##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 For the quarterly period ended March 31, 2008
 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: 001-32723
 
 CNX GAS CORPORATION
 (Exact name of registrant as specified in its charter)
 
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    20-3170639
(I.R.S. Employer
Identification No.)
 5 Penn Center West, Suite 401
Pittsburgh, PA 15276
(412) 200-6700
 
 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
 
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Condensed Financial Statements (unaudited)
    
    
    3Consolidated Statements of Income for the three months ended March 31, 2008 and 2007
    
    
    3Consolidated Balance Sheets at March 31, 2008 and December 31, 2007
    
    
    4Consolidated Statements of Stockholders Equity for the three months ended March 31, 2008
    
    
    5Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    24PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    25EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2
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PART I
 FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED FINANCIAL STATEMENTS
 CNX GAS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)  (Dollars in thousands, except per share data)
 For the Three Months EndedMarch 31,2008
    
    
    2007Revenue and Other Income:Outside Sales
    
    $
    126,640
    
    
    $
    98,070Related Party Sales
    
    
    3,901
    
    
    
    2,191Royalty Interest Gas Sales
    
    
    16,504
    
    
    
    12,182Purchased Gas Sales
    
    
    3,539
    
    
    
    1,159Other Income
    
    
    9,919
    
    
    
    1,530Total Revenue and Other Income
    
    
    160,503
    
    
    
    115,132Costs and Expenses:Lifting Costs
    
    
    11,507
    
    
    
    8,266Gathering and Compression Costs
    
    
    15,310
    
    
    
    14,468Royalty Interest Gas Costs
    
    
    16,089
    
    
    
    10,665Purchased Gas Costs
    
    
    3,421
    
    
    
    1,019Other
    
    
    239
    
    
    
    438General and Administrative
    
    
    15,744
    
    
    
    13,721Depreciation, Depletion and Amortization
    
    
    15,945
    
    
    
    12,098Interest Expense
    
    
    1,472
    
    
    
    1,219Total Costs and Expenses
    
    
    79,727
    
    
    
    61,894Earnings Before Income Taxes and Minority Interest
    
    
    80,776
    
    
    
    53,238Minority Interest
    
    
    (141
    )
    
    
    Earnings Before Income Taxes
    
    
    80,917
    
    
    
    53,238Income Taxes
    
    
    30,996
    
    
    
    20,242Net Income
    
    $
    49,921
    
    
    $
    32,996Earnings Per Share:Basic
    
    $
    0.33
    
    
    $
    0.22Diluted
    
    $
    0.33
    
    
    $
    0.22Weighted Average Number of Common Shares Outstanding:Basic
    
    
    150,923,490
    
    
    
    150,864,825Dilutive
    
    
    151,324,786
    
    
    
    151,068,089
 The accompanying notes are an integral part of these consolidated financial statements.
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CNX GAS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS  (Dollars in thousands)
 (Unaudited)March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    32,375
    
    
    $
    32,048Accounts Receivable:Trade
    
    
    60,107
    
    
    
    38,680Net Related Party
    
    
    10,677
    
    
    
    1,022Other
    
    
    2,490
    
    
    
    1,406Derivatives
    
    
    
    
    
    
    10,711Recoverable Income Taxes
    
    
    
    
    
    
    972Deferred Income Taxes
    
    
    22,246
    
    
    
    Other Current Assets
    
    
    1,694
    
    
    
    3,148Total Current Assets
    
    
    129,589
    
    
    
    87,987Property, Plant and Equipment, Net
    
    
    1,321,513
    
    
    
    1,254,906Other Assets
    
    
    9,120
    
    
    
    9,526Investments in Equity Affiliates
    
    
    27,440
    
    
    
    28,284TOTAL ASSETS
    
    $
    1,487,662
    
    
    $
    1,380,703LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    26,369
    
    
    $
    30,263Accrued Royalties Payable
    
    
    18,129
    
    
    
    12,896Accrued Severance Taxes
    
    
    3,420
    
    
    
    2,620Accrued Income Taxes
    
    
    6,214
    
    
    
    Deferred Income Taxes
    
    
    
    
    
    
    1,269Derivatives
    
    
    56,213
    
    
    
    Current Portion of Long-Tem Debt
    
    
    5,753
    
    
    
    5,819Other Current Liabilities
    
    
    11,129
    
    
    
    9,817Total Current Liabilities
    
    
    127,227
    
    
    
    62,684Long-Term Debt
    
    
    76,304
    
    
    
    66,949Deferred Credits and Other Liabilities:Deferred Income Taxes
    
    
    204,636
    
    
    
    188,415Other Liabilities
    
    
    33,292
    
    
    
    30,965Asset Retirement Obligations
    
    
    4,487
    
    
    
    3,981Derivatives
    
    
    13,048
    
    
    
    1,092Postretirement Benefits Other Than Pension
    
    
    2,806
    
    
    
    2,700Total Deferred Credits and Other Liabilities
    
    
    258,269
    
    
    
    227,153Minority Interest
    
    
    853
    
    
    
    680Total Liabilities and Minority Interest
    
    
    462,653
    
    
    
