Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________________
FORM 10-Q
  __________________________________________________ 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-14901
  __________________________________________________
CONSOL Energy Inc.
(Exact name of registrant as specified in its charter)

Delaware
 
51-0337383
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1000 CONSOL Energy Drive
Canonsburg, PA 15317-6506
(724) 485-4000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 __________________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  x    No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x    Accelerated filer  o    Non-accelerated filer  o    Smaller Reporting Company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Shares outstanding as of July 15, 2016
Common stock, $0.01 par value
 
229,435,607
 




TABLE OF CONTENTS

 
 
Page
PART I FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
Condensed Financial Statements
 
 
Consolidated Statements of Income for the three and six months ended June 30, 2016 and 2015
 
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2016 and 2015
 
Consolidated Balance Sheets at June 30, 2016 and December 31, 2015
 
Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2016
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
PART II OTHER INFORMATION
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
Risk Factors
 
 
 
ITEM 4.
 
 
 
ITEM 6.

GLOSSARY OF CERTAIN OIL AND GAS MEASUREMENT TERMS

The following are abbreviations of certain measurement terms commonly used in the oil and gas industry and included within this Form 10-Q:

Bbl - One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil or other liquid hydrocarbons.
Bcf - One billion cubic feet of natural gas.
Bcfe - One billion cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.
Btu - One British thermal unit.
Mbbls - One thousand barrels of oil or other liquid hydrocarbons.
Mcf - One thousand cubic feet of natural gas.
Mcfe - One thousand cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.
MMbtu - One million British Thermal units.
MMcfe - One million cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.
NGL - Natural gas liquids.
Tcfe - One trillion cubic feet of natural gas equivalents, with one barrel of oil being equivalent to 6,000 cubic feet of gas.




PART I : FINANCIAL INFORMATION
 
ITEM 1.
CONDENSED FINANCIAL STATEMENTS

CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months Ended
 
Six Months Ended
(Unaudited)
June 30,
 
June 30,
Revenues and Other Income:
2016
 
2015
 
2016
 
2015
Natural Gas, NGLs and Oil Sales
$
167,933

 
$
159,654

 
$
349,188

 
$
384,092

(Loss) Gain on Commodity Derivative Instruments
(199,380
)
 
17,322

 
(144,320
)
 
107,467

Coal Sales
251,166

 
318,995

 
477,330

 
705,021

Other Outside Sales
8,059

 
6,337

 
15,768

 
19,467

Purchased Gas Sales
7,929

 
1,517

 
16,547

 
5,114

Freight-Outside Coal
11,447

 
2,750

 
24,557

 
7,768

Miscellaneous Other Income
33,032

 
34,687

 
81,163

 
71,208

Gain (Loss) on Sale of Assets
5,614

 
4,312

 
(1,662
)
 
6,286

Total Revenue and Other Income
285,800

 
545,574

 
818,571

 
1,306,423

Costs and Expenses:
 
 
 
 
 
 
 
Exploration and Production Costs
 
 
 
 
 
 
 
Lease Operating Expense
23,655

 
29,521

 
51,394

 
66,777

Transportation, Gathering and Compression
90,983

 
83,196

 
184,957

 
158,717

Production, Ad Valorem, and Other Fees
6,402

 
6,938

 
14,705

 
16,130

Depreciation, Depletion and Amortization
105,151

 
89,850

 
210,866

 
177,294

Exploration and Production Related Other Costs
2,823

 
2,324

 
5,231

 
4,364

Purchased Gas Costs
8,884

 
1,061

 
16,752

 
4,018

Other Corporate Expenses
30,656

 
20,622

 
58,350

 
39,718

Impairment of Exploration and Production Properties

 
828,905

 

 
828,905

Selling, General, and Administrative Costs
16,175

 
21,070

 
33,738

 
42,894

Total Exploration and Production Costs
284,729

 
1,083,487

 
575,993

 
1,338,817

Coal Costs
 
 
 
 
 
 
 
Operating and Other Costs
217,465

 
213,022

 
401,834

 
474,765

Depreciation, Depletion and Amortization
30,069

 
48,280

 
79,342

 
102,982

Freight Expense
11,447

 
2,750

 
24,557

 
7,768

Selling, General, and Administrative Costs
6,174

 
6,147

 
10,660

 
12,678

Other Corporate Expenses
4,355

 
10,207

 
7,498

 
16,282

Total Coal Costs
269,510

 
280,406

 
523,891

 
614,475

Other Costs
 
 
 
 
 
 
 
Miscellaneous Operating Expense
17,497

 
14,045

 
20,686

 
24,420

Depreciation, Depletion and Amortization
1

 
5

 
1

 
12

Loss on Debt Extinguishment

 
17

 

 
67,751

Interest Expense
47,427

 
46,506

 
97,292

 
101,627

Total Other Costs
64,925

 
60,573

 
117,979

 
193,810

Total Costs And Expenses
619,164

 
1,424,466

 
1,217,863

 
2,147,102

Loss From Continuing Operations Before Income Tax
(333,364
)
 
(878,892
)
 
(399,292
)
 
(840,679
)
Income Taxes
(100,354
)
 
(301,669
)
 
(123,571
)
 
(316,652
)
Loss From Continuing Operations
(233,010
)
 
(577,223
)
 
(275,721
)
 
(524,027
)
Loss From Discontinued Operations, net
(235,639
)
 
(26,078
)
 
(289,391
)
 
(244
)
Net Loss
(468,649
)
 
(603,301
)
 
(565,112
)
 
(524,271
)
Less: Net Income Attributable to Noncontrolling Interest
1,179

 

 
2,293

 

Net Loss Attributable to CONSOL Energy Shareholders
$
(469,828
)
 
$
(603,301
)
 
$
(567,405
)
 
$
(524,271
)





The accompanying notes are an integral part of these financial statements.


3



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(CONTINUED)
 
Three Months Ended
 
Six Months Ended
(Dollars in thousands, except per share data)
June 30,
 
June 30,
(Unaudited)
2016
 
2015
 
2016
 
2015
Loss Per Share
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Loss from Continuing Operations
$
(1.02
)
 
$
(2.52
)
 
$
(1.21
)
 
$
(2.29
)
Loss from Discontinued Operations
(1.03
)
 
(0.12
)
 
(1.26
)
 

Total Basic Loss Per Share
$
(2.05
)
 
$
(2.64
)
 
$
(2.47
)
 
$
(2.29
)
Dilutive
 
 
 
 
 
 
 
Loss from Continuing Operations
$
(1.02
)
 
$
(2.52
)
 
$
(1.21
)
 
$
(2.29
)
Loss from Discontinued Operations
(1.03
)
 
(0.12
)
 
(1.26
)
 

Total Dilutive Loss Per Share
$
(2.05
)
 
$
(2.64
)
 
$
(2.47
)
 
$
(2.29
)
 
 
 
 
 
 
 
 
Dividends Paid Per Share
$

 
$
0.0625

 
$
0.0100

 
$
0.1250


CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended
 
Six Months Ended
(Dollars in thousands)
June 30,
 
June 30,
(Unaudited)
2016
 
2015
 
2016
 
2015
Net Loss
$
(468,649
)
 
$
(603,301
)
 
$
(565,112
)
 
$
(524,271
)
Other Comprehensive Loss:
 
 
 
 
 
 
 
  Actuarially Determined Long-Term Liability Adjustments (Net of tax: ($5,008), ($4,875), ($4,326), ($4,785))
8,045

 
9,467

 
5,561

 
9,318

  Reclassification of Cash Flow Hedges from OCI to Earnings (Net of tax: $6,521, $12,103, $12,145, $23,316)
(11,203
)
 
(20,804
)
 
(21,017
)
 
(40,118
)


 

 
 
 
 
Other Comprehensive Loss
(3,158
)
 
(11,337
)
 
(15,456
)
 
(30,800
)


 

 
 
 
 
Comprehensive Loss
(471,807
)
 
(614,638
)
 
(580,568
)
 
(555,071
)
 
 
 
 
 
 
 
 
Less: Net Income Attributable to Noncontrolling Interests
1,179

 

 
2,293

 

 
 
 
 
 
 
 
 
Comprehensive Loss Attributable to CONSOL Energy Inc. Shareholders
$
(472,986
)
 
$
(614,638
)
 
$
(582,861
)
 
$
(555,071
)









The accompanying notes are an integral part of these financial statements.


