CNX RESOURCES CORPORATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Form 10-Q. The information provided below supplements, but does not form part of, CNX's financial statements. This discussion contains forward-looking statements that are based on the current views and beliefs of management, as well as assumptions and estimates made by management. Actual results could differ materially from any such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on items that could impact future operating performance or financial condition, please see "Part II. Item 1A. Risk Factors" and the section entitled "Forward-Looking Statements" contained in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , which we filed with theSEC onFebruary 10, 2022 . CNX does not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
General
CNX continually monitors factors that could cause actual results of operations to differ from historical results or current expectations. Examples include the conflict betweenRussia andUkraine that has had an impact on global commodity prices. These and other factors could affect the Company's operations, earnings and cash flows for any period and could cause such results to not be comparable to those of the same period in previous years. The results presented in this Form 10-Q are not necessarily indicative of future operating results.
Inflation
Heightened levels of inflation, primarily related to steel, diesel fuel and labor, continue to present risk for CNX and the broader natural gas industry. CNX experienced higher capital costs from inflation in the first nine months of 2022, if inflation continues at its current levels or increases further for any extended period of time, and CNX is unable to successfully mitigate the impact, our costs could increase further, having a greater impact on our financial position. Rising interest rates could also increase our borrowing costs on new debt and could affect the fair value of our investments. CNX remains committed to our ongoing efforts to increase the efficiency of our operations and improve costs, which may, in part, offset cost increases from inflation.
Hedging Update:
Total hedged natural gas production in the fourth quarter of 2022 is 118.5(1) Bcf. CNX's annual gas hedge position is shown in the table below:
2022 2023
Volumes Hedged (Bcf), as of
1Net of purchased swaps.
2Includes actual settlements of 378.6 Bcf.
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. For further information see Item 3 Quantitative and Qualitative
Disclosures About Market Risk.
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Results of Operations - Three Months Ended
Net Loss
CNX reported a net loss of$427 million , or a loss per diluted share of$2.28 , for the three months endedSeptember 30, 2022 , compared to a net loss of$873 million , or a loss per diluted share of$4.05 , for the three months endedSeptember 30, 2021 . Included in the loss for the three months endedSeptember 30, 2022 was an unrealized loss on commodity derivative instruments of$411 million . Included in the loss for the three months endedSeptember 30, 2021 was an unrealized loss on commodity derivative instruments of$1,376 million .
Non-GAAP Financial Measures
CNX's management uses certain 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. Although these are not measures of performance calculated in accordance with generally accepted accounting principles (GAAP), management believes that these financial measures are useful to an investor in evaluating CNX because these metrics are widely used to evaluate a natural gas company's operating performance. Sales of Natural Gas, NGL and Oil, including cash settlements is a non-GAAP measure that excludes the impacts of changes in the fair value of commodity derivative instruments prior to settlement, which are often volatile, and only includes the impact of settled commodity derivative instruments. Sales of Natural Gas, NGL and Oil, including cash settlements also excludes purchased gas revenue and other revenue and operating income, which are not directly related to CNX's natural gas producing activities. Natural Gas, NGL and Oil Production Costs is a non-GAAP measure that excludes certain expenses that are not directly related to CNX's natural gas producing activities and are managed outside our production operations (See Note 13 - Segment Information in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information). These expenses include, but are not limited to, interest expense, other operating expense and other corporate expenses such as selling, general and administrative costs. We believe that Sales of Natural Gas, NGL and Oil, including cash settlements, Natural Gas, NGL andOil Production Costs and Natural Gas , NGL and Oil Production Margin (which is derived by subtracting Natural Gas, NGL and Oil Production Costs from Sales of Natural Gas, NGL and Oil, including cash settlements) provide useful information to investors for evaluating period-to-period comparisons of earnings trends. These metrics should not be viewed as a substitute for measures of performance that are calculated in accordance with GAAP. In addition, because all companies do not calculate these measures identically, these measures may not be comparable to similarly titled measures of other companies.
Non-GAAP Financial Measures Reconciliation
For the Three Months Ended
September 30,
(Dollars in millions) 2022 2021
Total Revenue and Other Operating Income (Loss) $ 117 $ (880)
Add (Deduct):
Purchased Gas Revenue (32) (16)
Unrealized Loss on Commodity Derivative Instruments 411 1,376
Other Revenue and Operating Income (20) (25)
Sales of Natural Gas, NGL and Oil, including Cash Settlements, a Non-GAAP Financial Measure
$ 476 $ 455 Total Operating Expense$ 326 $ 305 Add (Deduct): Depreciation, Depletion and Amortization (DD&A) - Corporate (3) (4) Exploration and Production Related Other Costs (1) (3) Purchased Gas Costs (32) (14) Selling, General and Administrative Costs (28) (25) Other Operating Expense (22) (21) Natural Gas, NGL and Oil Production Costs, a Non-GAAP Financial Measure1$ 240 $ 238
1 Natural Gas, NGL and Oil production costs consists primarily of lease operating expense, production ad valorem and other fees, transportation, gathering and compression and production related depreciation, depletion and amortization.
31
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The following table presents a summary of our total sales volumes, sales of
natural gas, NGL and oil including cash settlements, natural gas, NGL and oil
production costs and natural gas, NGL and oil production margin related to our
production operations on a total company basis (See Non-GAAP Financial Measures
Reconciliation for the reconciliation to the most directly comparable financial
measures calculated and presented in accordance with GAAP):
For the Three Months Ended September 30,
2022 2021 Variance
in Millions Per Mcfe in Millions Per Mcfe in Millions Per Mcfe
Total Sales Volumes (Bcfe)* 146.4 153.5 (7.1)
Natural Gas, NGL and Oil Revenue $ 1,127 $
8.04
$ 4.16 Loss on Commodity Derivative Instruments - Cash Settlement - Gas (651) (4.79) (131) (0.92) (520)
(3.87)
Sales of Natural Gas, NGL and Oil, including Cash Settlements, a Non-GAAP Financial Measure 476 3.25 455 2.96 21
0.29
Lease Operating Expense 19 0.13 11 0.07 8
0.06
Production, Ad Valorem, and Other Fees 13 0.09 10 0.06 3
0.03
Transportation, Gathering and Compression 97 0.66 91 0.59 6
0.07
Depreciation, Depletion and Amortization (DD&A) 111 0.76 126 0.83 (15)
(0.07)
Natural Gas, NGL and Oil Production Costs, a Non-GAAP Financial Measure 240 1.64 238 1.55 2
0.09
Natural Gas, NGL and Oil Production Margin, a Non-GAAP Financial Measure$ 236 $ 1.61 $ 217 $ 1.41 $ 19$ 0.20 *NGLs and Oil/Condensate are converted to Mcfe at the rate of one barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not indicative of the relationship of NGL, condensate, and natural gas prices. The 7.1 Bcfe decrease in total sales volumes in the period-to-period comparison was primarily due to normal production declines and the timing of when new wells were turned-in-line after the 2021 period.
Changes in the average costs per Mcfe were primarily related to the following items:
•Lease operating expense increased on a per unit basis primarily as a result of
an increase in water disposal costs driven by more produced water being taken to
disposal instead of being reused in well completions.
•Production, ad valorem and other fees increased on a per unit basis as a result
of increased realized prices on natural gas.
•Transportation, Gathering and Compression increased primarily due to an
increase in repairs and maintenance expense.
•Depreciation, depletion and amortization expense decreased on a per unit basis
due to a lower annual depletion rate primarily resulting from lower cost reserve
additions from development during the 2021 period.
