PITTSBURGH, June 29, 2018 /PRNewswire/ — CNX Resources Corporation (NYSE: CNX) (“CNX” or “the company”) today announced that it has reached an agreement to sell its Ohio Utica joint venture (“JV”) assets to Ascent Resources-Utica, LLC for net cash proceeds of approximately $400 million. The divestiture includes 50 net producing wells with an average net revenue interest (“NRI”) of 48%; five 50% working interest wells the company recently completed and expects to turn-in-line in July; two 50% working interest wells for which the company has drilled the top hole; and approximately 26,000 net undeveloped acres. The divested assets, which are owned in conjunction with Hess Corporation (“Hess”), are located in the wet gas Utica Shale areas of Belmont, Guernsey, Harrison, and Noble counties. The divested acres were not dedicated to CNX Midstream Partners LP (NYSE: CNXM) (“CNXM”) and do not impact future dropdown opportunities.
Aside from the five recently completed wells, CNX did not have any additional activity associated with the divested assets in its future development plans. Starting on the effective date of the transaction of April 1, 2018, for the next twelve months, the company expects net production associated with these assets to be approximately 85 MMcfe per day, or 31 Bcfe, resulting in EBITDAX of approximately $50 million. The company expects full-year 2019 EBITDAX of approximately $25–$35 million. CNX will retain all related production and EBITDAX generated between the effective date and closing, which the company expects to be in the third quarter of 2018, subject to customary closing conditions and adjustments.
Cash proceeds from the transaction are expected to be used to:
- Pay down debt;
- Continue the ongoing share repurchase program;
- Invest in the drilling and completion activities; or
- Make bolt-on acreage acquisitions as opportunities become available.
“The sale of the Ohio Utica JV assets is only the most recent example of the disciplined capital allocation process that CNX has employed over the past several years,” commented Nicholas J. DeIuliis, president and CEO. “This transaction is immediately accretive and brings forward the value of assets that were simply outranked by other options in CNX’s opportunity set. We will evaluate the use of proceeds through the same capital allocation filter and be methodical in our decision-making. CNX remains committed to the share repurchase program and a healthy balance sheet, both of which we expect to be beneficiaries of this transaction.”
As a result of the transaction, CNX expects to record a non-cash gain of approximately $135 million in the third quarter 2018, subject to post-closing adjustments. CNX does not expect to pay taxes on the transaction due to the utilization of existing net operating losses (NOLs).
The company expects the divestiture to result in a 10 Bcfe reduction to 2018 production guidance based on Ohio wet Utica volumes previously planned between the expected third quarter 2018 close date and the end of the year. As a result, full-year 2018 production guidance is expected to be 490-515 Bcfe, compared to previous guidance of 500-525 Bcfe. Also, CNX expects a reduction of approximately $15 million to 2018 EBITAX attributable to CNX shareholders, or $810–$835 million, compared to the previous guidance of $825–$850 million.
For 2019 and 2020, the divestiture is expected to reduce total production volumes by 20-25 Bcfe and adjusted EBITDAX to CNX shareholders by $25–$35 million, for each year.
Non-GAAP Financial Measures
“EBITDAX,” “EBITDAX attributable to CNX shareholders,” and “adjusted EBITDAX attributable to CNX shareholders” are non-GAAP financial measures.
EBITDAX is defined as earnings before deducting net interest expense (interest expense less interest income), income taxes and depreciation, depletion and amortization and exploration expense. Adjusted EBITDAX is defined as EBITDAX after adjusting for certain discrete, non-recurring items. Adjusted EBITDAX attributable to CNX shareholders is defined as adjusted EBITDAX less adjusted EBITDAX attributable to noncontrolling interests. Although EBITDAX, adjusted EBITDAX, and adjusted EBITDAX attributable to CNX shareholders are not measures of performance calculated in accordance with generally accepted accounting principles, management believes that they are useful to an investor in evaluating CNX because they are widely used to evaluate a company’s operating performance. We exclude stock-based compensation from adjusted EBITDAX because we do not believe it accurately reflects the actual operating expense incurred during the relevant period and may vary widely from period to period irrespective of operating results. Investors should not view these metrics as a substitute for measures of performance that are calculated in accordance with generally accepted accounting principles. In addition, because all companies do not calculate these measures identically, the definitions here may not be comparable to similarly titled measures of other companies.
Further, CNX is unable to provide a reconciliation of projected EBITDAX, adjusted EBITDAX or adjusted EBITDAX attributable to CNX shareholders to projected operating income, the most comparable financial measure calculated in accordance with GAAP, due to the unknown effect, timing, and potential significance of certain income statement items.
About CNX Resources
CNX Resources Corporation (NYSE: CNX) is one of the largest independent natural gas exploration, development and production companies, with operations centered in the major shale formations of the Appalachian basin. The company deploys an organic growth strategy focused on responsibly developing its resource base. As of December 31, 2017, CNX had 7.6 trillion cubic feet equivalent of proved natural gas reserves. The company is a member of the Standard & Poor’s Midcap 400 Index. Additional information may be found at www.cnx.com.