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Signature Sponsor
May 11, 2020 - Today, CONSOL Energy Inc. (NYSE: CEIX) reported financial and operating results for the period ended March 31, 2020.
First Quarter 2020 Highlights Include:
- GAAP net income and cash provided by operating activities of $2.5 million and $51.4 million, respectively; - Total dilutive earnings per share of $0.09; - Adjusted EBITDA of $62.9 million; - Organic free cash flow net to CEIX shareholders1 of $18.6 million; - Repurchased $43.2 million of 2nd Lien debt during the quarter; - Successfully amended and extended the term of our accounts receivable securitization facility while maintaining the borrowing capacity and interest rate; - Raised $16.3 million through an equipment finance lease transaction and added an additional $20 million commitment for future financing needs; - Increased repurchase authorization to $270 million from $200 million; and
- Total liquidity of $398 million at the end of 1Q20 including cash and cash equivalents of $78 million.
Management Comments
"The United States, along with other economies worldwide, has seen a significant energy demand decline year-to-date driven by widespread government-imposed lockdowns in response to the COVID-19 pandemic," said Jimmy Brock, President and Chief Executive Officer of CONSOL Energy Inc. "Coal producers, just like companies in other industries, are facing unprecedented demand decline, which has weighed on our operational, sales and financial performances year-to-date. While the duration and breadth of this ongoing pandemic are uncertain, management has undertaken a number of steps to reduce costs and has adjusted our operations accordingly to provide free cash flow generation, deleveraging and liquidity enhancement."
"On the safety front, our Harvey Mine, Bailey Preparation Plant, CONSOL Marine Terminal (CMT) and Itmann project each had ZERO recordable incidents during the first quarter. However, coming off a very strong safety performance in 2019, we recorded a slight uptick at the Pennsylvania Mining Complex (PAMC) in terms of total recordable incidents. Nonetheless, we continue to outperform industry averages for safety performances across our operations."
Pennsylvania Mining Complex Review and Outlook
PAMC Sales and Marketing
Our marketing team sold 5.9 million tons of coal during the first quarter of 2020 at an average revenue per ton sold of $43.16, compared to 6.7 million tons at an average revenue per ton sold of $49.38 in the year-ago period. The average revenue per ton sold was impacted by a reduction in revenues on our netback contracts in the first quarter due to lower PJM West power prices and volumes, as well as lower average pricing on export sales. During the first quarter of 2020, average PJM West day-ahead power prices declined by 33.4% compared to the year-ago period, but our average revenue per ton sold across the portfolio only declined by 12.6% due to our strong contracted position. We also negotiated buyouts of some volumes from customer contracts in exchange for payment of certain fees to us during the first quarter of 2020, which contributed $10.8 million to our miscellaneous other income and resulted in a reduction in our PAMC average revenue per ton sold during the quarter.
On the domestic front, according to the U.S. Energy Information Administration, inventories at domestic power plants stood at approximately 140 million tons at the end of February, an increase of roughly 41% from year-ago levels as weak demand trends, particularly from industrial and business consumers, and low natural gas prices weighed on our customers' ability to profitably burn coal. On a positive note, low natural gas and crude oil prices are also leading to reduced capital budgets for E&P companies. Industry sources now estimate that E&P capital expenditures will decline by 40-45% in 2020. As a result of this reduced investment, several industry observers now expect natural gas prices to rise above $3/mmbtu in 2021, as gas production declines due to lack of capital spending, which we believe will make coal more attractive to power plant customers.
Internationally, thermal coal prices have declined since the beginning of 2019 due to a pullback in global LNG prices and, more recently, due to global COVID-19-related shutdowns. We are already seeing a seaborne supply response occurring from several countries, which has helped to stabilize API 2 and Newcastle prices, albeit at lower levels. During these turbulent times, we are still finding opportunities to capture and grow market share in the export markets. Recently, our customer, Xcoal, won a contract to supply 1.8 million tons of coal to the Punta Catalina power plant in the Dominican Republic. To fulfill that contract, Xcoal increased the volume of tons to be acquired under its supply contract with us. In aggregate, we are contracted for 10 plus million export tons in 2020.
The PAMC is currently 98% contracted for 2020 and 44% contracted for 2021, assuming annual production of 26 million tons. Despite our strong contracted position, we face significant uncertainties given the ongoing economic slowdown due to the COVID-19 pandemic-related shutdowns. We are also collaborating with our customers to help them manage the contractual obligations that we both have, which could result in some 2020 contracted volumes being bought out or deferred into 2021.
