Production during 2005 totaled 50.2 Bcf, including 48.4 Bcf of sales production. This means that CNX Gas replaced 271% of its total production during 2005.
Nicholas J. DeIuliis, president and CEO of CNX Gas, commented, "We did a terrific job in continuing to build our reserve base, especially when one considers that it was grown without acquisitions and that our drilling program was delayed early in 2005 due to an affiliated mine issue. As I calculate our reserve addition cost for 2005, I see that we added 135.8 Bcf (before production), with a drilling budget of only $65 million. This is less than fifty cents per thousand cubic feet (Mcf)."
CNX Gas continues the practice of having all of its proved reserves evaluated by third-party reservoir engineers. Schlumberger Data and Consulting Services provided the December 31, 2005 reserve report, as well as an interim report dated March 31, 2005. In the March 31 report, Schlumberger had calculated proved reserves of 1,093.4 Bcf.
Schlumberger calculated that the future net cash flows of CNX Gas's proved gas reserves have a present value of nearly $3.1 billion before income taxes, assuming a 10 percent discount rate, as of December 31, 2005. This compares with a value of nearly $1.7 billion at December 31, 2004. The 82 percent increase in value is due to both higher proved reserves and higher prices. The average price used in the latest reserve study was $10.33 per Mcf and includes the effects of hedged production.
The proved reserve base of 1,130.4 Bcf consists of 552.2 Bcf of proved developed reserves and 578.2 Bcf of proved undeveloped reserves. The developed reserves include 520.0 Bcf of proved developed producing reserves. The latest report also assumes that the proved undeveloped reserves can be developed at a constant cost of $0.65 per Mcf.
From a geographic perspective, the overwhelming majority of reserves, 1,094.0 Bcf, are associated with CNX Gas' coalbed methane operations in Central Appalachia. An additional 32.5 Bcf of reserves are in Northern Appalachia. A joint venture for conventional gas in Central Appalachia has 1.2 Bcf of reserves, while a similar venture in Tennessee has 2.7 Bcf of reserves.
CNX GAS CORPORATION is an independent natural gas exploration, development and production company operating in the Appalachian Basin of the United States.
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