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Loss doesn't deter Consol Energy strategy

| Thursday, April 25, 2013, 9:48 a.m.

Consol Energy Inc.'s strategy to supply customers coal or natural gas is paying off, despite disappointing earnings results in the first quarter, CEO Brett Harvey said on Thursday.

“We have invested in both businesses to emerge as a stronger, more efficient” company, Harvey said.

As natural gas prices rose above $4 per thousand cubic feet, power generating companies began moving back to coal, Harvey said. Lingering cold weather prompted utilities to use all of the coal purchased under long-term contracts.

“We've been sitting and waiting for gas costs to rise,” he said. “We can run the longwall (mining machines) at a higher rate to satisfy demand” for coal.

When the company's Baily Mine Extension in Greene County starts production next year, Consol will have annual longwall production capability that totals 60 million tons there and eight other mines.

Consol reduced coal production costs by 7 percent to $50.69 per ton as of March 31. Coal inventories are at a 15-year low, giving Consol an advantage when pricing coal, Harvey said.

“Management's efforts in streamlining operations seem to have paid off,” said Mike Dudas, analyst at Stern Agee.

He said Consol recently signed a 700,000-ton contract to export coal to South Korea. Coal from its Buchanan Mine in Virginia increasingly is going to Brazil and China.

“Coal is still the fastest-growing energy source worldwide,” even with slow-growing economies, Harvey said.

Yet Consol's gas division expects to increase production in 2013 to at least 170 billion cubic feet, an 8 percent increase from 2012, which would enable it to benefit from higher prices.

This year the company plans to drill 121 wells in the Marcellus shale, 70 percent of them in wet-gas regions, a rate that Consol executives described as “aggressive,” and 27 wells in the Utica shale. Consol splits drilling activity with partner Noble Energy Inc.

“We have actively managed our business to be successful in good and bad times,” Harvey said.

Consol said its first-quarter loss was $1.6 million, or 1 cent a share, the result of lower sales and expenses from an employee buyout program, a shareholder lawsuit and an underground mine fire. A year ago, Consol had net income of $97.2 million, or 42 cents a share. In 2012, Consol reported net income of $388 million, after $632 million in 2011.

Sales for the January-March period were $1.3 billion, compared to $1.4 billion last year.

The employee buyout, shareholder lawsuit and fire at Blacksville No. 2 Mine cost Consol a combined $62.5 million, the company said.

The pension settlement with about 100 employees from a voluntary severance program last year cost $27.1 million, and settlement of shareholder class-action lawsuits over Consol's acquisition of CNX Gas shares in 2010 cost $20.2 million. The settlement needs court approval.

Consol said it cost $15.2 million to put out the March 12 fire at Blacksville, near the Pennsylvania-West Virginia border. The mine will be idle for most of the second quarter and insurance recovery is uncertain, Consol said. The fire idled 650 workers.

John D. Oravecz is a Trib Total Media staff writer. Reach him at 412-320-7882 or

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