CONSOL Energy Announces Results for the Fourth Quarter and Full Year 2019
February 11, 2020 - Today, CONSOL Energy Inc. (NYSE: CEIX) reported financial and operating results for the period ended December 31, 2019.
Fourth Quarter 2019 and Full Year 2019 Highlights Include:
- GAAP net income of $17.4 million and $93.6 million for 4Q19 and 2019, respectively;
- 2019 total GAAP dilutive earnings per share of $2.81;
- Adjusted net income1 of $17.4 million and $112.7 million for 4Q19 and 2019, respectively;
- 2019 adjusted dilutive earnings per share1 of $3.52;
- Adjusted EBITDA1 of $92.1 million and $405.9 million for 4Q19 and 2019, respectively;
- Coal sales volume of 27.3 million tons is the second strongest year ever for the Pennsylvania Mining Complex (PAMC);
- Annual revenue record at the CONSOL Marine Terminal (CMT);
- Harvey Mine achieved annual production record of 5.02 million tons;
- 2019 cash provided by operating activities of $244.6 million;
- 2019 organic free cash flow net to CEIX shareholders1 of $52.6 million, including $80.3 million adverse working capital changes;
- Net payments on total debt of $25.7 and $183.9 million for 4Q19 and 2019, respectively; and
- Total net leverage ratio1 of 1.9x on 12/31/2019 per bank method.
"2019 was quite a challenging year, as our industry dealt with weakening commodity and capital markets, which led to several bankruptcies in the coal space," said Jimmy Brock, President and Chief Executive Officer of CONSOL Energy Inc. "Despite such a tough backdrop, I am pleased to announce that we delivered a strong set of results for the fourth quarter and full year of 2019. While U.S. coal production is estimated to have declined by 9% compared to 2018, the PAMC produced and sold 27.3 million tons in 2019, which is largely unchanged from the record production and sales levels set in 2018. These results were driven by our contracting strategy, well-capitalized asset base and consistent operational performance. On the financial front, we continued to reduce the leverage on our balance sheet by making net payments of approximately $184 million towards debt outstanding in 2019, and due to our refinancing efforts in early 2019, we've extended maturities into at least 2023 and increased liquidity."
"We also achieved significant improvements on the safety front. Our total recordable incident rate at the PAMC for 2019 improved by 44.7% and our total number of exceptions improved by 41.4%, compared to 2018. Safety remains our top core value, and we continue to strive towards zero life-altering incidents."
Pennsylvania Mining Complex (PAMC) Review and Outlook
PAMC Sales and Marketing
Our marketing team sold 6.7 million tons of coal during the fourth quarter of 2019 at an average revenue per ton of $45.14, compared to 7.0 million tons at an average revenue per ton of $49.81 in the year-ago period. Despite a 25% lower average PJM West day-ahead power price, a 36% lower average API 2 prompt month coal price and a 36% lower average Henry Hub natural gas spot price in the fourth quarter of 2019 versus the fourth quarter of 2018, our average revenue per ton declined only 9% across the same time period due to our strong contracted position. On the sales volume front, the 0.4 million ton decline in 2019 compared to the year-ago period was mostly a function of reduced production.
During the quarter, we were successful in securing additional coal sales contracts and are currently approximately 95% contracted for 2020 and 43% contracted for 2021, assuming the midpoint of our coal sales volume guidance range.
According to the U.S. Energy Information Administration, inventories at domestic utilities stood at approximately 124 million tons at the end of November 2019, which is approximately 18% higher compared to year-ago levels. While low natural gas and power prices have been weighing on broader coal demand, we continued to ship all the coal we produced during the fourth quarter of 2019. Despite a warmer-than-normal start to 2020, the National Oceanic and Atmospheric Administration expects below-normal temperatures for most of the northern and northeastern areas of the U.S. in February. This development could help to reduce some of the coal stockpile overhang in the domestic markets we serve.
On the export front, low-priced LNG has weighed on coal demand abroad, as a glut of new projects came online in 2019. Additionally, API 2 spot prices for thermal coal delivered to Europe remained volatile throughout 2019, declining 39%. Our 2019 revenues were largely unaffected by this volatility due to our previously disclosed export contract, which runs through December 2020.
On the supply side, low prices are starting to drive global supply rationalization. We started seeing production cuts in the U.S. and Colombia in late 2019, and we are now starting to see Indonesia do the same. Most recently, Indonesia set its coal production output target to 550 million tons in 2020, down from 610 million tons in 2019. Despite this planned production cut, Indonesia's coal consumption is expected to rise from 138 million tons in 2019 to 155 million tons in 2020, which should help to tighten the international market.
The PAMC produced 6.7 million tons in the fourth quarter of 2019, which compares to 6.8 million tons in the year-ago quarter. This brings total PAMC production to 27.3 million tons in 2019, which is its second highest production year in its history. Despite a challenged commodity market, the complex ran at approximately 96% capacity utilization during 2019, highlighting the sustained desirability of our product. Additionally, our Harvey mine set an individual production record during the year of 5.02 million tons, exceeding its previous record set in 2018. This also marks its third consecutive record-setting year.
