Despite being one of the nation's largest coal producers, CONSOL Energy (CNX 0.37%) continues to move away from that core business. The company's recently released 2013 capital spending plan is heavily tilted in the direction of natural gas rather than coal. Is this the right move for the company's shareholders?
The plan calls for CONSOL to spend two dollars to grow its gas business for every dollar it invests to back into its coal operations. This continues the major investment shift into natural gas that began in 2010. That's the year that the company closed on its $3.475 purchase of Dominion's Appalachian exploration and production assets as well as buying 100% of the outstanding shares of its publicly traded subsidiary that it didn't already own. Since that time the company has outperformed most of its major coal mining peers:
CNX Total Return Price data by YCharts
While low natural gas prices haven't helped the company earn a positive return for its investors, the relative outperformance versus its peers is important. The only major coal producer to outperform over that same time frame was Cloud Peak Energy (CLD +0.00%). Cloud Peak's outperformance is partially due to going public in late 2009, and investors realized the value of its Powder River Basin assets.
Peabody Energy (BTU +0.00%), was it's closest peer on a relative performance basis. The company is just beginning to see the major benefits from its 2011 acquisition of its Australian operations. Those operations though put the company in the pole position to profit the demand growth from China as urbanization drives electricity demand.
Other coal mining peers like Arch Coal (NYSE: ACI) and Alpha Natural Resources (NYSE: ANR) have been really hit hard by low natural gas prices as they have displayed the worst stock returns of this peer group. This is causing more electric utilities to push away from coal being the fuel of choice for electricity generation. The economics of natural gas make it a more compelling choice for power generation.
CONSOL understands that its best opportunity to grow right now is not in coal. While coal has its place in our energy mix; natural gas appears more likely to be a key fuel of our future. That's one reason why the market hasn't punished CONSOL as badly as its peers. As natural gas prices recover, investors will see that this was the right move for the company.
