Ladies and gentlemen, thank you for standing by and welcome to CONSOL Energy's Second Quarter Earnings Conference Call. As a reminder, today's conference call is being recorded. I would now like to turn the conference call over to the Senior Vice President of External Affairs, Tom Hoffman.

Good morning everyone. Welcome to our conference call on second quarter results. With me this morning are Bill Lyons, Executive Vice President and Chief Financial Officer and Brett Harvey, President and Chief Executive Officer of CONSOL Energy. We'll be discussing the results for the quarter just ended, as well as discussing the outlook for the remainder of the year. Much of our discussion regarding the remainder of the year was forward looking in nature. As you know, our ability to achieve forecasted results are dependent on certain business risks. We talked about those business risks in our release this morning at 7 a.m. and there is a more detailed discussion of those risks in our Form 10-K filed earlier in the year. With that we'll begin with Bill Lyons.

Thanks, Tom. For the quarter just ended, CONSOL Energy reported net income of $101 million or $0.54 per diluted share compared to $153 million or $0.83 per diluted share for the second quarter of 2007. Now in the second quarter of 2007, we had two major property sales that resulted in after-tax gains of $59 million. For our coal business, average realizations were $48.50 per ton for the second quarter, an increase of $6.86 per ton or nearly 17% period-to-period. However, financial margins declined $1.38 per ton. Total cost for company produced coal increased $8.24 per ton period-to-period. Specific mine productivity issues and global commodity inflation were the main drivers causing the cost increases. Let me cite some examples. We have been running with very little cushion company-wide in our longwall development. If we fall behind in development, it potentially hurts us when we have to do longwall moves. We are addressing that by implementing work schedule changes, the result of which will be more people and more time to apply against the problem. Over the next six months, this should allow us to get caught up and build some cushion in our development timetables. During the quarter, the Buchanan Mine was still in the process of completing the major changes in the mine plan that will allow us to avoid the kind of problem we had that resulted in the mine being idle for nine months last year. We anticipate that Buchanan will be running at expected levels by the middle of August. The addition of the AMVEST mines to the production mix also contributed to higher cost, now we acquired AMVEST in the third quarter of last year. CONSOL's AMVEST operations are located in Central Appalachia where operating costs are normally higher when compared to our longwall mines…

Thank you, Bill. It's good to be with you again and discuss the quarter... the second quarter of 2008. First of all, let's talk about in any given quarter there are good things and not so good things and we'll talk about both of those right now. First, let's talk about the good things. Bill talked about the great performance of the gas company, that is on track and doing well. The long-term coal market fundamentals are solid and both met coal and steam coal, we're enthused about how that's opening up for '09, '10, '11, and '12. We see higher energy prices on the spot side and we are starting to see that revenue flow into our company starting in the second quarter, more robust in the third, and more dramatic in the fourth quarter. Our earnings for the quarter were an excess of $100 million net income. Those are good things from where we've been in the past and where we've seen the coal business over the last five years. Still we have things to work on clearly. Costs; costs are a concern. If you looked at the two quarters '08 and '07, you couldn't have two quarters more diametrically opposed in those two quarters. One in '07 all cylinders were running and we were doing very well on the production side in the second quarter of '07 and in '08 we had some problems and I'll talk about those problems right now. We spent a lot of time looking at analyzing this quarter just seeing exactly where we are at. What we saw was a drop in productivity in tons per man-hour related to longwall development. We made some adjustments there, we've actually made some personnel adjustments, as well as adjustments in our planning processes. We've seen…

Thanks, Brett. Operator, would you please give our listeners their instructions on getting into their question queue? Question and Answer

Thank you. [Operator Instructions]. And will go to line of Michael Dudas with Jefferies. Please go ahead.

Good morning, gentlemen.

Hi, Michael.

First question, Brett, you mentioned in the first quarter about a 6.5 million tons that you were holding off negotiations for the second half. Have you begun those negotiations in Q2, maybe elaborate on what type of discussions you're having with U.S. and also international utilities for your steam coal?

Okay. Well, about 3 million of the 6.5 million has been priced, most of that's been over $100, between $100 and $115. And so, that's well under negotiation and if you look at our unpriced tonnage for '09, we have about 14.5 million tons that are opened right now. What's real significant there is about 4.1 million... excuse me, more than that, 3.7 of low wall and 1.2 of high wall are opened on the met side. So, we're really excited about where we see the market for the met coal and what's going on, the [inaudible] is steam in Moundsville and Central App.

My second question, Brett, is relative to your Bailey expansion. Have you started to baseload discussions with utilities on that additional tonnage or is it too soon?

We are in baseload discussions right now with major utilities and they are domestic utilities. The domestic utility seems to be stepping forward for longer-term sure supply tons in which I think CONSOL is unique in supplying and we're looking at long-term contracts with them to start to be a mix portion of the Bailey Mine.

Thank you, Brett.

Thank you.

And next we'll go to the line of Shneur Gershuni with UBS. Please go ahead.

Hello?

Mr. Gershuni, your line is open.

Hello, can you hear me now?

Yes.

