After increasing its stake in Consol Energy Inc. to 21%, Southeastern Asset Management Inc. said the company is significantly undervalued and has indicated that it would likely push for a sale or spinoff of the natural gas division.
In a filing with the Securities and Exchange Commission on Monday, which came the same day Consol warned investors that it would incur second quarter losses and "significant impairment" on its legacy gas assets, Southeastern said it could take a more active role in management (see Shale Daily, July 20). As a majority shareholder, Southeastern said it may elect to enter into discussions with third parties about corporate transactions of a "significant nature."
"While Southeastern applauds many of the actions of the board and management of the issuer over the last two years, in our view it is now time for the company to accelerate its efforts to build and realize value per share," the filing said. "Southeastern intends to discuss with third parties as well as management and the board of the issuer a potential monetization of its [exploration and production] assets."
Monetization, Southeastern said, could include a spinoff or a sale of the company's gas division, CNX Gas Co. "We believe these assets alone are worth demonstrably more than the company's total equity capitalization today, and they are unique qualitatively in comparison to peers given the company's fee ownership of many acres."
In reaction to Southeastern’s filing, Consol said it values the opinion of its shareholders, but said it was confident in the "strategic direction we are in the process of executing and look forward to working with Southeastern, and all of our shareholders, to continue to unlock the inherent value" of the company.
Led by Mason Hawkins, Southeastern actively pursues positions in what it deems to be undervalued companies. In 2012, as the largest investor in Chesapeake Energy Corp., the firm joined investor Carl Icahn to overhaul the board and eventually force the resignation of CEO Aubrey McClendon (see Daily GPI, Jan. 31, 2013; June 17, 2012).
Consol has buckled under the weight of the commodity downturn, announcing more than 600 job cuts (see Shale Daily, July 14; April 10). The 150-year old company was once a traditional coal producer, but now focuses on gas (see Shale Daily, Oct. 28, 2013). General and administrative expenses remain closely tied to the coal side of the business, despite an initial public offering of thermal coal division CNX Coal Resources LP last month.
Consol holds more than 500,000 net acres in the Marcellus and Utica shales, however, and has joint ventures with Hess Corp. in Ohio and Noble Energy Inc. in Pennsylvania and West Virginia. Those assets helped the company increase its year-over-year oil and gas production by 37% in 2014 (see Shale Daily, Jan. 30, 2014).
On Monday, after bracing investors for a second quarter loss, Consol also said it would detail further cost-cutting initiatives, including a shift in its operational strategy, next week when it holds a conference call to discuss earnings.