Agenda Company Overview Nick DeIuliis, President and CEO Exploration & Production Tim Dugan, COO Andrea Passman, VP-E&P Development Don Rush, VP-E&P Marketing Diversified Business Units Steve Johnson, EVP-DBU Rodney Wilson,…
CONSOL Energys Evolution With the sale of the Looking to the future Buchanan mine and working towards other remaining legacy complete separation Announces sale of coal assets, CONSOLs from coal; monetizing five thermal coal…
CONSOL Energy Has Continued to Transform Itself in 2016 Restructured Turned DUC Agreement Inventory RBL with Zero-Based Online Penguins Reaffirmation Integrated P2AA Asset Budgeting P2AA Asset Optimization Model Optimization…
Who We Are: Differentiating Ourselves Through Three Pillars Values: Never compromised regardless of circumstance Operate daily free of injuries and environmental incidents Pursuit of perfection driving towards best-in-class…
Business Philosophy: Zero-Based Budgeting in Action Transformed balance sheet: Reductions in Expenses 2012-2016E Reduced legacy liabilities by 3 billion Reduced expenses: Overhead(1) Cash servicing costs reduced by more than…
The Path Forward: Realization of Value How we plan to close the value gap: Today 22.05 Closing price 12/7/2016 1 GROW EBITDA PRUDENT GROWTH OF E&P PRODUCTION EFFICIENT CAPITAL ALLOCATION TO HIGH IRR, NAV ACCRETIVE AOIs 2 PAY…
Weathered Downturn Without Issuing Equity Since the beginning of 2014, total follow-on Follow-On Equity Issued Across equity issued by Appalachian peers totaled Energy Industry FY2015-YTD 2016 10.6 billion: 40,000 All seven…
CONSOL Energy Represents a Unique Value Story Driving NAV/share growth: Significant increases to estimated ultimate recoveries (EURs) Focus on Reducing drilling and completion (D&C) costs and capital intensity NAV/Share Growth…
EXPLORATION & PRODUCTION 11
E&P Operations: NAV/Share Drivers MAJOR OPERATIONAL IMPROVEMENTS SINCE 2014 STACKED PAY OPPORTUNITIES CONVERTING NON-CORE ACREAGE TO CORE 12
Continuous Improvement Capital Efficiency 160% 140% 120% NAV growth 100% being driven BTAX IRR (%) 1.24 Mcfe/ 1.83 Mcfe/ 2.78 Mcfe/ by improved 80% capital 60% efficiency 40% 20% 0% 1.43 1.52 0.46 0.60…
E&P Industry: F&D Costs Drilling Finding and Development Cost 5-yr. Average 2011-2015(1) 8.00 CONSOL has 7.00 had some of 6.00 the lowest F&D 5.00 /Mcfe costs in the 4.00 industry over 3.00 the last 2.00 five years 1.00 0.80…
Operational Evolution Key Performance Metrics(1) 2014 2016E Average EUR (Bcfe/1,000) 1.4 2.8 Total Marcellus capital (/ft) 1,345 835 Lease operating expense (LOE) (/Mcfe) 0.41 0.19 Average drilling days on well 27 18 Average…
Well Performance Over Time Horizontal well production per 1,000 since June 2015 CNX vs. Peers 2,000 1,500 Mcfe/d 1,000 500 0 CNX 1 2 3 4 5 CNX 2014 - 5/2015 3 Mo (20:1) 6 Mo (20:1) Avg 3 Mo (20:1) Avg 6 Mo (20:1)…
Large Acreage Position CNX vs. Appalachian Peers Acreage Position and Production Only 4% of total Marcellus and Utica Shale inventory 1,400,000 2,500 developed to date: 8% of the Marcellus acreage 1,200,000 developed 2,000 -…
New World View: Assets Before and After JV Separation Post-JV Dissolution Pre-JV Dissolution SWPA WV CPA OH Total Total Change Upper Devonian Net Acres 102,000 112,000 21,000 - 235,000 280,000 (45,000) Net Acres 98,000 61,000…
Dissolution of the Marcellus Shale Joint Venture 64% increase in Marcellus core acreage: Post-Exchange Marcellus Acreage Map Full control of stacked pay opportunity set Incremental 85 MMcfe/d of production Further strengthens balance…
Engineering Workflow Drives Decisions 3D Frac Modeling Earth Modeling Production Modeling Forecasting Portfolio Risk Analysis ITERATIVE CYCLE Development Optimization Rate Transient Analysis NPV/Well 21
Asset Region 1: Southwest Pennsylvania Overview Marcellus Shale average EUR/1,000 of lateral increased 29% to 2.7 Bcfe(1) Total net acres: 98,000 Total NRI: 89% Sizable capital expenditure in the next 2 years 2 rigs in 2017 and 3…
