NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES:
A summary of the significant accounting policies of CNX Resources Corporation and subsidiaries ("CNX" or "the Company") is presented below. These, together with the other notes that follow, are an integral part of the Consolidated Financial Statements.
Basis of Consolidation:
The Consolidated Financial Statements include the accounts of CNX Resources Corporation, and its wholly-owned and majority-owned and/or controlled subsidiaries, including certain variable interest entities that the Company is required to consolidate pursuant to the Consolidation topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification. The portion of these entities that is not owned by the Company is presented as non-controlling interest. Investments in business entities in which CNX does not have control but has the ability to exercise significant influence over the operating and financial policies, are accounted for under the equity method. All significant intercompany transactions and accounts have been eliminated in consolidation. Investments in oil and natural gas producing entities are accounted for under the proportionate consolidation method.
Discontinued Operations:
Businesses divested are classified in the Consolidated Financial Statements as either discontinued operations or held for sale when the provision of Accounting Standards Codification (ASC) Topic 205 or ASC Topic 360 are met. For businesses classified as discontinued operations, the balance sheet amounts and results of operations are reclassified from their historical presentation to assets and liabilities of discontinued operations in the Consolidated Balance Sheets and to discontinued operations in the Consolidated Statements of Income and Cash Flows for all periods presented. The gains or losses associated with these divested businesses are recorded in discontinued operations in the Consolidated Statements of Income. The disclosures outside of Note 5- Discontinued Operations, for all periods presented, in the accompanying notes generally do not include the assets, liabilities, or operating results of businesses classified as discontinued operations.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as various disclosures. Actual results could differ from those estimates. The most significant estimates included in, but not limited to, the preparation of the consolidated financial statements are related to long-lived assets (including intangible assets and goodwill), the values of natural gas, NGLs, condensate and oil (collectively "natural gas") reserves, asset retirement obligations, deferred income tax assets and liabilities, contingencies, fair value of derivative instruments, stock-based compensation and salary retirement benefits.
Cash and Cash Equivalents:
Cash and cash equivalents include cash on hand and on deposit at banking institutions as well as all highly liquid short-term securities with original maturities of three months or less.
Trade Accounts Receivable:
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. CNX reserves for specific accounts receivable when it is probable that all or a part of an outstanding balance will not be collected, such as customer bankruptcies. Collectability is determined based on terms of sale, credit status of customers and various other circumstances. CNX regularly reviews collectability and establishes or adjusts the allowance as necessary using the specific identification method. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Reserves for uncollectable amounts were not material in the periods presented. In addition, there were no material financing receivables with a contractual maturity greater than one year at December 31, 2019 or 2018.
Inventories:
Inventories are stated at the lower of cost or net realizable value. The cost of supplies inventory is determined by the average cost method and includes operating and maintenance supplies to be used in the Company's operations.
Property, Plant and Equipment:
CNX uses the successful efforts method of accounting for natural gas producing activities. Costs of property acquisitions, successful exploratory, development wells and related support equipment and facilities are capitalized. Periodic valuation provisions for impairment of capitalized costs of unproved mineral interests are expensed. Costs of unsuccessful exploratory wells are expensed when such wells are determined to be non-productive, or if the determination cannot be made after finding sufficient quantities of reserves to continue evaluating the viability of the project. The costs of producing properties and mineral interests are amortized using the units-of-production method. DD&A expense is calculated based on the actual produced sales volumes multiplied by the applicable rate per unit, which is derived by dividing the net capitalized costs by the number of units expected to be produced over the life of the reserves. Wells and related equipment and intangible drilling costs are also amortized on a units-of-production method. Units-of-production amortization rates are revised at least once per year, or more frequently if events and circumstances indicate an adjustment is necessary. Such revisions are accounted for prospectively as changes in accounting estimates.
Property, plant and equipment is recorded at cost upon acquisition. Expenditures which extend the useful lives of existing plant and equipment are capitalized. Interest costs applicable to major asset additions are capitalized during the construction period. Planned major maintenance costs which do not extend the useful lives of existing plant and equipment are expensed as incurred.
Depreciation of plant and equipment is calculated on the straight-line method over their estimated useful lives or lease terms, generally as follows:
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|
|
|
|
|
|
|
|
Years
|
|
Buildings and Improvements
|
|
10 to 45
|
|
Machinery and Equipment
|
|
3 to 25
|
|
Gathering and Transmission
|
|
30 to 40
|
|
Leasehold Improvements
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|
Life of Lease
|
Costs for purchased software are capitalized and amortized using the straight-line method over the estimated useful life which does not exceed seven years.
Impairment of Long-Lived Assets:
Impairment of long-lived assets is recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying value. The carrying value of the assets is then reduced to its estimated fair value which is usually measured based on an estimate of future discounted cash flows. Impairment of equity investments is recorded when indicators of impairment are present, and the estimated fair value of the investment is less than the assets' carrying value.
In February 2017, the Company approved a plan to sell its subsidiaries Knox Energy LLC and Coalfield Pipeline Company (collectively, “Knox”). Knox met all of the criteria to be classified as held for sale in February 2017. As part of the required evaluation under the held for sale guidance, Knox’s book value was evaluated, and it was determined that the approximate fair value less costs to sell Knox was less than the carrying value of the net assets to be sold. The resulting impairment of $137,865 was included in Impairment of Exploration and Production Properties in the Consolidated Statements of Income during the year ended December 31, 2017. The sale of Knox closed in the second quarter of 2017 (See Note 6 - Acquisitions and Dispositions for more information). The disposal of Knox did not represent a strategic shift that would have had a major effect on the Company’s operations and financial results and was, therefore, not classified as a discontinued operation in accordance with Topic 205, Presentation of Financial Statements, and Topic 360, Property, Plant and Equipment.
Impairment of Proved Properties:
CNX performs a quantitative impairment test whenever events or changes in circumstances indicate that an asset group's carrying amount may not be recoverable, over proved properties using the published NYMEX forward prices, timing, methods and other assumptions consistent with historical periods. When indicators of impairment are present, tests require that the Company
first compare expected future undiscounted cash flows by asset group to their respective carrying values. If the carrying amount exceeds the estimated undiscounted future cash flows, a reduction of the carrying amount of the natural gas properties to their estimated fair values is required, which is determined based on discounted cash flow techniques using significant assumptions including projected revenues, future commodity prices, and a market-specific weighted average cost of capital which are affected by expectations about future market and economic conditions.
During the fourth quarter of 2019, CNX identified certain indicators of impairment specific to our Central Pennsylvania Marcellus asset group and determined that the carrying value of that asset group was not recoverable. The fair value of the asset group was estimated by using level 3 inputs which consisted of discounting the estimated future cash flows using discount rates and other assumptions that market participants would use in their estimates of fair value. As a result, an impairment of $327,400 was included in Impairment of Exploration and Production Properties in the Consolidated Statements of Income. This impairment was related to 56 operated wells and approximately 51,000 acres within our Central Pennsylvania Marcellus proved properties in Armstrong, Indiana, Jefferson and Westmoreland counties. The majority of these properties were developed prior to 2013 and the last of these properties were developed in 2015.
Impairment of Unproved Properties:
Capitalized costs of unproved oil and gas properties are evaluated at least annually for recoverability on a prospective basis. Indicators of potential impairment include, but are not limited to, changes brought about by economic factors, commodity price outlooks, our geologists’ evaluation of the property, favorable or unfavorable activity on the property being evaluated and/or adjacent properties, potential shifts in business strategy employed by management and historical experience. The likelihood of an impairment of unproved oil and gas properties increases as the expiration of a lease term approaches if drilling activity has not commenced. If it is determined that the Company does not intend to drill on the property prior to expiration or does not have the intent and ability to extend, renew, trade, or sell the lease prior to expiration, an impairment expense is recorded. Expense for lease expirations that were not previously impaired are recorded as the leases expire.
For the year ended December 31, 2019, CNX recorded an impairment related to unproved properties of $119,429 that was included in Impairment of Unproved Properties and Expirations in the Consolidated Statements of Income. These unproved properties are within CNX's Central Pennsylvania operating region and east of the acreage associated with the proved property impairment described above.
Exploration expense, which is associated primarily with lease expirations, was $44,380, $12,033 and $48,074 for the years ended December 31, 2019, 2018 and 2017, respectively, and is included in Exploration and Production Related Other Costs in the Consolidated Statements of Income.
Impairment of Goodwill:
In connection with the Midstream Acquisition (See Note 6 - Acquisitions and Dispositions for more information), CNX recorded $796,359 of goodwill through the application of purchase accounting. The goodwill recorded was allocated in its entirety to the Midstream reporting unit, which is the sole reporting unit within the Midstream segment.
Goodwill is the cost of an acquisition less the fair value of the identifiable net assets of the acquired business. Goodwill is not amortized, but rather it is evaluated for impairment annually during the fourth quarter, or more frequently if recent events or prevailing conditions indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. These indicators include, but are not limited to, overall financial performance, industry and market considerations, anticipated future cash flows and discount rates, changes in the stock price with regards to CNX or common unit price with regards to CNX Midstream Partners LP ("CNXM"), regulatory and legal developments, and other relevant factors.
In connection with the annual evaluation of goodwill for impairment, CNX may first consider qualitative factors to assess whether there are indicators that it is more likely than not that the fair value of a reporting unit may not exceed its carrying amount. If after assessing such factors or circumstances, CNX determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then a quantitative assessment is not required. If CNX chooses to bypass the qualitative assessment, or if it chooses to perform a qualitative assessment but is unable to qualitatively conclude that no impairment has occurred, then CNX will perform a quantitative assessment. In the case of a quantitative assessment, CNX estimates the fair value of the reporting unit with which the goodwill is associated using level 3 inputs and compares it to the carrying value. If the estimated fair value of a reporting unit is less than its carrying value, an impairment charge is recognized for the excess of the reporting unit's carrying value over its fair value. The Company uses a combination of the income approach (generally a discounted cash
flow method) and market approach (which may include the guideline public company method and/or the guideline transaction method) to estimate the fair value of a reporting unit.
The income approach is used to estimate value based on the present value of future economic benefits that are expected to be produced by an asset or business entity. This approach generally involves two general steps:
(i) The first step involves establishing a forecast of the estimated future net cash flows expected to accrue directly or indirectly to the owner of the asset over its remaining useful life or to the owner of the business entity (including a reporting unit).
(ii) The second step involves discounting these estimated future net cash flows to their present value using a market rate of return.
CNX determined the fair value based on estimated future revenues and earnings before deducting net interest expense (interest expense less interest income) and income taxes (EBITDA - a non-GAAP financial measure), and also included estimates for capital expenditures, discounted to present value using an industry rate adjusted for company-specific risk, which management feels reflects the overall level of inherent risk of the reporting unit. These assumptions are affected by expectations about future market, industry and economic conditions. Cash flow projections were derived from board approved budgeted amounts, a five-year operating forecast and an estimate of future cash flows. Subsequent cash flows were developed using growth or contraction rates that management believes are reasonably likely to occur.
The estimates of future cash flows and EBITDA are subjective in nature and are subject to impacts from business risks as described in Item 1A. Risk Factors of this Form 10-K. The fair value estimation process requires considerable judgment and determining the fair value is sensitive to changes in assumptions impacting management’s estimates of future financial results. Although CNX believes the estimates and assumptions used in estimating the fair value are reasonable and appropriate, different assumptions and estimates could materially impact the estimated fair value. Future results could differ from our current estimates and assumptions.
In connection with our annual assessment of goodwill in the fourth quarter of 2019, we bypassed the qualitative assessment and performed a quantitative test that utilized a combination of the income and market approaches to estimate the fair value of the Midstream reporting unit. As a result of this assessment, we concluded that the estimated fair value exceeded carrying value, and accordingly no adjustment to goodwill was necessary. However, the margin by which the fair value of the Midstream reporting unit exceeded its carrying value was less than 10%. As a result, this reporting unit is susceptible to impairment risk from further adverse macroeconomic conditions or other adverse factors such as future gathering volumes being less than those currently estimated. Any such adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that could trigger future impairment charges relating to the Midstream reporting unit.
Impairment of Definite-Lived Intangible Assets:
Definite-lived intangible assets are amortized on a straight-line basis over their estimated economic lives and they are reviewed for impairment when indicators of impairment are present.
In connection with the Midstream Acquisition (See Note 6 - Acquisitions and Dispositions for more information), CNX recorded $128,781 of other intangible assets, which are comprised of customer relationships, through the application of purchase accounting.
In May 2018, CNX determined that the carrying value of a portion of the customer relationship intangible assets that were acquired in connection with the Midstream acquisition exceeded their fair value in conjunction with the Asset Exchange Agreement with HG Energy II Appalachia, LLC (See Note 6 - Acquisitions and Dispositions for more information). CNX recognized an impairment on this intangible asset of $18,650, which is included in Impairment of Other Intangible Assets in the Consolidated Statements of Income.
The customer relationships intangible asset is amortized on a straight-line basis over approximately 17 years.
Income Taxes:
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. The provision for income taxes represents income taxes paid or payable for the current year and the change in deferred taxes, excluding the effects of acquisitions during the year. Deferred taxes result from
differences between the financial and tax bases of the Company's assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a deferred tax benefit will not be realized.
CNX evaluates all tax positions taken on the state and federal tax filings to determine if the position is more likely than not to be sustained upon examination. For positions that do not meet the more likely than not to be sustained criteria, the Company determines, on a cumulative probability basis, the largest amount of benefit that is more likely than not to be realized upon ultimate settlement. A previously recognized tax position is reversed when it is subsequently determined that a tax position no longer meets the more likely than not threshold to be sustained. The evaluation of the sustainability of a tax position and the probable amount that is more likely than not is based on judgment, historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. The results of these estimates, that are not readily apparent from other sources, form the basis for recognizing an uncertain tax position liability. Actual results could differ from those estimates upon subsequent resolution of identified matters.
Asset Retirement Obligations:
CNX accrues for dismantling and removing costs of gas-related facilities and related surface reclamation using the accounting treatment prescribed by the Asset Retirement and Environmental Obligations Topic of the FASB Accounting Standards Codification. This topic requires the fair value of an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Estimates are regularly reviewed by management and are revised for changes in future estimated costs and regulatory requirements. The present value of the estimated asset retirement costs is capitalized as part of the carrying amount of the long-lived asset. Amortization of the capitalized asset retirement cost is generally determined on a units-of-production basis. Accretion of the asset retirement obligation is recognized over time and generally will escalate over the life of the producing asset, typically as production declines. Accretion is included in Depreciation, Depletion and Amortization in the Consolidated Statements of Income.
Investment Plan:
CNX has an investment plan that is available to most employees. Throughout the years ended December 31,2019, 2018 and 2017, the Company's matching contribution was 6% of eligible compensation contributed by eligible employees. The Company may also make discretionary contributions to the Plan ranging from 1% to 6% of eligible compensation for eligible employees (as defined by the Plan). There were no such discretionary contributions made by CNX for the years ended December 31, 2019, 2018 and 2017. Total matching contribution payments and costs were $3,460, $3,205 and $2,866 for the years ended December 31, 2019, 2018 and 2017, respectively.
Revenue Recognition:
Revenues are recognized when the recognition criteria of ASC 606 are met, which generally occurs at the point in which title passes to the customers. For natural gas, NGL and oil revenue, this occurs at the contractual point of delivery. For midstream revenue this occurs when obligations under the terms of the contract with the shipper are satisfied.
CNX sells natural gas to accommodate the delivery points of its customers. In general, this gas is purchased at market price and re-sold on the same day at market price less a small transaction fee. These matching buy/sell transactions include a legal right of offset of obligations and have been simultaneously entered into with the counterparty. These transactions qualify for netting under the Nonmonetary Transactions Topic of the FASB Accounting Standards Codification and are, therefore, recorded net within the Consolidated Statements of Income in the Purchased Gas Revenue line.
CNX purchases natural gas produced by third-parties at market prices less a fee. The gas purchased from third-parties is then resold to end users or gas marketers at current market prices. These revenues and expenses are recorded gross as Purchased Gas Revenue and Purchase Gas Costs, respectively, in the Consolidated Statements of Income. Purchased gas revenue is recognized when title passes to the customer. Purchased gas costs are recognized when title passes to CNX from the third-party.
Contingencies:
From time to time, CNX, or its subsidiaries, are subject to various lawsuits and claims with respect to such matters as personal injury, wrongful death, damage to property, exposure to hazardous substances, governmental regulations (including environmental remediation), employment and contract disputes, and other claims and actions, arising out of the normal course of business. Liabilities are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. Estimates are developed through consultation with legal counsel involved in the defense of these matters and are based upon the
nature of the lawsuit, progress of the case in court, view of legal counsel, prior experience in similar matters and management's intended response. Environmental liabilities are not discounted or reduced by possible recoveries from third-parties. Legal fees associated with defending these various lawsuits and claims are expensed when incurred.
Stock-Based Compensation:
Stock-based compensation expense for all stock-based compensation awards is based on the grant date fair value estimated in accordance with the provisions of the Stock Compensation Topic of the FASB Accounting Standards Codification. CNX recognizes these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the award's vesting term. See Note 17 - Stock-Based Compensation for more information.
Derivative Instruments:
CNX enters into financial derivative instruments to manage its exposure to commodity price volatility. The derivatives are accounted for as an asset or a liability in the accompanying Consolidated Balance Sheets at their fair value, generally measured based upon Level 2 inputs, which is further described in Note 20 - Fair Value of Financial Instruments. Changes in the fair values of derivatives are recorded in earnings.
All of the Company's derivative instruments are subject to master netting arrangements with its counterparties, none of which currently require CNX to post collateral for any of its hedges. However, as stated in the counterparty master agreements, if the Company's obligations with one of its counterparties cease to be secured on the same basis as similar obligations with the other lenders under the credit facility, CNX would be required to post collateral for hedges that are in a liability position in excess of defined thresholds. Each of the Company's counterparty master agreements allows, in the event of default, the ability to elect early termination of outstanding contracts. If early termination is elected, CNX and the applicable counterparty would net settle all open hedge positions.
CNX is exposed to credit risk in the event of non-performance by counterparties, whose creditworthiness is subject to continuing review. Historically, CNX has not experienced any issues of non-performance by derivative counterparties.
Recent Accounting Pronouncements:
In December 2019, the FASB issued ASU 2019-12 - Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. This ASU removes the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items; (2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in this ASU also improve consistency and simplify other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU will be applied using different approaches depending on what the specific amendment relates to and, for public entities, are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company's financial statements.
In November 2019, the FASB issued ASU 2019-11 - Financial Instruments - Credit Losses (Topic 326), which clarifies and addresses specific issues about certain aspects of the amendments in ASU 2016-13. In May 2019, the FASB issued ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326), which provides optional targeted transition relief to entities adopting ASU 2016-13. ASU 2016-13 replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The measurement of expected credit losses will be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2019-05 provides the option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. The amendments in this ASU will be applied using the modified-retrospective approach and, for public entities, are effective for fiscal years beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company's financial statements.
