May 3, 2022 - Today, CONSOL Energy Inc. (NYSE: CEIX) reported financial and operating results for the period ended March 31, 2022.
First Quarter 2022 Highlights Include:
- GAAP net loss of ($4.5) million;
- Net income after adjusting for the impact of unrealized mark-to-market losses on commodity derivative instruments1 came in at $72.0 million;
- Quarterly adjusted EBITDA1 of $169.2 million;
- Itmann low-vol metallurgical coal project remains on track for a 2H2022 start-up;
- Net cash provided by operating activities of $148.2 million;
- Quarterly free cash flow1 of $118.0 million;
- Coal shipments improve to 6.5 million tons;
- 2023 contracted position improved to 16.3 million tons;
- Cash and cash equivalents of $222.9 million plus $46.1 million in restricted cash as of March 31, 2022;
- Debt repayments, excluding premiums, of $38.5 million during 1Q22, including $25.0 million of second lien notes; and
- Net leverage ratio1 drops below 1.0x as of March 31, 2022.
"CEIX delivered a very strong 1Q22 performance across all of our business segments, shipping 6.5 million tons out of the Pennsylvania Mining Complex (PAMC) and 3.6 million tons from the CONSOL Marine Terminal (CMT), generating $118 million in free cash flow and increasing our unrestricted cash position by more than $70 million, while making debt repayments of nearly $39 million. Our operations ran very well in the quarter, as we moved past the geological issues we encountered in the second half of 2021 and have seen an ongoing improvement in railroad performance since the end of 2021. Additionally, our CONSOL Marine Terminal recorded its highest quarterly terminal revenue in its history. We continued to take advantage of the ongoing strength in the coal markets and layered in additional contract tons for 2023 and beyond. Finally, our Itmann preparation plant remains on schedule with start-up expected in the second half of 2022."
"On the safety front, our Harvey Mine, Bailey Preparation Plant and CONSOL Marine Terminal each had ZERO employee recordable incidents during the first quarter of 2022. Our 1Q22 total recordable incident rate of 0.52 at the PAMC continues to track significantly and consistently below the national average for underground bituminous coal mines."
Pennsylvania Mining Complex Review and Outlook
PAMC Sales and Marketing
Our sales team sold 6.5 million tons of PAMC coal during the first quarter of 2022 generating coal revenue of $473.0 million for the PAMC segment. After adjusting for the effect of settlements on commodity risk derivative instruments, the PAMC generated an average realized coal revenue per ton sold1 of $59.60, compared to 6.9 million tons at an average realized coal revenue per ton sold1 of $41.39 in the year-ago period. The significant improvement in the average realized coal revenue per ton sold1 was due to substantial improvements in the coal, natural gas, and electric power markets compared to the prior-year quarter.
On the domestic front, the commodity markets continued their upward trend during the first quarter of 2022 compared to the prior-year period and resulted in some of the highest quarterly commodity pricing levels we've seen since becoming an independent publicly traded company. Henry Hub natural gas spot prices averaged $4.67/mmBtu in 1Q22, a 33% improvement compared to the prior-year period. PJM West day-ahead power prices averaged $55.58/MWh in the quarter, an improvement of 82% compared to 1Q21, and the highest average quarterly level we've witnessed since becoming an independent public company. Despite the ongoing strength in domestic demand and commodity pricing, supply tightness has remained a consistent theme. The U.S. Energy Information Administration (EIA) estimates in its latest Short-Term Energy Outlook that domestic coal consumption will increase to 560 million tons in 2022; however, total primary supply and waste coal production, after accounting for estimated export tons, will be 535 million tons, which requires an inventory drawdown of approximately 25 million tons at domestic power plants. The EIA estimates that the U.S. will finish 2022 with 70 million tons of coal inventory at domestic power plants, compared to 95 million tons at the end of 2021. The majority of our domestic customers' stockpiles remain below target levels, and demand for our product remains robust.
On the export front, seaborne thermal coal markets remained volatile in the first quarter of 2022, with API2 prices averaging $234/ton compared to $67/ton in the first quarter of 2021. Global LNG prices remained elevated with the Asian spot market benchmark price (JKM) averaging $31.30/mmBtu in 1Q22, a 240% increase compared to the prior-year period. The lack of supply response has continued to be a general theme in the coal space since early 2021; however, the ongoing conflict between Russia and Ukraine, and the subsequent response to it, could contribute to extending the duration of this market tightness. Wood Mackenzie estimates that with Russia supplying 26% of the seaborne high calorific value market, "actions by individual buyers will keep the market tight". Wood Mackenzie also points out that they expect Europe to adopt a number of short term strategies to end its dependence on Russian energy, one of which is a focus on increasing coal-fired generation. Additionally, it expects European utilities to postpone plant closures with energy flows being impacted at least through 2023.
We have continued to secure additional coal sales contracts, and, as such, we remain near fully-contracted for 2022 and have increased our 2023 sold position to 16.3 million tons.
