CNX-12.31.11-10K


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________________
FORM 10-K
  __________________________________________________ 
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2011
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)
 __________________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
 
 
Name of exchange on which registered
Common Stock ($.01 par value)
 
 
 
New York Stock Exchange
Preferred Share Purchase Rights
 
 
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
__________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  x    No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o    No  x
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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
The aggregate market value of voting stock held by nonaffiliates of the registrant as of June 30, 2011, the last business day of the registrant's most recently completed second fiscal quarter, based on the closing price of the common stock on the New York Stock Exchange on such date was $10,963,933,121.
The number of shares outstanding of the registrant's common stock as of January 25, 2012 is 227,093,353 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of CONSOL Energy's Proxy Statement for the Annual Meeting of Shareholders to be held on May 1, 2012, are incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III.
 




TABLE OF CONTENTS

 
 
Page
PART I
 
ITEM 1.
Business
ITEM 1A.
Risk Factors
ITEM 1B.
Unresolved Staff Comments
ITEM 2.
Properties
ITEM 3.
Legal Proceedings
ITEM 4.
Mine Safety and Health Administration Safety Data
 
 
PART II
 
ITEM 5.
Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
ITEM 6.
Selected Financial Data
ITEM 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.
Financial Statements and Supplementary Data
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
ITEM 9A.
Controls and Procedures
ITEM 9B.
Other Information
 
 
 
PART III
 
ITEM 10.
Directors and Executive Officers of the Registrant
ITEM 11.
Executive Compensation
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
ITEM 13.
Certain Relationships and Related Transactions and Director Independence
ITEM 14.
Principal Accounting Fees and Services
 
 
 
PART IV
 
ITEM 15.
Exhibits and Financial Statement Schedules
SIGNATURES


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FORWARD-LOOKING STATEMENTS
We are including the following cautionary statement in this Annual Report on Form 10-K 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. With the exception of historical matters, the matters discussed in this Annual Report on Form 10-K are forward-looking statements (as defined in Section 21E of the Exchange Act) that 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. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. When we use the words “believe,” “intend,” “expect,” “may,” “should,” “anticipate,” “could,” “estimate,” “plan,” “predict,” “project,” or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements. The forward-looking statements in this Annual Report on Form 10-K speak only as of the date of this Annual Report on Form 10-K; we disclaim any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly. 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:
deterioration in global economic conditions in any of the industries in which our customers operate, or sustained uncertainty in financial markets cause conditions we cannot predict;
a significant or extended decline in prices we receive for our coal and natural gas affecting our operating results and cash flows;
our customers extending existing contracts or entering into new long-term contracts for coal;
our reliance on major customers;
our inability to collect payments from customers if their creditworthiness declines;
the disruption of rail, barge, gathering, processing and transportation facilities and other systems that deliver our coal and natural gas to market;
a loss of our competitive position because of the competitive nature of the coal and natural gas industries, or a loss of our competitive position because of overcapacity in these industries impairing our profitability;
our inability to maintain satisfactory labor relations;
coal users switching to other fuels in order to comply with various environmental standards related to coal combustion emissions;
the impact of potential, as well as any adopted regulations relating to greenhouse gas emissions on the demand for coal and natural gas
foreign currency fluctuations could adversely affect the competitiveness of our coal abroad;
the risks inherent in coal and natural gas operations being subject to unexpected disruptions, including geological conditions, equipment failure, timing of completion of significant construction or repair of equipment, fires, explosions, accidents and weather conditions which could impact financial results;
decreases in the availability of, or increases in, the price of commodities or capital equipment used in our mining operations;
decreases in the availability of, an increase in the prices charged by third party contractors or, failure of third party contractors to provide quality services to us in a timely manner could impact our profitability;
obtaining and renewing governmental permits and approvals for our coal and gas operations;
the effects of government regulation on the discharge into the water or air, and the disposal and clean-up of, hazardous substances and wastes generated during our coal and natural gas operations;
our ability to find adequate water sources for our use in gas drilling, or our ability to dispose of water used or removed from strata in connection with our gas operations at a reasonable cost and within applicable environmental rules;
the effects of stringent federal and state employee health and safety regulations, including the ability of regulators to shut down a mine or natural gas well;
the potential for liabilities arising from environmental contamination or alleged environmental contamination in connection with our past or current coal and gas operations;


3



the effects of mine closing, reclamation, gas well closing and certain other liabilities;
uncertainties in estimating our economically recoverable coal and gas reserves;
costs associated with perfecting title for coal or gas rights on some of our properties;
the impacts of various asbestos litigation claims;
the outcomes of various legal proceedings, which are more fully described in our reports filed under the Securities Exchange Act of 1934;
increased exposure to employee-related long-term liabilities;
exposure to multi-employer pension plan liabilities;
minimum funding requirements by the Pension Protection Act of 2006 (the Pension Act) coupled with the significant investment and plan asset losses suffered during the recent economic decline has exposed us to making additional required cash contributions to fund the pension benefit plans which we sponsor and the multi-employer pension benefit plans in which we participate;
lump sum payments made to retiring salaried employees pursuant to our defined benefit pension plan exceeding total service and interest cost in a plan year;
acquisitions that we recently have completed or may make in the future including the accuracy of our assessment of the acquired businesses and their risks, achieving any anticipated synergies, integrating the acquisitions and unanticipated changes that could affect assumptions we may have made and divestitures we anticipate may not occur or produce anticipated proceeds;
the terms of our existing joint ventures restrict our flexibility and actions taken by the other party in our gas joint ventures may impact our financial position;
the anti-takeover effects of our rights plan could prevent a change of control;
risks associated with our debt;
replacing our natural gas reserves, which if not replaced, will cause our gas reserves and gas production to decline;
our hedging activities may prevent us from benefiting from price increases and may expose us to other risks;
other factors discussed in this 2011 Form 10-K under “Risk Factors,” as updated by any subsequent Form 10-Qs, which are on file at the Securities and Exchange Commission.



PART I

ITEM 1.
Business

CONSOL Energy's Business Introduction
CONSOL Energy safely and responsibly produces coal and natural gas for global energy and raw material markets, which include the electric power generation industry and the steelmaking industry. During the year ended December 31, 2011, we produced 62.6 million tons of high-British thermal unit (Btu) bituminous coal from 12 mining complexes in the United States. During this same period, our natural gas production totaled 153.5 net billion cubic feet equivalent (Bcfe) from approximately 15,000 gross natural gas wells primarily in Appalachia.

Additionally, we provide energy services, including river and dock services, terminal services, industrial supply services, water services and land resource management services.

