Consol Energy seeks to spin off its coal business

Consol Energy Inc. officials on Tuesday announced they expect to sell or spin off what's left of the 153-year-old company's coal business as early as this year.

Consol — the nation's fifth-largest coal producer just five years ago — now operates coal mines only in southwestern Pennsylvania at its large Bailey complex, which employs about 2,000 people and includes three mines below Greene and Washington counties.

In recent years, the Canonsburg-based energy producer has been shifting its focus away from coal to concentrate on natural gas exploration and production, or E&P.

Consol executives said they will separate completely from the coal industry through one of three options: sell the Bailey complex to a third party; spin it off to shareholders; or divest until an existing spin-off, CNX Coal Resources, becomes majority-owner of the Bailey complex, of which it already owns 25 percent.

“We think there may be a market opportunity to achieve a sale of the coal business on favorable terms,” David M. Khani, Consol's chief financial officer, said in a statement, “or, alternatively, to effect a spin-off as our leverage ratio comes down to a level that allows each business to stand on its own.”

CEO and President Nicholas DeIuliis told investors on an earnings call Tuesday morning that a series of strategic moves last quarter enabled the company to pare down debt, free up cash flow and bolster liquidity, from about $300 million to $1.73 billion by Dec. 31.

Some investors had hoped the strengthened financial position would spur Consol to accelerate natural gas production more rapidly, including by announcing one or two more rigs, said analyst Ray Leong of SunTrust Robinson Humphrey in Houston. Instead, Leong said Tuesday's call included “much of the same” disclosed during investor meetings late last year.

“We were kind of expecting them to be more aggressive,” Leong said. “They have been paying down debt, selling assets and they have liquidity now to kind of ramp up (natural gas) activity. A lot of people were coming into (Tuesday's call) thinking that they were going to announce four rigs.”

Consol used two horizontal rigs to drill seven dry Utica shale wells in Monroe County, Ohio, during the fourth quarter of 2016.

“We talked about having two rigs for now and three probably by the end of the year,” Consol spokesman Brian Aiello told the Tribune-Review.

“We're looking more at long-term value than we are short-term growth,” Aiello continued.

Prices and demand for both of Consol's primary products fell leading up to the end of 2015 , pushing Consol to slash capital spending, lay off workers mid-year and stop drilling wells.

Consol reported that coal pricing has improved slightly and that it ended the fourth quarter of 2016 with $83 million in net cash from operating activities compared with $102 million during the same period of the previous year. For all of 2016, Consol reported net cash of $469 million compared with $506 million in 2015.

Last quarter, Consol paid down $354 million in debt and generated $349 million in free cash flow, including proceeds from dissolving its Marcellus shale joint venture with Noble Energy.

Consol in 2013 sold its five large West Virginia coal mines to Ohio-based Murray Energy, and last year sold its metallurgical coal mine in Buchanan, Va., to West Virginia-based Coronado Coal for $420 million.

Natasha Lindstrom is a Tribune-Review staff writer. Reach her at 412-380-8514 or nlindstrom@tribweb.com.