |
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 is 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 an interest rate swap agreement, inclusive of a put option at zero basis points, related to $160,000 of borrowings under the CNX Credit Facility which has the economic effect of modifying the variable-interest obligation into a fixed-interest obligation over a four year period.
In March 2020, CNX entered into a four-year interest rate swap related to an additional $250,000 of borrowings under the CNX Credit Facility, inclusive of a put option at zero basis points, effective April 3, 2020. In December 2020, CNX executed an offsetting $250,000 interest rate swap, effective immediately, which expires in April 2024. Consistent with the previous interest rate swap agreements, the $250,000 interest rate swaps were 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 natural gas and NGL price fluctuations. Typically, CNX "sells" swaps under which it receives a fixed price from counterparties and pays a floating market price. In order to lock in certain margins while balancing its basis hedges, during the first quarter of 2022, CNX purchased, rather than sold, financial natural gas swaps for the period April through October of 2022. Under these purchased financial swaps, CNX pays a fixed price to, and receives a floating price from, its hedge counterparties. Purchased swaps have the effect of reducing total hedged volumes for the period of the swap. 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 applicable 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: | | | | | | | | | | | | | | | | | |
| March 31, | | December 31, | | Forecasted to |
| 2023 | | 2022 | | Settle Through |
Natural Gas Commodity Swaps (Bcf) | 1,631.9 | | | 1,607.9 | | | 2027 |
Natural Gas Basis Swaps (Bcf) | 1,005.5 | | | 1,023.7 | | | 2027 |
Propane Commodity Swaps (Mbbls) | 292.0 | | — | | | 2024 |
Interest Rate Swaps | $ | 410,000 | | | $ | 410,000 | | | 2024 |
The gross fair value of CNX's derivative instruments was as follows: | | | | | | | | | | | |
| March 31, | | December 31, |
| 2023 | | 2022 |
Current Assets: | | | |
Commodity Derivative Instruments: | | | |
Commodity Swaps | $ | 106,198 | | | $ | 21,759 | |
Propane Swaps | 631 | | | — | |
Basis Only Swaps | 38,618 | | | 118,115 | |
Interest Rate Swaps | 14,347 | | | 14,600 | |
Total Current Assets | $ | 159,794 | | | $ | 154,474 | |
| | | |
Other Non-Current Assets: | | | |
Commodity Derivative Instruments: | | | |
Commodity Swaps | $ | 85,035 | | | $ | 42,786 | |
Basis Only Swaps | 122,480 | | | 197,280 | |
Interest Rate Swaps | 1,418 | | | 4,865 | |
Total Other Non-Current Assets | $ | 208,933 | | | $ | 244,931 | |
| | | |
Current Liabilities: | | | |
Commodity Derivative Instruments: | | | |
Commodity Swaps | $ | 185,159 | | | $ | 732,717 | |
Propane Swaps | 33 | | | — | |
Basis Only Swaps | 46,407 | | | 38,559 | |
Interest Rate Swaps | 11,301 | | | 11,377 | |
Total Current Liabilities | $ | 242,900 | | | $ | 782,653 | |
| | | |
Non-Current Liabilities: | | | |
Commodity Derivative Instruments: | | | |
Commodity Swaps | $ | 1,081,287 | | | $ | 1,466,124 | |
Basis Only Swaps | 42,735 | | | 47,370 | |
Interest Rate Swaps | 862 | | | 3,527 | |
Total Non-Current Liabilities | $ | 1,124,884 | | | $ | 1,517,021 | |
The effect of commodity derivative instruments on the Company's Consolidated Statements of Income was as follows: | | | | | | | | | | | | | | | | | | |
| | | | For the Three Months Ended |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
Realized (Loss) Gain on Commodity Derivative Instruments: | | | | | | | | |
Natural Gas Commodity Swaps | | | | | | $ | (49,926) | | | $ | (271,819) | |
| | | | | | | | |
Natural Gas Basis Swaps | | | | | | (11,106) | | | 977 | |
Total Realized Loss on Commodity Derivative Instruments | | | | | | (61,032) | | | (270,842) | |
| | | | | | | | |
Unrealized Gain (Loss) on Commodity Derivative Instruments: | | | | | | | | |
Natural Gas Commodity Swaps | | | | | | 980,836 | | | (1,654,113) | |
Natural Gas Basis Swaps | | | | | | (158,235) | | | 198,561 | |
Propane Swaps | | | | | | 598 | | | — | |
Total Unrealized Gain (Loss) on Commodity Derivative Instruments | | | | | | 823,199 | | | (1,455,552) | |
| | | | | | | | |
Gain (Loss) on Commodity Derivative Instruments: | | | | | | | | |
Natural Gas Commodity Swaps | | | | | | 930,910 | | | (1,925,932) | |
Natural Gas Basis Swaps | | | | | | (169,341) | | | 199,538 | |
Propane Swaps | | | | | | 598 | | | — | |
