August 12, 2017 - Foresight Energy LP (NYSE: FELP) today reported financial and operating results for the second quarter of 2017. Foresight generated quarterly coal sales revenues of $204.5 million on sales volumes of 4.8 million tons resulting in Adjusted EBITDA of $84.5 million, cash flows from operations of $38.5 million and a net loss attributable to limited partner units of $16.3 million, or $(0.12) per unit. Results for the second quarter 2017 included $12.8 million of insurance recoveries related to the combustion event at the Hillsboro operation, approximately $10.2 million of incremental depreciation, depletion and amortization (“DD&A”), and a non-cash charge of $8.7 million related to contract amortization. The incremental DD&A and contract amortization is a function of pushdown accounting adopted in conjunction with the March 27 refinancing transaction.
As mentioned during the prior quarter, Foresight adopted pushdown reporting as of March 31, 2017 as a result of Murray Energy obtaining control of its general partner. As such, operational results for the quarter ended June 30, 2017 were recorded on the successor financial statements. As required by pushdown reporting, the Partnership revalued its balance sheet on the change of control date and therefore certain financial statement line items are not comparable to prior periods. However, pushdown reporting did not materially affect coal sales and cost of coal produced, which are generally comparable to prior periods.
“Foresight had another solid operating quarter driven by exceptional production at our operations. We produced approximately 5.7 million tons during the quarter, an increase of 16% compared to the same period last year. This production level yielded costs below $22.00 per ton. With all of our scheduled calendar year 2017 longwall moves now complete, we expect to improve our industry-leading cost structure over the remainder of the year,” stated Mr. Robert D. Moore, Chairman, President, and Chief Executive Officer.
Second Quarter Financial Results
Coal sales totaled $204.5 million for the second quarter 2017 compared to $224.1 million for the second quarter 2016, representing a decline of $19.6 million. The decrease in coal sales revenues was driven by lower sales volumes and anticipated reductions in coal sales realizations per ton. Sales volumes were unfavorably impacted 0.2 million tons due to the continued lack of performance by one rail service provider and certain customers deferring shipments during the quarter due to maintenance and operational issues. The reduction in coal sales realizations of $2.01 per ton was principally driven by customer mix relative to the prior year quarter as well as the rolling off of certain legacy sales contracts with more favorable pricing.
Cost of coal produced was $105.8 million, or $21.88 per ton sold, for the second quarter 2017 compared to $112.1 million, or $22.16 per ton sold, for the same period of 2016. The decrease during the current year quarter was driven largely by lower sales volumes and also included a non-cash charge of $4.6 million related to the revaluation of coal inventory related to the pushdown accounting adopted.
Transportation costs decreased $9.3 million, or $1.59 per ton sold, from the prior year period due to lower sales volumes and lower charges for minimum contractual rail and export terminal throughput requirements. The lower contractual minimums are driven by the expectation of higher export shipments during 2017.
Other operating (income) expense for the second quarter 2017 increased $13.7 million from the second quarter 2016 due to the receipt of $12.8 million of insurance proceeds related to the Hillsboro combustion event. Foresight continues to pursue additional remedies under its insurance policies; however, there can be no assurances of any future recoveries related to this incident.
Foresight generated operating cash flows of $38.5 million during second quarter 2017 and it ended the quarter with $7.2 million in cash and $158.5 million of available borrowing capacity, net of outstanding letters of credit, under its revolving credit facility. During the second quarter 2017, capital expenditures totaled $21.7 million, an increase of $13.5 million compared to the quarter ended June 30, 2016. Capital spending in the prior year period was lower as a result of the timing of capital outlays related to the maintenance of mining operations.
Guidance for 2017
Based on Foresight’s contracted position, recent performance, and its current outlook on pricing and the coal markets in general, the Partnership is reaffirming, updating or providing the following guidance for 2017:
Sales Volumes – Based on year-to-date sales volumes, current committed position and expectations for the remainder of 2017, Foresight is reaffirming projected sales volumes to be between 20.5 and 22.0 million tons, with over 5.0 million tons expected to go into the international market. Foresight has current commitments of approximately 20.0 million tons for 2017.
Adjusted EBITDA – Based on the projected sales volumes and operating cost structure, Foresight currently expects to generate Adjusted EBITDA in a range of $285 to $310 million
Capital Expenditures – Total 2017 capital expenditures are estimated to be between $70 and $77 million.
Quarterly Distribution and Strategy
As noted earlier, during the quarter, Foresight generated cash from operations of $38.5 million and capital expenditures of $21.7 million. As a result of the provided guidance, liquidity position and ability to generate cash in the coming quarters, the Board of Directors of its General Partner approved the restoration of a quarterly cash distribution of $0.0647 per common unit. The distribution is payable on August 31, 2017, for common unitholders of record on August 21, 2017.
“As it relates to deleveraging our balance sheet, we expect debt reductions to occur by way of required amortization payments under our various facilities and also the excess cash flow sweep under our term loan facility. In addition to this, the Partnership plans to distribute any excess cash to its common unitholders in the form of ongoing distributions. The distribution declared today will be the first distribution paid to common unitholders since the third quarter 2015 and represents the Partnership’s commitment to returning capital to its unitholders. However, future distributions will be subject to board review and will be based on a number of factors including our leverage levels, market conditions, excess cash flow remaining after required excess cash flow sweeps and our projected future financial and operating performance,” said Mr. Moore.