CONSOL Energy Inc. May 2011 Investor Presentation

Transcription

1 CONSOL Energy Inc. May 2011 Investor Presentation

2 Cautionary Language This presentation contains statements, estimates and projections which are forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934). These statements, which are described in detail in our annual report form 10-K filed with the Securities and Exchange Commission, involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as aprediction of actual results. The forward-looking statements include estimates of unproved reserves, projections and estimates concerning the timing and rates of return of future projects, and our future production, revenues, income and capital spending. The forward-looking statements in this presentation speak only as of the date of this presentation; we disclaim any obligation to update these statements unless required by the securities laws, and we caution you not to rely on them unduly. This presentation does not constitute an offer to sell any securitiesofconsolenergy Inc. The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this presentation, such as unproved reserves and/or unproved resources that the SEC's guidelines strictly prohibit us from including in filings with the SEC. We also caution you that the SEC views such unproved reserves and/or unproved resources estimates as inherently unreliable and these estimates may be misleading to investors unless the investor is an expert in the gas industry. In this presentation, the term unproved reserves and/or unproved resources refers to gas that we believe is economically recoverable, based onavailabledata. The unproved reserve data contained in this presentation is based on asummary review of the title to coalbedmethane and other gas rightswe hold,as wellas asummary review of thetitle to the coal from which many of our rights derive. As is customary in the gas industry, prior to the commencement of gas drilling operations on our properties, we conduct athorough title examination and perform curative work with respect to significant defects. We are typically responsible for curing any title defects at our expense. This curative work may include the acquisition of additional property rights in order to perfect our ownershipfordevelopmentandproductionofthegas estate. 2

3 Overview of CONSOL Energy CONSOL Energy Inc. (NYSE: CNX) is a multi fuel energy producer and energy services provider focused in the U.S. Current market cap of over $11 billion Headquartered in Pittsburgh, PA 8,630 employees Revenue:SegmentOverview 2010 Revenues: $5,236 million Gas Division $825 16% Over 4.4 billion tons of proven and probable coal reserves Controls the largest amount of recoverable coal reserves east of the Mississippi River Controls the second largest amount of recoverable coal reserves among United States coal producers One of the nation s largest coal producers with production of ~62 million tons of coal in 2010 Coal Mines more high Btu bituminous coal than any other United States producer Largest coal producer east of the Mississippi River Largest United States producer of coal from underground mines 2010 coal exports of approximately 6.8 million tons CONSOL Energy Inc. Other Over 3.7 Tcfe of proved reserves and PV-10 of $2.8 billion Approximately 675,000 net acres in PA and WV prospective for the Marcellus Shale and another approximately 200,000 net acres prospective for the Ohio Utica / Point Pleasant Over 50 horizontal Marcellus wells drilled to date; current Marcellus production of 54 MMcfe / day Additional gas operations in three segments: Natural Gas Coalbed Methane: produced 91.4 Bcf (71% of total gas production) in 2010 Conventional: produced 24.6 Bcf (19% of gas production) in 2010; conventional reserves obtained primarily through Dominion acquisition Other: CONSOL also controls significant acreage holdings prospective for the New Albany, Chattanooga and Huron Shales Coal Division $4,411 84% CNX Land Resources, Inc. Manages land assets of the Company and provides environmental conservation and protection services Research & Development Largest private research and development facility in the industry that is devoted exclusively to coal and energy utilization and production Fairmont Supply Company General line distributor of mining, drilling, and industrial supplies in the United States River & Dock Services Transportation and distribution segment with a fleet of 620 barges, 22 towboats and 5 harbor boats CNX Marine Terminals, Inc. Provides coal transshipment directly from rail cars to ocean-going vessels with capacity to load 14 million tons of coal per year 3

