Consol Energy Beefs Up CBM Production Capacity in Mid-Atlantic

Pittsburgh, PA-based Consol Energy Inc., the second largest U.S. coal producer based on revenues, has entered into a deal to buy coalbed methane (CBM) gas production and pipeline gathering assets from Conoco Inc. to serve the expanding gas needs of power generators in the Pennsylvania, Virginia and West Virginia areas.

When completed later in the third quarter, the transaction will boost Consol Energy's proved developed and undeveloped CBM reserves, which currently are 653 Bcf, to more than 1 Tcf. The company is considered the second largest domestic producer of CBM gas, with a current production capacity of 103 MMcf/d.

The purchase price was not disclosed, but the agreement calls for Consol Energy to acquire Conoco's 50% interest in the assets of Pocahontas Gas Partnership, which produces about 54 MMcf/d of pipeline-quality CBM gas from more than 500 wells in Virginia, and holds about 740 Bcf of proved developed and undeveloped CBM reserves.

Consol Energy also will acquire Conoco's 25% interest in Cardinal States Gathering Co., which operates two gathering lines (80 miles in length) that connect CBM wells to Columbia Gas Transmission's system in Virginia. It will own all of the assets of Cardinal States and Pocahontas Gas when the transaction is completed.

"We will continue to look at other [gas] acquisitions as well. Gas is becoming a big part of our growth strategy," said Consol Energy spokesman Thomas Hoffman. Gas currently accounts for $95 million of the company's pre-tax gains, and about 45% of earnings.

Consol Energy got into CBM about 12 years ago when it needed to extract the gas before it could mine coal. With the popularity of gas as a fuel for power generation, Hoffman said the company has ventured into CBM more and more over the years. It seemed a "logical move" to be able to offer customers the two most commonly used fuels by generators, coal and gas. All of the company's gas reserves are CBM, he noted, and are produced in southwestern Pennsylvania, northern West Virginia and Virginia.

Nearly all of the coal and CBM gas its produces "end up with power generators" in the three states, he told NGI. Right now most of Consol Energy's gas is sold on a spot basis, but the company is starting to do individual deals with generators in the region, he said.

It recently entered into a joint-venture deal with Allegheny Energy, headquartered in Hagerstown, MD, to build a peaking power plant in southwestern Virginia that will be fueled with the CBM gas that Consol Energy produces in the state, Hoffman noted. Allegheny Energy, which is the company's largest coal customer, supplies power to parts of Pennsylvania, West Virginia and Maryland.

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