Illinois coal producer Foresight Energy LP (NYSE: FELP) said May 7 that it set in the first quarter of this year a new quarterly record for coal production, which drove an 8.4% increase in sales volumes compared to the year-ago quarter.
First quarter Adjusted EBITDA increased 19.5% to $101.5 million compared to the first quarter in 2014 while net income attributable to limited partner units increased 34.2% to $42.3 million or $0.33 per unit. FELP’s first quarter results were positively impacted by $15.8 million, or $0.12 per unit, in unrealized gains on commodity derivative contracts and a legal settlement of $13.5 million, or $0.10 per unit, which helped offset the negative impact of approximately $0.12 to $0.14 per unit attributable to scheduled coal shipments that shifted out of the quarter.
“Foresight’s highly productive, low cost operations continue to drive strong financial performance as evidenced by our first quarter results,” said Michael Beyer, President and Chief Executive Officer. “Once again our Hillsboro, Williamson and Sugar Camp longwall complexes were the three most productive underground coal mines in the United States during the first quarter based on clean tons produced per man hour worked as reported by MSHA. Foresight’s industry leading productivity and low cost structure continues to drive its growth despite weak domestic and international coal markets.”
During the first quarter, FELP’s sponsor, Foresight Reserves, contributed its equity interest in Sitran LLC (which controls a coal transloading terminal on the Ohio River), Adena Resources LLC, Hillsboro Transport LLC and Akin Energy LLC to FELP for no consideration. The net assets had an aggregate net book value of $60.6 million at the time of the contribution. An additional drop down occurred subsequent to the first quarter when Foresight purchased certain mineral and logistics assets from coal producer Murray Energy on April 16, 2015, for $75 million. Combined, these assets are currently expected to add $16 million to $21 million of Adjusted EBITDA annually.
“These drop downs will add Adjusted EBITDA and free cash flow to Foresight and its unitholders and help offset the effects of current market conditions,” said Chris Cline, Chairman and principal owner of Foresight Reserves. “The drop down demonstrates one aspect of the value of the transaction with Murray Energy and its potential drop down pipeline represented by its 13 mining operations, which had over $700 million of Adjusted EBITDA in 2014. Additional benefits are expected from cost savings from synergies and reductions in maintenance capital due to Murray’s manufacturing capabilities.”
Subsequent to the first quarter, Murray Energy acquired all of the outstanding subordinated units of FELP, 34% of the outstanding units of Foresight Energy GP LLC (the “General Partner”) and 77.5% of the economic interests in FELP’s incentive distribution rights.
Coal sales revenue totaled $238.9 million for the three months ended March 31, 2015, compared to $242.7 million in the prior year period. The $3.8 million decrease was driven by a decline in coal sales realization per ton offset by an 8.4% increase in sales volumes. The decline in coal sales realization was primarily the result of a lower mix of international shipments as well as lower realization on both domestic and international sales. The increase in sales volumes during the quarter were supported by additional production from the start-up of the second longwall at the Sugar Camp complex in June 2014. However, sales volumes during the quarter were negatively impacted by transportation disruptions, including the high water on the Ohio River which temporarily halted throughput at the Sitran terminal and resulted in sales volumes being pushed into future quarters.
Cost of coal produced increased $17.6 million to $110.6 million, due to higher sales volumes and a $1.93 increase in cash cost per ton sold to $21.68 per ton. The increase in cash cost per ton was principally driven by the Williamson mine, which experienced higher labor-related, supply, and repair costs compared to the first quarter of 2014. Additionally, production costs at the Williamson mine were negatively impacted during the quarter by decreased production primarily as a result of a longwall move.
The company produced 6.6 million tons of coal in the first quarter, up from 5.7 million tons in the fourth quarter of 2014 and from 5.1 million tons in the first quarter of 2014.
FELP is affirming the previously issued guidance for its operating and investment activities:
- Sales Volumes – During 2015, sales volumes are currently estimated to be between 22.8 and 25.2 million tons. FELP has current commitments for 22.1 million tons for 2015.
- Adjusted EBITDA – FELP currently expects to generate Adjusted EBITDA in a range of $385 to $425 million, comparable to 2014 results at the midpoint.
- Capital Expenditures – Total 2015 capital expenditures are estimated to be between $115 and $130 million, including maintenance capital estimates of $80 to $90 million for distributable cash flow purposes.