CNX-6.30.15-10Q


 
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, 2015
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 17, 2015
Common stock, $0.01 par value
 
229,004,060
 




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, 2015 and 2014.
 
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014.
 
Consolidated Balance Sheets at June 30, 2015 and December 31, 2014.
 
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014.
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
PART II OTHER INFORMATION
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
ITEM 4.
 
 
 
ITEM 5.
Other Information
 
 
 
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:
2015
 
2014
 
2015
 
2014
Natural Gas, NGLs and Oil Sales
$
201,911

 
$
229,743

 
$
456,491

 
$
496,041

Unrealized (Loss) Gain on Commodity Derivative Instruments
(24,936
)
 

 
35,068

 

Coal Sales
414,480

 
536,298

 
911,146

 
1,070,979

Other Outside Sales
6,337

 
70,087

 
19,467

 
139,374

Production Royalty Interests and Purchased Gas Sales
6,887

 
19,739

 
25,343

 
49,958

Freight-Outside Coal
4,251

 
10,109

 
10,776

 
20,054

Miscellaneous Other Income
35,694

 
69,977

 
73,760

 
125,031

Gain on Sale of Assets
4,315

 
1,417

 
6,480

 
5,086

Total Revenue and Other Income
648,939

 
937,370

 
1,538,531

 
1,906,523

Costs and Expenses:
 
 
 
 
 
 
 
Exploration and Production Costs
 
 
 
 
 
 
 
Lease Operating Expense
25,319

 
26,374

 
56,931

 
55,617

Transportation, Gathering and Compression
86,979

 
57,796

 
165,723

 
111,578

Production, Ad Valorem, and Other Fees
6,938

 
10,145

 
16,130

 
20,331

Direct Administrative and Selling
13,252

 
13,503

 
27,918

 
25,156

Depreciation, Depletion and Amortization
87,510

 
71,499

 
172,614

 
143,228

Exploration and Production Related Other Costs
2,322

 
4,624

 
4,363

 
7,723

Production Royalty Interests and Purchased Gas Costs
3,635

 
16,672

 
19,762

 
42,768

Other Corporate Expenses
20,551

 
21,010

 
39,647

 
47,174

Impairment of Exploration and Production Properties
828,905

 

 
828,905

 

General and Administrative
14,431

 
15,517

 
29,573

 
32,881

Total Exploration and Production Costs
1,089,842

 
237,140

 
1,361,566

 
486,456

Coal Costs
 
 
 
 
 
 
 
Operating and Other Costs
271,284

 
354,286

 
582,867

 
688,096

Royalties and Production Taxes
22,056

 
27,603

 
44,373

 
54,091

Direct Administrative and Selling
8,984

 
12,130

 
17,967

 
23,672

Depreciation, Depletion and Amortization
66,982

 
65,899

 
132,465

 
122,765

Freight Expense
4,251

 
10,109

 
10,776

 
20,054

General and Administrative Costs
6,901

 
10,657

 
14,309

 
23,366

Other Corporate Expenses
13,288

 
12,037

 
22,183

 
31,331

Total Coal Costs
393,746

 
492,721

 
824,940

 
963,375

Other Costs
 
 
 
 
 
 
 
Miscellaneous Operating Expense
14,052

 
92,020

 
24,436

 
159,361

General and Administrative Costs

 
221

 

 
431

Depreciation, Depletion and Amortization
5

 
501

 
12

 
1,022

Loss on Debt Extinguishment
17

 
74,277

 
67,751

 
74,277

Interest Expense
46,507

 
64,211

 
101,629

 
115,142

Total Other Costs
60,581

 
231,230

 
193,828

 
350,233

Total Costs And Expenses
1,544,169

 
961,091

 
2,380,334

 
1,800,064

Earnings Before Income Tax
(895,230
)
 
(23,721
)
 
(841,803
)
 
106,459

Income Taxes
(291,929
)
 
1,214

 
(317,532
)
 
9,703

(Loss) Income From Continuing Operations
(603,301
)
 
(24,935
)
 
(524,271
)
 
96,756

Loss From Discontinued Operations, net

 

 

 
(5,687
)
Net (Loss) Income
$
(603,301
)
 
$
(24,935
)
 
$
(524,271
)
 
$
91,069

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)
2015
 
2014
 
2015
 
2014
Earnings Per Share
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
(Loss) Income from Continuing Operations
$
(2.64
)
 
$
(0.11
)
 
$
(2.29
)
 
$
0.42

Loss from Discontinued Operations

 

 

 
(0.02
)
Total Basic (Loss) Earnings Per Share
$
(2.64
)
 
$
(0.11
)
 
$
(2.29
)
 
$
0.40

Dilutive
 
 
 
 
 
 
 
(Loss) Income from Continuing Operations
$
(2.64
)
 
$
(0.11
)
 
$
(2.29
)
 
$
0.42

Loss from Discontinued Operations

 

 

 
(0.03
)
Total Dilutive (Loss) Earnings Per Share
$
(2.64
)
 
$
(0.11
)
 
$
(2.29
)
 
$
0.39

 
 
 
 
 
 
 
 
Dividends Paid Per Share
$
0.0625

 
$
0.0625

 
$
0.125

 
$
0.125


CONSOL ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended
 
Six Months Ended
(Dollars in thousands)
June 30,
 
June 30,
(Unaudited)
2015
 
2014
 
2015
 
2014
Net (Loss) Income
$
(603,301
)
 
$
(24,935
)
 
$
(524,271
)
 
$
91,069

Other Comprehensive Loss:
 
 
 
 
 
 
 
  Actuarially Determined Long-Term Liability Adjustments (Net of tax: ($4,875), $2,214, ($4,785), ($771))
9,467

 
(3,798
)
 
9,318

 
1,321

  Net Decrease in the Value of Cash Flow Hedges (Net of tax: $0, $8,027, $0, $38,883)

 
(12,218
)
 

 
(59,183
)
  Reclassification of Cash Flow Hedges from OCI to Earnings (Net of tax: $12,103, ($6,642), $23,316, ($17,593))
(20,804
)
 
6,951

 
(40,118
)
 
23,264



 

 
 
 
 
Other Comprehensive Loss
(11,337
)
 
(9,065
)
 
(30,800
)
 
(34,598
)


 

 
 
 
 
Comprehensive (Loss) Income
$
(614,638
)
 
$
(34,000
)
 
$
(555,071
)
 
$
56,471







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,
2015
 
December 31,
2014
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
10,031

 
$
176,989

Accounts and Notes Receivable:
 
 

Trade
173,240

 
259,817

Other Receivables
219,655

 
347,146

       Accounts Receivable - Securitized
38,669

 

Inventories
111,694

 
101,873

Deferred Income Taxes
74,539

 
66,569

Recoverable Income Taxes
21,211

 
20,401

Prepaid Expenses
172,463

 
193,555

Total Current Assets
821,502

 
1,166,350

Property, Plant and Equipment:
 
 
 
