PITTSBURGH, Feb. 8, 2017
/PRNewswire/ -- 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:
Summary of Changes
in Proved Reserves (Bcfe)
|
Balance at December
31, 2015
|
5,643
|
Revisions
|
(290)
|
Extensions and
discoveries
|
720
|
Production
|
(394)
|
Purchase of reserves
in-place
|
1,444
|
Sale of reserves
in-place
|
(871)
|
Balance at December
31,
2016
|
6,252
|
Note: The proved
reserve estimate for 2016 was prepared by CONSOL Energy and audited
by Netherland, Sewell & Associates, Inc.
|
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:
Breakdown of
Reserves (Bcfe)
|
|
|
Proved
Developed
|
Proved
Developed
Non-
Producing
|
Proved
Undeveloped
|
Total
Proved
|
Probable
|
Possible
|
Total
3P
|
Total Reserve
& Resource
|
Marcellus
Shale
|
1,771
|
97
|
1,269
|
3,137
|
17,940
|
9,547
|
30,624
|
33,091
|
Coalbed
Methane
|
940
|
5
|
310
|
1,255
|
744
|
297
|
2,296
|
3,314
|
Utica
(1)
|
377
|
6
|
989
|
1,372
|
2,838
|
2,336
|
6,546
|
50,695
|
Other
|
477
|
11
|
--
|
488
|
358
|
1,057
|
1,903
|
32,854
|
Total
|
3,565
|
119
|
2,568
|
6,252
|
21,880
|
13,237
|
41,369
|
119,954
|
Definition: Total
Reserve & Resource includes total 3P and other resource
potential outside of 3P.
|
The estimates of
reserves and future revenue were prepared in accordance with the
definitions and guidelines of the SEC Regulation S-X Rule
4.10(a).
|
(1) Included in
the Proved Developed Reserves is 17 Bcfe from two Utica Shale wells
in Pennsylvania (PA). The majority of the Utica in PA and West
Virginia (WV) fall into the resource classification.
|
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
|
Strip
|
|
|
Pricing
(1)
|
Pricing
(2)
|
Variance
%
|
Benchmark
Pricing:
|
|
|
|
WTI Oil Price
($/Bbl)
|
$42.75
|
$56.19
|
31%
|
NYMEX Natural Gas
Price ($/MMBtu)
|
$2.48
|
$3.08
|
24%
|
C2+ Natural Gas
Liquids ($/Bbl) (3)
|
$15.77
|
$20.78
|
32%
|
Condensate
($/Bbl)
|
$27.40
|
$36.01
|
31%
|
(1) The SEC rules
require that the proved reserve calculations be based on the first
day of the month average prices over the preceding twelve
months.
|
(2) Strip pricing
as of December 31, 2016 for each of the first five years and flat
thereafter.
|
(3) NGL Pricing is
37% of WTI, which includes regional market
differentials.
|
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.
Reconciliation of
PV-10 to Standardized Measure
|
|
|
|
|
December
31,
|
(Dollars in
millions)
|
|
2016
|
|
2015
|
|
2014
|
Future cash
inflows
|
|
$
11,303
|
|
$
11,838
|
|
$
28,503
|
Future production
costs
|
|
(5,851)
|
|
(6,585)
|
|
(10,101)
|
Future development
costs (including abandonments)
|
|
(1,550)
|
|
(1,220)
|
|
(3,369)
|
Future net cash flows
(pre-tax)
|
|
3,902
|
|
4,033
|
|
15,033
|
10% discount
factor
|
|
(2,343)
|
|
(2,374)
|
|
(10,149)
|
PV-10 (Non-GAAP
measure) (1)
|
|
1,559
|
|
1,659
|
|
4,884
|
Undiscounted income
taxes
|
|
(1,483)
|
|
(1,534)
|
|
(5,712)
|
10% discount
factor
|
|
879
|
|
894
|
|
3,812
|
Discounted income
taxes
|
|
(604)
|
|
(640)
|
|
(1,900)
|
Standardized GAAP
measure
|
|
$
955
|
|
$
1,019
|
|
$
2,984
|
(1) We calculate our present
value at 10% (PV-10) in accordance with the following table.
