Inkling of an Investment Idea: Coal Bed Methane

A few years ago, I made a bet that some coal companies would attempt to beat changing market and political conditions by reinventing themselves as something besides coal companies. Given the amount of real estate some of these outfits control such a change in behavior seemed likely.

What does a coal company reinvent itself as if it chooses to do so? With all the hype about "dirty old king coal" and snappy propaganda about "the clean, blue fuel", it was not an unreasConsol Energy, Inconable assumption that some coal companies would attempt to reinvent themselves as gas companies. Accordingly, I opened positions in CNX Gas Corporation (CXG) and Geomet, Inc. (GMET). These two companies are unconventional North American gas plays but what I was interested in was their exposure to Coalbed Methane (CBM).

After a couple of years, I must confess that I am losing in Geomet, Inc. but recently the bet in general paid off: . Consol Energy (CNX) started buying shares of CNX Gas Corp. that it did not already own. I took the opportunity to cash out of CXG at a profit but now I am interested in pursuing the reinvention and/or CBM theme further. After all, lightning has been known to repeatedly strike the same place!

CNX Gas Corp. and Geomet, Inc. operate mostly--but not exclusively--in the Appalachian Basin and the Illinois Basin. However, North American coal production has been shifting Westward and that is where I have been investing and looking for more.

Looking forward along the lines of the Coalbed Methane theme, there are two things I am contemplating. First, energy production activities in the East are under economic and political pressure (e.g. mountain top removal). Secondly, the Energy Information Agency was kind enough to provide this map of North American Coalbed Methane fields:


(Click here for original image.)

Based on these two facts, I am keenly interested in CBM opportunities in the Powder River Basin and the San Juan Basin. I have a sneaky suspicion that the future of North American methane production is unconventional onshore rather than offshore production despite recent, promising headlines in favor of the latter.

DISCLOSURE: In the East: have recently taken profits in CNX Gas Corp. and Patriot Coal Corp. In the Powder River Basin: I have long positions in Peabody Energy and Arch Coal, Inc..