The much awaited spin-off of CONSOL Energy Inc. (CONSOL) is over, leading to the formation of two separate entities focusing on the Gas and Coal businesses of the company. While the gas business has been named CNX Resources Corp. CNX, the coal business which was formerly known as CONSOL Mining Corporation has been renamed CONSOL Energy Inc. (CEIX).
The master limited partnership named CNX Coal Resources LP (CNXC) has been renamed to CONSOL Coal Resources LP and will trade on the NYSE under a new ticker symbol "CCR."
Reasons Behind Spin-Off
Softness in demand for coal in the past few years has prompted CONSOL to concentrate more on natural gas operations. It is evident that natural gas operations along with coal have helped CONSOL to survive amid an uncertain environment.
Notably, CONSOL has shifted focus to natural gas, and has acquired acreage in regions where large volumes of gas reserves are anticipated.
Company Emerging from Spin-Off
Natural gas focused CNX Resources Corp. will have over 1 million acres of holding in Marcellus and Utica shales. The planned 2017 E&P capital expenditure is expected to range between $620 million and $645 million. Additionally, it is currently enjoying the benefits of lower costs of production.
Further, the company’s E&P business has excellent long-term prospects. This is due to increasing focus of utilities toward using natural gas to produce electricity. The company expects 2017 and 2018 E&P production to be in the range of 405-415 billion cubic feet equivalent (Bcfe) and 520-550 Bcfe, respectively. The company expects to drill nine additional wells in 2017 and modify production protocol, boosting 2018 production.
Coal-focused CONSOL Energy Inc. will have interest in the Pennsylvania Mining Complex, the Baltimore Marine Terminal and approximately one billion tons of greenfield coal reserves.
Thanks to the coal industry-friendly moves of the new administration, it is currently making a comeback. The U.S. Energy information Administration (EIA) predicts coal production in 2017 to increase 7.9% from 2016 level to 785.6 million short tons (MMst). Production is expected to rise 0.2% from 2017 level to 786.8 MMst in 2018. Given the improving scenario, we expect the coal-focused standalone company to gain going ahead.
The shareholders of the new company will receive one share for holding eight shares in the old company at the close of business on the record date of Nov 15, 2017.
Our View
The completion of the spin-off will allow management of these distinct companies to focus on a specific type of business. No doubt natural gas has become the preferred choice for energy due to its clean burning nature. However, the gas company will have to compete with a major gas operator like CenterPoint Energy, Inc. CNP among others.
Coal is also gradually staging a comeback from its dark days, thanks to the friendly action taken by the new administration. A few coal companies like Arch Coal Inc. ARCH and Peabody Energy Corp. BTU have come out from bankruptcy and have started trading again. These two stocks carry a Zacks Rank 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
So, there is ample opportunity for both gas and coal companies to gain and reward shareholders.
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