4



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
(Unaudited)
 
 
(Dollars in thousands)
June 30,
2016
 
December 31,
2015
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
97,626

 
$
72,574

Accounts and Notes Receivable:
 
 

Trade
153,977

 
151,383

Other Receivables
94,125

 
121,735

Inventories
60,818

 
66,792

Recoverable Income Taxes

 
13,887

Prepaid Expenses
103,526

 
297,287

Current Assets of Discontinued Operations
16,168

 
81,106

Total Current Assets
526,240

 
804,764

Property, Plant and Equipment:
 
 
 
Property, Plant and Equipment
13,866,137

 
13,794,907

Less—Accumulated Depreciation, Depletion and Amortization
5,360,046

 
5,062,201

Property, Plant and Equipment of Discontinued Operations, Net
103,085

 
936,670

Total Property, Plant and Equipment—Net
8,609,176

 
9,669,376

Other Assets:
 
 
 
Deferred Income Taxes
175,929

 

Investment in Affiliates
256,167

 
237,330

Other
214,079

 
214,388

Other Assets of Discontinued Operations
3,166

 
4,044

Total Other Assets
649,341

 
455,762

TOTAL ASSETS
$
9,784,757

 
$
10,929,902

























The accompanying notes are an integral part of these financial statements.


5



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 
 
(Unaudited)
 
 
(Dollars in thousands, except per share data)
June 30,
2016
 
December 31,
2015
LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts Payable
$
171,359

 
$
250,609

Current Portion of Long-Term Debt
4,368

 
4,988

Short-Term Notes Payable
466,000

 
952,000

Accrued Income Taxes
5,459

 

Other Accrued Liabilities
479,255

 
421,827

Current Liabilities of Discontinued Operations
24,938

 
51,514

Total Current Liabilities
1,151,379

 
1,680,938

Long-Term Debt:
 
 
 
Long-Term Debt
2,723,004

 
2,708,320

Capital Lease Obligations
31,494

 
34,884

Long-Term Debt of Discontinued Operations
1,254

 
5,001

Total Long-Term Debt
2,755,752

 
2,748,205

Deferred Credits and Other Liabilities:
 
 
 
Deferred Income Taxes

 
74,629

Postretirement Benefits Other Than Pensions
619,220

 
630,892

Pneumoconiosis Benefits
117,984

 
111,903

Mine Closing
214,344

 
227,339

Gas Well Closing
164,195

 
163,842

Workers’ Compensation
68,687

 
69,812

Salary Retirement
87,321

 
91,596

Reclamation
246

 
25

Other
244,354

 
166,957

Deferred Credits and Other Liabilities of Discontinued Operations
89,845

 
107,988

Total Deferred Credits and Other Liabilities
1,606,196

 
1,644,983

TOTAL LIABILITIES
5,513,327

 
6,074,126

Stockholders’ Equity:
 
 
 
Common Stock, $.01 Par Value; 500,000,000 Shares Authorized, 229,433,854 Issued and Outstanding at June 30, 2016; 229,054,236 Issued and Outstanding at December 31, 2015
2,298

 
2,294

Capital in Excess of Par Value
2,445,840

 
2,435,497

Preferred Stock, 15,000,000 shares authorized, None issued and outstanding

 

Retained Earnings
2,008,514

 
2,579,834

Accumulated Other Comprehensive Loss
(331,054
)
 
(315,598
)
Total CONSOL Energy Inc. Stockholders’ Equity
4,125,598

 
4,702,027

Noncontrolling Interest
145,832

 
153,749

TOTAL EQUITY
4,271,430

 
4,855,776

TOTAL LIABILITIES AND EQUITY
$
9,784,757

 
$
10,929,902






The accompanying notes are an integral part of these financial statements.


6



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

 
(Dollars in thousands, except per share data)
Common
Stock
 
Capital in
Excess
of Par
Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total CONSOL Energy Inc.
Stockholders’
Equity
 
Non-
Controlling
Interest
 
Total
Equity
Balance at December 31, 2015
$
2,294

 
$
2,435,497

 
$
2,579,834

 
$
(315,598
)
 
$
4,702,027

 
$
153,749

 
$
4,855,776

(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (Loss) Income

 

 
(567,405
)
 

 
(567,405
)
 
2,293

 
(565,112
)
Other Comprehensive Loss

 

 

 
(15,456
)
 
(15,456
)
 

 
(15,456
)
Comprehensive (Loss) Income

 

 
(567,405
)
 
(15,456
)
 
(582,861
)
 
2,293

 
(580,568
)
Issuance of Common Stock
4

 

 

 

 
4

 

 
4

Treasury Stock Activity

 

 
(1,621
)
 

 
(1,621
)
 

 
(1,621
)
Tax Cost From Stock-Based Compensation

 
(5,096
)
 

 

 
(5,096
)
 

 
(5,096
)
Amortization of Stock-Based Compensation Awards

 
15,439

 

 

 
15,439

 
615

 
16,054

Distributions to Noncontrolling Interest

 

 

 

 

 
(10,825
)
 
(10,825
)
Dividends ($0.01 per share)

 

 
(2,294
)
 

 
(2,294
)
 

 
(2,294
)
Balance at June 30, 2016
$
2,298

 
$
2,445,840

 
$
2,008,514

 
$
(331,054
)
 
$
4,125,598

 
$
145,832

 
$
4,271,430


























The accompanying notes are an integral part of these financial statements.


7



CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended
(Unaudited)
June 30,
Operating Activities:
2016
 
2015
Net Loss
$
(565,112
)
 
$
(524,271
)
Adjustments to Reconcile Net Loss to Net Cash Provided By Operating Activities:

 

Net Loss from Discontinued Operations
289,391

 
244

Depreciation, Depletion and Amortization
290,209

 
280,288

Impairment of Exploration and Production Properties

 
828,905

Non-Cash Other Post-Employment Benefits

 
(50,925
)
Stock-Based Compensation
16,054

 
14,129

Loss (Gain) on Sale of Assets
1,662

 
(6,286
)
Loss on Debt Extinguishment

 
67,751

Loss (Gain) on Commodity Derivative Instruments
144,320

 
(107,467
)
Net Cash Received in Settlement of Commodity Derivative Instruments
164,666

 
72,399

Deferred Income Taxes
(124,516
)
 
(312,234
)
Equity in Earnings of Affiliates
(25,884
)
 
(23,250
)
Return on Equity Investment
9,192

 
8,162

Changes in Operating Assets:

 

Accounts and Notes Receivable
18,101

 
93,180

Inventories
(7,947
)
 
(8,118
)
Prepaid Expenses
47,136

 
83,570

Changes in Other Assets
(15,298
)
 
16,943

Changes in Operating Liabilities:

 

Accounts Payable
(45,781
)
 
(93,870
)
Accrued Interest
(807
)
 
26,149

Other Operating Liabilities
(14,069
)
 
(118,056
)
Changes in Other Liabilities
15,343

 
(56,340
)
Other
9,648

 
56,800

Net Cash Provided by Continuing Operating Activities
206,308

 
247,703

Net Cash Provided by Discontinued Operating Activities
17,433

 
46,512

Net Cash Provided by Operating Activities
223,741

 
294,215

Investing Activities:

 

Capital Expenditures
(115,257
)
 
(616,484
)
Proceeds from Sales of Assets
18,284

 
6,931

Net Investments in Equity Affiliates
(5,578
)
 
(43,761
)
Net Cash Used in Continuing Investing Activities
(102,551
)
 
(653,314
)
Net Cash Provided by (Used in) Discontinued Investing Activities
394,511

 
(19,301
)
Net Cash Provided by (Used in) Investing Activities
291,960

 
(672,615
)
Financing Activities:

 

(Payments on) Proceeds from Short-Term Borrowings
(486,000
)
 
1,058,000

Payments on Miscellaneous Borrowings
(4,459
)
 
(4,029
)
Payments on Long-Term Notes, including Redemption Premium

 
(1,263,719
)
Net Proceeds from Revolver - CNX Coal Resources LP
13,000

 

Distributions to Noncontrolling Interest
(10,825
)
 

Proceeds from Securitization Facility

 
38,669

Proceeds from Issuance of Long-Term Notes

 
492,760

Tax Benefit from Stock-Based Compensation

 
198

Dividends Paid
(2,294
)
 
(28,711
)
Issuance of Common Stock
4

 
8,288

Purchases of Treasury Stock

 
(71,674
)
Debt Issuance and Financing Fees

 
(18,257
)
Net Cash (Used in) Provided by Continuing Financing Activities
(490,574
)
 
211,525

Net Cash Used in Discontinued Financing Activities
(75
)
 
(83
)
Net Cash (Used in) Provided by Financing Activities
(490,649
)
 
211,442

Net Increase (Decrease) in Cash and Cash Equivalents
25,052

 
(166,958
)
Cash and Cash Equivalents at Beginning of Period
72,574

 
176,985

Cash and Cash Equivalents at End of Period
$
97,626

 
$
10,027

The accompanying notes are an integral part of these financial statements.