    357,466Stockholders EquityCommon Stock, $.01 par value; 200,000,000 Shares
Authorized, 150,930,971 Issued and Outstanding at
March 31, 2008 and 150,915,198 Issued and Outstanding
at December 31, 2007
    
    
    1,509
    
    
    
    1,509Capital in Excess of Par Value
    
    
    786,723
    
    
    
    785,575Retained Earnings
    
    
    279,803
    
    
    
    229,962Accumulated Other Comprehensive (Loss) Income
    
    
    (43,026
    )
    
    
    6,191Total Stockholders Equity
    
    
    1,025,009
    
    
    
    1,023,237TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    1,487,662
    
    
    $
    1,380,703
 The accompanying notes are an integral part of these consolidated financial statements.
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CNX GAS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Unaudited)  (Dollars in thousands)
 AccumulatedCapital in
    
    
    
    
    
    
    Other
    
    
    TotalCommon
    
    
    Excess of
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Par Value
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBalance at December 31, 2007
    
    $
    1,509
    
    
    $
    785,575
    
    
    $
    229,962
    
    
    $
    6,191
    
    
    $
    1,023,237Net Income
    
    
    
    
    
    
    
    
    
    
    49,921
    
    
    
    
    
    
    
    49,921Gas Cash Flow Hedge (Net of $29,688 tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49,175
    )
    
    
    (49,175
    )Amortization of prior service costs and
actuarial losses (Net of $13 tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    (22
    )Comprehensive Income (Loss)
    
    
    
    
    
    
    
    
    
    
    49,921
    
    
    
    (49,197
    )
    
    
    724Cumulative Effect of FAS 158 Measurement
Adoption (Net of $63 tax)
    
    
    
    
    
    
    
    
    
    
    (80
    )
    
    
    (20
    )
    
    
    (100
    )Stock Options Exercised
    
    
    
    
    
    
    252
    
    
    
    
    
    
    
    
    
    
    
    252Tax Benefit from Stock Based Compensation
    
    
    
    
    
    
    167
    
    
    
    
    
    
    
    
    
    
    
    167Amortization of Restricted Stock Unit Grants
    
    
    
    
    
    
    176
    
    
    
    
    
    
    
    
    
    
    
    176Amortization of Stock Based Compensation Awards
    
    
    
    
    
    
    553
    
    
    
    
    
    
    
    
    
    
    
    553Balance at March 31, 2008
    
    $
    1,509
    
    
    $
    786,723
    
    
    $
    279,803
    
    
    $
    (43,026
    )
    
    $
    1,025,009
 The accompanying notes are an integral part of these consolidated financial statements.
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CNX GAS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)  (Dollars in thousands)
 For the Three Months EndedMarch 31,2008
    
    
    2007Operating Activities:Net Income
    
    $
    49,921
    
    
    $
    32,996Adjustments to Reconcile Net Income to Net Cash Provided By
Operating Activities: Depreciation, Depletion and
Amortization
    
    
    15,945
    
    
    
    12,098Stock-based Compensation
    
    
    729
    
    
    
    764Change in Minority Interest
    
    
    173
    
    
    
    Deferred Income Taxes
    
    
    23,484
    
    
    
    12,527Equity in Earnings of Affiliates
    
    
    (110
    )
    
    
    (207
    )Changes in Operating Assets:Accounts Receivable
    
    
    (19,555
    )
    
    
    1,000Related Party Receivable
    
    
    (9,655
    )
    
    
    2,745Other Current Assets
    
    
    589
    
    
    
    186Changes in Other Assets
    
    
    2,768
    
    
    
    1,530Changes in Operating Liabilities:Accounts Payable
    
    
    (6,064
    )
    
    
    1,233Related Party Liability
    
    
    
    
    
    
    162Income Taxes
    
    
    7,186
    
    
    
    7,441Other Current Liabilities
    
    
    7,285
    
    
    
    (1,601
    )Changes in Other Liabilities
    
    
    1,576
    
    
    
    2,026Other
    
    
    1,945
    
    
    
    219Net Cash Provided by Operating Activities
    
    
    76,217
    
    
    
    73,119Investing Activities:Capital Expenditures
    
    
    (86,552
    )
    
    
    (57,535
    )Investment in Equity Affiliates
    
    
    954
    
    
    
    (822
    )Net Cash Used in Investing Activities
    
    
    (85,598
    )
    
    
    (58,357
    )Financing Activities:Capital Lease Payments
    
    
    (673
    )
    
    
    (675
    )Variable Interest Entity Debt
    
    
    9,962
    
    
    
    Exercise of Stock Options
    
    
    252
    
    
    
    Tax Benefit from Stock Based Compensation
    
    
    167
    
    
    
    67Net Cash Provided by (Used in) Financing Activities
    
    
    9,708
    
    
    
    (608
    )Net Increase in Cash and Cash Equivalents
    
    
    327
    
    
    
    14,154Cash and Cash Equivalents at Beginning of Period
    
    
    32,048
    
    
    
    107,173Cash and Cash Equivalents at End of Period
    
    $
    32,375
    
    
    $
    121,327
 The accompanying notes are an integral part of these consolidated financial statements.
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CNX GAS CORPORATION AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Dollars in thousands)
 Note 1Basis of Presentation:
       For the Three Months EndedMarch 31,2008
    
