CONSOL Energy Inc., the second largest natural gas producer and reserve holder in the Appalachian Basin, has reported increases in both coalbed methane (CBM) production and reserve totals for 2004. The company increased its CBM reserves by 4% or 90 Bcf, to more than a Tcf during 2004, at the same time increasing production to 50 Bcf during the year, about 12% more than the 44 Bcf produced in 2003.

CONSOL, the largest underground coal producer in the United States, operating primarily in West Virginia and Pennsylvania, ended 2004 with a reserve base of 1,044.788 Bcf, 4% higher than last year.

Realized prices on 2004 natural gas production, which mainly comes from CBM operations in southwestern Virginia, were $5.00/Mcf, up over 21% from the $4.14/Mcf in 2003. CONSOL Energy sold 84% of its produced gas sales volumes in 2004 under fixed price contracts at an average price of $4.96/Mcf, compared to 90% of its gas sales volumes under fixed price contracts in 2003 at an average price of $3.99/Mcf. In addition, in order to satisfy obligations to certain customers, CONSOL also purchased gas from and sold gas to other gas suppliers.

Higher sales volumes in 2004 were a result of wells coming online from an ongoing drilling program, which allowed CONSOL Energy to take advantage of increased prices, CONSOL said. It hedged 28% of 2004 produced gas sales volumes at an average price of $5.10/Mcf.

CONSOL Energy drilled 228 net development wells in 2004, all of which were successful. Twelve net exploratory wells were drilled in 2004, the results of which are still being evaluated. The reserve increase was primarily due to drilling that occurred near the perimeter of its acreage, the company said.

CONSOL currently intends to cover approximately 17% of its estimated 2005 production volume with financial gas swap transactions. It has entered into fixed price gas sales contracts with various marketers, representing approximately 63% of total projected 2005 production, at an average price of $4.78/Mcf in order to manage price fluctuations and achieve more predictable cash flows.

Due to the potential curtailment on portions of the shipment capacity allocated to CONSOL Energy as a result of increased demand for pipeline use on Columbia Gas Transmission, CONSOL Energy purchased firm transportation capacity on the pipeline during 2004. The first firm transportation arrangement covered the May 2004 through October 2004 period.

Production curtailments are expected to continue through spring and summer of 2005 due to continuing capacity constraints on Columbia. To offset a portion of expected future constraints, CONSOL said it has entered into an extended firm transportation arrangement for the November 2004 through October 2006 period. As of February 2005, the purchased fixed capacity on the pipeline represents approximately 35% of projected production for the same period.

CONSOL Energy Inc. is one of the largest U.S. producers of CBM, with net daily gas production of approximately 139.6 MMcf, primarily from wells in Pennsylvania, Virginia and West Virginia. The company also has joint ventures that produce natural gas in Virginia and Tennessee, and the company produces electricity from CBM at a joint-venture generating facility in Virginia. CONSOL Energy also is the largest producer of high-Btu bituminous coal in the United States. CONSOL Energy has 17 bituminous coal mining complexes in six states.

CONSOL has calculated that the future net cash flows of its proved CBM reserves have a present value of $1.66 billion before income taxes, assuming a 10% discount rate, as of Dec. 31, 2004, an increase of 6.3% compared with the Dec. 31, 2003 value. The increase is attributable to a 4% growth in reserves and to higher prices. The 2004 present value calculation assumed a gas price of $6.35/Mcf, based on the Dec. 31, 2004 market price of gas flowing into the Columbia Gas Transmission, adjusted for certain quantities CONSOL Energy hedged at other prices.

CONSOL Energy continues its practice of having nearly all of its proved gas reserves verified by independent reservoir engineers. Schlumberger and Ralph E. Davis, reservoir-engineering firms that previously verified CONSOL Energy’s 2003 reserve base, also verified the 2004 reserves.

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