PITTSBURGH, Oct. 25 /PRNewswire-FirstCall/ -- CNX Gas Corporation
(NYSE:CXG) reported net income for the quarter ended September 30,
2006 of $37.6 million, or $0.25 per diluted share. This is an
increase of 44% when compared with net income of $26.1 million for
the quarter ended September 30, 2005. During the just-ended
quarter, cash-on-hand increased $43.3 million, to $107.6 million.
Production was 14.4 billion cubic feet (Bcf), or 156.8 million
cubic feet per day (MMcf/d), for the quarter ended September 30,
2006, an increase of 15% from the 12.5 Bcf, or 135.7 MMcf/d, for
the quarter ended September 30, 2005. The quarterly production was
a company record. (Logo:
http://www.newscom.com/cgi-bin/prnh/20051213/CNXLOGO) Nicholas J.
DeIuliis, president and chief executive officer, said, "Our results
show that in an environment where gas prices are a concern to the
investment community, CNX Gas can grow production while
accumulating cash and generating a very healthy return on capital.
For the year-to-date, we've shown over 15% organic production
growth, accumulated $87.5 million in cash, and generated an
annualized after-tax return on capital in excess of 21%." TABLE 1
FINANCIAL AND OPERATIONAL RESULTS - Period-To-Period Quarter
Quarter Nine Months Nine Months Ended Ended Ended Ended September
30, September 30, September 30, September 30, 2006 2005 2006 2005
------- ------- ------- ------- Total Revenue and Other Income
$123.6 $176.3 $394.6 $393.4 Net Income $37.6 $26.1 $121.6 $69.6
Earnings per Share - Diluted $0.25 $0.17* $0.81 $0.46* Net Cash
from Operating Activities $77.5 $43.1 $204.3 $124.9 EBITDA $70.3
$51.5 $224.3 $139.5 EBIT $60.7 $42.8 $196.9 $113.6 Total Period
Production (Bcf) 14.4 12.5 41.8 36.1 Average Daily Production
(MMcf) 156.8 135.7 153.2 132.1 Capital Expenditures $34.2 $33.6
$117.3 $70.2 Financial results are in millions of dollars except
per share amounts. Production results are net of royalties. In
2006, a change in the accounting for purchased gas has reduced
Total Revenue and Other Income, along with a corresponding
reduction in purchased gas expense. This change has no effect on
Net Income. Capital Expenditures include investments in equity
affiliates. *Pro forma earnings per share for the 2005 periods
assume the same number of shares outstanding as in 2006. The
average price realized for the company's gas production, including
the effects of hedging, was $6.62 per Mcf for the quarter ended
September 30, 2006. This was 11% higher than the $5.95 per Mcf
received for the quarter ended September 30, 2005. Fully loaded
unit costs for company production, exclusive of royalties, were
$2.85 per Mcf in the just-ended quarter, or 5% higher than the
$2.71 per Mcf for the quarter ended September 30, 2005. As a
result, pre-tax unit margins for company production were $3.77 in
the September 30, 2006 quarter, an increase of 16% from $3.24 in
the September 30, 2005 quarter. Mr. DeIuliis commented on unit
costs and margins, saying, "As you can see from Table 2, our unit
production costs in both the September 2006 quarter and for the
2006 nine months are higher only because of increased
administration costs, primarily as a result of CNX Gas becoming a
stand alone, publicly- traded entity. When adjusting for this, our
unit production costs are actually lower than the comparable 2005
period." Mr. DeIuliis continued, "CNX Gas also owns and operates a
mid-stream business. The cost of running this business is included
in the 'Costs - Gathering' portion of Table 2. Gathering costs are
higher only because of higher transportation costs. These costs are
associated with shipping our gas on the interstate pipeline system.
