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Ohio Utica Shale

Analysts look at CONSOL Energy financial picture

By Bob Downing Published: June 16, 2014

From the New York-based anaylst firm Sterne Agee and analysts Michael Dudas and Satyadeep Jain:

Price: $44.82
Price Target: $56.00

Our Call
Consol's new management team rolled out a thorough and supportive overview, especially gas delineation and growth expectations, capital efficiency, stacked pay potential, firm transportation, midstream MLP/non-core asset monetization, and coal and overall cash flow targets. As market digests the voluminous data generated, we believe CNX remains on track to deliver asset value growth while continuing to selectively monetize non-core assets. Plan execution will remain a key catalyst.

• Management stressed quality, cost and capital efficiency of its gas operations. RCS/SSL techniques are generating almost a 40% increase in IP rates and 15-20% increase in EURs. Management seems confident of achieving 5-10% reduction in total operating cost per Mcfe over next three years. Consol has solid acreage position in Utica dry gas in Eastern OH, Southwest PA and Northern WV. Consol could have significant valuation upside from its stacked pays in Southwest PA, Monroe County, OH, Pittsburgh airport, Dominion Transmission storage field.

• Consol remains long firm transportation and has structured its capacity contracts to allow for 30% growth targets through 2016. We are pleased with Consol’s existing diverse transportation capacity and its efforts to further expand the reach to other markets. Consol and Noble announced intention to form an MLP for their midstream gathering services. If Consol and Noble do decide to go ahead with the IPO, we expect closing in late 2014/early 2015.

• Coal - NAPP coal stockpile levels have dropped considerably over this winter. Management expects 2014-end coal stockpiles at 110-120 MT (vs our estimate of 115 MT). In a carbon regulated world, Bailey coal would have an advantage over sub-bituminous coals.

• Consol expects monetization of non-core assets to yield nearly $1B over next five years, with annual targets of $100-$300M. Management wants to be calculating on timing and value and can therefore be expected to be patient through the process. Consol cash flow estimates call for modest $100-$300M cash needs each year through 2016, and should be able to plug the cash flow gap through higher efficiencies, tapping the revolver, hedging strategies, higher realizations from asset sales, among other alternatives.

• Investment Summary - We believe that as additional, smaller sized, non-core asset sales emerge, thermal prices continue to improve, and metallurgical coal market prices normalize, and Consol's shale profile achieves targeted growth, the valuation gap should continue to narrow during the next 12-18 months. We support our $56 target using asset valuations for coal and gas businesses.



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Utica and Marcellus shale web sites

Ohio Department of Natural Resources' Division of Oil and Gas Resources Management State agency Web site.

ODNR Division of Oil and Gas Resources Management. State drilling permits. List is updated weekly.

ODNR Division of Geological Survey.

Ohio Environmental Protection Agency.

Ohio State University Extension.

Ohio Farm Bureau.

Ohio Oil and Gas Association, a Granville-based group that represents 1,500 Ohio energy-related companies.

Ohio Oil & Gas Energy Education Program.

Energy In Depth, a trade group.

Marcellus and Utica Shale Resource Center by Ohio law firm Bricker & Eckler.

Utica Shale, a compilation of Utica shale activities.

Landman Report Card, a site that looks at companies involved in gas and oil leases.FracFocus, a compilation of chemicals used in fracking individual wells as reported voluntarily by some drillers.

Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.

Rig Count Interactive Map by Baker Hughes, an energy services company.

Shale Sheet Fracking, a Youngstown Vindicator blog.

National Geographic's The Great Shale Rush.

The Ohio Environmental Council, a statewide eco-group based in Columbus.

Buckeye Forest Council.

Earthjustice, a national eco-group.

Stop Fracking Ohio.

People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.

Concerned Citizens of Medina County, a grass-roots group.

No Frack Ohio, a Columbus-based grass-roots group.

Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.

Penn State Marcellus Center.

Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.

Allegheny Front, environmental public radio for Western Pennsylvania.