Property, Plant and Equipment
15,344,327

 
14,674,777

Less—Accumulated Depreciation, Depletion and Amortization
5,624,326

 
4,512,305

Total Property, Plant and Equipment—Net
9,720,001

 
10,162,472

Other Assets:
 
 
 
Investment in Affiliates
216,583

 
152,958

Other
244,015

 
277,750

Total Other Assets
460,598

 
430,708

TOTAL ASSETS
$
11,002,101

 
$
11,759,530






















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,
2015
 
December 31,
2014
LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts Payable
$
442,153

 
$
531,973

Current Portion of Long-Term Debt
13,401

 
13,016

Short-Term Notes Payable
1,058,000

 

Borrowings Under Securitization Facility
38,669

 

Other Accrued Liabilities
543,806

 
602,972

Total Current Liabilities
2,096,029

 
1,147,961

Long-Term Debt:
 
 
 
Long-Term Debt
2,558,678

 
3,236,422

Capital Lease Obligations
38,820

 
39,456

Total Long-Term Debt
2,597,498

 
3,275,878

Deferred Credits and Other Liabilities:
 
 
 
Deferred Income Taxes
5,119

 
325,592

Postretirement Benefits Other Than Pensions
635,693

 
703,680

Pneumoconiosis Benefits
118,288

 
116,941

Mine Closing
306,231

 
306,789

Gas Well Closing
181,768

 
175,369

Workers’ Compensation
75,365

 
75,947

Salary Retirement
107,233

 
109,956

Reclamation
34,264

 
33,788

Other
162,718

 
158,171

Total Deferred Credits and Other Liabilities
1,626,679

 
2,006,233

TOTAL LIABILITIES
6,320,206

 
6,430,072

Stockholders’ Equity:
 
 
 
Common Stock, $.01 Par Value; 500,000,000 Shares Authorized, 229,001,412 Issued and Outstanding at June 30, 2015; 230,265,463 Issued and Outstanding at December 31, 2014
2,294

 
2,306

Capital in Excess of Par Value
2,425,822

 
2,424,102

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

 

Retained Earnings
2,435,679

 
3,054,150

Accumulated Other Comprehensive Loss
(181,900
)
 
(151,100
)
Total CONSOL Energy Inc. Stockholders’ Equity
4,681,895

 
5,329,458

TOTAL LIABILITIES AND EQUITY
$
11,002,101

 
$
11,759,530












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


6



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

 
(Dollars in thousands, except per share data)
Common
Stock
 
Capital in
Excess
of Par
Value
 
Retained
Earnings
(Deficit)
 
Accumulated
Other
Comprehensive
Loss
 
Total CONSOL Energy Inc.
Stockholders’
Equity
December 31, 2014
$
2,306

 
$
2,424,102

 
$
3,054,150

 
$
(151,100
)
 
$
5,329,458

(Unaudited)
 
 
 
 
 
 
 
 
 
Net Loss

 

 
(524,271
)
 

 
(524,271
)
Other Comprehensive Loss

 

 

 
(30,800
)
 
(30,800
)
Comprehensive Loss

 

 
(524,271
)
 
(30,800
)
 
(555,071
)
Issuance of Common Stock
10

 
8,278

 

 

 
8,288

Retirement of Common Stock (2,213,100 shares)
(22
)
 
(17,683
)
 
(53,969
)
 

 
(71,674
)
Treasury Stock Activity

 

 
(11,520
)
 

 
(11,520
)
Tax Cost From Stock-Based Compensation

 
(3,004
)
 

 

 
(3,004
)
Amortization of Stock-Based Compensation Awards

 
14,129

 

 

 
14,129

Dividends ($0.125 per share)

 

 
(28,711
)
 

 
(28,711
)
Balance at June 30, 2015
$
2,294

 
$
2,425,822

 
$
2,435,679

 
$
(181,900
)
 
$
4,681,895





























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:
2015
 
2014
Net (Loss) Income
$
(524,271
)
 
$
91,069

Adjustments to Reconcile Net Income to Net Cash Provided By Continuing Operating Activities:

 

Net Loss from Discontinued Operations

 
5,687

Depreciation, Depletion and Amortization
305,091

 
267,015

Impairment of Exploration and Production Properties
828,905

 

Stock-Based Compensation
14,129

 
25,500

Gain on Sale of Assets
(6,480
)
 
(5,086
)
Loss on Debt Extinguishment
67,751

 
74,277

Unrealized Gain on Commodity Derivative Instruments
(35,068
)
 

Deferred Income Taxes
(313,114
)
 
13,785

Equity in Earnings of Affiliates
(23,250
)
 
(21,512
)
Return on Equity Investment
8,162

 

Changes in Operating Assets:

 

Accounts and Notes Receivable
90,384

 
(52,920
)
Inventories
(9,821
)
 
9,909

Prepaid Expenses
83,560

 
24,529

Changes in Other Assets
17,188

 
13,427

Changes in Operating Liabilities:

 

Accounts Payable
(97,602
)
 
53,371

Accrued Interest
26,149

 
(10,483
)
Other Operating Liabilities
(96,978
)
 
74,714

Changes in Other Liabilities
(46,395
)
 
9,923

Other
5,875

 
4,814

Net Cash Provided by Continuing Operations
294,215

 
578,019

Net Cash Used in Discontinued Operating Activities

 
(20,872
)
Net Cash Provided by Operating Activities
294,215

 
557,147

Cash Flows from Investing Activities:

 

Capital Expenditures
(635,785
)
 
(819,295
)
Proceeds from Sales of Assets
6,931

 
133,075

Net Investments In Equity Affiliates
(43,761
)
 
(39,000
)
Net Cash Used in Investing Activities
(672,615
)
 
(725,220
)
Cash Flows from Financing Activities:

 

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

 
(11,736
)
Payments on Miscellaneous Borrowings
(4,112
)
 
(3,167
)
Payments on Long Term Notes, including Redemption Premium
(1,263,719
)
 
(1,561,937
)
Proceeds from Securitization Facility
38,669

 

Proceeds from Issuance of Long-Term Notes
492,760

 
1,600,000

Tax Benefit from Stock-Based Compensation
198

 
2,413

Dividends Paid
(28,711
)
 
(28,733
)
Issuance of Common Stock
8,288

 
13,234

Purchases of Treasury Stock
(71,674
)
 

Debt Issuance and Financing Fees
(18,257
)
 
(22,028
)
Net Cash Provided By (Used in) Financing Activities
211,442

 
(11,954
)
Net Decrease in Cash and Cash Equivalents
(166,958
)
 
(180,027
)
Cash and Cash Equivalents at Beginning of Period
176,989

 
327,420

Cash and Cash Equivalents at End of Period
$
10,031

 
$
147,393

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, 2015 are not necessarily indicative of the results that may be expected for future periods.

The balance sheet at December 31, 2014 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, 2014 included in CONSOL Energy Inc.'s Annual Report Form 10-K.

Certain amounts in prior periods have been reclassified to conform with the report classifications of the year ended December 31, 2014, with no effect on previously reported net income or stockholders' equity.

