| June 11
June 11 As the U.S. Environmental Protection
Agency rolls out tough new rules designed to slash power plant
emissions, Consol Energy Inc is showcasing its
transformation from a coal miner to a producer of
cleaner-burning natural gas.
Founded when Abraham Lincoln was president, Consol was once
one of the world's largest coal producers, with a niche natural
gas operation. Last year it sold five large coal mines to Murray
Energy Corp as part of a plan to flip that dynamic on its head.
Despite the transformation, some investors still think of
Consol primarily as a coal company because executives have not
shared as much data about drilling results and other well
performance metrics as their peers.
But Consol is quickly changing tack. It is hosting a
full-day analyst meeting on Thursday in New York to review in
detail all coal and natural gas assets, a step executives hope
will sate investors.
"The more information we can get, the better," said Clarkson
Capital Markets analyst Jeremy Sussman. "It would allow analysts
to evaluate them more as a gas and a coal company, as opposed to
a coal company with a gas business."
Consol doubled natural gas production in the first quarter
and told investors that output could grow 30 percent per year
through 2016 by developing land in Pennsylvania and Ohio bought
from Dominion Resources Inc in 2010. It was a deal
initially unpopular on Wall Street despite the estimated 40-year
Executives have also vowed not to open another coal mine and
to spend most of the company's nearly $1.5 billion capital
budget on drilling new natural gas wells.
The metamorphosis comes at a serendipitous time for Consol.
Last week the EPA said it would require the U.S. power sector to
cut carbon dioxide emissions 30 percent by 2030 from 2005
levels, a step largely expected to slash the amount of coal used
to generate electricity and encourage utilities to use more
"We've seen this coming," Consol Chief Executive Officer
Nicholas DeIuliis said in an interview. "We've positioned the
company to not just survive in the changing regulatory
environment, but thrive in it."
Consol's shares are up more than 20 percent this year,
helped in part by rising natural gas prices but also due to cost
cuts at its coal mines, analysts said.
The company's earnings before income taxes, depreciation and
amortization in 2013 were roughly two-thirds coal to one-third
natural gas. By the first quarter of this year, the split was
FROM COAL MINER TO ROUGHNECK
Consol's evolution comes as the coal industry prepares a
legal challenge against what it considers a direct assault from
the Obama administration.
Arch Coal Inc said Monday that the EPA proposal
would be "remarkably punitive" and would not have a noticeable
effect on curbing greenhouse gas emissions.
Consol, which operates the largest underground coal mine in
the United States, plans to maintain a sizeable coal portfolio
for some time and has no plans to sell any more mines.
That is partly because Consol captures coal bed methane, a
type of natural gas that leaks from its mines and would
otherwise be wasted, and sells it at a profit. The company has
also hired some former coal miners as roughneck workers at its
natural gas wells, keeping their expertise in-house.
This model could be emulated by the coal industry in the
eastern United States as it adapts to the new EPA regulations,
Setting up the equipment and processes to collect and sell
coal bed methane could be too expensive for some coal producers,
but it ultimately could help the industry ride out the new EPA
Consol is "really the only coal company that generates any
real meaningful profit from (coal bed methane) in the U.S.,"
Sussman said. "In a perfect environment, others would do that."
(Reporting by Ernest Scheyder; Editing by Terry Wade and Lisa