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CONSOL Energy Inc. ( CNX - Analyst Report ) announced an increase in its net proved reserve through extensions and discoveries of 517 billion cubic feet (“Bcf”) worth $237.4 million in 2011. The company attributes this positive outcome to its held-by-production (“HBP”) acreage in the Marcellus Shale and evolving drilling and completion technology. The acreage also helped the company to drill multiple wells from the same pad.
Despite an increase of 517 Bcf through extensions and discoveries in 2011, CONSOL Energy reported a 7% dip in its total proved reserves to 3,480 Bcf as of December 31, 2011 from 3,732 Bcf reported in the year-ago period. This was the result of the joint venture with Noble Energy ( NBL - Analyst Report ) and divestiture of the Antero overriding royalty interest of 531 Bcf, slow development and elimination of proved undeveloped reserves (“PUDs”) by 380 Bcf, production of 154 Bcf from proved reserves and lower price revision of proved reserves by 10 Bcf. But these were partially offset by 306 Bcf increases of reserves attributable to performance revisions to its proved developed producing (“PDPs”).
We believe that the declining total proved reserves have prompted CONSOL Energy to initiate a new drilling strategy. As per this new strategy, the company has redirected its drilling capitals to the Marcellus and Utica shales from its conventional and coal-bed methane (“CBM”) formations. At the same time, the PUDs will be ready to return back to the proved reserves, if the company wants to drill conventional and CBM formations at a quicker pace in future.
Although CONSOL Energy sold one-half of its Marcellus and Utica Shale, the company reported 20.2 trillion cubic feet (“Tcf”) of total proved, probable, and possible (“3P”) reserves as of December 31, 2011, up 41% from 14.3 Tcf in the year-ago period. In 2011, the proved reserves were 39% proved undeveloped versus 48% in 2010. The proved reserves were $2.9 billion for 2011 compared with $2.8 billion at year-end 2010.
In 2011, per barrel of crude oil cost $85.59 while per barrel of natural gas liquids was priced at $49.17. Per Million British thermal units (“Mmbtu”) of natural gas cost $3.55. In 2011, CONSOL Energy produced 154 Bcf of natural gas.
2011 Production Flashback
CONSOL Energy reported fourth quarter 2011 gas production of 39.7 Bcf, up 9.7% from 36.2 Bcf produced in the year-ago quarter. The company reported total coal production of 15.3 million tons in fourth quarter 2011 compared with the year-ago quarterly production of 16.8 million tons.
CONSOL Energy expects first quarter 2012 and fiscal 2012 coal production to be in the range of 15.5 –15.9 million tons and 59.5 − 61.5 million tons, respectively. On the gas production side, the company expects first quarter 2012 gas production to be in the range of 36–38 Bcf, and 2012 production to be approximately 160 Bcf. But the revenue might decline due to mild weather and a drop in natural gas prices. The company presently retains a Zacks #4 Rank, which translates into a short-term Sell rating.
Based in Canonsburg, Pennsylvania, CONSOL Energy is a multi-fuel energy producer as well as energy services provider, primarily catering to some of the leading U.S. power generators.
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