    
    2007Net Income
    
    $
    49,921
    
    
    $
    32,996Weighted Average Number of Common Shares Outstanding:Basic
    
    
    150,923,490
    
    
    
    150,864,825Effect of share based compensation
    
    
    401,296
    
    
    
    203,264Dilutive
    
    
    151,324,786
    
    
    
    151,068,089Earnings per share:Basic
    
    $
    0.33
    
    
    $
    0.22Diluted
    
    $
    0.33
    
    
    $
    0.22
 Note 2  Significant Acquisitions:
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Note 3Pension and Other Postretirement Benefits:
  For the Three Months Ended March 31,Pension
    
    
    Other Benefits2008
    
    
    2007
    
    
    2008
    
    
    2007Components of Net Periodic Benefit Costs:Service costs
    
    $
    81
    
    
    $
    65
    
    
    $
    33
    
    
    $
    31Interest costs
    
    
    10
    
    
    
    3
    
    
    
    46
    
    
    
    35Expected return on assets
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service costs credit
    
    
    
    
    
    
    
    
    
    
    (43
    )
    
    
    (43
    )Amortization of (gain) loss
    
    
    
    
    
    
    (6
    )
    
    
    9
    
    
    
    5Benefit costs
    
    $
    85
    
    
    $
    62
    
    
    $
    45
    
    
    $
    28
    Note 4Income Taxes:
  For the Three Months Ended March 31,2008
    
    
    2007Dollars
    
    
    Rate
    
    
    Dollars
    
    
    RateStatutory U.S. Federal Income Tax Rate
    
    $
    28,321
    
    
    
    35.0
    %
    
    $
    18,633
    
    
    
    35.0
    %Net Effect of State Income Tax
    
    
    3,188
    
    
    
    3.9
    %
    
    
    2,097
    
    
    
    3.9
    %Other
    
    
    (513
    )
    
    
    (0.6
    )%
    
    
    (488
    )
    
    
    (0.9
    )%Income Tax Expense/Effective Rate
    
    $
    30,996
    
    
    
    38.3
    %
    
    $
    20,242
    
    
    
    38.0
    %
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Note 5Property, Plant and Equipment:
 March 31,
    
    
    December 31,2008
    
    
    2007Leasehold Improvements
    
    $
    1,351
    
    
    $
    1,351Proved Properties
    
    
    140,961
    
    
    
    125,118Unproved Properties
    
    
    73,158
    
    
    
    81,078Wells and Related Equipment
    
    
    183,489
    
    
    
    166,468Intangible Drilling
    
    
    566,630
    
    
    
    531,098Gathering Assets
    
    
    618,344
    
    
    
    596,171Asset Retirement Obligations
    
    
    1,232
    
    
    
    1,035Capitalized Internal Software
    
    
    6,811
    
    
    
    6,741Total Property, Plant and Equipment
    
    
    1,591,976
    
    
    
    1,509,060Accumulated Depreciation, Depletion and Amortization
    
    
    (270,463
    )
    
    
    (254,154
    )Property and Equipment, net
    
    $
    1,321,513
    
    
    $
    1,254,906
 Note 6Commitments and Contingent Liabilities:
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TotalAmounts
    
    
    Less Than
    
    
    
    
    
    
    
    
    
    
    BeyondCommitted
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 yearsLetters of Credit
    
    $
    14,933
    
    
    $
    14,761
    
    
    $
    172
    
    
    $
    
    
    
    $
    Surety Bonds:Environmental
    
    $
    1,346
    
    
    $
    1,346
    
    
    $
    
    
    
    $
    
    
    
    $
    Other
    
    
    1,850
    
    
    
    1,836
    
    
    
    14
    
    
    
    
    
    
    
    Total Surety Bonds
    
    $
    3,196
    
    
    $
    3,182
    
    
    $
    14
    
    
    $
    
    
    
    $
    Other:Firm Transportation
    
    $
    47,842
    
    
    $
    7,902
    
    
    $
    14,296
    
    
    $
    9,680
    
    
    $
    15,964Guarantees
    
    $
    11,315
    
    
    $
    11,315
    
    
    $
    
    
    
    $
    
    
    
    $
    Total Guarantees
    
    $
    59,157
    
    
    $
    19,217
    
    
    $
    14,296
    
    
    $
    9,680
    
    
    $
    15,964Total Commitments
    
    $
    77,286
    
    
    $
    37,160
    
    
    $
    14,482
    
    
    $
    9,680
    
    
    $
    15,964
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Note 7Comprehensive Income:
  Three Months EndedMarch 31,2008
    
    
    2007Net Income
    
    $
    49,921
    
    
    $
    32,996Amortization of prior service costs and
actuarial losses
    
    
    (22
    )
    
    
    (28
    )Gas Cash Flow Hedge
    
    
    (49,175
    )
    
    
    (11,683
    )Other Comprehensive Income
    
    $
    724
    
    
    $
    21,285
 Note 8Fair Value of Financial Instruments:
   Fair Value Measurements at March 31, 2008 Using:Quoted Prices inActive Market forIdentical
    
