CANONSBURG, Pa., May 8, 2019 /PRNewswire/ -- CONSOL Coal
Resources LP (NYSE: CCR) today reported financial and operating
results for the quarter ended March 31, 2019.
First Quarter 2019 Results
Highlights of the CCR first quarter 2019 results include:
- Cash distribution of $0.5125
per unit for the first quarter;
- Net income of $15.2
million;
- Adjusted EBITDA1 of $28.2
million;
- Distribution coverage ratio1 of 1.2x;
- Net leverage ratio1 of 1.5x;
- Extended the maturity of the Affiliated Company Credit
Agreement with CONSOL Energy Inc. through 2024; and
- Extended a major export contract through the end of 2020;
pricing terms unchanged.
Management Comments
"After a very strong finish to 2018, I am pleased to report that
the CCR team continues to perform consistently well despite the
fluctuations we've seen in the commodity markets we serve," said
Jimmy Brock, Chief Executive Officer
of CONSOL Coal Resources GP LLC, the general partner of the
Partnership. "We continue to deliver consistent distribution levels
to our unitholders while reducing risk through prudent balance
sheet management. This quarter, we not only reduced our net
leverage ratio, but with the support of our sponsor, we extended
the maturity date of our Affiliated Company Credit Agreement
through 2024. This extension provides us continued access to
low-cost liquidity, which is becoming scarce in the master limited
partnership space for companies of our size.
On the safety front, the PAMC employees improved their safety
performance by 70% compared to the same period in 2018. The central
preparation plant continued its strong safety performance with an
incident-free quarter."
Sales & Marketing
Our marketing team sold 1.7 million tons of coal during the
first quarter of 2019 at an average revenue per ton of $49.38, compared to 1.7 million tons at an
average revenue per ton of $52.98 in
the year-ago period. The average revenue per ton was impacted by a
reduction in revenues on our netback contracts due to lower PJM
West power prices and volumes, partially offset by improvements in
our domestic non-netback and export revenues. During the first
quarter, average PJM West power prices declined approximately 33%
compared to the year-ago period, but our average revenue per ton
across the portfolio was only impacted by approximately 7%. This
highlights the importance of our well-diversified contract
portfolio, thoughtful contracting strategy, and guidance process
that already included weaker PJM forward prices compared to the
prior year. This also showcases the strength of our marketing
process in continuing to high-grade our contract portfolio over
time, enabling us to deliver a more stable and consistent earnings
profile even in volatile commodity price environments.
On the domestic front, despite a decline in weather-driven
heating demand, our domestic customer base and contracted position
remained solid, as customers focused on rebuilding their very low
inventories. According to the Energy Information Administration,
coal inventories at domestic power plants stood at approximately 99
million tons at the end of February, representing a drawdown of
more than 18% from year-ago levels and the lowest levels since
2005. We believe that inventories at several of our key customers'
Northern Appalachian (NAPP) rail-served power plants have increased
slightly to around 30 days of burn compared to 20 days in the
second half of 2018, which remain near the lower end of what we
estimate is a typical target of 30-45 days. According to industry
estimates, Appalachian E&P capital budgets for 2019 are about
14% below 2018 levels, and rising demand should create near-term
downside protection in natural gas prices during the refill season.
As gas production growth abates and headwinds continue to surround
the construction of the Atlantic Coast and Mountain Valley
pipelines, we believe there could be a positive surprise in gas
prices that could play out into the power markets as we head
towards peak summer and winter demand periods.
Internationally, thermal coal prices have come under pressure
since the beginning of 2019 due to pullback in global LNG prices
and other factors such as weak weather-related demand in
Japan and Korea and softening
demand in Europe due in part to an
influx of Russian coal. We are already beginning to see an export
supply response from several countries that should help to
stabilize API2 and Newcastle prices. We believe the recent market
behavior is consistent with normal cycle trends exacerbated by
transient items. We believe longer-term coal pricing will be driven
by continued growth of coal-fired generation capacity build out in
Asia, limited investments in coal
supply, and tightening supply-demand fundamentals for LNG in 2021.
According to our analysis of data from IHS Markit, approximately
111 GW of new coal-fired capacity is under construction globally
for commissioning between 2019-2024. Furthermore, an additional 300
GW of new coal-fired capacity is in the planning stages. We believe
this bodes well for seaborne thermal coal demand, particularly for
high-Btu NAPP coal.
