Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________________
FORM 10-Q
  __________________________________________________ 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-14901
  __________________________________________________
CONSOL Energy Inc.
(Exact name of registrant as specified in its charter)

Delaware
 
51-0337383
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1000 CONSOL Energy Drive
Canonsburg, PA 15317-6506
(724) 485-4000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 __________________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x    No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x    Accelerated filer o Non-accelerated filer o Smaller Reporting Company o
Emerging Growth Company o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Shares outstanding as of July 17, 2017
Common stock, $0.01 par value
 
230,069,268
 




TABLE OF CONTENTS

 
 
Page
PART I FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
Condensed Financial Statements
 
 
Consolidated Statements of Income for the three and six months ended June 30, 2017 and 2016
 
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016
 
 
Consolidated Balance Sheets at June 30, 2017 and December 31, 2016
 
Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2017
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
PART II OTHER INFORMATION
 
 
 
 
ITEM 1.
 
 
 
ITEM 4.
 
 
 
ITEM 6.





GLOSSARY OF CERTAIN OIL AND GAS MEASUREMENT TERMS

The following are abbreviations of certain measurement terms commonly used in the oil and gas industry and included within this Form 10-Q:

Bbl - One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil or other liquid hydrocarbons.
Bcf - One billion cubic feet of natural gas.
Bcfe - One billion cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.
Btu - One British Thermal unit.
Mbbls - One thousand barrels of oil or other liquid hydrocarbons.
Mcf - One thousand cubic feet of natural gas.
Mcfe - One thousand cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.
MMbtu - One million British Thermal units.
MMcfe - One million cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.
NGL - Natural gas liquids - those hydrocarbons in natural gas that are separated from the gas as liquids through the process.
Net - “Net” natural gas or “net” acres are determined by adding the fractional ownership working interests the Company has in gross wells or acres.
Proved reserves - Quantities of oil, natural gas, and NGLs which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.
Proved developed reserves - Proved reserves which can be expected to be recovered through existing wells with existing equipment and operating methods.
Proved undeveloped reserves (PUDs) - Proved reserves that can be estimated with reasonable certainty to be recovered from new wells on undrilled proved acreage or from existing wells where a relatively major expenditure is required for completion.
Reservoir - A porous and permeable underground formation containing a natural accumulation of producible natural gas and/or oil that is confined by impermeable rock or water barriers and is separate from other reservoirs.
Tcfe - One trillion cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.





PART I : FINANCIAL INFORMATION
 
ITEM 1.
CONDENSED FINANCIAL STATEMENTS

CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months Ended
 
Six Months Ended
(Unaudited)
June 30,
 
June 30,
Revenues and Other Income:
2017
 
2016
 
2017
 
2016
Natural Gas, NGLs and Oil Sales
$
260,305

 
$
167,931

 
$
578,068

 
$
349,188

Gain (Loss) on Commodity Derivative Instruments
83,788

 
(199,380
)
 
61,325

 
(144,320
)
Coal Sales
303,707

 
250,562

 
620,155

 
476,726

Other Outside Sales
15,974

 
8,207

 
29,027

 
15,973

Purchased Gas Sales
10,316

 
7,929

 
19,294

 
16,547

Freight-Outside Coal
17,763

 
11,447

 
30,045

 
24,557

Miscellaneous Other Income
33,937

 
33,636

 
74,633

 
81,766

Gain (Loss) on Sale of Assets
140,162

 
5,614

 
152,113

 
(1,662
)
Total Revenue and Other Income
865,952

 
285,946

 
1,564,660

 
818,775

Costs and Expenses:
 
 
 
 
 
 
 
Exploration and Production Costs
 
 
 
 
 
 
 
Lease Operating Expense
21,072

 
23,655

 
42,705

 
51,394

Transportation, Gathering and Compression
86,599

 
90,983

 
180,931

 
184,957

Production, Ad Valorem, and Other Fees
4,606

 
6,402

 
13,935

 
14,705

Depreciation, Depletion and Amortization
91,287

 
105,151

 
186,635

 
210,866

Exploration and Production Related Other Costs
19,715

 
2,905

 
29,501

 
4,652

Purchased Gas Costs
10,194

 
8,884

 
19,089

 
16,752

Other Corporate Expenses
23,398

 
21,422

 
41,328

 
44,220

Impairment of Exploration and Production Properties

 

 
137,865

 

Selling, General, and Administrative Costs
20,672

 
25,411

 
42,162

 
47,869

Total Exploration and Production Costs
277,543

 
284,813

 
694,151

 
575,415

PA Mining Operations Costs
 
 
 
 
 
 
 
Operating and Other Costs
201,091

 
184,459

 
400,905

 
338,560

Depreciation, Depletion and Amortization
41,402

 
41,698

 
83,703

 
82,964

Freight Expense
17,763

 
11,447

 
30,045

 
24,557

Selling, General, and Administrative Costs
17,104

 
6,779

 
31,972

 
12,554

Total PA Mining Operations Costs
277,360

 
244,383

 
546,625

 
458,635

Other Costs
 
 
 
 
 
 
 
Miscellaneous Operating Expense
38,731

 
51,776

 
81,493

 
86,923

Selling, General, and Administrative Costs
3,654

 
4,075

 
6,286

 
6,128

Depreciation, Depletion and Amortization (See Note 1)
(15,620
)
 
(11,629
)
 
(4,499
)
 
(3,622
)
Loss (Gain) on Debt Extinguishment
36

 

 
(786
)
 

Interest Expense
43,432

 
47,428

 
87,865

 
97,292

Total Other Costs
70,233

 
91,650

 
170,359

 
186,721

Total Costs And Expenses
625,136

 
620,846

 
1,411,135

 
1,220,771

Earnings (Loss) From Continuing Operations Before Income Tax
240,816

 
(334,900
)
 
153,525

 
(401,996
)
Income Tax Expense (Benefit)
66,993

 
(100,856
)
 
13,204

 
(124,656
)
Income (Loss) From Continuing Operations
173,823

 
(234,044
)
 
140,321

 
(277,340
)
Loss From Discontinued Operations, net

 
(234,605
)
 

 
(287,772
)
Net Income (Loss)
173,823

 
(468,649
)
 
140,321

 
(565,112
)
Less: Net Income Attributable to Noncontrolling Interest
4,313

 
1,179

 
9,777

 
2,293

Net Income (Loss) Attributable to CONSOL Energy Shareholders
$
169,510

 
$
(469,828
)
 
$
130,544

 
$
(567,405
)





The accompanying notes are an integral part of these financial statements.


