Q1 2023 CONSOL Energy Inc. Earnings Call

[music].

Good day and welcome to the Consol Energy's first quarter 2023 earnings conference call.

All participants will be in listen only mode.

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After todays presentation, there will be an opportunity to ask questions.

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Please note this event is being recorded.

I would now like to turn the conference over to Nathan Tucker Director of Finance and Investor Relations. Please go ahead.

Thank you and good morning, everyone welcome to Consol Energy's first quarter 2023 earnings conference call any forward looking statements or comments, we make about future events are subject to risks certain of which we've outlined in our press release and in our SEC filings and are considered forward looking statements within the meaning of section 20 <unk> of the Securities Exchange Act of.

<unk> 1934, we do not undertake any obligations of updating any forward looking statements for future events or otherwise.

We will also be discussing certain non-GAAP financial measures, which are defined and reconciled to comparable GAAP financial measures in our press release and furnished to the SEC on form 8-K, which is also posted on our website.

Additionally, we filed our quarterly report on Form 10-Q for the quarter ended March 31, 2023 with the SEC. This morning, you can find additional information regarding the company on our website Www Dot Consol energy Dot Com, which also includes a supplemental slide deck that was posted this morning on.

On the call with me today are Jimmy Brock, our Chief Executive Officer, Majestic, our President and Chief Financial Officer, Bob Braithwaite, Our senior Vice President of marketing and sales and Dan <unk>, Our senior Vice President of strategy and his prepared remarks, Jimmy will provide a recap of our first quarter 2023 achievements and a detailed discussion of our operations protests will then provide an update on.

Our marketing financial and sustainability initiatives and our 2023 outlook in his closing comments Jimmy will lay out our key priorities for the remainder of 2023 and provide an update on our shareholder return program. After the prepared remarks, there'll be a Q&A session in which bomb and Dan will also participate with that let me turn it over to Jimmy.

Thank you Nate and good morning, everyone.

All energy finished Q1 'twenty three with record quarterly performance on many fronts, including net income earnings per share and adjusted EBITDA and we have the lowest net debt level in our history.

At the PMC, we achieved our highest realized revenue per tonne sold and average cash margin per ton Joel.

At the Consol Marine terminal, we set new records for quarterly throughput volume revenue and CMT adjusted EBITDA.

This strong performance on multiple fronts also enabled us to set a new quarterly record for what we view as one of our most important metrics.

Free cash flow generation.

We have a robust capital allocation strategy and our free cash flow generation has allowed us to further advance some of our key strategic goals and for.

Fact, since we announced our enhanced shareholder return program at the end of the second quarter of 2022, we have deployed nearly every dollar of free cash flow that we've generated toward creating long term value for our shareholders, whether it was in the form of dividends share buybacks or debt reduction.

Since the end of Q2 'twenty two we have generated 444 million of free cash flow yet our total cash position has risen by only $9 million.

Of the approximately $435 million deployed 238 million went toward return our outstanding debt $110 million towards dividends and $88 million toward retiring approximately 4% of <unk> common stock.

We also fine tuned our capital allocation process over time.

Really focused on debt reduction and our early years, starting in late 2017, and then gradually pivoting more and more towards return of our shareholder capital over time.

This has been evidenced by the continued growth and the percentage of our free cash flow returned to shareholders each quarter since implementing this shareholder return program in.

In fact, Q1 'twenty three more of our free cash flow generation was directed towards shareholder returns versus debt repayments.

As we move closer and closer to our gross debt target our shareholder return allocation has gradually increased.

As such we are pleased to announce this morning that we are again shifting to scale up by allocating approximately 75% of quarterly free cash flows for our shareholder return program.

Which will now emphasize share buybacks over dividends.

I will provide a more detailed update on this shortly.

Let's now discuss our operational performance.

On the safety front, our Bailey preparation plant at mine preparation plant and Consol Marine terminal each had zero employee recordable incidents during the first quarter of 2023.

The P. A M. C finished the quarter with a total recordable incident rate of 1.78, which continued to track well below the national average for underground coal mines.

Coal production at the Pennsylvania mining complex came in at 7 million tonnes in Q1, 23, an increase compared to $6 4 million tons in the prior year period.

