Core Natural Resources Inc (CEIX) 2019 Q4 法說會逐字稿

Good day, and welcome to the CEIX and CCR Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

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

Thank you, Jason, and good morning, everyone. Welcome to CONSOL Energy and CONSOL Coal Resources Fourth Quarter 2019 Earnings Conference Call.

Any forward-looking statements or comments we make about future expectations are subject to some risks, which we have outlined in our press releases or in our SEC filings. 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 releases and furnished to the SEC on Form 8-K. You can also find additional information on our website www.consolenergy.com and www.ccrlp.com.

With me today are Jimmy Brock, our Chief Executive Officer; Mitesh Thakkar, our Interim Chief Financial Officer; and Jim McCaffrey, our Chief Commercial Officer.

In his prepared remarks, Jimmy will provide a recap of our key achievements during 2019 and specific insights on marketing and operations. Mitesh will then provide an update on our liability management program, financial results and 2020 guidance. In his closing comments, Jimmy will then lay out our key priorities for 2020.

After the prepared remarks, all 3 executives will participate in the Q&A session. For additional information, we have posted a supplemental slide deck on our website in advance of today's call.

With that, let me turn it over to our CEO, Jimmy Brock.

Thank you, Nate, and good morning, everyone. 2019 was a very difficult year for our industry in general, as we continue to see degradation in commodity prices, which then translated into a declining stock prices and deteriorate access to capital markets. Although our financial securities were causing the whirlwind of broader coal industry malaise as well, we, nonetheless, achieved several goals that we laid out for ourselves at the beginning of 2019. We improved our safety performance, delivered new record production and sales volumes at the Pennsylvania Mining Complex, achieved another record EBITDA year at our CONSOL Marine Terminal, successfully refinanced our credit facilities and term loans and significantly reduced our absolute level of debt. We also advanced our growth strategy by launching our Itmann project and made investments geared toward alternative and lower emission uses of coal that, we believe, may provide high-margin revenue streams in the future.

Let me now provide you with a brief recap of 2019 and how it positions us for success in 2020 and beyond.

First, on the safety front. 2019 was significantly improved from 2018 as we further differentiated our performance from the industry average. On a year-over-year basis, we reduced the total recordable incident rate at the PAMC by 45% and reduced our total number of exceptions by 41%. At the CONSOL Marine Terminal, we had 0 incidents and a 100% compliance record during 2019. However, despite a significant improvement in overall safety performance for the year, we cannot forget the tragic loss of one of our CONSOL family members in 2019. The entire company continues to mourn his loss, and our thoughts and prayers remain with his family and friends. We have taken significant measures to protect an accident of this nature from reoccurring in the future, and safety remains our top core value. We continue to strive towards 0 life-altering incidents.

Second, both the Pennsylvania Mining Complex and the CONSOL Marine Terminal had very strong 2019 operational performances, especially when considering a difficult market backdrop. The Pennsylvania Mining Complex produced 27.3 million tons, which is the second highest annual production in its history. This production level is largely unchanged from the record level set in 2018, despite the EIA, estimating that total U.S. coal production declined by 9% from 2018 to 2019. The CONSOL Marine Terminal, again, set a new annual revenue record, marking the third consecutive record revenue year while also continuing its outstanding safety performance. As such, our 2 core operations once again defied the broader market trend, which we believe is a result of our well-capitalized asset base and the superior quality of our product.

Now let me review our Q4 '19 operational performance in detail. Our operations team finished the year with a solid production performance in the fourth quarter of 6.7 million tons, which was relatively flat compared to the year ago period of 6.8 million tons. In addition, the Harvey Mine, again, set an individual production record in 2019 surpassing 5 million tons, marking the third consecutive record-setting year.

For Q4 '19, productivity at Pennsylvania Mining Complex, measured as tons per employee hour, improved by 6.7% compared to Q4 '18. Furthermore, our cash cost of production was slightly improved compared to Q4 '18, mainly due to reduced maintenance and supply costs and costs related to contractors and other purchase services. For its share of the PAMC, CCR produced 1.68 million tons of coal during Q4 '19, which was also relatively flat compared to the year ago quarter. The CONSOL Marine Terminal had a throughput volume of 2.5 million tons during the quarter compared to 2.7 million tons in the year ago period. Given the terms of our take-or-pay contract at the terminal and despite a decline in shipments, our terminal revenues for the quarter were largely unchanged at $16.5 million compared to $16.9 million in the year ago quarter. Cash operating costs were also in line at $4.9 million versus $5.2 million in the year ago quarter.

