First Quarter 2014 Earnings Presentation April 29, 2014 J. Brett - - PowerPoint PPT Presentation

First Quarter 2014 Earnings Presentation

April 29, 2014

• J. Brett Harvey, Chairman and CEO

Nicholas J. DeIuliis, President David Khani, CFO James C. Grech, Chief Commercial Officer Tim Dugan, COO – E&P Division

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 are described in detail under (i) the captions "Forward Looking Statements" in our earnings press release issued today and (ii) "Risk Factors" in CONSOL Energy Inc.’s annual report on Form 10-K for the year ended December 31, 2013 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 presentation, 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 included in 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. We may refer to the possibility of sponsoring a Master Limited Partnership (MLP) in this presentation. A registration statement relating to the securities of the MLP that would be sold in any offering has not been filed with the Securities and Exchange Commission or become effective. This presentation does not constitute an offer to sell or a solicitation of offers to buy securities of CONSOL Energy Inc. This presentation is being made pursuant to, and in accordance with, Rule 135 under the Securities Act of 1933.

3

CONSOL Energy’s Business Strategy



Grow natural gas production

─

30% projected production increase in 2014

─

Develop liquids profile within our footprint

─

High-grade acreage position

─

Experienced team is in place



Aggressively manage coal margins and maintenance capital with retained mines

─

New BMX mine now operational

─

Coal capital expenditure shifting to maintenance of production mode



No transformational acquisitions

─

CONSOL is focusing on organic growth



Disciplined investment approach

─

Continue to examine opportunities to high-grade portfolio of assets

─

Includes non-core and infrastructure assets

Now that the BMX Mine is completed, nearly all of CONSOL Energy’s production growth will occur in natural gas

4

Summary

First Quarter 2014 Results



Pre-tax income for the first quarter was $130 million

• Net income from continuing operations was $122 million resulting from solid E&P and coal production, higher

gas prices, and disciplined cost controls

• Income from discontinued operations, net of tax, was ($6) million



E&P Division’s first quarter net income was $47 million

• Higher margin Marcellus Shale production increased 94% in the first quarter
• All-in unit margins increased by 145% to $1.89 per Mcfe



Gas Production re-iterates 30% growth through 2016

(1) Q4 2013 net income includes $591 million from discontinued operations, net of tax, and an income tax benefit of $131 million. (2) EBITDA is a non-GAAP financial measure. Refer to appendix for reconciliation.

Q1 2014 Summary Q-to-Q Q-to-Q ($ in millions, except per share data) 1Q2014 1Q2013 Change 1Q2014 4Q2013 Change Net Income(1) $116 ($2) $118 $116 $738 ($622) Earnings per Diluted Share $0.50 ($0.01) $0.51 $0.50 $3.20 ($2.70) Revenue and Other Income $969 $843 $126 $969 $825 $144 Cash Flow from Operations $336 $268 $68 $336 $70 $266 EBITDA(2) $310 $154 $156 $310 $193 $117

5

Q4 2013 to Q1 2014 Net Income Reconciliation

($ in millions) $738 $74 $42 $4 ($6) ($139) ($597) $116

• 100

200 300 400 500 600 700 800 900 1,000 Q4 2013 Net Income E&P Division Coal Division Interest Expense Other Corporate Expenses Income Taxes Discontinued Ops, net of tax Q1 2014 Net Income Earnings Summary Q-to-Q ($ in millions) 1Q2014 4Q2013 Change Gas Division 80 6 74 Coal Division $107 $65 $42 Other 1 1

• Interest Expense

(51) (55) 4 Other Corporate Expense (7) (1) (6) Income Taxes (8) 131 (139) Discontinued Operations, net of tax (6) 591 (597) Net Income Attributable to CONSOL Energy Shareholders $116 $738 ($622)

6

Summary

Gas Division



Impact of gas hedging for Q1 2014 was ($0.34)/Mcf compared to $0.62/Mcf from the year-earlier quarter

48% 35% 11% 7%

2014E Production by Category

Marcellus CBM SOG Other 

Marcellus Shale production now largest part

• f mix



2014E Marcellus Shale production growth ~87% compared to previous year



“Other” category includes Chattanooga Shale in Tennessee and the Utica Shale in Ohio