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Average Realized Price Reconciliation
The following table presents a breakout of liquids and natural gas sales information and settled derivative information to assist in the understanding of the Company's natural gas production and sales portfolio and information regarding settled commodity derivatives:
For the Three Months Ended
in thousands (unless noted) 2022 2021 Variance Percent Change LIQUIDS NGL: Sales Volume (MMcfe) 10,136 10,145 (9) (0.1) % Sales Volume (Mbbls) 1,689 1,691 (2) (0.1) % Gross Price ($/Bbl) $ 36.30$ 37.14 $ (0.84) (2.3) % Gross NGL Revenue$ 61,281 $ 62,762 $ (1,481) (2.4) % Oil/Condensate: Sales Volume (MMcfe) 204 831 (627) (75.5) % Sales Volume (Mbbls) 34 138 (104) (75.4) % Gross Price ($/Bbl) $ 88.44$ 59.97 $ 28.47 47.5 % Gross Oil/Condensate Revenue $ 3,003$ 8,302 $ (5,299) (63.8) % NATURAL GAS Sales Volume (MMcf) 136,019 142,541 (6,522) (4.6) % Sales Price ($/Mcf) $ 7.82$ 3.61 $ 4.21 116.6 % Gross Natural Gas Revenue$ 1,063,057 $ 514,821 $ 548,236 106.5 % Hedging Impact ($/Mcf) $ (4.79)$ (0.92) $ (3.87) (420.7) % Loss on Commodity Derivative Instruments - Cash Settlement$ (651,199) $ (131,091) $ (520,108) 396.8 % The increase in gross revenue was primarily the result of the$4.21 per Mcf increase in natural gas prices, when excluding the impact of hedging. This increase was offset, in-part, by the impact of the change in the realized loss on commodity derivative instruments related to the Company's hedging program and the 7.1 Bcfe decrease in sales volumes. 33 --------------------------------------------------------------------------------
SEGMENT ANALYSIS for the three months ended
For the Three Months Ended Difference to Three Months Ended
September 30, 2022 September 30, 2021
(in millions) Shale CBM Other Total Shale CBM Other Total
Natural Gas, NGLs and Oil Revenue
$ 541 Loss on Commodity Derivative Instruments (602) (49) (411) (1,062) (483) (37) 965 445 Purchased Gas Revenue - - 32 32 - - 16 16 Other Revenue and Operating Income 16 - 4 20 (3) - (2)
(5)
Total Revenue and Other Operating Income (Loss) 444 47 (374) 117 8 10 979 997 Lease Operating Expense 15 4 - 19 7 1 - 8 Production, Ad Valorem, and Other Fees 10 4 (1) 13 2 2 (1)
3
Transportation, Gathering and Compression 84 12 1 97 5 1 -
6
Depreciation, Depletion and Amortization 97 13 4 114 (15) (1) -
(16)
Exploration and Production Related Other Costs - - 1 1 - - (2) (2) Purchased Gas Costs - - 32 32 - - 18 18 Selling, General and Administrative Costs - - 28 28 - - 3 3 Other Operating Expense - - 22 22 - - 1 1 Total Operating Expense 206 33 87 326 (1) 3 19 21 Other Expense - - 2 2 - - (1) (1) Loss (Gain) on Asset Sales and Abandonments, net - - 12 12 - - 24 24 Loss on Debt Extinguishment - - 10 10 - - (9) (9) Interest Expense - - 34 34 - - (3) (3) Total Other Expense - - 58 58 - - 11 11 Total Costs and Expenses 206 33 145 384 (1) 3 30 32
Earnings (Loss) Before Income Tax
$ 965 34
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SHALE SEGMENT
The Shale segment had earnings before income tax of$238 million for the three months endedSeptember 30, 2022 compared to earnings before income tax of$229 million for the three months endedSeptember 30, 2021 . For the Three Months Ended September 30, Percent 2022 2021 Variance Change Shale Gas Sales Volumes (Bcf) 125.2 130.3 (5.1) (3.9) % NGLs Sales Volumes (Bcfe)* 10.1 10.1 - - % Oil/Condensate Sales Volumes (Bcfe)* 0.2 0.8 (0.6) (75.0) % Total Shale Sales Volumes (Bcfe)* 135.5 141.2 (5.7) (4.0) % Average Sales Price - Natural Gas (per Mcf)$ 7.72 $ 3.57 $ 4.15 116.2 %
Loss on Commodity Derivative Instruments - Cash Settlement - Gas (per Mcf)
$ (4.81) $ (0.92) $ (3.89) (422.8) % Average Sales Price - NGLs (per Mcfe)*$ 6.05 $ 6.19 $ (0.14) (2.3) % Average Sales Price - Oil/Condensate (per Mcfe)*$ 14.79 $ 9.99 $ 4.80 48.0 % Total Average Shale Sales Price (per Mcfe)$ 3.16 $ 2.95 $ 0.21 7.1 % Average Shale Lease Operating Expenses (per Mcfe) 0.11 0.06 0.05 83.3 %
Average Shale Production, Ad Valorem and Other Fees (per Mcfe) 0.07
0.06 0.01 16.7 %
Average Shale Transportation, Gathering and Compression Costs (per Mcfe)
0.62 0.56 0.06 10.7 %
Average Shale Depreciation, Depletion and Amortization Costs (per Mcfe)
0.72 0.78 (0.06) (7.7) %
Total Average Shale Production Costs (per Mcfe) $ 1.52 $ 1.46 $ 0.06 4.1 %
Total Average Shale Production Margin (per Mcfe) $ 1.64 $ 1.49 $ 0.15 10.1 %
* NGLs and Oil/Condensate are converted to Mcfe at the rate of one barrel equals
six Mcf based upon the approximate relative energy content of oil and natural
gas, which is not indicative of the relationship of oil, NGL, condensate, and
natural gas prices.
The Shale segment had natural gas, NGLs and oil/condensate revenue of $1,030
million for the three months ended September 30, 2022 compared to $536 million
for the three months ended September 30, 2021 . The $494 million increase was due
primarily to a 116.2% increase in the average sales price for natural gas,
offset in part by a 4.0% decrease in total Shale sales volumes and a 2.3%
decrease in the average sales price of NGLs. The decrease in total Shale volumes
was primarily due to normal production declines and the timing of when new wells
were turned-in-line after the 2021 period.
The increase in total average Shale sales price was primarily due to a $4.15 per
Mcf increase in average gas sales price. This increase was offset in part by a
$0.14 per Mcfe decrease in the average NGL sales price and a $3.89 per Mcf
change in the realized loss on commodity derivative instruments. The notional
amounts associated with these financial hedges represented approximately 106.2
Bcf of the Company's produced Shale gas sales volumes for the three months ended
September 30, 2022 at an average loss of $5.67 per Mcf hedged. For the three
months ended September 30, 2021 , these financial hedges represented
approximately 103.8 Bcf at an average loss of $1.15 per Mcf hedged.
Total operating costs and expenses for the Shale segment were $206 million for
the three months ended September 30, 2022 compared to $207 million for the three
months ended September 30, 2021 . The decrease in total dollars and increase in
unit costs for the Shale segment were due to the following items:
•Shale lease operating expenses were $15 million for the three months ended
September 30, 2022 compared to $8 million for the three months ended
September 30, 2021 . The increases in total dollars and unit costs were primarily
related to an increase in water disposal costs as more water had to be taken to
disposal instead of being reused in well completions. Unit costs were also
impacted by the overall decrease in sales volumes.
•Shale production, ad valorem and other fees were $10 million for the three
months ended September 30, 2022 compared to $8 million for the three months
ended September 30, 2021 . The increases in total dollars and unit costs were
primarily due to increased realized prices on natural gas.
35
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•Shale transportation, gathering and compression costs were $84 million for the
three months ended September 30, 2022 compared to $79 million for the three
months ended September 30, 2021 . The increases in total dollars and unit costs
were primarily due to an increase in repairs and maintenance expense.
•Depreciation, depletion and amortization costs attributable to the Shale
segment were $97 million for the three months ended September 30, 2022 compared
to $112 million for the three months ended September 30, 2021 . These amounts
included depletion on a units of production basis of $0.61 per Mcfe and $0.69
per Mcfe, respectively. The decrease in the units of production depreciation,
depletion and amortization rate in the current period is primarily the result of
a lower annual depletion rate related to low-cost reserve additions from
development in the 2021 period. The remaining depreciation, depletion and
amortization costs were either recorded on a straight-line basis or related to
asset retirement obligations.
Total Shale other revenue and operating income relates to natural gas gathering
services provided to third-parties. The Shale segment had other revenue and
operating income of $16 million for the three months ended September 30, 2022
compared to $19 million for the three months ended September 30, 2021 . The
decrease in the period-to-period comparison was primarily due to lower
third-party gathering volumes due to normal production declines.
COALBED METHANE (CBM) SEGMENT
The CBM segment had earnings before income tax of
For the Three Months Ended September 30,
Percent
2022 2021 Variance Change
CBM Gas Sales Volumes (Bcf) 10.7 12.2 (1.5) (12.3) %
Average Sales Price - Gas (per Mcf) $ 8.98 $ 4.01 $ 4.97 123.9 %
Loss on Commodity Derivative Instruments - Cash Settlement - Gas (per Mcf)
$ (4.56) $ (0.95) $ (3.61) (380.0) % Total Average CBM Sales Price (per Mcf)$ 4.42 $ 3.06 $ 1.36 44.4 % Average CBM Lease Operating Expenses (per Mcf) 0.41 0.26 0.15 57.7 % Average CBM Production, Ad Valorem and Other Fees (per Mcf) 0.36 0.15 0.21 140.0 %
Average CBM Transportation, Gathering and Compression Costs (per Mcf)
1.13 0.91 0.22 24.2 %
Average CBM Depreciation, Depletion and Amortization Costs (per Mcf)
1.21 1.14 0.07 6.1 %
Total Average CBM Production Costs (per Mcf) $ 3.11 $ 2.46 $ 0.65 26.4 %
Total Average CBM Production Margin (per Mcf) $ 1.31 $ 0.60 $ 0.71 118.3 %
The CBM segment had natural gas revenue of $96 million for the three months
ended September 30, 2022 compared to $49 million for the three months ended
September 30, 2021 . The increase was due to a 123.9% increase in the average
sales price for natural gas in the current period, offset in part by the 12.3%
decrease in total CBM sales volumes. The decrease in CBM sales volumes was
primarily due to normal production declines.
The total average CBM sales price increased $1.36 per Mcf due to a $4.97 per Mcf
increase in average gas sales price, offset in part by a $3.61 per Mcf change in
the realized loss on commodity derivative instruments resulting from the
Company's hedging program. The notional amounts associated with these financial
hedges represented approximately 8.6 Bcf of the Company's produced CBM sales
volumes for the three months ended September 30, 2022 at an average loss of
$5.69 per Mcf hedged. For the three months ended September 30, 2021 , these
financial hedges represented approximately 9.1 Bcf at an average loss of $1.28
per Mcf hedged.
Total operating costs and expenses for the CBM segment were $33 million for the
three months ended September 30, 2022 compared to $30 million for the three
months ended September 30, 2021 . The increases in total dollars and unit costs
for the CBM segment were due to the following items:
•CBM lease operating expenses were
36
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•CBM production, ad valorem and other fees were $4 million for the three months
ended September 30, 2022 compared to $2 million for the three months ended
September 30, 2021 . The increases in total dollars and unit costs were primarily
due to increased realized prices on natural gas.