Production improved this quarter compared to Q1 'twenty two due to the restart of the second longwall at the Enlow Fort mine in mid December 2022.

Which brought us back to our full operational capacity five long walls at the PMC.

Q1, 'twenty three marked the first quarter since Q1, 'twenty, one in which all five long walls were fully operational and in which we mined at least 7 million tonnes.

From a productivity standpoint measured as tons per employee hour. The P. A M. C ended the quarter improved by 3% compared to its full year 2022 average.

On the cost front, our P. A M C average cash cost of coal sold per ton for Q1, 'twenty three with $33.61 compared to $29 91 in Q1 of 'twenty two.

While the year ago comparison reflects significant inflationary pressures on supplies and labor, which had been an issue globally over the last 12 months, we point out that our Q1 'twenty three performance was improved by $1.28 per ton compared to Q4 of 'twenty to.

This is due to the fixed cost leverage that comes with the fifth longwall.

Now, let's discuss our Etna project.

Progress continues and we remain focused on ramping up to full run rate production during 2023.

Following the adverse geological conditions, and SEC section equipment delivery delays that we experienced in the second half of 2022.

We currently have two of our three continuous miners super sections operational and we'll be turning our attention to getting the third C. I'm Super section up and running soon.

Long term underground construction work at 75% complete and staffing levels have improved throughout the quarter.

We've also begun to see improvements in mine productivity and prep plant performance as we've turned our attention from project development to operational optimization this year.

And mining complex produced 64000 tons of coal during the first quarter of 2023 and sold 108000 tons of Beckman and third party coal in aggregate during the quarter.

The product continues to be successfully marketed to both domestic and export customers.

As we ramp up production, our focus is shifting towards securing new business with strategic partners.

Moving to the Consol Marine terminal, we had a record quarterly throughput volume of $4 6 million tonnes. During Q1, 'twenty three representing an annualized rate above 18 million tons compared to $3 6 million tons in the prior year period.

This is exciting because we have been working hard to debottleneck. The terminal in an effort to increase its operating capacity.

Some of the key focused areas, including in the inbound capacity and operational management.

We have been working with our transportation partners to boost brake capacity and efficiencies on the inbound side are determined.

We also have been focusing on optimizing our operations in areas such as stockpile efficiency train turn times and vessel loading rates with a planned future focus on turn times between vessels.

Through these efforts and our Q1 'twenty three performance, we now believe the terminal throughput capacity could reach approximately 20 million tons annually.

This is also important strategically as we continue to focus on the export markets as the key growth opportunity for PMC coal sales.

Terminal revenues for the quarter came in at $26 7 million and CMT operating cash costs were $5 9 million.

CMT adjusted EBITDA finished Q1, 'twenty three at $20 6 million compared to $14 5 million in the prior year period.

With that I will turn the call over to potash.

Thank you Jimmy and good morning, everyone.

We entered the first quarter with a strong domestic and export book of business for 2023.

However, due to a warmer than expected winter and low natural gas prices domestic coal bond was muted and inventories of domestic coal fired power plants begin to grow.

Our marketing team was quick to respond and was able to flip through it more tons to the export market.

With the demand for our product remains strong, particularly in the industrial markets res.

We saw a $6 7 million tons of P. A M C coal at a record quarterly <unk>.

Average realized revenue per ton sold of $84.32 compared to $6 5 million tonnes at $59 60 in the year ago period.

More importantly sales into the export industrial market outpaced sales.

Into the domestic power generation market for the first time in our history.

Overall sales into the export market accounted for 66% of our total PMC realized core revenue, including 33% coming from the export industrial market and 13% from the export crossover metallurgical coal market.

This is a crucial development for us as it demonstrates our ability to be nimble and utilizing what export marketing and logistic advantages to offset weakness in the domestic energy market.

A unique capability that few domestic colon E&P companies possess.

The more our sales team Opportunistically increased our forward sold position, but 13 5 million tonnes in the first quarter for delivery through 2026.

Increasing our sales backlog, despite a challenging market backdrop.

More importantly, the majority of these tons are part of the long term contracts and the Indian industrial market through 2026.

Which is exciting because we expect this market to expand substantially in the coming decade.

As we work to increase the capacity of the Consol Marine terminal will be even better positioned to serve this growing market.