4 U.S. Coal & Natural Gas Operator with History of Success CONSOL Operational Timeline The Company becomes the largest bituminous coal producer in the United States, a distinction it retains today Achieved through acquisitions and expansion of existing operations During World War II CONSOL provided vital coal energy for transportation and home heating needs After the war, a merger formed the Pittsburgh Consolidation Coal Company DuPont Energy and RWE A.G. acquire Consolidation Coal and change the Company s name to CONSOL Energy Inc After years of ownership by outside organizations such as Conoco, DuPont and RWE A.G., CONSOL Energy begins trading on the NYSE under the symbol CNX April 30, CONSOL acquires the Appalachian E&P business of Dominion Resources, resulting in a Marcellus shale position of approximately 675,000 net acres in PA and WV Started operations in 1864 as Consolidation Coal Company through the merging of holdings of several western Maryland coal operators at the turning point of the Civil War Almost forced into receivership by the Great Depression, CONSOL reorganized and restructured its coal operations, emerging from near bankruptcy to end the decade of the 1930s financially solid and secure The Company opens the largest underground coal mine complex in the world in Bailey, PA Innovated coal mining improvements through R&D Implemented longwall mining systems in larger underground mines -- the safest and most productive method for underground coal mining CNX Gas is formed to explore, develop, produce and gather natural gas in the Appalachian Basin June 1, CONSOL completes the acquisition of CNX Gas further solidifying the Company as a multifuel energy producer Coal Reserves December 2010: 4.4 Billion Tons 18% 4% 1% 2% Gas Reserves December 2010: 3.7 Trillion Cubic Feet 19% 4% 12% 63% 13% 64% Northern Appalachia Illinois Basin (Midwest) Emery Field (Utah) Central Appalachia Northern Powder River Basin Western Canada CBM Marcellus Other Conventional 4

5 CONSOL Coal Division: Operational Overview Reservesby Coal Type (million tons) 4,401 Million Tons 2010 Coal Revenue by Coal Type ($ mm) $3,853 Million Thermal 3,839 87% Thermal % High Vol % Low Vol 146 3% High Vol 172 4% Low Vol % 2010 Coal Exports by Geography (million tons) Coal Cash Generation by Coal Type ($ mm) 6.8 Million Tons Asia % Europe % S. America % Q10 2Q10 3Q10 4Q10 1Q11 Thermal High Vol Low Vol 5

6 CONSOL Gas Division: Operational Overview Total Proved Reserves by Gas Type (Bcfe) 3.7 Trillion Cubic Feet Proved Reserves by Category (Bcfe) 3.7 Trillion Cubic Feet Marcellus % CBM 1,789 48% Other Shale 100 3% PD 1,931 52% PUD 1,800 48% Conventional % Drill Bit Finding Costs ($ per mmcf) Proved Reserve and Production Growth (Bcfe) $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.52 $1.25 $1.59 $0.39 $0.41 4,000 3,500 3,000 2,500 2,000 1,500 1, ,265 1,343 1, , , $ Drill Bit Finding Costs Proved Reserves Production 6

7 Differentiating Aspects of CONSOL 7

8 Unique Competitive Advantages Facilitate Development Surface Ownership, Blending Capability and Water Sourcing CONSOL owns in excess of 110,000 surface acres in PA / WV Provides strategic advantage for procuring rights-of-way for midstream operations Ownership of readily-available water sources, including freshwater lakes, treated mine water discharges and freshwater intakes along the Ohio River could provide significant cost savings Currently treats over 30 billion gallons / year at AMD facilities CONSOL currently produces 94.5 MMcfe/d of low-btu conventional gas and CBM Existing production may be blended with high-btu Marcellus production to eliminate the need for gas processing in the near-term Capacity enables blending of up to 1.8 Bcf/d Marcellus production Results in significant cost savings vs. other local operators (Range, Chesapeake, etc.) Master Cooperation and Safety Agreement provides access to CONSOL s surface and certain oil and gas assets and defines cooperation and compensation mechanism for development conflicts between the coal and natural gas estates Treated Mine Water (TMW) Sources 8

9 Marcellus Is One of the Most Economic Plays in North America Current Natural Gas Pricing Environment Highlights Comparative Basin-Level Economics Gas prices have declined since mid-2008 This decline has made differentiation among the plays more important The Marcellus has the lowest breakeven price of all the plays and will remain attractive throughout the commodity cycle Estimated Pricing Required for a 20% Return vs. Historical NYMEX 5-Year Strip Average (1) $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $8.96 Oct 07 Oct 08 $9.02 / MMBtu Avg. $7.08 $5.81 $5.58 $5.38 $5.11 Nov 08 June 10 $6.50 / MMBtu Avg. $4.50 $4.13 $4.07 $4.01 July 10 Present $5.27 / MMBtu Avg. 5 Year NYMEX Strip 3/10/11: $5.14 / MMBtu $3.77 $3.61 $3.55 $2.00 $- Woodford Barnett Fayetteville Haynesville Eagle Ford Dry Montney Niobrara Eagle Ford Oil Horn River Eagle Ford Wet CNX Marcellus Granite Wash Bakken 5 Yr. NYMEX Strip Avg. (1) Price Required to Generate Single Well 20% IRR ($ / Mcfe) (1) Jefferies Research Analysis: Assumes 15:1 crude oil price to natural gas price. 9