CONSOL Energy's History
CONSOL Energy was incorporated in Delaware in 1991. Our coal operations began in 1864. CONSOL Energy's beginnings as the “Consolidation Coal Company” in Western Maryland led to growth and expansion through all major coal producing regions in the United States. CONSOL Energy entered the natural gas business in the 1980s to increase the safety and efficiency of our coal mines by capturing methane from coal seams prior to mining, which makes the mining process safer and more efficient. Over the past five years, CONSOL Energy's natural gas business has grown by over 164% to produce 153.5 net Bcfe in 2011. This business has grown from coalbed methane production in Virginia into other unconventional production, such as Marcellus Shale, in the Appalachian basin. This growth was accelerated with the 2010 asset acquisition of the Appalachian E&P business of Dominion Resources, Inc. (Dominion Acquisition). Subsequently, in August and September


4



2011, we announced two strategic joint ventures, one with Noble Energy, Inc. (Noble) and one with a subsidiary of Hess Corporation (Hess). These joint ventures will allow the acceleration of development of the assets acquired in the Dominion Acquisition and will focus on the development of our Marcellus and Utica asset holdings.

CONSOL Energy's Strategy

CONSOL Energy's strategy is to continue to build the Company into a large integrated energy company.

CONSOL Energy defines itself through its core values which are:
Safety
Compliance
Continuous Improvement
These values are the foundation of CONSOL Energy's identity and are the basis for how management defines continued success. We believe CONSOL Energy's rich resource base, coupled with these core values allow CONSOL Energy to create value for the long-term. The electric power industry generates over two-thirds of its output by burning coal or natural gas, the two fuels we produce. We believe that the use of coal and natural gas will continue for many years as the principal fuel sources for electricity in the United States. Additionally, we believe that as worldwide economies grow, the demand for electricity from fossil fuels will grow as well, resulting in expansion of worldwide demand for our coal and natural gas.

U.S. ELECTRIC SUPPLY by ENERGY SOURCE
In percent of total
 
 
Actuals
 
Preliminary
 
Projected
 
 
2009
 
2010
 
2011
 
2015
Coal
 
44.4
 
44.8
 
42.9
 
42.3
Natural Gas
 
23.3
 
23.9
 
24.4
 
23.5
Nuclear
 
20.2
 
19.6
 
19.1
 
19.7
Conventional Hydro
 
6.8
 
6.2
 
7.6
 
7.7
Renewables
 
3.7
 
4.1
 
4.7
 
5.3
Others
 
1.6
 
1.4
 
1.3
 
1.5
________________
Source: U.S. Energy Information Administration
Although coal is projected to lose a small percentage of market share in the U.S. electric generation market, we believe that our efficient, long-lived, well capitalized longwall mines that operate near major U.S. population centers will continue to maintain their existing market share in the U.S. thermal coal market.
We expect natural gas to become a significant contributor to the domestic electric generation mix as well as industrial segments of the U.S. economy. Also, natural gas may potentially become a significant contributor to the transportation market. Our increasing gas production will allow CONSOL Energy to participate in these markets.
The following charts show CONSOL Energy's recent growth in international coal sales and metallurgical coal sales.



5




CONSOL Energy's Capital Expenditure Budget

CONSOL Energy's 2012 capital expenditure budget totals $1.5 billion which is an increase from the $1.4 billion invested in 2011. The budget includes $676 million for coal, $623 million for gas, $135 million for water, and $110 million for other. The budget reflects the plan to invest in our highest rate of return projects: the organic opportunities in coal, gas, and liquid hydrocarbons. CONSOL Energy has the ability to adjust these planned investments should circumstances warrant.
The table below categorizes the 2011 actual capital expenditures and the planned 2012 capital expenditure budget.
 
 
2011
 
2012
 
 
Actual Capital
 
Forecasted Capital
 
 
Expenditures
 
Expenditures
Coal
 
(in millions)
   Maintenance of Production
 
$
243

 
$
277

   Efficiency Projects (e.g., overland belts)
 
$
183

 
$
146

   Increases in Production (e.g., Bailey Mine Expansion)
 
$
114

 
$
203

   Safety
 
$
18

 
$
50

Total Coal
 
$
558

 
$
676

 
 
 
 
 
Gas
 
 
 
 
   Marcellus
 
$
427

 
$
473

   Utica
 
$
3

 
$
53

   CBM
 
$
130

 
$
65

   Other
 
$
102

 
$
32

Total Gas
 
$
662

 
$
623

 
 
 
 
 
Other
 
 
 
 
   Water
 
$
49

 
$
135

   Transportation (e.g., Baltimore Terminal; barges)
 
$
28

 
$
30

   Coal Land
 
$
73

 
$
55

   Other
 
$
12

 
$
25

Total Other
 
$
162

 
$
245

 
 
 
 
 
Total Capital
 
$
1,382

 
$
1,544




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CONSOL Energy's Operations

The following map provides the location of CONSOL Energy's coal and gas operations by region:
CONSOL Energy Operations Highlights – Coal

We have consistently ranked among the largest coal producers in the United States based upon total revenue, net income and operating cash flow. We produced 62.6 million tons of coal in 2011. Our production of 62.4 million tons of coal in 2010 accounted for approximately 6% of the total tons produced in the United States and almost 14% of the total tons produced east of the Mississippi River during 2010, the latest year for which statistics are available. CONSOL Energy holds approximately 4.5 billion tons of proved and probable coal reserves located in northern Appalachia (62%), the mid-western United States (17%), central Appalachia (15%), the western United States (4%), and in western Canada (2%) at December 31, 2011. We are one of the premier coal producers in the United States by several measures:

We produce one of the largest amounts of coal east of the Mississippi River;
We control one of the largest amounts of recoverable coal reserves east of the Mississippi River;
We control the fourth largest amount of recoverable coal reserves among United States coal producers; and
We are one of the largest United States producers of coal from underground mines.



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The following table ranks the 20 largest underground mines in the United States by tons of coal produced in calendar year 2010, the latest year for which statistics are available.

MAJOR U.S. UNDERGROUND COAL MINES–2010
In millions of tons
 
 
 
 
 
Mine Name
 
Operating Company
 
Production
Bailey
 
CONSOL Energy
 
10.9
Enlow Fork
 
CONSOL Energy
 
10.2
McElroy
 
CONSOL Energy
 
10.1
Twenty Mile
 
Peabody Energy Subsidiary
 
7.1
Powhatan No. 6
 
The Ohio Valley Coal Company (Murray)
 
6.5
SUFCO
 
Arch Coal, Inc.
 
6.2
Century
 
American Energy Corp. (Murray)
 
6.2
Loveridge
 
CONSOL Energy
 
5.9
Cumberland
 
Cumberland Coal Resources (Alpha)
 
5.8
Warrior
 
Warrior Coal, LLC (Alliance)
 
5.8
River View
 
River View Coal, LLC (Alliance)
 
5.8
Mach No. 1
 
Williamson Energy, LLC (Foresight Energy)
 
5.8
Robinson Run
 
CONSOL Energy
 
5.5
San Juan
 
BHP Billiton
 
5.0
Emerald
 
Emerald Coal Resources (Alpha)
 
4.9
West Elk
 
Arch Coal, Inc.
 
4.8
Buchanan
 
CONSOL Energy
 
4.7
Blacksville No. 2
 
CONSOL Energy
 
4.5
Mountaineer II / Mtn. Laurel
 
Arch Coal, Inc.
 