Operations Summary
During the first quarter of 2020, we faced reduced customer demand and a longwall move at our Harvey mine, which weighed negatively on our operating performance. The PAMC produced 6.0 million tons, compared to 6.8 million tons in the first quarter of 2019.
The Company's total costs during the first quarter of 2020 were $286.9 million compared to $351.2 million in the year-ago quarter. The decline in overall costs was driven by reduced production volume and reduced operating days, as we sought to match production with demand. However, the reduced production volume also created an adverse impact on our operating leverage, which resulted in a higher average cash cost of coal sold per ton1 compared to the year-ago period. Average cash cost of coal sold per ton1 was $32.41 compared to $29.71 in the year-ago quarter. Our Enlow Fork mine faced high subsidence-related costs in the first quarter of 2020, which also impacted our overall cost performance. At the beginning of the second quarter, we temporarily idled our Enlow Fork mine to reduce our overall average cash cost of coal sold per ton1, as weak demand trends continued and several of our customers chose to buy out a portion of their previously committed volumes.
CONSOL Marine Terminal (CMT) Review
For the first quarter of 2020, throughput volumes out of the CONSOL Marine Terminal were 3.4 million tons compared to 4.0 million tons in the year-ago period. While throughput volumes were lower compared to the year-ago quarter, the negative impact on terminal revenues were lessened as a result of the take-or-pay contract that is in place with our largest CMT customer. For the first quarter of 2020, terminal revenues and cash operating costs were $16.5 million and $5.2 million, respectively, compared to $17.8 million and $5.6 million, respectively, in the year-ago period. Accordingly, CMT net income and CMT adjusted EBITDA1 were $7.5 million and $10.6 million, respectively, compared to the year-ago period of $9.2 million and $12.0 million, respectively.
Debt Repurchases and Liquidity Update
During the first quarter of 2020, CEIX completed a number of liquidity-enhancing transactions that boosted liquidity despite a significant decrease in organic free cash flow versus the year-ago period. We were able to close on the refinancing of a shield rebuild using a finance lease transaction which generated cash proceeds of $16.3 million, secured a commitment to provide $20 million for future equipment financing needs, and successfully amended and extended the term of our accounts receivable securitization facility.
During the first quarter of 2020, CEIX spent $25.5 million to retire $43.2 million of outstanding second lien debt, which continued to trade well below its par value. Furthermore, we made repayments of $4.9 million, $3.8 million and $0.7 million on our finance leases, Term Loan A and Term Loan B, respectively. This brings our total debt reduction in the quarter to $52.6 million, before accounting for the equipment finance lease transaction mentioned previously. In aggregate, as of March 31, 2020, our total liquidity was $398 million, including $78 million of cash and cash equivalents. Our $400 million revolving credit facility has no borrowings and is currently only used for providing letters of credit with $80 million issued.
The Board of Directors of CCR's general partner also made the decision to temporarily suspend the quarterly distribution to all of CCR's unitholders.
Increasing Repurchase Authorization
CEIX's Board of Directors continues to see debt repurchases as a very effective tool to reduce the leverage ratio, strengthen the balance sheet, and create long term shareholder value. In order to continue to execute this strategy, the board has increased its previously authorized repurchase program to an aggregate amount of up to $270 million from $200 million, while extending the duration of the program by two years to June 30, 2022. With this approval, CEIX now has approximately $100 million of availability to repurchase its Term Loan B, Senior Secured Second Lien Notes, CEIX common shares and CCR common units.
Itmann Project Update
During the first quarter of 2020, we completed box cut excavation for the Itmann No. 5 mine. MSHA approved our initial roof control plan on March 31, 2020, and we are happy to announce that we mined our first cut of coal and shipped product to a third-party processor in early April. Permit applications for the new preparation plant and refuse facility have been submitted and are under review. Itmann project capital expenditures for the first quarter of 2020 were $4.3 million, which consisted mostly of previous commitments for box cut excavation and equipment items for the first continuous mining section. Earlier this year, we announced that we have slowed the pace of capital spending on the Itmann project, and we are continuing our development efforts with capital conservation in mind.
2020 Guidance
Given the ongoing uncertainty associated with the COVID-19 pandemic-driven economic slowdown, we are working with our customers to manage their shipments and inventory levels. However, due to the difficulty in forecasting the duration of this economic slowdown, our 2020 guidance remains suspended. Nonetheless, our team remains ready and is looking forward to eventual demand recovery.
To read the full results with financial figures included, click here. |
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