Meanwhile, in the near term through 2020, our export shipment
volumes and price are supported by the export deal we signed in
early 2018. As mentioned in previous earnings releases, our export
contract has firm volume with firm pricing commitments through
June 2019 and firm volume with
collared pricing (average floor above $45.52 per ton) from July
2019 to June 2020.
Accordingly, this contract serves as a bridge that allows us to
weather the volatility of temporary pricing dislocations in
seaborne thermal coal markets.
Export Contract Extended Through 2020
Recently, we amended our previously disclosed export contract,
extending it from July 1, 2020
through December 31, 2020. This adds
an additional 0.91 million tons to 2020, taking our contracted
position to 71% and protecting CCR from the downward pressure that
has been experienced in the API2 market while allowing for
participation in potential upside as well. The collar levels are
consistent with the original contract, and we anticipate the tons
to breakout as 68% thermal and 32% crossover metallurgical
coal.
CCR is currently 95%+ contracted for 2019, 71% contracted for
2020, and 31% contracted for 2021 assuming annual production of
6.75 million tons. We are currently in active negotiations with
both domestic and international customers, and we expect to achieve
our targeted contracted position for 2020 before the end of this
year.
Operations Summary
CCR achieved a first quarter production of 1.7 million tons,
which compares to 1.7 million tons in the first quarter of 2018.
During the quarter, coal production increased slightly due to
increased production at the Enlow Fork mine, as geological
conditions improved compared to the same period in 2018, and at the
Harvey mine. This was partially offset by reduced production at the
Bailey mine, resulting from a longwall move and other operational
delays.
Total costs during the first quarter were $70.9 million compared to $72.5 million in the year-ago quarter. Average
cash cost of coal sold per ton1 was $29.71compared to $29.21 in the year-ago quarter. The impairment
was largely driven by an increase in project expenses and gas well
plugging activities, partially offset by reduced lease/rental
expense. Since the fourth quarter of 2017, we have seen modest
inflation in the cost of supplies that contain steel and other
commodities for which prices are strengthening, as well as in the
cost of contract labor. We have been successful in managing these
cost pressures and keeping our overall cost increase under our
targeted 5% annual limit through productivity gains and automation,
as we have discussed in previous earnings calls. Total coal revenue
during the first quarter was $83.1
million compared to $87.8
million in the year-ago quarter. Average cash margin per ton
sold1 for the first quarter of 2019 decreased by
$4.10, or 17%, to $19.67 per ton compared to the year-ago period,
driven by lower average revenue per ton due to lower revenue from
our netback contracts and slightly higher operating costs.
|
|
Three Months
Ended
|
|
|
March 31,
2019
|
|
March 31,
2018
|
Coal
Production
|
million
tons
|
1.7
|
|
1.7
|
Coal Sales
|
million
tons
|
1.7
|
|
1.7
|
Average Revenue Per
Ton
|
per ton
|
$49.38
|
|
$52.98
|
Average Cash Cost of
Coal Sold1
|
per ton
|
$29.71
|
|
$29.21
|
Average Cash Margin
Per Ton Sold1
|
per ton
|
$19.67
|
|
$23.77
|
|
|
|
|
|
|
|
Quarterly Distribution
During the first quarter of 2019, CCR generated net cash
provided by operating activities of $25.2 million and
distributable cash flow1 of $17.3 million,
yielding a distribution coverage ratio1 of 1.2x. During
the quarter, our net cash provided by operating activities was
impacted by lower net income and an increase in working capital.
Our distribution coverage ratio calculation is based on estimated
maintenance capital expenditures of $9.0
million, while our actual cash maintenance capital
expenditures for the first quarter were $8.1 million. Based on
our current outlook for the coal markets and a year-to-date
distribution coverage ratio1 of 1.2x, the board of
directors of the general partner has elected to pay a cash
distribution of $0.5125 per unit
to all limited partner unitholders and the holder of the general
partner interest. As previously announced on April 25, 2019, the distribution to all
unitholders of the Partnership will be made on May 15,
2019, to such holders of record at the close of business on
May 7, 2019.