Q-to-Q Q-to-Q Gas Division 1Q2014 1Q2013 Change 1Q2014 4Q2013 Change Average Sales Price ($ / Mcfe) $5.52 $4.30 $1.22 $5.52 $4.26 $1.26 Average Costs ($ / Mcfe) $3.63 $3.53 $0.10 $3.63 $3.55 $0.08 Sales Volumes (Bcfe) 48.4 39.2 9.2 48.4 48.5 (0.1) Sales Volumes (Bcfe) by Category Marcellus 20.7 10.7 10.0 20.7 19.4 1.3 CBM 19.8 20.7 (0.9) 19.8 20.3 (0.5) Shallow Oil and Gas 5.8 7.1 (1.3) 5.8 7.3 (1.5) Other 2.1 0.7 1.4 2.1 1.5 0.6

44.5 48.6 48.4 56.1 58.2 76.6 94.4 127.9 153.5 156.3 172.4 215.0 - 235.0 +30% +30% 100 200 300 400 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E Bcfe

Gas Production

• CONSOL is rapidly growing its natural gas production

─

Total 2013 natural gas production: 172.4 Bcfe

─

Q1 2014 natural gas production: 48.4 Bcfe

─

Total 2014 natural gas production guidance: 215 – 235 Bcfe (30% growth)

─

Total 2015 and 2016 natural gas production guidance: 30% per year

Gas Division Production Results and Forecast

7 Source: Company filings. Note: Acquired ~23 Bcfe of Conventional gas production from Dominion E&P in 2010. Divested ~11 Bcfe through the Marcellus JV with Noble Energy and the Antero Royalty Interest transactions in 2011.

Gas and Liquids Production (Bcfe)

8

Summary

Coal Division

Q-to-Q Q-to-Q Coal Division 1Q2014 1Q2013 Change 1Q2014 4Q2013 Change Average Sales Price ($ / ton) $66.20 $72.18 ($5.98) $66.20 $66.85 ($0.65) Average Costs ($ / ton) $45.15 $51.14 ($5.99) $45.15 $50.05 ($4.90) Coal Production (millions of tons) 8.1 7.4 0.7 8.1 7.1 1.0 Sales Volumes (millions of tons) 8.0 7.5 0.5 8.0 7.2 0.8 Sales Per Ton ($ / ton) Low-Vol $76.80 $102.69 ($25.89) $76.80 $81.84 ($5.04) High-Vol $56.35 $69.10 ($12.75) $56.35 $58.88 ($2.53) Thermal $65.17 $64.47 $0.70 $65.17 $64.66 $0.51



Actively Monitored Hedge Program:

• For 2014: 25.7 Bcf added in the first quarter at

approximately $5.32 per Mcf

• Basis hedges represent 34% of 2014 total



Firm Transportation and Firm Sales:

• Currently “long” FT and in discussions to add

more to meet our production ramp



Processing Position: Marcellus / Utica:

• Future processing capacity and expansion rights

will allow for significant growth of liquids-rich Marcellus/Utica production

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87% 19% 52% 25% 67% 16% 64% 6% 50% 7%

70%

87% 83% 58% 75% 74% 86%

• 20%

40% 60% 80% 100% Peer 1 Peer 2 Peer 3 Peer 4 CNX Gas CNX Total

2014 Competitor and CNX Hedge Positions

Swaps Collars Priced Coal

Hedge Program and Integrated Infrastructure

$2 $3 $4 $5 $6 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 $ / Mcfe

Gas: Operating Costs per Mcfe

CBM Marcellus Shallow Oil & Gas

CONSOL Cost Metrics

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$36 $46 $56 $66 $76 $86 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 $ / Ton

Coal: Cost per Ton Sold

Thermal High-Vol Low-Vol Total Company

Note: Costs per ton sold reflect restated figures for retained mines following the Murray Energy transaction.

11

Gas Operations: Capital Expenditure

Note: Gas Operations capital expenditure does not reflect the receipt of any carry from Noble Energy. Source: Company filings and CONSOL Analysis.

Natural Gas Operations: ($ in millions) 2014E Capex Land and Permitting 70 Liquids-rich drilling and completions: Marcellus 410 Utica 105 Dry-gas drilling and completions: Marcellus/Upper Devonian 415 Utica 10 CBM/Shallow Gas 40 Midstream: Marcellus Gathering 60 Total Natural Gas Operations $1,110

• CONSOL Gas Capex: Coring up land

positions

• Put together an acceleration plan in 2013 for a

2014 production ramp

─

~$30 million of capital for acceleration of plan

─

Driving efficiencies in drill plan and infrastructure

$528 $953 $1,110 $0 $200 $400 $600 $800 $1,000 $1,200 2012 2013 2014E $ in millions Land Capex Other Gas Capex 2014E Total Gas Capex Estimate

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

Cash on hand of $314 million



Accounts receivable securitization and revolving credit facilities of $1.8 billion

