Continuing its transition to an exploration and production-focused natural gas producer, Consol Energy Inc. said Monday that it has entered an agreement to sell its premiere Buchanan Mine and associated metallurgical coal assets in three states for $420 million.
Consol has coalbed methane operations on some of the properties being sold, but the company said it would retain the right to extract and sell that gas. At the Buchanan Mine in southwestern Virginia, the company has future gas development plans involving areas where coal has already been mined.
In all, the company is divesting 400 million tons of proved coal reserves to Coronado IV LLC, which acquires, develops and operates coal assets. Coronado is backed by the Energy and Minerals Group, which is funding the transaction.
"This is another significant event in the execution of Consol Energy's strategy, as well as a meaningful step in continuing to strengthen our balance sheet," CEO Nicholas Deluliis said.
Once a traditional coal producer, the 150-year old company has been more focused on natural gas production in recent years with the rise in onshore shale drilling and the decline of coal. It has sold more than $5 billion in mostly coal assets since 2012, while building its positions in the Marcellus and Utica Shales of Ohio, West Virginia and Pennsylvania.
General and administrative expenses remain closely tied to the coal side of the business, despite an initial public offering of its thermal coal division CNX Coal Resources LP last year. In October 2015, the company said it would aim to sell another $2.3 billion in coal, gas, surface and midstream assets to generate more cash (see Shale Daily, October 27, 2015).
Consol said it would use proceeds from the sale, which includes $398 million payable at closing, to pay down debt, or likely a portion of the $952 million outstanding under its $2 billion revolving credit facility. As it wrestles with low commodity prices, the company has idled its natural gas drilling program until further notice and cut E&P spending from a little more than $805 million last year to about $325 million at the high end this year (see Shale Daily,Jan. 6). On Monday, it said it would suspend its regular quarterly dividend of 1 cent/share.
Also included in the coal sale are the company's idled Amonate Mine in West Virginia and other coal reserves in Virginia and Southwest Pennsylvania. The purchase agreement would also include a 20% royalty for Consol on any of Coronado's excess metallurgical sales outside the United States. Consol said the deal is expected to close by the end of this quarter.
The company had 18.7 Bcf of coalbed methane sales in 4Q2015, or more than the 14.8 Bcf of natural gas it sold from the Utica Shale. The company produced 95.5 Bcfe overall during the quarter, driven primarily by the Marcellus Shale, which accounted for 42.5 Bcfe (see Shale Daily, Jan. 29).