Hi, sorry about that. Just a couple of quick questions here. I just wanted to clarify the cost side, that you would kind of expect the productivity improvements to come back into line towards the second half and you don't have the unanticipated Shoemaker part and so forth. So, would it be fair to say that you kind of expect... excluding commodity cost increases that you'd expect that your cost should back down a little bit from the elevator levels that we're currently at right now?

Oh, yes. We expect to come back in line with what our guidance was in the first quarter. We are seeing pressure on the commodity side, if you look at diesel cost and steel, basically roof support, as well as replacement parts. I would say the commodity side of it, with diesel it's about 12.5% what we are seeing for the year. If you take diesel out of it, which is diesel is not a big player, but it's become more significant with our surface mining that we had it with AMVEST, it's about 9% otherwise on all these commodities. Productivity really is the key, when we get that productivity back and we see signs of it already moving back that direction, we'll see our cost to drop dramatically as we add more tons as same dollars.

Okay. My follow-up question is just with respect to CNX Gas or CXG. Just in listening to their conference call yesterday, they seem to have a ton of exciting opportunities and potential for significant reserve growth and so forth. And I guess my question is, how do you see your role and trying to get that value recognized for CONSOL shareholders. I guess are you looking at options and trying to push them further to expand their capital program rapidly, so that they drill faster and add to reserve bookings and/or are you also looking at your current stake in the company in the capital structure and its impact on the marketplace and whether a wider float would be able to push more value through to both the CONSOL shareholders and to the CXG shareholders as well, too?

Let me take a shot at that question. One, certainly CNX Gas had a tremendous quarter and as well as it's just been a tremendous asset for us. We take a look at capital projects as the whole company and we do the projects that have the greatest net present value or internal rate of return as we look at it really in about the same calculations and look at different ways, but obviously we're going to get the highest rate of return and that means more gas than coal, that's the way we're going to go. If you take a look at our capital expenditures for this year, we are spending more on gas than we are on coal and probably that spend rate is $3 to $2. I think for every $2 in coal, we're probably spending $3 in gas and again we see those projects right now that have the greatest net present value. So, certainly we're going to do nothing to pull back the gas company. We're going to continue to expand and invest in places that increase earnings and as a result increase shareholder value. We announced in the first quarter that we have changed our view of CNX Gas. Prior to that time and whenever we went out with part of the company on the IPO, we said we just didn't have opinion as to what we are going to do. We wanted to put them out there and just see how well it would perform as a publicly traded company. In the first quarter, we said we changed our view meaning that we're going to keep that part of the gas company, 81% of the gas company and we would also take a look at maybe buying more of those shares back. We haven't changed in our thinking there. Again, it depends on how the market goes and the rest in the future, but I can tell you that we will do nothing to hold back that gas company. It's a very, very valuable asset for CONSOL Energy company and they are going to continue to do great things along with our coal business.

[inaudible] on the value of the gas business as well. Great, that takes care of my question. Thank you.

Thank you.

Next we'll go to the line of Brett Levy with Jefferies & Company. Please go ahead.

Hey, guys. In terms of making additional acquisitions and where you want to build your reserves, can you talk either venue or preference for steam or met? Can you talk a little bit about what you're thinking about in terms of acquisitions?

Okay. Well, clearly we look at all acquisitions and we think that's well-capitalized mines in any mining type market, especially with the way permitting it. Probably the best way to increase value is to consolidate and buy mines that are already in our operation. We did that with the AMVEST acquisition last year. In Central App, we are always looking for opportunities, but our reserve position is very strong too and we can also invest internally. We've talked about the BMX mine, fifth longwall at Bailey, Enlow. And on our met side, we haven't talked much about this, but on our met side, our reserves are about 500 million tons. We think over the next five years we can increase our met production at about 3.5 and 5 million tons per year depending on what we do. And on the resource side... and we are drilling this out now, we think we have about another 480 to 500 million tons of reserves, that's not considered reserves, but on the resource side of met coal as well. So, that's where we're focused right now and on the acquisition side, we would acquire opportunistically where we think we can add value, whether it's East or West or to the South of us. So, that's the way we look at it.

Okay. So, sort of [inaudible] <88.951125> neighboring mines is particularly attractive to you?

Well, they are typically... yes, they tend to be priorities because there is lot of synergy in the region with that. But we wouldn't hesitate to go to another region if it made sense and we could add value there.

Got it. Also, can you just give a little bit more detailed update on sort of what's going on at Buchanan?

Okay. Buchanan, in terms of the production of the mine, when we opened the mine up we actually opened it up and then we went into a longwall panel that was 500 feet in width instead of 1,000 feet in width and it changed our productivity cycle. So, Buchanan is up and running, doing well, but it's not at full productivity. We think by the middle of this quarter, we'll be up to full productivity in another longwall panel that's 1,000 feet wide. It's producing well and the gas side of it, we are pulling a lot of gas off the gov gas side, as well as drilling out in front of it. And we're getting... we'll be repricing those tons into some very high prices. In '09, the number that I am seeing now on the low wall side is $325 per metric ton in the vessel, which gives us very high margins at that mine for '09. So, we are really enthused about it and it's running well. And we are sealing the places where the government asks... asked us to seal and that's moving along as scheduled as well.