4.4
New Era
 
American Energy Corp. (Murray)
 
4.3
________________
Source: National Mining Association, EIA

CONSOL Energy continues to derive a substantial portion of its revenue from sales of coal to electricity generators in the United States. In 2011, sales to domestic electric generators comprised approximately 60% of coal revenue and 48% of total revenue. The largest customer represented approximately 15% of coal revenue and 12% of total revenue. The largest four customers represent approximately 40% of coal revenue and over 30% of total revenue. As natural gas revenue continues to grow, we expect the relative contribution of our largest coal customers to diminish.

CONSOL Energy Operations Highlights – Gas

CONSOL Energy is a leader in developing unconventional gas resources including the development of coalbed methane (CBM) production in the Eastern United States. Our gas operations produced 153.5 net Bcfe made up of a combination of CBM (60%), which is gas that resides in coal seams, natural gas from various shallow oil and gas sites (21%), natural gas from the Marcellus Shale (18%), and other unconventional reservoirs (1%). CONSOL Energy reported estimated net proved gas reserves of 3.5 trillion cubic feet. These reserves were made up of CBM (50%), Marcellus (25%), shallow oil and gas (21%) and other (4%). CONSOL Energy controls considerable resource positions in other unconventional shale plays including: Chattanooga, New Albany, Utica, Huron and other shales.

Our position as a gas producer is highlighted by several measures:

We are one of the largest natural gas producers in Appalachia with approximately 15,000 total gross wells in Appalachia comprising 8% of all Appalachian wells based on 2009 U.S. Energy Information Administration data, the latest year for which statistics are available.


8



We are one of the largest CBM producers, with production equal to approximately 35% of total Appalachian CBM production and 59% of Northern Appalachian production (excluding Alabama) based on 2009 U.S. Energy Information Administration data, the latest year for which statistics are available.
We operate one of the largest gas gathering networks in Appalachia since we gather essentially all of our own production. We own and operate over 4,000 miles of gathering pipelines.
We have been a pioneer in the exploration of unconventional gas including coalbed methane, Marcellus, Utica, Chattanooga, Huron and New Albany Shales.

In 2011, CONSOL Energy's sales of CBM gas comprised approximately 62% of gas revenue and 8% of total revenue. Sales of Marcellus gas for the same time period comprised approximately 16% of gas revenue and 2% of total revenue, and sales of shallow oil and gas comprised 21% of gas revenue and 3% of total revenue.

Coal Competition

The United States coal industry is highly competitive, with numerous producers selling into all markets that use coal. CONSOL Energy competes against other large producers and hundreds of small producers in the United States and overseas. The five largest producers are estimated by the 2010 National Mining Association Survey to have produced approximately 58% (based on tonnage produced) of the total United States production in 2010. The U.S. Department of Energy reported 1,285 active coal mines in the United States in 2010, the latest year for which government statistics are available. Demand for our coal by our principal customers is affected by many factors including:

the price of competing coal and alternative fuel supplies, including nuclear, natural gas, oil and
renewable energy sources, such as hydroelectric power or wind;
environmental and government regulation;
coal quality;
transportation costs from the mine to the customer; and
the reliability of fuel supply.
Continued demand for CONSOL Energy's coal and the prices that CONSOL Energy obtains are affected by demand for electricity, technological developments, environmental and governmental regulation, and the availability and price of competing coal and alternative fuel supplies. We sell coal to foreign electricity generators and to the more specialized metallurgical coal markets, both of which are significantly affected by international demand and competition.

Natural Gas Competition

The United States natural gas industry is highly competitive. CONSOL Energy competes with other large producers, thousands of small producers as well as pipeline imports from Canada and Liquefied Natural Gas (LNG) from around the globe. According to data from the Natural Gas Supply Association and the U.S. Department of Energy, the five largest producers of natural gas produced less than 21% of the total U.S. production in the third quarter of 2011. The U.S. Department of Energy reported almost 500,000 producing natural gas wells in the United States in 2009, the latest year for which government statistics are available.
CONSOL Energy's gas operations are primarily in the eastern United States. We believe that the gas market is highly fragmented and not dominated by any single producer. We believe that competition within our market is based primarily on natural gas commodity trading fundamentals and pipeline transportation availability to the various markets.
Continued demand for CONSOL Energy's natural gas and the prices that CONSOL Energy obtains are affected by demand for electricity, environmental and government regulation, technological developments and the availability and price of competing alternative fuel supplies.
Industry Segments

Financial information concerning industry segments, as defined by accounting principles generally accepted in the United States, for the years ended December 31, 2011, 2010 and 2009 is included in Note 25–Segment Information in the Notes to the Audited Consolidated Financial Statements in Item 8 of this Form 10-K and incorporated herein.
DETAIL COAL OPERATIONS
Mining Complexes


9



The following table provides the location of CONSOL Energy's active mining complexes and the coal reserves associated with each
CONSOL ENERGY MINING COMPLEXES
Proven and Probable Assigned and Accessible Coal Reserves as of December 31, 2011 and 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recoverable
 
Recoverable
 
 
 
 
 
 
 
 
Average
 
As Received Heat
 
Reserves(2)
 
Reserves
 
 
 
 
 
 
 
 
Seam
 
Value(1)
 
 
 
 
 
Tons in
 
(tons in)
 
 
 
 
Reserve
 
Coal
 
Thickness
 
(Btu/lb)
 
Owned
 
Leased
 
Millions
 
Millions)
Mine/Reserve
 
Location
 
Class
 
Seam
 
(feet)
 
Typical
 
Range
 
(%)
 
(%)
 
12/31/2011
 
12/31/2010
ASSIGNED–OPERATING
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Thermal Reserves
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Enlow Fork(4)
 
Enon, PA
 
Assigned
 
Pittsburgh
 
5.4
 
12,940
 
12,860 – 13,060
 
100%
 
—%
 
28.5

 
38.7

 
 
 
 
Accessible
 
Pittsburgh
 
5.3
 
12,900
 
12,830 – 13,000
 
77%
 
23%
 
204.5

 
197.9

Bailey(4)
 
Enon, PA
 
Assigned
 
Pittsburgh
 
5.5
 
12,950
 
12,860 – 13,060
 
45%
 
55%
 
101.6

 
112.3

 
 
 
 
Accessible
 
Pittsburgh
 
5.6
 
12,900
 
12,830 – 13,000
 
90%
 
10%
 
334.4

 
334.3

McElroy
 
Glen Easton, WV
 
Assigned
 
Pittsburgh
 
5.7
 
12,570
 
12,450 – 12,650
 
94%
 
6%
 
105.7

 
7.4

 
 
 
 
Accessible
 
Pittsburgh
 
5.9
 
12,530
 
12,410 – 12,610
 
95%
 
5%
 
90.0

 
153.1

Shoemaker
 
Moundsville, WV
 
Assigned
 
Pittsburgh
 
5.6
 
12,200
 
11,700 – 12,300
 
100%
 
—%
 
68.3

 
44.5

 
 
 
 
Accessible
 
Pittsburgh
 
 
 