8



CONSOL ENERGY INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

NOTE 1—BASIS OF PRESENTATION:

The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for future periods.

The Consolidated Balance Sheet at December 31, 2015 has been derived from the Audited Consolidated Financial Statements at that date but does not include all the notes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Consolidated Financial Statements and related notes for the year ended December 31, 2015 included in CONSOL Energy Inc.'s Annual Report on Form 10-K.

During the six months ended June 30, 2016, CONSOL Energy Inc. ("CONSOL Energy" or "the Company") made certain adjustments to the financial statements to reflect the sale of the Buchanan Mine, which is now reflected under "discontinued operations." Additionally, CONSOL Energy made reclassifications within its financial statements to better align the Company's financial reporting with its peer group. These reclassifications impacted the "Lease Operating Expense", "Transportation, Gathering and Compression," "Direct Administrative and Selling," "Production Royalty Interests and Purchased Gas Sales," "Production Royalty Interests and Purchased Gas Costs," "Operating and Other Costs" and "Selling, General and Administrative" line items on the Company's Consolidated Statements of Income. These changes are reflected in CONSOL Energy's current and historic Consolidated Statements of Income, with no effect on previously reported net income or stockholders’ equity.

During the quarter ended June 30, 2016, CONSOL Energy's Board of Directors approved the sale of the Fola and Miller Creek Mining Complexes. The Company was actively marketing these mines for sale, and believed the transaction would close within twelve months. As such, the expected sale caused the Company to classify these assets as held for sale in discontinued operations on CONSOL Energy's Consolidated Balance Sheets, include the results of operations in discontinued operations on the Consolidated Statements of Income and cash flows from discontinued operations in the Consolidated Statements of Cash Flow. See Note 2 - Discontinued Operations for more information.

Basic earnings per share are computed by dividing net income attributable to CONSOL Energy Shareholders by the weighted average shares outstanding during the reporting period. Dilutive earnings per share are computed similarly to basic earnings per share, except that the weighted average shares outstanding are increased to include additional shares from stock options, performance stock options, restricted stock units and performance share units, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and performance share options were exercised, that outstanding restricted stock units and performance share units were released, and that the proceeds from such activities were used to acquire shares of common stock at the average market price during the reporting period. CONSOL Energy includes the impact of pro forma deferred tax assets in determining potential windfalls and shortfalls for purposes of calculating assumed proceeds under the treasury stock method.

The table below sets forth the share-based awards that have been excluded from the computation of the diluted earnings per share because their effect would be anti-dilutive:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Anti-Dilutive Options
6,348,665
 
 
3,667,080
 
 
6,348,665
 
 
3,667,080
 
Anti-Dilutive Restricted Stock Units
742,868
 
 
1,606,672
 
 
742,868
 
 
1,606,672
 
Anti-Dilutive Performance Share Units
951,541
 
 
 
 
951,541
 
 
 
Anti-Dilutive Performance Stock Options
802,804
 
 
802,804
 
 
802,804
 
 
802,804
 
 
8,845,878
 
 
6,076,556
 
 
8,845,878
 
 
6,076,556
 






9




The table below sets forth the share-based awards that have been exercised or released:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Options
 
 
287,592
 
 
 
 
363,620
 
Restricted Stock Units
83,710
 
 
37,149
 
 
568,390
 
 
486,507
 
Performance Share Units
 
 
 
 
 
 
497,134
 
 
83,710
 

324,741
 
 
568,390
 
 
1,347,261
 

No options were exercised during the three and six months ended June 30, 2016. The weighted average exercise price per share of the options exercised during the three and six months ended June 30, 2015 was $22.78.
The computations for basic and dilutive earnings per share are as follows:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Loss from Continuing Operations
$
(233,010
)
 
$
(577,223
)
 
$
(275,721
)
 
$
(524,027
)
Loss from Discontinued Operations
(235,639
)
 
(26,078
)
 
(289,391
)
 
(244
)
Net Loss
$
(468,649
)
 
$
(603,301
)
 
$
(565,112
)
 
$
(524,271
)
Net Income Attributable to Noncontrolling Interest
1,179
 
 
 
 
2,293
 
 
 
Net Loss Attributable to CONSOL Energy Shareholders
$
(469,828
)
 
$
(603,301
)
 
$
(567,405
)
 
$
(524,271
)
Weighted Average Shares of Common Stock Outstanding:
 
 
 
 
 
 
 
Basic
229,409,325
 
 
228,928,803
 
 
229,334,277
 
 
229,329,382
 
Effect of Stock-Based Compensation Awards
 
 
 
 
 
 
 
Dilutive
229,409,325
 
 
228,928,803
 
 
229,334,277
 
 
229,329,382
 
Loss per Share:
 
 
 
 
 
 
 
Basic (Continuing Operations)
$
(1.02
)
 
$
(2.52
)
 
$
(1.21
)
 
$
(2.29
)
Basic (Discontinued Operations)
(1.03
)
 
(0.12
)
 
(1.26
)
 
 
Total Basic
$
(2.05
)

$
(2.64
)
 
$
(2.47
)
 
$
(2.29
)
 
 
 
 
 
 
 
 
Dilutive (Continuing Operations)
$
(1.02
)
 
$
(2.52
)
 
$
(1.21
)
 
$
(2.29
)
Dilutive (Discontinued Operations)
(1.03
)
 
(0.12
)
 
(1.26
)
 
 
Total Dilutive
$
(2.05
)
 
$
(2.64
)
 
$
(2.47
)
 
$
(2.29
)

Changes in Accumulated Other Comprehensive Loss by component, net of tax, were as follows:
 
Gains on Cash Flow Hedges
 
Postretirement Benefits
 
Total
Balance at December 31, 2015
$
43,470
 
 
$
(359,068
)
 
$
(315,598
)
Other Comprehensive Loss before Reclassifications
 
 
(9,046
)
 
(9,046
)
Amounts reclassified from Accumulated Other Comprehensive Loss
(21,017
)
 
14,607
 
 
(6,410
)
Current period Other Comprehensive (Loss) Income
(21,017
)
 
5,561
 
 
(15,456
)
Balance at June 30, 2016
$
22,453
 
 
$
(353,507
)
 
$
(331,054
)












10




The following table shows the reclassification of adjustments out of Accumulated Other Comprehensive Loss:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Derivative Instruments (Note 14)
 
 
 
 
 
 
 
Natural Gas Price Swaps and Options
$
(17,724
)
 
$
(32,907
)
 
$
(33,162
)
 
$
(63,434
)
Tax Expense
6,521
 
 
12,103
 
 
12,145
 
 
23,316
 
Net of Tax
$
(11,203
)
 
$
(20,804
)
 
$
(21,017
)
 
$
(40,118
)
Actuarially Determined Long-Term Liability Adjustments* (Note 5 and Note 6)
 
 
 
 
 
 
 
Amortization of Prior Service Costs
$
(148
)
 
$
(54,495
)
 
$
(295
)
 
$
(69,308
)
Recognized Net Actuarial Loss
5,706
 
 
24,169
 
 
11,217
 
 
38,742
 
Settlement Loss
13,696
 
 
 
 
13,696
 
 
 
Total
19,254
 
 
(30,326
)
 
24,618
 
 
(30,566
)
Tax (Benefit) Expense
(7,178
)
 
11,398
 
 
(9,196
)
 
11,488
 
Net of Tax
$
12,076
 
 
$
(18,928
)
 
$
15,422
 
 
$
(19,078
)

*Excludes amounts related to the remeasurement of the Actuarially Determined Long-Term Liabilities. Also excludes $815, net of tax, of reclassifications out of Accumulated Other Comprehensive Income related to discontinued operations for the six months ended June 30, 2016.

