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CONSOL Energy Inc. (NYSE:CNX)

August 18, 2011 8:30 am ET

Executives

J. Harvey - Chairman, Chief Executive Officer, Member of Executive Committee, Chairman of CNX Gas Corporation and Chief Executive Officer of CNX Gas Corporation

William Lyons - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Brandon Elliott - Vice President of Investor and Public Relations

Nicholas DeIuliis - President

Analysts

Raymond Deacon - Brean Murray, Carret & Co., LLC

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

David Beard - Iberia Capital Partners

John Bridges - JP Morgan Chase & Co

Justine Fisher - Goldman Sachs Group Inc.

David Katz - JP Morgan Chase & Co

James Rollyson - Raymond James & Associates, Inc.

Shneur Gershuni - UBS Investment Bank

Richard Garchitorena - Crédit Suisse AG

Andrea Sharkey - Gabelli & Company, Inc.

Brian Gamble - Simmons & Company International

Lance Ettus

Operator

Ladies and gentlemen, thank you for standing by, and welcome to a special announcement from CONSOL Energy. As a reminder, today's call is being recorded. I would now like to turn the conference call over to the Vice President of Investor Relations, Mr. Brandon Elliott. Please go ahead, sir.

Brandon Elliott

Great. Thanks, John. Good morning, everybody. We appreciate you taking the time to join us this morning on a great day for both CONSOL and Noble Energy. We're going to start off with Brett Harvey, our Chairman and CEO, and then Nick DeIuliis, our President, will walk you through the slides. For reference, for everybody on the call, those slides have been posted on our website under the section Presentation for Analysts, for those of you who haven't seen it yet.

And with that, I'd like to turn it over to Brett.

J. Harvey

Thank you, Brandon. Good morning, everybody. I'd like to give some color to the deal that we just did and set the background before we go through the slides. If you remember, last year, we bought the Dominion E&P business in Appalachia, and it took us some time to delineate and see exactly what we purchased in terms of its value in the marketplace.

There were a lot of deals done during the year that showed values per acre and different approaches to what we saw around us. But we were very focused on delineating and drilling out and building technology around what we had bought, north of Pittsburgh, in the northern part of the Marcellus that we bought, in Greene County and Western PA as well as in northern West Virginia.

We decided to move the net present value of this forward by finding a partner. We looked at some coal deals. We looked at some gas deals, and we also felt it was very important to find the right partner. We found a good partner. I'll talk about them in a minute. The deal was made to rapidly expand the value of these assets. And if you look at the structure of the deal, that's exactly what it does.

Noble Energy, which we respect greatly, have the same values as us on safety, capital discipline and technical expertise. The cultures of the 2 companies fit very well. I believe that we can go back to back with this partner moving forward on this great acreage that we bought from Dominion and take value out of the market for our shareholders. We're focused on that. We will give you the details right now of the deal, and then we'll be glad to answer questions. Thank you.

Nicholas DeIuliis

Thanks, Brett. I'm going to walk through the slides that Brandon referred to that were posted on our website. And if you don't have access to the slides, the description hopefully will give you a color for what's included in the slides, and you can refer to them later.

First, of course, our cautionary statement on Slide 2. I'd let you to look through and read through those at your discretion. On Slide 3, if you go to the metrics in terms of the valuation, $3.4 billion in total deal valuation, and it's comprised of 3 pieces that are shown below the $3.4 billion.

The first and biggest is the consideration received for the 50% interest in the Marcellus Shale footprint, just over 663,000 acres. That excludes the Ohio Marcellus acreage as well as the southern West Virginia Marcellus acreage. So when we refer sometimes to our total footprint of 750,000 acres, that's why you see 663,350 in this slide. $3.2 billion in total. That works out about $9,650, a net acre, and that $3.2 billion is broken down into 2 components.

The first is around $1.1 billion of upfront cash paid in 3 annual installments, one at closing and then first anniversary after closing, second anniversary after closing for second and third payments. There's a carry portion, just over $2 billion. That covers 1/3 of our share of drilling and completion costs moving forward.

There's some specific components to that carry that are shown as sub-bullets. The first of which is there is an annual cap of $400 million, that it won't exceed $400 million. Based on the drilling schedules that we're going to present and discuss in a little bit, we don't think that comes into play if those drilling schedules hold, and we think it will take about 8 to 10 years to recover the $2.13 billion through the carry.

