CNX Resources Corp (CNX) 2008 Q4 法說會逐字稿

Ladies and Gentleman, thank you for standing by and welcome to the Consul Energy and CNX Gas fourth quarter 2008 earnings release. As a reminder, today's call is being recorded. I would now like to turn the conference call over to the Senior Vice President of External Affairs, Tom Hoffman. Please go ahead, sir.

Good morning, everyone, and welcome to our first joint earnings call with CONSOL Energy and CNX Gas. With me this morning are Brett Harvey, Chief Executive Officer of CONSOL Energy and of CNX Gas, and Bill Lyons, Executive Vice President and Chief Financial Officer for both Companies. This morning, we will be discussing fourth quarter and full-year 2008 results for both Companies. In addition, we will be discussing our views on the outlook for 2009. Any forward-looking statements we make spreads our expectations for business results. Actual results, as you know, are subject to business risk, and we have enumerated those risks in both earnings releases issued this morning and in our SEC 10 -K filings.

In addition, the United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual reduction or conclusive formation tests to be economically or legally produceable under existing economic and operating conditions. We may use certain terms in this conference call such as "unproven resources" or "reserves," which SEC guidelines strictly prohibit from including in our filings. We also caution you that the SEC views, such unproved resource or reserve estimates, as inherently unreliable and that these estimates may be misleading to investors, unless the investor is an expert in the gas industry. With that, we will begin our remarks and then take questions. We'll begin with Bill Lyons.

Thank you, Tom. Let me also welcome everyone to the joint CONSOL energy and CNX Gas earnings conference call. It is my pleasure this morning to announce record annual financial results for CONSOL Energy. Net income of $442 million is a record. Operating cash flow of $1.029 billion is a record, and EBITDA of $1.075 billion is a record. I cannot think of better financial metrics, in which to have record-setting performance. This past year illustrated the financial power of being a diversified energy company. Let me highlight some of our fourth quarter and 2008 financial results.

CONSOL Energy reported net income of $176 million or $0.97 per diluted share for the fourth quarter of 2008, compared with net income of $7 million or $0.04 per diluted share in the fourth quarter of 2007. Net cash from operating activities was $346 million compared with $88 million in the fourth quarter of last year. As I mentioned earlier, for the full year CONSOL reported net income of $442 million are $2.40 per diluted share versus $268 million or $1.45 per diluted share for the full year of 2007. This is an increase of 65%. Net cash from operating activity activities was $1.029 billion for 2008 versus $684 million last year. This is an increase of 50%.

From a financial standpoint, the fourth quarter was outstanding for both coal and gas. For our coal segment, our total margins from the fourth quarter were $12.35 per ton, an increase of $6.81 per ton over the fourth quarter of 2007. This margin expansion is a key driver in our step change in profitability. Average realized pricing for produced coal was approximately $52 a ton for the fourth quarter, and for 2009, the average realized price per tons committed, and we have just about all of our production committed, increases by almost $10 per ton, reflecting the higher-priced contracts we negotiated in 2008 for 2009 delivery. This bodes well for the coal segment in the new year. Our majority subsidiary CNX Gas Corporation had a record year in 2008, including record production of 76.6 billion cubic feet, which is 32% higher than 2007.

A record net income of $239 million, which was 76% higher than last year, and record cash flow from operations of $447 million, which was 65% higher than 2007. Of special note, CNX Gas achieved exploration success in the Marcellus shale. The Gas Company's first vertical well came online in July with an initial production rate of 1.3 million cubic feet per day. The first horizontal well as noted in the release, achieved peak production of 6.5 million cubic feet per day. The year 2009 also bodes well for CNX Gas, as 41.9 BCF, about one-half the expected 2009 production, is hedged at $9.74 per MCF. I do not need to tell this group that the deluge in the banking system has been of epic proportions.

CONSOL solid down sheet and excellent liquidity, has enabled us to navigate these choppy financial waters without diminishing our earning's power. In December 31st, 2008, CONSOL Energy, and now this is excluding CNX Gas, had $381 million in total liquidity, which was comprised of $137 million of cash and $244 million available for immediate use at below-market interest rates. This credit facility does not expire until 2012. Separately, as of December 31st, 2008, CNX gas corporation had $114 million in total liquidity, which was comprised of $2 million of cash and $112 million of capacity available for immediate use, also at below-market rates. This credit facility does not expire until the fourth quarter of 2010. Until we have clarity in the the financial markets in the world's economy, we will continue to actively manage our liquidity to ensure the earnings power of CONSOL.

Because of the uncertainty surrounding the US and global economies, we plan to adopt a cautious approach to capital expenditures, plus we are altering our usual practice of issuing annual capital expenditures and cole production projections. However we are providing production guidance for Stanick Gas of 85 billion cubic feet for 2009. Our plan is to limit capital spending in the early part of the year to retain the ability to adjust the spending to the prevailing economic conditions. However, we expect to continue expenditures on maintaining production, efficiency projects, such as the overland belt systems and longwall face extensions, as well as phase the items. We do not expect to commit the entire authorized capital budget for coal, until we have a clear understanding of the state of the economy and the demand for coal.

