August 4, 2022 - Today, CONSOL Energy Inc. (NYSE: CEIX) reported financial and operating results for the period ended June 30, 2022.
Second Quarter 2022 Highlights Include:
"CEIX achieved a very strong performance during the second quarter of 2022, on multiple fronts. We shipped 6.2 million tons from the Pennsylvania Mining Complex at a net realization above $72/ton, generated $160 million in free cash flow and made debt repayments of $116 million. Despite the significant debt reduction, we increased our unrestricted cash position by nearly $40 million in the quarter. Additionally, we completed the refinancing of our revolving credit facility and accounts receivable securitization facility in July. We successfully secured revolver commitments of $260 million, 65% of the current $400 million capacity, with a July 2026 maturity. In the meantime, we will still have full access to the $400 million revolver through March 2023. We continued to take advantage of the ongoing strength in the coal markets and layered in additional contract tons for 2023 and beyond. Our Itmann preparation plant made significant strides during the second quarter, and we now expect start-up to occur during 3Q22. Finally, we are pleased to announce our enhanced shareholder return program, which will become effective in the third quarter of 2022, and initially return approximately 35% of free cash flow generation to our shareholders via dividends and/or share repurchases, while we continue to retire our outstanding debt. To jump start the program, we announced this morning that we will pay a $1.00/share special dividend on August 24, 2022."
"On the safety front, our Itmann Project, Bailey Preparation Plant and CONSOL Marine Terminal each had ZERO employee recordable incidents during the second quarter of 2022. Our 2Q22 total recordable incident rate at the PAMC continued to track significantly below the national average for underground bituminous coal mines."
Pennsylvania Mining Complex Review and Outlook
PAMC Sales and Marketing
Our sales team sold 6.2 million tons of PAMC coal during the second quarter of 2022, generating coal revenue of $518.9 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 $72.18. This compares to 5.9 million tons sold at an average realized coal revenue per ton sold1 of $44.02 in the year-ago period. The significant improvement in the average realized coal revenue per ton sold1 was due to continued strong demand for our product and 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 a strong upward trend during the second quarter of 2022 compared to the prior year. Henry Hub natural gas spot prices averaged $7.50/mmBtu in 2Q22, a 154% increase compared to the prior-year period. PJM West day-ahead power prices averaged $77.27/MWh in the quarter, an improvement of 170% compared to 2Q21. Despite the ongoing strength in domestic demand and commodity pricing, supply tightness has remained a consistent theme. The U.S. Energy Information Administration (EIA) highlights in its latest Short-Term Energy Outlook that increased economic activity post-COVID-19 shutdowns, coupled with higher natural gas prices, led to increased demand for coal-fired power generation in 2021 compared with 2020. However, despite even higher natural gas prices in 2022, coal production constraints and transportation issues due to railroad labor shortages have led to coal generators conserving coal stockpiles in order to meet peak electricity demand this summer. Even with such conservation efforts, the EIA estimates that coal stockpiles at domestic power plants will decline to 77 million tons, 18% lower than year-end 2021. The majority of our domestic customer stockpiles remain below target levels for this time of year. Additionally, due to grid reliability concerns and delayed renewable build-outs, domestic coal-fired electricity generation unit retirements are being postponed. IHS McCloskey estimates that approximately 12 GW of coal-fired generation has announced retirement delays.
On the export front, seaborne thermal coal markets remained volatile but robust in the second quarter of 2022, as API2 prices continued to rise, averaging $338/ton in 2Q22 compared to $234/ton in 1Q22 and $90/ton in 2Q21. In a similar trend, global LNG prices remained elevated with the Asian prompt-month spot market benchmark price (JKM) averaging $27.31/mmBtu in 2Q22, a 184% increase compared to the prior-year period. Despite the ongoing strength in the energy markets, the lack of coal supply response continues to be a major contributor to the continued tightness in the coal markets. IHS McCloskey estimates that Europe will import 103.5 million metric tonnes of thermal coal in 2022, an 18 million metric tonne increase from its estimate in February of this year before the Russia-Ukraine conflict began. Additionally, IHS McCloskey expects 2023 European thermal coal imports to increase further to 114 million metric tonnes, which would be the most coal going to Europe since 2018. Further adding to the tightness in the coal markets, Europe, Australia and Japan are all bringing back coal-fired electricity generating units due to grid reliability concerns in the face of a potential loss of Russian gas. However, with the recent downsizing and lack of investment in coal supply and transportation, there are doubts about the industry's ability to ramp up production.
During 2Q22, we strengthened our forward contract book at the PAMC, securing an additional 7.6 million tons through 2025. As such, we remain near fully-contracted for 2022 and have increased our 2023 sold position to 19.6 million tons.
