PITTSBURGH, Oct. 15, 2012 /PRNewswire/ -- CONSOL Energy
Inc. (NYSE: CNX), the leading diversified fuel producer in the
Eastern U.S., is providing an operational and financial update for
the quarter ended September 30,
2012.
(Logo:
http://photos.prnewswire.com/prnh/20120416/NE87957LOGO )
The company expects to report a net loss for the quarter, due to
a combination of marketing and operational issues. "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," commented William J. Lyons, chief financial officer.
"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 Blacksville Mine and a one-week idling of
Robinson Run Mine, due to weak thermal coal markets. The Fola Mine
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. Then, in
early September, the company announced the idling of its premier
low-vol Buchanan Mine for an estimated 30-60 days.
CONSOL's Gas Division, in the Ohio Utica Shale joint venture
with Hess Corporation, reported an exploratory success from a well
drilled in Stock Township, Noble County,
Ohio. Flowback operations are underway at the Noble 1A following a 30-day shut in period for
dissipation of fracturing fluids. Early results are encouraging
with peak 24-hour flows of 9.0 MMcfd gas and about 10 barrels per
day of condensate. CONSOL is currently drilling the Noble 16A in nearby Seneca Township, also in Noble County. Overall, the joint venture has a
significant acreage position in Noble
County.
CONSOL's Coal Division produced 11.6 million tons during the
quarter, including 0.8 million tons of low-vol metallurgical and
mid-vol coal from the company's Buchanan and Amonate Mines.
CONSOL's total coal inventory decreased during the quarter by
0.7 million tons to 1.7 million tons as of September 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 Energy's core values are safety, compliance, and
continuous improvement. During the first nine months of 2012,
the company has experienced a 4% year-over year improvement in the
incident rate among employees. On October
5, we held our second Core Value Summit with our key vendors
to help them embrace our core values. As a result of our
increased focus on outside vendor safety, we have experienced a 14%
decline in our contractor incident rates over the same period.
During the third quarter, the company's Enlow Fork Mine
logged one million hours without incurring a recordable injury.
Against this backdrop of improving overall safety, though, CONSOL
Energy's coal division did suffer a fatality in the third quarter.
While we continue to invest significantly to reach our
ultimate goal of Absolute Zero, our challenge is to continue to
identify and eliminate risks.
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 September 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.
During the third quarter of 2012, CONSOL Energy drilled 12
Marcellus Shale wells, completed 12 Marcellus Shale wells, and
placed 22 online. Additionally, Noble Energy drilled four Marcellus
Shale wells in the liquids-rich area of the play. Also during
the quarter, CONSOL Energy drilled four Utica Shale wells in
Ohio, completed two Utica Shale
wells, and placed one Utica Shale well on line. Hess Corporation
drilled one well in the Utica Shale.
Fourth Quarter 2012 Forecasts
Coal: CONSOL Energy expects to produce 13.4 – 13.8
million tons during the quarter, including 0.6 million at the
Buchanan Mine, which is expected to re-start on the week of
November 5.
Gas: CONSOL's 2012 gas production guidance remains at 157
- 159 Bcf (net to CONSOL). Fourth quarter 2012 gas production is
expected to be 42.5 – 44.5 Bcf.
Coal Division Operations/Marketing
The Coal Division Operations were coordinated with the Marketing
Department during the quarter in order to maintain discipline in
the face of weak markets for low-vol, mid-vol, and high-vol coal.
CONSOL was successful in lowering total company inventory, in spite
of weak markets.
CONSOL's strong liquidity gives it the flexibility to respond to
weak markets by voluntarily curtailing production. The company
believes it is counterproductive to sell into certain markets that
are going through a de-stocking phase.
CONSOL's CNX Marine Terminal also proved valuable in the 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 Pa. As announced at the end of July, two
newly-installed conveyor belts that feed the common preparation
plant collapsed. Engineers and contractors working around the clock
had one belt rebuilt by the third week in August. 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.
Gas Division Operations
In continuous improvement, CONSOL-operated Marcellus Shale wells
in Central Pa., Southwest Pa., and
Northern W. Va. all achieved record peak 24-hour production rates
for their respective districts. The Gas Division also has been
dramatically extending its completed Marcellus Shale lateral
lengths. In 2011, the average completed lateral was 3,300'. For
Marcellus Shale wells turned on line through the first three
quarters of 2012, completed lateral lengths have averaged 4,870'
and have reached a maximum completed lateral length of 8,460'
during the recent quarter.