2019 Guidance and Outlook
Based on our year-to-date results, current contracted position,
estimated prices and production plans, we are maintaining our
financial and operating performance guidance for 2019.
- Coal sales volumes - 6.70-6.95 million tons
- Coal average revenue per ton - $47.70-$49.70
- Cash cost of coal sold per ton2 - $30.40-$31.40
- Adjusted EBITDA2 - $92-$115
million
- Capital expenditures - $34-$38
million
First Quarter Earnings Conference Call
A joint conference call and webcast with CONSOL Energy Inc.,
during which management will discuss the first quarter 2019
financial and operational results, is scheduled for May 8,
2019 at 11:00 AM ET. Prepared remarks by members of
management will be followed by a question and answer session.
Interested parties may listen via webcast on the Events page of our
website, www.ccrlp.com. An archive of the webcast will be
available for 30 days after the event.
Participant dial in (toll
free) 1-888-348-6419
Participant international dial
in 1-412-902-4235
Availability of Additional Information
Please refer to our website www.ccrlp.com for additional
information regarding this company. Prior to the earnings
conference call, we will make available additional information in a
presentation slide deck to provide investors with further insights
into our financial and operating performance. This material can be
accessed through the "Events and Presentations" page of our
website, www.ccrlp.com. In addition, we may provide other
information about the company from time to time on our website.
We will also file our Form 10-Q with the Securities and Exchange
Commission (SEC), reporting our results for the quarter ended
March 31, 2019. Investors seeking our
detailed financial statements can refer to the Form 10-Q once it
has been filed with the SEC.
Footnotes:
1 "adjusted EBITDA", "distribution coverage
ratio", "distributable cash flow", "total cost of coal sold",
"average cash cost of coal sold per ton", "average cash margin per
ton sold" and "net leverage ratio" are non-GAAP financial measures,
which are reconciled to the most directly comparable GAAP financial
measures immediately below the caption "Reconciliation of Non-GAAP
Financial Measures".
2 CCR is unable to provide a reconciliation of
adjusted EBITDA guidance to net income or cash cost of coal sold
per ton guidance to total costs, the most comparable financial
measures calculated in accordance with GAAP, due to the unknown
effect, timing and potential significance of certain income
statement items.
About CONSOL Coal Resources LP
CONSOL Coal Resources (NYSE: CCR) is a master limited
partnership formed in 2015 to manage and further develop all of
CONSOL Energy Inc.'s (NYSE: CEIX) active coal operations in
Pennsylvania. CCR's assets include
a 25% undivided interest in, and operational control over, the
Pennsylvania Mining Complex, which consists of three underground
mines - Bailey, Enlow Fork and Harvey - and related infrastructure.
For its ownership interest, CCR has an effective annual production
capacity of 7.1 million tons of high-Btu North Appalachian thermal
and crossover metallurgical coal. More information is available on
our website www.ccrlp.com.
Contacts:
Investor:
Mitesh Thakkar, (724) 416-8335
miteshthakkar@consolenergy.com
Media:
Zach Smith, (724) 416-8291
zacherysmith@consolenergy.com
Reconciliation of Non-GAAP Financial Measures
We evaluate our cost of coal sold and cash cost of coal sold on
a cost per ton basis. Our cost of coal sold per ton represents our
costs of coal sold divided by the tons of coal we sell. We define
cost of coal sold as operating and other production costs related
to produced tons sold, along with changes in coal inventory, both
in volumes and carrying values. The cost of coal sold per ton
includes items such as direct operating costs, royalty and
production taxes, direct administration, and depreciation,
depletion and amortization costs on production assets. Our costs
exclude any indirect costs such as selling, general and
administrative costs, freight expenses, interest expenses,
depreciation, depletion and amortization costs on non-production
assets and other costs not directly attributable to the production
of coal. The GAAP measure most directly comparable to cost of coal
sold is total costs. The cash cost of coal sold includes cost of
coal sold less depreciation, depletion and amortization cost on
production assets. The GAAP measure most directly comparable to
cash cost of coal sold is total costs.
