Murray Energy picked up several great mines. These mines are leaders in safety and productivity. While many writers covering this deal have positioned it as a win-win for both companies, and it is, it also marks a turning point for the coal business overall. The largest underground coal producer, which has been mining coal in the U.S. for 150 years, has just reduced its exposure to coal by 50%. As Brett Harvey, CONSOL Energy chairman and CEO, and his management team explained the rationale behind the decision to the press and analysts on an hour-long call, it became clear that CONSOL is no longer a coal company. CONSOL Energy is more CNX and less Consolidation Coal Co. and CNX is becoming an E&P company.
CONSOL Energy trades under the symbol CNX and this deal was more about increasing the value of the company’s stock. Natural gas continues to supplant coal in America’s energy mix. The term E&P is a petroleum term meaning exploration and production. Wall Street likes CNX Gas and they are clearly worried about CNX’s coal exposure.
Harvey is a coal man. Since he took the helm in 1998 as president and CEO, Harvey has led the company with an inspired vision. He and his management team launched an IPO in 1999. At a time when other coal companies were struggling with the transition to being publicly held, CONSOL Energy made it look easy. When the nation’s mines were struggling with safety, he launched a vigorous campaign to reduce fatalities and injuries. During the call, it became clear that this was a business decision and, even though he didn’t sound happy about the decision, Harvey knew it was the wisest course of action for CNX.
CONSOL Energy has not abandoned coal completely. They still retain the more profitable half of the coal production assets. The remaining CNX longwall mines, which include the Bailey and Enlow Fork Complex, are well-capitalized mines with some of the highest profit margins. These mines and the others can sell their coals into the steam export market or to the met market abroad. That explains why they decided to keep the export facilities in Baltimore.
One of the major concerns voiced by investors and analysts was the legacy costs. After following the Patriot bankruptcy saga as it unfolded during the last six months, they were clearly worried that, if something should happen with Murray Energy, the legacy costs would revert to CNX. The company explained that it thought Murray Energy was well-positioned to handle that and they reassured the investment community they didn’t need to worry about perceived liabilities.
Similar to the coal industry itself, the CNX transformation is well under way. CNX is moving from a coal company with a small gas business to a gas company with a few coal mines. The company is moving forward with its plans to build a leading presence in the Marcellus and Utica shale formations through its E&P business. Many analysts believe that it’s only a matter of time before they sell their remaining coal assets. While Coal Age will always salute CONSOL Energy for its leadership for 150 years, we hope they are wrong about the future for coal.
