CNX works through rough coal market in Q4 2015, idles one longwall

CNX Coal Resources LP (NYSE: CNXC), which owns part of three longwall mines in Pennsylvania majority owned by CONSOL Energy (NYSE: CNX), said Jan. 28 that it had net income in the fourth quarter of 2015 of $8.7 million and coal sales of 1.0 million tons.

“Overall, the fourth quarter was very challenging for CNXC, as an unusually warm start to winter and low natural gas prices reduced the demand for coal generation and resulted in significant inventory overbuild at coal plants. While we worked with our customers to manage the inventory levels, it impacted our fourth quarter shipments and plans for coal sales in the first quarter of 2016,” said Jimmy Brock, Chief Executive Officer of CNX Coal Resources GP LLC (called the “General Partner”). “Our operations team continues to manage through these challenging coal markets by making necessary adjustments at the mines to control costs and offset some of the pricing pressure.”

During the fourth quarter of 2015, CNXC sold 1.0 million tons to 40 different customers, mostly through term contracts of varying length. Despite the currently depressed coal and gas market conditions, CNXC has been able to gain market share in both traditional and non-traditional markets, improving its 2016 contract position to the previously announced level of 4.8 million tons, or 100% of its sales based on the midpoint of its guidance range.

However, unprecedented warm December weather has increased the volatility in energy markets. This volatility could result in shipping delays and may affect average realizations based upon changes in customer mix and the timing of shipments. While CNXC has adjusted its guidance range to reflect these realities, it expects its customers to fulfill their contractual obligations. Furthermore, CNXC continues to seek additional sales to help offset delays. Finally, CNXC continues to target power plants that it expects to provide base load generation in the future energy markets with potential to grow their coal consumption. To that extent, CNXC has solid contractual sales positions for 2017 and 2018 of 61% and 49%, respectively.

Consistent with a Jan. 6 announcement, CNXC continues to expect coal sales of 4.4 million-5.2 million tons in 2016 as it realigns its operational plan with the adjusted shipment schedule. Based on the current plan, CNXC expects shipments to remain soft through the first quarter of 2016 as its customers work through their inventory levels and gradually ramp up shipments through the year. Accordingly, CNXC temporarily idled one of its longwalls (at the Harvey Mine) at the three-mine Pennsylvania complex to optimize the operating schedule and offset any increases in costs associated with the reduced shipments in the first quarter. The Pennsylvania complex is built for this type of optionality and affords much flexibility related to which longwalls it operates.

Harvey has one longwall, while the neighboring Bailey and Enlow Fork mines each have two. All three mines feed their Pittsburgh-seam coal production into the shared Bailey prep plant.

For its 20% undivided interest in the Pennsylvania mining complex, CNXC sold 1.0 million tons of coal during the fourth quarter 2015. Total production declined to 0.9 million tons compared to 1.3 million tons produced in the same quarter of 2014 as CNXC aligned production with market conditions. As previously announced, the sales were impacted by weak winter burn and reduced coal generation weighing on the timing of shipments. Total unit costs for coal sold in the quarter were $39.84 per ton, compared to $42.77 per ton in the year-earlier quarter. The improved cost performance was driven by reduced expenses related to the Pennsylvania streams subsidence, partially offset by lower production due to inconsistent shipment schedules.









   

   Three Months Ended

   

   December 31, 2015

 

December 31, 2014

Coal Production

million tons

   0.9

 

1.3

Coal Sales

million tons

   1.0

 

1.3

Average Realized Price

Per ton

   $52.57

 

$60.10

Average Cost of Coal Sold

Per ton

   $39.84

 

$42.77

Based on the 2016 outlook for coal sales and maintenance capital expenditures provided on January 6, 2016, CNXC is providing the following guidance for 2016:

  • Coal sales of 4.4 million-5.2 million tons
  • Adjusted EBITDA of $57 million-$67 million
  • Maintenance capital expenditures of $24.5 million-$27.5 million

CNX Coal Resources is a growth-oriented master limited partnership recently 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.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.