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Diversified fuel producer CONSOL Energy Inc. (CNX - Analyst Report) released production details for the second quarter of 2013. CONSOL also provided third quarter production guidance and 2014 gas production estimates.

2Q13 Production and Inventory

CONSOL Energy's Gas division produced 38.6 billion cubic feet equivalent (Bcfe) in the second quarter,  up 3% from 37.3 Bcfe produced in the year-ago quarter. Gas production in the second quarter included 418 million cubic feet (MMcf) per day of natural gas, 335 barrels per day of oil/condensates, and 655 barrels per day of NGL. However, the production was 1.5% lower than 39.2 Bcf recorded in the first quarter.

CONSOL Energy's Coal division produced 13.8 million tons in the second quarter of 2013, including 1.2 million tons of low-vol coking coal from the company's Buchanan Mine. The coal production in the second quarter declined 5.6% year over year and 6.8% sequentially.

CONSOL Energy’s total coal inventory in the second quarter decreased 4.9% year over year to 917,000 tons. Thermal coal inventory decreased by 102,000 tons to 773,000 tons during the quarter, as customers continued to take all contracted tonnage. Low-vol coal inventory increased during the quarter by 55,000 tons to 144,000 tons.

Guidance

CONSOL’s third quarter 2013 gas production is expected to be approximately 43 – 45 Bcfe. 2013 gas production is expected to be in the range of 170 – 175 Bcfe. CONSOL Energy expects third quarter 2013 total coal production in the range of 13.4 – 13.9 million tons, while 2013 coal production is expected to range between 55.5 – 57.5 million tons.

CONSOL also provided gas production guidance in the range of 210 – 225 Bcfe for 2014.

Our Take

Demand for coal is expected to improve in the U.S. as the prices of natural gas have been recovering from earlier lows. CONSOL’s Coal division contributes more than 90% of the revenue stream of the company. In the next five years 300 gigawatt of coal fired power units will come into operation globally, creating additional demand for thermal coal. In addition, as per the World Steel Association, steel consumption is also expected to improve nearly 3% yearly in 2013 and 2014.  

So, the improvement in coal demand will help coal operators in the U.S. to improve their performance. However, CONSOL Energy along with other coal operators like Peabody Energy Corporation (BTU - Analyst Report), Arch Coal Inc. (ACI - Analyst Report) and Walter Energy Inc. (WLT - Analyst Report) will have to face increasing competition from Indonesian and Australian coal producers.

CONSOL Energy Inc., based in Canonsburg, Penn, is a multi-fuel energy producer and an energy services provider, primarily catering to the U.S. power producers. The company presently retains a short-term Zacks Rank #5 (Strong Sell).
 

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