The carry will also be suspended if gas prices fall below $4 for 3 consecutive months. And on the other side of that, of course, the carry would resume when the gas prices are about $4 a million (sic) [gallon] for 3 consecutive months. So those are some key issues tied to the carry itself.

Second component of the $3.4 billion is the 50% interest in our current flowing Marcellus production, the PDPs. That's $160 million. If you do the math, it's about $1.80 an Mcf when you look at 89 Bcf of PDP reserves.

Third, last but not least, the interest, 50% interest in associated gathering systems, that are tied to the Marcellus currently, $59 million, $58.5 million to be exact. So you add those 3 up, that's how you get the $3.4 billion.

Slide 4. Why did we do this transaction? Brett just hit on a number of key reasons why. First, we wanted to establish a floor valuation mark-to-market the Marcellus footprint that we currently control, and that was consolidated through the Dominion E&P acquisition and CNX Gas. This obviously does that in a pretty straightforward manner.

Second reason, Brett also touched upon this. We wanted to do this with the right partner. From a safety and compliance standpoint, sustainability standpoint, from a capital allocation standpoint, Noble Energy was absolutely the right partner for us. And as Brett said, we look forward to working with them over the coming years.

Third reason and third rationale, we wanted to monetize the asset base to bring that NAV forward. And looking at the drill schedules we're about to present and the drilling activity in the production that will flow from it and the returns that flow from that, the NAV will definitely be brought forward. And that's perfect timing coming off of our delineation effort that we've been engaged in the last 15 months.

Last but not least, there's going to be a free cash flow impact of this across the company, CONSOL Energy, in total, and that will create other opportunities for us. We'll talk about that on an upcoming slide as well.

Slide 5 just shows a map of that footprint on the Marcellus JV partnership. You can see the dry gas and wet gas zones in the acreage outlined by Western PA and northern West Virginia areas. Generally speaking, how does operatorship break down? We'll operate in the dry area, Noble will operate in the wet gas area. I'd emphasize generally this is a partnership that's going to span many, many years. That may change, and it will change if it serves the best interests of the partnership. So Noble may end up operating down the road in areas beyond the wet gas window and vice versa. That remains to be seen. We'll work that out as partners back to back, as Brett indicated. You can see the held-by production percentages and the crude reserves for the Marcellus. That, of course, is not just the PDP. That's the PUDs as well.

Slide 6 is an important slide from a number of different parameters. You can see in the upper-right corner the drill schedule in terms of rigs that we're looking at now from 2011. That's July time frame. You see the 4 rigs. That, of course, will be 6 rigs by October of this year. That ramps up to 16 rigs by 2015. You can see how the ramp-up occurs.

In terms of gross wells drilled, right below that, you can see where we're going with those wells, gross well numbers. 2011, it's a back half of 2011 number, so that's only on a 1/2 year basis. And then the net proceeds on the left-hand side of that chart, couple of comments we want to make there. The net proceeds that you see, those numbers in that chart, first thing, it excludes the $58.5 million that we received for gathering in 2011. So you'd need to add that to the $549 million in 2011. Also if you want to look at what those proceeds are, that is the upfront payments we would receive from our partner as well as the projected carry. That's basically the proceeds coming in as a result of the JV.

If you want to translate that to the after-tax cash flow impacts, incremental cash flow impacts, what this JV in total will create over those 5 years. So that's not just the proceeds because of carry and upfront payment from our partner but also when you take into account the benefit of reduced capital, because they'll be paying their half in addition to the carry, and then deduct from that the loss production, because they get half of the production, obviously, as a partner, and then take into account taxes, cumulatively, we think it's a $3.4 billion net incremental increase in our free cash flow to CONSOL Energy over those 5 years that you see in that chart.

So one way there we display on the bar chart is proceeds from the JV specifically itself. Another way of looking at it with the after-tax cumulative free cash flow impact, $3.4 billion incremental increase over the next 5 years to CONSOL Energy.

Slide 7, production. We gave you the drill rig schedules. We gave you the well count ramp-up, what that means in terms of production. We've got some good news there. We think that we are still in a position to maintain our 2015 production goal that we stated just over 15 months ago coming off the Dominion acquisition of 350 Bcf net to CONSOL.

