CONSOL ENERGY INC. You should read the following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in conjunction with the Consolidated Financial Statements and corresponding notes included elsewhere in this Form 10-Q. In addition, this Form 10-Q report should be read in conjunction with the Consolidated Financial Statements for the three-year period endedDecember 31, 2021 included inCONSOL Energy Inc.'s Form 10-K, filed onFebruary 11, 2022 . This MD&A contains forward-looking statements and the matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements. Please see "Risk Factors" and "Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements.
All amounts discussed are in millions of
Recent Developments Russia-Ukraine War OnFebruary 24, 2022 , the armed forces of theRussian Federation launched a large-scale invasion ofUkraine . This conflict has continued at a high level of intensity since then. The extent and duration of the military conflict involvingRussia andUkraine , resulting sanctions and future market or supply disruptions in the region, are impossible to predict, but could be significant and may have a severe adverse effect on the region. Globally, various governments, includingthe United States , have banned certain imports fromRussia including commodities such as oil, natural gas and coal, while governments in the member states of theEuropean Union have committed to significantly reducing, and ultimately phasing out, imports of these commodities fromRussia . These events have caused volatility in the aforementioned commodity markets. This volatility, including market expectations of potential changes in coal prices and inflationary pressures on steel products, may significantly affect market prices and overall demand for our coal and the cost of supplies and equipment, as well as the prices of, and demand for, competing sources of energy for our customers, like natural gas. Additionally, the war and resulting market disruption and sanctions have intensified preexisting inflationary pressures inthe United States and elsewhere. Although we have not experienced a material negative impact from the war and the resulting sanctions as of the date of this report, we are closely monitoring the potential effects on the market. COVID-19 Update The Company is monitoring the impact of the COVID-19 pandemic ("COVID-19") and has taken, and will continue to take, steps to mitigate the potential risks and impact on the Company and its employees. The health and safety of our employees is paramount. To date, the Company has experienced a few localized outbreaks, but due, in part, to the health and safety procedures put in place by the Company, we have been able to continue operating. The Company continues to monitor the health and safety of its employees closely in order to limit potential risks to our employees, contractors, family members and the community. COVID-19 led to an unprecedented decline in coal demand that began in the first half of 2020, largely driven by government-imposed shutdowns of non-essential businesses. In general, the business environment has improved, resulting in higher demand for our product as government-imposed shutdowns and other COVID-19-related restrictions have been eased. However, imbalances in the global supply chain coupled with inflationary pressures have had both positive and negative impacts to our operations. The extent to which COVID-19 may impact our business depends on future developments, which are highly uncertain and unpredictable, including Presidential mandates, federal and state regulations, new information concerning the severity of COVID-19 variants, the pace and effectiveness of vaccination efforts and the effectiveness of actions globally to contain or mitigate its effects. We expect this could continue to impact our results of operations, cash flows and financial condition. The Company will continue to take steps it believes are appropriate to mitigate the negative impacts of COVID-19 on its operations, liquidity and financial condition. Our Business We are a leading, low-cost producer of high-quality bituminous coal, focused on the extraction and preparation of coal in theAppalachian Basin due to our ability to efficiently produce and deliver large volumes of high-quality coal at competitive prices, the strategic location of our mines and the industry experience of our management team. Our most significant assets are the PAMC and theCONSOL Marine Terminal . Coal from the PAMC is valued because of its high energy content (as measured in Btu per pound), relatively low levels of sulfur and other impurities, and strong thermoplastic properties that enable it to be used in metallurgical, industrial and power generation applications. We take advantage of these desirable quality characteristics and our extensive logistical network, which is directly served by both the Norfolk Southern and CSX railroads, to aggressively market our product to a broad base of strategically selected, top-performing power plant customers in the easternUnited States . We also capitalize on the operational synergies and logistical advantages afforded by theCONSOL Marine Terminal , which is likewise served by both the Norfolk Southern and CSX railroads, to export our coal to industrial, power generation and metallurgical end-users globally. We are also expanding our presence in the metallurgical coal market through the development of ourItmann Mine inWest Virginia , which we expect to be fully operational following the relocation and recommissioning of a recently purchased preparation plant, which is planned for completion during the third quarter of 2022. 28
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Our operations, including the PAMC and theCONSOL Marine Terminal , have consistently generated strong cash flows, even throughout the COVID-19 pandemic. As ofDecember 31, 2021 , the PAMC controls 612.1 million tons of high-qualityPittsburgh seam reserves, enough to allow for more than 20 years of full-capacity production. In addition, we own or control approximately 1.4 billion tons of Greenfield Reserves and Resources located in the Northern Appalachian ("NAPP"), the Central Appalachian ("CAPP") and the Illinois Basins ("ILB"), which we believe provide future growth and monetization opportunities. Our vision is to maximize cash flow generation through the safe, compliant, and efficient operation of this core asset base, while strategically reducing debt, returning capital through share buybacks or dividends, and, when prudent, allocating capital toward compelling growth and diversification opportunities.
Our core businesses consist of our:
•
extensive high-quality coal reserves. We mine our reserves from the
No. 8 Coal Seam, which is a large contiguous formation of high-Btu coal that
is ideal for high productivity, low-cost longwall mining operations. The
design of the PAMC is optimized to produce large quantities of coal on a
cost-efficient basis. We can sustain high production volumes at comparatively
low operating costs due to, among other things, our technologically advanced
longwall mining systems, logistics infrastructure and safety. All our mines at
the PAMC utilize longwall mining, which is a highly automated underground
mining technique that produces large volumes of coal at lower costs compared
to other underground mining methods.
•
provide coal export terminal services through the
terminal can either store coal or load coal directly into vessels from rail
cars. It is also the only major east coast
by two railroads, Norfolk Southern Corporation and
•
2020, and full production is expected following the relocation and
recommissioning of a recently purchased preparation plant, which is planned
for completion during the third quarter of 2022. When fully operational, the
Company anticipates approximately 900 thousand tons per year of high-quality,
low-vol coking coal production from the
life of 20+ years. The preparation plant being recommissioned will also
include a highly efficient rail loadout and the capability for processing up
to an additional 750 thousand to 1 million third-party product tons annually.
This third-party processing revenue is expected to provide an additional
avenue of growth for the Company.
These low-cost assets and the diverse markets they serve provide us
opportunities to generate cash across a wide variety of demand and pricing
scenarios. The three mines at the PAMC typically operate four to five longwalls,
and the production from all three mines is processed at a single, centralized
preparation plant, which is connected via conveyor belts to each mine. The
Central Preparation Plant, which can clean and process up to 8,200 raw tons of
coal per hour, provides economies of scale while also maintaining the ability to
segregate and blend coal based on quality. This infrastructure enables us to
tailor our production levels and quality specifications to meet market demands.
It also results in a highly productive, low-cost operation as compared to other
NAPP coal mines. To our knowledge, the PAMC is the most productive and efficient
coal mining complex in NAPP. For the year ending December 31, 2021 , productivity
averaged 8.15 tons of coal per employee hour, compared with an average of 5.70
tons per employee hour for all other currently-operating NAPP longwalls. Our
high productivity helps drive a low-cost structure. Our efficiency strengthens
our margins throughout the commodity cycle and has allowed us to continue to
generate positive margins even in challenging pricing environments.
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Table of Contents Q2 2022 Highlights:
• Coal shipments of 6.2 million tons.
• Debt repayments of
equipment-financed debt of
respectively.
• Announced a special dividend of
be paid on
• Approved an enhanced shareholder return program, which will become effective
in the third quarter of 2022 and will initially return approximately 35% of
free cash flow while the Company intends to continue to reduce debt at an
accelerated pace.
Outlook for 2022:
• PAMC coal sales volume of 24.0-25.0 million tons
• PAMC average realized coal revenue per ton sold (1) of
• PAMC average cash cost of coal sold per ton (1) of
• Capital expenditures (including
million
• Production between 0.3 million to 0.5 million tons of coal at the
(1) Average realized coal revenue per ton sold and average cash cost of coal sold per ton are operating ratios derived from non-GAAP financial measures.CONSOL Energy is unable to provide a reconciliation of this guidance to any measures calculated in accordance with GAAP due to the unknown effect, timing and potential significance of certain income statement items.
How We Evaluate Our Operations
Our management team uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability. The metrics include: (i) coal production and sales volumes; (ii) realized coal revenue, a non-GAAP financial measure; (iii) cost of coal sold, a non-GAAP financial measure; (iv) cash cost of coal sold, a non-GAAP financial measure; (v) average realized coal revenue per ton sold, an operating ratio derived from non-GAAP financial measures; (vi) average cash cost of coal sold per ton, an operating ratio derived from non-GAAP financial measures; (vii) average margin per ton sold, an operating ratio derived from non-GAAP financial measures; (viii) average cash margin per ton sold, an operating ratio derived from non-GAAP financial measures; and (ix) adjusted EBITDA, a non-GAAP financial measure. Realized coal revenue, average realized coal revenue per ton sold, cost of coal sold, cash cost of coal sold, average cash cost of coal sold per ton, average margin per ton sold and average cash margin per ton sold normalize the volatility contained within comparable GAAP measures by adjusting certain non-operating or non-cash transactions. We believe that adjusted EBITDA provides a helpful measure of comparing our operating performance with the performance of other companies that have different financing, capital structures and tax rates than ours. We believe realized coal revenue and average realized coal revenue per ton sold provide useful information to investors because they better reflect our earnings by including the settled costs (or gains) of our commodity derivatives for the period. Each of these non-GAAP metrics are used as supplemental financial measures by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:
• our operating performance as compared to the operating performance of other
companies in the coal industry, without regard to financing methods,
historical cost basis or capital structure;
• the ability of our assets to generate sufficient cash flow;
• our ability to incur and service debt and fund capital expenditures;
• the viability of acquisitions and other capital expenditure projects and the
returns on investment of various investment opportunities; and
• the attractiveness of capital projects and acquisitions and the overall rates
of return on alternative investment opportunities.
These non-GAAP financial measures should not be considered an alternative to
total costs, total coal revenue, net income, or any other measure of financial
performance or liquidity presented in accordance with GAAP. These measures
exclude some, but not all, items that affect measures presented in accordance
with GAAP, and these measures and the way we calculate them may vary from those
of other companies. As a result, the items presented below may not be comparable
to similarly titled measures of other companies.