NOTE 2—DISCONTINUED OPERATIONS:

At June 30, 2016, CONSOL Energy's Board of Directors had approved the sale of the Fola and Miller Creek mining complexes. In addition, the Company was actively marketing these mines and believed the transaction would close within twelve months (See Note 21 - Subsequent Events for more information). As such, the expected sale caused the Company to classify these assets as held for sale in "discontinued operations" on CONSOL Energy's Consolidated Balance Sheets, to include the results of operations in discontinued operations in the Consolidated Statement of Income and cash flows from discontinued operations in the Consolidated Statements of Cash Flow. In accordance with the accounting guidance for Property, Plant and Equipment, assets held for sale are measured at the lower of the carrying value or fair value less costs to sell. Upon meeting the assets held for sale criteria, the Company determined the carrying value of the Fola and Miller Creek mining complexes exceeded the fair value less costs to sell. As a result, an impairment charge of $355,681 was recorded during the three months ended June 30, 2016. This impairment is included in the Loss from Discontinued Operations, net in the accompanying Consolidated Statements of Income.

On March 31, 2016, CONSOL Energy completed the sale of its membership interests in CONSOL Buchanan Mining Company, LLC (BMC), which owned and operated the Buchanan Mine located in Mavisdale, Virginia; various assets relating to the Amonate Mining Complex located in Amonate, Virginia; Russell County, Virginia coal reserves and Pangburn Shaner Fallowfield coal reserves located in Southwestern, Pennsylvania to Coronado IV LLC ("Coronado"). Various CONSOL Energy assets were excluded from the sale including coalbed methane, natural gas and minerals other than coal, current assets of BMC, certain coal seams, certain surface rights, and the Amonate Preparation Plant. Coronado assumed only specified liabilities and various CONSOL Energy liabilities were excluded and not assumed. The excluded liabilities included BMC’s indebtedness, trade payables and liabilities arising prior to closing, as well as the liabilities of the subsidiaries other than BMC which are parties to the sale. In addition, the buyer agreed to pay CONSOL Energy for Buchanan Mine coal sold outside the U.S. and Canada during the five years following closing a royalty of 20% of any excess of the gross sales price per ton over the following amounts: (1) year one, $75.00 per ton; (2) year two, $78.75 per ton; (3) year three, $82.69 per ton; (4) year four, $86.82 per ton; (5) year five, $91.16 per ton. At closing, the parties entered into several agreements including, among others, agreements relating to the coordination and conduct of gas operations at the mines, an option to purchase the Amonate Preparation Plant and transition services. Cash proceeds of $402,799 were received at closing and are included in Net Cash Provided by Discontinued Investing Activities on the Consolidated Statements of Cash Flow. The net loss on the sale was $38,364 and was included in Loss from Discontinued Operations, net on the Consolidated Statements of Income.
For all periods presented in the accompanying Consolidated Statements of Income, the sale of BMC along with the various other assets are classified as discontinued operations. The Fola and Miller Creek Mining Complexes were classified as held for sale in discontinued operations.



11



The following table details selected financial information for the divested business included within discontinued operations and the businesses that are held for sale in discontinued operations:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
  
2016
 
2015
 
2016
 
2015
Coal Sales
$
19,411

 
$
95,484

 
$
95,930

 
$
206,124

Freight-Outside Coal
5

 
1,501

 
1,017

 
3,008

Miscellaneous Other Income
2

 
20

 
33

 
31

Gain (Loss) on Sale of Assets
100

 
3

 
(38,253
)
 
194

Total Revenue and Other Income
$
19,518

 
$
97,008

 
$
58,727

 
$
209,357

Total Coal Costs
26,547

 
113,347

 
115,780

 
210,481

Loss From Operations Before Income Taxes
$
(7,029
)
 
$
(16,339
)
 
$
(57,053
)
 
$
(1,124
)
Impairment on Assets Held for Sale
355,681

 

 
355,681

 

Income Tax (Benefit) Expense
(127,071
)
 
9,739

 
(123,343
)
 
(880
)
Loss From Discontinued Operations, net
$
(235,639
)
 
$
(26,078
)
 
$
(289,391
)
 
$
(244
)

The major classes of assets and liabilities of discontinued operations and held for sale in discontinued operations are as follows:
 
June 30,
2016
 
December 31,
2015
Assets:
 
 
 
Accounts Receivable - Trade
$
10,672

 
$
49,125

Inventories
5,422

 
30,646

Prepaid Expense
9

 
970

Other Current Assets
65

 
365

Total Current Assets
$
16,168

 
$
81,106

Property, Plant and Equipment, Net
103,085

 
936,670

Other Assets
3,166

 
4,044

Total Assets of Discontinued Operations
$
122,419

 
$
1,021,820

Liabilities:
 
 
 
Accounts Payable
$
5,177

 
$
20,786

Other Current Liabilities
19,761

 
30,728

Total Current Liabilities
$
24,938

 
$
51,514

Long Term Debt
1,254

 
5,001

Pneumoconiosis Benefits

 
1,129

Mine Closing
61,329

 
71,941

Reclamation
28,516

 
34,126

Other liabilities

 
792

Total Liabilities of Discontinued Operations
$
116,037

 
$
164,503


NOTE 3—ACQUISITIONS AND DISPOSITIONS:

In December 2014, CNX Gas Company LLC (CNX Gas Company), a wholly-owned subsidiary of CONSOL Energy, finalized an agreement with Columbia Energy Ventures (CEVCO) to sublease from CEVCO approximately 20,000 acres of Utica Shale and Upper Devonian gas rights in Greene and Washington Counties in Pennsylvania and Marshall and Ohio Counties in West Virginia. Up-front bonus consideration of up to $96,106 will be paid by CONSOL Energy over a five year period, as drilling occurs, in addition to royalties, of which $49,533 was recorded in Other Current Liabilities and $40,286 was recorded on a discounted basis in Other Long-Term Liabilities. CONSOL Energy did not make a payment to CEVCO in the six months ended June 30, 2016 while $15,216 of payments were made for the six months ended June 30, 2015. At June 30, 2016, the amounts recorded in Other Current Liabilities and Other Long-Term Liabilities were $9,000 and $28,682, respectively. At December 31, 2015, the amounts recorded in Other Current Liabilities and Other Long-Term Liabilities were $8,349 and $29,333, respectively.



12



NOTE 4—MISCELLANEOUS OTHER INCOME:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Rental Income
$
9,079

 
$
9,406

 
$
18,275

 
$
18,998

Equity in Earnings of Affiliates - CONE
8,205

 
9,381

 
22,556

 
17,037

Coal Contract Buyout
6,288

 

 
6,288

 

Gathering Revenue
2,648

 
1,393

 
5,396

 
5,953

Royalty Income - Coal
2,423

 
3,602

 
4,653

 
8,142

Right of Way Issuance
2,070

 
5,422

 
17,803

 
7,950

Equity in Earnings of Affiliates - Other
1,014

 
2,546

 
3,328

 
6,213

Interest Income
547

 
364

 
761

 
1,507

Other
758

 
2,573

 
2,103

 
5,408

Total Miscellaneous Other Income
$
33,032

 
$
34,687

 
$
81,163

 
$
71,208


NOTE 5—COMPONENTS OF PENSION AND OTHER POST-EMPLOYMENT BENEFIT (OPEB) PLANS NET PERIODIC BENEFIT COSTS:

Components of net periodic benefit costs are as follows:
 
Pension Benefits
 
Other Post-Employment Benefits
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service Cost
$
482

 
$
2,350

 
$
963

 
$
4,700

 
$

 
$

 
$

 
$

Interest Cost
6,841

 
8,580

 
13,683

 
17,160

 
6,060

 
6,889

 
12,121

 
13,884

Expected Return on Plan Assets
(11,869
)
 
(12,690
)
 
(23,738
)
 
(25,379
)
 

 

 

 

Amortization of Prior Service Credits
(148
)
 
(176
)
 
(295
)
 
(352
)
 

 
(54,320
)
 

 
(68,956
)
Recognized net Actuarial Loss
2,116

 
6,940

 
4,232

 
13,880

 
4,792

 
18,522

 
9,584

 
27,448

Settlement Loss
13,696

 

 
13,696

 

 

 

 

 

Net Periodic Benefit Cost (Credit)
$
11,118

 
$
5,004

 
$
8,541

 
$
10,009

 
$
10,852

 
$
(28,909
)
 
$
21,705

 
$
(27,624
)

According to the Defined Benefit Plans Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification, if the lump sum distributions made during a plan year, which for CONSOL Energy is January 1 to December 31, exceed the total of the projected service cost and interest cost for the plan year, settlement accounting is required. Lump sum payments exceeded this threshold during the three and six months ended June 30, 2016. Accordingly, CONSOL Energy recognized settlement expense of $13,696 for the three and six months ended June 30, 2016 in Other Costs - Miscellaneous Operating Expense in the Consolidated Statements of Income. The settlement charges represented a pro rata portion of the net unrecognized loss based on the percentage reduction in the projected benefit obligation due to the lump sum payments. The settlement charges also resulted in a remeasurement of the pension plan, which increased the pension liability by $6,203. The remeasurement on June 30, 2016 used a discount rate of 3.73%, a decrease from 4.50% used at December 31, 2015. The settlement and corresponding remeasurement of the pension plan resulted in a decrease of $4,558 in Other Comprehensive Loss, net of $2,935 in deferred taxes.

