CONSOL Energy Inc. Common Stock

Good morning and welcome to Consol Energy's fourth quarter and full fiscal year 2022 earnings conference call. All participants will be in a listen-only mode. Should you need any assistance during the call, 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. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note that this event is being recorded today. I would now like to turn the conference over to Nathan Tucker, Director of Finance and Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to Consol Energy's fourth quarter and full fiscal year 2022 earnings conference call. Any forward-looking statements or comments we make about future events are subject to risk, certain of 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 to 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 expect to file our 10K for the year ended December 31, 2022, with the SEC this Friday, February 10th. You can find additional information regarding the company on our website, www.consolidng.com, which also includes a supplemental slide deck that was posted this morning. On the call with me today are Jimmy Brock, our Chief Executive Officer, Kitesh Dakar, our President and Chief Financial Officer, Dan Connell, our Senior Vice President of Strategy, and Bob Braithwaite, our Senior Vice President of Marketing and Sales. In his prepared remarks, Jimmy will provide a recap of our fourth quarter and full year 2022 achievements and a detailed discussion of our operations and sales. Mitesh will then provide an update on our balance sheet management, financial performance, and 2023 outlook. In his closing comments, Jimmy will lay out our key priorities for 2023. After the prepared remarks, there will be a Q&A session in which Dan and Bob will also participate. With that, let me turn it over to Jimmy.

Thank you, Nate, and good morning, everyone. Let me start by congratulating Mitesh on being named the new president of Consol Energy as part of our long-term succession planning. I have worked very closely with Mitesh since he joined us during the formation of Consolidated Coal Resources, LP, an MLP we took public in 2015. Since then, he has been an integral part of our team, and I've had the opportunity to observe him grow and take on more responsibility. In addition to his continued role as our Chief Financial Officer, he will also oversee our marketing, business development, and environmental and sustainability efforts. I have the utmost confidence in his ability to take on an expanded role in the company, and he's well suited for the task. Furthermore, the Board has asked, and I have accepted, to extend my employment term by an additional year through December 2024 to ensure our long-term succession plan. Moving on to our financial and operating performance. Consol Energy finished 2022 as a record year in its history as an independent public company on multiple fronts, including one of the key metrics we measure ourselves against, free cash flow generation. As a result, we've advanced some of our key strategic initiatives during the year. First, our strong free cash flow generation allowed us to meaningfully accelerate progress toward our debt reduction goal. and we made debt payments of nearly $300 million in 2022. Second, our free cash flow, in conjunction with our robust contract book, bolstered our ability to initiate an enhanced shareholder return program during 2022, even while we were still at work reducing our outstanding debt levels. We paid multiple dividends during 2022 and resumed share repurchases at the end of the year. Third, Our strong free cash flow enhanced our ability to reinvest in our business. During the fourth quarter, we restarted the fifth long wall at the PAMC and shipped the first train of low-volume metallurgical coal from our Ipman mining complex. Let's now discuss our operational performance. On the safety front, our Bailey preparation plant and Consolidated Marine Terminal each had zero employee recordable incidents during the full year of 2022. The PAMC finished the year with a total recordable incident rate of 1.72, which was approximately 63% below the national average for underground coal mines. Coal production at the Pennsylvania Mining Complex came in at 6.1 million tons in Q4-22, an increase compared to 5.6 million tons in the prior year period. Production improved this quarter compared to Q4-21, due to the restart of the fifth long wall in mid-December 2022 and the absence of geological challenges, which we encountered in October of 2021. From a productivity standpoint, measured as tons per employee hour, the PAMC ended the year on a strong note and improved by 16% in Q4-22 compared to Q3-22, as we moved past the geological challenges we faced in the third quarter. The complex ended the year with production of 23.9 million tons. On the cost front, our PAMC average cash cost of coal sold per ton for Q4-22 was $34.89 compared to $30.81 in Q4-21. But this was a reduction of nearly $5 per ton compared to Q3-22 when we saw increased costs due to operational and geological challenges. The delta compared to the prior year period was due to ongoing development costs associated with the fifth long walk and continued inflationary pressures on supplies, maintenance, contract labor, and power costs at our operations. This brings our full year 2022 average cash cost of coal sold to $34.56 per ton. The Consol Marine terminal had a throughput volume of 3.6 million tons during Q4 22. Terminal revenues for the quarter came in at 20.9 million with CMT operating cash costs of 6.4 million. For 2022, the terminal had a very strong operational performance, finishing the year with 13.7 million throughput tons. Terminal revenue for 2022 came in at $78.9 million, which was by far the highest level in Consolidated Marine Terminal history. CMT finished the year with adjusted EBITDA of $52.3 million, marking its first year above $50 million and the fifth consecutive year above $40 million. Now, let's discuss our IPMA project. After accomplishing several milestones in the second half of 2022, The ramp up to full run rate production at Ipman has been delayed due to multiple factors, including supply chain bottlenecks, equipment delivery delays, geological inconsistencies, and staffing challenges. We expect these issues to be transitory, and we have recently made several changes that will help us achieve our goals. In the immediate term, the mine is focusing on fully staffing and optimizing two CM supersections before focusing on the third CM supersection. Moving further into 2023, we expect the ramp-up to full run-rut production to occur around mid-year. The Ipman Preparation Plant was commissioned in the third quarter of 2022, having been purchased, disassembled, relocated, and reconstruction on our site in just over a year's time. We shipped nine trains of coal from the plant in Q4-22 and sold slightly more than 200,000 tons of Ipman and third-party coal in aggregate during 2022. The Ipman product has been successfully marketed to both domestic and export customers. As we ramp up production and achieve consistency from our operation, our focus will shift to securing new business with strategic partners. On the marketing front, The demand for our PMC product remained robust in the fourth quarter of 2022. We sold 6.2 million tons of PMC coal at an average realized coal revenue per ton sold of $75.92 in Q4 of 2022, compared to 5.6 million tons at $51.27 in the year-ago period. The significant per ton increase was driven by the ongoing improvement in the coal markets over the past year due to persistent coal supply shortages leading to increased commodity pricing. Henry Hub natural gas spot prices averaged $5.55 per million BTU in Q4-22, a 17% increase compared to the prior year period. PJM West day ahead power prices finished the quarter at $68.73 per megawatt hour versus $54.39 in Q4 of 21. Despite these quarter-over-quarter improvements, we have seen significant volatility in the energy markets beginning in late 2022 and continuing through the start of 2023. Natural gas spot prices were north of $6 per million BTU at the start of December, but retreated more than 40% by the end of the month. A very similar trend played out in the international API2 market, which retreated almost 30% throughout December of 2022. These markers each further declined by 20% and 29% respectively through the month of January 2023, as warmer-than-normal weather has gripped much of the U.S. and Europe. leading to increased gas storage levels and coal inventories. Fundamentally, we believe that the supply of high BTU coals is still constrained and the demand for our product remains strong for the foreseeable future. In fact, the International Energy Agency recently estimated that annual global coal demand eclipsed the 8 billion metric ton mark for the first time in 2022. and expects demand to remain around this level through 2025. In the shorter term, the majority of our sales books for 2023 is committed, and we have a very solid contracting position for 2024. This gives us the ability to be patient as we work to fill out our sales books and maximize value for 2024 and beyond. Despite some of the recent volatility, our sales team opportunistically increased our forward sold position by more than 8 million tons through 2025. We now have 23.9 million tons contracted for 2023 and 12.5 million tons contracted for 2024. With that, I will turn the call over to Mattes to provide our financial update.