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Reconciliation of Non-GAAP Financial Measures
We evaluate our cost of coal sold and cash cost of coal sold on an aggregate
basis. We define cost of coal sold as operating and other production costs
related to produced tons sold, along with changes in coal inventory, both in
volumes and carrying values. The cost of coal sold includes items such as direct
operating costs, royalty and production taxes, direct administration costs, and
depreciation, depletion and amortization costs on production assets. Cost of
coal sold excludes any indirect costs, such as general and administrative costs,
freight expenses, (loss) gain on debt extinguishment, interest expenses,
depreciation, depletion and amortization costs on non-production assets and
other costs not directly attributable to the production of coal. The cash cost
of coal sold includes cost of coal sold less depreciation, depletion and
amortization costs on production assets. We define average cash cost of coal
sold per ton as cash cost of coal sold divided by tons sold. The GAAP measure
most directly comparable to cost of coal sold, cash cost of coal sold and
average cash cost of coal sold per ton is total costs and expenses.
The following table presents a reconciliation for the PAMC segment of cost of
coal sold, cash cost of coal sold and average cash cost of coal sold per ton to
total costs and expenses, the most directly comparable GAAP financial measure,
on a historical basis, for each of the periods indicated (in thousands, except
per ton information).
Three Months Ended June 30 , Six
Months Ended
2022 2021 2022 2021
Total Costs and
Expenses $ 395,105 $ 291,880 $ 761,606 $ 602,442
Less: Freight Expense (50,411 ) (26,010 ) (88,800 ) (53,023 )
Less: General and
Administrative Costs (27,364 ) (22,486 ) (64,513 ) (46,026 )
Less: (Loss) Gain on
Debt Extinguishment (1,565 ) 106 (3,687 ) 789
Less: Interest
Expense, net (13,121 ) (16,187 ) (27,473 ) (31,448 )
Less: Other Costs
(Non-Production and
non-PAMC) (30,613 ) (10,908 ) (54,046 ) (29,576 )
Less: Depreciation,
Depletion and
Amortization
(Non-Production and
non-PAMC) (11,310 ) (5,034 ) (19,178 ) (12,918 )
Cost of Coal Sold $ 260,721 $ 211,361 $ 503,909 $ 430,240
Less: Depreciation,
Depletion and
Amortization
(Production) (46,570 ) (47,165 ) (94,656 ) (99,178 )
Cash Cost of Coal
Sold $ 214,151 $ 164,196 $ 409,253 $ 331,062
Total Tons Sold (in
millions) 6.2 5.9 12.7 12.7
Average Cost of Coal
Sold per Ton $ 42.29 $ 36.00 $ 39.82 $ 33.76
Less: Depreciation,
Depletion and
Amortization Costs
per Ton Sold 7.48 7.98 7.52 7.67
Average Cash Cost of
Coal Sold per Ton $ 34.81 $ 28.02 $ 32.30 $ 26.09
We evaluate our average realized coal revenue per ton sold, average margin per
ton sold and average cash margin per ton sold on a per-ton basis. We define
average realized coal revenue per ton sold as total coal revenue, net of
settlements of commodity derivatives divided by tons sold. We define average
margin per ton sold as average realized coal revenue per ton sold, net of
average cost of coal sold per ton. We define average cash margin per ton sold as
average realized coal revenue per ton sold, net of average cash cost of coal
sold per ton. The GAAP measure most directly comparable to average realized coal
revenue per ton sold, average margin per ton sold and average cash margin per
ton sold is total coal revenue.
The following table presents a reconciliation for the PAMC segment of average
realized coal revenue per ton sold, average margin per ton sold and average cash
margin per ton sold to total coal revenue, the most directly comparable GAAP
financial measure, on a historical basis, for each of the periods indicated (in
thousands, except per ton information).
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Total Coal Revenue
(PAMC Segment) $ 518,942 $ 258,482 $ 991,903 $ 542,948
Add: Settlements of
Commodity Derivatives (73,923 ) - (160,175 ) -
Total Realized Coal
Revenue 445,019 258,482 831,728 542,948
Operating and Other
Costs 244,764 175,104 463,299 360,638
Less: Other Costs
(Non-Production and
non-PAMC) (30,613 ) (10,908 ) (54,046 ) (29,576 )
Total Cash Cost of
Coal Sold 214,151 164,196 409,253 331,062
Add: Depreciation,
Depletion and
Amortization 57,880 52,199 113,834 112,096
Less: Depreciation,
Depletion and
Amortization
(Non-Production and
non-PAMC) (11,310 ) (5,034 ) (19,178 ) (12,918 )
Total Cost of Coal
Sold $ 260,721 $ 211,361 $ 503,909 $ 430,240
Total Tons Sold (in
millions) 6.2 5.9 12.7 12.7
Average Realized Coal
Revenue per Ton Sold $ 72.18 $ 44.02 $ 65.73 $ 42.60
Average Cash Cost of
Coal Sold per Ton 34.81 28.02 32.30 26.09
Depreciation,
Depletion and
Amortization Costs
per Ton Sold 7.48 7.98 7.52 7.67
Average Cost of Coal
Sold per Ton 42.29 36.00 39.82 33.76
Average Margin per
Ton Sold 29.89 8.02 25.91 8.84
Add: Depreciation,
Depletion and
Amortization Costs
per Ton Sold 7.48 7.98 7.52 7.67
Average Cash Margin
per Ton Sold $ 37.37 $ 16.00 $ 33.43 $ 16.51
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We define adjusted EBITDA as (i) net income (loss) plus income taxes, net
interest expense and depreciation, depletion and amortization, as adjusted for
(ii) certain non-cash items, such as stock-based compensation and unrealized
mark-to-market gains or losses on commodity derivative instruments. The GAAP
measure most directly comparable to adjusted EBITDA is net income (loss).
The following tables present a reconciliation of adjusted EBITDA to net income
(loss), the most directly comparable GAAP financial measure, on a historical
basis, for each of the periods indicated (in thousands).
Three Months Ended June 30, 2022
CONSOL
Marine
PAMC Terminal Other Total Company
Net Income (Loss) $ 159,404 $ 12,354 $
(45,467 )
Add: Income Tax Expense - - 23,223 23,223 Add: Interest Expense, net 68 1,530 11,523 13,121 Less: Interest Income (452 ) - (987 ) (1,439 ) Earnings (Loss) Before Interest & Taxes (EBIT) 159,020 13,884 (11,708 ) 161,196 Add: Depreciation, Depletion & Amortization 49,465 1,142 7,273 57,880 Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA)$ 208,485 $ 15,026 $ (4,435 ) $ 219,076 Adjustments: Stock-Based Compensation$ 1,066 $ 51$ 152 $ 1,269 Loss on Debt Extinguishment - - 1,565 1,565 Unrealized Mark-to-Market Gain on Commodity Derivative Instruments (5,571 ) - - (5,571 ) Total Pre-tax Adjustments (4,505 ) 51 1,717 (2,737 ) Adjusted EBITDA$ 203,980 $ 15,077 $ (2,718 ) $ 216,339 Three Months Ended June 30, 2021 CONSOL Marine PAMC Terminal OtherTotal Company Net Income (Loss)$ 6,166 $ 8,181 $ (10,175 ) $ 4,172 Less: Income Tax Benefit - - (8,893 ) (8,893 ) Add: Interest Expense, net 478 1,536 14,173 16,187 Less: Interest Income (36 ) - (775 ) (811 ) Earnings (Loss) Before Interest & Taxes (EBIT) 6,608 9,717 (5,670 ) 10,655 Add: Depreciation, Depletion & Amortization 50,169 1,200 830 52,199 Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA)$ 56,777 $ 10,917 $
(4,840 )
Adjustments:
Stock-Based Compensation$ 1,053 $ 48$ 109 $ 1,210 Gain on Debt Extinguishment - - (106 ) (106 ) Pension Settlement - - 22 22 Unrealized Mark-to-Market Loss on Commodity Derivative Instruments 20,437 - - 20,437 Total Pre-tax Adjustments 21,490 48 25 21,563 Adjusted EBITDA$ 78,267 $ 10,965 $ (4,815 ) $ 84,417 32
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Six Months Ended June 30, 2022
CONSOL
Marine
PAMC Terminal Other Total Company
Net Income (Loss) $ 161,501 $ 23,967 $ (63,627 ) $ 121,841
Add: Income Tax Expense - - 19,701 19,701
Add: Interest Expense, net 257 3,061 24,155 27,473
Less: Interest Income (866 ) - (1,902 ) (2,768 )
Earnings (Loss) Before Interest
& Taxes (EBIT) 160,892 27,028 (21,673 ) 166,247
Add: Depreciation, Depletion &
Amortization 100,421 2,307 11,106 113,834
Earnings (Loss) Before
Interest, Taxes and DD&A
(EBITDA) $ 261,313 $ 29,335 $ (10,567 ) $ 280,081
Adjustments:
Stock-Based Compensation $ 4,595 $ 219 $ 656 $ 5,470
Loss on Debt Extinguishment - - 3,687 3,687
Unrealized Mark-Market Loss on
Commodity Derivative
Instruments 96,331 - - 96,331
Total Pre-tax Adjustments 100,926 219 4,343 105,488
Adjusted EBITDA $ 362,239 $ 29,554 $ (6,224 ) $ 385,569
Six Months Ended June 30, 2021
CONSOL
Marine
PAMC Terminal Other Total Company
Net Income (Loss) $ 48,616 $ 17,330 $
(35,370 )
Less: Income Tax Benefit - - (3,708 ) (3,708 ) Add: Interest Expense, net 1,120 3,073 27,255 31,448 Less: Interest Income (36 ) - (1,633 ) (1,669 ) Earnings (Loss) Before Interest & Taxes (EBIT) 49,700 20,403 (13,456 ) 56,647 Add: Depreciation, Depletion & Amortization 104,950 2,414 4,732 112,096 Earnings (Loss) Before Interest, Taxes and DD&A (EBITDA)$ 154,650 $ 22,817 $
(8,724 )
Adjustments:
Stock-Based Compensation$ 2,364 $ 109 $ 246 $ 2,719 Gain on Debt Extinguishment - - (789 ) (789 ) Pension Settlement - - 22 22 Unrealized Mark-to-Market Loss on Commodity Derivative Instruments 20,437 - - 20,437 Total Pre-tax Adjustments 22,801 109 (521 ) 22,389 Adjusted EBITDA$ 177,451 $ 22,926 $ (9,245 ) $ 191,132 33
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Results of Operations: Three Months Ended
Net IncomeCONSOL Energy reported net income of$126 million for the three months endedJune 30, 2022 , compared to net income of$4 million for the three months endedJune 30, 2021 .CONSOL Energy reported adjusted EBITDA of$216 million for the three months endedJune 30, 2022 , compared to adjusted EBITDA of$84 million for the three months endedJune 30, 2021 . The significant contributors to adjusted EBITDA are realized coal revenue and cash cost of coal sold, which are discussed below.CONSOL Energy's business consists of thePennsylvania Mining Complex and the CONSOL Marine Terminal segments, as well as various corporate and other business activities that are not allocated to the PAMC or the CONSOL Marine Terminal segments. The other business activities include the development of theItmann Mine , the Greenfield Reserves and Resources, closed mine activities, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities. PAMC ANALYSIS: The PAMC segment's principal activities consist of mining, preparation and marketing of bituminous coal, sold primarily to power generators, industrial end-users and metallurgical end-users. The segment also includes general and administrative costs, as well as various other activities assigned to the PAMC segment, but not included in the cost components on a per unit basis. The PAMC segment had net income of$159 million for the three months endedJune 30, 2022 , compared to net income of$6 million for the three months endedJune 30, 2021 . The PAMC segment had adjusted EBITDA of$204 million for the three months endedJune 30, 2022 , compared to adjusted EBITDA of$78 million for the three months endedJune 30, 2021 . Included in the second quarter 2022 adjusted EBITDA were settlements of commodity derivatives at a loss of$74 million (see Note 13 - Derivatives in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q). Variances are discussed below. Three Months Ended June 30, (in millions) 2022 2021 Variance Realized Coal Revenue: Coal Revenue$ 519 $ 258 $ 261
Settlements of Commodity Derivative Instruments (74 ) -
(74 ) Total Realized Coal Revenue 445 258 187 Freight Revenue 47 26 21 Miscellaneous Other Income 1 - 1 Less: Cash Cost of Coal Sold 214 164 50 Other Costs 7 (1 ) 8 Freight Expense 47 26 21 General and Administrative Costs 21 17 4 Adjusted EBITDA$ 204 $ 78 $ 126 34
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Table of Contents Coal Production
The table below presents total tons produced (in thousands) from the
Three Months Ended June 30,
Mine 2022 2021 Variance
Bailey 3,168 3,021 147
Enlow Fork 1,732 1,594 138
Harvey 1,328 1,297 31
Total 6,228 5,912 316
The PAMC's coal production increased in the period-to-period comparison, as the
Company sought to match production with improved demand for its coal, despite
multiple longwall moves and a challenged transportation environment during the
second quarter of 2022.