All other coal capital expenditures will be treated as discretionary and will be evaluated over the course of the year. Regarding CNX Gas's capital, I expect spending to be limited to the cash we generate in this segment; but again, as we tempered by any significant changes we see in the market. Regardless of the absolute level of capital we ultimately spend this year, our policy will be to allocate capital to the projects generating the highest returns. The 2009 coal production target is 65 million tons, and is lower than we previously provided. This reflects several changes in operating plans, which includes the, the Company anticipates in 2009 the Central Appalachia Production capacity could be impaired due to delays in receiving permits for surface monitoring.

In addition, the Company anticipates 2009's capacity reductions from its underground mines related to impacts on productivity for renewed federal safety inspection and enforcement procedures. In the aggregate, the Company estimates that the permitting and safety issues could reduce 2009 capacities by one million to two million tons. In early 2009, the Company revised the operating schedule for the Buchanan Mines, planning the low wall mining system to two shifts per day rather than the normal three to reduce out put commensurate with the general slowdown in the global production of steel. The change in the operating schedule was estimated to reduce normal coal production at the Buchanan Mine, which typically ranges from 400,000 to 450,000 tons per month by approximately 110,000 tons a month.

The Buchanan Mine produces a high-quality metallurgical grade of coal. In addition, mine production will be idle for two full weeks in February. Until there is additional clarity from a metallurgical coal customers regarding 2009 shipment schedules, the Mine will continue to limit normal coal production. It may further reduce production levels. Gas production will be impacted by this lower plan coal production at the Canon in 2009 by approximately two million to three million cubic feet per day.

Because of the current look of clarity regarding high volatile metallurgical coal demand, we have also announced a plan to place Mine 84, a long-term idle, at the end of the first quarter of 2009, laying off most of the workforce. The mine was scheduled to transition from production of coal with a low wall mining system, to production using only continuous mining machines. That change would have resulted in an annual production rate of approximately 650,000 tons. The coal was intended to be sold as a high-volatile metallurgical coal for blending. Let me briefly talk about the recent managerial changes affecting CONSOL Energy and CNX Gas, that we announced last week.

Brett Harvey, President and Chief Executive Officer of CONSOL Energy, has been appointed to the additional positions of Chairman and Chief Executive Officer of CNX Gas Corporation. Nick Deluliis has been appointed Executive Vice President and Chief Operating Officer for CONSOL Energy. Nick will have overall responsibility for energy production as both coal and gas, focusing particular on production efficiency and production coordination between these two jewels. Rob Pusateri will have overall responsibilities for sales of coal and gas, and transportation services, as well as the management of CO2 credits generated by these two companies.

The goal of the management consolidation is to improve performance and profitability of both companies as well as to increase efficiency and reduce costs across all business areas. We expect this will create a more unified organizational structure, and will have functional, operational, and financial responsibility for all coal, gas, and related assets, while still recognizing the separate status of CNX Gas as a public company. We believe that CONSOL Energy is in an excellent position to deal with the credit and economic crisis. We are a low cost producer of energy. We have an excellent contracted position for coal in 2009 and 2010. We have a substantial market advantage, hedge position for gas in 2009. A major portion of our coal contracts are with US utilities.

These plants are base-loaded. These utilities have excellent credit ratings. CONSOL Energy has a strong balance sheet with low debt and substantial liquidity. We believe that companies like us that load debt and generate substantial cash flows from operations. The news says, growth capital, will not only survive, but will thrive in the coming years. Like most companies, we do not escape the sharp stock price decline of 2008.

However, we believe that 2009 and 2010, will be years in which the equity markets will discriminate significantly between strong and weak companies. Those companies producing basic products, products having a dependable demand and those companies that execute well will be recognized. We believe CONSOL Energy will be one of those companies, a company returning premium value to the shareholders. With that, Brett has, we have your comments on the market as well as our performance for 2008.

Thank you, Bill. Again, let me reiterate, welcome to our CNX Gas shareholders as well as the CONSOL Energy shareholders. I think Bill did a good job of describing our position, but let me give some of the broader strokes the way I see them. Coal and gas are both in a very strong hedge position for 2009. The gas volumes continue to surge, with a 32% growth from '07 to '08 and the ability to go 85 billion cubic feet in '09. Coal volumes that we announced are risk-adjusted, where we see the market at this point in time. We are on a very low-cost position in both coal and gas, and we think the 65 million tons that we predicted are doable, and at the contract level, we believe our customers will take this amount of coal for 2009.

Our capacity for coal is greater; and as the market turns, depending on what it is, we will respond to that. It's probably greater in the short-term on the metallurgical side coming out of a cannon, and as we see the steel companies turn to a better position in terms of steel production, we're ready to take care of their needs. We will build cash throughout the year, and grow the gas volumes as we see the gas price going forward. We'll finish the projects with no new coal projects on the coal side. We have brought production back based on where we see the market, not because of lack of capital, but lack of market.

