Consol packages coal assets in $3.5 billion deal with Murray Energy

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Consol Energy Inc., which in recent years has invested in advertising campaigns to remind Americans that "we mine the coal that powers the nation," on Monday announced a $3.5 billion deal to sell off a big chunk of its coal portfolio so it can finance a steep growth trajectory for natural gas.

The sale, which will impact 3,722 Consol employees, delivers five West Virginia mines along with the Cecil-based company's river transportation division to an Ohio company whose chief executive forecast the end of coal by 2030. The deal is expected to close by the end of the year.

"These assets that we're selling have contributed to America's economy for a long time. They've contributed to Consol's legacy," said Consol's chairman Brett Harvey. "But it doesn't fit where we're headed."

Consol's history is 150 years of coal mining, but its future growth is in natural gas, company leaders said Monday. Shale gas production has the highest and quickest rate of return, executives said.

The Marcellus Shale formation, which Mr. Harvey called "the rock that changed the world," has certainly changed Consol. Nicholas DeIuliis, the company's president, said the Cecil-based company is now about two things: a growing natural gas division, and a coal production segment tied to international demand.

The traditional, historic role of coal mines fueling local utilities -- what's embodied by the five West Virginia mines being sold to Ohio-based Murray Energy -- is not the direction Consol is headed, company leaders repeated.

"It's not growth," Mr. DeIuliis said.

The sale announced Monday includes the McElroy, Shoemaker, Robinson Run, Loveridge and Blacksville No. 2 mines, which produced 30.5 million tons of coal last year -- 50 percent of Consol's total coal production. The company's river and dock operations include a fleet of 21 tugboats and 600 barges. The deal calls for $850 million in cash at signing and $184 million in future cash payments.

Murray Energy Corp. is also paying $2.4 billion to take over some of Consol's pension, environmental and other liabilities.

Consol is keeping several large mines -- the Bailey complex, which includes the Bailey, Enlow and soon-to-open BMX mines in Greene County; the Buchanan mine in Virginia; and the Miller Creek complex in West Virginia. It will also retain its Baltimore coal terminal. These operations will pay the bills and supply the capital for the company's ambitious gas expansion: 30 percent production growth in the Marcellus and Utica shale region's for each of the next four years.

"Our strategy is to grow the company on demand," Mr. Harvey said. "When the markets demand natural gas, we'll supply natural gas. When they ask for coal, we'll supply coal.

"Right now, gas is where it's at, especially gas with liquids," he said.

In 2012, 80 percent of Consol's revenue came from coal, mostly from sales to domestic thermal customers. Only 15 percent of last year's revenue was from its gas operations.

For the near future, Consol said it will add "bolt-on" acreage to its core Marcellus and Utica areas, but isn't expecting any large acquisitions.

Another deal could be announced in the next few months as Consol evaluates the prospects for selling hundreds of miles of oil and gas gathering pipelines in northern and central Appalachia that connect the company's wells to major gas lines and processing facilities. Mr. DeIuliis said if the company decides to sell those assets, it would then pay to use them as a customer.

Other potential asset sales include gas reserves or producing fields that aren't in the Marcellus and Utica footprint, including the company's coal bed methane wells and coal reserves outside of its main mining complexes.

In the next few months, Consol also plans to cut out $65 million in annual administrative costs, which could include personnel cuts. The company had 8,896 employees at the end of last year.

Consol said 3,722 employees will be directly impacted by the sale to Murray Energy. Of those, about 2,800 are United Mine Workers of America members whose contract ensures they retain their jobs at least through 2016.

Murray Energy, whose slogan is, "Coal ... it's what we know," declined to answer any questions but said it would pursue contract negotiations with the union when the current agreement expires.

Murray CEO Robert Murray made a splash during the 2012 election when he promised layoffs if Barack Obama won the U.S. presidency -- anticipating a "war on coal" -- and delivered, getting rid of 156 workers. In a prayer read to employees following Mr. Obama's re-election, Mr. Murray predicted the "total destruction of the coal industry by 2030."

The company declined on Monday to answer whether market conditions had improved enough since that time to make this deal attractive for Murray Energy.

"We've had a working relationship with Mr. Murray for some years," said Phil Smith, a spokesman for the United Mine Worker's union. "It's had its peaks and its valleys."

It's unclear if Murray Energy plans to retain the 921 non-union employees affected by the deal.

Anya Litvak: or 412-263-1455. First Published October 28, 2013 8:37 AM

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