CONSOL Energy Proved Gas Reserves Nearly Double, from 1.9 Tcf to 3.7 Tcf; 2010 Drill Bit Finding Cost of $0.41 per Mcfe; +486% of Production Replaced; Total 3P Reserves Increase from 6.5 Tcf to 14.2 Tcf; 2010 Marcellus Shale EURs Average 5.5 Bcf Per Well
PITTSBURGH, Feb. 8, 2011 /PRNewswire/ — CONSOL Energy Inc. (NYSE: CNX), the leading diversified fuel producer in the Eastern U.S., has proved gas reserves of 3.7 trillion cubic feet (Tcf) as of December 31, 2010. This is an increase of 1.8 Tcf, or 95%, from the 1.9 Tcf reported at year-end 2009. The proved developed reserves (PDP) increased by 86% and the proved undeveloped reserves (PUD) increased 107%. Of the 3.7 Tcf of proved reserves, 52%, are categorized as proved developed and 48% are classified as proved undeveloped.
CONSOL Energy invested $255.7 million in drilling capital in 2010. This yielded extensions and discoveries of 621.3 Bcf, resulting in a drill bit finding cost of $0.41 per Mcfe. The net impacts of revisions, which include pricing and production, yielded another 380.0 Bcf. The 621.3 Bcfe from extensions and discoveries, when divided by 2010 production of 127.9 Bcf, means that the company replaced 486% of its 2010 production through the drill bit.
“CONSOL Energy had another very successful year in adding proved gas reserves,” commented J. Brett Harvey, chairman and chief executive officer. “We saw solid growth in our coalbed methane reserves and a nice jump in our Marcellus Shale PDP bookings from our 2010 program. The reserves from our 2010 Marcellus Shale program averaged 5.5 Bcf per well. When you consider that our laterals averaged 3,400 feet, this means that we booked about 1 Bcf of reserves for every 600 feet of lateral.”
The company also has total proved, probable, and possible reserves (also known as “3P reserves”) of 14.2 Tcf as of December 31, 2010. This is an increase of 7.7 Tcf, or 118%, in 3P reserves from the 6.5 Tcf reported at year-end 2009. The company’s 3P reserves have been determined in accordance with the guidelines of the Society of Petroleum Engineers Petroleum Resources Management System (SPE-PRMS).
As reported on January 27, 24 horizontal wells were drilled in the Marcellus Shale in 2010, and 13 were turned on line. Total well costs averaged $4.1 million. The expected ultimate recovery (EUR) averaged 5.5 Bcf per well. The average lateral was 3,400 feet. Maximum 24-hour production averaged 3.7 MMcf per well per day, while 30-day production averaged 3.4 MMcf per well per day. Total daily production from the Marcellus Shale grew from 14 MMcf per day as of December 31, 2009 to 40 MMcf per day as of December 31, 2010.
The proved reserve estimate for 2010 was prepared by CONSOL Energy and audited by Netherland, Sewell & Associates, Inc. The following table shows the summary of changes in reserves. Over 99 percent of the company’s proved reserves are gas.
Summary of Changes in Reserves --------------------- Net Reserve Quantity (Bcf) --------------- 2010 ---- Beginning reserves 1,911.4 Revisions 380.0 Extensions and discoveries 621.3 Production (127.9) Purchase of reserves in place 946.8 ----- Ending Reserves 3,731.6 --------------- -------
The following table shows the breakdown of reserves, in Bcf, from the company’s current development and exploration plays.
Breakdown of Reserves
Proved Proved Total Total Developed Undeveloped Proved Probable Possible 3P --------- ----------- ------ -------- -------- -- Coalbed Methane 1,076 713 1,789 179 513 2,481 Marcellus 140 719 859 1,156 1,907 3,922 Other Shales 25 75 100 144 794 1,038 Conventional 691 293 984 3,210 2,581 6,775 --- --- --- ----- ----- ----- Total 1,932 1,799 3,732 4,689 5,795 14,216
Definition: Total 3P is a summation of total proved, probable, and possible reserves. The estimates of reserves and future revenue have been prepared in accordance with the definitions and guidelines of the SEC Regulation S-X Rule 4.10(a).