Reclassifications:
Certain amounts in prior periods have been reclassified to conform with the report classifications of the year ended December 31, 2019, with no effect on previously reported net income, stockholders' equity, or statement of cash flows.
Subsequent Events:
The Company has evaluated all subsequent events through the date the financial statements were issued. No material recognized, or non-recognizable subsequent events were identified other than what is disclosed in Note 25 - Subsequent Event.
NOTE 2—EARNINGS PER SHARE:
Basic earnings per share is computed by dividing net income attributable to CNX shareholders by the weighted average shares outstanding during the reporting period. Diluted earnings per share is computed similarly to basic earnings per share, except that the weighted average shares outstanding are increased to include additional shares from stock options, performance stock options, restricted stock units and performance share units, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and performance share options were exercised, that outstanding restricted stock units and performance share units were released, and that the proceeds from such activities were used to acquire shares of common stock at the average market price during the reporting period. CNXM's dilutive units did not have a material impact on the Company's earnings per share calculations for the year ended December 31, 2019 or the period from January 3, 2018 through December 31, 2018.
The table below sets forth the share-based awards that have been excluded from the computation of diluted earnings per share because their effect would be antidilutive:
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|
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|
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|
|
|
For the Years Ended December 31,
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|
|
2019
|
|
2018
|
|
2017
|
|
Anti-Dilutive Options
|
4,696,264
|
|
|
2,285,775
|
|
|
2,773,423
|
|
|
Anti-Dilutive Restricted Stock Units
|
1,282,582
|
|
|
—
|
|
|
18,598
|
|
|
Anti-Dilutive Performance Share Units
|
752,899
|
|
|
145,217
|
|
|
—
|
|
|
Anti-Dilutive Performance Share Options
|
927,268
|
|
|
927,268
|
|
|
927,268
|
|
|
|
7,659,013
|
|
|
3,358,260
|
|
|
3,719,289
|
|
The computations for basic and diluted earnings per share are as follows:
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|
|
|
|
|
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|
|
|
|
|
|
|
For the Years Ended December 31,
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|
|
2019
|
|
2018
|
|
2017
|
|
Income from Continuing Operations
|
$
|
31,948
|
|
|
$
|
883,111
|
|
|
$
|
295,039
|
|
|
Less: Net Income Attributable to Non-Controlling Interest
|
112,678
|
|
|
86,578
|
|
|
—
|
|
|
Net (Loss) Income from Continuing Operations Attributable to CNX Resources Shareholders
|
$
|
(80,730
|
)
|
|
$
|
796,533
|
|
|
$
|
295,039
|
|
|
Income from Discontinued Operations
|
—
|
|
|
—
|
|
|
85,708
|
|
|
Net (Loss) Income Attributable to CNX Resources Shareholders
|
$
|
(80,730
|
)
|
|
$
|
796,533
|
|
|
$
|
380,747
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding
|
190,727,122
|
|
|
212,348,581
|
|
|
228,835,112
|
|
|
Effect of diluted shares
|
—
|
|
|
2,280,384
|
|
|
2,116,700
|
|
|
Weighted-average diluted shares of common stock outstanding
|
190,727,122
|
|
|
214,628,965
|
|
|
230,951,812
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings Per Share:
|
|
|
|
|
|
|
Basic (Continuing Operations)
|
$
|
(0.42
|
)
|
|
$
|
3.75
|
|
|
$
|
1.29
|
|
|
Basic (Discontinued Operations)
|
—
|
|
|
—
|
|
|
0.37
|
|
|
Total Basic
|
$
|
(0.42
|
)
|
|
$
|
3.75
|
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
Diluted (Continuing Operations)
|
$
|
(0.42
|
)
|
|
$
|
3.71
|
|
|
$
|
1.28
|
|
|
Diluted (Discontinued Operations)
|
—
|
|
|
—
|
|
|
0.37
|
|
|
Total Diluted
|
$
|
(0.42
|
)
|
|
$
|
3.71
|
|
|
$
|
1.65
|
|
Shares of common stock outstanding were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Balance, Beginning of Year
|
198,663,342
|
|
|
223,743,322
|
|
|
229,443,008
|
|
|
Issuance Related to Stock-Based Compensation (1)
|
909,107
|
|
|
814,344
|
|
|
711,214
|
|
|
Retirement of Common Stock (2)
|
(12,929,487
|
)
|
|
(25,894,324
|
)
|
|
(6,410,900
|
)
|
|
Balance, End of Year
|
186,642,962
|
|
|
198,663,342
|
|
|
223,743,322
|
|
(1) See Note 17 - Stock-Based Compensation for additional information.
(2) See Note 7 - Stock Repurchase for additional information.
NOTE 3—CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS:
Changes in Accumulated Other Comprehensive Loss related to pension obligations, net of tax, were as follows:
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|
|
|
|
|
|
|
|
Amount
|
|
Balance at December 31, 2018
|
$
|
(7,904
|
)
|
|
Other Comprehensive Loss before Reclassifications
|
(4,868
|
)
|
|
Amounts Reclassified from Accumulated Other Comprehensive Loss, net of tax
|
167
|
|
|
Balance at December 31, 2019
|
$
|
(12,605
|
)
|
The following table shows the reclassification of adjustments out of Accumulated Other Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Actuarially Determined Long-Term Liability Adjustments* (Note 16)
|
|
|
|
|
|
|
Amortization of Prior Service Costs
|
$
|
(17
|
)
|
|
$
|
(193
|
)
|
|
$
|
(2,775
|
)
|
|
Recognized Net Actuarial Loss
|
242
|
|
|
302
|
|
|
23,043
|
|
|
Total
|
225
|
|
|
109
|
|
|
20,268
|
|
|
Less: Tax Benefit
|
58
|
|
|
173
|
|
|
7,499
|
|
|
Net of Tax
|
$
|
167
|
|
|
$
|
(64
|
)
|
|
$
|
12,769
|
|
*Excludes amounts related to the remeasurement of the actuarially determined pension obligations for the years ended December 31, 2019, 2018 and 2017. The table above only shows the reclassifications out of Accumulated Other Comprehensive Loss that relates to continuing operations.
In February 2018, the FASB issued ASU 2018-02 - Income Statement - Reporting Comprehensive Income (Topic 220), which eliminates the stranded tax effects resulting from the Tax Cuts and Jobs Act. The Company early adopted this ASU, resulting in the reclassification of $1,100 related to stranded tax effects from Accumulated Other Comprehensive Loss to Retained Earnings during the year ended December 31, 2018.
NOTE 4—REVENUE FROM CONTRACTS WITH CUSTOMERS:
On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers and all the related amendments using the modified retrospective method, which did not result in any changes to previously reported financial information. The updates were applied only to contracts that were not complete as of January 1, 2018.
Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company has elected to exclude all taxes from the measurement of transaction price.
For natural gas, NGLs and oil, and purchased gas revenue, the Company generally considers the delivery of each unit (MMBtu or Bbl) to be a separate performance obligation that is satisfied upon delivery. Payment terms for these contracts typically require payment within 25 days of the end of the calendar month in which the hydrocarbons are delivered. A significant number of these contracts contain variable consideration because the payment terms refer to market prices at future delivery dates. In these situations, the Company has not identified a standalone selling price because the terms of the variable payments relate specifically to the Company’s efforts to satisfy the performance obligations. A portion of the contracts contain fixed consideration (i.e. fixed price contracts or contracts with a fixed differential to NYMEX or index prices). The fixed consideration is allocated to each performance obligation on a relative standalone selling price basis, which requires judgment from management. For these contracts, the Company generally concludes that the fixed price or fixed differentials in the contracts are representative of the standalone selling price. Revenue associated with natural gas, NGLs and oil as presented on the accompanying Consolidated Statements of Income represent the Company’s share of revenues net of royalties and excluding revenue interests owned by others. When selling natural gas, NGLs and oil on behalf of royalty owners or working interest owners, the Company is acting as an agent and thus reports the revenue on a net basis.
Midstream revenue consists of revenues generated from natural gas gathering activities. The gas gathering services are interruptible in nature and include charges for the volume of gas actually gathered and do not guarantee access to the system. Volumetric based fees are based on actual volumes gathered. The Company generally considers the interruptible gathering of each unit (MMBtu) of natural gas as a separate performance obligation. Payment terms for these contracts typically require payment within 25 days of the end of the calendar month in which the hydrocarbons are gathered.
Disaggregation of Revenue
The following table is a disaggregation of revenue by major source:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
Revenue from Contracts with Customers
|
|
|
|
|
|
|
Natural Gas Revenue
|
$
|
1,251,013
|
|
|
$
|
1,391,459
|
|
|
$
|
945,382
|
|
|
NGLs Revenue
|
104,139
|
|
|
165,883
|
|
|
156,132
|
|
|
Condensate Revenue
|
8,751
|
|
|
17,559
|
|
|
20,531
|
|
|
Oil Revenue
|
422
|
|
|
3,036
|
|
|
3,179
|
|
|
Total Natural Gas, NGLs and Oil Revenue
|
1,364,325
|
|
|
1,577,937
|
|
|
1,125,224
|
|
|
|
|
|
|
|
|
|
Purchased Gas Revenue
|
94,027
|
|
|
65,986
|
|
|
53,795
|
|
|
Midstream Revenue
|
74,314
|
|
|
89,781
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other Sources of Revenue and Other Operating Income
|
|
|
|
|
|
|
Gain (Loss) on Commodity Derivative Instruments
|
376,105
|
|
|
(30,212
|
)
|
|
206,930
|
|
|
Other Operating Income
|
13,678
|
|
|
26,942
|
|
|
69,182
|
|
|
Total Revenue and Other Operating Income
|
$
|
1,922,449
|
|
|
$
|
1,730,434
|
|
|
$
|
1,455,131
|
|
The disaggregated revenue information corresponds with the Company’s segment reporting found in Note 24 - Segment Information.
Contract Balances
CNX invoices its customers once a performance obligation has been satisfied, at which point payment is unconditional. Accordingly, CNX's contracts with customers do not give rise to contract assets or liabilities under ASC 606. The Company has no contract assets recognized from the costs to obtain or fulfill a contract with a customer. The opening and closing balances of the Company’s receivables related to contracts with customers were $252,424 and $133,480, respectively, as of December 31, 2019.
Transaction Price Allocated to Remaining Performance Obligations
ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied. However, the guidance provides certain practical expedients that limit this requirement, including when variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a series.
A significant portion of CNX's natural gas, NGLs and oil and purchased gas revenue is short-term in nature with a contract term of one year or less. For those contracts, CNX has utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
For revenue associated with contract terms greater than one year, a significant portion of the consideration in those contracts is variable in nature and the Company allocates the variable consideration in its contract entirely to each specific performance obligation to which it relates. Therefore, any remaining variable consideration in the transaction price is allocated entirely to wholly unsatisfied performance obligations. As such, the Company has not disclosed the value of unsatisfied performance obligations pursuant to the practical expedient.
For revenue associated with contract terms greater than one year with a fixed price component, the aggregate amount of the transaction price allocated to remaining performance obligations was $156,620 as of December 31, 2019. The Company expects to recognize net revenue of $38,928 in the next 12 months and $53,322 over the following 12 months, with the remainder recognized thereafter.
For revenue associated with CNX's midstream contracts, which also have terms greater than one year, the interruptible gathering of each unit of natural gas represents a separate performance obligation; therefore, future volumes are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required.
Prior-Period Performance Obligations
CNX records revenue in the month production is delivered to the purchaser. However, settlement statements for certain natural gas and NGL revenue may not be received for 30 to 90 days after the date production is delivered, and as a result, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. CNX records the differences between the estimates and the actual amounts received in the month that payment is received from the purchaser. The Company has existing internal controls for its revenue estimation process and the related accruals, and any identified differences between its revenue estimates and actual revenue received historically have not been significant. For each of the years ended December 31, 2019, 2018, and 2017, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was not material.
NOTE 5—DISCONTINUED OPERATIONS:
In November 2017, CNX completed the tax-free spin-off of its coal business resulting in two independent, publicly traded companies: (i) a coal company, CONSOL Energy, formerly known as CONSOL Mining Corporation and (ii) CNX, a natural gas exploration and production company, formerly known as CONSOL Energy, Inc. Following the separation, CONSOL Energy and its subsidiaries hold the coal assets previously held by CNX, including its Pennsylvania Mining Complex, Baltimore Marine Terminal, its direct and indirect ownership interest in CONSOL Coal Resources LP, formerly known as CNXC Coal Resources LP, and other related coal assets previously held by CNX. The coal business has been reclassified to discontinued operations for all periods presented.
The following table details selected financial information for the divested business included within discontinued operations:
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
December 31, 2017
|
|
Coal Revenue
|
$
|
1,067,841
|
|
|
Other Outside Sales
|
60,066
|
|
|
Freight-Outside Coal
|
66,297
|
|
|
Miscellaneous Other Income
|
73,645
|
|
|
Total Revenue and Other Income
|
1,267,849
|
|
|
Total Costs
|
1,147,254
|
|
|
Income from Operations Before Income Taxes
|
120,595
|
|
|
Income Tax Expense
|
23,984
|
|
|
Less: Net Income Attributable to Noncontrolling Interest
|
10,903
|
|
|
Income from Discontinued Operations, net
|
$
|
85,708
|
|
NOTE 6—ACQUISITIONS AND DISPOSITIONS:
On August 31, 2018, CNX closed on the sale of substantially all of its Ohio Utica Joint Venture Assets in the wet gas Utica Shale areas of Belmont, Guernsey, Harrison, and Noble Counties, which included approximately 26,000 net undeveloped acres. The net cash proceeds of $381,124 are included in Proceeds from Asset Sales in the Consolidated Statements of Cash Flows and the net gain on the transaction of $130,710 is included in Gain on Asset Sales and Abandonments, net in the Consolidated Statements of Income.
On May 2, 2018, CNX closed on an Asset Exchange Agreement (the “AEA”) with HG Energy II Appalachia, LLC (“HG Energy”), pursuant to which, among other things, HG Energy (i) paid to CNX approximately $7,000 and (ii) assigned to CNX certain undeveloped Marcellus and Utica acreage in Southwest Pennsylvania, in exchange for CNX (x) assigning its interest in certain non-core midstream assets and surface acreage to HG Energy and (y) releasing certain HG Energy oil and gas acreage from dedication under a gathering agreement that is partially held, indirectly, by CNX. In connection with the transaction, CNX also agreed to certain transactions with CNXM, including the amendment of the existing gas gathering agreement between CNX and CNXM to increase the existing well commitment by an additional forty wells. The net gain on the sale was $286 and is included in Gain on Asset Sales and Abandonments, net in the Consolidated Statements of Income.
As a result of the AEA, CNX determined that the carrying value of a portion of the customer relationship intangible assets that were acquired in connection with the Midstream Acquisition discussed below (see also Note 11 - Goodwill and Other Intangible Assets) exceeded their fair value, and recognized an impairment of approximately $18,650, which is included in Impairment of Other Intangible Assets in the Consolidated Statements of Income.
On March 30, 2018, CNX Gas completed the sale of substantially all of its shallow oil and gas assets and certain Coalbed Methane (CBM) assets in Pennsylvania and West Virginia for $89,921 in cash consideration. In connection with the sale, the buyer assumed approximately $196,514 of asset retirement obligations. The net gain on the sale was $4,227 and is included in Gain on Asset Sales and Abandonments, net in the Consolidated Statements of Income.
On December 14, 2017, CNX Gas entered into a purchase agreement with Noble, pursuant to which CNX Gas acquired Noble’s 50% membership interest in CNX Gathering (then named "CONE Gathering LLC"), for a cash purchase price of $305,000 and the mutual release of all outstanding claims (the "Midstream Acquisition"). CNX Gathering owns a 100% membership interest in CNX Midstream GP LLC (the "general partner"), which is the general partner of CNXM.
Prior to the Midstream Acquisition, the Company accounted for its 50% interest in CNX Gathering as an equity method investment as the Company had the ability to exercise significant influence, but not control, over the operating and financial policies of the midstream operations. In conjunction with the Midstream Acquisition, the Company obtained a controlling interest in CNX Gathering and, through CNX Gathering's ownership of the general partner, control over the Partnership. Accordingly, the Midstream Acquisition has been accounted for as a business combination using the acquisition method of accounting pursuant to ASC Topic 805, Business Combinations, or ASC 805. ASC 805 requires that, in circumstances where a business combination is achieved in stages (or step acquisition), previously held equity interests are remeasured at fair value and any difference between the fair value and the carrying value of the equity interest held be recognized as a gain or loss on the statement of income.
The fair value assigned to the previously held equity interest in CNX Gathering and CNXM for purposes of calculating the gain or loss was $799,033 and was determined using the income approach, based on a discounted cash flow methodology. The resulting gain on remeasurement to fair value of the previously held equity interest in CNX Gathering and CNXM of $623,663 is included in Gain on Previously Held Equity Interest in the Consolidated Statements of Income.
The fair value of the previously held equity interests was based on inputs that are not observable in the market and therefore represent Level 3 inputs (See Note 20 - Fair Value of Financial Instruments). The fair value was measured using valuation techniques that convert future cash flows into a single discounted amount. Significant inputs to the valuation included estimates of: (i) gathering volumes; (ii) future operating costs; and (iii) a market-based weighted average cost of capital. These inputs required significant judgments and estimates by management.
The fair value of midstream facilities and equipment, generally consisting of pipeline systems and compression stations, were estimated using the cost approach. Significant unobservable inputs in the valuation include management's assumptions about the replacement costs for similar assets, the relative age of the acquired assets and any potential economic or functional obsolescence associated with the acquired assets. As a result, the fair value estimates of the midstream facilities and equipment represents a Level 3 fair value measurement.
As part of the purchase price allocation, the Company identified intangible assets for customer relationships with third-party customers. The fair value of the identified intangible assets was determined using the income approach, which requires a forecast of the expected future cash flows generated and an estimated market-based weighted average cost of capital. Significant unobservable inputs in the valuation include future revenue estimates, future cost assumptions, and estimated customer retention rates. As a result, the fair value estimate of the identified intangible assets represents a Level 3 fair value measurement.
The noncontrolling interest in the acquired business is comprised of the limited partner units in CNXM, which were not acquired by the Company. The CNXM limited partner units are actively traded on the New York Stock Exchange and were valued based on observable market prices as of the transaction date and therefore represent a Level 1 fair value measurement.
Allocation of Purchase Price (Midstream Acquisition)
The following table summarizes the purchase price and the amounts of identified assets acquired and liabilities assumed based on the fair value as of January 3, 2018, with any excess of the purchase price over the fair value of the identified net assets acquired recorded as goodwill. The purchase price allocation was finalized as of December 31, 2018.
