OilVoice - CNX Gas Reports Quarterly Net Income of $41.1 Million

CNX Gas Reports Quarterly Net Income of $41.1 Million

Thursday, January 28, 2010

CNX Gas Corporation, a leading Appalachian producer, reported net income attributable to CNX Gas shareholders of $41.1 million, or $0.27 per diluted share, for the quarter ended December 31, 2009. This compares to $57.5 million, or $0.38 per diluted share, for the quarter ended December 31, 2008. Annual 2009 net income attributable to CNX Gas shareholders was $164.5 million, or $1.09 per share, compared to $239.1 million, or $1.58 per share, in 2008.

Production was 25.1 billion cubic feet (Bcf), or 273 million cubic feet (MMcf) per day, for the quarter ended December 31, 2009. This was the third consecutive quarterly production record, and 13% higher than the 22.2 Bcf, or 242 MMcf per day, for the year-ago quarter. Annual 2009 production was 94.4 Bcf, an increase of 23% over the 76.6 Bcf produced in 2008.

"CNX Gas ended 2009 on a very strong footing. Once again, we set another quarterly production record, and our employees continued working safely, having passed the 4-million hour mark without incurring a lost-time incident," said J. Brett Harvey, chairman and chief executive officer. "With our increasing Virginia coalbed methane production and our continued Marcellus Shale success, we expect 2010 production of 100 Bcf. To support this goal, we have contracted for a second horizontal rig to begin drilling in the Marcellus Shale on March 1.

"CNX Gas increased production by 23% in 2009 while paying down about $15 million of debt. And as we reported earlier this week, we also increased our proved reserves in 2009 by one-half trillion cubic feet (Tcf), or 34%, to 1.9 Tcf. When viewed together with our 2009 return on capital employed of 10.6% on an after-tax basis, there is no doubt that CNX Gas is a premier company in the E&P industry."

Central Appalachia Operations
Total production in Central Appalachia, which includes Virginia CBM and Chattanooga Shale, was 19.2 Bcf in the quarter ended December 31, 2009. This was 1.2 Bcf higher than the 18.0 Bcf produced in the quarter ended December 31, 2008. The Central Appalachia December run rate was 199 MMcf per day.

CNX Gas drilled 201 vertical frac wells in its Virginia CBM Operations during the year, exceeding the goal of 175. CNX Gas expects to drill 175 wells in Virginia in 2010 with a drilling budget of $50 million.

For 2010, CNX Gas expects to drill 25 Chattanooga Shale wells for about $28 million, and five Huron Shale wells for about $12 million.

Northern Appalachia Operations
Total production in Northern Appalachia, which includes Mountaineer CBM, Nittany CBM, and Marcellus Shale, was 5.9 Bcf in the quarter ended December 31, 2009. This was 1.7 Bcf more than the 4.2 Bcf produced in the quarter ended December 31, 2008. The Northern Appalachia December run rate was 63 MMcf per day.

Of this Northern Appalachian production, 1.5 Bcf was from the Marcellus Shale in the just-ended quarter, versus less than 0.1 Bcf in the same quarter last year.

No coalbed methane wells were drilled in Northern Appalachia in the just-ended quarter. For 2010, CNX Gas expects to drill 5 horizontal CBM wells in Mountaineer and some ancillary wells for about $17 million.

In the Marcellus Shale, CNX Gas drilled, completed, and brought online one vertical well and two horizontal wells. The first of the two horizontal wells, GH 11C CV, has shown a 30-day daily production rate of 1.6 MMcf. This well has only 1,600 lateral feet, due to acreage constraints. The second horizontal well, GH 11B CV, is currently producing from only the first two frac stages at a 30-day production rate of 0.8 MMcf. This 1,800-ft lateral well is expected to see more normal levels of production when the remaining 3 stages are fraced.

For the entire horizontal Marcellus Shale program to date, 13 horizontal wells have been drilled. The reserves associated with the first 11 wells total 35.6 Bcf, or about 3.3 Bcf per well. The laterals on these wells averaged less than 2,000 feet.

Upcoming drilling in the Marcellus Shale is expected to be predominantly horizontal and on multiple-well pads, with laterals closer to 3,000 feet. For 2010, the company expects to drill approximately two dozen horizontal wells, with a drilling budget of about $110 million.

CNX Gas successfully increased its acreage with Marcellus Shale potential by 20,000 in the quarter, to a year-end total of 250,000. Of this, approximately 170,000 acres is considered to be Tier 1. The company remains committed to expanding its footprint to 400,000 acres.

Financial Update
The company continues to monitor and evaluate capital spending to ensure adequate liquidity and to preserve options for possible external investment. With regard to capital, CNX Gas intends to spend largely within its net cash from operating activities for 2010. Capital expenditures are targeted for $400 million, with $221 for drilling, $121 million for midstream, and the remainder for land.

The company ended the quarter with $57.8 million drawn on its $200 million credit facility. The amount drawn is down $15.2 million from September 30, 2009. Cash on hand was $1.1 million.

CNX Gas also has outstanding letters of credit of $14.9 million. Total funds available are $128.4 million.

Return on capital employed for the year was 10.6%, on an after tax basis, compared to 18.5% in 2008.