Top-five coal producer CONSOL Energy (CNX 0.25%) released its 2013 capital plans that were light on coal investments. Just three years ago the company was spending half of its capital budget on coal. Now the company's coal spending is just a third of those plans.

CONSOL's not the only coal player that's investing in gas. Despite being a large owner of coal assets, Natural Resource Partners (NRP 2.61%) recently paid $30.3 million for an overriding royalty interest in 88,000 net acres in the Marcellus Shale. This is on top of an earlier deal to acquire 3,600 net acres in the Mississippi Lime. Is it time to join these companies and cut out coal investments?

Before we make that call, let's dig a little deeper into the CONSOL's plans. The 2013 plan calls for total capital expenditures of between $1.29 billion and $1.505 billion. To fund the plan CONSOL anticipates divesting between $455 million and $640 million of assets which will allow CONSOL to live within the boundaries of its cash flow.

Coal capex will be between $410 million and $520 million and split between the following projects:

  • $318 million on maintenance-of-production projects to keep the company's existing production up to date.
  • $80 million for the Enlow Fork overland belt project.
  • $166 million for the BMX Mine which is scheduled to be completed by the first quarter of 2014. Once complete the project will produce 5 million tons of high-quality Pittsburgh seam coal each year.

When the BMX Mine is complete, the company doesn't expect to invest in any new major coal growth projects. Looking out to 2014, it only expects to invest in maintenance-of-production levels of $5-$6 per ton. Instead, CONSOL will be looking toward its natural gas business to fuel growth.

Natural gas capex will be range between $835 million and $935 million. CONSOL will spend approximately $660 million for drilling, $128 million for gathering and compression, and $76 million is earmarked for land. Drilling down, the company will focus its capital in the following areas:

  • $600 million to continue development of Marcellus Shale assets, with $415 million of that drilling capital to be spent on the company's Noble Energy (NBL) joint venture. The partnership will drill 126 (gross) horizontal Marcellus wells with 90 of those wells in liquids-rich areas of play.
  • Another $160 million to be spent to maintain current production.
  • A total of $122 million will be spent to in the Utica as part of the company's joint venture with Hess (HES 0.67%) which is expected to drill 27 (gross) wells. The two companies will be splitting 200,000 acres, with Hess operating 80,000 of them.
  • A final $65 million will be spent on the CONSOL's Coal Bed Methane program to drill 63 wells.

These investments are expected to increase production between 8% and 15% over 2012 levels. Despite drilling more liquids-rich wells, the company will end 2013 with dry gas representing 95% of production.

What's important for CONSOL is that both Hess and Noble are contributing significant dollars to its 2013 gas plans. Noble Energy's contribution will come in the asset sale number, as it will make a $328 million final payment for the Marcellus venture. Meanwhile, Hess is paying 75% of the Utica well costs as part of a $100 million drilling carry.

What the company's not doing is levering up on gas investments. Instead it's living within its means, as a good portion of its gas investments is funded as part of joint venture agreements. While CONSOL isn't planning on any new coal growth investments, it's not exactly making an all-in bet on gas at the expense of coal, as the company still sees it as an important part of America's energy future.