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Ohio Utica Shale

Analysts offer views on CONSOL Energy, its shift to natural gas

By Bob Downing Published: October 29, 2013

From New York-based Sterne Agee analysts on Consol Energy:

Michael S. Dudas, CFA (646) 376-5329 / Satyadeep Jain, CFA (646) 376-5357
Cash For Gas - Partial Coal Asset Monetization Bringing More Clarity to Consol's Long-Term Plans - Reaffirm Buy Rating

Our Call
We expect investors will increasingly support this current step regarding Consol Energy's emergence into an energy growth vehicle. Generating a higher than expected value for a portion of its capitalized, non-core thermal coal assets while de-risking its balance sheet and providing accretive growth capital for its shale holdings should allow valuation to improve as coal and natural gas markets normalize. We would add to positions.

• Value for Non-Growth Assets. Management appeared to facilitate a very well-matched sale for its well-capitalized thermal mines while retaining very strong, flexible, and higher value operations. Securing cash, future royalties from select mines, and relieving itself of legacy obligations provided a well-structured transaction for stakeholders, in our view.

• Hidden Value Emerges. Management has consistently communicated its desires for the market to apply more appropriate values its coal/related assets and to provide more visibility to the growth potential of Consol's Marcellus and Utica Shale holdings. During the past eighteen months, Consol's equity valuation has well outperformed its coal, but underperformed its shale peers. While not the best of times to sell coal assets, the valuation applied by the purchaser, privately owned Murray Energy, serves to validate a portion of management's desire.

• Execution the Key. As management continues to work on one or two other asset monetization transactions to further recapitalize its company during the current quarter, we expect the market will place increased focus on its reserve positioning and growth as well as drilling, infrastructure, and gas production growth plans relative to its Eastern shale-oriented peers

• Lots of Moving Parts; However, More Value Remains. Our initial analysis of the transaction, balance sheet, and EBITDA adjustments supports shares that remain underpriced at current levels. We believe that as additional, but smaller sized, non-core asset sales emerge, thermal 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.

• Tomorrow morning, Consol Energy reports Q3 2013 results and senior management plans to meet with investors and analysts in NYC.




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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.