CSFB Energy Summit David M. Khani, CFA, Vice President Finance - - PDF document

csfb energy summit
SMART_READER_LITE
LIVE PREVIEW

CSFB Energy Summit David M. Khani, CFA, Vice President Finance - - PDF document

2/8/2012 CSFB Energy Summit David M. Khani, CFA, Vice President Finance February 9, 2012 Cautionary Language This presentation contains statements, estimates and projections which are forward-looking statements (as defined in Section 21E of


slide-1
SLIDE 1

2/8/2012 1

CSFB Energy Summit

David M. Khani, CFA, Vice President Finance

February 9, 2012

Cautionary Language

2

This presentation contains statements, estimates and projections which are forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended). Such statements include estimates of reserves and resources, projections and estimates concerning the timing and rates of return of future projects, and our future production, revenues, income and capital spending. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those statements, estimates and projections. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of future actual results. Factors that could cause future actual results to differ from the forward-looking statements are described in detail under the captions "Forward Looking Statements" and "Risk Factors" in CONSOL Energy Inc. s annual report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (SEC), as updated by any subsequent Form 10-Qs. The forward- looking statements in this presentation speak only as of the date of this presentation; we disclaim any obligation to update the statements, and we caution you not to rely on them unduly. The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible oil and gas reserves that a company anticipates as of a given date to be economically and legally producible and deliverable by application of development projects to known accumulations. We may use certain terms in this press release, such as EUR (estimated ultimate recovery), unproved reserves and total resource potential, that the SEC's rules strictly prohibit us from including in filings with the SEC. These measures are by their nature more speculative than estimates of reserves prepared in accordance with SEC definitions and guidelines and accordingly are less certain. We also note that the SEC strictly prohibits us from aggregating proved, probable and possible reserves in filings with the SEC due to the different levels of certainty associated with each reserve category. Except for proved reserve data, the information this presentation is based on a summary review of the title to the gas rights we hold, as well as a summary review of the title to the coal from which many of our coalbed methane rights derive. As is customary in the gas industry, prior to the commencement of gas drilling operations on our properties, we conduct a thorough 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 ownership for development and production of the gas estate. This presentation does not constitute an offer to sell or a solicitation of offers to buy securities of CONSOL Energy Inc.

slide-2
SLIDE 2

2/8/2012 2

CONSOL Energy Inc Corporate Profile

3 Ticker: CNX Headquartered in

Pittsburgh, Pennsylvania

Founded in 1860 9,164 Employees Market Cap = $8.5 Billion EV = $11.4 Billion 2011 Revenue = $6.1 Billion

The leading diversified fuel producer in the Eastern United States

.

Over 4.4 billion tons of proven and probable coal

reserves (as of 12/31/10)

2012 estimated coal exports of approximately

9.0 11.0 MTs

1Q12 production guidance of 15.5 - 15.9 MTs

(as of 1/17/12)

1Q12 sales guidance of 15.2 MTs About 3.5 Tcfe of proved reserves (as of 12/31/11)

  • Approx. 737,000 gross Marcellus shale acres

(as of 12/31/10)

  • Approx. 200,000 gross Utica acres in Ohio

1Q12 production guidance of 36 - 38 Bcf

(as of 1/17/12)

About 50% of shale wells targeting liquids

Coal and Gas: Rich Asset Base With Some Vertical Integration

4

Manages land assets of the Company R&D facility devoted to coal, gas, and energy utilization and production Distributor of mining, gas drilling, and industrial supplies Fleet of 620 barges, 22 towboats and 5 harbor boats Baltimore Port with capacity to load 14 million tons of coal per year Manages gas gathering assets

  • f the Company

CONSOL Energy Inc Coal Natural Gas Other

Midstream CNX Land Resources Inc. Research & Development Fairmont Supply Company River & Dock Services CNX Marine Terminals Inc.

slide-3
SLIDE 3

2/8/2012 3

5

Investment Thesis and Scorecard

Tier One Coal and E&P Assets Provide Synergies and Risk Reduction

Low cost, high-BTU coal that can travel and transform target markets Low cost assets driving lower and adding liquids to the 2012 program

Long -Lived Assets Enable Strategic Value Enhancements

New JVs create strategic partnerships and accelerate asset recognition

Solid Balance Sheet and Liquidity To Capitalize on Our Organic Projects

Repaid $500 million of debt, $2.7B of liquidity, and raised the dividend

Consistent Operating and Financial Results

Record earnings and cash flow, 528% production replacement at $0.47 per Mcf

Updated 2012 Guidance Recently

Already baked in 1 MTs of lower sales, lowered met coal price guidance, exports within 9-11

MTs Cut 2012 Capital Budget and Second Reduction on Drilling Activity on Marcellus Partnership

Reduced $180 million in 2012 capital Reduced Marcellus shale well count to 99 wells, down from 122 on Jan 2012 & 140 on Aug.

