November 6, 2019 - CONSOL Energy's coal production volumes hit a record of 6.5 million st for the third quarter, up from 6.4 million st in the year-ago quarter, despite a roof fall, equipment breakdowns and geological-related issues, the company said Tuesday.

The Canonsburg, Pennsylvania-based company said in its quarterly earnings statement that its three mines -- Bailey, Enlow Fork and Harvey -- produced the highest volume for any third quarter, but was down from 7.2 million st produced in Q2.

Coal sales volumes were at 6.5 million st in Q3, which generated an average revenue per ton of $46.59/st, compared with 6.2 million st sold in the year-ago quarter at $47.21/st.

CEO Jimmy Brock said in the earnings call that the lower average revenue was due to a 20% decline in PJM West power prices, impacting the company's netback-related contracts.

Average cash costs of coal sold were at $32.78/st, resulting in an average cash margin of $13.81/st, compared with average cash costs of $30.88/st and average cash margins of $16.33/st in the year-ago quarter.

Brock said the company overcame issues during the quarter such as longwall moves, minor vacations and "an unusual amount of equipment breakdowns and a roof fall at one of our longwalls."

"Our cash cost of production increased compared to the year-ago period due to a higher-than-normal level of repair and maintenance expenses associated with these issues," Brock said.

Due to capital expenditures over $48.52 million, CONSOL recorded a net cash decrease of $39.52 million in Q3, compared with capital expenditures of $40.66 million and a net cash decrease of $8.19 million in the year-ago quarter.

Assuming a 27 million st of annual coal sales volume, CONSOL is 82% booked for 2020 shipments and 36% for 2021, compared with 80% and 34%, respectively, at the end of Q2.

Export Market

Throughput volumes at Consol's Marine Terminal in Baltimore were at 2.4 million st in Q3, down from 3.7 million st in Q2 and 2.7 million st reported in the year-ago quarter. In the first nine months of 2019, total volumes through the terminal was at 10.1 million st, down from 10.2 million st in the same period a year ago.

Terminal revenues and operating costs were at $16.3 million and $6.3 million in the quarter, compared with $16.1 million and $7.4 million in the year-ago quarter. Net income at CMT was at $7.7 million in Q3, up from $5.7 million a year ago.

The terminal has a take-or-pay contract that generates about $15 million in quarterly revenue through 2020.

"Another positive trend that we're seeing is the export market is in supply rationalization," Brock said. "Coal producers have started rationalizing production.

Several high cost and unhedged coal producers in the US have started cutting production, and industry sources are calling for a steep decline in US thermal coal exports."

According to S&P Global Platts Analytics, US thermal coal exports are expected at 43 million st in 2019, down from 54 million st in 2018. In 2020, thermal exports are estimated to drop to 35 million st, down 35% from 2018 levels.

"As the industry goes through this process, we expect to hold our ground," Brock said. "We anticipate that our strong contracted position in 2020 and solid balance sheet will allow us to navigate through this period of low pricing."