Thanks very much, guys.

You bet.

And next we'll go to the line of Luther Lu with FBR Capital Markets. Please go ahead.

Yes. Good morning, guys.

Hi, Luther.

Hi, Luther.

With API price recently coming down, I was wondering, Brett, if you can give us a sense of what's going on in the export markets for steam coal?

Okay. Well, keep in mind that we've kind of broken ourselves away on the negotiations from that market in terms of... we don't follow the API index. We negotiate directly with the customers. We see the market as very strong over there. We are exporting 3.7 in '08, we've looked at... we are looking at 3 million tons for '09, and we are looking at the value between the export market and the value for the domestic market, which is probably stronger right now than the export market. So, if you look at both, they are both very strong and the physical deliveries tend to drive the price more than what you see the paper deliveries in terms of the traders at that index that we're talking about.

Okay. So, given that European market is still very strong, have you considered more about port expansion at the Baltimore facility?

Well, we have capacity there as well. We'll probably... we believe we'll be at 10 million this year, 12 to 12.5 million tons next year, and we are also finishing up a study to see if we can expand beyond the 15 million tons of capacity to capitalize. That study is coming in and believe me, if we see the long-term economics, we'll invest more into that port for export if it makes sense to us.

Okay. And given the recent pullback in your stock, do you have a stock buyback program or would you be willing to lever up to buy back more?

We're having discussions on those financial alternatives with the Board and we will be discussing that with the shareholders at the appropriate time.

Okay. One more question on diesel hedge, are you hedged for '09?

Well, we are hedged in essence with 40% of our diesel, and that would be the river diesel. We're hedged because we passed through... we passed that through and on the operating mining side, since we picked up AMVEST, the price has been rising rapidly and that affects us more to AMVEST. Keep in mind 85% of our coal is underground, which is driven by electricity. But where we do use diesel, we haven't had a chance to hedge, because since we bought that mine, the price keeps running up and it's hard to hedge it on the rising side. So, we're looking at that all the time and when we see an opportunity, we will do that.

Okay. Great. Thank you.

Yes.

And next we'll go to the line of John Bridges with JP Morgan. Please go ahead.

Hi, John.

Hi, Brett, everybody. Just wanted to dig a little bit more into this... into the cost issue.

Okay.

I remember a couple of years ago there was a spillover of capital for longwalls that got into operating cost. I just wondered to what extent that's happened now with all the expansion... the longwall extension and that sort of thing that you are seeing?

Well, I think you got a spillover from the opening of the Shoemaker Mine. So, that was a one-time event. And you also got some... where the productivity is really hurting us and hurting us for the first six months was development of longwall panels and being ready for the longwalls to move to the next panel, and so we've accelerated that. So, probably what you've seen in the first two quarters is a surge in development to make sure we're ahead at every longwall and it gave us a better cushion, so we didn't have longwalls sitting, waiting for development before they could get run into again. Because, as you know, those longwalls have to run, and so we have a higher percentage of development that you're probably seeing into the numbers that will probably level out. In fact, I'm sure it will level out in the third and fourth and even the first two quarters of next year. We accelerated that.

So, how many days did longwall stand idle during the quarter?

Well, we have one longwall that was idle at McElroy for almost 45 days. And part of it was geology and the other part of it was some management issues that we corrected. We've gone through both of them.

So, this catch-up of longwall development you refer to, is that just McElroy or is there elsewhere?

It was mostly focused on McElroy, but what I have advised the operations people to do is give me a plan that show everyone is a longwall on schedule and ahead of schedule and they've worked on that. So, we've seen some increase at every place, but it was really serious at McElroy and we've corrected that issue. In fact, McElroy in June was back on track and produced over 1 million tons itself.

John, you will certainly understand this, but when you go through the whole process of mining coal, you have CM units, you have longwalls, you have haulage systems, you have preparation plants, and you have shipping. And the engineers call it the theory of constraints is that, you have the improvements in probably your constraining factor, and all of a sudden now your constraining factor becomes something else. With the CM units, it's not that they're doing poorly compared to before. It's just that there's just tremendous productivity gains in longwall technology and our haulage systems and... as well as we're putting in some state-of-the-art preparation plans. So, again under this theory of constraints, we need to start focusing on CM development and that's what we're doing right now.

Okay. I'm just confused because a couple of years ago, we had this same problem and there was a big... as I understand it, a big investment in getting these tunnels out ahead of the longwalls and now we seem to be back in the same problem.

Well, I wouldn't put a broad brush across that. It was more related to the McElroy Mine and a little bit because of geology at Bailey. The other mines, if you look at, have done very well and are ahead of schedule. So, on average most mines are ahead. When you have one behind it, it slows you down.

Okay. And to what extent did people problems interfere with... or lead to this productivity issue?

I would say... well, I will tell you straight out. We've had some changes at the officer level, as well as at the mine manager level. So, we felt like it was enough to make some pretty major changes and we did that.