4



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(CONTINUED)
 
Three Months Ended
 
Six Months Ended
(Dollars in thousands, except per share data)
June 30,
 
June 30,
(Unaudited)
2017
 
2016
 
2017
 
2016
Earnings (Loss) Per Share
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Income (Loss) from Continuing Operations
$
0.74

 
$
(1.03
)
 
$
0.57

 
$
(1.22
)
Loss from Discontinued Operations

 
(1.02
)
 

 
(1.25
)
Total Basic Earnings (Loss) Per Share
$
0.74

 
$
(2.05
)
 
$
0.57

 
$
(2.47
)
Dilutive
 
 
 
 
 
 
 
Income (Loss) from Continuing Operations
$
0.73

 
$
(1.03
)
 
$
0.56

 
$
(1.22
)
Loss from Discontinued Operations

 
(1.02
)
 

 
(1.25
)
Total Dilutive Earnings (Loss) Per Share
$
0.73

 
$
(2.05
)
 
$
0.56

 
$
(2.47
)
 
 
 
 
 
 
 
 
Dividends Declared Per Share
$

 
$

 
$

 
$
0.01


CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended
 
Six Months Ended
(Dollars in thousands)
June 30,
 
June 30,
(Unaudited)
2017
 
2016
 
2017
 
2016
Net Income (Loss)
$
173,823

 
$
(468,649
)
 
$
140,321

 
$
(565,112
)
Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
  Actuarially Determined Long-Term Liability Adjustments (Net of tax: ($2,034), ($5,008), ($4,086), ($4,326))
3,464

 
8,045

 
6,966

 
5,561

  Reclassification of Cash Flow Hedges from OCI to Earnings (Net of tax: $6,521, $12,145 )

 
(11,203
)
 

 
(21,017
)


 

 
 
 
 
Other Comprehensive Income (Loss)
3,464

 
(3,158
)
 
6,966

 
(15,456
)


 

 
 
 
 
Comprehensive Income (Loss)
177,287

 
(471,807
)
 
147,287

 
(580,568
)
 
 
 
 
 
 
 
 
Less: Comprehensive Income Attributable to Noncontrolling Interest
4,302

 
1,179

 
9,754

 
2,293

 
 
 
 
 
 
 
 
Comprehensive Income (Loss) Attributable to CONSOL Energy Inc. Shareholders
$
172,985

 
$
(472,986
)
 
$
137,533

 
$
(582,861
)









The accompanying notes are an integral part of these financial statements.


5



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
(Unaudited)
 
 
(Dollars in thousands)
June 30,
2017
 
December 31,
2016
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
299,135

 
$
60,475

Accounts and Notes Receivable:
 
 

Trade
215,650

 
220,222

Other Receivables
77,609

 
69,901

Inventories
74,965

 
65,461

Recoverable Income Taxes
115,558

 
116,851

Prepaid Expenses
64,177

 
93,146

Current Assets of Discontinued Operations

 
83

Total Current Assets
847,094

 
626,139

Property, Plant and Equipment:
 
 
 
Property, Plant and Equipment
13,619,819

 
13,771,388

Less—Accumulated Depreciation, Depletion and Amortization
5,825,601

 
5,630,949

Total Property, Plant and Equipment—Net
7,794,218

 
8,140,439

Other Assets:
 
 
 
Deferred Income Taxes

 
4,290

Investment in Affiliates
188,649

 
190,964

Other
195,231

 
222,149

Total Other Assets
383,880

 
417,403

TOTAL ASSETS
$
9,025,192

 
$
9,183,981


























The accompanying notes are an integral part of these financial statements.


6



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 
 
(Unaudited)
 
 
(Dollars in thousands, except per share data)
June 30,
2017
 
December 31,
2016
LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts Payable
$
265,125

 
$
241,616

Current Portion of Long-Term Debt
11,385

 
12,000

Other Accrued Liabilities
543,511

 
680,348

Current Liabilities of Discontinued Operations
5,692

 
6,050

Total Current Liabilities
825,713

 
940,014

Long-Term Debt:
 
 
 
Long-Term Debt
2,596,055

 
2,722,995

Capital Lease Obligations
34,053

 
39,074

Total Long-Term Debt
2,630,108

 
2,762,069

Deferred Credits and Other Liabilities:
 
 
 
Deferred Income Taxes
17,084

 

Postretirement Benefits Other Than Pensions
652,206

 
659,474

Pneumoconiosis Benefits
107,321

 
108,073

Mine Closing
200,132

 
218,631

Gas Well Closing
224,327

 
223,352

Workers’ Compensation
66,009

 
67,277

Salary Retirement
104,463

 
112,543

Other
110,282

 
151,660

Total Deferred Credits and Other Liabilities
1,481,824

 
1,541,010

TOTAL LIABILITIES
4,937,645

 
5,243,093

Stockholders’ Equity:
 
 
 
Common Stock, $.01 Par Value; 500,000,000 Shares Authorized, 230,067,466 Issued and Outstanding at June 30, 2017; 229,443,008 Issued and Outstanding at December 31, 2016
2,304

 
2,298

Capital in Excess of Par Value
2,476,552

 
2,460,864

Preferred Stock, 15,000,000 shares authorized, None issued and outstanding

 

Retained Earnings
1,852,048

 
1,727,789

Accumulated Other Comprehensive Loss
(385,567
)
 
(392,556
)
Total CONSOL Energy Inc. Stockholders’ Equity
3,945,337

 
3,798,395

Noncontrolling Interest
142,210

 
142,493

TOTAL EQUITY
4,087,547

 
3,940,888

TOTAL LIABILITIES AND EQUITY
$
9,025,192

 
$
9,183,981












The accompanying notes are an integral part of these financial statements.


7



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

 
(Dollars in thousands)
Common
Stock
 
Capital in
Excess
of Par
Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total CONSOL Energy Inc.
Stockholders’
Equity
 
Non-
Controlling
Interest
 
Total
Equity
Balance at December 31, 2016
$
2,298

 
$
2,460,864

 
$
1,727,789

 
$
(392,556
)
 
$
3,798,395

 
$
142,493

 
$
3,940,888

(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income

 

 
130,544

 

 
130,544

 
9,777

 
140,321

Other Comprehensive Income (Loss) (Net of ($4,086) Tax)

 

 

 
6,989

 
6,989

 
(23
)
 
6,966

Comprehensive Income

 

 
130,544

 
6,989

 
137,533

 
9,754

 
147,287

Issuance of Common Stock
6

 
717

 

 

 
723

 

 
723

Treasury Stock Activity

 

 
(6,285
)
 

 
(6,285
)
 
(808
)
 
(7,093
)
Amortization of Stock-Based Compensation Awards

 
14,971

 

 

 
14,971

 
1,706

 
16,677

Distributions to Noncontrolling Interest

 

 

 

 

 
(10,935
)
 
(10,935
)
Balance at June 30, 2017
$
2,304

 
$
2,476,552

 
$
1,852,048

 
$
(385,567
)
 
$
3,945,337

 
$
142,210

 
$
4,087,547































The accompanying notes are an integral part of these financial statements.


