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Continued cost-cutting is helping Consol Energy in turning a profit

| Tuesday, Oct. 27, 2015, 7:48 a.m.
Each new unconventional well drilled into the Marcellus Shale is subject to the state impact fee. Some of the money is distributed directly to counties to offset the costs of increased drilling activity.
Trib Total Media
Each new unconventional well drilled into the Marcellus Shale is subject to the state impact fee. Some of the money is distributed directly to counties to offset the costs of increased drilling activity.

Consol Energy Inc. is planning to target a strip of Utica shale in Ohio when it emerges from a stretch of cost-cutting that has included a halt in new gas drilling.

“Our excitement continues to grow for the dry Utica,” CEO Nick DeIuliis told analysts Tuesday while discussing third-quarter financial results that were dominated by low gas and coal prices and efforts to reduce the cost of producing both. “We expect Monroe County, Ohio, to become a much bigger part of our development over the next couple of years.”

Like other Marcellus producers, the Cecil-based company is getting huge results from a few new wells tapping the deeper Utica. If the company can keep lowering the cost of tapping that high-pressure shale, it might shift more resources there when it plans to resume drilling in 2017.

“If the Utica truly does move the cost curve down … logic indicates that Utica development will displace other high-cost development,” said Tim Dugan, chief operating officer for gas exploration and production. He said plans to eventually drill in 40 spots in Monroe County could “serve as an analogue” for the northern Panhandle of West Virginia and in Western Pennsylvania, where Consol this year drilled a very productive Utica well in Westmoreland County.

Fellow Pittsburgh gas producer EQT Corp. last week said it planned to focus Utica shale development in a strip of Pennsylvania and West Virginia.

Both companies said getting costs down is key. A glut of natural gas from increased production, along with a shortage of pipelines to carry it away and tepid demand, have cut prices in half and pummeled profits for most producers.

Consol responded this year by reducing its workforce and capital spending, halting new drilling and seeking buyers for some assets. Officials declined to give specifics on the status of any pending sales.

“Those who make the prudent decisions now in terms of controlling expenses and deploying capital … they're going to be rewarded in the long run,” DeIuliis said.

The sale of its share in a smaller mine and reductions in retiree health benefits helped the company turn a profit in the third quarter. It reported net income of $119 million, or 52 cents per share, in the three months ended Sept. 30, compared to a loss of $1.6 million, or 1 cent per share, in the same period last year.

Gas production increased by a third during the quarter, and Consol reduced its fracking and mining costs. But lower prices cut revenue from gas and liquids sales by 21 percent to $202 million, and from coal sales by 16 percent to $404 million.

Removing gains from the sale of its interest in the Western Allegheny Energy mines, cuts in retiree health benefits and commodity contracts, Consol reported an adjusted net loss of $64 million, or 28 cents per share, in the quarter.

Stock fell 21 percent to $6.97.

Company officials said they expect prices to moderate as more competitors reduce drilling and ratchet down the big production increases they posted for several years.

On the coal side, the CNX Coal Resources master limited partnership that it spun off this year to operate Consol's Pennsylvania mines reported a $14.7 million profit during the quarter. Consol said it has contracted to sell about 74 percent of the coal it expects to produce next year.

DeIuliis said the company is selling more thermal coal to power plants in the Upper Midwest and Southeast and contracting with more domestic steelmakers to buy its metallurgical coal.

David Conti is a staff writer for Trib Total Media.

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