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

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

PR Newswire

PITTSBURGH, Jan. 31, 2019

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

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

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

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

Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
December December December December
31, 2018 31, 2017 31, 2018 31, 2017
(Dollars in millions,
except per share Attributable to CNX % Increase/ % Increase/
data) Shareholders (Decrease) Consolidated (Decrease)
Adjusted Net Income $ 132 $ 217 (39.2) % $ 160 $ 217 (26.3) %
Total Shares
Outstanding (in
millions)(2) 198.3 223.8 (11.4) % -- --
Adjusted Net Income per
Outstanding Share(2) $ 0.67 $ 0.97 (30.9) % -- --
Adjusted EBITDAX $ 279 $ 187 49.2 % $ 314 $ 187 67.9 %
Adjusted EBITDAX per
Outstanding Share(2) $ 1.41 $ 0.83 69.9 % $ 1.58 $ 0.83 90.4 %
Capital Expenditures(3) $ 266 $ 234 13.7 % -- --

(1) The Non-GAAP financial measures in the table above are defined and reconciled to GAAP net income,
under the caption "Non-GAAP Financial Measures" below.
(2) For the quarter's ended December 31, 2018 and 2017, total weighted-average diluted shares of
common stock outstanding were 203,741,408 and 227,827,425, respectively. For the quarter ended
December 31, 2018, total shares outstanding of 198,335,252 (Non-GAAP) are as of January 18, 2019. For
the quarter ended December 31, 2017, total shares outstanding of 223,758,284 (Non-GAAP) are as of
January 22, 2018.
(3) Capital expenditures exclude $56.2 million of total capital investment net to CNX Midstream
Partners LP in the fourth quarter of 2018, as reported in CNX Midstream Partners LP Fourth Quarter
and Full Year 2018 Results.

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

Quarter Quarter Year Year
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
(Per Mcfe) 2018 2017 2018 2017
Average
Sales Price
- Total
Company $ 3.09 $ 2.80 $ 2.97 $ 2.66
Total
Production
Cash Costs 1.00 1.16 1.09 1.23
Operating
Cash
Margin $ 2.09 $ 1.64 $ 1.88 $ 1.43
Operating
Cash Margin
(%) 68 % 59 % 63 % 54 %

Total Fully
Burdened
Cash
Costs(1) $ 1.46 $ 1.97 $ 1.63 $ 2.10
Fully
Burdened
Cash
Margin $ 1.63 $ 0.83 $ 1.34 $ 0.56
Fully
Burdened
Cash Margin
(%) 53 % 30 % 45 % 21 %

(1) Fully burdened cash costs, includes production cash costs, selling,
general and administrative (SG&A) cash costs, other operating cash
expense, other cash (income) expense, and interest expense.

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

Operations Summary:

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

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

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

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

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

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