Apr. 29--Consol Energy Inc. CEO J. Brett Harvey knows the formula for making money in the coal and natural gas businesses, recession or not: Keep costs down, and sign long-term contracts when times are good.

Consol's bottom line benefits. Last week, profits surged 140 percent and set a first-quarter record, which produced smiles at the company's annual shareholders meeting on Tuesday

Consol's profits totaled nearly $205 million, or $1.08 a share, compared to $84.2 million, or 41 cents a share, a year ago.

Last year, the Cecil, Washington County-based company was able to sign long-term contracts to deliver coal to utilities, steelmakers and others before the economy collapsed.

"In 2008, there was a huge demand for energy, as we saw the highest coal prices we've ever seen," Harvey told a handful of shareholders at the Hyatt Regency-Pittsburgh International Airport. The per-ton price for coal on the spot market hit $150 a ton in mid- to-late September.

"We were able to hedge our coal for 2009, and even some in 2010."

Hedging means Consol signed contracts with customers to deliver future coal mined at a set price, even if market prices go lower. For this year, the company signed deals for its entire projected output of about 62 million tons, at an average price of $59.83 a ton.

Through the first 17 weeks of this year, the market price for Northern Appalachia coal, Consol's primary resource, has ranged between $88.75 a ton in early January, to just $43.50 a ton a week ago -- the lowest price for Consol-type coal since December 2006.

Operating costs remain under control, according to FBR Capital Markets analyst David Khani, who said in a recent research note that he believes Consol has even more room to cut costs going forward, by shutting higher-operating-cost mines.

As of mid-February, Consol had commitments for more than 36 million tons of 2010 coal production at an average price of $49.44, and for nearly 25 million tons of 2011 production at an average price of $50.84.

In the last three years, Consol has signed six multi-year contracts with customers that total about 250 million tons.

"We will not stockpile coal," Harvey said. In other words, Consol is matching supply to customer demand and is not mining coal to stack in huge piles until demand picks up.

"Look at the current coal prices -- why would you build inventory?" asked Raymond James Financial Inc. analyst James Rollyson in St. Petersburg, Fla.

On the natural gas side, Consol owns 83 percent of CNX Gas Corp., which produces gas from Consol's mines.

Consol plans in 2009 to increase natural gas production for the year by 2 billion cubic feet, to 87 billion cubic feet. Nearly half the projected production has been contracted for, at a price of $9.74 per thousand cubic feet. The current spot market price for natural gas, for delivery in May, is $3.35 per thousand cubic feet.

Rick Stouffer can be reached via e-mail or at 412-320-7853.

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