Let me now provide an overview of the coal markets and an update on our sales performance and accomplishments. Coal markets and producers had a tough 2019. However, there are some indications that provide hope for an improvement in the second half of 2020.

First, on the export front, API 2 spot process remained under pressure in 2019 and ended the year 39% lower compared to year-end 2018. LNG process weighed on coal demand internationally, especially in Europe as a glut of new U.S. and Australian projects came online in 2019. According to Wood Mackenzie, even while LNG demand growth in the Asia Pacific region stalled, global LNG supply grew approximately 9% in 2019, resulting in spot LNG being sold at a discount into Europe. On a positive note, the recent decline in LNG prices is expected to slow LNG growth supply, particularly in '21 and beyond. According to Wood Mackenzie, new LNG projects need approximately $7 per million BTU to be economically viable. This anticipated correction in LNG supply and demand dynamics is partially reflected in the API 2 pricing, which remains in contango.

Furthermore, we're also continuing to see strong demand for Northern App coal in India's brick kiln market, which does not price of API 2 and is the most meaningful revenue driver for our export shipments. India imported over 7 million tons of Northern App coal in 2019, and we expect this number to increase in the coming years.

In the domestic markets, natural gas prices remained under pressure and were down 19% in 2019 compared to 2018. This weighed on power prices and coal consumption. EIA expects the average annual growth rate for domestic dry gas supply to slow considerably over the next 5 years compared to the 2015 through 2020 period. It is also worth noting that 2020 CapEx for Marcellus and Utica producers is expected to decrease approximately 20% compared to 2019 based on reported guidance so far. A CONSOL-specific development in the domestic market continues to be the recently improved sulfur content of our coal.

As we have mentioned in the past, we recently moved 1 of our longwall to the low-sulfur area. The resulting quality has been well received in the domestic met market and has created a win-win for us and our customers. We benefit by capturing additional market share in the domestic utility market, and our customers receive high-quality coal at a lower price. This allows them to dispatch at a lower cost and potentially consume more.

Supply rationalization is another positive trend we are continuing to see in the global coal markets. Low prices are starting to drive a supply response and several producers, including us, have responded with production cuts. According to DTC, there have been 17 million tons of total U.S. coal production cutbacks announced since the beginning of 2019, 13 million of which are in the thermal coal market. DTC is also estimating that U.S. thermal coal exports will fall approximately 37% from the 2019 levels, which could put exports in the mid-20 million ton range. We're also seeing a similar response internationally.

Colombia began scaling back production in late 2019, and now Indonesia has fallen suit. Indonesia set its coal production output target to 550 million tons in 2020, down from the 610 million tons in 2019. However, Indonesian coal consumption is expected to rise by 17 million tons in 2020, which should help to tighten the market. On a net basis, this could potentially reduce seaborne supply from Indonesia by 77 million tons.

Finally, IHS Markit reported that Indian coal fire power plants will be required to retrofit and use desulfurization technology for SOX control by 2022. Of the 203 gigawatts of installed coal fire capacity in India, about 166 gigawatts have been identified for flue gas desulphurization installation. This is a potentially positive development for Northern App and Illinois Basin producers as it opens up the possibility of burning higher-sulfur coals at these plants. We compare this to the wave of scrubber installations that occurred in the U.S. years ago, which led to a significant growth in demand for Northern App and Illinois Basin coals over higher-priced compliance coals.

From a marketing perspective, we continue to maintain 100% of our existing customer base and to selectively expand by taking market share. During the quarter, we added approximately 4 million tons of new business for multiyear delivery. We are now approximately 95% contracted for 2020 and 43% contracted for 2021, assuming the midpoint of our core sales volume guidance range.

Let me now provide an update on our strategic growth and diversification efforts at CONSOL Energy. During 2019, we approved our Itmann project, which falls in the organic growth bucket. We announced this morning that the Itmann project economics have improved further. We are now anticipating a higher annual production run rate of approximately 900,000 tons at full production, while maintaining our current CapEx range.

We were also successful in adjusting the timing of capital spend to fit our corporate level capital priorities, which Mitesh will discuss shortly. More recently, we made several investments in our technology bucket, which are geared toward alternative uses of coal. Our investment in CFOAM Corp is one such example. It is a newly formed U.S.-based holding company whose wholly owned subsidiary, CFOAM LLC, manufactures high-performance carbon foam products from coal. The CFOAM product focuses on meeting demand for high-grade materials in the industrial, aerospace, military and commercial product markets with an expected total addressable market of over $15 billion annually.

We are also partnering with Ohio University and other industry partners on a DOE funding project to develop coal plastic composite. These materials are geared toward the engineering composite decking and other building product markets with an expected global addressable market of approximately $8 billion by 2023.