For the six months ended June 30, 2016 and 2015, $1,307 and $2,521 was paid to the pension trust from operating cash flows, respectively. Additional contributions to the pension trust are not expected to be material for the remainder of 2016.

CONSOL Energy does not expect to contribute to the other post-employment benefit plan in 2016. The Company intends to pay benefit claims as they become due. For the six months ended June 30, 2016 and 2015, $23,312 and $26,935 of other post-employment benefits have been paid, respectively.


13



NOTE 6—COMPONENTS OF COAL WORKERS’ PNEUMOCONIOSIS (CWP) AND WORKERS’ COMPENSATION NET PERIODIC BENEFIT COSTS:
Components of net periodic benefit costs are as follows:
 
CWP
 
Workers' Compensation
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service Cost
$
1,041

 
$
1,623

 
$
2,244

 
$
3,246

 
$
1,904

 
$
2,347

 
$
3,809

 
$
4,695

Interest Cost
1,053

 
1,279

 
2,176

 
2,558

 
638

 
799

 
1,275

 
1,597

Amortization of Actuarial Gain
(1,188
)
 
(1,394
)
 
(2,571
)
 
(2,788
)
 
(101
)
 
(8
)
 
(202
)
 
(15
)
State Administrative Fees and Insurance Bond Premiums

 

 

 

 
968

 
973

 
1,699

 
1,876

Curtailment Gain

 

 
(1,307
)
 

 

 

 

 

Net Periodic Benefit Cost
$
906

 
$
1,508

 
$
542

 
$
3,016

 
$
3,409

 
$
4,111

 
$
6,581

 
$
8,153


Expense (income) attributable to discontinued operations included in the CWP net periodic cost above was $305 for the three months ended June 30, 2015, and $(1,290) and $380 for the six months ended June 30, 2016 and 2015, respectively.
On March 31, 2016, CONSOL Energy completed the sale of its membership interests in BMC (See Note 2 - Discontinued Operations). As a result of the sale, certain obligations of the CWP plan were transferred the buyer. This transfer triggered a curtailment gain of $1,307. The curtailment resulted in a plan remeasurement increasing plan liabilities by $5,014, net of $2,700 deferred tax at March 31, 2016.
CONSOL Energy does not expect to contribute to the CWP plan in 2016. The Company intends to pay benefit claims as they become due. For the six months ended June 30, 2016 and 2015, $5,600 and $5,293 of CWP benefit claims have been paid, respectively.
CONSOL Energy does not expect to contribute to the workers’ compensation plan in 2016. The Company intends to pay benefit claims as they become due. For the six months ended June 30, 2016 and 2015, $8,075 and $8,821 of workers’ compensation benefits, state administrative fees and surety bond premiums have been paid, respectively.

NOTE 7—INCOME TAXES:

The effective tax rate for the three and six months ended June 30, 2016 was 30.0% and 30.8%, respectively. The effective tax rate is different from the U.S. federal statutory rate of 35% primarily due to charges to record state valuation allowances and the effects of the 2010-2013 Federal tax audit still in progress, partially offset by a larger anticipated book loss and the income tax benefit for excess percentage depletion.

The effective tax rate for the three and six months ended June 30, 2015 was 34.3% and 37.7%, respectively. The effective tax rate is different from the U.S. federal statutory rate of 35% primarily due to impairment charges recorded in June 2015. In addition, as the Company's loss for the six months ended June 30, 2015 exceeded the anticipated ordinary loss for the full year, the tax benefit recognized for the six months ended June 30, 2015 was limited to the amount that would be recognized if the year-to-date ordinary loss were the anticipated ordinary loss for the full year. Another item contributing to the benefit is the deduction for percentage depletion in excess of cost depletion related to the Company's coal operations.

The total amount of uncertain tax positions at June 30, 2016 and December 31, 2015 was $15,536 and $12,702, respectively. If these uncertain tax positions were recognized, approximately $2,834 would affect CONSOL Energy's effective tax rate at June 30, 2016. There would be no effect on the Company's effective tax rate at December 31, 2015. There was an increase of $2,834 to the liability for unrecognized tax benefits during the six months ended June 30, 2016.
CONSOL Energy recognizes interest accrued related to uncertain tax positions in interest expense. As of June 30, 2016 and December 31, 2015, the Company reported an accrued interest liability relating to uncertain tax positions of $180 and $53, respectively, in Other Current Liabilities on the Consolidated Balance Sheet. The accrued interest liability includes $127 of accrued interest expense that is reflected in the Company's Consolidated Statements of Income for the six months ended June 30, 2016.
CONSOL Energy recognizes penalties accrued related to uncertain tax positions in its income tax expense. As of June 30, 2016 and December 31, 2015, CONSOL Energy had no accrued liabilities for tax penalties related to uncertain tax positions.


14



CONSOL Energy and its subsidiaries file federal income tax returns with the United States and returns within various states and Canadian jurisdictions. With few exceptions, the Company is no longer subject to United States federal, state, local, or non-U.S. income tax examinations by tax authorities for the years before 2010. The Company expects the Internal Revenue Service to conclude its audit of tax years 2010 through 2013 in the third quarter of 2016.

NOTE 8—INVENTORIES:

Inventory components consist of the following:
 
June 30,
2016
 
December 31,
2015
Coal
$
2,975

 
$
4,660

Supplies
57,843

 
62,132

Total Inventories
$
60,818

 
$
66,792


Inventories are stated at the lower of cost or net realizable value. The cost of coal inventories is determined by the first-in, first-out (FIFO) method. Coal inventory costs include labor, supplies, equipment costs, operating overhead, depreciation, depletion and amortization, and other related costs. The cost of supplies inventory is determined by the average cost method and includes operating and maintenance supplies to be used in our natural gas and coal operations.

NOTE 9—ACCOUNTS RECEIVABLE SECURITIZATION:
CONSOL Energy and certain of its U.S. subsidiaries were party to a trade accounts receivable facility with financial institutions for the sale on a continuous basis of eligible trade accounts receivable. This facility was terminated on July 7, 2015.
CNX Funding Corporation, a wholly owned, special purpose, bankruptcy-remote subsidiary, bought and sold eligible trade receivables generated by certain subsidiaries of CONSOL Energy. Under the receivables facility, CONSOL Energy and certain subsidiaries, irrevocably and without recourse, sold all of their eligible trade accounts receivable to CNX Funding Corporation, who in turn sold these receivables to financial institutions and their affiliates, while maintaining a subordinated interest in a portion of the pool of trade receivables. This retained interest, which was included in Accounts and Notes Receivable-Trade in the Consolidated Balance Sheets, was recorded at fair value. Due to a short average collection cycle for such receivables, CONSOL Energy's collection experience history and the composition of the designated pool of trade accounts receivable that were part of this program, the fair value of its retained interest approximated the total amount of the designated pool of accounts receivable. CONSOL Energy serviced the sold trade receivables for the financial institutions for a fee based upon market rates for similar services.
In accordance with the Transfers and Servicing Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification, CONSOL Energy recorded transactions under the securitization facility as secured borrowings on the Consolidated Balance Sheets. The pledge of collateral was reported as Accounts Receivable - Securitized and the borrowings were classified as debt in Borrowings under Securitization Facility.
The cost of funds under this facility was based upon LIBOR and commercial paper rates, plus a charge for administrative services paid to the financial institution. Costs associated with the receivables facility totaled $207 and $403 for the three and six months ended June 30, 2015, respectively. These costs were recorded as financing fees which are included in Other Costs - Miscellaneous Operating Expense in the Consolidated Statements of Income.


