CONSOL Energy Inc. (CNX-NYSE)

March 17, 2015 CONSOL Energy Inc. (CNX-NYSE) Current Recommendation NEUTRAL Prior Recommendation Underperform Date of Last Change 08/20/2013 Current Price (03/16/15) $27.02 Target Price $28.00 SUMMARY DATA SUMMARY CONSOL Energy s earnings in the fourth quarter surpassed the Zacks Consensus Estimate, while revenues lagged it marginally. The company s shift in focus to natural gas has yielded positive results. In the quarter, CONSOL Energy registered 45% yearover-year growth in gas production volumes to 70.5 billion cubic feet equivalent (Bcfe). The board of directors of CONSOL Energy decided to separate its coal business to form a thermal MLP and a metallurgical coal subsidiary. Though this move is unlikely to have an immediate impact, it will definitely benefit the company in the long run, with separate management teams assigned to run each of the businesses. Its systematic capital investments in developing its Marcellus and Utica shale operations will help the company to meet its goal of a 30% gas production increase annually in the 2014 2016 time frame. 52-Week High $47.45 52-Week Low $26.56 One-Year Return (%) -31.10 Beta 1.80 Average Daily Volume (sh) 3,609,759 Shares Outstanding (mil) 230 Market Capitalization ($mil) $6,215 Short Interest Ratio (days) 6.42 Institutional Ownership (%) 98 Insider Ownership (%) 2 Annual Cash Dividend $0.25 Dividend Yield (%) 0.93 5-Yr. Historical Growth Rates Sales (%) -6.1 Earnings Per Share (%) -36.0 Dividend (%) -7.0 using TTM EPS 29.1 using 2015 Estimate 53.0 using 2016 Estimate 22.7 Risk Level * Average, Type of Stock Large-Blend Industry Coal Zacks Industry Rank * 175 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 1,290 A 1,217 A 1,231 A 825 A 3,300 A 2014 969 A 937 A 885 A 936 A 3,727 A 2015 906 E 887 E 898 E 983 E 3,674 E 2016 4,196 E Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 $0.19 A -$0.03 A -$0.24 A $0.03 A $0.00 A 2014 $0.53 A $0.07 A $0.09 A $0.25 A $0.93 A 2015 $0.11 E $0.09 E $0.10 E $0.21 E $0.51 E 2016 $1.19 E Zacks Rank *: Short Term 1 3 months outlook 3 - Hold * Definition / Disclosure on last page Projected EPS Growth - Next 5 Years % 12 2015 Zacks Investment Research, All Rights reserved. www.zacks.com 111 North Canal Street, Chicago IL 60606

OVERVIEW CONSOL Energy Inc., based in Canonsburg, PA, is a multi-fuel energy producer and an energy services provider, primarily catering to the U.S. power producers. The company principally operates two business divisions: Coal mining and oil and gas exploration and production. The Coal division is engaged in mining, preparation and marketing of steam coal (sold largely to power producers) and metallurgical coal (sold to steel and coke producers). At the end of 2014, CONSOL Energy had an estimated 3.2 billion tons of proven and probable reserves of coal. Its Exploration & Production (E&P) division operates, develops and explores natural gas primarily in Appalachia (Pennsylvania, West Virginia, Ohio, Virginia and Tennessee). Currently, the primary focus of the company is the continued development of its Marcellus Shale and Utica Shale acreage. CONSOL holds nearly 441,000 net acres in the Marcellus Shale and approximately 226,000 net acres in the Utica Shale in Ohio, West Virginia, and Pennsylvania. To develop its acreage, the company entered into a joint venture with Noble Energy, Inc. in the Marcellus Shale and with a unit of Hess Corporation in the Utica Shale. Per the joint venture agreement, the partners will pay a portion of drilling and completion costs. This in a way will help CONSOL to accelerate the development of these reserve rich assets. The company s net proved gas reserve at the end of 2014 was 6.82 trillion cubic feet (Tcf), which increased 19.1% from 2013 levels. CONSOL Energy also operates the largest private research and development facility in the industry exclusively devoted to coal and energy utilization and production. REASON TO BUY CONSOL Energy has shifted its focus to natural gas production and continues to acquire acreage in regions anticipated to have a large volume of gas reserve. As a part of this strategy, in Dec 2013, CONSOL Energy completed the sale of its Consolidation Coal Company (CCC) subsidiary to a unit of Murray Energy Corporation for $3.5 billion. As mentioned earlier, the primary focus will now be on its E&P strategy. The company intends to invest nearly $1.0 billion in its E&P operations in 2015. CONSOL s current focus on natural gas production is justified given the increasing worldwide emphasis on clean burning fuels. The company aims to produce 300 310 billion cubic feet equivalents (Bcfe) in 2015, and further targets 30% annual gas production growth in 2016 taking 2014 production as the base year. CONSOL Energy is focusing on the Marcellus and Utica plays. The company currently controls 441 thousand net acres in the Marcellus Shale and approximately 226 thousand net acres in the Utica Shale. In addition to the Marcellus and Utica plays, CONSOL Energy now has interest in another natural gas play, the Devonian Shale. The company was able to extract gas from this shale, which lies just above the Marcellus Shale. CONSOL will find it cheaper to extract natural gas from this shale since it is not as deep or complex as Marcellus or Utica. We anticipate that these potential resource-rich areas will continue to spur growth. CONSOL Energy s joint venture with Noble Energy to form CONE Midstream Partners will help the company to transport its increasing production from the Marcellus Shale. CONSOL Energy s deep and diversified portfolio, primarily comprising coal and natural gas, is well positioned to cater to worldwide energy demand. Metallurgical coal and high-btu steam coal will command premium prices even in a subdued commodity environment. The company still holds some Equity Research CNX Page 2