 
—%
 
—%
 

 
27.8

Loveridge
 
Metz, WV
 
Assigned
 
Pittsburgh
 
7.5
 
13,000
 
12,850 – 13,150
 
76%
 
24%
 
26.4

 
32.0

 
 
 
 
Accessible
 
Pittsburgh
 
7.6
 
13,000
 
12,820 – 13,100
 
95%
 
5%
 
13.6

 
13.6

Robinson Run
 
Shinnston, WV
 
Assigned
 
Pittsburgh
 
7.4
 
12,950
 
12,600 – 13,300
 
86%
 
14%
 
46.8

 
52.7

 
 
 
 
Accessible
 
Pittsburgh
 
6.8
 
12,940
 
12,600 – 13,300
 
55%
 
45%
 
156.7

 
156.7

Blacksville #2(4)
 
Wana, WV
 
Assigned
 
Pittsburgh
 
6.7
 
13,020
 
12,800 – 13,150
 
81%
 
19%
 
20.3

 
24.7

 
 
 
 
Accessible
 
Pittsburgh
 
6.9
 
13,000
 
12,800 – 13,100
 
99%
 
1%
 
16.5

 
16.5

Harrison Resources(3)
 
Cadiz, OH
 
Assigned
 
Multiple
 
4.5
 
11,570
 
11,350 – 11,850
 
100%
 
—%
 
6.7

 
7.1

Amvest-Fola Complex(4)
 
Bickmore, WV
 
Assigned
 
Multiple
 
4.3
 
12,380
 
12,250 – 12,550
 
88%
 
12%
 
92.2

 
53.3

Miller Creek Complex
 
Delbarton, WV
 
Assigned
 
Multiple
 
3.3
 
12,000
 
11,600 – 12,650
 
4%
 
96%
 
5.6

 
9.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Metallurgical Reserves
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Buchanan
 
Mavisdale, VA
 
Assigned
 
Pocahontas 3
 
5.7
 
13,900
 
13,700 – 14,200
 
22%
 
78%
 
58.0

 
63.7

 
 
 
 
Accessible
 
Pocahontas 3
 
6.0
 
13,930
 
13,650 – 14,150
 
10%
 
90%
 
37.0

 
37.0

Western Allegheny-Knob Creek(3)
 
Young Township, PA
 
Assigned
 
Upper Kittanning
 
3.2
 
13,050
 
13,000 – 13,100
 
100%
 
—%
 
2.3

 
2.4

Total Assigned Operating and Accessible
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,415.1

 
1,384.7




10



_____________
(1)
The heat value shown for assigned reserves is based on the quality of coal mined and processed during the year ended December 31, 2011. The heat value shown for accessible reserves is based on the same mining and processing methods as for the assigned reserves with adjustments made based on the variability found in exploration drill core samples. The heat values given have been adjusted to include moisture that may be added during mining or processing and for dilution by rock lying above or below the coal seam.
(2)
Recoverable reserves are calculated based on the area in which mineable coal exists, coal seam thickness and average density determined by laboratory testing of drill core samples. This calculation is adjusted to account for coal that will not be recovered during mining and for losses that occur if the coal is processed after mining. Reserve calculations do not include adjustments for moisture that may be added during mining or processing, nor do the calculations include adjustments for dilution from rock lying above or below the coal seam. Reserves are reported only for those coal seams that are controlled by ownership or leases.
(3)
Harrison Resources and Western Allegheny-Knob Creek are both equity affiliates in which CONSOL Energy owns a 49% interest. Reserves reported equal CONSOL Energy's 49% proportionate interest in Harrison Resources' and Western Allegheny-Knob Creek's reserves.
(4)
A portion of these reserves contain metallurgical qualities and are currently being sold on the metallurgical market.

Excluded from the table above are approximately 179.3 million tons of reserves at December 31, 2011 that are assigned to projects that have not produced coal in 2011. These assigned reserves are in the Northern Appalachia (northern West Virginia and Pennsylvania), Central Appalachia (Virginia and eastern Kentucky), the Western U.S. (Utah) and Illinois Basin (Illinois) regions. These reserves are approximately 60% owned and 40% leased.

CONSOL Energy assigns coal reserves to each of our mining complexes. The amount of coal we assign to a mining complex generally is sufficient to support mining through the duration of our current mining permit. Under federal law, we must renew our mining permits every five years. All assigned reserves have their required permits or governmental approvals, or there is a high probability that these approvals will be secured.

In addition, our mining complexes may have access to additional reserves that have not yet been assigned. We refer to these reserves as accessible. Accessible reserves are proven and probable unassigned reserves that can be accessed by an existing mining complex, utilizing the existing infrastructure of the complex to mine and to process the coal in this area. Mining an accessible reserve does not require additional capital spending beyond that required to extend or to continue the normal progression of the mine, such as the sinking of airshafts or the construction of portal facilities.

Some reserves may be accessible by more than one mining complex because of the proximity of many of our mining complexes to one another. In the table above, the accessible reserves indicated for a mining complex are based on our review of current mining plans and reflect our best judgment as to which mining complex is most likely to utilize the reserve.

Assigned and unassigned coal reserves are proven and probable reserves which are either owned or leased. The leases have terms extending up to 30 years and generally provide for renewal through the anticipated life of the associated mine. These renewals are exercisable by the payment of minimum royalties. Under current mining plans, assigned reserves reported will be mined out within the period of existing leases or within the time period of probable lease renewal periods.

Coal Reserves

At December 31, 2011, CONSOL Energy had an estimated 4.5 billion tons of proven and probable reserves. Reserves are the portion of the proven and probable tonnage that meet CONSOL Energy's economic criteria regarding mining height, preparation plant recovery, depth of overburden and stripping ratio. Generally, these reserves would be commercially mineable at year-end price and cost levels.
Reserves are defined in Securities and Exchange Commission (SEC) Industry Guide 7 as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Proven and probable coal reserves are defined by SEC Industry Guide 7 as follows:
Proven (Measured) Reserves- Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so close and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established.
 
