CONSOL Energy Inc. (CNX - Analyst Report) divulged its updated resource reserves figures for the year 2012. The company added 954 billion cubic feet equivalent (Bcfe) of net proved reserves in its kitty via extensions and discoveries. This brings total proved reserves at the end of 2012 to around 3.993 trillion cubic feet equivalent (Tcfe), recording a 15% increase from the 2011 level.
The major contributor to the reserve pool was the Marcellus Shale play which brought in about 94% of the hydrocarbons. The Marcellus block witnessed proved reserves growth of 105% to 1,805 Bcfe from 882 Bcfe in 2011. Meanwhile proved developed reserves ("PUD") increased 79% to 427 Bcfe from 239 Bcfe in 2011.
Proved reserves were 46% of the proved undeveloped ones in 2012 compared with 39% in 2011. These exclude the prior classified proved developed reserves and include undeveloped reserve supplements from the Marcellus prospect. The 1,379 Bcfe of PUD from Marcellus reflects 38% of the total estimated to be drilled in the next five years.
Oil, condensates and liquids accounted for 2.2% or 88 Bcfe in the total proved reserves basket. Approximately 611% of natural gas production was replaced by CONSOL bringing the net output to 156 Bcfe in 2012. CONSOL Energy also clocked total proved, probable and possible reserves of 22.2 Tcfe at the end of 2012, reflecting a 10% surge from the 2011 reserve level.
Overall net adjustments including performance revisions, plan alterations and reserves loss owing to price lowered reserves by 285 Bcfe. This entails a 242 Bcfe increase from performance revisions with a concomitant fall of 527 Bcfe from price adjustments and plan changes. Price adjustments were based on 2012 price figures of $2.76 million British thermal units (MMBtu) compared with $4.12 MMBtu in 2011 and includes no reserve purchases.
Plan alterations led to a decline in drilling activities and shifting of focus away from the non-core properties while weak natural gas prices made CONSOL Energy veer towards its high-return Marcellus operations. The company’s projected drilling and completion costs related to extensions and discoveries in 2012 were $440.7 million.
We believe the rising demand for coal in the emerging markets of China and India will boost metallurgical coal exports at CONSOL Energy. It is believed that domestic production in these countries is not sufficient to meet the increasing demand for coal.
The company will also benefit from the promising potential offered by the Brazilian markets particularly with the implementation of favorable monetary, fiscal and tax policies that brought about an upside in steel utilization rates. Moreover, normal winter weather and an expected upswing in natural gas prices could act as tailwinds.
However, regulatory pressure and underground operational risk are negatives that could undermine the growth opportunities. Presently, the company carries a Zacks Rank #3 (Hold).
We as of now prefer Zacks Rank #2 (Buy) stocks Natural Resource Partners L.P. (NRP - Analyst Report), DTE Energy Company (DTE - Analyst Report) and The AES Corporation (AES - Analyst Report).
Based in Canonsburg, PA, the company produces coal and natural gas for energy and raw material markets.