Finally, our previously announced partnership with Omnis Bailey LLC continues to move forward. The goal there is to develop a refinery that will convert waste coal slurry into 2 products; a high-quality carbon product that can be used as fuel or as a feedstock for other high-value applications and a mineral metal product that has the potential to be used as the sole amendment in agriculture applications. The investments we make in our technology bucket are small but have the potential to contribute significantly to our bottom line over time.

With that, I will now turn the call over to Mitesh to provide the financial updates.

Thank you, Jimmy, and good morning, everyone. Let me start with an update on our liability management efforts in the context of our capital allocation strategy. I will then review our financial results for 2019 and introduce our 2020 guidance.

Over the past year, we have been very focused on improving the risk profile of our balance sheet. While commodity prices were volatile throughout 2019, we were laser-focused on reducing our debt. This remains our top priority heading into 2020, and to achieve that goal, we have taken significant steps to reduce our capital spend and take advantage of the cost of capital arbitrage.

As you are already aware, we successfully reduced our interest expense, extended our maturities, improved our liquidity and gained a lot of financial flexibility through our refinancing effort in early 2019. This was very timely as access to capital in the energy industry, in general, and coal, in particular, has steadily declined since then due to ESG concerns.

With those capital market constraints in mind, we are preparing ourselves to be able to have significantly lower level of absolute debt before our 2024 term loan B matures. We also recognize the tremendous opportunity we have to take advantage of the decline in the prices of our public debt and have been very active in the open market.

In 2019, we repurchased $52.6 million of our second lien notes in the open market, which we are only able to redeem on or after November 15, 2021, at a call price of $105.5. In aggregate, during 2019, we made net payments of nearly $184 million towards total outstanding debt. We continue to have over $400 million of liquidity.

On the capital spending front, we are now targeting a significant reduction in maintenance capital spending at the Pennsylvania Mining Complex compared to 2019 levels, as the mines are now very well capitalized from the strong commodity market periods of 2018 and 2019.

On the growth front, we have also made the decision to take advantage of the flexibility that the Itmann project offers and defer some capital spending. There are several benefits of doing this. First, by slowing down the development pace, we can redeploy that capital towards debt reduction. For instance, our second lien notes currently offer an approximately 20% rate of return on a yield-to-worst basis and are trading at under $0.70 on $1, with a more limited risk profile compared to development projects.

Second, met coal prices are not very attractive, and there are significant tariffs on U.S.-origin coals into China, depressing the overall market. Delaying Itmann will allow us to take advantage of more favorable pricing in the longer term. However, if the market conditions were to improve meaningfully in the near term, we can quickly ramp up our development pace.

As Jimmy noted, Itmann will now reach approximately 900,000 tons of annual production compared to 600,000 tons we announced earlier. So the project economics have actually improved. We have been very focused on managing our legacy liabilities since we became a separate public company in late 2017. Heading into 2020, we expect our cash payments for employee legacy liabilities to be approximately $59 million, which is a reduction compared to 2019 level.

On the balance sheet front, after significant declines in our balance sheet legacy liabilities over last 2 years, our balances have increased very modestly. This is mostly due to declining discount rates, which were partially offset by the favorable claims experience and the passage of the SECURE Act.

With that, let me now recap the fourth quarter and full year 2019 results before moving on to our 2020 guidance. We will review CEIX first, then CCR.

CEIX reported a solid fourth quarter with net income attributable to CEIX shareholders of $13.9 million or $0.54 per diluted share and adjusted EBITDA of $92.1 million. This compares to $39.7 million, $1.41 per diluted share and $115.2 million, respectively, in the year ago quarter. The decline in our earnings metrics compared to the year ago period is mostly the result of lower PJMS (sic) [PJM] power prices and higher income tax expense, partially offset by improved cash operating costs.

Our fixed price domestic and export contracts performed well during the quarter. In 4Q '19, we generated $21.4 million of cash flow from operations and spent $38.3 million in capital expenditures. As a result, CEIX had an outflow of $16.9 million of organic free cash flow, which was impacted by a $50.7 million adverse working capital change. This is mostly a function of $21.9 million increase in our trade receivable balance and $15.1 million impact due to the timing of income taxes paid in Q4 '19.

In full year 2019, we had $80.3 million in adverse working capital change. On the year, trade receivables increased by $44.1 million, coupled with $16.9 million impact due to the timing of income taxes paid in 2019 as well as $10.4 million discretionary 401(k) compensation payment in 2019, which resulted from our strong 2018 performance.

To put things in perspective, we had a $27.4 million benefit from working capital changes in 2018, which essentially reversed in 2019. The changes to the AR balance reflects the strength and weakness of commodity markets. One of our key priorities for 2020 is to improve our net working capital.

