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Consol's 1Q returns fall $95 million

| Thursday, April 29, 2010

Consol Energy Inc. said Thursday that first-quarter profit fell 48.8 percent amid lower coal prices.

Profit dropped to $100.3 million, or 54 cents a share, from $195.8 million, or $1.08, a year earlier, Cecil, Washington County-based Consol said. The company was forecast to earn 78.4 cents, according to the median of 11 analyst estimates compiled by Bloomberg. Sales for the quarter rose 1.7 percent to $1.24 billion from $1.22 billion.

Chief Executive J. Brett Harvey said the company fetched lower prices for its coal as sales agreements were negotiated amid the most severe recession since the 1930s, but that the company believes 2010 will be a strong year for all three of its coal business categories.

"It's the lag effect," said Pearce Hammond, an analyst at Simmons & Co. International in Houston. "Even though things are better, contracts were signed during the recession. They're living in '10 with '09 prices."

Considering operating costs and timing, "there's a lot of moving parts, so it's not that big of a deal" that the company came in below analyst estimates, said Michael Dudas, an analyst at Jefferies & Co. in New York.

A major drag on quarterly profit was the $46.6 million Consol spent related to its $3.5 billion deal to acquire Dominion Resources Inc.'s Appalachian Basin natural gas-related assets. Consol announced yesterday that the transaction closes today.

The Dominion deal makes Consol the largest natural gas producer in the Appalachian Basin, surpassing the current leader, Pittsburgh's EQT Corp. The roughly 500,000 acres Consol acquired from Dominion are located in the Marcellus Shale formation, a huge formation that covers 63 million acres in seven states, including much of Pennsylvania.

Consol said its average metallurgical coal price fell 22 percent to $113.76 per ton and its thermal coal price slumped 5.2 percent to $53.79 a ton. Consol's high-volatile steelmaking coal averaged $75.53 a ton.

The company said this year it will sell 57.5 million tons of thermal coal used by power plants, up from an earlier estimate of 56 million tons. Consol will sell 4.7 million tons of low-volatile metallurgical coal from its Buchanan Mine in Virginia at an average price of $144.06 per ton and said it has 900,000 tons for 2011 priced at $170 per ton.

Consol also will sell 3 million tons of high-volatile metallurgical coal this year with 2.1 million contracted at $73.70 per ton. Metallurgical coal is used in the steelmaking process

Consol expects to ship 63 million to 68 million tons of coal in 2011, including exports of metallurgical supplies to China of more than 3 million tons, Harvey said on a conference call with analysts and investors.

If Chinese demand remains strong and the global economy improves, Consol could potentially ship a higher volume of metallurgical coal to overseas markets," the company said in the statement.

Demand for the fuel has been driven by the recovering global economy and consumption in China. Consol in the quarter sold 410,000 tons of metallurgical coal to the country.

CNX Gas Corp., of which Consol holds more than 82 percent of outstanding shares, also reported a first-quarter profit decrease, caused by increased natural gas-related production and product gathering costs.

CNX had profit of $45.6 million, or 30 cents a share, compared to $54.9 million, or 36 cents a share one year ago. Revenues rose 7.8 percent, to $192.3 million from $178.4 million.

The average sales price per thousand cubic feet of natural gas, fell year-over-year, to $7.24 from $7.37, while total costs increased to $3.75 per thousand cubic feet, from $3.29 during 2009's first quarter.

Consol also has commenced a tender offer for common shares in CNX is doesn't already own, offering $38.25 per share cash, or about $965 million.

The CNX Gas board has advised company shareholders to hold off on accepting the Consol offer until board member John Pipski has evaluated the offer.

Bloomberg News and staff writer Rick Stouffer contributed to this report.

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