15



NOTE 10—PROPERTY, PLANT AND EQUIPMENT:
 
June 30,
2016
 
December 31,
2015
E&P Property, Plant and Equipment
 
 
 
Intangible drilling cost
$
3,491,437

 
$
3,452,989

Proved gas properties
1,928,917

 
1,922,602

Unproved gas properties
1,422,991

 
1,421,083

Gas gathering equipment
1,128,278

 
1,147,173

Gas wells and related equipment
819,408

 
785,744

Other gas assets
127,645

 
125,691

Gas advance royalties
15,278

 
19,745

Total E&P Property, Plant and Equipment
$
8,933,954

 
$
8,875,027

Less: Accumulated Depreciation, Depletion and Amortization
2,902,470

 
2,695,674

Total E&P Property, Plant and Equipment - Net
$
6,031,484

 
$
6,179,353

 
 
 
 
Coal and Other Property, Plant and Equipment - Continuing Operations:
 
 
 
Coal and other plant and equipment
$
2,856,928

 
$
2,853,436

Coal properties and surface lands
805,011

 
769,537

Airshafts
371,064

 
361,872

Mine development
344,138

 
344,298

Coal advance mining royalties
330,738

 
328,715

Leased coal lands
224,304

 
262,022

Total Coal and Other Property, Plant and Equipment
$
4,932,183

 
$
4,919,880

Less: Accumulated Depreciation, Depletion and Amortization
2,457,576

 
2,366,527

Total Coal and Other Property, Plant and Equipment - Net
$
2,474,607

 
$
2,553,353

 
 
 
 
Total Company Property, Plant and Equipment
$
13,866,137

 
$
13,794,907

Less - Total Company Accumulated Depreciation, Depletion and Amortization
5,360,046

 
5,062,201

Total Property, Plant and Equipment of Continuing Operations - Net
$
8,506,091

 
$
8,732,706


Impairment of Proved Properties

CONSOL Energy performs a quantitative annual impairment test, during the fourth quarter of each year, over proved properties using the published NYMEX forward prices, timing, methods and other assumptions consistent with historical periods. During interim periods, management updates these annual tests whenever events or changes in circumstances indicate that a property’s carrying amount may not be recoverable. Throughout the first six months of 2015, spot prices and forward curves for natural gas continued to decline from December 31, 2014 prices, which together with other macro-economic factors in the exploration and production industry were deemed indicators of impairment for all of the Company's natural gas assets.  Impairment tests require that the Company first compare future undiscounted cash flows by asset group to their respective carrying values. If the carrying amount exceeds the estimated undiscounted future cash flows, a reduction of the carrying amount of the natural gas properties to their estimated fair values is required, which is determined based on discounted cash flow techniques using a market-specific weighted average cost of capital. 

During the quarter ended June 30, 2015, certain of the Company’s producing gas properties, primarily shallow oil and gas assets, failed the undiscounted cash flow portion of the test. After performing the discounted cash flow portion of the test, CONSOL Energy recorded an impairment of $824,742 in the Impairment of Exploration and Production Properties in the Consolidated Statement of Income. Valuation of the impaired assets is a Level 3 measurement as it incorporates significant unobservable inputs, such as future production levels and operating costs, within the discounted cash flow analysis. The impairment related to approximately 95% of the Company’s shallow oil and gas assets in West Virginia and Pennsylvania. No such impairments were recorded during the three or six months ended June 30, 2016.

Impairment of Unproved Properties

CONSOL Energy evaluates capitalized costs of unproved gas properties for recoverability on a prospective basis. Indicators of potential impairment include potential shifts in business strategy, overall economic factors and historical experience. If it is determined that the properties will not yield proven reserves, the related costs are expensed in the period the determination is


16



made. For the quarter ended June 30, 2015, unproved property impairments relating to the determination that the properties will not yield proved reserves were $4,163 and are included in the Impairment of Exploration and Production Properties in the Consolidated Statement of Income. Valuation of the impaired assets is a Level 3 measurement as it incorporates significant unobservable inputs, such as future production levels and operating costs, within the discounted cash flow analysis. This impairment primarily related to the court ruling in June 2015 in the state of New York that officially bans hydraulic fracturing. No such impairments were recorded during the three or six months ended June 30, 2016.

Industry Participation Agreements

CONSOL Energy has two significant industry participation agreements (referred to as "joint ventures" or "JVs") that provided drilling and completion carries for the Company's retained interests.

CNX Gas Company is party to a joint development agreement with Hess Ohio Developments, LLC (Hess) with respect to approximately 155 thousand net Utica Shale acres in Ohio in which each party has a 50% undivided interest. Under the agreement, as amended, Hess is obligated to pay a total of approximately $335,000 in the form of a 50% drilling carry of certain CONSOL Energy working interest obligations as the acreage is developed. As of June 30, 2016, Hess’ remaining carry obligation is $6,616.

CNX Gas Company is party to a joint development agreement with Noble Energy, Inc. (Noble) with respect to approximately 700 thousand net Marcellus Shale natural gas and oil acres in West Virginia and Pennsylvania, in which each party owns a 50% undivided interest. Under the agreement, as amended, Noble Energy is obligated to pay a total of approximately $1,846,000 in the form of a one-third drilling carry of certain of CONSOL Energy’s working interest obligations as the property is developed, subject to certain limitations. These limitations include the suspension of the carry if average Henry Hub natural gas prices are below $4.00 per million British thermal units (MMbtu) for three consecutive months. The carry was in effect from March 1, 2014, until November 1, 2014 at which time natural gas prices had fallen below $4.00/MMbtu for three consecutive months. The carry remains suspended. Limitations also include a $400,000 annual maximum on Noble Energy's carried cost obligation. As of June 30, 2016, Noble Energy’s remaining carry obligation is $1,624,448.
  
NOTE 11—SHORT-TERM NOTES PAYABLE:
CONSOL Energy's current senior secured credit agreement expires on June 18, 2019. The credit facility allows for up to $2,000,000 of borrowings, which includes a $750,000 letters of credit sub-limit. CONSOL Energy can request an additional $500,000 increase in the aggregate borrowing limit amount.

The current facility is secured by substantially all of the assets of CONSOL Energy and certain of its subsidiaries. Fees and interest rate spreads are based on the percentage of facility utilization, measured quarterly. Availability under the facility is limited to a borrowing base, which is determined by the lenders syndication agent and approved by the required number of lenders in good faith by calculating a value of CONSOL Energy's proved natural gas reserves.

The current facility contains a number of affirmative and negative covenants that limit the Company's ability to dispose of assets, make investments, purchase or redeem CONSOL Energy common stock, pay dividends, merge with another corporation and amend, modify or restate the senior unsecured notes. In April 2016, the facility was amended to require that: (i) the Company must prepay outstanding loans under the revolving credit facility to the extent that cash on hand exceeds $150 million for two consecutive business days; (ii) mortgage 85% of its proved reserves and 80% of its proved developed producing reserves, in each case, which are included in the borrowing base; (iii) maintain applicable deposit, securities and commodities accounts with the lenders or affiliates thereof; and (iv) enter into control agreements with respect to such applicable accounts. In addition, the Company pledged the equity interest it holds in CONE Gathering, LLC, and CONE Midstream Partners, LP as collateral to secure loans under the credit agreement.

The facility also requires that CONSOL Energy maintain a minimum interest coverage ratio of 2.50 to 1.00, which is calculated as the ratio of Adjusted EBITDA to cash interest expense of CONSOL Energy and certain of its subsidiaries, measured quarterly. CONSOL Energy must also maintain a minimum current ratio of no less than 1.00 to 1.00, which is calculated as the ratio of current assets, plus revolver availability, to current liabilities, excluding borrowings under the revolver, measured quarterly. At June 30, 2016, the interest coverage ratio was 4.79 to 1.00 and the current ratio was 2.75 to 1.00. Further, the credit facility allows unlimited investments in joint ventures for the development and operation of natural gas gathering systems and permits CONSOL Energy to separate its E&P and coal businesses if the leverage ratio (which is, essentially, the ratio of debt to EBITDA) of the E&P business immediately after the separation would not be greater than 2.75 to 1.00. The calculation of all of the ratios exclude CNX Coal Resources LP ("CNXC").



17



At June 30, 2016, the $2,000,000 facility had $466,000 of borrowings outstanding and $309,011 of letters of credit outstanding, leaving $1,224,989 of unused capacity. At December 31, 2015, the $2,000,000 facility had $952,000 of borrowings outstanding and $258,177 of letters of credit outstanding, leaving $789,823 of unused capacity.

