##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 For the fiscal year ended December 31, 2006;
 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: 001-32723
 
 CNX GAS CORPORATION
 (Exact name of registrant as specified in its charter)
 
 Delaware
    
    20-3170639(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 4000 Brownsville Road
South Park, PA 15129-9545
(412) 854-6719
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
 
 Securities registered pursuant to Section 12(b) of the Act:
 Title Of Each Class
    
    Name of Each Exchange On Which RegisteredCommon Stock ($.01 par value)
    
    New York Stock Exchange
 No securities are registered pursuant to Section 12(g) of the Act.
 
 o þ
 o þ
  þ o
 þ
  o o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE:




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TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    4Item 1A.
    
    Risk Factors
    
    
    22Item 1B.
    
    Unresolved Staff Comments
    
    
    30Item 2.
    
    Properties
    
    
    30Item 3.
    
    Legal Proceedings
    
    
    31Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    32Executive Officers of CNX Gas CorporationPART IIItem 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    33Item 6.
    
    Selected Financial Data
    
    
    35Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    37Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    52Item 8.
    
    Financial Statements and Supplementary Data
    
    
    53Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
    
    
    86Item 9A.
    
    Controls and Procedures
    
    
    86Item 9B.
    
    Other Information
    
    
    87PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    87Item 11.
    
    Executive Compensation
    
    
    88Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    88Item 13.
    
    Certain Relationships and Related Transactions
    
    
    88Item 14.
    
    Principal Accounting Fees and Services
    
    
    89PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    89SIGNATURES
    
    
    90Ex-23.1Ex-23.2Ex-23.3Ex-31.1Ex-31.2Ex-32.1Ex-32.2
  2




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FORWARD-LOOKING STATEMENTS
  
    
    our business strategy;
    
    our financial position, cash flow and liquidity;
    
    declines in the prices we receive for our gas affecting our operating results and cash flow;
    
    uncertainties in estimating our gas reserves and replacing our gas reserves;
    
    uncertainties in exploring for and producing gas;
    
    our inability to obtain additional financing necessary in order to
fund our operations, capital expenditures and to meet our other
obligations;
    
    disruptions to, capacity constraints in or other limitations on the pipeline systems which deliver our gas;
    
    the availability of personnel and equipment, including our inability to retain and attract key personnel;
    
    increased costs;
    
    the effects of government regulation and permitting and other legal requirements;
    
    legal uncertainties regarding the ownership of the coalbed methane
estate, and costs associated with perfecting title for gas rights
in some of our properties;
    
    litigation concerning real property rights, intellectual property rights, royalty calculations and other matters;
    
    our relationships and arrangements with CONSOL Energy; and
    
    other factors discussed under Risk Factors.
 3




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##### Table of Contents



PART I
 
 ITEM 1. BUSINESS
 Except as otherwise noted or unless the context otherwise requires, (i) the information in
this Annual Report on Form 10-K gives effect to the contribution to CNX Gas of the CONSOL Energy
gas business effective as of August 8, 2005, (ii) CNX Gas refers, with respect to any date prior to
the effective date of that contribution, to the CONSOL Energy gas business and, with respect to any
date on or subsequent to the effective date of the contribution, to CNX Gas and our subsidiaries,
(iii) CONSOL Energy refers to CONSOL Energy Inc. and its subsidiaries other than CNX Gas and the
companies which conducted CONSOL Energys gas business, and (iv) reserve and operating data are as
of December 31, 2006 unless otherwise indicated. The estimates of our proved reserves as of
December 31, 2006 and 2005 included in this Annual Report are based on reserve reports prepared by
Schlumberger Data and Consulting Services. The estimates of our proved reserves as of December 31,
2004 included in this Annual Report are based on reserve reports prepared by Ralph E. Davis
Associates, Inc. and Schlumberger Data and Consulting Services. Similarly, the estimates of our
proved reserves as of December 31, 2004 and 2003 (set forth in Item 6, Selected Financial Data 
Other Financial Data) are based on reserve reports prepared by Ralph E. Davis Associates, Inc. and
Schlumberger Data and Consulting Services. Unless otherwise noted, we discuss production, per unit
revenue and per unit costs net of any royalty owners interest. With respect to production and
reserves, we use the word net to indicate when a number does not include the royalty owners
interest. With respect to acres, we use the word net to describe our aggregate fractional
interest in property that we control by deed or lease. With the exception of earnings per share
data, we discuss dollars in thousands throughout this Form 10-K. Financial information concerning
industry segments, as defined by accounting principles generally accepted in the United States of
America, for the twelve months ended December 31, 2006, 2005 and 2004 is included in Note 16 to the
Consolidated Financial Statements included as Item 8 in
Part II of this Annual Report on Form 10-K.
 General
   History of CNX Gas
    4




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##### Table of Contents



Our Relationship with CONSOL Energy
    Coordination with Mining Activities
   Gas Operations
  5




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##### Table of Contents



Areas of Operation
  
    
    first, in Central Appalachia, Virginia Operations CBM, our
traditional area of operation, where we have typically produced
CBM from vertical wells which we drill ahead of mining and gob gas
from wells paid for by CONSOL Energy to de-gas their coal mines;
    
    second, in Northern Appalachia, the Mountaineer CBM play in
northwestern West Virginia and southwestern Pennsylvania where our
first major drilling program using vertical to horizontal well
methodology has shown good results;
    
    third, in Northern Appalachia, the Nittany CBM play in central
Pennsylvania, where we have substantial holdings and have
completed initial testing activities; and
    
    last, in the Illinois Basin, Cardinal, the New Albany Shale play
in western Kentucky and southern Illinois, which has compelling
economic potential similar to Nittany and Mountaineer.
 Central Appalachia
 Virginia Operations CBM
     6




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Tennessee
   Northern Appalachia
 Mountaineer CBM
    Nittany CBM
  7




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##### Table of Contents



Illinois
 Cardinal
  Other
  Other Conventional Oil & Gas and CBM
  8




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##### Table of Contents



KentuckyBell
    
    Breathitt
    
    ClayCrittenden
    
    Estill
    
    FloydHarlan
    
    Henderson
    
    HopkinsJackson
    
    Johnson
    
    KnottKnox
    
    Lee
    
    LeslieLetcher
    
    Magoffin
    
    McLeanMuhlenberg
    
    Owsley
    
    PerryPike
    
    PulaskiRockcastle
    
    Union
    
    WebsterWhitley
    
    WolfeVirginiaBland
    
    Buchanan
    
    CarrollCulpeper
    
    Dickenson
    
    RussellTazewell
    
    Washington
    
    WytheWest VirginiaBraxton
    
    Clay
    
    LewisLogan
    
    McDowell
    
    MercerMingo
    
    Nicholas
    
    PocahontasRaleigh
    
    Randolph
    
    UpshurWebster
    
    WyomingOhioAthens
    
    Belmont
    
    CarrollColumbiana
    
    Gallia
    
    GuernseyHarrison
    
    Highland
    
    JeffersonMeigs
    
    Monroe
    
    MorganMuskingum
    
    Noble
    
    PerryVinton
    
    WashingtonPennsylvaniaAllegheny
    
    Armstrong
    
    BeaverButler
    
    Clearfield
    
    FayetteGreene
    
    Indiana
    
    JeffersonSomerset
    
    Washington
    
    WestmorelandWest VirginiaBarbour
    
    Brooke
    
    DoddridgeGrant
    
    Harrison
    
    MarionMarshall
    
    Monongalia
    
    OhioTaylor
    
    Tucker
    
    WetzelTennesseeClaiborne
    
    Morgan
    
    CampbellScott
    
    Roane
    
    AndersonNew YorkAllegany
    
    SteubenIllinoisGallatin
    
    Hamilton
    
    HardinJefferson
    
    Pope
    
    Williamson
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##### Table of Contents



Other Assets
     Summary of Properties as of December 31, 2006
 Central
    
    Northern
    
    IllinoisAppalachia
    
    Appalachia
    
    Basin
    
    Other
    
    TotalEstimated Net Proved Reserves (Bcfe)
    
    
    1,220.8
    
    
    
    32.6
    
    
    
    
    
    
    
    12.1
    
    
    
    1,265.5Percent Developed (1)
    
    
    47.3
    %
    
    
    66.9
    %
    
    
    
    
    
    
    100
    %
    
    
    48.2
    %Net Producing Wells
    
    
    2,315.4
    
    
    
    156.0
    
    
    
    
    
    
    
    164.25
    
    
    
    2,635.65No. of Potential Drill Sites Available
    
    
    6,898
    
    
    
    1,876
    
    
    
    765
    
    
    
    
    
    
    
    9,539Net Proved Developed CBM Acres
    
    
    134,320
    
    
    
    45,763
    
    
    
    
    
    
    
    
    
    
    
    180,083Net Proved Undeveloped CBM Acres
    
    
    31,300
    
    
    
    10,880
    
    
    
    
    
    
    
    
    
    
    
    42,180Net Unproved CBM Acres
    
    
    341,880
    
    
    
    806,357
    
    
    
    92,000
    
    
    
    
    
    
    
    1,240,237Total Net CBM Acres
    
    
    507,500
    
    
    
    863,000
    
    
    
    92,000
    
    
    
    
    
    
    
    1,462,500Gross Proved Developed Oil & Gas
Acres
    
    
    8,660
    
    
    
    
    
    
    
    
    
    
    
    31,640
    (3)
    
    
    40,300Gross Proved Undeveloped Oil & Gas
Acres
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gross Unproved Oil & Gas Acres
    
    
    414,340
    
    
    
    178,000
    
    
    
    103,000
    
    
    
    198,360
    
    
    
    893,700Total Gross Oil & Gas Acres
    
    
    423,000
    
    
    
    178,000
    
    
    
    103,000
    
    
    
    230,000
    
    
    
    934,000
 
 (1)
    
    We estimate the cost to fully develop our proved undeveloped reserves
excluding abandonment is $490,600 (non-discounted and in 2006
dollars).(2)
    
    Includes areas leased to others or participation interests in third party wells as well as small acreage in other areas.(3)
    
    Assumes 40 acres per gross well on leased out or participating interest wells. 10




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Summary of Principal Production Partners and Joint Venture Interests as of December 31, 2006
 Production Partnersand Joint Venture
    
    
    
    WorkingArea
    
    Type
    
    Interests
    
    Acreage
    
    Interest
    
    How AcquiredCentral Appalachia
    
    Oil & Gas
    
    Columbia Natural Resources, LLC
    
    132,000 Gross Oil &
Gas Acres
    
    
    50
    %
    
    Received from CONSOL EnergyCentral Appalachia
    
    Oil & Gas
    
    New River Energy, LLC (1)
    
    206,000 Gross Oil &
Gas Acres
    
    
    50
    %
    
    Acquired through lease
jointly with New River
Energy, LLCNorthern Appalachia
    
    Oil & Gas
    
    Kelly Oil and
Gas, Inc., Excelsior Exploration
Corporation, KWR Ventures LLC and
Ceja Corporation
    
    36,000 Gross Oil &
Gas Acres
    
    
    25
    %
    
    Acquired through a
working interestCentral Appalachia
    
    CBM
    
    Appalachian Energy, Inc.
    
    4,200 Gross CBM
Acres
    
    
    50
    %
    
    Contribution of
acres by each party
 
 (1)
    
    New River Energy, LLC owns 50% of Knox Energy, LLC. We own the
remaining 50%. A similar arrangement is in place with respect to
Coalfield Pipeline Company, which owns and operates the pipeline
that gathers the Knox Energy, LLC gas for transportation to the
sales pipeline. Drilling
  Development Wells (Net)
 Twelve Months Ended December 31,2006
    
    2005
    
    2004Central Appalachia
    
    
    290
    
    
    
    206
    
    
    
    222Northern Appalachia
    
    
    24
    
    
    
    19
    
    
    
    6Total
    
    
    314
    
    
    
    225
    
    
    
    228
 11




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Exploratory Wells (Net)
 Twelve Months Ended December 31,2006
    
    2005
    
    2004Producing
    
    Dry
    
    Still Eval.
    
    Producing
    
    Dry
    
    Still Eval.
    
    Producing
    
    Dry
    
    Still Eval.Central Appalachia
    
    
    2
    
    
    
    0
    
    
    
    0
    
    
    
    2
    
    
    
    0
    
    
    
    0
    
    
    
    5
    
    
    
    0
    
    
    
    0Northern Appalachia
    
    
    0
    
    
    
    0
    
    
    
    2
    
    
    
    13
    
    
    
    0
    
    
    
    0
    
    
    
    7
    
    
    
    0
    
    
    
    0Total
    
    
    2
    
    
    
    0
    
    
    
    2
    
    
    
    15
    
    
    
    0
    
    
    
    0
    
    
    
    12
    
    
    
    0
    
    
    
    0
 Summary of Other Operating Data
 Production
  Twelve Months EndedDecember 31,2006
    
    2005
    
    2004Total Produced (Mmcf)
    
    
    56,135
    
    
    
    48,390
    
    
    
    48,556
 Average Sales Prices and Lifting Costs
  Twelve Months EndedDecember 31,2006
    
    2005
    
    2004Average Gas Sales Price Including Effects of Financial
Settlements (per Mcf)
    
    $
    7.04
    
    
    $
    5.90
    
    
    $
    4.90Average Lifting Cost (per Mcf)
    
    $
    0.56
    
    
    $
    0.57
    
    
    $
    0.50
 12




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Productive Wells and Acreage
  Gross
    
    Net(1)Producing Wells
    
    
    3,232
    
    
    
    2,636Proved Developed Acreage
    
    
    220,383
    
    
    
    190,134Proved Undeveloped Acreage
    
    
    42,900
    
    
    
    42,180Unproven Acreage
    
    
    2,197,397
    
    
    
    1,776,786Total Acreage
    
    
    2,460,680
    
    
    
    2,009,100
  (1)
    
    Net acres do not include acreage attributable to the working interests
of our principal joint venture partners and the portions of certain
proved developed acreage attributable to property we have leased to
third-party producers. Additional adjustments (either increases or
decreases) may be required as we further develop title to and further
confirm our rights with respect to our various properties in
anticipation of development. We believe that our assumptions and
methodology in this regard are reasonable.
 Sales
  Other Assets
  13




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Reserves
  Net Reserves (Mmcfe)As of December 31,2006
    
    2005
    
    2004Consolidated
    
    Equity
    
    Consolidated
    
    Equity
    
    Consolidated
    
    EquityOperations
    
    Affiliates
    
    Operations
    
    Affiliates
    
    Operations
    
    AffiliatesEstimated
proved developed
reserves
    
    
    609,700
    
    
    
    2,200
    
    
    
    549,574
    
    
    
    2,672
    
    
    
    395,152
    
    
    
    1,489Estimated proved
undeveloped
reserves
    
    
    653,593
    
    
    
    
    
    
    
    578,150
    
    
    
    
    
    
    
    647,251
    
    
    
    896Total estimated
proved developed
and undeveloped
reserves
    
    
    1,263,293
    
    
    
    2,200
    
    
    
    1,127,724
    
    
    
    2,672
    
    
    
    1,042,403
    
    
    
    2,385
 Discounted Future Net Cash Flows
  Discounted Future Net Cash Flows($ in thousands)As of December 31,2006
    
    2005
    
    2004Future net cash flows
    
    $
    2,483,887
    
    
    $
    5,149,938
    
    
    $
    2,872,571Total PV-10 measure of pre tax discounted future net cash flows (1)
    
    $
    1,499,664
    
    
    $
    3,051,866
    
    
    $
    1,655,232Total standardized measure of after tax discounted future net cash flows
    
    $
    934,891
    
    
    $
    1,870,794
    
    
    $
    1,029,538
 
 (1)
    
