Diversified fuel producer CONSOL Energy Inc. (CNX) announced that it will invest $1.5 billion in 2014 to continue with its Exploration & Production (E&P) strategy. CONSOL reiterated its 2014 natural gas production guidance of 215–235 billion cubic feet equivalents (Bcfe), which is 30% higher than projected 2013 levels.
In the second half of 2013, the company decided to shed some of its coal assets to concentrate more on natural gas production. CONSOL will use nearly $1 billion from the proceeds of its coal asset sale and cash coming from the startup of the BMX Mine long wall (scheduled to begin late first quarter) for further development of its natural gas properties.
Out of CONSOL’s total projected investment for 2014, $1.1 billion will be directed towards natural gas operations and $0.39 billion for its coal operations. Despite shedding a large portion of its coal assets, the company still possesses high-quality, low-cost coal mines. BMX Mine is one such mine. On a yearly basis, this mine is expected to produce 5 million tons of high-quality Pittsburgh seam coal.
CONSOL will allocate much of its gas investment to strengthen its position in the highly productive Marcellus and Utica shales. CONSOL with its joint venture partners Noble Energy Inc. (NBL) in Marcellus and HESS Corporation (HES) in Utica aims to drill 162 gross wells in Marcellus and 32 gross wells in Utica.
The company will invest $34 million in its coalbed methane program and $24 million in Monroe County, Ohio, apart from its joint venture activities.
It is quite evident that CONSOL’s capital expenditure plan is primarily skewed towards natural gas. CONSOL’s current focus on natural gas production is justified given the increasing worldwide emphasis on clean burning fuels.
The U.S. Department of Energy has started to grant permission for export of natural gas. Though it might sound premature, we assume CONSOL would also like to export LNG, thereby creating a regular source of revenue.
CONSOL currently has a Zacks Rank #3 (Hold). The company is scheduled to release its fourth quarter earnings on Jan 31, 2014, and the Zacks Consensus Estimate for the quarter is pegged at 9 cents. Another coal operator Alliance Resource Partners, L.P. (ARLP) is scheduled to release fourth quarter earnings on Jan 28, 14, while its Zacks Consensus Estimate for the quarter is at $1.60.
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