Consol Energy, Range Resources report 2Q losses, plan deeper cuts
Months of cost-cutting at some of Pennsylvania's top Marcellus shale gas producers hasn't stemmed the bleeding caused by low prices.
Range Resources Corp. and Consol Energy Inc. swung to deep losses Tuesday for the second quarter after posting profits in the first three months, despite record gas production and spending reductions. Both companies plan to reduce activity more drastically because of low prices while increasing production.
“The market is telling everyone to think differently,” said Michael Dudas, an analyst with Alabama-based Sterne Agee CRT.
Fort Worth-based Range, which has the most shale wells in Pennsylvania, will cut its rig count from 15 in January to six by year's end. It swung to a loss of $118.6 million, or 71 cents per share, for the quarter, from a profit of $171.4 million, or $1.04 per share, a year earlier.
Cecil-based Consol, which is pinched by low gas and coal prices, reported a net loss of $603 million, or $2.64 per share, during the quarter that ended June 30, even deeper than the $25 million, or 11 cents per share, loss it reported last year.
The results, which the company warned about last week, include an $829 million write-down of shallow, conventional gas and oil wells across Appalachia. Without that write-down and other one-time accounting changes, Consol posted an adjusted loss of $84 million, or 37 cents per share.
The company, which said it will stop drilling new wells through next year, is further slashing its spending and will consider options including an outside partner for its metallurgical coal mine in Virginia.
“We're confident in the transformative plan we're in the process of executing, despite the short-term challenges the entire industry is contending with,” CEO Nick DeIuliis told analysts.
Consol shares closed up 2.3 percent to $17.75.
A 40 percent drop in gas prices since last fall, coupled with a larger drop in oil prices, is cutting deeply into most producers' profits. Pennsylvania's top shale gas producer, Cabot Oil & Gas, last week reported a $27.15 million loss. Southwestern Energy this week posted an $815 million loss, partly fueled by a write-down of the value of land and wells it bought in the Marcellus shale during the past year.
Range cut its spending plan at the beginning of the year by more than 40 percent. CEO Jeff Ventura said in a statement he expects prices to improve this year as two pipeline projects come online and take gas and related liquids to more lucrative markets.
Range will discuss its earnings during a call Wednesday. In after-hours trading, shares were down 2.9 percent to $42.70.
Consol outlined ways it hopes to increase production while spending less, starting by fracking and completing drilled wells, and focusing on promising results from a Utica shale well. The company cut its capital budget for drilling a further 20 percent to $800 million and plans to spend $400 million to $500 million next year. It recently announced layoffs of more than 10 percent of its workers.
Management laid out a plan “on how to continue the growth of the company in a capital-efficient way, in a god-awful commodity environment, while preserving their ability to continue to monetize, spin and create value, again, in the face of a god-awful environment,” Dudas said.
Huge early gas flow from a new Utica shale well in Westmoreland County shows the potential to increase production while spending less.
“The recent buzz over Utica well results plays into Consol's portfolio,” Tim Dugan, chief operating officer for gas, told analysts, mentioning fellow driller EQT Corp.'s discussion last week of a new top-producing Utica well in Greene County.
The Utica well in Washington Township, the initial production from which is second only to what EQT reported from its latest well, was drilled from a Marcellus pad and opens a new area for development or to be sold off, the company said. Consol has Utica acreage close to the EQT well and in Monroe County, Ohio.
Focusing development on core areas where it has existing well pads and infrastructure will create what DeIuliis called a “much more concentrated activity footprint.”
Consol's largest investor, Southeastern Asset Management, last week pushed the company to spin off or sell some of its gas holdings.
On the coal side, the company is delaying its plan to spin off its metallurgical coal mine in Virginia into a publicly traded unit as it did this month with its Pennsylvania mines. Instead, Consol said it will consider shifting that mine to its Pennsylvania spinoff, CNX Coal Resources, or “the possibility of partnering with a third party to grow this asset through consolidation.”
David Conti is a staff writer for Trib Total Media. He can be reached at 412-388-5802 or firstname.lastname@example.org.