CONSOL's Q1 Production Update

Zacks

Diversified fuel producer CONSOL Energy Inc. (CNX) released production details for the first quarter of 2014. CONSOL also revised its full year coal production guidance and hedged more of its 2014 gas production volumes.

Q1 Production

Natural gas production in the first quarter was within CONSOL’s previous forecast. CONSOL Energy's Gas division produced 48.4 billion cubic feet equivalent (“Bcfe”) in the first quarter, within its expected production range of 47–49 Bcfe. Gas production was up 23% from 39.2 Bcfe produced in the year-ago quarter.

The year-over-year uptrend was primarily driven by higher production volumes from Marcellus Shale. Gas production from this shale in the first quarter shot up 93.4% year over year to 20.7 Bcfe.

CONSOL Energy produced 8.1 million tons of coal in the first quarter of 2014, including 1.1 million tons of low-vol coking coal at Buchanan Mine. In line with its plans, the company started MX Mine longwall operation in mid-March 2014.

Guidance

CONSOL Energy reaffirmed its natural gas production guidance for 2014 in the range of 215–235 Bcfe.

Taking into account the strong global demand for thermal coal, primarily from Asian countries, CONSOL Energy revised its 2014 coal production estimates upwards. CONSOL Energy expects 2014 total coal production in the range of 31.0–33.0 million tons, up from the prior guidance of 30.1–32.1 million tons.

Our Take

CONSOL Energy’s primary focus is on natural gas production. Given the volatility of natural gas prices, the company has hedged a major portion of its 2014 expected natural gas production. CONSOL has hedged 155 Bcf of gas at $4.73 per thousand cubic feet (Mcf).

In the U.S., active coal mining projects have declined by 39% from 2011 levels, as per a report from Industrial Info Resources. The report claims that active investment in coal projects was $12.3 billion in 2011, which declined to $7.5 billion in 2013.

So, CONSOL’s strategy to lay more emphasis on its natural gas operations seems prudent given the rising global awareness about the environmental hazards of coal as a source of power generation and its contribution to greenhouse gases.

Zacks Rank

CONSOL Energy currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Rhino Resource Partners LP (RNO), Oxford Resource Partners, L.P. (OXF) and Westmoreland Coal Co. (WLB). While Rhino Resource Partners and Oxford Resource Partners have a Zacks Rank #1 (Strong Buy), Westmoreland Coal carries a Zacks Rank #2 (Buy).

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