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CONSOL Energy expects Q3 losses but shows lower cost of gas production

Appalachian shale gas driller CONSOL Energy Inc. expects to post losses of $14 million to $36 million when it announces earnings Oct. 31, but it recorded a drop in production costs and continues to sell off noncore assets.

CONSOL released its financial estimates on early Oct. 16 to provide lenders and buyers of the coal division it is sloughing off with a fuller picture of the state of company.

CONSOL said it expects asset sales to bring in between $75 million and $92 million and that it is still talking with buyers for more sales to close in the fourth quarter.

"The company continues to pursue the sale of various non-core assets, including its Virginia coalbed methane project area and scattered Marcellus and Utica acres," CONSOL said in a filing with the SEC. "The company believes that it could enter into agreements for some of these additional asset sale transactions in the fourth quarter; however, no assurance can be given as to whether or when such transactions will occur."

Analysts at Tudor Pickering Holt & Co. noted the progress CONSOL is making at shedding coal assets, as well as some gas leasehold. "Positive to see Q3 asset sale range of $75 [million]-[$92 million], bringing total asset sales above the previously disclosed $410 million FY'17 total," the analysts said in an Oct. 16 note. "Company continues to progress the separation of its coal business, which should be completed by the end of the year."

While CONSOL's gas production was slightly under Wall Street estimates, the former coal company spent less for its production than it did a year ago, which also pleased Tudor Pickering Holt. "Pre-released ranges out this morning highlight expected E&P volumes of 99-103 Bcfe (TPH estimate 100 / Street 104) for all-in capex of $177 [million] at the midpoint (TPHe $247 [million] / Street $234 [million])," the analysts said.

CONSOL said it continued to cut the cost of its gas production, from $2.36/Mcfe in 2016's third quarter to between $2.21/Mcfe and $2.30/Mcfe in this year's third quarter.

S&P Global Ratings viewed the coming separation of coal assets from the now gas-focused company favorably, placing CONSOL on CreditWatch with positive implications with a view to raising CONSOL's B+ rating after the coal assets are gone later in the year.

"The spin-off will result in improved credit metrics for CONSOL because the company will dispose of significant legacy coal liabilities and use distributions from the new coal company for debt repayment," S&P said late Oct. 16. "We expect the reduction in debt will more than offset the loss of cash flow from the coal operations. As a result of the spin-off, we forecast improvement in leverage measures, including funds from operations to debt rising well above 20% in 2018 and beyond."

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.