Exclusive: Consol Energy Talks Q4 Results, Outlook And Trump's Impact

Benzinga had the opportunity to chat with CONSOL Energy Inc. CNX's chief financial officer Dave Khani and director of communications Brian Aiello.

Q4 In Review

Consol Energy reported its fourth-quarter results on Monday. The company reported a loss of $1.33 per share in the quarter on revenue of $462.021 million compared to an earnings per share of $0.13 and revenue of $655.98 million in the same quarter a year ago.

Consol's stock saw a notable selloff following the report that was addressed in the interview.

The executives added that Consol's earnings report was "pretty close to in line with our forecast that we gave investors or was modestly better," and the report contained "very little negative" aspects. In fact, they added, the company's EBITDA and cash flow moved higher and leverage moved lower.

Consol's executives argued there is a view among investors that the energy sector hit pause, and investors are expecting companies to report blowout figures. In addition, the executives noted some aspects of the report may have been misinterpreted by investors, which had to be re-interpreted.

When asked which metric was perhaps the most misinterpreted by the Street, the answer given was:

"I would say we gave them some tight curves, some 30-day IPs. Right now, the industry is moving towards putting more sand into fracks and pumping higher pressures so it cracks the rock. So when you do that you get better outcomes but you have to manage the flow of the wells back so that you don't cause the sand to come back out of the well bore.

"What that means is you can't flow the wells as such high flow rates, so the industry is going through a change here and we are one of the leaders of pumping in the higher pressures and more sand. So people are looking at initial production rates and they are trying to equate that historically to how much recovery or reserve per well, and they are not really catching the fact that you need to flow them differently."

Balance Sheet Flexibility

The executives said they are most comfortable with a balance sheet with a leverage ratio of 2 to 2.5 times debt to EBITDA. This will give management the "ultimate freedom and flexibility" to either drill more or even buy back stock.

"We have rates return for each of our 20 different operating areas," the executives explained. "They are all delivering gas at different local points at different pricing, that have different geology, so we rate our drilling activity and so if we have more cash we would then drill our next best item, right, and that would have a rate of return. We will compare that."

They added that the math will be run, and management will figure out what is the best way to grow its entity per share — be it shrinking the share count, drilling more or some combination of both.

Trump Administration

Moving on to politics, the executives were asked how the energy industry should view President Donald Trump and his administration.

The executives answered that one of Trump's main themes is to grow the economy, and naturally, as GDP grows so does demand for energy. In addition, Trump's plans to invest heavily in infrastructure is also naturally a positive for the energy sector.

They continued that the energy sector has also been operating in a "very uncertain regulatory environment." All Consol hopes for from the new administration is an environmental landscape that is achievable and fair while keeping energy prices favorable.

Regardless of policy, Consol reaffirmed its two biggest core values of being environmentally focused and committed to safety.

"If we have an administration that set a regulatory environment that is achievable, with the eye of trying to keep energy costs low, that would accomplish what a lot of the other administrations have done and make it so that we have a landscape that is achievable and reachable," they said.

How To Excite Investors

Benzinga went on to ask what area of the business should investors become most excited about.

The executives answered that investors should be most excited about the separation or spin of the coal business.

Another positive development moving forward is the previously mentioned objective of achieving a favorable balance sheet leverage of 2 to 2.5 times debt to EBITDA. The company hopes to achieve this metric by the second half of next year if not sooner.

Image Credit: By Sabre ball - Own work, CC BY-SA 3.0, via Wikimedia Commons