And a shortage of miners in particular, are you getting people hired away?

We don't get a lot of pressure on the hired away in Northern App. We see that more in the Central App. So, manpower-wise we're probably training 150 to 200 miners all the time to fill in for people that are retiring. On the northern side, we have a tendency of people come towards us rather than away from us because of our capitalization of long-term mines and our advertising. We're doing pretty well, John.

Okay. Okay, Brett, best of luck.

Thank you.

And next we'll go to the line of Jeremy Sussman with Natixis Bleichroeder. Please go ahead.

Hi, good morning.

Hi, Jeremy.

Hi. I guess... I was wondering if you could give us sort of a breakdown, maybe a regional breakdown of where you see long-term contracts getting signed maybe recently or going forward? I guess what I'm getting at is, it's a little tough to discern because of the... some of the legacy contracts that...

Right.

That were there. So, I was hoping maybe you've kind of given us a very helpful breakdown in the past. Maybe we can see that here?

Well, what we'd like to do is, let's talk about the legacy contracts a little bit, because we put more out. We thought that was creating confusion in the marketplace, so we put more information about the legacy issues. The legacy issues were 2003 and 2005 contracts that were written with bands on them with 15% growth and escalation. If you look at the... look through what we put out in our press release, you'll see those. But going forward, things that are open, let me talk to you about the open positions. I talked earlier about 14.5 million tons in 2009 of totally open with no bands. And those... the pricing we see forward like in Northern App for '09, mid-sulfur pricing would be $125 to $140 a ton, high sulfur would be $120 to $130. Moundsville type coal, which is more right on the river tend to be a little less Btu, 100 to 110. In Central App, on the CSX railroad, we see $125 to $140. On the Norfolk Southern, $135 to $150. And if you get to the met coal, which is really interesting, at low wall we see 325 metric ton. I've talked about that earlier. But high wall we're seeing about 315 metric ton in the vessel. So, those are the numbers that we're looking at. And that's why we're looking so hard at, are there other met reserves we can open up and add to our portfolio. But they have to come with contracts. We're not going to change that business unless we see customers that want to do longer-term deals.

That's very helpful. This was just to be clear. This is for 2009 contracts or what you'd be?

That's right, yes.

Okay, great. And then I guess... so then for 2010, I guess I just want to make sure I'm interpreting this correctly. It looks like you have 26 million tons or so on ballparking, completely unhedged and unpriced and another 24 million tons that are committed, but unpriced. So, to some extent you have 50 million tons unpriced. I guess do we have a sense of how much of that is truly unpriced versus what would be maybe subject to us and reopeners or...?

I don't know how you got to 50, maybe you got these guys offline. What I've got here is, I've got 42 million unpriced tonnage for '10, 42 million and it breaks down with 4.1 met, 1.2 high wall, Northern App at 20.5, Central App is 7.6, AMVEST 2.8, Moundsville 4.5, and other mainly in Emrey and other places 1.3 million, then that adds up to about 42. So, those are the numbers that... I think what we have collared for '10, which is collared is maybe will help you out a little bit. At $52... excuse me $53, there is about... average price, there is about 8.7 million tons for '10 that are in the collar situation. But typically you haven't seen spilled out like that. That will help you.

And Jeremy, this is Tom. The 42 has no collar, so it's 42 at the breakout that Brett gave, plus 8.7 collared at $52.91, plus 28 million tons roughly that's in the guidance already priced at $48.27.

Okay. Yes, so the 42 plus the 8.7 was how I was getting to 51, so basic 50 or 51. So, basically that 42 completely unhedged and unpriced?

That's right.

Okay. So subject to market prices. Great, thank you very much. That's very helpful.

Thank you.

And next we'll go to the line of David Gagliano with Credit Suisse. Please go ahead.

Hello, David.

I guess the only... I guess the follow-up question is, Brett if you could give us a little bit more detail on how you are expecting the cost pressures to ease a bit in the second half outside of McElroy?

Okay. The cost pressures, it's almost as easy, but it's not easy to do and what you have to do is get your productivity. If you look at productivity per man-hour over the year, we are very accurate. When we have problems like we had in the second quarter and even in part of the first quarter that made the productivity for man-hour drop. The adjustments we've made is seeing that all longwalls are at top volume for the last two quarters per hour and when your productivity rises like that, you really spend and get more tons for the same dollar spent and so we're going to see it rise probably 10% to 12% in the second two... the last two quarters versus the first two quarters.

Okay. Is the productivity already at that level at this point?

Oh, yes. Yes.

Okay.

David, what we've emphasized over the last several quarters as margin expansion as we said, we knew costs were going to go up, just because of commodity issues, as well as the mix of the mine. But again our focus is on margin expansion and we were disappointed in the quarter as that we did not achieve margin expansion in this quarter, but going forward we certainly believe that we'll see substantial margin expansion, part is because of... we'll have a better control over the costs, but also we are going to increase our production and obviously the increase in market prices.

Okay.

So, I would say the problems associated with that productivity issue and the longwall development, the adjustments we made took us about three or four months, but they are behind us now.