Fair Value of Consideration Transferred:
|
|
|
|
|
|
|
|
|
Amount
|
|
Cash Consideration
|
$
|
305,000
|
|
|
CNX Gathering Cash on Hand at January 3, 2018 Distributed to Noble
|
2,620
|
|
|
Fair Value of Previously Held Equity Interest
|
799,033
|
|
|
Total Estimated Fair Value of Consideration Transferred
|
$
|
1,106,653
|
|
The following is a summary of the fair values of the net assets acquired:
|
|
|
|
|
|
|
|
Fair Value of Assets Acquired:
|
Amount
|
|
Cash and Cash Equivalents
|
$
|
8,348
|
|
|
Accounts and Notes Receivable
|
21,199
|
|
|
Prepaid Expense
|
2,006
|
|
|
Other Current Assets
|
163
|
|
|
Property, Plant and Equipment, Net
|
1,043,340
|
|
|
Intangible Assets
|
128,781
|
|
|
Other
|
593
|
|
|
Total Assets Acquired
|
1,204,430
|
|
|
|
|
|
Fair Value of Liabilities Assumed:
|
|
|
Accounts Payable
|
26,059
|
|
|
CNXM Revolving Credit Facility
|
149,500
|
|
|
Total Liabilities Assumed
|
175,559
|
|
|
|
|
|
Total Identifiable Net Assets
|
1,028,871
|
|
|
Fair Value of Noncontrolling Interest in CNXM
|
(718,577
|
)
|
|
Goodwill
|
796,359
|
|
|
Net Assets Acquired
|
$
|
1,106,653
|
|
Post-Acquisition Operating Results (Midstream Acquisition)
The Midstream Acquisition contributed the following to the Company's Midstream segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
Midstream Revenue
|
$
|
307,024
|
|
|
$
|
258,074
|
|
|
Earnings from Continuing Operations Before Income Tax
|
$
|
166,654
|
|
|
$
|
133,811
|
|
Unaudited Pro Forma Information (Midstream Acquisition)
The following unaudited pro forma combined financial information presents the Company’s results as though the Midstream Acquisition had been completed at January 1, 2017. The pro forma combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the acquisition been completed at January 1, 2017; furthermore, the financial information is not intended to be a projection of future results.
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
(in thousands, except per share data) (unaudited)
|
December 31, 2017
|
|
Pro Forma Total Revenue and Other Operating Income
|
$
|
1,553,078
|
|
|
Pro Forma Net Income from Continuing Operations
|
$
|
427,381
|
|
|
Less: Pro Forma Net Income Attributable to Noncontrolling Interests
|
$
|
74,251
|
|
|
Pro Forma Net Income from Continuing Operations Attributable to CNX
|
$
|
353,130
|
|
|
Pro Forma Income per Share from Continuing Operations (Basic)
|
$
|
1.33
|
|
|
Pro Forma Income per Share from Continuing Operations (Diluted)
|
$
|
1.33
|
|
In September 2017, CNX closed on the sale of approximately 22,000 acres of surface land in Colorado. The net cash proceeds of $23,703 are included in Proceeds from Asset Sales in the Consolidated Statements of Cash Flows and the net gain on the transaction of $18,758 is included in Gain on Asset Sales and Abandonments, net in the Consolidated Statements of Income.
In a two-part closing in July and September 2017, CNX executed the sale of approximately 7,500 net undeveloped acres of the Marcellus Shale in Allegheny and Westmoreland counties, Pennsylvania. The total cash proceeds of $36,649 are included in Proceeds from Asset Sales in the Consolidated Statements of Cash Flows and the net gain on the transaction of $15,251 is included in Gain on Asset Sales and Abandonments, net in the Consolidated Statements of Income.
In June 2017, CNX closed on the sale of approximately 11,100 net undeveloped acres of the Marcellus and Utica Shale in Allegheny, Washington, and Westmoreland counties, Pennsylvania. The total cash proceeds of $83,500 are included in Proceeds from Asset Sales in the Consolidated Statements of Cash Flows and the net gain on the transaction of $58,541 is included in Gain on Asset Sales and Abandonments, net in the Consolidated Statements of Income.
In June 2017, the Company finalized the sale of 12 producing wells, 15 drilled but uncompleted wells (DUCs), and approximately 11,000 net developed and undeveloped Marcellus and Utica acres in Doddridge and Wetzel counties in West Virginia that were previously classified as held for sale. CNX received total cash proceeds of $125,507, which is included in Proceeds from Asset Sales in the Consolidated Statements of Cash Flows, as well as undeveloped acreage. The net loss on the sale of $9,430 is included in Gain on Asset Sales and Abandonments net in the Consolidated Statements of Income.
In May 2017, CNX finalized the sale of approximately 6,300 net undeveloped acres of the Utica-Point Pleasant Shale in Jefferson, Belmont and Guernsey counties, Ohio that were previously classified as held for sale. The total cash proceeds of $76,585 are included in Proceeds from Asset Sales in the Consolidated Statements of Cash Flows and the net gain on the transaction of $72,346 is included in Gain on Asset Sales and Abandonments, net in the Consolidated Statements of Income.
In April 2017, CNX finalized the sale of its Knox Energy LLC and Coalfield Pipeline Company subsidiaries that were previously classified as held for sale. At closing, CNX received net cash proceeds of $19,055, which is included in Proceeds from Asset Sales in the Consolidated Statements of Cash Flows. The net gain on the sale of these assets was $606 and is included in the Gain on Asset Sales and Abandonments, net in the Consolidated Statements of Income. In February 2017, Knox met all of the criteria to be classified as held for sale. As part of the required evaluation under the held for sale guidance, Knox’s book value was evaluated, and it was determined that the approximate fair value less costs to sell Knox was less than the carrying value of the net assets to be sold. The resulting impairment of $137,865 is included in Impairment of Exploration and Production Properties in the Consolidated Statements of Income during the year ended December 31, 2017.
NOTE 7— STOCK REPURCHASE:
Since the October 30, 2017 inception of the current stock repurchase program, CNX's Board of Directors has approved in total a $750,000 stock repurchase program, which is not subject to an expiration date. The repurchases may be affected from time-to-time through open market purchases, privately negotiated transactions, Rule 10b5-1 plans, accelerated stock repurchases, block trades, derivative contracts or otherwise in compliance with Rule 10b-18. The timing of any repurchases will be based on a number of factors, including available liquidity, the Company's stock price, the Company's financial outlook, and alternative investment
options. The stock repurchase program does not obligate the Company to repurchase any dollar amount or number of shares and the Board may modify, suspend, or discontinue its authorization of the program at any time. The Board of Directors will continue to evaluate the size of the stock repurchase program based on CNX's free cash flow position, leverage ratio, and capital plans. During the year ended December 31, 2019, 12,929,487 shares were repurchased and retired at an average price of $8.91 per share for a total cost of $115,477.
NOTE 8—INCOME TAXES:
Income tax expense (benefit) provided on earnings from continuing operations consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
U.S. Federal
|
$
|
(51,243
|
)
|
|
$
|
(130,003
|
)
|
|
$
|
(31,791
|
)
|
|
U.S. State
|
(113
|
)
|
|
—
|
|
|
(1,838
|
)
|
|
|
(51,356
|
)
|
|
(130,003
|
)
|
|
(33,629
|
)
|
|
Deferred:
|
|
|
|
|
|
|
U.S. Federal
|
47,717
|
|
|
319,813
|
|
|
(166,112
|
)
|
|
U.S. State
|
31,375
|
|
|
25,747
|
|
|
23,283
|
|
|
|
79,092
|
|
|
345,560
|
|
|
(142,829
|
)
|
|
|
|
|
|
|
|
|
Total Income Tax Expense (Benefit)
|
$
|
27,736
|
|
|
$
|
215,557
|
|
|
$
|
(176,458
|
)
|
The components of the net deferred taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Deferred Tax Assets:
|
|
|
|
|
Net Operating Loss- Federal
|
$
|
202,913
|
|
|
$
|
124,341
|
|
|
Net Operating Loss - State
|
130,430
|
|
|
110,339
|
|
|
Alternative Minimum Tax
|
51,241
|
|
|
102,482
|
|
|
Foreign Tax Credit
|
43,194
|
|
|
43,194
|
|
|
Interest Limitation
|
25,734
|
|
|
32,147
|
|
|
Gas Well Closing
|
17,888
|
|
|
10,140
|
|
|
Equity Compensation
|
9,308
|
|
|
13,096
|
|
|
Salary Retirement
|
9,236
|
|
|
9,434
|
|
|
Finance Lease
|
1,209
|
|
|
1,624
|
|
|
Other
|
10,030
|
|
|
13,714
|
|
|
Total Deferred Tax Assets
|
501,183
|
|
|
460,511
|
|
|
Valuation Allowance
|
(125,054
|
)
|
|
(94,455
|
)
|
|
Net Deferred Tax Assets
|
376,129
|
|
|
366,056
|
|
|
|
|
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
Property, Plant and Equipment
|
(593,401
|
)
|
|
(606,342
|
)
|
|
Investment in Partnership
|
(145,424
|
)
|
|
(125,253
|
)
|
|
Gas Derivatives
|
(105,721
|
)
|
|
(26,160
|
)
|
|
Advance Gas Royalties
|
(3,337
|
)
|
|
(3,384
|
)
|
|
Other
|
(4,354
|
)
|
|
(3,599
|
)
|
|
Total Deferred Tax Liabilities
|
(852,237
|
)
|
|
(764,738
|
)
|
|
|
|
|
|
|
Net Deferred Tax Liability
|
$
|
(476,108
|
)
|
|
$
|
(398,682
|
)
|
Deferred taxes are recorded for certain tax benefits, including net operating losses and tax credit carry-forwards, if management assesses the utilization of those assets to be more likely than not. A valuation allowance is required when it is not more likely than not that all or a portion of a deferred tax asset will be realized. All available evidence, both positive and negative, must be considered in determining the need for a valuation allowance. For the years ended December 31, 2019 and 2018, positive evidence considered included financial earnings generated over the past three years for certain subsidiaries, reversals of financial to tax temporary differences and the implementation of and/or ability to employ various tax planning strategies. Negative evidence includes financial and tax losses generated in prior periods and the inability to achieve forecasted results for those periods.
As of December 31, 2019, the Company has a deferred tax asset related to federal net operating losses of $202,913, which expire at various times between 2034 and 2038. However, because of the Tax Cuts and Jobs Act (the “Act”) enacted on December 22, 2017, the anticipated federal net operating losses generated in 2018 and 2019 do not expire but may only offset 80% of taxable income in any given year.
The Act preserved the deductibility of intangible drilling costs for federal income tax purposes, which allows the Company to deduct a portion of drilling costs in the year incurred and minimizes current year taxes payable in periods of taxable income. The Act also repealed the corporate alternative minimum tax (AMT) for tax years beginning January 1, 2018 and provides that existing AMT credits can be utilized to offset current federal taxes owed in tax years 2018 through 2020. In addition, 50% of any unused AMT credits are refundable during these years with any remaining AMT credit carryforward being fully refunded in 2021. The Company has reclassified $51,241 in 2019 and $102,482 in 2018 from Deferred Income Taxes to Recoverable Income Taxes in the Consolidated Balance Sheets in anticipation of the AMT refunds expected to be received in 2020 and received in 2019. The Company has a deferred tax asset relating to federal AMT credits of $51,241 and $102,482, as of December 31, 2019 and 2018, respectively, a decrease of $51,241 from the prior year that resulted from the anticipated and actual refund of the AMT credits. During 2018, the valuation allowance relating to federal AMT credits decreased by $12,413 as the Internal Revenue Service (IRS) announced that refunds of AMT credits are no longer subject to government sequestration.
A valuation allowance on foreign tax credits of $43,194 has also been recorded at December 31, 2019 and 2018. The foreign tax credits expire at various times between 2021 and 2023. A valuation allowance on charitable contribution carry-forwards of $658 and $3,297 has been recorded as of December 31, 2019 and 2018, respectively. The Company's valuation allowance for charitable contributions decreased by $2,639 in 2019 due to expiration of the carry forward period. The remaining charitable contribution carry-forwards expire at various times between 2020 and 2024.
CNX continues to report, on an after federal tax basis, a deferred tax asset related to state operating losses of $130,430 with a related valuation allowance of $81,202 at December 31, 2019. The deferred tax asset related to state operating losses, on an after-tax adjusted basis, was $110,339 with a related valuation allowance of $47,964 at December 31, 2018. A review of positive and negative evidence regarding these state tax benefits concluded that the valuation allowances for various CNX subsidiaries was warranted. These NOLs expire at various times between 2020 and 2039.
Management will continue to assess the potential for realized deferred tax assets based upon income forecast data and the feasibility of future tax planning strategies and may record adjustments to valuation allowances against deferred tax assets in future periods, as appropriate, that could materially impact net income.
The following is a reconciliation, stated as a percentage of pretax income, of the United States statutory federal income tax rate to CNX's effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Statutory U.S. Federal Income Tax Rate
|
$
|
12,534
|
|
|
21.0
|
%
|
|
$
|
230,721
|
|
|
21.0
|
%
|
|
$
|
41,503
|
|
|
35.0
|
%
|
|
Net Effect of State Income Taxes
|
1,333
|
|
|
2.2
|
|
|
60,814
|
|
|
5.6
|
|
|
15,538
|
|
|
13.1
|
|
|
Non-Controlling Interest
|
(23,662
|
)
|
|
(39.6
|
)
|
|
(18,181
|
)
|
|
(1.7
|
)
|
|
—
|
|
|
—
|
|
|
Uncertain Tax Positions
|
—
|
|
|
—
|
|
|
(4,265
|
)
|
|
(0.4
|
)
|
|
27,359
|
|
|
23.1
|
|
|
Effect of Spin on Federal NOL's
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24,942
|
|
|
21.0
|
|
|
Accrual to Tax Return Reconciliation
|
603
|
|
|
1.0
|
|
|
3,028
|
|
|
0.3
|
|
|
(1,147
|
)
|
|
(1.0
|
)
|
|
Effect of Equity Compensation
|
8,771
|
|
|
14.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Effect of Change in State Valuation Allowance
|
33,238
|
|
|
55.6
|
|
|
(22,684
|
)
|
|
(2.1
|
)
|
|
(430
|
)
|
|
(0.4
|
)
|
|
Effect of Change in Federal Valuation Allowance
|
(2,640
|
)
|
|
(4.4
|
)
|
|
(18,110
|
)
|
|
(1.7
|
)
|
|
(145,772
|
)
|
|
(122.9
|
)
|
|
Other Deferred Adjustments
|
(1,691
|
)
|
|
(2.8
|
)
|
|
5,957
|
|
|
0.6
|
|
|
7,616
|
|
|
6.4
|
|
|
Effect of Federal and State Rate Reductions
|
(3,842
|
)
|
|
(6.4
|
)
|
|
(27,429
|
)
|
|
(2.5
|
)
|
|
(131,784
|
)
|
|
(111.1
|
)
|
|
Effect of Federal Tax Credits
|
2,881
|
|
|
4.8
|
|
|
1,208
|
|
|
0.1
|
|
|
(19,081
|
)
|
|
(16.1
|
)
|
|
Other
|
211
|
|
|
0.4
|
|
|
4,498
|
|
|
0.4
|
|
|
4,798
|
|
|
4.0
|
|
|
Income Tax Expense (Benefit) / Effective Rate
|
$
|
27,736
|
|
|
46.5
|
%
|
|
$
|
215,557
|
|
|
19.6
|
%
|
|
$
|
(176,458
|
)
|
|
(148.9
|
)%
|
The effective tax rate for the year ended December 31, 2019 was higher than the U.S. federal statutory rate primarily due to state taxes, equity compensation, and the increase in certain state valuation allowances as a result of a higher than projected net operating loss generated in 2018 partially offset by the benefit from non-controlling interest.
As a result of the Midstream Acquisition on January 3, 2018 as discussed in Note 6 - Acquisitions and Dispositions, the Company obtained a controlling interest in CNX Gathering LLC and, through CNX Gathering's ownership of the general partner, control over CNXM. The financial results for 2019 and 2018 reflect full consolidation of CNXM’s assets and liabilities. The effective tax rates for the years ended December 31, 2019 and 2018 reflect a $23,662 and $18,181 reduction in income tax expense, respectively, due to the non-controlling interest in CNXM’s earnings.
The effective tax rate for the year ended December 31, 2018 was lower than the U.S. federal statutory rate primarily due to the effect of the filing of a Federal NOL carryback for 2017 and 2016 resulting in a financial statement benefit of $23,483 through the realization of the Federal NOLs at a 35% tax rate as a carryback versus the current 21% tax rate as a carryforward, the reversal of the AMT credit sequestration valuation allowance, and the release of certain state valuation allowances as a result of a corporate reorganization during the year. The federal NOL carryback claims for 2016 and 2017 are under review by the IRS and the Joint Committee on Taxation.
The Act, which, among other things, lowered the U.S. Federal corporate income tax rate from 35% to 21%, repealed the corporate AMT for tax years beginning January 1, 2018, and provided for a refund of previously accrued AMT credits. As discussed above, CNX has credits that are to be refunded between 2019 and 2021 because of the Act and monetization opportunities under current law in 2018. The Company recorded a net tax benefit to reflect the impact of the Act as of December 31, 2017, as it is required to reflect the change in the period in which the law is enacted. Largely, the benefits recorded in the period ending December 31, 2017 related to the Act are in recognition of the revaluation of deferred tax assets and liabilities, a benefit of $115,291. The Company's effective tax rate for 2018 and 2017 reflects the release of previously recorded valuation allowances against AMT credit carry-forwards of $12,413 and $154,385, respectively, as those credits will now be able to be monetized under the Act and, according to an IRS announcement, are no longer subject to government sequestration.
The Act is also a comprehensive tax reform bill containing a number of other provisions that either currently or in the future could impact CNX. The effect of certain limitations effective for the tax year 2018 and forward, specifically related to the deductibility of executive compensation, have been evaluated. The Company anticipates U.S. regulatory agencies will issue further regulations which may alter these estimates. The IRS issued rules pertaining to the application of limitations for executive compensation related to contracts existing prior to November 2, 2017, and provisions in the Act addressing the deductibility of interest expense after January 1, 2018. The Company will continue to refine its estimates to incorporate new or better information as it comes available.
Under the provisions of Staff Accounting Bulletin 118 (SAB 118), as of December 31, 2017, we had not completed our accounting for all of the enactment-date income tax effects of the Act under ASC 740, Income Taxes, for the remeasurement of
deferred tax assets and liabilities. As of December 31, 2018, CNX completed its accounting for all of the enactment-date income tax effects of the Act.
A reconciliation of the beginning and ending gross amounts of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Balance at Beginning of Period
|
$
|
31,516
|
|
|
$
|
37,813
|
|
|
Increase in Unrecognized Tax Benefits Resulting from Tax Positions Taken During Prior Periods
|
—
|
|
|
2,140
|
|
|
Reduction in Unrecognized Tax Benefits Because of the Lapse of the Applicable Statute of Limitations
|
—
|
|
|
(8,437
|
)
|
|
Balance at End of Period
|
$
|
31,516
|
|
|
$
|
31,516
|
|
If these unrecognized tax benefits were recognized, $31,516 would affect CNX's effective income tax rate for 2019 and 2018.