Coal Operations
The PAMC segment's realized coal revenue and cost components on a per unit basis for these periods were as follows:
Three Months Ended June 30,
2022 2021 Variance
Total Tons Sold (in millions) 6.2 5.9 0.3
Average Realized Coal Revenue per Ton
Sold (1) $ 72.18 $ 44.02 Average Cash Cost of Coal Sold per Ton (1)$ 34.81 $ 28.02 $ 6.79 Depreciation, Depletion and Amortization Costs per Ton Sold (Non-Cash Cost) 7.48 7.98 (0.50 ) Average Cost of Coal Sold per Ton (1)$ 42.29 $ 36.00 $ 6.29 Average Margin per Ton Sold (1)$ 29.89 $ 8.02 $ 21.87 Add: Depreciation, Depletion and Amortization Costs per Ton Sold 7.48 7.98 (0.50 ) Average Cash Margin per Ton Sold (1)$ 37.37 $ 16.00 $ 21.37 (1) Average cash cost of coal sold per ton and average cost of coal sold per ton are non-GAAP measures, and average realized coal revenue per ton sold, average margin per ton sold and average cash margin per ton sold are operating ratios derived from non-GAAP measures. See "How We Evaluate Our Operations - Reconciliation of Non-GAAP Financial Measures" for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.
Coal Revenue and Realized Coal Revenue
Coal revenue and realized coal revenue were$519 million and$445 million for the three months endedJune 30, 2022 , respectively, compared to$258 million and$258 million for the three months endedJune 30, 2021 , respectively. As a result of continued global tightness of coal supply and higher electric power prices, coupled with higher prices for natural gas, which is a competitor to the Company's coal product, the Company realized higher pricing on its contracts, including domestic contracts, export contracts, and contracts that contain positive electric power-price adjustments, during the three months endedJune 30, 2022 . This higher pricing was partially offset by the settlement of certain commodity derivatives during the quarter, whereas during the prior year period, the Company did not settle any of its commodity derivatives. Demand for coal remains elevated as a result of declining reported stockpiles at domestic coal-fired electricity producers and increased demand abroad resulting, in part, from the conflict inEurope's impact on energy prices.
Freight Revenue and Freight Expense
Freight revenue is the amount billed to customers for transportation costs incurred. This revenue is based on the weight of coal shipped, negotiated freight rates and method of transportation, primarily rail, used by the customers to which the Company contractually provides transportation services to move its coal from the mine to the ultimate sales point. Freight revenue is completely offset by freight expense. Freight revenue and freight expense were both$47 million for the three months endedJune 30, 2022 , compared to$26 million for the three months endedJune 30, 2021 . The$21 million increase was primarily related to increased transportation pricing from the underlying pricing model, as well as an increase in fuel surcharges. 35 --------------------------------------------------------------------------------
Cash Cost of Coal Sold Cash cost of coal sold is comprised of operating costs related to produced tons sold, along with changes in both the volumes and carrying values of coal inventory. The cash cost of coal sold includes items such as direct operating costs, royalties and production taxes, and direct administration costs. Total cash cost of coal sold was$214 million for the three months endedJune 30, 2022 , or$50 million higher than the$164 million for the three months endedJune 30, 2021 . Average cash cost of coal sold per ton was$34.81 for the three months endedJune 30, 2022 , compared to$28.02 for the three months endedJune 30, 2021 . The increase in the total cash cost of coal sold and average cash cost of coal sold per ton was primarily due to ongoing inflationary pressures, the premature termination of a fixed power contract as a result of a supplier bankruptcy and repair and maintenance costs. Additionally, the total cash cost of coal sold and average cash cost of coal sold per ton were impacted by the ongoing development work associated with the PAMC's fifth longwall. Other Costs Other costs include items that are assigned to the PAMC segment but are not included in unit costs. Total other costs increased$8 million in the three months endedJune 30, 2022 , compared to the three months endedJune 30, 2021 . The increase was primarily attributable to an increase in current quarter costs related to demurrage charges and discretionary employee benefit expenses.
General and Administrative Costs
The amount of general and administrative costs related to the PAMC segment were$21 million for the three months endedJune 30, 2022 , compared to$17 million for the three months endedJune 30, 2021 . The$4 million increase in the period-to-period comparison was primarily related to increased expense under the long-term incentive compensation plan incurred in the three months endedJune 30, 2022 due to the Company achieving certain financial metrics and a substantial increase in the Company's share price, compared to the three months endedJune 30, 2021 . 36
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CONSOL MARINE TERMINAL ANALYSIS:
The CONSOL Marine Terminal segment had net income of$12 million for the three months endedJune 30, 2022 , compared to net income of$8 million for the three months endedJune 30, 2021 .The CONSOL Marine Terminal segment had adjusted EBITDA of$15 million for the three months endedJune 30, 2022 , compared to adjusted EBITDA of$11 million for the three months endedJune 30, 2021 . Three Months Ended June 30, (in millions) 2022 2021 Variance Terminal Revenue$ 22 $ 17 $ 5 Miscellaneous Other Income 1 1 - Less: Operating and Other Costs 7 6 1 General and Administrative Costs 1 1 - Adjusted EBITDA$ 15 $ 11 $ 4 Terminal revenue consists of sales from the CONSOL Marine Terminal, which is located in thePort of Baltimore, Maryland and provides access to international coal markets. Throughput volumes at the CONSOL Marine Terminal were 3.8 million tons in both the three months endedJune 30, 2022 and the three months endedJune 30, 2021 . CONSOL Marine Terminal sales were$22 million for the three months endedJune 30, 2022 , compared to$17 million for the three months endedJune 30, 2021 , as a result of an increase in the rates charged to process coal at the Terminal due to increased export demand and commodity pricing strength. OTHER ANALYSIS: The other segment includes revenue and expenses from various corporate and diversified business activities that are not allocated to the PAMC or the CONSOL Marine Terminal segments. The diversified business activities include the development of theItmann Mine , the Greenfield Reserves and Resources, closed mine activities, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities. Other business activities had a loss before income tax of$22 million for the three months endedJune 30, 2022 , compared to a loss before income tax of$19 million for the three months endedJune 30, 2021 . Variances are discussed below. Three Months Ended June 30, (in millions) 2022 2021 Variance Revenue: Coal Revenue - Itmann$ 14 $ 2 $ 12 Freight Revenue 3 - 3 Miscellaneous Other Income 6 1 5 Gain on Sale of Assets - 2 (2 ) Total Revenue and Other Income 23 5
18
Other Costs and Expenses: Operating and Other Costs 17 6
11
Depreciation, Depletion and Amortization 7 1 6 Freight Expense 3 - 3 General and Administrative Costs 4 3 1 Loss on Debt Extinguishment 2 - 2 Interest Expense, net 12 14 (2 ) Total Other Costs and Expenses 45 24 21 Loss Before Income Tax$ (22 ) $ (19 ) $ (3 ) Coal Revenue -Itmann Coal revenue consists of the sale of coal mined during the development of theItmann Mine located inWyoming County, West Virginia . The improvement is due to a 30 thousand increase in tons sold in the period-to-period comparison, as well as a significant increase in the price of metallurgical coal. During the three months endedJune 30, 2022 , average revenue on a per-ton basis was$268.36 , compared to$64.29 for the three months endedJune 30, 2021 . 37 --------------------------------------------------------------------------------
Freight Revenue and Freight Expense
Freight revenue is the amount billed to customers for transportation costs incurred. This revenue is based on the weight of coal shipped, negotiated freight rates and method of transportation, primarily rail, used by the customers to which the Company contractually provides transportation services to move its coal from the mine to the ultimate sales point. Freight revenue is completely offset by freight expense. Freight revenue and freight expense were both$3 million for the three months endedJune 30, 2022 . The$3 million increase was primarily related to increased coal shipments during the ongoing development of theItmann mine. Miscellaneous Other Income
Miscellaneous other income was
Three Months Ended June 30,
(in millions) 2022 2021 Variance
Royalty Income - Non-Operated Coal
4 Interest Income 1 1 - Other Income 1 - 1
Total Miscellaneous Other Income
5
Royalty income - non-operated coal increased in the period-to-period comparison as a result of increased pricing and additional operating activity by third-party companies mining in reserves to which we have a royalty claim.