    We calculate our PV-10 value in accordance with the following table.
Management believes that the presentation of the non-GAAP financial
measure of PV-10 provides useful information to investors because it
is widely used by professional analysts and sophisticated investors in
evaluating oil and gas companies. Because many factors that are unique
to each individual company impact the amount of future income taxes
estimated to be paid, the use of a pre-tax measure is valuable when
comparing companies based on reserves. PV-10 is not a measure of
financial or operating performance under GAAP. PV-10 should not be
considered as an alternative to the standardized measure as defined
under GAAP. All firm transportation costs are included in the PV-10
calculation. However, costs associated with our capital lease
obligations are excluded from the PV-10 calculation. If these costs
were included, the December 31, 2006 PV-10 calculation would be
approximately $1,441,000. We have included a reconciliation to the
most directly comparable GAAP measureafter-tax discounted future net
cash flows. Reconciliation of PV-10 to Standardized Measure
 As ofDecember 31,2006
    
    
    2005
    
    
    2004Future cash inflows
    
    $
    7,105,265
    
    
    $
    11,675,551
    
    
    $
    6,337,257Future Production Costs
    
    
    (2,568,731
    )
    
    
    (2,852,033
    )
    
    
    (1,453,364
    )Future Development Costs (including abandonments)
    
    
    (552,114
    )
    
    
    (422,315
    )
    
    
    (265,540
    )Future net cash flows
    
    
    3,984,420
    
    
    
    8,401,203
    
    
    
    4,618,35310% discount factor
    
    
    (2,484,756
    )
    
    
    (5,349,337
    )
    
    
    (2,963,121
    )PV-10 (Non-GAAP measure)
    
    
    1,499,664
    
    
    
    3,051,866
    
    
    
    1,655,232Undiscounted Income Taxes
    
    
    (1,500,533
    )
    
    
    (3,251,265
    )
    
    
    (1,745,782
    )10% discount factor
    
    
    935,760
    
    
    
    2,070,193
    
    
    
    1,120,088Discounted Income Taxes
    
    
    (564,773
    )
    
    
    (1,181,072
    )
    
    
    (625,694
    )Standardized GAAP measure
    
    $
    934,891
    
    
    $
    1,870,794
    
    
    $
    1,029,538
 14




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Competition
  Employee and Labor Relations
  Regulations
  Environmental Regulation of Gas Operations
   15




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
    
    the Clean Air Act;
    
    the Clean Water Act;
    
    the Toxic Substances Control Act;
    
    the Endangered Species Act:
    
    the Resource Conservation and Recovery Act; and
    
    the Emergency Planning and Community Right-to-Know Act;
    Federal Regulation of the Sale and Transportation of Gas
   16




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State Regulation of Gas OperationsUnited States
  Ownership of Mineral Rights
   17




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Pennsylvania
 e.g
 Virginia
   West Virginia
  e.g.
 18




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Other States
  GLOSSARY OF NATURAL GAS AND COAL TERMS
  Appalachian Basin.
 Bcf
 Bcfe
 Btu or British Thermal Unit
 CBM
 Central Appalachia.
 Coal Seam.
 Completion
 Developed acreage
 Development well
 Dry hole
 Exploitation
 Exploratory well
 19




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Farm-in or farm-out
 Field
 Frac well
 Gathering system.
 Gob
 Gob gas
 Gross acres or gross wells
 Longwall mining.
 Mcf
 Mcfe
 MMBtu
 Mmcf
 Mmcfe
 Net acres or net wells
 Northern Appalachia.
 NYMEX.
 Panel.
 Pay zone.
 Pipeline imbalance (imbalance).
 20




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PV-10 or present value of estimated future net revenues
 Productive well
 Proved developed reserves
 Proved reserves
 Proved undeveloped reserves
 Reserve life index.
 Reservoir
 Shut in
 Tcfe
 Undeveloped acreage
 Vertical-to-horizontal well.
 Working interest
 EXECUTIVE OFFICERS OF THE COMPANY
  21




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ITEM 1A. RISK FACTORS
  Natural gas and oil prices are volatile, and a decline in natural gas and oil prices would
significantly affect our financial results and impede our growth.
   
    
    the domestic and foreign supply of natural gas and oil;
    
    the price of foreign imports;
    
    overall domestic and global economic conditions;
    
    the consumption pattern of industrial consumers, electricity generators and residential users;
    
    weather conditions;
    
    technological advances affecting energy consumption;
    
    domestic and foreign governmental regulations;
    
    proximity and capacity of oil and gas pipelines and other transportation facilities; and
    
    the price and availability of alternative fuels.
  
    
    our cash flow would be reduced, decreasing funds available for capital
expenditures employed to replace reserves or increase production; and
    
    access to other sources of capital, such as equity or long-term debt markets,
could be severely limited or unavailable.
 22




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We face uncertainties in estimating proved recoverable gas reserves, and inaccuracies in our
estimates could result in lower than expected reserve quantities and a lower present value of our
reserves.
   
    
    geological conditions;
    
    changes in governmental regulations and taxation;
    
    assumptions governing future prices;
    
    the amount and timing of actual production;
    
    future operating costs; and
    
    capital costs of drilling new wells.
  23




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Unless we replace our natural gas reserves, our reserves and production will decline, which would
adversely affect our business, financial condition, results of operations and cash flows.
  Our exploration and development activities may not be commercially successful.
  
    
    unexpected drilling conditions;
    
    title problems;
    
    pressure or irregularities in geologic formations;
    
    equipment failures or repairs;
    
    fires or other accidents;
    
    adverse weather conditions;
    
    reductions in natural gas and oil prices;
    
    pipeline ruptures; and
    
    unavailability or high cost of drilling rigs, other field services and equipment.
  We have a limited operating history in certain of our operating areas, and our increased focus on
new development projects in these and other unexplored areas increases the risks inherent in our
gas and oil activities.
  24




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Our business depends on transportation facilities owned by others. Disruption of, capacity
constraints in, or proximity to pipeline systems could limit sales of our gas.
  Increased industry activity may create shortages of field services, equipment and personnel, which
may increase our costs and may limit our ability to drill and produce from our oil and natural gas
properties
  We operate in a highly competitive environment and many of our competitors have greater resources
than we do.
   Acquisitions are subject to the risks and uncertainties of evaluating reserves and potential
liabilities and may be disruptive and difficult to integrate into our business
   25




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The coal beds from which we produce methane gas frequently contain water and the methane gas
often contains impurities, both of which may hamper our ability to produce gas in commercial
quantities or economically.
  We may be unable to retain our existing senior management team and/or our key personnel who have
expertise in coalbed methane extraction and our failure to continue to attract qualified new
personnel could adversely affect our business.
 .
 We are party to, and may in the future become party to, joint ventures and other arrangements with
third parties that may impact our operations and our financial performance.
  26




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##### Table of Contents



Government laws, regulations and other legal requirements relating to protection of the
environment, health and safety matters and others that govern our and CONSOL Energys businesses
increase our costs and may restrict our operations.
   We must obtain governmental permits and approvals for drilling operations, which can be a costly
and time consuming process and result in restrictions on our operations.
  We may incur additional costs and delays to produce gas because we have to acquire additional
property rights to perfect our title to the gas estate.
   27




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We need to use unproven technologies to extract coalbed methane on some of our properties.
  Other persons could have ownership rights in our advanced extraction techniques which could force
us to cease using those techniques or pay royalties.
  Currently the vast majority of our producing properties are located in three counties in
southwestern Virginia, making us vulnerable to risks associated with having our production
concentrated in one area.
  We do not insure against all potential operating risks. We may incur substantial losses and be
subject to substantial liability claims as a result of our natural gas operations.
  28




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Risks Relating to Our Relationship with CONSOL Energy
 Our principal stockholder, CONSOL Energy, is in a position to affect our ongoing operations,
corporate transactions and other matters, and some of our directors also serve on its board of
directors and/or are employees of CONSOL Energy, creating potential conflicts of interest.
  
    
    the election and removal of directors;
    
    mergers or other business combinations involving us;
    
    future issuances of our common stock or other securities; and
    
    amendments to our certificate of incorporation and bylaws.
   Potential conflicts may arise between us and CONSOL Energy that may not be resolved in our favor.
  Our intercompany agreements with CONSOL Energy are not the result of arms-length negotiations.
  Our agreements with CONSOL Energy may limit our ability to obtain capital, make acquisitions or
effect other business combinations.
  29




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##### Table of Contents



Our prior and continuing relationship with CONSOL Energy exposes us to risks attributable to CONSOL
Energys businesses.
  CONSOL Energy Inc. has advised us that as of the date of this Annual Report, CONSOL Energy has no
plan or intention regarding its shares of our common stock and if CONSOL Energy were to make a
distribution or otherwise dispose of its remaining ownership interest in us, our common stock price
could be adversely affected.
  We must coordinate some of our gas production activities with coal mining activities in the same
area, which could adversely affect our financial condition or operations.
  We may lose certain synergistic advantages by separating ourselves from our current owner.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  30




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ITEM 3. LEGAL PROCEEDINGS
     31




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  32




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
   High
    
    LowMarch 31
    
    $
    26.50
    
    
    $
    20.13June 30
    
    $
    32.99
    
    
    $
    24.50September 30
    
    $
    30.10
    
    
    $
    21.84December 31
    
    $
    28.47
    
    
    $
    22.12
  STOCK PERFORMANCE GRAPH
   Base Period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Months EndingCompany / Index
    
    
    Jan-19-06
    
    
    
    Jan-06
    
    
    
    Feb-06
    
    
    
    Mar-06
    
    
    
    Apr-06
    
    
    
    May-06
    
    
    
    Jun-06
    
    
    
    Jul-06
    
    
    
    Aug-06
    
    
    
    Sep-06
    
    
    
    Oct-06
    
    
    
    Nov-06
    
    
    
    Dec-06CNX Gas Corporation
    
    
    
    100
    
    
    
    
    106.93
    
    
    
    
    95.73
    
    
    
    
    115.56
    
    
    
    
    126.67
    
    
    
    
    126.40
    
    
    
    
    133.33
    
    
    
    
    120.27
    
    
    
    
    114.71
    
    
    
    
    102.98
    
    
    
    
    116.22
    
    
    
    
    123.56
    
    
    
    
    113.33S&P MidCap 400 Index
    
    
    
    100
    
    
    
    
    101.24
    
    
    
    
    100.39
    
    
    
    
    102.89
    
    
    
    
    104.34
    
    
    
    
    99.64
    
    
    
    
    99.66
    
    
    
    
    96.82
    
    
    
    
    97.92
    
    
    
    
    98.58
    
    
    
    
    102.68
    
    
    
    
    105.98
    
    
    
    
    105.47S&P Oil & Gas
Exploration &
Production
    
    
    
    100
    
    
    
    
    101.81
    
    
    
    
    90.92
    
    
    
    
    93.20
    
    
    
    
    95.12
    
    
    
    
    91.01
    
    
    
    
    96.25
    
    
    
    
    100.04
    
    
    
    
    95.76
    
    
    
    
    92.46
    
    
    
    
    98.21
    
    
    
    
    105.52
    
    
    
    
    95.84
 COMPARISON
OF CUMMULATIVE TOTAL RETURN
 
  33




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Recent Sales of Unregistered Securities
        34




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ITEM 6. SELECTED FINANCIAL DATA
  CNX GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 STATEMENTS OF INCOME DATA
    
    Twelve Months Ended December 31,(In thousands)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002RESULTS OF OPERATIONSOutside Sales
    
    $
    385,056
    
    
    $
    277,031
    
    
    $
    214,721
    
    
    $
    145,884
    
    
    $
    119,463Related Party Sales
    
    
    8,490
    
    
    
    6,052
    
    
    
    22,036
    
    
    
    32,572
    
    
    
    9,542Royalty Interest Gas Sales
    
    
    51,054
    
    
    
    45,351
    
    
    
    41,858
    
    
    
    32,442
    
    
    
    19,880Purchased Gas Sales
    
    
    43,973
    
    
    
    275,148
    
    
    
    112,005
    
    
    
    
    
    
    
    Other Income
    
    
    25,286
    
    
    
    9,859
    
    
    
    6,916
    
    
    
    4,485
    
    
    
    2,068TOTAL REVENUE AND OTHER
INCOME
    
    
    513,859
    
    
    
    613,441
    
    
    
    397,536
    
    
    
    215,383
    
    
    
    150,953Lifting Costs
    
    
    31,096
    
    
    
    26,794
    
    
    
    23,939
    
    
    
    20,761
    
    
    
    16,297Gathering and Compression
Costs
    
    
    55,091
    
    
    
    40,623
    
    
    
    37,021
    
    
    
    28,914
    
    
    
    24,749Royalty Interest Gas Costs
    
    
    41,998
    
    
    
    36,641
    
    
    
    32,914
    
    
    
    24,200
    
    
    
    12,214Purchased Gas Costs
    
    
    44,843
    
    
    
    278,720
    
    
    
    113,063
    
    
    
    
    
    
    
    Other
    
    
    6,868
    
    
    
    9,721
    
    
    
    9,494
    
    
    
    15,902
    
    
    
    11,909General and Administrative
    
    
    38,654
    
    
    
    19,171
    
    
    
    15,530
    
    
    
    11,995
    
    
    
    8,712Depreciation, Depletion and
Amortization
    
    
    37,999
    
    
    
    35,039
    
    
    
    32,889
    
    
    
    33,600
    
    
    
    34,368Interest Expense
    
    
    870
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    TOTAL COSTS AND EXPENSES
    
    
    257,419
    
    
    
    446,723
    
    
    
    264,850
    
    
    
    135,372
    
    
    
    108,249Earnings Before Income Taxes
and Cumulative Effect of
Change in Accounting
Principle
    
    
    256,440
    
    
    
    166,718
    
    
    
    132,686
    
    
    
    80,011
    
    
    
    42,704Income Taxes
    
    
    96,573
    
    
    
    64,550
    
    
    
    51,898
    
    
    
    31,202
    
    
    
    16,677Earnings Before Cumulative
Effect of Change in
Accounting Principle
    
    
    159,867
    
    
    
    102,168
    
    
    
    80,788
    
    
    
    48,809
    
    
    
    26,027Cumulative Effect of Change
in Accounting for Gas Well
Plugging Costs (Net of Tax
Impact of $1,879)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,905
    
    
    
    NET INCOME
    
    $
    159,867
    
    
    $
    102,168
    
    
    $
    80,788
    
    
    $
    51,714
    
    
    $
    26,027Earnings Per Share from
Continuing Operations:Basic
    
    $
    1.06
    
    
    $
    0.76
    
    
    $
    0.66
    
    
    $
    0.40
    
    
    $
    0.21Diluted
    
    $
    1.06
    
    
    $
    0.76
    
    
    $
    0.66
    
    
    $
    0.40
    
    
    $
    0.21Earnings Per Share from Net
Income:Basic
    
    $
    1.06
    
    
    $
    0.76
    
    
    $
    0.66
    
    
    $
    0.42
    
    
    $
    0.21Diluted
    
    $
    1.06
    
    
    $
    0.76
    
    
    $
    0.66
    
    
    $
    0.42
    
    
    $
    0.21Weighted Average Number of
Common Shares Outstanding:Basic
    
    
    150,845,518
    
    
    
    134,071,334
    
    
    
    122,896,667
    
    
    
    122,896,667
    
    
    
    122,896,667Dilutive
    
    
    151,017,456
    
    
    
    134,137,219
    
    
    
    122,988,359
    
    
    
    122,988,359
    
    
    
    122,988,359
 35




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##### Table of Contents



BALANCE SHEETS DATA
    
    As of December 31,(In thousands)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Working Capital (Deficiency)
    
    $
    115,824
    
    
    $
    3,720
    
    
    $
    (35,030
    )
    
    $
    (7,971
    )
    
    $
    2,868Total Assets
    
    
    1,155,001
    
    
    
    859,167
    
    
    
    718,859
    
    
    
    664,635
    
    
    
    598,236Capital Lease Obligation (Including current portion)
    
    
    66,470
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Deferred Credits and Other Liabilities
    
    
    153,977
    
    
    
    109,226
    
    
    
    205,614
    
    
    
    170,520
    
    
    
    114,902Stockholders Equity
    
    
    880,215
    
    
    