NOTE 12—LONG-TERM DEBT:
 
June 30,
2016
 
December 31,
2015
Debt:
 
 
 
Senior Notes due April 2022 at 5.875% (Principal of $1,850,000 plus Unamortized Premium of $5,175 and $5,617, respectively)
$
1,855,175

 
$
1,855,617

Senior Notes due April 2023 at 8.00% (Principal of $500,000 less Unamortized Discount of $6,109 and $6,561, respectively)
493,891

 
493,439

Revolving Credit Facility - CNX Coal Resources LP
198,000

 
185,000

MEDCO Revenue Bonds in Series due September 2025 at 5.75%
102,865

 
102,865

Senior Notes due April 2020 at 8.25%, Issued at Par Value
74,470

 
74,470

Senior Notes due March 2021 at 6.375%, Issued at Par Value
20,611

 
20,611

Advance Royalty Commitments (16.35% Weighted Average Interest Rate)
3,482

 
3,964

Other Long-Term Note Maturing in 2018 (Principal of $2,504 and $3,096 less Unamortized Discount of $215 and $327, respectively)
2,289

 
2,769

Less: Unamortized Debt Issuance Costs
30,357

 
33,017

 
2,720,426

 
2,705,718

Net Amounts Due in One Year and Current Unamortized Debt Issuance Costs*
(2,578
)
 
(2,602
)
Long-Term Debt
$
2,723,004

 
$
2,708,320


* Represents $1,844 and $1,820 due in one year, less $4,422 of unamortized debt issuance costs at June 30, 2016 and December 31, 2015, respectively. Excludes current portion of Capital Lease Obligations of $6,946 and $7,590 at June 30, 2016 and December 31, 2015, respectively.

In March 2015, CONSOL Energy closed on the private placement of $500,000 of 8.00% senior notes due in 2023 (the "Notes") less $7,240 of unamortized bond discount. The Notes are guaranteed by substantially all of CONSOL Energy's wholly-owned domestic restricted subsidiaries. CONSOL Energy used the net proceeds of the sale of the Notes, together with borrowings under its revolving credit facility, to purchase $937,822 of its outstanding 8.25% senior notes due in 2020 and $229,176 of its outstanding 6.375% senior notes due in 2021. As part of this transaction, $67,734 was included in Loss on Debt Extinguishment on the Consolidated Statements of Income.
           
In April 2015, FASB issued Update 2015-03 - Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. To simplify the presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance is effective for fiscal years beginning after December 15, 2015 and is required to be applied retrospectively to all prior periods presented. As permitted by the Update, CONSOL Energy elected to early adopt this guidance beginning in the fourth quarter of fiscal year 2015. The resulting reclassification of unamortized debt issuance costs from Other Assets to Long-Term Debt, net of the current portion, in the Consolidated Balance Sheets was $25,935 and $28,595 as of June 30, 2016 and December 31, 2015, respectively.

Also in April, 2015, CONSOL Energy purchased $2,508 of its outstanding 8.25% senior notes due in 2020 and $213 of its outstanding 6.375% senior notes due in 2021. As part of this transaction, $17 was included in Loss on Debt Extinguishment on the Consolidated Statements of Income.

In July 2015, CNXC, entered into a Credit Agreement for a $400,000 revolving credit facility. As of June 30, 2016 and December 31, 2015, CNXC had $198,000 and $185,000 of outstanding borrowings on the facility, respectively. CONSOL Energy is not a guarantor of CNXC's revolving credit facility. See Note 18 - Related Party Transactions for more information.

NOTE 13—COMMITMENTS AND CONTINGENT LIABILITIES:
CONSOL Energy and its subsidiaries are subject to various lawsuits and claims with respect to such matters as personal injury, wrongful death, damage to property, exposure to hazardous substances, governmental regulations including environmental remediation, employment and contract disputes and other claims and actions arising out of the normal course of business. CONSOL


18



Energy accrues the estimated loss for these lawsuits and claims when the loss is probable and can be estimated. The Company's current estimated accruals related to these pending claims, individually and in the aggregate, are immaterial to the financial position, results of operations or cash flows of CONSOL Energy. It is possible that the aggregate loss in the future with respect to these lawsuits and claims could ultimately be material to the financial position, results of operations or cash flows of CONSOL Energy; however, such amounts cannot be reasonably estimated. The amount claimed against CONSOL Energy is disclosed below when an amount is expressly stated in the lawsuit or claim, which is not often the case. The maximum aggregate amount claimed in those lawsuits and claims, regardless of probability, where a claim is expressly stated or can be estimated, exceeds the aggregate amounts accrued for all lawsuits and claims by approximately $613,344.

The following lawsuits and claims include those for which a loss is probable and an accrual has been recognized:

Hale Litigation: This class action lawsuit was filed on September 23, 2010 in the U.S. District Court in Abingdon, Virginia. The putative class consists of forced-pooled unleased gas owners whose ownership of the coalbed methane (CBM) gas was declared to be in conflict with rights of others. The lawsuit seeks a judicial declaration of ownership of the CBM and damages based on allegations CNX Gas Company failed to either pay royalties due to conflicting claimants or deemed lessors or paid them less than required because of the alleged practice of improper below market sales and/or taking alleged improper post-production deductions. On September 30, 2013, the District Judge entered an Order certifying the class, and CNX Gas Company appealed the Order to the U.S. Fourth Circuit Court of Appeals. On August 19, 2014, the Fourth Circuit agreed with CNX Gas Company, reversed the Order certifying the class and remanded the case to the trial court for further proceedings consistent with the decision. On April 23, 2015, Plaintiffs filed a Renewed Motion for Class Certification, and on June 23, 2015 CNX Gas Company filed its Opposition to same. The Court held a hearing on the Motion on September 18, 2015 and has not yet ruled. CONSOL Energy continues to believe this action cannot properly proceed as a class action in any form, believes the case has meritorious defenses, and intends to defend it vigorously. The Company has established an accrual to cover its estimated liability for this case. This accrual is immaterial to the overall financial position of CONSOL Energy and is included in Other Accrued Liabilities on the Consolidated Balance Sheets.

Addison Litigation: This class action lawsuit was filed on April 28, 2010 in the U.S. District Court in Abingdon, Virginia. The putative class consists of gas lessors whose gas ownership is in conflict. The lawsuit seeks a judicial declaration of ownership of the CBM and damages based on the allegations that CNX Gas Company failed to either pay royalties due to these conflicting claimant lessors or paid them less than required because of the alleged practice of improper below market sales and/or taking alleged improper post-production deductions. On September 30, 2013, the District Judge entered an Order certifying the class, and CNX Gas Company appealed the Order to the U.S. Court of Appeals for the Fourth Circuit. On August 19, 2014, the Fourth Circuit agreed with CNX Gas Company, reversed the Order certifying the class and remanded the case to the trial court for further proceedings consistent with the decision. On April 23, 2015, Plaintiffs filed a Renewed Motion for Class Certification, and on June 23, 2015 CNX Gas Company filed its Opposition to same. The Court held a hearing on the Motion on September 18, 2015 and has not yet ruled. CONSOL Energy continues to believe this action cannot properly proceed as a class action in any form, believes the case has meritorious defenses, and intends to defend it vigorously. The Company has established an accrual to cover its estimated liability for this case. This accrual is immaterial to the overall financial position of CONSOL Energy and is included in Other Accrued Liabilities on the Consolidated Balance Sheets.

Clean Water Act - Bailey Mine:  The Company received from the U.S. EPA on April 8, 2011, a request for information relating to National Pollutant Discharge Elimination System (NPDES) Permit compliance at the Company’s Bailey and Enlow Fork Mines. In response, CONSOL Pennsylvania Coal Company submitted water discharge monitoring and other data to the EPA. In early 2013, the case was referred to the U.S. Department of Justice (DOJ), and the Pennsylvania Department of Environmental Protection (PA DEP) also became involved. On December 18, 2014, the DOJ provided the Company a proposed Consent Decree to resolve certain Clean Water Act and Clean Streams Law claims against CONSOL Energy, Inc. and CONSOL Pennsylvania Coal Company with respect to the Bailey Mine Complex. After negotiations, the parties reached an agreement in principle on the terms of a Consent Decree naming CONSOL Energy Inc., Consol Pennsylvania Coal Company LLC and CNX Coal Resources LP as defendants. The draft Consent Decree is awaiting senior-level approval at DOJ, U.S. EPA and PA DEP. Subject to receipt of that approval, a proposed Consent Decree executed by all of the parties would be filed with the United States District Court for the Western District of Pennsylvania and noticed for public comment. Subject to the resolution of any public comments, the governments would file a joint motion seeking entry of the proposed Consent Decree by the court. The Company has established an accrual to cover its liability in this matter. This accrual is immaterial to the overall financial position of CONSOL Energy and is included in Other Accrued Liabilities on the Consolidated Balance Sheets.

