CONSOL Energy (NYSE: CNX) announced Dec. 10 that its Board of Directors has authorized management to pursue the formation of a master limited partnership (MLP) for the company’s thermal coal business.
The purpose of the MLP would be to own interests in certain of CONSOL Energy’s thermal coal properties and related mining operations located in Pennsylvania, including its Bailey, Enlow Fork and Harvey longwall mines in the Pittsburgh seam, plus the Bailey preparation plant that processes coal for all three of those mines. These three mines produced a combined 21.3 million tons in 2013.
CONSOL Energy expects to commence an initial public offering of the steam coal MLP in mid-2015. Following the closing of the initial public offering by the MLP, CONSOL Energy would own the general partner of the MLP, any incentive distribution rights and a majority of the limited partner interests of the MLP.
CONSOL Energy also announced that its Board of Directors has authorized management to separately pursue the structuring and formation of a subsidiary entity for the purpose of owning CONSOL Energy’s metallurgical coal properties and related mining operations, with a view to conducting an initial public offering of up to 20% of the subsidiary’s equity in the second half of 2015. The subsidiary’s assets would include CONSOL’s Buchanan longwall mine in the Pocahontas No. 3 seam and related preparation plant in southwest Virginia, and its interest in its Western Allegheny Energy joint venture in Pennsylvania. Buchanan produced 4.8 million tons in 2013.
CONSOL Energy believes that these transactions would achieve four objectives: they bring the value of its thermal and metallurgical coal assets forward, thereby increasing CONSOL’s net asset value per share; they improve transparency into the value of these assets, which will permit a more accurate sum-of-the-parts valuation; they provide additional vehicles for accessing the capital markets on favorable terms, and they allow CONSOL to retain control of these assets so it can continue to realize the operational synergies that exist between its natural gas and coal businesses. CONSOL Energy would designate separate management teams to run each of these businesses so as to most effectively maintain operational focus.
After these transactions, CONSOL Energy would consist primarily of: its core oil and gas exploration and production business; its interest in CONE Midstream Partners LP (NYSE: CNNX); a controlling interest in its cash flow generating thermal coal MLP; and a controlling interest in its metallurgical coal subsidiary.
“In addition to focusing on the steady execution of our core businesses, we have been hard at work on creating structural transparency, bringing value forward and taking advantage of opportunities for share count reduction,” commented CONSOL Energy President and Chief Executive Officer Nick DeIuliis. “The culmination of the structural moves completed in 2014 and anticipated for 2015 are intended to improve CONSOL’s valuation by providing straightforward, sum-of-the-parts analytics and reducing the risk to the E&P growth plan, which we continue to target at 30% year-over-year growth in 2015 and 2016.”
He added: “Further, these restructuring transactions reaffirm CONSOL Energy’s commitment to our coal businesses. We will retain control so that we can continue to offer our customers the same reliability that they have come to expect from CONSOL Energy as well as the continued unique ability to supply those customers with both coal and gas as their needs demand and the market dictates.”
Whether and when CONSOL Energy proceeds with initial public offerings of the thermal coal MLP and metallurgical coal subsidiary are subject to a number of factors, including prevailing market conditions and the approval of CONSOL Energy’s Board of Directors.
CONSOL Energy is a Pittsburgh-based producer of natural gas and coal. Late last year it sold several Pittsburgh-seam longwall mines in northern West Virginia, all with unionized workforces, to coal operator Robert Murray’s Murray Energy. It has also lately been shedding undeveloped coal reserves.