Diversified energy producer CONSOL Energy Inc. (CNX), yesterday, provided an operations update for the quarter ended September 30, 2011. Production at the company’s Gas Division reached a record 40.4 Bcf for the third quarter of 2011, up nearly 13% from 35.8 Bcf produced in the year-ago quarter.
Outperformance at the Gas division was driven by the peak production of 39.4 MMcf per day achieved from the first five wells on a new 10-well pad in the Marcellus Shale.
In the third quarter, CONSOL's Coal Division produced 14.7 million tons, including 1.4 million tons of low-vol metallurgical coal from the company's Buchanan Mine. Coal mines in the company’s coal portfolio ran well during the quarter. Despite roof issues at both McElroy and Enlow Fork mines, the company met commitments by overproducing at other mines, an advantage of having a portfolio of longwall mines.
Thermal coal inventories remained unchanged at 1.6 million tons during the quarter, as sales matched production. Low-vol Buchanan inventory decreased from June 30, 2011 by 0.1 million tons, to 0.1 million tons.
Gas Operations Update
CONSOL Energy has drilled 58 wells in the Marcellus Shale in the first nine months of 2011. The geographic breakdown, by region, is as follows: 36 in Southwest Pennsylvania, 16 in Central Pennsylvania, and six in Northern West Virginia.
In Central Pennsylvania, CONSOL has finished drilling all ten wells on the Hutchinson pad in northwestern Westmoreland County. The 10-well Hutchinson pad, the company believes, is the industry's largest single pad drilled to date in the Marcellus Shale.
This pad highlights CONSOL's competitive advantage in the Marcellus Shale, facilitating efficient drilling on large pads, instead of drilling to hold acreage. These larger pads, the company believes, should result in lower unit operating costs, while minimizing the number of permits needed for pads, gathering systems, and stream crossings.
In Southwestern Pennsylvania, CONSOL continues its full-scale development drilling at several Nineveh pads in Greene County. The completed wells include the 5-well NV-29 pad, the 6-well NV-15 pad, and the 2-well GH-35 pad. In Northern West Virginia, CONSOL began production from two wells drilled on the Phillipi pad in Barbour County.
Guidance
Citing robust production in the current quarter, which is at the higher end of the company’s previous guidance, management has fine-tuned its production outlook for the fourth quarter. CONSOL Energy now expects coal production to be between 14.7 and 15.3 million tons in the fourth quarter, reflecting a normal seasonal pattern. Buchanan Mine fourth quarter production is expected to be between 1.0 – 1.2 million tons.
As a result, the company’s annual coal production is now between 62.0 and 62.6 million tons, with low-vol coal from the Buchanan Mine producing between 5.3 – 5.5 million tons.
CONSOL Energy also adjusted its full-year gas production guidance to be about 160 Bcf, coming at the high end of earlier guidance. Going forward, the company expects to drill about 80-85 Marcellus Shale wells in 2011.
However, because of the sale of one-half of Marcellus production to Noble Energy as part of the joint venture in the Marcellus Shale, and the sale of an overriding royalty interest (ORRI) to Antero, CONSOL Energy expects its net gas production to be between 150 – 152 Bcf for the year. Fourth quarter gas production, net to CONSOL is expected to be approximately 36 – 38 Bcf.
Canonsburg, Pennsylvania-based CONSOL Energy is scheduled to release its complete third quarter results on Thursday, October 27, 2011. The Zacks Consensus Estimate for the fourth quarter and full-year 2011 are at 64 cents and $2.91 per share, respectively.
CONSOL Energy at present retains a Zacks #3 Rank, which translates into a short-term Hold rating. We maintain our long term Neutral rating on the stock. The company competes primarily with Peabody Energy Corporation (BTU) and Arch Coal Inc. (ACI).
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