•CBM transportation, gathering and compression costs were $12 million for the
three months ended September 30, 2022 compared to $11 million for the three
months ended September 30, 2021 . The increases in total dollars and unit costs
were primarily due to increases in repairs and maintenance expense and
electrical compression expense.
•Depreciation, depletion and amortization costs attributable to the CBM segment
were $13 million for the three months ended September 30, 2022 compared to $14
million for the three months ended September 30, 2021 . These amounts included
depletion on a units of production basis of $0.65 per Mcfe and $0.66 per Mcfe,
respectively. The decrease in the units of production depreciation, depletion
and amortization rate in the current period was due to a lower annual depletion
rate. The remaining depreciation, depletion and amortization costs were either
recorded on a straight-line basis or related to asset retirement obligations.
OTHER SEGMENT
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, as well as various other expenses that are managed outside the Shale and CBM segments such as SG&A, interest expense and income taxes.
The Other Segment had a loss before income tax of$519 million for the three months endedSeptember 30, 2022 compared to a loss before income tax of$1,468 million for the three months endedSeptember 30, 2021 . The increase in total dollars is discussed below. For the
Three Months Ended
2022 2021 Variance Percent Change
Other Gas Sales Volumes (Bcf) 0.2 0.1 0.1 100.0 %
Loss on Commodity Derivative Instruments
For the three months endedSeptember 30, 2022 , the Other Segment recognized an unrealized loss on commodity derivative instruments of$411 million . For the three months endedSeptember 30, 2021 , the Other Segment recognized an unrealized loss on commodity derivative instruments of$1,376 million . The unrealized loss on commodity derivative instruments represents changes in the fair value of all the Company's existing commodity hedges on a mark-to-market basis.
Purchased Gas Revenue and Costs
Purchased gas volumes represent volumes of natural gas purchased at market prices from third-parties and then resold in order to fulfill contracts with certain customers and to balance supply. Purchased gas revenue was$32 million for the three months endedSeptember 30, 2022 compared to$16 million for the three months endedSeptember 30, 2021 . Purchased gas costs were$32 million for the three months endedSeptember 30, 2022 compared to$14 million for the three months endedSeptember 30, 2021 . The period-to-period increase in purchased gas revenue was due to an increase in purchased gas sales volumes, offset in part by a decrease in average sales price. For the
Three Months Ended
2022 2021 Variance Percent Change
Purchased Gas Sales Volumes (in Bcf) 9.1 3.8 5.3 139.5 %
Average Sales Price (per Mcf) $ 3.50 $ 4.33 $ (0.83) (19.2) %
Purchased Gas Average Cost (per Mcf) $ 3.57 $ 3.77 $ (0.20) (5.3) %
37--------------------------------------------------------------------------------
Other Operating Income
For the Three Months Ended September 30,
(in millions) 2022 2021 Variance Percent Change
Water Income $ 1 $ 2 $ (1) (50.0) %
Excess Firm Transportation Income 2 3 (1) (33.3) %
Equity Income from Affiliates 1 1 - - %
Total Other Operating Income $ 4 $ 6 $ (2) (33.3) %
•Excess firm transportation income represents revenue from the sale of excess
firm transportation capacity to third-parties. The Company obtains firm pipeline
transportation capacity to enable gas production to flow uninterrupted as sales
volumes increase. In order to minimize this unutilized firm transportation
expense, CNX is able to release (sell) unutilized firm transportation capacity
to other parties when possible and when beneficial. The revenue from released
capacity helps offset the unutilized firm transportation and processing fees in
total other operating expense.
•Equity income from affiliates primarily represents CNX's share of earnings from
a 50% interest in a power plant located within CNX's CBM field. Power generated
from the facility is sold into wholesale electricity markets during times of
peak energy consumption. Due to the plant consuming low carbon intensity coal
mine methane gas, the plant qualifies for Pennsylvania Tier I Renewable Energy
Credits.
Exploration and Production Related Other Costs
For the Three Months Ended September 30,
(in millions) 2022 2021 Variance Percent Change
Lease Expiration Costs $ - $ 2 $ (2) (100.0) %
Land Rentals 1 1 - - %
Total Exploration and Production Related Other
Costs $ 1 $ 3 $ (2) (66.7) %
•Lease expiration costs relate to leases where the primary term expired or will expire within the next 12 months.
Selling, General and Administrative ("SG&A")
SG&A costs include costs such as overhead, including employee labor and benefit
costs, short-term incentive compensation, costs of maintaining our headquarters,
audit and other professional fees, charitable contributions and legal compliance
expenses. SG&A costs also include non-cash long-term equity-based compensation
expense.
For the Three Months Ended September 30,
(in millions) 2022 2021 Variance Percent Change
Salaries, Wages and Employee Benefits $ 8 $ 6 $ 2 33.3 %
Long-Term Equity-Based Compensation
(Non-Cash) 4 3 1 33.3 %
Short-Term Incentive Compensation 3 3 - - %
Other 13 13 - - %
Total SG&A $ 28 $ 25 $ 3 12.0 %
•Salaries, wages and employee benefits increased in the period-to-period comparison primarily due to an increase in employee wages and employee benefit expense.
38--------------------------------------------------------------------------------
Other Operating Expense
For the Three Months Ended September 30,
(in millions) 2022 2021 Variance Percent Change
Unutilized Firm Transportation and Processing Fees $ 17 $ 13 $ 4 30.8 %
Virginia Flood Expense 2 - 2 100.0 %
Insurance Expense 1 1 - - %
Litigation Settlements - 5 (5) (100.0) %
Other 2 2 - - %
Total Other Operating Expense $ 22 $ 21 $ 1 4.8 %
•Unutilized firm transportation and processing fees represent pipeline
transportation capacity obtained to enable gas production to flow uninterrupted
as sales volumes increase, as well as additional processing capacity for NGLs.
In some instances, the Company may have the opportunity to realize more
favorable net pricing by strategically choosing to sell natural gas into a
market or to a customer that does not require the use of the Company's own firm
transportation capacity. Such sales would result in an increase in unutilized
firm transportation expense. The Company attempts to minimize this expense by
releasing (selling) unutilized firm transportation capacity to other parties
when possible and when beneficial. The revenue received when this capacity is
released (sold) is included in Excess Firm Transportation Income above. The
increase in the period-to-period comparison was primarily due to higher
unutilized processing fees and a decrease in utilization of firm transportation
capacity due, in part, to an interstate pipeline outage in the current period.
•Virginia flood expense includes cleanup and repair costs related to flooding
that occurred in Buchanan County, Virginia in July 2022 .
•CNX and its subsidiaries are subject to various lawsuits and claims in the
normal course of business. CNX accrues the estimated loss for these lawsuits and
claims as litigation settlements when the loss is probable and can be estimated.
(See Note 20 - Commitments and Contingent Liabilities in the Notes to the
Audited Consolidated Financial Statements in Item 8 of CNX's 2021 Form 10-K for
additional information). The decrease in litigation settlements in the
period-to-period comparison was the result of various items, none of which were
individually material.
Other Expense
For
the Three Months Ended
(in millions) 2022 2021 Variance Percent Change Other Income Right-of-Way Sales $ 1 $ -$ 1 100.0 % Other - 3 (3) (100.0) % Total Other Income $ 1$ 3 $ (2) (66.7) % Other Expense Professional Services $ -$ 2 $ (2) (100.0) % Bank Fees 3 3 - - % Other Corporate Expense - 1 (1) (100.0) % Total Other Expense $ 3$ 6 $ (3) (50.0) % Total Other Expense $ 2$ 3 $ (1) (33.3) %
•Professional services decreased in the period-to-period comparison primarily due to a decrease in legal fees.
