Peabody and ConocoPhillips Enter into Agreement to Explore Development of Midwest Coal-to-Substitute Natural Gas Facility

ST. LOUIS and HOUSTON,- Peabody Energy (NYSE: BTU) and ConocoPhillips (NYSE: COP) today announced they have entered into an agreement to explore development of a commercial scale coal-to-substitute natural gas (SNG) facility using proprietary ConocoPhillips E-GAS™ technology.

The project would be developed as a mine-mouth facility at a location where Peabody has access to large reserves and existing infrastructure. It would be designed to annually produce 50 billion to 70 billion cubic feet of pipeline quality SNG from more than 3.5 million tons of Midwest sourced coal. In addition, presuming there is a supportive regulatory framework in place, the project scope will provide for carbon capture and storage.

“Our agreement with ConocoPhillips combines the strength of global industry leaders and proven technology that further demonstrates coal’s ability to build energy reliability, security and price stability,” said Gregory H. Boyce, Peabody president and chief executive officer. “The energy value in Peabody’s vast coal reserve base exceeds the energy in the oil or gas reserves in the continental United States, offering strategic advantages for coal-to-gas projects and other Btu conversion projects.”

Peabody and ConocoPhillips would participate in project ownership along with other potential equity partners. The preliminary design and economic assessment is expected to be complete in early 2008.

“ConocoPhillips believes the key to a secure energy future is the development and efficient use of diverse energy sources,” said Jim Mulva, ConocoPhillips chairman and chief executive officer. “This project, as currently envisioned, would be designed to deliver over 1.5 trillion cubic feet of SNG in its first 30 years of operation from proven, domestic coal reserves. It also offers an excellent opportunity to use our company’s project management capabilities, manufacturing expertise, and advanced technology to help increase the supply of alternative fuels.”

Gasification has been used for the refining, chemical and power industries for more than 50 years. E-GAS™ technology converts coal or petroleum coke into a clean synthesis gas, allowing virtually all impurities to be removed.

Natural gas demand has grown rapidly in recent years, and development of coal-to-SNG projects is gaining increasing interest. In a 2006 study, the National Coal Council called for using coal to provide at least 15 percent of U.S. natural gas consumption, or 4 trillion cubic feet per year using nearly 350 million tons of coal annually.

Peabody Energy is the world’s largest private-sector coal company, with 2006 sales of 248 million tons of coal and $5.3 billion in revenues. Its coal products fuel approximately 10 percent of all U.S. electricity generation and more than 2 percent of worldwide electricity.