So how are we able to do that? Because we're giving up, of course, 50% of the production on the Marcellus side to our partner, Noble, moving forward, a couple of reasons. One, obviously we're increasing our drilling rates in the Marcellus as a result of this partnership. That's going to give us a benefit. Reduce drilling time that we talked about with the investor base over the past year or so as we continue to ramp up our learning curve on the Marcellus, and that's playing a major role.

So today's rig, looking at 2012, how many wells that we'll be able to drill because of efficiency? It's a lot higher than what it was just little over a year ago. Our type curves, you've seen the obvious improvement there from everything from reserves to production impact and then the completion technologies with regard to how we're becoming more efficient on the completion side of the equation. You add all those up, despite entering into a JV and sharing 50% of our flowing production into Marcellus moving forward, we still think we're on track for 350 Bcf in 2015 on a net basis.

Slide 8, just some simple math to look at the Dominion acquisition just over a year ago. If you look at the total consideration we paid for the E&P business of Dominion and you back out what we assume for the proved reserves and flowing production on the conventional side, we estimated at the time we paid about $1.9 billion for the Marcellus acres, or about $3,800 per acre.

Over the last 15 months, all that focus and effort and capital that we've allocated to delineating those acreage positions has yielded this type of a joint venture that implies a value of just under $9,700 an acre for the Dominion acres, just looking at the Dominion acres alone. And of course, that has a significant increase in value creation in a very short period of time. Not only that, with our partnership and with Noble shared expertise working with us back to back, we still own half moving forward, and our expectation is as a result of that partnership, that half is going to be worth a lot more together than it would be just separately or CONSOL Energy alone.

That's our summary presentation, and I'll send it back to Brandon.

Brandon Elliott

All right, John. We're going to go ahead and take a few questions now. I just want to make sure that I let everyone know we obviously want to give you enough details of the deal to show you how great a deal this is for both CONSOL as well as Noble Energy. But we do want to not dig too much into the weeds and get distracted by the weeds and just give you enough to show you how great a deal it is. So we'll start taking some questions.

Question-and-Answer Session

Operator

[Operator Instructions] And first go to the line of Shneur Gershuni with UBS.

Shneur Gershuni - UBS Investment Bank

Just a couple of questions. I mean, the slides are packed with information, and I think you really ran through them well. You bought the acreage. You drilled. You got some results. You found a partner. Is this the road map that we can be thinking about with respect to the Utica as we go forward over the next couple of years?

J. Harvey

I think -- this is Brett speaking. I think when you look at the Utica, it's really a baby in terms of where it's going. We put out a plan that we were going to delineate it ourselves and go forward with it, and that's still the plan. Now I think any conversation beyond that would be speculation.

Shneur Gershuni - UBS Investment Bank

Okay. Follow-up question. You're getting some cash up front. You have reduced CapEx on a go-forward basis, plus you don't even have a tax impact, it looks like, in the near term. What's the plan with respect to the cash flow? Is it debt deleveraging? Is it share buybacks? Or is it acquisitions? If you can give us some color with respect to your expectations.

William Lyons

Shneur, this is Bill Lyons. We have structured the deal to be tax-efficient and to maximize our long-term economic value. And as a result, we expect to have a minimum current gain on that. When we structure the deals, we place the emphasis on the carry, and this economic value of the carry will be reflected in future financial earnings. I got to tell you is our financial position is strong, and that enables us to structure the deal not for immediate cash infusion, but in order to maximize our long-term economic value. In terms of where we're going to go with the immediate cash, we're going to pay down our short-term debt, and obviously some of the other proceeds will minimize our need to draw on the credit facility in the short-term future. Also, our board is meeting in September for their annual strategy meeting. And there, we'll review the financial situation of CONSOL Energy, and I expect the standard laundry list of items will come up there, which would be project development, debt repayment, dividends and share buybacks.

Shneur Gershuni - UBS Investment Bank

Okay. And one last detail question, if you don't mind. The carry suspension. Could gas drilling actually still continue to occur? Or do you guys all agree to lay down rigs if it drops below $4 for 3 months?

Nicholas DeIuliis

Gas drilling would continue to occur under the base case. However, emphasizing the partnership aspect of this, we're both free to get together at any given point in time to modify drill plans as we deem appropriate. That's why it was important to find a partner to share the capital allocation philosophy that we do.