8



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended
(Unaudited)
June 30,
Cash Flows from Operating Activities:
2017
 
2016
Net Income (Loss)
$
140,321

 
$
(565,112
)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided By Operating Activities:

 

Net Loss from Discontinued Operations

 
287,772

Depreciation, Depletion and Amortization
265,839

 
290,208

Impairment of Exploration and Production Properties
137,865

 

Stock-Based Compensation
16,677

 
16,054

(Gain) Loss on Sale of Assets
(152,113
)
 
1,662

Gain on Debt Extinguishment
(786
)
 

(Gain) Loss on Commodity Derivative Instruments
(61,325
)
 
144,320

Net Cash (Paid) Received in Settlement of Commodity Derivative Instruments
(79,388
)
 
164,666

Deferred Income Taxes
17,288

 
(124,516
)
Equity in Earnings of Affiliates
(22,385
)
 
(25,884
)
Return on Equity Investment

 
9,192

Changes in Operating Assets:

 

Accounts and Notes Receivable
(4,103
)
 
18,101

Inventories
(9,798
)
 
(7,947
)
Prepaid Expenses
11,515

 
47,136

Changes in Other Assets
25,652

 
(15,298
)
Changes in Operating Liabilities:

 

Accounts Payable
2,524

 
(44,124
)
Accrued Interest
(1,444
)
 
(807
)
Other Operating Liabilities
(8,029
)
 
(14,069
)
Changes in Other Liabilities
(21,331
)
 
15,343

Other
37,192

 
9,648

Net Cash Provided by Continuing Operating Activities
294,171

 
206,345

Net Cash (Used in) Provided by Discontinued Operating Activities
(275
)
 
19,053

Net Cash Provided by Operating Activities
293,896

 
225,398

Cash Flows from Investing Activities:

 

Capital Expenditures
(273,326
)
 
(115,257
)
Proceeds from Sales of Assets
345,151

 
18,284

Net Distributions from (Investments in) Equity Affiliates
24,700

 
(5,578
)
Net Cash Provided by (Used in) Continuing Investing Activities
96,525

 
(102,551
)
Net Cash Provided by Discontinued Investing Activities

 
394,511

Net Cash Provided by Investing Activities
96,525

 
291,960

Cash Flows from Financing Activities:

 

Payments on Short-Term Borrowings

 
(486,000
)
Payments on Miscellaneous Borrowings
(5,973
)
 
(4,459
)
Payments on Long-Term Notes
(117,185
)
 

Net (Payments on) Proceeds from Revolver - CNX Coal Resources LP
(11,000
)
 
13,000

Distributions to Noncontrolling Interest
(10,935
)
 
(10,825
)
Dividends Paid

 
(2,294
)
Issuance of Common Stock
723

 
4

Treasury Stock Activity
(7,093
)
 
(1,657
)
Debt Repurchase and Financing Fees
(298
)
 

Net Cash Used in Continuing Financing Activities
(151,761
)
 
(492,231
)
Net Cash Used in Discontinued Financing Activities

 
(75
)
Net Cash Used in Financing Activities
(151,761
)
 
(492,306
)
Net Increase in Cash and Cash Equivalents
238,660

 
25,052

Cash and Cash Equivalents at Beginning of Period
60,475

 
72,574

Cash and Cash Equivalents at End of Period
$
299,135

 
$
97,626

The accompanying notes are an integral part of these financial statements.


9



CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

NOTE 1—BASIS OF PRESENTATION:

The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for future periods.

The Consolidated Balance Sheet at December 31, 2016 has been derived from the Audited Consolidated Financial Statements at that date but does not include all the notes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Consolidated Financial Statements and related notes for the year ended December 31, 2016 included in CONSOL Energy Inc.'s Annual Report on Form 10-K.

Certain amounts in prior periods, primarily relating to discontinued operations, have been reclassified to conform with the report classifications of the year ended December 31, 2016, with no effect on previously reported net income or stockholders' equity.

In March 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update on stock compensation that intends to simplify and improve the accounting and statement of cash flow presentation for income taxes at settlement, forfeitures, and net settlements for withholding tax. The guidance is effective for public entities for fiscal years beginning after December 15, 2016. In accordance with this Update, $(44) and $4,565 of additional income tax (benefit) expense was recognized in the Consolidated Statements of Income for the three and six months ended June 30, 2017, respectively. Also in accordance with this Update, the value of shares withheld for employee tax withholding purposes of $7,093 and $1,657 for the six months ended June 30, 2017 and 2016, respectively, were reclassified between Net Cash Provided by Operating Activities and Net Cash Used in Financing Activities of the Consolidated Statements of Cash Flows. As permitted by this Update, the Company has elected to account for forfeitures of stock compensation as they occur. The cumulative effect of the policy election to recognize forfeitures as they occur was immaterial.

Basic earnings per share are computed by dividing net income attributable to CONSOL Energy Inc. ("CONSOL Energy" or the "Company") shareholders by the weighted average shares outstanding during the reporting period. Dilutive earnings per share are 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.

The table below sets forth the share-based awards that have been excluded from the computation of the diluted earnings per share because their effect would be anti-dilutive:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Anti-Dilutive Options
2,360,197
 
 
6,348,665
 
 
2,360,197
 
 
6,348,665
 
Anti-Dilutive Restricted Stock Units
194,071
 
 
742,868
 
 
190,658
 
 
742,868
 
Anti-Dilutive Performance Share Units
1,284,924
 
 
951,541
 
 
1,284,924
 
 
951,541
 
Anti-Dilutive Performance Stock Options
802,804
 
 
802,804
 
 
802,804
 
 
802,804
 
 
4,641,996
 
 
8,845,878
 
 
4,638,583
 
 
8,845,878
 







10



The table below sets forth the share-based awards that have been exercised or released:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Options
28,838
 
 
 
 
90,462
 
 

Restricted Stock Units
221
 
 
83,710
 
 
334,261
 
 
568,390

Performance Share Units
 
 
 
 
560,936
 
 

 
29,059
 

83,710
 
 
985,659
 
 
568,390

The computations for basic and dilutive earnings per share are as follows:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
Income (Loss) from Continuing Operations
$
173,823
 
 
$
(234,044
)
 
$
140,321
 
 
$
(277,340
)
      Less: Net Income Attributable to Non-Controlling Interest
4,313
 
 
1,179
 
 
9,777
 
 
2,293

Net Income (Loss) from Continuing Operations Attributable to CONSOL Energy Shareholders
$
169,510
 
 
$
(235,223
)
 
$
130,544
 
 
$
(279,633
)
Loss from Discontinued Operations
 
 
(234,605
)
 
 
 
(287,772
)
Net Income (Loss) Attributable to CONSOL Energy Shareholders
$
169,510
 
 
$
(469,828
)
 
$
130,544
 
 
$
(567,405
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding
230,058,422
 
 
229,409,325
 
 
229,938,462
 
 
229,334,277

Effect of dilutive shares
2,139,974
 
 
 
 
2,286,571
 
 

Weighted-average diluted shares of common stock outstanding
232,198,396
 
 
229,409,325
 
 
232,225,033
 
 
229,334,277

Earnings (Loss) per Share:
 
 
 
 
 
 
 
Basic (Continuing Operations)
$
0.74
 
 
$
(1.03
)
 
$
0.57
 
 
$
(1.22
)
Basic (Discontinued Operations)
 
 
(1.02
)
 
 
 
(1.25
)
Total Basic
$
0.74
 

$
(2.05
)
 
$
0.57
 
 
$
(2.47
)
 