    Significant Other
    
    SignificantLiabilities
    
    Observable Inputs
    
    Unobservable InputsDescription
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Cash Flow Hedges
    
    $
    
    
    
    $
    69,261
    
    
    $
    
  Cash and cash equivalents:
 Long-term debt:
 Capital Leases:
  March 31, 2008
    
    December 31, 2007Carrying Amounts
    
    Fair Value
    
    Carrying Amounts
    
    Fair ValueCash and cash equivalents
    
    $
    32,375
    
    
    $
    32,375
    
    
    $
    32,048
    
    
    $
    32,048Long-term debt
    
    $
    18,813
    
    
    $
    15,747
    
    
    $
    8,851
    
    
    $
    7,951Capital leases
    
    $
    63,244
    
    
    $
    63,244
    
    
    $
    63,917
    
    
    $
    63,917
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Note 9Variable Interest:
  Note 10Segment Information:
   Central
    
    
    Northern
    
    
    Total
    
    
    
    
    
    
    Adjustments &Appalachia
    
    
    Appalachia
    
    
    Gas
    
    
    Corporate
    
    
    Eliminations
    
    
    ConsolidatedSalesoutside
    
    $
    111,181
    
    
    $
    15,459
    
    
    $
    126,640
    
    
    $
    
    
    
    $
    
    
    
    $
    126,640Salesrelated parties
    
    
    3,887
    
    
    
    14
    
    
    
    3,901
    
    
    
    
    
    
    
    
    
    
    
    3,901Salesroyalty interest gas
    
    
    16,268
    
    
    
    236
    
    
    
    16,504
    
    
    
    
    
    
    
    
    
    
    
    16,504Salespurchased gas
    
    
    3,539
    
    
    
    
    
    
    
    3,539
    
    
    
    
    
    
    
    
    
    
    
    3,539Other revenue
    
    
    9,761
    
    
    
    1
    
    
    
    9,762
    
    
    
    157
    
    
    
    
    
    
    
    9,919Intersegment revenues
    
    
    20,125
    
    
    
    1,590
    
    
    
    21,715
    
    
    
    
    
    
    
    (21,715
    )
    
    
    Total Revenue and Other Income
    
    $
    164,761
    
    
    $
    17,300
    
    
    $
    182,061
    
    
    $
    157
    
    
    $
    (21,715
    )
    
    $
    160,503Earnings Before Income Taxes (A)
    
    $
    76,348
    
    
    $
    4,685
    
    
    $
    81,033
    
    
    $
    (116
    )
    
    $
    
    
    
    $
    80,917Segment assets (B)
    
    $
    1,165,630
    
    
    $
    264,804
    
    
    $
    1,430,434
    
    
    $
    57,228
    
    
    $
    
    
    
    $
    1,487,662Depreciation, depletion and amortization
    
    $
    13,547
    
    
    $
    2,398
    
    
    $
    15,945
    
    
    $
    
    
    
    $
    
    
    
    $
    15,945Capital expenditures
    
    $
    38,442
    
    
    $
    48,110
    
    
    $
    86,552
    
    
    $
    
    
    
    $
    
    
    
    $
    86,552
 
 (A)
    
    Includes equity in earnings (loss) of unconsolidated affiliates of $133 for Central
Appalachia.(B)
    
    Includes investments in unconsolidated equity affiliates of $2,587 for Central Appalachia. 13




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##### Table of Contents



Central
    
    
    Northern
    
    
    Total
    
    
    
    
    
    
    Adjustments &Appalachia
    
    
    Appalachia
    
    
    Gas
    
    
    Corporate
    
    
    Eliminations
    
    
    ConsolidatedSalesoutside
    
    $
    91,836
    
    
    $
    6,234
    
    
    $
    98,070
    
    
    $
    
    
    
    $
    
    
    
    $
    98,070Salesrelated parties
    
    
    2,178
    
    
    
    13
    
    
    
    2,191
    
    
    
    
    
    
    
    
    
    
    
    2,191Salesroyalty interest gas
    
    
    12,148
    
    
    
    34
    
    
    
    12,182
    
    
    
    
    
    
    
    
    
    
    
    12,182Salespurchased gas
    
    
    1,159
    
    
    
    
    
    
    
    1,159
    
    
    
    
    
    
    
    
    
    
    
    1,159Other revenue
    
    
    94
    
    
    
    
    
    
    
    94
    
    
    
    1,436
    
    
    
    
    
    
    
    1,530Intersegment revenues
    
    
    19,479
    
    
    
    742
    
    
    
    20,221
    
    
    
    
    
    
    
    (20,221
    )
    
    
    Total Revenue and Other Income
    
    $
    126,894
    
    
    $
    7,023
    
    
    $
    133,917
    
    
    $
    1,436
    
    
    $
    (20,221
    )
    
    $
    115,132Earnings Before Income Taxes (C)
    
    $
    52,992
    
    
    $
    (853
    )
    
    $
    52,139
    
    
    $
    1,099
    
    
    $
    
    
    
    $
    53,238Segment assets (D)
    