CONSOL's economics are also being improved by cost reductions in
items such as costs per frac stage. In 2011, CONSOL was spending
$205,000 per stage. In 2012 to date,
frac costs have fallen to $181,000
per stage. These costs are all-in, from TD to flowback.
The Gas Division continued to use water from coal mines for
hydraulic fracturing. This is another in a long line of synergies
between CONSOL's coal and gas divisions. During the third quarter,
the MOR 10F was fractured with a blend of up to 16% mine-sourced
water. The MOR 10F (13 stages, 3,613' completed lateral) came on
line on August 6th at an
initial rate of 10.8 MMcfd.
Another technical innovation in Southwest Pa. was the testing of
fractures of 450' stage lengths versus the normal 300'
stages. The three-well MOR 17 (completed laterals ranging
from 2,211' to 2,594') with initial 24-hour flow rates between 7.0
and 8.0 MMcfd, These are truly exceptional results from wells of
such short lengths.
Marcellus Shale Dry Gas (CONSOL Energy-operated):
Central Pa.:
CONSOL Energy did not drill any horizontal wells in the
Central Pa. Marcellus Shale,
because the 2012 drilling program was completed in the second
quarter.
Flowback operations were finished at the four-well Gaut 4 pad in
Westmoreland County that was
drilled during the first quarter of 2012 and completed during the
second quarter. This pad had a total of 109 stages and lateral
lengths ranging from 7,243' (24 stages) to 8,460' (29
stages). At the tail end of the second quarter, the Gaut 4A
was announced as CONSOL Energy's record producing well at a peak
rate of 17.9 MMcfd. That record was broken early in the third
quarter by the Gaut 4D, which produced at a new CONSOL Energy
record of 23.7 MMcfd.
Completion operations were finished late in the third quarter on
the six-well DeArmitt 1 South pad. A total of 145 stages were
fractured on the pad that has completed lateral lengths ranging
from 3,822' (1D, 12 stages) to CONSOL Energy's longest lateral of
8,305' (1F, 29 stages). Flowback operations are underway at
DeArmitt 1 South and production is expected to begin from the pad
before the end of October with all six wells expected to be on line
before the end of 2012.
The four-well Bowers 1 pad, where drilling was completed in the
first quarter, is the first horizontal exploration drilling by
CONSOL in Jefferson County. The centralized impoundment permit
was received late in the third quarter and completion operations
are anticipated to begin there before the end of 2012.
Southwest Pa.: CONSOL Energy continues its full-scale
development drilling within two new pads in Greene County. Drilling operations have
finished at the seven-well NNV 38 pad with a maximum drilled
lateral length of 7,000' and the eight-well NNV 41 pad with a
maximum drilled lateral length of 7,200'. Two rigs are
currently drilling in North
Nineveh at the six-well NNV 39 and the five-well NNV
42. Completion operations are expected to commence at
North Nineveh before the end of
2012.
During the third quarter, CONSOL drilled 12 wells, completed 12
wells, and brought 12 wells online at several pads in the Morris
Field. The three-well MOR 14 pad was brought into production
during the third quarter with very strong results. Initial
24-hour rates from all three wells ranged from 4.2 MMcfd from the
MOR 14C (7 stages, 1,786' completed lateral) to 9.5 MMcfd from the
MOR 14B (12 stages, 3,454' completed lateral). Adjacent to
the MOR 14, the six-well MOR 10 pad was completed during the
quarter using a total of 100 frac stages. All 6 wells were
brought on to production during the quarter with results ranging
from a peak of 8.4 MMcfd from the MOR 10B (14 stages, 3,266'
completed lateral) to the new CONSOL Energy SWPA record daily peak
rate of 15.3 MMcfd from the MOR 10D (21 stages, 6,116' completed
lateral). Lastly, the three-well MOR 17 pad was completed
with a total of 20 stages. All three wells came on line with peak
daily production rates ranging from 7.0 MMcd from the MOR 17A (6
stages, 2,211' completed lateral) to 8.0 MMcfd from the MOR 17B (6
stages, 2,566' completed lateral).
Northern W. Va.: CONSOL Energy did not drill any
horizontal wells in Northern W. Va. during the third quarter, as
the 2012 drilling program was concluded in the second quarter.
There were, however, some completions. The three-well Philippi 4
pad was completed in its entirety during the third quarter with 69
stages. The pad has completed lateral lengths ranging between
6,333' to 6,719'. All three wells were brought onto
production during the month of August with individual well peak
24-hour rates ranging from 6.5 MMcfd to 9.2 MMcfd, the latter being
a new CONSOL Energy record for Northern West Virginia. The
six-well Alton 2 pad in Upshur County, drilled during the first
quarter of 2012, was completed late in the second quarter with 135
stages. Completed lateral lengths ranged from 3,545' (12
stages) to 5,941' (25 stages). All six wells had been turned
into production by the end of July with individual well peak 24
hour rates ranging from 3.5 MMcfd to 6.7 MMcfd. These flow rates
represented significant improvements over the initial Alton 1 pad,
which was drilled and completed in 2011.