Asset Region 2: West Virginia Overview Marcellus Shale average EUR/1,000 of lateral increased 61% to 2.9 Bcfe(1) Total net acres: 61,000 Total NRI: 86% Focus on completing DUC inventory: sunk capital results in improved IRR Utica…
West Virginia Modeling Inputs and Economics Reserves Detail Assumptions WV Marcellus Type Curve (2.9 Bcfe/1000') Gross EUR (Bcfe) 22.8 IP (MMcf/d) 14.0 BTU 1,260 Decline 69% 400,000 Gas BTAX ROR % (4) 50,000 B-factor 1.65 Gross…
Asset Region 3: Central Pennsylvania Overview Marcellus Shale Average EUR/1,000 of 1.8 Bcf(1) Total net acres: 232,000 Total NRI: 88% Weighted average EUR/1000 for the entire region is 1.5 Bcf Evaluate Marcellus development in…
Central Pennsylvania Modeling Inputs and Economics Reserves Detail Assumptions CPA Marcellus Type Curve (1.8 Bcf/1000') Gross EUR (Bcf) 15.8 IP (MMcf/d) 13.3 BTU 1,000 400,000 Decline 69% B-factor 1.65 BTAX ROR % (3) Gas…
Asset Region 4: Ohio Overview Total Ohio Utica: Total net acres: 119,000 Total NRI: 89% Utica Dry: Average EUR/1,000 of 2.8 Bcfe(1) 23,000 net undeveloped acres Continued development of Monroe County 101 net locations Utica…
Ohio Modeling Inputs and Economics OH Utica Total Assumptions OH Wet Utica Type Curve (2.1 Bcfe/1000') Net Locations(1) 517 IP (MMcf/d) 16.3 Wells Online (9/30/16) 94 Decline 71% 500,000 30,000 Gas B-factor 1.40 BTAX ROR % (4)…
Virginia Coalbed Methane Virginia coalbed methane (CBM): 267,000 net acres - 88,000+ undeveloped acres - WI / NRI: 100% / 87.5% 4,000+ wells online - 3,690 future locations - 0.5 Bcf/well average EUR - 2,000+ refrac…
Development Methodology CONSOL utilizes a portfolio Geology/ GIS Land, Title, Drilling, optimization development Reservoir Engineering Mapping JAD Marketing Midstream Water Completion, Production methodology to: Assess the value…
New World View: Stacked Pay 40+ years of stacked pay inventory(1) P Formation a The JV separation gives CONSOL complete y Name operational control in stacked pay opportunities Rhinestreet The Upper Devonian provides triple…
Stacked Pay Value for SWPA: Pad Level Example Stacked Pay Pad Economics Example(1) 160,000 120% Unstacked NPV Stacked pay development improves IRR 140,000 Stacked NPV Unstacked IRR % 100% by 10-20 percentage points Stacked IRR %…
Stacked Pay Value for SWPA Marcellus: Well Level 2016 Capital Efficiency Stacked Pay Potential 200% 180% 160% Capital Efficiency Mcfe/ 140% Unstacked (actual) 2.78 Stacked (potential) 3.02 120% Change +9% BTAX IRR +15…
Stacked Pay Optimization: Richhill Field Richhill Case Study 33% NPV uplift due to stacked pay development 17,000 Marcellus acres with Utica rights Marcellus damp gas on its own requires processing Blending Marcellus with dry Utica…
Upper Devonian: Rhinestreet and Burkett Provides triple stacked pay potential, on top of Marcellus and Utica 235,000 net acres 16 operated Upper Devonian wells Combination with Marcellus and Utica development driven by gas price…
Moving Utica Non-Core to Core Delineating the Utica through operated Delineation Opportunities and non-operated wells, data trades, and data purchases: Provides geologic and reservoir data to evaluate NAV impact and helps assess…
Why We Love the Utica: Gaut 4IH Westmoreland County, PA Gaut 4IH 61.4 MMcf/d IP Initial SICP = 9,921 psig 5,808 Lateral Length 7.8 Bcf by 01/2017 30,000 10,000 9,000 25,000 8,000 7,000 Casing Pressure (psi) Flow Rate…
Stacked Pay with the Utica: The Size of the Prize 360,000 net acres of double stacked pay opportunity 360,000+ in the core and non-core areas Net Acres 180,000 core acres with double stacked pay opportunity Utica stacked pay…
Two-Year Development Plan 2017 2018 Consistently complete DUCs ( in millions) TD FRAC TIL Capex TD FRAC TIL Capex from December 2016 through Marcellus 12 13 13 80 54 42 40 260 2018 SWPA Utica 0 0 0 0 3 3 3 40 Upper Devonian - 2 3…