Gain on Sale of Assets Gain on sale of assets decreased$2 million in the period-to-period comparison primarily due to the sale of land and gas wells during the three months endedJune 30, 2021 . Operating and Other Costs Operating and other costs were$17 million for the three months endedJune 30, 2022 , compared to$6 million for the three months endedJune 30, 2021 . Operating and other costs increased in the period-to-period comparison due to the following items: Three Months Ended June 30, (in millions) 2022 2021 Variance
Operating Cost of Coal Sold -
2 3 (1 )
Coal Reserve Holding Costs 2 2 -
Closed and Idle Mines 1 1 -
Other 3 (2 ) 5
Total Operating and Other Costs $ 17 $ 6 $ 11
The Itmann Mine's operating cost of coal sold is comprised of development costs
absorbed by the coal revenue generated during development. The operating costs
of coal sold include items such as direct development costs, royalties and
production taxes, third-party processing and hauling of raw coal and direct
administration costs. The increase in operating costs of $7 million is primarily
due to an increase in costs associated with third-party processing and hauling
of raw coal, as well as the increased coal revenue available to absorb
development costs.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization increased
General and Administrative Costs
General and administrative expenses remained materially consistent in the period-to-period comparison.
Loss on Debt Extinguishment Loss on debt extinguishment of$2 million was recognized in the three months endedJune 30, 2022 due to accelerated payments made on the Company's Term Loan A and Term Loan B Facilities. Interest Expense, net
Interest expense, net of amounts capitalized, decreased in the period-to-period
comparison primarily due to the Company's continued de-leveraging efforts
throughout the three months ended
38
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Results of Operations: Six Months Ended
Net IncomeCONSOL Energy reported net income of$122 million for the six months endedJune 30, 2022 , compared to net income of$31 million for the six months endedJune 30, 2021 .CONSOL Energy reported adjusted EBITDA of$386 million for the six months endedJune 30, 2022 , compared to adjusted EBITDA of$191 million for the six months endedJune 30, 2021 . The significant contributors to adjusted EBITDA are realized coal revenue and cash cost of coal sold, which are discussed below.CONSOL Energy's business consists of thePennsylvania Mining Complex and the CONSOL Marine Terminal segments, as well as various corporate and other business activities that are not allocated to the PAMC or the CONSOL Marine Terminal segments. The other business activities include the development of theItmann Mine , the Greenfield Reserves and Resources, closed mine activities, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities. PAMC ANALYSIS: The PAMC segment's principal activities consist of mining, preparation and marketing of bituminous coal, sold primarily to power generators, industrial end-users and metallurgical end-users. The segment also includes general and administrative costs, as well as various other activities assigned to the PAMC segment, but not included in the cost components on a per unit basis. The PAMC segment had net income of$162 million for the six months endedJune 30, 2022 , compared to net income of$49 million for the six months endedJune 30, 2021 . The PAMC segment had adjusted EBITDA of$362 million for the six months endedJune 30, 2022 , compared to adjusted EBITDA of$177 million for the six months endedJune 30, 2021 . Included in 2022 adjusted EBITDA were settlements of commodity derivatives at a loss of$160 million (see Note 13 - Derivatives in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q). Variances are discussed below. Six Months Ended June 30, (in millions) 2022 2021 Variance Realized Coal Revenue: Coal Revenue$ 992 $ 543 $ 449
Settlements of Commodity Derivative Instruments (160 ) -
(160 ) Total Realized Coal Revenue 832 543 289 Freight Revenue 86 53 33 Miscellaneous Other Loss - (1 ) 1 Gain on Sale of Assets 1 1 - Less: Cash Cost of Coal Sold 409 331 78 Other Costs 15 (1 ) 16 Freight Expense 86 53 33 General and Administrative Costs 47 36 11 Adjusted EBITDA$ 362 $ 177 $ 185 39
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Table of Contents Coal Production
The table below presents total tons produced (in thousands) from the
Six Months Ended June 30,
Mine 2022 2021 Variance
Bailey 6,189 6,800 (611 )
Enlow Fork 3,508 3,590 (82 )
Harvey 2,887 2,541 346
Total 12,584 12,931 (347 )
The PAMC's coal production decreased slightly in the period-to-period
comparison. Operationally, the Company performed strongly in the current year as
demand for its product steadily improved. However, multiple longwall moves and a
challenged transportation environment weighed on the Company's production during
2022.
Coal Operations
The PAMC segment's realized coal revenue and cost components on a per unit basis for these periods were as follows:
Six Months Ended June 30,
2022 2021 Variance
Total Tons Sold (in millions) 12.7 12.7 -
Average Realized Coal Revenue per Ton
Sold (1) $ 65.73 $ 42.60 Average Cash Cost of Coal Sold per Ton (1)$ 32.30 $ 26.09 $ 6.21 Depreciation, Depletion and Amortization Costs per Ton Sold (Non-Cash Cost) 7.52 7.67 (0.15 ) Average Cost of Coal Sold per Ton (1)$ 39.82 $ 33.76 $ 6.06 Average Margin per Ton Sold (1)$ 25.91 $ 8.84 $ 17.07 Add: Depreciation, Depletion and Amortization Costs per Ton Sold 7.52 7.67 (0.15 ) Average Cash Margin per Ton Sold (1)$ 33.43 $ 16.51 $ 16.92 (1) Average cash cost of coal sold per ton and average cost of coal sold per ton are non-GAAP measures, and average realized coal revenue per ton sold, average margin per ton sold and average cash margin per ton sold are operating ratios derived from non-GAAP measures. See "How We Evaluate Our Operations - Reconciliation of Non-GAAP Financial Measures" for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.
Coal Revenue and Realized Coal Revenue
Coal revenue and realized coal revenue were$992 million and$832 million for the six months endedJune 30, 2022 , respectively, compared to$543 million and$543 million for the six months endedJune 30, 2021 , respectively. As a result of continued global tightness of coal supply and higher electric power prices, coupled with higher prices for natural gas, which is a competitor to the Company's coal product, the Company realized higher pricing on its contracts, including domestic contracts, export contracts, and contracts that contain positive electric power-price adjustments, during the six months endedJune 30, 2022 . This higher pricing was partially offset by the settlement of certain commodity derivatives during the year, whereas during the prior year period, the Company did not settle any of its commodity derivatives. Demand for coal remains elevated as a result of declining reported stockpiles at domestic coal-fired electricity producers and increased demand abroad resulting, in part, from the conflict inEurope's impact on energy prices.
Freight Revenue and Freight Expense
Freight revenue is the amount billed to customers for transportation costs incurred. This revenue is based on the weight of coal shipped, negotiated freight rates and method of transportation, primarily rail, used by the customers to which the Company contractually provides transportation services to move its coal from the mine to the ultimate sales point. Freight revenue is completely offset by freight expense. Freight revenue and freight expense were both$86 million for the six months endedJune 30, 2022 , compared to$53 million for the six months endedJune 30, 2021 . The$33 million increase was primarily related to increased transportation pricing from the underlying pricing model, as well as an increase in fuel surcharges. 40 --------------------------------------------------------------------------------
Cash Cost of Coal Sold Cash cost of coal sold is comprised of operating costs related to produced tons sold, along with changes in both the volumes and carrying values of coal inventory. The cash cost of coal sold includes items such as direct operating costs, royalties and production taxes, and direct administration costs. Total cash cost of coal sold was$409 million for the six months endedJune 30, 2022 , or$78 million higher than the$331 million for the six months endedJune 30, 2021 . Average cash cost of coal sold per ton was$32.30 for the six months endedJune 30, 2022 , compared to$26.09 for the six months endedJune 30, 2021 . The increase in the total cash cost of coal sold and average cash cost of coal sold per ton was primarily due to ongoing inflationary pressures, the premature termination of a fixed power contract as a result of a supplier bankruptcy and repair and maintenance costs. Additionally, the total cash cost of coal sold and average cash cost of coal sold per ton were impacted by the ongoing development work associated with the PAMC's fifth longwall. Other Costs Other costs include items that are assigned to the PAMC segment but are not included in unit costs. Total other costs increased$16 million in the six months endedJune 30, 2022 , compared to the six months endedJune 30, 2021 . The increase was primarily attributable to an increase in current year costs related to discretionary employee benefit expenses and demurrage charges.
