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Here is What's Fueling CONSOL Energy Inc.’s 13% Plunge Today

By Matthew DiLallo - Oct 27, 2015 at 11:15AM

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The natural gas and coal producer reports a much wider loss than investors were expecting.

What: Shares of CONSOL Energy (CNX 3.88%) slumped by more than 13% in early morning trading on Tuesday. Fueling the downdraft was a much wider loss than expected.

So what: CONSOL reported an adjusted loss of $64 million, or $0.28 per share, which was $0.23 per share worse than analysts were expecting to see. This loss came despite the fact that production in the company's E&P Division soared 33% year over year, exceeding its production target. However, that increase in production wasn't enough to overcome depressed natural gas prices, which resulted in the company losing $0.28 per Mcfe produced during the quarter.

Meanwhile, CONSOL's coal division didn't fare much better. Coal production slumped to 7.3 million tons, which was half a million tons less than the year-ago quarter. Its coal division was also affected by very weak coal prices, however, the Pennsylvania operations of its coal division did produce $134 million in cash flow before cash capex and DD&A, which was $4 million more than the year-ago period thanks to cost reductions. This improved cash flow drove solid results at CONSOL's coal MLP CNX Coal Resources (NYSE: CNXC), which owns a 20% interest in those operations. That enabled CNX Coal Resources to produce $15.5 million of distributable cash flow during the quarter.

Now what: There's no question that both of CONSOL's businesses are struggling right now. Because of this the company's primary goal is to get to cash flow break even over the next 15 months. A key part of that plan is to lock cash flow via commodity price hedges and long-term coal contracts. Those coal contracts are particularly important to secure the cash flow at CNX Coal Resources, with CONSOL making solid progress after its Pennsylvania coal operations secured contracts for 74% of its coal volumes next year. However, despite this progress the company still has a long way to go before its finances are in better shape, especially if commodity prices continue to weaken.

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Stocks Mentioned

CONSOL Energy Inc. Stock Quote
CONSOL Energy Inc.
$17.13 (3.88%) $0.64
CONSOL Coal Resources LP Stock Quote
CONSOL Coal Resources LP

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