Loss (Gain) on Asset Sales and Abandonments, net
A loss on asset sales and abandonments of$12 million was recognized in the three months endedSeptember 30, 2022 compared to a gain of$12 million in the three months endedSeptember 30, 2021 . During the three months endedSeptember 30, 2022 , the Company chose to plug and abandon a Shale wellbore. This well was originally part of the 2023 development plan, and in order to not delay other wells, CNX plugged the wellbore and plans on accessing the reserves at a future date. This loss was offset in part by sales of various non-core assets, primarily rights-of-way, surface acreage and other 39 --------------------------------------------------------------------------------
non-core oil and gas interests. During the three months ended
Loss on Debt Extinguishment
A loss on debt extinguishment of$10 million was recognized in the three months endedSeptember 30, 2022 compared to a loss on debt extinguishment of$19 million in the three months endedSeptember 30, 2021 . During the three months endedSeptember 30, 2022 , CNX purchased$350 million of the 7.25% Senior Notes dueMarch 2027 at an average price equal to 102.5% of the principal amount. During the three months endedSeptember 30, 2021 , CNXM purchased a portion of the 6.50% Senior Notes dueMarch 2026 and repaid in full and terminated theCardinal States Gathering Company LLC andCSG Holdings II LLC non-revolving credit facilities. See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information. Interest Expense For the Three Months Ended September 30, (in millions) 2022 2021 Variance Percent Change Total Interest Expense $ 34$ 37 $ (3) (8.1) % The$3 million decrease in total interest expense was partially due to the Company adopting Accounting Standards Update (ASU) 2020-06 - Accounting for Convertible Instruments and Contracts in an Entity's Own Equity onJanuary 1, 2022 . As part of the adoption, total interest expense no longer includes a non-cash interest expense component related to the Convertible Notes dueMay 2026 . Total interest expense for the three months endedSeptember 30, 2021 included$4 million that was amortized as additional non-cash interest expense related to the equity component of the Convertible Notes dueMay 2026 . The decrease was also due to the purchase of the$400 million 6.500% CNXM Senior Notes dueMarch 2026 during the year endedDecember 31, 2021 offset, in part, by interest on the$400 million of 4.750% CNXM Senior Notes due 2030 that were issued during the year endedDecember 31, 2021 and the$500 million of 7.375% Senior Notes due 2031 that were issued during the three months endedSeptember 30, 2022 . See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information. Income Taxes For the Three Months Ended September 30, (in millions) 2022 2021 Variance Percent Change Total Company Loss Before Income Tax$ (267) $ (1,232) $ 965 78.3 % Income Tax Expense (Benefit)$ 160 $ (360) $ 520 144.4 % Effective Income Tax Rate (60.1) % 29.2 % (89.3) % The effective income tax rate was (60.1)% for the three months endedSeptember 30, 2022 compared to 29.2% for the three months endedSeptember 30, 2021 . The effective rate for the three months endedSeptember 30, 2022 differs from theU.S. federal statutory rate of 21% primarily due to the impact of assessing the realizability of existing deferred tax assets, including net operating losses, and the related valuation allowance recorded, the partial repurchase of the Convertible Notes, equity compensation and state income taxes. The effective rate for the three months endedSeptember 30, 2021 differs from theU.S. federal statutory rate of 21% primarily due to the impact of federal tax credits, equity compensation and state income taxes. See Note 4 - Income Taxes in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information. 40 --------------------------------------------------------------------------------
Results of Operations - Nine Months Ended
Net Loss
CNX reported a net loss of$1,317 million , or a loss per diluted share of$6.80 , for the nine months endedSeptember 30, 2022 , compared to a net loss of$1,129 million , or a loss per diluted share of$5.17 , for the nine months endedSeptember 30, 2021 . Included in the loss for the nine months endedSeptember 30, 2022 was an unrealized loss on commodity derivative instruments of$1,989 million . Included in the loss for the nine months endedSeptember 30, 2021 was an unrealized loss on commodity derivative instruments of$1,874 million .
Non-GAAP Financial Measures
CNX's management uses certain 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. Although these are not measures of performance calculated in accordance with generally accepted accounting principles (GAAP), management believes that these financial measures are useful to an investor in evaluating CNX because these metrics are widely used to evaluate a natural gas company's operating performance. Sales of Natural Gas, NGL and Oil, including cash settlements is a non-GAAP measure that excludes the impacts of changes in the fair value of commodity derivative instruments prior to settlement, which are often volatile, and only includes the impact of settled commodity derivative instruments. Sales of Natural Gas, NGL and Oil, including cash settlements also excludes purchased gas revenue and other revenue and operating income, which are not directly related to CNX's natural gas producing activities. Natural Gas, NGL and Oil Production Costs is a non-GAAP measure that excludes certain expenses that are not directly related to CNX's natural gas producing activities and are managed outside our production operations (See Note 13 - Segment Information in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information). These expenses include, but are not limited to, interest expense, other operating expense and other corporate expenses such as selling, general and administrative costs. We believe that Sales of Natural Gas, NGL and Oil, including cash settlements, Natural Gas, NGL andOil Production Costs and Natural Gas , NGL and Oil Production Margin (which is derived by subtracting Natural Gas, NGL and Oil Production Costs from Sales of Natural Gas, NGL and Oil, including cash settlements) provide useful information to investors for evaluating period-to-period comparisons of earnings trends. These metrics should not be viewed as a substitute for measures of performance that are calculated in accordance with GAAP. In addition, because all companies do not calculate these measures identically, these measures may not be comparable to similarly titled measures of other companies.
Non-GAAP Financial Measures Reconciliation
For the Nine Months Ended
September 30,
(Dollars in millions) 2022 2021
Total Revenue and Other Operating Loss $ (376) $ (534)
Add (Deduct):
Purchased Gas Revenue (124) (67)
Unrealized Loss on Commodity Derivative Instruments 1,989 1,874
Other Revenue and Operating Income (66) (75)
Sales of Natural Gas, NGL and Oil, including Cash Settlements, a Non-GAAP Financial Measure
$ 1,423 $ 1,198 Total Operating Expense$ 978 $ 885 Add (Deduct): Depreciation, Depletion and Amortization (DD&A) - Corporate (9) (8) Exploration and Production Related Other Costs (7) (8) Purchased Gas Costs (123) (61) Selling, General and Administrative Costs (90) (77) Other Operating Expense (54) (52)
Natural Gas, NGL and Oil Production Costs, a Non-GAAP Financial Measure1
$
695
1 Natural Gas, NGL and Oil production costs consists primarily of lease operating expense, production ad valorem and other fees, transportation, gathering and compression and production related depreciation, depletion and amortization.
41
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The following table presents a summary of our total sales volumes, sales of
natural gas, NGL and oil including cash settlements, natural gas, NGL and oil
production costs and natural gas, NGL and oil production margin related to our
production operations on a total company basis (See Non-GAAP Financial Measures
Reconciliation for the reconciliation to the most directly comparable financial
measures calculated and presented in accordance with GAAP):
For the Nine Months Ended September 30,
2022 2021 Variance
in Millions Per Mcfe in Millions Per Mcfe in Millions Per Mcfe
Total Sales Volumes (Bcfe)* 439.6 432.1 7.5
Natural Gas, NGL and Oil Revenue $ 2,875 $ 6.77 3.66
Loss on Commodity Derivative Instruments - Cash Settlement - Gas (1,452) (3.53) (139) (0.34) (1,313)
(3.19)
Sales of Natural Gas, NGL and Oil, including Cash Settlements, a Non-GAAP Financial Measure 1,423 3.24 1,198 2.77 225 0.47 Lease Operating Expense 49 0.11 31 0.07 18 0.04 Production, Ad Valorem, and Other Fees 33 0.08 23 0.06 10
0.02
Transportation, Gathering and Compression 273 0.62 252 0.58 21
0.04
Depreciation, Depletion and Amortization (DD&A) 340 0.78 373 0.86 (33)
(0.08)
Natural Gas, NGL and Oil Production Costs, a Non-GAAP Financial Measure 695 1.59 679 1.57 16
0.02
Natural Gas, NGL and Oil Production Margin, a Non-GAAP Financial Measure$ 728 $ 1.65 $ 519 $ 1.20 $ 209 $ 0.45 *NGLs and Oil/Condensate are converted to Mcfe at the rate of one barrel equals six Mcf based upon the approximate relative energy content of oil and natural gas, which is not indicative of the relationship of NGL, condensate, and natural gas prices.
The 7.5 Bcfe increase in volumes in the period-to-period comparison was primarily due to the turn-in-line of new wells after the 2021 period. The increases were offset, in part, by normal production declines.
Changes in the average costs per Mcfe were primarily related to the following items:
•Lease operating expense increased on a per unit basis as a result of an
increase in repairs and maintenance expense, including both routine and water
storage system maintenance, and an increase in water disposal costs driven by
more produced water being taken to disposal instead of being reused in well
completions.
•Production, ad valorem and other fees increased on a per unit basis as a result
of increased realized prices on natural gas and NGLs.
•Transportation, Gathering and Compression increased primarily due to an
increase in repairs and maintenance expense and an increase in firm
transportation expense related to the higher volume.
•Depreciation, depletion and amortization expense decreased on a per unit basis
due to a lower annual depletion rate primarily resulting from low cost reserve
additions from development during the 2021 period.