Okay. Sort of using out. Thanks.

And next we'll go to the line of Justine Fisher with Goldman Sachs. Please go ahead.

Good morning.

Good morning, Justine.

The first question is about a comment that you made earlier about the fact that you may see more value in the domestic market now than the export market. Can you give us a bit more color on what the value means? I mean is that in terms of better long-term contract terms or why is the domestic market more attractive?

Well, because the domestic market... because of our unique location in terms of being the fuel right in the middle of the highest generation in the world in terms of coal, the fact is there is no transportation component that is dominant. Our shareholders tend to take up the value of location, so if we are doing long-term contracts with utilities or capitalize to match our coal, we can extract more value on a delivered BTU basis and we can if we are shipping it all the way to Europe, where we are sharing railroads and freight costs and all those. So, in terms of pricing term on the steam side, we extract a lot of value there. Now on the met side, we extract a lot of value just based on being a very high rate of production at lower costs because of longwall mining against a good price worldwide. And so that brings real value back to the mine. So, we'll tend to push steam more towards the... met coal towards more of the Atlantic market and we'll lean towards the domestic markets if prices rise on our steam side just because of location. Is that helpful to you?

Yes, it is. It is. And to follow up on that, so it may be a little bit different for CONSOL because of size and particular position, but do you think that for other producers, it might be the same that if they got a price domestically that was somewhat comparable to what you'd get abroad. I mean obviously there's a huge price differential tie next quarter, but if they got... if the price domestically ran up because as you said utility stockpiles are low. Do you think that more companies would see a value domestically rather than sending in abroad?

Oh, yes. I think they would do that. And the other thing that's unique to this thing, any time the utilities step up and start to do term deals. Companies will always deal with the power plants that's in the region because it's better, it's lower risk and it's not... if you look back in the history of the Eastern United States has been a swing supplier to the Atlantic market rather than a long-term supplier like Columbia or South Africa. So, if you look over time a lot of value has been created by feeding the generations built around you rather than trying to play the swing markets.

Okay. And then you gave some excellent color on the breakdown of available coal for 2010 and I just have two questions on that. First is, you get the 42 million of open tonnage by just taking... if I add 42 to the 28 that's committed in price, I still don't get to the production estimate. So, I was wondering on that and could you give us that breakdown for '09 as far as what is... what type of coal is available at your unpriced tonnage?

Okay. Where you're missing on '10 is, I think you're missing the collar tons of 8.7, which average price is $53. And if you add that in for the 28, the 8.7, and the 42 I think you get to the estimate.

Okay.

Okay. And on the unprice for '09 you got met at... low wall at 3.7, high wall at 1.2, Central App 3.4, AMVEST 1.2, Moundsville less than a half a million, and other that would be general like Emery and others about three quarters of a million, which gets you to 14.5.

Okay.

And there is no collars on any of that, that's open price coal.

Thank you so much.

Thank you.

And next we'll go to the line of John Hill with Citigroup. Please go ahead.

Great, and thanks for the detailed presentation as always. Just following up on Justine's question, I mean do you think that this change in behavior of domestic utilities throws some of the high end of the export forecasts in the question, there's been a lot of talk about 80, 85 million tons plus, but if we're in a situation now where the domestic versus export netbacks were equivalent a few months ago, now it looks better domestic. There was a tremendous European demand, now it's looking like the domestic utilities want to go long term and how do you think we should look at these overall export numbers on this new side?

I would say it's seasonal and you are in a low right now in the market from the European demand. I would say they will get very robust going into the winter and you will see that will probably push the domestic guys to do more term business and... but that's in a very high price stick compared to what they used to being in. So, you'll probably see the domestic utilities come to the realization that this world market is very influential on their fuel supply more than it has been in the last 15 or 20 years. And so I think you are going to see... and we are seeing it right now, the domestic guys want to do the longer-term deal, but we are tended to do them at market prices rather than at fixed prices or even with collars, collars concepts gone by the wayside right now.

And great perspective. And then just following up, you've talked in great detail about productivity and really shed some light on that and thanks very much for that. Talked through geology and turnover issues, but one that hasn't seem to have done as much attention is the safety and the regulatory mandates. And is there any way to quantify what that's causing you in terms of tonnage or dollars or how it affects the way you are doing? Is it... and how can we look at that impediment relative to those opposed by the former two categories of geology and turnover?

Well. If you… we definitely see a change in the way the government approaches safety and regulation and that... that is much tighter because of other incidents, we've seen in the nation. If you go back... clear back into when the Act was put in, in the '70s you saw a drop in productivity just based on these new regulations, but then you saw response from the companies to adjust to them and then productivity rose. I would say that you… probably we are making improvements, we see where we are being held back somewhat in productivity like walking people out of the mine by mandate. We are now running the machines as much as per hours as much as we used to. So, we are making adjustments to offset the productivity losses, but that tends to adjust itself over one or two years rather than... it's hard to get your hand around the number right now, but we do sense it because we are seeing a little bit less of each mine, but we are just on our way around it. And I think talking to other CEOs, they are seeing a drop in productivity based on the same issues, especially on the underground side.