 
 
 
 
 
 
 
Dilutive (Continuing Operations)
$
0.73
 
 
$
(1.03
)
 
$
0.56
 
 
$
(1.22
)
Dilutive (Discontinued Operations)
 
 
(1.02
)
 
 
 
(1.25
)
Total Dilutive
$
0.73
 
 
$
(2.05
)
 
$
0.56
 
 
$
(2.47
)

Changes in Accumulated Other Comprehensive Loss by component, net of tax, were as follows:
 
Long-Term Liabilities
Balance at December 31, 2016
$
(392,556
)
Amounts Reclassified from Accumulated Other Comprehensive Loss
6,966
 
Add: Other Comprehensive Loss Attributable to Non-Controlling Interest
23
 
Balance at June 30, 2017
$
(385,567
)











11



The following table shows the reclassification of adjustments out of Accumulated Other Comprehensive Loss:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Derivative Instruments (Note 13)
 
 
 
 
 
 
 
Natural Gas Price Swaps and Options
$
 
 
$
(17,724
)
 
$
 
 
$
(33,162
)
Tax Expense
 
 
6,521
 
 
 
 
12,145

Net of Tax
$
 
 
$
(11,203
)
 
$
 
 
$
(21,017
)
Actuarially Determined Long-Term Liability Adjustments* (Note 5 and Note 6)
 
 
 
 
 
 
 
Amortization of Prior Service Costs
$
(749
)
 
$
(148
)
 
$
(1,498
)
 
$
(295
)
Recognized Net Actuarial Loss
6,247
 
 
5,706
 
 
12,550
 
 
11,217

Settlement Loss
 
 
13,696
 
 
 
 
13,696

Total
5,498
 
 
19,254
 
 
11,052
 
 
24,618

Tax Benefit
(2,034
)
 
(7,178
)
 
(4,086
)
 
(9,196
)
Net of Tax
$
3,464
 
 
$
12,076
 
 
$
6,966
 
 
$
15,422


*Excludes amounts related to the remeasurement of the Actuarially Determined Long-Term Liabilities for the six months ended June 30, 2016.

Depreciation, Depletion, and Amortization in the Total Other Costs section of the Consolidated Statements of Income includes reductions of $22,479 and $20,639 for the three months ended June 30, 2017 and 2016, respectively, related to changes in the Company's Mine Closing liability at several closed mine locations. For the six months ended June 30, 2017 and 2016, the reductions related to the Mine Closing liability were $19,220 and $21,210, respectively.

NOTE 2—DISCONTINUED OPERATIONS:

In August 2016, CONSOL Energy completed the sale of the Miller Creek and Fola Mining Complexes. In the transaction, the buyer acquired the Miller Creek and Fola assets and assumed the Miller Creek and Fola mine closing and reclamation liabilities. In order to equalize the value exchange, CONSOL Energy paid $28,271 of cash at closing, which included property taxes associated with the properties sold and other closing costs (a portion of which will be held in escrow for purposes of obtaining the surety bonds required for the permits to transfer). CONSOL Energy will also pay a total of $13,700 in remaining installments over the next three years ending in January 2020. 

In March 2016, CONSOL Energy completed the sale of its membership interests in CONSOL Buchanan Mining Company, LLC (BMC), which owned and operated the Buchanan Mine located in Mavisdale, Virginia; various assets relating to the Amonate Mining Complex located in Amonate, Virginia; Russell County, Virginia coal reserves and Pangburn Shaner Fallowfield coal reserves located in Southwestern, Pennsylvania to Coronado IV LLC ("Coronado"). Various CONSOL Energy assets were excluded from the sale including coalbed methane, natural gas and minerals other than coal, current assets of BMC, certain coal seams, certain surface rights, and the Amonate Preparation Plant. Coronado assumed only specified liabilities and various CONSOL Energy liabilities were excluded and not assumed. The excluded liabilities included BMC’s indebtedness, trade payables and liabilities arising prior to closing, as well as the liabilities of the subsidiaries other than BMC which are parties to the sale. In addition, the buyer agreed to pay CONSOL Energy for Buchanan Mine coal sold outside the U.S. and Canada during the five years following closing a royalty of 20% of any excess of the gross sales price per ton over the following amounts: (1) year one, $75.00 per ton; (2) year two, $78.75 per ton; (3) year three, $82.69 per ton; (4) year four, $86.82 per ton; (5) year five, $91.16 per ton. Total royalty income recognized under this agreement was $1,162 and $6,424 for the three and six months ended June 30, 2017, respectively, and was included in Miscellaneous Other Income on the Consolidated Statements of Income. At closing, the parties entered into several agreements including, among others, agreements relating to the coordination and conduct of gas operations at the mines, an option to purchase the Amonate Preparation Plant and transition services. Cash proceeds of $402,799 were received at closing and are included in Net Cash Provided by Discontinued Investing Activities on the Consolidated Statements of Cash Flows for the six months ended June 30, 2016. The net loss on the sale was $38,364 and was included in Loss from Discontinued Operations, net on the Consolidated Statements of Income for the six months ended June 30, 2016.
For all periods presented in the accompanying Consolidated Statements of Income, BMC along with the various other assets and the Miller Creek and Fola Mining Complexes are classified as discontinued operations.



12



The following table details selected financial information for the divested business included within discontinued operations:
 
For the Three Months Ended
 
For the Six Months Ended
  
June 30, 2016
 
June 30, 2016
Coal Sales
$
19,411

 
$
95,930

Freight-Outside Coal
5

 
1,017

Miscellaneous Other Income
2

 
33

Gain (Loss) on Sale of Assets
100

 
(38,253
)
Total Revenue and Other Income
$
19,518

 
$
58,727

Total Costs
25,010

 
113,076

Loss From Operations Before Income Taxes
$
(5,492
)
 
$
(54,349
)
Impairment on Assets Held for Sale
355,681

 
355,681

Income Tax Benefit
(126,568
)
 
(122,258
)
Loss From Discontinued Operations, net
$
(234,605
)
 
$
(287,772
)

The following table details the major classes of assets and liabilities of discontinued operations:
 
June 30,
2017
 
December 31,
2016
Assets:
 
 
 
Accounts Receivable - Trade
$

 
$
83

Total Current Assets
$

 
$
83

Total Assets of Discontinued Operations
$

 
$
83

Liabilities:
 
 
 
Accounts Payable
$

 
$
36

Other Current Liabilities
5,692

 
6,014

Total Current Liabilities
$
5,692

 
$
6,050

Total Liabilities of Discontinued Operations
$
5,692

 
$
6,050


NOTE 3—ACQUISITIONS AND DISPOSITIONS:

In June 2017, CONSOL Energy closed on the sale of approximately 11,100 net undeveloped acres of the Marcellus and Utica Shale in Allegheny, Washington, and Westmoreland counties, Pennsylvania. CONSOL Energy received total cash proceeds of $83,500 which is included in cash flows from investing activities. The net gain on the sale of these assets was $58,541 and was included in the Gain on Sale of Assets 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. CONSOL Energy received total cash proceeds of $129,651 which is included in cash flows from investing activities, as well as undeveloped acreage. The net loss on the sale was $4,897 and was included in the Gain on Sale of Assets in the Consolidated Statements of Income.
    
