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Signature Sponsor
November 5, 2020 - CONSOL Energy Inc. (NYSE: CEIX) has reported financial and operating results for the period ended September 30, 2020.
Management Comments "After an extremely challenging second quarter of 2020, we saw steady improvement in the demand for our coal throughout the third quarter of 2020," said Jimmy Brock, President and Chief Executive Officer of CONSOL Energy Inc. "Our sales volumes at the Pennsylvania Mining Complex were nearly double those of the second quarter, and we expect to see further improvements in the fourth quarter of 2020 and into next year. Our domestic customers were able to reduce their inventories, as hot summer weather and higher natural gas prices led to an increase in domestic coal burn. We have also seen a steady pickup in contracting activity since the second quarter and are focused on filling out the remainder of our sales book for 2021. In the meantime, we have successfully completed several transactions related to our non-operating surface and mineral assets to enhance our liquidity and improve our financial flexibility. We continue to prioritize limiting any discretionary spending and ensuring that our operations are optimized to take advantage of the continued improvement in the coal markets." "On the safety front, our Enlow Fork Mine, Bailey Preparation Plant, CONSOL Marine Terminal (CMT) and Itmann project each had ZERO recordable incidents during the third quarter of 2020. Our total recordable incident rate at the PAMC for the third quarter of 2020 improved significantly by 60%, compared to the third quarter of 2019." Pennsylvania Mining Complex (PAMC) Review and Outlook PAMC Sales and Marketing Our marketing team sold 4.5 million tons of coal during the third quarter of 2020 at an average revenue per ton sold of $40.55, compared to 6.5 million tons at an average revenue per ton sold of $46.59 in the year-ago period. The decline in sales tons for the quarter was the result of lingering effects of the unprecedented contraction in U.S. and global economic activity due to the COVID-19 pandemic. On a positive note, demand steadily improved throughout the third quarter relative to the second quarter of 2020, and we ran four of our five longwalls for the majority of the third quarter. Shipments to domestic customers rebounded from the low point in the second quarter resulting in a significant reduction in contract buyouts and deferrals in the third quarter compared to the second quarter. On the domestic front, the U.S. Energy Information Administration (EIA) expects U.S. coal production of 525 million tons in 2020, a 26% reduction versus 2019 levels. However, due to the expectation of higher natural gas prices next year, resulting from reduced E&P activity, the EIA estimates that coal production will rebound to 625 million tons in 2021, a 19% improvement versus 2020. The number of active U.S. gas rigs continues to trend downward. IHS Markit reports that active U.S. gas rigs stood at 74 as of October 2nd, a reduction of 70 rigs versus the same time period in 2019. We believe these factors will continue to improve coal's competitiveness as we close out 2020 and head into 2021. During the quarter, we were successful in securing additional coal sales contracts for 2021, bringing our contracted position to 13.2 million. We are currently in the middle of domestic RFP season, and we expect to secure meaningful volumes in the coming months. We remain fully contracted for 2020 and expect to ship all that we produce in the fourth quarter. However, given the nature of our contracts and the timing of deliveries, we could see some 2020 contracted volumes deferred. We will continue to collaborate with our customers to manage our respective contractual obligations. On the international front, while seaborne thermal coal markets have been slower to recover than the domestic market due to reduced global LNG prices and the continued impacts of the COVID-19 pandemic, we have begun to see some positive trends there as well. Although API2 prompt month prices declined 12.4% in the third quarter of 2020 compared to the year-ago period, API2 prices increased nearly 50% as of early-October 2020 compared to the year-to-date trough marked in late-May 2020. These European coal prices are at their highest level since October 2019. Due to supply constraints, we have seen Petcoke prices from the U.S. Gulf increase by over 30% during the quarter, which is pushing buyers, specifically at cement plants across the globe, to look at alternative fuels. Additionally, LNG prices into Japan/Korea are currently at an 11-month high as of mid-October 2020. We are also starting to see a pickup in activity in India, as its economy begins to recover COVID-19-related shutdowns. Operations Summary During the third quarter of 2020, we ran four of our five longwalls for the majority of the quarter after ramping up an additional longwall in early August, driven by increased demand for our coal resulting from hot summer weather, higher natural gas prices and economies reopening. As a result, our production in the third quarter of 2020 was nearly double the output of the second quarter of 2020 with the PAMC producing 4.5 million tons, compared to 6.5 million tons in the third quarter of 2019. The Company's total costs during the third quarter of 2020 were $246.7 million compared to $323.9 million in the year-ago quarter. The decline in overall costs was driven by the reduction in production volume and reduced operating days, as we sought to match production with demand and limit any unnecessary spending. Average cash cost of coal sold per ton1 was $28.64 compared to $32.78 in the year-ago quarter. The improvement was primarily driven by lower mine maintenance and supply costs, contractors and purchased services costs and project expense, offset by a higher-than-typical number of longwall moves in the third quarter of 2020.
CONSOL Marine Terminal (CMT) Review For the third quarter of 2020, throughput volumes out of the CONSOL Marine Terminal were 2.0 million tons, compared to 2.4 million tons in the year-ago period. Although throughput volumes were lower compared to the year-ago quarter, the impact on terminal revenues was muted as a result of the take-or-pay contract in place with our largest customer at CMT. For the third quarter of 2020, terminal revenues were $17.0 million, compared to $16.3 million in the year-ago period. Our CMT employees continued to successfully reduce cash spending in the third quarter of 2020, as cash operating costs were $4.8 million, compared to $6.3 million in the year-ago period. Accordingly, CMT net income and CMT adjusted EBITDA1 were $8.4 million and $11.3 million, respectively, compared to $7.7 million and $9.9 million, respectively, during the year-ago period. Debt Repurchases and Liquidity Update During the third quarter of 2020, CEIX made mandatory repayments of $7.0 million, $6.3 million and $0.7 million on our finance leases and asset-backed financing arrangements, Term Loan A and Term Loan B, respectively. Given the improving shipment trends and execution of certain transactional opportunities, management resumed its open market 2nd lien buyback program towards the end of September. Accordingly, CEIX spent $0.9 million to retire $2.0 million of its 2nd lien notes, as these continued to trade at a significant discount to par. This brings our total debt payments in the quarter to $15.9 million. In aggregate, as of September 30, 2020, our total liquidity was approximately $323 million, including $22 million of cash and cash equivalents, and our $400 million revolving credit facility had no borrowings and is currently only used for providing letters of credit with $99 million issued. Transactional Opportunities Since the beginning of the third quarter of 2020, CEIX has executed multiple transactions totaling $60-$70 million in miscellaneous income and gain on sales of assets. These transactions included sales of land and mineral assets, gas wells, and coal reserves outside of our active operations. In aggregate, in the third quarter of 2020, we have recorded $26 million in miscellaneous income and gain on sales of assets related to these items, and we expect to book an additional $34-$44 million in the fourth quarter of 2020. 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 for and is looking forward to eventual demand recovery.
To read the full results with all financial figures included, click here. |
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