E&P Capital Expenditure Guidance E&P Capital and Production Plans Capital expenditure projections based ( in millions) 2016E 2017E 2018E on current market conditions and forecast Drilling and Completion 175 465 - Flexibility exists…
E&P MARKETING 42
E&P Marketing: NAV/Share Drivers FLEXIBLE FT STRATEGY TO MINIMIZE COSTS AND ENSURE PRODUCTION GROWTH SIGNIFICANT HEDGE BOOK PROTECTING DOWNSIDE, WHILE PRESERVING MEANINGFUL UPSIDE MAXIMIZING CASH FLOW AT THE WELLHEAD 43
E&P Marketing Ability to deal with the increasing uncertainty in a volatile marketplace: A consistent, yet flexible strategy is necessary to help mitigate the uncertainty Strategic and tactical expertise Contributing to NAV/share…
Increased Volatility Current infrastructure and systems are not U.S. LNG Export Forecast built to handle new gas market: Storage capacity has remained the same, while supply has increased significantly - 50 Bcf/d in 2005 vs.…
Volatility Can Be Good Take-away capacity is coming to the region: Projected Basin Takeaway Capacity 50,000 Over 18 Bcf/d of projects in process: question of 45,000 when, not if 40,000 Only need half to come online by 2018 to…
The Benefits of Flexible Firm Transportation FT strategy: Transportation, Gathering, & Processing Sufficient short- and long-term FT at a cost Commitments and Differentials(1) lower than peers going to markets that 20.0 maximize…
The Benefits of Flexible Firm Transportation (Contd) Avoiding long-term, burdensome FT on new projects that go underwater: Many greenfield project demand fees appear to exceed the forecasted price uplift at various basis locations…
Firm Transportation Management Diversified sales and FT portfolios: Sales Portfolio Market Mix Result in competitive basis differentials and 600 balanced basket of prices 400 Bcf Strategically aligned with the best AMA partners…
Hedging Strategy Newly instituted programmatic hedge program: Hedge Position (Outer ring = NYMEX; Inner ring = Basis) Systematically layering in hedges to protect margins on up to 90% of proved developed production Protecting from…
NGL Strategy Processing flexibility on a third of wet volumes: Wet Gas Flexibility Avoid processing fees when NGL pricing is low Gas High Capture NGL uplift during peak pricing Avoid Processing Optimize Leverage dry Utica…
Diversified Business Units: NAV/Share Drivers GROWING MISCELLANEOUS OTHER EBITDA SIGNIFICANTLY REDUCING LEGACY LIABILITIES 400-600 MILLION IN 2017 ASSET SALES 54
Business Development: Strategy CONSOL has a strong track record of successful divestitures: 20 NAV-enhancing divestitures since 2012 Over 5 billion of combined value Team is now focused on divesting E&P assets: Recent Marcellus JV…
Other Miscellaneous: Income and Expense Sources Increasing value from a range of often overlooked sources: Miscellaneous Other Income 2016E 2017E 2018E Baltimore Terminal Royalty Income Right of Way Sales CONVEY Water Systems…
CONVEY Water Systems Provides water related services for CNX and third party upstream E&P companies: Fresh water delivery for well completion operations Recycle and disposal of produced fluids One of the largest water pipeline network…
Baltimore Marine Terminal Overview: Coal export terminal 15 million tons per year capacity throughput; 1.1 million tons coal storage yard capacity Strategically located: able to access the attractive seaborne markets supplying both…
Recent Transactions: Legacy Assets Miller Creek / Fola transaction: Buchanan Mine transaction: Eliminated small non-core coal operation Includes potential royalty payment based on rising Removed 100 million of long-term liabilities met…
Financial: Legacy Liabilities Significant legacy liability reductions over Balance Sheet Liability Long-Term Liability Guidance 12/31/2016E FY 2017 FY 2018 past three years: LTD 17 Miller Creek/Fola transaction drove WC 82 CWP 125…
FINANCE 61
Finance: NAV/Share Drivers CAPITAL ALLOCATION IMPROVING FORECASTING CAPABILITY AND TRANSPARENCY REDUCING COST OF CAPITAL 62