Operator

And next, we go to John Bridges with JPMorgan.

John Bridges - JP Morgan Chase & Co

Might be a bit of a weedy question, but with the wet gas, if it's processing, have you made any thoughts about how the spending on that will be allocated?

Nicholas DeIuliis

The overall general approach for midstream, not just on the wet gas side, but midstream and processing, we wanted to preserve the concepts of the partnership for a very important link in that chain. So one route could have been just to look at the JV and the partnership on the upstream side and go our separate ways downstream or midstream from a processing and gathering standpoint. We didn't want to do that. Noble didn't want to do that. We didn't want to do that. We wanted to get back to back on that as well. And we've got plans in place that will address the necessary components of gathering and processing. Both dry and wet gas is reflected in those timing schedules for the rigs, and we'll preserve that partnership on the gathering and processing sides just like we do on the upstream side with Noble Energy.

John Bridges - JP Morgan Chase & Co

Excellent, excellent. And then...

J. Harvey

This is Brett speaking. Alignment in this was very important to both companies. So we were aligned to the whole food chain and making sure that the value came back to our shareholders not from each other, but out of the marketplace to our shareholders.

John Bridges - JP Morgan Chase & Co

Yes, that was excellent, excellent. And then are there service companies involved that could be affected by this cut to activity if gas goes below $4?

Nicholas DeIuliis

On the service contract side, we've entered a new level of activity with drill rigs and drill rates. We think that's going to give us through the partnership a leg up with purchasing power in the types of service components and costs associated with that moving forward. So it's a different level of activity altogether, as you can see with the 16-rig schedule. We think that's going to create some economies of scale for us that the partnership will be able to appreciate.

Operator

Our next question is from Jim Rollyson with Raymond James.

James Rollyson - Raymond James & Associates, Inc.

It certainly seems like this obviously underscores the value of the Marcellus acreage that's involved in the deal, certainly, compared to what everything looked like maybe a year ago or what people worried about. When we think about this going forward or for the rest of the value of your E&P business, remind us a couple of things. One, what the other approximately 87,000 or so acres, kind of how you feel about those. Are those less core or just kind of were carved out separately? And then remind us where you sit for acreage in the Utica today, because I haven't seen an update on that lately. Just trying to -- as we kind of build up the value of what your entire E&P company might be worth, this is obviously one big piece of the puzzle today. But I don't know, Nick, if you can spend a minute just kind of on the rest of the story.

Nicholas DeIuliis

If you look at the different horizons that are out there that we control throughout Appalachia and through the mid-continent, it adds up to almost 7 million acres in total. And again, those are horizons and across Appalachian mid-continent. So there's an awful lot there in the aggregate. You look within Appalachia, the difference between the 750,000 approximate acres of Marcellus in total footprint and this joint venture is Ohio Marcellus and extreme southern West Virginia Marcellus. So those are included in the joint venture moving forward. Do we think they have potential? Absolutely. Do we have a plan in place? Are we developing an exploration plan in place to try to address that, just like we did for the Marcellus within this joint venture and the Utica that we have under way that Brett referred to in Ohio? Yes, we do. When you look at Utica, 200,000 acres in Ohio, which, of course, is where all the focus and emphasis is within the industry today, but when you add up our total Utica footprint, it's somewhere between 700,000 and 900,000 acres across Western PA, northern West Virginia and eastern Ohio. So do we think there's potential for Utica in Western PA right across the border or northern West Virginia beyond Ohio itself? Yes, we do, and we have plans in place to explore and delineate that as well.

James Rollyson - Raymond James & Associates, Inc.

That's very helpful. And then just a follow-up. The $4 gas number, the "drill or not drill" decision, is that Henry Hub basis or Appalachia basis?

Nicholas DeIuliis

It's Henry Hub.

J. Harvey

One other thing -- this is Brett. I wanted to make one comment about what Nick said there. Don't underestimate the value of being held by production on these acres. That was a big draw in terms of partnership. Our ability to develop this as the market fluctuate is very, very valuable to our shareholders, and that was recognized by Noble.

Operator

Our next question's from Brett Levy with Jefferies & Company.

