CONSOL Energy Takes Transformative Step to Advance E&P Growth Strategy;

PITTSBURGH, Oct. 28, 2013 /PRNewswire/ -- Consol Energy Inc. (NYSE: CNX) has taken a transformative step to advance its E&P growth strategy. The company has entered into an agreement to sell its Consolidation Coal Company (CCC) subsidiary, which contains all five of its longwall coal mines in West Virginia, to a subsidiary of Murray Energy Corporation (Murray Energy) for $3.5 billion in value.

"While this transaction furthers CONSOL's E&P growth strategy," commented J. Brett Harvey, CONSOL's chairman and CEO, "the sale of these five mines – assets that have long contributed to America's economic strength and our company's legacy – was a very difficult decision for our team. The employees at these mines are among the safest and most productive miners anywhere in the world.  In the end, we concluded that the time had come to sell these mature assets to ownership whose strategic direction is more aligned with those mines."

The Assets Included in the Transaction

The CCC mines being sold are McElroy Mine, Shoemaker Mine, Robinson Run Mine, Loveridge Mine, and Blacksville No. 2 Mine. Collectively, these mines produced 28.5 million tons of thermal coal in 2012. Murray Energy is acquiring approximately 1.1 billion tons of Pittsburgh No. 8 seam reserves.

CONSOL's River and Dock Operations are included in the transaction.  In 2012, the fleet of 21 towboats and 600 barges transported 19.3 million tons of coal and other commodities along the upper Ohio River system.

Total Value of Approximately $3.5 Billion

Aggregate value to be received totals approximately $3.5 billion. Consideration includes $850 million in cash to be paid at the closing and future payments expected to total nearly $184 million in value resulting from the retention of a royalty on select reserves, certain water treatment payments, and tolling fees at CONSOL's Baltimore Terminal.

CONSOL Energy is also significantly de-levering its balance sheet through this disposition, with Murray Energy acquiring $2.4 billion of CONSOL balance sheet liabilities.  This includes a $2.1 billion acquisition of other postretirement benefit plans (OPEB). Other acquired liabilities include $105 million of workers compensation, $61 million of coal workers' pneumoconiosis (CWP), $13 million of long term disability, and $149 million of environmental.

Additionally, Murray Energy is acquiring CONSOL's UMWA 1974 Pension Trust Obligations.  A discussion of this obligation appears in CONSOL Energy's 2012 SEC Form 10-K.  CONSOL Energy, under contract with the UMWA, currently services the obligation through a $5.50 per hour contribution, or approximately $33 million per year. If this payment stream were to be capitalized, it would have a present value of approximately $941 million, assuming a discount rate of 4.02%.

CONSOL Expects Pre-Tax Gain and Cash Tax Benefit

CONSOL Energy expects to record approximately $1.3 billion of pre-tax gain on its fourth quarter 2013 financial statements as a result of the transaction, assuming the transaction closes by December 31. The transaction is expected to generate a cash tax benefit to CONSOL Energy. The purchase price is subject to a working capital adjustment.

Advancing the E&P Strategy

This sale enhances CONSOL Energy's ability to grow its gas production, enabling the company to extend its gas growth production targets beyond 2014.  The 2014 gas production guidance range is 210 – 225 Bcfe, of which approximately 7 ? 8% are expected to be liquids or condensates.  For 2015 and 2016, the company expects 30% annual gas production growth.

"In advancing our E&P growth strategy, we expect that West Virginia will continue to play an important role," continued Mr. Harvey. "We have a sizeable Marcellus Shale footprint in West Virginia, which will take a significant amount of labor and capital to develop."

Corporate Actions Following the Transaction

Also in conjunction with the sale, CONSOL Energy is realigning its dividend policy to reflect the company's increased emphasis on growth.  Beginning with the first declared quarterly dividend after the transaction closes, CONSOL Energy intends to pay a regular quarterly rate of $0.0625 per common share, for an annual rate of $0.25 per share.

As a separate action following the sale, CONSOL Energy expects to reduce its administrative expenses by approximately $65 million per year, the details of which are expected to be announced prior to closing.

Estimated Change in 2014 EBITDA and Adjusted EBITDA¹

CONSOL Energy estimates that the transaction, and subsequent reduction in administrative expenses, will reduce 2014 EBITDA by an estimated $213 million. After adjusting for the capitalization of liabilities, the company estimates 2014 Adjusted EBITDA will be reduced by approximately $377 million. If the UMWA 1974 Pension Trust Obligations were to be capitalized, 2014 Adjusted EBITDA would be increased by $33 million, to $410 million.