Total Gain (Loss) on Commodity Derivative Instruments | | | | | | $ | 762,167 | | | $ | (1,726,394) | |
The effect of interest rate swaps on Interest Expense in the Company's Consolidated Statements of Income was as follows:
| | | | | | | | | | | | | | | | | | |
| | | | For the Three Months Ended |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
Cash Received (Paid) in Settlement of Interest Rate Swaps | | | | | | $ | 799 | | | $ | (937) | |
Unrealized (Loss) Gain on Interest Rate Swaps | | | | | | (960) | | | 5,223 | |
(Loss) Gain on Interest Rate Swaps | | | | | | $ | (161) | | | $ | 4,286 | |
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 and SOFR-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 and SOFR-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 March 31, 2023 | | Fair Value Measurements at December 31, 2022 |
Description | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
Gas Derivatives | $ | — | | | $ | (1,002,659) | | * | $ | — | | | $ | — | | | $ | (1,904,830) | | ** | $ | — | |
Interest Rate Swaps | $ | — | | | $ | 3,602 | | | $ | — | | | $ | — | | | $ | 4,561 | | | $ | — | |
| | | | | | | | | | | |
*Includes $1,311 of gas derivatives that have been settled but not received.
**Includes $77,662 of gas derivatives that have been settled but not paid.
The carrying amounts and fair values of financial instruments for which the fair value option was not elected are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Cash and Cash Equivalents | $ | 2,799 | | | $ | 2,799 | | | $ | 21,321 | | | $ | 21,321 | |
| | | | | | | |
| | | | | | | |
Long-Term Debt (Excluding Debt Issuance Costs) | $ | 2,216,629 | | | $ | 2,256,540 | | | $ | 2,219,868 | | | $ | 2,240,919 | |
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—SEGMENT INFORMATION:
The Company reports segment information based on the "management" approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.
The Company evaluates the performance of its reportable segments based on total revenue and other operating income and operating expenses directly attributable to that segment. Certain expenses are managed outside the reportable segments and therefore are not allocated. These expenses include, but are not limited to, interest expense and other corporate expenses such as selling, general and administrative costs.
CNX's principal activity is to produce pipeline quality natural gas for sale primarily to gas wholesalers and the Company has two reportable segments that conducts those operations: Shale and Coalbed Methane. The Other Segment includes nominal 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, exploration and production related other costs, new technologies, as well as various other expenses that are managed outside the reportable segments as discussed above. Operating profit for each segment is based on sales less identifiable operating and non-operating expenses.
Industry segment results for the three months ended March 31, 2023 are:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shale | | Coalbed Methane | | Other | | Consolidated | | | | | | | | | |
Natural Gas, NGLs and Oil Revenue | | | $ | 407,198 | | | $ | 48,036 | | | $ | 405 | | | $ | 455,639 | | | | | | | | | | (A) |
Purchased Gas Revenue | | | — | | | — | | | 36,812 | | | 36,812 | | | | | | | | | | |
(Loss) Gain on Commodity Derivative Instruments | | | (56,336) | | | (4,672) | | | 823,175 | | | 762,167 | | | | | | | | | | |
Other Revenue and Operating Income | | | 16,754 | | | — | | | 4,605 | | | 21,359 | | | | | | | | | | (B) |
Total Revenue and Other Operating Income | | | $ | 367,616 | | | $ | 43,364 | | | $ | 864,997 | | | $ | 1,275,977 | | | | | | | | | | |
Total Operating Expense | | | $ | 188,117 | | | $ | 36,420 | | | $ | 96,062 | | | $ | 320,599 | | | | | | | | | | |
Earnings Before Income Tax | | | $ | 179,499 | | | $ | 6,944 | | | $ | 741,513 | | | $ | 927,956 | | | | | | | | | | |
Segment Assets | | | $ | 6,536,697 | | | $ | 955,280 | | | $ | 848,168 | | | $ | 8,340,145 | | | | | | | | | | (C) |
Depreciation, Depletion and Amortization | | | $ | 88,110 | | | $ | 12,447 | | | $ | 4,665 | | | $ | 105,222 | | | | | | | | | | |
Capital Expenditures | | | $ | 159,349 | | | $ | 9,459 | | | $ | 1,220 | | | $ | 170,028 | | | | | | | | | | |
(A) Included in Total Natural Gas, NGLs and Oil Revenue are sales of $55,101 to Direct Energy Business Marketing LLC, which comprises over 10% of revenue from contracts with external customers for the period.