    $
    956,931
    
    
    $
    99,197
    
    
    $
    1,056,128
    
    
    $
    145,991
    
    
    $
    
    
    
    $
    1,202,119Depreciation, depletion and amortization
    
    $
    10,637
    
    
    $
    1,461
    
    
    $
    12,098
    
    
    $
    
    
    
    $
    
    
    
    $
    12,098Capital expenditures
    
    $
    38,295
    
    
    $
    19,240
    
    
    $
    57,535
    
    
    $
    
    
    
    $
    
    
    
    $
    57,535
 
 (C)
    
    Includes equity in earnings (loss) of unconsolidated affiliates of $303 for Central Appalachia.(D)
    
    Includes investments in unconsolidated equity affiliates of $28,648 for Central Appalachia. Reconciliation of Segment Information to Consolidated Amounts
  For the Three Months Ended March 31,2008
    
    
    2007Segment earnings before income taxes for total
reportable business segments
    
    $
    81,033
    
    
    $
    52,139Equity in Earnings of Buchanan Generation
    
    
    (23
    )
    
    
    (96
    )Bank Fees
    
    
    (250
    )
    
    
    (241
    )Interest Income
    
    
    157
    
    
    
    1,436Earnings Before Income Taxes
    
    $
    80,917
    
    
    $
    53,238Total Assets:
 March 31,2008
    
    
    2007Segment assets for total reportable business segments
    
    $
    1,430,434
    
    
    $
    1,056,128Items excluded from segment assets:Cash and other investments
    
    
    32,375
    
    
    
    121,327Investment in Buchanan Generation
    
    
    24,853
    
    
    
    24,664Total Consolidated Assets
    
    $
    1,487,662
    
    
    $
    1,202,119
 Note 11Recent Accounting Pronouncements:
   14




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this report. This Current Report on
Form 10-Q contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. See Forward Looking Statements.
  Operations & Outlook
         15




---



##### Table of Contents



Results of Operations
 Three Months Ended March 31, 2008 compared with Three Months Ended March 31, 2007
(Amounts reported in thousands)
 Net Income
  Dollar
    
    
    Percentage2008
    
    
    2007
    
    
    Variance
    
    
    ChangeRevenue and Other Income:Outside Sales
    
    $
    126,640
    
    
    $
    98,070
    
    
    $
    28,570
    
    
    
    29.1
    %Related Party Sales
    
    
    3,901
    
    
    
    2,191
    
    
    
    1,710
    
    
    
    78.0
    %Royalty Interest Gas Sales
    
    
    16,504
    
    
    
    12,182
    
    
    
    4,322
    
    
    
    35.5
    %Purchased Gas Sales
    
    
    3,539
    
    
    
    1,159
    
    
    
    2,380
    
    
    
    205.3
    %Other Income
    
    
    9,919
    
    
    
    1,530
    
    
    
    8,389
    
    
    
    548.3
    %Total Revenue and Other Income
    
    
    160,503
    
    
    
    115,132
    
    
    
    45,371
    
    
    
    39.4
    %Costs and Expenses:Lifting Costs
    
    
    11,507
    
    
    
    8,266
    
    
    
    3,241
    
    
    
    39.2
    %Gathering and Compression Costs
    
    
    15,310
    
    
    
    14,468
    
    
    
    842
    
    
    
    5.8
    %Royalty Interest Gas Costs
    
    
    16,089
    
    
    
    10,665
    
    
    
    5,424
    
    
    
    50.9
    %Purchased Gas Costs
    
    
    3,421
    
    
    
    1,019
    
    
    
    2,402
    
    
    
    235.7
    %Other
    
    
    239
    
    
    
    438
    
    
    
    (199
    )
    
    
    (45.4
    )%General and Administrative
    
    
    15,744
    
    
    
    13,721
    
    
    
    2,023
    
    
    
    14.7
    %Depreciation, Depletion and Amortization
    
    
    15,945
    
    
    
    12,098
    
    
    
    3,847
    
    
    
    31.8
    %Interest Expense
    
    
    1,472
    
    
    
    1,219
    
    
    
    253
    
    
    
    20.8
    %Total Costs and Expenses
    
    
    79,727
    
    
    
    61,894
    
    
    
    17,833
    
    
    
    28.8
    %Earnings Before Income Taxes and Minority Interest
    
    
    80,776
    
    
    
    53,238
    
    
    
    27,538
    
    
    
    51.7
    %Minority Interest
    
    
    (141
    )
    
    
    
    
    
    
    (141
    )
    
    
    (100.0
    )%Earnings Before Income Taxes
    
    
    80,917
    
    
    
    53,238
    
    
    
    27,679
    
    
    
    52.0
    %Income Taxes
    
    
    30,996
    
    
    
    20,242
    
    
    
    10,754
    
    
    
    53.1
    %Net Income
    
    $
    49,921
    
    
    $
    32,996
    
    
    $
    16,925
    
    
    
    51.3
    %
  16




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##### Table of Contents



Revenue and Other Income
  Dollar
    
    
    Percentage2008
    
    
    2007
    
    
    Variance
    
    
    ChangeRevenue and Other Income:Outside Sales
    
    $
    126,640
    
    
    $
    98,070
    
    
    $
    28,570
    
    
    
