Consol Energy Inc. announced Tuesday that it has lowered 2017 exploration and production (E&P) division guidance to 405-415 Bcfe from the previous range of 420-440 Bcfe, citing a variety of reasons for the reduction.
The company said that larger ceramic completion designs have increased the time it’s taking to finish wells and causing unspecified operational issues. Consol, which operates in the Marcellus and Utica shales, also said the availability of oilfield services in the basin are currently limited. The division’s full-year capital expenditures guidance remains unchanged at $620-645 million.
The issues “are transitory,” the company said, adding that 2018 volumes would not be impacted by this year’s problems. The company said it “determined not to sacrifice value solely to achieve 2017 production within its previously announced guidance.” Consol reiterated its 520-550 Bcfe production forecast for 2018, which would create 30% year/year growth.
The announcement shouldn’t come as a surprise after the second quarter, when Consol had problems at two Utica pads in southeast Ohio. Pre-fracturing (frack) well preparation issues and problems with drilling out a frack plug at the pads in Monroe County led to significant turn-in-line (TIL) delays and the company brought only six wells online during the period, which cut year/year production by 7% to 92.2 Bcfe.
Consol said it expects to produce 100 Bcfe in 3Q2017, which it said implies higher growth in the fourth quarter when the company’s TIL schedule is expected to peak in November.
After years of working to rebuild the core of its business around natural gas production, the company said in July that it would finally spin-off its remaining coal assets into a separate publicly-traded company. Consol Mining Corp. has filed a registration statement with the Securities and Exchange Commission. Consol said again on Tuesday that it hopes to split the businesses sometime in the fourth quarter at the earliest. After that, the E&P business would drop the Consol name altogether and be rebranded.
The company cautioned that a delayed permit with the Pennsylvania Department of Environmental Protection for continued longwall mining in a portion of its Bailey Mine in the state could still have a “material” impact on the company. Without the permit, Consol said it would lose 25,000 tons/day of coal production from the mine. As a result, the company is now guiding for $815 million in earnings before interest, tax, depreciation and amortization, or a decrease of $55 million from its previous forecast.
Consol remains on track, however, to divest between $400-600 million of noncore assets by year’s end. It has sold $385 million since the beginning of the year, including a package of noncore Marcellus Shale assets in Allegheny and Westmoreland counties. The company also recently entered into a contract to sell a block of surface acreage in an unspecified location for $25 million, which would bring this year’s total sales to $410 million if the deal closes.