The following table presents a reconciliation of cost of coal
sold and cash cost of coal sold to total costs, the most directly
comparable GAAP financial measure, on a historical basis for each
of the periods indicated (in thousands).
|
Three Months Ended
March 31,
|
|
2019
|
2018
|
Total
Costs
|
$
|
70,887
|
$
|
72,544
|
Freight
Expense
|
(1,665)
|
|
(4,472)
|
Selling, General and
Administrative Expenses
|
(4,560)
|
|
(3,020)
|
Interest Expense,
Net
|
(1,351)
|
|
(1,951)
|
Other Costs
(Non-Production)
|
(2,264)
|
|
(4,026)
|
Depreciation,
Depletion and Amortization (Non-Production)
|
(577)
|
|
(540)
|
Cost of Coal
Sold
|
$
|
60,470
|
$
|
58,535
|
Depreciation,
Depletion and Amortization (Production)
|
(10,640)
|
|
(10,274)
|
Cash Cost of Coal
Sold
|
$
|
49,830
|
$
|
48,261
|
We define average cash margin per ton as average coal revenue
per ton, net of average cash cost of coal sold per ton. The GAAP
measure most directly comparable to average cash margin per ton is
total coal revenue.
The following table presents a reconciliation of average cash
margin per ton sold to coal revenue, the most directly comparable
GAAP financial measure, on a historical basis, for each of the
periods indicated (in thousands, except per ton information).
|
Three Months Ended
March 31,
|
|
2019
|
|
2018
|
Total Coal
Revenue
|
$
|
83,126
|
|
$
|
87,752
|
Operating and Other
Costs
|
52,094
|
|
52,287
|
Less: Other Costs
(Non-Production)
|
(2,264)
|
|
(4,026)
|
Cash Cost of Coal
Sold
|
49,830
|
|
48,261
|
Add: Depreciation,
Depletion and Amortization
|
11,217
|
|
10,814
|
Less: Depreciation,
Depletion and Amortization (Non-Production)
|
(577)
|
|
(540)
|
Cost of Coal
Sold
|
$
|
60,470
|
|
$
|
58,535
|
Total Tons
Sold
|
1,683
|
|
1,656
|
Average Revenue Per
Ton Sold
|
$
|
49.38
|
|
$
|
52.98
|
Average Cash Cost Per
Ton Sold
|
29.71
|
|
29.21
|
Add: Depreciation,
Depletion and Amortization Costs Per Ton Sold
|
6.21
|
|
6.13
|
Average Cost Per Ton
Sold
|
35.92
|
|
35.34
|
Average Margin Per
Ton Sold
|
13.46
|
|
17.64
|
Add: Total
Depreciation, Depletion and Amortization Costs Per Ton
Sold
|
6.21
|
|
6.13
|
Average Cash
Margin Per Ton Sold
|
$
|
19.67
|
|
$
|
23.77
|
We define adjusted EBITDA as (i) net income (loss) before net
interest expense, depreciation, depletion and amortization, as
adjusted for (ii) certain non-cash items, such as long-term
incentive awards including phantom units under the CONSOL Coal
Resources LP 2015 Long-Term Incentive Plan ("unit-based
compensation"). The GAAP measure most directly comparable to
adjusted EBITDA is net income.
We define distributable cash flow as (i) net income (loss)
before net interest expense, depreciation, depletion and
amortization, as adjusted for (ii) certain non-cash items, such as
unit-based compensation, less net cash interest paid and estimated
maintenance capital expenditures, which is defined as those
forecasted average capital expenditures required to maintain, over
the long-term, the operating capacity of our capital assets. These
estimated capital expenditures do not reflect the actual cash
capital expenditures incurred in the period presented.
Distributable cash flow will not reflect changes in working capital
balances. The GAAP measures most directly comparable to
distributable cash flow are net income and net cash provided by
operating activities. We define distribution coverage ratio as a
ratio of the distributable cash flow to the distributions, which is
the $0.5125 per quarter distribution
for all limited partner units, including common and subordinated
units, issued for the periods presented.