In May 2017, CONSOL Energy 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. CONSOL Energy received total cash proceeds of $76,696 which is included in cash flows from investing activities. The net gain on the sale of these assets was $72,457 and was included in the Gain on Sale of Assets in the Consolidated Statements of Income.
    
In April 2017, CONSOL Energy finalized the sale of its Knox Energy LLC and Coalfield Pipeline Company subsidiaries that were previously classified as Held for Sale. At closing, CONSOL Energy received net cash proceeds of $18,944 which is included in cash flows from investing activities. Due to various post closing adjustments, the net gain on the sale of these assets was $606 and was included in the Gain on Sale of Assets in the Consolidated Statements on Income.




13



NOTE 4—MISCELLANEOUS OTHER INCOME:
 
For the Three Months Ended
 
For the Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Equity in Earnings of Affiliates - CONE
$
9,996

 
$
8,205

 
$
21,934

 
$
22,556

Interest Income
6,533

 
547

 
8,076

 
761

Royalty Income - Non-Operated Coal
3,498

 
2,423

 
12,283

 
4,653

Rental Income
2,833

 
9,079

 
11,675

 
18,275

Purchased Coal Sales
2,558

 
604

 
6,099

 
604

Gathering Revenue
2,548

 
2,648

 
5,701

 
5,396

Right of Way Issuance
771

 
2,070

 
1,772

 
17,803

Equity in Earnings of Affiliates - Other
59

 
1,014

 
451

 
3,328

Coal Contract Buyout

 
6,288

 

 
6,288

Other
5,141

 
758

 
6,642

 
2,102

    Miscellaneous Other Income
$
33,937

 
$
33,636

 
$
74,633

 
$
81,766


NOTE 5—COMPONENTS OF PENSION AND OTHER POST-EMPLOYMENT BENEFIT (OPEB) PLANS NET PERIODIC BENEFIT COSTS:

Components of Net Periodic Benefit (Credit) Cost are as follows:
 
Pension Benefits
 
Other Post-Employment Benefits
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service Cost
$
846

 
$
482

 
$
1,691

 
$
963

 
$

 
$

 
$

 
$

Interest Cost
6,428

 
6,841

 
12,856

 
13,683

 
5,986

 
6,060

 
11,972

 
12,121

Expected Return on Plan Assets
(10,596
)
 
(11,869
)
 
(21,191
)
 
(23,738
)
 

 

 

 

Amortization of Prior Service Credits
(148
)
 
(148
)
 
(295
)
 
(295
)
 
(601
)
 

 
(1,203
)
 

Recognized Net Actuarial Loss
2,351

 
2,116

 
4,701

 
4,232

 
5,778

 
4,792

 
11,556

 
9,584

Settlement Loss

 
13,696

 

 
13,696

 

 

 

 

Net Periodic Benefit (Credit) Cost
$
(1,119
)
 
$
11,118

 
$
(2,238
)
 
$
8,541

 
$
11,163

 
$
10,852

 
$
22,325

 
$
21,705


NOTE 6—COMPONENTS OF COAL WORKERS’ PNEUMOCONIOSIS (CWP) AND WORKERS’ COMPENSATION NET PERIODIC BENEFIT COSTS:
Components of Net Periodic Benefit Cost are as follows:
 
CWP
 
Workers' Compensation
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service Cost
$
1,129

 
$
1,041

 
$
2,259

 
$
2,244

 
$
1,463

 
$
1,904

 
$
2,926

 
$
3,809

Interest Cost
1,013

 
1,053

 
2,025

 
2,176

 
592

 
638

 
1,184

 
1,275

Amortization of Actuarial Gain
(1,908
)
 
(1,188
)
 
(3,816
)
 
(2,571
)
 
(153
)
 
(101
)
 
(305
)
 
(202
)
Administrative Fees
151

 

 
303

 

 
138

 

 
275

 

State Administrative Fees and Insurance Bond Premiums

 

 

 

 
590

 
968

 
1,388

 
1,699

Curtailment Gain

 

 

 
(1,307
)
 

 

 

 

Net Periodic Benefit Cost
$
385

 
$
906

 
$
771

 
$
542

 
$
2,630

 
$
3,409

 
$
5,468

 
$
6,581




14



Income attributable to discontinued operations included in the CWP net periodic cost above was $1,290 for the six months ended June 30, 2016 and was included in Loss from Discontinued Operations, net on the Consolidated Statements of Income.
On March 31, 2016, CONSOL Energy completed the sale of its membership interests in BMC (See Note 2 - Discontinued Operations). As a result of the sale, certain obligations of the CWP plan were transferred to the buyer. This transfer triggered a curtailment gain of $1,307 which was included in Loss from Discontinued Operations, net on the Consolidated Statements of Income. The curtailment resulted in a plan remeasurement which increased the plan liabilities by $7,713 at March 31, 2016.
NOTE 7—INCOME TAXES:

The effective tax rate for the three and six months ended June 30, 2017 was 28.3% and 9.2%, respectively. The effective tax rate differs from the U.S. federal statutory rate of 35% primarily due to the income tax benefit for excess percentage depletion.

The effective tax rate for the three and six months ended June 30, 2016 was 30.0% and 30.8%, respectively. The effective tax rate differs from the U.S. federal statutory rate of 35% primarily due to charges to record state valuation allowances and the effects of the 2010-2013 Federal tax audit still in progress in 2016, partially offset by a larger anticipated book loss and the income tax benefit for excess percentage depletion.

The total amount of uncertain tax positions at June 30, 2017 and December 31, 2016 was $8,437 and $9,103, respectively. If these uncertain tax positions were recognized, there would be no effect on CONSOL Energy's effective tax rate at June 30, 2017 and December 31, 2016.

CONSOL Energy recognizes accrued interest related to uncertain tax positions in interest expense. As of June 30, 2017 and December 31, 2016, the Company reported an accrued interest liability relating to uncertain tax positions of $461 and $305, respectively, in Other Liabilities on the Consolidated Balance Sheets. The accrued interest liability includes $156 of accrued interest expense that is reflected in the Company's Consolidated Statements of Income for the six months ended June 30, 2017.
CONSOL Energy recognizes penalties accrued related to uncertain tax positions in its income tax expense. As of June 30, 2017 and December 31, 2016, CONSOL Energy had no accrued liabilities for tax penalties related to uncertain tax positions.
CONSOL Energy and its subsidiaries file federal income tax returns with the United States and tax returns within various states and Canadian jurisdictions. 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 2010. The Company expects the Joint Committee on Taxation to conclude its review of the audit of tax years 2010 through 2014 in the third quarter of 2017.

NOTE 8—INVENTORIES:

Inventory components consist of the following:
 
June 30,
2017
 
December 31,
2016
Coal
$
17,170

 
$
7,800

Supplies
57,795

 
57,661

Total Inventories
$
74,965

 
$
65,461


Inventories are stated at the lower of cost or net realizable value. The cost of coal inventories is determined by the first-in, first-out (FIFO) method. Coal inventory costs include labor, supplies, equipment costs, operating overhead, depreciation, depletion and amortization, and other related costs. 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 E&P and coal operations.



