STOCK-BASED COMPENSATION:

CONSOL Energy adopted the CONSOL Energy Inc. Equity Incentive Plan on April 7, 1999. The plan provides for grants of stock-based awards to key employees and to non-employee directors. Amendments to the plan have been approved by the Board of Directors since the commencement of the plan. In 2009, the Board of Directors approved an increase in the total number of shares by 5,600,000 bringing the total number of shares of common stock that can be covered by grants to 23,800,000. At December 31, 2011, 3,137,524 shares are available for all awards. The Plan, as amended, provides that the aggregate number of shares available for issuance under the Plan will be reduced by one share for each share issued in settlement of stock options and by 1.44 for each share issued in settlement of Performance Share Units (PSUs) or Restricted Stock Units (RSUs). No award of stock options may be exercised under the plan after the tenth anniversary of the effective date of the award.

CONSOL Energy recognizes stock-based compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the option vesting term, or to an employee's eligible retirement date, if earlier and applicable. The total stock-based compensation expense recognized was $46,076, $45,550 and $32,723 for the years ended December 31, 2011, 2010 and 2009, respectively. The related deferred tax benefit totaled $17,325, $17,473 and $12,490, for the years ended December 31, 2011, 2010 and 2009, respectively.

CONSOL Energy examined its historical pattern of option exercises in an effort to determine if there were any discernable activity patterns based on certain employee populations. From this analysis, CONSOL Energy identified two distinct employee populations. CONSOL Energy uses the Black-Scholes option pricing model to value the options for each of the employee populations. The table below presents the weighted average expected term in years of the two employee populations. The expected term computation is based upon historical exercise patterns and post-vesting termination behavior of the populations. The risk-free interest rate was determined for each vesting tranche of an award based upon the calculated yield on U.S. Treasury obligations for the expected term of the award. The expected forfeiture rate is based upon historical forfeiture activity. A combination of historical and implied volatility is used to determine expected volatility and future stock price trends. Total fair value of options granted during the years ended December 31, 2011, 2010 and 2009 were $9,913, $10,361 and $9,950, respectively. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model with the following assumptions and weighted average fair values:



	December 31,
	2011			2010			2009
Weighted average fair value of grants	$	20.47		$	21.97		$	14.48
Risk-free interest rate	1.61		%	1.88		%	1.45		%
Expected dividend yield	0.82		%	0.80		%	1.40		%
Expected forfeiture rate	2.00		%	2.00		%	2.00		%
Expected volatility	55.10		%	59.00		%	75.60		%
Expected term in years	4.26			4.04			4.10

A summary of the status of stock options granted is presented below:



					Weighted
					Average
			Weighted		Remaining	Aggregate
			Average		Contractual	Intrinsic
			Exercise		Term (in	Value (in
	Shares		Price		years)	thousands)
Balance at December 31, 2010	5,453,241		$	29.59
Granted	484,263		$	48.59
Exercised	(579,767	)	$	15.59
Forfeited	(22,227	)	$	36.32
Balance at December 31, 2011	5,335,510		$	32.79	4.67	$	51,962
Vested and expected to vest	5,325,845		$	32.76	4.85	$	51,961
Exercisable at December 31, 2011	4,339,329		$	29.75	4.00	$	49,382

These stock options will terminate ten years after the date on which they were granted. The employee stock options, covered by the Equity Incentive Plan adopted April 7, 1999, vest 25% per year, beginning one year after the grant date for awards granted prior to 2007. Employee stock options awarded after December 31, 2006 vest 33% per year, beginning one year after the grant date. There are 4,965,695 stock options outstanding under the Equity Incentive plan. Additionally, there are 291,612 fully vested employee stock options outstanding which vested under terms ranging from six months to one year. Non-employee director stock options vest 33% per year, beginning one year after the grant date. There are 78,203 stock options outstanding under these grants. The vesting of all options will accelerate in the event of death, disability or retirement and may accelerate upon a change in control of CONSOL Energy. In 2008, the compensation committee of the board of directors changed the retirement eligible acceleration of vesting to require a minimum vesting period of twelve months. This change is effective for all stock based compensation awards issued after January 1, 2008.

