Consol posts $116M profit in 1st quarter
Increased revenue and production from more efficient gas drilling helped Consol Energy Inc. turn a profit in the first three months of the year, despite low demand and prices for its metallurgical coal.
The Cecil-based company on Tuesday reported net income of $116 million, or 50 cents per share, during the first quarter, improving over a loss of $1.6 million, or 1 cent per share, in the same period last year.
The performance mirrors results during the past week from energy companies EQT and Range Resources, which posted profits attributed largely to revenue and production gains from Marcellus shale drilling. Rex Energy also posted a first-quarter profit on Tuesday, reversing a loss from a year ago.
Advances in drilling technology and technique are helping energy companies working in Appalachia to lower production costs and wring out more profits despite depressed prices. Prices have fallen by half from their peak in 2008 but have been rising recently. Consumption has increased.
“It is a big deal and is very positive that they are accelerating these techniques,” said Michael Dudas, an analyst with Sterne Agee in Birmingham, Ala. “You get more return from the fixed investment.”
Consol President Nick DeIuliis, who will become CEO next month, predicted 30 percent annual growth in drilling as the company finds faster and cheaper ways to tap the shale. Consol and its partner, Noble Energy, drilled 35 Marcellus wells and seven in the Utica shale during the quarter.
Officials emphasized techniques that cut time spent drilling and moving rigs, and that cluster more wells on fewer pads, which cuts costs and increases production.
The turnaround in Consol's performance in the first quarter suggests its bet on gas drilling is paying off. The company sold five coal mines West Virginia last year to Ohio-based Murray Energy Corp. in an effort to shift its emphasis from coal to natural gas.
The company reported $969 million in revenue, a 15 percent increase from $843 million during the same period a year ago. Gas and liquid sales drove much of that; coal revenue dipped slightly, from $548 million to $535 million.
The earnings “beat our estimates on significantly higher gas realizations, impressive thermal (coal) cost performance, and (a) drop in Marcellus unit costs,” Dudas said. Analysts expected, on average, earnings of 19 cents per share on nearly $912 million in revenue, according to FactSet.
The performance sent the company's stock up $1.98, or 4.7 percent, to $43.93 on Tuesday.
Dudas said Consol's record of efficient operations in mining is translating to drilling. “They've done it in the coalfields for generations. That didn't just happen overnight,” he said.
Consol expects growth in its remaining Pennsylvania mines, including Bailey Mine Extension that opened this year in Greene County. Officials said they sold all the coal they scheduled to mine from Bailey this year, and they expect 20 to 30 years of production from the mines that produce coal for power plants.
Consol is dialing back production of coking coal from its Virginia operations, though, because of a tough international market. It is pulling tons sold to China because of low prices and demand.
“For lack of a better term, it's horrible,” DeIuliis said of the metallurgical coal market. He said the Buchanan Mine will remain poised to ramp up. “The market rebound will occur. It always does.”
Dudas said the cost of running that mine is low enough that reducing production won't hurt the company.
Consol expects prices and demand for thermal coal, primarily used to generate electricity, to increase during the next few years as markets look to replenish stockpiles that a cold winter cut in half.
“Our outlook for coal generation is a very bullish one,” said Jim Grech, Consol's chief marketing officer.
After the market closed on Tuesday, State College-based Rex Energy reported net income of $8.9 million, or 17 cents a share, compared with a loss of $2.8 million, or 5 cents a share, during same period in 2013.
Revenue doubled to $96.6 million from $47.5 million a year ago. Rex credited record quarterly gas production and announced two pipeline contracts to move gas to the Midwest and Gulf Coast.
David Conti is a Trib Total Media staff writer. Reach him at 412-388-5802 or email@example.com.