    679,472
    
    
    
    462,556
    
    
    
    464,232
    
    
    
    468,617
 Twelve MonthsCASH FLOW STATEMENTS DATA
    
    Ended December 31,(In thousands)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Net Cash Provided by Operating Activities
    
    $
    243,569
    
    
    $
    144,997
    
    
    $
    175,350
    
    
    $
    143,133
    
    
    $
    88,643Net Cash (Used in) Investing Activities
    
    
    (156,020
    )
    
    
    (108,287
    )
    
    
    (93,114
    )
    
    
    (90,605
    )
    
    
    (101,472
    )Net Cash (Used in) Provided by Financing Activities
    
    
    (449
    )
    
    
    (16,640
    )
    
    
    (82,237
    )
    
    
    (52,526
    )
    
    
    12,831
 Twelve MonthsEnded December 31,OTHER OPERATING DATA
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Net Sales Volumes (Bcf) (1)
    
    
    56.14
    
    
    
    48.39
    
    
    
    48.56
    
    
    
    44.46
    
    
    
    41.30Average Sales Price Including Effects of Financial
Settlements ($  per Mcf) (1)(2)
    
    $
    7.04
    
    
    $
    5.90
    
    
    $
    4.90
    
    
    $
    4.03
    
    
    $
    3.13Total Average Costs ($ Per Mcf) (1)
    
    $
    3.02
    
    
    $
    2.72
    
    
    $
    2.45
    
    
    $
    2.43
    
    
    $
    2.25Net Estimated Proved Reserves (Bcfe) (1)(3)
    
    
    1,265
    
    
    
    1,130
    
    
    
    1,045
    
    
    
    1,004
    
    
    
    961
 Twelve MonthsOTHER FINANCIAL DATA
    
    Ended December 31,(In thousands)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Capital Expenditures
    
    $
    154,243
    
    
    $
    110,752
    
    
    $
    89,753
    
    
    $
    83,869
    
    
    $
    61,705EBIT (4)
    
    
    253,857
    
    
    
    166,314
    
    
    
    132,686
    
    
    
    80,011
    
    
    
    42,704EBITDA (4)
    
    
    291,856
    
    
    
    201,353
    
    
    
    165,575
    
    
    
    113,611
    
    
    
    77,072
 
 (1)
    
    For entities that are not wholly owned but in which CNX Gas owns at
least a 50% equity interest, includes a percentage of their net
production, sales or reserves equal to CNX Gas percentage equity
ownership. Knox Energy is included in the equity earnings data in
2006, 2005, 2004, 2003 and part of 2002. Greene Energy is included in
the equity earnings in 2002. Sales of gas produced by equity
affiliates were 0.22 Bcf for the twelve months ended December 2006,
0.23 Bcf for the twelve months ended December 31, 2005, 0.20 Bcf for
the twelve months ended December 31, 2004, 0.08 Bcf for the twelve
months ended December 31, 2003 and 0.22 Bcf for the twelve months
ended December 31, 2002.(2)
    
    Represents average net sales price after the effect of derivative transactions.(3)
    
    Represents proved developed and proved undeveloped gas reserves at
period end for total operations including equity affiliates, which are
immaterial.(4)
    
    EBIT is defined as earnings before deducting net interest expense
(interest expense less interest income) and income taxes. EBITDA is
defined as earnings before deducting net interest expense (interest
expense less interest income), income taxes and depreciation,
depletion and amortization. Although EBIT and EBITDA are not measures
of performance calculated in accordance with accounting principles
generally accepted in the United States of America, management
believes that they are useful to an investor in evaluating CNX Gas
because they are used as measures to evaluate a companys operating
performance before debt expense and cash flow. EBIT and EBITDA do not
purport to represent cash generated by operating activities and should
not be considered in isolation or as substitute for measures of
performance in accordance with accounting principles generally
accepted in the United States of America. In addition, because EBIT
and EBITDA are not calculated identically by all companies, the
presentation here may not be comparable to other similarly titled
measures of other companies. Managements discretionary use of funds
depicted by EBIT and EBITDA may be limited by working capital, debt
service and capital expenditure requirements, and by restrictions
related to legal requirements, commitments and uncertainties. A
reconciliation of EBIT and EBITDA to financial net income is as
follows: 36




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Twelve MonthsEnded December 31,(In thousands)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Net Income
    
    $
    159,867
    
    
    $
    102,168
    
    
    $
    80,788
    
    
    $
    51,714
    
    
    $
    26,027Add: Interest Expense
    
    
    870
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    Less: Interest Income
    
    
    3,453
    
    
    
    418
    
    
    
    
    
    
    
    
    
    
    
    Less: Cumulative Effect of Changes in
Accounting for Gas Well Plugging Costs, Net
of Income Taxes of $1,879
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,905
    
    
    
    Add: Income Tax Expense
    
    
    96,573
    
    
    
    64,550
    
    
    
    51,898
    
    
    
    31,202
    
    
    
    16,677Earnings Before Net Interest and Taxes (EBIT)
    
    
    253,857
    
    
    
    166,314
    
    
    
    132,686
    
    
    
    80,011
    
    
    
    42,704Add: Depreciation, Depletion and Amortization
    
    
    37,999
    
    
    
    35,039
    
    
    
    32,889
    
    
    
    33,600
    
    
    
    34,368Earnings Before Net Interest, Taxes and
Depreciation, Depletion and Amortization
(EBITDA)
    
    $
    291,856
    
    
    $
    201,353
    
    
    $
    165,575
    
    
    $
    113,611
    
    
    $
    77,072
 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis should be read in conjunction with Selected
Consolidated Financial and Other Data and our consolidated financial statements and related notes
appearing elsewhere in this Annual Report. This Annual Report on Form 10-K contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. See PART
IForward Looking Statements and PART I-Item 1.A Risk Factors.
 Overview
   
    
    achieve a higher valuation for our business than we believe could be achieved if we remained part of CONSOL Energy;
    
    allow us to use our own capital and borrowing capability, rather
than compete for capital with the mining business, to more rapidly
expand gas production from our proved reserves and unproven
acreage; and
    
    allow our key managers to focus solely on the growth and operation of CNX Gas.
     
    
    completed another year with no employee-related lost time accident. We have accumulated
over 2 million man hours without a lost time accident;
 37




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##### Table of Contents




    
    increased our 2006 production by 16.0% from 2005 to 56 Bcf, despite capacity constraints on the Columbia pipeline;
    
    generated net income of nearly $160,000 and increased our cash balance by $87,000 to $107,000;
    
    increased our proved reserve base by replacing 340.0% of our production;
    
    brought more than 250 additional wells online;
    
    maintained our low cost structure relative to our peer group;
    
    entered into a 15-year transportation agreement on the Jewell Ridge Pipeline in October
2006 to provide an additional outlet for our production;
    
    significantly increased our operations in our Mountaineer CBM play in Northern
Appalachia and began operations in two new areas  Nittany, a CBM play in Central
Pennsylvania and Cardinal, a New Albany shale play in the Illinois Basin; and
    
    invested in the infrastructure necessary for continued growth, including increased
staffing, a new information management software platform and a new long-term incentive
compensation program that directly aligns the interests of our managers with the interests
of our shareholders.
 Outlook
    38




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##### Table of Contents



Results of Operations
 Twelve Months Ended December 31, 2006 compared with Twelve Months Ended December 31, 2005
(Amounts reported in thousands)
 Net Income
  Dollar
    
    
    Percentage2006
    
    
    2005
    
    
    Variance
    
    
    ChangeRevenue and Other Income:Outside Sales
    
    $
    385,056
    
    
    $
    277,031
    
    
    $
    108,025
    
    
    
    39.0
    %Related Party Sales
    
    
    8,490
    
    
    
    6,052
    
    
    
    2,438
    
    
    
    40.3
    %Royalty Interest Gas Sales
    
    
    51,054
    
    
    
    45,351
    
    
    
    5,703
    
    
    
    12.6
    %Purchased Gas Sales
    
    
    43,973
    
    
    
    275,148
    
    
    
    (231,175
    )
    
    
    (84.0
    )%Other Income
    
    
    25,286
    
    
    
    9,859
    
    
    
    15,427
    
    
    
    156.5
    %Total Revenue and Other Income
    
    
    513,859
    
    
    
    613,441
    
    
    
    (99,582
    )
    
    
    (16.2
    )%Costs and Expenses:Lifting Costs
    
    
    31,096
    
    
    
    26,794
    
    
    
    4,302
    
    
    
    16.1
    %Gathering and Compression Costs
    
    
    55,091
    
    
    
    40,623
    
    
    
    14,468
    
    
    
    35.6
    %Royalty Interest Gas Costs
    
    
    41,998
    
    
    
    36,641
    
    
    
    5,357
    
    
    
    14.6
    %Purchased Gas Costs
    
    
    44,843
    
    
    
    278,720
    
    
    
    (233,877
    )
    
    
    (83.9
    )%Other
    
    
    6,868
    
    
    
    9,721
    
    
    
    (2,853
    )
    
    
    (29.3
    )%General and Administrative
    
    
    38,654
    
    
    
    19,171
    
    
    
    19,483
    
    
    
    101.6
    %Depreciation, Depletion and Amortization
    
    
    37,999
    
    
    
    35,039
    
    
    
    2,960
    
    
    
    8.4
    %Interest Expense
    
    
    870
    
    
    
    14
    
    
    
    856
    
    
    
    6,114.3
    %Total Costs and Expenses
    
    
    257,419
    
    
    
    446,723
    
    
    
    (189,304
    )
    
    
    (42.4
    )%Earnings Before Income Taxes
    
    
    256,440
    
    
    
    166,718
    
    
    
    89,722
    
    
    
    53.8
    %Income Taxes
    
    
    96,573
    
    
    
    64,550
    
    
    
    32,023
    
    
    
    49.6
    %Net Income
    
    $
    159,867
    
    
    $
    102,168
    
    
    $
    57,699
    
    
    
    56.5
    %
  Revenue and Other Income
  Dollar
    
    
    Percentage2006
    
    
    2005
    
    
    Variance
    
    
    ChangeRevenue and Other Income:Outside Sales
    
    $
    385,056
    
    
    $
    277,031
    
    
    $
    108,025
    
    
    
    39.0
    %Related Party Sales
    
    
    8,490
    
    
    
    6,052
    
    
    
    2,438
    
    
    
    40.3
    %Royalty Interest Gas Sales
    
    
    51,054
    
    
    
    45,351
    
    
    
    5,703
    
    
    
    12.6
    %Purchased Gas Sales
    
    
    43,973
    
    
    
    275,148
    
    
    
    (231,175
    )
    
    
    (84.0
    )%Other Income
    
    
    25,286
    
    
    
    9,859
    
    
    
    15,427
    
    
    
    156.5
    %Total Revenue and Other Income
    
    $
    513,859
    
    
    $
    613,441
    
    
    $
    (99,582
    )
    
    
    (16.2
    )%
 Emerging Issues Task Force No. 04-13 Accounting for Purchases and Sales of Inventory with
the same Counterparty
 39




---



##### Table of Contents



Percentage2006
    
    2005
    
    Variance
    
    ChangeSales Volumes (Bcf)
    
    
    55.9
    
    
    
    48.2
    
    
    
    7.7
    
    
    
    16.0
    %Average Sales Price (per Mcf)
    
    $
    7.04
    
    
    $
    5.88
    
    
    $
    1.16
    
    
    
    19.7
    %
  Percentage2006
    
    2005
    
    Variance
    
    ChangeRoyalty Interest Gas Sales Volumes (Bcf)
    
    
    7.6
    
    
    
    6.6
    
    
    
    1.0
    
    
    
    15.2
    %Average Sales Price (per Mcf)
    
    $
    6.76
    
    
    $
    6.92
    
    
    $
    (0.16
    )
    
    
    (2.3
    )%
  Percentage2006
    
    2005
    
    Variance
    
    ChangePurchased Gas Sales Volumes (Bcf)
    
    
    6.1
    
    
    
    28.7
    
    
    
    (22.6
    )
    
    
    (78.7
    )%Average Sales Price (per Mcf)
    
    $
    7.20
    
    
    $
    9.59
    
    
    $
    (2.39
    )
    
    
    (24.9
    )%
   Dollar
    
    
    Percentage2006
    
    
    2005
    
    
    Variance
    
    
    ChangeRoyalty Income
    
    $
    10,230
    
    
    $
    8,158
    
    
    $
    2,072
    
    
    
    25.4
    %Insurance Proceeds
    
    
    10,165
    
    
    
    
    
    
    
    10,165
    
    
    
    100.0
    %Interest Income
    
    
    3,453
    
    
    
    418
    
    
    
    3,035
    
    
    
    726.1
    %Third Party Gathering Revenue
    
    
    1,341
    
    
    
    1,110
    
    
    
    231
    
    
    
    20.8
    %Other Miscellaneous
    
    
    97
    
    
    
    173
    
    
    
    (76
    )
    
    
    (43.9
    )%Total Other Income
    
    $
    25,286
    
    
    $
    9,859
    
    
    $
    15,427
    
    
    
    156.5
    %
    40




---



##### Table of Contents



Costs and Expenses
  Dollar
    
    
    Percentage2006
    
    
    2005
    
    
    Variance
    
    
    ChangeCosts and Expenses:Lifting Costs
    
    $
    31,096
    
    
    $
    26,794
    
    
    $
    4,302
    
    
    
    16.1
    %Gathering and Compression Costs
    
    
    55,091
    
    
    
    40,623
    
    
    
    14,468
    
    
    
    35.6
    %Royalty Interest Gas Costs
    
    
    41,998
    
    
    
    36,641
    
    
    
    5,357
    
    
    
    14.6
    %Purchased Gas Costs
    
    
    44,843
    
    
    
    278,720
    
    
    
    (233,877
    )
    
    
    (83.9
    )%Other
    
    
    6,868
    
    
    
    9,721
    
    
    
    (2,853
    )
    
    
    (29.3
    )%General and Administrative
    
    
    38,654
    
    
    
    19,171
    
    
    
    19,483
    
    
    
    101.6
    %Depreciation, Depletion and Amortization
    
    
    37,999
    
    
    
    35,039
    
    
    
    2,960
    
    
    
    8.4
    %Interest Expense
    
    
    870
    
    
    
    14
    
    
    
    856
    
    
    
    6,114.3
    %Total Costs and Expenses
    
    $
    257,419
    
    
    $
    446,723
    
    
    $
    (189,304
    )
    
    
    (42.4
    )%
 Percentage2006
    
    2005
    
    Variance
    
    ChangeSales Volumes (Bcf)
    
    
    55.9
    
    
    
    48.2
    
    
    
    7.7
    
    
    
    16.0
    %Average Lifting Costs (per Mcf)
    
    $
    0.56
    
    
    $
    0.56
    
    
    $
    
    
    
    
    0.0
    %
  Percentage2006
    
    2005
    
    Variance
    
    ChangeSales Volumes (Bcf)
    
    
    55.9
    
    
    
    48.2
    
    
    
    7.7
    
    
    
    16.0
    %Average Gathering and Compression Costs (per Mcf)
    
    $
    0.99
    
    
    $
    0.84
    
    
    $
    0.15
    
    
    
    17.9
    %
  Percentage2006
    
    2005
    
    Variance
    
    ChangeRoyalty Interest Gas Sales Volumes (Bcf)
    
    
    7.6
    
    
    
    6.6
    
    
    
    1.0
    
    
    
    15.2
    %Average Cost (per Mcf)
    
    $
    5.56
    
    
    $
    5.59
    
    
    $
    (0.03
    )
    
    
    (0.5
    )%
  41




---



##### Table of Contents



Percentage2006
    
    2005
    
    Variance
    
    ChangePurchased Gas Cost Volumes (Bcf)
    
    
    6.1
    
    
    
    28.7
    
    
    
    (22.6
    )
    
    
    (78.7
    )%Average Purchased Gas Costs (per Mcf)
    
    $
    7.34
    
    
    $
    9.71
    
    
    $
    (2.37
    )
    