For 2019, we reported adjusted EBITDA of $405.9 million and CapEx of $169.7 million, which were both right around the midpoint of our guidance range. CEIX finished the year with a net leverage ratio of 1.9x for the bank method.

Now let me update you on CCR. This morning CCR reported net income of $9 million, adjusted EBITDA of $23.6 million and distributable cash flow of $12.7 million for the fourth quarter. This compares to $16.6 million, $29.4 million and $18.5 million, respectively, in the year ago quarter. For the full year 2019, we reported adjusted EBITDA of $99.4 million, which was slightly above the midpoint of our guidance range. Furthermore, our full year CapEx came in at $37.2 million, which was near the higher end of our CapEx range.

In Q4 '19, CCR generated $13.6 million in net cash from operating activities, which included an $8.1 million outflow from changes in working capital. After accounting for $7.8 million in capital expenditures and $14.4 million in distribution payments, our net debt increased by $9.2 million. CCR finished the year with a net leverage ratio of 1.8x.

For the full year 2019, CCR generated net cash from operating activities of $81.1 million, which includes a $14 million adverse change in working capital, mainly driven by $10.9 million increase in our trade receivable balance. CCR also incurred $37.2 million in CapEx, but nonetheless, maintained a 1x coverage ratio for the year.

Now let me provide you with our outlook for 2020. As stated before, our guidance philosophy continues to measure risk and capture a multitude of potential outcomes in the ranges we provide. For the Pennsylvania Mining Complex, we are expecting our 2020 sales volume to be below our 2019 levels. As a reminder, during the last earnings call, we stated that we were prepared to run to the market in 2020 and that is what we are doing right now. The good news is, we are approximately 95% contracted for the year and can flex up or down based on market conditions.

As such, we are providing our 2020 coal sales volume range of 24.5 million to 26.5 million tons for CEIX and 6.1 million to 6.6 million tons for CCR. The upper bound reflect our belief of a modest improvement in coal markets in second half of '20, which will allow us to capture some spot market opportunities. The lower bond considers the risk of potential deferral and reduced ability to sell spot coal due to weak demand trends, including below normal winter consumption of coal and sluggish international market.

To reflect the potential for continued weakness in our power price-linked volumes and contract deferrals, we currently expect our average revenue per ton to be in the $43 to $45 range. Our guidance range for revenue also captures a scenario in which our power price-linked contracts are sold at floor prices, which leaves some room for a potential upside.

We expect our 2020 cash cost of coal sold to be $30 to $31.50 per ton. At the midpoint, we are expecting our cash cost to be relatively flat compared to 2019 despite the $0.60 per ton increase in black lung excise tax passed in December 2019. As is always the case, we constantly focus on ways to reduce our costs and improve efficiency.

Rolling it all up, we expect an adjusted EBITDA of $295 million to $335 million for CEIX and $67 million to $80 million for CCR. Also consistent with 2019 and due to the nature of the take-or-pay contract that runs for the full year of 2020, we expect the CONSOL Marine Terminal adjusted EBITDA to be in the $40 million to $45 million range for 2020.

As Jimmy mentioned earlier, we are reducing our capital expenditure needs for 2020 and are providing a guidance range of $125 million to $145 million for CEIX and $25 million to $30 million for CCR. These ranges reflect reduced spending on equipment-related items and structures at the PAMC. For CEIX, it also reflects our adjustments to the timing of the Itmann project capital spend.

With that, let me turn it back to Jimmy to make some final comments.

Thank you, Mitesh. Before we move on to the Q&A session, let me take this opportunity to lay out some of our priorities for 2020. First and foremost, our strategy has always prioritized a strong balance sheet, and 2020 will be no different. We will continue to take advantage of the dislocations in the price of our debt securities to reduce our overall leverage as well as our interest expense. As Mitesh previously mentioned, we are constantly evaluating all avenues of shareholder return through our strict capital allocation strategy.

In our past earnings calls, we have stated a wellness to slow down growth spending as our debt and equity securities become more attractively priced and that is exactly what we're doing now. This also highlights the importance of our growth strategy, which has involved taken a measured approach to growth and selecting projects that involve manageable levels of capital commitment and afford flexibility in the timing of the execution. This strategy allows us to adjust our capital deployment on an ongoing basis.

Second, as you can see from our capital guidance range, we are always prepared to pull the necessary levers in a market downturn. We have reduced our capital spending requirements in 2020 due to our wellness to keep our mines well capitalized in strong markets. This gives us the ability to successfully weather market downturns. We prove the effectiveness of this strategy in 2016.