The following royalty and land rights lawsuits and claims include those for which a loss is reasonably possible, but not probable, and accordingly, an accrual may not have been recognized. These claims are influenced by many factors which prevent the estimation of a range of potential loss. These factors include, but are not limited to, generalized allegations of unspecified damages (such as improper deductions), discovery having not commenced or not having been completed, unavailability of expert reports on damages and non-monetary issues being tried. For example, in instances where a gas lease termination is sought, damages would depend on


19



speculation as to if and when the gas production would otherwise have occurred, how many wells would have been drilled on the lease premises, what their production would be, what the cost of production would be, and what the price of gas would be during the production period. An estimate is calculated, if applicable, when sufficient information becomes available.

Virginia Mine Void Litigation: The Company is currently defending three lawsuits naming Consolidation Coal Company (CCC), Island Creek Coal Company (ICCC), CNX Gas Company, and/or CONSOL Energy. The lawsuits were filed in the U.S. District Court for the Western District of Virginia. On October 26, 2015, the trial court granted summary judgment in favor of the defendants in two of the actions upon its finding that plaintiffs' claims are barred by the applicable statutes of limitation. Plaintiffs have appealed both cases to the U.S. Court of Appeals for the Fourth Circuit. The third case remains pending in the trial court. On January 26, 2016, six mine void lawsuits that have twice before been filed and voluntarily dismissed, were refiled for a third time in state court but have not been served. The Complaints seek damages and injunctive relief in connection with the transfer of water from mining activities at Buchanan Mine into void spaces in inactive ICCC mines adjacent to the Buchanan operations, voids ostensibly underlying plaintiffs’ properties. While some of the plaintiffs have an ownership interest in the coal, others have some interest in one or more of the fee, surface, oil/gas or other mineral estates. The suits allege the water storage precludes access to and has damaged coal, impeded coalbed methane gas production and was made without compensation to the property owners. Plaintiffs seek recovery in tort, contract and trespass assumpsit (quasi-contract). The suits each seek damages between $50,000 and in excess of $100,000 plus punitive damages. The Company intends to vigorously defend these suits.

At June 30, 2016, CONSOL Energy has provided the following financial guarantees, unconditional purchase obligations and letters of credit to certain third parties, as described by major category in the following table. These amounts represent the maximum potential of total future payments that the Company could be required to make under these instruments. These amounts have not been reduced for potential recoveries under recourse or collateralization provisions. Generally, recoveries under reclamation bonds would be limited to the extent of the work performed at the time of the default. No amounts related to these financial guarantees and letters of credit are recorded as liabilities in the financial statements. CONSOL Energy management believes that these guarantees will expire without being funded, and therefore the commitments will not have a material adverse effect on financial condition.
 
Amount of Commitment Expiration Per Period
 
Total
Amounts
Committed
 
Less Than
1  Year
 
1-3 Years
 
3-5 Years
 
Beyond
5  Years
Letters of Credit:
 
 
 
 
 
 
 
 
 
Employee-Related
$
67,523

 
$
39,934

 
$
27,589

 
$

 
$

Environmental
998

 
998

 

 

 

Other
240,490

 
204,593

 
35,897

 

 

Total Letters of Credit
309,011

 
245,525

 
63,486

 

 

Surety Bonds:
 
 
 
 
 
 
 
 
 
Employee-Related
115,352

 
115,352

 

 

 

Environmental
551,830

 
542,859

 
8,971

 

 

Other
26,167

 
23,952

 
2,213

 
2

 

Total Surety Bonds
693,349

 
682,163

 
11,184

 
2

 

Guarantees:
 
 
 
 
 
 
 
 
 
Coal
16,700

 
16,700

 

 

 

Other
80,556

 
42,183

 
18,990

 
14,397

 
4,986

Total Guarantees
97,256

 
58,883

 
18,990

 
14,397

 
4,986

Total Commitments
$
1,099,616

 
$
986,571

 
$
93,660

 
$
14,399

 
$
4,986


Included in the above table are commitments and guarantees entered into in conjunction with the sale of Consolidation Coal Company and certain of its subsidiaries, which contain all five of its longwall coal mines in West Virginia, and its river operations to a subsidiary of Murray Energy Corporation (Murray Energy). As part of the sales agreement, CONSOL Energy has guaranteed certain equipment lease obligations and coal sales agreements that were assumed by Murray Energy. In the event that Murray Energy would default on the obligations defined in the agreements, CONSOL Energy would be required to perform under the guarantees. If CONSOL Energy would be required to perform, the stock purchase agreement provides various recourse actions. At June 30, 2016, and December 31, 2015, the fair value of these guarantees was $1,463 and $1,228, respectively, and are included in Other Accrued Liabilities on the Consolidated Balance Sheets. The fair value of certain of the guarantees was determined using CONSOL Energy’s risk-adjusted interest rate. Significant increases or decreases in the risk-adjusted interest rates may result in a significantly higher or lower fair value measurement. Coal sales agreement guarantees were valued based on an evaluation of coal market pricing compared to contracted sales price and includes an adjustment for nonperformance risk. No other amounts related to financial guarantees and


20



letters of credit are recorded as liabilities in the financial statements. Significant judgment is required in determining the fair value of these guarantees. The guarantees of the leases and sales agreements are classified within Level 3 of the fair value hierarchy.

CONSOL Energy regularly evaluates the likelihood of default for all guarantees based on an expected loss analysis and records the fair value, if any, of its guarantees as an obligation in the consolidated financial statements. 
CONSOL Energy and CNX Gas Company enter into long-term unconditional purchase obligations to procure major equipment purchases, natural gas firm transportation, gas drilling services and other operating goods and services. These purchase obligations are not recorded on the Consolidated Balance Sheets. As of June 30, 2016, the purchase obligations for each of the next five years and beyond were as follows:
 
Obligations Due
Amount
Less than 1 year
$
193,389

1 - 3 years
278,664

3 - 5 years
224,537

More than 5 years
608,816

Total Purchase Obligations
$
1,305,406


NOTE 14—DERIVATIVE INSTRUMENTS:

CONSOL Energy enters into financial derivative instruments to manage its exposure to commodity price volatility. CONSOL Energy de-designated all of its cash flow hedges on December 31, 2014 and accounts for all existing and future gas and NGL commodity hedges on a mark-to-market basis with changes in fair value recorded in current period earnings. In connection with this de-designation, CONSOL Energy froze the balances recorded in Accumulated Other Comprehensive Income at December 31, 2014 and will reclassify balances to earnings as the underlying physical transactions occur, unless it is no longer probable that the physical transaction will occur at which time the related gains deferred in Other Comprehensive Income (OCI) will be immediately recorded in earnings.

CONSOL Energy is exposed to credit risk in the event of non-performance by counterparties. The creditworthiness of counterparties is subject to continuing review. The Company has not experienced any issues of non-performance by derivative counterparties.

None of the Company's counterparty master agreements currently require CONSOL Energy to post collateral for any of its positions. However, as stated in the counterparty master agreements, if CONSOL Energy's obligations with one of its counterparties cease to be secured on the same basis as similar obligations with the other lenders under the credit facility, CONSOL Energy would have to post collateral for instruments in a liability position in excess of defined thresholds. All of the Company's derivative instruments are subject to master netting arrangements with our counterparties. CONSOL Energy recognizes all financial derivative instruments as either assets or liabilities at fair value on the Consolidated Balance Sheets on a gross basis.
 
Each of CONSOL Energy's counterparty master agreements allows, in the event of default, the ability to elect early termination of outstanding contracts. If early termination is elected, CONSOL Energy and the applicable counterparty would net settle all open hedge positions.

CONSOL Energy’s natural gas derivative instruments accounted for a total notional amount of production of 615.3 Bcf at June 30, 2016 and are forecasted to settle through 2020. At December 31, 2015, the natural gas derivative instruments accounted for a total notional amount of production of 456.1 Bcf. At June 30, 2016, the basis only swaps were for notional amounts of 283.8 Bcf and are forecasted to settle through 2020. At December 31, 2015, the basis only swaps were for notional amounts of 124.4 Bcf. CONSOL Energy's NGL derivative instruments accounted for a total notional amount of production of 246.6 Mbbls of propane at June 30, 2016 and are forecasted to settle through 2017. No NGL derivative instruments were outstanding at December 31, 2015.









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The gross fair value of CONSOL Energy's derivative instruments at June 30, 2016 and December 31, 2015 were as follows:
Asset Derivative Instruments
 
Liability Derivative Instruments
 
June 30,
 
December 31,
 <