General and Administrative Costs
The amount of general and administrative costs related to the PAMC segment were$47 million for the six months endedJune 30, 2022 , compared to$36 million for the six months endedJune 30, 2021 . The$11 million increase in the period-to-period comparison was primarily related to increased expense under the long-term incentive compensation plan incurred in the six months endedJune 30, 2022 due to the Company achieving certain financial metrics and a substantial increase in the Company's share price, compared to the six months endedJune 30, 2021 . 41
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CONSOL MARINE TERMINAL ANALYSIS:
The CONSOL Marine Terminal segment had net income of$24 million for the six months endedJune 30, 2022 , compared to net income of$17 million for the six months endedJune 30, 2021 .The CONSOL Marine Terminal segment had adjusted EBITDA of$29 million for the six months endedJune 30, 2022 , compared to adjusted EBITDA of$22 million for the six months endedJune 30, 2021 . Six Months Ended June 30, (in millions) 2022 2021 Variance Terminal Revenue$ 43 $ 36 $ 7 Miscellaneous Income 2 - 2 Less: Operating and Other Costs 13 12 1 General and Administrative Costs 3 2 1 Adjusted EBITDA$ 29 $ 22 $ 7 Terminal revenue consists of sales from the CONSOL Marine Terminal, which is located in thePort of Baltimore, Maryland and provides access to international coal markets. Throughput volumes at the CONSOL Marine Terminal were 7.4 million tons in the six months endedJune 30, 2022 , compared to 7.9 million tons in the six months endedJune 30, 2021 . CONSOL Marine Terminal sales were$43 million for the six months endedJune 30, 2022 , compared to$36 million for the six months endedJune 30, 2021 as a result of an increase in the rates charged to process coal at the Terminal due to increased export demand and commodity pricing strength. OTHER ANALYSIS: The other segment includes revenue and expenses from various corporate and diversified business activities that are not allocated to the PAMC or the CONSOL Marine Terminal segments. The diversified business activities include the development of theItmann Mine , the Greenfield Reserves and Resources, closed mine activities, general and administrative activities, interest expense and income taxes, as well as various other non-operated activities. Other business activities had a loss before income tax of$44 million for the six months endedJune 30, 2022 , compared to a loss before income tax of$39 million for the six months endedJune 30, 2021 . Variances are discussed below. Six Months Ended June 30, (in millions) 2022 2021 Variance Revenue: Coal Revenue - Itmann$ 17 $ 2 $ 15 Freight Revenue 3 - 3 Miscellaneous Other Income 9 5 4 Gain on Sale of Assets 5 10 (5 ) Total Revenue and Other Income 34 17 17 Other Costs and Expenses: Operating and Other Costs 27 18 9 Depreciation, Depletion and Amortization 11 5 6 Freight Expense 3 - 3 General and Administrative Costs 9 7 2 Loss (Gain) on Debt Extinguishment 4 (1 ) 5 Interest Expense, net 24 27 (3 ) Total Other Costs and Expenses 78 56 22 Loss Before Income Tax$ (44 ) $ (39 ) $ (5 ) Coal Revenue -Itmann Coal revenue consists of the sale of coal mined during the development of theItmann Mine located inWyoming County, West Virginia . The improvement is due to a 31 thousand increase in tons sold in the period-to-period comparison, as well as a significant increase in the price of metallurgical coal. During the six months endedJune 30, 2022 , average revenue on a per-ton basis was$244.12 , compared to$61.75 for the six months endedJune 30, 2021 . 42 --------------------------------------------------------------------------------
Freight Revenue and Freight Expense
Freight revenue is the amount billed to customers for transportation costs incurred. This revenue is based on the weight of coal shipped, negotiated freight rates and method of transportation, primarily rail, used by the customers to which the Company contractually provides transportation services to move its coal from the mine to the ultimate sales point. Freight revenue is completely offset by freight expense. Freight revenue and freight expense were both$3 million for the six months endedJune 30, 2022 . The$3 million increase was primarily related to increased coal shipments during the ongoing development of theItmann mine. Miscellaneous Other Income
Miscellaneous other income was
Six Months Ended June 30,
(in millions) 2022 2021 Variance
Royalty Income - Non-Operated Coal
4
Interest Income 2 2
-
Property Easements and Option Income 1 -
1
Other Income - 1 (1 ) Total Miscellaneous Other Income$ 9 $ 5 $ 4
Royalty income - non-operated coal increased in the period-to-period comparison as a result of increased pricing and additional operating activity by third-party companies mining in reserves to which we have a royalty claim.
Gain on Sale of Assets Gain on sale of assets decreased$5 million in the period-to-period comparison primarily due to a decrease in sales of various gas wells and land during the six months endedJune 30, 2022 , compared to the six months endedJune 30, 2021 . Operating and Other Costs Operating and other costs were$27 million for the six months endedJune 30, 2022 , compared to$18 million for the six months endedJune 30, 2021 . Operating and other costs increased in the period-to-period comparison due to the following items: Six Months Ended June 30, (in millions) 2022 2021 Variance
Operating Cost of Coal Sold -
10
Employee-Related Legacy Liability Expense 3 4 (1 ) Coal Reserve Holding Costs 3 5 (2 ) Closed and Idle Mines 2 2 - Other 7 5 2 Total Operating and Other Costs$ 27 $ 18 $ 9 The Itmann Mine's operating cost of coal sold is comprised of development costs absorbed by the coal revenue generated during development. The operating costs of coal sold include items such as direct development costs, royalties and production taxes, third-party processing and hauling of raw coal and direct administration costs. The increase in operating costs of$10 million is primarily due to an increase in costs associated with third-party processing and hauling of raw coal, as well as the increased coal revenue available to absorb development costs.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization increased
General and Administrative Costs
The amount of general and administrative costs related to the Other segment were$9 million for the six months endedJune 30, 2022 , compared to$7 million for the six months endedJune 30, 2021 . The$2 million increase in the period-to-period comparison was primarily related to increased expense under the long-term incentive compensation plan incurred in the six months endedJune 30, 2022 due to the Company achieving certain financial metrics and a substantial increase in the Company's share price, compared to the six months endedJune 30, 2021 .
Loss (Gain) on Debt Extinguishment
Loss on debt extinguishment of$4 million was recognized in the six months endedJune 30, 2022 , due to accelerated payments made on the Company's Term Loan A and Term Loan B Facilities and the open market repurchases of the Company's 11.00% Senior Secured Second Lien Notes due 2025. Gain on debt extinguishment of$1 million was recognized in the six months endedJune 30, 2021 , due to the open market repurchases of the Company's 11.00% Senior Secured Second Lien Notes due 2025. Interest Expense, net
Interest expense, net of amounts capitalized, decreased in the
period-to-period comparison primarily due to the Company's continued
de-leveraging efforts throughout the six months ended
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Table of Contents
Liquidity and Capital Resources
CONSOL Energy's potential sources of liquidity include cash generated from operations, cash on hand, borrowings under the revolving credit facility and securitization facility (which are discussed below), and, if necessary, the ability to issue additional equity or debt securities. The Company believes that cash generated from these sources will be sufficient to meet its short-term working capital requirements, long-term capital expenditure requirements, and debt servicing obligations, as well as to provide required letters of credit. We expect demand for our coal to remain elevated in the near future as a result of declining reported stockpiles at domestic coal-fired electricity producers and increased demand abroad resulting, in part, from theRussia /Ukraine conflict and its impact on energy prices, particularly inEurope . These elevated prices are bolstering the Company's cash flows, which has allowed the Company to accelerate debt reduction. As a result, interest expense and debt servicing costs are declining, and the Company's liquidity is increasing. Additionally, we expect the construction of the preparation plant at theItmann Mine site to be completed in the third quarter of 2022. When fully operational, the increased volume of coal sold from theItmann Mine will further enhance the Company's cash flows. These factors will allow the Company to continue to opportunistically reduce its debt levels and return shareholder value in the form of dividends and/or stock repurchases. During the second quarter of 2022, the Company generated cash flows from operating activities of approximately$198 million and utilized a portion of operating cash flows to retire outstanding indebtedness. More specifically, the Company made debt repayments of$6 million ,$35 million and$75 million on its equipment-financed debt, Term Loan A Facility and Term Loan B Facility, respectively. As ofJune 30, 2022 , our total liquidity was$504 million , which comprises$262 million of cash and cash equivalents and the remaining capacity of$242 million on our revolving credit facility. The Company is continuing to actively monitor the effects of the ongoing COVID-19 pandemic on its liquidity and capital resources. As disclosed previously, we took several steps throughout the COVID-19 pandemic to reinforce our liquidity. From a coal shipment perspective, the decline in coal demand seemed to have hit its lowest point inMay 2020 and has since shown significant improvement. While many government-imposed shut-downs of non-essential businesses inthe United States and abroad have been phased out, the reoccurrence of such restrictions could result in a decrease in demand for our coal, which could adversely affect our liquidity in future periods. Depressed demand for our coal may also result from a general recession or reduction in overall business activity, including a significant increase in interest rates. A decrease in demand for our coal, the failure of our customers to purchase coal from us that they are obligated to purchase pursuant to existing contracts, or disruptions in the logistics chain preventing us from shipping our coal would have a material adverse effect on our results of operations and financial condition. During the 2021 fiscal year and continuing into 2022,CONSOL Energy has encountered multiple transportation delays as a result of the disruption of the global supply chain and logistics infrastructure. However, our transportation partners are continuing to work through these issues and improve their staffing levels. Events that negatively impact our overall financial condition and liquidity could result in our inability to comply with our credit facility's financial covenants. This could limit our access to our credit facilities if we are unable to obtain waivers from our lenders or amend the credit facilities. Additionally, access to capital continues to tighten for the Company's industry as a result of banking, institutional and investor environmental, social and governance (ESG) requirements and limitations, which tend to discourage investment in coal or other fossil fuel companies. However, the Company expects to maintain adequate liquidity through its operating cash flow and cash and cash equivalents on hand, as well as its revolving credit facility and securitization facility, to fund its working capital and capital expenditures in the short-term and long-term. The Company started a capital construction project on the coarse refuse disposal area at the PAMC in 2017, which is expected to continue through 2023. The construction on the coarse refuse disposal area is now funded, in part, by the$75 million of tax-exempt solid waste disposal revenue bonds, the proceeds of which were loaned to the Company and which the Company expects to expend over approximately the next two years, as qualified work is completed. Through the second quarter of 2022, the Company utilized restricted cash held in escrow in the amount of$34 million for qualified expenses. The Company has$41 million remaining in restricted cash associated with this financing that will be used to fund future spending on the coarse refuse disposal area. The Company also began construction of theItmann Mine in the second half of 2019; development mining began inApril 2020 , and full production is expected following construction of a preparation plant near the mine site, which is planned for completion during the third quarter of 2022. When fully operational, the Company anticipates approximately 900 thousand product tons per year of high-quality, low-vol coking coal production from theItmann Mine . The preparation plant being constructed also includes a highly efficient rail loadout and the capability for processing up to an additional 750 thousand to 1 million third-party product tons annually. This potential third-party processing revenue is expected to provide an additional avenue of growth for the Company. 44
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Uncertainty in the financial markets brings additional potential risks toCONSOL Energy . These risks include a reduction of our ability to raise capital in the equity markets, less availability and higher costs of additional credit and potential counterparty defaults. Overall market disruptions, similar to what was experienced in 2020, may impact the Company's collection of trade receivables. As a result,CONSOL Energy regularly monitors the creditworthiness of its customers and counterparties and manages credit exposure through payment terms, credit limits, prepayments and security. Over the past few years, the insurance and surety markets have been increasingly challenging, particularly for coal companies. We have experienced rising premiums, reduced coverage and/or fewer providers willing to underwrite policies and surety bonds. Terms have generally become more unfavorable, including increases in the amount of collateral required to secure surety bonds. Further cost burdens on our ability to maintain adequate insurance and bond coverage may adversely impact our operations, financial position and liquidity. The Company initiated an API2 hedging program in the second quarter of 2021. As a precursor to initiating this strategy, market dynamics demonstrated ongoing pricing volatility and a trend toward shorter-term export contracts. Given these factors, the Company has sought to utilize swap arrangements which are designed to mitigate the pricing volatility and secure future cash flows for a portion of 2022 export sales. These swap arrangements partially mitigate the Company's exposure to pricing volatility associated with its spot market export business and certain of its physical contracts which contain variable pricing based on the API2 index.CONSOL Energy participates in theUnited Mine Workers of America (the "UMWA")Combined Benefit Fund and the UMWA 1992 Benefit Plan for which benefits are reflected in the Company's consolidated financial statements when paid. These benefit arrangements may result in additional liabilities that are not recognized on the Consolidated Balance Sheet atJune 30, 2022 . The various multi-employer benefit plans are discussed in Note 17-Other Employee Benefit Plans in the Notes to the Consolidated Financial Statements in Item 8 of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 .CONSOL Energy's total contributions under the Coal Industry Retiree Health Benefit Act of 1992 were$1,054 and$1,231 for the three months endedJune 30, 2022 and 2021, respectively.CONSOL Energy's total contributions under the Coal Industry Retiree Health Benefit Act of 1992 were$2,108 and$2,455 for the six months endedJune 30, 2022 and 2021, respectively. Based on available information atDecember 31, 2021 ,CONSOL Energy's obligation for theUMWA Combined Benefit Fund and 1992 Benefit Plan is estimated to be approximately$46,381 .CONSOL Energy also uses a combination of surety bonds, corporate guarantees and letters of credit to secure its financial obligations for employee-related, environmental, performance and various other items which are not reflected on the Consolidated Balance Sheet atJune 30, 2022 . Management believes these items will expire without being funded. See Note 12-Commitments and Contingent Liabilities in the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q for additional details of the various financial guarantees that have been issued byCONSOL Energy . Cash Flows (in millions) Six Months Ended June 30, 2022 2021 Change Cash Provided by Operating Activities$ 347 $ 173 $
174
Cash Used in Investing Activities$ (70 ) $ (46 ) $ (24 ) Cash (Used in) Provided by Financing Activities$ (162 ) $ 22 $ (184 )
Cash provided by operating activities increased
Cash used in investing activities increased
Six Months Ended June 30,
2022 2021 Change
Building and Infrastructure
27 (11 )
Solid Waste Disposal Project 4 9 (5 )
IS&T Infrastructure 1 1 -
Other 5 1 4
Total Capital Expenditures $ 76 $ 57 $ 19
Cash flows used in financing activities increased $184 million in the
period-to-period comparison, primarily driven by a $108 million increase in net
payments on indebtedness due to the Company's ongoing de-leveraging efforts.