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Average Realized Price Reconciliation
The following table presents a breakout of liquids and natural gas sales information and settled derivative information to assist in the understanding of the Company's natural gas production and sales portfolio and information regarding settled commodity derivatives:
For the Nine Months Ended
in thousands (unless noted) 2022 2021 Variance Percent Change LIQUIDS NGL: Sales Volume (MMcfe) 27,487 26,082 1,405 5.4 % Sales Volume (Mbbls) 4,581 4,347 234 5.4 % Gross Price ($/Bbl)$ 41.46 $ 31.32 $ 10.14 32.4 % Gross NGL Revenue$ 189,850 $ 136,176 $ 53,674 39.4 % Oil/Condensate: Sales Volume (MMcfe) 902 1,922 (1,020) (53.1) % Sales Volume (Mbbls) 150 320 (170) (53.1) % Gross Price ($/Bbl)$ 86.94 $ 53.80 $ 33.14 61.6 % Gross Oil/Condensate Revenue$ 13,063 $ 17,234 $ (4,171) (24.2) % NATURAL GAS Sales Volume (MMcf) 411,163 404,055 7,108 1.8 % Sales Price ($/Mcf) $ 6.50$ 2.93 $ 3.57 121.8 % Gross Natural Gas Revenue$ 2,672,458 $ 1,183,178 $ 1,489,280 125.9 % Hedging Impact ($/Mcf)$ (3.53) $ (0.34) $ (3.19) (938.2) % Loss on Commodity Derivative Instruments - Cash Settlement$ (1,452,432) $ (139,045) $ (1,313,387) (944.6) % The increase in gross revenue was primarily the result of the$3.57 per Mcf increase in natural gas prices, when excluding the impact of hedging, the$10.14 per Bbl increase in NGL prices and the 7.5 Bcfe increase in sales volumes. These increases were offset, in-part, by the impact of the change in the realized loss on commodity derivative instruments related to the Company's hedging program. 43
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SEGMENT ANALYSIS for the nine months ended
For the Nine Months Ended Difference to Nine Months Ended
September 30, 2022 September 30, 2021
(in millions) Shale CBM Other Total Shale CBM Other Total
Natural Gas, NGLs and Oil Revenue
2 $ 2,875 $ 1,423 $ 115 $ - $ 1,538
Loss on Commodity Derivative Instruments (1,340) (111) (1,990) (3,441) (1,213) (99) (116) (1,428)
Purchased Gas Revenue - - 124 124 - - 57 57
Other Revenue and Operating Income 51 - 15 66 (6) - (3) (9)
Total Revenue and Other Operating Income
(Loss) 1,345 128 (1,849) (376) 204 16 (62) 158
Lease Operating Expense 37 12 - 49 16 3 (1) 18
Production, Ad Valorem, and Other Fees 24 9 - 33 5 5 - 10
Transportation, Gathering and Compression 238 35 - 273 16 5 - 21
Depreciation, Depletion and Amortization 294 39 16 349 (31) (5) 4 (32)
Exploration and Production Related Other
Costs - - 7 7 - - (1) (1)
Purchased Gas Costs - - 123 123 - - 62 62
Selling, General and Administrative Costs - - 90 90 - - 13 13
Other Operating Expense - - 54 54 - - 2 2
Total Operating Expense 593 95 290 978 6 8 79 93
Other Expense - - 7 7 - - (6) (6)
Gain on Asset Sales and Abandonments, net - - (8) (8) - - 14 14
Loss on Debt Extinguishment - - 23 23 - - 4 4
Interest Expense - - 92 92 - - (22) (22)
Total Other Expense - - 114 114 - - (10) (10)
Total Costs and Expenses 593 95 404 1,092 6 8 69 83
Earnings (Loss) Before Income Tax $ 752 $ 33 $ (2,253) $ (1,468) $ 198 $ 8 $ (131) $ 75
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SHALE SEGMENT
The Shale segment had earnings before income tax of$752 million for the nine months endedSeptember 30, 2022 compared to earnings before income tax of$554 million for the nine months endedSeptember 30, 2021 . For the Nine Months Ended September 30, Percent 2022 2021 Variance Change Shale Gas Sales Volumes (Bcf) 377.7 366.4 11.3 3.1 % NGLs Sales Volumes (Bcfe)* 27.5 26.1 1.4 5.4 % Oil/Condensate Sales Volumes (Bcfe)* 0.9 1.9 (1.0) (52.6) % Total Shale Sales Volumes (Bcfe)* 406.1 394.4 11.7 3.0 % Average Sales Price - Natural Gas (per Mcf)$ 6.44 $ 2.89 $ 3.55 122.8 %
Loss on Commodity Derivative Instruments - Cash Settlement - Gas (per Mcf)
$ (3.55) $ (0.35) $ (3.20) (914.3) % Average Sales Price - NGLs (per Mcfe)*$ 6.91 $ 5.22 $ 1.69 32.4 % Average Sales Price - Oil/Condensate (per Mcfe)*$ 14.49 $ 8.96 $ 5.53 61.7 % Total Average Shale Sales Price (per Mcfe)$ 3.19 $ 2.75 $ 0.44 16.0 % Average Shale Lease Operating Expenses (per Mcfe) 0.09 0.05 0.04 80.0 %
Average Shale Production, Ad Valorem and Other Fees (per Mcfe) 0.06
0.05 0.01 20.0 %
Average Shale Transportation, Gathering and Compression Costs (per Mcfe)
0.59 0.56 0.03 5.4 %
Average Shale Depreciation, Depletion and Amortization Costs (per Mcfe)
0.73 0.83 (0.10) (12.0) %
Total Average Shale Production Costs (per Mcfe) $ 1.47 $ 1.49 $ (0.02) (1.3) %
Total Average Shale Production Margin (per Mcfe) $ 1.72 $ 1.26 $ 0.46 36.5 %
* NGLs and Oil/Condensate are converted to Mcfe at the rate of one barrel equals
six Mcf based upon the approximate relative energy content of oil and natural
gas, which is not indicative of the relationship of oil, NGL, condensate, and
natural gas prices.
The Shale segment had natural gas, NGLs and oil/condensate revenue of $2,634
million for the nine months ended September 30, 2022 compared to $1,211 million
for the nine months ended September 30, 2021 . The $1,423 million increase was
due primarily to a 122.8% increase in the average sales price for natural gas, a
32.4% increase in the average sales price of NGLs, and a 3.0% increase in total
Shale sales volumes. The increase in total Shale volumes was primarily due to
the turn-in-line of new wells after the 2021 period, offset in part by normal
production declines.
The increase in total average Shale sales price was primarily due to a $3.55 per
Mcf increase in average natural gas sales price and a $1.69 per Mcfe increase in
the average NGL sales price. These increases were offset in part by a $3.20 per
Mcf change in the realized loss on commodity derivative instruments. The
notional amounts associated with these financial hedges represented
approximately 318.8 Bcf of the Company's produced Shale gas sales volumes for
the nine months ended September 30, 2022 at an average loss of $4.21 per Mcf
hedged. For the nine months ended September 30, 2021 , these financial hedges
represented approximately 313.2 Bcf at an average loss of $0.40 per Mcf hedged.
Total operating costs and expenses for the Shale segment were $593 million for
the nine months ended September 30, 2022 compared to $587 million for the nine
months ended September 30, 2021 . The increase in total dollars and decrease in
unit costs for the Shale segment were due to the following items:
•Shale lease operating expenses were $37 million for the nine months ended
September 30, 2022 compared to $21 million for the nine months ended
September 30, 2021 . The increases in total dollars and unit costs were primarily
related to an increase in repairs and maintenance expense, including both
routine and water storage system maintenance, and an increase in water disposal
costs as more water had to be taken to disposal instead of being reused in well
completions.
•Shale production, ad valorem and other fees were $24 million for the nine
months ended September 30, 2022 compared to $19 million for the nine months
ended September 30, 2021 . The increases in total dollars and unit costs were
primarily due to increased realized prices on natural gas and natural gas
liquids.
45
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•Shale transportation, gathering and compression costs were $238 million for the
nine months ended September 30, 2022 compared to $222 million for the nine
months ended September 30, 2021 . The increases in total dollars and unit costs
were primarily related to an increase in total volumes gathered as well as an
increase in repairs and maintenance expense, an increase in processing costs due
to a wetter production mix and an increase in firm transportation expense
related to the higher volumes.
•Depreciation, depletion and amortization costs attributable to the Shale
segment were $294 million for the nine months ended September 30, 2022 compared
to $325 million for the nine months ended September 30, 2021 . These amounts
included depletion on a unit of production basis of $0.62 per Mcfe and $0.72 per
Mcfe, respectively. The decrease in the units of production depreciation,
depletion and amortization rate in the current period is primarily the result of
a lower annual depletion rate related to low-cost reserve additions from
development in the 2021 period. The remaining depreciation, depletion and
amortization costs were either recorded on a straight-line basis or related to
asset retirement obligations.
Total Shale other revenue and operating income relates to natural gas gathering
services provided to third-parties. The Shale segment had other revenue and
operating income of $51 million for the nine months ended September 30, 2022
compared to $57 million for the nine months ended September 30, 2021 . The
decrease in the period-to-period comparison was primarily due to lower
third-party gathering volumes due to normal production declines.
COALBED METHANE (CBM) SEGMENT
The CBM segment had earnings before income tax of
For the Nine Months Ended September 30,
Percent
2022 2021 Variance Change
CBM Gas Sales Volumes (Bcf) 33.2 37.5 (4.3) (11.5) %
Average Sales Price - Natural Gas (per Mcf) $ 7.21 $ 3.32 $ 3.89 117.2 %
Loss on Commodity Derivative Instruments - Cash Settlement - Gas (per Mcf)
$ (3.36) $ (0.33) $ (3.03) (918.2) % Total Average CBM Sales Price (per Mcf)$ 3.85 $ 2.99 $ 0.86 28.8 % Average CBM Lease Operating Expenses (per Mcf) 0.38 0.25 0.13 52.0 % Average CBM Production, Ad Valorem and Other Fees (per Mcf) 0.27 0.12 0.15 125.0 %
Average CBM Transportation, Gathering and Compression Costs (per Mcf)
1.05 0.78 0.27 34.6 %
Average CBM Depreciation, Depletion and Amortization Costs (per Mcf)
1.17 1.17 - - %
Total Average CBM Production Costs (per Mcf) $ 2.87 $ 2.32 $ 0.55 23.7 %
Total Average CBM Production Margin (per Mcf) $ 0.98 $ 0.67 $ 0.31 46.3 %
The CBM segment had natural gas revenue of $239 million for the nine months
ended September 30, 2022 compared to $124 million for the nine months ended
September 30, 2021 . The $115 million increase was primarily due to a 117.2%
increase in the average sales price for natural gas in the current period. The
natural gas price increases were partially offset by the 11.5% decrease in CBM
sales volumes due to normal production declines.
The total average CBM sales price increased $0.86 per Mcf due to a $3.89 per Mcf
increase in average natural gas sales price, offset in part by a $3.03 per Mcf
change in the realized loss on commodity derivative instruments resulting from
the Company's hedging program. The notional amounts associated with these
financial hedges represented approximately 26.6 Bcf of the Company's produced
CBM sales volumes for the nine months ended September 30, 2022 at an average
loss of $4.18 per Mcf hedged. For the nine months ended September 30, 2021 ,
these financial hedges represented approximately 30.6 Bcf at an average loss of
$0.40 per Mcf hedged.