When the Duke Jewell Ridge lateral becomes operational, I would
expect this category of costs to approach earlier lower levels." "I
am impressed with our operators' ability to keep costs under
control, while not compromising safety. CNX Gas continues to
display some of the lowest costs in the industry." TABLE 2 PRICE
AND COST DATA PER NET MCF - Period-To-Period Comparison Quarter
Quarter Nine Months Nine Months Ended Ended Ended Ended September
30, September 30, September 30, September 30, Per Mcf 2006 2005
2006 2005 ------- ------- ------- ------- Average Sales Price $6.62
$5.95 $7.02 $5.54 Costs - Production Lifting $0.34 $0.35 $0.32
$0.35 Other Production Costs $0.16 $0.23 $0.16 $0.24 Administration
$0.60 $0.40 $0.56 $0.36 DD&A $0.45 $0.48 $0.44 $0.50 Production
Taxes $0.17 $0.22 $0.21 $0.19 ------- ------- ------- ------- Total
Production Costs $1.72 $1.68 $1.69 $1.64 ------- ------- -------
------- Costs - Gathering Operating Costs $0.65 $0.66 $0.66 $0.66
Transportation $0.26 $0.14 $0.27 $0.12 DD&A $0.22 $0.23 $0.23
$0.24 ------- ------- ------- ------- Total Gathering Costs $1.13
$1.03 $1.16 $1.02 ------- ------- ------- ------- Total Costs $2.85
$2.71 $2.85 $2.66 ------- ------- ------- ------- Margin $3.77
$3.24 $4.17 $2.88 ------- ------- ------- ------- Includes amounts
attributable to equity in affiliates. Operations Update During the
third quarter, CNX Gas employees worked another quarter without
having a lost time accident. This raises the cumulative time worked
by employees without a lost time incident to nearly 1.98 million
hours. Also during the quarter, CNX Gas began production from 58
wells in its Virginia Operations (previously known as Central
Appalachia) and five wells in its Mountaineer play in Northern
Appalachia. These figures are exclusive of gob wells. In
Mountaineer, CNX Gas is drilling vertical-to-horizontal CBM wells.
The company expected to achieve peak production rates of nearly 4
Mcf per 100 feet of lateral exposure in the Blacksville area of
this play. As a group, the five wells, though not completely
de-watered, are meeting this expectation. In Tennessee, CNX Gas
participated through its Knox Energy joint venture in 2.81 (net)
wells that began production. In Nittany, the company's new CBM play
in central Pennsylvania, a project manager has been chosen and
initial permitting has begun for two test wells. The design of
these vertical frac wells has been completed and the locations have
been selected. In Cardinal, CNX Gas' New Albany shale play in
western Kentucky, a project manager has also been chosen.
Engineering technical work is being conducted to identify test well
locations. When added to the 130.25 wells CNX Gas brought online in
the first half of 2006, the nine month total is 196.06 net wells.
The company now has a total of nine drilling rigs running, up from
six at year-end 2005. The Duke Jewell Ridge lateral is now expected
to be in-service by November 1, in time for the start of the winter
heating season. Financial Update The company ended the quarter with
cash-on-hand of $107.6 million, an increase of $43.3 million from
June 30, 2006. Capital expenditures were $34.2 million during the
third quarter. The high level of cash build during the quarter was
partly due to the timing of cash tax payments, but the timing had
no impact on the year-to-date cash accumulation of $87.5 million.
CNX Gas has outstanding letters of credit of $16.8 million, but
otherwise has no drawn amounts on its $200 million credit facility.