Marcellus Shale Wet Gas (Noble Energy-operated):
In the wet gas portion of the Marcellus Shale, Noble Energy has
begun producing from its first pad, the SHL-1 pad. As reported in
early September, the first four wells from this 5-well pad achieved
an IP rate of 18.6 MMcfd. For each MMcf of gas, the four wells were
also producing 22 bbls of condensate and 56 bbls of NGLs. Assuming
$3 per Mcf for dry gas, the realized
flowstream was approaching $8 per
Mcf. This exceeded company expectations. Recently, some production
from this area has been curtailed due to a force majeure
issue from MarkWest.
For the year-to-date, Noble Energy has drilled 15 wells,
including four in the third quarter. Noble Energy has turned 9
wells into line so far this year, all of which were in the third
quarter.
Noble Energy has three horizontal rigs drilling. The company is
moving to the elimination of using a separate rig for the top hole
drilling as well as batch drilling on the pads. Noble Energy
believes that this method of drilling will be more efficient and
result in fewer rig moves over time, eliminating a significant
amount of road traffic and reducing costs.
Noble Energy believes that they will TD 26 - 28 wells this year,
in spite of moving to batch drilling.
Ohio Utica Shale (CONSOL Energy-operated):
In the Utica Shale joint venture with Hess Corporation, CONSOL
Energy turned its first well, the TUSC 3A (17 stages, 4,915'
completed lateral), online in the western portion of Tuscarawas County, Ohio. The well produced at
a peak daily rate of 400 bbls of light crude, before it was shut in
for dissipation of frac fluids and to be equipped with artificial
lift at the end of May. The shut in lasted for approximately
10 weeks before being brought back online in early September and
now has cumulative production of over 7,800 barrels of crude.
During the third quarter, CONSOL Energy drilled four horizontal
wells to TD. The NBL 1A in Noble
County was drilled with a cased lateral length of 4,306',
the PORT 2A in Portage County was
drilled with a cased lateral length of 4,762', the MAHN 2A in
Mahoning County was drilled with a
cased lateral length of 2,735', and the NBL 16A in Noble County was drilled with a cased lateral
length of 4,793'. Completion operations are underway on all
four wells.
The NBL 1A was completed in 14 stages over a completed lateral
length of 4,009'. Flowback operations are just beginning
following a 30-day shut in for dissipation period. The PORT
2A was completed in 16 stages over a completed lateral length of
4,610'. Flowback operations there are underway and the well
will then be shut in for a 60-day dissipation period. The
MAHN 2A and NBL 16A are expected to be fracture stimulated by the
middle of the fourth quarter.
CONSOL Energy is operating two horizontal rigs in the Utica
Shale, one in Tuscarawas County
drilling the TUSC 8A and one in Mahoning
County drilling the MAHN 7A. In total for 2012, CONSOL
Energy expects to drill 8 wells on its acreage in the Ohio Utica
Shale.
Ohio Utica Shale (Hess-operated):
Our joint venture partner, Hess Corporation, is operating two
joint rigs in Harrison County,
drilling the CNX HAR9N4W 1H-6 and the CNX HAR9N5W 1H-24
wells. In total for 2012, and ultimately depending on the
actual timing of the drilling operations, Hess expects to have
completed drilling operations on 2 wells on its JV acreage in the
Ohio Utica Shale, and to have begun drilling on 2 others.
Earnings call information:
CONSOL Energy will report additional operational and financial
results for the quarter ended September 30,
2012 at 7:00 a.m. ET on
Thursday, October 25, followed by a
conference call at 10:00 a.m. ET. The
call can be accessed at the investor relations section of the
company's web site, at www.consolenergy.com.
Cautionary Statements
Various statements in this release, including those that express
a belief, expectation or intention, may be considered
forward-looking statements (as defined in Section 21E of the
Exchange Act) that involve risks and uncertainties that could cause
actual results to differ materially from projected results.
