CONSOL to declare loss as it struggles with coal demand, production

CONSOL Energy Inc. (NYSE: CNX), slammed by low coal demand, said Oct. 15 that it will declare a net loss for the third quarter when it reveals its full results.

“While precise figures are not yet available, it is clear that the company’s previously announced planned and unplanned mine idlings took their toll on third quarter earnings,” said CFO William Lyons. “Fortunately, CONSOL Energy has the balance sheet to maintain market discipline. Even at the end of the quarter, our liquidity remained strong. At September 30, 2012, we had cash of $231 million, no short term debt, and $2.3 billion of capacity under our credit facilities.”

During the last several months, CONSOL announced a planned two-week idling of the Blacksville mine and a one-week idling of the Robinson Run mine, both Pittsburgh-seam longwall mines in northern West Virginia, due to weak thermal coal markets. The Fola mine in West Virginia was also idled. Subsequently, the company suffered the failure of two new conveyor belts at the Bailey Preparation Plant, which impacted production at the Enlow Fork and Bailey mines, both Pittsburgh-seam longwall mines in southwest Pennsylvania that feed coal into this central prep plant. Then, in early September, the company announced the idling of its premier low-vol Buchanan longwall mine in southwest Virginia for an estimated 30-60 days.

CONSOL’s Coal Division produced 11.6 million tons during the third quarter, including 0.8 million tons of low-vol met and mid-vol coal from the company’s Buchanan and Amonate mines. Amonate is a series of recently-revived small mines along the West Virginia/Virginia border that feed coal into a central prep plant.

CONSOL’s total coal inventory decreased during the quarter by 0.7 million tons to 1.7 million tons as of Sept. 30, 2012. Thermal coal inventory decreased by 0.8 million tons during the quarter, as sales outpaced the scaled-back production. Low-vol and mid-vol coal inventory increased by 0.1 million tons during the quarter, to 0.4 million tons.

CONSOL’s Gas Division produced 39.5 Bcf for the 2012 third quarter, down slightly from the 40.4 Bcf produced in the 2011 third quarter. The just-ended quarter, however, was impaired by approximately 0.2 Bcf due to the September idling of the Buchanan mine, which produces associated gas. A second complication in making a comparison was that last year’s third quarter production contained 100% of the Marcellus Shale production, half of which was tendered to the Noble Energy joint venture on Sept. 30, 2011. The year-earlier quarter’s production also contained some production from Antero‘s overriding royalty interest, before it was sold back to Antero. On an adjusted basis, therefore, last year’s 40.4 Bcf would have been approximately 35.9 Bcf, net to CONSOL. On an apples-to-apples basis, CONSOL’s gas production would have increased by 13%, if not for these items.

In the fourth quarter of this year, CONSOL expects to produce 13.4 million to 13.8 million tons of coal, including 0.6 million at Buchanan, which is expected to re-start on the week of Nov. 5.

CONSOL’s 2012 gas production guidance remains at 157 Bcf to 159 Bcf (net to CONSOL). Fourth quarter 2012 gas production is expected to be 42.5 Bcf to 44.5 Bcf.

CONSOL’s CNX Marine Terminal proved valuable in the third quarter by loading 34 vessels with total outbound tonnage of 3.1 million, including third party cargos.

The one unplanned idling was that of the Bailey and Enlow Fork mines in southwestern Pennsylvania. As announced at the end of July, two newly-installed conveyor belts that feed the common prep plant collapsed. Engineers and contractors working around the clock had one belt rebuilt by the third week in August, CONSOL noted. The mines were re-started at a 60% capacity utilization rate. The second belt was repaired in late September, so the fourth quarter began with the entire complex running normally.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.