Basic earnings per share are computed by dividing net income 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, CONSOL Energy stock units, and 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, performance share units, and CONSOL Energy stock 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 Inc. (CONSOL Energy or the Company) 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:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Anti-Dilutive Options
3,667,080
 
 
4,123,949
 
 
3,667,080
 
 
359,488
 
Anti-Dilutive Restricted Stock Units
1,606,672
 
 
1,265,237
 
 
1,606,672
 
 
 
Anti-Dilutive Performance Share Units
 
 
523,357
 
 
 
 
 
Anti-Dilutive Performance Stock Options
802,804
 
 
802,804
 
 
802,804
 
 
 
 
6,076,556
 
 
6,715,347
 
 
6,076,556
 
 
359,488
 

The table below sets forth the share-based awards that have been exercised or released:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Options
287,592
 
 
382,773
 
 
363,620
 
 
648,112
 
Restricted Stock Units
37,149
 
 
56,403
 
 
486,507
 
 
390,802
 
Performance Share Units
 
 
 
 
497,134
 
 
378,971
 
 
324,741
 

439,176
 
 
1,347,261
 
 
1,417,885
 

The weighted average exercise price per share of the options exercised during the three months ended June 30, 2015 and 2014 was $22.78 and $21.57, respectively. The weighted average exercise price per share of the options exercised during the six months ended June 30, 2015 and 2014 was $22.78 and $20.41, respectively.
  




9



The computations for basic and dilutive earnings per share are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
(Loss) Income from Continuing Operations
$
(603,301
)
 
$
(24,935
)
 
$
(524,271
)
 
$
96,756
 
Loss from Discontinued Operations
 
 
 
 
 
 
(5,687
)
Net (Loss) Income
$
(603,301
)

$
(24,935
)
 
$
(524,271
)
 
$
91,069
 
Weighted Average Shares of Common Stock Outstanding:
 
 
 
 
 
 
 
Basic
228,928,803
 
 
230,061,395
 
 
229,329,382
 
 
229,795,193
 
Effect of Stock-Based Compensation Awards
 
 
 
 
 
 
1,595,988
 
Dilutive
228,928,803
 
 
230,061,395
 
 
229,329,382
 
 
231,391,181
 
(Loss) Earnings per Share:
 
 
 
 
 
 
 
Basic (Continuing Operations)
$
(2.64
)
 
$
(0.11
)
 
$
(2.29
)
 
$
0.42
 
Basic (Discontinued Operations)
 
 
 
 
 
 
(0.02
)
Total Basic
$
(2.64
)

$
(0.11
)
 
$
(2.29
)
 
$
0.40
 
 
 
 
 
 
 
 
 
Dilutive (Continuing Operations)
$
(2.64
)
 
$
(0.11
)
 
$
(2.29
)
 
$
0.42
 
Dilutive (Discontinued Operations)
 
 
 
 
 
 
(0.03
)
Total Dilutive
$
(2.64
)
 
$
(0.11
)
 
$
(2.29
)
 
$
0.39
 

Changes in Accumulated Other Comprehensive Loss by component, net of tax, were as follows:
 
Gains and Losses on Cash Flow Hedges
 
Postretirement Benefits
 
Total
Balance at December 31, 2014
$
121,521
 
 
$
(272,621
)
 
$
(151,100
)
Other comprehensive income before reclassifications
 
 
28,396
 
 
28,396
 
Amounts reclassified from Accumulated Other Comprehensive Income
(40,118
)
 
(19,078
)
 
(59,196
)
Current period other comprehensive (loss) income
(40,118
)
 
9,318
 
 
(30,800
)
Balance at June 30, 2015
$
81,403
 
 
$
(263,303
)
 
$
(181,900
)

The following table shows the reclassification of adjustments out of Accumulated Other Comprehensive Loss:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Derivative Instruments (Note 13)
 
 
 
 
 
 
 
Natural Gas Price Swaps and Options
$
(32,906
)
 
$
13,593
 
 
$
(63,433
)
 
$
40,857
 
Tax Expense (Benefit)
12,102
 
 
(6,642
)
 
23,315
 
 
(17,593
)
Net of Tax
$
(20,804
)
 
$
6,951
 
 
$
(40,118
)
 
$
23,264
 
Actuarially Determined Long-Term Liability Adjustments (Note 4 and Note 5)
 
 
 
 
 
 
 
Amortization of Prior Service Costs
$
(54,495
)
 
$
(2,542
)
 
$
(69,308
)
 
$
(5,084
)
Recognized Net Actuarial Loss
24,169
 
 
10,861
 
 
38,742
 
 
21,507
 
Settlement loss
 
 
20,707
 
 
 
 
20,707
 
Total
(30,326
)
 
29,026
 
 
(30,566
)
 
37,130
 
Tax Expense (Benefit)
11,398
 
 
(10,691
)
 
11,488
 
 
(13,676
)
Net of Tax
$
(18,928
)
 
$
18,335
 
 
$
(19,078
)
 
$
23,454
 
 



10



NOTE 2—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 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 the next five years 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. In the six months ended June 30, 2015, CONSOL Energy made payments to CEVCO totaling $15,216. As of June 30, 2015, the amount recorded in Other Current Liabilities was $35,753 and Other Long-term Liabilities was $38,850. In July 2015, CONSOL Energy made a payment to CEVCO in the amount of $35,753.

In December 2014, CONSOL Energy completed the sale of its industrial supplies subsidiary, to an unrelated third party for net proceeds of approximately $51,000 of which $44,035 was received and included in cash flows from investing activities during the year ended December 31, 2014. In connection with the sale, CONSOL Energy signed a supply agreement under which, among other things, it will continue to purchase certain goods exclusively from the new entity for a period of at least three years. CONSOL Energy could also receive up to an additional $6,000 of cash consideration in the future, which has not been recognized in the consolidated financial statements as it is subject to future events.
    
In March 2014, CONSOL Energy completed a sale-leaseback of longwall shields for the Harvey Mine. Cash proceeds for the sale offset the basis of $75,357; therefore, no gain or loss was recognized on the sale. The five-year lease has been accounted for as an operating lease.

In December 2013, CONSOL Energy acquired the gas drilling rights to approximately 90,000 contiguous acres from Dominion Transmission, a unit of Dominion Resources Inc. The acreage, which is associated with Dominion’s Fink-Kennedy, Lost Creek, and Racket Newberne gas storage fields in West Virginia, lies in the northern portion of Lewis County and the southern portion of Harrison County. CONSOL Energy anticipates that over one-half of the acres will have wet gas. CONSOL Energy has acquired the gas rights to both the Marcellus Shale and the Upper Devonian formations in the storage fields. Consideration of up to $190,000 will be paid by CONSOL Energy in two installments: 50% was paid at closing and the remaining balance is due over time as the acres are drilled. In addition, CONSOL Energy will pay an overriding royalty to Dominion Resources based on a sliding scale. Finally, CONSOL Energy has committed to be an anchor shipper on Dominion’s transmission system, with the specific terms to be negotiated at a future date. CONSOL Energy paid $91,243 in 2013 related to this transaction. In the six months ended June 30, 2014, CONSOL Energy made an additional bonus payment of $16,000 to Dominion Transmission. Noble Energy Inc., our joint venture partner, acquired 50% of the acres and reimbursed CONSOL Energy for 50% of the associated payments.