Total operating costs and expenses for the CBM segment were $95 million for the
nine months ended September 30, 2022 compared to $87 million for the nine months
ended September 30, 2021 . The increases in total dollars and unit costs for the
CBM segment were due to the following items:
•CBM lease operating expenses were
46
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million for the nine months ended
•CBM production, ad valorem and other fees were$9 million for the nine months endedSeptember 30, 2022 compared to$4 million for the nine months endedSeptember 30, 2021 . The increases in total dollars and unit costs were primarily due to increased realized prices on natural gas. •CBM transportation, gathering and compression costs were$35 million for the nine months endedSeptember 30, 2022 compared to$30 million for the nine months endedSeptember 30, 2021 . The increases in total dollars and unit costs were primarily due to increases in repairs and maintenance expense and electrical compression expense. •Depreciation, depletion and amortization costs attributable to the CBM segment were$39 million for the nine months endedSeptember 30, 2022 compared to$44 million for the nine months endedSeptember 30, 2021 . These amounts included depletion on a unit of production basis of$0.64 per Mcfe and$0.66 per Mcfe, respectively. The decrease in the units of production depreciation, depletion and amortization rate was due to a lower annual depletion rate. The remaining depreciation, depletion and amortization costs were either recorded on a straight-line basis or related to asset retirement obligations.
OTHER SEGMENT
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, as well as various other expenses that are managed outside the Shale and CBM segments such as SG&A, interest expense and income taxes.
The Other Segment had a loss before income tax of$2,253 million for the nine months endedSeptember 30, 2022 compared to a loss before income tax of$2,122 million for the nine months endedSeptember 30, 2021 . The decrease in total dollars is discussed below. For the
Nine Months Ended
2022 2021 Variance Percent Change
Other Gas Sales Volumes (Bcf) 0.3 0.2 0.1 50.0 %
Loss on Commodity Derivative Instruments
For the nine months endedSeptember 30, 2022 , the Other Segment recognized an unrealized loss on commodity derivative instruments of$1,989 million as well as cash settlements paid of$1 million . For the nine months endedSeptember 30, 2021 , the Other Segment recognized an unrealized loss on commodity derivative instruments of$1,874 million . The unrealized loss or gain on commodity derivative instruments represents changes in the fair value of all the Company's existing commodity hedges on a mark-to-market basis.
Purchased Gas Revenue and Costs
Purchased gas volumes represent volumes of natural gas purchased at market prices from third-parties and then resold in order to fulfill contracts with certain customers and to balance supply. Purchased gas revenue was$124 million for the nine months endedSeptember 30, 2022 compared to$67 million for the nine months endedSeptember 30, 2021 . Purchased gas costs were$123 million for the nine months endedSeptember 30, 2022 compared to$61 million for the nine months endedSeptember 30, 2021 . The period-to-period increase in purchased gas revenue was due to an increase in averages sales price, offset in part by a decrease in purchased gas sales volumes. For the
Nine Months Ended
2022 2021 Variance Percent Change
Purchased Gas Sales Volumes (in Bcf) 19.9 20.5 (0.6) (2.9) %
Average Sales Price (per Mcf) $ 6.25 $ 3.25 $ 3.00 92.3 %
Purchased Gas Average Cost (per Mcf) $ 6.20 $ 2.99 $ 3.21 107.4 %
47--------------------------------------------------------------------------------
Other Operating Income
For the Nine Months Ended September 30,
(in millions) 2022 2021 Variance Percent Change
Water Income $ 3 $ 6 $ (3) (50.0) %
Excess Firm Transportation Income 8 9 (1) (11.1) %
Equity Income from Affiliates 3 3 - - %
Other 1 - 1 100.0 %
Total Other Operating Income $ 15 $ 18 $ (3) (16.7) %
•Water income decreased in the period-to-period comparison due to fewer
third-party sales in the current period.
•Excess firm transportation income represents revenue from the sale of excess
firm transportation capacity to third-parties. The Company obtains firm pipeline
transportation capacity to enable gas production to flow uninterrupted as sales
volumes increase. In order to minimize this unutilized firm transportation
expense, CNX is able to release (sell) unutilized firm transportation capacity
to other parties when possible and when beneficial. The revenue from released
capacity helps offset the Unutilized Firm Transportation and Processing Fees in
Total Other Operating Expense.
•Equity income from affiliates primarily consists of CNX's share of earnings
from a 50% interest in a power plant located within CNX's CBM field. Power
generated from the facility is sold into wholesale electricity markets during
times of peak energy consumption. Due to the plant consuming low carbon
intensity coal mine methane gas, the plant qualifies for Pennsylvania Tier I
Renewable Energy Credits.
Exploration and Production Related Other Costs
For the Nine Months Ended September 30,
(in millions) 2022 2021 Variance Percent Change
Lease Expiration Costs $ 1 $ 5 $ (4) (80.0) %
Permitting Expense - 1 (1) (100.0) %
Land Rentals 3 2 1 50.0 %
Seismic Activity 3 - 3 100.0 %
Total Exploration and Production Related Other
Costs $ 7 $ 8 $ (1) (12.5) %
•Lease expiration costs relate to leases where the primary term expired or will
expire within the next 12 months.
•Seismic activity expense for the current period primarily relates to the
acquisition of three-dimensional seismic data.
Selling, General and Administrative ("SG&A")
SG&A costs include costs such as overhead, including employee labor and benefit
costs, short-term incentive compensation, costs of maintaining our headquarters,
audit and other professional fees, charitable contributions and legal compliance
expenses. SG&A costs also include non-cash long-term equity-based compensation
expense.
For the Nine Months Ended September 30,
(in millions) 2022 2021 Variance Percent Change
Contributions and Advertising $ 4 $ - $ 4 100.0 %
Salaries, Wages and Employee Benefits 24 20 4 20.0 %
Short-Term Incentive Compensation 10 8 2 25.0 %
Long-Term Equity-Based Compensation
(Non-Cash) 15 14 1 7.1 %
Other 37 35 2 5.7 %
Total SG&A $ 90 $ 77 $ 13 16.9 %
•Contributions and advertising increased in the period-to-period comparison primarily due to an increase in charitable contributions. •Salaries, wages and employee benefits increased in the period-to-period comparison primarily due an increase in employee wages and employee benefit expense.
48
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•Short-term incentive compensation increased in the period-to-period comparison
primarily due to an increase in expected payout.
•Other increased in the period-to-period comparison primarily due to an increase
in professional services and consulting fees related to cyber security, legal
matters and regulatory reporting.
Other Operating Expense
For the Nine Months Ended September 30,
(in millions) 2022 2021 Variance Percent Change
Unutilized Firm Transportation and Processing Fees $ 44 $ 41 $ 3 7.3 %
Virginia Flood Expense 2 - 2 100.0 %
Insurance Expense 2 1 1 100.0 %
Water Expense 1 1 - - %
Litigation Settlements 3 6 (3) (50.0) %
Other 2 3 (1) (33.3) %
Total Other Operating Expense $ 54 $ 52 $ 2 3.8 %
•Unutilized firm transportation and processing fees represent pipeline
transportation capacity obtained to enable gas production to flow uninterrupted
as sales volumes increase, as well as additional processing capacity for NGLs.
In some instances, the Company may have the opportunity to realize more
favorable net pricing by strategically choosing to sell natural gas into a
market or to a customer that does not require the use of the Company's own firm
transportation capacity. Such sales would result in an increase in unutilized
firm transportation expense. The Company attempts to minimize this expense by
releasing (selling) unutilized firm transportation capacity to other parties
when possible and when beneficial. The revenue received when this capacity is
released (sold) is included in Excess Firm Transportation Income in Total Other
Operating Income. The increase in the period-to-period comparison was primarily
due to higher unutilized processing fees and a decrease in utilization of firm
transportation capacity due, in part, to an interstate pipeline outage in the
current period.
•Virginia flood expense includes cleanup and repair costs related to flooding
that occurred in Buchanan County, Virginia in July 2022 .
•CNX and its subsidiaries are subject to various lawsuits and claims in the
normal course of business. CNX accrues the estimated loss for these lawsuits and
claims as litigation settlements when the loss is probable and can be estimated.
(See Note 20 - Commitments and Contingent Liabilities in the Notes to the
Audited Consolidated Financial Statements in Item 8 of CNX's 2021 Form 10-K for
additional information). The decrease in litigation settlements in the
period-to-period comparison was the result of various items, none of which were
individually material.
Other Expense
For
the Nine Months Ended
(in millions) 2022 2021 Variance Percent Change Other Income Right-of-Way Sales $ 3$ 2 $ 1 50.0 % Other 4 3 1 33.3 % Total Other Income $ 7$ 5 $ 2 40.0 % Other Expense Professional Services $ 3$ 5 $ (2) (40.0) % Bank Fees 8 9 (1) (11.1) % Other Corporate Expense 3 4 (1) (25.0) % Total Other Expense $ 14$ 18 $ (4) (22.2) % Total Other Expense $ 7$ 13 $ (6) (46.2) %
•Professional services decreased in the period-to-period comparison primarily due to a decrease in legal fees.
49
--------------------------------------------------------------------------------Gain on Asset Sales and Abandonments, net
A gain on asset sales and abandonments of$8 million was recognized in the nine months endedSeptember 30, 2022 compared to a gain of$22 million in the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2022 , the Company chose to plug and abandon a Shale wellbore. This well was originally part of the 2023 development plan, and in order to not delay other wells, CNX plugged the wellbore and plans on accessing the reserves at a future date. This loss was offset in part by sales of various non-core assets, primarily rights-of-way, surface acreage and other non-core oil and gas interests. During the nine months endedSeptember 30, 2021 , the Company sold various non-core assets, primarily rights-of-way, surface acreage and other non-core oil and gas interests.