In 2018, CNX recognized an increase in unrecognized tax benefits of $2,140 for tax benefits resulting from a revision to our tax position taken on our 2017 federal tax return for the marginal well credit. CNX recognized a reduction to unrecognized tax benefits of $8,437 from a position taken on a state tax return.
CNX recognizes accrued interest related to unrecognized tax benefits in its interest expense. As of December 31, 2019 and 2018, the Company reported no accrued liability relating to uncertain tax positions in Other Liabilities in the Consolidated Balance Sheets. The accrued interest liability includes interest income of $644 and interest expense of $337 recorded in the Company's Consolidated Statements of Income for the year ended December 31, 2018. During the years ended December 31, 2019 and 2018, CNX paid no interest related to income tax deficiencies.
CNX recognizes penalties accrued related to uncertain tax positions in its income tax expense. CNX had no accrued liabilities for tax penalties as of December 31, 2019 and 2018.
CNX and its subsidiaries file federal income tax returns with the United States and income tax returns within various states. With few exceptions, the Company is no longer subject to United States federal, state, local or non-U.S. income tax examinations by tax authorities for the years before 2016. The Joint Committee on Taxation is in the process of reviewing the NOL carryback returns for tax years 2016 and 2017. The review is expected to be completed in 2020. The Joint Committee on Taxation concluded its review of the audit of tax year 2015 on March 21, 2018. The audit resulted in a $108,651 reduction to CNX’s NOL, primarily due to a reduction in the depreciation as an offset to the bonus depreciation taken in the 2010-2013 IRS audit. There was no current cash tax impact from the audit.
NOTE 9—ASSET RETIREMENT OBLIGATIONS:
The reconciliation of changes in asset retirement obligations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2019
|
|
2018
|
|
Balance, Beginning of Year
|
|
$
|
38,554
|
|
|
$
|
204,070
|
|
|
Obligations Divested (Note 6)
|
|
—
|
|
|
(196,643
|
)
|
|
Accretion Expense
|
|
9,458
|
|
|
9,874
|
|
|
Obligations Incurred
|
|
2,933
|
|
|
4,795
|
|
|
Obligations Settled
|
|
(4,231
|
)
|
|
(5,323
|
)
|
|
Revisions in Estimated Cash Flows
|
|
21,740
|
|
|
21,781
|
|
|
Balance, End of Year
|
|
$
|
68,454
|
|
|
$
|
38,554
|
|
NOTE 10—PROPERTY, PLANT AND EQUIPMENT:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Property, Plant and Equipment
|
2019
|
|
2018
|
|
Intangible Drilling Cost
|
$
|
4,688,497
|
|
|
$
|
4,120,283
|
|
|
Gas Gathering Equipment
|
2,463,866
|
|
|
2,126,895
|
|
|
Proved Gas Properties
|
1,208,046
|
|
|
1,135,411
|
|
|
Gas Wells and Related Equipment
|
1,042,000
|
|
|
859,359
|
|
|
Unproved Gas Properties
|
755,590
|
|
|
927,667
|
|
|
Surface Land and Other Equipment
|
226,285
|
|
|
238,487
|
|
|
Other
|
187,722
|
|
|
159,326
|
|
|
Total Property, Plant and Equipment
|
10,572,006
|
|
|
9,567,428
|
|
|
Less: Accumulated Depreciation, Depletion and Amortization
|
3,435,431
|
|
|
2,624,984
|
|
|
Total Property, Plant and Equipment - Net
|
$
|
7,136,575
|
|
|
$
|
6,942,444
|
|
During the years ended December 31, 2019 and 2018, the Company capitalized $5,482 and $1,075, respectively, of interest on Gas Gathering Equipment under construction.
Amounts below reflect properties where drilling operations have not yet commenced and therefore, were not being amortized for the years ended December 31, 2019 and 2018, respectively. These assets will be amortized using the units-of-production method and reclassified to proved gas properties when placed in service.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Unproved Gas Properties
|
$
|
755,590
|
|
|
$
|
927,667
|
|
|
Advance Royalties
|
12,770
|
|
|
12,863
|
|
|
Total
|
$
|
768,360
|
|
|
$
|
940,530
|
|
As of December 31, 2019 and 2018, Property, Plant and Equipment includes a gross asset related to finance leases of $72,916 and $73,144, respectively. Included in Gas Gathering Equipment is a finance lease for the Jewell Ridge Pipeline of $66,919 at December 31, 2019 and 2018. CNX also maintains finance leases for vehicles of $5,997 and $6,225 at December 31, 2019 and 2018, respectively, which is included in Other. Accumulated amortization for finance leases was $63,008 and $59,517 at December 31, 2019 and 2018, respectively. Amortization expense for finance leases is included in Depreciation, Depletion and Amortization in the Consolidated Statements of Income. See Note 15 - Leases for further discussion of finance leases.
NOTE 11—GOODWILL AND OTHER INTANGIBLE ASSETS:
In connection with the Midstream Acquisition that closed on January 3, 2018 (See Note 6 - Acquisitions and Dispositions for more information), CNX recorded $796,359 of goodwill and $128,781 of other intangible assets which are comprised of customer relationships.
All goodwill is attributed to the Midstream reportable segment.
The carrying amount and accumulated amortization of other intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Other Intangible Assets
|
|
|
|
|
Gross Amortizable Asset - Customer Relationships
|
$
|
109,752
|
|
|
$
|
109,752
|
|
|
Less: Accumulated Amortization - Customer Relationships
|
13,105
|
|
|
6,552
|
|
|
Total Other Intangible Assets, net
|
$
|
96,647
|
|
|
$
|
103,200
|
|
During the year ended December 31, 2018, CNX determined that the carrying value of a portion of the customer relationship intangible assets exceeded their fair value as a result of the AEA with HG Energy. Accordingly, CNX recognized an impairment on this intangible asset of $18,650. There were no such impairments in the current period.
The customer relationship intangible asset is being amortized on a straight-line basis over approximately 17 years. Amortization expense related to other intangible assets was $6,553 and $6,931 for the years ended December 31, 2019 and 2018, respectively. There was no such expense for the year ended December 31, 2017. The estimated annual amortization expense is expected to approximate $6,552 per year for each of the next five years.
NOTE 12—REVOLVING CREDIT FACILITIES:
CNX Resources Corporation (CNX)
In April 2019, CNX amended its senior secured revolving credit facility ("Credit Facility") and extended its maturity to April 2024. The lenders' commitments remained unchanged at $2,100,000, with an accordion feature that allows the Company to increase the commitments to $3,000,000. The borrowing base was reaffirmed at $2,100,000, including a $650,000 letters of credit aggregate sub-limit. In addition, the Cumulative Credit Basket for dividends and distributions was replaced with a basket for dividends and distributions subject to a pro forma net leverage ratio of at least 3.00 to 1.00 and availability under the credit facility of at least 15% of the aggregate commitments. If the aggregate principal amount of the existing 5.875% Senior Notes due in April 2022 and certain other publicly traded debt securities outstanding 91 days prior to the earliest maturity of such debt (the "Springing Maturity Date") is greater than $500,000, then the Credit Facility will mature on the Springing Maturity Date. In October 2019, as part of the semi-annual borrowing base redetermination, the lenders increased CNX's borrowing base to $2,300,000, including maintaining a $650,000 letters of credit sub-limit.
Under the terms of the amended agreement, borrowings under the revolving credit facility will bear interest at CNX's option at either:
|
|
|
|
•
|
the base rate, which is the highest of (i) the federal funds open rate plus 0.50%, (ii) PNC Bank, N.A.’s prime rate, or (iii) the one-month LIBOR rate plus 1.0%, in each case, plus a margin ranging from 0.25% to 1.25%; or
|
•the LIBOR rate, which is the LIBOR rate plus a margin ranging from 1.25% to 2.25%.
The CNX Credit Facility is secured by substantially all of the assets of CNX and certain of its subsidiaries (excluding the Excluded Subsidiaries, which includes CNX Midstream GP LLC and CNXM and their respective subsidiaries). Fees and interest rate spreads are based on the percentage of facility utilization, measured quarterly. Availability under the Credit Facility is limited to a borrowing base, which is determined by the lenders' syndication agent and approved by the required number of lenders in good faith by calculating a value of CNX's proved natural gas reserves.
The CNX Credit Facility contains a number of affirmative and negative covenants including those that, except in certain circumstances, limit the Company and the subsidiary guarantors' ability to create, incur, assume or suffer to exist indebtedness, create or permit to exist liens on properties, dispose of assets, make investments, purchase or redeem CNX common stock, pay dividends, merge with another corporation and amend the senior unsecured notes. The Company must also mortgage 80% of the value of its proved reserves and 80% of the value of its proved developed producing reserves, in each case, which are included in the borrowing base, maintain applicable deposit, securities and commodities accounts with the lenders or affiliates thereof, and enter into control agreements with respect to such applicable accounts.
The CNX Credit Facility contains customary events of default, including, but not limited to, a cross-default to certain other debt, breaches of representations and warranties, change of control events and breaches of covenants.
The CNX Credit Facility also requires that CNX maintain a maximum net leverage ratio of no greater than 4.00 to 1.00, which is calculated as the ratio of debt less cash on hand to consolidated EBITDA, measured quarterly. CNX must also maintain a minimum current ratio of no less than 1.00 to 1.00, which is calculated as the ratio of current assets, plus revolver availability, to current liabilities, excluding borrowings under the revolver, measured quarterly. The calculation of all of the ratios exclude CNXM. CNX was in compliance with all financial covenants as of December 31, 2019.
At December 31, 2019, the CNX Credit Facility had $661,000 of borrowings outstanding and $204,726 of letters of credit outstanding, leaving $1,234,274 of unused capacity. At December 31, 2018, the CNX Credit Facility had $612,000 borrowings outstanding and $198,396 letters of credit outstanding, leaving $1,289,604 of unused capacity.
CNX Midstream Partners LP (CNXM)
In April 2019, CNXM amended its senior secured revolving credit facility and extended its maturity to April 2024. The lenders' commitments remained unchanged at $600,000, with an accordion feature that allows CNXM to increase the available borrowings by up to an additional $250,000 under certain terms and conditions. Among other things, the revolving credit facility now includes (i) the addition of a restricted payment basket permitting cash repurchases of Incentive Distribution Rights (IDRs)
subject to a pro forma secured leverage ratio of 3.00 to 1.00, a pro forma total leverage ratio of 4.00 to 1.00 and pro forma availability of 20% of commitments and (ii) a restricted payment basket for the repurchase of LP units not to exceed Available Cash (as defined in the partnership agreement) in any quarter, of up to $150,000 per year and up to $200,000 during the life of the facility.
Under the terms of the amended agreement, borrowings under the revolving credit facility will bear interest at CNXM's option at either:
|
|
|
|
•
|
the base rate, which is the highest of (i) the federal funds open rate plus 0.50%, (ii) PNC Bank, N.A.’s prime rate, or (iii) the one-month LIBOR rate plus 1.0%, in each case, plus a margin ranging from 0.50% to 1.50%; or
|
|
|
|
|
•
|
the LIBOR rate, plus a margin ranging from 1.50% to 2.50%.
|
Fees and interest rate spreads under the CNXM credit facility are based on the total leverage ratio, measured quarterly. The CNXM credit facility includes the ability to issue letters of credit up to $100,000 in the aggregate.
The CNXM revolving credit facility contains a number of affirmative and negative covenants that include, among others, covenants that, except in certain circumstances, restrict the ability of CNXM, its subsidiary guarantors and certain of its non-guarantor, non-wholly-owned subsidiaries, except in certain circumstances, to: (i) create, incur, assume or suffer to exist indebtedness; (ii) create or permit to exist liens on their properties; (iii) prepay certain indebtedness unless there is no default or event of default under the revolving facility; (iv) make or pay any dividends or distributions in excess of certain amounts; (v) merge with or into another person, liquidate or dissolve; or acquire all or substantially all of the assets of any going concern or going line of business or acquire all or a substantial portion of another person’s assets; (vi) make particular investments and loans; (vii) sell, transfer, convey, assign or dispose of its assets or properties other than in the ordinary course of business and other select instances; (viii) deal with any affiliate except in the ordinary course of business on terms no less favorable to CNXM than it would otherwise receive in an arm’s length transaction; and (ix) amend in any material manner its certificate of incorporation, bylaws, or other organizational documents without giving prior notice to the lenders and, in some cases, obtaining the consent of the lenders.
In addition, CNXM is obligated to maintain at the end of each fiscal quarter (w) for so long as at least $150,000 of the CNXM senior notes are outstanding, a maximum total leverage ratio of no greater than 5.25 to 1.00 (which increases to no greater than 5.50 to 1.00 during qualifying acquisition periods); (x) if less than $150,000 of the CNXM senior notes are outstanding, a maximum total leverage ratio of no greater than 4.75 to 1.00 (which increases to no greater than 5.25 to 1.00 during qualifying acquisition periods); (y) a maximum secured leverage ratio of no greater than 3.50 to 1.00 and (z) a minimum interest coverage ratio of no less than 2.50 to1.00. CNXM was in compliance with all financial covenants as of December 31, 2019.
The CNXM revolving credit facility also contains customary events of default, including, but not limited to, a cross-default to certain other debt, breaches of representations and warranties, change of control events and breaches of covenants. The obligations under the revolving credit facility are secured by substantially all of the assets of CNXM and its wholly-owned subsidiaries. CNX is not a guarantor under the revolving credit facility.
At December 31, 2019, the CNXM credit facility had $311,750 of borrowings outstanding. CNXM had the maximum amount of revolving credit available for borrowing at December 31, 2019, or $288,250. At December 31, 2018, the CNXM credit facility had $84,000 of borrowings outstanding.
NOTE 13—OTHER ACCRUED LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
Royalties
|
|
$
|
74,061
|
|
|
$
|
92,005
|
|
|
Accrued Interest
|
|
30,862
|
|
|
26,333
|
|
|
Short-Term Incentive Compensation
|
|
21,030
|
|
|
20,482
|
|
|
Transportation Charges
|
|
16,533
|
|
|
19,661
|
|
|
Deferred Revenue
|
|
13,964
|
|
|
17,693
|
|
|
Accrued Other Taxes
|
|
9,115
|
|
|
7,300
|
|
|
Accrued Payroll & Benefits
|
|
6,248
|
|
|
6,533
|
|
|
Other
|
|
38,105
|
|
|
31,851
|
|
|
Current Portion of Long-Term Liabilities:
|
|
|
|
|
|
Asset Retirement Obligations
|
|
5,076
|
|
|
1,075
|
|
|
Salary Retirement
|
|
1,587
|
|
|
1,578
|
|
|
Total Other Accrued Liabilities
|
|
$
|
216,581
|
|
|
$
|
224,511
|
|
NOTE 14—LONG-TERM DEBT:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Senior Notes due April 2022 at 5.875% (Principal of $894,307 and $1,294,307 plus Unamortized Premium of $1,001 and $2,069, respectively)
|
$
|
895,308
|
|
|
$
|
1,296,376
|
|
|
CNX Credit Facility
|
661,000
|
|
|
612,000
|
|
|
Senior Notes due March 2027 at 7.25%, Issued at Par Value
|
500,000
|
|
|
—
|
|
|
CNX Midstream Partners LP Senior Notes due March 2026 at 6.50% (Principal of $400,000 less Unamortized Discount of $4,625 and $5,375, respectively)*
|
395,375
|
|
|
394,625
|
|
|
CNX Midstream Partners LP Revolving Credit Facility*
|
311,750
|
|
|
84,000
|
|
|
Less: Unamortized Debt Issuance Costs
|
8,990
|
|
|
8,796
|
|
|
Long-Term Debt
|
$
|
2,754,443
|
|
|
$
|
2,378,205
|
|
*CNX is not a guarantor of CNXM's 6.50% senior notes due in March 2026 or CNXM's senior secured revolving credit facility.
At December 31, 2019, annual undiscounted maturities of CNX and CNXM long-term debt during the next five years and thereafter are as follows:
|
|
|
|
|
|
|
|
Year ended December 31,
|
Amount
|
|
2020
|
$
|
—
|
|
|
2021
|
—
|
|
|
2022
|
894,307
|
|
|
2023
|
—
|
|
|
2024
|
972,750
|
|
|
Thereafter
|
900,000
|
|
|
Total Long-Term Debt Maturities
|
$
|
2,767,057
|
|
During the year ended December 31, 2019, CNX completed a private offering of $500,000 of 7.25% senior notes due in March 2027. The notes are guaranteed by most of CNX's subsidiaries but do not include CNXM's general partner or CNXM.
During the year ended December 31, 2019, CNX purchased $400,000 of its outstanding 5.875% senior notes due in April 2022. As part of this transaction, a loss of $7,614 was included in Loss on Debt Extinguishment in the Consolidated Statements of Income.
During the year ended December 31, 2018, CNXM completed a private offering of $400,000 of 6.50% senior notes due in March 2026 less $6,000 of unamortized bond discount. CNX is not a guarantor of CNXM's 6.50% senior notes due in March 2026 or CNXM's senior secured revolving credit facility.
During the year ended December 31, 2018, CNX purchased $411,375 of its outstanding 5.875% senior notes due in April 2022. As part of this transaction, a loss of $15,320 was included in Loss on Debt Extinguishment in the Consolidated Statements of Income.
During the year ended December 31, 2018, CNX called the $500,000 balance on its 8.00% senior notes due in April 2023. As part of this transaction, a loss of $38,798 was included in Loss on Debt Extinguishment in the Consolidated Statements of Income.
During the year ended December 31, 2017, CNX purchased $144,318 of its outstanding 5.875% senior notes due in April 2022. As part of this transaction, a loss of $110 was included in Loss on Debt Extinguishment in the Consolidated Statements of Income.
During the year ended December 31, 2017, CNX called the remaining $74,470 balance on its 8.25% senior notes due in April 2020 and the remaining $20,611 balance on its 6.375% senior notes due in March 2021. As part of these transactions, a loss of $2,019 was included in Loss on Debt Extinguishment in the Consolidated Statements of Income.
NOTE 15—LEASES:
On January 1, 2019, the Company adopted ASU 2016-02, and all related amendments, using the transition method, which allows for a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. CNX elected the transition relief package of practical expedients by applying previous accounting conclusions under ASC 840 to all leases that existed prior to the transition date. As a result, CNX did not reassess 1) whether existing or expired contracts contain leases, 2) lease classification for any existing or expired leases or 3) whether lease origination costs qualified as initial direct costs. Additionally, the Company elected the short-term practical expedient for all asset classes by establishing an accounting policy to exclude leases with a term of 12 months or less. CNX will not separate lease components from non-lease components for any asset class. Lastly, CNX adopted the easement practical expedient, which allows the Company to apply ASC 842 prospectively to land easements after the adoption date. Easements that existed or expired prior to the adoption date that were not previously assessed under ASC 840 will not be reassessed.
