CONSOL Energy (CNX) Announces Total Proved Reserves of 6.3 Tcfe

CONSOL Energy Inc. (NYSE: CNX) today announced total proved reserves of 6.3 Tcfe, as of December 31, 2016, which is an 11% increase compared to the previous year. Oil, condensate, and liquids account for 423 Bcfe, or 6.8%, of the 6.3 Tcfe total proved reserves, of which the Marcellus and Utica Shale represent 99% of these heavier hydrocarbons.

During 2016, CONSOL Energy added 720 Bcfe of proved reserves through extensions and discoveries, which resulted in CONSOL Energy replacing 183% of its 2016 net production of 394 Bcfe.

In 2016, total capital costs incurred were $165 million. Total capital costs incurred divided by the summation of 720 Bcfe for extensions and discoveries, 1,444 Bcfe for the purchase of reserves in-place, negative 871 Bcfe for the sale of reserves in-place, and negative 290 Bcfe for revisions, yields an all-in finding and development (F&D) cost for proved reserve additions of $0.16 per Mcfe.

In 2016, drilling and completion costs incurred directly attributable to extensions and discoveries were $144 million. When divided by the extensions and discoveries of 720 Bcfe, this yields a drill bit F&D cost of $0.20 per Mcfe, compared to $0.66 per Mcfe at year-end 2015.

Future development costs for proved undeveloped (PUD) reserves are estimated to be approximately $1.191 billion, or $0.46 per Mcfe, compared to $0.48 per Mcfe at year-end 2015.

The following table shows the summary of changes in reserves:

During the year, total net revisions were negative 290 Bcfe, largely caused by a decrease in pricing. As a result of the Marcellus Shale joint venture (JV) dissolution, CONSOL Energy had a positive net impact on the reserves that were retained: CONSOL Energy effectively sold 871 Bcfe of proved reserves, while purchasing 1,444 Bcfe of proved reserves due to the JV exchange agreement.

Proved developed reserves of 3,683 Bcfe in 2016 comprised 59% of total proved reserves, compared to 66% in 2015. Proved undeveloped reserves (PUDs) were 2,568 Bcfe at December 31, 2016, or 41% of total proved reserves, compared to 34% at year-end 2015. This reflects the company's increased flexibility to accelerate its development plan due to the Marcellus Shale joint venture (JV) dissolution, continued success in the Marcellus Shale, and increased activity in the dry Utica Shale. PUDs at year-end 2016 represent 55% of the total wells the company expects to drill over the next five years.

In the Marcellus Shale, CONSOL Energy and its previous JV partner turned-in-line 47 gross wells with an average completed lateral length of approximately 7,300 feet and expected ultimate recoveries (EUR) averaging approximately 2.3 Bcfe per thousand feet of completed lateral. Enhanced completion techniques have been a significant contributor to Marcellus Shale EUR improvements in 2016, compared to the 2.0 Bcfe per thousand feet of completed lateral booked for the Marcellus Shale during the previous year. These enhanced completion techniques have allowed the company to book approximately 7% of Marcellus PUDs with EURs of 3.6 Bcfe per thousand feet of completed lateral, compared to 3.0 Bcfe per thousand feet booked during the previous year. CONSOL Energy expects to see further improvements in EURs for all of the company's remaining PUD locations due to continuous improvement initiatives regarding completion optimization. As of December 31, 2016, the Marcellus Shale proved reserves were 3,137 Bcfe, which included 1,868 Bcfe of proved developed reserves.

During 2016 in the Utica Shale, CONSOL Energy and its JV partner turned-in-line 15 gross wells with an average completed lateral length of approximately 8,000 feet and EURs ranging up to 2.2 Bcfe per thousand feet of completed lateral. In 2016, the company's type curves that were applied to PUDs remained unchanged compared to the previous year; however, the company expects future upward revisions to type curves through further completion optimization. In 2016, CONSOL booked 1,372 Bcfe of Utica proved reserves, an increase of 6% from the 1,299 Bcfe booked during 2015, which is attributable to the continued drilling success in the Utica Shale. The total Utica proved reserves include 624 Bcfe associated with the dry Utica Shale, or 10% of the company's total reserves.

The following table shows the breakdown of reserves, in Bcfe, from the company's current development and exploration plays:

As of December 31, 2016, CONSOL Energy has total proved, probable, and possible reserves (also known as "3P reserves") of 41.4 Tcfe, which is an increase of 3.0 Tcfe, or 8%, in 3P reserves from the 38.3 Tcfe reported at year-end 2015. The increase in 3P reserves is primarily attributed to more certainty of the success in the Ohio Utica Shale, as well as the continued success and optimization in the Marcellus Shale. The company has had strong initial success in the Pennsylvania dry Utica Shale, however it is still early in the play and reserve bookings are currently limited to two proved developed producing (PDP) wells in the 2016 reserve report. The company continues testing Upper Devonian and dry Utica potential in Pennsylvania, Ohio, and West Virginia and believes that these areas will provide additional opportunities for CONSOL Energy's proved reserves over time. The company's 3P reserves have been determined in accordance with the guidelines of the Society of Petroleum Engineers Petroleum Resources Management System.

The table below summarizes both Securities and Exchange Commission (SEC) and strip pricing as of December 31, 2016:

SEC Pricing: Based on these prices adjusted for energy content, quality, hedges, transportation costs, and basis differentials ($1.73 per Mcf, $15.77 per barrel of natural gas liquids, $24.19 per barrel of condensate and $37.75 per barrel of crude oil, respectively), the pre-tax discounted (10%) present value ("PV-10") of the company's proved reserves was $1.56 billion for 2016, compared to $1.66 billion at year-end 2015. The $1.56 billion includes $440 million associated with hedges.

Strip Pricing: The company's reserve based lending credit facility, which as of December 31, 2016 had a $2 billion borrowing base, is redetermined semiannually in the spring and fall based off the present value of the company's oil and gas reserves at a forward looking price deck. At future strip pricing for natural gas and liquids as of December 31, 2016 adjusted for energy content, quality, hedges, transportation costs, and basis differentials, the pre-tax discounted (10%) PV-10 of the company's proved reserves would be $3.7 billion for 2016.

Standardized Measure of Discounted Future Net Cash Flows

The following information was prepared in accordance with the provisions of the Financial Accounting Standards Board's Accounting Standards Update No. 2010-03, "Extractive Activities-Oil and Gas (Topic 932)." This topic requires the standardized measure of discounted future net cash flows to be based on the average, first-day-of-the-month price for the year ended December 31, 2016. Because prices used in the calculation are average prices for that year, the standardized measure could vary significantly from year-to-year based on the market conditions that occurred.

The projections should not be viewed as realistic estimates of future cash flows, nor should the "standardized measure" be interpreted as representing current value to CONSOL Energy. Material revisions to estimates of proved reserves may occur in the future; development and production of the reserves may not occur in the periods assumed; actual prices realized are expected to vary significantly from those used and actual costs may vary. CONSOL Energy's investment and operating decisions are not based on the information presented, but on a wide range of reserve estimates that include probable as well as proved reserves and on different price and cost assumptions.

The standardized measure is intended to provide a better means for comparing the value of CONSOL Energy's proved reserves at a given time with those of other gas producing companies than is provided by a comparison of raw proved reserve quantities.

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