Accordingly, investors should not place undue reliance on
forward-looking statements as a prediction of actual results. The
forward-looking statements may include projections and estimates
concerning the timing and success of specific projects and our
future production, revenues, income and capital spending. When we
use the words "believe," "intend," "expect," "may," "should,"
"anticipate," "could," "estimate," "plan," "predict," "project," or
their negatives, or other similar expressions, the statements which
include those words are usually forward-looking statements. When we
describe strategy that involves risks or uncertainties, we are
making forward-looking statements. The forward-looking statements
in this press release, if any, speak only as of the date of this
press release; we disclaim any obligation to update these
statements. We have based these forward-looking statements on our
current expectations and assumptions about future events. While our
management considers these expectations and assumptions to be
reasonable, they are inherently subject to significant business,
economic, competitive, regulatory and other risks, contingencies
and uncertainties, most of which are difficult to predict and many
of which are beyond our control. These risks, contingencies and
uncertainties relate to, among other matters, the following:
deterioration in economic conditions in any of the industries in
which our customers operate, or sustained uncertainty in financial
markets cause conditions we cannot predict; an extended decline in
prices we receive for our coal and gas affecting our operating
results and cash flows; our customers extending existing contracts
or entering into new long-term contracts for coal; our reliance on
major customers; our inability to collect payments from customers
if their creditworthiness declines; the disruption of rail, barge,
gathering, processing and transportation facilities and other
systems that deliver our coal and gas to market; a loss of our
competitive position because of the competitive nature of the coal
and gas industries, or a loss of our competitive position because
of overcapacity in these industries impairing our profitability;
coal users switching to other fuels in order to comply with various
environmental standards related to coal combustion emissions; the
impact of potential, as well as any adopted regulations relating to
greenhouse gas emissions on the demand for coal and natural gas, as
well as the impact of any adopted regulations on our coal mining
operations due to the venting of coalbed methane which occurs
during mining; foreign currency fluctuations could adversely affect
the competitiveness of our coal abroad; the risks inherent in coal
and gas operations being subject to unexpected disruptions,
including geological conditions, equipment failure, timing of
completion of significant construction or repair of equipment,
fires, explosions, accidents and weather conditions which could
impact financial results; our focus on new gas development projects
and exploration for gas in areas where we have little or no proven
gas reserves; decreases in the availability of, or increases in,
the price of commodities and services used in our mining and gas
operations, as well as our exposure under "take or pay" contracts
we entered into with well service providers to obtain services of
which if not used could impact our cost of production; obtaining
and renewing governmental permits and approvals for our coal and
gas operations; the effects of government regulation on the
discharge into the water or air, and the disposal and clean-up of,
hazardous substances and wastes generated during our coal and gas
operations; the effects of stringent federal and state employee
health and safety regulations, including the ability of regulators
to shut down a mine or well; the potential for liabilities arising
from environmental contamination or alleged environmental
contamination in connection with our past or current coal and gas
operations; the effects of mine closing, reclamation, gas well
closing and certain other liabilities; uncertainties in estimating
our economically recoverable coal and gas reserves; costs
associated with perfecting title for coal or gas rights on some of
our properties; the outcomes of various legal proceedings, which
are more fully described in our reports filed under the Securities
Exchange Act of 1934; the impacts of various asbestos litigation
claims; increased exposure to employee related long-term
liabilities; increased exposure to multi-employer pension plan
liabilities; minimum funding requirements by the Pension Protection
Act of 2006 (the Pension Act) coupled with the significant
investment and plan asset losses suffered during the recent
economic decline has exposed us to making additional required cash
contributions to fund the pension benefit plans which we sponsor
and the multi-employer pension benefit plans in which we
participate; lump sum payments made to retiring salaried employees
pursuant to our defined benefit pension plan exceeding total
service and interest cost in a plan year; acquisitions and joint
ventures that we recently have completed or entered into or may
make in the future including the accuracy of our assessment of the
acquired businesses and their risks, achieving any anticipated
synergies, integrating the acquisitions and unanticipated changes
that could affect assumptions we may have made and divestitures we
anticipate may not occur or produce anticipated proceeds including
joint venture partners paying anticipated carry obligations; the
anti-takeover effects of our rights plan could prevent a change of
control; increased exposure on our financial performance due to the
degree we are leveraged; replacing our natural gas reserves, which
if not replaced, will cause our gas reserves and gas production to
decline; our ability to acquire water supplies needed for gas
drilling, or our ability to dispose of water used or removed from
strata in connection with our gas operations at a reasonable cost
and within applicable environmental rules; our hedging activities
may prevent us from benefiting from price increases and may expose
us to other risks; and other factors discussed in the 2011 Form
10-K under "Risk Factors," as updated by any subsequent Form 10-Qs,
which are on file at the Securities and Exchange Commission.
SOURCE CONSOL Energy Inc.