Loss on Debt Extinguishment
A loss on debt extinguishment of$23 million was recognized in the nine months endedSeptember 30, 2022 compared to a loss on debt extinguishment of$19 million in the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2022 , CNX purchased of a portion of the Convertible Notes dueMay 2026 and$350 million of the 7.25% Senior Notes dueMarch 2027 at an average price equal to 102.5% of the principal amount. During the nine months endedSeptember 30, 2021 , CNXM purchased a portion of the 6.50% Senior Notes dueMarch 2026 and repaid in full and terminated theCardinal States Gathering Company LLC andCSG Holdings II LLC non-revolving credit facilities. See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.
Interest Expense
For the Nine Months Ended September 30,
(in millions) 2022 2021 Variance Percent Change
Total Interest Expense $ 92 $ 114 $ (22) (19.3) %
The $22 million decrease in total interest expense was primarily due to the
purchase of the $400 million 6.500% CNXM Senior Notes due March 2026 during the
year ended December 31, 2021 offset, in part, by the $400 million of 4.750% CNXM
Senior Notes due 2030 that were issued during the year ended December 31, 2021
and the $500 million of 7.375% Senior Notes due 2031 that were issued during the
three months ended September 30, 2022 . The decrease was also due to the Company
adopting Accounting Standards Update (ASU) 2020-06 - Accounting for Convertible
Instruments and Contracts in an Entity's Own Equity on January 1, 2022 . As part
of the adoption, total interest expense no longer includes a non-cash interest
expense component related to the Convertible Notes due May 2026 . Total interest
expense for the nine months ended September 30, 2021 included $12 million that
was amortized as additional non-cash interest expense related to the equity
component of the Convertible Notes due May 2026 . See Note 9 - Long-Term Debt in
the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this
Form 10-Q for additional information.
Income Taxes
For the Nine Months Ended September 30,
(in millions) 2022 2021 Variance Percent Change
Total Company Loss Before Income Tax $ (1,468) $ (1,543) $ 75 (4.9) %
Income Tax Benefit $ (152) $ (414) $ 262 (63.3) %
Effective Income Tax Rate 10.3 % 26.8 % (16.5) %
The effective income tax rate was 10.3% for the nine months ended September 30,
2022 compared to 26.8% for the nine months ended September 30, 2021 . The
effective rate for the nine months ended September 30, 2022 differs from the
U.S. federal statutory rate of 21% primarily due to the impact of assessing the
realizability of existing deferred tax assets, including net operating losses,
and the related valuation allowance recorded, the partial repurchase of the
Convertible Notes, equity compensation and state income taxes. The effective
rate for the nine months ended September 30, 2021 differs from the U.S. federal
statutory rate of 21% primarily due to the impact of federal tax credits, equity
compensation and state income taxes. See Note 4 - Income Taxes in the Notes to
the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for
additional information.
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Liquidity and Capital Resources
Overview, Sources and Uses
CNX generally has satisfied its working capital requirements and funded its capital expenditures and debt service obligations with cash generated from operations and proceeds from borrowings. CNX currently believes that cash generated from operations, asset sales and the Company's borrowing capacity will be sufficient to meet the Company's working capital requirements, anticipated capital expenditures (other than major acquisitions), scheduled debt payments, anticipated dividend payments, if any, and to provide required letters of credit for the current fiscal year. Nevertheless, the ability of CNX to satisfy its working capital requirements, to service its debt obligations, to fund planned capital expenditures, or to pay dividends will depend upon future operating performance, which will be affected by prevailing economic conditions in the natural gas industry and other financial and business factors, including the current COVID-19 pandemic, some of which are beyond CNX's control. From time to time, CNX is required to post financial assurances to satisfy contractual and other requirements generated in the normal course of business. Some of these assurances are posted to comply with federal, state or other government agencies' statutes and regulations. CNX sometimes uses letters of credit to satisfy these requirements and these letters of credit reduce the Company's borrowing facility capacity.
CNX continuously reviews its liquidity and capital resources. If market conditions were to change, for instance due to a significant decline in commodity prices and our revenue were reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced.
As ofSeptember 30, 2022 , CNX was in compliance with all of its debt covenants. After considering the potential effect of a significant decline in commodity prices, CNX currently expects to remain in compliance with its debt covenants. CNX frequently evaluates potential acquisitions. CNX has historically funded acquisitions with cash generated from operations and a variety of other sources, depending on the size of the transaction, including debt and equity financing. There can be no assurance that additional capital resources, including debt and equity financing, will be available to CNX on terms which CNX finds acceptable, or at all.
Factors that may Impact our Liquidity
•The Company's cash on hand and access to additional liquidity. Cash and cash equivalents as ofSeptember 30, 2022 andDecember 31, 2021 were$1.6 million and$3.6 million , respectively. •Accounts and notes receivable - trade as ofSeptember 30, 2022 andDecember 31, 2021 were$479.1 million and$330.1 million , respectively. Our accounts and notes receivable balance may fluctuate as of any balance sheet date depending on the prices we receive for our natural gas and NGLs and the volumes sold. •Capital expenditures are expected to range between$560.0 million to$580.0 million for the year endedDecember 31, 2022 . For the nine months endedSeptember 30, 2022 , CNX had capital expenditures of$392.5 million . Accelerated levels of inflation may lead to price increases beyond CNX's control that could lead to CNX incurring an increase in costs in the future. •Production volumes are expected to range between 580.0 Bcfe and 590.0 Bcfe for the year endedDecember 31, 2022 . For the nine months endedSeptember 30, 2022 , CNX had production volumes of 439.6 Bcfe. •Prices for natural gas and NGLs are volatile, and an extended decline in the prices we receive for our natural gas and NGLs will adversely affect our financial condition and cash flows. •In order to manage the market risk exposure of volatile natural gas prices in the future, CNX enters into various physical natural gas supply transactions with both gas marketers and end users for terms varying in length. CNX also enters into various financial natural gas swap transactions to manage the market risk exposure to in-basin and out-of-basin pricing. The fair value of these contracts was a net liability of$2,965 million atSeptember 30, 2022 and a net liability of$976 million atDecember 31, 2021 . The Company has not experienced any issues of non-performance by derivative counterparties. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk" of this Form 10-Q for further discussion of our commodity risk management. 51 --------------------------------------------------------------------------------
Cash Flows (in millions)
For the
Nine Months Ended
2022 2021 Change
Cash Provided by Operating Activities $ 793 $ 673 $ 120
Cash Used in Investing Activities $ (362) $ (325) $ (37)
Cash Used in Financing Activities $ (433) Cash flows from operating activities changed in the period-to-period comparison primarily due to the following items:
•Net loss increased$188 million in the period-to-period comparison. •Adjustments to reconcile net loss to cash provided by operating activities primarily consisted of a$256 million change in deferred income taxes, a$115 million net change in commodity derivative instruments, and various other changes in working capital.
Cash flows from investing activities changed in the period-to-period comparison primarily due to the following items:
•Capital expenditures increased$43 million primarily due to an overall increase in costs related to inflation and an increase in midstream expenditures. •Proceeds from asset sales increased$6 million primarily due to increased sales of non-core surface and oil and gas interests in the nine months endedSeptember 30, 2022 .