15



NOTE 9—PROPERTY, PLANT AND EQUIPMENT:
 
June 30,
2017
 
December 31,
2016
E&P Property, Plant and Equipment
 
 
 
Intangible drilling cost
$
3,552,047

 
$
3,583,565

Proved gas properties
1,967,327

 
2,016,916

Unproved gas properties
1,031,106

 
1,116,282

Gas gathering equipment
1,133,382

 
1,138,299

Gas wells and related equipment
790,635

 
791,996

Other gas assets
189,783

 
190,406

Gas advance royalties
13,353

 
13,762

Total E&P Property, Plant and Equipment
$
8,677,633

 
$
8,851,226

Less: Accumulated Depreciation, Depletion and Amortization
3,216,357

 
3,106,296

Total E&P Property, Plant and Equipment - Net
$
5,461,276

 
$
5,744,930

 
 
 
 
PA Mining Operations Property, Plant and Equipment
 
 
 
Coal and other plant and equipment
$
2,330,678

 
$
2,307,668

Coal properties and surface lands
458,788

 
458,398

Airshafts
374,956

 
371,752

Mine development
326,152

 
326,152

Coal advance mining royalties
16,240

 
16,224

Leased coal lands
26,556

 
26,566

Total PA Mining Operations and Other Property, Plant and Equipment
$
3,533,370

 
$
3,506,760

Less: Accumulated Depreciation, Depletion and Amortization
1,850,348

 
1,768,712

Total PA Mining Operations and Other Property, Plant and Equipment - Net
$
1,683,022

 
$
1,738,048

 
 
 
 
Other Property, Plant and Equipment
 
 
 
Coal and other plant and equipment
528,397

 
532,919

Coal properties and surface lands
480,307

 
481,126

Airshafts
10,003

 
10,003

Mine development
17,988

 
17,988

Coal advance mining royalties
311,285

 
310,530

Leased coal lands
60,836

 
60,836

Total Other Property, Plant and Equipment
$
1,408,816

 
$
1,413,402

Less: Accumulated Depreciation, Depletion and Amortization
758,896

 
755,941

Total Other Property, Plant and Equipment - Net
$
649,920

 
$
657,461

 
 
 
 
Total Company Property, Plant and Equipment - Continuing Operations
$
13,619,819

 
$
13,771,388

Less - Total Company Accumulated Depreciation, Depletion and Amortization
5,825,601

 
5,630,949

Total Property, Plant and Equipment of Continuing Operations - Net
$
7,794,218

 
$
8,140,439


Impairment of Long-Lived Assets

In February 2017, the Company approved a plan to sell 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. The potential disposal of Knox did not represent a strategic shift that will have a major effect on the Company’s operations and financial results and is, therefore, not classified as discontinued operations in accordance with ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360). As part of the required evaluation under the held for sale guidance, the asset’s book value is to be evaluated and adjusted to the lower of its carrying amount or fair value less cost to sell. The Company determined that the approximate fair value less costs to sell Knox was less than the carrying value of the net assets which resulted in an impairment of $137,865 in the six months ended June 30, 2017, included in Impairment of Exploration and Production Properties within the Other Gas segment of the Consolidated Statements of Income. The sale of Knox closed in the second quarter of 2017 (See Note 3 - Acquisitions and Dispositions for more information).

Industry Participation Agreements

CONSOL Energy had two significant industry participation agreements (referred to as "joint ventures" or "JVs") that provided drilling and completion carries for the Company's retained interests.


16



CNX Gas Company is party to a joint development agreement with Hess Ohio Developments, LLC (Hess) with respect to approximately 155 thousand net Utica Shale acres in Ohio in which each party has a 50% undivided interest. Under the agreement, as amended, Hess was obligated to pay a total of approximately $335,000 in the form of a 50% drilling carry of certain CONSOL Energy working interest obligations as the acreage is developed. As of December 31, 2016, Hess' entire carry obligation has been met.

CNX Gas Company was party to a joint development agreement with Noble Energy, Inc. (Noble) with respect to approximately 700 thousand net Marcellus Shale oil and gas acres in West Virginia and Pennsylvania, in which each party owned a 50% undivided interest. On October 29, 2016, CNX Gas entered into an Exchange Agreement with Noble Energy, which terminated the joint development agreement related to the jointly owned gas assets held in connection with the joint venture with Noble and divided such jointly owned gas assets among CNX Gas and Noble Energy. The transactions contemplated by the Exchange Agreement were closed on December 1, 2016 with an effective date of October 1, 2016. As part of the exchange: each party now owns and operates a 100% interest in properties and wells in two separate operating areas; each party has independent control and flexibility with respect to the scope and timing of future development over its operating area; and all acreage operated by CONSOL Energy and Noble Energy, Inc. in their respective operating areas will remain fully dedicated to CONE Midstream Partners LP. The exchange was accounted for as a mineral conveyance, thus no gain or loss was recorded in connection with the transaction. On June 28, 2017, Noble Energy announced that it has closed on a transaction divesting its upstream assets in northern West Virginia and southern Pennsylvania to HG Energy II Appalachia, LLC, a portfolio company of Quantum Energy Partners.
  
NOTE 10—SHORT-TERM NOTES PAYABLE:
CONSOL Energy's senior secured credit agreement expires on June 18, 2019. The credit facility allows for up to $2,000,000 of borrowings, which includes a $750,000 letters of credit sub-limit. CONSOL Energy can also request an additional $500,000 increase in the aggregate borrowing limit amount.

The facility is secured by substantially all of the assets of CONSOL Energy and certain of its subsidiaries. Fees and interest rate spreads are based on the percentage of facility utilization, measured quarterly. Availability under the 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 CONSOL Energy's proved natural gas reserves.

The current facility contains a number of affirmative and negative covenants that limit the Company's ability to dispose of assets, make investments, purchase or redeem CONSOL Energy common stock, pay dividends, merge with another corporation and amend, modify or restate the senior unsecured notes. In April 2016, the facility was amended to require that the Company must: (i) prepay outstanding loans under the revolving credit facility to the extent that cash on hand exceeds $150,000 for two consecutive business days; (ii) mortgage 85% of its proved reserves and 80% of its proved developed producing reserves, in each case, which are included in the borrowing base; (iii) maintain applicable deposit, securities and commodities accounts with the lenders or affiliates thereof; and (iv) enter into control agreements with respect to such applicable accounts. In addition, the Company pledged the equity interest it holds in CONE Gathering, LLC, and CONE Midstream Partners, LP as collateral to secure loans under the credit agreement.

