CONSOL Energy consoles its customers with the warming benefits of coal and natural gas. CONSOL is one of the US's largest coal mining companies, along with Peabody Energy and Arch Coal. In 2014 the company had more than 3 billion tons of proved and probable reserves, mainly in northern and central Appalachia. CONSOL primarily mines high BTU coal, which burns cleaner than lower grades. Customers include electric utilities and steel mills. CONSOL delivers coal using its own railroad cars, terminals, and barges. The company also engages in natural gas exploration and production through CNX Gas.
CONSOL has operations in the US (Kentucky, Ohio, Pennsylvania, Utah, Virginia, and West Virginia) and Canada.
CONSOL consists of two principal business divisions: Exploration and Production (E&P) and Coal. E&P division produces pipeline quality natural gas for sale primarily to gas wholesalers. The E&P division's reportable segments are Marcellus, Utica, Coalbed Methane, and Other Gas. The Other Gas segment is primarily related to conventional oil and gas production as well as Upper Devonian Shale, and includes the company's purchased gas activities and general and administrative activities.
The principal activities of the Coal division are mining, preparation and marketing of thermal coal, sold primarily to power generators, and metallurgical coal, sold to metal and coke producers.
The Coal division includes three reportable segments: Pennsylvania (PA) Operations, Virginia (VA) Operations, and Other Coal. Each of these segments includes a number of operating segments (which are individual mines or the type of coal sold). In 2014, the PA Operations segment included the following mines: Bailey, Enlow Fork, and Harvey Mines and their corresponding preparation plant facilities. The VA Operations aggregated segment included the Buchanan Mine and its corresponding preparation plant facilities. The Other Coal segment includes Miller Creek Complex, coal terminal operations, purchased coal activities, idled mine activities and general and administrative activities.
The Coal division sold 32.4 million tons of coal produced in 2014 compared to 28.8 million tons in 2013. The coal division priced 6.4 million tons on the export market for 2014 compared to 8.0 million tons for 2013. All other tons were sold on the domestic market.
CONSOL drilled 77 of those wells in the dry gas area of the formation. CONSOL and joint venture partner Noble Energy , drilled a record 169 gross wells in the Marcellus Shale in 2014.
The company mines primarily bituminous coal at 12 mining complexes in the US. In 2014, 93% of CONSOL's coal production came from underground mines and 7% from surface mines.
It is also engaged in natural gas (primarily coalbed methane) production in Appalachia through CNX Gas. In 2014 it controlled 6.8 trillion cu. ft. of net proved natural gas reserves of gas, and operated more than 13,000 net wells.
Sales and Marketing
The company sells coal through agents and to brokers and unaffiliated trading companies. Coal is transported from CONSOL's mining complexes to customers by railroad cars and trucks. CONSOL purchases gas produced by third parties at market prices less a fee. The gas purchased from third party producers is then resold to end users or gas marketers at current market prices.
About 72% of CONSOL's 2014 coal sales from continuing operations were made to US electric generators; 5% were priced on export markets and 23% were made to other domestic customers. It had more than 50 customers for its 2014 coal operations. During 2014, Duke Energy and Xcoal Energy Resources each comprised more than 10% of revenues from continuing operations, and the top four coal customers accounted for more than 30% of the company's total revenues from continuing operations.
In 2014 more than 66% of all the coal produced from continuing operations was sold under contracts with terms of one year or more.
CONSOL's revenues increased by 13% in 2014
E&P division's Natural Gas, NGLs, and Oil outside sales revenues were $1,031 million in 2014 compared to $741 million for 2013. The increase was primarily due to the increase in total volumes sold, along with higher overall average sales price per Mcfe. The rise was offset, in part, by the $0.34 per Mcf decrease resulting from various transactions relating to the company's hedging program.
The lower average sales price per ton sold reflected a decrease in the global metallurgical coal markets, the oversupply of coal used in steelmaking, and overall lower coal pricing due to the roll-off of some higher-priced legacy contracts.
Net income decreased by 75% due to the increase in transportation, gathering and compression, depreciation, depletion and amortization, loss on debt extinguishment, and an increase in interest expense (including a loss from the discontinued operation of Consolidation Coal Company).
Cash from operating increased by 42% as the result of changes in accounts payable and other operating liabilities.
With the coal markets under a lot of political pressure in the US, CONSOL is looking to hedge its bets through diversification. It is seeking to grow its existing gas assets and make selective acquisition of gas and liquids acreage leases within its footprint, while continuing to maintain and grow its profitable thermal and metallurgical coal segments.
The company's primary focus is the continued development of their Marcellus Shale acreage and the exploration and development of its Utica Shale acreage and expect to produce 300-310 Bcfe for 2015 and achieve 30% annual gas production growth in 2016.
It will also continues to focus on monetization of assets to accelerate value creation to minimize the shortfall between operating cash flows and growth capital requirements.CONSOL expects to continue to make substantial capital expenditures in the development and acquisition of natural gas reserves.
In 2014 it signed a deal with Ineos Europe AG, part of the Ineos Group, to export ethane via Sunoco Logistics' Mariner East infrastructure and the Marcus Hook Delaware River port for use in Ineos' European cracker complexes. The agreement builds on plans to transport high-value propane and ethane by pipeline from Western Pennsylvania to Marcus Hook, where the materials will be processed and shipped by sea to domestic and export markets. (This is the company's second recent ethane transaction; the first was with Royal Dutch Shell to supply ethane to its planned cracker facility in Beaver County, Pennsylvania).
Facing declining demand and high debt, the company is also selling noncore assets to generate cash.
In 2014 CNX Gas sold 1,700 net Utica Shale acres in Marshall County, West Virginia; its surface land at its Burning Star 5 properties in Franklin, Jackson, and Williamson Counties, Illinois; and its industrial supplies subsidiary (Fairmount Supply).