PITTSBURGH, Pa. — Consol Energy Inc. is selling off five longwall mines in order to concentrate on gas production.
Consol has entered into an agreement to sell its Consolidation Coal Company subsidiary, which contains all five of its longwall coal mines in West Virginia, to a subsidiary of Murray Energy Corporation for $3.5 billion in value.
Murray Energy is headquartered in St. Clairsville, Ohio.
J. Brett Harvey, Consol’s chairman and CEO, said the sale was a difficult decision but was completed in order to further Consol’s growth strategy.
Assets included
The Consolidated Coal Company mines being sold are McElroy Mine, Shoemaker Mine, Robinson Run Mine, Loveridge Mine, and Blacksville No. 2 Mine. Collectively, these mines produced 28.5 million tons of thermal coal in 2012.
Murray Energy is acquiring approximately 1.1 billion tons of Pittsburgh No. 8 seam reserves.
Gas production
In a prepared statement, Consol said the sale allows the company to grow its gas production.
Currently, the company’s gas growth production targets in 2014 is 210 – 225 Bcfe, of which approximately 7-8 percent are expected to be liquids or condensates.
For 2015 and 2016, the company expects 30 percent annual gas production growth.
“In advancing our E&P growth strategy, we expect that West Virginia will continue to play an important role,” said Harvey. “We have a sizeable Marcellus Shale footprint in West Virginia, which will take a significant amount of labor and capital to develop.”
Pennsylvania coal
Consol Energy is retaining the coal assets in Pennsylvania. The operations include the Bailey, Enlow Fork, and soon-to-be-completed BMX mines. These low-cost mines, with five longwalls, are estimated to produce 24 million tons in 2014.
In addition, the company is also retaining its flagship Buchanan Mine in southwestern Virginia and the Miller Creek Mining Complex in southern West Virginia.
After the transaction closes, Consol Energy will continue to have 3.1 billion tons of coal reserves, including enough to support new mines in northern Appalachia and the Illinois Basin.
River operations
Consol is also selling its river and dock operations in the transaction.
In 2012, the fleet of 21 towboats and 600 barges transported 19.3 million tons of coal and other commodities along the upper Ohio River system.
Total sale
The total sale is estimated to be $3.5 billion. Consideration includes $850 million in cash to be paid at the closing and future payments expected to total nearly $184 million in value resulting from the retention of a royalty on select reserves, certain water treatment payments, and tolling fees at Consol’s Baltimore Terminal.
In total, Murray Energy is acquiring $2.4 billion of Consol balance sheet liabilities, including postretirement benefit plans, workers compensation, coal workers’ pneumoconiosis, long term disability, and environmental.
Pension obligations
Additionally, Murray Energy is acquiring Consol’s UMWA 1974 Pension Trust Obligations.
Consol Energy, under contract with the UMWA, currently services the obligation through a $5.50 per hour contribution, or approximately $33 million per year.
