Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Successfully issued $400 million of 8.625% senior unsecured notes due in 2029, increasing liquidity by $100 million.
- Extended the maturity of the $425 million revolving credit facility to March 2028, providing additional financial flexibility.
- Oil and gas royalty segment posted solid results with a 6.8% increase in volumes year-over-year and a 3.1% increase in average realized sales prices per BOE.
- Free cash flow for the quarter was up 27% from the sequential quarter, reaching $114.9 million.
- Liquidity increased to $666 million, including approximately $203.7 million of cash and cash equivalents on the balance sheet.
Negative Points
- Coal sales volumes for the quarter decreased by 11.8% to 7.9 million tons, and coal production declined by 10.2% compared to the previous year.
- Consolidated total revenues for the quarter were $593.4 million, down 7.6% from the year-ago period.
- Segment adjusted EBITDA expense per ton sold increased by 5.5% in the Illinois Basin and 57.6% in Appalachia compared to the previous year.
- Net income for the quarter was $100.2 million, down from $169.8 million in the year-ago period.
- Coal inventory levels grew to 2.6 million tons by the end of the quarter due to delayed shipments and lower than expected export shipments.
Q & A Highlights
Q: You mentioned in the release that part of the reason you're decreasing full year 2024 sales guidance is because netbacks aren't supportive. Could you provide more color on this? What price would be favorable enough to bring back production or shift tons back to the export market?
A: When planning for the guidance, prices were around $105 to $110. We have transacted at that level in our high sulfur market, but recent high sulfur discounts have been higher than typical. Historically, $120 is our target, but we can transact comfortably at $110 to $120. We prefer not to go lower and will wait for market improvements.
Q: Can you provide additional thoughts on the cost per ton increases on the coal side? How should we think about cost per ton for 2025?
A: Other than longwall moves and lower shipment denominators, we also didn't operate at full capacity, taking unanticipated vacation days due to high inventories. For 2025, we expect costs to normalize due to completed projects at Tunnel Ridge, Warrior, and River View mines, which will improve productivity and cost structure.
Q: How much production and/or sales were lost at River View and Hamilton due to barge traffic and lower recoveries?
A: Most of the impact at River View was due to lower recoveries in the 11 seam, not barge traffic. The higher sulfur coal produced is being blended at a slower pace. We believe these issues will be resolved by year-end.
Q: What would be the number one reason attributed to the reduction in the sales guidance?
A: The primary reason is the weaker export market. We are pulling down production in the second half due to lower-than-expected export pricing. We expect opportunities for spot sales in the fourth quarter due to strong summer burn.
Q: What are your priorities for using the increased liquidity from the recent debt refinancing and revolver extension?
A: Priorities include redeploying capital in the oil and gas segment, evaluating other investment opportunities in coal and oil and gas, and exploring new ventures such as data centers. We aim to deploy capital on good cash-on-cash returns.
Q: Could you talk about the competitive landscape within the oil and gas royalties area?
A: The market has been competitive since we entered it. We maintain conservative underwriting standards, considering long-term pricing. While we have bid on many projects, we haven't reached the winning levels due to high current prices. We believe there will be adequate opportunities to deploy capital without compromising our standards.
Q: Under what circumstances would you consider upsizing your bonds by $200 million?
A: Upsizing would be considered for larger-scale opportunities, such as significant acquisitions in the oil and gas mineral space. It would be primarily opportunity-related based on potential investments.
Q: How much of the lost deliveries due to Ohio River flooding and the Baltimore Bridge collapse do you expect to recoup?
A: The lost deliveries are deferred, not lost. We expect to make up the volumes in the third and fourth quarters, with higher volumes anticipated in the third quarter.
Q: Is the catch-up in deliveries included in the revised guidance?
A: Yes, the catch-up in deliveries is included in the revised guidance.
Q: Is the new guidance conservative with potential upside if spot sales materialize in the back half of the year?
A: Yes, there is potential upside if export pricing maintains or improves. We could have higher volumes than the current guidance if we secure additional vessels in the fourth quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
