CONSOL Energy continued to reduce its coal presence in Q3 2016

Gas and coal producer CONSOL Energy (NYSE: CNX) on Nov. 1 reported net cash provided by operating activities in the just-ended quarter of $163 million, compared to $110 million in the year-earlier quarter, which includes $3 million and $37 million of net cash used in discontinued operating activities, respectively.

For the nine months ended Sept. 30, 2016, CONSOL Energy reported net cash provided by operating activities of $387 million, compared to $404 million for the nine months ended Sept. 30, 2015, which includes $14 million and $11 million of net cash provided by discontinued operating activities, respectively. 

“During the quarter, CONSOL continued to execute its plan and generated approximately $103 million in organic free cash flow from continuing operations, which, along with a portion of the $97.6 million of the cash on hand from June 30, 2016, was used to further reduce CONSOL’s revolver by approximately $112 million, and to improve liquidity to $1.4 billion,” commented Nicholas J. DeIuliis, president and CEO. “With a track record over the past three quarters of reducing debt through generating total free cash flow of approximately $608 million, and, beginning this quarter, restarting drilling activity in the dry Utica in Monroe County, Ohio, our focus remains unchanged: continue to generate free cash flow and prudently allocate capital with the goal of increasing our company’s net asset value (NAV) per share over the long-term. This is the cornerstone of our company and what drives our corporate and operational decision-making.”

The company recorded a $3.7 million loss related to pension settlement, caused by lump sum distributions from the plan, which increased due to the sale of the Buchanan longwall coal mine in southwest Virginia in the first quarter of 2016.

As previously announced, CONSOL completed two coal transactions during the quarter: the sale of its Miller Creek and Fola Mining Complexes to Southeastern Land LLC and the sale of an additional 5% undivided interest in its PA Mining Complex to CNX Coal Resources LP (CNXC). The PA Mining Complex consists of the neighboring Enlow Fork, Bailey and Harvery longwall mines in southwest Pennsylvania, each of which work the Pittsburgh coal seam.

“The sale of the Miller Creek and Fola Complexes completes CONSOL’s exit from Central Appalachia and surface mining, significantly reducing our operational and regulatory risk profile,” said DeIuliis. The transaction was symbolic in that it represented one of the final steps in a coal divestment strategy–a strategy that has netted the company over $5 billion in value through 23 transactions since 2012. CNX Coal Resources acquired the additional 5% undivided interest in the PA Mining Complex and associated infrastructure from CONSOL for total value of $88.8 million, including $21.5 million in cash.

Third Quarter Operations Summary

CONSOL Energy’s PA Mining Operations sold 6.0 million tons in the 2016 third quarter, compared to 5.7 million tons during the year-earlier quarter. Total unit costs were $35.79 per ton, compared to $40.26 per ton in the year-earlier quarter.

As reported by CNXC in its third quarter 2016 earnings report, dated Oct. 31: “We were able to improve revenue per ton by 9%, compared to the second quarter. This was achieved by selling more coal to our domestic customers, who have seen their coal stockpiles drawn down as coal-fired generation improved. During the third quarter, customers demonstrated a strong demand for coal given higher natural gas prices and above-normal summer temperatures. This translated into a boost in thermal coal prices this summer after they had reached extreme lows in May. During the quarter, we exported approximately 10% of our coal sales.”

During the quarter, on a total consolidated basis, PA Mining Operations Division generated $90 million of cash flow before capital expenditures.

CONSOL Energy now expects total consolidated annual 2016 PA Mining Operations sales to be approximately 23.6 million-24.4 million tons, compared to previous quarter’s guidance of approximately 22.5 million-25.5 million tons.

CONSOL Energy’s 2016 total consolidated PA Mining Operations capital expenditures is reduced to now be $60 million-$76 million. The reduction to PA Mining Operations capital expenditures was primarily driven by the company’s ongoing efforts to manage spending levels in 2016. On a normalized basis, the PA Mining Operations Division expects maintenance of production capital of $5-$6 per ton.

CONSOL Energy is a Pittsburgh-based energy producer, and one of the largest independent natural gas exploration, development and production companies, with operations centered in the major shale formations of the Appalachian basin.

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.