Foresight Energy loses money in Q2 2016; works out debt restructuring

Illinois coal producer Foresight Energy LP (NYSE: FELP) on Aug. 9 reported that coal sales of $224.1 million for the second quarter of 2016 contributed to Adjusted EBITDA of $75.1 million, cash flows from operations of $39.4 million and a net loss attributable to limited partner units of $27.8 million.

Foresight’s results for the second quarter 2016 were benefited by a 35.0% increase in sales volumes compared to the first quarter 2016, however, sales volumes were 10.2% lower as compared to the prior year second quarter driven by a decline in international shipments. Production in the second quarter was 4.9 million tons, with a sales volume of 5.1 million tons.

Also during the second quarter of 2016, Foresight’s results were unfavorably impacted by $10.8 million in non-cash losses on its commodity derivative contracts, $5.9 million of debt restructuring and legal costs related to negotiations with its lenders, and $4.3 million in incremental interest charges resulting from the application of default interest rates. Capital expenditures for the second quarter 2016 were $8.3 million, up $3.3 million from the first quarter of 2016 but less than the $21.8 million incurred for the second quarter 2015.

“Despite continuing challenges in the domestic and international coal markets, Foresight’s second quarter results improved significantly versus the first quarter of this year largely due to increased sales volumes and improved cost control. We have taken the necessary steps of altering our production schedules in an effort to more closely match our production with market demand. While production schedules were significantly reduced during the quarter, Foresight was still able to maintain its low-cost operating profile. This continued commitment to safe, low cost coal production positions Foresight to withstand the pressures of the current coal market and will allow us to capture contracting opportunities as they arise,” said Rob Moore, President and Chief Executive Officer.

On July 22, Foresight entered into amended and restated transaction support agreements with certain consenting noteholders of its 2021 senior notes, certain consenting lenders to its credit agreement, and certain principal equityholders of Foresight and its general partner. The transaction support agreements modified the terms of the restructuring of the Partnership’s indebtedness and certain governance and equity matters relating to the Partnership, including a proposed amendment of its credit agreement. On Aug. 1, Foresight achieved the first important milestone of the amended and restated transaction support agreements and launched the tender offer and exchange offer as part of the Restructuring.

“We are pleased that we have concluded the negotiations with our creditors,” said Moore. “Together the Partnership, equity sponsors and debt holders have shown an increased commitment to the long-term viability of Foresight Energy. While the negotiations were challenging, we have reached an agreement that allows Foresight Energy to move forward and continue to achieve the goal of operating the safest, lowest cost, and most productive coal mines in the Illinois Basin.”

The successful consummation of the Restructuring remains subject to various conditions, including the successful negotiation of definitive documentation and other conditions that are not within the control of Foresight or its affiliates.

Coal sales were still fairly weak in the latest quarter

Coal sales totaled $224.1 million during the second quarter 2016, a decrease of $25.8 million from the prior year second quarter. This decrease was primarily due to reduced sales volumes as weak market conditions continued during the first half of the year due to mild weather, oversupply in the market and low natural gas prices. More specifically, Foresight’s sales volumes were significantly impacted by lower international shipments as the seaborne markets remained challenging, which also resulted in a corresponding decline in transportation expense. The Partnership did begin to see some stability in the international markets during the second quarter 2016 as weather patterns changed and export prices started to rise.

When comparing second quarter 2016 results to the first quarter 2016, coal sales increased $61.0 million driven by higher sales volumes as shipments during the first quarter 2016 were the lowest sales volumes Foresight experienced in several years. Coal sales realizations themselves remained relatively unchanged when compared to both the first quarter 2016 and the second quarter 2015 as did netback to mine realizations per ton.

Cost of coal produced was $112.1 million for the second quarter 2016 compared to $122.0 million for the same period 2015. The decrease during the current quarter was driven by lower sales volumes. When comparing second quarter 2016 to the first quarter 2016, cost of coal produced increased $22.9 million due to a 1.3 million ton increase in sales volumes offset by lower cash costs per ton sold as the cost impact of the Hillsboro underground mine combustion event largely subsided with the mine entrance being sealed and the higher coal production resulted in improved leveraging of fixed costs.

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 owns four mining complexes in Illinois (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.

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.