CONSOL Elaborates on FY12 View

After disclosing its capital expenditure plans in the preceding week, diversified fuel producer CONSOL Energy Inc. (CNX - Analyst Report) revealed its production expectation for 2012. The company expects its 2012 coal production to be in the range of 59.5 − 61.5 million tons, while its gas production is expected to be 160 Bcf (billion cubic feet).

For 2012, the company has plans to invest $720 million in its coal division. The expenditure will be directed towards maintenance of projects, growth in production from the mines and overall increase in efficiency.

For 2012, the company has plans to invest $755 million in its gas division, the majority of which will be directed towards development and increasing production from its shale gas assets geared for meeting its annual target.

First Quarter 2012 Outlook

CONSOL expects first quarter 2012 coal production to be in the range of 15.5–15.9 million tons, assuming normal weather patterns and 1.0 – 1.2 million tons of production from the Buchanan Mine. CONSOL’s forecast is lower than the year-ago quarter’s production of 17.2 million tons, as its mines operated exceptionally well in the preceding year comparable period.

CONSOL expects first quarter 2012 gas production to be in the range of 36–38 Bcf, up from the year-ago level of 35.9 Bcf. However, the first quarter production of the company will be lower sequentially due to the impact of frac schedule and other seasonal factors.

Fiscal 2011 Snapshot

CONSOL’s Coal Division produced 15.3 million tons for the fourth quarter, including 1.4 million tons of low-vol metallurgical coal from the Buchanan Mine. Annual 2011 coal production was 62.6 million tons, which includes 5.7 million tons from Buchanan.

CONSOL Energy's Gas Division produced 39.7 Bcf for the fourth quarter and 153.5 Bcf for full year 2011.

Our Take

The production as well as capital expenditure details provided by the company for 2012 reveals a modest year-over-year improvement in performance. However, we believe dependence on a limited group of customers for bulk amounts of coal sales and inherent operational risks ensuing from underground mining are causes of concern.

Another coal producer Walter Energy Inc. (WLT - Analyst Report), which primarily produces met coal, provided guidance for 2012. The company expects met coal production for 2012 to be in the range of 11.5 million to 13 million metric tons, lower than its prior expectation of 13 million to 14 million metric tons, due to inherent risk associated with the mining business besides lower-than-expected contribution from its different start-up projects.

Based in Canonsburg, Pennsylvania, CONSOL Energy is a multi-fuel energy producer as well as energy services provider, primarily catering to the U.S. power generators. CONSOL Energy at present retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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