TORONTO (miningweekly.com) – NYSE-listed fossil fuels producer Consol Energy has reported a 32% year-over-year drop in first-quarter earnings as improved output was offset by falling prices for its coal and oil and gas products.

The Pittsburgh-based company on Tuesday reported net income fir the three months ended March 31 of $79-million, or $0.34 a diluted share, compared with net income of $116-million, or $0.50 a share, which included a loss from discontinued operations of $6-million.

After removing the impact of certain one-time items, the company reported adjusted net income for the quarter of $85-million, or $0.37 a share, significantly higher than the adjusted profit of $0.13 a share 22 Wall Street analysts had expected on average.

Consolidated revenues declined 8% over the first quarter of 2014 to $889.6-million. The company’s adjusted earnings before interest, taxes, depreciation and amortisation from continuing operations were $266-million compared with $310-million in the year-earlier quarter. Cash flow from operations was $228-million compared with $336-million in the year-earlier quarter.

Consol’s exploration and production (E&P) division achieved record output of 71.6-billion cubic square feet equivalent (Bcfe), or an increase of 48% from the 48.4 Bcfe produced in the first quarter last year. This placed the company on track to hit its year-end gas output guidance at 30% growth for 2015 and 20% for 2016.

Marcellus shale production volumes in the first quarter were 36.3 Bcfe, or 75% higher than the 20.7 Bcfe produced in the 2014 first quarter. Marcellus shale costs were $2.62 for every million cubic square feet equivalent (Mcfe), which constituted a $0.56/Mcfe improvement from the first quarter of 2014 costs of $3.18/Mcfe.

The company achieved all-in cash costs of only $1.67/Mcfe in the Marcellus shale, which continued to be the growth engine of the company.

Consol’s Utica shale output volumes in the first quarter were 9.5 Bcfe, up from 1.2 Bcfe in the year-earlier quarter. Utica shale costs were $2.48/Mcfe in the most recent quarter, which was a substantial improvement from the first quarter 2014.

Fast-growing volumes continued to contribute to lower unit costs. Consol said it expected its Utica shale programme to expand owing to the additional activity currently under way in Greene and Westmoreland counties, in Pennsylvania, Monroe County, in Ohio, and Marshall County, in West Virginia. These dry Utica wells were expected to come online in the second half of the year.

Consol’s coal division produced 8.3-million tons in the first quarter, up from 8.1-million tons a year earlier. In the Virginia operations, Consol’s flagship Buchanan mine, reported that total costs went down $24.10/t to $42.10/t.

The company pointed out that its thermal coal marketing strategy continued to see success by contracting additional volumes and building a portfolio that targeted power plants expected to not only survive, but to also potentially increase their consumption of coal despite a tightening regulatory environment.

"The playbook of yesterday's coal marketing era of bigger is better, does not necessarily equate to success today and Consol has embraced this changing dynamic by concentrating our footprint and strategically partnering with the power plants that will be around for many years to come.

“Despite the prominence of shale gas growth and increasing gas demand over the years, coal's market share may be declining, but it's not going away. That said, the industry has clearly changed and it has changed permanently. Consol will continue to benefit by strategically partnering with the must-run power plants that will survive and run even harder as they make up capacity that is scheduled to come offline,” president and CEO Nicholas DeIuliis said.

Consol remained on track to execute transactions for a thermal coal master limited partnership (MLP) and to spin out its metallurgical coal assets into a separate subsidiary with the view to conduct an initial public offering (IPO) of up to 20% of the subsidiary's equity in the second half of next year.

The company had recently filed a registration statement with the Securities and Exchange Commission for the thermal coal MLP, which would be known as CNX Coal Resources and Consol continued to expect a mid-year IPO. The company continued to expect the MetCo IPO to occur around early fourth quarter.

Consol’s stock had lost nearly 13% of value since the start of the year and on Tuesday morning, soon after the market opened, traded down $0.22 a share at $29.66 apiece.