During the first quarter of 2022, we had a strong operating performance and ran our four available longwalls at the PAMC at a normalized run-rate after encountering operational and geological issues during 3Q21 and early 4Q21. Additionally, the transportation delays that limited our production in 4Q21 have steadily improved throughout 1Q22, as our transportation partners continued to improve staffing levels and move past their COVID-related labor issues. The PAMC produced 6.4 million tons in 1Q22, marking the second consecutive quarter in which we have increased our production. This compares to 7.0 million tons in the year-ago quarter. The reduction compared to the prior-year was due to running our five available longwalls in 1Q21, compared to four available longwalls in 1Q22 as we pulled back development of our fifth longwall during the COVID-19 related demand decline in 2020.
CEIX's total costs and expenses during the first quarter of 2022 were $366.5 million, compared to $310.6 million in the year-ago quarter, and CEIX's total coal revenue during the first quarter of 2022 was $476.4 million, compared to $285.5 million in the year-ago period. Including the effects of settlements of commodity derivative instruments at a loss of $86.3 million, total realized coal revenue1 in 1Q22 was $390.1 million. The significant improvement in total realized coal revenue1, despite lower production and sales volumes compared to the prior-year quarter, was the result of an $18.21 improvement in average realized coal revenue per ton sold1 at the Pennsylvania Mining Complex as demand for our product specifically and coal markets generally have steadily strengthened since the prior-year period. Additionally, total revenue in 1Q22 was impacted by a $101.9 million pre-tax unrealized mark-to-market loss related to commodity derivative instruments, as the forward API2 curve remained volatile in the quarter. Average cash cost of coal sold per ton1 for the first quarter of 2022 was $29.91, compared to $24.44 in the year-ago quarter. The increase was due to a combination of factors, including the ongoing development work associated with the fifth longwall, significant inflationary pressures that continued to weigh on our input costs such as labor, maintenance, supply, contractor and project expenses and lower operating leverage due to less sales tonnage.
CONSOL Marine Terminal Review
For the first quarter of 2022, throughput volumes at the CMT were 3.6 million tons, compared to 4.1 million tons in the year-ago period. Terminal revenues and CMT total costs and expenses were $21.4 million and $10.5 million, respectively, compared to $18.2 million and $9.5 million, respectively, during the year-ago period. Despite lower throughput tonnage, terminal revenue was significantly improved in 1Q22 compared to 1Q21 as the throughput rate per ton was substantially improved due to increased export demand and commodity pricing strength. As a result, 1Q22 marked the highest terminal revenue in the history of the CMT. CMT operating cash costs1 were $5.9 million in 1Q22, compared to $5.3 million in 1Q21. CONSOL Marine Terminal net income and CONSOL Marine Terminal Adjusted EBITDA1 were $11.6 million and $14.5 million, respectively, in the first quarter of 2022 compared to $9.1 million and $12.0 million, respectively, in the year-ago period.
Our Itmann project continued to progress according to expectations during the first quarter of 2022, and the project remains on track, with preparation plant start-up and scale-up to full run-rate production expected during the second half of 2022.
- Relocation of the existing prep plant to the Itmann site is proceeding on schedule, with disassembly of the existing plant complete and approximately 80% of the structure and equipment has already been transported to Itmann.
- The main Itmann plant building foundations are complete and significant progress was made with structural steel erection and plant circuitry installation during 1Q22.
- The new rail siding and mainline construction activities are well underway and are on target to meet the overall project schedule.
- The mine produced approximately 44,000 tons of low-vol metallurgical coal (on a clean coal equivalent basis) and sold approximately 19,000 tons in 1Q22. Most of the unsold inventory from 1Q22 is scheduled for export shipment through the CMT in 2Q22.
- We continue to grow staffing levels consistent with our production ramp-up plan for 2022.
Debt Repurchases Update
During the first quarter of 2022, CEIX made mandatory repayments of $6.5 million, $6.3 million and $0.7 million on our equipment financed debt, Term Loan A and Term Loan B, respectively. Additionally, CEIX spent $26.4 million to repurchase $25.0 million in principal amount of its second lien notes, as we continued to execute on our stated goal of reducing our total debt levels. This brings our total debt repayments and repurchases in the quarter to $38.5 million (excluding the premium paid on the second lien notes).
2022 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 full fiscal year 2022:
- 2022 targeted PAMC coal sales volume of 23.0-25.0 million tons
- PAMC average realized coal revenue per ton sold2 expectation of $58.00-$61.00
- PAMC average cash cost of coal sold per ton2 expectation of $29.00-$31.00
- Capital expenditures (including Itmann development): $162-$195 million
- Expect to produce between 0.3 and 0.5 million tons of coal at the Itmann Mine (on a clean coal equivalent basis) with the majority of it in 2H2022
To see the full results with financial figures included, click here.