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Consol Energy Says Production Will Continue Growing After Record 2Q

Steadily improving completion techniques, declining costs in the Marcellus Shale and progress in the Utica Shale last quarter found Consol Energy Inc. achieving record production of 51.9 Bcfe, up from the 38.6 Bcfe it produced at the same time last year.

CEO Nicholas Deluliis said the company expects to do even better for the remainder of this year, saying on Tuesday that the company had grown comfortable enough with its exploration and production (E&P) program to increase the low-end of its full-year guidance from 215 to 225-235 Bcfe, which will require it to produce 60 Bcfe this quarter and 70 Bcfe in the fourth.

The 150-year old coal producer has been strongly focused on growing its gas division through gains in the Marcellus Shale (see Shale DailyJan. 31;Oct. 28). In April, the company said it would expand the use of reduced cluster spacing and short stage lengths to complete its wells, while making a more concentrated effort to develop its Utica Shale acreage in Ohio (see Shale DailyApril 30).

"When you couple these qualitative accomplishments of the blossoming Utica play, lean manufacturing in the Marcellus, and put those with the quantitative results, these things combine to show the much anticipated scale starting to appear in the E&P segment with total costs dropping and margins increasing," Deluliis told financial analysts during a second quarter conference call.

"You should expect more of that for the second half of 2014 as our production continues to grow in the third and fourth quarters."

Although Consol reported a net loss of $25 million for the quarter, or 11 cents/share, which was greater than the $13 million, or 5 cents/share it lost in the year-ago period, on one-time costs related to a pension settlement and charges for a new credit facility, the E&P division proved profitable. It posted net income of $15.5 million, versus the $2.7 million it lost during 2Q2013.

The company also managed to stave off a significant drop in its commodity price realizations, which were mainly flat at $4.44/Mcfe last quarter, compared to $4.46 a year earlier. The company attributed that stability to a price uplift from second quarter liquids volumes, which were 2.6 Bcfe, or nearly five times greater than during 2Q2013.

Last year, liquids accounted for about 2% of overall production volumes, but the company is forecasting liquids to account for between 5-8%of its production this year.

Consol also currently has 1.3 Bcf/d of firm transportation capacity secured and 129 MMcf/d of processing capacity, which will grow to 380 MMcf/d in the next year.

Although coal demand was weak last quarter, Consol hit the midpoint of its quarterly guidance at 8.3 million tons. While company officials gave little details, they said they were "intensely studying" ways to monetize some of their older coal and gas assets. Deluliis said internal discussions are ongoing to sell up to $1 billion worth over the next five years.

An initial public offering for a master limited partnership that combines the Marcellus midstream gathering assets of Consol and its joint venture partner Noble Energy Inc. will also go forward. The company said in June that the IPO was awaiting approval from regulators and Noble Energy's board of directors (see Shale DailyJune 12). An S-1 filed with the Securities and Exchange Commission will be made public in August, Consol said. 

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