CEIX's total costs during the fourth quarter of 2019 were $320.5 million compared to $335.9 million in the year-ago quarter. Average cash cost of coal sold per ton1 for the fourth quarter was $30.38 compared to $30.54 in the year-ago quarter. The decrease was due to reduced maintenance and supply costs and contractor and purchased services costs. For 2019, CEIX's total costs were $1,332.8 million compared to $1,344.4 million in the prior year due mainly to a reduction in interest expense. Our 2019 average cash cost of coal sold per ton1 was $30.97 compared to $29.29 for 2018. The increase was primarily driven by additional equipment rebuilds and longwall overhauls due to the timing of longwall moves and panel development. Also, the Company faced atypical challenges during the current year, including a roof fall and equipment breakdowns, resulting in higher mine maintenance and project expenses. Subsidence expense also increased in the year-to-year comparison, primarily due to the timing and nature of the properties undermined.
CONSOL Marine Terminal (CMT) Review
For the fourth quarter of 2019, throughput volumes at CMT were 2.5 million tons, compared to 2.7 million tons in the year-ago period. Terminal revenues were largely in line compared to the year-ago quarter. For the fourth quarter, terminal revenues and operating cash costs were $16.5 million and $4.9 million, respectively, compared to $16.9 million and $5.2 million, respectively, during the year-ago period. CMT achieved record terminal revenue of $67.4 million, eclipsing the previous record of $64.9 million set in 2018 and marking the third consecutive year of record-setting terminal revenue. CMT net income and CMT adjusted EBITDA1 came in at $8.6 million and $11.3 million, respectively, in the fourth quarter of 2019 compared to $8.8 million and $11.3 million, respectively, in the year-ago period. CMT finished the year with net income and adjusted EBITDA1 of $33.8 million and $44.5 million, respectively compared to $30.6 million and $40.9 million, respectively, in 2018.
We continue to work on optimizing our Itmann project and are pleased to announce that, once the project is fully operational, we expect an improved production profile of 900+ thousand tons per annum versus our initial guidance of 600+ thousand tons per annum. Furthermore, in order to account for changing market conditions and our capital allocation needs, we are also adjusting the timing of capital spending on the Itmann project. If market conditions warrant, we always have the option to accelerate the spend and ramp up faster. While we continue to anticipate first coal production to occur in 1Q20, the deferred capex has resulted in an extended production ramp-up. As we have mentioned in our previous press releases, we maintain a lot of flexibility on the timing of spend on our Itmann project and will respond to changing market conditions and evolving corporate-level capital priorities.
As previously announced, all permits needed for development of the mine site have been approved and issued. Mine construction, including excavation and blasting, is nearing completion.
Finally, engineering and environmental work is underway to permit a new preparation plant and refuse facility at the former Itmann plant site. We have finalized the plant layout and rail infrastructure design and are working with the appropriate parties to finalize other related agreements for the plant site.
We presently continue to maintain our previously-stated cost and capital guidance outlook for the overall project. As we progress with development mining and the preparation plant project, we will update our outlook accordingly.
Debt and Equity Repurchase Update
Consistent with our stated strategy, we continue to be very measured in our approach to repurchasing our debt and equity securities. We look to take advantage of declines in the prices of our financial securities and weigh them against one another through our strict capital allocation strategy, while also supporting our primary goal of maintaining a strong balance sheet.
During the fourth quarter of 2019, CEIX focused more heavily on delevering and spent $16.2 million to retire $17.6 million of our Second Lien debt as it traded at a significant discount to its par value. Additionally, CEIX spent $3.8 million and $0.7 million toward the reduction of our Term Loan A and Term Loan B debts, respectively. CEIX also made principal payments of $4.8 million toward outstanding finance leases. In aggregate, during the fourth quarter, we reduced our absolute debt level by approximately $22 million.
For the year ended December 31, 2019, we have now repurchased $52.6 million of Second Lien notes, $32.7 million of CEIX common shares and $0.4 million of CCR units. We have also repaid $124.4 million (including the February 2019 sweep payment) and $11.3 million of principal with respect to Term Loan B and Term Loan A, respectively.
Over the past year, CEIX has been very active in pursuing alternative and lower-emission uses of coal and has made several key investments geared toward that goal. We recently announced that we acquired a 25% ownership stake in CFOAM Corp., a newly-formed US-based holding company whose wholly-owned subsidiary, CFOAM LLC, manufactures high-performance carbon foam products from coal and focuses on meeting demand for high-grade materials in the industrial, aerospace, military and commercial product markets. We estimate the total addressable market for such products is over $15 billion annually. We are also partnering on a DOE-funded project with Ohio University and other industry partners to develop coal plastic composites that are geared toward the engineered composite decking and other building products markets with an expected $8 billion plus global addressable market by 2023. Finally, CEIX has partnered with OMNIS Bailey LLC to develop a refinery that will convert waste coal slurry into two products: a high-quality carbon product that can be used as fuel or as a feedstock for other higher-value applications, and a mineral matter product that has the potential to be used as a soil amendment in agricultural applications.
2020 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 2020:
- Coal sales volumes (100% PAMC) - 24.5-26.5 million tons
- Coal average revenue per ton sold - $43.00-$45.00
- Average cash cost of coal sold per ton2 - $30.00-$31.50
- CMT Adjusted EBITDA2 - $40-$45 million
- Adjusted EBITDA2 (incl. 100% PAMC) - $295-$335 million
- Capital expenditures (incl. 100% PAMC) - $125-$145 million
To read the full press release with financial figures included, click here.