Consol Energy sees record coal production, sales in 2018

Consol Energy reported record high coal production and sales in 2018, partly due to improved geological conditions and higher productivity, the company said Thursday.

The Canonsburg, Pennsylvania-based company said during its fourth-quarter and full-year 2018 earnings call that the three mines at its Pennsylvania Mining Complex — Bailey, Enlow Fork and Harvey — produced a record 27.6 million st of coal in 2018, up 5.6% from the previous record of 26.1 million st in 2017.

In Q4, the three mines produced a record 6.8 million st, up from 6.4 million st in the third quarter of the year and 6.2 million st in the year-ago quarter.

CEO Jimmy Brock said on the earnings call that the “improvement was due to higher productivity, early benefits of debottlenecking projects, as well as improved geological conditions at the Enlow Fork mine.”

In 2018, Brock said the complex ran at a 97% capacity utilization rate and is expected to operate at the same level in 2019.

The company’s coal sales totaled a record-high 7 million st in Q4, which generated an average revenue per ton of $49.81/st, compared with 6.2 million st sold at $47.21/st in Q3 and 6.2 million st in the year-ago quarter at $46.36/st.

Consol’s average cash cost of coal sold was $30.54/st in Q4, resulting in an average cash margin of $19.27/st, compared with an average cash cost of $30.88/st and margin of $16.33/st in Q3 as well as $27.30/st and $19.06/st in the year-ago quarter.

Brock said the company is scheduled to have two longwall moves in the first quarter of 2019 and one longwall move in each of the final three quarters of the year, noting that the second quarter “will be a strong quarter for us.”

Northern Appalachia rail served power plants continue to report around 20 days of coal burn, compared with the typical 30 to 40 days, while total coal inventories at domestic power plants were at 104 million st at the end of November, down 27% year on year and the lowest end of November level since 1997, Brock said.

Consol recorded a net cash decrease of $11.38 million in Q4, compared with a decrease of $8.19 million in the previous quarter and an increase of $150.28 million in the year-ago quarter.

CONSOL MARINE TERMINAL
Throughput volumes at Consol’s Marine Terminal at the Port of Baltimore totaled 2.7 million st in Q4, unchanged from Q3, but down 34% from 4.1 million st in the year-ago quarter.

Terminal revenues and operating costs totaled $16.9 million and $5 million, respectively, in Q4, compared with $16.1 million and $7.4 million in Q3 and $17 million and $6 million in the year-ago quarter.

The company has a take-or-pay agreement that was signed in May 2018 that has a fixed revenue of about $120 million for 14 million st.

“The take-or-pay agreement we entered into earlier in the year has provided us with a steady revenue stream and helped us finish 2018 with a record revenue year,” Brock said.

For the year, the terminal saw throughput of 12.4 million st and revenues of $64.9 million, compared with throughput of 14.3 million st and $60.1 million in revenue in 2017. 2019 GUIDANCE

The company expects to sell between 26.8 million st and 27.8 million st of coal in 2019, with revenue per ton sold coming between $47.70/st and $49.70/st.

Consol’s cash cost of coal sold is estimated at between $30.40/st and $31.40/st, which would result in an average cash margin of between $17.30/st and $18.30/st.

Due to the strength in natural gas markets in Q4, Brock said the company is now over 95% booked for 2019 shipments, 53% for 2020 and 28% for 2021, compared with the previous quarter when commitments were 90% for 2019 and 44% in 2020.

“While export prices have pulled back since our last earnings call, it is not due to the lack of demand,” Brock said. “We continue to see robust demand trends in [India and Europe] for our coals.”

In the first half of 2019, the company has 4.7 million st of export shipments contracted and priced, which, according to Chief Commercial Officer Jim McCaffrey, is in the $50s/st range. In the second half of 2019, Consol is expecting around 3.5 million st of exports, which has a pricing floor above $45.52/st.

“As far as comparing [exports sales] to the domestic market, the domestic market has been fairly strong,” McCaffrey said. “I think that on a spot basis, prices are in at low-to-mid-$50s[/st] range. I don’t think that that’s available on a term basis, but I think prices are pretty solid on the term basis as well.”

McCaffrey said the company agreed to deals with five customers in Q4 with fixed prices that are in a contango structure: one on a two-year term, three on a three-year term and one on a five-year deal.
Source: Platts