During the second quarter of 2022, we had a strong operating performance at the PAMC despite multiple longwall moves and intermittent railroad delays. However, our transportation partners are continuing to work through these issues and improve their staffing levels. The PAMC produced 6.2 million tons in 2Q22, compared to 5.9 million tons in the year-ago quarter.
CEIX's total costs and expenses during the second quarter of 2022 were $395.1 million, compared to $291.9 million in the year-ago quarter, and CEIX's total coal revenue during the second quarter of 2022 was $532.7 million, compared to $259.8 million in the year-ago quarter. Including the effects of settlements of commodity derivative instruments at a loss of $73.9 million, total realized coal revenue1 in 2Q22 was $458.8 million. The significant improvement in total realized coal revenue1 was mainly driven by a $28.16 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 second quarter of 2022 was $34.81, compared to $28.02 in the year-ago quarter. The significant increase was due to ongoing inflationary pressures, the premature termination of a fixed power contract as a result of a supplier bankruptcy and some unplanned repair and maintenance costs. Additionally, our cost was also impacted by the ongoing development work associated with the fifth longwall at the PAMC, which we expect to be operational in late 2022.
CONSOL Marine Terminal Review
For the second quarter of 2022, throughput volumes at the CMT were 3.8 million tons, consistent with the year-ago period. Terminal revenues and CMT total costs and expenses were $21.8 million and $10.3 million, respectively, compared to $17.4 million and $9.5 million, respectively, during the year-ago period. Terminal revenue was significantly improved in 2Q22 compared to 2Q21 due to a substantially higher throughput rate per ton driven by increased export demand and commodity pricing strength. For the second consecutive quarter, CMT achieved the highest terminal revenue in its history. CMT operating cash costs1 were $5.7 million in 2Q22, compared to $5.3 million in 2Q21. CONSOL Marine Terminal net income and CONSOL Marine Terminal Adjusted EBITDA1 were $12.4 million and $15.1 million, respectively, in the second quarter of 2022 compared to $8.2 million and $11.0 million, respectively, in the year-ago period.
Our Itmann project made significant strides in its final stages of development during the second quarter of 2022. As such, we are excited to report that both the preparation plant start-up and production scale-up are on schedule and expected to be achieved in the third quarter of 2022.
Shareholder Returns and Increasing Repurchase Authorization
Today, CEIX announced a special dividend of $1.00/share based on the strong free cash flow generated in the second quarter of 2022, for an aggregate amount of approximately $35.0 million, payable on August 24, 2022 to all shareholders of record as of August 16, 2022. Moving forward, CEIX announced an enhanced shareholder return program, which will become effective in the third quarter of 2022, that will, subject to the discretion of the board of directors, return approximately 35% of quarterly free cash flow in the form of dividends and/or share repurchases.
CEIX expects to continue to aggressively reduce its outstanding gross debt by allocating the majority of its remaining free cash flow toward debt repayment with the goal of achieving a targeted gross debt level of approximately $300 million. Once this goal is achieved, CEIX expects to further increase the free cash flow allocation to its shareholder return program.
In conjunction with the enhanced shareholder return program, CEIX's Board of Directors has increased its previously authorized repurchase program to an aggregate amount of up to $600 million from $320 million, while extending the duration of the program by two years to December 31, 2024. With this approval, CEIX now has approximately $381 million of availability to repurchase its Senior Secured Second Lien Notes and shares of CEIX common stock.
During July 2022, CEIX amended and extended its revolving credit facility and accounts receivable securitization facility, extending the maturities by 4 years and 3 years, respectively. With respect to the revolver, CEIX was successful in securing new commitments in the amount of $260 million, which includes more than $100 million of new lenders to the facility and nearly $40 million of increased commitments from extending lenders. In conjunction with the non-extending lenders, CEIX will maintain full access to its current $400 million revolving credit facility until its maturity at the end of 1Q23. At that point, the facility will drop to $260 million and continue until July 2026. The accounts receivable securitization facility maintains a capacity of $100 million and is extended until July 2025. CEIX was also successful in making some modifications to the borrowing base calculations to achieve higher utilization of the facility.
Debt Repurchases Update
During the second quarter of 2022, we continued to execute on our stated goal of reducing our total debt levels and made repayments of $75.0 million, $35.0 million, and $5.9 million on our Term Loan B, Term Loan A and equipment financed debt, respectively. In conjunction with the revolver refinancing, the Term Loan A payment of $35.0 million fully retired the loan approximately nine months ahead of its maturity. This brings our total debt repayments and repurchases in the quarter to $115.9 million. Year-to-date through June 30, 2022, we have made total debt repayments and repurchases of $154.4 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.