Consol posts lower profit on tumbling gas, coal prices
Consol Energy Inc. spent 84 days and $9 million drilling the first of four wells into the Utica shale from a pad in Monroe County, Ohio. By the fourth well, drillers got it down to 30 days for less than $5 million.
Tim Dugan, the company's chief operating officer for gas, predicts drilling wells in the high-pressure, high-production layer beneath the Marcellus shale will be done for less than $4 million and in fewer than 23 days.
“We expect the same level of cost improvement in the rest of our dry Utica areas,” he told analysts Friday while discussing financial results from the last three months of 2015 and plans to increase gas production this year.
Such cost-cutting in the gas and coal sides of Consol's business, combined with a 35 percent boost in gas production, helped the Cecil-based company offset tumbling revenue from low prices and weak demand for both products.
Consol reported net income of $30.4 million, or 13 cents per share, during the fourth quarter of 2015, less than half the profit of $73.7 million, or 32 cents per share, it posted in the same period a year before.
Prices and demand for both of its primary products fell through 2015, pushing Consol to slash capital spending, lay off workers mid-year and stop drilling wells. This month, the company idled one of its five longwall mining sections in the Bailey coal mine complex beneath Greene and Washington counties as it dialed back production estimates for 2016 to a 15 percent rise.
Consol cut total costs and expenses during the fourth quarter by nearly 30 percent to $603 million. But total revenue fell by 18 percent compared with the same period a year before as a warm start to winter cut coal demand from power plants and natural gas prices fell to 16-year lows in December.
“It's truly an unprecedented time in every way, shape and form,” CEO Nick DeIuliis said.
Analysts and investors saw positives in Consol's moves to reduce costs while getting more gas from wells, especially in the Utica shale. Its stock, which lost more than 80 percent of its value last year, jumped more than 17 percent Friday to $7.94.
“They are continuing to drill fantastic wells,” said analyst Neal Dingmann of SunTrust Robinson Humphrey in Houston. Consol's moves to shore up its balance sheet by cutting capital spending and to hedge some future sales prices also were good signs, he said.
“They have some stability that others don't have,” Dingmann said.
Consol is not seeking to sell assets as aggressively as it had several months ago, DeIuliis said. It still doesn't plan to drill more wells in 2016 as it focuses on bringing online 67 wells that were previously drilled but not completed. But if prices improve and provide more cash, the company could drill more Utica wells.
“We believe we're positioned to ride out this environment,” DeIuliis said
On the coal side, Consol cut production costs by about $3 per ton to just under $42 as average sales prices fell 13 percent to $52.57 per ton of thermal coal — used at power plants — and to $48.41 per ton of metallurgical coal used to make steel.
David Conti is the assistant business editor at the Tribune-Review. Reach him at 412-388-5802 or firstname.lastname@example.org.