Based on current operating conditions and future prices for coal and natural gas, CONSOL Energy CEO J. Brett Harvey told investors last Thursday at the Friedman Billings Ramsey 8th Annual Investor Conference in Washington, DC, that he expects the company to earn approximately $0.50/share for the six-month period ending Dec. 31, which falls $0.34/share short of Wall Street estimates of $0.84/share for the six-month transition period.
However, the executive added that he expected 2002 to be a “strong year” for the diversified company. Harvey said the company will continue to increase its natural gas production volumes in anticipation that gas prices will rebound in 2002 with improvement in the U.S. economy. Regarding coal, Harvey said he expects prices in the East to remain at current higher levels and for company operations to show continued improvement during the year, resulting in lower operating costs.
Harvey also outlined CONSOL’s recent acquisition of coalbed methane (CBM) assets in Virginia. In the transaction, which closed on Aug. 22, CONSOL acquired 366 Bcf of proved developed and undeveloped CBM reserves, existing production wells and pipeline gathering assets from Conoco Inc. Total value of the transaction is estimated at $160 million, including the reserves, which were acquired for about $0.35/Mcf. Including the transaction, CONSOL now controls about 170,000 contiguous acres in Virginia, with proved developed and undeveloped reserves slightly in excess of 1 Tcf and daily production of 130 MMcf/d.
As part of a new business strategy, Harvey said CONSOL has evolved from a mining company into a new paradigm for energy companies. Under the company’s recent move into power generation, Harvey told analysts that CONSOL and Allegheny Energy intend to build an 88 MW electric generating facility to generate power during periods of peak demand. Jointly owned by the companies, the facility will be built on land owned by CONSOL and fueled with gas from CONSOL’s CNX Gas operations.
Although Harvey put a lot of emphasis on the company’s gas and power maneuvers, he said he expects the coal segment to represent about 60-70% of CONSOL’s pre-tax earnings for calendar year 2002. Pittsburgh, PA-based CONSOL is the second largest U.S. producer of CBM. The company recently has begun CBM production in Pennsylvania and West Virginia. CONSOL also claims it is the largest producer of high-Btu bituminous coal in the United States, and the largest exporter of U.S. coal.
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