Strong Liquidity Position of $2.1 Billion

Revolving Credit Facilities Debt Covenants



CONSOL Energy and CNX Gas currently maintain strong leverage ratios



Both facilities are well within debt covenants



Currently working on updating credit facilities

Amount/ Amount Letters Amount March 31, 2014 ($ in million) Capacity Drawn

• f Credit

Available Cash and Cash Equivalents $314 $0 $0 $314 Accounts Receivable Securitization $99 $0 $62 $37 Revolving Credit Facilities $2,000 $0 $263 $1,737 Total $2,413 $0 $325 $2,088 March 31, Debt Covenants Limit 2014 CONSOL Energy Revolver: Minimum Interest Coverage Ratio < 1.50 to 1.00 2.52 to 1.00 Senior Secured Leverage Ratio > 2.00 to 1.00 0.00 to 1.00 CNX Gas Revolver: Maximum Leverage Ratio > 3.50 to 1.00 0.42 to 1.00 Minimum Interest Ratio < 3.00 to 1.00 35.48 to 1.00

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

Goal is to maintain our strong liquidity position

Net (Decrease) / Increase in Cash - $ in millions

CONSOL Energy Overview

Source: Company filings. (1) Includes ($14) million in Q1 2014 and $55 million in Q1 2013 for operating activities of discontinued operations. Includes ($43) million in Q4 2013 for operating activities of discontinued operations. (2) Includes $826 million in Q4 2013 for investing activities of discontinued operations.

Cash Flow Summary Q-to-Q Q-to-Q ($ in millions) 1Q2014 1Q2013 Change 1Q2014 4Q2013 Change Net Cash Provided by Operations(1) $336 $268 $68 $336 $70 $266 Capital Expenditures ($451) ($350) ($101) ($451) ($483) $32 Proceeds From Asset Sales $126 $75 $51 $126 $19 $107 Proceeds From /(Payments on) Short-Term Debt ($5) ($34) $29 ($5) ($47) $42 Dividends Paid ($14) $0 ($14) ($14) ($29) $15 Other(2) ($5) $45 ($50) ($5) $776 ($781) Net (Decrease) / Increase in Cash ($13) $3 ($16) ($13) $306 ($319)

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Murray Energy Transaction Impact: Credit Metrics

CONSOL Credit Metrics and Total Available Liquidity Improve Markedly Post-Sale

Source: Company filings and CONSOL Analysis. Note: 2011 and 2012 are not restated for discontinued operations. (1) Net debt equals total debt less cash and cash equivalents. (2) Refer to EBITDA Reconciliation table in Appendix.

CONSOL Energy ($ in millions) 2011 2012 2013 Cash and Cash Equivalents $376 $22 $327 Available Liquidity $2,733 $2,351 $2,081 Total Debt $3,198 $3,251 $3,175 Net Debt(1) $2,822 $3,229 $2,848 Legacy Liabilities OPEB $3,242 $3,018 $1,022 LTD 36 39 20 WC 174 180 85 CWP 184 184 121 Other Liabilities 696 775 668 Salary Retirement/Pension 275 225 45 Total Legacy Liabilities $4,606 $4,421 $1,962 Total Legacy Liabilities Servicing Cost $343 $305 $267 LTM EBITDA(2) $1,778 $1,312 $1,851 LTM EBITDA + Servicing Cost 2,121 1,617 2,118 Credit Metrics: (Net Debt + LL)/(LTM EBITDA + Servicing Cost) 3.5x 4.7x 2.3x Net Debt/LTM EBITDA 1.6x 2.5x 1.5x

15

Issuer CONSOL Energy Inc. Notes offered $1,600 million aggregate principal amount of 5.875% senior notes due 2022 Maturity date April 15, 2022 Interest rate 5.875% per year (calculated using a 360-day year) Optional redemption Non-callable for 3 years Issue rating B1 / BB Guarantors Substantially all material domestic wholly-owned subsidiaries of the Borrower Ranking Pari passu with all current and future senior unsecured indebtedness, and senior to all existing and future subordinated indebtedness Mandatory redemption None prior to maturity except in the event of a "Change of Control" requiring an offer to purchase the Notes at 101% of par plus accrued interest to the purchase date Covenants Customary for an offering of this type; obtained the right to separate the coal and gas business subject to a leverage test Distribution 144A with registration rights