Great perspective. Thank you.

We'll adjust a way around it and not compromise safety.

And next we'll go to the line of Pearce Hammond with Simmons & Company. Please go ahead.

Hi, good morning.

Hi, Pearce.

If we look at... go back to the cost issue for the first half of this year compared to the first half of last year, we're up about 25%. What should we be thinking on a percentage increase for the full year '08 versus the full year '07?

I would say for the full year '08, I think... I would say about 12%, 10% to 12%.

10% to12%. Thank you. Brett, are you seeing any Pittsburgh 8 seam coal going into the PCI market?

Yes, we are, significant... but it's about 500,000 tons and it's hard tons that are moving that way.

At what kind of pricing are you getting on this?

It's about $220… $210, $220 depending on the quality and that's on a metric ton.

Do you see that expanding over time or is that... is there a great deal of interest for that material?

Well, I think if the market stays tight, Brazil seems to be very interested in that type of coal right now. And it's a good alternative depending on how they want to blend. A lot of it depends on what kind of facility they have on the other end to blend it and their ability to produce coke and so forth.

And then, Brett, looking at the AMVEST acquisition, now that you've essentially got in your fold, so to speak, for almost a year?

Right.

But if you were to grade that acquisition, what's performed better than what you expected and what's maybe underperformed relative to what you expected?

I would say... I would say the performance of the surface mines have been under, but was more geologically oriented and the performance of the underground mines are improving because of our own technology being brought into them. I would say on the front end though it took us a while to adjust, maybe two quarters to adjust to it, but I think we've got some momentum there now. What I have been very enthused about was the reserve base and our ability to mine there for longer periods of time is greater than we anticipated, we are enthused about that.

Great. And then sorry, one last question, but on this productivity, which I appreciate all the good color you have given there today. If you were to break that into two buckets, geology being one and I'll call it labor and managerial issues and the other. What sort of percentage allocation would you give to each one as far as the shortfall you've had in productivity is a little bit more weighted towards that managerial issues or is it more weighted to the geology side?

I would say... I would give it a 50-50 right now, and the nice part is the 50% based on the managerial side, you can correct quicker. Geology is what mother nature gave us.

Great thank you very much.

Okay. Thanks.

And next we'll go to the line of Sam Martini with Cobalt Capital. Please go ahead.

My questions have been answered, guys. Thanks.

Okay.

And next we'll go to the line of Franklin Ross with The Lynch Foundation. Please go ahead.

Hi guys.

Hi, Franklin.

I guess my first question is on average what did your inventories look like in the past?

If you go back to, it was an unusual, I am talking probably three, four years ago for our inventories to be between 3 and 3.5 million tons. And right now we are operating between 1.5 and 2 million tons.

And when you look at the legacy contracts, how long... how long these last, the 8.3 million tons?

That's a good question. At the end of '10 we see the legacy drop from 8.7 to 6 and then the 6 million tons are going to be out there, maybe even probably about 10 years and... but they escalate year-to-year and they have a collar of 15%. So, I would say if the markets stays robust. It will have a cap on it, we'll grow it fast.

And what you are suggesting to the utilities that have equal or less of supply, I mean what's the position I guess?

Well, it's our long-term customers, our suggestion really is we'll work with them to try to get them coal, but we don't want to see them, but you let the lights go out and we are very focused on that. We have critical mass to try to move some trains around, but if it's really tight in the spot market. And part of the function of a real high spot market is the lack of supply and we are seeing a huge lack of supply in the East. There is just limited coal available and if people plan their fueling plan based on a lot of spot coal, they are in a tough situation right now.

Yes.

Yes.

And when you look at your legacy contracts, you got the high end of that reopening, you got the full increase in the collar, right?

Yes, we get the whole thing, plus escalation in between the reops here.

Great. Great quarter, guys.

Thanks.

And next we'll go to the line of Bill Eagan with Raymond James. Please go ahead.

Hi, guys.

Hi, Bill.

Hi, Bill.

I just wanted to follow up on the coal gasification project, could you talk about your CapEx that might be involved?

The way it's set up is we move forward on this 50-50 joint venture. We think the top end of it is, 800 million of which would be 50% of it and that 50% would give us half the product and half the value. And so, the interesting part about it, it takes coal into a whole new marketplace in terms of value with gasoline and methanol.

And any idea on the timing and potential revenue impact?

We think 2012 and we are... part of this whole commitment with our partner is to get the revenue impact and value out of it, but it looked valuable enough for us to take the next step with our partner. Great location, we have the coal, the coal has already capitalized. It's the Shoemaker Mine coming back, State of West Virginia is very excited about it. The chemical companies are very excited about domestic supplies of methanol and we also... if gas prices stay up, we can make some bucks on turning coal into gasoline.

Great, thank you very much.

And next we'll go to the line of Paul Forward with Stifel Nicolaus. Please go ahead.

Thanks.

Hi, Paul.

Hi. Couple of things. On the 3.5 to 5 million tons of incremental met coal production that you think you might be able to do, can you give us maybe the type of met coal and the location that you think that, that will be coming from?