10 CONSOL Marcellus: Premier Position in the Heart of the Play CONSOL holds one of the top Marcellus positions with approximately 675,000 net acres in PA and WV Significant existing production and offset activity validates the position 85% of CONSOL s acreage is either HBP or owned in fee. Strong recent well results and expected EURs Superior economics supported by high net revenue interest and potential wet gas / liquids component CONSOL Marcellus Acreage Position CNX Marcellus Acreage 10

11 Best-in-Class Marcellus Well Results EURs Steadily Improving With more than 30 horizontal Marcellus wells producing, CONSOL s EURs have been steadily improving CONSOL s recent horizontal wells have averaged 5.5 Bcfe, with an average lateral length of 3,400 feet This translates to one of the highest EURs per foot among all Marcellus operators CONSOL has recently expanded its lateral lengths to 4,000 feet, which results in average SW PA EURs of 6.4 Bcfe Increasing Marcellus EURs Bcfe Selected 2009 Wells Selected 2010 Wells Bcfe CONSOL SW PA Type Curve 2009 Wells 2010 Wells Type Curve Avg. EUR 2.77 Bcfe 5.5 Bcfe 6.4 Bcfe Avg. Lateral Length 1,528 Feet 3,409 Feet 4,000 Feet 11

12 Industry-Leading Low-Cost E&P Operator CONSOL s F&D and lifting costs are significantly below its peer group CONSOL s knowledge and experience in the Appalachian basin have translated to some of the lowest per unit costs in the industry Unique operational advantages (water sourcing, immediate pad drilling, gas blending, etc.) will keep costs down relative to competitors 2010 Drill Bit F&D Cost / Mcfe $1.20 $1.07 $1.07 $1.08 $1.00 $1.00 $0.85 $0.77 $0.80 $0.65 $0.60 $0.54 $0.41 $0.40 $0.20 $- CNX XCO RRC REXX NFG UPL CHK COG SWN 2010 Lifting Costs / Mcfe $1.60 $1.45 $1.40 $1.20 $1.00 $0.91 $0.94 $0.97 $1.01 $1.05 $1.18 $0.80 $0.60 $0.66 $0.68 $0.40 $0.20 Source: Public filings, Company management $- UPL CNX RRC SWN XCO CHK COG EOG NFG 12

13 Strong Infrastructure and Transportation Capacity Significant Infrastructure in Place and Contracted Firm Transportation Capacity CONSOL owns over 3,000 miles of gas and water gathering pipeline CONSOL controls over 0.7 Bcf/d firm transport capacity on various interstate pipelines Capacity to cover more than 2011, 2012, 2013 and 2014 hedged gas production and provide room for growth 15-year firm transportation agreement with Dominion Transmission Inc. (DTI), the interstate gas transmission subsidiary of Dominion 7,800 miles of pipelines in six states (OH, WV, PA, NY, MD, VA) One of the largest underground gas storage systems in the U.S. 230,000 HP of compression (primarily owned electric) with 544 MMcf/d capacity Existing NGL stripping and fractionation agreement with leading midstream company Excess CBM blending capacity available to meet pipeline specifications Region Pipelines Available Pipelines Under Contract Central Pennsylvania DTI, EQT, TCO, TETCO DTI, TETCO Southwest Pennsylvania DTI, EQT, NF, TCO, TETCO DTI, TCO, TETCO WestVirginia DTI, EQT, TCO DTI, TCO CONSOL s Midstream Pipeline System CNX Marcellus Acreage Major Gas Transmission Lines 13

14 Industry Leading Coal Margins Lowering the risk of production variations while maximizing margins. CONSOL s financial goal is to maximize our average margin per ton. Operations is on a path to lower production variations year to year and quarter to quarter. Shipping more coal overseas at higher margins, helps to achieve these goals both directly and indirectly. $80.00 $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $ $0.00 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Average Realized Price Average Cost Per Ton Average Margin Per Ton Production (tons mm) Sales (tons mm) Q11 Avg. Realized Price Per Ton $58.28 $61.35 $68.43 Avg. Cost Per Ton $44.87 $46.55 $46.50 Avg. Margin Per Ton $13.41 $14.80 $