quality coal mines and aims to sell 30.5 33 million tons of coal in 2015. Investments made in the Bailey Mine Expansion (BMX) mining complex or Harvey mine have started to yield results. The five longwalls in this complex are presently producing high quality coal. In addition to it, CONSOL Energy s ability to lower operational cost in its met coal Buchanan Mine is also helping the company in an overall difficult met coal market. In Dec 2014, the Board of Directors of CONSOL Energy, approved of a shareholder friendly move by authorizing the repurchase of up to $250 million of its common stock over the next two years. CONSOL Energy also pays dividends to its shareholders at regular intervals. REASONS TO SELL CONSOL Energy depends on a limited group of customers who purchase coal in bulk amounts. In 2014, the company generated more than 30% of its total revenue from its four largest coal and gas customers. The company has 30 coal supply agreements with these customers, which will expire between 2015 and 2028. The company is presently trying to negotiate with them to extend their contracts on favorable terms or enter into new long-term agreements to sustain its ongoing revenue stream. However, any failure to renew or get into fresh long-term contracts will adversely impact the operational performance of the company. CONSOL is principally an underground miner, with 93% of its 2014 coal production, coming from underground mines. Despite, adhering to safety measures, underground mines are exposed to a number of operational hazards that could disrupt operations, reduce production and increase the cost of mining for varying lengths of time thereby affecting performance. CONSOL Energy s coal mining operations still account for the majority of revenues -- 55.1% of revenues in 2014 came in from coal operations while 66% of 2013 revenues were derived from coal. The change in the company's business strategy will however lower the contribution of coal to the total revenue mix going forward. These mining operations consume large quantities of commodities, such as, steel, copper, rubber products and liquid fuels, the prices of which are determined by international market rates. If these commodity prices increase significantly, it could raise the cost of production and impact margins. RECENT NEWS CONSOL Energy Tops Q4 Earnings, Gas Production Rises Jan 30, 2015 CONSOL Energy reported pro forma earnings of $0.25 per share for the fourth quarter of 2014, beating the Zacks Consensus Estimate of $0.20 by 25%. GAAP income at the company was $0.32 per share compared with $3.20 per share in the prior-year quarter. The difference between GAAP and operating income in the reported quarter was due to adjustments relating to discontinued operations. GAAP earnings per share were $0.70 for 2014, much lower than $2.87 reported in 2013. Revenue CONSOL Energy s quarterly revenues increased 13.4% to $0.93 billion from $0.82 billion in the year-ago quarter. The top line however lagged the Zacks Consensus Estimate of $0.95 billion by 1.3%. Equity Research CNX Page 3