Cash flows from financing activities changed in the period-to-period comparison primarily due to the following items:
•In the nine months endedSeptember 30, 2022 , CNX closed on$500 million aggregate principal amount of CNX 7.375% Senior Notes dueJanuary 2031 at a price of 98.8% for cash proceeds of$494 million . See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information. •In the nine months endedSeptember 30, 2022 , CNX repurchased$350 million of CNX 7.25% Senior Notes dueMarch 2027 at a price of 102.5% for cash proceeds of$359 million . See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information. •In the nine months endedSeptember 30, 2022 , CNX repurchased$14 million of the 2026 Convertible Notes at an average price of 188.0% for cash proceeds of$27 million . •In the nine months endedSeptember 30, 2022 , there were$37 million of net payments on the CNXM Credit Facility compared to$145 million of net payments during the nine months endedSeptember 30, 2021 . •In the nine months endedSeptember 30, 2022 , there were$147 million of net payments on the CNX Credit Facility compared to$65 million of net proceeds during the nine months endedSeptember 30, 2021 . •In the nine months endedSeptember 30, 2021 , CNXM paid$175 million to purchase$166 million of CNXM 6.50% Senior Notes dueMarch 2026 at 105.4% of the principal amount. See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information. •In the nine months endedSeptember 30, 2021 , CNXM closed on$400 million aggregate principal amount of CNXM 4.75% Senior Notes dueApril 2030 at a price of 98.8% for cash proceeds of$395 million . See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information. •In the nine months endedSeptember 30, 2021 , there were$161 million of net payments on the Cardinal States Facility. See Note 9 - Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information. •In the nine months endedSeptember 30, 2022 , CNX repurchased$350 million of its common stock on the open market compared to$124 million during the nine months endedSeptember 30, 2021 . 52 --------------------------------------------------------------------------------
The following is a summary of the Company's significant contractual obligations
at
Payments due by Year
Less Than More Than
1 Year 1-3 Years 3-5 Years 5 Years Total
Purchase Order Firm Commitments $ 485 $
- $ - $ -
255,928 459,860 378,664 780,633 1,875,085
Long-Term Debt 323,734 - 545,201 1,389,375 2,258,310
Interest on Long-Term Debt 120,646 255,836 223,382 231,907 831,771
Finance Lease Obligations 686 888 430 57 2,061
Interest on Finance Lease Obligations 101 162 102 19 384
Operating Lease Obligations 48,710 91,644 30,701 20,946 192,001
Interest on Operating Lease Obligations 7,779 9,396 3,007 2,097 22,279
Long-Term Liabilities-Employee Related (a) 2,376 4,400 4,792 32,405 43,973
Other Long-Term Liabilities (b) 263,372 10,000 10,000 67,243 350,615
Total Contractual Obligations (c) $ 1,023,817 $
832,186
_________________________
(a)Employee related long-term liabilities include salaried retirement contributions and work-related injuries and illnesses. (b)Other long-term liabilities include royalties and other long-term liability costs. (c)The table above does not include obligations to taxing authorities due to the uncertainty surrounding the ultimate settlement of amounts and timing of these obligations. Debt AtSeptember 30, 2022 , CNX had total long-term debt of$2,258 million , including the current portion of long-term debt of$324 million and excluding unamortized debt issuance costs. This long-term debt consisted of: •An aggregate principal amount of$500 million of 7.375% Senior Notes dueJanuary 2031 , less$6 million of unamortized bond discount. Interest on the notes is payableJanuary 15 andJuly 15 of each year. Payment of the principal and interest on the notes is guaranteed by most of CNX's subsidiaries but does not include CNXM (or its subsidiaries or general partner). •An aggregate principal amount of$500 million of 6.00% Senior Notes dueJanuary 2029 . Interest on the notes is payableJanuary 15 andJuly 15 of each year. Payment of the principal and interest on the notes is guaranteed by most of CNX's subsidiaries but does not include CNXM (or its subsidiaries or general partner). •An aggregate principal amount of$400 million of 4.75% Senior Notes dueApril 2030 issued by CNXM, less$4 million of unamortized bond discount. Interest on the notes is payableApril 15 andOctober 15 of each year. Payment of the principal and interest on the notes is guaranteed by certain of CNXM's subsidiaries. CNX is not a guarantor of these notes. •An aggregate principal amount of$350 million of 7.25% Senior Notes dueMarch 2027 plus$2 million of unamortized bond premium. Interest on the notes is payableMarch 14 andSeptember 14 of each year. Payment of the principal and interest on the notes is guaranteed by most of CNX's subsidiaries but does not include CNXM (or its subsidiaries or general partner). •An aggregate principal amount of$331 million of 2.25% Convertible Senior Notes dueMay 2026 , unless earlier redeemed, repurchased, or converted, less$7 million of unamortized bond discount and issuance costs. Interest on the notes is payableMay 1 andNovember 1 of each year. Payment of the principal and interest on the notes is guaranteed by most of CNX's subsidiaries but does not include CNXM (or its subsidiaries or general partner). •An aggregate principal amount of$148 million in outstanding borrowings under the CNXM Credit Facility. Payment of the principal and interest on the CNXM Credit Facility is guaranteed by certain of CNXM's subsidiaries. CNX is not a guarantor of the CNXM Facility. •An aggregate principal amount of$44 million in outstanding borrowings under the CNX Credit Facility. Payment of the principal and interest on the CNX Credit Facility is guaranteed by most of CNX's subsidiaries but does not include CNXM (or its subsidiaries or general partner).
Total Equity and Dividends
CNX had total equity of$1,977 million atSeptember 30, 2022 compared to$3,700 million atDecember 31, 2021 . See the Consolidated Statements of Stockholders' Equity in Item 1 of this Form 10-Q for additional details. 53 -------------------------------------------------------------------------------- The declaration and payment of dividends by CNX is subject to the discretion of CNX's Board of Directors, and no assurance can be given that CNX will pay dividends in the future. CNX has not paid dividends on its common stock since 2016. The determination to pay dividends in the future will depend upon, among other things, general business conditions, CNX's financial results, contractual and legal restrictions regarding the payment of dividends by CNX, planned investments by CNX, and such other factors as the Board of Directors deems relevant. CNX's revolving credit facility limits its ability to pay dividends in excess of an annual rate of$0.10 per share when the Company's net leverage ratio exceeds 3.00 to 1.00 and is subject to availability under CNX's revolving credit facility of at least 20% of the aggregate commitments and there being no borrowing base deficiency. CNX's revolving credit facility does not permit such dividend payments when an event of default has occurred and is continuing. The indentures to the 7.25% Senior Notes dueMarch 2027 , the 6.00% Senior Notes dueJanuary 2029 , and the 7.375% Senior Notes dueJanuary 2031 limit dividends to$0.50 per share annually unless several conditions are met. These conditions include no defaults, ability to incur additional debt and other payment limitations under the indentures. There were no defaults in the nine months endedSeptember 30, 2022 . Off-Balance Sheet Transactions CNX does not maintain off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources which are not disclosed in the Notes to the Unaudited Consolidated Financial Statements. CNX uses a combination of surety bonds, corporate guarantees and letters of credit to secure the Company's financial obligations for employee-related, environmental, performance and various other items which are not reflected in the Consolidated Balance Sheet atSeptember 30, 2022 . Management believes these items will expire without being funded. See Note 10 - Commitments and Contingent Liabilities in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q for additional details of the various financial guarantees that have been issued by CNX. 54 --------------------------------------------------------------------------------
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted inthe United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. The preceding discussion and analysis of our consolidated results of operations and financial condition should be read in conjunction with our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The 2021 financial statements, as part of our Form 10-K filed with theSEC , includes additional information about us, our operations, our financial condition, our critical accounting policies and accounting estimates, and should be read in conjunction with this Quarterly Report on Form 10-Q. Our significant accounting policies are described in Note 1-Significant Accounting Policies in the Notes to the Audited Consolidated Financial Statements in Item 8 of CNX's 2021 Form 10-K.
Forward-Looking Statements
We are including the following cautionary statement in this Quarterly Report on
Form 10-Q 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 Quarterly Report on Form 10-Q are
forward-looking statements (as defined in Section 21E of 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. The
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 Quarterly
Report on Form 10-Q speak only as of the date of this Quarterly Report on Form
10-Q; we disclaim any obligation to update these statements unless required by
securities law, and we caution you not to rely on them unduly. 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 NGLs 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;
•unsuccessful drilling efforts or continued natural gas price decreases
requiring write downs of our proved natural gas properties, or changes in
assumptions impacting management's estimates of future financial results as well
as other assumptions such as movement in our 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;
•deterioration in the economic conditions in any of the industries in which our
customers operate, a domestic or worldwide financial downturn, inflationary
pressures, or negative credit market conditions;
•hedging activities may prevent us from benefiting from price increases and may
expose us to other risks;
•negative public perception regarding our Company or industry;
•events beyond our control, including a global or domestic health crisis, or
political or economic instability or armed conflict in oil and gas producing
regions;
•increasing attention to environmental, social and governance matters;
•dependence on gathering, processing and transportation facilities and other
midstream facilities owned by others, and disruption of, capacity constraints
in, or proximity to pipeline systems, and any decrease in availability of
pipelines or other midstream facilities;
•uncertainties in estimating our economically recoverable natural gas reserves
and inaccuracies in our estimates;
•the high-risk nature of drilling, developing and operating 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 development or drilling;
•the substantial capital expenditures required for, and commensurate risks
associated with, our development and exploration projects, as well as midstream
system development;
55
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•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;
•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 successfully estimate the rate of decline of existing reserves or to
find or acquire economically recoverable natural gas reserves to replace our
current natural gas reserves;
•losses incurred as a result of title defects in the properties in which we
invest or the loss of certain leasehold or other rights related to our midstream
activities;
•the impact of climate change legislation, litigation and potential, as well as
any adopted, environmental regulations, including those relating to greenhouse
gas emissions;
•environmental regulations can increase costs and introduce uncertainty that
could adversely impact the market for natural gas with potential short and
long-term liabilities;
•existing and future governmental 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 natural gas gathering
pipelines;
•changes in federal or state income tax laws or rates focused on natural gas
exploration and development;
•the outcomes of various legal proceedings, including those which are more fully
described in our reports filed under the Exchange Act;
•risks associated with our current long-term debt obligations;
•a decrease in our borrowing base, which 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;
•risks associated with our Convertible Notes, including the potential impact
that the Convertible Notes may have on our reported financial results, potential
dilution, our ability to raise funds to repurchase the Convertible Notes, and
that provisions of the Convertible Notes could delay or prevent a beneficial
takeover of the Company;
•the potential impact of the capped call transaction undertaken in tandem with
the Convertible Notes issuance, including counterparty risk;
•challenges associated with strategic determinations, including the allocation
of capital and other resources to strategic opportunities;
•inability to complete acquisitions and divestitures, or failure to produce
anticipated benefits of the transaction;
•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;
•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;
•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 may be allocated
responsibility;
•cyber-incidents could have a material adverse effect on our business, financial
condition or results of operations;
•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 adversely affect our business and results
of operations; and
•certain other factors addressed in this report and in our 2021 Form 10-K under
"Risk Factors".
Although forward-looking statements reflect our good faith beliefs at the time
they are made, they involve known and unknown risks, uncertainties and other
factors. For more information concerning factors that could cause actual results
to differ materially from those conveyed in the forward-looking statements,
including, among others, that our business plans may change as circumstances
warrant, please refer to the "Risk Factors" and "Forward-Looking Statements"
sections of our Annual Report 2021 Form 10-K and subsequent Quarterly Reports on
Form 10-Q. We undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
events, changed circumstances or otherwise, unless required by law.
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