15 CONSOL is Fully Participating in the Growing Overseas Market CONSOL s Revenue from Overseas Sales is Growing in both: Absolute Terms As a Percent of Total Coal Revenue CONSOL expects to export 10 million tons in Revenue Split Coal Revenue of $3.82 Billion 82% 18% 2010 International Revenue Split International Coal Revenue of $679 Million 62% 27% 11% Domestic International Thermal High Vol Low Vol Approx 2011 Revenue Split Approx 2011 International Revenue Split 75% 25% 30% 60% 10% Domestic International Thermal High Vol Low Vol 15

16 Strong Commitment to Environment, Health and Safety Safety is at the core of CONSOL s operations CONSOL s incident rate has dropped more than 50% since 2004 and is consistently less than half the industry average CONSOL Gas has gone 4,872,490 cumulative manhours without a loss-of-time accident (since 1994) Absolute Zero philosophy mandates that the only acceptable result is a zero incident rate CONSOL has been honored with numerous national awards of recognition for its health and safety practices Master Cooperation and Safety Agreement (MCSA) between CONSOL s Gas and Coal operations with significant focus on safety CONSOL is strongly committed to environmental conservation CONSOL recycles 100% of its Marcellus and CBM water Health and Safety Safety is at the core of CONSOL s operations Established Absolute Zero philosophy, which sets zero incidents as the only acceptable result CONSOL s coal operations safety record is over three times better than the industry average CONSOL Gas has been at Absolute Zero since 1994 CONSOL s operations have been nationally and internationally recognized Four CONSOL coal mines have recently received awards of excellence for safety record MCSA between CONSOL s Gas and Coal operations defines safety, operational, administrative and dispute resolution procedures associated with natural gas extraction and coal mining activities in the vicinity of CONSOL s coal mines Safety is the most important objective of the MCSA The agreement requires annual meetings to coordinate CONSOL s annual gas drilling plans with CONSOL s 10-year mine plans and to exchange results of samples, test results and title work Environmental With a significant surface acreage position, CONSOL is strongly committed to environmental conservation and protection Formed numerous cooperative partnerships with local and national wildlife and conservation organizations Developed new techniques to extract hydrocarbons in a safe and environmentally friendly manner Donated more than 150,000 acres to conservation efforts over the past 25 years Participate in several reforestation projects with national conservation organizations Through partnerships with the U.S. Department of Energy and other agencies, CONSOL conducts research to develop technologies for reducing emissions from coal plants Committed to 100% re-use and recycling of all its Marcellus and CBM water Access to water sources including CONSOL-owned surface water sources and treated mine water (approved by DEP to use AMD) Safety Incidence Rate: CONSOL vs. Industry Peers Reportable Incidents per 200,000 Man-Hours CONSOL - Coal Op's CONSOL Energy Coal Industry 16

17 Drilling Overview 17

18 CONSOL Drilling Activity Marcellus Drilling Activity Consol has drilled 37 horizontal Marcellus wells Total gross daily gas production of 57 MMcf/d Southwest Pennsylvania 36 operated and 14 non-op horizontal wells producing to sales 4 horizontal wells drilled, completed and tested waiting on sales connection 19 wells drilled and cased, waiting on completion Central Pennsylvania Non-operated vertical production only 3 CNX horizontal wells drilled and completed, recently connected to sales flowing 20 MMcf/d total West Virginia 30 horizontal farm-out wells producing 110 MMcf/d to sales 3 CNX horizontal wells drilled and one approaching TD Consol Marcellus Acreage with Drilling Activity (1) Southwest Pennsylvania 14 Non-Op Horizontal Wells in Washington County Daily Gas Production 20 MMcf/d Central Pennsylvania 3 Horizontal Wells drilled and completed Waiting on sales line 20 MMcf/d total Southwest Pennsylvania 33 CNX Horizontal Wells in Greene and Washington Counties Daily Gas Production 49 MMcf/d West VIrginia 30 Horizontal Wells in Harrison County Drilled on Farmout Acreage Daily Gas Production 110 MMcf/d 18