The facility also requires that CONSOL Energy maintain a minimum interest coverage ratio of no less than 2.50 to 1.00, which is calculated as the ratio of Adjusted EBITDA to cash interest expense of CONSOL Energy and certain of its subsidiaries, measured quarterly. CONSOL Energy 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. At June 30, 2017, the interest coverage ratio was 5.00 to 1.00 and the current ratio was 3.28 to 1.00. Further, the credit facility allows unlimited investments in joint ventures for the development and operation of natural gas gathering systems and permits CONSOL Energy to separate its E&P and coal businesses if the leverage ratio (which is, essentially, the ratio of debt to EBITDA) of the E&P business immediately after the separation would not be greater than 2.75 to 1.00. The calculation of all of the ratios exclude CNX Coal Resources LP ("CNXC").

At June 30, 2017, the $2,000,000 facility had no borrowings outstanding and $313,760 of letters of credit outstanding, leaving $1,686,240 of unused capacity. At December 31, 2016, the $2,000,000 facility had no borrowings outstanding and $325,676 of letters of credit outstanding, leaving $1,674,324 of unused capacity.



17



NOTE 11—LONG-TERM DEBT:
 
June 30,
2017
 
December 31,
2016
Debt:
 
 
 
Senior Notes due April 2022 at 5.875% (Principal of $1,730,975 and $1,850,000 plus Unamortized Premium of $4,012 and $4,731, respectively)
$
1,734,987

 
$
1,854,731

Senior Notes due April 2023 at 8.00% (Principal of $500,000 less Unamortized Discount of $5,204 and $5,656, respectively)
494,796

 
494,344

Revolving Credit Facility - CNX Coal Resources LP
190,000

 
201,000

MEDCO Revenue Bonds in Series due September 2025 at 5.75%
102,865

 
102,865

Senior Notes due April 2020 at 8.25%, Issued at Par Value
74,470

 
74,470

Senior Notes due March 2021 at 6.375%, Issued at Par Value
20,611

 
20,611

Advance Royalty Commitments (7.73% Weighted Average Interest Rate)
2,678

 
2,678

Other Long-Term Note Maturing in 2018 (Principal of $1,073 and $1,789 less Unamortized Discount of $47 and $117, respectively)
1,026

 
1,672

Less: Unamortized Debt Issuance Costs
24,054

 
27,699

 
2,597,379

 
2,724,672

Less: Amounts Due in One Year*
1,324

 
1,677

Long-Term Debt
$
2,596,055

 
$
2,722,995


* Excludes current portion of Capital Lease Obligations of $10,061 and $10,323 at June 30, 2017 and December 31, 2016, respectively.

During the three and six months ended June 30, 2017, CONSOL Energy purchased $19,069 and $119,025, respectively, of its outstanding 5.875% senior notes due in 2022. As part of this transaction, $36 and $(786), respectively, was included in Loss (Gain) on Debt Extinguishment on the Consolidated Statements of Income.

NOTE 12—COMMITMENTS AND CONTINGENT LIABILITIES:
CONSOL Energy and 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. CONSOL Energy 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 CONSOL Energy. 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 CONSOL Energy; however, such amounts cannot be reasonably estimated. The amount claimed against CONSOL Energy is disclosed below when an amount is expressly stated in the lawsuit or claim, which is not often the case.

The following lawsuits and claims include those for which a loss is probable and an accrual has been recognized:

Hale Litigation: This class action lawsuit was filed on September 23, 2010 in the U.S. District Court in Abingdon, Virginia. The putative class consists of force-pooled unleased gas owners whose ownership of the coalbed methane (CBM) gas was declared to be in conflict with rights of others. The lawsuit seeks a judicial declaration of ownership of the CBM and damages based on allegations CNX Gas Company failed to either pay royalties due to conflicting claimants or deemed lessors or paid them less than required because of the alleged practice of improper below market sales and/or taking alleged improper post-production deductions. On September 30, 2013, the District Judge entered an Order certifying the class, and CNX Gas Company appealed the Order to the U.S. Fourth Circuit Court of Appeals. On August 19, 2014, the Fourth Circuit agreed with CNX Gas Company, reversed the Order certifying the class and remanded the case to the trial court for further proceedings consistent with the decision. On April 23, 2015, Plaintiffs filed a Renewed Motion for Class Certification, which CNX opposed. On March 29, 2017, the Court issued an Order certifying four issues for class treatment: (1) allegedly excessive deductions; (2) royalties based on purported improperly low prices; (3) deduction of severance taxes; and (4) Plaintiffs' request for an accounting. On April 13, 2017, CNX filed a Petition for Allowance of Appeal with the Fourth Circuit, and on May 22, 2017 the Petition was denied. The case is now back in the trial court for further proceedings. CONSOL Energy continues to believe this action cannot properly proceed as a class action in any form, believes the case has meritorious defenses, and intends to defend it vigorously. The Company has established an accrual to cover its estimated liability for this case. This accrual is immaterial to the overall financial position of CONSOL Energy and is included in Other Accrued Liabilities on the Consolidated Balance Sheets.


18




Addison Litigation: This class action lawsuit was filed on April 28, 2010 in the U.S. District Court in Abingdon, Virginia. The putative class consists of gas lessors whose gas ownership is in conflict. The lawsuit seeks a judicial declaration of ownership of the CBM and damages based on the allegations that CNX Gas Company failed to either pay royalties due to these conflicting claimant lessors or paid them less than required because of the alleged practice of improper below market sales and/or taking alleged improper post-production deductions. On September 30, 2013, the District Judge entered an Order certifying the class, and CNX Gas Company appealed the Order to the U.S. Fourth Circuit Court of Appeals. On August 19, 2014, the Fourth Circuit agreed with CNX Gas Company, reversed the Order certifying the class and remanded the case to the trial court for further proceedings consistent with the decision. On April 23, 2015, Plaintiffs filed a Renewed Motion for Class Certification, which CNX opposed. On March 29, 2017, the Court issued an Order denying class certification in this matter. CONSOL Energy believes the case has meritorious defenses, and intends to defend it vigorously. The Company has established an accrual to cover its estimated liability for this case. This accrual is immaterial to the overall financial position of CONSOL Energy and is included in Other Accrued Liabilities on the Consolidated Balance Sheets.

The following royalty, land rights and other lawsuits and claims include those for which a loss is reasonably possible, but not probable, and accordingly, an accrual has not been recognized. These claims are influenced by many factors which prevent the estimation of a range of potential loss. These factors include, but are not limited to, generalized allegations of unspecified damages (such as improper deductions), discovery having not commenced or not having been completed, unavailability of expert reports on damages and non-monetary issues being tried. For example, in instances where a gas lease termination is sought, damages would depend on speculation as to if and when the gas production would otherwise have occurred, how many wells would have been drilled on the lease premises, what their production would be, what the cost of production would be, and what the price of gas would be during the production period. An estimate is calculated, if applicable, when sufficient information becomes available.

