CONSOL Energy to Acquire Dominion's Appalachian E&P Business for $3.475 Billion In Cash

PITTSBURGH, March 15 /PRNewswire-FirstCall/ -- CONSOL Energy Inc. (NYSE: CNX), a producer of high-Btu thermal coal, metallurgical coal and natural gas, announced today that it has entered into a definitive agreement to acquire the Appalachian exploration and production business of Dominion Resources, Inc. for $3.475 billion in cash.  CONSOL Energy is already the most profitable coal-focused energy company and is the second largest holder of coal reserves among U.S. publicly traded coal companies. This acquisition will substantially increase its natural gas reserves and production capacity – further enhancing CONSOL Energy's position as a leading diversified energy company with a balanced portfolio of coal and natural gas.

The acquisition of Dominion's E&P business, one of the oldest and most active drillers in Pennsylvania and West Virginia, complements CONSOL Energy's existing natural gas business which is operated through CNX Gas, its 83% owned subsidiary.  As a result of the acquisition, on a pro forma basis, CONSOL Energy will be the largest, and among the fastest growing and lowest cost producers of natural gas in the Appalachian basin.  Importantly, the acquisition will give CONSOL Energy a leading position in the strategic Marcellus Shale fairway by tripling its development assets to approximately 750,000 acres with the addition of Dominion's approximately 500,000 Marcellus Shale acres in Pennsylvania and West Virginia.  

The acquisition increases CONSOL Energy's total proved gas reserves by more than 50 percent from 1.9 trillion cubic feet to approximately 3 trillion cubic feet and doubles its potential gas resource base to approximately 41 trillion cubic feet.  CONSOL Energy will acquire a total of 1.46 million oil and gas acres from Dominion along with over 9,000 producing wells that are expected to produce more than 41 Bcfe in 2010, approximately 27 Bcfe of which will be imputed to CONSOL Energy between May 1, 2010 and the end of the year assuming an April 30, 2010 closing.  Upon completion of the transaction, CONSOL Energy's natural gas business is expected to account for as much as 35 percent of CONSOL Energy's total revenue.

"CONSOL Energy's acquisition of Dominion's Appalachian E&P business is a strategically compelling transaction that will transform CONSOL Energy into a leading diversified energy company with a strong position in natural gas as well as coal," said J. Brett Harvey, president and chief executive officer. "Since 2005, CONSOL Energy will have doubled its annual gas production to 100 Bcf in 2010. This acquisition will further accelerate that trend with the addition of the extremely attractive resource-rich, low-cost Marcellus Shale assets.  Two compelling aspects of this transaction are that 98 percent of Dominion's Marcellus acres are held by production and the average net revenue interest is 87.5 percent. These characteristics will enable CONSOL Energy to implement development plans that are driven by technical and marketing fundamentals rather than lease conditions—for example, expirations or drilling commitments.

"In addition to bolstering our gas platform, this transaction will also result in a more balanced energy portfolio, improving the Company's risk profile and positioning it to deliver sustainable long-term growth and increased value to shareholders."

J. Brett Harvey added, "Not only is our Appalachian footprint growing wider with this transaction, but more importantly, it is growing deeper as we substantially increase our opportunities to extract incremental value through stacked pay zones of surface assets, coal, coal bed methane, shale gas, and conventional gas assets.  As we expand our natural gas production, we remain fully committed to utilizing state-of-the-art exploration and production techniques, which enable us to operate efficiently, safely and compatibly with the environment.  We look forward to building on our strong capabilities in natural gas – and on our talented workforce.  We welcome the addition of Dominion's experienced and talented workforce of 193 employees into the CONSOL Energy family.  Both Dominion and CONSOL Energy share similar cultures, so we look forward to a smooth integration of our teams."  

Mr. Harvey also added, "The significant proved producing reserves and cash flows generated by Dominion's E&P business, coupled with the very large Marcellus acreage position and related upside associated with the transaction, makes this a compelling acquisition from a valuation perspective."

CONSOL Energy is evaluating a range of structural alternatives to facilitate the operation and development of the acquired assets including, among other things, consideration of the acquisition by CONSOL Energy of the shares of CNX Gas common stock that it does not already own.

Mr. Harvey stated that, "CONSOL Energy will be in a position to use its capital and free cash flow from its coal operations and newly-acquired gas assets to fund the development of both its coal and natural gas activities.  We will deploy our capital in the projects that will generate the highest return for our shareholders."

The Company expects to raise approximately $4.0 billion and is targeting a balanced mix of equity and debt to fund the acquisition and development of the acquired acreage.  Following the transaction, CONSOL Energy will maintain its strong balance sheet and liquidity position.  The transaction is expected to close by April 30, 2010, subject to regulatory approvals and customary closing conditions.

BofA Merrill Lynch acted as lead financial advisor to CONSOL Energy and Wachtell, Lipton, Rosen & Katz and Akin Gump Strauss Hauer & Feld LLP acted as legal counsel.  Stifel, Nicolaus & Company, Incorporated also acted as financial advisor and provided a fairness opinion to CONSOL Energy's Board of Directors.  BofA Merrill Lynch and PNC Bank have provided financing commitments to complete the acquisition.

