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Follow CONSOL Energy's Transformation

Tickers in this article: AR CNX KOL

NEW YORK (TheStreet) -- CONSOL Energy is one of the oldest and largest players in the American coal industry, operating since the days of President Lincoln. Although the company has been the largest producer of coal from underground mines in the United States, it has been working to reduce its exposure to coal in favor of natural gas.

It has recently received the anti-trust clearance related to the sale of its coal mines in West Virginia while at the same time identifying thousands of natural gas locations at Marcellus Shale and will drill 120 wells this year.

Following a drop in income in 2012, and persistent weakness in market conditions, investors expected the current year to be a tough one. It was. According to its recent quarterly results, in the first nine months of 2013, CONSOL Energy swung from an income of $239 million in 2012 to a loss of $78 million in 2013.

However, CONSOL Energy is a company in transition using the cash flows from its struggling coal division to expand its natural gas and NGL operations, where it sees its long-term future. Despite current woes, in the long run the company could yield significant returns for the shareholders due to the considerable increase in its gas output on the back of divestitures, drop in coal capital expenditure and strong liquidity.

CONSOL Energy has struggled due to the weakness in the domestic coal market. Prices of coking coal have been under pressure due to the excess supply while the cheaper gas from shale formations had a negative impact on the demand of thermal coal. Moreover, stricter environmental regulation for coal fired power-plants has also made things difficult. Since CONSOL Energy gets most of its revenues from coal, therefore, the business has struggled with top- and bottom-line growth.

The company's exposure towards natural gas makes CONSOL Energy a unique energy firm with two separate, seemingly unrelated business units in coal and natural gas. The company is clearly not like other coal producers. This is evident in the performance of its shares. In the last 12 months, the Market Vectors Coal ETF has dropped by 20%. On the other hand, CONSOL's shares have risen by 16% in the corresponding period.

CONSOL Energy is the biggest holding in the Coal ETF, which includes 32 other leading coal producers from around the world. Without CONSOL at the top, the performance of this fund could have been worse.