From the Pittsburgh Business Times

Consol Energy Inc. CEO Jimmy Brock is now in charge of a new company that, unlike the old Consol, has a singular focus on coal.

Canonsburg-based Consol (NYSE: CEIX) split into two companies earlier this week, with the natural gas assets and its former ticker symbol becoming CNX Resources (NYSE: CNX) and the coal assets, including its Baltimore terminal and Consol’s giant underground mining complex, going to the new Consol. Brock said the move allows the coal company to control its own destiny with its free cash flow and capital.

The strategy moving forward? Keep focusing on low costs and Consol’s other competitive advantages, including its well-capitalized mines, new train loadouts and its high-capacity coal plants in southwestern Pennsylvania. Consol has spent $2 billion over the past decade, including $1.4 billion since 2012, to upgrade the mining complex.

“We need to be able to compete with natural gas,” Brock said. “We know it’s here, it’s here to stay. The design of the spin(off), we were very careful to make sure that we created two companies that had very healthy balance sheets to give us the wherewithal to move forward.”

A priority moving forward will be to pay down debt. Consol also may repurchase shares or do a joint venture out of Pennsylvania with some of the 1.6 billion in tons of reserves it has, perhaps a metallurgical coal joint venture that would diversify its portfolio beyond its main business, providing coal for power plants. But Brock doesn’t expect to have any big standalone projects or acquisitions for the foreseeable future.

One issue still to be considered is the fate of CNX Coal Resources LP (NYSE: CNXC), a master limited partnership that is now known as Consol Coal Resources LP (NYSE: CCR). It’s a publicly traded company that owns 25 percent of the Pennsylvania mining complex; Consol owns 61 percent of the master limited partnership and 100 percent of the general partner. Brock said that the company is looking at options for the MLP.

“A big part of that is going to be this tax reform bill,” Brock said. “When the tax reform comes out, does that actually create an advantage for us to own an MLP? Or is that a disadvantage? Would it change the corporate tax structure as to where we want to do something different? We’ll weigh all that in. It’ll also look at the cost to bring it back in.”

Brock’s confident about Consol’s position in the coal industry, even with the increased competition from natural gas. That stems in part from the predecessor company’s coal strategy that started about a decade ago to target 15 or so coal-fired power plants that serve the region.

“(They are) what we call core power plants that have already made the investments in the environmental controls, and they are going to run, not only they are going to run, they’re going to run at a higher capacity factor than the other utilities in northern Appalachia,” Brock said.

Coal-fired power generation is about 31 percent of the supply, and Brock doesn’t see renewables taking a big bite out of the Appalachian power supply, although it may fluctuate within a few percentage points.

“I don’t think anything’s going to come in and totally replace coal. It’s going to be here for our lifetimes for sure, and I will tell you that as long as it’s 30 percent or so, we feel really good about placing our 26 to 28 million tons in the marketplace,” he said.



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