Senior Unsecured Notes

Recent Notes Offering Summary

Formation Region 2012 2013 1Q2014 2014E Marcellus Shale: Southwest Pa. (incl NBL) 70 97 26 144 West Virginia 6 10 4 25 Central Pa. 13 10 5 12 Ohio 1(1) Total: 89 117 35 182 Utica Shale (incl Hess): 10 24 7 34(2) Total Shales (Gross): 99 141 42 216 Coalbed Methane: Virginia 44 64 16 59 Shallow and Other 25 11 5 Total (net to CONSOL) 118.5 145.5 37.0 172.0 % Shale Wells: Dry Gas Target 65% 33% 38% 37% % Shale Wells: Liquids Target 35% 67% 62% 63% Total Production (Bcfe) 156 172 48 215 - 235 Total Capital ($ in millions) $528 $953 $266 $1,110(3)

16

Drilling Results and Forecast

(1) Planned non-JV wet Marcellus Shale well located in Monroe County, OH. (2) Includes 1 planned non-JV dry Utica Shale well located in Monroe County, OH. (3) These figures are net of approximately $115 million in drilling carry from Hess Corporation for drilling in the Ohio Utica Shale. Does not reflect the receipt of any carry from Noble Energy.

Gross Wells Drilled By Formation From 2012 Through 2014E

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

Gas and coal operations are long-lived, low-cost, and provide solid growth



Our well-capitalized assets – and highly trained personnel – provide more consistent

• perational execution



Our emphasis on safety and compliance increases reliability



Balance sheet remains strong with $2.1 billion of liquidity



Valuation remains compelling using sum of the parts

Summary

CONSOL Energy Overview

Our Assets, Strategy, and People Create An Investment Opportunity

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Appendix

82% 12% 6%

Sales Tons by Product Year 2014

Thermal Low Vol High Vol

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Marketing 2Q14 and 2014 Forecasts

Appendix

2014 Coal Sales Facts and Goals



Contracted tons for 2014: more than 92%

• Priced: more than 89%



Approximately 81% of the Low-Vol & High-Vol met coal tons are forecasted to be shipped overseas



Approximately 94% of the thermal coal tons are forecasted to be delivered domestically

(Tons in millions) Q2 2014 2014E Q2 2013 2013 Thermal 7.1+ 26.2+/- 5.2 21.5 Low Vol 0.85-0.95 3.6-4.2 1.1 4.8 High Vol 0.3 2.0 0.8 2.5 Total 8.1-8.5 31.0-33.0 7.1 28.8 86% 11% 3%

Sales Tons by Product 2nd Quarter 2014

Thermal Low Vol High Vol

20

Appendix

CONSOL has 89% and 37% firm tonnage for 2014 and 2015, respectively

Source: Company filings. Note: Firm tonnage percentage calculated using midpoint of guidance ranges, if applicable. CONSOL has chosen not to forecast prices for open tonnage due to ongoing customer negotiations. Firm tonnage is tonnage that is both sold and priced, and excludes collared tons. CONSOL Energy has sold additional coal volumes that are not yet priced. Those volumes are excluded from this table. There are no collared tons in 2014. Collared tons in 2015 are 2.1 million tons, with a ceiling of $64.95 per ton and a floor of $55.99 per ton. Not included in the category breakdowns are the tons from equity affiliates Harrison Resources and Western Allegheny Energy (WAE). Harrison Resources has 0.1 million tons for Q2 2014, and 0.4 million tons for all of 2014 and 2015. WAE has 0.1 million tons for Q2 2014, and 0.5 million tons and 0.6 million tons for all of 2014, and 2015, respectively.



2014 firm tonnage:

• Low-Vol: 59%
• High-Vol: 50%
• Thermal: 97%
• Total Coal Sales: 89%



2015 firm tonnage:

• Low-Vol: 16%
• High-Vol: 15%
• Thermal: 43%
• Total Coal Sales: 37%

Coal Division Guidance

(Tons in millions) Q2 2014 2014 2015

• Est. Total Coal Sales

8.1 - 8.5 31.0 - 33.0 33.6 Tonnage: Firm 7.9 28.6 12.5 Price: Sold (firm) $62.11 $64.47 $68.90

• Est. Low-Vol Met Sales

0.85 - 0.95 3.6 - 4.2 4.9 Tonnage: Firm 0.5 2.3 0.8

• Est. High-Vol Met Sales

0.3 2.0 2.0 Tonnage: Firm 0.3 1.0 0.3

• Est. Thermal Sales

7.1+ 26.2+/- 26.7 Tonnage: Firm 7.1 25.3 11.4

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Coal Capital Expenditure – 10 Year History

Appendix

$203 $317 $415 $489 $681 $446 $580 $707 $677 $993 $459 $390 (5%) 0% 5% 10% 15% 20% 25% $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E $ in millions Coal Capital Expenditure EBIT Margin

Note: Capital expenditures for 2003 – 2012 include discontinued operations. Source: Company filings.

Cumulative investment over the past 10 years of ~$5.5 billion to improve safety, productivity, and efficiency of our coal mines

$13 $327 $850 $8 ($361 ) ($115 ) ($31 ) ($37 ) $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 Beginning Cash Balance as of 12/5/2013 Receipt from Murray Tetrick Override Credit Facilities Paydown DTI Acres / Utica Interest to Hess Fees Other Ending Cash Balance as of 12/31/2013 $ in millions

22

Appendix

Source: CONSOL Analysis. (1) Includes payment for additional Utica land interests.

CONSOL Closed On Sale of Five W.Va. Coal Mines to Murray Energy on December 5, 2013; Total Value of the Transaction was $3.5 billion, including $850 million in Cash Paid at Closing

(1)

Use of Cash Proceeds

23

BMX Mine Overview



BMX Mine: Began operations in mid-March 2014

• Lowest cost CNX mine

Appendix

24 Source: EIA, PIRA, and CONSOL analysis.

• 5

10 15 20 25 30 Feb 13 May 13 Aug 13 Nov 13 Tons (MM)

PJM Coal Inventory

Trailing 12 Months 5 Year Average Our Domestic Coal Market Remains Solid

Appendix

CONSOL-Operated Wells: Marcellus Drilling and Completions Summary

Appendix

25

Drilling Summary 2011 2012 2013 YTD 2014 Wells TD'd 78 64 46 16 Lateral Ft 300,466' 328,428' 366,615' 124,297' Total MD 92,264' 794,098' 730,316' 251,113' Average Lateral 3,853' 5,514' 7,970' 7,769' Average TMD 11,824' 13,280' 15,876' 15,696' Average Drill Cost $180/ft $220/ft $190/ft $198/ft Average Lateral Cost $552/ft $529/ft $378/ft $401/ft Completions Summary 2011 2012 2013 YTD 2014 Wells Completed 57 51 59 8 Lateral Ft Completed 188,800' 270,256' 333,895' 71,387' Total Stages 684 940 1,527 478 Average Stg/Well 12 18 26 60 Average Stage Cost $205k $184k $193k $114k(1)

(1) Costs assume 150 feet stages and includes estimated costs for drillout and flowback operations currently in progress.

26

Non-GAAP Reconciliation

Appendix

CONSOL Energy ($ in millions) 2011 2012 2013 Net Income Attributable to CONSOL Energy Inc. Shareholders $632 $388 $660 Add: Interest Expense $248 $220 $219 Less: Interest Income (9) (29) (16) Add: Income Taxes 155 109 357 Add: Loss on Debt Extinguishment 16

• Add: Abandonment of Long-Lived Assets

116

• Earnings Before Interest & Taxes (EBIT)

$1,159 $689 $1,220 Add: Depreciation, Depletion & Amortization 618 623 631 Earnings Before Interest, Taxes and DD&A (EBITDA) $1,778 $1,312 $1,851 Add: Servicing Cost 343 305 267 EBITDA + Servicing Cost $2,121 $1,617 $2,118 Total Debt $3,198 $3,251 $3,175 Legacy Liabilities OPEB $3,242 $3,018 $1,022 LTD 36 39 20 WC 174 180 85 CWP 184 184 121 Other Liabilities 696 775 668 Salary Retirement/Pension 275 225 45 Total Legacy Liabilities $4,606 $4,421 $1,962 (Total Debt + Legacy Liabilities) / Net Income 12.3x 19.7x 7.8x (Total Debt) / Net Income 5.1x 8.4x 4.8x

27

Reconciliation of EBIT, EBITDA and Adjusted EBITDA to financial net income

Appendix

Three Months Ended March 31 ($ in thousands) 2014 2013 Net Income Attributable to CONSOL Energy Inc. Shareholders $116,003 ($1,564) Less: Net (Income)/Loss Attributable to Discontinued Operations, net of tax 5,687 (1,903) Add: Interest Expense 50,931 53,377 Less: Interest Income (624) (6,924) Add: Income Taxes 8,489 (892) Earnings Before Interest & Taxes (EBIT) 180,486 42,094 Add: Depreciation, Depletion & Amortization 129,116 111,578 Earnings Before Interest, Taxes and DD&A (EBITDA) from Continuing Operations $309,602 $153,672 Adjustments:

• Pension Settlement
• 27,115

CNX GAS Shareholder Settlement

• 20,200

Marcellus Title Defects

• 6,268

Total Pre-tax Adjustments

• 53,583

Adjusted Earnings Before Interest, Taxes and DD&A (Adjusted EBITDA) from Continuing Operations $309,602 $207,255

Source: Company filings.