Consol increases 2011 coal output estimate, orders more drilling rigs

Posted July 15, 2011

Observer Reporter

CANONSBURG - Consol Energy Inc. on Thursday revised its 2011 coal output estimate upward and said its gas division has ordered two new flex drilling rigs for its work in the Marcellus Shale.

The information was released as Southpointe-based Consol, the leading diversified fuel producer in the eastern U.S., provided an operational update for the quarter ended June 30.

Consol's coal division reported total coal production of 15.4 million tons for the quarter, including 1.4 million tons of low-vol metallurgical coal produced by the company's Buchanan Mine. As a result of the strong quarter, Consol said it is increasing its total annual coal production guidance from 60 million to 62 million tons to between 62 million and 63 million tons, with third-quarter production between 14.4 and 14.8 million tons. The quarterly guidance reflects the normal seasonal production pattern, which would result in 2011's first- and fourth-quarter production being higher than the second and third quarters. The third quarter usually has the heaviest miners' vacation schedule.

Annual production guidance of low-volume metallurgical coal is now expected to be 5 million tons for 2011, an increase from the previous guidance of 4.5 million tons.

Thermal coal inventories fell by 0.9 million tons to 1.6 million tons during the quarter due to the higher-than-expected sales. Low-vol Buchanan inventory was unchanged from March 31, at 0.2 million tons.

Consol's gas division produced a record 37.5 billion cubic feet for the quarter, or nearly 18 percent more than the 31.9 Bcf produced in the year-earlier quarter. The company re-affirmed its 2011 production guidance of 150-160 Bcf.

For drilling in the Marcellus and Utica shales, Consol said it has contracted for two additional flex rigs, which will arrive by Oct. 1, which will give the company a total of six rigs, with one rig drilling in Central Pennsylvania, three in Southwestern Pennsylvania, one in Northern West Virginia, and one full-time in the Utica Shale.

The company believes that with its continued successes in the Marcellus Shale, coupled with its low cost structure, it can generate attractive returns from an expanded drilling program, even at current prices.

In the first half of 2011, Consol drilled 40 wells in the Marcellus Shale, including 24 in Southwest Pennsylvania, 10 in Central Pennsylvania, and six in Northern West Virginia. Assuming the new rigs arrive as scheduled, the company now expects to drill about 85 wells in 2011.

The news of the guidance increase boosted shares of Consol, which closed Thursday at $50.89, up $2.16 or 4.43 percent.

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