Brett Levy

When you guys originally put this transaction together, it pushed you a little bit close to B land. As you guys look at your kind of target debt to cap and credit stats, obviously, this is somewhat of a delevering potential situation. Do you aim to be more mid-BB, high BB? Is there kind of a standard on the bond rating or debt-to-cap standard that you're looking at? And then also, it also frees up a ton of cash. Is there a particular asset class, whether it's steam coal or net coal or a geography or even a different energy class, you would be looking to most importantly with the free cash flow you're generating here?

William Lyons

This is Bill Lyons. We've got some discussions with the rating agencies. We feel this deal will be looked at very positively. In terms of our rating, I got to tell you, we have some frustration with our rating, because if you take a look at the metrics, by most metrics, we are an investment-grade company. And certainly in our activity in the debt market, that reflected what the market thought of us in terms of credit quality. We'll be meeting with the rating agencies next week to go over the deal in particular. And of course, we're hopeful that, that will result in enhancement of our credit rating. In terms of which talked about the cash flow and the rest, Brett Harvey was very clear on this. This deal itself is structured to develop our gas assets, and I expect that's what will happen.

Operator

And we'll go to Lance Ettus with Tuohy Brothers.

Lance Ettus

A couple of quick questions. First of all, exactly what year are you kind of projecting to hit that $400 million payment? Just trying to model that out.

William Lyons

We don't -- under the current drill plan and rig schedule that we provided, we don't think we hit the $400 million cap in any year. We think that the carry portion of the consideration will be completely paid out under the current schedule between 8, 9 years, somewhere around there.

Lance Ettus

Okay. And also now, just for clarification, is this just the acreage you acquired from Dominion and then you have some other legacy acreage?

Nicholas DeIuliis

No, this is our entire Marcellus [indiscernible] within Western -- basically Pennsylvania and West Virginia. The only portions it excludes is our Ohio Marcellus and extreme southern West Virginia. You can see the map that delineates the counties that are included in the JV on Slide 5.

Operator

And we'll go to Dave Katz with JPMorgan.

David Katz - JP Morgan Chase & Co

I just wanted to follow up on the earlier question. I know that you guys had said that you would pay down your short-term debt. But it looked like on June 30 that you only had about $261 million drawn on the CNX gas revolver. After that and outside of, perhaps, more important revenue bonds, it doesn't really look like you have anything that you could pay in advance. Are we to take it that beyond that, the cash would purely go towards dividends, share repurchases and perhaps asset development?

William Lyons

This is Bill Lyons. The debt level that we had at June 30 was somewhat of a low level. We expected that the short-term debt would be somewhere around $350 million and $400 million absent this transaction. So obviously, the majority of the immediate cash flow we can place in the credit facility or current [ph] use of credit facility resources. In terms of what we're going to do, it's, like I said, we will have this discussion in our board meeting in September. And that laundry list that you talked about would be development of projects, dividends, share buybacks and debt repayment, all those things will be considered.

David Katz - JP Morgan Chase & Co

Okay. And then with regard to the consent solicitation. From the wording, it looked to seem that you guys felt comfortable that this transaction fell within the rights that the indenture gives you regardless of whether the bondholders give their full consent or not. Could I ask how you arrived at that conclusion?

William Lyons

We arrived at the conclusion by having literally an army of lawyers go over all the documents, and we feel that we can do this under the existing indenture. But we just thought that we should clarify one of the areas of the indenture to -- we believe it's prudent course of business to take. This is the way CONSOL Energy does business. We want to be totally open and transparent to all our stakeholders, which include the bondholders. There's absolutely no reason why this clarification will not be passed. This is a great deal for CONSOL Energy and all its stakeholders and enhances the bondholders' position. And as I said, there's -- we expect absolutely no problem here. There's no reason why this won't pass.

Operator

And we'll go to Brian Gamble with Simmons & Company.

Brian Gamble - Simmons & Company International

Just a quick clarification. Brett, you mentioned and I think it's definitely pertinent to talk about that all your acreage is held by production. Is that true that all the acreage that's involved with this transaction is held by production? Are there any that you're actually having to drill on or have some royalties that we need to talk about?

J. Harvey

It's actually about 85%. But if you compare it to some of our peers, it's a very dominant position.

Brian Gamble - Simmons & Company International

No, that's a great position. The remaining 15%, some sort of average royalty rate on those?