Probable (Indicated) Reserves- Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart


11



or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.
Spacing of points of observation for confidence levels in reserve calculations is based on guidelines in U.S. Geological Survey Circular 891 (Coal Resource Classification System of the U.S. Geological Survey). Our estimates for proven reserves have the highest degree of geologic assurance. Estimates for proven reserves are based on points of observation that are equal to or less than 0.5 miles apart. Estimates for probable reserves have a moderate degree of geologic assurance and are computed from points of observation that are between 0.5 to 1.5 miles apart.
An exception is made concerning spacing of observation points with respect to our Pittsburgh coal seam reserves. Because of the well-known continuity of this seam, spacing requirements are 3,000 feet or less for proven reserves and between 3,000 and 8,000 feet for probable reserves.
CONSOL Energy's estimates of proven and probable reserves do not rely on isolated points of observation. Small pods of reserves based on a single observation point are not considered; continuity between observation points over a large area is necessary for proven or probable reserves.
Our reserve estimates are predicated on information obtained from our ongoing exploration drilling and in-mine sampling programs. Data including coal seam elevation, thickness, and, where samples are available, coal quality is entered into a computerized geological database. This information is then combined with data on ownership or control of the mineral and surface interests to determine the extent of reserves in a given area. Reserve estimates include mine recovery rates that reflect CONSOL Energy's experience in various types of underground and surface coal mines.
CONSOL Energy's reserve estimates are based on geological, engineering and market data assembled and analyzed by our staff of geologists and engineers located at individual mines, operations offices and at our principal office. The reserve estimates are reviewed and adjusted annually to reflect production of coal from reserves, analysis of new engineering and geological data, changes in property control, modification of mining methods and other factors. Information, including the quantity and quality of reserves, coal and surface control, and other information relating to CONSOL Energy's coal reserve and land holdings, is maintained through a system of interrelated computerized databases.
Our estimate of proven and probable coal reserves has been determined by CONSOL Energy's geologists and mining engineers. Our coal reserves are periodically reviewed by an independent third party consultant. The independent consultant has reviewed the procedures used by us to prepare our internal estimates, verified the accuracy of our property reserve estimates and retabulated reserve groups according to standard classifications of reliability.
CONSOL Energy's proven and probable coal reserves fall within the range of commercially marketed coals in the United States. The marketability of coal depends on its value-in-use for a particular application, and this is affected by coal quality, such as, sulfur content, ash and heating value. Modern power plant boiler design aspects can compensate for coal quality differences that occur. Therefore, any of CONSOL Energy's coals can be marketed for the electric power generation industry. Additionally, the growth in worldwide demand for metallurgical coals allows some of our proven and probable coal reserves, currently classified as thermal coals, that possess certain qualities to be sold as metallurgical coal.  The addition of this cross-over market adds additional assurance to CONSOL Energy that all of its proven and probable coal reserves are commercially marketable.   


12



The following table sets forth our unassigned proven and probable reserves by region:

CONSOL Energy UNASSIGNED Recoverable Coal Reserves as of December 31, 2011 and 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recoverable
 
 
 
 
Recoverable Reserves(2)
 
Reserves
 
 
 
 
 
 
 
 
Tons in
 
(tons in
 
 
As Received Heat
 
Owned
 
Leased
 
Millions
 
Millions)
Coal Producing Region
 
Value(1) (Btu/lb)
 
(%)
 
(%)
 
12/31/2011
 
12/31/2010
Northern Appalachia (Pennsylvania, Ohio, Northern West Virginia)
 
11,400 – 13,500
 
72%
 
28%
 
1,448.1

 
1,412.2

Central Appalachia (Virginia, Southern West Virginia, Eastern Kentucky)
 
11,300 – 14,200
 
51%
 
49%
 
421.3

 
327.7

Illinois Basin (Illinois, Western Kentucky, Indiana)
 
11,500 – 11,900
 
44%
 
56%
 
750.7

 
777.9

Western U.S. (Wyoming)
 
9,225
 
95%
 
5%
 
142.2

 
169.1

Western Canada (Alberta)
 
12,400 – 12,900
 
—%
 
100%
 
102.7

 
77.9

Total
 
 
 
61%
 
39%
 
2,865.0

 
2,764.8

_______________
(1)
The heat value estimates for Northern Appalachian and Central Appalachian unassigned coal reserves include adjustments for moisture that may be added during mining or processing as well as for dilution by rock lying above or below the coal seam. The mining and processing methods currently in use are used for these estimates. The heat value estimates for the Illinois Basin, Western U.S. and Western Canada unassigned reserves are based primarily on exploration drill core data that may not include adjustments for moisture added during mining or processing or for dilution by rock lying above or below the coal seam.
(2)
Recoverable reserves are calculated based on the area in which mineable coal exists, coal seam thickness, and average density determined by laboratory testing of drill core samples. This calculation is adjusted to account for coal that will not be recovered during mining and for losses that occur if the coal is processed after mining. Reserve calculations do not include adjustment for moisture that may be added during mining or processing, nor do the calculations include adjustments for dilution from rock lying above or below the coal seam.

The following table summarizes our proven and probable reserves as of December 31, 2011 by region and type of coal or sulfur content (sulfur content per million British thermal units). Proven and probable reserves include both assigned and unassigned reserves. The table classifies bituminous coal by rank. Rank (High volatile A, B and C) of bituminous coals are classified on the basis of heat value. The table also classifies bituminous coals as medium and low volatile which are classified on the basis of fixed carbon and volatile matter. Coal is ranked by the degree of alteration it has undergone since the initial deposition of the organic material. The lowest ranked coal, lignite, has undergone less transformation than the highest ranked coal, anthracite. From the lowest to the highest rank, the coals are: lignite; sub-bituminous; bituminous and anthracite. The ranking is determined by measuring the fixed carbon to volatile matter ratio and the heat content of the coal. As rank increases, the amount of fixed carbon increases, volatile matter decreases, and heat content increases. Bituminous coals are further characterized by the amount of volatile matter present. Bituminous coals with high volatile matter content are also ranked. High volatile “A” bituminous coals have higher heat content than high volatile “C” bituminous coals. These characterizations of coal allow a user to predict the behavior of a coal when burned in a boiler to produce heat or when it is heated in the absence of oxygen to produce coke for steel production.



13



CONSOL Energy Proven and Probable Recoverable Coal Reserves
By Producing Region and Product (In Millions of Tons) As of December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
≤ 1.20 lbs.
 
> 1.20 ≤ 2.50 lbs.
 
> 2.50 lbs.
 
 
 
 
 
 
 
S02/MMBtu
 
S02/MMBtu
 
S02/MMBtu
 
 
 
Percent
 
 
 
Low
 
Med
 
High
 
Low
 
Med
 
High
 
Low
 
Med
 
High
 
 
 
By
By Region
 
Btu
 
Btu
 
Btu
 
Btu
 
Btu
 
Btu
 
Btu
 
Btu
 
Btu
 
Total
 
Region
Northern Appalachia:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Metallurgical:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Vol A Bituminous
 

 

 

 

 

 
164.6

 

 

 

 
164.6

 
3.7
%
Thermal:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Vol A Bituminous
 

 

 

 

 

 
111.3

 
61.8

 
115.5

 
2,250.1

 
2,538.7

 
56.9
%
 
Low Vol Bituminous
 

 

 

 

 

 
33.6

 

 

 

 
33.6

 
0.8
%
 
Region Total
 

 

 

 

 

 
309.5

 
61.8

 
115.5

 
2,250.1

 
2,736.9

 
61.4
%
Central Appalachia:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Metallurgical:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Vol A Bituminous
 

 

 
32.7

 

 

 
29.9

 

 

 
1.3

 
63.9

 
1.4
%
 
Med Vol Bituminous
 

 
3.0

 
143.6

 

 

 
2.9

 

 

 

 
149.5

 
3.4
%
 
Low Vol Bituminous
 

 

 
114.1

 

 

 
26.3

 

 

 

