CONSOL Energy Inc. has reported financial and operating results for the period ended 30 September 2021 (3Q21).
3Q21 highlights include:
- GAAP net loss of (US$113.8) million, which includes US$147.3 million of pre-tax unrealised mark-to-market losses related to commodity derivatives.
- Quarterly adjusted EBITDA of US$66.6 million.
- Net cash provided by operating activities of US$80.5 million.
- Quarterly free cash flow of US$34.8 million.
- Coal shipments of 5.4 million t.
- 2022 and 2023 contracted position of 20.2 million t and 5.8 million t, respectively.
- Cash and cash equivalents of $162.0 million plus US$50.3 million in restricted cash as of 30 September 2021.
- Reduced total debt outstanding by US$18.4 million during the quarter.
- Net leverage ratio of 1.64 x as of 30 September 2021.
- Recently announced direct-operating greenhouse gas emissions targets, aiming to reduce Scope 1 and 2 emissions by 50% by the end of 2026 and to be net zero by 2040.
- Recommencing development for the fifth longwall at the Pennsylvania Mining Complex, which is expected to resume operation in late 4Q22.
“In 3Q21, customer demand remained strong, and we generated nearly US$35 million in free cash flow, while reducing our absolute debt levels by US$18 million,” said Jimmy Brock, President and CEO of CONSOL Energy Inc.
“Additionally, we are very excited by our recently announced direct-operating greenhouse gas emission reduction targets, aiming to reduce our Scope 1 and 2 emissions by 50% by 2026, compared to baseline 2019 levels, and be net zero by 2040. The third quarter is typically a seasonally weak quarter due to planned maintenance shutdowns, and the Pennsylvania Mining Complex (PAMC) also encountered several operational issues and transportation delays that limited production to 5.3 million t in 3Q21. Nevertheless, demand for our product remains robust, and due to the strength in both the domestic and international coal markets, we are pleased to announce that we have restarted development for the fifth longwall at the PAMC to capture upside potential. During 3Q21, we successfully secured new contracted business across 2022 and 2023. Progress on the Itmann preparation plant continues and remains on schedule and on budget, positioning us for additional upside in 2022.”
“On the safety front, our Enlow Fork Mine, Bailey Preparation Plant, CONSOL Marine Terminal (CMT) and Itmann project each had ZERO employee recordable incidents during the third quarter of 2021. Our year-to-date total recordable incident rate 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
The company’s marketing team sold 5.4 million t of coal during 3Q21 at an average revenue of US$47.46/t, compared to 4.5 million t at an average revenue of US$40.55/t in the year-ago period. Demand for our product has remained robust and was improved compared to the prior-year quarter, which was impacted by the COVID-19 demand decline in early 2020.
In the domestic market, the pricing environment continued to significantly improve during 3Q21. The average PJM West day-ahead power price and average Henry Hub natural gas spot price ended 3Q21 improved by 84% and 118%, respectively, compared to the year-ago quarter. Driven by these improved market fundamentals and continued tightness in supply, IHS Markit estimates that total US coal demand in 2021 will increase by 110 million t vs 2020 levels, while total US coal production will improve by only 59 million t. As such, coal inventories are in decline. The U.S. Energy Information Administration (EIA) reports that August coal inventory levels at domestic power plants were reduced by nearly 35% compared to year-ago levels and by about 37% since the start of 2021, standing at approximately 84 million t. Additionally, the EIA estimates that these inventory levels will continue to decline through the remainder of the year, finishing 2021 at approximately 73 million t, or approximately 45% below year-end 2020 levels. These year-end 2021 estimates are reduced by more than 32% compared to estimates from just three months ago in July 2021. Consistent with these trends, the majority of the company’s domestic customer stockpiles are below target levels for this time of year. As such, it has seen domestic customer demand increase and have remained opportunistic in securing additional coal sales contracts for 2022 and 2023, bringing its contracted positions for those years to 20.2 million and 5.8 million t, respectively.
On the export front, seaborne thermal coal markets continued to strengthen throughout the third quarter of 2021. API2 spot prices continued to move substantially higher in 3Q21, ending 3Q21 improved by 193% compared to 3Q20. Global LNG prices have continued to remain elevated with the Asian spot market benchmark price (JKM) ending 3Q21 more than five times higher than 3Q20. As a result of the continued strength in the international coal markets, IHS Markit estimates that US thermal coal exports will improve by 57% and 54% in 2021 and 2022, respectively, compared to 2020 levels.
During 3Q21, the company ran four longwalls at the PAMC, but operational and geological issues, transportation delays and a planned maintenance shutdown limited its production in the quarter. The PAMC produced 5.3 million t in 3Q21, compared to 4.5 million t in the year-ago quarter. This improvement compared to the prior year was due to the increased demand for product, as coal markets were beginning to recover from the COVID-related demand decline in 3Q20. Despite the challenges in the recent quarter, demand for the company’s product remains strong. As such, it has recommenced development of the fifth longwall located at its Enlow Fork Mine, which it expects to be operational in late 4Q22.
CEIX’s total costs and expenses during 3Q21 were US$303.1 million compared to US$246.7 million in the year-ago quarter, and CEIX’s total coal revenue during 3Q21 was US$258.6 million compared to US$184.4 million in the year-ago period. However, total revenue in 3Q21 was impacted by US$147.3 million of pre-tax unrealised mark-to-market losses related to commodity derivatives. Average cash cost of coal sold per tonne for 3Q21 was US$30.64, compared to US$28.64 in the year-ago quarter. The significant increase was primarily due to the unforeseen operational and geological challenges experienced in the current quarter, which weighed on production as well as maintenance, supply, contractors and project expenses.
CONSOL Marine Terminal Review
For 3Q21, throughput volumes at the CMT were 2.8 million t, compared to 2 million t in the year-ago period. Terminal revenues and CMT total costs and expenses were US$14.1 million and US$10.2 million, respectively, compared to $17.0 million and $8.9 million, respectively, during the year-ago period. CMT operating cash costs were US$5.8 million in 3Q21, compared to US$4.8 million in 3Q20. The increase in cash cost was driven by the increase in throughput tonnes vs 3Q20. However, revenue was impaired in 3Q21 compared to 3Q20 due to the take-or-pay contract that was in place in the prior-year period. Accordingly, CONSOL Marine Terminal net income and CONSOL Marine Terminal adjusted EBITDA were US$4.5 million and US$7.3 million, respectively, in 3Q21 compared to US$8.4 million and US$11.3 million, respectively, in the year-ago period.
2021 guidance and outlook
Based on the company’s current contracted position, estimated prices and production plans, it is providing the following updated financial and operating performance guidance for 2021:
- 2021 targeted coal sales volume of 23.5 – 24.5 million t.
- Fully contracted for 2021 at an average revenue of US$46.26/t, assuming PJM West power forwards of US$54.84/MWh (priced as of 1 October 2021 for…