CNX's leasing activities primarily consist of operating and finance leases for electric fracturing equipment, natural gas drilling rigs, CNX's corporate headquarters as well as field offices, a natural gas gathering pipeline and commercial vehicles. Some leases include options to renew ranging from a period of 1 to 10 years, which are not recognized as part of the lease right-of-use (ROU) assets or liabilities as they are not reasonably certain to be exercised.
Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. As most of CNX's leases do not provide an implicit rate, an incremental borrowing rate is used to determine the present value of lease payments.
The components of lease cost were as follows:
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
December 31, 2019
|
|
Operating Lease Cost
|
$
|
73,809
|
|
|
Finance Lease Cost:
|
|
|
Amortization of Right-of-Use Assets
|
5,242
|
|
|
Interest on Lease Liabilities
|
1,241
|
|
|
Short-term Lease Cost
|
5,547
|
|
|
Variable Lease Cost*
|
17,337
|
|
|
Total Lease Cost
|
$
|
103,176
|
|
*Amount recognized in the Consolidated Balance Sheet for natural gas drilling rigs are measured using the rates that would be paid if the rigs were idle, as this represents the minimum payment that could be made under the contract. Variable lease cost represents amounts paid for natural gas drilling rigs above this minimum when the rigs are in use. Amount recognized in the Consolidated Balance Sheet for electric fracturing equipment are measured using minimum pumping hours under the contract; however, pumping hours may exceed the minimum and vary period to period. Any such amounts paid related to pumping hours in excess of the minimum represent variable lease cost.
Rental expense under operating leases prior to the adoption of ASC 842 was $21,441 and $16,797 for the years ended December 31, 2018 and 2017, respectively.
Amounts recognized in the Consolidated Balance Sheet are as follows:
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Operating Leases:
|
|
|
Operating Lease Right-of-Use Asset
|
$
|
187,097
|
|
|
|
|
|
Current Portion of Operating Lease Obligations
|
$
|
61,670
|
|
|
Operating Lease Obligations
|
110,466
|
|
|
Total Operating Lease Liabilities
|
$
|
172,136
|
|
|
|
|
|
Finance Leases:
|
|
|
Property, Plant and Equipment
|
$
|
72,916
|
|
|
Less—Accumulated Depreciation, Depletion and Amortization
|
63,008
|
|
|
Property, Plant and Equipment—Net
|
$
|
9,908
|
|
|
|
|
|
Current Portion of Finance Lease Obligations
|
$
|
7,164
|
|
|
Finance Lease Obligations
|
7,706
|
|
|
Total Finance Lease Liabilities
|
$
|
14,870
|
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
December 31, 2019
|
|
Cash Paid for Amounts Included in the Measurement of Lease Liabilities:
|
|
|
Operating Cash Flows from Operating Leases
|
$
|
66,827
|
|
|
Operating Cash Flows from Finance Leases
|
$
|
1,241
|
|
|
Financing Cash Flows from Finance Leases
|
$
|
7,149
|
|
|
Right-of-Use Assets Obtained in Exchange for Lease Obligations:
|
|
|
Operating Leases
|
$
|
15,347
|
|
|
Finance Leases
|
$
|
1,846
|
|
Maturities of lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Finance
|
|
|
|
Leases
|
|
Leases
|
|
Year Ended December 31,
|
|
|
|
|
|
2020
|
|
$
|
68,663
|
|
|
$
|
7,968
|
|
|
2021
|
|
59,410
|
|
|
7,142
|
|
|
2022
|
|
23,789
|
|
|
436
|
|
|
2023
|
|
5,453
|
|
|
433
|
|
|
2024
|
|
5,433
|
|
|
127
|
|
|
Thereafter
|
|
30,822
|
|
|
—
|
|
|
Total Lease Payments
|
|
193,570
|
|
|
16,106
|
|
|
Less: Interest
|
|
21,434
|
|
|
1,236
|
|
|
Present Value of Lease Liabilities
|
|
$
|
172,136
|
|
|
$
|
14,870
|
|
Lease terms and discount rates are as follows:
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Weighted Average Remaining Lease Term (years):
|
|
|
Operating Leases
|
4.39
|
|
|
Finance Leases
|
2.16
|
|
|
|
|
|
Weighted Average Discount Rate:
|
|
|
Operating Leases
|
4.96
|
%
|
|
Finance Leases
|
6.92
|
%
|
NOTE 16—PENSION:
The benefits for the Defined Contribution Restoration Plan were frozen effective July 1, 2018. Employees hired after this date are not eligible for this benefit plan. In addition, current participants receive no further compensation credits after that date, with the last award being 2017. Annual interest credits will continue to be made in accordance with the terms of the plan. The freezing of the plan triggered a curtailment gain of $416 during the year ended December 31, 2018.
The current portion of the pension obligation is included in Other Accrued Liabilities and the noncurrent portion is included in Other liabilities in the Consolidated Balances Sheets. The reconciliation of changes in the benefit obligation, plan assets and funded status of the pension benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
Change in Benefit Obligation:
|
|
|
|
|
|
Benefit Obligation at Beginning of Period
|
|
$
|
33,569
|
|
|
$
|
36,280
|
|
|
Service Cost
|
|
209
|
|
|
302
|
|
|
Interest Cost
|
|
1,338
|
|
|
1,265
|
|
|
Actuarial Loss (Gain)
|
|
4,865
|
|
|
(2,645
|
)
|
|
Plan Amendments
|
|
1,728
|
|
|
—
|
|
|
Plan Curtailments
|
|
—
|
|
|
(126
|
)
|
|
Benefits and Other Payments
|
|
(1,513
|
)
|
|
(1,507
|
)
|
|
Benefit Obligation at End of Period
|
|
$
|
40,196
|
|
|
$
|
33,569
|
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
Fair Value of Plan Assets at Beginning of Period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Company Contributions
|
|
1,513
|
|
|
1,507
|
|
|
Benefits and Other Payments
|
|
(1,513
|
)
|
|
(1,507
|
)
|
|
Fair Value of Plan Assets at End of Period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Funded Status:
|
|
|
|
|
|
Current Liabilities
|
|
$
|
(1,587
|
)
|
|
$
|
(1,578
|
)
|
|
Noncurrent Liabilities
|
|
(38,609
|
)
|
|
(31,991
|
)
|
|
Net Obligation Recognized
|
|
$
|
(40,196
|
)
|
|
$
|
(33,569
|
)
|
|
|
|
|
|
|
|
Amounts Recognized in Accumulated Other Comprehensive Loss Consist of:
|
|
|
|
|
|
Net Actuarial Loss
|
|
$
|
15,361
|
|
|
$
|
10,738
|
|
|
Prior Service Cost (Credit)
|
|
1,727
|
|
|
(17
|
)
|
|
Total
|
|
17,088
|
|
|
10,721
|
|
|
Less: Tax Benefit
|
|
4,483
|
|
|
2,817
|
|
|
Net Amount Recognized
|
|
$
|
12,605
|
|
|
$
|
7,904
|
|
The components of the net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Components of Net Periodic Benefit Cost:
|
|
|
|
|
|
|
Service Cost
|
$
|
209
|
|
|
$
|
302
|
|
|
$
|
375
|
|
|
Interest Cost
|
1,338
|
|
|
1,265
|
|
|
1,201
|
|
|
Amortization of Prior Service Credits
|
(17
|
)
|
|
(193
|
)
|
|
(362
|
)
|
|
Recognized Net Actuarial Loss
|
242
|
|
|
865
|
|
|
1,525
|
|
|
Curtailment Gain
|
—
|
|
|
(416
|
)
|
|
—
|
|
|
Net Periodic Benefit Cost
|
$
|
1,772
|
|
|
$
|
1,823
|
|
|
$
|
2,739
|
|
Amounts included in accumulated other comprehensive loss which are expected to be recognized in 2020 net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
Benefits
|
|
Prior Service Cost Recognition
|
|
$
|
(221
|
)
|
|
Actuarial Loss Recognition
|
|
$
|
(383
|
)
|
CNX utilizes a corridor approach to amortize actuarial gains and losses that have been accumulated under the pension plan. Cumulative gains and losses that are in excess of 10% of the greater of either the projected benefit obligation (PBO) or the market-related value of plan assets are amortized over the expected remaining future lifetime of all plan participants for the pension plan.
The following table provides information related to the pension plan with an accumulated benefit obligation in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2019
|
|
2018
|
|
Projected Benefit Obligation
|
|
$
|
40,196
|
|
|
$
|
33,569
|
|
|
Accumulated Benefit Obligation
|
|
$
|
40,196
|
|
|
$
|
33,169
|
|
|
Fair Value of Plan Assets
|
|
$
|
—
|
|
|
$
|
—
|
|
Assumptions:
The weighted-average assumptions used to determine benefit obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2019
|
|
2018
|
|
Discount Rate
|
|
3.36
|
%
|
|
4.37
|
%
|
|
Rate of Compensation Increase
|
|
—
|
%
|
|
3.63
|
%
|
The discount rates are determined using a Company-specific yield curve model (above-mean) developed with the assistance of an external actuary. The Company-specific yield curve models (above-mean) use a subset of the expanded bond universe to determine the Company-specific discount rate. Bonds used in the yield curve are rated AA by Moody's or Standard & Poor's as of the measurement date. The yield curve models parallel the plans' projected cash flows, and the underlying cash flows of the bonds included in the models exceed the cash flows needed to satisfy the Company plans.
The weighted-average assumptions used to determine net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Discount Rate
|
4.37
|
%
|
|
4.28
|
%
|
|
4.26
|
%
|
|
Rate of Compensation Increase
|
3.63
|
%
|
|
4.05
|
%
|
|
3.90
|
%
|
Cash Flows:
CNX expects to pay benefits of $1,588 from the non-qualified pension plan in 2020.
The following benefit payments, which reflect expected future service, are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Year ended December 31,
|
|
Benefits
|
|
2020
|
|
$
|
1,588
|
|
|
2021
|
|
$
|
1,670
|
|
|
2022
|
|
$
|
1,760
|
|
|
2023
|
|
$
|
1,866
|
|
|
2024
|
|
$
|
2,063
|
|
|
Year 2025-2029
|
|
$
|
11,207
|
|
NOTE 17—STOCK-BASED COMPENSATION:
CNX's Equity Incentive Plan provides for grants of stock-based awards to key employees and to non-employee directors. Amendments to the Equity Incentive Plan have been adopted and approved by the Board of Directors and the Company's Shareholders since the commencement of the Equity Incentive Plan. Most recently, in May 2016, the Company's Shareholders adopted and approved a 10,550,000 increase to the total number of shares available for issuance, which brought the total number of shares of common stock that can be covered by grants in accordance with the terms of the Equity Incentive Plan, after adjustment for the separation of the coal business from the gas business on November 28, 2017, to 48,915,944. At December 31, 2019, 5,560,610 shares of common stock remained available for grant under the plan. The Equity Incentive Plan provides that the aggregate number of shares available for issuance will be reduced by one share for each share relating to stock options and by 1.62 for each share relating to Performance Share Units (PSUs) or Restricted Stock Units (RSUs). No award of stock options may be exercised under the Equity Incentive Plan after the tenth anniversary of the grant date of the award.
For those shares expected to vest, CNX recognizes stock-based compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term. Options and RSUs vest over a three-year term. PSUs vest over a five-year term at 20% per year subject to performance conditions. If an employee leaves the Company, all unvested shares are forfeited. CNX recognizes forfeitures as they occur. The vesting of all awards will accelerate in the event of death and disability and may accelerate upon a change in control of CNX.
Pursuant to the terms of the change in control severance agreements of certain employees and CNX officers, outstanding equity awards held by such employees vest upon a stockholder (or stockholder group) becoming the beneficial owner of more than 25% of the Company's outstanding common stock. During the year ended December 31, 2019, Southeastern Asset Management, Inc. and its affiliates ("SEAM") acquired shares of CNX's common stock in the open market which resulted in SEAM's aggregate share ownership exceeding more than 25% of CNX's common stock outstanding. This transaction, as such, constituted a change in control event under the severance agreements, resulting in the accelerated vesting of 473,126 restricted stock units and 903,100 performance share units held by the aforementioned employees that were issued prior to 2019. Those affected employees and officers each consented to waive the change in control vesting provision included in the change in control severance agreements with respect to their restricted stock unit and performance share unit awards that were issued during 2019. The accelerated vesting resulted in $19,654 of additional long-term equity-based compensation expense for the year ended December 31, 2019, and is included in Selling, General and Administrative Costs in the Consolidated Statements of Income. The performance share unit awards that vested continue to be subject to the attainment of performance goals as determined by the Compensation Committee of CNX's Board of Directors after the end of the applicable performance period.
The total stock-based compensation expense recognized relating to CNX shares during the years ended December 31, 2019, 2018 and 2017 was $36,545, $18,930 and $16,983, respectively.
As of December 31, 2019, CNX has $7,346 of unrecognized compensation cost related to all non-vested stock-based compensation awards, which is expected to be recognized over a weighted-average period of 2.24 years. When stock options are exercised, and restricted and performance stock unit awards become vested, the issuances are made from CNX's common stock shares.
Pursuant to the terms of the CNX Equity Plan and the outstanding awards, in the event of certain changes in the outstanding common stock of CNX or its capital structure, including by reason of a spin-off, the administrator of the CNX Equity Plan is required to appropriately adjust the number, exercise price, kind of shares, performance goals or other terms and conditions of Awards granted thereunder. In connection with the Separation, the Board of Directors of CNX has determined that it is appropriate that the outstanding awards be equitably adjusted pursuant to the terms of the CNX Equity Plan and/or converted into awards issued under the CONSOL Energy Inc. (CEIX) Equity Incentive Plan, such that the intrinsic value of the outstanding awards immediately following the separation remains the same as the intrinsic value of such awards immediately prior to the Separation. The separation resulted in a modification of the equity plans but did not have a material impact on the financial statements as of the date of Separation (See Note 5 - Discontinued Operations for more information).
Stock Options:
CNX examined its historical pattern of option exercises in an effort to determine if there were any discernible activity patterns based on certain employee populations. From this analysis, CNX identified two distinct employee populations and used the Black-Scholes option pricing model to value the options for each of the employee populations. The expected term computation presented in the table below is based upon a weighted average of the historical exercise patterns and post-vesting termination behavior of the two populations. The risk-free interest rate was determined for each vesting tranche of an award based upon the calculated yield on U.S. Treasury obligations for the expected term of the award. A combination of historical and implied volatility is used to determine expected volatility and future stock price trends. The total fair value of options granted during the years ended December 31, 2019, 2018 and 2017 was $50, $143, and $353 respectively, based on the following assumptions and weighted average fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Weighted Average Fair Value of Grants
|
|
$
|
3.48
|
|
|
$
|
6.50
|
|
|
$
|
6.19
|
|
|
Risk-free Interest Rate
|
|
2.13
|
%
|
|
2.66
|
%
|
|
1.66
|
%
|
|
Expected Dividend Yield
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
Expected Forfeiture Rate
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
Expected Volatility
|
|
43.60
|
%
|
|
52.68
|
%
|
|
50.85
|
%
|
|
Expected Term in Years
|
|
6.50
|
|
|
3.71
|
|
|
3.71
|
|
A summary of the status of stock options granted is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
Contractual
|
|
Intrinsic
|
|
|
|
|
|
Exercise
|
|
Term (in
|
|
Value (in
|
|
|
|
Shares
|
|
Price
|
|
years)
|
|
thousands)
|
|
Outstanding at December 31, 2018
|
|
5,442,920
|
|
|
$
|
18.74
|
|
|
|
|
|
|
Granted
|
|
14,368
|
|
|
$
|
7.54
|
|
|
|
|
|
|
Exercised
|
|
(79,468
|
)
|
|
$
|
6.87
|
|
|
|
|
|
|
Forfeited
|
|
(4,208
|
)
|
|
$
|
6.87
|
|
|
|
|
|
|
Expired
|
|
(677,348
|
)
|
|
$
|
24.29
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
4,696,264
|
|
|
$
|
18.05
|
|
|
4.49
|
|
$
|
5,280
|
|
|
Exercisable at December 31, 2019
|
|
4,681,896
|
|
|
$
|
18.04
|
|
|
4.47
|
|
$
|
5,261
|
|
At December 31, 2019, there are 4,224,415 employee stock options outstanding under the Equity Incentive Plan. Non-employee director stock options vest one year after the grant date. There are 471,849 stock options outstanding under these grants.
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between CNX's closing stock price on the last trading day of the year ended December 31, 2019 and the option's exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2019. This amount varies based on the fair market value of CNX's stock. The total intrinsic value of options exercised for the years ended December 31, 2019, 2018 and 2017 was $175, $2,077, and $1,067, respectively.
Cash received from option exercises for the years ended December 31, 2019, 2018 and 2017 was $546, $1,714 and $1,002, respectively. The tax impact from option exercises totaled $46, $569 and $205 for the years ended December 31, 2019, 2018 and 2017, respectively.
Restricted Stock Units:
Under the Equity Incentive Plan, CNX grants certain employees and non-employee directors RSU awards, which entitle the holder to receive shares of common stock as the award vests. Non-employee director RSUs vest at the end of one year. Compensation expense is recognized over the vesting period of the units, described above. The total fair value of RSUs granted during the years ended December 31, 2019, 2018 and 2017 was $10,844, $13,768 and $14,328, respectively. The total fair value of restricted stock units vested during the years ended December 31, 2019, 2018 and 2017 was $10,391, $6,437 and $12,805, respectively. The following table represents the nonvested restricted stock units and their corresponding fair value (based upon the closing share price) at the date of grant:
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Weighted Average
|
|
|
|
Shares
|
|
Grant Date Fair Value
|
|
Nonvested at December 31, 2018
|
|
1,427,151
|
|
|
$14.30
|
|
Granted
|
|
963,426
|
|
|
$11.26
|
|
Vested
|
|
(1,052,235
|
)
|
|
$14.27
|
|
Forfeited
|
|
(305,142
|
)
|
|
$13.50
|
|
Nonvested at December 31, 2019
|
|
1,033,200
|
|
|
$11.71
|
Performance Share Units:
Under the Equity Incentive Plan, CNX grants certain employees performance share unit awards, which entitle the holder to shares of common stock subject to the achievement of certain market and performance goals. Compensation expense is recognized over the performance measurement period of the units in accordance with the provisions of the Stock Compensation Topic of the FASB Accounting Standards Codification for awards with market and performance vesting conditions. The total fair value of performance share units granted during the years ended December 31, 2019, 2018 and 2017 was $6,741, $8,570 and $9,789, respectively. The total fair value of performance share units vested during the years ended December 31, 2019, 2018 and 2017 was $4,668, $7,547 and $17,646, respectively. The following table represents the nonvested performance share units and their corresponding fair value (based upon the Monte Carlo Methodology) on the date of grant:
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Weighted Average
|
|
|
|
Shares
|
|
Grant Date Fair Value
|
|
Nonvested at December 31, 2018
|
|
1,344,985
|
|
|
$19.93
|
|
Granted
|
|
407,056
|
|
|
$16.56
|
|
PSUs Issued as a Result of 200% Payout
|
|
156,918
|
|
|
$22.63
|
|
Vested
|
|
(345,282
|
)
|
|
$22.21
|
|
Forfeited
|
|
(162,841
|
)
|
|
$17.83
|
|
Nonvested at December 31, 2019
|
|
1,400,836
|
|
|
$18.91
|
Performance Options:
Under the Equity Incentive Plan in 2010, CNX granted certain employees performance options, which entitled the holder to shares of common stock subject to the achievement of certain performance goals. Compensation expense was recognized over the vesting period of the options. The Black-Scholes option valuation model was used to value each tranche separately. There have been no performance options granted since 2010. There were 927,268 performance options outstanding and exercisable at a weighted average exercise price of $39.00 and a weighted average remaining contractual term of 0.46 years as of December 31, 2019.
