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CONSOL (CNX) Coal Production Fell in Q412; Issues Ops Update

January 18, 2013 6:47 AM EST Send to a Friend
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CONSOL Energy, Inc. (NYSE: CNX) is providing an operations update for the quarter ended December 31, 2012.

"CONSOL's mines and gas operations ran well during the quarter," commented J. Brett Harvey, chairman and chief executive officer. "Substantial improvements in safety have been realized during the year and new records have been set all across the company. Yet in the fourth quarter, we suffered a tragic fatality. For 2013, we are focusing our efforts on reducing the severity of incidents, while maintaining the pace of overall accident reduction we've achieved the past five years."

CONSOL's Coal Division produced 14.3 million tons for the fourth quarter of 2012, including 0.7 million tons of low-vol coking coal from the company's Buchanan Mine. This was lower than the 15.2 million tons, including 1.4 million tons from Buchanan, in the fourth quarter of 2011. Annual 2012 coal production was 56.0 million tons, including 3.5 million tons from Buchanan and 0.1 million tons from Amonate. Annual 2011 coal production was 62.0 million tons.

Most of the 2012 reduction in coal production was due to the company's efforts to control inventory. Several mines were idled during 2012, as the company continually sought to match production and sales.

During the fourth quarter of 2012, CONSOL's total coal inventory decreased by 0.3 million tons to 1.4 million tons as of December 31, 2012. Thermal coal inventory decreased to 1.1 million tons during the quarter, as sales exceeded production. Low-vol Buchanan and Amonate inventory decreased from September 30, 2012 by 0.2 million tons, to 0.2 million tons.

CONSOL Gas Division produced 41.8 Bcfe for the 2012 fourth quarter, or 5% more than the 39.7 Bcfe produced in the 2011 fourth quarter. Annual 2012 gas production was 156.3 Bcfe (net to CONSOL). During the quarter, CONSOL Energy completed its second well in Noble County, OH. This Utica Shale well, the NBL 16A, was completed with 16 stages and tested at 12.0 MMcfd and 768 barrels condensate per day. This well is currently shut-in for further dissipation of frac fluids and the installation of a gas gathering system. The early results from this well, coupled with the results from the previously announced NBL 1A well, in addition to competitor data, gives the company confidence to begin transitioning its Utica Shale program in Noble County from an exploration mode to a development mode. CONSOL now plans to drill 11 wells in Noble County in 2013.

First Quarter 2013 Forecasts

Coal: CONSOL Energy expects first quarter 2013 total coal production to be between 13.7 – 14.1 million tons. Annual 2013 total coal production guidance is 55.5 − 57.5 million tons. Buchanan Mine's first quarter production is expected to be between 0.85 – 0.95 million tons, while annual production guidance is now estimated at 3.8 – 4.0 million tons.

Gas: CONSOL Energy expects its 2013 gas production to be approximately 170 – 180 Bcfe (net to CONSOL). First quarter 2013 gas production, net to CONSOL, is expected to be approximately 39 – 41 Bcf, or slightly lower than the 41.8 Bcfe produced in the fourth quarter of 2012, as frac schedules and other seasonal factors are expected to limit wells turned into line.

Coal Division Operations

For calendar 2012, CONSOL's Coal Division saw safety exceptions drop 11%, from 150 to 134. A similar improvement of 11% was seen in compliance citations.

In safety, the Miller Creek Complex achieved Absolute Zero for the third consecutive year. During the fourth quarter, many of the company's coal preparation plants − including Bailey, Shoemaker, Loveridge, and Ireland load-out facility − achieved Absolute Zero. Enlow Fork Mine also achieved a safety milestone by becoming the first longwall operation in the company's history to accumulate over one million man-hours without incurring a lost time incident.

At Buchanan Mine, the first of two phases of the $24 million Horn Mountain Portal Project was completed. This portal is strategically located at the mouth of our future 5 North reserves. In the meantime, it is one-and-a-half miles closer to the current mining "face," enabling miners to get to and from the work site much more quickly. Phase two involves converting a vent shaft to a supply hoist. Once this phase is completed in June, seven miles – each way − of supply haulage will be eliminated. This will help to better control costs at the mine.

At Loveridge Mine, a major sealing project was completed, which has increased safety and reduced risk by reducing the active footprint of the mine by approximately three square miles. As a result of this project, one bleeder fan was eliminated.

For calendar 2012, Shoemaker Mine set a new production record, at 5.3 million tons.

Gas Division Operations

For 2012, the Gas Division worked the entire year without having recorded a lost-time incident. The Gas Division was thus able to continue its streak – dating back to 1994 – of its employees working without a lost-time incident during the course of some 5 million hours. Gas Operations' commitment to environmental excellence was reflected in a 53% improvement in their compliance record, year-on-year.

CONSOL Energy had a very successful 2012 Marcellus Shale drilling program where the Joint Venture with Noble Energy drilled 89 gross wells, with 64 drilled by CONSOL and 25 drilled by Noble Energy.

The total lateral feet drilled in 2012 by CONSOL was approximately 280,000, or roughly 60,000 (or 27%) greater than the 220,000 lateral feet drilled in 2011. Frac stages were also up an impressive 37% in 2012 over 2011. The company believes that these metrics are key drivers for enhancing well economics.