    29.1
    %Related Party Sales
    
    
    3,901
    
    
    
    2,191
    
    
    
    1,710
    
    
    
    78.0
    %Royalty Interest Gas Sales
    
    
    16,504
    
    
    
    12,182
    
    
    
    4,322
    
    
    
    35.5
    %Purchased Gas Sales
    
    
    3,539
    
    
    
    1,159
    
    
    
    2,380
    
    
    
    205.3
    %Other Income
    
    
    9,919
    
    
    
    1,530
    
    
    
    8,389
    
    
    
    548.3
    %Total Revenue and Other Income
    
    $
    160,503
    
    
    $
    115,132
    
    
    $
    45,371
    
    
    
    39.4
    %
  Percentage2008
    
    2007
    
    Variance
    
    ChangeSales Volumes (Bcf)
    
    
    15.9
    
    
    
    14.2
    
    
    
    1.7
    
    
    
    12.0
    %Average Sales Price (per Mcf)
    
    $
    8.23
    
    
    $
    7.04
    
    
    $
    1.19
    
    
    
    16.9
    %
  Percentage2008
    
    2007
    
    Variance
    
    ChangeRoyalty Interest Gas Sales Volumes (Bcf)
    
    
    1.9
    
    
    
    1.8
    
    
    
    0.1
    
    
    
    5.6
    %Average Sales Price (per Mcf)
    
    $
    8.63
    
    
    $
    6.62
    
    
    $
    2.01
    
    
    
    30.4
    %
  Percentage2008
    
    2007
    
    Variance
    
    ChangePurchased Gas Sales Volumes (Bcf)
    
    
    0.5
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    150.0
    %Average Sales Price (per Mcf)
    
    $
    7.18
    
    
    $
    7.14
    
    
    $
    0.04
    
    
    
    0.6
    %
  17




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##### Table of Contents



Dollar
    
    
    Percentage2008
    
    
    2007
    
    
    Variance
    
    
    ChangeInsurance Settlement
    
    $
    8,000
    
    
    $
    
    
    
    $
    8,000
    
    
    
    100.0
    %Royalty Settlement
    
    
    650
    
    
    
    
    
    
    
    650
    
    
    
    100.0
    %Interest Income
    
    
    158
    
    
    
    1,436
    
    
    
    (1,278
    )
    
    
    (89.0
    )%Third Party Gathering Revenue
    
    
    84
    
    
    
    36
    
    
    
    48
    
    
    
    133.3
    %Other Miscellaneous
    
    
    1,027
    
    
    
    58
    
    
    
    969
    
    
    
    1,670.7
    %Total Other Income
    
    $
    9,919
    
    
    $
    1,530
    
    
    $
    8,389
    
    
    
    548.3
    %
      Costs and Expenses
  Dollar
    
    
    Percentage2008
    
    
    2007
    
    
    Variance
    
    
    ChangeCosts and Expenses:Lifting Costs
    
    $
    11,507
    
    
    $
    8,266
    
    
    $
    3,241
    
    
    
    39.2
    %Gathering and Compression Costs
    
    
    15,310
    
    
    
    14,468
    
    
    
    842
    
    
    
    5.8
    %Royalty Interest Gas Costs
    
    
    16,089
    
    
    
    10,665
    
    
    
    5,424
    
    
    
    50.9
    %Purchased Gas Costs
    
    
    3,421
    
    
    
    1,019
    
    
    
    2,402
    
    
    
    235.7
    %Other
    
    
    239
    
    
    
    438
    
    
    
    (199
    )
    
    
    (45.4
    )%General and Administrative
    
    
    15,744
    
    
    
    13,721
    
    
    
    2,023
    
    
    
    14.7
    %Depreciation, Depletion and Amortization
    
    
    15,945
    
    
    
    12,098
    
    
    
    3,847
    
    
    
    31.8
    %Interest Expense
    
    
    1,472
    
    
    
    1,219
    
    
    
    253
    
    
    
    20.8
    %Total Costs and Expenses
    
    $
    79,727
    
    
    $
    61,894
    
    
    $
    17,833
    
    
    
    28.8
    %
  Percentage2008
    
    2007
    
    Variance
    
    ChangeSales Volumes (Bcf)
    
    
    15.9
    
    
    
    14.2
    
    
    
    1.7
    
    
    
    12.0
    %Average Lifting Costs (per Mcf)
    
    $
    0.73
    
    
    $
    0.58
    
    
    $
    0.15
    
    
    
    25.9
    %
  Percentage2008
    
    2007
    
    Variance
    
    ChangeSales Volumes (Bcf)
    
    
    15.9
    
    
    
    14.2
    
    
    
    1.7
    
    
    
    12.0
    %Average Gathering and Compression Costs (per Mcf)
    
    $
    0.96
    
    
    $
    1.02
    
    
    $
    (0.06
    )
    
    
    (5.9
    )%
 18




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##### Table of Contents



Percentage2008
    
    2007
    
    Variance
    
    ChangeRoyalty Interest Gas Sales Volumes (Bcf)
    