The following table presents a reconciliation of adjusted EBITDA
to net income, the most directly comparable GAAP financial measure,
on a historical basis for each of the periods indicated. The
table also presents a reconciliation of distributable cash flow to
net income and operating cash flows, the most directly comparable
GAAP financial measures, on a historical basis for each of the
periods indicated (in thousands).
|
Three Months
Ended
March 31,
|
|
2019
|
|
2018
|
Net
Income
|
$
|
15,220
|
|
$
|
21,957
|
Plus:
|
|
|
|
Interest
Expense
|
1,351
|
|
1,951
|
Depreciation,
Depletion and Amortization
|
11,217
|
|
10,814
|
Unit-Based
Compensation
|
397
|
|
359
|
Adjusted
EBITDA
|
$
|
28,185
|
|
$
|
35,081
|
Less:
|
|
|
|
Cash
Interest
|
1,875
|
|
828
|
Estimated Maintenance
Capital Expenditures
|
8,981
|
|
8,963
|
Distributable Cash
Flow
|
$
|
17,329
|
|
$
|
25,290
|
|
|
|
|
Net Cash Provided
by Operating Activities
|
$
|
25,218
|
|
$
|
29,264
|
Plus:
|
|
|
|
Interest
Expense
|
1,351
|
|
1,951
|
Other, Including
Working Capital
|
1,616
|
|
3,866
|
Adjusted
EBITDA
|
$
|
28,185
|
|
$
|
35,081
|
Less:
|
|
|
|
Cash
Interest
|
1,875
|
|
828
|
Estimated Maintenance
Capital Expenditures
|
8,981
|
|
8,963
|
Distributable Cash
Flow
|
$
|
17,329
|
|
$
|
25,290
|
Distributions
|
$
|
14,405
|
|
$
|
14,346
|
Distribution
Coverage
|
1.2
|
|
1.8
|
We define net leverage ratio as the ratio of net debt to last
twelve month (LTM) earnings before interest expense, depreciation,
depletion and amortization, adjusted for certain non-cash items,
such as long-term incentive awards, amortization of debt issuance
and capitalized interest.
The following table presents a reconciliation of the net
leverage ratio to net income (in thousands).
|
Twelve Months
Ended
|
|
March 31,
2019
|
Net
Income
|
$
|
59,829
|
Plus:
|
|
Interest Expense,
Net
|
6,067
|
Depreciation,
Depletion and Amortization
|
45,145
|
Unit-Based
Compensation
|
1,880
|
Cash Payments for
Legacy Employee Liabilities, Net of Non-Cash Expense
|
1,466
|
Other Adjustments to
Net Income
|
1,811
|
EBITDA Per Affiliated
Company Credit Agreement
|
$
|
116,198
|
|
|
Borrowings under
Affiliated Company Credit Agreement
|
$
|
161,500
|
Finance
Leases
|
7,643
|
Total Debt
|
169,143
|
Less:
|
|
Cash on
Hand
|
405
|
Net Debt Per
Affiliated Company Credit Agreement
|
$
|
168,738
|
|
|
Net Leverage Ratio
(Net Debt/EBITDA)
|
1.5
|
Cautionary Statement Regarding Forward-Looking
Statements
Certain statements in this press release are "forward-looking
statements" within the meaning of the federal securities laws. With
the exception of historical matters, the matters discussed in this
press release are forward-looking statements (as defined in Section
21E of the Securities Exchange Act of 1934, as amended) that
involve risks and uncertainties that could cause actual results to
differ materially from projected results. Accordingly, investors
should not place undue reliance on forward-looking statements as a
prediction of actual results. The forward-looking statements may
include projections and estimates concerning the timing and success
of specific projects and our future production, revenues, income
and capital spending. When we use the words "anticipate,"
"believe," "could," "continue," "estimate," "expect," "intend,"
"may," "plan," "predict," "project," "should," "will," or their
negatives, or other similar expressions, the statements which
include those words are usually forward-looking statements. When we
describe strategy that involves risks or uncertainties, we are
making forward-looking statements. We have based these
forward-looking statements on our current expectations and
assumptions about future events. While our management considers
these expectations and assumptions to be reasonable, they are
inherently subject to significant business, economic, competitive,
regulatory and other risks, contingencies and uncertainties, most
of which are difficult to predict and many of which are beyond our
control. Specific risks, contingencies and uncertainties are
discussed in more detail in our filings with the Securities and
Exchange Commission. The forward-looking statements in this press
release speak only as of the date of this press release and CCR
disclaims any intention or obligation to update publicly any
forward-looking statements, whether in response to new information,
future events, or otherwise, except as required by applicable
law.
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SOURCE CONSOL Coal Resources LP