Okay. First of all, we are going to expand the Buchanan Mine to the tune of about 1 to 1.2 million, and then we got some production at Mine 84, that we can actually... when we shift a longwall down there, we can do some minor section work there. We have a property called Fallowfield, which we believe we can bring up 1.5 to 2 million tons and that would be, I think, high wall met coal. And we have another mine that was low wall met coal, 0.5 to 1 million tons that's called Itman [ph] and that's a mine that we mined years ago and we think we could re-enter that mine and do a 0.5 million, these are all minor section mines. But if you add them up, it's pretty substantial, another one called Square Jim [ph], that's I think mid wall coal. That's about 0.5 million tons.

Okay. All right, that's good and maybe... when we look at 325 per metric ton in the vessel right now, when you back into what your realization at the mine is, would that be something on the order of 265 if you assume something of $30 rail cost? Is that about right?

Yes. If you assume 30 bucks, you hit right on the nail.

Okay. And maybe also...

The nice number...

It's not that. On the... just thinking of the utility discussions, which we are having right now, if your secured customers are rolling off contracts $40 and they are being presented with Northern App price between $100 and $120 or higher than that. What is the... just what's their receptiveness to signing deals at anything longer than a year at that level?

Well, actually if you look what we're doing, we're signing... and these are new type contracts, we're signing term deals at market prices meaning you're tying up the volume to where both of us are committed and we're putting systems together to assess market price year-to-year, sometimes every two years, depending on what the customer wants. And we're okay with that because being a low-cost producer market prices are always good for us.

So, they don't throw you out of the office when the prices tripled from the old contract?

No, they don't because if you look at supply, we know utility has gone out for a bid with multiple suppliers and maybe one guys comes back with a third of the tons they wanted. So, the availability is not there. So, we are more in a supply-driven issue than we are price-driven issue right now and those things tend to shift back and forth, but I haven't been a coal buyer in my past myself. There is one thing to have the right price and it is the bigger thing not to have a coal and not to have a coal I think is a concern of most on them right now.

And is that question about just going back in one of the previous questions, you are suggesting 3.7 million tons of steam coal exports this year, maybe three next year.

Yes. From us, yes.

From you. Is that lower number in '09 partly reflecting the alarm that you are starting to see among customers domestically over their low stockpiles and I guess that as a way of asking, can you really be shipping much steam coal overseas when you are going right by plant, they've got a week of coal on the ground?

I think you hit it right on the nose. I think when the trains leave, go to the exports, they tend to be soaked up by the domestic markets, yes.

Okay.

And that's part of the strength of CONSOL. That we have the ability to do that and we become I would say a high BTU supplier in the region because we are well capitalized for this market and we have been for long time and they built their plants to match this market. So, I think the realization that we are large dependable high BTU company is comments in realization of some of those who played the spot market for 20 years. Yes.

And maybe lastly on the collar tons for 2010, is that generally toward the low end of your quality spectrum for, let's say, your Northern App coal that you have collared price caps on 2010?

Yes, it is. In fact you would find that what you see on the river, the Moundsville type coal.

Okay, great. Thanks.

Yes, thank you.

And next we'll go to the line of Zach Schreiber [ph] with Ducane Capital [ph]. Please go ahead.

Hi guys, it's [inaudible] from Ducane. Just a question on the cap deals, I missed that they were down in 2003 or 2005, they expire when, I thought I heard 10 years?

Okay, let me give that to you. They were down in '03 and '05, [inaudible] at the end of '10 and then two of them, one goes throughout '15 and the other one goes through clear to '18. But the cap deals are caped at... with the band of 15% with escalation in between.

This is Tom, this is Tom Hoffman.

Hi, Tom.

That price that we are showing in the footnote to the table is just the cap at '09 or... I'm sorry, 2010. The next time it opens up, it will be a higher number than that, so don't model that always.

Now I agree. Is it a 15% per annum cap?

It depends, it's a three-year deal. The biggest one is a three-year deal, so that will be the effective amount. So, it opens up three years and then escalates in between.

But there is an escalator 15% per annum or does that only open up...

No per annum, no. So that's going to every year base like inflation and they were opens up it is the annual versus cap at 15%?

That's right. That's where it is.

Okay. And just on the ports and it does seem like one of the major structural forces that was able to take care of some of the inventory in the East, last year was some other stuff relate accessing the European export market? Clearly, the domestic power companies are now more, realistic about there was plain demand situation or going to enter into long-term of contracts at open-cum-market based pricing. But, if you guys start turning away from the export market, what happens to this sort of respective borrowing position with visa via... the power companies and are you willing to just give up the export market in totality?

No, no. We've always exported, don't give me wrong. We have export the contracts and relationships we've been doing for 25 years. We're not given up anything, what we're doing is maximize the value to our shareholders. So, wherever we can get the best value deal that's what we're going to do. And, that's why we've the capacity at the port facilities themselves and we can surge ourselves or we can pull back depended on where we see the prices. So, don't feel like we're going to tie it all up and what walk away with the market, because we won't.