The future net cash flows of CONSOL Energy’s proved gas reserves have a present value of nearly $2.78 billion before income taxes, assuming a ten percent discount rate, as of December 31, 2010. This compares with a value of nearly $1.48 billion at December 31, 2009. The increase in value was driven by the acquisition of the Dominion properties, extensions and discoveries, and to a lesser extent, slightly higher prices. The values assume flat pricing and constant unit costs. The average price used in the latest reserve study was $4.46 per Mcf, versus $4.19 per Mcf used in 2009. Both prices exclude the effects of hedged production.
Shale Acreage with Resource Potential
Low High Net Acres (Bcfe) (Bcfe) --------- ------ ------ Other Shale (Utica, New Albany, Huron) 1,107,555 7,000 14,100 Marcellus Shale 752,336 20,300 40,500 ------- ------ ------ Total Shale 1,859,891 27,300 54,600 ----------- --------- ------ ------
A new category was added to the above table in 2010: the Utica Shale. It underlies many of CONSOL Energy’s other formations in eastern Ohio, southwestern Pennsylvania, and northern West Virginia. In the third quarter of 2010, CONSOL announced its first Utica Shale discovery in Belmont County, Ohio. The formation, encountered at a depth of 8,450 feet, was 200 feet thick. A 24-hour test yielded an open flow of 1.5 million cubic feet on this vertical, unstimulated well.
Drilling capital in 2011 is expected to total $475 million. CONSOL Energy expects to invest $225 million for development drilling. This category includes Virginia CBM and Marcellus Shale in Southwest Pa. An additional $215 million is planned for delineation drilling, including Marcellus Shale drilling in Central Pa. and Northern West Virginia. The company expects to drill 70 horizontal wells in the Marcellus Shale in 2011. CONSOL will also conduct a six-well Utica Shale exploration program for $35 million. Investment in midstream assets in 2011 is expected to be $200 million, for a total gas capital budget of $675 million.
Reconciliation of PV-10 to Standardized Measure (as of December 31)
2010 2009 2008 ---- ---- ---- Future Cash Inflows $16,723,795 $7,975,195 8,856,817 Future Production Costs (5,175,563) (3,123,532) (3,525,902) Future Development Costs (2,720,243) (995,569) (793,592) ---------- -------- -------- Future Net Cash Flows 8,827,989 3,856,094 4,537,323 10% Discount Factor (6,047,488) (2,375,751) (2,533,797) ---------- ---------- ---------- PV 10% (Non- GAAP measure) 2,780,501 1,480,343 2,003,526 Undiscounted Income Taxes (3,354,444) (1,465,075) (1,713,713) 10% Discount Factor 2,234,764 879,083 928,621 --------- ------- ------- Discounted Income Taxes (1,119,680) (585,992) (785,092) Standardized GAAP measure $1,660,821 $894,351 $1,218,434
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Various statements in this release, including those that express a belief, expectation, or intention, as well as those that are not statements of historical fact, are forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934). These statements 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. 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: our business strategy; our financial position; our cash flow and liquidity; declines in the prices we receive for our gas affecting our operating results and cash flow; uncertainties in estimating our gas reserves; replacing our gas reserves; uncertainties in exploring for and producing gas; our inability to obtain additional financing necessary in order to fund our operations, capital expenditures and to meet our other obligations; disruptions, capacity constraints in or other limitations on the pipeline systems which deliver our gas; competition in the gas industry; the availability of personnel and equipment; increased costs; the effects of government regulation and permitting and other legal requirements; legal uncertainties regarding the ownership of the coalbed methane estate; costs associated with perfecting title for gas rights in some of our properties; our need to use unproven technologies to extract coalbed methane in some properties; our relationships and arrangements with CONSOL Energy; and other factors discussed under “Risk Factors” in the 10-K for the year ended December 31, 2009. We are including this cautionary statement in this release to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf, of us.
CAUTIONARY STATEMENT CONCERNING RESOURCES
The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible 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 use certain terms in this presentation, such as “resource potential” that the SEC’s rules strictly prohibit us from including in filings with the SEC. We also caution you that the SEC views such “resource potential” estimates as inherently unreliable and these estimates may be misleading to investors unless the investor is an expert in the gas industry.
Except with respect to PDPs for which we perform comprehensive title review prior to drilling, the reserve and resource data contained in this release is based on a summary review of the title to coalbed methane and other gas rights we hold, as well as a summary review of the title 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 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.
SOURCE CONSOL Energy Inc.