CNX Resources Corporation (CNX)

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Q2 2015 Results Earnings Conference Call

July 28, 2015, 10:00 AM ET


Tyler Lewis - Vice President of Investor Relations

Nick DeIuliis - President and Chief Executive Officer

David Khani - Executive Vice President and Chief Financial Officer

Jim Grech - Chief Commercial Officer

Tim Dugan - Chief Operating Officer

Jimmy Brock - Chief Operating Officer of Coal Division and CEO of CNX Coal Resources


Neal Dingmann - SunTrust

Brandon Blossman - Tudor, Pickering, Holt

Jeremy Sussman - Clarkson

Megan Repine - FBR Capital Markets

Jeffrey Campbell - Tuohy Brothers

Michael Dudas - Sterne Agee

Jorge Beristain - Deutsche Bank

David Gagliano - BMO Capital Markets

Matt Vittorioso - Barclays



Ladies and gentlemen, thank you for standing by and welcome to the CONSOL Energy's Second Quarter Earnings Conference Call. As a reminder, today’s call is being recorded. I’d now like to turn the conference call over to the Vice President of Investor Relations, Tyler Lewis.

Tyler Lewis

Thanks Lola and good morning everyone. Welcome to CONSOL Energy second quarter conference call. We have in the room today Nick DeIuliis, our President and CEO; Dave Khani, our Chief Financial Officer; Jim Grech, our Chief Commercial Officer; Tim Dugan, our Chief Operating Officer of our E&P Division; and Jimmy Brock, our Chief Operating Officer of our Coal Division and CEO of CNX Coal Resources.

Today, we will be discussing our second quarter results and we have posted slides to our Web site under the section labeled Presentation to Analysts. As a reminder, any forward looking statements we make or comments about [true] expectations are subject to business risk, which we’ve laid out for you in our press release today, as well as in our previous SEC filings.

We will begin our call today with prepared remarks by Nick, Dave and then Tim. Jim Grech and Jimmy Brock will then participate in the Q&A portion of the call.

With that, let me start the call with you Nick.

Nick DeIuliis

Good morning everybody and thanks for joining us and before Dave goes into the details of the quarter and then Tim Dugan covers some very exciting news on our dry Utica results, I’d like to provide some brief remarks and update focusing on CONSOL strategic path. And specifically what we’ve accomplish so far and what we plan to accomplish over the next 18 months.

First and foremost, the management team is committed to driving our NAV per share and having that NAV per share recognized in our valuation. Over the course of the past three years, we’ve taken a number of strategic steps, some of which were very challenging steps and to transforming the company for the future, unlocking the hidden value of our asset base and ultimately driving NAV per share.

We’ll continue to take steps including strategic ones to drive that NAV per share and of anything, our sense of urgency on this front is amped up even more over the past quarter. I also want to begin by making very clear that we are confident in the transformative plan. We are in the process of executing, despite the short term challenges of the entire industry is containing with. And we remain confident that the strategic transformation we are undertaking will ultimately yield and unlock the true value of this 151 year old company.

So as part of this transformation which continues today, we’ve executed a number of strategic and tactical initiatives which I think are important to highlight. In addition to substantially strengthening our balance sheet and significantly reducing our legacy liabilities which Dave is going to cover in the tail in a few minutes, last year we IPO'd a portion of our joint venture of Marcellus gathering systems into an MLP known as CONE Midstream Partners. It's not only brought in over 200 million in proceeds, but the entity allows us to benefit from future monetization opportunities through additional drop downs. Most recently, we IPO'd a small portion of our Pennsylvania coal operations into another MLP. This transaction brought in approximately $345 million in proceeds, which CONSOL used to help pay down the parent credit facility.

Many people have asked why we decided to pursue the MLP and what’s been a very challenging coal environment and the answer simple. To start with, it’s a small portion of the asset representing roughly 9% of the Pennsylvania coal operations complex. Also as mentioned before, it did bring some cash proceeds in the door, but most importantly, it really represents the first and most important step in building a durable structure that will allow us to continue to execute our strategy becoming a leading [pure-play] E&P company at the same time trading a separate standalone best-in-class coal entity.

So, we believe that the benefits of getting CNXC up and running as a standalone entity outweighed the yield that went out that which we believe will improve overtime as we continue to illustrate our ability lock in tons and provide additional visibility on future cash flows. There is now a base case today for a coal gas split within the company and all other options can be weighed and considered against.

Over the past couple of quarters, we’ve also discussed the possibility of a MetCo IPO on our Buchanan Mine, but due to the continued pressure on MetCo pricing, we decided to put this transaction on hold and instead we’re evaluating additional opportunities including the possibility of dropping Buchanan into CNXC or potentially partnering with the third-party to grow the assets through consolidation.

We expect to make a decision on the strategic direction of this entity by year-end and regardless of that decision, it doesn’t change the structure that we already have in place nor into our ability to execute our strategy. Practically, CONSOL continues to execute the game plan as well. In addition to the strategic transformation that the company is undergoing, we’re also undergoing a cultural transformation.

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