(B) Includes midstream revenue of $16,754 and equity in earnings of unconsolidated affiliates of $114 for Shale and Other, respectively.
(C) Includes investments in unconsolidated equity affiliates of $11,828.
Industry segment results for the three months ended March 31, 2022 are:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shale | | Coalbed Methane | | Other | | Consolidated | | | | | | | | | |
Natural Gas, NGLs and Oil Revenue | | | $ | 680,811 | | | $ | 63,373 | | | $ | 441 | | | $ | 744,625 | | | | | | | | | | (D) |
| | | | | | | | | | | | | | | | | | |
Purchased Gas Revenue | | | — | | | — | | | 45,841 | | | 45,841 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Loss on Commodity Derivative Instruments | | | (249,458) | | | (21,280) | | | (1,455,656) | | | (1,726,394) | | | | | | | | | | |
Other Revenue and Operating Income | | | 17,657 | | | — | | | 5,173 | | | 22,830 | | | | | | | | | | (E) |
Total Revenue and Other Operating Income (Loss) | | | $ | 449,010 | | | $ | 42,093 | | | $ | (1,404,201) | | | $ | (913,098) | | | | | | | | | | |
Total Operating Expense | | | $ | 197,429 | | | $ | 30,580 | | | $ | 94,460 | | | $ | 322,469 | | | | | | | | | | |
Earnings (Loss) Before Income Tax | | | $ | 251,581 | | | $ | 11,513 | | | $ | (1,511,599) | | | $ | (1,248,505) | | | | | | | | | | |
Segment Assets | | | $ | 6,020,173 | | | $ | 1,032,602 | | | $ | 1,170,749 | | | $ | 8,223,524 | | | | | | | | | | (F) |
Depreciation, Depletion and Amortization | | | $ | 101,444 | | | $ | 13,239 | | | $ | 3,940 | | | $ | 118,623 | | | | | | | | | | |
Capital Expenditures | | | $ | 118,800 | | | $ | 2,395 | | | $ | 1,121 | | | $ | 122,316 | | | | | | | | | | |
(D) Included in Total Natural Gas, NGLs and Oil Revenue are sales of $91,992 to Direct Energy Business Marketing LLC and $86,564 to Citadel Energy Marketing LLC, each of which comprises over 10% of revenue from contracts with external customers for the period.
(E) Includes midstream revenue of $17,657 and equity in earnings of unconsolidated affiliates of $800 for Shale and Other, respectively.
(F) Includes investments in unconsolidated equity affiliates of $15,602.
Reconciliation of Segment Information to Consolidated Amounts:
Revenue and Other Operating Income (Loss) | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, |
| | | | 2023 | | 2022 |
Total Segment Revenue from Contracts with External Customers | | | | | $ | 509,205 | | | $ | 808,123 | |
Gain (Loss) on Commodity Derivative Instruments | | | | | 762,167 | | | (1,726,394) | |
Other Operating Income | | | | | 4,605 | | | 5,173 | |
Total Consolidated Revenue and Other Operating Income (Loss) | | | | | $ | 1,275,977 | | | $ | (913,098) | |
NOTE 14—STOCK REPURCHASE:
On January 26, 2021, the Company’s Board of Directors approved an increase in the aggregate amount of the previous $750,000 stock repurchase program plan to $900,000, and on October 25, 2021, the Board of Directors approved an additional increase in the aggregate amount of the stock repurchase program plan to $1,900,000. As of March 31, 2023 the amount available under the stock repurchase program is $354,108, and is not subject to an expiration date. The repurchases may be effected 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 three months ended March 31, 2023, 5,838,635 shares were repurchased and retired at an average price of $15.88 per share for a total cost of $93,536 which includes the one-percent excise tax under the Inflation Reduction Act of 2022. During the three months ended March 31, 2022, 9,081,396 shares were repurchased and retired at an average price of $16.60 per share for a total cost of $150,975.
NOTE 15—SUPPLEMENTAL CASH FLOW INFORMATION:
The following are non-cash transactions that impact the investing and financing activities of CNX.
As of March 31, 2023 and December 31, 2022, CNX purchased goods and services related to capital projects in the amount of $44,512 and $56,052, respectively, which are included in accounts payable.
The following table shows cash paid:
| | | | | | | | | | | |
| For the Three Months Ended March 31, |
| 2023 | | 2022 |
Interest (Net of Amounts Capitalized) | $ | 30,094 | | | $ | 43,901 | |
Income Taxes | $ | 3,500 | | | $ | — | |
NOTE 16—RECENT ACCOUNTING PRONOUNCEMENTS:
CNX has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe any of these pronouncements will have a material impact on the Company.