In December 2013, CONSOL Energy completed the sale of its Consolidation Coal Company (CCC) subsidiary, which included all five of its longwall coal mines in West Virginia, to a subsidiary of Murray Energy Corporation (Murray Energy). CONSOL Energy retained overriding royalty interests in certain reserves sold in the transaction. Murray Energy also assumed $2,050,656 of CONSOL Energy's employee benefit obligations valued as of December 5, 2013 and its UMWA 1974 Pension Trust obligations. Murray Energy is primarily liable for all 1993 Coal Act liabilities. Cash proceeds of $825,285 were received related to this transaction, which were net of $24,715 in transaction fees. A pre-tax gain of $1,035,346 was included in Income from Discontinued Operations on the Consolidated Statement of Income. In the first quarter of 2014, there was a pre-tax reduction in gain on sale of $7,044 related to the estimated working capital adjustment and various other miscellaneous items.



11



NOTE 3—MISCELLANEOUS OTHER INCOME:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Equity in Earnings of Affiliates
$
11,925

 
$
14,062

 
$
23,248

 
$
21,512

Rental Income
9,408

 
10,697

 
19,006

 
25,605

Right of Way Issuance
5,422

 
513

 
7,950

 
2,413

Royalty Income
3,602

 
4,476

 
8,147

 
9,755

Gathering Revenue
2,379

 
2,020

 
8,474

 
20,750

Interest Income
364

 
676

 
1,507

 
1,300

Coal Contract Settlement

 
30,000

 

 
30,000

Other
2,594

 
7,533

 
5,428

 
13,696

Total Other Income
$
35,694

 
$
69,977

 
$
73,760

 
$
125,031


NOTE 4—COMPONENTS OF PENSION AND OTHER POST-EMPLOYMENT BENEFIT (OPEB) PLANS NET PERIODIC BENEFIT COSTS:

Components of net periodic benefit costs for the three and six months ended June 30, 2015 and 2014 are as follows:
 
Pension Benefits
 
Other Post-Employment Benefits
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost
$
2,350

 
$
4,483

 
$
4,700

 
$
8,791

 
$

 
$
2,331

 
$

 
$
4,663

Interest cost
8,580

 
8,993

 
17,160

 
18,144

 
6,889

 
12,097

 
13,884

 
24,194

Expected return on plan assets
(12,690
)
 
(12,765
)
 
(25,379
)
 
(25,512
)
 

 

 

 

Amortization of prior service credits
(176
)
 
(346
)
 
(352
)
 
(692
)
 
(54,320
)
 
(2,196
)
 
(68,956
)
 
(4,392
)
Recognized net actuarial loss
6,940

 
6,106

 
13,880

 
11,997

 
18,522

 
6,369

 
27,448

 
12,737

Settlement loss

 
20,707

 

 
20,707

 

 

 

 

Net periodic cost (benefit)
$
5,004

 
$
27,178

 
$
10,009

 
$
33,435

 
$
(28,909
)
 
$
18,601

 
$
(27,624
)
 
$
37,202


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

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, 2014. Accordingly, CONSOL Energy recognized settlement expense of $20,707 for the three and six months ended June 30, 2014 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 accounting was triggered in May 2014, resulting in a remeasurement at May 31, 2014. Additional lump sum distributions during June 2014 resulted in another remeasurement at June 30, 2014. The May 31, 2014 and June 30, 2014 remeasurements used a discount rate of 4.26%, a decrease from 4.87% used at December 31, 2013. The May remeasurement increased the pension liability by $41,527. The May settlement and corresponding remeasurement of the pension plan resulted in a decrease of $14,193 in Other Comprehensive Income, net of $8,276 in deferred taxes. The June remeasurement decreased the pension liability by $6,490. The June settlement and corresponding remeasurement of the pension plan resulted in an increase of $5,141 in Other Comprehensive Income, net of $2,998 in deferred taxes.

On May 31, 2015, the Salaried OPEB and Production and Maintenance (P&M) OPEB plans were remeasured to reflect a plan amendment. Retirees will continue in the Salaried and P&M OPEB plans until December 31, 2015, and coverage thereafter will be eliminated. The amendment to the OPEB plan resulted in a $43,598 reduction in the OPEB liability with a corresponding


12



increase of $27,716 in Other Comprehensive Income, net of $15,882 in deferred taxes. The amendment resulted in a remeasurement of the OPEB plan at May 31, 2015. The remeasurement resulted in a change to the discount rate to 1.60% for the Salaried OPEB plan and 1.65% for the P&M OPEB plan from 1.78% and 1.84%, respectively, used at December 31, 2014. The remeasurement decreased the OPEB liability by $1,070 with a corresponding increase of $680 in Other Comprehensive Income, net of $390 in deferred taxes. CONSOL Energy expects to recognize income of $235,541 related to amortization of prior service credit coupled with recognition of actuarial losses in Operating and Other Costs - Coal in the Consolidated Statements of Income for the year ended December 31, 2015 as a result of the changes made to the Salaried and P&M OPEB plans.

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

NOTE 5—COMPONENTS OF COAL WORKERS’ PNEUMOCONIOSIS (CWP) AND WORKERS’ COMPENSATION NET PERIODIC BENEFIT COSTS:
Components of net periodic benefit costs for the three and six months ended June 30, 2015 and 2014 are as follows:
 
 
CWP
 
Workers' Compensation
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost
$
1,623

 
$
1,418

 
$
3,246

 
$
2,837

 
$
2,347

 
$
2,445

 
$
4,695

 
$
4,890

Interest cost
1,279

 
1,385

 
2,558

 
2,769

 
799

 
895

 
1,597

 
1,789

Amortization of actuarial gain
(1,394
)
 
(1,549
)
 
(2,788
)
 
(3,098
)
 
(8
)
 
(96
)
 
(15
)
 
(191
)
State administrative fees and insurance bond premiums

 

 

 

 
973

 
929

 
1,876

 
2,039

Net periodic benefit cost
$
1,508

 
$
1,254

 
$
3,016

 
$
2,508

 
$
4,111

 
$
4,173

 
$
8,153

 
$
8,527


CONSOL Energy does not expect to contribute to the CWP plan in 2015. The Company intends to pay benefit claims as they become due. For the six months ended June 30, 2015, $5,293 of CWP benefit claims have been paid.
CONSOL Energy does not expect to contribute to the workers’ compensation plan in 2015. The Company intends to pay benefit claims as they become due. For the six months ended June 30, 2015, $8,821 of workers’ compensation benefits, state administrative fees and surety bond premiums have been paid.

