Coal and Shale Gas: Shifting Appalachian Dynamics Sam Johnson Sam Johnson Vice President Energy Marketing
About CONSOL Energy Company Founded in 1860; began operations in 1864 Market Cap = $7.05 billion (as of 1/26/15) 2014 Total Revenue = $3.7 billion Member Fortune 500; S&P 500 Three premier mining complexes with access to seaborne markets via wholly owned Baltimore Marine Terminal One of the largest independent natural gas E&P companies. Operations centered in the major shale formations located in the Appalachian basin 5.7 tcf natural gas reserves
CONSOL Energy s Transformative Journey 1864 2005 2013 The Journey CONSOL Energy begins CONSOL Energy Begins transformation to a diversified announces cessale of five 2014 energy producer thermal coal mines Wholly owned E&P Division and Coal Division CNX Gas corporate subsidiary is formed as a stand alone, CONE Midstream Partners, publicly traded natural gas formed by CONSOL Energy subsidiary of CONSOL Energy and Noble Energy, begins trading on the NYSE under 2010 CNNX CONSOL Energy acquires DominionResources naturalgas exploration and production 1999 assets, tripling CONSOL s CONSOL Energy begins Marcellus Shale acreage position trading on the New York Stock Exchange under CNX CONSOL Energy acquires all outstanding CNX Gas shares
CONSOL Energy Family of Companies 2015 CONSOL Energy E&P A wholly ownedowned division of CONSOL Energy 40+ year organic drilling inventory in Appalachian Shales CONE Midstream Partners, LP A Marcellus midstream affiliate of CONSOL Energy and Noble Energy Approx. 500,000 acres of dedicated Marcellus Shale acreage CONSOL Energy The parent company retains controlling interest in some of the most valuable resources in the Appalachian basin Thermal Coal MLP Made up ofbailey, Enlow Fork, Harvey Mines & related infrastructure IPO expected in mid 2015 Metallurgical Coal Subsidiary Made up of Buchanan Mine & related infrastructure IPO expected in the second half of 2015 Registration statements relating to the securities ofthe Thermal Coal MLP and the Metallurgical Coal Subsidiary that would be sold in the offerings referred to in this presentation have not been filed with the Securities and Exchange Commission (SEC) or become effective. This presentation does not constitute an offer to sell, or the solicitation of an offer to buy, any securities. Any offering will be made only by means of a prospectus.
Providing Clarity on Value of Asset Base CONSOL Energy s structural realignment is designed to provide investment options across coal and natural gas that will appeal to growth oriented and dividend oriented investors alike.
Coal Markets Domestic Export PA Ops Baltimore Power Markets TCO, DS, M2 M3 Z5 Power markets/gas price set price ceiling; coal suppliers set price floor Export markets via Baltimore offer logistics, blending & market optionality MichCon
Coal Unit Retirements Expected to Peak in 2015 20,000 18,000 16,000 Capacity (M MW) Retired 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 * Includes actual and announced retirements, as well as units converted to natural gas, biomass, or another non coal fuel.
But Remaining Fleet is Capable of Filling the Void on Tons 300 250 200 150 2014 Coal Consumption All Units Remaining Fleet (after 2015 2019 retirements) 2014 Coal Consumption Potential Coal Consumption (based on 2008 actual performance) Remaining coal fleet has enough excess capacity to fill the generation gap left by announced coal unit retirements Gas prices will determine whether h coal or gas captures this share Milli 100 50 0 ERCOT FRCC MRO NPCC RFC SERC SPP WECC
Gas Markets Target Volumes Target Markets Gas Ops Power Markets LNG Export TCO, DS, M2 M3 Z5 MichCon Power generation, industrial growth, and LNG exports will increase demand Increased takeaway capacity from basin will positively impact in basin basis E, WLA, ELA
Gas Markets: National Prices US National Gross Production (Source: EIA) Weekly Henry Hub Natural Gas Spot Price 2010 2014 (Source: EIA) MMcf/month 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000, 500,000 0 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 $/MMBtu 16 14 12 10 8 6 4 2 0 Mar 13 Mar 14 Mar 15
Gas Markets: Regional Prices Production/Consumption Appalachian Basin (Source: EIA) Mcf/month M 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Jan 2010 Jan 2011 Jan 2012 Jan 2013 In basin supply begins to out pace in basin demand New York Pennsylvania West Virginia Ohio Virginia Monthly Combined Consumption Combined with limited takeaway capacity, in basin pricing develops a significant negative basis
Energy Markets: Shared Value Opportunities Land Gathering NGL Sales Sl Thermal Coal Processing Pipelines Met Coal Domestic Ethane Export Ethane Power Purchases Export Coal Dry Gas Sales Export LNG Actively pursuing opportunities with customers for gas sales, coal sales, pipeline project development, land swaps, power purchases, and midstream services
Market Dynamics Intersect With Flexibility Strategy Natural gas, coal and oil will account for 80% of energy consumption in the United States through 2040. The Marcellus Shale is estimated to be the second largest unconventional natural gas field in the world. Natural gas will continue to increase its share of the global energy mix, growing 2.4% per year until 2018. Coal accounts for 64% of global economically recoverable fossil resources, compared to 19% for oil and 17% for natural gas. Coal s share of the global energy mix continues to rise, and by 2017 coal will come close to surpassing oil as the world s top energy source. Coal is the cornerstone of global electricity, producing over 8,200 terawatt hours (TWh) annually, or about 41% of the world s power generation. CONSOL Energy continues to deploy an organic growth strategy t focused on rapidly developing its resource base of natural gas reserves while maintaining premium coal assets ready to meet the needs of changing market conditions. Sources: International Energy Agency (IEA) and the PSU Extension
Coal and Shale Gas: Shifting Appalachian Dynamics Sam Johnson Sam Johnson Vice President Energy Marketing