CONSOL Energy (NYSE: CNX) said Dec. 11 that it signed several term coal deals totaling 10.8 million tons over a three-year period.
These agreements, along with 650,000 tons of additional commitments for 2016, increase CONSOL’s Pennsylvania Operations 2016, 2017, and 2018 sold positions to 93%, 61%, and 49%, respectively, assuming the midpoint of the guidance range of 26 million tons. These operations center on the Bailey, Enlow Fork and Harvey longwall mines in the Pittsburgh coal seam, which feed their production into the common Bailey prep plant.
Nicholas J. DeIuliis, CONSOL president and CEO, commented: “These agreements demonstrate that even as markets continue to be challenged, customers are still incentivized to contract for term commitments to assure that they have a reliable supply of coal. The Pennsylvania Operations coal has a quality advantage due to its high British thermal units (BTUs) that not only optimizes plant performance, but also travels well to compete in non-traditional markets. Even as the domestic market for coal is in the midst of a permanent structural shift, we are capturing market share in the Upper Midwest, Ohio River Valley and Southeastern U.S. regions, which have traditionally been served by our competitors in the Central Appalachian and Illinois Basins. Our customer portfolio contains the lowest heat rate, highest capacity factor plants in the nation – plants that will remain the lowest cost options on the dispatch curve.”
DeIuliis continued: “In 2016, we expect our Pennsylvania Operations to generate positive free cash flow even in the face of depressed natural gas prices and their correlated effect on coal pricing. For 2017 and 2018, where we have committed pricing, the pricing is in steady contango. For the sold tons that are not priced in 2017 and 2018, our agreements are structured so that CONSOL will realize increases as natural gas prices improve and the new market realities begin to bring coal supply and demand into equilibrium.”
CONSOL Energy reaffirmed the previous estimated price range across the entire Coal Division for committed and priced tons in 2016 of $50-$55 per ton.
CONSOL Energy, which is also a major producer of natural gas, said it has added additional natural gas hedges to further reduce risks related to commodity price volatility. CONSOL Energy’s hedged gas volumes include a combination of NYMEX financial hedges and index financial hedges (NYMEX plus basis). In addition, to protect the NYMEX hedge volumes from basis exposure, CONSOL enters into basis-only financial hedges and physical sales with fixed basis at certain sales points.
CONSOL Energy continued to add gas hedges through 2018. CONSOL’s 2016 NYMEX plus basis hedge position increased to 222.0 Bcf at an average hedge price of $3.28 per Mcf. NYMEX plus basis hedge volumes are not exposed to basis differentials but instead have protected revenue. For instance, in 2016, NYMEX plus basis gas hedges lock in revenue of approximately $730 million.
CONSOL Energy is a Pittsburgh-based producer of natural gas and coal. The company is one of the largest independent natural gas exploration, development and production companies, with operations centered in the major shale formations of the Appalachian basin.
CNX Coal Resources LP (NYSE: CNXC), a recent spin-off from CONSOL, on Dec. 11 announced that it has increased the sold position for its 20% undivided ownership interest in Pennsylvania Mining Complex (PMC) for 2016-18 period through a series of long-term deals totaling 1.95 million tons. These agreements along with additional commitments of 130,000 tons increase its sold position to approximately 93%, 61%, and 49% for 2016, 2017 and 2018 respectively, assuming the midpoint of its 2016 sales guidance range of 5.0 milliion-5.4 million tons.
Jimmy Brock, Chief Executive Officer of CNX Coal Resources GP LLC, commented: “I am pleased with the progress our marketing team has made on the contracting front in this challenging market. We are not only able to retain our position as an anchor supplier in our core markets but are also able to make significant inroads in non-traditional markets. In recent months, we have captured market share in Upper Midwest, Ohio River Valley and Southeastern US regions, which were traditionally supplied by other basins. From an operational standpoint, these deals effectively baseload our production. When we can operate at these volumes, we have opportunities for improvements in unit costs as well. This demonstrates that our Pennsylvania complex is the premier coal complex in the United States, even under the pressures of weak pricing and stiff regulatory challenges.”
CNX Coal Resources LP also updated its previously announced estimated price range to $49-$54 per ton for committed and priced tons in 2016. For 2017 and 2018, where it has committed pricing, the pricing is in steady contango. For sold tons in 2017 and 2018 that are not priced, our agreements are structured so that increases will be realized as natural gas pricing improves and the new market realities begin to bring coal supply and demand into equilibrium.
CNX Coal Resources is a growth-oriented master limited partnership formed by CONSOL Energy to manage and further develop all of CONSOL’s active thermal coal operations in Pennsylvania. Its initial assets include a 20% undivided interest in, and operational control over, CONSOL’s Pennsylvania mining complex, which consists of three underground mines and related infrastructure.