As experts debate whether new gas production techniques could pollute drinking water, CONSOL Energy Inc. has made some progress on improving its health, safety and environmental record. Nonetheless, the Pennsylvania coal and natural gas producer’s investors remain exposed to the risk of experiencing losses related to lawsuits against the company.
Consol uses hydraulic fracturing, a way of producing gas from rock formations such as the shale above Marcellus, New York. In a recent example of how critics have been cranking up the heat on the so-called “fracking” practice, researchers including Stephen G. Osborn documented “systematic evidence for methane contamination of drinking water associated with shale-gas extraction” in a Proceedings of the National Academy of Sciences article on Monday.
Consol’s track record on safety isn’t perfect. For example, its Enlow Fork Mine had to pay $28,000 in penalties for three violations in March 2009, according to Mine Safety and Health Administration records. On January 28 the regulator required the company to evacuate its miners from exposure to serious hazards for less than fifty-five minutes and later investigated the matter until February 1, 2012, according to a regulatory filing the next day. Consol said in a press release Friday that its Enlow Fork Mine ran accident-free during the three months ended in June.
The company has not been entirely accident free in its history. For example, Jesse Adkins was working at Consol’s Loveridge #22 mine in Marion County, West Virginia when a large rock fell from a nearby roof and crushed him on July 29, 2010. After Adkins’ death his wife filed suit against Consol in the Circuit Court of Kanawha County on April 7, 2011. More recently, Consol’s Shoemaker Mine in West Virginia allegedly failed to prevent the accidental movement of ditch-digging machinery, which surged forward and crushed sixty-two-year-old Charles McIntire, cutting off his leg at the hip, ripping out his guts and killing him on October 17, 2011, according to the Associated Press and court documentation of a lawsuit filed in the U.S. District Court in Wheeling.
Meanwhile, Consol said in a regulatory filing on February 10 that it temporarily suspended injection of gas well production fluids in Ohio, while regulatory authorities investigated whether the injection of wastewater into the wells caused low category earthquakes in the area.
In part due to such risks, GMI gives Consol an F on its corporate governance overall. Its financial statements reflect an AGR score of 29, indicating more risk than 71% of comparable companies.
To be sure, Consol has taken commendable steps to address problems. The company formed a health, safety and environmental committee in 2009, a team of five directors tasked with reviewing any significant compliance problems, pending or possible litigation, and the management’s response to legal matters. In a regulatory filing this March, Consol crowed that the employees in its gas division had no accidents that resulted in lost time from work during all of 2011, while the rate of incidents in its coal division improved by around 18% compared to 2010.
GMI forecasts that Consol has a 4.1% probability of class action litigation occurring within the next 12 months.
Meanwhile, the battle over fracking continues. The company warned in its regulatory filing that the U.S. Environmental Protection Agency initiated a study in early January 2011 of the potential adverse impact that hydraulic fracturing may have on water quality and public health. With the initial study results expected to be available by late 2012 and a final report to Congress pending thereafter, investors can only wonder in the meantime what happens to Consol next.
Region: North America
Market Cap: $ 6,881.0mm (Large Cap)
ESG Rating: F
AGR: Aggressive (29)