The only reason to push coal into a market, is the lacking in value from a shareholder perspective. The coal market overview in general, we see weak economic activity. It's directly related to the production of steel and the production of electricity. As we see this move throughout the year, we will adjust, but we do believe the 65 million tons that we have now is very solid, and have the right margins. If you look at our history on the coal side and the gas side, every year since 2007, we've increased our margins. On the cost side on coal, I expect us to be basically flat from '08 and '09. On the gas side, I expect that to be as well.

So we see rapid expanding margins, if you look into 2007 on the coal side, we're about $6.91 per ton. In '08 we were $7.69, and in 2009, we could be over $20 per ton. On the gas side, we've gone from $3.54 in '07, and 2008, $4.88, and in 2009, we expect that margin to flatten out or expand based on our hedge position. The spot market for gas really is a reflector of what we're going to do between our hedge position and where gas goes. But we do intend to increase the volume on the gas side through the year to 85B. With that, I'd like to just summarize again, we are low-cost producers in both coal and gas.

So in any market, we're going to have the highest margins in both those products. We have no reason to raise we equity. In fact, we will build cash in 2009. We will be very prudent with our production and our CapEx, especially on the coal side, and on the gas side, we'll continue to grow, depending on where we see the spot market for gas. Gas flows will give us optionality going forward. If we see opportunities in the marketplace for acquisition on either gas or coal, we will step forward and look at those and make moves, because our balance sheet is in good shape to do that. If not, we will just continue to build cash as we see the market change. I see this as more of a tactical year, based on where we see the macroeconomy of the world and the United States, and we will respond accordingly with a very strong balance sheet. Lets open it up for questioning.

Thank you sir. (Operator Instructions) The first question will come from the line of Jim Rollyson from Raymond James. Your line is now open.

Good morning, gentlemen.

Hi Jim.

Brett, first of all, great quarter. A couple years back, you guys spun, out or sold off a piece, and took public the gas business, and I think the methodology then was trying to enhance the valuation recognized by the market for the business because it wasn't getting it kind of under the CONSOL umbrella at the time. And it seems, kind of, as you've gone through the last 12 months or so, the moves you've made seem to indicate that maybe you're obviously trying to bring back in, or retain that value, under the CONSOL umbrella. And could you maybe just walk through the logic of, what's changed over the last year or two since the initial move, kind of getting it out there, to maybe looking towards bringing it back in. And how you see tha,t or how you think, the market interprets the value of these two businesses from a combined basis versus a stand-alone basis?

Well, that's a good question. And let's go back to when we did do it. When we spun it out, we did it with the intention of recognizing the value of that company. It quickly went from what we thought in our share price was about a $1 billion, and now it's got its own market capital of over $4 billion. So that was a success. Now, the question is -- the real issue is we are an energy company, and we sell BTU, and they're combined with coal, and they're combined with gas, but we needed to establish that value. About a year ago, the board, on my recommendation, decided not to ever go underneath the 80%, and continue to grow the gas company within the umbrella of CONSOL Energy.

So when the board announced that a year ago, we made a move to offer -- to make a deal with the the outside shareholders. That didn't work; we were at disparate values, and we decided we would just go ahead and run the company with partners. Well, we've done that, and we continue to do that. We have bought some shares back based on value since then, and we've done some consolidation moves to make us more efficient on the managerial side and the overhead side. And we will continue to grow that as gas company at a very rapid pace, because we are a BTU Energy Delivery Company. I would say that if you look -- and I'll give some color here -- if you look at 2007, a very high percentage of our earnings came from the gas company.

And if you look at where we're headed for 2009, if you run through the numbers, you'll see a surge in the percentage of value coming from the coal side. If you look at the two years over the 24 months, even over 36 months, you'll see that the two combinations really give our shareholders surging values in two different market cycles, one coal and one gas. But if you look at our share price and our performance on earnings, it's pretty much covered, and it really eliminates risk, and it also gives us constant value year-to-year for our shareholders. That's basically the response.

Okay. And it kind of seems like if today, at this moment and time, if you back out the current value of the gas company, it suggests your coal operations and the rest of CONSOL are treating it a pretty big discount to what they maybe shouldn't be.

I could argue the other side of that. It's just the opposite. The point here is, we believe that the value of these companies are decoupling to their earnings capabilities. As the market has declined, and people have sold shares across the board, there's a decoupling of value between cash multiples and the earnings capabilities, and I think, over time, that will realign, and it will look more like it did before we saw the crisis on the financial side. So having said that, I do agree that it's disconnected, but I think it's not just us, but the entire market is disconnected right now.

Sure. And then just one follow-up here. Some of your competitors have obviously, I'm sure, you have heard the reports, have had issues on the met-coal side with customers either not taking some deliveries or, in the case, I guess, in this morning's news, tried to renegotiate prices on contracts that were out there and signed previously. Can you maybe share what you guys have seen, kind of in the market in the last 60, 90 days and how you handle these situations?