    
    (24.4
    )%
   Dollar
    
    
    Percentage2006
    
    
    2005
    
    
    Variance
    
    
    ChangeWell Site General Maintenance
    
    $
    3,750
    
    
    $
    3,781
    
    
    $
    (31
    )
    
    
    (0.8
    )%Gob Collection Costs
    
    
    3,012
    
    
    
    3,280
    
    
    
    (268
    )
    
    
    (8.2
    )%Land Broker Fees
    
    
    1,156
    
    
    
    977
    
    
    
    179
    
    
    
    18.3
    %Land Rentals
    
    
    576
    
    
    
    635
    
    
    
    (59
    )
    
    
    (9.3
    )%Imbalance
    
    
    (648
    )
    
    
    899
    
    
    
    (1,547
    )
    
    
    (172.1
    )%Equity in (Earnings) Loss of Affiliates
    
    
    (978
    )
    
    
    149
    
    
    
    (1,127
    )
    
    
    (756.4
    )%Total Other Costs and Expenses
    
    $
    6,868
    
    
    $
    9,721
    
    
    $
    (2,853
    )
    
    
    (29.3
    )%
       Dollar
    
    
    Percentage2006
    
    
    2005
    
    
    Variance
    
    
    ChangeProduction
    
    $
    24,668
    
    
    $
    23,531
    
    
    $
    1,137
    
    
    
    4.8
    %Gathering
    
    
    13,331
    
    
    
    11,508
    
    
    
    1,823
    
    
    
    15.8
    %Total Depreciation, Depletion and Amortization
    
    $
    37,999
    
    
    $
    35,039
    
    
    $
    2,960
    
    
    
    8.4
    %
 42




---



##### Table of Contents



st
  Income Taxes
 Percentage2006
    
    2005
    
    Variance
    
    ChangeEarnings Before Income Taxes
    
    $
    256,440
    
    
    $
    166,718
    
    
    $
    89,722
    
    
    
    53.8
    %Tax Expense
    
    $
    96,573
    
    
    $
    64,550
    
    
    $
    32,023
    
    
    
    49.6
    %Effective Income Tax Rate
    
    
    37.7
    %
    
    
    38.7
    %
    
    
    (1.0
    )%
  Issues Regarding Coal Mining Activities
  Twelve Months Ended December 31, 2005 compared with Twelve Months Ended December 31, 2004  (Amounts reported in thousands)
 Net Income
  Dollar
    
    
    Percentage2005
    
    
    2004
    
    
    Variance
    
    
    ChangeRevenue and Other Income:Outside Sales
    
    $
    277,031
    
    
    $
    214,721
    
    
    $
    62,310
    
    
    
    29.0
    %Related Party Sales
    
    
    6,052
    
    
    
    22,036
    
    
    
    (15,984
    )
    
    
    (72.5
    )%Royalty Interest Gas Sales
    
    
    45,351
    
    
    
    41,858
    
    
    
    3,493
    
    
    
    8.3
    %Purchased Gas Sales
    
    
    275,148
    
    
    
    112,005
    
    
    
    163,143
    
    
    
    145.7
    %Other Income
    
    
    9,859
    
    
    
    6,916
    
    
    
    2,943
    
    
    
    42.6
    %Total Revenue and Other Income
    
    
    613,441
    
    
    
    397,536
    
    
    
    215,905
    
    
    
    54.3
    %Costs and Expenses:Lifting Costs
    
    
    26,794
    
    
    
    23,939
    
    
    
    2,855
    
    
    
    11.9
    %Gathering and Compression Costs
    
    
    40,623
    
    
    
    37,021
    
    
    
    3,602
    
    
    
    9.7
    %Royalty Interest Gas Costs
    
    
    36,641
    
    
    
    32,914
    
    
    
    3,727
    
    
    
    11.3
    %Purchased Gas Costs
    
    
    278,720
    
    
    
    113,063
    
    
    
    165,657
    
    
    
    146.5
    %Other
    
    
    9,721
    
    
    
    9,494
    
    
    
    227
    
    
    
    2.4
    %General and Administrative
    
    
    19,171
    
    
    
    15,530
    
    
    
    3,641
    
    
    
    23.4
    %Depreciation, Depletion and Amortization
    
    
    35,039
    
    
    
    32,889
    
    
    
    2,150
    
    
    
    6.5
    %Interest Expense
    
    
    14
    
    
    
    
    
    
    
    14
    
    
    
    100.0
    %Total Costs and Expenses
    
    
    446,723
    
    
    
    264,850
    
    
    
    181,873
    
    
    
    68.7
    %Earnings Before Income Taxes
    
    
    166,718
    
    
    
    132,686
    
    
    
    34,032
    
    
    
    25.6
    %Income Taxes
    
    
    64,550
    
    
    
    51,898
    
    
    
    12,652
    
    
    
    24.4
    %Net Income
    
    $
    102,168
    
    
    $
    80,788
    
    
    $
    21,380
    
    
    
    26.5
    %
  43




---



##### Table of Contents



Revenue and Other Income
  Dollar
    
    
    Percentage2005
    
    
    2004
    
    
    Variance
    
    
    ChangeRevenue and Other Income:Outside Sales
    
    $
    277,031
    
    
    $
    214,721
    
    
    $
    62,310
    
    
    
    29.0
    %Related Party Sales
    
    
    6,052
    
    
    
    22,036
    
    
    
    (15,984
    )
    
    
    (72.5
    )%Royalty Interest Gas Sales
    
    
    45,351
    
    
    
    41,858
    
    
    
    3,493
    
    
    
    8.3
    %Purchased Gas Sales
    
    
    275,148
    
    
    
    112,005
    
    
    
    163,143
    
    
    
    145.7
    %Other Income
    
    
    9,859
    
    
    
    6,916
    
    
    
    2,943
    
    
    
    42.6
    %Total Revenue and Other Income
    
    $
    613,441
    
    
    $
    397,536
    
    
    $
    215,905
    
    
    
    54.3
    %
  Percentage2005
    
    2004
    
    Variance
    
    ChangeSales Volumes (Bcf)
    
    
    48.2
    
    
    
    48.4
    
    
    
    (0.2
    )
    
    
    (0.4
    )%Average Sales Price (per Mcf)
    
    $
    5.88
    
    
    $
    4.90
    
    
    $
    0.98
    
    
    
    20.0
    %
   Percentage2005
    
    2004
    
    Variance
    
    ChangeRoyalty Interest Gas Sales Volumes (Bcf)
    
    
    6.6
    
    
    
    6.9
    
    
    
    (0.3
    )
    
    
    (4.3
    )%Average Sales Price (per Mcf)
    
    $
    6.92
    
    
    $
    6.06
    
    
    $
    0.86
    
    
    
    14.2
    %
 44




---



##### Table of Contents



Percentage2005
    
    2004
    
    Variance
    
    ChangePurchased Gas Sales Volumes (Bcf)
    
    
    28.7
    
    
    
    17.5
    
    
    
    11.2
    
    
    
    64.0
    %Average Sales Price (per Mcf)
    
    $
    9.59
    
    
    $
    6.39
    
    
    $
    3.20
    
    
    
    50.1
    %
   Dollar
    
    
    Percentage2005
    
    
    2004
    
    
    Variance
    
    
    ChangeRoyalty Income
    
    $
    8,158
    
    
    $
    5,726
    
    
    $
    2,432
    
    
    
    42.5
    %Third Party Gathering Revenue
    
    
    1,110
    
    
    
    1,109
    
    
    
    1
    
    
    
    0.1
    %Interest Income
    
    
    418
    
    
    
    
    
    
    
    418
    
    
    
    100.0
    %Other Miscellaneous
    
    
    173
    
    
    
    81
    
    
    
    92
    
    
    
    113.6
    %Total Other Income
    
    $
    9,859
    
    
    $
    6,916
    
    
    $
    2,943
    
    
    
    42.6
    %
    Costs and Expenses
  Dollar
    
    
    Percentage2005
    
    
    2004
    
    
    Variance
    
    
    ChangeCosts and Expenses:Lifting Costs
    
    $
    26,794
    
    
    $
    23,939
    
    
    $
    2,855
    
    
    
    11.9
    %Gathering and Compression Costs
    
    
    40,623
    
    
    
    37,021
    
    
    
    3,602
    
    
    
    9.7
    %Royalty Interest Gas Costs
    
    
    36,641
    
    
    
    32,914
    
    
    
    3,727
    
    
    
    11.3
    %Purchased Gas Costs
    
    
    278,720
    
    
    
    113,063
    
    
    
    165,657
    
    
    
    146.5
    %Other
    
    
    9,721
    
    
    
    9,494
    
    
    
    227
    
    
    
    2.4
    %General and Administrative
    
    
    19,171
    
    
    
    15,530
    
    
    
    3,641
    
    
    
    23.4
    %Depreciation, Depletion and Amortization
    
    
    35,039
    
    
    
    32,889
    
    
    
    2,150
    
    
    
    6.5
    %Interest Expense
    
    
    14
    
    
    
    
    
    
    
    14
    
    
    
    100.0
    %Total Costs and Expenses
    
    $
    446,723
    
    
    $
    264,850
    
    
    $
    181,873
    
    
    
    68.7
    %
 Percentage2005
    
    2004
    
    Variance
    
    ChangeSales Volumes (Bcf)
    
    
    48.2
    
    
    
    48.4
    
    
    
    (0.2
    )
    
    
    (0.4
    )%Average Lifting Costs (per Mcf)
    
    $
    0.56
    
    
    $
    0.50
    
    
    $
    0.06
    
    
    
    12.0
    %
 45




---



##### Table of Contents



Percentage2005
    
    2004
    
    Variance
    
    ChangeSales Volumes (Bcf)
    
    
    48.2
    
    
    
    48.4
    
    
    
    (0.2
    )
    
    
    (0.4
    )%Average Gathering and Compression Costs (per Mcf)
    
    $
    0.84
    
    
    $
    0.77
    
    
    $
    0.07
    
    
    
    9.1
    %
  Percentage2005
    
    2004
    
    Variance
    
    ChangeRoyalty Interest Gas Sales Volumes (Bcf)
    
    
    6.6
    
    
    
    6.9
    
    
    
    (0.3
    )
    
    
    (4.3
    )%Average Cost (per Mcf)
    
    $
    5.59
    
    
    $
    4.76
    
    
    $
    0.83
    
    
    
    17.4
    %
  Percentage2005
    
    2004
    
    Variance
    
    ChangePurchased Gas Cost Volumes (Bcf)
    
    
    28.7
    
    
    
    17.5
    
    
    
    11.2
    
    
    
    64.0
    %Average Purchased Gas Costs (per Mcf)
    
    $
    9.71
    
    
    $
    6.45
    
    
    $
    3.26
    
    
    
    50.5
    %
   Dollar
    
    
    Percentage2005
    
    
    2004
    
    
    Variance
    
    
    ChangeWell Site General Maintenance
    
    $
    3,781
    
    
    $
    3,135
    
    
    $
    646
    
    
    
    20.6
    %Gob Collection Costs
    
    
    3,280
    
    
    
    3,401
    
    
    
    (121
    )
    
    
    (3.6
    )%Land Broker Fees
    
    
    977
    
    
    
    266
    
    
    
    711
    
    
    
    267.3
    %Imbalance
    
    
    899
    
    
    
    (266
    )
    
    
    1,165
    
    
    
    438.0
    %Land Rentals
    
    
    635
    
    
    
    535
    
    
    
    100
    
    
    
    18.7
    %Equity in (Earnings) Loss of Affiliates
    
    
    149
    
    
    
    2,423
    
    
    
    (2,274
    )
    
    
    (93.9
    )%Total Other Costs and Expenses
    
    $
    9,721
    
    
    $
    9,494
    
    
    $
    227
    
    
    
    2.4
    %
    46




---



##### Table of Contents



Dollar
    
    
    Percentage2005
    
    
    2004
    
    
    Variance
    
    
    ChangeProduction
    
    $
    23,531
    
    
    $
    22,353
    
    
    $
    1,178
    
    
    
    5.3
    %Gathering
    
    
    11,508
    
    
    
    10,536
    
    
    
    972
    
    
    
    9.2
    %Total Depreciation, Depletion and Amortization
    
    $
    35,039
    
    
    $
    32,889
    
    
    $
    2,150
    
    
    
    6.5
    %
   Income Taxes
 Percentage2005
    
    
    2004
    
    
    Variance
    
    
    ChangeEarnings Before Income Taxes
    
    $
    166,718
    
    
    $
    132,686
    
    
    $
    34,032
    
    
    
    25.6
    %Tax Expense
    
    $
    64,550
    
    
    $
    51,898
    
    
    $
    12,652
    
    
    
    24.4
    %Effective Income Tax Rate
    
    
    38.7
    %
    
    
    39.1
    %
    
    
    (0.4
    )%
  47




---



##### Table of Contents



Critical Accounting Policies
  Derivative Instruments
   Stock-Based Compensation
   48




---



##### Table of Contents



Reserve Estimates
  Successful Efforts Accounting
  Contingencies
  Deferred Taxes
  Well Plugging Obligations
   49




---



##### Table of Contents



Liquidity and Capital Resources
     Cash Flows
 2006
    
    2005Year to
    
    Year toDate
    
    Date
    
    ChangeCash provided by operating activities
    
    $
    243,569
    
    
    $
    144,997
    
    
    $
    98,572Cash used in investing activities
    
    $
    (156,020
    )
    
    $
    (108,287
    )
    
    $
    (47,733
    )Cash used in financing activities
    
    $
    (449
    )
    
    $
    (16,640
    )
    
    $
    16,191
  Contractual Commitments
  Within
    
    
    1-3
    
    
    3-5
    
    
    More than(In thousands)
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 Years
    
    
    TotalLong Term Debt Obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital Lease Obligations
    
    
    2,573
    
    
    
    5,751
    
    
    
    6,660
    
    
    
    51,486
    
    
    
    66,470Operating Lease Obligations
    
    
    794
    
    
    
    1,393
    
    
    
    1,137
    
    
    
    299
    
    
    
    3,623Gas Firm Transportation Obligations
    
    
    7,897
    
    
    
    14,642
    
    
    
    12,430
    
    
    
    21,453
    
    
    
    56,422Other Long-Term Liabilities:Other Liabilities (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,862
    
    
    
    13,862Well Plugging Liabilities
    
    
    401
    
    
    
    801
    
    
    
    801
    
    
    
    7,211
    
    
    
    9,214Pension
    
    
    3
    
    
    
    14
    
    
    
    23
    
    
    
    149
    
    
    
    189Postretirement Benefits Other than Pension
    
    
    12
    
    
    
    68
    
    
    
    154
    
    
    
    2,091
    
    
    
    2,325Total Contractual Obligations
    
    $
    11,680
    
    
    $
    22,669
    
    
    $
    21,205
    
    
    $
    96,551
    
    
    $
    152,105
 
 (a)
    
    This item represents legal contingencies reflected on the balance sheet for potential settlements of the two cases referenced in Note 15 of our annual financial statements. Due to the uncertainty
surrounding these settlements, it is difficult to predict if and when a payout may take place. 50




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$200,000 Credit Facility.
   Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
   51




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
      52




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Incremental Decrease Assuming aHypothetical Price Increase of:10%
    
    25%(In millions)Pre-Tax Income (1)
    
    $
    8.1
    
    
    $
    31.0
 
 (1)
    
    CNX Gas remains at risk for possible changes in the market
value of these derivative instruments; however, such risk
should be reduced by price changes in the underlying hedged
item. The effect of this offset is not reflected in the
sensitivity analyses. CNX Gas entered into derivative
instruments to convert the market prices related to portions
of the 2007 through 2008 anticipated sales of natural gas to
fixed prices. The sensitivity analyses reflect an inverse
relationship between increases in commodity prices and a
benefit to earnings. When commodity prices increase, pretax
income decreases. As of December 31, 2006, the fair value of
these contracts was a net gain of $2,491 (net of $1,592
deferred tax). We will continually evaluate the portfolio of
derivative commodity instruments and adjust the strategy to
anticipated market conditions and risks accordingly. Hedging Volumes
  Three Months
    
