Consol believes gas market will improve
Pittsburgh Post-Gazette
While Jimmy Brock, CEO of CNX Coal Resources, said he doesn’t like calling the tops or bottoms of markets, he said the month of May “certainly felt like it could be a bottom.”
“It feels like the markets have now turned,” he told analysts Monday during an earnings call for the master limited partnership that spun out of Cecil-based Consol Energy Inc. a year ago. CNX Coal owns 20 percent of Consol’s Bailey mine coal complex in southwestern Pennsylvania.
“The combination of rising gas prices, hot summer weather and reduced production has
resulted in a changing marketplace,” Mr. Brock said. “It feels like the markets have now turned and we expect pricing to follow.”
A similar tone of tempered hope infused Consol Energy’s analyst call Tuesday when the company’s leaders announced they would restart drilling new wells after hitting pause in 2015 because of low gas prices.
“We’re now starting to come off the bottom of the market,” said Consol’s CFO David Khani, who added the company is focused on paying down debt and having cash on hand to speed up the time when it fully sheds its coal business into CNX Coal and emerges as a pure oil and gas butterfly.
The reason for the optimism is recent upticks in natural gas prices, which rose to $2.80 this week at the Henry Hub, a U.S. benchmark, reaching a level not seen for nearly a year and rallying nearly 35 percent over the past two months.
When natural gas becomes more expensive, power suppliers start burning more coal, which then raises the price of coal. The coal price uptick hasn’t really registered yet — analysts for JP Morgan and Chase wrote in a note this week that where gas is losing to coal, coal is picking up favor in volume rather than in price.
Nevertheless, Consol and CNX Coal hope this signifies a longer-term shift for both commodities.
This week, both companies reported second-quarter results, showing prices of their commodities further deteriorating during that time.
Consol fetched $1.58 per thousand cubic feet of gas in the past three months, a 22 percent drop from the same time last year. The price of oil dropped as well, but Consol did see a small improvement in the prices of natural gas liquids and condensate. With aggressive cost cutting, the company eked out a positive margin of 23 cents per thousand cubic feet of gas, up from a loss of 8 cents a year ago.
Meanwhile, a ton of its coal from the Bailey mine complex decreased from $56.21 per ton in the second quarter of 2015 to $40.61 per ton during the past three months. While the cost to produce the coal decreased as well, it wasn’t enough to make up for the drop.
CNX Coal leaders said the second half of 2016 is looking brighter, with domestic power plants demanding, as opposed to deferring, more coal shipments; prices projected to improve; and all three mines at the Bailey complex working full time.
On the gas side, Consol is putting two rigs back to work, with eight wells set to be drilled in the Utica Shale in Ohio and two in the Marcellus Shale in Washington County.
Consol indicated that as oil and gas prices improve, it might be open to selling some of its exploration and production assets, following several years of shedding coal.
On Monday, Consol announced it would pay a Kentucky company $44 million to get rid of two West Virginia mines. The deal absolves Consol of an estimated $103 million in environmental liabilities of closing and reclaiming the mines.