With natural gas prices up, Pittsburgh-based Consol Energy Inc. recalculated its future net cash flows of proved coalbed methane gas (CBM) reserves, estimating a current value of $1.09 billion before taxes, and assuming a 10% discount rate, as of Dec.31, 2002. The value is nearly two-and-one-half times 2001’s reserve value of $432 million.

The 2002 value calculation assumed a gas price of $4.70/Mcf, based on 2002 end-of-year market prices of gas flowing into Columbia Gas Transmission and adjusted for Consol’s hedged gas.

Gas reserves were 1.103 Tcf at year-end 2002, a decrease of 6% from the 1.176 Tcf recorded at the end of 2001. Production and revisions in 2002 reduced the reserve base, while “temporary capital constraints” prevented the company from making discoveries of additional reserves on tracts contiguous to its proved acreage, it said in a statement.

“Our gas business was able to significantly increase production in 2002, despite being capital constrained,” said CEO J. Brett Harvey. “For 2003, we are targeting continued production growth of 10-15%.” Consol’s daily gas production is about 135 MMcf.

Harvey said Consol, which is one of the largest CBM producers in the United States, also locked in about 85% of its production at roughly $4/Mcf. Remaining production is currently being sold at prices in excess of $5/Mcf. “This combination of expected record production and historically high potential pricing should result in a very good year for our gas business.”

After reviewing the 2001 calculation, the company revised downward its future development costs to about $285 million, or about $0.30/Mcf, from a previous estimate of $853 million. Last year, the company’s gas production was 47.2 Bcf, up nearly 22% from the 38.8 Bcf in 2001. Consol drilled 197 development wells in 2002, all of which were successful. There were 29 exploratory wells drilled last year, and those results are being evaluated. Capital expenditures for the gas business totaled $70 million in 2002, and this year the company expects to spend up to $80 million.

In other company news, Consol said that it is revising its current earnings guidance for the first quarter 2003 downward from $0.15-0.20 per diluted share to $0.00-0.05 per diluted share because of difficulties brought on by the Mine 84 fire. In addition to fewer tons being produced from Mine 84 resulting from the fire, Consol’s earnings were also rocked by the costs associated with firefighting activity at Loveridge Mine and Mine 84, and lower clean ton recovery at McElroy Preparation Plant.

In February 2003, Consol produced 4.8 million tons of coal, marking a sharp decrease from the 6.3 million tons produced during February 2002. Natural gas production went up to 3.6 Bcf/d in February 2003 from 3.1 Bcf/d during the similar month a year ago. Electricity production was 1,935 MWh in the 2003 month, up from zero during February 2002. Consol began electricity production in July 2002.

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