Tags: CONSOL | CNX | coal | natural gas

A Diverse Energy Producer Play

By Tim Plaehn   |   Wednesday, 31 Aug 2011 12:48 PM

For an investor looking for a diversified energy play, CONSOL Energy (CNX) deserves a look. The company produces both coal and natural gas as well as provides transportation services for the company's coal production.

According to CONSOL Energy, the company is the largest coal producer in the eastern half of the U.S. It also has significant natural gas production from its holdings in the Marcellus shale formation. The company owns and operates a fleet of more than 600 vessels and barges to provide river transport of coal. Additional transport facilities include a terminal at the port of Baltimore to load coal for overseas shipment.

CONSOL Energy's financial results rise and fall with energy prices. For the second quarter of 2011, the company reported record revenues of $1.3 billion from the coal division on a combination of higher production and higher coal prices. For the quarter, the net margin per ton of coal sold increased by more than $7 to $21.56 per ton.

Much of the gain in coal profits came from a 40 percent increase in the production of low volatility coal which sold at price one-third higher, year-over-year. Low-vol coal made up less than 10 percent of tonnage sales for the quarter but accounted for 27 percent of cash flow.

International coal sales are expected to top $1 billion for the year as coal demand for electricity in Europe grows.

Gas margins

Natural gas revenues for the quarter increased slightly to $210 million. However, the telling statistic on the gas side was the net margin per +6mcf, a measure equivalent to a barrel of oil’s energy output. For the quarter, the margin was only $1.21, down from $2.28 a year earlier. Use these quarterly statistics as a tool to evaluate the quality of sales and profits as the quarterly results are posted.

Analysts at JP Morgan recently boosted their outlook for CNX. The analysts reiterated an overweight rating on the stock and boosted the projected share price by $3 per share. The new target price is at an 80 percent premium to the current share value. The company reports next on Oct.13.

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