Diversified fuel producer CONSOL Energy Inc. (CNX) provided its first quarter 2012 gas and coal production updates, and also reaffirmed its second quarter and fiscal 2012 production numbers.
First Quarter 2012 Production Numbers
CONSOL Energy’s coal segment produced 15.7 million tons in the first quarter of 2012 compared with 17.2 million tons in the year-ago quarter. The decline in production is the result of the idling of the longwall system at the Blacksville Mine and Buchanan mines. During the last earnings release, the company had estimated coal production to be 15.2 million tons in the first quarter of 2012.
In the first quarter of 2012, the gas division generated 37.7 Bcf (billion cubic feet), up 13% year over year from 33.5 Bcf in the first quarter of 2011, following the sale of 2.4 Bcf of the quarter’s production to Noble Energy and Antero Resources.
Second Quarter 2012 Production Guidance
In the second quarter of 2012, the company expects the gas division to generate approximately 37-38 Bcf compared with 37.7 Bcf in the first quarter of 2012. The slight production growth is expected to be driven by new wells, partially offset by lower coalbed methane (CBM) volumes related to the idling of the longwall at the Buchanan Mine.
Fiscal 2012 Production Guidance
The company did not provide fiscal 2012 coal production guidance since the idled longwalls at the Blacksville and Buchanan mines made estimation difficult. During the January 2012 earnings release, the company provided its fiscal 2012 coal generation guidance. It expects production to be in the range of 59.1 – 61.1 million tons. In 2012, CONSOL Energy expects to generate roughly 300,000 tons of mid-vol metallurgical coal from the Amonate Mining Complex, which resumed operations. The longwall systems at the Blacksville Mine and the Buchanan Mine are ready to meet the market requirements.
CONSOL Energy expects its 2012 gas production to be in the range of 157 – 159 Bcf compared with its earlier issued production estimate of 160 Bcf and 153.5 Bcf reported in fiscal 2011. The increase in gas generation will likely be driven by full volume production from eight Marcellus wells at the Aikens pad in Central Pennsylvania and one well at Morris 9-D in Southwest Pennsylvania; expected completion of Altonand Phillipi wells in Northern West Virginia, and four recently on line wells at GreeneCounty in Southwest Pennsylvania.
2012 Capex Program
In 2012, the company is expected to invest $720 million in its coal division. The expenditure will be directed toward increasing production efficiency and project maintenance. The company also plans to invest $755 million in its gas division for increasing production from its shale gas assets and overall development.
Our Take
We believe that CONSOL Energy is well positioned with a deep and diversified portfolio and low-cost coal production competence. We expect the company to perform reasonably well, registering consistent growth through the year.
The company’s dependence on a small cluster of consumers for bulk sales, increase in costs of coal production, stringent legislations, penalties on underground mining, and rising competition from other renewable power generators concerns us.
CONSOL Energy at present retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating.
Based in Canonsburg, Pennsylvania, CONSOL Energy is a multi-fuel energy producer as well as energy services provider, primarily catering to the U.S. power generators. The company mainly competes with Arch Coal, Inc. (ACI) and Peabody Energy Corporation (BTU).
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