Finally, we are approximately 95% contracted for 2020 at the midpoint of our sales volume guidance, which is above our steady target at our last earnings release. We also have 8 million export tons contracted for the year, and through our terminal in Baltimore, we can increase that position if market conditions warrant. As such, we have good revenue visibility for the year and can focus more heavily on strengthening our portfolio in 2021 and beyond.

As we continue to strengthen our ESG efforts, we are pleased to announce the release of our annual sustainability report, our second as a stand-alone company. The report highlights our performance against sustainability goals that differentiate CONSOL throughout the coal life cycle. From extraction to utilization, we continue to deploy innovation technologies that increase operational efficiencies, reduce our carbon footprint and provide opportunities for diversification. As energy markets evolve, the need for low cost, high quality and sustainable coal operators will become more critical than ever. As a result of our operational and ESG endeavors, CONSOL is prepared to meet that need.

In summary, our key priorities for 2020 are: to safely and compliantly produce our high-quality coal at the lowest possible cost; continue to improve our balance sheet through debt repayment; stay nimble and flexible so we are prepared to run to the market and return capital to shareholders in the most attractive form.

With that, I will hand the call back over to Nate for further instructions.

Thank you, Jimmy. We will now move to the Q&A session of our call. Jason, can you please provide the instructions to our callers?

(Operator Instructions) The first question comes from Lucas Pipes from B. Riley FBR.

So I have a longer-term, higher level and also somewhat maybe more difficult question. But -- so you gave guidance this morning that points to another very strong year of free cash flow generation. And with where the stock and the debt is trading, the market seems to express considerable doubt about kind of your long-term cash flow outlook. And so I was hoping you could -- and I know you just gave 2020 guidance, but could you maybe share some perspective on the sustainability of kind of your big cash flow bucket? Obviously, there are the operating cost, there are the capital cost, where would you be pricing in the current environment? Are there any major cash items we should consider from your legacy liabilities? Would really appreciate your perspective on that. And I think the market looks a little more color on that point as well. I obviously think you're in a great position but would really appreciate your long-term outlook. And then are there any other items on the cash side that you could maybe take off the table, such as the distribution at CCR?

Lucas, it's Jimmy here. Well, let's talk about some of our long term. And as you said, we don't give guidance past the year. But for our cash flow and looking forward, we said before on our earnings call that we are moving in a more favorable reserve block at Enlow Fork, which we think is going to lower our operating costs. We move out of some of those high-subsidence areas, and we move -- reduce our footprint with sales that will put us over in the East reserves, which number one, should be cheaper mining. It's a better quality of coal, the sulfur content is lower. So we think that'll help the overall portfolio in the future as far as cash cost goes.

Also on the capital front, we've said many times before, the complex is well capitalized, and we have made continued capital investments when they need to be. But we still continue to believe that we can operate that with this maintenance of production for the foreseeable future somewhere between $4.50 and $5 a ton for maintenance capital.

And then when I look at other potentials, you heard us talk about that a little bit this morning that some of these is getting into other uses of coal that could bring in revenue, diversifies us a little bit away from coal fire generation. And then, of course, pretty excited about our Itmann project that will come online that will allow us to participate in a pure low-vol metallurgical coal mine or coal product. And we continue to look for ways to reduce costs. So looking out in the long term, I think things will improve for us as we reduce our footprint, and we continue to employ technology and innovation to help us on the cost front as well as generating free cash flow and revenue.

Let me add to that a little bit, Lucas. This is Jim. Jimmy talked about the sulfur on the East panels of Enlow Fork. And what that sulfur is allowing us to do is we still have certain customers that blend our coal with either PRB coal or cap coals. And we believe that we can increase -- well, we don't believe we're certain that we can increase our share of Northern App at those utilities in such a manner that we can price that coal more effectively, and the customer also gets more effective cost. So it's a win-win, and that's something that we see carrying out for the next several years and is a big part of our strategy.

And when you look at the international, you heard the numbers that Jimmy quoted about India, 166 gigs that need FGD installation, and we're working with Xcoal on helping to develop the technology and making sure that we have plants that are retrofitting their FGD so that they will allow the burning of high-sulfur Northern App coal. We also see some advantageous opportunities in Vietnam. We're working with our partner there. And the Dominican Republic, we've talked about it in the past, there's a new power plant there that convert 2 million tons a year. It really began burning last spring, sort of has got the bugs worked out now, and they are out for a significant RFP for a large portion of the plant. All the coal that's burned in our plant has included our Bailey coal. And our Bailey coal now is going to get a chance to burn directly by itself. So we see that as an opportunity.

