November 1, 2022 - Today, CONSOL Energy Inc. (NYSE: CEIX) reported financial and operating results for the period ended September 30, 2022.
Third Quarter 2022 Highlights Include:
"During the third quarter of 2022, we generated $107 million in free cash flow1, despite the Pennsylvania Mining Complex having a planned maintenance shutdown and longwall move and encountering some operational issues, which limited production to 5.3 million tons. Due to this strong free cash flow1 generation, we were once again able to retire a significant amount of our outstanding debt while returning $35 million of cash to our shareholders during the quarter. Capitalizing on the ongoing coal market strength, we opportunistically contracted an additional 6.0 million tons of new business during the third quarter for delivery through 2026 at attractive prices. Furthermore, we continue to target operation of the fifth longwall at the Pennsylvania Mining Complex by the end of the fourth quarter, which will give us upside potential and optionality in 2023 and beyond. Finally, our Itmann preparation plant was commissioned and processed its first coal in late September with the first train subsequently shipping in mid-October. This puts us on track to have a full year of production from the Itmann Mine starting next year, which diversifies our revenue mix and adds further upside potential to 2023 and beyond."
"On the safety front, our Enlow Fork Mine, Harvey Mine, Bailey Preparation Plant and CONSOL Marine Terminal (CMT) each had ZERO employee recordable incidents during the third quarter of 2022. The Bailey Preparation Plant and CMT have maintained ZERO employee recordable incidents thus far in 2022, while the Enlow Fork Mine recently completed its second consecutive quarter at that mark. Our 3Q22 total recordable incident rate of 0.99 at the Pennsylvania Mining Complex continued to track significantly below the national average for underground bituminous coal mines."
Pennsylvania Mining Complex (PAMC) Review and Outlook
PAMC Sales and Marketing
Our sales team sold 5.3 million tons of PAMC coal during the third quarter of 2022, generating coal revenue of $465.7 million for the PAMC segment. After adjusting for the effect of settlements of commodity derivatives, the PAMC generated an average realized coal revenue per ton sold1 of $72.83. This compares to 5.4 million tons sold at an average realized coal revenue per ton sold1 of $47.46 in the year-ago period. The continued improvement in the average realized coal revenue per ton sold1 in the 2022 quarters versus the prior-year periods is due to the persistent strong demand for our product and the significant improvement in domestic and global commodity markets as a whole.
In the domestic market, the pricing environment remained strong during the third quarter of 2022. Henry Hub natural gas spot prices averaged $8.03/mmBtu in 3Q22, an 84% increase compared to the prior-year period. PJM West day-ahead power prices averaged $90.44/MWh in the quarter, an improvement of 116% compared to 3Q21 and the highest quarterly average since the first quarter of 2014. IHS McCloskey estimates that U.S. natural gas inventories will end the injection season roughly 7% below the 5-year average of 3.6 trillion cubic feet, despite the incremental stranded domestic natural gas supply resulting from the June fire at the Freeport LNG export facility in Texas. Low coal stockpiles at domestic power plants and limited coal supply growth have resulted in coal conservation in the power sector, which has led to natural gas balancing the electric power market. Additionally, several domestic coal-fired electricity generation unit retirements are being postponed due to grid reliability concerns, supply chain disruptions and delayed renewable buildouts. IHS McCloskey reports that 40 coal-fired generation units representing nearly 17 GW of capacity have announced retirement delays this year. These delays will extend the operating lives of the plants by approximately 2 years on average and range anywhere from a few months to as many as 5 years on a plant-by-plant basis.
On the export front, seaborne thermal coal markets remained robust in the third quarter of 2022. API2 spot prices continued their upward push, averaging $360/ton in 3Q22 compared to $284/ton in 1H22 and $155/ton in the prior-year quarter. Although European natural gas and coal inventory levels have improved recently, the general consensus is that winter demand will test the power markets in Europe. Additionally, natural gas market conditions in Europe also have become more challenging with the indefinite shutdown of the Russian Nord Stream 1 pipeline due to recent issues. In a move to shore up their energy security, European Union governments have implemented various plans to allow for more coal fired generation. According to Wood Mackenzie, the most aggressive action came from Germany which will revive 4.2 GW of coal capacity and delay the retirement of an additional 3.6 GW of coal-fired generation. Even if these plants do not dispatch this winter, they will still need to build and maintain sufficient coal stockpiles in case they are called upon. Wood Mackenzie estimates that Europe will import 95 million tons of coal in 2022, a 13% increase compared to 2021.
