Consol Energy posts $74M profit in fourth quarter
Consol Energy Inc. plans to trim capital spending on natural gas development but avoid the more drastic cuts other shale companies are announcing as it continues to ramp up production.
The Cecil-based gas and coal company on Friday said it will spend about $1 billion on development in the Marcellus and Utica shales, a drop of 23 percent from the $1.3 billion it spent last year on that business segment.
Competitors including Range Resources and Rex Energy have cut spending for this year by 40 percent as natural gas prices hit two-year lows, and Chevron is laying off up to 162 of its 700 workers in Appalachia.
Consol can cut costs by drilling on existing well pads and seeking reductions from contractors while squeezing more gas from wells with better technology, company leaders and analysts said. It predicts a 30 percent increase in gas production this year and next.
“We'd like to keep that activity level intact, so we'll partner with the right service companies to keep that in place,” Chief Financial Officer David Khani told analysts while discussing the company's fourth-quarter financial results.
Money from the company's coal mines, which can run without larger capital expenses because of improvement projects Consol finished last year, can help fund the drilling program.
“It really is a positive,” said Neal Dingmann, an energy analyst at Atlanta-based SunTrust Robinson Humphrey. “Because they didn't have to cut as much ... it's a benefit a lot of pure (exploration and production companies) don't have.”
Consol's stock closed down 31 cents, or 1 percent, at $28.95 in a broad market decline after reaching $31.13 before noon.
The company posted a profit of $74 million, or 32 cents per share, during the quarter that ended Dec. 31, down from the $738 million it recorded during the same period a year ago when it sold five coal mines to Murray Energy. Excluding the mines it sold, income in the previous year's quarter was $146.6 million.
Revenue increased on both the gas and coal side to a total of $936 million, a 13 percent increase from a year ago.
The company increased gas production by 45 percent during the quarter. CEO Nick DeIuliis said the company had surprisingly good results from Utica wells and has cut the cost of drilling and completing them.
“Even in a lower commodity price environment, we're able to make good returns and good profits,” he said.
The increase occurred despite a fatal accident involving a pipeline contractor at a Ohio well that prompted a shutdown of some wells while Consol reviewed safety procedures. The company said the Nov. 12 death of a Blue Racer Midstream worker in Noble County “unearthed operational standards that led Consol to question the safety procedures of” Blue Racer. Production was ramping back up at the wells.
“Blue Racer has a safety-first culture and best practice safety protocols that exceed basic standards,” the Dallas company said in a statement responding to Consol's comments. “This was a tragic accident and accidents always cause a business to look even harder at safety. Continuous learning and improvement are constant objectives at Blue Racer. We continue to work closely with Consol, and all of our customers, on a daily basis to ensure that we meet those objectives.”
On the coal side, Consol said its Pennsylvania operations in the Bailey, Enlow Fork and Harvey mine complex produced the expected level of 8 million tons during the quarter. More than 80 percent of what it expects to mine there this year already is under contract.
Its Buchanan Mine in Virginia, which produces metallurgical coal for steelmaking, remained on a reduced schedule because of a weak international market. Consol last year cut jobs and eliminated a third shift at the mine.
Consol in December announced plans to spin off the Pennsylvania mines that produce thermal coal into a publicly traded limited partnership, and the metallurgical coal operations into a subsidiary. The thermal spinoff is planned for mid-year, and Consol expects to make the met coal subsidiary public near the end of the year.
Added to the muted spending cut and good cash flow from the mines, the planned spinoff and IPO give Consol a better outlook during a year that fellow gas companies are starting with stricter austerity measures, Dingmann said.
David Conti is a staff writer for Trib Total Media.