And then when you look at today's market versus the long term, the tariff situation certainly added some confusion to the marketplace. I think that, that confusion is now starting to diminish some. Although, of course, we have the coronavirus that's kind of ball up the works a little bit in the short term. But I think that we may have the opportunity to get some more met coal into China, again, some crossover met coal, maybe ultimately some Itmann as well. So I think that China is back on the table. And in Miami recently, Ernie gave the -- Ernie Thrasher gave the keynote speech. And he said the Chinese would need to take $18.5 billion in energy projects in 2020 and $34 billion in 2021. I haven't followed up with Ernie in the last couple of weeks about that, but those are significant numbers. So they also create additional opportunities.

So I'm rather bullish on the market. We're just in a situation today where the gas price is abnormally low. And we just have not had any winter and a significant portion of our customers, not all of them, the significant portion of them are winter burners. Winter is the key part of the year. Thus, the fact that we're losing a little bit of tons in the first quarter that we typically would have had, and that resulted in us reducing the guidance a little bit. But in the long term, I think all those opportunities are still there. And with our terminal in Baltimore and our partnership, I think we're perfectly positioned to take advantage of that.

That's super helpful. I appreciate all of your color. My follow-up is on the export side. And Jimmy and Jim, there is considerable confusion with how the current market affects your netback pricing. I think the analyst community has been anchored historically on the API 2. API 2 is very weak, but when you look at some of the market indexes over in India, South Africa, New Castle, they're considerably stronger. How should we think about your pricing in today's world? I think, yes, would be really helpful to have you walk through us and maybe everybody can be reset on how to model this correctly?

Well, the API 2 has been the standard bearer for quite some time, but there is less and less coal going into Europe. And obviously, more coal going into Southeast Asia, India, Egypt and other countries where the API 2 just does not perhaps apply as it's done in the past. So recently at the conference in Miami, there was quite a bit of discussion about replacing API 2 or moving API 2 to the back burner because it just doesn't apply all over the world.

API 4 is basically not being used very much by anybody, it's an index. I think, generally speaking, people think that South Africans manipulate that number, and therefore, we don't find it a good number. We certainly pay attention to the pet coke number going into India. And certainly, the freight numbers from the U.S. are significant. Pet coke is traveling to India from both the East Coast of the U.S. and the Gulf Coast area. The East Coast has a deeper berth so it's less expensive to -- less expensive freight to -- from the East Coast to India. So I mean that's basically, I think, the state of things today. I think it will develop a little bit more as we go forward. But I think the API 2 is going to be fading into the sunset.

And maybe just one follow-up because it is important for me and I think the investor base to really get a sense for how economical this export business is in today's market. What are some of the numbers you would put around it if API 2 is less important? Is it maybe 30% of your export volumes that are still priced off at maybe $20 million, $50 million? And really -- it's really a modeling question. How should we model this business in today's world?

Well, I guess I have to think about that a little bit, Lucas. But if I look like last year, we shipped almost 8 million tons overseas. 3.5 million of that, almost 4 million went to India. And India is negotiated pricing or priced off the pet coke price. We did have some coal into Europe last year, 1.5 million tons or so. Let me think about that and get back to you on that, Lucas, because in terms of modeling, I just haven't thought it through.

The next question comes from Mark Levin from Benchmark.

First question, 2021, it looks like you put some tons to bed at 2021. Can you give us some color about how many tons you contracted for 2021 and the sort of the pricing zip code?

Yes, Mark, we can. We have a little bit over 11 million tons sold. 5.5 million of those are in fixed domestic, priced pretty much at market. We have 5.3 million tons of netback, our large netback contract going forward. And today, just 200,000 tons of export. So we're not guiding on price for those tons yet. But I think you can assume that the fixed domestic is at or slightly above the current market.

Okay. Got it. And by that you mean just sort of using the kind of forward curve for NAPP that maybe Coal Desk or something like...

Yes. Coal Desk or something like that.

Got it. Got it. Okay. Second modeling question. In the past, you guys have given a price sensitivity or revenue-per-ton sensitivity to PJM West power prices. Do you guys have one for this year?

I do have one for this year, Mark. And if you don't mind, I'd like to talk about it a little bit because we're sitting here with no winter and very low gas prices. And I would say that we're disappointed with the netback power pricing so far this year. But I would also say that this market -- this contract was designed to be at market, and unfortunately, it is.

Just to give you some clarity, we have a base price that we have said is approximately our total cost line, and we begin to get a share benefit from the customer with PJM West prices are above -- around $24.40. And then the $1 change in PJM prices adds up to about $0.20 across our entire portfolio. So when I look this year, the contract based upon is designed pretty much gives us the best pricing for the winter, next best pricing for the summer. And then obviously, the shoulder months should give you the lowest pricing. But January has been a very low month. And in 2019, as the gas price fell and the power price fell, prices slipped too.

