CONSOL Gets Gas

Last month, the entry of Mitsui & Co. (Nasdaq: MITSY  ) into the Marcellus through a joint venture with Anadarko Petroleum (NYSE: APC  ) seemed to signal an increasing Asian appetite for shale gas. I still believe that will be a major theme this year, but today we saw an even bigger Marcellus deal between two strictly domestic concerns. Dominion Resources (NYSE: D  ) is selling its Appalachian E&P business to CONSOL Energy (NYSE: CNX  ) for $3.5 billion.

You might remember Dominion from a large asset sale back in 2007, when the firm unloaded $6.5 billion worth of oil and gas assets onto Loews (NYSE: L  ) and XTO Energy (NYSE: XTO  ) . This new sale really cements the company's transition to a regulated utility model.

Many of you no doubt think of CONSOL first and foremost as a coal company, and for good reason. This is the largest producer of high-BTU bituminous coal in the country. Coalbed methane gas production was a natural outgrowth of this business, and that led to the spinoff of CNX Gas (NYSE: CXG  ) . CONSOL has always retained a large stake in the gas business, and at one point in 2008 almost bought back all the CNX Gas stock it doesn't own. Today's news demonstrates that CNX management remains very bullish on natural gas.

Judging by today's sell-off, this diversification is not being embraced by a fair portion of CONSOL's investor base. You can imagine the complaints:

  • Tougher to value.
  • Less of a pure play on coal.
  • Diversion of management focus.

I should point out that CONSOL's $1 billion 2010 budget was also split 60/40 between coal and gas. In a recent presentation slide, the company unequivocally stated that it "is especially interested in increasing its footprint in the Marcellus Shale." This move hardly comes out of left field.

Coal is a hot commodity today, but I would suggest that management is taking a longer view here. Carbon constraints are highly likely in the future. Rather than stick its head down a mine shaft, the company appears to be positioning itself to continue to thrive in such an environment, where natural gas may well dethrone King Coal. This strikes me as a wise bit of succession planning.

The Fool owns shares of XTO Energy. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1135027, ~/Articles/ArticleHandler.aspx, 10/25/2014 12:03:40 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement