CONSOL Energy Inc.
(
CNX
) has entered into an all-cash agreement, worth $170 million, with
Cloud Peak Energy
Inc.
(
CLD
) to sell its non-performing Northern Powder River Basin ("PRB")
assets. The transaction will be effective from June 29, 2012.
Per the contract, CONSOL Energy will keep an 8% production
royalty interest on 200 million tons of fee coal. CONSOL Energy's
Northern PRB assets include Youngs Creek Mining Company LLC, CX
Ranch and Sheridan in Wyoming.
The PRB is one of the important sources of coal in the U.S. and
is situated across northern Wyoming and southern Montana. Including
these assets, CONSOL Energy has already sold $224 million worth of
non-revenue generating assets till date and redeployed the funds
for its 2012 capital expenditure program.
In the year 2012, CONSOL Energy plans to invest $1.7 billion
under its capital expenditure program. Besides using the fund
generated from divesture of assets, the company will also utilize
its cash balance, which was $1.6 billion as of March 31, 2012, to
meet a part of its 2012 capital investments for growth and
maintenance projects. The budget includes $755 million for gas,
$720 million for coal, $135 million for water, and $110 million for
other purposes.
It is a regular practice for companies like CONSOL Energy to
sell its non-producing assets. This strategy helps the company to
minimize its operating and maintenance costs. In September last
year, CONSOL Energy entered into an agreement, worth $193 million,
with Antero Resources Appalachian Corp., pursuant to which CONSOL
Energy assigned Antero, overriding royalty interests of 7% for
115,647 net acres of Marcellus Shale assets.
We view CONSOL Energy as a well positioned organization with a
strong diversified portfolio primarily comprising coal and natural
gas, which enable it to meet energy demand. In addition, the
company has a low-cost coal producing profile in northern
Appalachia. The company also resumed production at its idled
Backsville mine due to gradual increase in thermal coal demand from
emerging markets primarily China and India. This is expected to
boost the company's financial position.
However, there are several factors that could undermine CONSOL
Energy's performance, which include increasing competition from
renewable energy producers, dependence on a small group of
consumers for bulk sales and the possibility of non-renewal of
long-term contracts at favorable prices.
CONSOL Energy currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating.
Based in Canonsburg, Pennsylvania, CONSOL Energy is a multi-fuel
energy producer as well as energy services provider, primarily
catering to the U.S. power generators.
CLOUD PEAK EGY (CLD): Free Stock Analysis
Report
CONSOL ENERGY (CNX): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research