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Investor pushing changes at Consol Energy

| Tuesday, July 21, 2015, 10:48 a.m.
The Consol Energy Inc. headquarters building in Cecil Township, Washington County.
Bloomberg
The Consol Energy Inc. headquarters building in Cecil Township, Washington County.

An activist investor that recently raised its stake in Consol Energy Inc. to more than 21 percent of its shares is pushing the Cecil-based company to sell or spin off some natural gas holdings to raise money while it battles low prices.

Southeastern Asset Management, which three years ago helped bring huge management changes to shale driller Chesapeake Energy, told federal regulators it will discuss with Consol management, board members and potential buyers its ideas for getting more money from those gas assets.

“While Southeastern applauds many of the actions of the board and management of (Consol) over the last two years, in our view it is now time for the company to accelerate its efforts to build and realize value per share,” the Memphis-based firm wrote in a Securities and Exchange Commission filing late Monday.

Southeastern is Consol's largest shareholder and said its officials have had “productive” discussions with management in the past.

Consol said it's interested in hearing details from Southeastern.

“We value the opinions of all of our shareholders, and certainly a major shareholder such as Southeastern,” Consol spokesman Brian Aiello said. “We are confident in the strategic direction we are in the process of executing, and look forward to working with Southeastern and all of our shareholders to continue to unlock the inherent value of Consol Energy.”

Consol stock closed up more than 5 percent at $17.55, a day after hitting a one-year low during trading Monday. That's 49 percent lower than its prices six months ago.

Southeastern, led by founder O. Mason Hawkins, declined to comment beyond the SEC statement it filed nearly 12 hours after Consol warned investors it would report an unspecified operational loss for the second quarter next week because of low coal and gas prices.

Hawkins might be interested in splitting Consol's more lucrative gas assets from coal operations that are weighing down the company in a depressed market, said Evan Mann, an analyst with New York-based research firm Gimme Credit.

“As it becomes a pure play (gas company), maybe someone would have some acquisition interest,” he said.

Southeastern said it believes Consol's gas assets — which include nearly 250 producing shale wells in Pennsylvania, 10,000 conventional wells across four states and acreage in the Utica shale — “are worth demonstrably more than the company's total equity capitalization today.”

It pointed out that Consol holds more land through fee ownership — meaning it owns the gas rights instead of leases them — than competitors. Selling or leasing that ownership to others could provide Consol with cash, said Kent Moors, editor of Oil & Energy investor.

“You can generate money from other uses of that land,” Moors explained. That can include leasing the rights to other shale layers above or below the Marcellus, he said. Consol also owns a lot of land through its coal operations.

“If you (make money from) it and it's an adequate market value, you can use that for collateral,” he said.

Southeastern's filing focused on Consol's gas assets but said it would help Consol “realize value” for its coal operations and an export terminal in Baltimore. Consol, which generates more than half its revenue from mining despite its recent pivot to gas, this year started a spinoff to operate its Pennsylvania coal mines.

Low prices for both fossil fuels prompted cost-cutting measures that include layoffs of more than 600 employees, a slashing of its drilling budget, the cutting of hours at its coal mines and changes in retiree health benefits.

Consol said company officials next week would discuss ways to “generate free cash flow over the next 18 months” while maintaining its plan to increase gas production by 30 percent this year over last.

Southeastern's Hawkins in 2012 teamed with activist investor Carl Icahn to prompt changes in the board at Oklahoma-based Chesapeake Energy and force the ouster of CEO Aubrey McClendon. Chesapeake is Pennsylvania's second-largest shale producer by volume; Consol is No. 10.

Moors said he expects less hostile dealings between Southeastern and Consol.

“They may make recommendations that the management doesn't like, but Southeastern has the advantage of deep pockets. It knows the market and knows the board,” Moors said.

David Conti is a Trib Total Media staff writer. Reach him at 412-388-5802 or dconti@tribweb.com.

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