NOTE 6—INCOME TAXES:

For the three and six months ended June 30, 2015, the company recognized an income tax benefit of $291,929 and $317,532 respectively. The income tax benefit was primarily driven by impairment charges recorded in June 2015. In addition, as the company's loss for the six months ended June 30, 2015 exceeds 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.

For the three and six months ended June 30, 2014 the company recognized income tax expense from continuing operations of $1,214 and $9,703, respectively. The Company also recognized an income tax benefit of $1,357 for the six months ended June 30, 2014 related to discontinued operations. The effective tax rate differed from the statutory tax rate primarily due to the deduction for the percentage depletion in the excess of cost depletion related to the Company's coal operations. For the three and six months ended June 30, 2014 the company recognized no tax benefit and $8,820, respectively, related to the completion of the Internal Revenue Service audit of tax years 2008 and 2009, and an income tax benefit of $(371) and $7,766 as a result of changes in estimates of excess percentage depletion and Domestic Production Activities Deduction related to the prior-year tax provision. For the three and six months ended June 30, 2014 the Company recognized a $3,344 income tax expense related to filing amended state income tax returns due to the completion of the Internal Revenue Service audit of tax years 2008 and 2009.

There were no uncertain tax positions at June 30, 2015 and December 31, 2014. There were no additions to the liability for unrecognized tax benefits during the six months ended June 30, 2015.


13



CONSOL Energy recognizes interest accrued related to uncertain tax positions in its interest expense. There was no accrued interest on uncertain tax positions for the three or six month periods ended June 30, 2015. As of December 31, 2014, the Company had no accrued interest liability relating to uncertain tax positions. The accrued interest liability included $49 and $4,898 of interest income that is reflected in the Company’s Consolidated Statements of Income for the three and six months ended June 30, 2014 respectively.
CONSOL Energy recognizes penalties accrued related to uncertain tax positions in its income tax expense. As of June 30, 2015 and 2014, CONSOL Energy had no accrued liability for tax penalties.
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 Internal Revenue Service began its audit of tax years 2010 through 2013 in the second quarter of 2015.

NOTE 7—INVENTORIES:

Inventory components consist of the following:
 
June 30,
2015
 
December 31,
2014
Coal
$
31,168

 
$
19,242

Supplies
80,526

 
82,631

Total Inventories
$
111,694

 
$
101,873


Inventories are stated at the lower of cost or market. 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.

NOTE 8—ACCOUNTS RECEIVABLE SECURITIZATION:
CONSOL Energy and certain of its U.S. subsidiaries are party to a trade accounts receivable facility with financial institutions for the sale on a continuous basis of eligible trade accounts receivable. On March 27, 2015, this facility was amended to allow the Company to receive, on a revolving basis, up to $100,000 of short-term funding and letters of credit. CONSOL Energy may also issue letters of credit against the facility, which decreases the amount available to be drawn upon. The trade accounts receivable facility was terminated on July 7, 2015.
CNX Funding Corporation, a wholly owned, special purpose, bankruptcy-remote subsidiary, buys and sells eligible trade receivables generated by certain subsidiaries of CONSOL Energy. Under the receivables facility, CONSOL Energy and certain subsidiaries, irrevocably and without recourse, sell all of their eligible trade accounts receivable to CNX Funding Corporation, who in turn sells 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 is included in Accounts and Notes Receivable-Trade in the Consolidated Balance Sheets, is 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 are part of this program, the fair value of its retained interest approximates the total amount of the designated pool of accounts receivable. CONSOL Energy will continue to service the sold trade receivables for the financial institutions for a fee based upon market rates for similar services.
CONSOL Energy records transactions under the securitization facility as secured borrowings on the Consolidated Balance Sheets. The pledge of collateral is reported as Accounts Receivable - Securitized and the borrowings are classified as debt in Borrowings under Securitization Facility.
At June 30, 2015 and December 31, 2014, eligible accounts receivable totaled $89,400 and $77,800, respectively. Outstanding letters of credit were $49,431 at June 30, 2015 compared to $60,230, at December 31, 2014. There were outstanding borrowings of $38,669 at June 30, 2015 and no outstanding borrowings at December 31, 2014.
After taking into account outstanding letters of credit and outstanding borrowings, there remained $1,300 and $17,570 in subordinated retained interest at June 30, 2015 and December 31, 2014, respectively. These changes are reflected in the Net Cash Used in Financing Activities section of the Consolidated Statement of Cash Flows. CONSOL Energy's management believes that the letters of credit will expire without being funded, and therefore, the commitments will not have a material adverse effect on the Company's financial condition. No amounts related to these financial guarantees and letters of credit are recorded as liabilities on the financial statements.


14



The cost of funds under this facility is based upon commercial paper rates or LIBOR, plus a charge for administrative services paid to the financial institutions. Costs associated with the receivables facility totaled $207 and $484 for the three months ended June 30, 2015 and 2014 and $403 and $484 for the six months ended June 30, 2015 and 2014. These costs have been recorded as financing fees which are included in Other Costs - Miscellaneous Operating Expense in the Consolidated Statements of Income. No servicing asset or liability has been recorded at June 30, 2015.

NOTE 9—PROPERTY, PLANT AND EQUIPMENT:
 
June 30,
2015
 
December 31,
2014
E&P Property, Plant, and Equipment
 
 
 
Intangible drilling cost
$
3,252,037

 
$
2,798,394

Proven gas properties
1,770,034

 
1,768,007

Unproven gas properties
1,570,720

 
1,540,835

Gas gathering equipment
1,113,736

 
1,088,238

Gas wells and related equipment
802,441

 
716,748

Other gas assets
125,112

 
123,539

Gas advance royalties
19,908

 
20,580

Total E&P Property, Plant, and Equipment
$
8,653,988

 
$
8,056,341

Less: Accumulated Depreciation, Depletion and Amortization
2,512,651

 
1,523,761

Total E&P Property, Plant, and Equipment - Net
$
6,141,337

 
$
6,532,580

 
 
 
 
Coal and Other Property, Plant and Equipment:
 
 
 
Coal and other plant and equipment
$
3,793,530

 
$
3,726,514

Coal properties and surface lands
1,360,175

 
1,358,306

Airshafts
470,227

 
468,924

Mine development
412,081

 
414,501

Coal advance mining royalties
390,274

 
386,245

Leased coal lands
264,052

 
263,946

Total Coal and Other Property, Plant, and Equipment
$
6,690,339

 
$
6,618,436

Less: Accumulated Depreciation, Depletion and Amortization
3,111,675

 
2,988,544

Total Coal and Corporate Property, Plant and Equipment- Net
$
3,578,664

 
$
3,629,892

 
 
 
 
Total Company Property, Plant, and Equipment
$
15,344,327

 
$
14,674,777

Less - Total Company Accumulated Depreciation, Depletion, and Amortization
5,624,326

 
4,512,305

Total Company Property, Plant and Equipment - Net
$
9,720,001

 
$
10,162,472

    
Impairment of Proven Properties

CONSOL Energy performs a quantitative annual impairment test, during the fourth quarter of each year, over proven 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,


15



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. The impaired assets now have approximately $165,900 of carrying value remaining. If gas prices continue to decrease later in 2015, another impairment of these assets, or other natural gas assets, is possible.