    Three Months
    
    Three Months
    
    Three MonthsEnded
    
    Ended
    
    Ended
    
    EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,
    
    Total Year2007 Fixed Price VolumesHedged Mcf
    
    
    3,197,970
    
    
    
    3,223,503
    
    
    
    3,274,035
    
    
    
    3,274,035
    
    
    
    12,969,543Weighted Average Hedge Price/Mcf
    
    $
    7.89
    
    
    $
    7.89
    
    
    $
    7.89
    
    
    $
    7.89
    
    
    $
    7.892008 Fixed Price VolumesHedged Mcf
    
    
    1,847,716
    
    
    
    1,847,716
    
    
    
    1,868,020
    
    
    
    1,868,020
    
    
    
    7,431,472Weighted Average Hedge Price/Mcf
    
    $
    7.20
    
    
    $
    7.20
    
    
    $
    7.20
    
    
    $
    7.20
    
    
    $
    7.20
   
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 PageFinancial StatementsReport of Independent Registered Public Accounting Firm
    
    
    54Consolidated Statements of Income for the twelve months ended December 31, 2006, 2005 and 2004
    
    
    56Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    57Consolidated Statements of Stockholders Equity for the twelve months ended December 31, 2006, 2005 and 2004
    
    
    58Consolidated Statements of Cash Flows for the twelve months ended December 31, 2006, 2005 and 2004
    
    
    59Notes to Audited Financial Statements
    
    
    60
 53




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Report of Independent Registered Public Accounting Firm
 
  Consolidated financial statements
   Internal control over financial reporting
 Internal Control  Integrated Framework Internal Control  Integrated Framework
  54




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55




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CNX GAS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in thousands, except per share data)
 For the Twelve Months Ended December 31,2006
    
    
    2005
    
    
    2004Revenue and Other Income:Outside Sales
    
    $
    385,056
    
    
    $
    277,031
    
    
    $
    214,721Related Party Sales
    
    
    8,490
    
    
    
    6,052
    
    
    
    22,036Royalty Interest Gas Sales
    
    
    51,054
    
    
    
    45,351
    
    
    
    41,858Purchased Gas Sales
    
    
    43,973
    
    
    
    275,148
    
    
    
    112,005Other Income
    
    
    25,286
    
    
    
    9,859
    
    
    
    6,916Total Revenue and Other Income
    
    
    513,859
    
    
    
    613,441
    
    
    
    397,536Costs and Expenses:Lifting Costs
    
    
    31,096
    
    
    
    26,794
    
    
    
    23,939Gathering and Compression Costs
    
    
    55,091
    
    
    
    40,623
    
    
    
    37,021Royalty Interest Gas Costs
    
    
    41,998
    
    
    
    36,641
    
    
    
    32,914Purchased Gas Costs
    
    
    44,843
    
    
    
    278,720
    
    
    
    113,063Other
    
    
    6,868
    
    
    
    9,721
    
    
    
    9,494General and Administrative
    
    
    38,654
    
    
    
    19,171
    
    
    
    15,530Depreciation, Depletion and Amortization
    
    
    37,999
    
    
    
    35,039
    
    
    
    32,889Interest Expense
    
    
    870
    
    
    
    14
    
    
    
    Total Costs and Expenses
    
    
    257,419
    
    
    
    446,723
    
    
    
    264,850Earnings Before Income Taxes
    
    
    256,440
    
    
    
    166,718
    
    
    
    132,686Income Taxes
    
    
    96,573
    
    
    
    64,550
    
    
    
    51,898Net Income
    
    $
    159,867
    
    
    $
    102,168
    
    
    $
    80,788Earnings per share:Basic
    
    $
    1.06
    
    
    $
    0.76
    
    
    $
    0.66Diluted
    
    $
    1.06
    
    
    $
    0.76
    
    
    $
    0.66Weighted Average Number of Common Shares Outstanding:Basic
    
    
    150,845,518
    
    
    
    134,071,334
    
    
    
    122,896,667Dilutive
    
    
    151,017,456
    
    
    
    134,137,219
    
    
    
    122,988,359
 The accompanying notes are an integral part of these consolidated financial statements.
 56




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CNX GAS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands)
 December 31,2006
    
    
    2005ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    107,173
    
    
    $
    20,073Accounts Receivable:Trade
    
    
    46,062
    
    
    
    41,121Net Related Party
    
    
    2,745
    
    
    
    728Other
    
    
    2,291
    
    
    
    550Deferred Taxes
    
    
    
    
    
    
    9,339Derivatives
    
    
    10,548
    
    
    
    Other Current Assets
    
    
    3,917
    
    
    
    2,378Total Current Assets
    
    
    172,736
    
    
    
    74,189Property,
Plant and Equipment, Net
    
    
    918,162
    
    
    
    723,547Other Assets
    
    
    11,820
    
    
    
    11,903Investments in Equity Affiliates
    
    
    52,283
    
    
    
    49,528TOTAL ASSETS
    
    $
    1,155,001
    
    
    $
    859,167LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    27,872
    
    
    $
    22,541Accrued Royalties Payable
    
    
    11,960
    
    
    
    10,504Accrued Severance Taxes
    
    
    2,576
    
    
    
    2,747Accrued Income Taxes
    
    
    2,191
    
    
    
    5,518Deferred Taxes
    
    
    3,091
    
    
    
    Derivatives
    
    
    
    
    
    
    23,777Other Current Liabilities
    
    
    9,222
    
    
    
    5,382Total Current Liabilities
    
    
    56,912
    
    
    
    70,469Deferred Taxes
    
    
    120,008
    
    
    
    47,736Capital Lease Obligation
    
    
    63,897
    
    
    
    Other Liabilities
    
    
    15,977
    
    
    
    14,310Well Plugging Liabilities
    
    
    9,214
    
    
    
    10,908Derivatives
    
    
    6,465
    
    
    
    32,909Postretirement Benefits Other Than Pension
    
    
    2,313
    
    
    
    3,363Total Liabilities
    
    
    274,786
    
    
    
    179,695Stockholders EquityCommon Stock, $.01 par value; 200,000,000
Shares Authorized, 150,864,075 Issued and
Outstanding at December 31, 2006 and 150,833,334
Issued and Outstanding at December 31, 2005
    
    
    1,508
    
    
    
    1,508Capital in Excess of Par Value
    
    
    781,960
    
    
    
    779,509Retained Earnings (Deficit)
    
    
    94,337
    
    
    
    (65,530
    )Accumulated Other Comprehensive Income (Loss)
    
    
    2,410
    
    
    
    (34,733
    )Unearned Compensation on Restricted Stock Units
    
    
    
    
    
    
    (1,282
    )Total Stockholders Equity
    
    
    880,215
    
    
    
    679,472TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    1,155,001
    
    
    $
    859,167
 The accompanying notes are an integral part of these consolidated financial statements.
 57




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CNX GAS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 (Dollars in thousands)
 Accumulated

    
    
    UnearnedCapital In
    
    
    Retained
    
    
    Other
    
    
    Compensation
    
    
    TotalCommon
    
    
    Excess of
    
    
    Earnings
    
    
    Comprehensive
    
    
    on Restricted
    
    
    StockholdersStock
    
    
    Par Value
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    Stock Units
    
    
    EquityBalance at December 31, 2003
    
    $
    
    
    
    $
    297,947
    
    
    $
    171,681
    
    
    $
    (5,396
    )
    
    $
    
    
    
    $
    464,232Net Income
    
    
    
    
    
    
    
    
    
    
    80,788
    
    
    
    
    
    
    
    
    
    
    
    80,788Gas Cash Flow Hedge (Net of $146 tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (227
    )(a)
    
    
    
    
    
    
    (227
    )Comprehensive Income (Loss)
    
    
    
    
    
    
    
    
    
    
    80,788
    
    
    
    (227
    )
    
    
    
    
    
    
    80,561Return of Capital to Parent
    
    
    
    
    
    
    (82,237
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82,237
    )Balance at December 31, 2004
    
    
    
    
    
    
    215,710
    
    
    
    252,469
    
    
    
    (5,623
    )
    
    
    
    
    
    
    462,556Net Income
    
    
    
    
    
    
    
    
    
    
    102,168
    
    
    
    
    
    
    
    
    
    
    
    102,168Gas Cash Flow Hedge (Net of $18,542 tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,110
    )(b)
    
    
    
    
    
    
    (29,110
    )Comprehensive Income (Loss)
    
    
    
    
    
    
    
    
    
    
    102,168
    
    
    
    (29,110
    )
    
    
    
    
    
    
    73,058Issuance of Common Stock
    
    
    1,508
    
    
    
    418,659
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    420,167Effect of Tax Basis Step-up
    
    
    
    
    
    
    165,042
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165,042Issuance of Restricted Stock units under the
Equity Incentive Plan (92,969 units)
    
    
    
    
    
    
    1,487
    
    
    
    
    
    
    
    
    
    
    
    (1,487
    )
    
    
    Stock-Based Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205
    
    
    
    205Dividends paid
    
    
    
    
    
    
    
    
    
    
    (420,167
    )
    
    
    
    
    
    
    
    
    
    
    (420,167
    )Return of Capital to Parent
    
    
    
    
    
    
    (21,389
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,389
    )Balance at December 31, 2005
    
    
    1,508
    
    
    
    779,509
    
    
    
    (65,530
    )
    
    
    (34,733
    )
    
    
    (1,282
    )
    
    
    679,472Net Income
    
    
    
    
    
    
    
    
    
    
    159,867
    
    
    
    
    
    
    
    
    
    
    
    159,867Gas Cash Flow Hedge (Net of $23,859 tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,382
    (c)
    
    
    
    
    
    
    36,382Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    159,867
    
    
    
    36,382
    
    
    
    
    
    
    
    196,249Initial adjustment upon adoption of FAS 158
(net of $485 tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    761
    
    
    
    
    
    
    
    761Elimination of Unearned Compensation on
Restricted Stock Units
    
    
    
    
    
    
    (1,282
    )
    
    
    
    
    
    
    
    
    
    
    1,282
    
    
    
    Stock-Based Compensation
    
    
    
    
    
    
    3,733
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,733Balance at December 31, 2006
    
    $
    1,508
    
    
    $
    781,960
    
    
    $
    94,337
    
    
    $
    2,410
    (d)
    
    $
    
    
    
    $
    880,215
 
 (a)
    
    Of the ($227) net change in accumulated other comprehensive income (loss) in the period, ($20,047) represents the settlements recognized in net income.(b)
    
    Of the ($29,110) net change in accumulated other
comprehensive income (loss) in the period, ($30,948) represents the settlements recognized in net income.(c)
    
    Of the $36,382 net change in accumulated other comprehensive
income (loss) in the period, $18,148 represents the settlements recognized in net income.(d)
    
    Comprised of unrealized transition adjustments of $592 OPEB revaluation and $169 Pension revaluation. Also, $1,649 of deferred net gains on financial instruments. The accompanying notes are an integral part of these consolidated financial statements.
 58




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CNX GAS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 For the Twelve MonthsEnded December 31,2006
    
    
    2005
    
    
    2004Operating Activities:Net Income
    
    $
    159,867
    
    
    $
    102,168
    
    
    $
    80,788Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:Depreciation, Depletion and Amortization
    
    
    37,999
    
    
    
    35,039
    
    
    
    32,889Compensation from Restricted Stock Unit Grants
    
    
    529
    
    
    
    205
    
    
    
    Compensation from Stock Option Grants
    
    
    3,204
    
    
    
    
    
    
    
    Deferred Income Taxes
    
    
    60,358
    
    
    
    46,779
    
    
    
    50,957Equity in (Income) Loss of Affiliates
    
    
    (978
    )
    
    
    149
    
    
    
    2,423Changes in Operating Assets:Accounts Receivable
    
    
    (6,682
    )
    
    
    (40,236
    )
    
    
    (783
    )Related Party Receivable
    
    
    (2,017
    )
    
    
    (728
    )
    
    
    Other Current Assets
    
    
    (2,284
    )
    
    
    3,542
    
    
    
    (2,111
    )Changes in Other Assets
    
    
    83
    
    
    
    (4,951
    )
    
    
    (2,367
    )Changes in Operating Liabilities:Accounts Payable
    
    
    (7,343
    )
    
    
    (8,936
    )
    
    
    2,597Income Taxes
    
    
    (3,327
    )
    
    
    5,650
    
    
    
    941Other Current Liabilities
    
    
    2,552
    
    
    
    14,861
    
    
    
    4,241Changes in Other Liabilities
    
    
    1,668
    
    
    
    (8,600
    )
    
    
    5,583Other
    
    
    (60
    )
    
    
    55
    
    
    
    192Net Cash Provided by Operating Activities
    
    
    243,569
    
    
    
    144,997
    
    
    
    175,350Investing Activities:Capital Expenditures
    
    
    (154,243
    )
    
    
    (110,752
    )
    
    
    (89,753
    )Investment in Equity Affiliates
    
    
    (1,777
    )
    
    
    2,465
    
    
    
    (3,361
    )Net Cash Used in Investing Activities
    
    
    (156,020
    )
    
    
    (108,287
    )
    
    
    (93,114
    )Financing Activities:Capital Lease Payments
    
    
    (449
    )
    
    
    
    
    
    
    Issuance of Common Stock
    
    
    
    
    
    
    420,167
    
    
    
    Dividends Paid
    
    
    
    
    
    
    (420,167
    )
    
    
    Payments to Parent
    
    
    
    
    
    
    (16,640
    )
    
    
    (82,237
    )Net Cash Used in Financing Activities
    
    
    (449
    )
    
    
    (16,640
    )
    
    
    (82,237
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    87,100
    
    
    
    20,070
    
    
    
    (1
    )Cash and Cash Equivalents at Beginning of Year
    
    
    20,073
    
    
    
    3
    
    
    
    4Cash and Cash Equivalents at Year End
    
    $
    107,173
    
    
    $
    20,073
    
    
    $
    3
 The accompanying notes are an integral part of these consolidated financial statements.
 59




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CNX GAS CORPORATION AND SUBSIDIARIES
 
 NOTES TO AUDITED FINANCIAL STATEMENTS
 (Dollars in thousands)
 Note 1Significant Accounting Policies:
 Nature of Operations
   Basis of Consolidation
   CNX Gas %Investee
    
    OwnershipKnox Energy, LLC
    
    
    50
    %Coalfield Pipeline Company
    
    
    50
    %Buchanan Generation, LLC
    
    
    50
    %
 Use of Estimates
  Cash and Cash Equivalents
  60




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Trade Accounts Receivable
  Property, Plant and Equipment
    Impairment of Long-Lived Assets
  Income Taxes
  Gas Well Plugging Costs
   61




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Revenue Recognition
     Royalty Recognition
  Contingencies
  Derivative Instruments
   62




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Stock-Based Compensation
   Earnings Per Share
    63




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For the Twelve MonthsEnded December 31,2006
    
    
    2005
    
    
    2004Net Income
    
    $
    159,867
    
    
    $
    102,168
    
    
    $
    80,788Weighted Average Number of Common Shares Outstanding:Basic
    
    
    150,845,518
    
    
    
    134,071,334
    
    
    
    122,896,667Effect of stock options
    
    
    171,938
    
    
    
    65,885
    
    
    
    91,692Dilutive
    
    
    151,017,456
    
    
    
    134,137,219
    
    
    
    122,988,359Earnings per share:Basic
    
    $
    1.06
    
    
    $
    0.76
    
    
    $
    0.66Diluted
    
    $
    1.06
    
    
    $
    0.76
    
    
    $
    0.66
 Recent Accounting Pronouncements
     64




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Reclassifications:
  Note 2Transactions with Related Parties:
  For the Twelve MonthsEnded December 31,2006
    
