CNX Gas Corporation (NYSE: CXG - News) has entered into a definitive agreement to acquire the coalbed methane (CBM) and gas interests to approximately 1,037,000 gross acres from Peabody Energy. The transaction will increase CNX Gas' gross acreage position from 2.5 million gross acres at year-end 2006, to 3.6 million, or an increase of 44%.
The transaction involves three parties. CNX Gas will first acquire certain coal assets from CONSOL Energy Inc. (NYSE: CNX - News) for $45 million cash, plus a future payment which has an estimated present value of approximately $6.5 million. CNX Gas will then convey those coal assets plus $15 million cash to Peabody Energy in exchange for Peabody Energy's CBM and gas rights to approximately 1,037,000 acres, including 654,000 acres in the Illinois Basin, 153,000 acres in Northern Appalachia, 171,000 acres in the San Juan Basin, 47,000 acres in the Powder River Basin, and 11,000 acres in the Rockies.
There are no proved gas reserves associated with this acreage. Much of the acreage needs to be evaluated in order to obtain an estimate of unproved reserves. Within the Illinois Basin acreage, however, CNX Gas is acquiring 114,500 acres of conventional gas acreage with development potential in the New Albany Shale. CNX Gas believes that this acreage, alone, contains at least 258 Bcf of net unproved reserves. This, and other action since year-end 2006, will increase the total proved and net unproved reserves of CNX Gas from 3.119 trillion cubic feet (Tcf) to 3.668 Tcf, or an increase of 18%.
Nicholas J. DeIuliis, president and chief executive officer, said, "This is a substantial deal for CNX Gas. It enables us to significantly increase the size of our already-large inventory of low-cost, low-risk opportunities. CNX Gas is receiving a large block of unproved reserves at a very economic price. If the entire $66.5 million transaction price were allocated to only the 258 Bcf we expect to see in the New Albany Shale, it would mean that those unproved reserves were being obtained for less than $0.26 per Mcf. This assumes no value for the remaining 922,500 acres."
"This deal is significant for CNX Gas from another perspective," continued Mr. DeIuliis. "We are continuing to consolidate our position in the New Albany Shale. Some of Peabody's acreage in the New Albany Shale is near our existing acreage, allowing for increased economies of scale in the important exploratory play we refer to as Cardinal. We believe that when the Peabody deal closes, CNX Gas will be the leading acreage holder in the New Albany Shale, with control of 254,500 gross acres. CNX Gas also now controls the leading coalbed methane positions in Central Appalachia, Northern Appalachia, and the Illinois Basin."
"Clearly," noted Mr. DeIuliis, "this transaction demonstrates how minority shareholders of CNX Gas can benefit from the continued majority ownership position of CONSOL Energy. This transaction would have been more difficult to conclude had CNX Gas been a totally stand-alone entity."
"While CNX Gas is not altering its production guidance of 15% growth per year, we believe this transaction increases the likelihood, over time, of achieving that growth because of more locations, an increased ability to high- grade locations, an increased ability to build permitting and land flexibility into our operational plans, and increased areas of unassessed plays that could end up being very economic. The challenge now will be to prepare a plan to monetize the value of these assets sooner rather than later."
Closing of the transaction with Peabody Energy is subject to a number of conditions; however, the transaction is expected to close before the end of the second quarter.
CNX Gas will host a conference call and a webcast today at 10:00 a.m. eastern time to more fully discuss this transaction. Slides for the call and webcast will be available prior to the call on the investor relations portion of the site, at www.cnxgas.com.
Description
CNX GAS CORPORATION is an independent natural gas exploration, development, production and gathering company operating in the Appalachian Basin of the United States. In May 2006, Business Week cited CNX Gas in its survey of Hot Growth Companies. Effective June 30, 2006, CNX Gas was added to the Russell 3000® Index and the Russell Midcap® Index. In October 2006, CNX Gas was named as a finalist by Platts for its "Hydrocarbon Producer of the Year" award.
Contact:
Dan Zajdel
Vice President - Investor and Public Relations (412) 200-6719
danzajdel@cnxgas.com
www.cnxgas.com
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Various statements in this release, including those that express a belief, expectation, or intention, as well as those that are not statements of historical fact, are forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934). These statements 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. 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: our business strategy; our financial position; our cash flow and liquidity; declines in the prices we receive for our gas affecting our operating results and cash flow; uncertainties in estimating our gas reserves; replacing our gas reserves; uncertainties in exploring for and producing gas; our inability to obtain additional financing necessary in order to fund our operations, capital expenditures and to meet our other obligations; disruptions, capacity constraints in or other limitations on the pipeline systems which deliver our gas; competition in the gas industry; the availability of personnel and equipment; increased costs; the effects of government regulation and permitting and other legal requirements; legal uncertainties regarding the ownership of the coalbed methane estate; costs associated with perfecting title for gas rights in some of our properties; our need to use unproven technologies to extract coalbed methane in some properties; our relationships and arrangements with CONSOL Energy; and other factors discussed under "Risk Factors" in the 2006 Annual Report on Form 10-K for the year ended December 31, 2006. We are including this cautionary statement in this release to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf, of us.
CAUTIONARY STATEMENT CONCERNING "NET UNPROVED" RESERVES
The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this release, such as "net unproved" reserves that the SEC's guidelines strictly prohibit us from including in filings with the SEC. We also caution you that the SEC views such "net unproved" reserve estimates as inherently unreliable and these estimates may be misleading to investors unless the reader is an expert in the gas industry. CNX Gas undertakes no duty to update this information. CNX Gas also undertakes no duty to make public similar reports that it may receive in the future. Investors are urged to consider closely the disclosure in our 2006 Annual Report on Form 10-K, available from us at CNX Gas Corporation, 5 Penn Center West, Suite 401, Pittsburgh, PA 15276-0102. You can also obtain this form from the SEC by calling 1-800-SEC-0330. The filing is also on the SEC website at www.sec.gov.
Source: CNX Gas Corporation
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