NOTE 18—SUPPLEMENTAL CASH FLOW INFORMATION:
The following are non-cash transactions that impact the investing and financing activities of CNX. For non-cash transactions that relate to the separation, as well as acquisitions and dispositions, see Note 5 - Discontinued Operations and Note 6 - Acquisitions and Dispositions.
As of December 31, 2019, 2018 and 2017, CNX purchased goods and services related to capital projects in the amount of $43,982, $58,246 and $35,437, respectively, which are included in accounts payable.
The following table shows cash paid (received):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Interest (Net of Amounts Capitalized)
|
|
$
|
143,111
|
|
|
$
|
144,756
|
|
|
$
|
152,047
|
|
|
Income Taxes
|
|
$
|
(138,409
|
)
|
|
$
|
(11,505
|
)
|
|
$
|
(121,773
|
)
|
NOTE 19—CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS:
CNX markets natural gas primarily to gas wholesalers in the United States. Concentration of credit risk is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
Gas Wholesalers
|
|
$
|
115,641
|
|
|
$
|
232,638
|
|
|
NGL, Condensate & Processing Facilities
|
|
10,140
|
|
|
12,595
|
|
|
Other
|
|
7,699
|
|
|
7,191
|
|
|
Total Accounts Receivable Trade
|
|
$
|
133,480
|
|
|
$
|
252,424
|
|
As of December 31, 2019, receivables of $23,859 and $15,401 due from Direct Energy Business Marketing LLC and NJR Energy Services Company, respectively, were included in the Gas Wholesalers balance above. As of December 31, 2018, receivables of $30,872 and $26,417 due from NJR Energy Services Company and Direct Energy Business Marketing LLC, respectively, were included. No other customers made up more than 10% of the total balances.
During the year ended December 31, 2019 sales to Direct Energy Business Marketing LLC were $214,980 and sales to NJR Energy Services Company were $147,540, each of which comprised over 10% of the Company's revenue from contracts with external customers for the period.
During the year ended December 31, 2018, sales to NJR Energy Services Company were $219,472 and sales to Direct Energy Business Marketing LLC were $184,668, each of which comprised over 10% of the Company's revenue from contracts with external customers for the period.
During the year ended December 31, 2017, sales to Direct Energy Business Marketing LLC were $153,565 and sales to NJR Energy Services Company were $147,595, each of which comprised over 10% of the Company's revenue from contracts with external customers for the period.
NOTE 20—FAIR VALUE OF FINANCIAL INSTRUMENTS:
CNX determines the fair value of assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. The fair value hierarchy is based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources (including NYMEX forward curves, LIBOR-based discount rates and basis forward curves), while unobservable inputs reflect the Company's own assumptions of what market participants would use.
The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below:
Level One - Quoted prices for identical instruments in active markets.
Level Two - The fair value of the assets and liabilities included in Level 2 are based on standard industry income approach models that use significant observable inputs, including NYMEX forward curves, LIBOR-based discount rates and basis forward curves.
Level Three - Unobservable inputs significant to the fair value measurement supported by little or no market activity.
In those cases when the inputs used to measure fair value meet the definition of more than one level of the fair value hierarchy, the lowest level input that is significant to the fair value measurement in its totality determines the applicable level in the fair value hierarchy.
The financial instrument measured at fair value on a recurring basis is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
December 31, 2019
|
|
Fair Value Measurements at
December 31, 2018
|
|
Description
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Gas Derivatives
|
$
|
—
|
|
|
$
|
405,781
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
99,456
|
|
|
$
|
—
|
|
The carrying amounts and fair values of financial instruments for which the fair value option was not elected are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Cash and Cash Equivalents
|
$
|
16,283
|
|
|
$
|
16,283
|
|
|
$
|
17,198
|
|
|
$
|
17,198
|
|
|
Long-Term Debt (Excluding Debt Issuance Costs)
|
$
|
2,763,433
|
|
|
$
|
2,619,676
|
|
|
$
|
2,387,001
|
|
|
$
|
2,290,537
|
|
Cash and cash equivalents represent highly-liquid instruments and constitute Level 1 fair value measurements. Certain of the Company’s debt is actively traded on a public market and, as a result, constitute Level 1 fair value measurements. The portion of the Company’s debt obligations that is not actively traded is valued through reference to the applicable underlying benchmark rate and, as a result, constitute Level 2 fair value measurements.
NOTE 21—DERIVATIVE INSTRUMENTS:
In June 2019, CNX entered into an interest rate swap agreement to manage its exposure to interest rate volatility. The interest rate swap agreement relates to $160,000 of borrowings under CNX’s senior secured revolving credit facility (See Note 12 - Revolving Credit Facilities) and has the economic effect of modifying the variable-interest obligation into a fixed-interest obligation over a three-year period.
The change in fair value of the interest rate swap agreement is accounted for on a mark-to-market basis with changes in fair value recorded in current period earnings. The fair value at December 31, 2019 and the corresponding change in fair value from inception through December 31, 2019 was nominal.
CNX enters into financial derivative instruments to manage its exposure to commodity price volatility. These natural gas and NGL commodity hedges are accounted for on a mark-to-market basis with changes in fair value recorded in current period earnings.
CNX is exposed to credit risk in the event of non-performance by counterparties. The creditworthiness of counterparties is subject to continuing review. The Company has not experienced any issues of non-performance by derivative counterparties.
None of the Company's counterparty master agreements currently require CNX to post collateral for any of its positions. However, as stated in the counterparty master agreements, if CNX's obligations with one of its counterparties cease to be secured on the same basis as similar obligations with the other lenders under the credit facility, CNX would have to post collateral for instruments in a liability position in excess of defined thresholds. All of the Company's derivative instruments are subject to master netting arrangements with its counterparties. CNX recognizes all financial derivative instruments as either assets or liabilities at fair value in the Consolidated Balance Sheets on a gross basis.
Each of the Company's counterparty master agreements allows, in the event of default, the ability to elect early termination of outstanding contracts. If early termination is elected, CNX and the applicable counterparty would net settle all open hedge positions.
The total notional amounts of production of CNX's derivative instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Forecasted to
|
|
|
2019
|
|
2018
|
|
Settle Through
|
|
Natural Gas Commodity Swaps (Bcf)
|
1,460.6
|
|
|
1,484.4
|
|
|
2025
|
|
Natural Gas Basis Swaps (Bcf)
|
1,290.4
|
|
|
1,056.6
|
|
|
2025
|
The gross fair value of CNX's derivative instruments was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivative Instruments
|
|
Liability Derivative Instruments
|
|
|
December 31,
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
|
Commodity Swaps:
|
|
|
|
|
|
|
|
|
Current Assets
|
$
|
234,238
|
|
|
$
|
28,612
|
|
|
Current Liabilities
|
$
|
345
|
|
|
$
|
34,640
|
|
|
Other Assets
|
288,543
|
|
|
164,310
|
|
|
Non-Current Liabilities
|
9,693
|
|
|
52,011
|
|
|
Total Asset
|
$
|
522,781
|
|
|
$
|
192,922
|
|
|
Total Liability
|
$
|
10,038
|
|
|
$
|
86,651
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Only Swaps:
|
|
|
|
|
|
|
|
|
|
Current Assets
|
$
|
13,556
|
|
|
$
|
11,628
|
|
|
Current Liabilities
|
$
|
40,626
|
|
|
$
|
27,021
|
|
|
Other Assets
|
25,553
|
|
|
48,788
|
|
|
Non-Current Liabilities
|
105,445
|
|
|
40,210
|
|
|
Total Asset
|
$
|
39,109
|
|
|
$
|
60,416
|
|
|
Total Liability
|
$
|
146,071
|
|
|
$
|
67,231
|
|
The effect of derivative instruments on the Company's Consolidated Statements of Income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Cash Received (Paid) in Settlement of Commodity Derivative Instruments:
|
|
|
|
|
|
|
Commodity Swaps:
|
|
|
|
|
|
|
Natural Gas
|
$
|
82,899
|
|
|
$
|
(41,098
|
)
|
|
$
|
(34,928
|
)
|
|
Propane
|
—
|
|
|
—
|
|
|
(1,216
|
)
|
|
Natural Gas Basis Swaps
|
(13,119
|
)
|
|
(28,622
|
)
|
|
(5,030
|
)
|
|
Total Cash Received (Paid) in Settlement of Commodity Derivative Instruments
|
69,780
|
|
|
(69,720
|
)
|
|
(41,174
|
)
|
|
|
|
|
|
|
|
|
Unrealized Gain (Loss) on Commodity Derivative Instruments:
|
|
|
|
|
|
|
Commodity Swaps:
|
|
|
|
|
|
|
Natural Gas
|
406,472
|
|
|
33,026
|
|
|
319,605
|
|
|
Propane
|
—
|
|
|
—
|
|
|
1,147
|
|
|
Natural Gas Basis Swaps
|
(100,147
|
)
|
|
6,482
|
|
|
(72,648
|
)
|
|
Total Unrealized Gain on Commodity Derivative Instruments
|
306,325
|
|
|
39,508
|
|
|
248,104
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on Commodity Derivative Instruments:
|
|
|
|
|
|
|
Commodity Swaps:
|
|
|
|
|
|
|
Natural Gas
|
$
|
489,371
|
|
|
$
|
(8,072
|
)
|
|
$
|
284,677
|
|
|
Propane
|
—
|
|
|
—
|
|
|
(69
|
)
|
|
Natural Gas Basis Swaps
|
(113,266
|
)
|
|
(22,140
|
)
|
|
(77,678
|
)
|
|
Total Gain (Loss) on Commodity Derivative Instruments
|
$
|
376,105
|
|
|
$
|
(30,212
|
)
|
|
$
|
206,930
|
|
The Company also enters into fixed price natural gas sales agreements that are satisfied by physical delivery. These physical commodity contracts qualify for the normal purchases and normal sales exception and are not subject to derivative instrument accounting.
NOTE 22—COMMITMENTS AND CONTINGENT LIABILITIES:
CNX and its subsidiaries are subject to various lawsuits and claims with respect to such matters as personal injury, royalty accounting, damage to property, climate change, governmental regulations including environmental violations and remediation, employment and contract disputes and other claims and actions arising out of the normal course of business. CNX accrues the estimated loss for these lawsuits and claims when the loss is probable and can be estimated. The Company's current estimated accruals related to these pending claims, individually and in the aggregate, are immaterial to the financial position, results of operations or cash flows of CNX. It is possible that the aggregate loss in the future with respect to these lawsuits and claims could
ultimately be material to the financial position, results of operations or cash flows of CNX; however, such amounts cannot be reasonably estimated.
At December 31, 2019, CNX has provided the following financial guarantees, unconditional purchase obligations, and letters of credit to certain third-parties as described by major category in the following tables. These amounts represent the maximum potential of total future payments that the Company could be required to make under these instruments. These amounts have not been reduced for potential recoveries under recourse or collateralization provisions. Generally, recoveries under reclamation bonds would be limited to the extent of the work performed at the time of the default. No amounts related to these unconditional purchase obligations and letters of credit are recorded as liabilities in the financial statements. CNX management believes that the commitments in the following table will expire without being funded, and therefore will not have a material adverse effect on financial condition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration Per Period
|
|
|
Total
Amounts
Committed
|
|
Less Than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
Beyond
5 Years
|
|
Letters of Credit:
|
|
|
|
|
|
|
|
|
|
|
Firm Transportation
|
$
|
197,776
|
|
|
$
|
148,526
|
|
|
$
|
49,250
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other
|
6,950
|
|
|
6,200
|
|
|
750
|
|
|
—
|
|
|
—
|
|
|
Total Letters of Credit
|
204,726
|
|
|
154,726
|
|
|
50,000
|
|
|
—
|
|
|
—
|
|
|
Surety Bonds:
|
|
|
|
|
|
|
|
|
|
|
Employee-Related
|
2,600
|
|
|
2,600
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Environmental
|
12,763
|
|
|
12,503
|
|
|
260
|
|
|
—
|
|
|
—
|
|
|
Financial Guarantees
|
81,670
|
|
|
81,670
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
9,254
|
|
|
7,970
|
|
|
1,284
|
|
|
—
|
|
|
—
|
|
|
Total Surety Bonds
|
106,287
|
|
|
104,743
|
|
|
1,544
|
|
|
—
|
|
|
—
|
|
|
Total Commitments
|
$
|
311,013
|
|
|
$
|
259,469
|
|
|
$
|
51,544
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Excluded from the above table are commitments and guarantees entered into in conjunction with the spin-off of the Company's coal business (See Note 5 - Discontinued Operations). Although CONSOL Energy has agreed to indemnify CNX to the extent that CNX would be called upon to pay any of these liabilities, there is no assurance that CONSOL Energy will satisfy its obligations to indemnify CNX in the event that CNX is so called upon.
CNX enters into long-term unconditional purchase obligations to procure major equipment purchases, natural gas firm transportation, gas drilling services and other operating goods and services. These purchase obligations are not recorded in the Consolidated Balance Sheets. As of December 31, 2019, the purchase obligations for each of the next five years and beyond were as follows:
|
|
|
|
|
|
|
|
Obligations Due
|
Amount
|
|
Less than 1 year
|
$
|
256,613
|
|
|
1 - 3 years
|
483,807
|
|
|
3 - 5 years
|
406,915
|
|
|
More than 5 years
|
1,072,748
|
|
|
Total Purchase Obligations
|
$
|
2,220,083
|
|
NOTE 23—VARIABLE INTEREST ENTITIES:
The Company determined CNXM, of which the Company owned an approximately 34% limited partner interest (prior to the IDR Elimination transaction - See Note 25 - Subsequent Event) and 100% of the general partner interest, to be a variable interest entity. As a result of the Midstream Acquisition (see Note 6 - Acquisitions and Dispositions), the Company has the power through the Company's ownership and control of CNXM's general partner (CNX Midstream GP LLC) to direct the activities that most significantly impact CNXM's economic performance. In addition, through its limited partner interest in CNXM, the Company has the obligation to absorb the losses of CNXM and the right to receive benefits in accordance with such interests. As the Company has a controlling financial interest and is the primary beneficiary of CNXM, the Company consolidated CNXM commencing January 3, 2018.
The risks associated with the operations of CNXM are discussed in its Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 10, 2020 and its other periodic reports filed thereafter.
The following table presents amounts included in the Company's Consolidated Balance Sheets that were for the use or obligation of CNXM:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Assets:
|
|
|
|
|
Cash
|
$
|
31
|
|
|
$
|
3,966
|
|
|
Receivables - Related Party
|
21,076
|
|
|
17,073
|
|
|
Receivables - Third Party
|
7,935
|
|
|
7,028
|
|
|
Other Current Assets
|
1,976
|
|
|
2,383
|
|
|
Property, Plant and Equipment, net
|
1,195,591
|
|
|
891,775
|
|
|
Operating Lease ROU Asset
|
4,731
|
|
|
—
|
|
|
Other Assets
|
3,262
|
|
|
3,203
|
|
|
Total Assets
|
$
|
1,234,602
|
|
|
$
|
925,428
|
|
|
Liabilities:
|
|
|
|
|
Accounts Payable and Accrued Liabilities
|
$
|
67,290
|
|
|
$
|
43,919
|
|
|
Accounts Payable - Related Party
|
4,787
|
|
|
4,980
|
|
|
Revolving Credit Facility
|
311,750
|
|
|
84,000
|
|
|
Long-Term Debt
|
394,162
|
|
|
393,215
|
|
|
Total Liabilities
|
$
|
777,989
|
|
|
$
|
526,114
|
|
The following table summarizes CNXM's Consolidated Statements of Operations and Cash Flows, inclusive of affiliate amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
Revenue
|
|
|
|
|
Gathering Revenue - Related Party
|
$
|
231,482
|
|
|
$
|
167,048
|
|
|
Gathering Revenue - Third Party
|
74,315
|
|
|
89,620
|
|
|
Total Revenue
|
305,797
|
|
|
256,668
|
|
|
Expenses
|
|
|
|
|
Operating Expense - Related Party
|
22,943
|
|
|
19,814
|
|
|
Operating Expense - Third Party
|
23,964
|
|
|
27,343
|
|
|
General and Administrative Expense - Related Party
|
15,928
|
|
|
13,867
|
|
|
General and Administrative Expense - Third Party
|
5,769
|
|
|
8,595
|
|
|
Loss on Asset Sales and Abandonments, net
|
7,229
|
|
|
2,501
|
|
|
Depreciation Expense
|
24,371
|
|
|
21,939
|
|
|
Interest Expense
|
30,293
|
|
|
23,614
|
|
|
Total Expense
|
130,497
|
|
|
117,673
|
|
|
Net Income
|
$
|
175,300
|
|
|
$
|
138,995
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
$
|
217,062
|
|
|
$
|
180,115
|
|
|
Net Cash Used in Investing Activities
|
$
|
(327,615
|
)
|
|
$
|
(138,869
|
)
|
|
Net Cash Provided by (Used in) Financing Activities
|
$
|
106,618
|
|
|
$
|
(40,474
|
)
|
Prior to the acquisition of Noble's interest on January 3, 2018, CNX accounted for its interests in CNX Gathering and CNXM as an equity-method investment. The following transactions were included in Other Operating Income and Transportation, Gathering and Compression in the Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
December 31, 2017
|
|
Other Operating Income:
|
|
|
Equity in Earnings of Affiliates - CNX Gathering
|
$
|
9,823
|
|
|
Equity in Earnings of Affiliates - CNXM
|
$
|
38,523
|
|
|
|
|
|
Transportation, Gathering and Compression:
|
|
|
Gathering Services - CNX Gathering
|
$
|
914
|
|
|
Gathering Services - CNXM
|
$
|
136,068
|
|
In March 2018, CNXM closed on its acquisition of CNX's remaining 95% interest in the gathering system and related assets commonly referred to as the Shirley-Penns System, in exchange for cash consideration in the amount of $265,000. CNXM funded the cash considerations with proceeds from the issuance of its 6.50% senior notes due 2026 (See Note 14 - Long-Term Debt).
At December 31, 2019 and 2018, CNX had a net payable of $16,362 and $12,202, respectively, due to CNX Gathering and CNXM, primarily for accrued but unpaid gathering services.
