2 Energy Plays I'm Considering This Thursday

Includes: CNX, IOC
by: Matt Schilling

When it comes to the energy sector, I like to look at things from a growth perspective, and if applicable, consider them from an income perspective. In the article, I'm going to focus on the recent developments at both InterOil (NYSE:IOC) and Consol Energy (NYSE:CNX) and how those developments will continue to affect the bottom line of both companies.

InterOil, which opened trading Thursday $79.61/share got major boost following reports that noted Korea Gas has formed consortium with Mitsui and Japan Petroleum in an effort to participate in IOC's ongoing $5.4 billion LNG project in Papua New Guinea. I think the addition of this consortium boosts the output potential of the project and could result in an increase in project-based royalties for IOC. In my opinion, the angle here is one from a growth perspective, all four companies look to benefit from the alliance and IOC's bottom line could come out the victor as a result. How will this transaction benefit IOC? According to an article posted on The Korean Economic Daily, "The project, led by Australia-based InterOil, involves producing 8 million tons of liquefied natural gas a year in the south shore of Papua New Guinea. Given last year's LNG consumption for whole Korea was 34 million tons, the expected output from the project represents almost 25 percent." I think this project has the potential to pay dividends not only in the short term, but if the continued output of natural gas can consistently surpass the 8 million ton level and eventually equate into 10 million tons per year or higher, potential investors will certainly see a buying opportunity and existing shareholders will be quite pleased with those results.

Consol Energy, which opened trading Thursday at $33.59/share, announced that two mines (Bailey and Enlow Fork) in Pennsylvania have been reopened after a structural fault last month at the Bailey Preparation Plant that resulted in the suspension of daily operations at both locations. How important is the annual output of both mines to the overall production of CNX? Considering the fact they were responsible for 20.8 tons of coal production in 2011 (Bailey was responsible for 10.6 tons and Enlow was responsible for 10.2 tons), I think the reopening of both locations could play a vital role in the company's overall production in 2012. Considering the fact both mines have been shut down for approximately six weeks of 2012, any production in-line or slightly above the 2011 production numbers could result in a positive upward trend in the company's share price.

Final Analysis

Potential investors looking to establish a position in either IOC or CNX should do so with a small to moderate position and add to that as production numbers and earnings announcements approach. In the case of IOC, the LNG project and the subsequent consortium that is now involved could pay significant dividends as the amount of natural gas output could subsequently increase year over year. In the case of CNX, the company clearly suffered when both the Bailey and Enflow Fork mines had their operations suspended, now that both are expected to be up and running in the next week or two, I believe they make up for at a majority of the significant ground that was lost as a result of their shutdowns.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.