Shale operations 'a real diamond,' says Consol Energy CEO
Consol Energy Inc. expects to decide on spinning off some of its pipeline and processing operations in the Marcellus shale this year as a master limited partnership, a “company within a company” concept that energy firms are using to raise money, its new CEO said Wednesday.
Former company President Nicholas DeIuliis took the reins of the Cecil-based gas and coal company after an annual meeting at which shareholders rejected proposals to issue a climate-change report, separate the CEO and board chair functions, and require more reporting of political activities by executives.
A week after announcing it earned $116 million during the first three months of the year, reversing a loss from a year ago, company executives said little during the 15-minute meeting and nobody debated the proposals.
Afterward, DeIuliis outlined a few key objectives for 2014, including the likely separation of some midstream operations.
“It's a real diamond that doesn't get the value and share price it deserves,” he said of the operations.
DeIuliis said Consol would decide before its next quarterly earnings report in July and would complete any moves before the end of the year.
Forming what's known as an MLP would move the infrastructure operations from being just an asset within Consol to a revenue- and investment-generating venture over which Consol retains strategic control, he said.
“They can provide steady income. There's more predictability and less volatility. They're not as exposed to commodity prices,” said Lysle Brinker, an equity research director in Norwalk, Conn., for analyst IHS.
Investors like the high yield the partnerships can generate, and firms like to keep control of the assets, Brinker said.
Such partnerships have found success in the Marcellus, where demand continues for pipelines, compressors and processors to take the bountiful gas from the increasing number of wells.
Downtown-based EQT Corp. in 2012 established EQT Midstream Partners to operate its pipeline systems. Last month, the spinoff reported net income of $34.9 million in the first quarter, a 30-percent increase from the same period last year. EQT continues to sell more assets to the partnership.
“It can be a good capital strategy and get the corporation more money to buy leases and accelerate drilling,” Brinker said. “It's pretty much a win-win, and tax laws allow it.”
MarkWest Energy Partners, the largest gas processor in the Marcellus, is an MLP formed in 2002. The Denver-based company this week said it was expanding two plants in West Virginia. On Wednesday, it reported net income of $12.5 million in the first quarter, up from a $15.5 million loss in the first three months of 2013.
Consol reported huge growth in the Marcellus — a 94-percent increase in production over the first three months of last year — and DeIuliis predicted it will continue. The company will concentrate on the deeper Utica shale in Ohio and Pennsylvania.
On the coal side, DeIuliis expects success in the Bailey mine complex in Greene County, which produces thermal coal for electricity generators. But the Buchanan mine in Virginia, which produces metallurgical coal for steelmaking, remains a “very, very challenging situation,” he said.
The company last week laid off 188 workers at the mine because of low prices on the international market. DeIuliis said he expects the remaining 417 employees there to keep their jobs. Some can get work in Pennsylvania, where Consol is likely to add jobs in the mines and in the gas sector, he said.
DeIuliis succeeds CEO J. Brett Harvey, who will stay on for at least a year as board chairman. A group of shareholders who control investments in New York public pensions through the city's comptroller proposed a policy to require that the chairman not be a current or former employee. About 40 percent of shareholders voted for the change.
Such policies are more common outside the United States. A Consol spokeswoman said the board would choose its next chairman from among its members.
A proposal from the New York state comptroller to require more political reporting received yes votes from less than 12 percent of shareholders. The proposal by an environmental group to require that Consol issue a climate change plan got about 15 percent of the vote.
David Conti is a staff writer for Trib Total Media. He can be reached at 412-388-5802.