NOTE 24—SEGMENT INFORMATION:
CNX consists of two principal business divisions: Exploration and Production (E&P) and Midstream. The principal activity of the E&P Division, which includes four reportable segments, is to produce pipeline quality natural gas for sale primarily to gas wholesalers. The E&P Division's reportable segments are Marcellus Shale, Utica Shale, Coalbed Methane and Other Gas. The Other Gas Segment is primarily related to shallow oil and gas production which is not significant to the Company due to the sale of substantially all of CNX's shallow oil and gas assets in the 2018 period (See Note 6 - Acquisitions and Dispositions for more information). It also includes the Company's purchased gas activities, unrealized gain or loss on commodity derivative instruments, exploration and production related other costs, impairments of exploration and production properties and unproved properties and expirations, as well as various other operating activities assigned to the E&P Division but not allocated to each individual segment.
CNX's Midstream Division's principal activity is the ownership, operation, development and acquisition of natural gas gathering and other midstream energy assets of CNX Gathering and CNXM, which provide natural gas gathering services for the Company's produced gas, as well as for other independent third-parties in the Marcellus Shale and Utica Shale in Pennsylvania and West Virginia. Excluded from the Midstream Division are the gathering assets and operations of CNX that have not been contributed to CNX Gathering and CNXM. As a result of the Midstream Acquisition (See Note 6 - Acquisitions and Dispositions for more information), CNX owns and controls 100% of CNX Gathering, making CNXM a single-sponsor master limited partnership and thus the Company began consolidating CNXM on January 3, 2018. The Midstream Division is comprised of a single Midstream segment.
The Company's unallocated expenses include other expense, gain on asset sales related to non-core assets, gain on previously held equity interest, loss on debt extinguishment, impairment of other intangible assets and income taxes.
In the preparation of the following information, intersegment sales have been recorded at amounts approximating market prices. Operating profit for each segment is based on sales less identifiable operating and non-operating expenses. Assets are reflected at the division level for E&P and are not allocated between each individual E&P segment. These assets are not allocated to each individual segment due to the diverse asset base controlled by CNX, whereby each individual asset may service more than one segment within the division. An allocation of such asset base would not be meaningful or representative on a segment by segment basis.
Industry segment results for the year ended December 31, 2019 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed
Methane
|
|
Other
Gas
|
|
Total E&P
|
|
Midstream
|
|
Unallocated
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
934,728
|
|
|
$
|
264,548
|
|
|
$
|
163,893
|
|
|
$
|
1,156
|
|
|
$
|
1,364,325
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,364,325
|
|
(A)
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
94,027
|
|
|
94,027
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
94,027
|
|
|
|
Midstream Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
307,024
|
|
|
—
|
|
|
(232,710
|
)
|
|
74,314
|
|
|
|
Gain on Commodity Derivative Instruments
|
47,475
|
|
|
14,943
|
|
|
7,335
|
|
|
306,352
|
|
|
376,105
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
376,105
|
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
14,057
|
|
|
14,057
|
|
|
—
|
|
|
—
|
|
|
(379
|
)
|
|
13,678
|
|
(B)
|
|
Total Revenue and Other Operating Income
|
$
|
982,203
|
|
|
$
|
279,491
|
|
|
$
|
171,228
|
|
|
$
|
415,592
|
|
|
$
|
1,848,514
|
|
|
$
|
307,024
|
|
|
$
|
—
|
|
|
$
|
(233,089
|
)
|
|
$
|
1,922,449
|
|
|
|
Earnings (Loss) From Continuing Operations Before Income Tax
|
$
|
234,284
|
|
|
$
|
87,972
|
|
|
$
|
35,170
|
|
|
$
|
(497,869
|
)
|
|
$
|
(140,443
|
)
|
|
$
|
166,654
|
|
|
$
|
33,473
|
|
|
$
|
—
|
|
|
$
|
59,684
|
|
|
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,745,091
|
|
|
$
|
2,230,676
|
|
|
$
|
78,708
|
|
|
$
|
6,331
|
|
|
$
|
9,060,806
|
|
(C)
|
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
474,352
|
|
|
$
|
34,111
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
508,463
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
867,860
|
|
|
$
|
324,739
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,192,599
|
|
|
|
|
|
|
(A)
|
Included in Total Natural Gas, NGLs and Oil Revenue are sales of $214,980 to Direct Energy Business Marketing LLC and $147,540 to NJR Energy Services Company, each of which comprises over 10% of revenue from contracts with external customers for the period.
|
|
|
|
|
(B)
|
Includes equity in earnings of unconsolidated affiliates of $2,103 for Total E&P.
|
|
|
|
|
(C)
|
Includes investments in unconsolidated equity affiliates of $16,710 for Total E&P.
|
Industry segment results for the year ended December 31, 2018 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed
Methane
|
|
Other
Gas
|
|
Total
E&P
|
|
Midstream
|
|
Unallocated
|
|
Intercompany Eliminations
|
|
Consolidated
|
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
903,316
|
|
|
$
|
445,880
|
|
|
$
|
212,884
|
|
|
$
|
15,857
|
|
|
$
|
1,577,937
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,577,937
|
|
(D)
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
65,986
|
|
|
65,986
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65,986
|
|
|
|
Midstream Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
258,074
|
|
|
—
|
|
|
(168,293
|
)
|
|
89,781
|
|
|
|
(Loss) Gain on Commodity Derivative Instruments
|
(40,444
|
)
|
|
(19,882
|
)
|
|
(8,767
|
)
|
|
38,881
|
|
|
(30,212
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(30,212
|
)
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
27,218
|
|
|
27,218
|
|
|
—
|
|
|
—
|
|
|
(276
|
)
|
|
26,942
|
|
(E)
|
|
Total Revenue and Other Operating Income
|
$
|
862,872
|
|
|
$
|
425,998
|
|
|
$
|
204,117
|
|
|
$
|
147,942
|
|
|
$
|
1,640,929
|
|
|
$
|
258,074
|
|
|
$
|
—
|
|
|
$
|
(168,569
|
)
|
|
$
|
1,730,434
|
|
|
|
Earnings (Loss) From Continuing Operations Before Income Tax
|
$
|
254,310
|
|
|
$
|
194,164
|
|
|
$
|
49,719
|
|
|
$
|
(253,577
|
)
|
|
$
|
244,616
|
|
|
$
|
133,811
|
|
|
$
|
720,241
|
|
|
$
|
—
|
|
|
$
|
1,098,668
|
|
|
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,518,597
|
|
|
$
|
1,919,117
|
|
|
$
|
166,679
|
|
|
$
|
(12,223
|
)
|
|
$
|
8,592,170
|
|
(F)
|
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
461,149
|
|
|
$
|
32,274
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
493,423
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
974,059
|
|
|
$
|
142,338
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,116,397
|
|
|
|
|
|
|
(D)
|
Included in Total Natural Gas, NGLs and Oil Revenue are sales of $219,472 to NJR Energy Services Company and $184,668 to Direct Energy Business Marketing LLC, each of which comprises over 10% of revenue from contracts with external customers for the period.
|
|
|
|
|
(E)
|
Includes equity in earnings of unconsolidated affiliates of $5,363 for Total E&P.
|
|
|
|
|
(F)
|
Includes investments in unconsolidated equity affiliates of $18,663 for Total E&P.
|
Industry segment results for the year ended December 31, 2017 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcellus
Shale
|
|
Utica Shale
|
|
Coalbed
Methane
|
|
Other
Gas
|
|
Total
E&P
|
|
Unallocated
|
|
Consolidated
|
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
646,188
|
|
|
$
|
217,020
|
|
|
$
|
208,677
|
|
|
$
|
53,339
|
|
|
$
|
1,125,224
|
|
|
$
|
—
|
|
|
$
|
1,125,224
|
|
(G)
|
|
Purchased Gas Revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
53,795
|
|
|
53,795
|
|
|
—
|
|
|
53,795
|
|
|
|
(Loss) Gain on Commodity Derivative Instruments
|
(30,336
|
)
|
|
1,367
|
|
|
(9,589
|
)
|
|
245,488
|
|
|
206,930
|
|
|
—
|
|
|
206,930
|
|
|
|
Other Operating Income
|
—
|
|
|
—
|
|
|
—
|
|
|
69,182
|
|
|
69,182
|
|
|
—
|
|
|
69,182
|
|
(H)
|
|
Total Revenue and Other Operating Income
|
$
|
615,852
|
|
|
$
|
218,387
|
|
|
$
|
199,088
|
|
|
$
|
421,804
|
|
|
$
|
1,455,131
|
|
|
$
|
—
|
|
|
$
|
1,455,131
|
|
|
|
Earnings (Loss) From Continuing Operations Before Income Tax
|
$
|
91,436
|
|
|
$
|
64,741
|
|
|
$
|
20,346
|
|
|
$
|
(240,050
|
)
|
|
$
|
(63,527
|
)
|
|
$
|
182,108
|
|
|
$
|
118,581
|
|
|
|
Segment Assets
|
|
|
|
|
|
|
|
|
$
|
6,391,223
|
|
|
$
|
540,690
|
|
|
$
|
6,931,913
|
|
(I)
|
|
Depreciation, Depletion and Amortization
|
|
|
|
|
|
|
|
|
$
|
412,036
|
|
|
$
|
—
|
|
|
$
|
412,036
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
$
|
632,846
|
|
|
$
|
—
|
|
|
$
|
632,846
|
|
|
|
|
|
|
(G)
|
Included in Total Natural Gas, NGLs and Oil Revenue are sales of $153,656 to Direct Energy Business Marketing LLC and $147,595 to NJR Energy Services Company, each of which comprises over 10% of revenue from contracts with external customers for the period.
|
|
|
|
|
(H)
|
Includes equity in earnings of unconsolidated affiliates of $49,830 for Total E&P.
|
|
|
|
|
(I)
|
Includes investments in unconsolidated equity affiliates of $197,921 for Total E&P.
|
Reconciliation of Segment Information to Consolidated Amounts:
Revenue and Other Operating Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Total Segment Revenue from Contracts with External Customers
|
|
$
|
1,532,666
|
|
|
$
|
1,733,704
|
|
|
$
|
1,179,019
|
|
|
Gain (Loss) on Commodity Derivative Instruments
|
|
376,105
|
|
|
(30,212
|
)
|
|
206,930
|
|
|
Other Operating Income
|
|
13,678
|
|
|
26,942
|
|
|
69,182
|
|
|
Total Consolidated Revenue and Other Operating Income
|
|
$
|
1,922,449
|
|
|
$
|
1,730,434
|
|
|
$
|
1,455,131
|
|
Earnings (Loss) From Continuing Operations Before Income Tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Segment Earnings (Loss) Before Income Taxes for Reportable Business Segments:
|
|
|
|
|
|
|
|
E&P
|
|
$
|
(140,443
|
)
|
|
$
|
244,616
|
|
|
$
|
(63,527
|
)
|
|
Midstream
|
|
166,654
|
|
|
133,811
|
|
|
—
|
|
|
Total Segment Earnings (Loss) Before Income Taxes for Reportable Business Segments
|
|
26,211
|
|
|
378,427
|
|
|
(63,527
|
)
|
|
Unallocated Expenses:
|
|
|
|
|
|
|
|
Other (Expense) Income
|
|
(1,396
|
)
|
|
14,571
|
|
|
(3,826
|
)
|
|
Gain on Certain Asset Sales
|
|
42,483
|
|
|
154,775
|
|
|
188,063
|
|
|
Gain on Previously Held Equity Interest
|
|
—
|
|
|
623,663
|
|
|
—
|
|
|
Loss on Debt Extinguishment
|
|
(7,614
|
)
|
|
(54,118
|
)
|
|
(2,129
|
)
|
|
Impairment of Other Intangible Assets
|
|
—
|
|
|
(18,650
|
)
|
|
—
|
|
|
Earnings from Continuing Operations Before Income Tax
|
|
$
|
59,684
|
|
|
$
|
1,098,668
|
|
|
$
|
118,581
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Segment Assets for Total Reportable Business Segments:
|
|
|
|
|
|
E&P
|
|
$
|
6,745,091
|
|
|
$
|
6,518,597
|
|
|
Midstream
|
|
2,230,676
|
|
|
1,919,117
|
|
|
Intercompany Eliminations
|
|
6,331
|
|
|
(12,223
|
)
|
|
Items Excluded from Segment Assets:
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
16,283
|
|
|
17,198
|
|
|
Recoverable Income Taxes
|
|
62,425
|
|
|
149,481
|
|
|
Total Consolidated Assets
|
|
$
|
9,060,806
|
|
|
$
|
8,592,170
|
|
NOTE 25—SUBSEQUENT EVENT
On January 29, 2020, CNX and CNXM entered into and closed definitive agreements to eliminate CNXM’s IDRs held by its general partner and to convert the 2.0% general partner interest in CNXM into a non-economic general partnership interest (collectively, the "IDR Elimination Transaction").
Pursuant to the IDR Elimination Transaction agreements, CNX will receive the following consideration in exchange for the IDRs and the 2.0% general partner interest:
|
|
|
|
•
|
26 million CNXM common units;
|
|
|
|
|
•
|
3 million new CNXM Class B units. The newly issued Class B units will not receive or accrue distributions until January 1, 2022, at which time they will automatically convert into CNXM common units on a one-for-one basis; and
|
|
|
|
|
•
|
$135,000 to be paid in three installments of $50,000 due December 31, 2020, $50,000 due December 31, 2021 and $35,000 due December 31, 2022.
|
As a result of the IDR Elimination Transaction, CNX now owns 47.7 million common units, or approximately 53.1%, of the outstanding limited partner interests in CNXM, excluding the Class B units. Upon conversion of the Class B units to CNXM common units on January 1, 2022, CNX's ownership will increase to 50.7 million units on a pro forma basis.
NOTE 26 - SUPPLEMENTAL GAS DATA (unaudited):
The following information was prepared in accordance with the FASB's Accounting Standards Update No. 2010-03, “Extractive Activities-Oil and Gas (Topic 932).” The supplementary information summarized below presents the results of natural gas and oil activities for the E&P segment in accordance with the successful efforts method of accounting for production activities.
Capitalized Costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2019
|
|
2018
|
|
Intangible Drilling Costs
|
$
|
4,688,497
|
|
|
$
|
4,120,283
|
|
|
Proved Gas Properties
|
1,208,046
|
|
|
1,135,411
|
|
|
Gas Gathering Assets
|
1,110,977
|
|
|
1,099,047
|
|
|
Unproved Gas Properties
|
755,590
|
|
|
927,667
|
|
|
Gas Wells and Related Equipment
|
1,042,000
|
|
|
856,973
|
|
|
Other Gas Assets
|
73,479
|
|
|
54,395
|
|
|
Total Property, Plant and Equipment
|
$
|
8,878,589
|
|
|
$
|
8,193,776
|
|
|
Accumulated Depreciation, Depletion and Amortization
|
(3,263,221
|
)
|
|
(2,475,917
|
)
|
|
Net Capitalized Costs
|
$
|
5,615,368
|
|
|
$
|
5,717,859
|
|
Costs incurred for property acquisition, exploration and development (*):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Property Acquisitions:
|
|
|
|
|
|
|
Proved Properties
|
$
|
36,710
|
|
|
$
|
38,621
|
|
|
$
|
15,850
|
|
|
Unproved Properties
|
24,760
|
|
|
36,248
|
|
|
32,038
|
|
|
Development
|
739,874
|
|
|
844,081
|
|
|
544,809
|
|
|
Exploration
|
79,855
|
|
|
61,604
|
|
|
48,020
|
|
|
Total
|
$
|
881,199
|
|
|
$
|
980,554
|
|
|
$
|
640,717
|
|
__________
|
|
|
|
(*)
|
Includes costs incurred whether capitalized or expensed.
|
Results of Operations for Producing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Natural Gas, NGLs and Oil Revenue
|
$
|
1,364,325
|
|
|
$
|
1,577,937
|
|
|
$
|
1,125,224
|
|
|
Gain (Loss) on Commodity Derivative Instruments
|
376,105
|
|
|
(30,212
|
)
|
|
206,930
|
|
|
Purchased Gas Revenue
|
94,027
|
|
|
65,986
|
|
|
53,795
|
|
|
Total Revenue
|
1,834,457
|
|
|
1,613,711
|
|
|
1,385,949
|
|
|
Lease Operating Expense
|
65,443
|
|
|
95,139
|
|
|
88,932
|
|
|
Production, Ad Valorem, and Other Fees
|
27,461
|
|
|
32,750
|
|
|
29,267
|
|
|
Transportation, Gathering and Compression
|
516,879
|
|
|
424,206
|
|
|
382,865
|
|
|
Purchased Gas Costs
|
90,553
|
|
|
64,817
|
|
|
52,597
|
|
|
Impairment of Exploration and Production Properties
|
327,400
|
|
|
—
|
|
|
137,865
|
|
|
Impairment of Undeveloped Properties
|
119,429
|
|
|
—
|
|
|
—
|
|
|
Exploration Costs
|
44,380
|
|
|
12,033
|
|
|
48,074
|
|
|
Depreciation, Depletion and Amortization
|
474,352
|
|
|
461,149
|
|
|
412,036
|
|
|
Total Costs
|
1,665,897
|
|
|
1,090,094
|
|
|
1,151,636
|
|
|
Pre-tax Operating Income
|
168,560
|
|
|
523,617
|
|
|
234,313
|
|
|
Income Tax Expense (Benefit)
|
78,398
|
|
|
102,629
|
|
|
(348,676
|
)
|
|
Results of Operations for Producing Activities excluding Corporate and Interest Costs
|
$
|
90,162
|
|
|
$
|
420,988
|
|
|
$
|
582,989
|
|
The following is production, average sales price and average production costs, excluding ad valorem and severance taxes, per unit of production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Production (MMcfe)
|
539,149
|
|
|
507,104
|
|
|
407,166
|
|
|
Total Average Sales Price Before Effects of Commodity Derivative Financial Settlements (per Mcfe)
|
$
|
2.53
|
|
|
$
|
3.11
|
|
|
$
|
2.76
|
|
|
Average Effects of Commodity Derivative Financial Settlements (per Mcfe)
|
$
|
0.14
|
|
|
$
|
(0.15
|
)
|
|
$
|
(0.11
|
)
|
|
Total Average Sales Price Including Effects of Commodity Derivative Financial Settlements (per Mcfe)
|
$
|
2.66
|
|
|
$
|
2.97
|
|
|
$
|
2.66
|
|
|
Average Lifting Costs, Excluding Ad Valorem and Severance Taxes (per Mcfe)
|
$
|
0.12
|
|
|
$
|
0.19
|
|
|
$
|
0.22
|
|
During the years ended December 31, 2019, 2018 and 2017, the Company drilled 75.7, 83.9, and 90.0 net development wells, respectively. There was 1.0 net dry development well in 2019, and no net dry development wells in 2018 or 2017.