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between CONSOL Energy's closing stock price on the last trading day of the year ended December 31, 2011, and the option's exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2011. This amount varies based on the fair market value of CONSOL Energy's stock. Total intrinsic value of options exercised for the year ended December 31, 2011, 2010 and 2009 was $18,049, $10,722 and $4,502, respectively.

Cash received from option exercises for the years ended December 31, 2011, 2010 and 2009 was $9,033, $5,993 and $2,547, respectively. The excess tax benefit realized for the tax deduction from option exercises totaled $8,281, $15,365, and $3,270, for the years ended December 31, 2011, 2010 and 2009, respectively. This excess tax benefit is included in cash flows from financing activities in the Consolidated Statements of Cash Flows.

Under the Equity Incentive Plan, CONSOL Energy granted certain employees and non-employee directors restricted stock unit awards. These awards entitle the holder to receive shares of common stock as the award vests. Compensation expense is recognized over the vesting period of the units. The total fair value of the restricted stock units granted during the years ended December 31, 2011, 2010 and 2009 was $24,882, $28,762 and $42,720, respectively. The total fair value of shares vested during the years ended December 31, 2011, 2010 and 2009 was $16,496, $22,244 and $18,092, respectively. The following represents the unvested restricted stock units and their corresponding fair value (based upon the closing share price) at the date of grant:



	Number of		Weighted Average
	Shares		Grant Date Fair Value
Nonvested at December 31, 2010	1,168,444		$38.63
Granted	515,804		$48.24
Vested	(435,825	)	$37.85
Forfeited	(28,070	)	$44.70
Nonvested at December 31, 2011	1,220,353		$42.83

Under the Equity Incentive Plan, CONSOL Energy granted certain employees performance share unit awards. These awards entitle the holder to receive shares of common stock subject to the achievement of certain market and performance goals. Compensation expense is recognized over the performance measurement period of the units in accordance with the provisions of the Stock Compensation Topic of the FASB Accounting Standards Codification for awards with market and performance vesting conditions. At December 31, 2011, achievement of the market and performance goals is believed to be probable. The total fair value of performance share units granted during the years ended December 31, 2011, 2010 and 2009 was $11,648, $8,882 and $5,684. The following represents the unvested performance share unit awards and their corresponding fair value (based upon the closing share price) at the date of grant:



	Number of		Weighted Average
	Shares		Grant Date Fair Value
Nonvested at December 31, 2010	338,013		$53.36
Granted	211,743		$55.01
Vested	(40,752	)	$86.41
Nonvested at December 31, 2011	509,004		$51.40

Under the Equity Incentive Plan, CONSOL Energy granted certain employees performance stock options. These awards entitle the holder to receive shares of common stock subject to the achievement of certain performance goals. Compensation expense is recognized over the vesting period of the units. At December 31, 2011, achievement of the performance goals is believed to be probable. The total fair value of performance share options vested during the year ended December 31, 2011 was $3,299. The following represents the unvested performance options and their corresponding fair value (based upon the closing share price) at the date of grant:



	Number of		Weighted Average
	Shares		Grant Date Fair Value
Nonvested at December 31, 2010	802,804		$16.44
Vested	(200,697	)	$16.44
Nonvested at December 31, 2011	602,107		$16.44

As of December 31, 2011, $36,643 of total unrecognized compensation cost related to all unvested stock-based awards is expected to be recognized over a weighted-average period of 1.66 years. When stock options are exercised and restricted and performance stock unit awards become vested, the issuances are made from CONSOL Energy's treasury stock shares which have been acquired as part of CONSOL Energy's share repurchase program as previously discussed in Note 1–Significant Accounting Policies.