Well in the fourth quarter, we saw it pushed back, not only of contractual funds, but a real pushback even on pricing. We didn't deliver as much coal as we thought we would in the fourth quarter on the met side. The steel company really went into a freeze position. We expect to extract the value of the contracts that we have with those companies, and we expect to be at market with them on the future values, as they determine where they're at in the steel business. That's a tough negotiation, because like any other deal, we expect contracts to go to the end of their value, and that's all part of the negotiation, but if you compare the fourth quarter to this quarter, we've actually seen the coal start to move, and it's moving in a positive way and the discussion s are there. It looked very bleak in the fourth quarter, and I think negotiations are ongoing, but we'll hold our contractual value, and we'll negotiate future values with them. The ideal thing is, we're a low-cost producer in any market, and our margins will be good.

Great. Thank you.

Thank you. Our next question in queue that will come from the line of Shneur Gershuni from UBS, and your line is open.

Good morning, guys. I guess I'll start my first questions on the coal side. I was just wondering if you could comment on the market in general, whether you're seeing some of the private producers cutting back production. Also if you can comment, how many times you expect to ship overseas, or specifically steam tons overseas through the port facilities, and how much you've got contracted to go overseas as well, too.

Well we do see production coming out of the market, especially in Central Africa, where the high-cost producers are having financial difficulties. And the ability to generate cash, they're living off some of the old prices; but when they get into the new market prices, the banks are not carrying them. So we're going to see that shut down pretty fast. CONSOL's basis for export, we're going to be at 2.9 million tons export versus 3.6 million last year. We contracted at 2.9 million. That's what we'll move. But what we're seeing in Baltimore, in general, through our port is about a one-third reduction in volume, going out of Baltimore into the steam markets in Europe, and I think that's reflective of the price over there.

We signed up a lot of our tons of domestic supplies when the price was high in Europe, and the domestic suppliers are under contract with us, and we'd rather sell them at this point in time because they're right close to us, and we take advantage of the freight. So it looks -- it looks pretty good right now. From that perspective. As that market heats up in the future maybe, and as the prices start to rise, we'll see if we can't gather up some tons to go after that market. But right now we don't see much movement beyond the 2.9 million tons that we were contracted that we will ship.

Okay. Just one follow-up question on the CapEx side. Definitely applaud your decision to hold back a little bit. I was just wondering if you could give us numbers on what you were planning to spend on the overland belt and the longwall face extensions?

The longwall face extension was a multi-year, on I think, four or five longwalls. I don't remember the total cap number on that, but those have been pushed out even on some of the development cycles to slow down capital spending. The number that comes to me is right around -- for all the extensions were about $400 million, but I think -- if you call a soft line, we can give you those numbers. I don't have those right on the tip of my tongue.

Okay. No problem. If I could just switch to the gas side for a second.

Sure.

I was wondering if you guys had available your reserve to production ratio and where approved reserves ended up for this year.

We don't have that number right now. When we have it, we'll announce it.

Okay. And then, I guess, one last line of question. Kind of given where net gas prices are currently and where they're headed, and then you sort of mentioned in the press release today that you had an intention of living within cash flow and so forth. Can you sort of give us a priority of the targets of where you would like to go? Are you going to still be looking into shales and so forth? Or are you going to pull-back into your low cost areas where you've had a lot of success in the past?

So I think, like any other marketplace, if the price drops, you always go to your high-margin spots. So we'll probably spend capital to develop our CBM plates, because there are really no dry holes, and it's a hundred percent. We'd probably go Virginia first, northern Africa, and then down to Tennessee.

That would be our last move, so -- in that order, that's the way we would spend our capital; and as the price drops, we might even slow down in Virginia, depending on where we see the demand for energy on the cap side. At this point, we think expanding volumes at very low cost moving forward, we capture the higher prices when they move at higher volumes. That's been successful for us in the past. So we continue to look at it that way.

And how about the Marseilles shale? Do you plan to still attack that play or--?

We will if it continues to be very successful. We'll weigh that capital again, spending capital in the coal-fit methane areas. The nice part is we have the optionality to look at the two.

Sure.

Whichever's the brightest, we'll do that.

Okay. Great. Thank you very much.

Thank you. And our next question in queue that will come from the line of Brian Corales with SMH Capital. Please go ahead.

Hey, guys. I have a couple specific questions to the gas company and it's bigger picture. A strong quarter with production, can you maybe give some what area out performed?

I think -- well, my evaluation of it, when I looked at the numbers, every area met or exceeded the targets we had for the fourth quarter, as well as the year, and I would say VA, northern -- or excuse me. Virginia, northern AP and Tennessee.

Yeah. We set records in just about every play that we had.

Right.

Okay. And how much take away capacity do you have up in the Marseilles right now?

I think that that's -- I think we have the ability to take away almost everything that's there. We haven't contracted -- we have contracts for about three years, what we think we can produce.

Okay.

