Acquisitions hurt Consol's fourth-quarter profit

Posted January 28, 2011

By Associated Press

Friday, January 28, 2011

Coal producer Consol Energy Inc., which expanded its natural gas holdings last year, said Thursday that its fourth-quarter profit fell 27 percent because of costs associated with acquisitions.

The Cecil-based energy company said net income dropped to $104.5 million, or 46 cents a share, compared to $143.2 million or 78 cents a share, in the fourth quarter 2009. Sales, however, rose to $1.35 billion from $1.24 billion for the same period in 2009.

Consol stock closed at $48.45 a share, down $3.07 a share, or nearly 6 percent.

The results fell short of the 61-cents-a-share estimate by Stifel Nicolaus analyst Paul Forward in Baltimore and below the Wall Street consensus of 55 cents a share, Forward wrote in a note to investors yesterday. Forward said the miss on earnings per share was the result of minor disappointments in coal and gas pricing and costs.

Revenue was below estimates of $1.36 billion, and earnings per share was slightly below as well, Michael S. Dudas, an analyst with Jefferies & Co., told investors.

Production costs for low-volatility metallurgical coal increased 65 percent, outpacing the 52 percent gain in prices for the steelmaking component.

"Costs were up a little bit," said James Rollyson, an analyst at Raymond James Financial Inc. in Houston. "Production numbers were pretty good. It's the volume mix and costs."

Consol CEO J. Brett Harvey said in a conference call that he is "very bullish" on the marketplace for both thermal and metallurgical coal in 2011. Thermal coal is used to generate steam in power plants. Met coal is used to make coke, a steelmaking component.

Consol produced 16.8 million tons of coal in the fourth quarter and sold 17 million tons, including inventory. Profit margins increased as prices continued to strengthen, Harvey said. Coal traded on the New York Mercantile Exchange averaged $68.30 a ton during the quarter, up 42 percent from a year earlier.

Harvey predicts that sales of metallurgical coal will do well this year because "there is not enough ... to meet demand for steel, which pushes prices up." Flooding in Australia has affected coal production, pushing global prices up even faster, he noted.

Consol is the largest supplier of metallurgical coal exported from North America to China, Harvey said, a position achieved in the past year.

In the natural gas business, Consol said it plans a $675 million exploration and production budget in 2001. The company anticipates production in the range of 150 billion to 160 billion cubic feet. Consol produced 36.2 billion cubic feet of natural gas during the quarter and 127.9 billion cubic feet last year.

The company expanded its natural gas business in March with the $3.48 billion acquisition of Dominion Resources Inc.'s 1.46 million acres of reserves and 9,000 wells. Consol offered 38.5 million shares in March to fund the Dominion deal and to buy the 16.7 percent of CNX Gas Corp. that it didn't already own for about $963 million.

About $225 million of Consol's natural gas budget is earmarked for drilling in Greene County and Virginia. Another $215 million is allocated for production in the Marcellus shale in Westmoreland and Indiana counties and northern West Virginia, said Nicholas DeIuliis, chief operating officer.

Consol has allocated four rigs rather than five to operate in its Marcellus properties in 2011. If natural gas prices go up, the number of drilling rigs in use will increase, DeIuliis said.

"We're not happy with gas prices, but that fluctuates, and we think it is related to the U.S. economy," Harvey said.