A result of our marketing efforts and want to 'twenty three we have no near fully contracted for 2023 and have $14 7 million tons contracted for 2024.

Now, let me provide an update on our balance sheet management and capital allocation progress before discussing our financial results and sustainability initiatives.

We continue to make considerable progress on our stated financial priority in the quarter.

First we generated $221 million of free cash flow, approximately 45% of which was deployed toward continuing to reduce our gross debt level.

When factoring in our unrestricted cash and short term investments of total net debt on March 31st two at $14 million.

Second I'm.

I'm also pleased to report that since the end of first quarter, we made a $24 million discretionary payment to full literature, our term loan b and submitted an additional redemption notice for $25 million off our second lien notes, which will be redeemed during Q 'twenty three.

These pay dogs with an aggregate of $49 million, bringing our gross debt level to approximately $240 million.

Furthermore, we expect a full literature, our second lien notes in the near term.

We finished the quarter with a strong liquidity position of 384 million. However, this was a decline from our euro in 2022 liquidity due to the expected 140 million reduction to our revolving credit facility borrowing limit at the end of March.

<unk> during our revolver refinancing in July 2022, despite multiple new lenders in terms of the facility many legacy lenders decided to exit due to ESG pressures.

We have bolstered our cash position in order to absorb this reduction.

Finally during the quarter, we also repurchased one 2 million shares.

Our outstanding common stock for $67 million at a weighted average price of $55 60 says well ship. These repurchases represented approximately three 5% of our public float.

Roughly 30% of <unk> 23 free cash flow generation.

Additionally, this morning, we announced that the board of directors elected to issue a dividend of <unk>.

<unk> 10 per share, which marks our fourth dividend since announcing our enhance shareholder return program.

This payment totaled roughly $37 million or 17% of our molecule 23 free cash flow generation.

Now, let me recap our first quarter 2023 financial results.

This morning, we reported a strong first quarter 'twenty equate your financial performance with net income of $230 million or $6.55 per diluted share.

Representing the second consecutive quarter in which we achieved our highest quarterly earnings per share level. Additionally, we finished one killed 23 with adjusted EBITDA of $346 million and generated $221 million of free cash flow.

In addition to our strong operating and financial results. We continued to advance our forward progress sustainability initiative in the first quarter.

Through this initiative, which we seek to align our sustainability goals without corporate strategy, developing and deploying innovative technologies to reduce our environmental footprint.

Adding alternative and high value users for coal and supporting global environmental aspirations.

In March we were proud to release, a 2022 corporate sustainability report outlines our performance in each of these areas. For example, a consol innovations team has expanded our portfolio of colder products projects that could create expanded high value and low carbon intensity users of a phone call.

Importantly, our greenhouse gas emission reduction targets remain a top corporate priority as we seek to achieve a 50% reduction in our scope one and scope two operating emissions by 2026 I'm back to our 2019 baseline levels through 2022.

Have achieved a reduction of approximately 25% and today. We are excited to announce that we have now entered into an agreement with environmental commodities Corporation to expand our voluntary methane destruction program, which has been piloted at the PMC since 2017.

As we have noted earlier consol will spend approximately $28 million between 'twenty to 'twenty, three and 'twenty to 'twenty six to fund this effort.

The project not only for wife's a direct benefit of a wall entering emission reduction in support of our greenhouse gas goals, but also provides an opportunity to generate greenhouse gas emissions reduction credits created to compliance and voluntary programs.

Today's announcement underscores our commitment to industry, leading ESG performance as we seek to create sustainable value for our stakeholders in 2023 and beyond.

Now let me provide a quick update on our outlook for 2023.

On the guidance front for the PMC, we are reiterating our sales volume range of 25 to 27 million tonnes and cash cost guidance of 34 to $36 per ton for 2023.

However, due to reduce P. J M S ball prices and API two prices, we are reducing our expected average realized revenue per ton sold to a range of 76 to 81 from previous range of 78 to 84.

Let me provide some perspective around this updated rod.

On our last earnings call.

Provided pricing sensitivities based on fluctuations in PJM basketball prices and API two prices.

When factoring in actual one kid twenty-three pricing and current forward curves.

