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Consol Energy’s Guidance: A Focus on Debt Reduction

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Consol Energy’s guidance

For 4Q15, Consol Energy (CNX) expects its E&P (exploration and production) division’s total production to range between 92 Bcfe[1. Billions of cubic feet equivalent] to 97 Bcfe, or about 7%–10% higher when compared with 3Q15. In CNX’s 3Q15 earnings call, it raised its 2015 E&P production guidance to a range of 325 Bcfe to 330 Bcfe. That’s higher by ~39% when compared with 2014.

As you can see in the above chart, CNX is expecting its 2015 E&P production growth to come mainly from the Marcellus Shale and Utica Shale. The Marcellus Shale is expected to contribute ~51% to CNX’s total E&P production for 2015.

For the coal division, CNX is expecting 2015 sales in the range of 28.9 million–29.9 million tons and 2016 sales in the range of 30.6 million–33.4 million tons.

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The upstream player Noble Energy (NBL) is expecting a ~4% quarter-over-quarter rise in its 4Q15 total production, whereas EOG Resources (EOG) and Murphy Oil (MUR) are expected to report ~1% and ~4% quarter-over-quarter falls, respectively, in their 4Q15 total production. The SPDR S&P Oil and Gas Exploration & Production ETF (XOP) generally invests at least 80% of its total assets in oil and gas exploration companies.

CNX’s costs reduction focus

In 3Q15, CNX reported a 27% quarter-over-quarter reduction in its capital expenditures. In CNX’s 3Q15 earnings call, its chief financial officer and director David Khani said that CNX will continue its focus on reducing capital expenditure. He also said that CNX’s focus on reducing capex will benefit free cash flow in 2016. Khani emphasized that “we will be free cash flow neutral in the fourth quarter and we will be free cash flow positive in 2016.”

For 2015, CNX’s management is anticipating the total production cost of gas and liquids in the range of $2.74 per Mcfe[2. Thousands of cubic feet equivalent] to $2.84 per Mcfe, including LOE (lease operating expenses) guidance in the range of $0.32 per Mcfe to $0.34 per Mcfe.

CNX’s focus on debt reduction

Currently, CNX has ~$2 billion of assets available for sale—including some coal assets—under its asset monetization program. In the 3Q15 earnings call, CNX’s CEO, president, and director Nicholas DeIuliis stated, “we will continue to use the proceeds from our asset monetization program to pay down debt.”

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