During the years ended December 31, 2019 and 2017, the Company drilled 5.0 and 4.0 net exploratory wells, respectively. During the year ended December 31, 2018, the Company drilled no net exploratory wells. There were no net dry exploratory wells in 2019, 2018 or 2017.
At December 31, 2019, there were 35.0 net development wells and 1.0 exploratory well that are drilled but uncompleted. Additionally, there are 7.0 net developmental wells that have been completed and are awaiting final tie-in to production.
CNX is committed to provide 532.3 Bcf of gas under existing sales contracts or agreements over the course of the next four years. The Company expects to produce sufficient quantities from existing proved developed reserves to satisfy these commitments.
Most of the Company's development wells and proved acreage are located in Virginia, West Virginia, Ohio and Pennsylvania. Some leases are beyond their primary term, but these leases are extended in accordance with their terms as long as certain drilling commitments or other term commitments are satisfied. The following table sets forth, at December 31, 2019, the number of producing wells, developed acreage and undeveloped acreage:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Net(1)
|
|
Producing Gas Wells (including Gob Wells)
|
|
6,512
|
|
|
4,510
|
|
|
Producing Oil Wells
|
|
151
|
|
|
—
|
|
|
Acreage Position:
|
|
|
|
|
|
Proved Developed Acreage
|
|
337,700
|
|
|
337,700
|
|
|
Proved Undeveloped Acreage
|
|
28,916
|
|
|
28,916
|
|
|
Unproved Acreage
|
|
5,192,777
|
|
|
3,868,533
|
|
|
Total Acreage
|
|
5,559,393
|
|
|
4,235,149
|
|
____________
|
|
|
|
(1)
|
Net acres include acreage attributable to the Company's working interests of the properties. Additional adjustments (either increases or decreases) may be required as the Company further develops title to and further confirms its rights with respect to its various properties in anticipation of development. The Company believes that its assumptions and methodology in this regard are reasonable.
|
Proved Oil and Gas Reserves Quantities:
Annually, the preparation of natural gas reserves estimates is completed in accordance with CNX prescribed internal control procedures, which include verification of input data into a gas reserves forecasting and economic evaluation software, as well as multi-functional management review. The input data verification includes reviews of the price and operating, and development cost assumptions used in the economic model to determine the reserves. Also, the production volumes are reconciled between the system used to calculate the reserves and other accounting/measurement systems. The technical employee responsible for overseeing the preparation of the reserve estimates is a registered professional engineer in the state of West Virginia with over 15 years of experience in the oil and gas industry. The Company's gas reserves results, which are reported in the Supplemental Gas Data year ended December 31, 2019 Form 10-K, were audited by Netherland, Sewell & Associates, Inc. The technical person primarily responsible for overseeing the audit of the Company's reserves is a registered professional engineer in the state of Texas with over 12 years of experience in the oil and gas industry. The gas reserves estimates are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensate
|
|
Consolidated
|
|
|
|
Natural Gas
|
|
NGLs
|
|
& Crude Oil
|
|
Operations
|
|
|
|
(MMcf)
|
|
(Mbbls)
|
|
(Mbbls)
|
|
(MMcfe)
|
|
Balance December 31, 2016 (a)
|
|
5,828,399
|
|
|
60,532
|
|
|
10,009
|
|
|
6,251,648
|
|
|
Revisions (b)
|
|
(202,735
|
)
|
|
1,162
|
|
|
(5,834
|
)
|
|
(232,321
|
)
|
|
Price Changes
|
|
173,738
|
|
|
1,188
|
|
|
(159
|
)
|
|
181,470
|
|
|
Extensions and Discoveries (c)
|
|
1,769,029
|
|
|
17,887
|
|
|
1,800
|
|
|
1,887,153
|
|
|
Production
|
|
(364,893
|
)
|
|
(6,456
|
)
|
|
(589
|
)
|
|
(407,166
|
)
|
|
Sales of Reserves In-Place
|
|
(81,780
|
)
|
|
(2,622
|
)
|
|
(277
|
)
|
|
(99,172
|
)
|
|
Balance December 31, 2017 (a)
|
|
7,121,758
|
|
|
71,691
|
|
|
4,950
|
|
|
7,581,612
|
|
|
Revisions (d)
|
|
313,091
|
|
|
441
|
|
|
865
|
|
|
320,925
|
|
|
Price Changes
|
|
28,100
|
|
|
32
|
|
|
4
|
|
|
28,315
|
|
|
Extensions and Discoveries (c)
|
|
839,268
|
|
|
16,247
|
|
|
4,010
|
|
|
960,808
|
|
|
Production
|
|
(468,228
|
)
|
|
(6,011
|
)
|
|
(468
|
)
|
|
(507,104
|
)
|
|
Purchases of Reserves In-Place
|
|
317,437
|
|
|
756
|
|
|
—
|
|
|
321,975
|
|
|
Sales of Reserves In-Place (e)
|
|
(715,088
|
)
|
|
(17,252
|
)
|
|
(1,100
|
)
|
|
(825,196
|
)
|
|
Balance December 31, 2018 (a)
|
|
7,436,338
|
|
|
65,904
|
|
|
8,261
|
|
|
7,881,335
|
|
|
Revisions (f)
|
|
(521,617
|
)
|
|
5,926
|
|
|
(5,418
|
)
|
|
(518,570
|
)
|
|
Price Changes
|
|
(40,773
|
)
|
|
(740
|
)
|
|
(5
|
)
|
|
(45,246
|
)
|
|
Extensions and Discoveries (c)
|
|
1,569,813
|
|
|
10,182
|
|
|
2,732
|
|
|
1,647,297
|
|
|
Production
|
|
(505,355
|
)
|
|
(5,428
|
)
|
|
(204
|
)
|
|
(539,149
|
)
|
|
Balance December 31, 2019 (a)
|
|
7,938,406
|
|
|
75,844
|
|
|
5,366
|
|
|
8,425,667
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved developed reserves:
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
4,051,526
|
|
|
56,022,000
|
|
|
3,567,000
|
|
|
4,409,065
|
|
|
December 31, 2018
|
|
4,242,579
|
|
|
40,180,000
|
|
|
1,870,000
|
|
|
4,494,878
|
|
|
December 31, 2019
|
|
4,473,534
|
|
|
59,800,000
|
|
|
1,087,000
|
|
|
4,838,858
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved undeveloped reserves:
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
3,070,232
|
|
|
15,669,000
|
|
|
1,383,000
|
|
|
3,172,547
|
|
|
December 31, 2018
|
|
3,193,759
|
|
|
25,724,000
|
|
|
6,391,000
|
|
|
3,386,457
|
|
|
December 31, 2019
|
|
3,464,873
|
|
|
16,044,000
|
|
|
4,278,000
|
|
|
3,586,809
|
|
__________
|
|
|
|
(a)
|
Proved developed and proved undeveloped gas reserves are defined by SEC Rule 4.10(a) of Regulation S-X. Generally, these reserves would be commercially recovered under current economic conditions, operating methods and government regulations. CNX cautions that there are many inherent uncertainties in estimating proved reserve quantities, projecting future production rates and timing of development expenditures. Proved oil and gas reserves are estimated quantities of natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions and government regulations. Proved developed reserves are reserves expected to be recovered through existing wells, with existing equipment and operating methods.
|
|
|
|
|
(b)
|
The downward revisions for 2017 are due to corporate planning changes by our JV partner in Ohio Utica which resulted in all PUD's being removed, causing a 458 Bcfe downward revision, offset, in part, by improved well performance due to the enhanced RCS completions and improved operating costs.
|
|
|
|
|
(c)
|
Extensions and Discoveries in 2017, 2018, and 2019 are due to the addition of wells on the Company's Marcellus and Utica Shale acreage more than one offset location away with continued use of reliable technology.
|
|
|
|
|
(d)
|
The upward revision for 2018 of 321 Bcfe is primarily due to a 472 Bcfe upward revision from increased performance through our continued focus on optimization. This is partially offset by a 151 Bcfe downward revision due to plan changes.
|
|
|
|
|
(e)
|
The sales of reserves in-place is related to the divestiture of our Utica JV assets and substantially all of our conventional properties. Refer to Note 6 - Acquisitions and Dispositions for more information.
|
|
|
|
|
(f)
|
The downward revisions in 2019 are primarily due to removal of 872 Bcfe in reserves from plan changes which are the result of our continued focus on optimization and high grading initiatives. There was additionally a reduction of 304 Bcfe related to removal of proved undeveloped locations removed from our plans due to the SEC five-year development rule.
|
These downward revisions were partially offset by efficiencies in operations and optimization which increased reserves by 657 Bcfe.
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
|
2019
|
|
Proved Undeveloped Reserves (MMcfe)
|
|
|
|
Beginning Proved Undeveloped Reserves
|
|
3,386,457
|
|
|
Undeveloped Reserves Transferred to Developed (a)
|
|
(752,970
|
)
|
|
Revisions Due to 5 Year Rule
|
|
(303,787
|
)
|
|
Price Revisions
|
|
2,147
|
|
|
Revisions Due to Plan Changes (b)
|
|
(872,495
|
)
|
|
Revisions Due to Changes Due to Well Performance (c)
|
|
556,881
|
|
|
Extension and Discoveries (d)
|
|
1,570,576
|
|
|
Ending Proved Undeveloped Reserves(e)
|
|
3,586,809
|
|
_________
|
|
|
|
(a)
|
During 2019, various exploration and development drilling and evaluations were completed. Approximately, $334,062 of capital was spent in the year ended December 31, 2019 related to undeveloped reserves that were transferred to developed.
|
(b) The downward revisions for 2019 plan changes is due to removal of a portion of our Marcellus and Utica locations from our proved undeveloped reserves.
|
|
|
|
(c)
|
The upward revisions due to well performance is due to results from Marcellus Shale production.
|
|
|
|
|
(d)
|
Extensions and discoveries are due mainly to the addition of wells on our Marcellus and Utica Shale acreage more than one offset location away with continued use of reliable technology.
|
|
|
|
|
(e)
|
Included in proved undeveloped reserves at December 31,2019 are approximately 248,570 MMcfe of reserves that have been reported for more than five years. These reserves specifically relate to GOB (a rubble zone formed in the cavity created by the extraction of coal) production due to a complex fracture being generated in the overburden strata above the mined seam. Mining operations take a significant amount of time and our GOB forecasts are consistent with the future plans of the Buchanan Mine that was sold in March 2016 to Coronado IV LLC with the rights to this gas being retained by the Company. Evidence also exists that supports the continual operation of the mine beyond the current plan, unless there was an extreme circumstance resulting from an external factor. These reasons constitute the specific circumstances that exist to continue recognizing these reserves for CNX.
|
At December 31, 2019 there was one well pending the determination of proved reserves.
The following table represents the capitalized exploratory well cost activity as indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Costs reclassified to wells, equipment and facilities based on the determination of proved reserves
|
$
|
59,981
|
|
|
$
|
46,614
|
|
|
$
|
40,149
|
|
|
Costs expensed due to determination of dry hole or abandonment of project
|
$
|
—
|
|
|
$
|
809
|
|
|
$
|
—
|
|
CNX proved natural gas reserves are located in the United States.
Standardized Measure of Discounted Future Net Cash Flows:
The following information has been prepared in accordance with the provisions of the Financial Accounting Standards Board's Accounting Standards Update No. 2010-03, “Extractive Activities-Oil and Gas (Topic 932).” This topic requires the standardized measure of discounted future net cash flows to be based on the average, first-day-of-the-month price for the year. Because prices used in the calculation are average prices for that year, the standardized measure could vary significantly from year to year based on the market conditions that occurred.
The projections should not be viewed as realistic estimates of future cash flows, nor should the “standardized measure” be interpreted as representing current value to CNX. Material revisions to estimates of proved reserves may occur in the future; development and production of the reserves may not occur in the periods assumed; actual prices realized are expected to vary significantly from those used; and actual costs may vary. CNX investment and operating decisions are not based on the information presented, but on a wide range of reserve estimates that include probable as well as proved reserves and on different price and cost assumptions.
The standardized measure is intended to provide a better means for comparing the value of CNX proved reserves at a given time with those of other gas producing companies than is provided by a comparison of raw proved reserve quantities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Future Cash Flows (a)
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
19,489,588
|
|
|
$
|
26,610,100
|
|
|
$
|
19,261,578
|
|
|
Production Costs
|
|
(7,903,120
|
)
|
|
(7,730,451
|
)
|
|
(7,234,303
|
)
|
|
Development Costs
|
|
(1,121,073
|
)
|
|
(1,600,128
|
)
|
|
(1,710,585
|
)
|
|
Income Tax Expense
|
|
(2,720,994
|
)
|
|
(4,147,075
|
)
|
|
(2,475,981
|
)
|
|
Future Net Cash Flows
|
|
7,744,401
|
|
|
13,132,446
|
|
|
7,840,709
|
|
|
Discounted to Present Value at a 10% Annual Rate
|
|
(4,673,932
|
)
|
|
(8,476,989
|
)
|
|
(4,709,311
|
)
|
|
Total Standardized Measure of Discounted Net Cash Flows
|
|
$
|
3,070,469
|
|
|
$
|
4,655,457
|
|
|
$
|
3,131,398
|
|
|
|
|
|
(a)
|
For 2019, the reserves were computed using unweighted arithmetic averages of the closing prices on the first day of each month during 2019, adjusted for energy content and a regional price differential. For 2019, this adjusted natural gas price was $2.24 per Mcf, the adjusted oil price was $44.31 per barrel and the adjusted NGL price was $19.10 per barrel.
|
For 2018, the reserves were computed using unweighted arithmetic averages of the closing prices on the first day of each month during 2018, adjusted for energy content and a regional price differential. For 2018, this adjusted natural gas price was $3.28 per Mcf, the adjusted oil price was $51.68 per barrel and the adjusted NGL price was $27.58 per barrel.
For 2017, the reserves were computed using unweighted arithmetic averages of the closing prices on the first day of each month during 2017, adjusted for energy content and a regional price differential. For 2017, this adjusted natural gas price was $2.44 per Mcf, the adjusted oil price was $38.65 per barrel and the adjusted NGL price was $23.61 per barrel.
The following are the principal sources of change in the standardized measure of discounted future net cash flows for consolidated operations during:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Balance at Beginning of Period
|
$
|
4,655,457
|
|
|
$
|
3,131,398
|
|
|
$
|
955,117
|
|
|
Net Changes in Sales Prices and Production Costs
|
(2,826,725
|
)
|
|
1,732,229
|
|
|
1,983,475
|
|
|
Sales Net of Production Costs
|
(1,130,685
|
)
|
|
(995,630
|
)
|
|
(831,131
|
)
|
|
Net Change Due to Revisions in Quantity Estimates
|
(252,796
|
)
|
|
307,030
|
|
|
(145,496
|
)
|
|
Net Change Due to Extensions, Discoveries and Improved Recovery
|
654,027
|
|
|
534,052
|
|
|
588,574
|
|
|
Development Costs Incurred During the Period
|
739,874
|
|
|
844,081
|
|
|
544,809
|
|
|
Difference in Previously Estimated Development Costs Compared to Actual Costs Incurred During the Period
|
(323,922
|
)
|
|
(434,817
|
)
|
|
(129,427
|
)
|
|
Purchase of Reserves In-Place
|
—
|
|
|
209,630
|
|
|
—
|
|
|
Sales of Reserves In-Place
|
—
|
|
|
(434,103
|
)
|
|
(55,277
|
)
|
|
Changes in Estimated Future Development Costs
|
(24,469
|
)
|
|
(49,294
|
)
|
|
(233,017
|
)
|
|
Net Change in Future Income Taxes
|
409,797
|
|
|
(507,410
|
)
|
|
(404,582
|
)
|
|
Timing and Other
|
586,591
|
|
|
(69,087
|
)
|
|
712,764
|
|
|
Accretion
|
583,320
|
|
|
387,378
|
|
|
145,589
|
|
|
Total Discounted Cash Flow at End of Period
|
$
|
3,070,469
|
|
|
$
|
4,655,457
|
|
|
$
|
3,131,398
|
|
Supplemental Quarterly Information (unaudited):
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
2019
|
|
2019
|
|
2019
|
|
2019
|
|
Revenue (A)
|
$
|
275,234
|
|
|
$
|
602,109
|
|
|
$
|
526,681
|
|
|
$
|
504,747
|
|
|
Expenses (B)
|
$
|
147,928
|
|
|
$
|
153,835
|
|
|
$
|
153,833
|
|
|
$
|
182,035
|
|
|
Net (Loss) Income (C)
|
$
|
(64,651
|
)
|
|
$
|
192,694
|
|
|
$
|
143,960
|
|
|
$
|
(240,055
|
)
|
|
Net (Loss) Income Attributable to CNX Resources Shareholders
|
$
|
(87,337
|
)
|
|
$
|
162,477
|
|
|
$
|
115,538
|
|
|
$
|
(271,408
|
)
|
|
(Loss) Earnings Per Share
|
|
|
|
|
|
|
|
|
Basic (Loss) Earnings Per Share
|
$
|
(0.44
|
)
|
|
$
|
0.85
|
|
|
$
|
0.62
|
|
|
$
|
(1.45
|
)
|
|
Diluted (Loss) Earnings Per Share
|
$
|
(0.44
|
)
|
|
$
|
0.84
|
|
|
$
|
0.61
|
|
|
$
|
(1.45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
2018
|
|
2018
|
|
2018
|
|
2018
|
|
Revenue (A)
|
$
|
485,019
|
|
|
$
|
393,590
|
|
|
$
|
393,223
|
|
|
$
|
431,660
|
|
|
Expenses (B)
|
$
|
167,785
|
|
|
$
|
140,040
|
|
|
$
|
123,779
|
|
|
$
|
148,480
|
|
|
Net Income (C)
|
$
|
545,546
|
|
|
$
|
61,394
|
|
|
$
|
146,756
|
|
|
$
|
129,415
|
|
|
Net Income Attributable to CNX Resources Shareholders
|
$
|
527,563
|
|
|
$
|
42,014
|
|
|
$
|
125,029
|
|
|
$
|
101,927
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
|
$
|
2.38
|
|
|
$
|
0.19
|
|
|
$
|
0.59
|
|
|
$
|
0.51
|
|
|
Diluted Earnings Per Share
|
$
|
2.35
|
|
|
$
|
0.19
|
|
|
$
|
0.59
|
|
|
$
|
0.50
|
|
(A) Includes natural gas, NGLs, and oil revenue; gain (loss) on commodity derivative instruments, purchased gas revenue and midstream revenue.
(B) Includes exploration and production costs and other operating expense; excludes DD&A, impairment charges, selling, general and administrative, loss on debt extinguishment, interest expense and other expense.
(C) Includes impairment charges of $327,400 and $119,429 that were recorded during the three months ended December 31, 2019 related to CNX's exploration and productions properties and unproved properties, respectively, and $18,650 that was recorded during the three months ended June 30, 2018 related to CNX's intangible assets. See Note 1 - Significant Accounting Policies in Item 8 of this Form 10-K for additional information.
