Diversified coal supplier Alpha Natural Resources ANR announced that its unit Pennsylvania Services Corporation (PSC) has acquired the remaining 50% interest in its natural gas exploration and production joint venture (JV), Pennsylvania Land Resources Holding Company, LLC (PLR), from EDF Trading Resources, LLC (EDFTR). Alpha Natural Resource had to dish out $126 million for acquiring complete ownership.

This is indeed a well thought out move from Alpha Natural Resources giving the company exclusive control over a highly economic property in the lucrative Marcellus Shale. At a time when thermal coal is being increasingly replaced across the U.S. by natural gas for power generation, having control over 25,000 net acres of natural gas rich assets and associated infrastructure in the Marcellus Shale will definitely bode well for the company.

The PLR JV was formed in May 2013 by PSC and EDFTR, to benefit from the large, concentrated Marcellus Shale gas resource in Greene County, PA. The JV started with 12,000 acres. At present PLR controls more than double the acreage in the region, which is well connected with pipelines to transport gas to the end markets.

U.S. coal stocks have been losing ground over the past few years due to increasing global competition and stringent regulation from the U.S. government agencies against coal usage. In its place, clean burning natural gas became an ideal substitute to meet regulatory compliance.  

Alpha Natural Resources is not the only prominent coal operator to have started to acquire natural gas assets. CONSOL Energy CNX is increasing its focus on natural gas production and is continuing to acquire acreage in regions anticipated to have a large volume of gas reserve. Incidentally, CONSOL Energy controls nearly 441,000 acres in Marcellus Shale.

It appears that diversifying operations and adding natural gas assets to their portfolio could be a viable option for these coal players. We remind investors that the met coal producer Walter Energy WLT is struggling to remain solvent, having shed nearly 85% of its price year to date to close at 21 cents yesterday.

Alpha Natural Resources currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Rhino Resources RNO, currently carrying a Zacks Rank #2 (Buy).

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