Nicholas DeIuliis

I think we've got the -- we presented the drilling commitment schedule in some prior IR slides. If you go to the website, you can see what they are for '12, '13, et cetera, and you'll see there are minimal drilling commitments to hold those acres.

Brandon Elliott

Brian, this is Brandon. I think what we talked about before that the '12 and '13 drilling plans pretty much would lock up those expiring acres that we show on that prior slide deck that Nick referenced in both '12 and '13.

Brian Gamble - Simmons & Company International

Okay, guys. And then, I guess, maybe we can talk about coal for 2 seconds, since you still have that side of things. Does the immediate influx of cash change your plans for anything on the coal side, whether it's the expansion of Baltimore or the development of the met mine or anything? Or is everything just as it was before?

J. Harvey

Coal is a very valuable part of the company. It has a good plan in place. We'll follow the plan as it was.

Operator

And we'll go to Andrea Sharkey with Gabelli & Company.

Andrea Sharkey - Gabelli & Company, Inc.

A quick question about the Marcellus acreage. Now does this give Noble access to all layers, meaning Upper Devonian and whether there's Utica in those particular acres? Or is it just Marcellus?

Nicholas DeIuliis

The JV with Noble Energy is just in terms of the Marcellus horizon in the 650,000-plus acres that we delineated on the map. So it would exclude things like Utica or horizons above and below the Marcellus.

Andrea Sharkey - Gabelli & Company, Inc.

Okay, great. And then I don't know how much you can talk about this, but I was curious if you could just give us a sense of how the process evolved. When did you bring Jefferies in? Were there other offers on the table? And what made you decide on Noble? I know you touched on that a little bit.

J. Harvey

I think it's better that we just focus on our partner and the results of the deal.

Andrea Sharkey - Gabelli & Company, Inc.

Okay. And then just one last question. Is this -- what regions of your acreage do you think will be more areas of focus now? Are you to focus more on central PA, West Virginia or just across the board?

Nicholas DeIuliis

The focus is continue to be predominantly in those 3 major regions that we've talked about over the past year, which is what we call Central Pennsylvania, Westmoreland, Indiana County area; Southwestern Pennsylvania, which is Greene County, Washington County and into the panhandle of West Virginia into Marshall County. And then the Northern West Virginia areas of Barbour, Lewis, Upshur, et cetera.

Operator

Our next question is from Brandon Blossman from Tudor, Pickering, Holt.

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

A couple of quick questions. What's driving the operator split between wet and dry gas?

Nicholas DeIuliis

Just looking at the joint venture partners, CONSOL Energy, Noble Energy, where the areas of expertise infrastructure currently in place, plans moving forward and resources that are available of each partner, that's what made the most sense from a preliminary look. Emphasize again, this is a decades-long partnership. Things are going to change. The partners will figure out how that operatorship adjusts and modifies and evolves over time so that the best interests of the joint venture are served.

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

Right. And then perhaps related, obviously, infrastructure spend goes up with the acceleration. Are there any bottlenecks that we need -- or incremental bottlenecks that we need to look for over the next, say, 3 to 4 years in infrastructure?

Nicholas DeIuliis

The drill plan and the production of 350 Bcf in 2015, the wells that you see associated with that, we feel that we've got a plan in place for midstream infrastructure, to rigs, to people in place that will allow that to happen. Certainly, there's many links in that chain, like we've seen in the Marcellus. There would be a current bottleneck that, once we remove and debottleneck that, will allow for upside above and beyond those plans, which will then create, inevitably, another bottleneck. That's the name of the game. But right now, we think we've got everything in place, including gathering, a plan in place to make that drill schedule occur as mapped out.

Operator

And we'll go to David Beard with Iberia Capital Partners.

David Beard - Iberia Capital Partners

Could you just maybe talk a little bit about your thought processes you've developed these acres in terms of why the Utica Shale was not included?

J. Harvey

Well, the Utica Shale, we do have a plan for the Utica Shale. And like I said earlier, it's really a baby in terms of the marketplace. There's a lot of speculation around it but very little exploration that's actually have been accomplished. So we think if we stick with our plan, that value will be added to our shareholders going forward.

Operator

And we'll go to Richard Garchitorena with Credit Suisse.

Richard Garchitorena - Crédit Suisse AG

Just a couple of questions. One, in terms of getting to the 350 Bcf by 2015, can we assume that it's going to be -- the ramp-up is going to be similar to the rig schedule, I guess, on the Marcellus?