And then just on the port, I think you said, 10 to 12 million tons right but... if the capacity to do 15 exploring possible expanding it. What kind of capital cost would it take to expand the Baltimore port facility and by how much could you expand it and when you look at the Baltimore facility, how much of it do you lease out to other people? How much of it do retain for your own account? The economics of maintaining for your own account versus leasing it out to other people, how do you think like that, how do you model that and when we think about the company going forward, should we describe some values is that facility or should we which think about it in terms of a net backs embedded in the exports?

Okay. Lot of good questions there. But here is the philosophy, we own it we want the capacity, we need first. So, we take reservation first. And that's based on our marketing strategy as well as our plans. Then we... how that ends up is about a third CONSOL two-thirds others but we've the call on the other two-thirds as we need it. To expand the capacity 6 to 8 million tons more per year, it would take about $25 million investment and that would put us in a position to expand the value of that. Assuming there were term deals that justified the investments.

And how long will it take to make the expansion?

About two years.

Seems [inaudible]?

Well, yes it is like anything else, it is got to come in the food chain of a higher rate of return projects. And it's competing with gas and longwall expansion in all those kind of things as well.

Sure. And on the two-thirds that goes to other people, you guys have first call on that, so you basically sign them the second call you can cut them off in a moment, you notice?

Well, I would say not cut off, but we are not doing term deals where people are locking their busses on it. Nearly 45 to 60 day deals.

What kind of rate?

Rising rates, is what I tell. I don't have those factors, it's about $12 a ton right now.

Okay. And... just in terms of the dynamics that you are seeing between the financial markets for coal and the physical markets for coal, I mean it seemed like sort of NYMEX financial coal got crushed as everyone played the global slowdown trade and now you are seeing sort of short covering and a gap and a spread between NYMEX coal and more physical type coal and the CSX got historical wide, did that occur with any... on any volume? Was that a real indication of market, did that sort of tied into any of your structural negotiations or was that just noise?

Those are... that's a good question. What we see is people trying to tie the paper size to oil and other forms of energy. When you go to the physical and we give you this pricing it just keeps raising or it gets real tied a piece at these higher prices. So, no we are not seeing any connection between the two because people need the coal and I think you and I have talked about that in the past. I think you are right on it's a supply coal.

And our next question is from Sam Martini with Cobalt Capital. Please go ahead.

Hi guys, I am sorry to jump back in. Just a couple of questions, on the... on just back to the colors and I don't mean to beat this to death but the release gives the color that after I had assumed that the colors were included in the tons committed, you are saying that, that's not the right way to look at this because the tons committed added to the unpriced, doesn't get you to the production targets?

You have the committed tons of 28.2 we are talking about '10, right?

2010. So we've got..

Okay. And you got 28.2 and you add that to 8.7 add that to it and then you add 42 on top of that.

Okay. So, the 50... sort of 50 to 4 is does not include the colors, the colors are on top of that 50 to 4, which are the committed tons?

Right.

Okay. And then let me just a follow up to Paul's question...

No, no wait. The colors are separate they are 8.7 million ton and they are at about 50 to 91 and you add that to 28.2 million tons at 48, 27 and then you got 42 million tons on top of that that is wide open pricing.

Okay. And to Paul's question it's safe to assume that the... if I thought about your Northern App production in sort of three flavors with the Bailey, Enlow Fork and then the Loveridge and then the McElroy in declining sort of declining price range, we can talk about the grade but it sounds like the bunch of these are going to be more towards the McElroy flavor I supposed to?

It will be more like the River coal stuff.

Okay. And then if we look at the drop on the cost side from what do you think that we took about 600,000 tons year-over-year off [inaudible] added about 800,000 tons in Central App. Can you give a rough estimated of just the cost per ton differential, but it's going to cost between what is... it's $15 a ton incremental cost for the Central App coal production versus...

Our Central App... the Central App costs are always going to run about I would say 50% to 60% higher cost per ton and that says it's good average to use. So, I will tell you, your 20 bucks in Northern Ap had it's going to be 60% higher for Central Ap, that's just the averages we you are using. And that, now that's with our coal, if some other projects if you got there seems is much higher than that, could be as much as twice in time, as three times.

And then our last question is from David Lipschitz with Merrill Lynch. Please go ahead.

Hi, David.

Hi, how are you. A quick question, I am little confused on the cost, you gave a percentage increase of around 10% to 12%. So that means for the rest of the year you will below you did in the first quarter? To cost per ton?

Yeah. On the productivity side yeah I would say that's going to bring us in. I am not sure what these emplacement [ph] numbers are going to do, those of them more the unknown, but yeah I would say as of equity raises are cost to going level out and I think when it's higher in the fourth quarter, obviously go down a bit. That again as we talk about we are going to be focused on margin expansions that could very well be the cost go up and we are ok with that as long as we expand our margins.

Okay. And just a quick... in terms of the depreciation what you are looking for this year?

Quickly I mean you could pave your way after the first half and multiply by two, that will give you the graph estimates.

Okay. Just checking. Thank you.

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