Consol Using $1.5B For Gas Drilling Operations

With its former Shoemaker Mine rebranded as the Murray Energy Corp. Ohio County Coal Co.’s Ohio County Mine, Consol Energy plans to use $1.5 billion to drill and frack Marcellus and Utica shale natural gas wells this year.

Consol recently completed its $3.5 billion sale of five West Virginia coal mines – including the mines formerly known as Shoemaker and McElroy – to St. Clairsville-based Murray Energy. These mines, according to Consol Chairman and CEO J. Brett Harvey, were “low-growth, non-core coal assets.”

“Our primary sale, which closed last month, yielded approximately $1 billion in cash when taking into account after-tax proceeds and related administrative cost reductions. We will apply these funds toward our aggressive 2014 natural gas drilling program,” Harvey said of the Murray deal.

In assuming control of the Shoemaker and McElroy mines, Murray Energy spokesman Gary Broadbent said the transition has been relatively smooth.

“We are rapidly getting through the myriad of issues and projects that we have needed to undertake. The new mines have been operating safely, but we must improve their productivity to compete in this very difficult coal marketplace,” he said.

For its part, Consol now has a joint venture to drill wells in Ohio’s Utica Shale with New York City-based Hess Corp.

Together, the companies will drill 32 wells in the “liquids-rich” corridor of Belmont, Harrison, Guernsey and Noble counties.

In addition to dry methane, these wells contain valuable wet ethane, propane, butane, isobutane and pentane.

Separate from the joint venture activity, Consol officials plan to to invest $24 million in Monroe County. One well will target the liquids-rich Marcellus formation, while the other will be designed to penetrate the dry gas Utica zone. Both will be drilled from the same pad.

In the Marcellus Shale joint venture, Consol and partner Noble Energy plan to operate an average of 4-5 horizontal rigs each to drill at least 162 wells. They will drill at least 88 wells, including two beneath the Pittsburgh International Airport. Other locations for Marcellus drilling include Washington County, Pennsylvania and Doddridge County, West Virginia.

Despite selling five West Virginia mines to Murray Energy, Consol maintains ownership of several other coal production facilities, including the BMX Mine in southwestern Pennsylvania.

The company plans to invest $200 million this year to get BMX fully up and running. On a full-year basis, Consol officials believe the new mine should produce approximately 5 million tons of Pittsburgh seam coal per year.

“And once the BMX longwall starts late in the first quarter, we expect our coal business to also generate meaningful cash to support the capital program for the exploration and production segment of our company,” Harvey said.

Exploration and production (E & P) is an oil and natural gas industry term used to describe a company’s drilling and fracking efforts. Consol also recently hired former Chesapeake Energy Vice President of Appalachia South Timothy Dugan as the new chief operating officer for its exploration and production division.

“Tim’s intimate knowledge of all operational aspects, specifically in the Marcellus and Utica shales, his industry perspective, as well as his experience on the ground floor of a major airport drilling project, made him the logical choice to lead Consol Energy’s E&P division, which is poised for dynamic growth in the coming years,” said Consol President Nick DeIuliis. “This hire represents a critical step in implementing the growth strategy we have embarked upon. Tim brings outstanding credentials and experience to Consol Energy, and we are excited to have him join our team.”