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A Big Corporate Overhaul at CNX Resources Corp Leads to a 13% Drop in November

By Reuben Gregg Brewer – Dec 7, 2017 at 8:21AM

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Huge changes went down at the end of November at CNX Resources, but the price drop is really not as bad as it looks

What happened

The shares CNX Resources Corp. (CNX -6.75%) fell a massive 13% in November. And the vast majority of the drop occurred all at once on Nov. 29, when the stock fell from around $16 a share to $13.75 at the open of trading. This was definitely a news-driven move, but the market expected it and there was no negative information behind it. In fact, it was good news in many ways.

So what

This is a bit confusing, so take a deep breath and read slowly.

Up until Nov. 29, CNX Resources Corp. was known as CONSOL Energy. For more than 100 years, CONSOL Energy was a coal miner. But over the past decade or so it had started to shift its focus toward natural gas. As part of that process, it created a master limited partnership called CNX Coal Resources LP. CONSOL was effectively selling its coal assets little by little to the partnership. The ultimate goal appeared to be to create two entities, one focused on coal and the other on natural gas.   

A man standing in the mouth of a mine with the sun behind him.

Image source: Getty Images.

However, management saw an improving outlook for the coal sector, notably for steelmaking coal, over the past two years or so as an opportunity to speed up the company's transition away from that commodity. It had begun to openly consider such a move in January, though at the time it was also entertaining the idea of selling its coal business. It announced definitive plans to break itself in two in July. The split-up took place on Nov. 29. When the split occurred, the old CONSOL Energy changed its name to CNX Resources Corp. This entity houses the natural gas business and has kept the CNX stock ticker. 

The coal assets that CONSOL Energy still owned before the split and name change were housed in an entity known as CONSOL Mining Corporation. Once broken out as a publicly traded company, CONSOL Mining Corporation changed its name to CONSOL Energy Inc. (CEIX -6.11%), effectively taking on the name of its former parent and maintaining that name's coal heritage. To be clear, CONSOL Energy is now a coal-focused miner and CNX Resources, which used to be known as CONSOL Energy, is now a natural gas driller. 

To make things even more confusing, the limited partnership CONSOL Energy controlled also changed its name. It went from CNX Coal Resources LP to CONSOL Coal Resources LP (CCR), changing its ticker along the way. The big difference for the limited partnership is that control shifted from the old CONSOL, now known as CNX Resources, to the new CONSOL. That makes complete sense, however, since the new CONSOL and the limited partnership are both focused around coal.

A timeline showing the changes taking place at CONSOL Energy starting in 2010

The timeline of changes at CONSOL Energy... the company now known as CNX Resources. Image source: CNX Resources. 

So, to sum up all of the changes, CONSOL Energy has broken into two companies. One is focused on natural gas drilling and is known as CNX Resources. The other is focused on coal mining and, effectively, kept the CONSOL name. The limited partnership controlled by the once combined entity is now called CONSOL Coal Resources LP and is controlled by the new CONSOL Energy.

The big share price drop in CNX Resources, meanwhile, simply reflected the value of the newly created company. The price decline was clearly driven by news, but it was hardly anything to worry about -- though it was a bit confusing with regard to the new lineup of corporate names.

Now what

The upshot of all of this is that shareholders now have more choices. You can own a gas company or a coal company, or you can continue to hold both. But as separate entities, that decision is up to you. And on the coal side, you can choose a limited partnership designed to throw off tax-advantaged income (CONSOL Coal Resources' distribution yield is currently over 13%) or the regular corporation, which will probably have a lower yield if it chooses to pay a dividend.

It remains to be seen how each entity performs, with commodity prices holding significant sway on the top and bottom lines at all three businesses here. However, after all the changes, investors benefit from an increased array of investment options in what was once known as CONSOL Energy. And that really is a good thing.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

CONSOL Energy Inc. Stock Quote
CONSOL Energy Inc.
$14.78 (-6.75%) $-1.07
CONSOL Coal Resources LP Stock Quote
CONSOL Coal Resources LP
CONSOL Energy Stock Quote
$59.00 (-6.11%) $-3.84

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