I'm not sure exactly what the total volume is.

And then finally, kind of a follow-up on the first question asked in the call, kind of where do you see both companies, in the next 12 to 24 months? I mean, is this something that ultimately you see as just being one company? What is your thought process there?

Well, our intent right now is to run with both public companies as efficiently as we can, and that gives us optionality for the future, but I believe, at this point in time, we're going to stay fixed exactly where we're at. We bought shares recently on the gas side, because we saw a lot of value, but right now, we intend to run them as efficiently as we can, as two public companies.

And do you continue -- plan to continue to buy shares, or --?

If we see value, we will; but we are doing the same with our own shares at CONSOL Energy, so -- it depends on where they are in the marketplace and interferes.

Okay. Thank you.

Thank you. Our next question in queue that will come from the line of Michael Dudas with Jefferies, and your line is open.

Good morning, gentlemen.

Hi Michael.

Brett, could you maybe provide your perspective overall on the US global coal markets? How oversupply do we think we are? And do you anticipate a quicker and aggressive response from some of your competitors in the marketplace, as some have indicated with regard to holding the line on production? And is that going to be enough to get the market back in a little bet better balance as we move through 2009?

Well we see it about a 35 million to a 40 million ton oversupply on the steam side, and I think the responses have been announced like anything else. It will lag a little bit, but I think -- I've been pleased with seeing the response on the steam side that we've seen so far on the announcement side. And I think that the ability to finance operations going forward is going to accelerate the response. So yes, I think there will be a quick response based on discipline as well as -- financial disciplines as forced through the banks, and that will equalize the market, and we'll see some -- probably in 2010, some stabilize prices.

Brett, what's this -- what are you instructing Bob when he's discussing with your utility customers, outlooks for term contracts, in the marketplace right now? Is everybody just in a holding pattern to see how the economy turns, or is there a certain price spec that you can really start to negotiate with going forward as utilities get more comfortable with how the year is turning out?

Well, we're negotiating right now, a price that we're comfortable with for the longterm, similar to like we were last year. We have some deals on the table that we're negotiating for for long term. That's being evaluated by both companies, and that will unfold based on where we negotiate to. But, yes, we are looking at long-term deals based on -- if you look at any given marketplace, depending on where the economy is, there's fluctuations; but in the long term, remember this business was short in terms of energy and supply, and if -- on a low-cost production side, we're looking at margins as well. So if you combine the cycles we see on the economy with the margins, we'll find a place to enhance our shareholders position in any given market. Who knows where that demand for energy is going to go. But we'll adjust ourselves to go forward.

Thanks Brett. I appreciate your thoughts.

Thank you. Our next question in queue that will come from the line of David Kahani with FBR Capital Markets, and your line is open.

Hi, David.

Hi. This is Luther for David.

Hi.

First of all, any predictions for Sunday's game?

[ Laughter ] The Steelers, of course.

Of course, of course. Brett, I want to ask you, how should we think about the 65 number? Is that a midpoint, or is that the lower bound of your production for this year?

Well, as we described in the thing, that 65 is absolutely locked in, contracts, and it's risk adjusted, meaning we saw some push-back on Central App. We've closed down some Central App production on the steam side, and the 65 puts us -- moves away from the stock market totally, and it's contracted tons that are locked in with customers that we believe, they will take on the steam side as well as the mitt side. And so that's the break down that we have. So I would say that that's at the bottom, and if there's anything more than that, the market would have to open up for it.

Possibly are you thinking about 2010 production levels? Is it 65 plus the Schumacher expansion, or --?

I think 2010 has to unfold. I think flat for now; and if you look, we've been 65 million tons -- this will be the third year at 65 million tons. 2010 would be similar to that. What I need to reiterate here again is, even though we're flat on these tons, we continue to expand our margins in a big way, and so we're more focused on the margins than we are the tons.

Right now it looks like it's flat for '010, but -- and we've got a pretty good hedge position for '010 as well. So we won't increase the market -- supply into the market unless we have -- we won't increase coal into a bad market. And if we see contracts come, and we sign the contracts, we're happy with the margins, we'll go ahead and increase what we're doing.

Is the production clause this year black? I just want to verify that?

Yes. I see the production cost flat between '08 and '09.

Okay. And what was the margin expectation here? for '09?

Well, if we keep it flat, we think the margin is to be over $20 a ton.

Okay. Got you. And one last question. On the export side, have you guys seen or started talk with the railroad and perhaps to get a state of more favorable term to better enable the exportability?

Yes. We're talking to them all the time, and right now, we're holding the rates of where they were, and of course, we would like to see them go down, but we're holding them for now.

Thank you.

There was a push to get increases, but that's pretty much gone now.

Okay. Got it. Thank you.

Okay. Thank you.

Our next question in queue will come from the line of Mark Fin with T. Rowe Price, and your line is open.

Thanks. Hi, guys.

Hi Mark.

I have a couple things I wanted to go over. The first one is, I know you're bringing Nick in to address some of the operational issues in the coal business. All right. At least I'm perceiving that that's the case. How long do you think it will take before the coal business is sort of back to running at optimal levels and you feel like, you know, all of the development issues are resolved and you have the personnel in place that you feel you really want? I guess I'm just curious about the timetable for that.

Well, first of all, the consolidation was for efficiency, not just the coal piece, but Nick will add a lot to what we can do on the coal side in terms of energy and organization. And that's for sure, because he did a great job with the past company. Keep in mind, he still has both of them, so he'll be focused on both of them. I would say, on the operational side, we addressed a lot of things last year. We improved in the fourth quarter. We're putting together plans to make sure that the development cycle is ahead of the longwalls going forward, and in terms of people, and timing, and so forth, the 65 million tons that we put into the thing, I think, has pretty much locked in all of the way through, and I would say that's given.

Anything beyond 65 will be our ability to get to development in the longwalls, exactly where we want them. Remember the part of that longwall cycle was related to restrictions by EMSHAW, and we're adjusting our numbers, and we did adjust our numbers for 2009, to tip that as well. So it's a combination of all those things. So I would say, by midyear, we'll have a good solid plan to see where we're at for the next 24 months to 36 months.

Okay. There has been plans to have a CNX Gas Analyst Day. Is that still --?

Oh, yes. We're going to do that.

And is that when we'll probably hear about the reserves and things like that, or would we hear earlier?

It will be sometime in February, but definitely you'll hear about it then. If we get it sooner, we'll announce it. But we'll talk a lot about it when we do the analyst day.

Okay. And then, the last question I have is related to that first question that was asked by Jim Rollyson, and I guess I'm curious whether or not you've gotten any indication from CXG Shareholders that they're feeling a bit orphaned by the move that you guys made to consolidate and kind of bring you as CEO on both companies. You know, there is -- I guess there is one independent director on CXG, but I'm kind of curious about your thoughts regarding that aspect.

Well, I would say that we intend to do what we need to do to run both companies as legal entities and be very efficient with them. I think, to comfort the other shareholders, I think nothing has really changed with the way we plan to expand that company and grow that company. I think we just become more efficient the way we're organized to do that, and -- organize the overheads to do that. For me to be the CEO of both companies, I've already been there for years. I went back to that. I think it gave Nick an opportunity to tie a few things together on both sides. So if it's a matter of changing CEOs, I think we're in good shape. I was the original CEO, the founder of the company, and I think bringing that back and bringing it into line with everything we do between the two, at the present shareholder pace that we have on both sides, I think, is the optimal way of doing it.

Right. I guess the reason I asked about coal first is because the implied value, as Jim sort of went through, if you take the market cap of the gas business and you back it out of the market cap of the entire entity, it's sort of like -- I mean, it's kind of the elephant in the room, right? I mean, the implied EBITDA so low that at some point, it kind of begs the question that, you have to unlock that, and I guess the way I'm expecting that it will get unlocked is as coal runs much more efficiently, that will help to do that. But -- and I'm not expecting an answer. I just am curious. It's just an observation on my part, that's all. So --

I think that's a good observation, but let me reiterate that when our share price was over a hundred dollars and the market seemed normal on the banking side I think we saw the value of both Companies on the share price. And I could tell you again that there's a decoupling between the two, between the market and the value of the Company in terms of earnings capability. I mean, we earned a $1billion last year, and they separated any way. So I would say that will come back into line, and I don't think that the short term marketplace or the financing prices determines the value of the combination here. And again, if you look at what we said about 2009 versus 2008, the percentage of earnings between the two have shifted back and forth in terms of the total pie, which creates real value for CONSOL Energy Shareholders, and I think we'll continue to watch that very closely. But I understand the markets' concern and understanding of that, but we think we're doing this for the right reason, and we'll continue to grow as we always have as a very valuable company.

Thanks for taking my call.

Thank you. Our next question in queue will come from the line of John Bridges from JPMorgan, and your line is open.

Hi, Brett. Congratulations on the results from the strategy.

Thank you.

You mentioned the contract situation was improving. Could you give us a little more color on that? A more critical issue.

Yes. What we're seeing-- and it's on the met side, is what I was referring to. The contract situation on the steam side has been solid and continues to be solid. The met side with the pushback we saw in the second quarter, the boats weren't being scheduled. There was discussions. You know, the steel companies were really kind of frozen in place financially, trying to figure out what they had to deal with. The boats are showing up, and in the first quarter, and they're responding to bids as we talk about the future. So that is the color I was trying to give. It's not perfect; but it's not as dire as it was in the fourth quarter.

And I've seen some commentary that there was sort of a $150 gap between the consumers and the producers in terms of discussions ahead of contracts. Can you comment on that?

Well, I would say this, the high price of meth coal last year set a mark that everybody would like to have on the coal side, but I think the benchmark price, there still is a separation. But I think, it's really unknown what met prices are going to be going forward, and so there's a lot of discussion between the two parties. Coal companies that would like to hold the value as high as they can, and I think steel companies, because of their nervousness about how much steel they're going to produce, would like more flexibility on that side. I think what's important is that we all extract the value of what we have done together in deciding what the future looks like. And the good news for us is that we're a high margin in any market based on our whole cost production.

