CONSOL Will Spend $130M Less on Marcellus Drilling in 2012

CONSOL Energy, the coal and natural gas giant with drilling operations in the Marcellus and Utica Shales, released it’s fourth quarter results along with a year-in-review yesterday. Even though the price of natural gas steadily declined during 2011, CONSOL was able to pay off all of its short term debt and ended the year with a cash balance of $376 million. CONSOL spent $1.4 billion on capital projects in 2011 and paid out dividends to shareholders totaling $96 million. The company has increased its regular quarterly dividend by 25 percent. The annual dividend is now $0.50 per share.

Last year saw several large joint ventures between CONSOL and other energy companies to leverage gas drilling: a deal with Noble Energy to develop 628,000 acres in the Marcellus Shale; and a deal with Hess Corporation to develop oil and liquids on 200,000 acres in Ohio’s Utica Shale. CONSOL entered 2011 already with a jv deal with Antero. The proceeds from all three deals brought $841 million to CONSOL’s coffers last year, and they expect total revenue from the three jv’s to total nearly $3.3 billion in the coming years.

Following are relevant portions from their announcement that concern natural gas operations in the Marcellus and Utica Shales. Like announcements from most other large energy companies, CONSOL is trimming back spending and drilling in the dry gas areas of the Marcellus.

CONSOL Energy has trimmed its 2012 spending outlook to $1.5 billion, down from an earlier projected $1.7 billion. The revisions from the January 10, 2012 announcement are occurring mostly because a combination of mild weather and high production, which has caused natural gas prices to drop to a 10-year low. Gas investment in the Marcellus Shale has been reduced by approximately $130 million, as 23 (gross) wells have been deferred. CONSOL Energy and its joint development partner, Noble Energy, now expect to drill 99 Marcellus Shale wells. The reduction is not expected to impact 2012 estimated production of approximately 160 Bcf. Less drilling in 2012, however, coupled with the postponement of some pad development spending for the 2013 drilling program is causing the company to reduce its 2013 production guidance to 190 – 210 Bcfe, which would be 10 Bcfe lower than the earlier projection. CONSOL’s 2015 goal of 350 Bcfe, however, remains unchanged because the drilling schedule in the out years has enough flexibility in it to accommodate a slightly reduced production goal in 2013.

Marcellus Shale: Total production was 7.2 Bcf (net to CONSOL), an increase of 118% from the 3.3 Bcf produced in the year-earlier quarter. The increase is attributable to increased drilling and longer laterals. Production would have been 13.8 Bcf in the quarter, had the Noble Energy JV not been consummated.

Conventional: Total production was 8.2 Bcf, a decrease of 6% from the 8.7 Bcf produced in the year-earlier quarter. The company has been shifting rigs and capital toward higher potential return Marcellus and Utica drilling prospects.

CONSOL Energy expects its net gas production to be approximately 160 Bcf (net to CONSOL) for 2012. First quarter gas production, net to CONSOL, is expected to be approximately 36 – 38 Bcf, as frac schedules and other seasonal factors are expected to limit wells turned online.*

*CONSOL Energy (Jan 26, 2012) – CONSOL Energy Reports Fourth Quarter Net Income of $196 Million, or $0.85 per Diluted Share; Record Annual 2011 Net Income of $632 Million, or $2.76 per Diluted Share