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Diversified fuel producer CONSOL Energy Inc. (CNX - Analyst Report) provided an update on its drilling operations in the Marcellus Shale and in Barbour County, W. Va. The initial drilling results are promising. In addition, the company acquired gas drilling rights of 90,000 acres from Dominion Transmission, a unit of Dominion Resources (D - Snapshot Report). The acquired acreage is adjacent to the company’s existing properties.

This coal operator has shifted its focus towards natural gas production and continues to acquire acreage in regions anticipated to have a large volume of gas reserve. This strategy is well thought out as natural gas continues to gain popularity among the U.S. industrial producers. The power producers are also choosing natural gas as a fuel power to avoid the stringent regulations pertaining to coal-fired plants.

As per a recent report from the U.S. Energy Information Administration (EIA), the usage of natural gas is expected to increase in the industrial sector. The demand for natural gas from the industrial sector is expected to touch 20.48 billion cubic feet per day in 2014, up 1.5% from 2013 levels.

Given the positive fundamentals, CONSOL Energy monetized some of its coal assets, the proceeds of which will go to boost its gas portfolio. In recent times, CONSOL Energy acquired gas rights in both the Marcellus Shale and the Upper Devonian formations. The purchase consideration of $190 million will be pad in two installments.

The initial production from the wells drilled in the Marcellus Shale resulted in an average production of 10 million cubic feet equivalent (MMcfe) per day, while the wells in Barbour County, West Virginia resulted in a maximum 24-hour flow rate of 13.6 MMcfe per day.

The company plans to apply new and advance production techniques in these regions to get best output from the production wells. CONSOL Energy along with its joint venture partner Noble Energy Inc. (NBL - Analyst Report) in the Marcellus Shale is quite well placed to benefit from the expected surge in natural gas demand.

CONSOL Energy presently carries a Zacks Rank #3 (Hold). A better-ranked coal stock in the sector is Alpha Natural Resources, Inc. (ANR - Snapshot Report) with a Zacks Rank # 2 (Buy).

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