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Consol Energy Inc. (NYSE: CNX) filed regulatory forms July 11 to break the company into separate coal and gas businesses—effectively stating, “It’s not you. It’s us.”
Consol management says the companies need to go their own way to continue to grow. Together, Consol has been on the rocks–split between coal mining and tapping into reserves of natural gas.
Following a spinoff of its mining and other coal assets into Consol Mining Corp. (CoalCo), Consol management sees the independent companies more focused on understanding each business in the capital and investor markets and creating a stronger, more focused investor base.
The company plans to sell between $400 million and $600 million of mostly non-EBITDA generating assets—minus the roughly $108 million that closed by the first-quarter of 2017. All of the sales are attuned to the coal spin-out objective, Tudor, Pickering, Holt & Co. (TPH) said.
Nicholas J. DeIuliis, Consol’s president and CEO, said the filing is an important first step toward seeing its mining and gas businesses well capitalized and able to generate free cash flow.
“This strategic separation will enable both businesses to focus on their inherent strengths and unlock value for their shareholders,” DeIuliis said.
Since December, Consol has made it clear it intends to create independent coal and natural gas businesses.
Consol’s E&P will take the company’s developed and undeveloped oil and gas properties—either leased or owned in fee—located primarily in Appalachia states such as Pennsylvania, West Virginia, Ohio and Virginia. The company will continue development of the Marcellus Shale and the delineation and development of Utica Shale acreage as well as water services and land resource management services.
Deluliis will serve as president and CEO of the E&P.
“We view this as an indirect catalyst for CONE Midstream (CNNX), as incremental focus and balance sheet strength at parent Consol should make the drilling plan underlying CNNX all the more robust,” Baird Energy Research said July 11.
The coal company will include Consol’s Pennsylvania Mining Complex (PAMC) and its ownership interest in CNX Coal Resources LP (CNXC) as well as a marine terminal at the Baltimore Port. CoalCo will hold undeveloped coal reserves in the Northern Appalachian, Central Appalachian and Illinois basins.
Management said spinning off the coal business also:
- Improves each company’s ability to attract, retain and incentivize employees;
- Opens the gas business’ access to capital; and
- Eliminates competition between the two businesses for capital.
TPH said that while Consol has been vocal about plans for a separation by the end of 2017, “it is positive to see formal steps taken which will amplify the continued focus on the upstream business.”
“Jimmy Brock will remain CEO of the coal business, joined at the CFO role by current CNX CFO David Khani” effective Aug. 2, TPH said. “From here, we remain watchful for continued execution on 2017 asset sales that CNX has broadly identified.”
The company will second quarter earnings release is set for Aug. 1.
RELATED: Consol Continues E&P Ascent In Coal Mine Sell-Off
Darren Barbee can be reached at dbarbee@hartenergy.com.
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