 
140.4

 
3.1
%
Thermal:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Vol A Bituminous
 
34.9

 
80.8

 
2.8

 
44.4

 
126.0

 
2.4

 
9.4

 
15.0

 

 
315.7

 
7.1
%
 
Region Total
 
34.9

 
83.8

 
293.2

 
44.4

 
126.0

 
61.5

 
9.4

 
15.0

 
1.3

 
669.5

 
15.0
%
Midwest-Illinois Basin:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Thermal:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Vol B Bituminous
 

 

 

 

 
65.1

 

 

 
444.9

 

 
510.0

 
11.4
%
 
High Vol C Bituminous
 

 

 

 

 
159.5

 

 
108.3

 

 

 
267.8

 
6.0
%
 
Region Total
 

 

 

 

 
224.6

 

 
108.3

 
444.9

 

 
777.8

 
17.4
%
Northern Powder River Basin:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Thermal:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sub Bituminous B
 

 

 
142.2

 

 

 

 

 

 

 
142.2

 
3.2
%
 
Region Total
 

 

 
142.2

 

 

 

 

 

 

 
142.2

 
3.2
%
Utah-Emery Field:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Thermal:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Vol B Bituminous
 

 
17.9

 

 

 
12.3

 

 

 

 

 
30.2

 
0.7
%
 
Region Total
 

 
17.9

 

 

 
12.3

 

 

 

 

 
30.2

 
0.7
%
Western Canada:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Metallurgical:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Med Vol Bituminous
 
30.2

 
72.6

 

 

 

 

 

 

 

 
102.8

 
2.3
%
 
Region Total
 
30.2

 
72.6

 

 

 

 

 

 

 

 
102.8

 
2.3
%
 
Total Company
 
65.1

 
174.3

 
435.4

 
44.4

 
362.9

 
371.0

 
179.5

 
575.4

 
2,251.4

 
4,459.4

 
100.0
%
 
Percent of Total
 
1.5
%
 
3.9
%
 
9.8
%
 
1.0
%
 
8.1
%
 
8.3
%
 
4.0
%
 
12.9
%
 
50.5
%
 
100.0
%
 
 



14



The following table classifies CONSOL Energy coals by rank, projected sulfur dioxide emissions and heating value (British thermal units per pound). The table also classifies bituminous coals as high, medium and low volatile which is based on fixed carbon and volatile matter.

CONSOL Energy Proven and Probable Recoverable Coal Reserves
By Product (In Millions of Tons) As of December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
≤ 1.20 lbs.
 
> 1.20 ≤ 2.50 lbs.
 
> 2.50 lbs.
 
 
 
 
 
 
 
S02/MMBtu
 
S02/MMBtu
 
S02/MMBtu
 
 
 
 
 
 
 
Low
 
Med
 
High
 
Low
 
Med
 
High
 
Low
 
Med
 
High
 
 
 
Percent By
By Region
 
Btu
 
Btu
 
Btu
 
Btu
 
Btu
 
Btu
 
Btu
 
Btu
 
Btu
 
Total
 
Product
Metallurgical:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Vol A Bituminous
 

 

 
32.7

 

 

 
194.5

 

 

 
1.3

 
228.5

 
5.1
%
 
Med Vol Bituminous
 
30.2

 
75.6

 
143.6

 

 

 
2.9

 

 

 

 
252.3

 
5.7
%
 
Low Vol Bituminous
 

 

 
114.1

 

 

 
26.3

 

 

 

 
140.4

 
3.1
%
 
   Total Metallurgical
 
30.2

 
75.6

 
290.4

 

 

 
223.7

 

 

 
1.3

 
621.2

 
13.9
%
Thermal:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Vol A Bituminous
 
34.9

 
80.8

 
2.8

 
44.4

 
126.0

 
113.7

 
71.2

 
130.5

 
2,250.1

 
2,854.4

 
64.0
%
 
High Vol B Bituminous
 

 
17.9

 

 

 
77.4

 

 

 
444.9

 

 
540.2

 
12.1
%
 
High Vol C Bituminous
 

 

 

 

 
159.5

 

 
108.3

 

 

 
267.8

 
6.0
%
 
Low Vol Bituminous
 

 

 

 

 

 
33.6

 

 

 

 
33.6

 
0.8
%
 
Sub Bituminous B
 

 

 
142.2

 

 

 

 

 

 

 
142.2

 
3.2
%
 
   Total Thermal
 
34.9

 
98.7

 
145.0

 
44.4

 
362.9

 
147.3

 
179.5

 
575.4

 
2,250.1

 
3,838.2

 
86.1
%
 
      Total
 
65.1

 
174.3

 
435.4

 
44.4

 
362.9

 
371.0

 
179.5

 
575.4

 
2,251.4

 
4,459.4

 
100.0
%
 
Percent of Total
 
1.5
%
 
3.9
%
 
9.8
%
 
1.0
%
 
8.1
%
 
8.3
%
 
4.0
%
 
12.9
%
 
50.5
%
 
100.0
%
 
 

The following table categorizes the relative Btu values (low, medium and high) for each of CONSOL Energy's producing regions in Btu's per pound of coal.
Region
 
Low
 
Medium
 
High
Northern, Central Appalachia and Canada
 
< 12,500
 
12,500 – 13,000
 
> 13,000
Midwest Appalachia
 
< 11,600
 
11,600 – 12,000
 
> 12,000
Northern Powder River Basin
 
< 8,400
 
 8,400 – 8,800
 
> 8,800
Colorado and Utah
 
< 11,000
 
11,000 – 12,000
 
> 12,000
Title to coal properties that we lease or purchase and the boundaries of these properties are verified by law firms retained by us at the time we lease or acquire the properties. Consistent with industry practice, abstracts and title reports are reviewed and updated approximately five years prior to planned development or mining of the property. If defects in title or boundaries of undeveloped reserves are discovered in the future, control of and the right to mine reserves could be adversely affected.


15



The following table sets forth, with respect to properties that we lease to other coal operators, the total royalty tonnage, acreage leased and the amount of income (net of related expenses) we received from royalty payments for the years ended December 31, 2011, 2010 and 2009.

 
 
Total
 
Total
 
Total
 
 
Royalty
 
Coal
 
Royalty
 
 
Tonnage
 
Acreage
 
Income
Year
 
(in thousands)
 
Leased
 
(in thousands)
2011
 
8,488
 
289,833
 
$17,998
2010
 
8,606
 
226,524
 
$14,073
2009
 
11,403
 
232,181
 
$16,448

Royalty tonnage leased to third parties is not included in the amounts of produced tons that we report. Proven and probable reserves do not include reserves attributable to properties that we lease to third parties.

