In a drive to concentrate on natural gas exploration and
) has entered into an agreement to shed five West Virginia
longwall coal mines and related assets for $3.5 billion. CONSOL
Energy will sell its Consolidation Coal Company (CCC) subsidiary,
which operates these assets, to a subsidiary of Murray Energy
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Per the agreement, CONSOL Energy will be selling the McElroy,
Shoemaker, Robinson Run, Loveridge and Blacksville No. 2 mines,
which produced a combined 28.5 million tons of thermal coal in
2012. In addition, the company will also sell its river and dock
operations with a fleet of 600 barges and 21 towboats.
CONSOL Energy will receive $850 million in cash on closing of the
deal while a further payment of $184 million will be due for the
retention of a royalty on select reserves, certain water
treatment payments and tolling fees at CONSOL's Baltimore
Terminal. In addition, Murray Corporation will take on $2.4
billion of liability from CONSOL's balance sheet.
CONSOL Energy has been systematically shedding its coal assets
and putting more emphasis on natural gas. Natural gas with its
clean burning nature is widely favored in the U.S. The usage of
natural gas is expected to increase further following the climate
action plan from the U.S. President, and more stringent policies
being adopted by the U.S. Environmental Protection Agency (EPA)
for granting permission for setting up new coal power plants.
If these proposals are implemented it will make electricity
generation from coal costlier than ever before. So the next best
option available to the electricity generators will be the use of
natural gas as a fuel source.
In addition, the United States Department of Energy has begun to
grant permission to the U.S. natural gas producers to export LNG.
Though it might sound premature, CONSOL Energy with its
increasing focus on natural gas operation might consider that as
The increasing vigor in natural gas production will definitely
put CONSOL Energy in a better position to meet its 2014 gas
production guidance of 210-225 Bcfe and achieve a production
growth rate of 30% in 2015 and 2016.
CONSOL Energy currently retains a Zacks Rank #3 (Hold). The
company is scheduled to release its third quarter earnings on Oct
31, 2013. The Zacks Consensus Estimate is pegged at 3 cents for
Some other coal operators have already released their earnings
reports. Among them
Peabody Energy Corp.
) reported third quarter 2013 earnings of 5 cents per share,
widely beating the Zacks Consensus Estimate of a loss of 3 cents.
SunCoke Energy, Inc.
) also matched Peabody, with its third quarter earnings per share
of 9 cents beating the Zacks Consensus Estimate of 7 cents by
28.6%. However, another operator
Alliance Holdings GP, L.P.
) reported earnings of 91 cents per unit in the third quarter,
lagging the Zacks Consensus Estimate of 93 cents by 2.1%.