CONSOL Energy Inc. (NYSE:CNX)’s biggest issue is that it doesn’t feel that it’s getting the respect it deserves. The company believes that its assets are being undervalued by the market, and it’s looking at ways to boost that value. According to CEO Brett Harvey, “everything’s on the table” including a breakup of the company.
This isn’t a new theme for the company. CONSOL Energy Inc. (NYSE:CNX) did split off its coal bed methane subsidiary, CONSOL Energy Inc. (NYSE:CNX) Gas, in 2005, only to take it back in-house five years later. Now, it might be splitting that business off again or selling other assets within its portfolio to unlock value. This could turn out to be a great move for the company, especially if it gets creative.
For example, the company has pointed out repeatedly that it’s no longer interested in growing its coal business either organically or by way of acquisition. Starting next year, the company will only spend $300 million-$350 million per year in maintenance capital as it turns the coal business into harvest mode. In my opinion, that makes it a great candidate for an MLP structure similar to Alliance Resource Partners, L.P. (NASDAQ:ARLP)s . MLPs tend to be valued higher by the marketplace because of the steady income produced; Alliance Resource Partners, L.P. (NASDAQ:ARLP), for example, currently yields 6%. CONSOL could use the copious cash flows from coal to produce a nice income vehicle if it structured its coal business as an MLP.
In addition, the company has several strategic assets that might fit better elsewhere. For example, its Baltimore coal export terminal might also fit better within an MLP sructure. Kinder Morgan Energy Partners LP (NYSE:KMP), which is spending $450 to expand its own coal export terminal capacity along with other coal assets, might find this asset to be of interest. A purchase of CONSOL’s coal terminal would add to Kinder Morgan Energy Partners LP (NYSE:KMP)’s export capacity, while adding the stable income stream from CONSOL’s current coal export operations.