Murray Deals for 5 WV Mines

Monday, October 28, 2013 @ 02:10 PM gHale

Murray Energy Corp., will pay $850 million for five West Virginia coal mines from Consol Energy Inc. as it focuses more on the growth of its natural gas operations amid regulatory uncertainty for the coal industry.

Consol could also get $184 million in future royalty payments for its coal reserves. Murray will also assume $2.4 billion of Consol’s liabilities, mostly for worker pensions and other benefits.

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Coal producers have come under increased regulatory pressure over the past five years.

“We are going to be an exploration and production company with a coal subsidiary,” Consol Chief Financial Officer David Khani said.

As a privately held company, Murray will be able to focus on long-term returns for its mines rather than the short term quarterly results and payouts. Murray currently operates eight coal mines.

The five mines are some of Consol’s oldest and most expensive, but produce a steady stream of coal. Consol, founded during the Civil War, said it would keep cheaper coal mines in Pennsylvania and Virginia and use cash from the sale to build out its natural gas operations.

The company has large holdings in the Marcellus and Utica natural gas fields in Pennsylvania and Ohio, and drills for natural gas underneath Pittsburgh International Airport.

It expects the deal with Murray to close by the end of the year.

“These mines do not support our growth strategy,” said Consol Chief Executive J. Brett Harvey.

Consol primarily sells thermal coal, which producers burn to generate electricity, but also sells a small portion of higher-margin metallurgical coal, which goes into the steel making process.

With the U.S. shale gas revolution cutting the price of natural gas, U.S. power plants have been burning less coal, sharply denting demand and thermal coal prices. Meanwhile, a glut of steel in China and other fast-growing regions has eroded demand for metallurgical coal.

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