Financial Accomplishments Since 2014 By attacking all parts of our business, we have reduced the nominal and per unit spend by 45% and 55%, respectively. Reduced Debt Paid down approximately 1 billion in debt Managed Reduced…
Tools to Grow NAV/Share Zero-Based Budgeting Safety Capital Allocation NAV/Share Liability Management Growth Compliance Revenue Management Operating Efficiencies Prudent capital allocation is one of the most…
Capital Allocation Decision Making Managing Risk Appropriately Throughout the Commodity Cycle CAPITAL SOURCES CAPITAL USES KEY PERFORMANCE METRICS Pulling back capital Developing high rate NAV/Share spend/activity level of return…
2017E-2018E E&P Capital Allocation 70% DUCs 60% Ranking projects CPA Utica 50% and capital allocation priorities 2017E-2018E 40% IRR OH Dry Utica 30% SWPA Marcellus 20% VA CBM SWPA Utica 10% Full Well IRR…
Benchmarking: Capital Yield Has Been Improving 2014: Capital Yield 2015: Capital Yield 2016E: Capital Yield 180% 180% 180% 130% 130% 130% 80% 80% 80% 30% 30% 30% -20% 1 2 3 4 5 6 7 CNX -20% 1 2 3 4 5 6 7 CNX -20% CNX 1 2 3…
SG&A Nominal and Unit Reductions Total Company SG&A(1) 2012-2018E 300 Since 2014, CONSOL Energy 250 has reduced 200 its SG&A /Mcfe in millions faster than its peers 150 100 50 SG&A /Mcfe 2014-YTD 2016 0.60 0.55 - 2012…
PA Mining Operations Guidance PA Mining Operations 2016E 2017E 2018E Estimated Total Coal Sales Volumes (in millions of tons) 24.0 26.5 26.5 Total Committed Volumes (Contracted & Priced) 23.3 23.1 % Committed 97% 87% Capital…
EBITDA Guidance EBITDA Guidance by Segment 2017E ( in millions) E&P(1) Coal Other Total EBITDA 465 390 (15) 840 Adjustments: Unrealized Gain Loss on Hedging (5) - - (5) Stock-Based Compensation 20 10 0 30 Adjusted EBITDA 480 400…
Cost of Capital: Leverage Ratio Target Between 2.0x to 2.5x Importance of the Target: Offense Importance of the Target: Defense Provides the financial flexibility to grow NAV per Enables the company to weather volatility in share…
Leverage Ratio and Liquidity Projection Leverage Ratio 2016E-2018E(1) Path to reaching and maintaining a sub-2.5x leverage ratio 5.0 4.7 Liquidity rises by estimated 1 billion in free cash flow by 2018 4.0 Bank revolver reaffirmed at…
E&P WACC History CNX E&P WACC Over Time 11% Sample WACC Calculation 10% CNX E&P Cost of Capital Nov-16 Equity 9% Risk Free Rate(1) 2.6% 8% Beta (Peer Beta)(2) 1.4 Jan Feb Mar Apr May Jun Jul 2016 Aug Sep Oct Nov Equity Market…
CONE Midstream Drives Value to CONSOL Energy CONE Midstream Partners LP value to CNX is comprised of four main drivers: Ownership of Retained EBITDA Cash Distributions Drop Downs LP and GP/IDR How CNX views the total value of…
CONE Distributions Expected to Grow Meaningfully Net to CNX GP & IDR Distribution Cases 50 40 in millions 30 20 10 0 2015 2016 2017 2018 2019 2020 2021 10% CAGR 15% CAGR 20% CAGR Net to CNX LP Distribution Cases 60…
CNXC: Value of CNX Passive Ownership in PA Operations CNX Coal Resources LP value to CNX is comprised of four main drivers: Ownership of Retained EBITDA Cash Distributions Drop Downs LP and GP/IDR 75% ownership of PA CNX % LP Units'…
Conditions Improving for Complete Separation from CNXC Path to Completing Separation from CNXC Financial Conditions Growing Improving CNXC revenue and margins Performance Reduction in Base plan: Multi-Year Drops financing…
Financial Outlook: NAV/Share Value Drivers Accelerating We expect growth while generating free cash flow: Stringent focus on capital allocation to drive the highest NAV per share decisions Become a leader in capital allocation, when…
REGULATORY UPDATE 81
Core Themes Driving the CONSOL Value Story OPERATIONAL IMPROVEMENT Increasing EURs Decreasing Costs Disciplined Capital Spending UNIQUE ASSET BASE Robust Stacked Pay Opportunities GROWING Turning Non-Core Acreage to Core…
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