During 3Q22, we strengthened our forward contract book at the PAMC, opportunistically securing an additional 6.0 million tons for delivery through 2026. As such, we have increased our 2023 and 2024 sold positions to 21.8 million tons and 8.8 million tons, respectively.
During the third quarter of 2022, operational issues such as roof falls and equipment breakdowns, along with a planned maintenance shutdown and longwall move, limited our production. The PAMC produced 5.3 million tons in 3Q22, compared to 5.3 million tons in the year-ago quarter, which also saw the PAMC deal with multiple operational and geological challenges. However, these issues are behind us, and we expect to produce at a more normalized run rate in the fourth quarter. The fifth longwall development remains on track, and we expect it to be operational in December 2022.
CEIX's total costs and expenses during the third quarter of 2022 were $370.1 million, compared to $303.1 million in the year-ago quarter, and CEIX's total coal revenue during the third quarter of 2022 was $472.6 million, compared to $258.6 million in the year-ago quarter. Total realized coal revenue1 in 3Q22 was $391.3 million, after accounting for the settlements of commodity derivatives. The significant improvement in total realized coal revenue1 was mainly driven by a $25.37 improvement in average realized coal revenue per ton sold1 at the Pennsylvania Mining Complex, as coal prices were stronger during the quarter compared to the prior-year period. Average cash cost of coal sold per ton1 at the PAMC for the third quarter of 2022 was $39.77, compared to $30.64 in the year-ago quarter. The significant increase was due to ongoing inflationary pressures on supplies and maintenance costs, multiple equipment failures, continued development work for the fifth longwall at the PAMC, and increased power costs due to elevated power prices in 3Q22 compared to the prior-year perio
CONSOL Marine Terminal Review
For the third quarter of 2022, throughput volumes at the CMT were 2.7 million tons, compared to 2.8 million tons in the year-ago period. Terminal revenues and CMT total costs and expenses were $14.8 million and $10.2 million, respectively, compared to $14.1 million and $10.2 million, respectively, during the year-ago period. CMT operating cash costs1 were $6.7 million in 3Q22, compared to $5.8 million in 3Q21, mainly due to increased project expense associated with shutdown maintenance. CONSOL Marine Terminal net income and CONSOL Marine Terminal Adjusted EBITDA1 were $5.6 million and $8.3 million, respectively, in the third quarter of 2022 compared to $4.5 million and $7.3 million, respectively, in the year-ago period.
Our Itmann project achieved a major milestone during the third quarter of 2022 with the commissioning of the Itmann preparation plant and completion of rail infrastructure construction. As such, the prep plant began processing coal in late September, and the first train of Itmann coal was loaded and shipped on October 12th. Due to supply chain bottlenecks that have delayed delivery of certain equipment for the third continuous miner section, we now expect to ramp up the third and final production section during the fourth quarter and be prepared for full-capacity operation throughout 2023. We have adjusted our production guidance in 2022 accordingly to account for these equipment deliveries delays, coupled with the preparation plant starting later in the quarter than internally expected. We now expect to produce 200-300 thousand tons for the year of 2022, which mostly represents development mining. We continue to grow staffing levels in conjunction with our production ramp-up plan. On the marketing front, to date our product has been well received. Over the next two quarters, we will continue to focus on securing new business with several strategic customers in the domestic and export markets.
Shareholder Returns Update
Today, at the discretion of the board of directors, CEIX announced a dividend of $1.05/share, representing approximately 35% of the free cash flow generated in the third quarter of 2022 and consistent with the enhanced shareholder return program announced last quarter. The payment will amount to an aggregate of approximately $37.0 million, payable on November 23, 2022 to all shareholders of record as of November 14, 2022.
Debt Repurchases Update
In the near term, we remain committed to allocating the majority of our free cash flow toward debt repayment with the goal of aggressively reducing our outstanding gross debt. During the third quarter of 2022, we made repayments of $50.0 million and $6.3 million on our Term Loan B and equipment financed debt, respectively. This brings our total debt repayments and repurchases in the quarter to $56.3 million. Year-to-date through September 30, 2022, we have made total debt repayments and repurchases of $210.7 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:
To see the full results with financial figures included, click here.