Mr. DeIuliis further commented, "Our continuing goal is to be an
industry leader in an important metric: return on capital employed
(ROCE). For the first nine months of 2006, we achieved, on an
annualized basis, a 21.9% after- tax return on capital employed. "
Long-term Incentive Program On October 11, the Board of Directors
approved a new Long-Term Incentive Compensation Program for its key
managers, which closely aligns the interests of those managers with
the interests of the company's shareholders. This program replaces
the prior program of annual stock option awards. Philip W. Baxter,
Non-Executive Chairman of the Board, said, "The program pays out on
the metric most important to shareholders -- total shareholder
return relative to peers -- which is easy to understand and
measure. Given the three-year performance period, it will serve as
an important retention tool and encourage our key managers to
continue their superior performance." Guidance The 2006 production
guidance remains unchanged at 55.7 Bcf, and represents a 15% growth
in production from 2005. If CNX Gas were to continue to produce at
the same rate as the third quarter, the full-year production would
be 56.2 Bcf. In October, however, normal and extended interstate
pipeline maintenance, compressor outages, and the concurrent delay
in the start-up of the Jewell Ridge lateral caused us to defer
about 0.2 Bcf in production. The fourth quarter earnings impact of
the deferral, and the burn of some gas in our electric generation
unit, is estimated to be two cents per share. The 2006 capital
expenditures are now projected to be $175 million, down from
earlier estimates of $190 million. A reduction of $10 million was
due to a gas processing unit not being needed in Mountaineer this
year. In 2006, the company expects to drill 250 wells in its
Virginia Operations, and 18 in Mountaineer. TABLE 3 GUIDANCE -
Three-Year 2006 2007 2008 Total Yearly Production (Bcf) 55.7 * *
Production Growth 15% Approx. 15% Approx. 15% Volumes Hedged (Bcf)
17.0 7.4 7.4 Average Hedge Price ($/Mcf) $7.42 $7.67 $7.20 Capital
Expenditures ($MM) $175 * * * The company will provide updated 2007
and 2008 production guidance upon completion of the long-range
planning process, now underway. The company still expects organic
production growth, year-on-year, of 15% through 2008. CNX Gas will
host a conference call today at 10:00 a.m. Eastern time to discuss
the company's third quarter results. The teleconference can be
heard "live" at the investor relations portion of the company web
site: http://www.cnxgas.com/. Description CNX GAS CORPORATION is an
independent natural gas exploration, development, production and
gathering company operating in the Appalachian Basin of the United
States. In May 2006, Business Week cited CNX Gas in its survey of
Hot Growth Companies. Effective June 30, 2006, CNX Gas was added to
the Russell 3000(R) Index and the Russell Midcap(R) Index.
Recently, CNX Gas was named as a finalist by Platts for its
"Hydrocarbon Producer of the Year" award. Contact: Dan Zajdel Vice
President - Investor and Public Relations (412) 854-6719
Definition: EBIT is defined as earnings (excluding cumulative
effect of accounting change) before deducting net interest expense
(interest expense less interest income) and income taxes. EBITDA is
defined as earnings (excluding cumulative effect of accounting
change) before deducting net interest expense (interest expense
less interest income), income taxes, and depreciation, depletion
and amortization. Although EBIT and EBITDA 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 Gas because they are widely used to
evaluate a company's operating performance before debt expense and
its cash flow. EBIT and EBITDA do not purport to represent cash
generated by operating activities and should not be considered in
isolation or as a substitute for measures of performance in
accordance with generally accepted accounting principles. In
addition, because all companies do not calculate EBIT and EBITDA
identically, the presentation here may not be comparable to
similarly titled measures of other companies. Reconciliation of
EBITDA and EBIT to the income statement is as follows: CNX Gas EBIT
& EBITDA Reconciliation (000) Omitted Quarter Quarter Nine
Months Nine Months Ended Ended Ended Ended September 30, September
30, September 30, September 30, 2006 2005 2006 2005 ------- -------
------- ------- Net Income $37,593 $26,070 $121,622 $69,588 Add:
Interest Expense - - 9 - Less: Interest Income 1,071 - 2,169 - Add:
Income Taxes 24,204 16,745 77,432 43,988 ------- ------- -------
------- Earnings Before Interest & Taxes (EBIT) 60,726 42,815
196,894 113,576 Add: Depreciation, Depletion, & Amortization
9,546 8,671 27,437 25,883 ------- ------- ------- ------- EBITDA
$70,272 $51,486 $224,331 $139,459 ------- ------- ------- --------
CNX Gas Capital Employed and Return on Capital Employed (000)
Omitted Capital employed is a measure of net investment. When
viewed from the perspective of how the capital is used, it includes
CNX Gas' property, plant, and equipment and other assets less
liabilities. Capital Employed As of As of September 30, December
31, 2006 2005 ------- ------- Total assets $1,046,836 $874,856 Less
liabilities: Total current liabilities (68,937) (86,158) Total
long-term liabilities (other than indebtedness) (139,711) (109,226)
--------- --------- Total Capital Employed $838,188 $679,472
--------- --------- Return on average capital employed (ROCE) is a
performance measure ratio. ROCE is defined as net income plus
after-tax interest expense, divided by average capital employed.