So we're looking at the gas curve going forward. And it does get back over $2 in July, it is in contango. And we do anticipate that we will get some better market share as the year goes on. We have basically forecasted for this earnings call. We have forecasted the netback prices at the floor. So it can't get any worse than what we reported this morning. And I do think there's opportunity for it to improve.

Got it. No, that's very helpful. And then back on the domestic market. In terms of your volume guidance for this year, contract buyouts and deferrals and maybe emphasizing deferrals, how much deferrals have you guys seen from utilities at this gas environment? How much is baked in the guidance? And then is this year going to look worse than the -- from a deferral? Or do you expect it to look worse from a deferral perspective than the last time gas prices went below too?

Well, so far we've had 1 or 2 customers that have had more than just a little bit of pushback. So the rest of the customer portfolio is performing so far. And there may be 1 or 2 customers that are trained or so behind. But all in all, they're performing. We have one significant customer that could not perform, and we did a buyout of those tons, 0.5 million tons already this year, and we were well paid for the buyout. So we just need to resell those tons at a higher price, which I don't think will be a problem as the year goes on.

Got it. And then my last -- final question, the Coal Act. I get a lot of incoming questions, you have gotten a lot of incoming questions in the past about potential liabilities surrounding the Coal Act and your competitors' bankruptcy. Any comments or thoughts that you can provide as to how you guys are approaching that situation? I know it's a sensitive one, but just because it is on the floor of many investors, I thought I would throw it out there.

Yes, Mark, it is a sensitive question. And of course, we can't speculate or answer legal questions from the Murray bankruptcy. But what we believe on the Coal Act liabilities as Murray's Coal Act obligations were current as of the bankruptcy, and we understand that Murray has remained current on such obligations to the bankruptcy. So we believe there is no basis for that to change and that it is not necessary for Murray to modify its Coal Act liabilities acquired from CNX in order to successfully reorganize this business. Now as I stated before, it is a large and complex bankruptcy, but that's about all we can say at this time. We haven't had any claims, and we have -- the obligations are current as we understand it. But we are monitoring that and staying with it, but that's about all we can say about it today.

The next question comes from Daniel Scott from Clarksons.

So when we look at the guidance for this year, the volumes being down. How are you planning on achieving those lower volumes? Is it -- are you going to keep all your longwalls running all year and just do it via shifts? Or is there contemplating taking one longwall off based on market conditions? Just kind of walk me through that, if you could.

Well, unfortunately, Dan, we have experienced at this. We went through this in 2015 and 2016. So the exercise here will be to run our operations at the lowest possible cost, which generates the highest free cash margins. So that could be running 4 longwalls, it could be running all 5 at a reduce schedule. And a lot of it will depend on the quality specs that we need to make and what this marketing team tells us that we need to run. So we have a very good team there, more than likely starting out of the gate, we'll run at some sort of reduced schedule at all 3 coal mines, and then we will continue to monitor that as we go forward.

But like I said, we do hope there's going to be a turnaround in the second half of the year that will provide us an opportunity to have upside to these numbers that we've guided to this morning. But as far as the operating schedule, it will be one that meets the specifications and allows us to run at the lowest possible cost.

Also, Dan, I will just add that, typically, our first quarter is very strong. But for this year, we have first half, which is loaded with unusual number of longwall moves. So the production is going to be low from an operational standpoint in the first half. And if we are expecting a second half recovery, I think, from a longwall move perspective, we'll be positioned really well to capture, if the market recovers. So from an operational cadence standpoint, I think first half is going to be a little bit weaker from an operational standpoint anyway.

Yes. And I mean, just to follow up a little bit on that. We just completed one of our longwall moves at Harvey. And we have 3 to 4 more, it could be 4 in the second quarter. So then that will allow us to only have 1 longwall move in the second half or if worse, 2, dependent upon timing of where that one moves to.

Great. That's actually very helpful. And then when I look at the realized price guidance for this year, by my math at the midpoint, it looks like it's down close to 7% versus 2019's realized prices. And I think up until this quarter, we talked more about being in the neighborhood of 5% down. With the additional tons you put to bed to get to 82% to 95% booked this year, I assume that's all domestic, and the combination of that plus maybe more conservative outlook around the collars? Is that what's driving that slightly higher decline in realizations?

Dan, it's all on the netback price.

Yes. So when we provided that less than 5%, we were using the forward step on a netback prices, which you know now is we are using a floor price. So I think that's the biggest driver.

