Consol Energy gets the last laugh on shale deal

Eighteen months ago, Consol Energy Inc. bought Dominion Resources Inc.'s Appalachian natural gas properties for $3.5 billion, giving the coal producer a big position in the Marcellus Shale natural gas field.

At the time, Wall Street disapproved. Consol's shares fell more than 9 percent.

Consol looks clever now.

The Canonsburg, Pa., company announced Wednesday it would receive $593 million from Hess Corp. for a joint venture to explore and develop Consol's 200,000 acres of Utica Shale in Ohio, much of it acquired from Dominion.

The Hess deal comes a month after Consol signed a $3.4 billion joint venture with Noble Energy Inc. of Houston to develop about 663,500 acres of Marcellus Shale leases in West Virginia and Pennsylvania, much of it former Dominion property.

"We got basically our money back on the Dominion thing, and we own all our resources still," said J. Brett Harvey, Consol's chairman and chief executive officer. "So we're in a really good position. And we're bringing in specialists."

Harvey, in an interview on the sidelines of the Shale Gas Insight conference in Philadelphia this week, said the joint ventures would combine the specialized operational skills of big international oil producers such as Hess and Noble with Consol's knowledge of the geographic and political terrain in Appalachia.

Although Consol was already a substantial gas producer from its shallow coal-bed methane wells, the emergence of the Marcellus Shale underlying its traditional coal seams could transform it into a larger gas producer.

Harvey said the new joint ventures illustrated the rapidly expanding assessment of the Marcellus, which has attracted billions in investment from major oil producers.

Consol valued the 2010 Dominion acquisition largely for how its Marcellus properties fit with Consol's existing coal fields. The Utica Shale, which underlies some of the Marcellus and is now attracting attention for its oil and natural gas potential, did not enter the equation.

"When we did the Dominion acquisition 15 months ago, we valued the Utica at zero," he said. The deal with Hess this week, for a half interest in part of its Utica acreage, is worth $600 million.

"This is all happening very rapidly," Harvey said.

Given the size of Consol's shale-gas holdings, it sought out partners to speed production and to spread the risk.

"You'd never see us go to the gulf and do something," said Harvey. "But if it's in your own backyard, in Pennsylvania, West Virginia, and Ohio - that's who we are."