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Ohio Utica Shale

CONSOL Energy may benefit from Antero stock, new Utica interest

By Bob Downing Published: October 15, 2013

From analyst Michael Dudas of Sterne Agee on how Antero Resource's stock sale may benefit CONSOL Energy, too:

Price: $36.79
Price Target: $60.00

Analysts: Michael S. Dudas, CFA / Satyadeep Jain, CFA
Antero Excitement Positive as Market Waits for Asset Direction - Reaffirm Buy Rating

Our Call
We believe the read-throughs from Antero's successful road show and strong rally on its first day of trading are positive for Consol. We expect asset monetization announcements from CNX shortly. Consol's shares should continue to find support, especially as potential upcoming catalysts highlight inherent value. Shares remain our top pick in mining space.

Antero IPO. Antero Resources (AR, $52, NR) appears to be a very close proxy for Consol, and therefore we believe the read-throughs from Antero's successful road show and 18+% rally on its first day of trading are positive for Consol. Antero has a concentrated portfolio in the Marcellus Shale (330K net acres in Marcellus's southwestern fairway) and the Utica Shale (100K net acres). Consol has 347K net acres in Marcellus and 83K net acres in Utica. My colleague and Sterne Agee E&P Analyst Tim Rezvan believes it is difficult to ascertain a precise EV, but it appears that the EV for Antero should be nearly $12.5B, growing toward $14B in 2014 from an announced FCF overspend. Based on current price and comparable metrics, we believe CNX's coal assets are trading at $7.0-7.5B based on normalized pricing and volumes, implying in current valuation $3.0-$3.5B for Consol's gas and other assets. Antero deserves a higher valuation vs. Consol's gas assets given Antero's long and more active record, but almost 4.0x valuation for Antero vs. CNX gas leads us to believes CNX's gas assets are undervalued.

Utica Activity - Tim has indicated that acreage prices have spiked in Ohio, apparently driven by aggressive leasing by Aubrey McClendon's private company American Energy Utica LLC (AEU) as commentary from multiple operators confirms that AEU has been bidding up to $17K/acre for wet gas acreage and up to $8K/acre for dry gas acreage. Greater activity in Utica bodes well for CNX's Utica acreage valuation, in our view.

Potential Monetization - Last quarter, management announced that its board is also evaluating corporate structure to unlock additional value for shareholders. We should see an asset sale announcement this quarter, as well as further information on potential restructurings. As an asset rich company, we believe management has many avenues to recapitalize its coal and related businesses.

Investment Summary - As its coal business begins harvesting and shale monetization continues to grow rapidly, Consol's shares should continue to find support, especially as potential upcoming catalysts highlight inherent value. We support our $60 target using asset valuations for its coal and gas businesses, which reflects a sum-of-the-parts analysis – 7.5 multiple to our 2015 coal EBITDA forecast and a combination of valuation multiples on various gas assets.

Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst Certification, Investment Banking, Ratings Definitions, and potential conflicts of interest may be found by clicking on the report link below
CNX Note




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Utica and Marcellus shale web sites

Ohio Department of Natural Resources' Division of Oil and Gas Resources Management State agency Web site.

ODNR Division of Oil and Gas Resources Management. State drilling permits. List is updated weekly.

ODNR Division of Geological Survey.

Ohio Environmental Protection Agency.

Ohio State University Extension.

Ohio Farm Bureau.

Ohio Oil and Gas Association, a Granville-based group that represents 1,500 Ohio energy-related companies.

Ohio Oil & Gas Energy Education Program.

Energy In Depth, a trade group.

Marcellus and Utica Shale Resource Center by Ohio law firm Bricker & Eckler.

Utica Shale, a compilation of Utica shale activities.

Landman Report Card, a site that looks at companies involved in gas and oil leases.FracFocus, a compilation of chemicals used in fracking individual wells as reported voluntarily by some drillers.

Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.

Rig Count Interactive Map by Baker Hughes, an energy services company.

Shale Sheet Fracking, a Youngstown Vindicator blog.

National Geographic's The Great Shale Rush.

The Ohio Environmental Council, a statewide eco-group based in Columbus.

Buckeye Forest Council.

Earthjustice, a national eco-group.

Stop Fracking Ohio.

People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.

Concerned Citizens of Medina County, a grass-roots group.

No Frack Ohio, a Columbus-based grass-roots group.

Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.

Penn State Marcellus Center.

Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.

Allegheny Front, environmental public radio for Western Pennsylvania.