CONSOL Energy (NYSE:CNX), a leading producer of coal in Northern and Central Appalachia, said Jan. 26 that it set some new records in 2011, including record overseas coal sales of 11.4 million tons, an increase of 68% from the 6.8 million tons sold overseas in 2010.
CONSOL, which is also in the natural gas business, reported net income for the fourth quarter of 2011 of $196m, compared to $104m from the year-ago quarter. Record net income for 2011 was $632m, compared to $347m for 2010.
Another 2011 full year record related largely to coal exports is that CONSOL’s Baltimore Terminal shipped a record 12.6 million tons in 2011, besting the 1995 shipments of 12.4 million tons.
“CONSOL Energy has a world class set of assets,” said J. Brett Harvey, Chairman and CEO. “In our Coal Division for 2011, we were able to combine reliable operations with astute marketing to generate record net income. Our record results were even more impressive when one realizes that, on the gas side, weakening gas prices throughout 2011 largely offset our record gas production.”
Strategically, CONSOL said it was successful in participating in the growth of world coal markets and in selling more of its crossover coal into lucrative met coal markets. CONSOL’s coal, most of it out of several longwall-equipped deep mines in southwest Pennsylvania and northern West Virginia, is currently being sold on four continents.
CONSOL said it has trimmed its 2012 spending outlook to $1.5bn, down from an earlier projected $1.7bn. The revisions from a Jan. 10 announcement are occurring mostly because a combination of mild weather and high production, which has caused natural gas prices to drop to a 10-year low. That has led to cutbacks in CONSOL’s gas division, causing the company to reduce its 2013 production guidance to 190-210 Bcfe, which would be 10 Bcfe lower than the earlier projection. CONSOL’s 2015 goal of 350 Bcfe, however, remains unchanged because the drilling schedule in the out years has enough flexibility in it to accommodate a slightly reduced production goal in 2013.
In coal, CONSOL said it has determined that some efficiency projects will be postponed, resulting in a reduction in coal capital spending of approximately $44m. There is apparently no impact on the $205m that CONSOL said on Jan. 10 has been allocated to projects such as the BMX project. BMX, which would involve a third longwall at the Bailey mine, is on track to add 5 million tons per year of Pittsburgh-seam coal, which will be sold in either the high-vol or thermal markets.
Record sales revenue achieved in Q4
Fourth quarter total company sales revenue was nearly $1.4bn. This was the highest ever achieved for CONSOL in a fourth quarter. As has been the case throughout 2011, most of the increase came from higher average realized prices across all three coal segments. The company’s low-vol, high-vol and thermal coal categories had realized prices of $191, $78, and $59 per ton, FOB mine, respectively. Coal margins, across all of the company’s sales, were $17.95 per ton, an increase of $1.18 per ton from the year-earlier quarter.
For the third consecutive quarter, CONSOL’s coal division generated more cash from its met business than from its thermal business. This demonstrates the company’s significant presence in the growing metallurgical markets. Low-vol refers to low-volatile matter met coal, mainly out of CONSOL’s Buchanan longwall mine in Virginia. High-vol refers to a lesser quality, but still relatively high priced, met coal that largely comes from some of the mines in Northern Appalachia that also produce lower-priced thermal coal.
During 2011, the coal operating costs per ton were up less than 5% after adjusting for the effects of higher realizations, the placing in service of a new water treatment plant, and a production shift towards higher cost mines. The company added more staff to prepare for growth, which we will be scaling back in this weaker environment. Overall costs per ton in 2011 were $52.22, versus $46.55 in 2010, for an increase of $5.67, or 12%.
Coal production in the fourth quarter consisted of 1.4 million tons of low-vol, 1.2 million tons of high-vol and 12.7 million tons of thermal, for a total of 15.3 million tons. During the fourth quarter, total coal inventory increased by 0.1 million tons to 1.8 million tons as of the end of 2011. Thermal coal inventory was unchanged at 1.6 million tons and low-vol Buchanan inventory increased by 0.1 million tons, to 0.2 million tons.
Low-vol coal sets 2011 revenue record
In the low-vol category, CONSOL achieved a record revenue year at Buchanan in 2011. During the fourth quarter, two cargoes of a new high ash product were sold to China, opening up potentially new markets. Also, 302,000 tons were booked for 2012 and 654,000 tons were re-priced. Pricing averaged over $180/ton, FOB mine. Buchanan is 70% sold for 2012.
In the high-vol category, development continues on the Bailey high-vol product as it is now being used in coking blends on four continents. The coal is being tested for additional use at locations around the world. CONSOL expects 2012 high-vol sales volumes to grow beyond the 4.8 million tons shipped in 2011.
In the U.S. thermal coal market, CONSOL’s thermal coals are nearly sold out for 2012. During the fourth quarter, 7.5 million tons of thermal for 2012 were re-priced at $64.22 per ton. This represented an overall price improvement for these coals versus 2011.
In the European thermal market, 2.15 million tons of additional export thermal were committed in the fourth quarter including two multi-year deals, 352,000 tons of which will be delivered in 2012. The balance will ship in future periods. Pricing (FOB mine) was favorable compared to the domestic market.
For 2012, CONSOL Energy expects to export 9 million to 11 million tons, across all sales categories.
Estimated 2011 total coal production is 63.3 million tons, with the estimated production range for 2012 at 59.5 million to 61.5 million tons, growing to 60.5 million to 62.5 million tons in 2013 and 64.5 million to 66.5 million tons in 2014.
Estimated low-vol met sales are in a range of 4.5 million to 5 million tons in each of 2012, 2013 and 2014. Estimated high-vol met sales are 5 million tons in each of 2012 and 2013, growing to 5.5 million to 6 million tons in 2014. Estimated thermal coal sales are 49.6 million to 51.1 million tons in 2012, 50.4 million to 51.9 million tons in 2013 and 53.9 million to 54.9 million tons in 2014.
Notable is that total estimated coal sales for 2012, 2013, and 2014 include 0.4, 0.6 and 0.6 million tons, respectively, from the Amonate complex of tiny mines along the Virginia/West Virginia border. Amonate had been shut for some time, and was up for sale at one point, but CONSOL has said it is bringing the relatively high-cost complex back into operation to serve strong met coal markets. None of the Amonate tons has yet been sold, CONSOL said in the earnings statement.
CONSOL has 12 bituminous coal mining complexes in four states and reports proven and probable coal reserves of 4.4 billion tons. Its only existing coal mine outside of Appalachia, the Emery deep mine in Utah, was idled in 2010.