2011

6

Capital Spending Division Spending Category 2011A 2012E Coal Maintenance of Production + Safety $261 $327 Growth (Efficiency & New Projects) $297 $349 Total Coal $558 $676 Gas CBM & Other $232 $ 97 Growth (Marcellus and Utica Exploration) $430 $526 Total Gas $662 $623 Other Mandatory (Water, Transportation, Other) $ 89 $190 Discretionary $ 73 $ 55 Total Other $162 $245 Totals Maintenance/Mandatory $582 $614 Growth/Discretionary $800 $930 Total Capital $1,382 $1,544

CONSOL Energy Capital Spending & Flexibility

Strategy Relies On Cultivating Our Tier One Long-Lived Assets Consistent operations driven by reinvesting In core business Organic growth projects on both coal and gas projects

slide-4
SLIDE 4

2/8/2012 4

7

E&P Division Goals:

Migrating Capital and Activity to High Value Areas

Program goals to drive CBM and Marcellus costs lower

Marcellus program through multi-well pads and lengthening laterals Reported 4Q11 fully loaded Marcellus costs of $2.74 per Mcf

Marcellus Horizon Objectives

Ramp up development of our wet acreage position with our partner Noble Energy Focusing on 100% NRI acreage in Greene and Westmoreland counties, PA Further delineate Central PA and Northern WV position 99 gross wells expected for 2012; 39 wells targeting liquids

Utica Horizon Objectives

Explore and exploit the Ohio Utica Formation with our partner Hess Corporation 22 gross wells expected for 2012; 22 wells targeting liquids

8

Net Wells Drilled By Formation From 2009 Through 2012E

Formation Region 2009 2010 2011 1Q12E 2012E Total Shales 17 24 78 15.0 60.5 Marcellus Shale Central PA 4 19 4.5 6.5 Southwest PA 17 20 50 8.0 40 West Virginia 9 2.0 3 Totals 17 24 78 14.5 49.5 Utica Shale 0.5 11 Coalbed Methane Virginia 204 181 214 22.0 87 Conventional and Other 18 129 36 10.0 31 Totals 239 334 328 47.0 178.5 % Shales Wells: Dry gas target 100% 100% 100% 80% 50% % Shales Wells: Liquids target 0% 0% 0% 20% 50% Total Production (Bcfe) 94 128 154 36-38 160 Total Capital ($MM) 335 420 662 129 623

Drilling Results and Forecast

Migrating Capital and Activity to High Value Areas

slide-5
SLIDE 5

2/8/2012 5

CONSOL Energy & Noble Energy JV

9

2012 Development Plan

Six rigs running as of January 2012 (2 in CPA, 3 in SW PA, 1 in WV) 99 (gross) wells to be drilled by the JV, including 39 in the liquids-rich area

Note: The net proceeds will increase above the minimums shown when gas prices exceed $4.00 per MMBtu for three consecutive months. Total value of the carry is $2.1 billion.

$- $100 $200 $300 $400 $500 $600 2011 2012 2013 $356 $356 $356 $160 $73

Guaranteed Net Proceeds ($MM) Gathering PDPs Annual Pymt

CONSOL Energy & Hess Corporation JV

Sold 50% of 200,000 Gross Ohio Utica

Cash: $60 Million Carry: $554 million covering 50% of CNX s share of drilling and completion costs.

Partnered with top tier Oil Operator with Marketing History Structured as an Exploration Play Raises CONSOLs Exposure to Liquids/Oil Targeting 22 gross wells in 2012 First well to be completed in April

10

Total Deal Consideration of $594 million or $6,000 per acre

slide-6
SLIDE 6

2/8/2012 6

Marcellus Iso-BTU Map

Better Defining The Liquids-Rich Areas

Liquids-Rich Areas

12

Marcellus JV Position

Significant scale and impact

Large Acreage Position Within Marcellus Fairway

50% of 628,000 net acres, including: 161,000 acres in the liquids-rich window High NRI (~88%)

87% of Acreage Held by Production

Allows flexibility in development and

lowers cost

Requires fewer permits and smaller

environmental footprint

9.9 Tcfe 3P Reserves, net to CONSOL Access to Established Infrastructure

OH PA WV MD VA

Dry Gas Wet Gas

slide-7
SLIDE 7

2/8/2012 7

Industry Recognized Sweet Spot in SW PA Key Geologic Attributes Systematic Development and Expansion Adds Efficiency Continue to Test Other Acreage for Future Development Hutchinson 10-well Pad

Initial production rates 5 - 16 MMcf/d 5 wells 5 - 9 MMcf/d 5 wells 10 - 16 MMcf/d

Potentially Extends Sweet Spot Further North

13

Pad Location SW PA Sweet Spot

Dry Gas Wet Gas

Marcellus Sweet Spot

Hutchinson Pad results may extend sweet spot further north

14

Marcellus Drilling and Completion Cost

Lateral lengths increasing while gaining efficiencies

1,000 2,000 3,000 4,000 5,000 2009 2010 2011

Lateral Length

Ft. 100 150 200 250 2009 2010 2011

17% Improvement

$/Ft.

