CONSOL to Sell River Fleet

Washington PA Observer Reporter
28 October 2013

CANONSBURG – Consol Energy Inc. said Monday it is selling its Consolidation Coal Co. subsidiary, which contains all five of its longwall coal mines in West Virginia, to a subsidiary of Murray Energy Corp. for $3.5 billion.

The CCC mines being sold are McElroy Mine, Shoemaker Mine, Robinson Run Mine, Loveridge Mine, and Blacksville No. 2 Mine.

According to Consol, 3,722 hourly and salaried employees will be involved in the transaction.

A news release from the United Mine Workers of America stated there are about 2,800 active hourly workers represented by the union at the five operations.

Stating that the announcement of Monday’s transaction was “no great surprise,” UMWA International President Cecil E. Roberts said contracts would remain intact after the transition.

“This changes nothing for our members with respect to the terms and conditions of their employment,” Roberts said. “Our collective bargaining agreement does not go away with this transaction, and our members remain covered by its provisions. There will be no changes in pay, benefits, insurance, schedules, working conditions, safety provisions, grievance procedures or any other language in the contract.”
Roberts added pension and retiree health care liabilities for the five West Virginia mines, as well as those from the currently closed Mine 84 in Washington County are also being transferred.

Southpointe-based Consol said in a press release that collectively, the mines produced 28.5 million tons of thermal coal in 2012. The acquisition will give Murray Energy approximately 1.1 billion tons of Pittsburgh No. 8 seam reserves.

Consol said it is also including its river and dock operations in the sale. In 2012, the fleet of 21 towboats and 600 barges transported 19.3 million tons of coal and other commodities along the upper Ohio River system.

Consol said it is retaining coal assets that align with its long-term strategic objectives. The company is keeping its Pennsylvania operations, which include the Bailey, Enlow Fork, and soon-to-be-completed BMX mines in Washington and Greene counties. The low-cost mines, with five longwalls and with estimated production of nearly 24 million tons in 2014, produce a high-BTU Pittsburgh-seam coal that is lower in sulfur than many Northern Appalachian coals. It can be sold domestically or abroad, as either thermal coal or high-volume coking coal.

Consol said the sale enhances its ability to grow its gas production, enabling it to extend its gas growth production targets beyond 2014. The 2014 gas production guidance range is between 210 and 225 billion cubic feet, of which approximately 7 to 8 percent are expected to be liquids or condensates.

For 2015 and 2016, the company expects 30 percent annual gas production growth.

During a conference call Monday morning, Consol Energy President Nick DeIuliis said the company projects spending $14 billion over the next decade on its West Virginia Marcellus Shale natural gas assets. It also expects to spend $8 billion in the next 10 years on its Pennsylvania natural gas assets and another $2.5 billion on its coal operations here, he added.

“While this transaction furthers Consol’s exploration and production growth strategy,” said J. Brett Harvey, Consol’s chairman and chief executive officer, “the sale of these five mines – assets that have long contributed to America’s economic strength and our company’s legacy – was a very difficult decision for our team. The employees at these mines are among the safest and most productive miners anywhere in the world. In the end, we concluded that the time had come to sell these mature assets to ownership whose strategic direction is more aligned with those mines.”

According to Consol, Murray Energy will pay $850 million in cash at the closing, with future payments expected to total nearly $184 million in value resulting from the retention of a royalty on select reserves, certain water treatment payments, and tolling fees at Consol’s Baltimore Terminal.

Based in St. Clairsville, Ohio, Murray Energy is the largest privately owned coal company in America, which according to the company’s website, produces about 30 million tons of bituminous coal annually. The company, which has 3,300 employees in six states, operates eight underground and surface mining operations, plus 40 subsidiary and support companies.

Murray Energy owned the Crandall Canyon mine in Utah when it collapsed in 2007 and killed nine people, including three rescuers. Six miners remain permanently entombed. But Murray told the Associated Press Monday that his company “operates safe coal mines, with a particular emphasis on fire protection.”

“This will help assure the protection of the health and safety of our new employees,” he said.

Murray has deep ties to West Virginia. In 2009, he gave West Virginia University $1 million for research into mining methods and use of fossil fuels. Though he graduated from Ohio State, Murray sent three sons to WVU to earn degrees in mining engineering and geology and is considered a longtime friend and supporter of the school.

Murray Energy said the transaction will nearly double its coal production from 30.1 million tons to 58.6 million tons per year, and nearly triple its coal reserves from 859 million tons to almost 2.4 billion tons. The work force will more than double, from 3,300 to 7,100 employees.

Consol said it is also significantly de-levering its balance sheet through the disposition, with Murray acquiring $2.4 billion of Consol balance sheet liabilities. This includes a $2.1 billion acquisition of other postretirement benefit plans. Other acquired liabilities include $105 million of workers compensation, $61 million of coal workers’ pneumoconiosis, $13 million of long-term disability and $149 million of environmental.

Additionally, Murray Energy is acquiring Consol’s United Mine Workers of America 1974 pension trust obligations. Consol Energy, under contract with the UMWA, currently services the obligation through a $5.50 per hour contribution, or approximately $33 million per year.

Consol said it expects to record approximately $1.3 billion of pre-tax gain on its fourth quarter 2013 financial statements.

The company is retaining its flagship Buchanan Mine in southwestern Virginia. The longwall coal mine produces a premium coking coal for the steel industry, producing between 4 million and 5 million tons per year.

The Miller Creek Mining Complex in southern West Virginia is also being retained, which is expected to produce about 2 million tons in 2014. After the transaction closes, Consol will continue to have 3.1 billion tons of reported reserves, including enough to support new mines in Northern Appalachia and the Illinois Basin.

With the retained mines and the 100 percent-owned Baltimore Terminal, Consol said it will continue to participate in the growth of the world’s thermal and metallurgical coal markets.