This is a housekeeping point. The $56 million of cash -- or of cost write-backs, where did that go in the accounts, and will there be any spillover into this year?

You're talking about the $56 million that we did for share buy backs on the gas side?

The $56 million black-long write-backs?

I'm sorry. Where that was, that's another -- it's $25 million of black-long excise tax and $31 million of interest, that $31 million of interest, again, we're looking at $56 million in total, and the reason why we reported is that there was a law passed in October of 2008 that said that we can get refunds for black-long excise taxes we paid in 1991 and 1993. So the event already occurred, and gave rise to the receivable, it's with the federal government, the last time I looked, John, that's probably the best place you can have in terms of flexibility and the amount is determinable. It's not in the per-ton statement or anywhere in the coal unit cost.

Okay. And nothing coming through this year?

No.

No. It's all a onetime thing.

It's all done.

Thanks, guys. Well, done.

Thank you. And our next question in queue that will come from the line of Chad Potter with RBC Capital Markets. And your line is open.

Thank you. Good morning. A question on CXG on the production guidance of 85 Bcf for 2009. That implies -- or I guess that works out at about 233 million a day, which is about 9 million cubic feet less than the fourth quarter, and I just kind of wanted to get a handle on whether that is conservatism, if there's a possibility that's a onetime production or something that benefited the fourth quarter, or if we do expect kind of a decline through the years.

Well, there will be an effect on the Buchanan Mine that's slowed down a little bit based on production, but in terms of the growth to 85Bs, it's direct directly related to the capital we have to spend to get there. If you look at the CapEx that we've done within our own cash flows, from 76.6 to 85, it's a pretty good growth rate. So I'm not sure, on your rates, exactly what the question was, but there will be -- there is a backdrop on Buchanan, based on if the coal is mined at the same rate, there will be 2 million to 4 million a day of gas, but I'm not sure exactly what the number you were talking about.

Well, the fourth quarter production averaged 242 million cubic feet a day. If I take the 85 Bcf for the year in 2009, that would average 233 million a day. And so, yes, it is up year over year, but from the fourth quarter, it would imply about a 4% decline for the year. And --

Yes, I would just say the fourth quarter is a very strong quarter, and for it to be reproduceable, every quarter is -- we have a lot of drilling to do to get back to that level. Okay?

Okay. Thank you.

Thank you. Our next question in queue that will come from the line of Brian Gamble with Simmons, and your line is open.

Yes. Good morning, guys. I wanted to go over the cost number, if I may, for just a minute. I know guys mentioned cost being flat, and when you think about commodity prices coming down, that makes sense. I just wanted to get your sense as to just some details around that. I know that pulling production down, you're going to have to spread fixed cost over a shorter amount of tons, but at the same time you're probably pulling off some of the higher-cost ops. So just maybe some details on why you think flat year over year is a good target?

Well, I think you partially answered your own question. So if you look at costs, we have high costs mines that coming out of the mix. We got dropping commodities, and then we have upward pressure on labor and the safety issues around EMSHAW. A good example of the safety issues is Canada itself. We've made a less risk mine by putting more seals in, but we built a hundred -- the year before we built a hundred seals. Last year, we built 200 seals, and we intend to continue to seal that off in our proper way so we lower our risk. So if you've got upward pressure on labor, and a drop in commodities, and the higher cost comes out, we expect to be about flat. And that's similar to '08 and '09.

That's fair. The met number, if I run through the numbers on Buchanan, taking off mine 84, the amount of rate you gave, we talk about a met number for the year of roughly 3.5 million tons. Does that sound about right?

That sounds about right, yes.

And then maybe just a couple of housekeeping items. The tax rate for '09 Bill, what should we be looking at there?

I think our effective tax rate that we have this year probably will be treated as an estimate for 2009. Again, you're talking somewhere around 33%, 34%. And the reason that tax rate is like that is as we get more of our income from the gas company, you don't have the impact of percentage completion on the income.

And then, finally, just all on the repurchases, I know that you've repurchased both CNX and CXG stock over the last six months. Brett, I think you mentioned that your thinking there was in relation to peers as to when you decided to do that. Because I know that if you look at just an absolute value, this $26 per share on CXG is about, if I'm not mistaken, the levels that you had bought it back during the third and fourth quarter of last year.

That's right. That's right.

Okay. So you're looking at relative to the overall market, and not focusing on an absolute dollar value that you think the gas business is long term.

Yes. That's right. I leave that strategy up to Bill mostly, but we're moving between the two different stocks based on where we see the value.

Are there any more synergys that you can extrapolate from kind of the recombination that's been going on recently without bringing it back fully in house?

I think we're getting a big chunk of what you could, as if you brought it back. On the financial side, we pulled about $2 million of costs out, when we originally did that, and this restructuring is probably going to give us another $1million to $2 million. So yes, I think -- and any that's every year. So that's pretty valuable.