Impairment of Unproven Properties

CONSOL Energy evaluates capitalized costs of unproven 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 made. For the quarter ended June 30, 2015, unproven property impairments relating to the determination that the properties will not yield proven 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 relates to the court ruling in June 2015 in the state of New York that officially bans hydraulic fracturing.

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 LLC (CNX Gas Company), a wholly owned subsidiary of CONSOL Energy, is party to a joint development agreement with Hess Ohio Developments, LLC (Hess) with respect to approximately 153,000 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, 2015, Hess’ remaining carry obligation is $52,075. For the six months ended June 30, 2015 and June 30, 2014, Hess' carry payments to CNX Gas Company reduced capital expenditures by $47,851 and $29,984, respectively.

CNX Gas Company is party to a joint development agreement with Noble Energy, Inc. (Noble) with respect to approximately 702,000 net Marcellus Shale oil and gas 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, and remained in effect until November 1, 2014 when average natural gas prices fell below $4.00/MMbtu for three consecutive months. The carry continues to be suspended. Restrictions also include a $400,000 annual maximum on Noble Energy's carried cost obligation. As of June 30, 2015, Noble Energy’s remaining carry obligation is $1,624,448. For the six months ended June 30, 2015 and June 30, 2014, Noble's carry payments to CNX Gas Company reduced capital expenditures by $25,578 and $25,607, respectively.
  
NOTE 10—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 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 May 2015, the facility was amended to allow, among other things, spinoffs, or other public equity offering transactions, in regard to subsidiaries that own metallurgical coal assets and thermal coal assets, and all arrangements, actions and transactions in connection therewith, including releases of associated entities or assets from the Credit Agreement and any liens granted under the loan documents. The Amendment also permits the incurrence of a term loan facility up to an aggregate principal amount of $600,000 at subsidiaries of the Company that own the thermal coal assets and the incurrence of a revolving credit facility up to an aggregate principal amount of $300,000 at subsidiaries of the Company that own the metallurgical coal assets.


16




The facility also requires that CONSOL Energy maintains 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 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 and accounts receivable securitization facility, measured quarterly. At June 30, 2015, the interest coverage ratio was 4.65 to 1.00 and the current ratio was 1.38 to 1.00. Further, the credit facility allows unlimited investments in joint ventures for the development and operation of 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.

At June 30, 2015, the $2,000,000 facility had $1,058,000 of borrowings outstanding and $237,463 of letters of credit outstanding, leaving $704,537 of unused capacity. At December 31, 2014, the $2,000,000 facility had no borrowings outstanding and $244,418 of letters of credit outstanding, leaving $1,755,582 of unused capacity.

On March 9, 2015, Consol Pennsylvania Coal Company LLC (CPCC) and Conrhein Coal Company (Conrhein) which are wholly owned subsidiaries of the Company, entered into a $600,000 commitment for a senior secured term loan facility. The facility is secured by the thermal coal assets related to CONSOL Energy’s existing Pennsylvania operations along with CONSOL Energy providing a guarantee to the lenders and a pledge of its equity interests in CPCC and Conrhein. The term loan commitment expired on the closing of the CNX Coal Resources LP initial public offering, which was effective on July 7, 2015. CONSOL Energy has recorded $4,500 within the Other Receivables line item of the Consolidated Balance Sheets as of June 30, 2015 for financing fees that are refundable to the Company.

NOTE 11—LONG-TERM DEBT:
 
June 30,
2015
 
December 31,
2014
Debt:
 
 
 
 
 
 
 
Senior notes due April 2020 at 8.25%, issued at par value
$
74,470

 
$
1,014,800

Senior notes due March 2021 at 6.375%, issued at par value
20,611

 
250,000

Senior notes due April 2022 at 5.875%, including amortization of bond premium
1,856,062

 
1,856,506

Senior notes due April 2023 at 8.00%, including amortization of bond discount
492,986

 

MEDCO revenue bonds in series due September 2025 at 5.75%
102,865

 
102,865

Advance royalty commitments (7.91% weighted average interest rate for June 30, 2015 and December 31, 2014)
13,473

 
13,473

Other long-term note maturing in 2018 (total value of $3,784 and $4,473 less unamortized discount of $473 and $643 at June 30, 2015 and December 31, 2014, respectively).
3,311

 
3,830

 
2,563,778

 
3,241,474

Less amounts due in one year *
5,100

 
5,052

Long-Term Debt
$
2,558,678

 
$
3,236,422


* Excludes current portion of Capital Lease Obligations of $8,301 and $7,964 at June 30, 2015 and December 31, 2014, respectively.

Accrued interest related to Long-Term Debt of $37,108 and $51,159 was included in Other Accrued Liabilities in the Consolidated Balance Sheets at June 30, 2015 and December 31, 2014, respectively.

On March 30, 2015, CONSOL Energy closed on the private placement of $500,000 of 8.00% senior notes due 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 2020 and $229,176 of its outstanding 6.375% senior notes due 2021. As part of this transaction, $67,734 was included in Loss on Debt Extinguishment on the Consolidated Statement of Income.

On April 7, 2015 CONSOL Energy purchased $2,508 of its outstanding 8.25% senior notes due 2020 and $213 of its outstanding 6.375% senior notes due 2021. As part of this transaction, $17 was included in Loss on Debt Extinguishment on the


17



Consolidated Statement of Income.

On April 16, 2014 CONSOL Energy purchased all the 8.00% senior notes that were due 2017 at an average premium of 1.04%. As part of this transaction $74,277 was included in Loss on Debt Extinguishment on the Consolidated Statement of Income.

NOTE 12—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. We accrue the estimated loss for these lawsuits and claims when the loss is probable and can be estimated. Our 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 $539,196.

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 has set aside September 8 - 10, 2015 for a class certification hearing. 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 United States 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 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 has set aside September 8 - 10, 2015 for a class certification hearing. 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 was 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 Element 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. The investigation has focused primarily on exceedances at three discharge points: Pond 12, Pond 2 and Pond 13. In early 2013, the case was referred to the U.S. Department of Justice (DOJ), and 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. The parties continue to negotiate the terms of the proposed Consent Decree. The Company has established an accrual to cover its estimated liability in this matter. This accrual is immaterial to the overall financial position of CONSOL Energy and was included in Other Accrued Liabilities on the Consolidated Balance Sheets.


18



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 are being tried. For example, in instances where a gas lease termination is sought, damages would depend on 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 four lawsuits naming Consolidation Coal Company (CCC), Island Creek Coal Company (ICCC), CNX Gas Company, and/or CONSOL Energy. All of the lawsuits are pending in the U. S. District Court for the Western District of Virginia. 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, coal, 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.

