Consol selling 5 coal mines, river transport business in $3.5B deal |
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Consol selling 5 coal mines, river transport business in $3.5B deal

Stephanie Strasburg | Tribune-Review
Some 600 workers have been laid off from the the idled former Blacksville No. 2 Mine in Monongalia County, W.Va. It is one of five former Consol coal mines in northern West Virginia that were sold in 2013 to Ohio mining competitor Murray Energy Inc.
Jasmine Goldband | Tribune-Review
Congressman Tim Murphy file photo

More than three decades after Consol captured and sold methane to make its coal mines safer, gas is taking center stage in the company's future.

With cheap gas and climate concerns hurting its market, Consol Energy Inc. is selling the subsidiary that once gave it its name — Consolidation Coal Co. The $3.5 billion deal announced on Monday will free more cash for drilling the Marcellus and Utica shales in West Virginia and Pennsylvania.

“It's an emotional day for people within the company,” company President Nicholas J. DeIuliis said. “It's a critical step forward in the company's evolution.”

The sale of five mines to Murray Energy Inc., a St. Clairsville, Ohio, coal producer, will help Consol shift its focus away from coal to gas. Consol still will mine coal, but only to help raise cash for about $22 billion in new drilling over 10 years, company officials said.

“It's hard to find a lot of enthusiasm for coal aside from the people who already make a living mining it,” said Thomas F. Hoffman, president of Carbon Communications Consultants and a former Consol executive. “It's like a reality check. You sort of knew that challenges were out there for the coal industry, but it really is the splash of cold water in your face when you see a big, long-time coal producer like Consol do this.”

The company helped pioneer coalbed methane wells — drilled just to make some cash on fuel it had to vent anyway to make mines safer. But the gas boom and the nation's shift away from fossil fuels to cleaner sources of energy have made the future of coal a challenging prospect for coal-mining companies, such as Consol.

Consol officials said their business isn't a coal company anymore. It's a gas company with a coal arm looking to take a bigger share of the country's shale gas revolution.

The deal would send Consol's five northern West Virginia mines — in the heart of the company's historical footprint — to privately held Murray, which is paying $850 million and accepting $2.4 billion in liabilities, largely pension and other employee benefits. The mines account for about half of Consol's annual production and would double Murray's size.

The deal would include Consol's river transportation business, 21 towboats and 600 barges.

More than 3,700 employees will shift companies as part of the deal. Consol officials don't expect job cuts at the mines because both companies intend to keep them operating at their current levels, DeIuliis told the Tribune-Review.

But several workers at the Blacksville No. 2 mine in West Virginia said they fear layoffs once union contracts expire in 2016. Two of them, who declined to give their names fearing retribution for talking to the media, said they have worked at Murray mines, claiming layoffs and unsteady employment were common.

Chris Wilson, 18, of Daybrook, W.Va., said he took a job at Consol even though drilling companies offered him more money, but now he is worried about his future.

“I really don't like them selling it. They'll end up firing most of the younger generation, and then the younger guys will be out of jobs,” said Wilson, a security monitor at Blacksville.

Officials at Murray declined an interview request, but CEO Robert E. Murray said in a statement that the company “intends to preserve (Consol's) well-earned legacy.”

“This is truly a momentous time for the combined employees of Murray Energy Corp. and for our company,” Murray said.

There are likely to be changes among the support staff at Consol, DeIuliis said. That includes account and human resource managers, engineers and other office staff who the company wants to shift to gas-related work or cut by year's end, he said. The company expects $65 million a year in administrative savings.

“We're fighting a war on two fronts,” said Dave Thearle, 62, of Beallsville, Washington County, a fire boss at Alpha's Emerald mine near Waynesburg. He started his career at Consol 40 years ago and joined a group of six protesters Downtown on Monday who are upset by pressure on coal from both gas and the environmental movement. “It's sort of hard to believe they're getting out of it.”

Wall Street analysts cheered the deal. Several of them congratulated Consol executives during a morning conference call.

Consol's stock price had declined for two years along with other coal producers, dropping as low as $26.51 per share on July 4. It rallied as CEO J. Brett Harvey publicly committed to look at creative ways for restructuring the company, and then again in October when rumors of the sale first leaked. It closed on Monday at $37.95 a share, down 19 cents.

“I suppose now you're an E&P (exploration and production) company with a bank on the backside by holding onto those coal mines,” John Bridges, an analyst at JPMorgan Chase & Co., said during the conference call.

Coal companies have struggled with oversupply, competition from cheap gas and fears about climate change and tightening federal regulations. Consol lost nearly $14.6 million in the first six months of the year on $2.5 billion in sales. It warned investors on Oct. 15 to expect another loss for the three months ending Sept. 30,

Harvey said Consol retained an advantage over drilling competitors by retaining what it considers its best coal assets. It is keeping mines in Pennsylvania, southern West Virginia and Virginia, which produce high-quality coal that can be used for power plants or metals-makers abroad. That gives the company options to sell to the highest-priced market, executives said. It also is keeping its Baltimore export terminal to pair with those mines that sell overseas.

“We've kept the jewels for our shareholders,” Harvey said. “It's important for you to understand that.”

Timothy Puko is a staff writer for Trib Total Media. He can be reached at 412-320-7991 or [email protected]. Staff writer Mike Wereschagin and photographer Stephanie Strasburg contributed.

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