Compliance Compared to Non-Compliance Coal

Coals are sometimes characterized as compliance or non-compliance coal. The term "compliance coal," as it is commonly used in the coal industry, refers to compliance only with former national sulfur dioxide emissions standards and indicates that when burned, the coal will produce emissions that will not exceed 1.2 pounds of sulfur dioxide per million British thermal units (1.2lb S02/MM Btu). A coal considered a compliance coal for meeting this former sulfur dioxide standard may not meet an emission standard for a different pollutant such as mercury, and may not even meet newer sulfur emission standards for all power plants. Clean air regulations that further restrict sulfur dioxide emissions will likely significantly reduce the amount of coal that can be used without post-combustion emission control technologies. Currently, a compliance coal will meet the power plant emission standard of 1.2 lb S02/MM Btu of fuel consumed. At December 31, 2011, approximately 0.7 billion tons, or 15%, of our coal reserves met that standard as a compliance coal. It is likely that, within several years, no coal will be "compliant" because federal regulations will require emissions-control technology to be used regardless of the coal's sulfur content. In many cases, our customers have responded to ever-tightening emissions requirements by retrofitting flue gas desulfurization systems (scrubbers) to existing power plants. Because these systems remove sulfur dioxide before it is emitted into the atmosphere, those customers are less concerned about the sulfur content of our coal.
 
As a result of a 1998 court decision forcing the establishment of mercury emissions standards for power plants, the Environmental Protection Agency (EPA) was required to promulgate a regulatory program for controlling mercury. CONSOL Energy coals have mercury contents typical for their rank and location (approximately 0.07-0.15 parts mercury on a dry coal basis). Since CONSOL Energy coals have high heating values, they have lower mercury contents on a weight per energy basis (typically measured in pounds per trillion Btu) than lower rank coals at a given mercury concentration. Eastern bituminous coals also tend to produce a greater proportion of flue gas mercury in the ionic or oxidized form (which is more easily captured by scrubbers installed for sulfur control) than sub-bituminous coal, including coals produced in the Powder River Basin. Both high rank and low rank coals are also amenable to other methods of controlling mercury emissions, such as by powder activated carbon injection. The EPA's proposed Clean Air Mercury Rule was vacated by a federal court ruling. The EPA is currently developing new regulations to control multiple hazardous air pollutants, including mercury, from coal-fired plants, the so-called MACT Rule, which is expected to be finalized in 2014. Some states have already adopted a control program for mercury emissions from coal-fired power plants.
Production
In the year ended December 31, 2011, 94% of CONSOL Energy's production came from underground mines and 6% from surface mines. Where the geology is favorable and reserves are sufficient, CONSOL Energy employs longwall mining systems in our underground mines. For the year ended December 31, 2011, 91% of our production came from mines equipped with longwall mining systems. Underground longwall systems are highly mechanized, capital intensive operations. Mines using longwall systems have a low variable cost structure compared with other types of mines and can achieve high productivity levels compared with those of other underground mining methods. Because CONSOL Energy has substantial reserves readily suitable to these operations, CONSOL Energy believes that these longwall mines can increase capacity at a low incremental cost.


16



The following table shows the production, in millions of tons, for CONSOL Energy's mines in the years ended December 31, 2011, 2010 and 2009, the location of each mine, the type of mine, the type of equipment used at each mine, method of transportation and the year each mine was established or acquired by us.

 
 
 
 
 
 
 
 
 
 
Tons Produced
 
Year
 
 
 
 
Mine
 
Mining
 
 
 
(in millions)
 
Established
Mine
 
Location
 
Type
 
Equipment
 
Transportation
 
2011
 
2010
 
2009
 
or Acquired
Thermal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
McElroy
 
Glen Easton, WV
 
U
 
LW/CM
 
CB B
 
9.3

 
10.1

 
9.9

 
1968
Bailey
 
Enon, PA
 
U
 
LW/CM
 
R R/B
 
8.8

 
9.8

 
10.4

 
1984
Enlow Fork
 
Enon, PA
 
U
 
LW/CM
 
R R/B
 
8.3

 
9.1

 
11.1

 
1990
Robinson Run
 
Shinnston, WV
 
U
 
LW/CM
 
R CB
 
5.6

 
5.5

 
5.6

 
1966
Loveridge
 
Metz, WV
 
U
 
LW/CM
 
R T
 
5.5

 
5.9

 
6.0

 
1956
Shoemaker(2)
 
Moundsville, WV
 
U
 
LW/CM
 
B
 
5.1

 
3.9

 
0.4

 
1966
Blacksville #2(1)
 
Wana, WV
 
U
 
LW/CM
 
R R/B T
 
4.2

 
4.5

 
3.8

 
1970
Miller Creek Complex(3)
 
Delbarton, WV
 
U/S
 
CM/S/L
 
R T
 
2.8

 
3.0

 
3.2

 
2004
AMVEST–Fola Complex(1)(3)
 
Bickmore, WV
 
U/S
 
A/S/L/CM
 
R T
 
2.1

 
1.9

 
3.0

 
2007
Harrison Resources(3)(4)
 
Cadiz, OH
 
S
 
S/L
 
R T
 
0.4

 
0.5

 
0.4

 
2007
Emery(1)
 
Emery Co., UT
 
U/S
 
CM
 
T
 

 
1.0

 
1.2

 
1945
Buchanan–Thermal(1)
 
Mavisdale, VA
 
U
 
LW/CM
 
R
 

 
0.2

 
0.7

 
1983
Jones Fork Complex(1)(3)(5)
 
Mousie, KY
 
U/S
 
CM/S/L
 
R T
 

 
0.1

 
1.1

 
1992
Mine 84(1)(6)
 
Eighty Four, PA
 
U
 
LW/CM
 
R R/B T
 

 

 
0.5

 
1998
High Volatile Metallurgical
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bailey–Met
 
Enon, PA
 
U
 
LW/CM
 
R R/B
 
2.1

 
1.2

 

 
1984
Enlow Fork–Met
 
Enon, PA
 
U
 
LW/CM
 
R R/B
 
1.8

 
1.1

 

 
1990
Robinson Run–Met
 
Shinnston, WV
 
U
 
LW/CM
 
R CB
 
0.4

 

 

 
1966
Blacksville #2(1)–Met
 
Wana, WV
 
U
 
LW/CM
 
R R/B T
 
0.1

 

 

 
1970
Western Allegheny–Knob Creek(3)(4)
 
Young Township, PA
 
U
 
CM
 
R T
 
0.1

 
0.1

 

 
2010
Loveridge–Met
 
Metz, WV
 
U
 
LW/CM
 
R T
 
0.1

 

 

 
1956
AMVEST–Fola Complex(1)(3)–Met
 
Bickmore, WV
 
U/S
 
A/S/L/CM
 
R T
 
0.1

 

 

 
2007
AMVEST–Terry Eagle Complex(1)(3)–Met
 
Jodie, WV
 
U/S
 
CM/A/S/L
 
R T
 
0.1

 

 

 
2007
Low Volatile Metallurgical
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Buchanan(1)
 
Mavisdale, VA
 
U
 
LW/CM
 
R T
 
5.7

 
4.5

 
2.1

 
1983
Total
 
 
 
 
 
 
 
 
 
62.6

 
62.4

 
59.4

 
 
___________
A
Auger
S
Surface
U
Underground
LW
Longwall
CM
Continuous Miner
S/L
Stripping Shovel and Front End Loaders
R
Rail
B
Barge
R/B
Rail to Barge
T
Truck
CB
Conveyor Belt
(1)
Mine was idled for part of the year(s) presented due to market conditions.
(2)
Mine was idled throughout most of 2009 due to converting from track haulage, to more efficient belt haulage to remove coal from the mine.
(3)
Harrison Resources, Miller Creek Complex, AMVEST–Fola Complex, AMVEST–Terry Eagle Complex, Jones Fork Complex and Western Allegheny–Knob Creek include facilities operated by independent contractors.
(4)
Production amounts represent CONSOL Energy's 49% ownership interest.
(5)
Complex was sold in March 2010.
(6)
Mine 84 was permanently idled in 2011.


