CONSOL Energy Inc. Common Stock

Good morning and welcome to Consol Energy 4th Quarter 2020 Earnings Call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be the opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the conference over to Mr. Nathan Tucker, Director of Finance and Investor Relations. Please go ahead.

Thank you, Nick, and good morning, everyone. Welcome to Consol Energy's fourth quarter 2020 earnings conference call. Any forward-looking statements or comments we make about future expectations are subject to some risks, which we have outlined in our press releases and our SEC filings and are considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. We do not undertake any obligations of updating any forward-looking statements for future events or otherwise. We will also be discussing certain non-GAAP financial measures, which are defined and reconciled to comparable GAAP financial measures in our press release and furnished to the SEC on Form 8K. You can also find additional information regarding the company on our website, www.consolenergy.com. On the call with me today are Jimmy Brock, our Chief Executive Officer, Mitesh Dakar, our Chief Financial Officer, Dan Connell, our Senior Vice President of Strategy, and Bob Braithwaite, our Vice President of Marketing and Sales. In his prepared remarks, Jimmy will provide a recap of our key achievements during 2020 and specific insights on operations and sales. Mitesh will then provide an update on our liability management program, financial results, and 2021 guidance. In his closing comments, Jimmy will lay out our key priorities for 2021. After the prepared remarks, there will be a Q&A session in which Dan and Bob will be available to participate as well. For additional information, we have posted a supplemental slide deck on our website in advance of this call. With that, let me turn it over to our CEO, Jimmy Brock.