Thank you, guys, very much.

Thank you. The next question in queue will come from the line of Jeremy Sussman with Natixis Bleichroeder, and your line is open.

Hi. Good morning.

Good morning.

I want to get into pricing a little bit. You signed about 6 million tons over the past quarter for '09. Obviously I assume some of that was the met coal that you signed early on in the quarter, but could you give us a breakdown of how much of that was met? How much of that was steam, and maybe, you know, where, ballpark, where are we for steam prices these days?

Well, on steam prices, let's address that first. Steam prices were not actually negotiated with any spot deals on the steam side. What we did on the steam side in that was between $78 and $85 a ton. During that time frame that you mentioned. Right now, on the steam side, you see the spot prices down around the mid $60s. Those aren't places where we're selling any coal. So it's like the at top of the market, it's very thin, and at the bottom of the market it's very thin. So we're negotiating long-term and short-term deals going forward. If there are long-term deals, they're certainly not in the $60s, because we wouldn't sell high BTU coal out of the Northern App, especially below the marginal cost of production in Central App. So that's kind of where we're at. So what we did sign, to answer your question is between $78 million and $85 million.

And marginal cost of Central App being at least $70?

Oh, at least $70. And on the met side it's at least $80.

Right. And just a clarification. You're committed in price tons that you give, for example, in 2010, the 30.4 million tons at $49.22, does that price include the 8 million tons of your capped coal?

Yes.

So that includes the caps in there?

Right.

Okay.

No, it doesn't. Now that I'm looking at the numbers, it's really at -- it's the NDA that gets to $51.30.

Right because in the past, I think you've broken it out a little bit differently. Okay. That's helpful. Great. Thank you very much.

Operator, we have time for about one more question.

Okay. The question comes from the line of Paul Forward from Stifel, Nicolaus & Co. Please go ahead.

Hi, Paul.

Hi. Good morning. On the 2009 average pricing, you're at $61.56 per ton. When we look at 2010, you've got a few items, old contracts rolling off. You've got a price deck that you have in mind for the coal. You haven't sold it yet. You've got a weak economy. At first glance, would your expectation be that in 2010, that average number would go flat, up or down from there?

Well, actually, right now , the way I'm looking at it, it would go up somewhat , because we have about 85% of what -- let's assume we stay at $65 million, and I would say 85% of that $65 million would already be sold, of which $17 million needs to be repriced. If you look at that being repriced against the spot market right now on the revenue side, I think we're going to be pretty much equal to '09 . So if you look at us, we're in a good hedge position on both years, but we do need to reprice at $17 million. And plus, there's 4 million tons of met coal to be repriced in '010. So there's some upside that -- if you look at our position, there's not as much exposure to the downside as there is on the

Great. And thinking about downside again, on the $61.56 average price of 2009, to what extent could you evaluate the possible risk to that number just if steel stays weak all year, and you do have some customers either deferring or attempting to renegotiate? How able would they be to do that? And is there any kind of risk that you see to that already priced position in '09?

Well, we've -- I think it's been risk adjusted. We expect to retain the value we have in these contracts, but I think it's already been risk-adjusted at the $65 million. On the met side, keep in mind we only look at about 3.1 million tons in '09 being introduced. That's a pretty pessimistic look , especially when you're looking at the cannon, which we view as the base of all met coals coming out of the United States. So to go below that, I think the problem is a lot bigger. I wouldn't say there's a lot of risk below that, and we're starting to see the boat come in to kind of match that 3.1

Okay. Lastly, on the acquisition side of things, how active are you at trying to take advantage of this downturn to try to pick up properties here or there, and are there any areas that you're particularly interested in?

Well, we're keeping our powder dry, and we're building a great balance sheet to take advantage of acquisitions. When we look at areas, we look at areas where we've already identified that are either close to operations that we have, where there's some real synergy between combining assets, or lower cost position in other regions. We would be interested in that. I don't want to be that specific, but we are looking around. We continue to look around. And I really want to emphasize, we look in both coal and gas.

We don't just look at coal. So we're looking at opportunities to go in both directions. We see in the short-term growth in the gas business to be pretty dramatic, just based on the way the government pushes against the different commodities, so the gas and coal side look very interesting to us. Both of them do.

Okay. Thanks a lot.

We'd like to thank everybody, for joining us today. Dan Zajdel with CNX Gas, and Chuck Mazur with CONSOL Energy, will be available to investors throughout the day if you've got additional questions, and I will be available for reporters who may have questions as follow-up for the conference call. With that, again, thank you for joining us, and operator, if you would instruct our listeners on replay information.

Thank you, sir. Ladies and gentlemen, this conference will be available for replay after 12 p.m. eastern time today through February 5th, 2009, at midnight. You may access the assistant temps replay system at any time by dialing 1-800-475-6701, using the access code of 982693. That does conclude our call for today. We thank you for your participation.