Fitzwater Litigation: Three nonunion retired coal miners have sued CONSOL Energy Inc., Fola Coal Company (AMVEST), Consolidation Coal Company and CONSOL of Kentucky Inc. (COK) in West Virginia Federal Court alleging ERISA violations in the termination of retiree health care benefits. The Plaintiffs contend they relied to their detriment on oral statements and promises of "lifetime health benefits" allegedly made by various members of management during Plaintiffs' employment and that they were allegedly denied access to Summary Plan Documents that clearly reserved to the Company the right to modify or terminate the CONSOL Energy Inc. Retiree Health and Welfare Plan. Pursuant to plaintiffs amended complaint filed on April 24, 2017, plaintiffs request that retiree health benefits be reinstated and seek to represent a class of all nonunion retirees who were associated with AMVEST and COK areas of operation.The Company believes it has meritorious defense and intends to vigorously defend this suit.

At June 30, 2017, CONSOL Energy 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 table. 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 financial guarantees and letters of credit are recorded as liabilities in the financial statements. CONSOL Energy management believes that these guarantees will expire without being funded, and therefore the commitments will not have a material adverse effect on financial condition.


19



 
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:
 
 
 
 
 
 
 
 
 
Employee-Related
$
83,836

 
$
39,934

 
$
43,902

 
$

 
$

Environmental
998

 
998

 

 

 

Other
228,926

 
195,113

 
33,813

 

 

Total Letters of Credit
313,760

 
236,045

 
77,715

 

 

Surety Bonds:
 
 
 
 
 
 
 
 
 
Employee-Related
112,460

 
112,460

 

 

 

Environmental
511,621

 
505,923

 
5,698

 

 

Other
21,658

 
19,624

 
2,033

 
1

 

Total Surety Bonds
645,739

 
638,007

 
7,731

 
1

 

Guarantees:
 
 
 
 
 
 
 
 
 
Other
38,373

 
10,227

 
16,426

 
10,840

 
880

Total Guarantees
38,373

 
10,227

 
16,426

 
10,840

 
880

Total Commitments
$
997,872

 
$
884,279

 
$
101,872

 
$
10,841

 
$
880


Included in the above table are commitments and guarantees entered into in conjunction with the sale of Consolidation Coal Company and certain of its subsidiaries, which contain all five of its longwall coal mines in West Virginia, and its river operations to a subsidiary of Murray Energy Corporation (Murray Energy). As part of the sales agreement, CONSOL Energy has guaranteed certain equipment lease obligations and coal sales agreements that were assumed by Murray Energy. In the event that Murray Energy would default on the obligations defined in the agreements, CONSOL Energy would be required to perform under the guarantees. If CONSOL Energy would be required to perform, the stock purchase agreement provides various recourse actions. At June 30, 2017 and December 31, 2016, the fair value of these guarantees was $1,285 and $1,362, respectively, and is included in Other Accrued Liabilities on the Consolidated Balance Sheets. The fair value of certain of the guarantees was determined using CONSOL Energy’s risk-adjusted interest rate. Significant increases or decreases in the risk-adjusted interest rates may result in a significantly higher or lower fair value measurement. Coal sales agreement guarantees were valued based on an evaluation of coal market pricing compared to contracted sales price and includes an adjustment for nonperformance risk. No other amounts related to financial guarantees and letters of credit are recorded as liabilities in the financial statements. Significant judgment is required in determining the fair value of these guarantees. The guarantees of the leases and sales agreements are classified within Level 3 of the fair value hierarchy.

As part of the sale of the Buchanan Mine (See Note 2 - Discontinued Operations), CONSOL Energy has guaranteed certain equipment lease obligations that were assumed by Coronado. In the event that Coronado would default on the obligations defined in the agreements, CONSOL Energy would be required to perform under the guarantees.
CONSOL Energy regularly evaluates the likelihood of default for all guarantees based on an expected loss analysis and records the fair value, if any, of its guarantees as an obligation in the consolidated financial statements. 
CONSOL Energy and CNX Gas Company enter 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 on the Consolidated Balance Sheets. As of June 30, 2017, the purchase obligations for each of the next five years and beyond were as follows:
 
Obligations Due
Amount
Less than 1 year
$
197,860

1 - 3 years
276,358

3 - 5 years
247,277

More than 5 years
569,703

Total Purchase Obligations
$
1,291,198




20



NOTE 13—DERIVATIVE INSTRUMENTS:

CONSOL Energy 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.

CONSOL Energy 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 CONSOL Energy to post collateral for any of its positions. However, as stated in the counterparty master agreements, if CONSOL Energy'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, CONSOL Energy 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 our counterparties. CONSOL Energy recognizes all financial derivative instruments as either assets or liabilities at fair value on the Consolidated Balance Sheets on a gross basis.
 
Each of CONSOL Energy's counterparty master agreements allows, in the event of default, the ability to elect early termination of outstanding contracts. If early termination is elected, CONSOL Energy and the applicable counterparty would net settle all open hedge positions.

The total notional amounts of production of CONSOL Energy's derivative instruments at June 30, 2017 and December 31, 2016 were as follows:
 
June 30,
 
December 31,
 
Forecasted to
 
2017
 
2016
 
Settle Through
Natural Gas Commodity Swaps (Bcf)
840.9
 
744.7

 
2021
Natural Gas Basis Swaps (Bcf)
506.2
 
482.0

 
2021
Propane Commodity Swaps (Mbbls)

 
126.0

 

The gross fair value of CONSOL Energy's derivative instruments at June 30, 2017 and December 31, 2016 was as follows:
Asset Derivative Instruments
 
Liability Derivative Instruments
 
June 30,
 
December 31,
 
 
June 30,
 
December 31,
 
2017
 
2016
 
 
2017
 
2016
Commodity Swaps:
 
 
 
 
 
 
 
 
Prepaid Expense
$
26,606

 
$
16

 
Other Accrued Liabilities
$
61,803

 
$
209,980

Other Assets
50,897

 
29,596

 
Other Liabilities
29,172

 
67,139

Total Asset
$
77,503

 
$
29,612

 
Total Liability
$
90,975

 
$
277,119

 
 
 
 
 
 
 
 
 
Basis Only Swaps:
 
 
 
 
 
 
 
 
Prepaid Expense
$
12,871

 
$
56,916

 
Other Accrued Liabilities
$
39,853

 
$
21,593

Other Assets
11,811

 
35,603

 
Other Liabilities
18,799

 
11,575

Total Asset
$
24,682

 
$
92,519

 
Total Liability
$
58,652

 
$
33,168















21



The effect of derivative instruments on CONSOL Energy's Consolidated Statements of Income was as follows:
 
For the Three Months Ended
 
For the Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Cash (Paid) Received in Settlement of Commodity Derivative Instruments:
 
 
 
 
 
 
 
  Commodity Swaps:
 
 
 
 
 
 
 
    Natural Gas
$
(15,509
)
 
$
91,302

 
$
(40,116
)
 
$
173,449

    Propane

 
(114
)
 
(1,216
)
 
(114
)
  Natural Gas Basis Swaps
(16,776
)
 
(10,853
)
 
(38,056
)
 
(8,669
)
Total Cash (Paid) Received in Settlement of Commodity Derivative Instruments
(32,285
)
 
80,335

 
(79,388
)
 
164,666

 
 
 
 
 
 
 
 
Unrealized Gain (Loss) on Commodity Derivative Instruments:
 
 
 
 
 
 
 
  Commodity Swaps: