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 January 6, 2016 - 6:45 AM EST
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CONSOL Energy Announces Updated 2016 Capital Budget and Operational Forecast; Revised 2016 E&P Division Capital Budget of $205-$325 Million; Annual 2016 E&P Production Growth of Approximately 15%; Total 2016 Coal Sales Volumes of 27.0-32.0 Million Tons

PITTSBURGH, Jan. 6, 2016 /PRNewswire/ -- CONSOL Energy Inc. (NYSE: CNX) announced today an updated 2016 capital expenditure and operational forecast for the E&P and Coal Divisions.

In 2016, the E&P Division expects capital expenditures of $205-$325 million, which is $185 million lower than the previous guidance of $400-$500 million, based on the midpoint of the guidance. E&P Division capital expenditures are comprised of the following: $110-$210 million for drilling and completion activity, which includes $10-$15 million for coalbed methane (CBM) activity; $40-$50 million for midstream, including approximately $22 million associated with expected CONE Midstream capital contributions; and $55-$65 million for other activities related to land, permitting, and business development.

The further reduction to 2016 E&P capital reflects continued benefits from drilling and completion efficiencies and the deferral of mainly wet gas completions into 2017. CONSOL believes that it has a meaningful lever to pull to partially offset this deferral of activity through potential production benefits related to additional gathering system debottlenecking projects in the second half of 2016. These additional debottlenecking projects could provide upside benefits to 2017 gas production volumes.

The lower end of the E&P capital expenditure range mainly reflects capital associated with completing approximately 37% of the company's inventory of drilled but uncompleted wells (DUCs). The higher end of the range encompasses adding back a modest level of drilling activity, which could commence around mid-year. The extent of drilling activity in 2016, if any, will primarily be a function of rates of return and commodity prices, and the assessment of the dry Utica wells drilled in 2015. The company expects to make a decision regarding drilling capital allocation before mid-year 2016.

Details of CONSOL Energy's base-case E&P development plan, which excludes drilling activity in 2016, are detailed in the table below:


 

 (gross wells)*

Drilled/ Uncompleted Inventory

Drilled/ Completed Inventory

2016 Completions

2016
TIL

Marcellus





SW PA Operated

29

23

18

41

SW PA Non-Op

5

10

--

10

WV Operated

7

--

7

7

WV Non-Op

42

--

--

--

Total Marcellus

83

33

25

58






Utica





SW PA Operated

--

1

--

1

OH Operated

1

4

--

4

OH Non-Op

10

--

10

10

Total Utica

11

5

10

15






Total Gross Marcellus and
Utica Wells

94

38

35

73

 

* Average net revenue interest is 43.7%. Table includes two 100% CONSOL-owned wells: one dry Utica Shale well in Monroe County, Ohio; one dry Utica Shale well (GH9) in Greene County, Pennsylvania. In addition to the table above: CONSOL expects to drill and turn-in-line (TIL) 43 and 47 CBM wells in 2016, respectively.

CONSOL expects the 2016 TIL schedule to be more front-end weighted, resulting in E&P production volumes growing approximately 15%, compared to 2015. Production growth will come from three areas: new wells TIL, non-operated production (outside of the joint ventures with Hess Corporation and Noble Energy Inc.), and additional midstream debottlenecking projects, which are back-end weighted in 2016.

CONSOL continues to drive E&P capital efficiencies through improvements in well performance, completion cost reductions, and the utilization of in-place infrastructure to lower construction and facilities expenses. As a result, CONSOL has made tremendous strides on operational improvements, lowering drilling and completion costs in the Marcellus Shale to below $1 million per 1,000 lateral feet, including capital associated with production equipment, water, and pad construction, which is approximately 30% lower, compared to 2013 levels. CONSOL expects the average TIL lateral length to be approximately 7,700 feet. As a result, total E&P capital, including midstream, has declined significantly from 2014, compared to 2016 expected guidance. Over that time period, E&P capital and CONE capital contributions are expected to decline from $1.2 billion to the projected $205-$325 million, with corresponding production projected to grow from 235.7 Bcfe to approximately 377 Bcfe, respectively. 

"CONSOL's updated 2016 plan reflects the company's operational flexibility to respond effectively to the continued weakness in commodity prices, as well as the company's commitment to de-lever the balance sheet through the execution of the organic free cash flow plan," commented Nicholas J. DeIuliis, president and CEO. "Despite the low commodity price environment, CONSOL's held by production land position, strong hedge book, and inventory of drilled and uncompleted wells provides the company with opportunities for strong rates of return based on incremental capital to complete and turn-in-line those wells. The expected weighted average rate of return on 2016 incremental capital is above 30%. We anticipate that continued cost improvements and strong well performance will further improve development economics when drilling activity is resumed."

CONSOL Energy's 2016 Coal Division budget continues to reflect maintenance of production capital. Total Coal Division capital expenditures of $170-$190 million include the following: $140-$155 million allocated to production and $30-$35 million for other activities related to land, water, safety, and the Baltimore Terminal. CONSOL Energy's 2016 Coal Division capital and production guidance reflects 100% of the Pennsylvania Complex ("PA Operations"), consistent with the consolidation accounting methodology applied for the 20% of the PA Operations owned by CNX Coal Resources LP ("CNXC").

In response to ongoing coal market uncertainty, CONSOL's total Coal Division is reducing 2016 expected sales to 27.0-32.0 million tons, compared to previous guidance of 30.6-33.4 million tons. The reduction reflects further coal market weakness due to unusually warm winter weather and low natural gas prices impacting customer's coal burn. CONSOL is working with customers to help with their inventory levels by adjusting delivery schedules in order to improve operational consistency. These adjustments to delivery schedules intensified towards the end of December 2015 and negatively impacted the timing of coal shipments. As a result, and due to the current visibility for the first quarter of 2016, the company believes that it is prudent to lower the total coal sales guidance for 2016.

Consistent with CONSOL's press release dated December 11, 2015, Pennsylvania Operations has a 2016 sold position of 24.1 million tons. However, the average realizations may change from the previously provided estimates depending on the customer mix, timing of shipments, and other factors. Although the timing of shipments creates quarter to quarter volatility, CONSOL expects that the committed tons will get shipped. In conjunction, CONSOL continues to seek opportunities for additional incremental sales to offset any potential delays from contracted customers.

Earnings call information:

CONSOL Energy will report financial results for the quarter ended December 31, 2015 at 6:45 a.m. ET on Friday, January 29, followed by a conference call at 10:00 a.m. ET. The call can be accessed at the investor relations section of the company's website, at www.consolenergy.com.

CONSOL Energy Inc. (NYSE: CNX) is a Pittsburgh-based producer of natural gas and coal. The company is one of the largest independent natural gas exploration, development and production companies, with operations centered in the major shale formations of the Appalachian basin. CONSOL Energy deploys an organic growth strategy focused on rapidly developing its resource base. As of December 31, 2014, CONSOL Energy had 6.8 trillion cubic feet equivalent of proved natural gas reserves. The company's premium coals are sold to electricity generators and steel makers, both domestically and internationally.  CONSOL Energy is a member of the Standard & Poor's 500 Equity Index. Additional information may be found at www.consolenergy.com

Cautionary Statements

Various statements in this release, including those that express a belief, expectation or intention, may be considered forward-looking statements under federal securities laws including Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act") that 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 a prediction of actual results. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. When we use the words "believe," "intend," "expect," "may," "should," "anticipate," "could," "estimate," "plan," "predict," "project," or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements. The forward-looking statements in this press release, if any, speak only as of the date of this press release; we disclaim any obligation to update these statements. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following: deterioration in economic conditions in any of the industries in which our customers operate; an extended decline in prices we receive for our gas, natural gas liquids and coal including the impact on gas prices of our gas operations being concentrated in Appalachia which has experienced a dramatic increase in gas production and decline in gas pricing relative to the benchmark Henry Hub prices; foreign currency fluctuations affecting the competitiveness of our coal abroad; our customers extending existing contracts or entering into new long-term contracts for coal; our reliance on major customers; our inability to collect payments from customers if their creditworthiness declines; the disruption of rail, barge, gathering, processing and transportation facilities and other systems that deliver our gas and coal to market; a loss of our competitive position because of the competitive nature of the gas and coal industries, or a loss of our competitive position because of overcapacity in these industries impairing our profitability; coal users switching to other fuels in order to comply with various environmental standards related to coal combustion emissions; the impact of potential, as well as any adopted regulations relating to greenhouse gas emissions on the demand for natural gas and coal ; the risks inherent in gas and coal operations, including our reliance upon third party contractors, being subject to unexpected disruptions, including geological conditions, equipment failure, timing of completion of significant construction or repair of equipment, fires, explosions, accidents and weather conditions which could impact financial results; decreases in the availability of, or increases in, the price of commodities or capital equipment used in our mining operations; obtaining and renewing governmental permits and approvals for our natural gas and coal gas operations; the effects of government regulation on the discharge into the water or air, and the disposal and clean-up of, hazardous substances and wastes generated during our natural gas and coal operations; our ability to find adequate water sources for our use in gas drilling, or our ability to dispose of water used or removed from strata in connection with our gas operations at a reasonable cost and within applicable environmental rules; the effects of stringent federal and state employee health and safety regulations, including the ability of regulators to shut down a mine; the potential for liabilities arising from environmental contamination or alleged environmental contamination in connection with our past or current gas and coal operations; the effects of mine closing, reclamation, gas well closing and certain other liabilities; uncertainties in estimating our economically recoverable gas, oil and coal reserves; defects may exist in our chain of title and we may incur additional costs associated with perfecting title for gas rights on some of our properties or failing to acquire these additional rights we may have to reduce our estimated reserves; the outcomes of various legal proceedings, which are more fully described in our reports filed under the Exchange Act; increased exposure to employee-related long-term liabilities; lump sum payments made to retiring salaried employees pursuant to our defined benefit pension plan exceeding total service and interest cost in a plan year; replacing our natural gas and oil reserves, which if not replaced, will cause our gas and oil reserves and production to decline; acquisitions that we recently completed or may make in the future including the accuracy of our assessment of the acquired businesses and their risks, achieving any anticipated synergies, integrating the acquisitions and unanticipated changes that could affect assumptions we may have made and asset monetization transactions,  including sales of additional interests in our thermal coal or other assets to CNX Coal Resources LP and divestitures to third parties we anticipate may not occur or produce anticipated proceeds; the terms of our existing joint ventures restrict flexibility, actions taken by the other party in our gas joint ventures may impact our financial position and various circumstances could cause us not to realize the benefits we anticipate receiving from these joint ventures;  risks associated with our debt; our hedging activities may prevent us from benefiting from price increases and may expose us to other risks; changes in federal or state income tax laws, particularly in the area of percentage depletion and intangible drilling costs, could cause our financial position and profitability to deteriorate; failure to appropriately allocate capital and other resources among our strategic opportunities may adversely affect our financial condition; failure by Murray Energy to satisfy liabilities it acquired from us, or failure to perform its obligations under various arrangements, which we guaranteed, could materially or adversely affect our results of operations, financial position, and cash flows;  information theft, data corruption and/or financial loss resulting from a terrorist attack or cyber incident;  operating in a single geographic area;  and other factors discussed in the 2014 Form 10-K under "Risk Factors," as updated by any subsequent Form 10-Qs, which are on file at the Securities and Exchange Commission.

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SOURCE CONSOL Energy Inc.


Source: PR Newswire (January 6, 2016 - 6:45 AM EST)

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