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Signature Sponsor
February 7, 2019 - Today, CONSOL Energy Inc. (NYSE: CEIX) reported financial and operating results for the period ended December 31, 2018.
Highlights of the CEIX fourth quarter 20181 results include:
Management Comments
"I am extremely proud to announce our results for the fourth quarter of 2018, as it was another strong quarter and capped off a year of many achievements" said Jimmy Brock, Chief Executive Officer of CONSOL Energy Inc. "The quarter marked a milestone for CEIX, as we completed our first calendar year as an independent publicly-traded coal company. In 2018, we also produced and sold more coal than in any other year throughout the PAMC's 35-year history. I am also pleased to announce that we have made significant improvement during 2018 on the safety front as well. Our total recordable incident rate at the PAMC for full year 2018 has improved by 13.5% and our total number of exceptions improved by 12.1% compared to the same period last year. We continue to remain laser-focused on having zero life-altering injuries."
"At the time of becoming an independent publicly traded company in November 2017, we targeted some very specific near-term goals and priorities. We set out to de-lever our balance sheet, improve liquidity and initiate returns to our shareholders while safely and compliantly delivering earnings growth. I am pleased to announce that we delivered on all those goals during 2018. Operationally, we have set new annual production and sales records at the PAMC, marking three consecutive years of production growth. Financially, we have reduced the leverage on our balance sheet by 0.7x since year-end 2017 and opportunistically returned $28.9 million of capital to our shareholders through CEIX share repurchases and investment in CCR units. We also retired approximately $56.0 million of our term loans and second lien notes. For 2019, we expect to continue to focus on further de-levering our balance sheet and increasing shareholder returns. We are also now turning our focus towards strategically growing our business, which will diversify our revenue streams and increase our value per share."
Pennsylvania Mining Complex (PAMC) Review and Outlook
PAMC Sales and Marketing
Our marketing team sold 7.0 million tons of coal during the fourth quarter of 2018 at an average revenue per ton of $49.81, compared to 6.2 million tons at an average revenue per ton of $46.36 in the year-ago period. This brings our full-year (FY) 2018 PAMC sales volume to 27.7 million tons, which exceeds the high-end of our guidance range. It also represents a record sales volume year for the PAMC, and its third consecutive year of sales volume growth. This growth was achieved due to improved demand for our products, as well as our ability to ramp up production and capture that demand improvement. The average revenue per ton for the fourth quarter benefited from stronger pricing on our export sales and domestic netback contracts compared to the year-ago period.
During the quarter, our domestic customers demonstrated a strong demand for coal, driven by higher natural gas prices and depleted coal inventories following stronger than forecasted burn throughout the year. According to the U.S. Energy Information Administration (EIA), total coal inventories at domestic power plants stood at approximately 104 million tons at the end of November 2018, down by approximately 27% from the same period a year ago, and the lowest end-of-November total inventory tonnage level since 1997. Furthermore, we believe that inventories at several of our key customers' Northern Appalachian rail-served power plants are below normal, and absent any meaningful weather-related demand decline, we expect to ship all we can produce during 2019 as our customers will continue to seek additional coal to replenish their depleted stockpiles. Taking advantage of this sustained demand, we have contracted greater than 95% in 2019, 53% in 2020 and 28% in 2021, assuming a base annual production rate of 27 million tons. This contracted position includes a mix of sales to our top domestic customers and to the export thermal and export metallurgical markets, maintaining our diversified market exposure. With our solid 2019 contracted position, our primary focus is now on maximizing margins for any remaining 2019 sales and continuing to build on our contract portfolio.
Internationally, coal price volatility increased significantly during the quarter with API 2 prompt month prices fluctuating between $86 per ton and $102 per ton. Overall, API 2 prompt-month prices declined by approximately 13% during the fourth quarter of 2018, driven by rising global trade tensions and a general decline in energy-related commodities. However, we have not seen and do not expect to see any slowdown in near-term export demand for our product. Furthermore, we are currently shipping our coal under a previously disclosed and priced contract which insulates us from the ongoing volatility in export pricing as well. There continues to be a significant arbitrage opportunity between coal, natural gas, and oil prices on a delivered mmBtu basis in many key global markets. We believe that with limited coal supply growth throughout the world, we will continue to have an increasing role in the coal export markets.