Drilling Cost

100 150 200 250 300 350 2009 2010 2011

29% Improvement

Completion Cost

$M/Stage

slide-8
SLIDE 8

2/8/2012 8

15

External source to Majorsville 350 GPM optional

  • N. Nineveh

Nineveh Greenhill Morris Leatherwood Alex Paris Rutan Majorsville

Columbian Chemical Ohio River to Majorsville 800 GPM Ohio River via Shoemaker Mine 500 GPM

  • N. WV R.O.

Project 1000 GPM Alex Paris Booster Project 800 GPM

Sufficient for 16 Frac Stages per Day Moving Water by Pipeline

Reduces environmental and safety risk Smaller activity footprint Improves efficiency of completion

  • perations

Lowers overall costs

Water Sourcing Plan for SW PA

Supply established and infrastructure build out underway

16

Gas Gathering System Plan for SW PA

Systematic expansion to stay ahead of drilling activity

Gas Gathering System Installed or Under Construction to Support 2012 Drilling Pad Drilling Allows for Lower Number of Permits, Efficiency and Reduced Costs Early Infrastructure Development Creates Backbone for Future Expansion Firm Transportation and Processing Contracts Cover Production Through mid 2014

Firm

365 MMBtu, net

Processing

115 MMBtu, net

OH PA WV MD VA Dry Gas Wet Gas

slide-9
SLIDE 9

2/8/2012 9

17

Over 500-Day Period, CNX Wells in SW PA Yielded 21% More Production Than Competitor Well Average

1,000 2,000 3,000 4,000

100 200 300 400 500 600 700 800 900 1,000 Days

Mcf/d

Gross Wellhead Gas Production

CNX Avg. 2010-2011 (39 laterals ~2,285 ft.) Competitor Avg. 2009-2010 (103 laterals ~2,800 ft.) CNX Avg. 2008-2009 (13 laterals ~1,625 ft.) NBL Acq. Model (normalized to 2,850 lateral ft.)

Marcellus Wells Improving

World Coal Market Participation Growing Coal Exports Cash Generation from Met Products Unique Asset Portfolio Mines Safe, Reliable and Low Cost Rail Dual Rail Service Port Access Research & Development Boots on the Ground in International Markets Coal Capital Expenditures of $676 Million for 2012

Coal Division Strategy

18

Participating in Growing World Coal Markets with a Portfolio of Assets that CAN NOT be replicated

$0 $500 $1,000 $1,500 $2,000

2009 2010 2011 Million $ s Coal Division Cash by Coal Category Thermal Low-Vol + High-Vol

slide-10
SLIDE 10

2/8/2012 10

Strength in Market Diversity

Produce Locally, Distribute Globally

19

CONSOL Ships To Four Continents Widening of The Panama Canal Should Improve Shipping Costs and Potential Coal Margins Marketing: 1Q12 Forecasts and 2011 Coal Statistics

Produce Locally, Distribute Globally

Sales volumes 63.2 MTs for $4.5B of revenue Achieved record annual average $72.24 price

per ton

Low-Vol met coal volumes increased to 5.6 MTs

at an average price exceeding $190.00 per ton

High-Vol met coal volumes grow to 4.8 MTs at

an average price of $80.00 per ton

Total export volumes increased 68% over 2010

levels to a record of 11.4 MTs

Expanded new markets

Developed 16 new customers with 5 new met customers High-Vol met coal shipments to domestic & export steel makers Four new multiple-year export thermal sales agreements resulting in over 3 MTs.

2011 Coal Sales Facts

20

Note: Set at the midpoint of guidance

slide-11
SLIDE 11

2/8/2012 11

21

Weighted Individual Plants by: Capacity Factor, Age, Size, Heat Rate Lowest weighted plants were assumed to be shut down first Performed some sensitivity around scrubbed plants

  • 8.3 GW
  • 14.4 MM tpy

New Capacity + 16.5 GW + 52.1 MM tpy Regulatory Impact

  • 40.0 GW
  • 79.9 MM tpy

Baseline (2009) 309 GW 943.2 MM tpy coal Overall

  • 31.8 GW
  • 42.2 MM tpy

(-10%) (-4%)

  • 36.4 MM tpy
  • 18.4 MM tpy

+12.6 MM tpy Bit Sub Other

  • 7%

CONSOL Positioned for EPA Regulations

R&D Study of industry coal burn due to regulations - 90% of CONSOL Thermal Coal sold to scrubbed facilities

22

Our Assets, Strategy and People Create An Investment Opportunity

Coal and gas operations are long-lived, low-cost, and provide solid growth Our well-capitalized assets provide more consistent operational execution Our emphasis on safety and compliance increases reliability Balance sheet remains strong with $2.7 billion of liquidity Valuation remains compelling using sum of the parts Marcellus liquids and Utica results (1Q12) to drive valuation improvement Stabilization and rebound in the met coal markets Solid Execution of our core program and coal projects to serve a rebounding market

slide-12
SLIDE 12

2/8/2012 12

CONSOL Energy Inc. Questions?

23