Thank you, Nate. And good morning, everyone. Let me start by stating the obvious. 2020 was an extremely difficult year as the demand for our product was first reduced due to a warmer than normal winter. And this was then further exacerbated by the unprecedented decline in global energy demand and the disruption of international supply chains due to the COVID-19 pandemic. However, I am very pleased with our resolve as the team remained extremely proactive and we managed to achieve many milestones and advance our strategic objectives even in the midst of a very challenging situation. We moved early in 2020 to amend our credit agreement and secure covenant relaxations with our banks, implemented multiple cost and CapEx reduction targets, executed several transactional opportunities to bolster our liquidity and capped off the year by completing the CCR merger with overwhelming shareholder support. We made net payments of 67 million on our outstanding debt in 2020, despite the reduced earnings versus 2019. Finally, we generated 53 million of free cash flow in 2020, which we believe is a tremendous accomplishment in the midst of the global pandemic. I'm extremely proud of the execution of our team as we navigated through the pandemic in 2020, and we believe we've set ourself up for success as we head into 2021 and beyond. Let me now provide you with a brief recap of 2020 and how it positions us for success going forward. First, on the ESG front, I am proud to announce that the Metallurgical Coal Producers Association awarded us the 2020 Excellent in Mining Award for the best completed refuse field at one of our legacy operations. This highlights our environmental commitment to the communities we operate in. We also won the West Virginia Mountaineer Guard and Safety Award for our underground operations at the Ipman Mine. Our Bailey Preparation Plant, Consol Marine Terminal, and Ipman Project each had zero recordable incidents during the full year of 2020. Our total recordable incident rate at the PAMC continues to track significantly below the national average for underground bituminous coal mines, and finished the year 61% lower than the national average as reported through September of 2020. Furthermore, on the safety front, managing risk from COVID-19 remains a top priority for us. Consol Energy is committed to maintaining a safe and healthy work environment for the employees, their families, and the community during the COVID-19 pandemic. Consolidation mitigation efforts include, but are not limited to, following CDC and state guidance, reducing transmission among employees and the communities, and maintaining a healthy work environment while sustaining critical business operations. Now let me review our Q420 and full year 2020 operational performance in detail. Coal production at the Pennsylvania Mining Complex came in at 5.9 million tons in Q4 of 20 compared to 6.7 million tons in the year-ago quarter. The decline was due to the lingering demand effects of the COVID-19 pandemic and the rail supply chain struggle to provide enough crews. However, it is worth noting that our fourth quarter production was improved 31% from Q3 levels and 146% from Q2 levels, as demand has steadily increased since the depth of COVID-19 related shutdowns. We continued to run four long-laws for the entire fourth quarter. For Q4 of 20, productivity at the PAMC measured as tons per employee hour improved by an impressive 10.8% compared to Q4 of 19. For the full year, the PAMC ended with production of 18.8 million tons down from the 27.3 million tons in 2019. On the cost front, our average cash cost of coal sold per ton was $29.49 in Q4 of 20, compared to $30.38 in Q4 of 19, as our operations team was again successful in keeping tight control over cash expenditures in the quarter. The adjustments we made to our operations allowed us to reduce our overall average cash cost of coal sold per ton on our producing assets and to partially mitigate the financial impact of the reduced production volumes. The improvement was primarily driven by lower mine maintenance and supply costs, contractors and purchase service costs, and project expenses. Furthermore, the PMC ended 2020 with a cash cost of coal sold per ton of $29.12 compared to $30.97 in 2019 by successfully limiting our spending and right-sizing our operations. We don't envision this being a one-time benefit and continue to expect a sub-$30 per ton cash cost structure going forward. For the foreseeable future, we expect to run four out of our five longwalls as we are able to significantly lower our operating cost structure while only losing 3 to 4 million tons from our 2019 production levels. In short, we believe the margin expansions offset the volume loss given the current demand outlook in the domestic coal markets. We believe other mines and operators in Northern Alp region are also planning for lower production levels with only a modest production recover expected in 2021 from depressed 2020 levels. Accordingly, we do not expect northern out production to rebound to pre-COVID levels for the foreseeable future as operators in the region better align output with demand trends. The Kansai Marine Terminal had throughput volumes of 3.1 million tons during Q4 of 20 compared to 2.5 million tons in the year-ago period. Terminal revenues for the quarter came in at 17.4 million compared to 16.5 million in the year-ago quarter. Despite the 600,000 ton increase in throughput volumes, cash operating costs were improved at 4.6 million versus 4.9 million in the year-ago quarter. For 2020, the terminal had a very strong operational performance, especially when considering the difficult market backdrop. Due to the nature of the take-or-pay contract, 2020 total terminal revenue came in at just below its annual revenue record set in 2019, despite a 2.5 million ton decline in annual throughput volumes. The Kinsale Marine Terminal also achieved operating cash costs of $18.4 million in 2020, compared to $21.7 million in 2019, as the terminal team continued to maintain tight control over expenditures in the year. As such, our two core operations once again prove that they can adapt in any commodity market. Let me now provide an overview of the coal markets. Demand for our product further strengthened in the fourth quarter since the trough of the second quarter with economies reopening, increased power demand, and improved export demand driving the pickup in coal shipments. Henry Hub natural gas spot prices averaged $2.53 per million BTU during the quarter, or a 5% increase compared to Q4 of 19. The spot price delta on a quarter over quarter basis compared to 2019 continued to shrink throughout 2020, and this 5% increase is the first improvement on a quarter over quarter basis since the fourth quarter of 2018 compared to Q4 of 2017. While natural gas prices haven't sustained at the $3 per million BTU mark that had been projected by many industry experts, Due to the anemic start of the winter season in the U.S., we are hopeful that the year-over-year comps in natural gas prices still favor overall demand improvement and higher coal burn. On the domestic front, the fourth quarter of 2020 ended the year on a strong note from a demand perspective. The U.S. Energy Information Administration estimates that coal share of the electric generation mix will end the year at approximately 20%. which has improved from the low point of 15% in April and highlights the strength we saw in the back half of 2020. IHS market estimates that total domestic coal demand will increase by 10% in 2021 versus 2020, while supply will increase by only 5%. This development could help to further reduce domestic coal stockpiles and continue to tighten the domestic market. We continue to see tightness in supply of northern out cold, and the majority of our domestic customer stockpiles are at or below normal for this time of year. On the export front, we have seen several very encouraging trends as the seaborne thermal cold markets have steadily improved since the end of the third quarter of 2020. According to Wood Mackenzie, the La Nina weather cycle played a major role in boosting thermal cold prices in January. This cycle caused freezing temperatures for much of the northern hemisphere, where the major coal demand centers are located, as well as cyclones and wet weather in the southern hemisphere, where the major coal exporters are located. This dynamic caused very tight coal markets in early 2021. Global LNG prices surged and reached historic highs in January as gas faced similar issues. Demand surged due to frigid temperatures while storage dwindled. This led to improved dispatch economics for coal, particularly in Europe. We continue to see strength in pet coke prices resulting from reduced oil production, which is propping up demand and pricing for northern out cold and high CV markets, particularly India. API2 spot prices have also rallied and crossed the $70 per ton mark multiple times in the month of January. which is the first time this pricing level has been achieved since March of 2019, driven by recent cold weather, lack of wind generation, and increased LNG prices. As such, Europe has again became a viable option for U.S. coal exports. Additionally, resulting from a pickup in infrastructure projects and steel production as the world continues to recover from the pandemic, Recent improvements in global met coal prices are also beginning to translate to a rebound in demand and pricing for our crossover product as well. From a marketing perspective, it is encouraging to see that the demand for our coal has steadily improved since reaching its low point in Q2 of 20. We continue to maintain the vast majority of our core customer base and continue to see improvements in the contracting appetite. Since the end of Q3 20, Our sales team has successfully contracted 7.2 million tons of new business, bringing our sole position to 18.2 million tons in 2021 and 5.6 million tons in 2022. With that, I will now turn the call over to Mattes to provide the financial update.