During the six months ended June 30, 2021 , the Company received $75 million in
proceeds loaned to the Company from the issuance of Pennsylvania Economic
Development Financing Authority tax-exempt solid waste disposal revenue bonds.
No such proceeds were received during the six months ended June 30, 2022 , which
contributed to the variance in the period-to-period comparison.
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Table of Contents
Senior Secured Credit Facilities
InNovember 2017 , the Company entered into a revolving credit facility withPNC Bank, N.A. with commitments up to$300 million (the "Revolving Credit Facility"), a Term Loan A Facility of up to$100 million (the "TLA Facility") and a Term Loan B Facility of up to$400 million (the "TLB Facility", and together with the Revolving Credit Facility and the TLA Facility, the "Senior Secured Credit Facilities"). OnMarch 28, 2019 , the Company amended the Senior Secured Credit Facilities to increase the borrowing commitment of the Revolving Credit Facility to$400 million and reallocate the principal amounts outstanding under the TLA Facility and the TLB Facility. OnJune 5, 2020 , the Company amended the Senior Secured Credit Facilities (the "2020 amendment") to provide eight quarters of financial covenant relaxation, effect an increase in the rate at which borrowings under the Revolving Credit Facility and the TLA Facility bear interest, and add an anti-cash hoarding provision. OnMarch 29, 2021 , the Company amended the Senior Secured Credit Facilities to revise the negative covenant with respect to other indebtedness to allow the Company to incur obligations under the tax-exempt solid waste disposal revenue bonds. The Revolving Credit Facility was further amended inJuly 2022 to, among other things, increase the borrowing commitment by$260 million (to an aggregate of$660 million ) untilMarch 2023 , after which the borrowing commitment will be reduced to$260 million until the facility's maturity inJuly 2026 . Borrowings under the Company's Senior Secured Credit Facilities bore interest at a floating rate which was, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an alternate base rate plus an applicable margin. TheJuly 2022 amendment provides that borrowings under the Senior Secured Credit Facilities will bear interest at a floating rate that is, at the Company's option, either (i) SOFR plus the applicable SOFR Adjustment (as defined therein) depending on the applicable interest period plus an applicable margin or (ii) an alternate base rate plus an applicable margin. The applicable margin for the Revolving Credit Facility and TLA Facility depends on the total net leverage ratio, whereas the applicable margin for the TLB Facility is fixed. The 2020 amendment increased the applicable margin by 50 basis points on both the Revolving Credit Facility and the TLA Facility. The maturity date of the Revolving Credit Facility isJuly 2026 and the maturity date of the TLA Facility wasMarch 28, 2023 . The TLA Facility was paid in full onJune 30, 2022 . The TLB Facility's maturity date isSeptember 28, 2024 . InJune 2019 , the TLA Facility began amortizing in equal quarterly installments of (i) 3.75% of the original principal amount thereof, for four consecutive quarterly installments commencing with the quarter endedJune 30, 2019 , (ii) 6.25% of the original principal amount thereof for the subsequent eight quarterly installments commencing with the quarter endedJune 30, 2020 and (iii) 8.75% of the original principal amount thereof for the quarterly installments thereafter, and the remaining balance was to have been due at final maturity. InJune 2019 , the TLB Facility began amortizing in equal quarterly installments in an amount equal to 0.25% per annum of the amended principal amount thereof, with the remaining balance due at final maturity. Obligations under the Senior Secured Credit Facilities are guaranteed by (i) all owners of the PAMC held by the Company, (ii) any other members of the Company's group that own any portion of the collateral securing the Revolving Credit Facility, and (iii) subject to certain customary exceptions and agreed materiality thresholds, all other existing or future direct or indirect wholly-owned restricted subsidiaries of the Company. The obligations are secured by, subject to certain exceptions (including a limitation of pledges of equity interests in certain subsidiaries and certain thresholds with respect to real property), a first-priority lien on (i) the Company's interest in thePennsylvania Mining Complex , (ii) the equity interests in the Partnership held by the Company, (iii) the CONSOL Marine Terminal, (iv) theItmann Mine , and (v) the 1.4 billion tons of Greenfield Reserves and Resources. The Senior Secured Credit Facilities contain a number of customary affirmative covenants. In addition, the Senior Secured Credit Facilities contain a number of negative covenants, including (subject to certain exceptions) limitations on (among other things): indebtedness, liens, investments, acquisitions, dispositions, restricted payments, and prepayments of junior indebtedness. The amendment added additional conditions to be met for the covenants relating to investments in joint ventures, general investments, share repurchases, dividends, and repurchases of the Second Lien Notes (as defined below). The additional conditions require no outstanding borrowings and no more than$200 million of outstanding letters of credit on the Revolving Credit Facility. Further restrictions apply to investments in joint ventures, share repurchases and dividends that require the total net leverage ratio shall not be greater than 2.00 to 1.00. The Revolving Credit Facility also includes financial covenants, including (i) a maximum first lien gross leverage ratio, (ii) a maximum total net leverage ratio, and (iii) a minimum fixed charge coverage ratio. The maximum first lien gross leverage ratio is calculated as the ratio of Consolidated First Lien Debt to Consolidated EBITDA. Consolidated EBITDA, as used in the covenant calculation, excludes non-cash compensation expenses, nonrecurring transaction expenses, extraordinary gains and losses, gains and losses on discontinued operations, non-cash charges related to legacy employee liabilities and gains and losses on debt extinguishment, and subtracts cash payments related to legacy employee liabilities. The maximum total net leverage ratio is calculated as the ratio of Consolidated Indebtedness, minus Cash on Hand, to Consolidated EBITDA. The minimum fixed charge coverage ratio is calculated as the ratio of Consolidated EBITDA to Consolidated Fixed Charges. Consolidated Fixed Charges, as used in the covenant calculation, include cash interest payments, cash payments for income taxes, scheduled debt repayments, dividends paid, and Maintenance Capital Expenditures. The amendment revised the financial covenants applicable to the Revolving Credit Facility and the TLA Facility relating to the maximum first lien gross leverage ratio, the maximum total net leverage ratio and the minimum fixed charge coverage ratio, so that among other things, for the fiscal quarters ending on or afterJune 30, 2022 , the maximum first lien gross leverage ratio shall be 1.75 to 1.00, the maximum total net leverage ratio shall be 2.75 to 1.00 and the minimum fixed charge coverage ratio shall be 1.10 to 1.00.
The Company's first lien gross leverage ratio was 0.38 to 1.00 at
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The TLB Facility also includes a financial covenant that requires the Company to repay a certain amount of its borrowings under the TLB Facility within ten business days after the date it files its Annual Report on Form 10-K with theSecurities and Exchange Commission ("SEC") if the Company has excess cash flow (as defined in the credit agreement for the Senior Secured Credit Facilities) during the year covered by the applicable Annual Report on Form 10-K. The required repayment is equal to a certain percentage of the Company's excess cash flow for such year, ranging from 0% to 75% depending on the Company's total net leverage ratio, less the amount of certain voluntary prepayments made by the Company, if any, under the TLB Facility during such fiscal year. There was no required payment during the six months endedJune 30, 2022 with respect to the year endedDecember 31, 2021 . During the year endedDecember 31, 2019 , the Company entered into interest rate swaps, which effectively converted$150 million of the TLB Facility's floating interest rate to a fixed interest rate for the twelve months endingDecember 31, 2020 and 2021, and$50 million of the TLB Facility's floating interest rate to a fixed interest rate for the twelve months endingDecember 31, 2022 .
The Senior Secured Credit Facilities contain customary events of default, including with respect to a failure to make payments when due, cross-default and cross-judgment default and certain bankruptcy and insolvency events.