Kennedy Litigation: The Company is a party to a case filed on March 26, 2008 captioned Earl Kennedy (and others) v. CNX Gas Company and CONSOL Energy in the Court of Common Pleas of Greene County, Pennsylvania. The lawsuit alleges that CNX Gas Company and CONSOL Energy trespassed and converted gas and other minerals allegedly belonging to the plaintiffs in connection with wells drilled by CNX Gas Company. The complaint, as amended, seeks injunctive relief, including removing CNX Gas Company from the property, and compensatory damages of $20,000. The suit also sought to overturn existing law as to the ownership of coalbed methane in Pennsylvania, but that claim was dismissed by the court. The suit further sought a determination that the Pittsburgh No. 8 coal seam does not include the “roof/rider” coal. The court held a bench trial on the “roof/rider” coal issue in November 2011 and ruled in favor of CNX Gas Company and CONSOL Energy. On March 3, 2014, the Company won summary judgment on Counts 1 through 10 of the Amended Complaint, each relating to the alleged trespass of horizontal CBM wells into strata other than the Pittsburgh 8 Seam. The last remaining Count, seeking to quiet title to approximately 40 acres of Pittsburgh Seam coal, was nonsuited by Plaintiffs, without prejudice, on March 26, 2014. Plaintiffs filed Notices of Appeal with the Pennsylvania Superior Court. On April 22, 2015, the Superior Court issued its decision, affirming each of the orders and judgments entered in favor of CONSOL by the trial court. Plaintiffs have filed a Petition for Allowance of Appeal with the Pennsylvania Supreme Court, which has not yet decided whether to grant the appeal.
Rowland Litigation: Rowland Land Company filed a complaint in May 2011 against CONSOL Energy, CNX Gas Company, Dominion Resources Inc., and EQT Production Company (EQT) in Raleigh County Circuit Court, West Virginia. Rowland is the lessor on a 33,000 acre oil and gas lease in southern West Virginia. EQT was the original lessee, but farmed out the development of the lease to Dominion Resources in exchange for an overriding royalty. Dominion Resources sold the indirect subsidiary that held the lease to a subsidiary of CONSOL Energy on April 30, 2010. Subsequent to that acquisition, the subsidiary that held the lease was merged into CNX Gas Company as part of an internal reorganization. Rowland alleges that (i) Dominion Resources' sale of the subsidiary to CONSOL Energy was a change in control that required its consent under the terms of the farmout agreement and lease, and/or (ii) the subsequent merger of the subsidiary into CNX Gas Company was an assignment that required its consent under the lease. The parties have reached a settlement in principle of this matter, which will be dismissed with prejudice.
At June 30, 2015, 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 total of 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.


19



 
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
$
95,026

 
$
40,359

 
$
54,667

 
$

 
$

Environmental
4,786

 
3,058

 
1,728

 

 

Other
187,082

 
151,185

 
35,897

 

 

Total Letters of Credit
286,894

 
194,602

 
92,292

 

 

Surety Bonds:
 
 
 
 
 
 
 
 
 
Employee-Related
115,199

 
115,199

 

 

 

Environmental
547,782

 
546,876

 
906

 

 

Other
24,578

 
24,404

 
173

 

 
1

Total Surety Bonds
687,559

 
686,479

 
1,079

 

 
1

Guarantees:
 
 
 
 
 
 
 
 
 
Coal
83,500

 
66,800

 
16,700

 

 

Other
80,914

 
41,604

 
15,871

 
12,562

 
10,877

Total Guarantees
164,414

 
108,404

 
32,571

 
12,562

 
10,877

Total Commitments
$
1,138,867

 
$
989,485

 
$
125,942

 
$
12,562

 
$
10,878


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, 2015, and December 31, 2014, the fair value of these guarantees were $1,195 and $1,275, 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 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, 2015, the purchase obligations for each of the next five years and beyond were as follows:
 
Obligations Due
Amount
Less than 1 year
$
225,158

1 - 3 years
295,495

3 - 5 years
192,339

More than 5 years
604,418

Total Purchase Obligations
$
1,317,410




20



NOTE 13—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 commodity hedges on a mark-to-market basis with changes in fair value recorded in current period earnings. In connection with this change, 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 Other Comprehensive Income (OCI) will be immediately recorded in earnings. In November 2014, CONSOL Energy entered into basis only swaps that did not qualify for hedge accounting. These swaps were entered into to decrease the risk related to pricing differentials between local markets and NYMEX.

CONSOL Energy is exposed to credit risk in the event of nonperformance 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 hedges. 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 hedges in a liabilities 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 commodity derivative instruments accounted for a total notional amount of production of 220.0 bcf at June 30, 2015 and are forecasted to settle through 2017. At December 31, 2014, the commodity derivative instruments accounted for a total notional amount of production of 215.9 Bcf. At June 30, 2015, the basis only swaps were for notional amounts of 6.8 Bcf and are forecasted to settle through 2016. At December 31, 2014, the basis only swaps were for notional amounts of 10.6 Bcf.

The gross fair value of CONSOL Energy's derivative instruments at June 30, 2015 and December 31, 2014 were as follows:
Asset Derivative Instruments
 
Liability Derivative Instruments
 
June 30,
 
December 31,
 
 
June 30,
 
December 31,
 
2015
 
2014
 
 
2015
 
2014
Commodity Derivative Instruments
 
 
 
 
 
 
 
Prepaid Expense
$
117,002

 
$
123,676

 
Other Liabilities
$
2,359

 
$

Other Assets
49,899

 
68,656

 
Other Accrued Liabilities
1,342

 

Total Asset:
$
166,901

 
$
192,332

 
Total Liability
$
3,701

 
$

 
 
 
 
 
 
 
 
 
Basis Only Swaps
 
 
 
 
 
 
 
 
Prepaid Expense
$
2,770

 
$
1,064

 
Other Accrued Liabilities
$
1,267

 
$
327

The commodity derivative instruments resulted in a loss of $27,370 being recorded in Unrealized (Loss) Gain on Commodity Derivative Instruments on the Consolidated Statements of Income for the three months ended June 30, 2015. No gain or loss was recorded for the three months ended June 30, 2014. A gain of $34,261 was recorded to Unrealized (Loss) Gain on Commodity Derivative Instruments on the Consolidated Statements of Income for the six months ended June 30, 2015. No gain or loss was recorded for the six months ended June 30, 2014.
The basis only swaps resulted in a gain of $2,434 being recorded in Unrealized (Loss) Gain on Commodity Derivative Instruments on the Consolidated Statements of Income for the three months ended June 30, 2015. No gain or loss was recorded for the three months ended June 30, 2014. A gain of $807 was recorded to Unrealized (Loss) Gain on Commodity Derivative Instruments on the Consolidated Statements of Income for the six months ended June 30, 2015. No gain or loss was recorded for the six months ended June 30, 2014.
    