G M. S power prices are approximately $13 per megawatt hour below the prior guidance and the API two prices are approximately $30 a ton lower than prior guidance.

Using the sensitivities of 10 cents for each dollar change implies a reduction of $4.30 per ton across the portfolio in aggregate.

Hello, the midpoint of the updated range has been reduced by only $2 50 a ton.

Which implies an uplift of $1 80 per ton to the sales book through portfolio optimization.

But it's been mine, we are reiterating our 2023 production guidance range of 400 to 600000 tonnes.

As previously stated once it achieves its ramp up to full run rate production, we intend to provide more detailed guidance similar to the Pennsylvania mining complex.

Lastly on the capital expenditure front, we are reiterating our guidance range of $160 million to $185 million.

For 2023.

With that let me turn it back to Jimmy.

Thank you my test.

For the remainder of 2023, we have a few key areas of focus that we believe will further strengthen our company first.

We are continuing to drive our Edmond mind forward with the goal of ramping up to full run rate production. This year.

It meant team achieved multiple milestones during the first quarter and we expect them to turn you to push forward.

Our main focus now is fully staffing our complex completing the remaining long term construction activities and ramping up the third C M Super section.

Our key operation and management team members remain dedicated to supporting the Hickman team and their staffing and wrap up efforts.

Second our sales team remains opportunistic in its approach and is focused on leveraging the diverse end use markets for our high quality products as evidenced by our contracting progress this past quarter, even as traditional power generation markets were challenged.

The team remains focused on layering in.

Future new business strategically optimizing our current contract book and pivoting to deliver the highest possible arbitrage you saw this in our strong results in Q1, 'twenty three despite reduced APL, two and PJM west power process during the quarter.

Third a major priority for 2023 is to increase the throughput capacity of the Consol Marine terminal are capitalizing on the optimization and Debottlenecking efforts that we've been working on for the past several years.

We are dedicated to strategically shifted more sales into the growing seaborne markets to offset declines in the domestic market overtime.

Our future sales growth is in the export market and owning our own terminal has always been and will continue to be a strategic advantage for Consol Energy Inc.

The increase in the throughput capacity at the CMT only expands that opportunity.

Finally, as our debt reduction goals are near complete we are committed to returning a significant portion of our quarterly free cash flow generation to our shareholders as such we are happy to announce this morning, an increase to our enhanced shareholder return program, which will become effective immediately in Q2 of <unk>.

Three.

We now plan to return approximately 75% of quarterly free cash flows to our shareholders, which we believe is industry, leading amongst our peers. While historically, we've been focused mostly on dividends. Our intent moving forward is to pivot our return program to mostly share buybacks.

Decision is based on the attractive free cash flow yields at which our stock is trading.

Sufficiency of buybacks over dividends and the feedback we receive from our shareholder base.

In support of this effort. We also announced this morning that our board of Directors has increased its previously authorized repurchase program to an aggregate amount of up to $1 billion through December 31st 2024.

As a reminder, the management team and the board at their discretion will approve the continuation and form of shareholder returns each quarter.

After posting multiple record results in 2022, we continued that trend and hit many quarterly records in Q1 of 'twenty three.

I want to knowledge that none of this would've been possible without the hard work dedication and perseverance of all of our employees across the company.

I am extremely proud of this team.

And I want to thank them for their commitment to keeping our core values of safety and compliance at the forefront of everything they do.

Lastly.

I want to recognize our consol Marine terminal employees for their efforts in achieving a phenomenal milestone.

This group of employees, just reached 1 million man hours worked without a recordable incident.

Their last recordable incident occurred in June of 2014, and we certainly appreciate their dedication and efforts and working safely into poly as our business for the Consol Marine terminal continues to grow.

With that I will hand, the call back over Tonight. Thank you Jimmy we will now move to the Q&A session of our call at this time I'd like to ask our operator to please provide the instructions to our callers.

Thank you and we will now begin the question and answer session to ask a question you May Press Star and then one on your telephone keypad.

If you are using a speaker phone.

Please pickup your handset before pressing the keys.

Withdraw your question. Please press Star and then two.

First question today will come from Nathan Martin of the Benchmark Company. Please go ahead.

Thanks, operator, good morning, guys congrats on the quarter and thanks for taking my questions.

Hey, good morning. Thanks.