Remaining Growth Assets are Tier One

CONSOL Energy is retaining coal assets that clearly align with the company's long term strategic objectives. The company is keeping the Pennsylvania Operations, which include the Bailey, Enlow Fork, and soon-to-be-completed BMX mines. These low-cost mines, with five longwalls, and with estimated production of nearly 24 million tons in 2014, produce a high-Btu Pittsburgh-seam coal that is lower in sulfur than many Northern Appalachian coals. It can be sold domestically or abroad, as either thermal coal or high-vol coking coal.

The company is also retaining its flagship Buchanan Mine in southwestern Virginia. This longwall coal mine produces a premium low-vol coking coal for the steel industry. It typically produces 4-5 million tons per year at a cost that is probably the lowest of any domestic metallurgical coal mine.

The Miller Creek Mining Complex in southern West Virginia is also being retained, which is expected to produce about 2 million tons in 2014. After the transaction closes, CONSOL Energy will continue to have 3.1 billion tons of SEC 10-K coal reserves, including enough to support new mines in Northern Appalachia and the Illinois Basin.

With the retained mines and the 100%-owned Baltimore Terminal, CONSOL will continue to participate in the growth of the world's thermal and metallurgical coal markets. Earlier this month the International Energy Agency (IEA) forecast meaningful continued growth in world demand for thermal coal. The ability to serve both domestic and international markets with premium thermal and metallurgical coal provides tremendous optionality.

Stifel, Nicolaus & Company, Incorporated acted as primary financial advisor to CONSOL Energy. BofA Merrill Lynch was also a financial advisor. Greenberg Traurig LLP; Wachtell, Lipton, Rosen & Katz; Steptoe & Johnson PLLC; and Buchanan Ingersoll & Rooney PC acted as legal counsel.

Completion of the sale to the subsidiary of Murray Energy is subject to a number of conditions, including expiration of the Hart Scott Rodino Antitrust Improvements Act waiting period and other customary conditions.  The closing of the transaction is not subject to a financing condition.  The parties expect to close the transaction by year-end 2013.

Conference Call Information

CONSOL Energy will host a conference call today at 8:30 a.m. ET. The call can be accessed at the investor relations section of the company's web site, at www.consolenergy.com. Security analysts and institutional investors may also listen by dialing (US) 800-230-1096 or (Intl.) 612-332-0725, with access code 305423.

Updated Earnings Release Date

Separately, CONSOL Energy  plans  to issue  its earnings release tomorrow,  October 29,  at 7:00 a.m. ET. There will not be a separate earnings conference call.

Non-GAAP Financial Measures

Definition: EBITDA is defined as earnings before deducting net interest expense (interest expense less interest income), income taxes and depreciation, depletion and amortization.    Adjusted EBITDA is defined as EBITDA, after adjusting for the discrete items listed below. Although EBITDA and Adjusted EBITDA are not measures of performance calculated in accordance with generally accepted accounting principles, management believes that it is useful to an investor in evaluating CONSOL Energy because it is widely used to evaluate a company's operating performance before debt expense and its cash or as a substitute for measures of performance in accordance with generally accepted accounting principles.  In addition, because all companies do not calculate EBITDA and Adjusted EBITDA identically, the presentation here may not be comparable to similarly titled measures of other companies. Reconciliation of 2014 EBITDA to 2014 financial net income attributable to CONSOL Energy Shareholders is as follows (dollars in millions):

Forward-Looking Statements

Various statements in this release, including those that express a belief, expectation or intention, may be considered forward-looking statements (as defined in Section 21E of 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," 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 with respect to the proposed transaction: The ability to obtain regulatory approvals for the transaction on the proposed terms and schedule; disruption to our business, including customer, employee and supplier relationships resulting from this transaction; risks that the conditions to closing may not be satisfied; and the impact of the transaction on our future operating results, our capital investment program, and our dividend, and other factors discussed in the 2012 Form 10-K under "Risk Factors," as updated by any subsequent Form 10-Qs, which are on file at the Securities and Exchange Commission.

¹ The terms "EBITDA" and Adjusted EBITDA are non-GAAP financial measures, which are defined and reconciled to the GAAP Pre-Tax Income and GAAP net income below, under the caption "Non-GAAP Financial Measures."

SOURCE Consol Energy Inc.