Southwest Pa.: In Southwest Pa., CONSOL Energy currently has two horizontal rigs operating and plans 23 wells with an expected average drilled lateral length of 5,800 feet during 2013 for Greene and Washington counties.

Central Pa.: CONSOL Energy does not currently have any horizontal rigs drilling in Central Pa. but plans to drill 5 wells with an expected average drilled lateral length of 8,300 feet in 2013, all in the Mamont Field of Westmoreland County.

Northern W.Va.: Within the Northern W.Va. district, the company completed 3 Barbour County wells, with EURs of 7.5 Bcf, and 6 Upshur County wells, with EURs of 3.2 Bcf. CONSOL Energy does not currently have any horizontal rigs drilling in Northern West Virginia but plans to drill 8 wells with an expected average lateral length of 8,200 feet during 2013, 6 in Philippi and single well pads at Audra and Century to test the productivity of our southern Barbour County and northern Upshur County leasehold between Philippi and Alton.

Marcellus Shale Wet Gas (Noble Energy operated): In the wet gas portion of the Marcellus Shale, Noble Energy drilled 25 wells and completed 20 wells during 2012. Noble Energy began production in Marshall County, W.Va. on July 31, 2012 with the 5-well SHL 1 pad. Current production is greater than 39 MMcfd gas and 300 barrels condensate per day from these 20 wells. Also turned into production at Marshall County during 2012 was the 8-well SHL 3 pad and the 7-well SHL 6 pad. During 2012, Noble Energy sold approximately 2.8 Bcf of "residue" gas, 32,000 barrels condensate, and 145,000 barrels natural gas liquids. Assuming $3.35 per Mcf for dry gas, the realized flowstream remains greater than $7 per Mcfe including the liquid hydrocarbon component without full ethane recovery.

Noble Energy currently has three horizontal rigs drilling in Northern W. Va. and Southwest Pa. One rig is finishing the fifth well of eleven at the SHL 8 pad in Marshall County, W. Va., one rig is rigging up at the seven-well WFN1 pad in Washington County, Pa., and one rig is drilling at the six well NORM 1 pad in Gilmer County, W. Va. Noble Energy expects to add one additional horizontal rig in March, June, and July of 2013. The plan is to exit 2013 with six horizontal rigs while drilling 85 to 90 wells with an average length 6,365' in the Marcellus wet gas area in 2013.

Ohio Utica Shale (CONSOL-operated): In the Utica Shale Joint Venture with Hess Corporation, CONSOL Energy drilled its first 8 wells with drilled lateral lengths ranging between 2,785 and 7,568 feet and completed its first 4 wells in 2012.

Tuscarawas County: The TUSC 3A in the western portion of the county had a drilled lateral length of 5,020 feet and was completed with 17 stages. The company had previously announced a peak production rate of 400 barrels of oil per day and 386 Mcfd of gas from the TUSC 3A. The TUSC 8A, with a drilled lateral length of 7,568 feet, was recently drilled as an offset to the TUSC 3A and completion by 24 stages is planned during the first quarter of 2013.

Noble County: Two wells were drilled and completed in this county, the NBL 1A with a drilled lateral length of 4,394 feet and the NBL 16A with a drilled lateral length of 4,793 feet. The NBL 1A was completed with 14 stages and tested 9.0 MMcfd gas and 10 barrels condensate per day while the NBL 16A was completed with 16 stages and tested 12.0 MMcfd and 768 barrels condensate per day. Both of these wells are currently shut in for further dissipation of frac fluid and the installation of a gas gathering system.

Portage County: The PORT 2A was drilled to a lateral length of 4,690 feet and was completed with 16 stages. Good shows of gas and oil were encountered during frac plug drill out operations. The well is currently shut-in for dissipation of frac fluid.

Mahoning County: Three wells were drilled in this county in 2012. The MAH 2A was drilled with a drilled lateral length of 2,785 feet and completion of 9 stages is expected to begin during the first quarter of 2013. Our first multi-well Utica pad was drilled at the MAH 7 pad where the MAH 7A was drilled to a drilled lateral length of 5,411 feet and the MAH 7C was drilled to a drilled lateral length of 5,290 feet. Completion of both MAH 7 wells is planned for the second quarter of 2013.

CONSOL Energy currently has two horizontal drilling rigs operating in the Utica Shale and plans 11 wells during 2013, all in Noble County. Production from these wells in 2013 is estimated to be less than 5 Bcfe, due to infrastructure requirements.

Ohio Utica Shale (Hess-operated): Our joint venture partner, Hess Corporation (NYSE: HES), drilled 2 joint wells, while completing 1 joint well during 2012. The Athens A 1H-24 in Harrison County was recently tested at 13.9 MMcfd and 1,056 barrels condensate per day and is currently shut in for further dissipation of frac fluid. The Jeffco A 1H-6, also in Harrison County, is currently being drilled out following a 15-stage stimulation. Hess currently has 1 horizontal rig drilling on their operated portion of our joint venture in eastern Ohio, drilling on the 1H-23 in Harrison County, and plans to drill 16 joint horizontal Utica Shale wells during 2013.




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