CONSOL Energy Sees Large Income Boost from Higher Coal Prices

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Researched by Industrial Info Resources (Sugar Land, Texas)--Coal and natural gas producer CONSOL Energy Incorporated (NYSE:CNX) (Canonsburg, Pennsylvania) had an outstanding first financial quarter. The company recently released 1Q09 earnings, which showed quarterly net income of $195.8 million, 160% higher than 1Q08's net income of $75.1 million. Although both sales and production of coal were down, higher year-over-year coal prices were the primary driver for this increased income. Additionally, increased production of natural gas also helped raise CONSOL's profits. CONSOL primarily mines in northern and central Appalachia. The company's gas subsidiary CNX Gas Corporation (NYSE:CXG) (Pittsburgh, Pennsylvania), of which CONSOL owns 83.3% of company shares, operates mostly in the Appalachian and Illinois basins.

For the quarter, CONSOL produced 15.4 million tons of coal, compared to 16.0 million tons in the same period of the previous year. However, revenues were actually better this year, as the average realized price per ton of the company's high-Btu bituminous coal was $59.63, almost 37% higher than the realized price of $43.57 in 1Q08.

In a conference call regarding the earnings, Executive Vice President and Chief Financial Officer Bill Lyons spoke of the company's successful coal operations. "For our coal segment, our total margins for the first quarter were $17.38 per ton, an increase of $11.20 per ton over the first quarter of 2008. This margin expansion is the key driver in our step-change in profitability," he said. "Our 16 million tons of production this quarter is down 173,000 tons from the first quarter of 2008. This decrease in production is not operations-related, but market-related. We have throttled back production to match the shipments to our customers."

The company has reduced production, in part, by idling the Buchanan coal mine in Mavisdale, Virginia. Despite this production curtailment, CONSOL is still spending on projects aimed at increasing the company's production and market share in the future. The company had about $300 million in capital expenditure for the quarter, which was split fairly evenly between its coal and gas segments. The Buchanan mine is currently undergoing a $100 million expansion that will boost coal production by approximately 1 million tons per year. Currently, the mine's water disposition facilities are being upgraded.

Net income for CNX Gas didn't show quite the spectacular growth as CONSOL's coal segment, although it did increase 10% year over year. For 1Q09, CNX's net income was $54.9 million, compared with $49.9 million in the same period of the previous year. The company's average realized price for natural gas during the quarter was $7.37 per million cubic feet, 10% lower than the realized price of $8.23 in 1Q08. However, quarterly production increased a whopping 38% from the previous year, moving from 15.9 billion cubic feet to 22.0 billion cubic feet, helping raise the company's income.

Industrial Info is currently monitoring approximately $598 million of CONSOL's coal-related projects in the states of Pennsylvania, Virginia and West Virginia, including the expansion of the Buchanan mine. Detailed information on these projects is available at Industrial Info's North American Metals & Minerals Database.

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