J. Harvey

As we said, the rig schedule and the additional drilling because of the JV or resulting from the JV is certainly a contributor to help us sustain the 350 Bcf of net productions to us in 2015. The other major contributor, which we listed out under 2 or 3 different components, we can just combine them all and say increased efficiencies or learning curve that we've demonstrated in the Marcellus from reduced drill times to the improved completion techniques and the well profiles that flow from that. So it's basically a combination of those 2 items.

Richard Garchitorena - Crédit Suisse AG

Great. And then on the CapEx going forward for the company as a whole, is there any change to your thought process in terms of how you allocate? Obviously, in the past, it's been roughly 50-50. And now that you have a JV, does that play into that at all?

J. Harvey

No, I think the discipline around our capital won't change at all. It will be based on the highest rate of return.

Operator

And we'll go to Justine Fisher, Goldman Sachs.

Justine Fisher - Goldman Sachs Group Inc.

So along the lines of asking about the impact of this on the coal business, does this mean that CONSOL is no longer pursuing a sale of some of the coal assets that you guys had been pursuing previously?

J. Harvey

I think any assets that's not in our main plan will always be looked at as something that we would liquidate or develop, like we did with the Amonate project. So I think we're flexible on that going forward.

Justine Fisher - Goldman Sachs Group Inc.

Okay. And then just to clarify, on Dave's question earlier. So you guys had said that you expect short-term debt right after this transaction to be $350 million to $400 million. So I guess, in July, there had been some drawing on revolvers that you would now be able to repay. But that's basically the amount outstanding on revolvers as of the current -- as of now?

William Lyons

Justine, there's always various things we have to handle with -- through the credit facility. Tax payments are done quarterly. Interest payments are done semiannually, and all of that results in fluctuations of our borrowing amounts. And all of that's take into consideration when I gave you the general amount of $350 million to $400 million. It's not unusual for us to have drawn on the credit facility.

Justine Fisher - Goldman Sachs Group Inc.

Okay. And then just from a going-forward modeling perspective, obviously, the CapEx modeling is understood and the cash inflow that you'll get immediately is, But should we just cut in half whatever the production estimates were previously? Because obviously, it hasn't -- that's now going to be accounted for by Noble, and so then we just cut in half production, but then the rest of the operating model for the Gas business going forward remains largely unchanged?

J. Harvey

There's a lot of moving parts there. The 350 Bcf of 2015 production, as we said, still holds because of the improved drilling efficiencies and the increased drilling rate. So that's changed in terms of the end target, how we've got there. We have not provided production guidance between 2015 and the 2011 production target. So that's nothing that we hadn't established or released prior, and we haven't given that yet moving forward. On the capital and cash flow question, if you go back to that slide that was covered, with regard to Slide 6, you look at the net proceeds number and then you adjust for your capital and your loss production. As we said, over the next 5 years between now and 2015, $3.4 billion after-tax cumulative incremental cash flow increase to CONSOL Energy when you roll all these things together.

Operator

We'll go to Ray Deacon with Brean Murray.

Raymond Deacon - Brean Murray, Carret & Co., LLC

I was just curious. You mentioned in the presentation that you've seen improvement in the type curves and that completion techniques have given you higher AURs. I guess, can you quantify that all currently? Or is that something you normally do at year-end?

Nicholas DeIuliis

Well, you saw one indication of that with the year-end 2010 reserve number and how Marcellus contributed to that total from both a magnitude standpoint as well as an upward-revision standpoint. So that's a snapshot at that point in time. You fast-forward today, a lot has changed, even since then. And I think if you go back to the investor presentation slides that we provided, you can see not just some of the typical-, or what I'll call de-typical-, type curves that we were assuming, but also some of the economics that go with it under different price decks. That should give you a feel for what we're looking at now from a capital standpoint, from a well profile standpoint and from an overall rate-of-return standpoint.

Brandon Elliott

All right. John, with that, we'd like to go ahead and wrap it up. And obviously, we'll be around both today and tomorrow. Dan and I'll be here to answer any questions as well as the management team is available today and tomorrow to do what we can to get any other questions answered.

Operator

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.

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Source: CONSOL Energy Inc. Shareholder/Analyst Call
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