Consol Energy forecasts a third-quarter loss, expected to sell coal mines
Consol Energy Inc. on Tuesday forecast a third-quarter loss — despite producing and selling more natural gas and coal than expected — but declined to comment directly on a report that it will sell as many as five of its coal mines to a competitor.
The Cecil-based energy producer mentioned a pension settlement and operational expenses as contributing to a loss for the three months ended Sept. 30, but did not provide specifics. Consol will announce results on Oct. 31.
Coal & Energy Price Report in Knoxville, Tenn., said Consol is “very close” to a deal to sell the mines to St. Clairsville, Ohio-based Murray Energy Inc., newsletter editor Jim Thompson said, attributing his information to multiple industry contacts without identifying them.
He said Consol likely will sell its Shoemaker, Robinson Run, McElroy, Blacksville and Loveridge mines, plus related assets such as barges and transportation equipment “as a pure thermal coal domestic play.” Those mines produce coal for electricity generation and have output of 28 million to 30 million tons a year.
Thompson did not know the price, but Clarkson Capital Markets analyst Jeremy Sussman in New York said in a report that Shoemaker, Robinson Run and McElroy may be worth about $450 million each. Sussman could not be reached for further comment.
Despite a growing gas-drilling business, Consol remains largely a coal producer — an industry hit hard by dropping demand, the low price of natural gas and the Obama administration's push to use cleaner-burning gas and renewable power sources.
“I do feel Consol believes they must do something bold and significant,” Thompson said. “They can sell those mines at a very profitable price and see how the market reacts. Then they can determine their next step.”
Last week, Consol issued a statement repeating comments from CEO J. Brett Harvey saying that “everything is on the table.”
In July, Harvey did not rule out splitting the company's coal and gas businesses. Such a transaction might require a write down of assets that could contribute to a loss.
“Although it is Consol Energy's long-standing policy not to comment on market rumors or speculation, Consol Energy confirms that the evaluation process regarding our corporate structure continues and all options are being considered,” Consol spokeswoman Lynn Seay said Tuesday. “As we have stated previously, we believe the financial markets are not recognizing the full value of our world-class assets.”
Gary M. Broadbent, a spokesman for Murray Energy, declined to comment.
Michael Dudas, analyst with Sterne Agee, said last week he expects Consol to announce a transaction shortly.
“The five are a group of mines that are valuable to Consol but would be worth more by taking this route,” said Thompson, whose newsletter is published by IHS Inc., a publicly traded financial information publisher.
A second group of Consol mines that are “export-oriented,” will be retained, Thompson said, including the Bailey and Enlow Fork mines in Greene County, the Bailey Mine Extension (BMX) slated to come online next spring, and the Buchanan mine in Virginia, which produces mainly metallurgical coal.
Thompson called Murray Energy and CEO Bob Murray a “very strong player in the industry,” and the transaction would double its output, adding 30 million tons to the 30 million in annual production it already has. “It would give them a stronger position in northern Appalachia and better access to reserves they already own. It's about as close as you can come to a win-win for Consol and Murray, and the people who work at those coal mines.”
In an update, Consol said its gas division produced 46.1 billion cubic feet during the quarter, or 17 percent more than in the same period in 2012. The company forecast between 43 billion and 45 billion cubic feet.
“Our gas production growth is beginning to accelerate as we and our Marcellus shale partner expand the rig count. We now have a record 8 rigs drilling in the Marcellus shale on our joint venture acreage. For 2014, we and Noble Energy expect to be operating at least this many rigs,” said Harvey.
“Our rebounding rig count and our well results will, we believe, enable us to achieve our 2014 production guidance of 210-225 billion cubic feet, which represents a 22-30 percent growth rate over expected 2013 production.”
Consol said it signed a definitive agreement for infrastructure build-out in the Utica shale in Noble County, Ohio.
Its coal division produced 14.5 million tons for the third quarter of 2013, including 1.1 million tons of low-volatility coking coal from the company's Buchanan Mine. That exceeded a forecast of 13.4-13.9 million tons, which included low-volatility tons of 700,000 to 900,000 tons.
The results came despite a partially collapsed coal conveyor belt at Consol's Bailey preparation plant in Greene County in August. It halted operation of longwall mining machines at the Bailey and Enlow Fork mines for about two weeks.
As of Sept. 30, Consol said its coal inventory increased by 158,000 tons to 1.08 million tons.
John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or firstname.lastname@example.org.