Management believes that the presentation of the non-Generally
Accepted Accounting Principle (GAAP) financial measure of PV-10
provides useful information to investors because it is widely used
by professional analysts and sophisticated investors in evaluating
oil and gas companies. Because many factors that are unique to each
individual company impact the amount of future income taxes
estimated to be paid, the use of a pre-tax measure is valuable when
comparing companies based on reserves. PV-10 is not a measure of
the financial or operating performance under GAAP. PV-10 should not
be considered as an alternative to the standardized measure as
defined under GAAP. We have included a reconciliation of the most
directly comparable GAAP measure-after-tax discounted future net
cash flows.
|
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," "will," 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 may decrease demand for our products,
impair our ability to collect customer receivables and impair our
ability to access capital; prices for natural gas, natural gas and
other liquids and coal are volatile and can fluctuate widely based
upon a number of factors beyond our control including oversupply
relative to the demand available for our products, weather and the
price and availability of alternative fuels; an extended decline in
the prices we receive for our natural gas, natural gas liquids and
coal affecting our operating results and cash flows; foreign
currency fluctuations could adversely affect the competitiveness of
our coal and natural gas liquids abroad; our customers extending
existing contracts or entering into new long-term contracts for
coal on favorable terms; our reliance on major customers; our
inability to collect payments from customers if their
creditworthiness declines or if they fail to honor their contracts;
the disruption of rail, barge, gathering, processing and
transportation facilities and other systems that deliver our
natural gas, natural gas liquids and coal to market; a loss of our
competitive position because of the competitive nature of the
natural 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 environmental regulations including any relating to
greenhouse gas emissions on our operating costs as well as on the
market for natural gas and coal and for our securities; the risks
inherent in natural 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 and transportation operations; obtaining and
renewing governmental permits and approvals for our natural gas and
coal 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 natural gas drilling, or our ability to dispose of water
used or removed from strata in connection with our natural 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 our operations; the potential for liabilities arising from
environmental contamination or alleged environmental contamination
in connection with our past or current natural gas and coal
operations; the effects of mine closing, reclamation, gas well
closing and certain other liabilities; uncertainties in estimating
our economically recoverable natural gas, oil and coal reserves;
defects may exist in our chain of title and we may incur additional
costs associated with perfecting title for natural gas and coal
rights on some of our properties or failing to acquire these
additional rights may result in a reduction of our estimated
reserves; the outcomes of various legal proceedings, which are more
fully described in our reports filed under the Securities Exchange
Act of 1934; exposure to employee-related long-term liabilities;
acquisitions and divestitures we anticipate may not occur or
produce anticipated benefits; our participation in joint ventures
may restrict our operational and corporate flexibility, and actions
taken by a joint venture partner may impact our financial position
and operational results; risks associated with our debt; replacing
our natural gas and oil reserves, which if not replaced, will cause
our natural gas and oil reserves and production to decline;
declines in our borrowing base could occur for a variety of
reasons, including lower natural gas or oil prices, declines in
natural gas and oil proved reserves, and lending regulations
requirements or regulations; our hedging activities may prevent us
from benefiting from near-term 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, operational disruption and/or financial loss resulting
from a terrorist attack or cyber incident; operating in a single
geographic area; certain provisions in our multi-year coal sales
contracts may provide limited protection during adverse economic
conditions, and may result in economic penalties or permit the
customer to terminate the contract; a majority of our common units
in CNX Coal Resources LP and CONE Midstream Partners LP are
subordinated, and we may not receive distributions from CNX Coal
Resources LP or CONE Midstream Partners LP; with respect to the
sale of the Buchanan and Amonate mines and other coal assets to
Coronado IV LLC - disruption to our business, including customer,
employee and supplier relationships resulting from this
transaction, and the impact of the transaction on our future
operating results; there is no assurance that the potential
dropdowns, spin-off or sale of the coal business will occur, or if
it does occur that we will be able to negotiate favorable terms;
with respect to the termination of the joint venture with Noble -
disruption to our business, including customer and supplier
relationships resulting from this transaction, and the impact of
the transaction on our future operating and financial results and
liquidity; other factors discussed in the 2015 Form 10-K under
"Risk Factors," as updated by any subsequent Form 10-Qs, which are
on file at the Securities and Exchange Commission.
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 press release, such as EUR (estimated ultimate
recovery), unproved reserves, resources 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.
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SOURCE CONSOL Energy Inc.