Yeah.

Let's see so you layered on an additional $13 5 million tonnes through 26 I believe in the tests at all in the export market Bob can we get some more color on maybe the destination or market for those tonnes a breakdown by year in pricing that would be really helpful. Thanks.

Sure.

So when you look at the cadence of those of those tons about $3 3 million were sold this year for 2023 some of those shifts already some will be shipping here in the back half of this year.

$2 2 million in 2024, and about 4 million in each year in 2025, and 2026 and the majority of that volume was sold into the industrial markets and devote India and also into Egypt.

About $11 million and $13 five are linked to API two although they do have floor and ceiling. So there is a built in hedge to the 11 million tons. The balance would be fixed price and if you look at where API. Two prices are today for call. It 'twenty back half of 'twenty three all the way through 2026.

Those API two prices were to hold.

Youre looking roughly around 70 Bucks a ton on average for the $13 5 million tons sold.

Very helpful. Bob I appreciate that and then maybe looking at 'twenty four specifically you increase committed and priced position looks like the 14.7 million tons from 12 and a half.

Can we get an updated breakdown of our you know the markets for those tons as well and then Bob I know you've previously mentioned I think in average price on those tons between the 22 actual in 'twenty three guidance can.

Can we get an update there too thank you.

Sure. So the $14 seven next year, we have about two and a half that slink power.

Sitting here today of about five six that is slotted to go export.

$564 6 million of those are linked to API two all four six do have ceilings and floors associated with those and then the balance which would be about $6 six are domestic and fixed price.

Pricing on those times you know, we're looking at the board's powers roughly call. It mid $40 per megawatt hour API two prices around 130, I will tell you that were call. It upper sixties lower seventies on our average selling price for 2024 and 2014 points up.

Got it I appreciate that and then maybe would also be great coming back to 'twenty three if we could get.

Some thoughts on cadence of shipments obviously, a strong production quarter in the first quarter here and then maybe.

And any thoughts on pricing as we move through the next few quarters as well with the first quarter prices being so strong.

Yeah, No. So let me talk a little bit about the cadence.

Q1 is typically one of our strongest quarters.

This past quarter in Q1, we did not have any longwall moves so looking at the moves going forward with currently will have two here in Q2.

And I believe we will have one in Q3 and one possibly two in Q4 dependent upon.

How hard we run the long walls, so from a productivity standpoint.

I think youll see our second quarter affected a little bit by the two longwall moves that will have and which is all in our plan and then we'll have that one again in Q3.

And possibly too so I think we'll be pretty steady I still like our guidance you know before we got a 25 to 27 million tonnes.

Still very accurate and then on the pricing front I'll just say Nate.

We had a very strong Q1.

We had a lot of optimization, there, we actually shipped a million more tons export than what we originally forecasted a lot of that had to deal with some delays in some shipments to our domestic customers and are in a strong and a strong demand coming out of India.

As we move forward in API two prices are obviously reduced from what Q1 was I think Q1 average call it $1 47 eight.

April averaged about 140, and our guidance, we're assuming a $130 API two price going forward. So you know that API two price were to come up we certainly could see some benefit there.

And then as far as the power price is concerned we're basically modeling in the power price at the floor. So really there's no downside to that its only upside potential. So we do see a warm summer we start seeing natural gas prices creep back up you know the fourth I think suggests we will start seeing $3 gas here later this year and if that does transpire.

You know it certainly will benefit us on the power netback contracts.

Got it thanks, and then maybe just one final before I turn it over.

As we look ahead of potential shipments in 2024, clearly you guys have signaled and demonstrated you plan to grow your export exposure.

Vic markets appear there will continue to be in secular decline.

Do you feel like you can maintain that kind of 25 to 27 million tonne shipment level in 'twenty four or could that number be pressured and then let's just say from a purely hypothetical standpoint.

You did have to adjust production down next year driven by demand you know how would you go about that operationally it would it would it be you know reduce shifts would consider idling of longwall. Obviously, you just brought your football them all back on.

With just some of your highest quality coals believes so any thoughts there would be helpful. Thanks.

Yeah, well, we still believe that there will certainly be a market.

That's somewhere consistent to where we are today, but as we've always said we run to the market. So if that <unk> will continue to run our five long loss, if we have an opportunity.

