CONSOL Energy Prepares for Upcycle

CONSOL Coal Resources, formerly Consol Energy, is preparing for the next coal upcycle as its longwall mines in Pennsylvania rebound from operational challenges during the third quarter. The coal company, spun off by CNX Resources Corp. on November 29, is expecting fourth-quarter production volumes to improve over the third quarter at its Bailey, Harvey and Enlow Fork mines in Pennsylvania’s Greene and Washington counties as they work through longwall moves and some adverse geological conditions.

CONSOL is completely sold out on coal production for 2017 and has only a 20% open portfolio position for 2018, CEO Jimmy Brock said in November. Given a strengthening coal market, “we will be very selective in entering new contracts,” he said.

David Khani, CONSOL’s CFO, said additional weekend shifts have been added at the mines to make up some of the lost production in the July-September period. That should allow the company to meet its previously announced sales forecast range of 6.4 million tons to 6.9 million tons for 2017, a range that has been tightened to 6.5 million tons to 6.75 million tons, he said.

The third quarter was marked by production struggles, however. The company essentially lost one full month of production at Bailey because of a longwall move, Brock said, resulting in quarterly output of 1.6 million tons, or about 150,000 tons to 200,000 tons lower than expected.

“The variance compared to our expectations was driven by previously disclosed issues with the permit for one of our longwalls at the Bailey mine, specifically related to a stream in a state park and by Enlow Fork’s geological conditions,” he added.

Now, though, CONSOL is hoping to take advantage of an emerging upcycle for coal. “We believe we’re in the next upcycle for coal following the traditional pattern with other upcycles with [metallurgical] in a way initially now being followed by thermal,” Khani said. Coal’s cyclical pattern, he noted, historically has been tied to global commodity trends that also are cyclical.

As reasons for optimism, Brock cited declining coal inventory levels at power plants, steady natural gas prices following historic lows a year ago, a strong export market, and production issues in the Northern Appalachian region where CONSOL operates that created a tightening domestic steam coal market ahead of impending winter demand.

Jim McCaffrey, CONSOL’s senior vice president of sales, said the company is targeting export sales as averaging about 10% of its annual portfolio, roughly in the neighborhood of 2 million to 2.5 million tons. Revenues totaled $69.8 million in the quarter, driven by sales volume of 1.6 million tons and average sales revenue of $44.16/ton.

As featured in Womp 2018 Vol 01 -