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Consol Ready to Expand in Utica/Marcellus Plays
YOUNGSTOWN, Ohio -- Consol Energy Inc.'s divestment of five coal mines and the recapitalization of its oil and gas division represents how an old company is adapting to rapid changes in the energy industry, its CEO said Monday.
"Consol, being 150 years old, has learned to change with the marketplace," said Brett Harvey, Consol chairman and CEO, during a conference call with analysts. "I think it's prudent to harvest mature assets and reinvest in growth opportunities, especially in projects such as the Marcellus shale and Utica shale."
Consol announced Monday that it is selling its Consolidated Coal Co. subsidiary for $3.5 billion to Murray Energy Corp. The subsidiary contains all five of Consol's longwall coalmines in West Virginia.
The sale accounts for roughly half of Consol's coal production, noted Dave Khani, chief financial officer. "We expect to close this transaction by year-end."
Simultaneously, Consol announced that it would boost its annual natural gas production by 30% through 2016, mostly by developing its positions in the Marcellus shale in western Pennsylvania and the Utica shale in eastern Ohio. Also, the company will boost its presence in the emerging global thermal and metallurgical coal markets, Harvey said.
"We really have the best assets to move into all three of these areas and deploy capital in these areas with a very high rate of return for our shareholders," Harvey remarked.
Consol has long been a part of the coal-bed methane market, but in 2006, started to ramp up its position in the Marcellus shale, one of the largest repositories of natural gas in the world. In 2010, the company acquired Dominion's position in the Marcellus, which Harvey said turned out to be profitable for his company. "This is the rock that changed the world," he said of the Marcellus play.
Consol holds strong acreage positions in both shale plays, including large-scale leaseholds in the "wet" gas regions of both. The company also sees potential in developing the Upper Devonian shale, a collection of rock formations that lie a couple hundred feet above the Marcellus, Harvey said.
Consol operates three Utica shale wells in Mahoning County, two in Jackson Township and another in Ellsworth Township. The company last year abandoned development of another well in Trumbull County.
However, Consol holds sizeable acreage in the southern tier of the Utica -- especially Noble County -- considered the most profitable portion of the play because of the high pressure in the rock. Its Utica venture partner, Hess Energy, also holds a strong position in this region.
Consol holds about 30,000 net acres in the southern section of the Utica.
Well production results have proven very strong from other energy companies in this section of the Utica.
In the Marcellus, Consol holds 430,000 gross acres in the "dry" gas region, that is, an area producing mostly methane, and its partner NBL 170,000 gross acres in the natural gas liquids region of the play.
"It requires capital to do it," Harvey said, hence the decision to sell its coal assets. Consol will retain its Baltimore facilities so it can increase its international coal market, while its BMX mine is slated to come online sometime in the next quarter.
"The nice part about it is that it brings cash in the door," Harvey said of the sale, and enabled the company to "trim our overhead expenses and redeploy its value for the growth of these assets that we hold today. This is a great opportunity for our shareholders."
Copyright 2013 by The Business Journal, Youngstown, Ohio.
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