AtJune 30, 2022 , there were no borrowings outstanding under the Revolving Credit Facility and the facility is currently only used for providing letters of credit, with$158 million of letters of credit outstanding, leaving$242 million of unused capacity. From time to time,CONSOL Energy is required to post financial assurances to satisfy contractual and other requirements generated in the normal course of business. Some of these assurances are posted to comply with federal, state or other government agencies' statutes and regulations.CONSOL Energy sometimes uses letters of credit to satisfy these requirements and these letters of credit reduce the Company's borrowing facility capacity. Securitization Facility OnNovember 30, 2017 , (1)(i)CONSOL Marine Terminals LLC , as an originator of receivables, (ii)CONSOL Pennsylvania Coal Company LLC ("CONSOL Pennsylvania"), as an originator of receivables and as initial servicer of the receivables for itself and the other originators (collectively, the "Originators"), each a wholly-owned subsidiary ofCONSOL Energy , and (iii)CONSOL Funding LLC (the "SPV"), aDelaware special purpose entity and wholly-owned subsidiary ofCONSOL Energy , as buyer, entered into a Purchase and Sale Agreement (the "Purchase and Sale Agreement") and (2)(i)CONSOL Thermal Holdings LLC , an indirect, wholly-owned subsidiary of the Partnership, as sub-originator (the "Sub-Originator"), and (ii) CONSOL Pennsylvania, as buyer and as initial servicer of the receivables for itself and the Sub-Originator, entered into a Sub-Originator Sale Agreement (the "Sub-Originator PSA"). In addition, onNovember 30, 2017 , the SPV entered into a Receivables Financing Agreement (the "Receivables Financing Agreement") by and among (i) the SPV, as borrower, (ii) CONSOL Pennsylvania, as initial servicer, (iii) PNC Bank, as administrative agent,LC Bank and lender, and (iv) the additional persons from time to time party thereto as lenders. Together, the Purchase and Sale Agreement, the Sub-Originator PSA and the Receivables Financing Agreement establish the primary terms and conditions of an accounts receivable securitization program (the "Securitization"). InMarch 2020 , the securitization facility was amended to, among other things, extend the maturity date fromAugust 30, 2021 toMarch 27, 2023 . InJuly 2022 , the securitization facility was again amended to extend the maturity date toJuly 2025 . Pursuant to the Securitization, (i) the Sub-Originator sells current and future trade receivables to CONSOL Pennsylvania and (ii) the Originators sell and/or contribute current and future trade receivables (including receivables sold to CONSOL Pennsylvania by the Sub-Originator) to the SPV and the SPV, in turn, pledges its interests in the receivables toPNC Bank, N.A. , which either makes loans or issues letters of credit on behalf of the SPV. The maximum amount of advances and letters of credit outstanding under the Securitization may not exceed$100 million . Loans under the Securitization accrue interest at a reserve-adjusted LIBOR market index rate equal to the one-month Eurodollar rate. Loans and letters of credit under the Securitization also accrue a program fee and a letter of credit participation fee, respectively, ranging from 2.00% to 2.50% per annum depending on the total net leverage ratio ofCONSOL Energy . In addition, the SPV paid certain structuring fees toPNC Capital Markets LLC and will pay other customary fees to the lenders, including a fee on unused commitments equal to 0.60% per annum. The SPV's assets and credit are not available to satisfy the debts and obligations owed to the creditors ofCONSOL Energy , the Sub-Originator or any of the Originators. The Sub-Originator, the Originators and CONSOL Pennsylvania as servicer are independently liable for their own customary representations, warranties, covenants and indemnities. In addition,CONSOL Energy has guaranteed the performance of the obligations of the Sub-Originator, the Originators and CONSOL Pennsylvania as servicer, and will guarantee the obligations of any additional originators or successor servicer that may become party to the Securitization. However, neitherCONSOL Energy nor its affiliates will guarantee collectability of receivables or the creditworthiness of obligors thereunder. 47
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The agreements comprising the Securitization contain various customary representations and warranties, covenants and default provisions which provide for the termination and acceleration of the commitments and loans under the Securitization in certain circumstances including, but not limited to, failure to make payments when due, breach of representation, warranty or covenant, certain insolvency events or failure to maintain the security interest in the trade receivables, and defaults under other material indebtedness. AtJune 30, 2022 , eligible accounts receivable yielded$31 million of borrowing capacity. AtJune 30, 2022 , the facility had no outstanding borrowings and approximately$31 million of letters of credit outstanding, leaving no unused capacity. Costs associated with the receivables facility totaled$341 thousand for the three months endedJune 30, 2022 . These costs have been recorded as financing fees which are included in Operating and Other Costs in the Consolidated Statements of Income. The Company has not derecognized any receivables due to its continued involvement in the collections efforts.
11.00% Senior Secured Second Lien Notes due 2025
OnNovember 13, 2017 , the Company issued$300 million in aggregate principal amount of 11.00% Senior Secured Second Lien Notes due 2025 (the "Second Lien Notes") pursuant to an indenture (the "Indenture") dated as ofNovember 13, 2017 , by and between the Company andUMB Bank, N.A ., a national banking association, as trustee and collateral trustee (the "Trustee"). OnNovember 28, 2017 , certain subsidiaries of the Company executed a supplement to the Indenture and became party to the Indenture as a guarantor (the "Guarantors"). The Second Lien Notes are secured by second priority liens on substantially all of the assets of the Company and the Guarantors that are pledged on a first-priority basis as collateral securing the Company's obligations under the Senior Secured Credit Facilities (described above), subject to certain exceptions under the Indenture. SinceNovember 15, 2021 , the Company has been permitted to redeem all or part of the Second Lien Notes at the redemption prices set forth below, plus accrued and unpaid interest, if any, to, but not including, the redemption date (subject to the rights of holders of the Second Lien Notes on the relevant record date to receive interest due on the relevant interest payment date), beginning onNovember 15 of the years indicated: Year Percentage 2021 105.50% 2022 102.75% 2023 and thereafter 100.00% Prior toNovember 15, 2021 , the Company was permitted to redeem all or a part of the Second Lien Notes, at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium, as defined in the Indenture, plus accrued and unpaid interest, if any, to, but not including, the redemption date (subject to the rights of holders of the Second Lien Notes on the relevant record date to receive interest due on the relevant interest payment date).
As
of
The Indenture contains covenants that limit the ability of the Company and the Guarantors, to (i) incur, assume or guarantee additional indebtedness or issue preferred stock; (ii) create liens to secure indebtedness; (iii) declare or pay dividends on the Company's common stock, redeem stock or make other distributions to the Company's stockholders; (iv) make investments; (v) restrict dividends, loans or other asset transfers from the Company's restricted subsidiaries; (vi) merge or consolidate, or sell, transfer, lease or dispose of substantially all of the Company's assets; (vii) sell or otherwise dispose of certain assets, including equity interests in subsidiaries; (viii) enter into transactions with affiliates; and (ix) create unrestricted subsidiaries. These covenants are subject to important exceptions and qualifications. If the Second Lien Notes achieve an investment grade rating from bothStandard & Poor's Ratings Services and Moody's Investors Service, Inc. and no default under the Indenture exists, many of the foregoing covenants will terminate and cease to apply. The Indenture also contains customary events of default, including (i) default for 30 days in the payment when due of interest on the Notes; (ii) default in payment when due of principal or premium, if any, on the Notes at maturity, upon redemption or otherwise; (iii) covenant defaults; (iv) cross-defaults to certain indebtedness, and (v) certain events of bankruptcy or insolvency with respect to the Company or any of the Guarantors. If an event of default occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Second Lien Notes may declare all the Notes to be due and payable immediately. If an event of default arises from certain events of bankruptcy or insolvency, with respect to the Company, any restricted subsidiary of the Company that is a significant subsidiary or any group of restricted subsidiaries of the Company that, taken together, would constitute a significant subsidiary, all outstanding Second Lien Notes will become due and payable immediately without further action or notice. If the Company experiences certain kinds of changes of control, holders of the Second Lien Notes will be entitled to require the Company to repurchase all or any part of that holder's Second Lien Notes pursuant to an offer on the terms set forth in the Indenture. The Company will offer to make a cash payment equal to 101% of the aggregate principal amount of the Second Lien Notes repurchased plus accrued and unpaid interest on the Second Lien Notes repurchased to, but not including, the date of purchase, subject to the rights of holders of the Notes on the relevant record date to receive interest due on the relevant interest payment date. The Second Lien Notes were issued in a private offering that was exempt from the registration requirements of the Securities Act to qualified institutional buyers in accordance with Rule 144A and to persons outside ofthe United States pursuant to Regulation S under the Securities Act.
Pennsylvania Economic Development Financing Authority Bonds
InApril 2021 ,CONSOL Energy borrowed the proceeds received from the sale of tax-exempt bonds issued by thePennsylvania Economic Development Financing Authority ("PEDFA") in aggregate principal amount of$75 million . The PEDFA Bonds bear interest at a fixed rate of 9.00% for an initial term of seven years. The PEDFA Bonds mature onApril 1, 2051 but are subject to mandatory purchase by the Company onApril 13, 2028 , at the expiration of the initial term rate period. The PEDFA Bonds were issued pursuant to an indenture (the "PEDFA Indenture") dated as ofApril 1, 2021 , by and betweenPEDFA andWilmington Trust, N.A ., a national banking association, as trustee (the "PEDFA Notes Trustee"). PEDFA made a loan of the proceeds of the PEDFA Bonds to the Company pursuant to a Loan Agreement (the "Loan Agreement") dated as ofApril 1, 2021 between PEDFA and the Company. Under the terms of the Loan Agreement, the Company agreed to make all payments of principal, interest and other amounts at any time due on the PEDFA Bonds or under the PEDFA Indenture. PEDFA assigned its rights as lender under the Loan Agreement, excluding certain reserved rights, to the PEDFA Notes Trustee. Certain subsidiaries of the Company (the "PEDFA Notes Guarantors") executed a Guaranty Agreement (the "Guaranty") dated as ofApril 1, 2021 in favor of the PEDFA Notes Trustee, guarantying the obligations of the Company under the Loan Agreement to pay the PEDFA Bonds when and as due. The obligations of the Company under the Loan Agreement and of the PEDFA Notes Guarantors under the Guaranty are secured by second priority liens on substantially all of the assets of the Company and the PEDFA Notes Guarantors on parity with the Second Lien Notes. The Loan Agreement and Guaranty incorporate by reference covenants in the Indenture under which the Second Lien Notes were issued (discussed previously). 48 --------------------------------------------------------------------------------
Material Cash RequirementsCONSOL Energy expects to make payments of$40,558 on its long-term debt obligations, including interest, in the next 12 months. Refer to Note 13 - Long-Term Debt of our Annual Report on Form 10-K for the year endedDecember 31, 2021 for additional information concerning material cash requirements in future years.CONSOL Energy expects to make payments of$32,446 on its operating and finance lease obligations, including interest, in the next 12 months. Refer to Note 14 - Leases of our Annual Report on Form 10-K for the year endedDecember 31, 2021 for additional information concerning material cash requirements in future years.CONSOL Energy expects to make payments of$46,036 on its employee-related long-term liabilities in 2022. Refer to Note 15 - Pension and Other Postretirement Benefit Plans and Note 16 -Coal Workers' Pneumoconiosis and Workers' Compensation of our Annual Report on Form 10-K for the year endedDecember 31, 2021 for additional information concerning material cash requirements in future years.CONSOL Energy believes it will be able to satisfy these material requirements with cash generated from operations, cash on hand, borrowings under the Revolving Credit Facility and securitization facility, and, if necessary, cash generated from its ability to issue additional equity or debt securities. Debt
At
• An aggregate principal amount of
TLB Facility, due in
Borrowings under the TLB Facility bear interest at a floating rate.
