May 11, 2020 - Today, CONSOL Coal Resources LP (NYSE: CCR) (the "Partnership") reported financial and operating results for the quarter ended March 31, 2020.
First Quarter 2020 Highlights Include
- Net income of $0.2 million;
- Adjusted EBITDA of $14.4 million;
- Net leverage ratio1 of 2.2x;
- Raised $4.1 million through an equipment finance lease transaction; and
- Temporary suspension of the cash distribution to deleverage the balance sheet.
"The United States along with other economies worldwide have seen a significant energy demand decline year-to-date driven by the widespread government-imposed lockdowns in response to the COVID-19 pandemic," said Jimmy Brock, Chief Executive Officer of CONSOL Coal Resources GP LLC, the general partner of the Partnership. "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 support deleveraging and liquidity enhancement."
Sales & Marketing
Our marketing team sold 1.5 million tons of coal during the first quarter of 2020 at an average revenue per ton sold of $43.16, compared to 1.7 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 $2.7 million to our 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 2.5 plus million export tons in 2020.
CCR is currently 98% contracted for 2020 and 44% contracted for 2021, assuming annual production of 6.5 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.
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. CCR produced 1.5 million tons, compared to 1.7 million tons in the first quarter of 2019.
Total costs during the first quarter of 2020 were $67.2 million compared to $70.9 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.
During the first quarter of 2020, CCR generated net cash provided by operating activities of $16.8 million and distributable cash flow1 of $3.5 million. During the quarter, our net cash provided by operating activities was impacted by lower net income. As previously announced, based on the ongoing uncertainty in the commodity markets driven by COVID-19-related demand decline, the board of directors of our general partner temporarily suspended payment of our cash distribution for all unitholders. As we get better visibility on the impact of COVID-19, the board of directors of the general partner will determine an appropriate level for cash distributions.
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.