Below is a calculation of ROCE for the first three quarters of
2006. In order to annualize the result on a compounded basis, a "1"
is added to the nine months' ROCE, before it is raised to the
four-thirds power. Return on Capital Employed Nine Months Ended
September 30, 2006 Net Income $121,622 Financing costs (after-tax):
- Third-party debt - All other financing costs (5) ------ Total
financing costs (5) ------ Earnings excluding financing costs
$121,627 Average capital employed $758,830 Return on average
capital employed (nine months) 16.0% Return on average capital
employed-annualized 21.9% Management believes that ROCE is a useful
measure because it indicates the return on all capital, which
includes equity and debt, employed in the business. Management
believes that ROCE is an additional measure of efficiency when
considered in conjunction with return on equity, which measures the
return on only the shareholders' equity component of total capital
employed. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS Various statements in this release, including those that
express a belief, expectation, or intention, as well as those that
are not statements of historical fact, are forward-looking
statements (as defined in Section 21E of the Securities Exchange
Act of 1934). These statements 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. 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: our
business strategy; our financial position; our cash flow and
liquidity; declines in the prices we receive for our gas affecting
our operating results and cash flow; uncertainties in estimating
our gas reserves; replacing our gas reserves; uncertainties in
exploring for and producing gas; our inability to obtain additional
financing necessary in order to fund our operations, capital
expenditures and to meet our other obligations; disruptions,
capacity constraints in or other limitations on the pipeline
systems which deliver our gas; competition in the gas industry; the
availability of personnel and equipment; increased costs; the
effects of government regulation and permitting and other legal
requirements; legal uncertainties regarding the ownership of the
coalbed methane estate; costs associated with perfecting title for
gas rights in some of our properties; our need to use unproven
technologies to extract coalbed methane in some properties; our
relationships and arrangements with CONSOL Energy; and other
factors discussed under "Risk Factors" in the 10-K for the year
ended December 31, 2005. We are including this cautionary statement
in this 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. CNX GAS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS
OF INCOME (Unaudited) (Dollars in thousands, except per share data)
For the three months ended For the nine months ended September 30,
September 30, 2006 2005 2006 2005 -------------------
---------------------- Revenue and Other Income: Outside Sales $
92,507 $ 71,681 $286,494 $192,878 Related Party Sales 2,719 1,926
5,753 5,325 Royalty Interest Gas Sales 13,221 12,317 41,714 31,059
Purchased Gas Sales 9,076 88,288 41,206 157,545 Other Income 6,044
2,100 19,475 6,627 ----- ----- ------ ------ Total Revenue and
Other Income 123,567 176,312 394,642 393,434 Costs and Expenses:
Lifting Costs 7,295 6,907 21,990 19,087 Gathering and Compression
Costs 13,949 10,696 40,940 29,918 Royalty Interest Gas Costs 10,808
10,042 34,491 24,505 Purchased Gas Costs 9,340 89,653 42,091
159,739 Other 2,265 2,741 6,129 8,335 Equity in (Earnings) Loss of
Affiliates 45 88 (727) 220 General and Administrative 8,522 4,699
23,228 12,171 Depreciation, Depletion and Amortization 9,546 8,671
27,437 25,883 Interest Expense 0 0 9 0 -- -- -- -- Total Costs and
Expenses 61,770 133,497 195,588 279,858 ------ ------- -------
------- Earnings Before Income Taxes 61,797 42,815 199,054 113,576
------ ------- ------- ------- Income Taxes 24,204 16,745 77,432
43,988 ------ ------- ------- ------- Net Income $37,593 $26,070
$121,622 $69,588 ------ ------- ------- ------- Earnings per share:
Basic $0.25 $0.19 $0.81 $0.54 --------- -------- ---------
--------- Diluted $0.25 $0.19 $0.81 $0.54 --------- --------
--------- --------- Weighted Average Number of Common Shares
Outstanding: Basic 150,833,334 139,294,276 150,833,334 128,422,601
----------- ----------- ----------- ----------- Dilutive
151,011,596 139,416,414 150,992,783 128,499,081 -----------
----------- ----------- -----------
http://www.newscom.com/cgi-bin/prnh/20051213/CNXLOGO
http://photoarchive.ap.org/ DATASOURCE: CNX Gas Corporation
CONTACT: Dan Zajdel, Vice President-Investor and Public Relations
of CNX Gas Corporation, +1-412-854-6719, or http://www.cnxgas.com/
Web site: http://www.cnxgas.com/
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