Consol focusing more on gas business
As they plan for another challenging year in the natural gas market, Consol Energy executives can focus on the Marcellus and Utica shales with one less distraction: the coal that once dominated its business.
With the recent sale of its metallurgical coal mine in Buchanan, Va., and the handoff of most corporate functions at the remaining Pennsylvania mine complex to its spin-off partnership, CNX Coal Resources, Consol has nearly finished its transition to a gas company, more than 150 years after it started mining.
“Instead of a coal company with an E&P (exploration & production) arm, we're an E&P company with a coal arm,” Chief Financial Office David Khani told the Tribune-Review on Tuesday after the Cecil-based company released first-quarter financial results and discussed recent changes with analysts.
“We're trying to get everyone focusing on what they do best,” he said.
Consol was the nation's fifth-largest coal producer before it sold the five West Virginia mines that held its original name — Consolidation Coal Co. — in 2013. Its sale of the Buchanan Mine to Coronado Coal for $460 million, which closed on the last day of the quarter, comes less than a year after it took public CNX Coal, which CEO Nick DeIuliis said will eventually own 98 percent of the mine complex beneath Greene and Washington counties.
CNX Coal this week reported a $2.5 million profit on its 20 percent interest in that complex, despite reduced production and demand, as it cut per-ton costs to a six-year low. During their call with analysts, Consol executives said they would concentrate on gas and referred questions about coal to CNX Coal.
The gas business will require their full attention as low prices and tepid demand continue to cut into profits. Consol reported a loss of $97.6 million, or 43 cents per share, during the first quarter, down from a profit of $79 million or 34 cents per share last year. The results include both its gas and coal operations, including the interest in CNX Coal.
Total revenue decreased 30 percent to $559 million, and gas revenue fell 19 percent despite a boost in production to record levels for the company.
Analysts congratulated Consol for reducing its gas production cost by 50 cents to $2.41 per thousand cubic feet, and investors appeared pleased by the results. Its stock closed up 8 percent to $14.16, its highest close since Sept. 3
Consol said its lenders reaffirmed its $2 billion borrowing base last week.
“We have been very disciplined,” Khani said. “We pulled back activity ... threw down rigs midyear last year. We're not going to waste capital drilling new wells.”
The company was among the first to stop drilling new Marcellus and Utica wells last year to concentrate on bringing online previously drilled wells, a lower-cost approach to increasing production. Since then, the number of drill rigs working in the region has fallen to levels not seen in a decade, and some competitors have projected flat or falling production this year.
Executives expect the slowdown in drilling and eventual increase in pipelines serving the region will result in improved prices next year. Consol will start deciding in the next three to six months when to restart drilling, probably close to where it has completed highly productive Utica wells in Monroe County, Ohio, and Westmoreland County, DeIuliis said.
Until then, Khani said, the company is well-positioned to weather the low-price storm. It expects to finish the year with an inventory of 79 drilled wells waiting to be brought online.
“We won't need a lot of capital to drill and produce,” he said.
David Conti is the assistant business editor at the Tribune-Review. Reach him at 412-388-5802 or email@example.com.