Consol Energy officially exited the Central Appalachian coal market Tuesday after closing on an deal with Southeastern Land, a company registered to Booth Energy CEO and founder James Booth.
Consol is paying, not selling, to shed its final CAPP assets, sending $27 million at closing to Booth plus another $17 million over the next four years.
Booth, in exchange, will assume $103 million in liabilities associated with the still-operational Miller Creek complex and shuttered Fola complex in West Virginia.
Calls to Booth Energy on Tuesday seeking comment were not returned, but a source close to the deal said it's a "strategical" by Booth that "makes sense" in today's CAPP market.
"There's still an opportunity for steam coal in Central Appalachia, granted not like before, but there's still an upside with these properties after all the rationalization and right-sizing of the market happens," the source said.
Booth was attracted to Miller because it is an efficient, lower-cost surface CAPP complex with utility contracts already in place, the source said. Booth hopes to cut costs even further to increase its margin.
"All you really have to say is Consol was still running that mine in today's market," the source said. "That means it's a good mine, and there's definite upside."
MILLER'S MAJOR CLIENT IS DUKE
A vast majority of the coal mined at the Miller complex is consumed by Duke Energy.
US Energy Information Administration data show that in 2015 power plants took delivery of 1.9 million st from Miller, with 1.8 million st going to Duke operations in North Carolina that include the Belews Creek, Roxboro, G.G. Allen, Marshall, Mayo and Roxboro plants.
About 1.7 million st of the coal Duke received from Miller last year came under contracts scheduled to end in 2016.
The Miller complex -- with three surface and two idled underground mines -- produced about 2.1 million st in 2015.
Through May this year, all 590,000 st delivered from Miller has gone to Duke plants, EIA data show. About 267,000 st of deliveries this year were under contracts through 2016, and about 324,000 st were under contracts through 2017.
The Miller complex produced 611,000 st in the first six months of 2016.
Fola churned out 1.3 million st in its last year of production in 2012. The source said Booth has not ruled out restarting production at Fola, a surface complex. The mine has short line access to both CSX and Norfolk Southern railroads, and logistically it would benefit Booth's other CAPP assets.
BOOTH GROWING IN CAPP
Booth has bolstered its CAPP footprint as other producers have stepped away from the region through asset sales or bankruptcy. The deal with Consol marked the second transaction Booth has made in the past year that saw the counterpart fully exit CAPP coal production.
In September 2015, Booth closed on a deal to acquire TECO Energy's last coal assets. The transaction for TECO's high-volatility coal mines in Virginia and Kentucky included no up-front purchase payments by Booth. In exchange for the mines, Booth assumed liabilities related to the operations and agreed to make possible future payments of a maximum of $60 million if pricing for seaborne hard-coking coal increased to certain benchmarks.
The final deal came at a discount for Booth after the sides failed to work out an initial $170 million sales agreement almost a year earlier, then TECO was unable to find another buyer.
CONSOL OUT OF CAPP
The deal with Booth marks the final step in Consol's years-long divestiture from CAPP coal and all but completes the company"s transition into an exploration and production company focused on gas output from the Marcellus and Utica shales.
Consol CEO Nicholas DeIuliis said during a second-quarter earnings call July 26 the coal asset sale is "not only consistent with our core strategy and not only another step in improving our balance sheet, but most importantly, and above all else, this deal marks a definitive exit from Central Appalachian coal and surface mining, which significantly de-risks our business moving forward."
CFO David Khani said since Consol began its exit from the coal business in 2012, the company has made 23 coal asset deals valued at about $5.1 billion.
Consol took its first, and biggest, step away from CAPP coal production in December 2013 when it closed the $3.5 billion sale for its five largest longwall mines in West Virginia to Murray Energy.
To further separate its coal and natural gas business, Consol last year spun its coal assets off into a master limited partnership called CNX Coal Resources that is anchored by its Northern Appalachian Bailey, Enlow Fork and Harvey longwall complexes in Pennsylvania.
In April, Consol closed on a $420 million sale of its Buchanan low-vol metallurgical coal mine in Virginia and other coal reserves to Coronado Coal. That deal left Consol's remaining coal assets as the NAPP Pennsylvania complexes as part of CNX Coal and the CAPP-based Miller and Fola mines.
