CONSOL Energy Splits Business for Synergies, Plans Buyback
Canonsburg, PA-based CONSOL Energy Inc. (CNX) announced that its board of directors has approved the formation of a master limited partnership (“MLP”) comprising the company's thermal coal segment and related mining operations.
This thermal coal MLP will own CONSOL Energy’s thermal coal and mining properties in Pennsylvania including the Bailey Mine, Enlow Fork Mine, Harvey Mine and the related preparation plant.
CONSOL Energy plans to launch the initial public offering (“IPO”) of this MLP by mid 2015. After its debut, CONSOL will be the owner of the general partner, hold incentive distribution rights and retain a majority limited partner interest in the MLP.
Meanwhile, CONSOL Energy’s board has also authorized the formation of a separate metallurgical coal subsidiary which will comprise the coal miner’s Buchanan Mine in Virginia and its interest in its Western Allegheny Energy joint venture. CONSOL will offer 20% of this subsidiary’s equity in an IPO in the second half of 2015.
The company believes that the step to set apart its coal operations will fulfill various objectives. This will enhance its net asset value per share, lending some transparency into the value of its coal assets.
Most prominently, this move will empower CONSOL Energy to continue retaining control over all its assets, be it natural gas or coal, and at the same time reap the operational synergies that exist between them.
After these transactions have been executed, following the necessary approvals, CONSOL Energy will primarily comprise its core oil and gas E&P assets with an interest in CONE Midstream Partners LP, and controlling interests in its thermal coal MLP and met coal subsidiary.
In the release, CONSOL Energy also declared that its two-year share repurchase program of $250 million has been approved by the board. The initiation of this buyback plan will depend on a number of factors and hence the time of commencement was not divulged.
Recently, CONSOL Energy formed CONE Midstream Partners LP (CNNX) along with Noble Energy, Inc. (NBL). The MLP will provide midstream services for their production in the Marcellus Basin. Noble Energy and CONSOL Energy individually owns a 32.1% stake in the MLP.
Another coal operator, Natural Resource Partners LP (NRP), is also diversifying its assets into non-coal properties. The partnership recently acquired VantaCore Partners LP, a privately held limited partnership that specializes in construction materials. Natural Resource has also entered into a definitive agreement to acquire non-operated working interests in oil and gas properties, located in the Bakken/Three Forks play.
Owing to the coal market downturns, these stocks are increasingly restructuring, diversifying into other avenues and branching out from the coal business for reducing their dependence on this fossil fuel and maintaining a healthy revenue stream.
CONSOL Energy currently has a Zacks Rank #3 (Hold).
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