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Key takeaways from CONSOL Energy’s analyst day meeting

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Oct. 30 2019, Updated 10:27 a.m. ET

CONSOL Energy

CONSOL Energy Inc. (CNX) is a producer of natural gas and coal. The company is one of the largest independent natural gas exploration, development, and production companies with operations centered in the major shale formations of the Appalachian Basin. CNX has a resource base of 5.7 trillion cubic feet of proved natural gas reserves. It controls approximately 446 thousand net acres in the Marcellus Shale and approximately 109 thousand net acres in the Utica Shale. The company sells its premium coal assets to electricity generators and steelmakers both domestically and internationally. CXL also has 2.5 million net acres in its coalbed methane play, primarily in Virginia. In addition, CNX has two strategic partnerships, one with Noble Energy Inc. (NBL) in the Marcellus Shale and one with a subsidiary of Hess Corporation (HES) in the Utica Shale.

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As of June 12, 2014, CNX had a market cap of ~$10.3 billion and an enterprise value of ~$13.8 billion. The company’s adjusted earnings before interest, taxes, depreciation, and amortization (or EBITDA) for the last 12 months was ~$686.2 million. Dividends per share declared on February 14, 2014, were $0.0625 for the quarter, or $0.25 per share annualized.

On June 12, 2014, CONSOL Energy Inc. (CNX) made its presentation to the analysts and investors. The company disclosed that it was quickly moving from a coal producer to a natural gas producer. The company has also recently announced a plan to form a master limited partnership (or MLP) in the Marcellus Shale with Noble Energy (NBL) to provide midstream gathering services for its production in the Marcellus region.

The key takeaways of the presentation

  • The oil and gas exploration and production segment is quickly increasing its share in the company’s EBITDA mix. It’s expected to increase to 53% by 2014 from 32% in 2013, and 63% by 2016. Natural gas is poised to become the preferred choice for the electricity generators.
  • On January 12, 2014, CNX announced a plan to form a MLP in the Marcellus Shale with Noble Energy (NBL) to provide midstream gathering services for its production in the Marcellus region.
  • CNX has a balanced combination of wet and dry natural gas in the Marcellus and Utica shales. Wet natural gas can be processed into natural gas liquids (or NGLs) like ethane, butane, or propane and re-sold at a higher price. Dry gas can be readily sold to the utility operators.
  • CNX has multiple stack play opportunities in the Marcellus and Utica Shale plays. The Southwest Pennsylvania has ~9 trillion cubic feet equivalent (Tcfe) of stack pay potential.
  • CONSOL added 1.62 Tcfe of natural gas to its proved reserves in 2013. The company has the potential see more production increases through employing the enhanced completion techniques.
  • CNX plans to expand the use of reduced cluster spacing (or RCS) and short stage lengths (or SSL) techniques to 100% of the wells by 2014. In 2013, the projects employing these enhanced production techniques saw 40% improvement in the production rates.
  • The Marcellus Shale is expected to provide compounded annual growth rate of 60% through 2016. In Utica, volumes may increase by ~270% by 2016.
  • In 2014, CNX expects the Marcellus Shale natural gas production to grow 87%, while overall gas production across the company may increase by 30%.
  • CNX projects that the Utica Shale has potential resource of ~26 trillion cubic feet equivalent.
  • Exploration and production capex for natural gas is expected to increase to $1.1 billion in 2014 from $0.9 billion in 2013.
  • For natural gas marketing, CNX has developed a diversified portfolio of firm transportation capacity on the major northeast pipelines to support the production growth plan. Expects 30% volume growth on its five pipelines by 2016.
  • Coal division to incur $390 million capex in 2014, mostly to upgrade existing production capacity and to increase rail take-away.
  • CNX has been divesting non-core assets through monetizing coal assets. Around $1 billion future sale-off opportunities exist for CNX.

CONSOL Energy Inc. (CNX) is producer of natural gas and coal. Other companies operating in the coal industry are Arch Coal Inc. (ACI), Alpha Natural Resources, Inc. (ANR), and Cloud Peak Energy (CLD). Some of the major names in the natural gas sector are ExxonMobil (XOM), Chesapeake Energy (CHK), and Devon Energy (DVN). Some of these companies are part of the SPDR S&P Metals & Mining ETF (XME) and the Vanguard Energy ETF (VDE).

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