On the coal side of its business, CONSOL Energy continues to enjoy some of the highest operating margins in the industry. Furthermore, the company expects to see margin expansion in 2010 from its low-vol met business, its high-vol met business, and its thermal business.

This press release does not constitute an offer to sell any securities of CONSOL Energy Inc.

Conference Call Information

CONSOL Energy will host an analyst and investor conference call beginning at 9:00 a.m. today, March 15, 2010, which can be accessed by calling (800) 288-9626 (US) or (612) 332-0335 (International) and using Access Code: 150239. The call will simultaneously be webcast at www.consolenergy.com.  A replay of the teleconference will be available for one week following the conclusion of the conference call by dialing toll-free USA: (800) 475-6701; International: (320) 365-3844 and using Access Code: 150239.  The presentation will also be posted at the Investors section of CONSOL Energy's Website: www.consolenergy.com.

About CONSOL Energy

CONSOL Energy, a high-Btu bituminous coal and natural gas company, is a member of the Standard & Poor's 500 Equity Index and the Fortune 500. At year-end 2009, it had 11 bituminous coal mining complexes in six states and reports proven and probable coal reserves of 4.5 billion tons. It also is a majority owner of CNX Gas, a leading Appalachian gas producer, with proved reserves of more than 1.9 trillion cubic feet. Additional information about CONSOL Energy can be found at its Web site: www.consolenergy.com.  

Forward-Looking Statements

Various statements in this document, 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 and the Private Securities Litigation Reform Act of 1995). The forward-looking statements may include projections and estimates concerning the timing and success of specific projects, our future production, revenues, income and capital spending. When we use the words "believe," "intend," "expect," "may," "should," "anticipate," "could," "would," "will," "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 document speak only as of the date of this document; we disclaim any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly. 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, uncertainties and contingencies include, but are not limited to: the deteriorating economic conditions; an extended decline in prices we receive for our coal and gas affecting our operating results and cash flows; reliance on customers honoring existing contracts, extending existing contracts or entering into new long-term contracts for coal; reliance on major customers; our inability to collect payments from customers if their creditworthiness declines; the disruption of rail, barge and other systems that deliver our coal; a loss of our competitive position because of the competitive nature of the coal industry and the gas industry, or a loss of our competitive position because of overcapacity in these industries impairing our profitability; our inability to hire qualified people to meet replacement or expansion needs; coal users switching to other fuels in order to comply with various environmental standards related to coal combustion; the inability to produce a sufficient amount of coal to fulfill our customers' requirements which could result in our customers initiating claims against us; foreign currency fluctuations could adversely affect the competitiveness of our coal abroad; the risks inherent in coal mining being subject to unexpected disruptions, including geological conditions, equipment failure, timing of completion of significant construction or repair of equipment, fires, accidents and weather conditions which could impact financial results; increases in the price of commodities used in our mining operations could impact our cost of production; obtaining, maintaining, and renewing governmental permits and approvals for our operations; the effects of proposals to regulate greenhouse gas emissions; the effects of government regulation; the effects of stringent federal and state employee health and safety regulations; the effects of mine closing, reclamation and certain other liabilities; the effects of subsidence from longwall mining operations on surface structures, water supplies, streams and surface land; uncertainties in estimating our economically recoverable coal and gas reserves; the outcomes of various legal proceedings, which proceedings are more fully described in our reports filed under the Securities Exchange Act of 1934; increased exposure to employee related long-term liabilities; minimum funding requirements by the Pension Protection Act of 2006 (the Pension Act) coupled with the significant investment and plan asset losses suffered during the current economic decline has exposed us to making additional required cash contributions to fund the pension benefit plans which we sponsor and the multi-employer pension benefit plans in which we participate; lump sum payments made to retiring salaried employees pursuant to our defined benefit pension plan; our ability to comply with laws or regulations requiring that we obtain surety bonds for workers' compensation and other statutory requirements; acquisitions that we recently have made 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; the anti-takeover effects of our rights plan could prevent a change of control; risks in exploring for and producing gas; new gas development projects and exploration for gas in areas where we have little or no proven gas reserves; the disruption of pipeline systems which deliver our gas; the availability of field services, equipment and personnel for drilling and producing gas; replacing our natural gas reserves which if not replaced will cause our gas reserves and gas production to decline; costs associated with perfecting title for gas rights in some of our properties;  location of a vast majority of our gas producing properties in three counties in southwestern Virginia, making us vulnerable to risks associated with having our gas production concentrated in one area; other persons could have ownership rights in our advanced gas extraction techniques which could force us to cease using those techniques or pay royalties; our ability to acquire water supplies needed for drilling, or our ability to dispose of water used or removed from strata at a reasonable cost and within applicable environmental rules; the coalbeds and other strata from which we produce methane gas frequently contain impurities that may hamper production; the enactment of Pennsylvania severance tax on natural gas may impact results of existing operations and impact the economic viability of exploiting new gas drilling and production opportunities in Pennsylvania; our hedging activities may prevent us from benefiting from price increases and may expose us to other risks; and other factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 under "Risk Factors," as updated by any subsequent Form 10-Qs, which are on file at the Securities and Exchange Commission.

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.