    2005
    
    2004Sales of Gas-Related Party
    
    $
    8,490
    
    
    $
    6,052
    
    
    $
    22,036Supply Purchases
    
    $
    210
    
    
    $
    135
    
    
    $
    137
    65




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Note 3Other Income:
 For the Twelve MonthsEnded December 31,2006
    
    
    2005
    
    
    2004Other Royalty Income
    
    $
    10,230
    
    
    $
    8,158
    
    
    $
    5,726Insurance Proceeds
    
    
    10,165
    
    
    
    
    
    
    
    Interest Income
    
    
    3,453
    
    
    
    418
    
    
    
    Third Party Gathering Revenue
    
    
    1,341
    
    
    
    1,110
    
    
    
    1,109Miscellaneous
    
    
    97
    
    
    
    173
    
    
    
    81Total Other Income
    
    $
    25,286
    
    
    $
    9,859
    
    
    $
    6,916
 66




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Note 4Income Taxes:
  For the Twelve MonthsEnded December 31,2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    30,032
    
    
    $
    14,713
    
    
    $
    941State
    
    
    6,183
    
    
    
    3,058
    
    
    
    Deferred:Federal
    
    
    52,646
    
    
    
    38,957
    
    
    
    42,250State
    
    
    7,712
    
    
    
    7,822
    
    
    
    8,707Total Income Tax Expense
    
    $
    96,573
    
    
    $
    64,550
    
    
    $
    51,898
  December 31,2006
    
    
    2005Deferred Tax Assets:Capital Lease Obligations
    
    $
    25,896
    
    
    $
    Derivatives
    
    
    
    
    
    
    22,266Well Plugging
    
    
    3,590
    
    
    
    4,285Other Postretirement Benefits
    
    
    901
    
    
    
    1,321Stock-Based Compensation
    
    
    1,455
    
    
    
    Other
    
    
    1,583
    
    
    
    Total Deferred Tax Assets
    
    
    33,425
    
    
    
    27,872Deferred Tax Liabilities:Property, Plant and Equipment
    
    
    (145,179
    )
    
    
    (58,588
    )Investment in Equity Affiliates
    
    
    (8,501
    )
    
    
    (7,681
    )Derivatives
    
    
    (1,906
    )
    
    
    Other
    
    
    (938
    )
    
    
    Total Deferred Tax Liabilities
    
    
    (156,524
    )
    
    
    (66,269
    )Net Deferred Tax Liabilities
    
    $
    (123,099
    )
    
    $
    (38,397
    )
    Twelve MonthsEnded December 31,2006
    
    
    2005
    
    
    2004Dollars
    
    
    Rate
    
    
    Dollars
    
    
    Rate
    
    
    Dollars
    
    
    RateStatutory U.S. Federal Income Tax Rate
    
    $
    89,754
    
    
    
    35.0
    %
    
    $
    58,351
    
    
    
    35.0
    %
    
    $
    46,440
    
    
    
    35.0
    %Net Effect of State Income Tax
    
    
    9,032
    
    
    
    3.5
    %
    
    
    7,072
    
    
    
    4.2
    %
    
    
    5,659
    
    
    
    4.3
    %Effect of Manufacturers Deduction
    
    
    (967
    )
    
    
    (0.4
    )%
    
    
    (455
    )
    
    
    (0.3
    )%
    
    
    
    
    
    
    
    %Other
    
    
    (1,246
    )
    
    
    (0.4
    )%
    
    
    (418
    )
    
    
    (0.2
    )%
    
    
    (201
    )
    
    
    (0.2
    )%Income Tax Expense/ Effective Rate
    
    $
    96,573
    
    
    
    37.7
    %
    
    $
    64,550
    
    
    
    38.7
    %
    
    $
    51,898
    
    
    
    39.1
    %
 67




---



##### Table of Contents



Note 5Gas Well Plugging Costs:
  As of December 31,2006
    
    
    2005Balance at beginning of period
    
    $
    10,908
    
    
    $
    8,685Accretion expense
    
    
    517
    
    
    
    660Payments
    
    
    (183
    )
    
    
    (1,086
    )Liabilities
incurred
    
    
    1,348
    
    
    
    945Revisions in estimated cash flows
    
    
    (3,376
    )
    
    
    1,807Other
    
    
    
    
    
    
    (103
    )Balance at end of period
    
    $
    9,214
    
    
    $
    10,908
 Note 6Property, Plant and Equipment:
 As of December 31,2006
    
    
    2005Surface Lands
    
    $
    37,055
    
    
    $
    26,573Mineral Interests
    
    
    55,623
    
    
    
    55,621Wells and Related Equipment
    
    
    112,009
    
    
    
    83,633Intangible Drilling
    
    
    383,605
    
    
    
    312,467Gathering Assets
    
    
    520,906
    
    
    
    402,681Gas Well Plugging
    
    
    5,652
    
    
    
    7,680Capitalized Internal Software
    
    
    6,433
    
    
    
    36Total Property, Plant and Equipment
    
    
    1,121,283
    
    
    
    888,691Accumulated
Depreciation, Depletion and Amortization
    
    
    (203,121
    )
    
    
    (165,144
    )Property and Equipment, net
    
    $
    918,162
    
    
    $
    723,547
  Note 7Credit Facility:
    68




---



##### Table of Contents



Note 8Other Current Liabilities:
 As of December 31,2006
    
    
    2005Short Term Incentive Compensation Plan
    
    $
    3,944
    
    
    $
    2,755Current Portion of Capital Lease
    
    
    2,573
    
    
    
    Accrued Payroll
    
    
    1,582
    
    
    
    1,781Other
    
    
    613
    
    
    
    590Gas Firm Transportation
    
    
    510
    
    
    
    256Total Other Current Liabilities
    
    $
    9,222
    
    
    $
    5,382
 Note 9Leases:
  Capital
    
    
    OperatingLeases
    
    
    Leases2007
    
    $
    7,380
    
    
    $
    7942008
    
    
    7,380
    
    
    
    6952009
    
    
    7,380
    
    
    
    6982010
    
    
    7,380
    
    
    
    7012011
    
    
    7,380
    
    
    
    436Thereafter
    
    
    72,461
    
    
    
    299Total Minimum Lease Payments
    
    $
    109,361
    
    
    $
    3,623Less Imputed Interest
    
    
    42,891Present Value of Minimum Lease Payments
    
    $
    66,470Less Amount Due in One Year
    
    
    2,573Total Long-term Capital Lease Obligation
    
    $
    63,897
  Note 10Pension and Other Postretirement Benefits:
 Changes In Accounting Standards
  Defined Benefit Pension Plan
  69




---



##### Table of Contents



As of December 31,2006
    
    
    2005Change in benefit obligation:Benefit obligation at
beginning of the year
    
    $
    88
    
    
    $
    Service cost
    
    
    282
    
    
    
    207Interest cost
    
    
    5
    
    
    
    12Actuarial gain
    
    
    (164
    )
    
    
    (131
    )Benefits paid
    
    
    (4
    )
    
    
    Benefit obligation at end of the year
    
    $
    207
    
    
    $
    88Fair Value of Plan assets
    
    $
    18
    
    
    $
    Funded Status:Status of plan underfunded
    
    $
    (189
    )
    
    $
    (88
    )Unrecognized net actuarial gain
    
    
    (276
    )
    
    
    (131
    )Accrued benefit cost before the
adoption of SFAS 158
    
    $
    (465
    )
    
    $
    (219
    )Amounts Recognized in the Consolidated
Balance Sheets:Accrued benefit liability
    
    $
    (465
    )
    
    $
    (219
    )Net amount recognized
    
    $
    (465
    )
    
    $
    (219
    )After the adoption of SFAS 158:Noncurrent liabilities
    
    $
    (189
    )
    
    $
    Net amount recognized
    
    $
    (189
    )
    
    $
    Amounts recognized in accumulated
other comprehensive income consist of:Net Gain
    
    $
    (276
    )
    
    $
    Net amount recognized (before tax
effect)
    
    $
    (276
    )
    
    $
    
 70




---



##### Table of Contents



Balance Prior to
    
    
    
    
    
    Balance AfterSFAS 158
    
    SFAS 158
    
    SFAS 158Adjustments
    
    Adjustments
    
    AdjustmentsChange due to the adoption of SFAS
158 at December 31, 2006:Accrued pension benefit liability
    
    $
    (465
    )
    
    $
    276
    
    
    $
    (189
    )Accumulated other comprehensive
income (before tax effects of $107)
    
    $
    
    
    
    $
    (276
    )
    
    $
    (276
    )
   For the Twelve MonthsEnded December 31,2006
    
    
    2005Components of Net Periodic Benefit Costs:Service costs
    
    $
    282
    
    
    $
    219Interest costs
    
    
    5
    
    
    
    Expected return on plan assets
    
    
    (9
    )
    
    
    Recognized net actuarial gain
    
    
    (12
    )
    
    
    Benefit costs
    
    $
    266
    
    
    $
    219
  As of December 31,2006
    
    2005Discount rate
    
    
    6.00
    %
    
    
    5.75
    %Expected long-term return on plan assets
    
    
    8.00
    %
    
    
    Rate of compensation increase
    
    
    4.36
    %
    
    
    4.11
    %
  As of December 31,2006
    
    2005Discount rate
    
    
    5.75
    %
    
    
    6.00
    %Expected long-term return on plan assets
    
    
    8.00
    %
    
    
    Rate of compensation increase
    
    
    4.11
    %
    
    
    4.12
    %
 71




---



##### Table of Contents



Postretirement Benefit Plans
  72




---



##### Table of Contents



Other Benefits as of December 31,2006
    
    
    2005Change in benefit obligation:Benefit obligation at
beginning of period
    
    $
    1,760
    
    
    $
    2,826Service cost
    
    
    91
    
    
    
    160Interest cost
    
    
    101
    
    
    
    170Actuarial gain (loss)
    
    
    466
    
    
    
    (765
    )Plan amendments
    
    
    
    
    
    
    (631
    )Benefits paid
    
    
    (93
    )
    
    
    Benefit obligation at end of period
    
    $
    2,325
    
    
    $
    1,760Funded Status:Status of plan underfunded
    
    $
    (2,325
    )
    
    $
    (1,760
    )Unrecognized prior service cost
    
    
    (1,459
    )
    
    
    (1,631
    )Unrecognized net actuarial loss
    
    
    489
    
    
    
    23Accrued benefit cost before the
adoption of SFAS 158
    
    $
    (3,295
    )
    
    $
    (3,368
    )Amounts Recognized in the Consolidated
Balance Sheets before the adoption of SFAS
158 consist of:Accrued benefit liability
    
    
    (3,295
    )
    
    
    (3,368
    )Net amount recognized
    
    $
    (3,295
    )
    
    $
    (3,368
    )After the adoption of SFAS 158:Current liabilities
    
    
    (12
    )
    
    
    Noncurrent liabilities
    
    
    (2,313
    )
    
    
    Net amount recognized
    
    $
    (2,325
    )
    
    $
    Amounts recognized in accumulated other
comprehensive income consist of:Net Loss
    
    $
    489
    
    
    $
    Prior Service Cost
    
    
    (1,459
    )
    
    
    Net amount recognized (before tax
effect)
    
    $
    (970
    )
    
    $
    
 73




---



##### Table of Contents



Balance Prior to
    
    
    
    
    
    Balance AfterSFAS 158
    
    SFAS 158
    
    SFAS 158Adjustments
    
    Adjustments
    
    AdjustmentsChange due to
the adoption of
SFAS 158 at
December 31, 2006:Accrued
postretirement
benefit liability
    
    $
    (3,295
    )
    
    $
    970
    
    
    $
    (2,325
    )Accumulated other
comprehensive
income 
postretirement
benefits (before
tax effects of $378)
    
    $
    
    
    
    $
    (970
    )
    
    $
    (970
    )
   For the Twelve MonthsEnded December 31,2006
    
    
    2005
    
    
    2004Components of Net Periodic Benefit Costs:Service costs
    
    $
    91
    
    
    $
    160
    
    
    $
    131Interest costs
    
    
    101
    
    
    
    170
    
    
    
    163Amortization of prior service costs credit
    
    
    (172
    )
    
    
    (113
    )
    
    
    (117
    )Recognized net actuarial loss
    
    
    
    
    
    
    42
    
    
    
    63Benefit costs
    
    $
    20
    
    
    $
    259
    
    
    $
    240
  As of December 31,2006
    
    2005
    
    2004Discount rate
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    6.00
    %
  As of December 31,2006
    
    2005
    
    2004Discount rate
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    6.00
    %
  December 31,2006
    
    2005
    
    2004Healthcare cost trend rate for next year
    
    
    8.50
    %
    
    
    9.25
    %
    
    
    10.00
    %Rate to which the cost trend rate is assumed to decline (ultimate
trend rate)
    
    
    5.00
    %
    
    
    4.75
    %
    
    
    4.75
    %Year that the rate reaches ultimate trend rate
    
    
    2011
    
    
    
    2011
    
    
    
    2011
 74




---



##### Table of Contents



1-Percentage
    
    1-PercentagePoint Increase
    
    Point DecreaseEffect on total of service and interest costs components
    
    $
    34
    
    
    $
    (31
    )Effect on accumulated postretirement benefit obligation
    
    
    344
    
    
    
    (296
    )
  Other BenefitsPayments2007
    
    $
    122008
    
    
    262009
    
    
    422010
    
    
    652011
    
    
    89Year 2012-2016
    
    
    801
 Note 11Stock-Based Compensation:
    75




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##### Table of Contents



For the Twelve Months EndedDecember 31, 2005Net Income as reported
    
    $
    102,168Add: Stock-based compensation expense
for restricted stock units
    
    
    205Deduct: Total stock-based compensation
expense determined under Black-Scholes
option pricing model and stock-based
compensation expense for restricted
stock units, net of tax
    
    
    (423
    )Pro forma net income
    
    $
    101,950Earnings per share:Basic  as reported
    
    $
    0.76Basic  pro forma
    
    $
    0.76Diluted  as reported
    
    $
    0.76Diluted  pro forma
    
    $
    0.76
    76




---



##### Table of Contents



For the year ended
    
    For the year endedDecember 31, 2006
    
    December 31, 2005Weighted Average Fair Value of Grants
    
    $
    9.83
    
    
    $
    5.34Risk Free Interest Rate
    
    
    4.65
    %
    
    
    4.28
    %Dividend Yield
    
    
    
    
    
    
    Expected Volatility
    
    
    32.39
    %
    
    
    36.54
    %Expected Forfeiture Rate
    
    
    2.0
    %
    
    
    Expected Term
    
    4.5 years
    
    4.5 years
  WeightedAverageWeighted
    
    RemainingAverage
    
    Contractual
    
    Aggregate IntrinsicExercise
    
    Terms
    
    ValueShares
    
    Price
    
    (in years)
    
    (in thousands)Outstanding at December 31, 2005
    
    
    1,040,576
    
    
    $
    16.05Granted
    
    
    486,678
    
    
    $
    28.43Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (29,935
    )
    
    $
    19.17Outstanding at December 31, 2006
    
    
    1,497,319
    
    
    $
    20.01
    
    
    
    8.83
    
    
    $
    9,627Vested and Expected to Vest at December 31, 2006
    
    
    1,494,218
    
    
    $
    20.00
    
    
    
    8.83
    
    
    $
    9,627Exercisable at December 31, 2006
    
    
    249,008
    
    
    $
    16.05
    
    
    
    8.59
    
    
    $
    2,352
     WeightedAverageNumber of
    
    
    Grant Date FairShares
    
    
    ValueNon-vested at December 31, 2005
    
    
    92,969
    
    
    $
    16.00Granted
    
    
    6,143
    
    
    
    28.50Vested
    
    
    (30,741
    )
    
    
    16.00Non-vested at December 31, 2006
    
    
    68,371
    
    
    $
    17.12
 77




---



##### Table of Contents



Note 12Supplemental Cash Flow Information:
 For the Twelve MonthsEnded December 31,2006
    
