Consol raises shale forecast but predicts 2Q loss
More Marcellus gas wells and smarter drilling techniques are driving up production estimates at Consol Energy Inc. even as prices tumble.
Gas production in April, May and June increased 34 percent over the same period last year, “and the Marcellus shale remains the growth driver,” the Cecil-based company said on Tuesday in an update before its quarterly earnings report due on July 29.
The company increased its annual gas production forecast by nearly 10 percent and predicts 30 percent growth through 2016. But it lowered projections for metallurgical coal and warned that it will post a loss for the second quarter primarily because of one-time expenses.
Consol's shares sank $1.05, or 2.4 percent, to $42.51. The stock has retreated from a one-year high of nearly $48 last month amid concerns about the impact on the coal industry from tougher federal regulations on coal-fired power plants.
Consol has been putting more emphasis on gas after decades as a coal company. But increased shale production causes a conundrum for gas drillers: While companies may have more gas to sell, a glut could pressure prices and impact their bottom lines.
The Energy Information Administration predicts daily gas production in the Marcellus, the nation's most prolific shale play, will surpass 15 billion cubic feet, compared with about 12 billion a day at the beginning of the year.
A glut of gas put this month's prices on pipelines into New York and New England at their lowest points in two years, ranging between $2.24 and $2.59 per British thermal unit.
“This supply growth, coupled with known transportation constraints, is responsible for increasing price weakness in the Appalachian region this summer,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a note to clients.
Consol's update did not address prices but said the company would post a second-quarter loss because of bond refinancing, a new revolving credit arrangement and a pension settlement charge, offset by income from a coal contract buyout. A spokeswoman said officials could not elaborate on the “one-time items” before the earnings statement release.
Consol reported a $13 million net loss in the same quarter last year. It posted a $116 million profit in the first three months of 2014.
The company in May laid off 188 workers from its Buchanan Mine in Virginia, which mostly produces metallurgical coal for steelmaking. CEO Nick DeIuliis has called the international market for that coal “horrible,” and the company lowered its expected annual production from that mine by about 8 percent.
Its overall coal forecast remained unchanged from spring estimates because production of thermal coal from the Bailey Complex in Washington and Greene counties remains high.
Consol said it is reworking some wells, getting more gas out of new wells and cutting the time between drilling and production.
“These improvements will not only help compress cycle times, but will also result in growing our gas production even more efficiently,” DeIuliis said in the production update.
J. Marshall Adkins, an energy advisor for investment bank Raymond James, said such efficiencies could make exploration and production companies profitable despite low prices.
“With rising U.S. production and falling costs per unit of production, U.S. E&P companies are now poised to actually grow cash flows even in a flat or modestly lower energy price environment,” Adkins wrote in a note to clients. “This dramatic shift (driven by the increased horizontal well efficiencies) should lead to a more sustainable (5-10 year) improvement in U.S. E&P profitability and capital efficiency.”
Bloomberg News contributed to this report. David Conti is a staff writer for Trib Total Media. He can be reached at 412-388-5802 or firstname.lastname@example.org.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- EPA talks on pollution limits trigger protests, arrests Downtown
- 3 things to know about Do Not Call registry
- Software developers aim to ease crush of emails for businesses
- Trib 30 index drops nearly 5%
- French company Iliad bidding for T-Mobile US
- Target replaces interim CEO, names Pepsi’s Cornell
- Vitaminwater goes back to old formula because of outcry
- 1,100 layoffs planned at Alpha coal mines in W.Va.
- SeaWorld, Southwest Airlines to end partnership
- Fast-food scandals in China troubling for industry
- It’s lights out for Bayer sign on Mt. Washington