21



The derivative instruments in which CONSOL Energy discontinued cash flow hedging had an effect on the Consolidated Statements of Income and the Consolidated Statements of Stockholders' Equity, net of tax, as follows:
 
Three Months Ended June 30,
 
2015
 
2014
Natural Gas Price Swaps and Options
 
 
 
Beginning Balance – Accumulated OCI
$
102,207

 
$
11,841

Gain/(Loss) recognized in Accumulated OCI

 
(12,218
)
Amounts reclassified from Accumulated OCI (Net of tax: $12,103, ($6,642))
(20,804
)
 
6,951

Ending Balance – Accumulated OCI
$
81,403

 
$
6,574

Gain recognized in Outside Sales for ineffectiveness *
$

 
$
508

 
 
 
 
 
Six Months Ended June 30,
 
2015
 
2014
Natural Gas Price Swaps and Options
 
 
 
Beginning Balance – Accumulated OCI
$
121,521

 
$
42,493

Gain/(Loss) recognized in Accumulated OCI

 
(59,183
)
Amounts reclassified from Accumulated OCI (Net of tax: $23,316, ($17,593))
(40,118
)
 
23,264

Ending Balance – Accumulated OCI
$
81,403

 
$
6,574

Gain recognized in Outside Sales for ineffectiveness *
$

 
$
863

* No amounts were excluded from effectiveness testing of cash flow hedges.
CONSOL Energy expects to reclassify an additional $37,934, net of tax of $21,738, out of Accumulated Other Comprehensive Income over the remaining period ended December 31, 2015.

NOTE 14—FAIR VALUE OF FINANCIAL INSTRUMENTS:

CONSOL Energy determines the fair value of assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. The fair value hierarchy is based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources (including NYMEX forward curves, LIBOR-based discount rates and basis forward curves), while unobservable inputs reflect the Company's own assumptions of what market participants would use.
The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below:
Level One - Quoted prices for identical instruments in active markets.
Level Two - The fair value of the assets and liabilities included in Level Two are based on standard industry income approach models that use significant observable inputs, including NYMEX forward curves, LIBOR-based discount rates and basis forward curves.
Level Three - Unobservable inputs significant to the fair value measurement supported by little or no market activity. The significant unobservable inputs used in the fair value measurement of the Company's third party guarantees are the credit risk of the third party, and the third party surety bond markets. A significant increase or decrease in these values, in isolation, would have a directionally similar effect resulting in higher or lower fair value measurement of the Company's Level Three guarantees.
In those cases when the inputs used to measure fair value meet the definition of more than one level of the fair value hierarchy, the lowest level input that is significant to the fair value measurement in its totality determines the applicable level in the fair value hierarchy.





22



The financial instruments measured at fair value on a recurring basis are summarized below:
 
Fair Value Measurements at June 30, 2015
 
Fair Value Measurements at December 31, 2014
Description

(Level 1)
 

(Level 2)
 

(Level 3)
 

(Level 1)
 

(Level 2)
 

(Level 3)
Gas Derivatives
$

 
$
164,703

 
$

 
$

 
$
193,069

 
$

Murray Energy Guarantees
$

 
$

 
$
1,195

 
$

 
$

 
$
1,275


The following methods and assumptions were used to estimate the fair value for which the fair value option was not elected:

Cash and cash equivalents: The carrying amount reported in the Consolidated Balance Sheets for cash and cash equivalents approximates its fair value due to the short-term maturity of these instruments.

Short-term notes payable: The carrying amount reported in the Consolidated Balance Sheets for short-term notes payable approximates its fair value due to the short-term maturity of these instruments.

Borrowings under Securitization Facility: The carrying amount reported in the Consolidated Balance Sheets for borrowings under the securitization facility approximates its fair value due to the short-term maturity of these instruments.

Long-term debt: The fair value of long-term debt is measured using unadjusted quoted market prices or estimated using discounted cash flow analyses. The discounted cash flow analyses are based on current market rates for instruments with similar cash flows.

The carrying amounts and fair values of financial instruments for which the fair value option was not elected are as follows:
 
June 30, 2015
 
December 31, 2014
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Cash and Cash Equivalents
$
10,031

 
$
10,031

 
$
176,989

 
$
176,989

Short-Term Notes Payable
$
(1,058,000
)
 
$
(1,058,000
)
 
$

 
$

Borrowings Under Securitization Facility
$
(38,669
)
 
$
(38,669
)
 
$

 
$

Long-Term Debt
$
(2,563,778
)
 
$
(2,263,935
)
 
$
(3,241,474
)
 
$
(3,169,154
)
Cash and cash equivalents represent highly-liquid instruments and constitute Level 1 fair value measurements. Certain of the Company’s debt is actively traded on a public market and, as a result, constitute Level 1 fair value measurements. The portion of the Company’s debt obligations that are not actively traded are valued through reference to the applicable underlying benchmark rate and, as a result, constitute Level 2 fair value measurements.



23



NOTE 15—SEGMENT INFORMATION:
CONSOL Energy consists of two principal business divisions: Exploration and Production (E&P) and Coal. The principal activity of the E&P division, which includes four reportable segments, is to produce pipeline quality natural gas for sale primarily to gas wholesalers. The E&P division's reportable segments are Marcellus, Utica, Coalbed Methane, and Other Gas. The Other Gas segment is primarily related to shallow oil and gas production as well as Upper Devonian Shale, and includes the Company's purchased gas activities and general and administrative activities, as well as various other activities assigned to the E&P division but not allocated to each individual well type.
The principal activities of the Coal division, which includes three reportable segments, are mining, preparation and marketing of thermal coal, sold primarily to power generators, and metallurgical coal, sold to metal and coke producers. The Coal division's reportable segments are Pennsylvania (PA) Operations, Virginia (VA) Operations, and Other Coal. Each of these reportable segments includes a number of operating segments (individual mines). For the three and six months ended June 30, 2015, the PA Operations aggregated segment includes the following mines: Bailey Mine, Enlow Fork Mine, and Harvey Mine and the corresponding preparation plant facilities. For the three and six months ended June 30, 2015, the VA Operations aggregated segment includes the Buchanan Mine and the corresponding preparation plant facilities. For the three and six months ended June 30, 2015, the Other Coal segment includes the Miller Creek Complex, coal terminal operations, the Company's purchased coal activities, idled mine activities and general and administrative activities, as well as various other activities assigned to the Coal division but not allocated to each individual mine.
CONSOL Energy’s All Other division includes expenses from various other corporate activities that are not allocated to the E&P or Coal divisions.
In the preparation of the following information, intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on sales less identifiable operating and non-operating expenses. Assets are reflected at the division level for E&P and are not allocated between each individual E&P segment. These assets are not allocated to each individual segment due to the diverse asset base controlled by CONSOL Energy, whereby each individual asset may service more than one segment within the division. An allocation of such asset base would not be meaningful or representative on a segment by segment basis.



24



Industry segment results for the three months ended June 30, 2015 are:
 
 
Marcellus
Shale
 
Utica Shale
 
Coalbed Methane
 
Other
Gas
 
Total
E&P
 
PA Operations
 
VA Operations
 
Other
Coal
 
Total Coal
 
All
Other
 
Corporate,
Adjustments
&
Eliminations
 
Consolidated
 
Sales—outside
$
97,697

 
$
17,661

 
$
65,393

 
$
21,160

 
$
201,911

 
$
318,995