CONSOL Energy Inc. Common Stock

Good morning, everyone, and welcome to the Consol Energy Third Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note today's event is being recorded. At this time, I'd like to turn the conference call over to Nathan Tucker, Director of Finance and IR. Sir, please go ahead.

Thank you, and good morning, everyone. Welcome to Consol Energy's third quarter 2021 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 release and in 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 comparable GAAP financial measures in our press release and furnished to the SEC on Form 8K, which is also posted on our website. Additionally, we filed our 10-Q for the quarter-ended September 30, 2021, with the SEC this morning. You can 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 the third quarter of 2021 and specific insights on operations and sales. Mitesh will then provide an update on our liability management initiatives, our financial performance during the quarter, and our 2021 guidance. In his closing comments, Jimmy will lay out our key priorities as we head into 2022. After the prepared remarks, there will be a Q&A session in which Dan and Bob will also participate. Finally, we posted a supplemental slide deck on our website this morning, which can be referred to for additional information. With that, let me turn it over to our CEO, Jimmy Brock.

Thank you, Nate, and good morning, everyone. I want to start by highlighting a few developments for Consolve that we're very excited about. First, we recently announced a very important strategic goal related to reducing our Scope 1 and 2 direct operating greenhouse gas emissions across our entire operating footprint. Specifically, We committed to a 50% reduction in scope one and two greenhouse gas emissions compared to 2019 baseline levels by the end of 2026 and net zero scope one and two admissions by 2040. We are very pleased to be among the first pure pay coal companies to set these targets. I also want to emphasize that this isn't a new focus for us. Since becoming an independent company in 2017, we've prioritized an ESG approach centered around enhancing employee safety, reducing environmental impacts, and creating sustainable value. Developing direct operating greenhouse gas emission reduction targets underscores ESG as a core component of our business strategy while complementing our technology growth and diversification initiatives. We expect to achieve these targets through multiple pathways, including the expansion of our methane destruction program, which began at the PAMC in 2017. We believe our world-class assets will continue to play a vital role in securing the world's electricity and infrastructure needs, and this effort is aligned with our commitment to sustainably lead the coal industry in carrying out this role. Due to the improved and sustained demand for our product, we announced this morning that we are recommencing the development of our fifth long wall located at our Enloe Fort mine. This wall will go to the newest reserve area of Enloe Fort after we recently finished sealing off the northern section of the mine. As such, Enloe will be a light new mine with an efficient layout moving forward. Given the supply-demand imbalance we've witnessed this year, as well as our recent multi-year contracting success, we believe the market fundamentals exist to support this decision. Finally, our Ipman mine and preparation plant are progressing as expected. The mine continues to operate productively on a single production shift with a second support shift that was recently added. Due to the improved market dynamics, the underground operations are generating positive operating cash flows on a consistent basis. We continue to explore options to further ramp up production and promote the Ipman product in the low vol met market. Prep plant earthwork began in Q3 and is approximately 50% complete. Teardown of the recently purchased plant is underway, and the primary processing equipment has been removed and is awaiting transport to the Ipman site. The main steel structure of the plant and rail loadout is now being disassembled. Earthwork and foundations are targeted for completion by the end of the fourth quarter, and the erection of the plant will then commence. Commissioning of the Ipman plant remains targeted for the second half of 2022, which will coincide with the wrap-up to full production at the mine shortly thereafter. On the safety front, our Enloe Fort mine Bailey Preparation Plant, Consol Marine Terminal, and Ipman Project each had zero employee recordable incidents during the third quarter of 2021. Our year-to-date total recordable incident rate at the Pennsylvania Mining Complex remains significantly below the national average for underground bituminous coal mines. Now, let me move on to our Q3 21 operational performance. Coal production at the Pennsylvania mining complex came in at 5.3 million tons in Q3 of 21 compared to 4.5 million tons in Q3 of 20. The improvement versus the prior year period was due to the increased demand for our product as coal markets were just beginning to recover from the COVID-19 related demand decline in Q3 of 20. we encountered multiple operational, geological, and logistic issues as well as planned maintenance shutdown that limited our production in the quarter. As a result, our average cash cost of coal sold per ton was elevated, finishing Q3 21 at $30.64 compared to $28.64 in Q3 of 20. The increase in our per ton Cash cost was mostly the result of limited production, as well as increased maintenance, supply, contractor, and project expenses associated with the operational and geological issues that we encountered in the quarter. We continued to deal with certain geological challenges in the early part of the fourth quarter. However, this has been largely mitigated, and we are back to running four loan laws more consistently. The Consol Marine terminal had a throughput volume of 2.8 million tons during Q3 of 21 compared to 2 million tons in the year-ago period. The increase was again due to improved demand in the seaborne markets compared to the prior year quarter, which was still being impacted by COVID-related cold demand decline. Terminal revenues for the quarter came in at 14.1 million compared to 17 million in the year-ago quarter. Despite the increase in throughput tonnage, revenue was impaired in Q3 of 21 compared to Q3 of 20 due to the take-or-pay contract that was in place in the prior year period. DMT operating cash costs came in at $5.8 million versus $4.8 million in the year-ago quarter, driven by the increased throughput tonnage. On the marketing front, We continue to witness demand for our products strengthening throughout the third quarter of 2021 due to the ongoing economic recovery and improved electric power and industrial demand here at home and across the globe. During the quarter, we sold 5.4 million tons of coal at an average revenue per ton of $47.46 compared to 4.5 million tons at an average revenue per ton of $40.55 in the year ago period. The improvement was due to the increased demand for our product and ongoing supply tightness compared to the prior year period when coal markets were just beginning to recover from the COVID-19 demand destruction that bottomed out in the middle of 2020. Pricing was improved as the quality markets continued their rise in the third quarter of 2021. Henry Hub natural gas spot prices averaged $4.35 per million BTU during Q3 of 21, a 118% increase compared to Q3 of 20. Average PJM West day ahead power prices also continued to improve, ending Q3 21 81% above the year ago quarter. Pricing has further improved since the end of the third quarter, with Henry Hub natural gas prices now in the $5.50 million per BTU range for December deliveries and calendar year 2022 trading above $4 per million BTU. On the export front, the seaborne thermal coal markets continued their upward trend in the third quarter of 2021 as well. API2 spot prices ended Q3 21 at $151 per ton, or 193% improved versus Q3 of 2020. LNG prices also continued to rise in the third quarter of 2021, and the Asian marker ended the quarter more than five times higher than Q3 2020 prices. Petcoke prices remained supportive, propping up demand and pricing for Northern Out Coal and high CB markets. Turkey recently announced that it has eased its restrictions to allow up to 3% dry sulfur coal to be imported. We believe that our PAMC product is a natural fit and we've already received inquiries. We continue to see improvement in our domestic customers' contracting appetites and our marketing team was successful in securing additional sales contracts in 2022 and 2023. As such, Our contracted position has grown to 20.2 million tons in 2022 and 5.8 million tons in 2023. Due to our strong contracted position and free cash flow generation, we feel good about our business as we head into 2022. With that, I will now turn the call over to Mitesh.