Operations Summary
On the operations front, the PAMC achieved record production of 27.6 million tons in 2018, eclipsing the previous record of 26.1 million tons set in 2017 and marking the third consecutive year of production growth. During 2018, the complex ran at approximately 97% capacity utilization, highlighting the desirability of our product. Additionally, our Bailey and Harvey mines each set individual production records during the year. Bailey's 12.7 million tons surpasses its previous record set in 2014, while Harvey's 5.0 million tons exceeds its previous record set in 2017. PAMC production for the full year benefited from strong demand for our products in the domestic and export markets, improving productivity, initial benefits from automation projects, and improving geological conditions at Enlow Fork mine.
The PAMC shipped 7.0 million tons of coal during the fourth quarter of 2018, compared to 6.2 million tons in the year-ago quarter. The improvement in coal sales volume was driven by strong production and continued robust demand from our customers. Total coal revenue for the fourth quarter was $347.8 million, which was improved from $288.3 million in the year-ago quarter, primarily driven by a $3.45 higher average sales price per ton sold. Our average revenue per ton increased to $49.81 from $46.36 in the year-ago quarter, due to stronger pricing on our export sales and domestic netback contracts.
CEIX's total costs during the fourth quarter were $335.9 million compared to $312.5 million in the year-ago quarter. Average cash cost of coal sold per ton2 for the fourth quarter was $30.54 compared to $27.30 in the year-ago quarter. The increase was due to reduced subsidence expense and lower mine maintenance spending in the prior period. For FY 2018, CEIX's total costs were $1,344.4 million compared to $1,242.1 million in the prior year. Our FY 2018 average cash cost of coal sold per ton2 was $29.29 compared to $29.02 for FY 2017, an increase of less than 1%. Average cash margin per ton sold2 for the fourth quarter of 2018 expanded by $0.21, to $19.27 per ton compared to the year-ago period, driven by higher average revenue per ton, offset by higher average cash cost of coal sold per ton.
CONSOL Marine Terminal Review
For the fourth quarter of 2018, terminal revenues and operating cash costs were $16.9 million and $5.2 million, respectively, compared to $17.3 million and $5.5 million, respectively, during the year-ago period. Given the effect on terminal revenues of the take-or-pay contract that has been in place at our terminal since mid-2018, we are changing our guidance methodology for CONSOL Marine Terminal to be based on EBITDA instead of throughput volume for the 2019 period.
Equity and Debt Repurchase Update
During the fourth quarter, we accelerated our rate of repurchasing CEIX shares, as the declines in our share price and in the broader equity markets created opportunities for us, while continuing to remain disciplined in our capital allocation process. During the quarter, we repurchased approximately $16.1 million of CEIX common shares, $5.2 million of second lien notes and $1.9 million of CCR common units. For the year-ended December 31, 2018, we have now repurchased approximately $25.8 million of CEIX common shares, $25.7 million of second lien notes and $3.1 million of CCR common units. We have also repaid $26.3 million and $4.0 million of principal with respect to Term Loan A and Term Loan B, respectively.
2019 Liability Management
During the first quarter of 2019, we are required to reduce our outstanding Term Loan B principal by approximately $110 million based on the 2018 excess free cash flow sweep calculated in accordance with our credit agreement. We are also continuing to opportunistically take advantage of market volatility to repurchase our second lien notes. In 2019, we repurchased $7 million of our second lien notes. We expect to remain active on our liability management program in 2019 to reduce our overall cost of indebtedness.
2019 Guidance and Outlook
Based on our current contracted position, estimated prices and production plans, we are providing the following financial and operating performance guidance for 2019:
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