19 CONSOL Drilling Activity Utica Drilling Activity by CONSOL and Others CONSOL has about 200,000 net acres in Ohio which is prospective for the Utica Shale. Ohio Utica is primarily prospective for gascondensate and oil production Additional acreage in Western Pennsylvania and West Virginia is prospective in the dry gas window of the Utica CONSOL has drilled and tested one vertical well in the Utica Shale in Belmont County, Ohio The Utica completion was not stimulated, and tested 1.5 MMcf/d on a short term test Six additional Utica test wells are planned for 2011 CONSOL Ohio Utica Acreage with Test Wells Significant Utica Leasing and Drilling Activity in Portage and Surrounding Counties Utica Test CNX Barnesville #1 1.5 MMcf/d Estimated Test Rate Un-stimulated Vertical Well Utica Test Range Resources Zahn #1 Confirmed Test Rate of 4.4 MMcf/d (1) Activity Map as of Oct 1 st,

20 CONSOL Net Lease Expirations PA and WV Marcellus Net Lease Expirations by CONSOL Operating Area ~ 575,000 (87%) of Pennsylvania and West Virginia Marcellus acreage is HBP or Fee CONSOL s drilling program will hold virtually all material acreage expiring in [2011 through 2015] 35,000 30,000 25,000 20,000 29,050 26,094 Approximately 87% of CONSOL s Marcellus net acreage in PA and WV is HBP or Fee 19,442 15,000 10,000 5,000-6,831 3,508 1, Central PA Southwestern PA West Virginia 20

21 CONSOL Gas Division 2010 and 2011 Drilling Highlights 2010 Highlights 2010 Rig Inventory 3 horizontal rigs, 2 walking rigs (July 2010) Green County, PA results EURs (p-50 case) range from 3.5 Bcf to 9.9 Bcf; 5.5 Bcf Average. Maximum 24-hour production averaged 3.7 MMcf 30-day production averaged 3.4 MMcfper day Laterals average 3,400 feet Drilling & Completion costs average $4.1 million Drilling operations in Southwest PA and Central PA Drilling and Pad Configurations Multi-well Pads 3 to 6 wells per pad & fracstages per well 300 ft fracstage spacing Additional Improvements High torque casing, LWD geosteering Rotary steerable Cutting drilling days from 15 to Highlights 2010 Rig Inventory 4 horizontal walking rigs Drilling operations in SW PA, Central PA and West Virginia Drilling and Pad Configurations Multi-well Pads 10 to 12 wells per pad Longer Laterals 4, fracstages per well Additional Improvements Synthetic based mud system Closed loop mud system Closed top hole air drilling system Improved geosteering with 3D seismic Greater focus on microseismic Focus on wellbore placement and completion design Consistent practices across all operations Implementation of Continuous Training Program 21

22 CONSOL Gas Division 2011 Estimated Well Type Curve Illustrative Well Parameters ($MM, except as noted) Base 2011 Type 2011 Type (10% D&C Efficiency) Gross EUR (Bcfe) NRI 87.5% 87.5% 87.5% Net EUR (Bcfe) Drilling Cost Completion Cost Total D&C Gathering Land & Title Acquisition Total Margin Analysis ($ / Mcfe, except as noted) Base 2011 Type 2011 Type (10% D&C Efficiency) Henry Hub Cash Price ($ / MMBTU) Realized Price ($ / Mcfe) Lease Operating Expense Production Taxes Gross Margin Total D&C,G,L,A Cost ($ / Mcfe) ATAX IRR 22.9% 22.5% 26.8% Price Required for 20% ATAX IRR $4.27 $4.31 $ Includes production loss (shrink) of 3.5% 22

23 CONSOL Gas Division 22% After-Tax IRR at $4.50 per MMBTU Well ATAX IRR Comparison - Type Curve Analysis 100.0% 95.0% 90.0% 85.0% Internal Rate of Return % 80.0% 75.0% 70.0% 65.0% 60.0% 55.0% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% Base 2011 Type (10% D&C Efficiency) 2011 Type - $2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00 $5.50 $6.00 $6.50 $7.00 $7.50 $8.00 Henry Hub Cash Price ($ / MMBTU) 23

24 CONSOL Gas Division Concerns & Challenges - ProactivelyBeing Addressed Regulatory Legislative restrictions Delays in PINDI and permitting Water use and disposal Local highway bonding / road permits / township ordinances Lease pooling agreements Safety Contractor training / Finding and keeping a qualified workforce / Employee training and education Public Relations Consol taking a leadership role Environmental and community education Surface owner interactions 24

25 CONSOL Energy Inc. 25