CONSOL Energy s 2014 revenue increased nearly 13% to $3.72 billion from $3.29 billion in 2013. The top line also surpassed the Zacks Consensus Estimate by 0.8%. The year-over-year improvement in total revenue was primarily due to better contribution from the natural gas division. Segment Performance Coal Division In the quarter, the company produced 8 million tons of coal. Of the total production, 6.4 million tons came from the Pennsylvania operations, 1 million tons from Virginia operations and 0.6 million tons from Other operations. The company sold 6.5 million tons of coal from its Pennsylvania Operations, up 1 million tons from the yearago quarter. However, the realized price per ton of coal decreased 3.6% year over year to $60.10 per ton. From its Virginia Operations, the company sold 1.1 million tons of coal, down 8.3% year over year, with the sale price per ton down by nearly 15.7% year over year to $68.58 per ton. From its Other Operations, the company sold 0.5 million tons, unchanged from the year-ago level. However, the sale price per ton was down nearly 22.1% year over year to $59.38 per ton. Exploration & Production (E&P) Division During the reported quarter, the company registered 45% year-over-year growth in gas production volumes to 70.5 billion cubic feet equivalent (Bcfe). Despite an increase in gas output, full benefit could not be realized due to a decline of $0.36 per share in the average selling price per one thousand cubic feet (Mcf). Financial Update As of Dec 31, 2014, the company had a cash balance of $176.9 million versus $327.4 million as of Dec 31, 2013. Total long-term debts as of Dec 31, 2014 were $3.27 billion, higher than $3.16 billion as of Dec 31, 2013. Cash from operating activities in 2014 was $0.94 billion versus $0.66 billion in 2013. Capital expenditure in 2014 was $1.49 billion, on par with the year-ago level. Guidance CONSOL Energy expects first-quarter 2015 coal sales in the range of 8.0 8.5 million tons and 2015 coal sales in the range of 30.5 33.0 million tons. The company expects 2016 coal sales to remain unchanged from 2015 levels. CONSOL Energy projects first-quarter 2015 gas production in the range of 70 74 Bcfe and 2015 production in the band of 300 310 Bcfe. Gas production in 2015 is expected to exceed the 2014 production level by 30%. Equity Research CNX Page 4

Total gas production hedged by the company for the first quarter is 29.9 Bcfe, at an average price of $4.05 per Mcf. During the fourth quarter, the company raised its 2015 gas hedge position from 27% to 45%. The company plans to invest in excess of $1.2 billion in 2015. Capital investment in its E&P division will be nearly $1 billion. VALUATION CONSOL is focused on building a strong portfolio of natural gas assets. Investment in its E&P division is yielding results. CONSOL Energy s current trailing 12-month P/CF is 7.9, compared to the 6.7 average for the peer group and 14.5 for the S&P 500. Our target price of $28.00 reflects a multiple of 54.9 on 2015 EPS. Key Indicators F1 F2 Est. 5-Yr EPS Gr% P/CF 5-Yr High 5-Yr Low CONSOL ENERGY (CNX) 53.0 22.7 12.0 7.9 29.1 N/A 10.7 Industry Average 18.8 14.0 6.4 6.7 19.0 N/A 38.6 S&P 500 16.6 15.4 10.7 14.5 18.2 18.4 12.0 Alpha Natural Resources, Inc. (ANR) N/A N/A 5.0 0.2 N/A 28.0 7.9 Peabody Energy Corporation (BTU) N/A N/A 12.0 30.6 N/A N/A 5.8 Arch Coal, Inc. (ACI) N/A N/A 5.0 N/A N/A N/A 8.2 Alliance Resource Partners, L.P. (ARLP) 9.0 8.8 N/A 3.3 7.3 13.6 7.4 TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA CONSOL ENERGY (CNX) 1.4 3.9 1.3 4.2 0.6 0.8 9.5 Industry Average 1.2 1.2 1.2 15.0 1.5 4.4 22.9 S&P 500 6.2 9.8 3.2 25.4 2.0 Equity Research CNX Page 5

Earnings Surprise and Estimate Revision History Equity Research CNX Page 6

DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of CNX. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1034 companies covered: Outperform - 15.4%, Neutral - 77.9%, Underperform 6.2%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Equity Research CNX Page 7