    
    1.9
    
    
    
    1.8
    
    
    
    0.1
    
    
    
    5.6
    %Average Royalty Interest Gas Costs (per Mcf)
    
    $
    8.41
    
    
    $
    5.79
    
    
    $
    2.62
    
    
    
    45.3
    %
  Percentage2008
    
    2007
    
    Variance
    
    ChangePurchased Gas Sales Volumes (Bcf)
    
    
    0.5
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    150.0
    %Average Purchased Gas Costs (per Mcf)
    
    $
    6.94
    
    
    $
    6.28
    
    
    $
    0.66
    
    
    
    10.5
    %
   Dollar
    
    
    Percentage2008
    
    
    2007
    
    
    Variance
    
    
    ChangeExploration
    
    $
    349
    
    
    $
    462
    
    
    $
    (113
    )
    
    
    (24.5
    )%Imbalance
    
    
    
    
    
    
    183
    
    
    
    (183
    )
    
    
    (100.0
    )%Equity in Earnings of Affiliates
    
    
    (110
    )
    
    
    (207
    )
    
    
    97
    
    
    
    46.9
    %Total Other Costs and Expenses
    
    $
    239
    
    
    $
    438
    
    
    $
    (199
    )
    
    
    (45.4
    )%
     Dollar
    
    
    Percentage2008
    
    
    2007
    
    
    Variance
    
    
    ChangeEmployee Wages and Related Costs
    
    $
    5,493
    
    
    $
    4,053
    
    
    $
    1,440
    
    
    
    35.5
    %Professional Fees
    
    
    5,202
    
    
    
    5,390
    
    
    
    (188
    )
    
    
    (3.5
    )%Short Term Incentive
    
    
    1,003
    
    
    
    761
    
    
    
    242
    
    
    
    31.8
    %Stock Based Compensation
    
    
    1,653
    
    
    
    1,277
    
    
    
    376
    
    
    
    29.4
    %Facilities
    
    
    1,257
    
    
    
    1,006
    
    
    
    251
    
    
    
    25.0
    %Other
    
    
    1,136
    
    
    
    1,234
    
    
    
    (98
    )
    
    
    (7.9
    )%Total General and Administrative Expenses
    
    $
    15,744
    
    
    $
    13,721
    
    
    $
    2,023
    
    
    
    14.7
    %
   19




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##### Table of Contents



Dollar
    
    
    Percentage2008
    
    
    2007
    
    
    Variance
    
    
    ChangeProduction
    
    $
    10,748
    
    
    $
    7,568
    
    
    $
    3,180
    
    
    
    42.0
    %Gathering
    
    
    5,197
    
    
    
    4,530
    
    
    
    667
    
    
    
    14.7
    %Total Depreciation, Depletion and Amortization
    
    $
    15,945
    
    
    $
    12,098
    
    
    $
    3,847
    
    
    
    31.8
    %
   Income Taxes
 Percentage2008
    
    2007
    
    Variance
    
    ChangeEarnings Before Income Taxes
    
    $
    80,917
    
    
    $
    53,238
    
    
    $
    27,679
    
    
    
    52.0
    %Tax Expense
    
    $
    30,996
    
    
    $
    20,242
    
    
    $
    10,754
    
    
    
    53.1
    %Effective Income Tax Rate
    
    
    38.3
    %
    
    
    38.0
    %
    
    
    0.3
    %
  Liquidity and Capital Resources
    20




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##### Table of Contents



Cash Flows
 Three Months Ended March 31,2008
    
    2007
    
    ChangeCash provided by operating activities
    
    $
    76,217
    
    
    $
    73,119
    
    
    $
    3,098Cash used in investing activities
    
    $
    (85,598
    )
    
    $
    (58,357
    )
    
    $
    (27,241
    )Cash provided by (used in) financing activities
    
    $
    9,708
    
    
    $
    (608
    )
    
    $
    10,316
  
    
    Cash provided by operating activitiesincreased primarily due to increased production
and higher realized prices. These increases are partially offset by increased operating
costs and various other working capital requirements.
    
    Cash used in investing activitiesincreased primarily due to higher capital
expenditures, which is a result of our expanded drilling program.
    
    Cash provided by (used in) financing activitiesincreased primarily due to $9,962 of
debt proceeds from our variable interest entity.
 Contractual Commitments
  Within
    
    1-3
    
    3-5
    
    More thanTotal
    
    1 Year
    
    Years
    
    Years
    
    5 YearsLong-Term Debt Obligations
    
    $
    18,813
    
    
    $
    2,933
    
    
    $
    9,138
    
    
    $
    6,742
    
    
    $
    Capital Lease Obligations
    
    
    63,244
    
    
    
    2,820
    
    
    
    6,299
    
    
    
    7,295
    
    
    
    46,830Interest on Capital Lease Obligations
    
    
    36,947
    
    
    
    4,561
    
    
    
    8,461
    
    
    
    7,466
    
    
    
    16,459Operating Lease Obligations
    
    
    6,677
    
    
    
    1,435
    
    
    
    2,626
    
    
    
    1,713
    
    
    