17



Coal Capital Projects
CONSOL Energy anticipates investing $277 million for maintenance-of-production projects and $203 million to projects such as the BMX Mine (see below for BMX description.) Also, $146 million is planned for efficiency improvements such as the overland belt at Enlow Fork Mine and $50 million is planned for health and safety items.
In 2011, capital projects included the continued development of the BMX Mine. This project is expected to add 5 million tons a year of high-quality Pittsburgh seam coal, which will be sold in either the high-volatile metallurgical or thermal markets. An extension of Bailey Mine began in 2009 and production from the first longwall panel is expected to start in early 2014. The total cost of the project is expected to be approximately $662 million of which approximately $132 million was incurred in 2011. As of December 31, 2011, total project-to-date expenditures were approximately $175 million. Included within the scope of this project are certain surface facility upgrades at the Bailey Preparation Plant which are necessary in order for the plant to process the additional coal from the BMX Mine. These upgrades include the construction of several new raw and clean coal silos, expansion of existing railroad facilities, and installation of additional raw coal material handling systems.
In 2011, capital projects included the continued development of the Amonate Complex. This project is expected to add 400 - 600 thousand tons a year of mid-volatile met coal. The total cost of the project is expected to be approximately $53 million of which approximately $22 million was incurred in 2011. Production from the Amonate Complex is expccted to begin in 2012.
Construction of a new slope and overland belt at the Enlow Fork Mine in Pennsylvania began in 2010 and is expected to be completed by the end of 2013. Overland belt projects are expected to enhance safety, improve productivity, increase production and reduce costs. Modern conveyor systems typically provide high availability rates, thereby allowing mining equipment to produce at higher levels. Overland belts do not require the daily maintenance of the mine roof that underground haulage systems require allowing manpower to be reduced or redeployed to more productive work. Mine safety is expected to be enhanced by overland belts because older underground belt areas will be sealed. The total cost of the project is expected to be approximately $207 million of which approximately $28 million was incurred in 2011. As of December 31, 2011, total project-to-date expenditures were approximately $38 million.
Also, in accordance with a consent decree with the U.S Environmental Protection Agency and the West Virginia Environmental Protection Agency, CONSOL Energy began construction of an advance water processing system (RO) in Northern West Virginia in 2011. The RO will provide a treatment system for the mine water generated from the Robinson Run, Loveridge, and Blacksville #2 Mines to be in compliance with the existing National Pollution Discharge Elimination System (NPDES) permits. Construction was started in April 2011 and final commissioning of the RO system is expected to be complete by the end of May 2013. Expenditures related to the Northern West Virginia plant of $48.0 million were incurred in 2011 and total costs related to the construction of this plant and related facilities is expected to be approximately $200 million.
 
 
2011
 
2012
 
 
Actual Capital
 
Forecasted Capital
 
 
Expenditures
 
Expenditures
Coal
 
(in millions)
   Maintenance of Production
 
$
243

 
$
277

   Efficiency Projects (e.g., overland belts)
 
$
183

 
$
146

   Increases in Production (e.g., BMX)
 
$
114

 
$
203

   Safety
 
$
18

 
$
50

Total Coal
 
$
558

 
$
676



18



Coal Marketing and Sales
Our sales of bituminous coal were at average sales price per ton sold as follows:
 
 
Years Ended December 31,
 
 
2011
 
2010
 
2009
Average Sales Price Per Ton Sold– Thermal Coal
 
$
58.87

 
$
53.76

 
$
56.64

Average Sales Price Per Ton Sold– High Volatile Met Coal
 
$
78.06

 
$
72.89

 
$

Average Sales Price Per Ton Sold– Low Volatile Met Coal
 
$
191.81

 
$
146.32

 
$
107.72

Average Sales Price Per Ton Sold– Total Company
 
$
72.25

 
$
61.33

 
$
58.70


We sell coal produced by our mining complexes and additional coal that is purchased by us for resale from other producers. We maintain United States sales offices in Charlotte, Philadelphia and Pittsburgh. In addition, we sell coal through agents and to brokers and unaffiliated trading companies.

A breakdown of total coal sales, including our portion of equity affiliates, are as follows:

 
 
Tons
 
Percent of
 
 
Sold
 
Total
Thermal
 
53.4

 
83
%
High Volatile Metallurgical
 
4.8

 
8
%
Low Volatile Metallurgical
 
5.6

 
9
%
 
 
 
 
 
Total tons sold
 
63.8

 
100
%

Approximately 75% of our 2011 coal sales were made to U. S. electric generators,18% of our 2011 coal sales were priced on export markets and 7% of our coal sales were made to other domestic customers. We had approximately 105 customers in 2011. During 2011, one customer individually accounted for more than 10% of total revenue, and the top four coal customers accounted for more than 30% of our total revenues.

Coal Contracts

We sell coal to an established customer base through opportunities as a result of strong business relationships, or through a formalized bidding process. Contract volumes range from a single shipment to multi-year agreements for millions of tons of coal. The average contract term is between one to three years. However, several multi-year agreements have terms ranging from five to twenty years. As a normal course of business, efforts are made to renew or extend contracts scheduled to expire. Although there are no guarantees, we generally have been successful in renewing or extending contracts in the past. For the year ended December 31, 2011, over 84% of all the coal we produced was sold under contracts with terms of one year or more.



19



The following table sets forth as of January 26, 2012, CONSOL Energy's estimated production and sales for 2012 through 2014.
COAL DIVISION GUIDANCE
(Tons in millions)
 
 
 
 
 
 
 
 
 
 
 
1Q 2012
 
2012
 
2013
 
2014
Estimated Coal Production
 
15.5-15.9

 
59.5-61.5

 
60.5-62.5

 
64.5-66.5

   Estimated Low-Vol Met Sales
 
1.0

 
4.5-5.0

 
4.5-5.0

 
4.5-5.0

     Tonnage - Firm
 
1.0

 
1.9

 
0.1

 

     Average Price - Sold (firm)
 
$189.68
 
$185.66
 
$93.48
 
N/A
     Price - Estimated (for open tonnage)
 
$115-$145

 
$120-$150

 
N/A

 
N/A

 
 
 
 
 
 
 
 
 
   Estimated High-Vol Met Sales
 
1.0

 
5.0

 
5.0

 
5.5-6.0

     Tonnage - Firm