    
    2005
    
    
    2004Net Cash provided from operating activities included:Interest paid
    
    $
    870
    
    
    $
    14
    
    
    $
    Income Taxes paid
    
    $
    37,241
    
    
    $
    12,233
    
    
    $
    Non-cash investing and financing activities:Capital Lease ObligationChange in Assets
    
    $
    (66,919
    )
    
    $
    
    
    
    $
    Change in Liabilities
    
    $
    (66,919
    )
    
    $
    
    
    
    $
    Tax basis step-up
    
    $
    
    
    
    $
    (165,041
    )
    
    $
    Assumed ownership of joint venture assets
    
    $
    
    
    
    $
    (4,769
    )
    
    $
    Purchase of Property, Plant and EquipmentChange in Assets
    
    $
    (12,674
    )
    
    $
    
    
    
    $
    Change in Liabilities
    
    $
    (12,674
    )
    
    $
    
    
    
    $
    
 Note 13Concentration of Credit Risk:
   78




---



##### Table of Contents



Note 14Derivative Instruments:
      Note 15Commitments and Contingent Liabilities:
    79




---



##### Table of Contents



80




---



##### Table of Contents



Amounts
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    BeyondLetters of Credit
    
    Committed
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsGas
    
    $
    16,867
    
    
    $
    16,847
    
    
    $
    20
    
    
    $
    0
    
    
    $
    0Total Letters of Credit
    
    $
    16,867
    
    
    $
    16,847
    
    
    $
    20
    
    
    $
    0
    
    
    $
    0Surety Bonds:Environmental
    
    $
    278
    
    
    $
    278
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Other
    
    
    802
    
    
    
    802
    
    
    
    0
    
    
    
    0
    
    
    
    0Total Surety Bonds
    
    $
    1,080
    
    
    $
    1,080
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Other:Firm Transportation
    
    $
    56,422
    
    
    $
    7,897
    
    
    $
    14,642
    
    
    $
    12,430
    
    
    $
    21,453Guarantees
    
    $
    10,600
    
    
    $
    10,600
    
    
    
    0
    
    
    
    0
    
    
    
    0Total Other
    
    $
    67,022
    
    
    $
    18,497
    
    
    $
    14,642
    
    
    $
    12,430
    
    
    $
    21,453Total Commitments
    
    $
    84,969
    
    
    $
    36,424
    
    
    $
    14,662
    
    
    $
    12,430
    
    
    $
    21,453
 Letters of Credit
     Surety Bonds
  Other Guarantees
  81




---



##### Table of Contents



Note 16Segment Information:
   Central
    
    
    Northern
    
    
    
    
    
    
    
    
    
    
    Adjustments &Appalachia
    
    
    Appalachia
    
    
    Total
    
    
    Corporate
    
    
    Eliminations
    
    
    ConsolidatedSalesoutside
    
    $
    364,025
    
    
    $
    21,031
    
    
    $
    385,056
    
    
    $
    
    
    
    $
    
    
    
    $
    385,056Salesrelated parties
    
    
    8,392
    
    
    
    98
    
    
    
    8,490
    
    
    
    
    
    
    
    
    
    
    
    8,490Sales  royalty interest gas
    
    
    50,878
    
    
    
    176
    
    
    
    51,054
    
    
    
    
    
    
    
    
    
    
    
    51,054Sales  purchased gas
    
    
    43,973
    
    
    
    
    
    
    
    43,973
    
    
    
    
    
    
    
    
    
    
    
    43,973Other revenue
    
    
    21,048
    
    
    
    785
    
    
    
    21,833
    
    
    
    3,453
    
    
    
    
    
    
    
    25,286Intersegment revenues
    
    
    67,326
    
    
    
    1,452
    
    
    
    68,778
    
    
    
    
    
    
    
    (68,778
    )
    
    
    Total Sales and Freight
    
    $
    555,642
    
    
    $
    23,542
    
    
    $
    579,184
    
    
    $
    3,453
    
    
    $
    68,778
    )
    
    $
    513,859Earnings Before Income Taxes (A)
    
    $
    250,607
    
    
    $
    3,825
    
    
    $
    254,432
    
    
    $
    2,008
    
    
    $
    
    
    
    $
    256,440Segment assets (B) (C)
    
    $
    949,472
    
    
    $
    73,596
    
    
    $
    1,023,068
    
    
    $
    131,933
    
    
    $
    
    
    
    $
    1,155,001Depreciation, depletion and amortization
    
    $
    35,190
    
    
    $
    2,809
    
    
    $
    37,999
    
    
    $
    
    
    
    $
    
    
    
    $
    37,999Capital expenditures
    
    $
    122,287
    
    
    $
    31,956
    
    
    $
    154,243
    
    
    $
    
    
    
    $
    
    
    
    $
    154,243
 
 (A)
    
    Includes equity in earnings (loss) of unconsolidated affiliates of $1,405 and ($427) for Central Appalachia and Corporate segments, respectively.(B)
    
    Includes investments in unconsolidated equity affiliates of $27,523
and $24,760 for Central Appalachia and Corporate segments,
respectively.(C)
    
    Includes cash of $107,173 in the Corporate segment.  Central
    
    
    Northern
    
    
    
    
    
    
    
    
    
    
    Adjustments &Appalachia
    
    
    Appalachia
    
    
    Total
    
    
    Corporate
    
    
    Eliminations
    
    
    ConsolidatedSalesoutside
    
    $
    256,967
    
    
    $
    20,064
    
    
    $
    277,031
    
    
    $
    
    
    
    $
    
    
    
    $
    277,031Salesrelated parties
    
    
    5,969
    
    
    
    83
    
    
    
    6,052
    
    
    
    
    
    
    
    
    
    
    
    6,052Sales  royalty interest gas
    
    
    45,128
    
    
    
    223
    
    
    
    45,351
    
    
    
    
    
    
    
    
    
    
    
    45,351Salespurchased gas
    
    
    275,148
    
    
    
    
    
    
    
    275,148
    
    
    
    
    
    
    
    
    
    
    
    275,148Other revenue
    
    
    9,620
    
    
    
    54
    
    
    
    9,674
    
    
    
    185
    
    
    
    
    
    
    
    9,859Intersegment revenues
    
    
    46,680
    
    
    
    795
    
    
    
    47,475
    
    
    
    
    
    
    
    (47,475
    )
    
    
    Total Sales and Freight
    
    $
    639,512
    
    
    $
    21,219
    
    
    $
    660,731
    
    
    $
    185
    
    
    $
    (47,475
    )
    
    $
    613,441Earnings (Loss) Before Income Taxes (D)
    
    $
    162,769
    
    
    $
    4,339
    
    
    $
    167,108
    
    
    $
    (390
    )
    
    $
    
    
    
    $
    166,718Segment assets (E) (F)
    
    $
    763,432
    
    
    $
    41,135
    
    
    $
    804,567
    
    
    $
    54,600
    
    
    $
    
    
    
    $
    859,167Depreciation, depletion and amortization
    
    $
    31,619
    
    
    $
    3,420
    
    
    $
    35,039
    
    
    $
    
    
    
    $
    
    
    
    $
    35,039Capital expenditures
    
    $
    87,508
    
    
    $
    23,244
    
    
    $
    110,752
    
    
    $
    
    
    
    $
    
    
    
    $
    110,752
 82




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##### Table of Contents



(D)
    
    Includes equity in earnings (loss) of unconsolidated affiliates of
$138 and ($287) for Central Appalachia and Corporate segments,
respectively.(E)
    
    Includes investments in unconsolidated equity affiliates of $24,340
and $25,188 for Central Appalachia and Corporate segments,
respectively.(F)
    
    Includes cash of $20,073 in the Corporate segment  Central
    
    
    Northern
    
    
    
    
    
    
    
    
    
    
    Adjustments &Appalachia
    
    
    Appalachia
    
    
    Total
    
    
    Corporate
    
    
    Eliminations
    
    
    ConsolidatedSalesoutside
    
    $
    206,670
    
    
    $
    8,051
    
    
    $
    214,721
    
    
    $
    
    
    
    $
    
    
    
    $
    214,721Salesrelated parties
    
    
    22,000
    
    
    
    36
    
    
    
    22,036
    
    
    
    
    
    
    
    
    
    
    
    22,036Sales  royalty interest gas
    
    
    41,843
    
    
    
    15
    
    
    
    41,858
    
    
    
    
    
    
    
    
    
    
    
    41,858Salespurchased gas
    
    
    112,005
    
    
    
    
    
    
    
    112,005
    
    
    
    
    
    
    
    
    
    
    
    112,005Other revenue
    
    
    6,738
    
    
    
    58
    
    
    
    6,796
    
    
    
    120
    
    
    
    
    
    
    
    6,916Intersegment revenues
    
    
    48,523
    
    
    
    177
    
    
    
    48,700
    
    
    
    
    
    
    
    (48,700
    )
    
    
    Total Revenue and Other Income
    
    $
    437,779
    
    
    $
    8,337
    
    
    $
    446,116
    
    
    $
    120
    
    
    $
    (48,700
    )
    
    $
    397,536Earnings Before Income Taxes (G)
    
    $
    131,682
    
    
    $
    884
    
    
    $
    132,566
    
    
    $
    120
    
    
    $
    
    
    
    $
    132,686Segment assets (H)
    
    $
    663,116
    
    
    $
    21,794
    
    
    $
    684,910
    
    
    $
    33,949
    
    
    $
    
    
    
    $
    718,859Depreciation, depletion and amortization
    
    $
    32,198
    
    
    $
    691
    
    
    $
    32,889
    
    
    $
    
    
    
    $
    
    
    
    $
    32,889Capital expenditures
    
    $
    82,990
    
    
    $
    6,763
    
    
    $
    89,753
    
    
    $
    
    
    
    $
    
    
    
    $
    89,753
 
 (G)
    
    Includes equity in loss of unconsolidated affiliates of $1,508 and $915 for Central Appalachia and Corporate segments, respectively.(H)
    
    Includes investments in unconsolidated equity affiliates of $21,728
and $25,645 for Central Appalachia and Corporate segments,
respectively. 83




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##### Table of Contents



Other Supplemental InformationSupplemental Gas Data (unaudited) ($ in thousands):
  Capitalized Costs:
 As of December 31,2006
    
    
    2005Surface Lands
    
    $
    37,055
    
    
    $
    26,573Mineral Interests
    
    
    55,623
    
    
    
    55,621Wells and Related Equipment
    
    
    112,009
    
    
    
    83,633Intangible Drilling
    
    
    383,605
    
    
    
    312,467Gathering Assets
    
    
    520,906
    
    
    
    402,681Gas Well
Plugging
    
    
    5,652
    
    
    
    7,680Capitalized Internal Software
    
    
    6,433
    
    
    
    36Total Property, Plant and Equipment
    
    
    1,121,283
    
    
    
    888,691Accumulated
Depreciation, Depletion and Amortization
    
    
    (203,121
    )
    
    
    (165,144
    )Net Capitalized Costs
    
    $
    918,162
    
    
    $
    723,547Proportionate Share of Gas
Producing Net Property, Plant and
Equipment of Unconsolidated Equity
Affiliates
    
    $
    22,139
    
    
    $
    20,365
 
 84




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##### Table of Contents



For the Twelve Months Ended December 31,2006
    
    
    2005
    
    
    2004Consolidated
    
    
    Equity
    
    
    Consolidated
    
    
    Equity
    
    
    Consolidated
    
    
    EquityOperations
    
    
    Affiliates
    
    
    Operations
    
    
    Affiliates
    
    
    Operations
    
    
    AffiliatesProperty acquisitions
    
    $
    9,562
    
    
    $
    
    
    
    $
    8,333
    
    
    $
    20
    
    
    $
    4,190
    
    
    $
    111Development
    
    
    151,774
    
    
    
    
    
    
    
    86,273
    
    
    
    
    
    
    
    77,478
    
    
    
    Exploration
    
    
    832
    
    
    
    2,334
    
    
    
    19,370
    
    
    
    412
    
    
    
    5,596
    
    
    
    2,902Total
    
    $
    162,168
    
    
    $
    2,334
    
    
    $
    113,976
    
    
    $
    432
    
    
    $
    87,264
    
    
    $
    3,013
 
 (*)
    
    Includes costs incurred whether capitalized or expensed  Results of Operations:
 For the Twelve Months Ended December 31,2006
    
    
    2005
    
    
    2004Consolidated
    
    
    Equity
    
    
    Consolidated
    
    
    Equity
    
    
    Consolidated
    
    
    EquityOperations
    
    
    Affiliates
    
    
    Operations
    
    
    Affiliates
    
    
    Operations
    
    
    AffiliatesProduction Revenue
    
    $
    393,649
    
    
    $
    1,913
    
    
    $
    283,137
    
    
    $
    2,406
    
    
    $
    236,811
    
    
    $
    1,341Royalty Interest Gas Revenue
    
    
    51,054
    
    
    
    446
    
    
    
    45,351
    
    
    
    408
    
    
    
    41,858
    
    
    
    246Purchased Gas Revenue
    
    
    43,973
    
    
    
    356
    
    
    
    275,148
    
    
    
    2,561
    
    
    
    112,005
    
    
    
    1,120Total Revenue
    
    
    488,676
    
    
    
    2,715
    
    
    
    603,636
    
    
    
    5,375
    
    
    
    390,674
    
    
    
    2,707Lifting Costs
    
    
    31,096
    
    
    
    480
    
    
    
    26,794
    
    
    
    623
    
    
    
    23,939
    
    
    
    474Gathering Costs
    
    
    55,091
    
    
    
    359
    
    
    
    40,623
    
    
    
    168
    
    
    
    37,021
    
    
    
    172Royalty Expense
    
    
    41,998
    
    
    
    446
    
    
    
    36,641
    
    
    
    408
    
    
    
    32,914
    
    
    
    246Other Production Costs
    
    
    18,148
    
    
    
    541
    
    
    
    17,224
    
    
    
    915
    
    
    
    16,274
    
    
    
    1,153Purchased Gas Costs
    
    
    44,843
    
    
    
    299
    
    
    
    278,720
    
    
    
    2,434
    
    
    
    113,063
    
    
    
    1,044DD&A
    
    
    37,999
    
    
    
    512
    
    
    
    35,039
    
    
    
    870
    
    
    
    32,889
    
    
    
    918Total Costs
    
    
    229,175
    
    
    
    2,637
    
    
    
    435,041
    
    
    
    5,418
    
    
    
    256,100
    
    
    
    4,007Pre-tax Operating Income
    
    
    259,501
    
    
    
    78
    
    
    
    168,595
    
    
    
    (43
    )
    
    
    134,574
    
    
    
    (1,300
    )Income Taxes
    
    
    97,728
    
    
    
    29
    
    
    
    65,280
    
    
    
    (17
    )
    
    
    52,618
    
    
    
    (508
    )Results of Operations excluding Corporate and
Interest Costs
    
    $
    161,773
    
    
    $
    49
    
    
    $
    103,315
    
    
    $
    (26
    )
    
    $
    81,956
    
    
    $
    (792
    )Net Reserve Quantity (Mcfe)Beginning Reserves
    
    
    1,127,724
    
    
    
    2,672
    
    
    
    1,042,403
    
    
    
    2,385
    
    
    
    1,002,800
    
    
    
    1,581Revisions
    
    
    109,116
    
    
    
    (584
    )
    
    
    57,575
    
    
    
    521
    
    
    
    33,539
    
    
    
    Extensions and Discoveries
    
    
    82,363
    
    
    
    337
    
    
    
    77,917
    
    
    
    
    
    
    
    53,870
    
    
    
    1,006Production
    
    
    (55,910
    )
    
    
    (225
    )
    
    
    (50,171
    )
    
    
    (234
    )
    
    
    (49,674
    )
    
    
    (202
    )Purchases of Reserves In-Place
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,868
    
    
    
    Sales of Reserves In-Place
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ending Reserves
    
    
    1,263,293
    
    
    
    2,200
    
    
    
    1,127,724
    
    
    
    2,672
    
    
    
    1,042,403
    
    
    
    2,385Proved Developed Reserves:Beginning of Period
    
    
    549,574
    
    
    