    903Gas Firm Transportation Obligation
    
    
    47,842
    
    
    
    7,902
    
    
    
    14,296
    
    
    
    9,680
    
    
    
    15,964Other Long-Term Liabilities (a)
    
    
    21,877
    
    
    
    121
    
    
    
    301
    
    
    
    466
    
    
    
    20,989Total Contractual Obligations (b)
    
    $
    195,400
    
    
    $
    19,772
    
    
    $
    41,121
    
    
    $
    33,362
    
    
    $
    101,145
 
 (a)
    
    This item includes asset retirement obligations, pension, postretirement benefits other than
pension and legal contingencies, which are reflected on the balance sheet for the potential
settlement of the items referenced in Note 6 to the Consolidated Financial Statements. Due to
the uncertainty surrounding these settlements, it is difficult to predict if and when a payout
may take place.(b)
    
    The significant obligation table does not include obligations to taxing authorities due to
the uncertainty surrounding the ultimate settlement of amounts and timing of these
obligations. Off-Balance Sheet Transactions
  21




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##### Table of Contents



Recent Accounting:
   FORWARD-LOOKING STATEMENTS
  
    
    our business strategy;
    
    our financial position, cash flow, and liquidity;
    
    declines in the prices we receive for our gas affecting our operating results and cash
flow;
    
    uncertainties in estimating our gas reserves and replacing our gas reserves;
    
    uncertainties in exploring for and producing gas;
    
    our inability to obtain additional financing necessary in order to fund our operations,
capital expenditures and to meet our other obligations;
    
    disruptions to capacity constraints in or other limitations on the pipeline systems which
deliver our gas;
 22




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##### Table of Contents




    
    the availability of personnel and equipment, including our inability to retain and
attract key personnel;
    
    increased costs;
    
    the effects of government regulation and permitting and other legal requirements;
    
    legal uncertainties relating to the ownership of the coalbed methane estate, and costs
associated with perfecting title for gas rights in some of our properties;
    
    litigation concerning real property rights, intellectual property rights, royalty
calculations and other matters;
    
    our relationships and arrangements with CONSOL Energy; and
    
    other factors discussed under Risk Factors in the 10-K for the year ended December 31,
2007.
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
       Incremental decrease in pre-tax income assuming aHypothetical price increase of:10%
    
    25%(In millions)Natural Gas (1)
    
    $
    60.2
    
    
    $
    150.7
 
 (1)
    
    CNX Gas remains at risk for possible changes in the market value of these derivative
instruments; however, such risk should be offset by price changes in the underlying hedged
item. CNX Gas entered into derivative instruments to convert the market prices related to
portions of the 2008 through 2010 anticipated sales of natural gas to fixed prices. The
sensitivity analyses reflect an inverse relationship between increases in commodity prices and
a benefit to earnings. As of March 31, 2008, the fair value of these contracts was a net loss
of $43,311 (net of $25,950 deferred tax). We continually evaluate the portfolio of derivative
commodity instruments and adjust the strategy to anticipated market conditions and risks
accordingly. Hedging Volumes
 23




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##### Table of Contents



Three months
    
    Three months
    
    Three months
    
    Three monthsended
    
    ended
    
    ended
    
    endedMarch 31
    
    June 30
    
    September 30
    
    December 31
    
    Total Year2008 Fixed Price VolumesHedged Mcf
    
    
    6,097,938
    
    
    
    10,793,814
    
    
    
    11,381,443
    
    
    
    11,381,443
    
    
    
    39,654,638Weighted Average Hedge Price/Mcf
    
    $
    8.39
    
    
    $
    9.11
    
    
    $
    9.22
    
    
    $
    9.22
    
    
    $
    9.062009 Fixed Price VolumesHedged Mcf
    
    
    9,278,351
    
    
    
    7,030,928
    
    
    
    6,639,175
    
    
    
    6,639,175
    
    
    
    29,587,629Weighted Average Hedge Price/Mcf
    
    $
    9.64
    
    
    $
    9.10
    
    
    $
    8.98
    
    
    $
    9.03
    
    
    $
    9.232010 Fixed Price VolumesHedged Mcf
    
    
    6,494,845
    
    
    
    1,391,753
    
    
    
    
    
    
    
    
    
    
    
    7,886,598Weighted Average Hedge Price/Mcf
    
    $
    9.24
    
    
    $
    8.77
    
    
    $
    
    
    
    $
    
    
    
    $
    9.16
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting.
  24




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##### Table of Contents



PART II
OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 10.1
    
    CNX Gas Corporation Directors Deferred Fee Plan effective January 1, 200831.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
  25




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##### Table of Contents



SIGNATURES
   CNX Gas CorporationBy:
    /s/ Nicholas J. DeIuliisNicholas J. DeIuliisPresident and Chief Executive
Officer and Director
(Duly Authorized Officer)By:
    /s/ William J. LyonsWilliam J. LyonsChief Financial Officer
(Principal Financial Officer) 26




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##### Table of Contents



EXHIBIT INDEX
 10.1
    
    CNX Gas Corporation Directors Deferred Fee Plan effective January 1, 200831.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
  27