Illinois coal producer Foresight Energy LP (NYSE: FELP) on Oct. 29 reported sales volumes of 5.7 million tons, total revenues of $253.1 million and Adjusted EBITDA of $91.1 million for the third quarter of this year.
Net income attributable to limited partner units came to $8.1 million, which includes transition and reorganization costs of $5.0 million related to the combination transaction with Ohio-based coal producer Murray Energy.
“The third quarter was significant for Foresight as we realized Adjusted EBITDA of $91.1 million in this very difficult coal environment,” said Robert D. Moore, Foresight’s President and Chief Executive Officer. “We continue to make progress on the integration of Foresight and Murray’s operations and are evaluating additional synergy opportunities. Further, during the quarter we were able to increase our 2016 committed position to 19.5 million tons.”
Foresight also announced that the Board of Directors of its General Partner reduced its quarterly cash distribution to $0.17 per unit for common unitholders, while suspending its distribution on all subordinated units. The board’s decision to reduce the distribution reflects the difficult business environment for coal including, but not limited to, oversupply in virtually all domestic and international basins, intense competition from natural gas, and soft domestic utility demand.
“The decision to cut the distribution reflects the Board’s disciplined long-term approach to creating value for unitholders and will allow Foresight to prudently manage its liquidity during this uncertain period,” said Chris Cline, company founder and Chairman of the Board of Directors. “As the low-cost provider and most productive underground coal mining company, we believe Foresight is better positioned to navigate this difficult period in the coal markets.”
Total revenues were $253.1 million for the third quarter of 2015 compared to $300.0 million for the third quarter of 2014. Coal sales revenue decreased $48.8 million from the third quarter of 2014 due to a decline in coal sales realization per ton sold and a 5.2% decline in sales volumes. The decline in coal sales realization was due to a decrease in realization per ton on both domestic and international sales driven by weak coal market conditions as well as a lower mix of international shipments. Increased domestic shipments during the current year period partially offset the 0.7 million ton decrease in sales volumes to international markets from the year-ago period.
Total revenues for the third quarter of 2015 were favorably impacted by $1.9 million of other revenues related to the drop-down transactions completed with Murray Energy during the second quarter of 2015.
Cost of coal produced was $128.1 million for the third quarter of 2015 compared to $123.5 million for the third quarter of 2014. The increase of $4.7 million from the third quarter of 2014 was driven by a $2.38 per ton increase in the cash cost per ton sold offset by a 7.0% decrease in sales volumes. The increase in cash cost per ton sold during the current quarter was principally driven by the continued production outage at the Hillsboro mine complex resulting from the combustion event at that operation and higher operating costs at Williamson. Partially offsetting the higher operating costs was the realization of synergies resulting from the Murray Energy transaction. While production was negatively impacted by the Hillsboro production outage, Foresight was able to satisfy all sales commitments during this period.
Transition and reorganization costs were $5.0 million for the third quarter of 2015. Foresight entered into a management services agreement with Murray Energy with the intent of optimizing and reorganizing certain corporate administrative functions and generating synergies between the two companies through the elimination of redundant headcount and duplicate general and administrative costs. The costs for the current period are comprised of retention compensation to certain employees during the transition period and termination benefits to employees whose positions were replaced during the current period by Murray Energy employees under the management services agreement.
Foresight recorded a gain on its commodity derivative contracts of $17.5 million for the third quarter of 2015 compared to a $19.0 million gain for the third quarter of 2014. The gains recorded during both periods were primarily due to a decrease in the API 2 coal index forward curve relative to prior periods. For the current quarter, Foresight realized a net gain of $10.9 million on commodity derivative contracts, as compared to a realized net gain of $3.0 million in the prior year period.
Foresight said it has updated its full-year earnings outlook to reflect results to date and to take into account year-to-date performance and the continued decline in the coal markets. Foresight’s focus continues to be on delivering value to investors by reducing overhead costs and identifying ways to streamline operations, further improving its cost structure. Considering the items mentioned above, Foresight is adjusting the previously issued fiscal year 2015 guidance for its operating and investment activities.
- Sales Volumes – Guidance for sales volumes is reduced to 21.5 million to 22.0 million tons from the previous range, which was between 22.5 million and 23.2 million tons.
- Adjusted EBITDA – As a result of a slight decrease in expected sales volumes, Foresight is tightening its Adjusted EBITDA guidance to a range of $375 million to $385 million from the previous range of $385 million to $400 million.
- Capital Expenditures – Given the reduction in spending versus budget year-to-date, Foresight is reducing its capital expenditures guidance to be $90 million to $100 million, including maintenance capital estimates of $70 million to $75 million. The previous range was $105 million to $110 million for total capital and $70 million to $80 million for maintenance capital.
Foresight Energy is a leading producer and marketer of thermal coal controlling over 3 billion tons of coal reserves in the Illinois Basin. Foresight currently operates four mining complexes (Williamson, Sugar Camp, Hillsboro and Macoupin), with four longwall systems, and the Sitran river terminal on the Ohio River. Foresight’s operations are strategically located near multiple rail and river transportation access points, providing transportation cost certainty and flexibility to direct shipments to the domestic and international markets.