We need more tons as I previously stated.

Can run on weekends holidays now, let's look at the other side of it if you know obviously if demand falls off we've been through that so yes. We can we have a lot of flexibility and optionality in the Pennsylvania mining complex. So we could throttle back a long long needed b and we could run for or we can even run three.

But one of the things that we maybe don't quite frequently is the quality of the spec of the coal we're shipping it where it goes to and as we said that fifth longwall that we have an operation that enlow Fork certainly allows us to produce lower sulfur products. If we want to segregate that to move into the market. So whatever marketing team comes back.

With we will run exactly to that and our objective has always been we run to the highest cash margins. So if it's running five longwall so for whatever that demand is.

We only worry about the things we control. So if there's no demand, obviously will run less and will be laser focused on controlling our costs and making the highest margin per ton we can generate.

The demand drives a lot of what we do.

<unk>, even at lower prices, we have been successfully able to pivot to different markets and.

No.

Our playbook is still the same now we have even more optionality with the expanded capacity at the terminal.

Great I appreciate the thoughts do you mean with tesh and thanks. Thanks for the time today guys best of luck.

Thanks, Mike.

Our next question today will come from Lucas pipes of B Riley Securities. Please go ahead.

You very much operator, and congrats everyone on a very strong start to 2023.

Thanks Brooks.

I wanted to ask about the 2024 contract book.

Okay.

When would you expect to sell the balance of what is yet to be sold would appreciate your thoughts on that also as it relates to how eager you are to put those tons to bed is are you looking to sell down was over the next two quarters three quarters I would appreciate your thoughts on on all of that thank you.

And so look I mean, I think last call I mentioned that I can see your exports getting close to 14 million tons in 2024, I still think that's the case call. It 14, maybe even 15 million tonnes as.

As we saw in Q1, the terminal is able to to throughput at least $18 million potentially even 20 million tonnes. So we feel pretty confident in our ability to do that.

That means we basically sell another nine call it nine to 10 million tons export which doesn't leave much left for domestic.

From a domestic standpoint, I think utilities are kind of in a wait and see position.

Once we get through summer summer plays out I think youll see more rfps come out and I think theres, certainly going to be opportunity to secure more volumes.

On the domestic side, but.

We're going to remain patient if there is an opportunity that makes a lot of sense to us obviously, we're going to tack on to that just like we did in the first quarter and there are certainly some appetite out there in the international markets for longer term deals now, especially for high quality high CV coal. So we're still in discussions with customers for long term deals and if we can find.

One that makes sense, we will certainly continue to add on to our book.

That's that's very helpful and.

Last quarter, you mentioned, the sensitivity to PJM and API two prices for 2023, and I wondered now with one quarter under your belt, how else do sensitivities shifted and it might be a little early but.

Any way to frame up the same sensitivity for 2024 based on what you expect in terms of your mix between domestic and export.

So for 2023.

So let's start with power so power right now, what we're modeling and as call it around $38 a megawatt hour for the balance of the year.

<unk> puts us right at our floor price.

So theres really only upside there and I'll just say for the tons left we're looking about eight cents per ton. So if the if the PJM.

PJM West price for an increase of $1 <unk> uplift to our portfolio.

Similar to API two prices, it's very close to the same sensitivity around eight a ton.

But they're obviously, both directions up and down on the API two price and for 2024, it's just a little too early to provide any sensitivity at this time.

Lucas also remember that from time to time, we have optimized the portfolio. So for example, Q1. If you just look at the sensitivity on API two verses.

And the power our guidance hasn't declined as much as those two sensitivities would imply.

That means we were able to optimize the book in a way that we were able to create some additional upside I think we will continue to focus on that and Thats why sensitivities are good from a modeling perspective, but that doesn't necessarily mean, they're going to always hold.

Its especially good to see when they don't hold.

And in a way that you beat them sell it so good job on that.

Okay.

Last question for now on the market side.

We've seen met coal prices in the seaborne market come under a fair bit of pressure seaborne prices.

Thermal side have held up in contrast to that how would you square that what what are you seeing in the seaborne markets today. Thank you very much.

Yes, so I mean.