• An aggregate principal amount of
Lien Notes due in
• An aggregate principal amount of
which were issued to finance the
at 5.75% per annum and mature in
revenue bonds is payable
principal and interest on the notes is guaranteed by
• An aggregate principal amount of
disposal revenue bonds, which were issued to finance the ongoing expansion of
the coal refuse disposal area at the Central Preparation Plant, which bear
interest at 9.00% per annum for an initial term of seven years and mature in
payable on
• An aggregate principal amount of
average interest rate of 6.29%.
• Advanced royalty commitments of
rate of 8.01% per annum.
• An aggregate principal amount of $2 million of asset-backed financing
arrangements due in September 2024 at an interest rate of 3.61%.
At
Stock and Debt Repurchases InDecember 2017 ,CONSOL Energy's Board of Directors approved a program to repurchase, from time to time, the Company's outstanding shares of common stock or its Second Lien Notes. Since its inception, the Company's Board of Directors has subsequently amended the program several times, the most recent of which amendment inAugust 2022 raised the aggregate limit of the Company's repurchase authority to$600 million and extended the program untilDecember 31, 2024 . Under the terms of the program,CONSOL Energy is permitted to make repurchases in the open market, in privately negotiated transactions, accelerated repurchase programs or in structured share repurchase programs.CONSOL Energy is also authorized to enter into one or more 10b5-1 plans with respect to any of the repurchases. Any repurchases of common stock or notes are to be funded from available cash on hand or short-term borrowings. The program does not obligateCONSOL Energy to acquire any particular amount of its common stock or notes, and it can be modified or suspended at any time at the Company's discretion. The program is conducted in compliance with applicable legal requirements and within the limits imposed by any credit agreement, receivables purchase agreement, indenture or the tax matters agreement and is subject to market conditions and other factors. During the six months endedJune 30, 2022 , the Company spent approximately$26 million to retire$25 million of its Second Lien Notes. No shares of common stock were repurchased under this program during the six months endedJune 30, 2022 . Total Equity and Dividends
Total equity attributable to
The declaration and payment of dividends byCONSOL Energy is subject to the discretion ofCONSOL Energy's Board of Directors, and no assurance can be given thatCONSOL Energy will pay dividends in the future. The determination to pay dividends in the future will depend upon, among other things, general business conditions,CONSOL Energy's financial results, contractual and legal restrictions regarding the payment of dividends byCONSOL Energy , planned investments byCONSOL Energy and such other factors as the Board of Directors deems relevant. The Company's Senior Secured Credit Facilities limitCONSOL Energy's ability to pay dividends up to$25 million annually, which increases to$50 million annually when the Company's total net leverage ratio is less than 1.50 to 1.00 and subject to an aggregate amount up to a cumulative credit calculation set forth in the facilities, with additional conditions of no outstanding borrowings and no more than$200 million of outstanding letters of credit on the Revolving Credit Facility, and the total net leverage ratio shall not be greater than 2.00 to 1.00. The total net leverage ratio was 0.46 to 1.00 and the cumulative credit was approximately$347 million atJune 30, 2022 . The cumulative credit starts with$50 million and builds with excess cash flow commencing in 2018. Separately, the Indenture to the Second Lien Notes limits dividends when the Company's total net leverage ratio exceeds 2.00 to 1.00 and subject to an amount not to exceed an annual rate of 4.0% of the quoted public market value per share of such common stock at the time of the declaration. OnAugust 4, 2022 ,CONSOL Energy announced a$1.00 /share special dividend for the second quarter of 2022, in an aggregate amount of approximately$35 million , payable onAugust 24, 2022 to all stockholders of record as ofAugust 16, 2022 . 49
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Table of Contents Forward-Looking Statements Certain statements in this Quarterly Report on Form 10-Q are "forward-looking statements" within the meaning of the federal securities laws. With the exception of historical matters, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that involve risks and uncertainties that could cause actual results and outcomes to differ materially from results expressed in or implied by our forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. When we use the words "anticipate," "believe," "could," "continue," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," "vision," "will," or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q; we disclaim any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following:
deterioration in economic conditions in any of the industries in which our
• customers operate may decrease demand for our products, impair our ability to
collect customer receivables and impair our ability to access capital;
volatility and wide fluctuation in coal prices based upon a number of factors
• beyond our control including future plans to eliminate coal-fired generation
activities, oversupply relative to the demand available for our products,
weather and the price and availability of alternative fuels;
• the effects the COVID-19 pandemic has on our business and results of
operations and on the global economy;
• an extended decline in the prices we receive for our coal affecting our
operating results and cash flows;
• significant downtime of our equipment or inability to obtain equipment, parts
or raw materials;
• decreases in the availability of, or increases in the price of, commodities or
capital equipment used in our coal mining operations;
• our customers extending existing contracts or entering into new long-term
contracts for coal on favorable terms;
• our reliance on major customers;
• our inability to collect payments from customers if their creditworthiness
declines or if they fail to honor their contracts;
• our inability to acquire additional coal reserves or resources that are
economically recoverable;
• decreases in demand and changes in coal consumption patterns of electric power
generators;
• the availability and reliability of transportation facilities and other
systems, disruption of rail, barge, processing and transportation facilities
and other systems that deliver our coal to market and fluctuations in
transportation costs;
• a loss of our competitive position because of the competitive nature of coal
industries, or a loss of our competitive position because of overcapacity in
these industries impairing our profitability;
• foreign currency fluctuations that could adversely affect the competitiveness
of our coal abroad;
• recent action and the possibility of future action on trade made by
foreign governments;
• our inability to complete the construction of the
all;
• the risks related to the fact that a significant portion of our production is
sold in international markets and our compliance with export control and
anticorruption laws;
• coal users switching to other fuels in order to comply with various
environmental standards related to coal combustion emissions;
• the impact of potential, as well as any adopted, regulations to address
climate change, including any relating to greenhouse gas emissions, on our
operating costs as well as on the market for coal;
• the effects of litigation seeking to hold energy companies accountable for the
effects of climate change;
• the effects of government regulation on the discharge into the water or air,
and the disposal and clean-up of, hazardous substances and wastes generated
during our coal operations;
• the risks inherent in coal operations, including being subject to unexpected
disruptions caused by adverse geological conditions, equipment failures,
delays in moving out longwall equipment, railroad derailments, security
breaches or terroristic acts and other hazards, delays in the completion of
significant construction or repair of equipment, fires, explosions, seismic
activities, accidents and weather conditions;
• failure to obtain or renew surety bonds on acceptable terms, which could
affect our ability to secure reclamation and coal lease obligations;
• failure to obtain adequate insurance coverages;
• substantially all of our operations being located in a single geographic area;
• the effects of coordinating our operations with oil and natural gas drillers
and distributors operating on our land;
• our inability to obtain financing for capital expenditures on satisfactory
terms;
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• the potential effects of receiving low environmental, social and governance
("ESG") scores which potentially results in the exclusion of our securities
from consideration by certain investment funds and a negative perception by
investors;
• the effect of new or existing tariffs and other trade measures;
• our inability to find suitable acquisition targets or integrating the
operations of future acquisitions into our operations;
• obtaining, maintaining and renewing governmental permits and approvals for our
coal operations;
• the effects of stringent federal and state employee health and safetyregulations, including the ability of regulators to shut down our operations;
• the potential for liabilities arising from environmental contamination or
alleged environmental contamination in connection with our past or current
coal operations;
• the effects of asset retirement obligations and certain other liabilities;
• uncertainties in estimating our economically recoverable coal reserves;
• the outcomes of various legal proceedings, including those which are more
fully described herein;
• defects in our chain of title for our undeveloped reserves or failure to
acquire additional property to perfect our title to coal rights;
• exposure to employee-related long-term liabilities;
• the risk of our debt agreements, our debt and changes in interest rates
affecting our operating results and cash flows;
• the effects of hedging transactions on our cash flow;
• information theft, data corruption, operational disruption and/or financial
loss resulting from a terrorist attack or cyber incident;
• certain provisions in our multi-year coal sales contracts may provide limited
protection during adverse economic conditions, and may result in economic
penalties or permit the customer to terminate the contract;
• the potential failure to retain and attract qualified personnel of the Company
and a possible increased reliance on third-party contractors as a result;
• failure to maintain effective internal controls over financial reporting;
• uncertainty with respect to the Company's common stock, potential stock price
volatility and future dilution;
• the consequences of a lack of, or negative, commentary about us published by
securities analysts and media;
• uncertainty regarding the timing of any dividends we may declare;
• uncertainty as to whether we will repurchase shares of our common stock or
outstanding debt securities;
• restrictions on the ability to acquire us in our certificate of incorporation,
bylaws and
common stock;
• inability of stockholders to bring legal action against us in any forum other
than the state courts of Delaware ; and
• other unforeseen factors.
The above list of factors is not exhaustive or necessarily in order of
importance. Additional information concerning factors that could cause actual
results to differ materially from those in forward-looking statements include
those discussed under "Risk Factors" elsewhere in this report and the other
filings we make with the SEC . The Company disclaims any intention or obligation
to update publicly any forward-looking statements, whether in response to new
information, future events, or otherwise, except as required by applicable law.
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