CONSOL Energy (CNX) To Buy Dominion Resources’ (D) Natural Gas Properties
March 15, 2010 2:06 PM
CONSOL Energy, Inc. (NYSE: CNX), one of the top four coal producers in U.S., has reached an agreement to buy Dominion Resources, Inc.’s (NYSE: D) Appalachian natural gas properties for $3.48 billion in an all cash deal. The deal will give CONSOL a leading position in the Marcellus Shale field. The company will raise $4 billion through debt and equity to finance the deal.
The deal is the latest signal that energy companies are starting to focus more on developing natural gas resources. The main reason for this is that natural gas is increasing its share in the global energy market. In December, Exxon Mobil (NYSE: XOM), the world’s largest listed energy company, had announced that it would buy XTO Energy, Inc. (NYSE: XTO) for $30 billion to expand its natural gas assets in North America and the Marcellus Shale.
CONSOL, which has been increasing its shipment of coal to steel producers in Asia, remains primarily a provider of thermal coal to power companies in U.S.
"This clearly makes them a bigger gas player," says Brett Levy, an analyst at Jefferies & Co. "I don't think it changes the mix between coal and gas today, maybe down the line it will," he adds.
The deal, which is expected to close on April 30, will boost CONSOL’s proven gas reserves by 50% to about 3 trillion cubic feet and double potential reserves to 41 trillion cubic feet. The new reserves are expected to account for 35% of the company’s revenue.
CONSOL also has an 83% stake in CNX Gas (NYSE: CXG), a gas producer. CONSOL CEO Brett Harvey said that the company may seek to buy the remaining stake in CNX Gas. CNX Gas shares were up by 17% on this news and were trading at $30.28 at 1.50 p.m. on Monday in New York. Speaking at a conference call, CEO Harvey said, "We have kept our powder dry to do a big deal like this and we have the balance sheet to do that." He also said that the company would increase drilling activity on its new properties.
The company is planning to have two rigs drilling new wells by the end of 2010. Dominion Resources is expected to receive $2.2-$2.4 billion after tax from the sale of its assets to CONSOL. The proceeds from the sale will allow the company to buy back shares.
CONSOL Energy, Inc. shares were down by 9.94% to $48.93 at 1.58 p.m. on Monday in New York.