I'd say, both have come off a bit on the thermal side, we've seen pet coke prices, which obviously, we trade a lot against into India and also to Egypt. We.

We've seen those prices come down, but I think we've kind of found a floor level of call. It 135 CFR India.

So we're going to continue we can continue to sell into that market, even at that level and still turn a nice profit, but our expectations are as soon as monsoons over in India, Obviously, we're heading into a monsoon season.

When that whoever we expect demand to <unk>.

We energized and we would expect prices to go back up.

On the met side I think we're just seeing a lot of.

Our challenges in China, right now China's kind of mute and then we've also seen production increases come out of Australia.

After the law anemia season. However, you know just be reminded that yes.

Just come off a bit but we're still in a pricing environment that is if you look at history is still pretty attractive.

Even at $240.

U S East coast low vol prices, we're still targeting a nice profit back to it.

Very helpful. Thank you so much I'll turn it over for now.

Thanks Lucas.

And again it is star and then one to ask a question.

Next question today is from Michael Dudas with vertical research partners. Please go ahead.

Good morning, gentlemen.

All right.

Sure Jamie.

Maybe some thoughts on the 75% free cash flow allocation.

Would you say you're lean towards shares what does that mean for <unk> industry could there still be a regular dividend will be variable.

And maybe as we look towards the completion of.

<unk>.

And what with normalized maybe normalize.

Sure.

<unk> capital spending.

We're constantly as you go out the next couple of years, including some of the ESG spending that youre.

For me.

Major changes or thoughts towards those over the next several years or we can go where is that cash flow really going to be dedicated towards.

Excess capital returns, especially since you are.

A pretty good chunk out of your debt.

Michael Let me start on the capital expenditure obviously.

Yes bulk.

Bulk of the Eastman spending is behind us.

And as we stand today, we are mostly focused on making sure that Edmond.

Reaches its run rate capacity of this.

And we provided you a maintenance capital guidance for this year I think generally speaking our maintenance capital.

Stay in that 5% to $6 range at the Pennsylvania mining complex going forward.

And we will provide you more color.

<unk> is in steady state on what the maintenance capital looks like but other than that and greenhouse gas emission spending that we've talked about.

Just under $30 million over the next four years.

No major capital planned right now obviously don't think of this as a guidance for 'twenty four 'twenty five, but that's how I would think about it unless some project comes up that.

It is attractive enough to spend some more capital.

And on the share backs Michael.

One thing we constantly do is we've told people we will spend every dollar of capital at the highest rate of return.

So we've reached the point, we've continued to work on paying down our debt, we have that nearly where we needed to be and we will continue to do that but we pivoted to share buybacks as I said earlier because of the free cash flow yield. So we have because the tax efficiencies and we believe that is the highest rate of return so going forward at this.

Point I would expect that the major part of our capital will go towards share buybacks.

Instead of dividends.

Understood I appreciate that thanks Jeremy.

Thank you.

And our next question is a follow up from Lucas pipes of B Riley Securities. Please go ahead. Thank you so much.

Just a few quick follow up questions. The first one on the domestic market I wondered if you could provide an update on the inventory situation that utilities, that's the <unk>.

First of all thank you very much.

Pretty much at normal or a little bit above normal.

Again, we're in the shoulder season getting prepared for the summer summer burn however.

There has been some pushback because there's concern about demand and how much call thats going to actually be consumed this summer so.

Inventories I would say are again above normal to normal, but we've seen we've seen how quickly. This all can play out in inventories.

The fleet. So we're working with our customers on on those shipments that have been deferred into the second half of this year and and again, we were successful in placing goes into the export market.

And Lucas I would also add that if you look at the profile of our market now.

And less relying on the domestic power generation market I think I mentioned in my prepared remarks is the first quarter in our history.

Export industrial outpaced domestic power generation I think if you just take a step back and look at the markets. We sell between domestic followed export power export crossover export industrial and then ultimately macroeconomic minutes well I think we've created a very diversified book of business here that allows us to pivot from depending.

On which market is stronger or weaker so I think we are going to be cognizant of that.

And inventory levels will normalize because in a way we are helping normalized inventory levels as we move call away from the U S domestic market.

Thank you. Thank you <unk> and that actually takes me to my follow up question do you have that flexibility to pivot to the seaborne market.

