Not mine: Consol Energy puts a wrap on CAPP coal business

One of the pioneering and largest Central Appalachian coal producers has closed shop, essentially completing its years-long transformation from coal miner into an E&P company focused on the plethora of natural gas in the Marcellus and Utica shales.

Consol Energy last week shed its final CAPP coal mines in West Virginia, and paid to do it. The company handed over the Miller Creek and shuttered Fola complexes in West Virginia along with $44 million to Booth Energy, who took over the mines and, most importantly, the $103 million in liabilities tied to the properties.

Consol CEO Nicholas DeIuliis said during a second-quarter earnings call July 26 the deal was “not only consistent with our core strategy and not only another step in improving our balance sheet, but, most importantly, and above all else, this deal marks a definitive exit from Central Appalachian coal and surface mining, which significantly de-risks our business moving forward.”

Coal grounded

Consol executives were keen to point out the Miller Creek-Fola deal, in essence, took the company out of the coal business altogether.

The only remaining coal assets owned by Consol, the Northern Appalachian Baily longwall complex in Pennsylvania, last year was spun off into the master-limited partnership CNX Coal Resources.

Consol took its first, and biggest, step away from CAPP coal production in December 2013 when it closed on a $3.5 billion sale to Murray Energy for its five largest longwall mines in West Virginia. The mines collectively produced 29.2 million tons of thermal coal in 2013.

In the 2½ years since the deal, those mines — Marshall County, Ohio County, Harrison County, Marion County and Monongalia County — have churned out 81.9 million st, including 13.8 million through the first half of 2016.

This year, total CNXC coal sales are predicted in the 4.5 million to 5.1 million st range.

The deal with Murray also included Consol’s River and Dock Operations of 21 towboats and 600 barges that in 2012 transported 19.3 million tons of coal and other commodities in the Upper Ohio River system.

Consol at the time said the Murray transaction was a “transformative step” to advance its E&P growth strategy.

Among the company’s final steps away from coal was the $420 million sale in April of the Buchanan low-vol metallurgical coal mine in Virginia along with other coal reserves to Coronado Coal. That deal left Miller Creek and Fola as the Consol’s only coal operations outside CNXC.

CFO David M. Khani said since Consol began its exit from coal in earnest four years ago, the company has made 23 coal asset deals valued at about $5.1 billion.

Gas on tap

Consol’s move from coal to gas almost started by accident. To increase coal miner safety, the company was removing methane from coal seams; and in 1980, Consol started to capture that gas to use as an alternate energy source.

In 2001, as it became more of a gas player, Consol launched a joint venture with Allegheny Energy to construct an 88-MW, methane-fueled power plant in southwestern Virginia.

Then, after two decades of dipping its toes in the gas business, Consol dove into the deep end in 2010, paying $3.475 billion to acquire Dominion’s E&P business. The transaction boosted Consol’s proved gas reserves by more than 50% to almost 3 Tcf and doubled its potential reserves to about 41 Tcf.

A year later, Consol and Noble Energy agreed to jointly develop 628,000 acres in the Marcellus Shale, and that same year Consol partnered with Hess Corporation in an E&P venture on 200,000 acres of the Utica Shale in Ohio.

This year, Consol — the same company that mined its first ton of coal in 1864 and was the largest bituminous coal producer in the United States for almost 90 years — expects to spend $205 million in capital on E&P and produce 380-385 Bcf as it ramps up for even more production in 2017.


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