    2,672
    
    
    
    395,152
    
    
    
    2,385
    
    
    
    352,935
    
    
    
    843End of Period
    
    
    609,700
    
    
    
    2,200
    
    
    
    549,574
    
    
    
    2,672
    
    
    
    395,152
    
    
    
    2,385
 
 *
    
    Proved developed and proved undeveloped gas reserves are defined by the Securities and Exchange Commission Rule 4.10(a) of Regulation S-X. Generally, these reserves would be commercially recovered under current economic conditions, operating methods and government regulations.  85




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Standardized Measure of Discounted Future Net Cash Flows:
    December 31,2006
    
    
    2005
    
    
    2004Future Cash Flows:Revenues
    
    $
    7,105,265
    
    
    $
    11,675,551
    
    
    $
    6,337,257Production costs
    
    
    (2,568,731
    )
    
    
    (2,852,033
    )
    
    
    (1,453,364
    )Development costs
    
    
    (552,114
    )
    
    
    (422,315
    )
    
    
    (265,540
    )Income tax expense
    
    
    (1,500,533
    )
    
    
    (3,251,265
    )
    
    
    (1,745,782
    )Future Net Cash Flows
    
    
    2,483,887
    
    
    
    5,149,938
    
    
    
    2,872,571Discounted to present value at a 10% annual rate
    
    
    (1,548,996
    )
    
    
    (3,279,144
    )
    
    
    (1,843,033
    )Total standardized measure of discounted net cash flows
    
    $
    934,891
    
    
    $
    1,870,794
    
    
    $
    1,029,538
  December 31,2006
    
    
    2005
    
    
    2004Balance at Beginning of Period
    
    $
    1,870,794
    
    
    $
    1,029,538
    
    
    $
    1,011,186Net changes in sales prices and production costs
    
    
    (5,341,525
    )
    
    
    3,539,448
    
    
    
    262,723Sales net of production costs
    
    
    (438,174
    )
    
    
    (234,526
    )
    
    
    (219,937
    )Net change due to revisions in quantity estimates
    
    
    1,492,654
    
    
    
    632,547
    
    
    
    364,456Development costs incurred, previously estimated
    
    
    169,169
    
    
    
    110,916
    
    
    
    87,274Changes in estimated future development costs
    
    
    (298,968
    )
    
    
    (267,691
    )
    
    
    (45,739
    )Net change in future income taxes
    
    
    1,750,732
    
    
    
    (1,505,484
    )
    
    
    (283,997
    )Accretion of discount and other
    
    
    1,730,209
    
    
    
    (1,433,954
    )
    
    
    (146,428
    )Total Discounted Cash Flow at End of Period
    
    $
    934,891
    
    
    $
    1,870,794
    
    
    $
    1,029,538
 86




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##### Table of Contents



Other Supplemental InformationSelected Quarterly Data (unaudited)($ in thousands):
 Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2006
    
    
    2006
    
    
    2006
    
    
    2006Total Revenue and Other Income
    
    $
    148,223
    
    
    $
    122,852
    
    
    $
    123,567
    
    
    $
    119,217Total Costs and Expense
    
    $
    73,286
    
    
    $
    60,532
    
    
    $
    61,770
    
    
    $
    61,831Total Earnings Before Income Tax
    
    $
    74,937
    
    
    $
    62,320
    
    
    $
    61,797
    
    
    $
    57,386Net Income
    
    $
    45,876
    
    
    $
    38,153
    
    
    $
    37,593
    
    
    $
    38,245Earnings per ShareBasic
    
    $
    0.30
    
    
    $
    0.25
    
    
    $
    0.25
    
    
    $
    0.25Diluted
    
    $
    0.30
    
    
    $
    0.25
    
    
    $
    0.25
    
    
    $
    0.25Weighted Average Shares OutstandingBasic
    
    
    150,833,334
    
    
    
    150,833,334
    
    
    
    150,850,930
    
    
    
    150,864,075Dilutive
    
    
    150,931,545
    
    
    
    151,060,061
    
    
    
    151,029,192
    
    
    
    151,062,622
 Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2005
    
    
    2005
    
    
    2005
    
    
    2005Total Revenue and Other Income
    
    $
    106,050
    
    
    $
    111,072
    
    
    $
    176,312
    
    
    $
    220,007Total Costs and Expense
    
    $
    62,919
    
    
    $
    83,442
    
    
    $
    133,497
    
    
    $
    166,865Total Earnings Before Income Tax
    
    $
    43,131
    
    
    $
    27,630
    
    
    $
    42,815
    
    
    $
    53,142Net Income
    
    $
    26,526
    
    
    $
    16,992
    
    
    $
    26,070
    
    
    $
    32,580Earnings per ShareBasic
    
    $
    0.21
    
    
    $
    0.14
    
    
    $
    0.19
    
    
    $
    0.22Diluted
    
    $
    0.21
    
    
    $
    0.14
    
    
    $
    0.19
    
    
    $
    0.22Weighted Average Shares OutstandingBasic
    
    
    122,896,667
    
    
    
    122,896,667
    
    
    
    139,294,276
    
    
    
    150,833,334Dilutive
    
    
    122,988,359
    
    
    
    122,988,359
    
    
    
    139,416,414
    
    
    
    151,003,896
 
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
 Disclosure controls and procedures.
  Managements Report on Internal Control Over Financial Reporting.
  87




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##### Table of Contents



Changes in Internal Controls Over Financial Reporting.
  
 ITEM 9B.
    
    OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  Executive Officers of CNX Gas Corporation
  Name
    
    Age
    
    PositionNicholas J. DeIuliis
    
    38
    
    President and Chief Executive Officer and DirectorRonald E. Smith
    
    58
    
    Executive Vice President and Chief Operating OfficerGary J. Bench
    
    48
    
    Senior Vice President and Chief Financial OfficerStephen W. Johnson
    
    48
    
    Senior Vice President, Secretary and General Counsel
 Nicholas J. DeIuliis, 38,
 88




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##### Table of Contents



Ronald E. Smith, 58,
 Gary J. Bench, 48,
 Stephen W. Johnson, 48,
 www.cnxgas.com.
 
 ITEM 11. EXECUTIVE COMPENSATION.
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
  89




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 (a)(1)
    
    Financial Statements:The financial statements included in Part II, Item 8 above are filed as part of this annual report.(a)(2)
    
    Financial Statement Schedules:No schedules are required to be presented by CNX Gas.(a)(3) and (b)
    
    Exhibits:The exhibits listed on the Exhibit Index which follows the Signatures hereto are filed as part of this annual report.
 90




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##### Table of Contents



SIGNATURES
 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, as of the 19th day of February, 2007.
 CNX Gas CorporationBy:

/s/ Nicholas      J. DeIuliisNicholas J. DeIuliisPresident and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed as of the 19th day of February, 2007, by the following persons on behalf of the Registrant
in the capacities indicated:
 Signature
    
    
    
    Title/s/ Philip W. Baxter

Philip W. Baxter
    
    
    
    Chairman of the Board/s/ Nicholas J. DeIuliis

Nicholas J. DeIuliis
    
    
    
    President, Chief Executive Officer and Director (Principal Executive Officer)/s/ Gary J. Bench

Gary J. Bench
    
    
    
    Chief Financial Officer (Principal Financial and Accounting Officer)/s/ J. Brett Harvey

J. Brett Harvey
    
    
    
    Director/s/ James E. Altmeyer, Sr.

James E. Altmeyer, Sr.
    
    
    
    Director/s/ Raj K. Gupta

Raj K. Gupta
    
    
    
    Director/s/ John R. Pipski

John R. Pipski
    
    
    
    Director/s/ William J. Lyons

William J. Lyons
    
    
    
    Director/s/ Joseph T. Williams
    
    
    
    DirectorJoseph T. Williams
 91




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##### Table of Contents



EXHIBIT INDEX
 3.1
    
    Amended and Restated Certificate of Incorporation of CNX Gas Corporation(1)3.2
    
    Amended and Restated Bylaws of CNX Gas Corporation(1)4.1
    
    Registration Rights Agreement dated August 8, 2005 by and among CNX Gas Corporation, CONSOL Energy Inc. and Friedman, Billings, Ramsey & Co., Inc.(1)4.2
    
    Form of stock certificate(1)10.1
    
    Summary of Employment Terms for Nicholas J. DeIuliis(2)*10.2
    
    Offer letter for Ronald Smith(2)*10.3
    
    Offer letter for Gary J. Bench(1)*10.4
    
    Offer letter for Stephen W. Johnson(1)*10.5
    
    CNX Gas Corporation Equity Incentive Plan and form of award agreements thereunder(1)*10.6.1
    
    Form of Change in Control Agreement for executive officers DeIuliis and Bench(1)*10.6.2
    
    Form of Change in Control Agreement for executive officers Smith and Johnson(1)*10.7
    
    Master Separation Agreement dated as of August 1, 2005 by and among CONSOL Energy Inc. and each of the its subsidiaries (other than CNX Gas Corporation
and its subsidiaries) and CNX Gas Corporation and its subsidiaries(3)10.8
    
    Master Cooperation and Safety Agreement dated as of August 1, 2005 by and among CONSOL Energy Inc. and each CEI Subsidiary (as defined therein) and CNX
Gas Corporation and each CNX Subsidiary (as defined therein)(3)10.9
    
    Tax Sharing Agreement dated August 1, 2005 between CONSOL Energy Inc. and CNX Gas Corporation(3)10.10
    
    Services Agreement dated August 1, 2005 by and among CONSOL Energy Inc., CNX Land Resources Inc. and CNX Gas Corporation and its subsidiaries that become
a party to the agreement(3)10.11
    
    Intercompany Revolving Credit Agreement between CONSOL Energy Inc. and CNX Gas Corporation(3)10.12
    
    Master Lease dated August 1, 2005 by and between CONSOL Energy Inc. and each of its subsidiaries made a party thereto and CNX Gas Company, LLC(3)10.13
    
    Summary sheet regarding director compensation(1)10.14
    
    Purchase/Placement Agreement dated August 1, 2005 by and between CNX Gas Corporation, CONSOL Energy Inc. and Friedman, Billings, Ramsey & Co., Inc.(1)10.15
    
    Credit Agreement dated October 7, 2005 between CNX Gas Corporation, certain of its subsidiaries, and the Lender parties thereto.(4)10.16
    
    Indenture, dated March 7, 2002, among CONSOL Energy Inc., certain subsidiaries of CONSOL Energy Inc. and The Bank of Nova Scotia Trust Company of New
York, as trustee(5)10.17
    
    Supplemental Indenture No. 1, dated March 7, 2002, among CONSOL Energy Inc., certain subsidiaries of CONSOL Energy Inc. and The Bank of Nova Scotia Trust
Company of New York, as trustee(6)10.18
    
    Supplemental Indenture No. 2, dated as of September 30, 2003, among CONSOL Energy Inc., certain subsidiaries of CONSOL Energy Inc. and The Bank of Nova
Scotia Trust Company of New York, as trustee(7)10.19
    
    Supplemental Indenture No. 3, dated as of April 15, 2005, among CONSOL Energy Inc., certain subsidiaries of CONSOL Energy Inc. and The Bank of Nova Scotia
Trust Company of New York, as trustee(8)10.20
    
    Supplemental Indenture No. 4, dated as of August 8, 2005, among CONSOL Energy Inc., certain
subsidiaries of CONSOL Energy Inc. and The Bank of Nova Scotia Trust Company of New York, as
trustee(3)10.21
    
    Supplemental Indenture No. 5, dated as of October 21, 2005, among CONSOL Energy Inc., certain
subsidiaries of CONSOL Energy Inc. and The Bank of Nova Scotia Trust Company of New York, as
trustee(9)
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10.22
    
    Precedent Agreement dated July 29, 2005 by and between East Tennessee Natural Gas, LLC and CNX
Gas Company, LLC.(10)10.23
    
    Description of the CNX Gas Corporation 2006 Short-Term Incentive Compensation Program(11)*10.24
    
    Firm Transportation Agreement, dated as of April 27th, 2006, between CNX Gas
Company, LLC, a wholly-owned subsidiary of CNX Gas, and East Tennessee Natural Gas, LLC. (12)10.25
    
    Firm Lateral Transportation Agreement, dated as of April 27th, 2006, between CNX
Gas Company, LLC, a wholly-owned subsidiary of CNX Gas, and East Tennessee Natural Gas, LLC. (13)10.26
    
    The summary description of the base compensation and short-term incentive opportunities for the
executive officers of CNX Gas Corporation for 2006.* (14)10.27
    
    The initial election grant of options to purchase common stock of CNX Gas Corporation to Joseph T.
Williams, upon his election to the Board of Directors on July 10, 2006.* (15)10.28
    
    CNX Gas Corporation Long-Term Incentive Program for the performance period from October 11, 2006 to
December 31, 2009 and form of award agreement thereunder.* (16)10.29
    
    First Amendment to the CNX Gas Corporation Equity Incentive Plan, as amended.* (16)10.30
    
    Summary of Non-Employee Director Compensation effective as of November 1, 2006.* (16)10.31
    
    Summary of the awards to CNX Gas Corporations executive officers under the CNX Gas Corporation
Long-Term Incentive Program for the performance period from October 11, 2006 to December 31, 2009.*
(16)21
    
    Subsidiaries of CNX Gas Corporation(1)23.1
    
    Consent of PricewaterhouseCoopers LLP23.2
    
    Consent of Ralph E. Davis Associates, Inc.23.3
    
    Consent of Schlumberger Data and Consulting Services31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (1)
    
    Incorporated by reference from the Amendment No. 1 to the Registration Statement on Form S-1 (file no.
333-127483) filed on September 29, 2005(2)
    
    Incorporated by reference from the Current Report on Form 8-K filed by CONSOL Energy Inc. on August 19, 2005
(SEC File No. 001-14901)(3)
    
    Incorporated by reference from the Current Report on Form 8-K filed by CONSOL Energy Inc. on August 12, 2005
(SEC File No. 001-14901)(4)
    
    Incorporated by reference from the Current Report on Form 8-K filed by CONSOL Energy Inc. on October 13, 2005(5)
    
    Incorporated by reference from Exhibit 4.1 to Form 10-K filed by CONSOL Energy Inc. on March 29, 2002(6)
    
    Incorporated by reference from Exhibit 4.2 to Form 10-K filed by CONSOL Energy Inc. on March 29, 2002(7)
    
    Incorporated by reference from Exhibit 4.2 to Form 10-Q filed by CONSOL Energy Inc. on November 19, 2003(8)
    
    Incorporated by reference from Exhibit 4.2 to Form 10-Q filed by CONSOL Energy Inc. on August 3, 2005(9)
    
    Incorporated by reference from the Amendment No. 2 to the Registration Statement on Form S-1 (file no.
333-127483) filed on October 27, 2005(10)
    
    Incorporated by reference from the Amendment No. 4 to the Registration Statement on Form S-1 (file no.
333-127483) filed on December 17, 2005(11)
    
    Incorporated by reference from the second paragraph of Item 1.01 of the Current Report on Form 8-K filed by
CNX Gas 93




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Corporation on February 10, 2006(12)
    
    Incorporated by reference from Exhibit 10.1 to Form 10-Q filed by CNX Gas Corporation on August 2, 2006(13)
    
    Incorporated by reference from Exhibit 10.2 to Form 10-Q filed by CNX Gas Corporation on August 2, 2006(14)
    
    Incorporated by reference from Item 1.01 of the Current Report on Form 8-K filed by the CNX Gas Corporation
on May 1, 2006 (SEC File No. 001-32723)(15)
    
    Incorporated by reference from Item 1.01 of the Current Report on Form 8-K filed by CNX Gas Corporation on
July 11, 2006 (SEC File No. 001-32723)(16)
    
    Incorporated by reference from the Current Report on Form 8-K filed by CNX Gas Corporation on October 17,
2006 (SEC File No. 001-32723)In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and
not filed.*
    
    Management compensatory contract or arrangement. 94