Not all of your domestic peers have that flexibility is there any talk of a supply response.

Any any industry anecdotes you could share what would be would be appreciated. Thank you.

Well on the on the supply side Lucas obviously here domestically, we haven't seen a lot of supply increase and I don't think you will see that going forward again, it's all about demand. So as you know probably 90% of our domestic customers are repeat. So this is not anything that we haven't been through before.

As far as inventory levels would have to sometimes help adjust inventories and work with our customers to do that but if we have a normal summer come back to work I think Bob is correct. I think you will see those inventory levels begin to normalize and then you haven't seen a huge production Spike I don't think you will because I don't.

Domestically here in the U S. We're not at the point, where we can do that yet.

And would you expect production to come.

Come in.

E mines getting potentially curtailed or.

C&I utilization rate.

So Lucas generally speaking.

With any commodities youre going to try and make sure. The first thing is you're going to see a response.

From the utilities, which we are already starting to see where youre going to see push backs right because they are running out of inventory space or they have.

More than more than required inventories, so youre going to see that the producers we're trying to move.

Coal elsewhere, where there is an opportunity in terms of domino space or export market, that's happening already and we are already starting to see some cut some production response, but not enough.

That warrants.

A huge discussion here, but I think it should come on unless somewhat shows up which would be a good thing and utilities diluted stock loading more coal I think.

Youre going to see some sort of response here.

That's that's very helpful. Thanks, Thank you for that market color and then another industry question.

Yes, there are some met coal assets.

For for sale and I wanted to gauge your interest in M&A.

Maybe re weight the portfolio.

Where would that rank versus.

Capital return opportunities you outlined earlier.

Well I think if the right opportunity to come along as we've said previously we look at a lot of projects that come along if we have one that makes sense most likely on the metallurgical side would be one that we would certainly consider very strongly and look at but we haven't seen those I mean, when we get the opportunity to learn.

It won it.

It is it comes down to valuations are out of line or just can't make the deals happen now one thing that we are very optimistic about it and we'll continue to look at is adding reserves.

Or closer in surrounding proximity to our mind, there so that would make the most sense for us and it would definitely be on the metallurgical side. If we did that but we're obligated to our shareholders to look at everything that comes in front of us and if something makes sense. We certainly have the wherewithal to do it but at this point in time, we haven't found that.

Very much appreciate the additional color best of luck to everyone. Thank you very much. Thanks. Thanks Lucas.

Our next question is a follow up from Michael Dudas of vertical Research partners. Please go ahead.

Yeah. Thanks, So yeah as I was thinking about your shift away from the domestic market into the export market, which makes total sense.

Maybe you could share your updated.

Thoughts on with your repeat Baseload customer base in the United States on the utility side is there any significant changes towards closure retirements speeding up deferring.

And is that does that change maybe how your base lube opportunities for these customers will be say 357 years. They don't give it to where you would've thought maybe a year or two ago.

That's a great question, it's something that we started looking at years ago. So when you look at the domestic plants. We serve currently sitting here today no meaningful retirements for us until I think 2028, Bobby correct and so we continue to look at those and they continue to be pressured.

But we believe that the power plants that we're going to particularly here in the northeast and down.

The southeast will be here for at least 2028, and who knows in the future going forward, but that's one of the main reasons that when we do see one of those that we are trying to focus more and more on taking our code of where it's warranted and thats in the international markets.

Yeah, Mike just to follow up on that yes, 2028, when the LTE roll takes effect. So that's when we start to see a little bit of a material effect on our what I would call our typical domestic book.

To tune of three 4 million tons. However, we've already started pivoting towards the export market to cover those tons and just kind of follow up on Lucas's question about nap production.

Over the next several years my personal view is that if you don't have access to seaborne markets, it's certainly going to make it more and more challenging.

Due to these announced.

Closures of domestic power plants, especially those in the PJM.

Yeah.

So excellent books.

It makes so much sense thanks, guys.

Thanks Eli.

And at this time, we will conclude our question and answer session.

I would like to turn the conference back over to Nathan Tucker for any closing remarks.

Thank you operator, we appreciate everyone's time and interest this morning and for your support of Consol Energy and we look forward to speaking with you on our next earnings call. Thank you.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect your lines.