Production problems at Consol’s longwall Mine 84 in Pennsylvania resulted in shortfalls to customers formerly supplied by the closed Keystone and Helvetia complexes.

Consol Energy reported earnings of US$29.4 million, or US37c per share, for its second quarter ended December 31, 2000. This was slightly down on earnings of US$30.1 million, or US38c per share, for the same period a year ago. Net income for the quarter ending December 31, 1999 was US$36.5 million, or US46c per share.

Brett Harvey, president and chief executive officer, said earnings had been bolstered by the expansion of the coalbed methane gas business and the rapid escalation of natural gas prices.

"Demand for coal in our major eastern markets is running slightly ahead of supply, in part because of the cold weather in November and December, and inventory levels at power plants and at our mines are low,” he said.

“As a result, spot prices for coal are higher than we have seen in a number of years. Unfortunately, the production problems we reported last quarter continued into this quarter, limiting our ability to take advantage of this market."

Total coal sales were 18.3 million tons (18.9 million previous tons second quarter), of which 17.3 million tons (18.9 million tons) were produced by Consol operations or sold from inventory. The average realised price per ton of company-produced coal was US$23.47, compared with US$24.49 for the December 31, 1999 period. Coal production for the quarter just ended was 16.5 million tons, compared with 18.6 million tons for the same period a year ago.

Coalbed methane gas sales and production for the quarter ended December 31, 2000, including equity production of unconsolidated affiliates, were 7.2 billion cubic feet (net of royalties), compared with 1.6 billion cubic feet (net of royalties) for the same period a year ago. Averaged realised prices for gas were US$5.67 per million Btu (MMBtu) in the quarter just ended, compared with US$3.18 during the same period a year earlier.

For the first six months of fiscal 2001 net income totaled US$33.5 million, or US43c per share, compared with US$47.2 million, or US59c per share. Other comparisons for the six months were:

- EBITDA: US$185.3 million, versus US$191.5 million

- EBIT: US$65.6 million, versus US$66.2 million

- Total coal sales: 36.7 million tons, versus 40.4 million tons

- Sales company-produced coal: 35.1 million tons, versus 38.5 million tons

- Coal production: 32.5 million tons, versus 36.2 million tons

- Average realised price - company produced coal: US$23.41 per ton, versus US$24.20 per ton, down 4.2%

The decline in realized price was primarily due to the re-negotiation of several higher-priced contracts Consol said. EBIT for the coal segment was US$13.4 million for the quarter just ended, compared with US$42.8 million in the same period a year ago.

"Our period-to-period comparison of prices is affected by the expiration last year of several contracts that had prices set in the 1980s, when prices were much higher than today," Harvey explained.

"If you look at prices for the quarter just ended, compared with the trailing quarter and the quarter ended June 30, 2000, you'll see that pricing has improved in the last six months."

Harvey said the improved pricing environment is attributable to continued growth in demand for coal, to low inventory levels of coal in the eastern United States, and to limited excess production capacity among eastern producers. Coal production declined 2.1 million tons in the quarter just ended, compared with the same period a year ago.

The production decline is attributable to the closing of the Keystone and Helvetia complexes in Pennsylvania in the 1999 period and to adverse geologic conditions at Mine 84 in Pennsylvania. Mine 84 was expected to supply customers formerly served by Keystone and Helvetia.

Earlier in the September 2000 quarter, Mine 84 encountered a sandstone intrusion in the coal seam that ran across several longwall coal panels.

“Because the sandstone is harder than coal, mining advance rates have been slowed for both the longwall and continuous mining machines, increasing costs and reducing recoverable coal,” Consol said. “These conditions have affected results in the quarter just ended as well.”

Production at Mine 84 for the quarter was 567,000 tons, compared with 1.4 million tons for the same period a year ago.

Consol said several steps have been taken to alter the mine plan to avoid the worst of the sandstone area. These required shortening the normal length of the three next longwall panels of coal to be mined. This will increase costs per ton of coal produced at Mine 84 during the current quarter, and potentially the fourth quarter, because of the need to move the mining equipment more frequently than normal.

"This area of complex geology we are in is atypical for the Pittsburgh Seam and the mining conditions were, at times, more severe than our drilling logs indicated," Harvey explained.

"We have spent a great deal of time discussing our options and evaluating alternate mine plans. As we move closer to the end of the fiscal year, we will be moving the mining to the east and south, where we expect to return to the favorable mining conditions we normally expect to see in the Pittsburgh Seam."

Shipment shortfalls of about 440,000 tons resulted in the issuing of force majeure notices to customers.

At other mining complexes costs per ton produced also increased, attributable to declines in productivity as measured in tons produced per man-day. Tons produced per man-day, excluding Mine 84 and the Keystone/Helvetia complexes, were 44.6 in the quarter just ended, compared with 45.8 in the same period a year ago.

"Although we have struggled with some challenging operating problems in the first half of the year, I expect the performance at our coal mines to improve," Harvey said.

"In addition to the improvements we expect at existing mines, we expect to have the Loveridge Mine back in production during the current quarter, and we will begin to see production from our recent purchase of a 50 percent interest in the Line Creek Mine in Canada."

Harvey said those two mines could add an additional 1.7 million tons of production during the second half of the fiscal year. Loveridge Mine is forecast to mine one million tons and then return to idle status.