Yes.

Okay. Perfect. And then last, on the Itmann ramp as you guys slow the ramp down to conserve cash and potentially buy back some debt, what does that mean for -- I see it's going to be a higher run rate once it's at full capacity. When is that going to be based on roughly the market staying in its $150 million, $160 million range for benchmark goal?

Well, what we've said currently that it would take a year to 1.5 years to ramp that up to full production. So that could push us into 2021, somewhere middle of 2021 if we get all 3 of those units up and running. Now what we'll do there, this first right out of the gate, which we're pretty much ready here sometime this month would be to go in and do the exploratory mining that I talked about before, make sure the coal seam is what our core data shows, make sure the quality is there, make sure -- look at the roof control and everything else and run that 1 unit, just 1 shift a day as we're waiting for the market to respond. Then obviously, we've got to add a second unit, we'll have to develop out to do that. And then we'd have to develop that more to add the third unit. But I would say mid-2021, we could be up to that full range of guidance based on what we know today.

The next question comes from Nick Jarmoszuk from Stifel.

On the 2020 Capex, could you give us a split between maintenance and the amount that you guys are anticipating on it?

Sure. So at the Pennsylvania mining complex, we are around $4 a ton mark on maintenance Capex. I think -- and the rest of it is efficiency and a little bit of it in Capex.

Yes. And then on the relationship they have with Xcoal, as they were mentioned earlier in the call as well. You guys are working with them to develop the Indian market with the scrubbers on. Can you talk about the relationship you have with them? How you think about the take-or-pay, and the terminal and then the export tonnage that they're looking to maintain?

Yes, thanks. Our relationship with Xcoal is very solid. It's a good one. We like the take-or-pay contract that we have in the terminal. It certainly gives us some steady revenue that we know is there.

And secondly, Ernie has people in almost every sales corner in the world. So we feel like we get opportunities. He brings those to us, and we talk to strategy and where we'd want to move it. It also helps with the total market of the global market for coals. And I would tell you to this point, he has been able to deliver, and we went to some of our customers with him to visit. He has a very good visibility of what's going on globally, and we're satisfied with where we are today with the contract, and Jim probably can add some more color to that. But so far, we're very pleased with our Xcoal contract.

I think that pretty much covers it.

Nick, is that background noise on your side?

It probably is, yes. Let me get somewhere quieter. With the Xcoal contracts, when do you anticipate discussing with them the renewal or extension? And when could we expect some news coming to the market on it?

We currently have a contract to 2020 -- to the full year of 2020. I would think somewhere second half of 2020 when we have a little better understanding of where the markets are playing out that we would start negotiating the following year or even years out contract.

And then on CCR. Is there any thought to changing the distribution policies start paying down the intercompany notes?

Well, for CCR, we look at all those things. And as I've said many times before, we look at CCR on an annualized basis. We do understand that quarters can be lumpiness. We do understand that there's other things. But basically, what it comes down to with CCR is uses of free cash flow generated. So there's different things to look at. At the end of the day, it comes down to a Board decision to whether or not we pay those distributions or not. For an example, in 2019, we had some quarters that were under 1, we had some quarters that were slightly over 1. At end of the day, we looked at the cash. We committed to our unitholders if we generate a 1 coverage ratio, we would pay those distributions. That's exactly what we did.

Going forward, it's the same exercise. We'll take a look at that, make a recommendation to the Board, and then they'll decide whether or not we pay distributions or not.

Okay. And then working capital is a use in 2019. How should we think about that for 2020?

Yes. So Nick, if you think about it, the working capital changes were mostly driven by about, let's say, of the $80 million, $44 million were due to trade receivables. And that is typically what you see depending on where you are in the market cycle. For instance, in 2018, we had a positive working capital adjustment from trade receivables of about $43.9 million. So essentially, we gave all that back in 2019 and depending on where the market was. A couple of other smaller things, there were some income tax-related payments in 2019, which were from a strong year in 2018. And so was another $10 million payment on discretionary 401(k) match.

We don't anticipate those 2 of that magnitude. 401(k) match is definitely not happening for 2020 -- for 2019 year. And the income taxes might -- the impact might be not as much as what we saw in 2019.

Trade receivables, we -- one of our focus areas has been to collect on those trade receivables faster. So that's what we are focused on 2020. So if anything I'm inclined to say that there will be a positive benefit from those aspects in 2020.

Okay. And then last question. I believe you have a cash flow sweep in the first quarter. Can you let us know what that number is going to be?

I think given the amount of second lien debt that we have bought in 2019, I don't think we are going to have any free cash flow sweep for the term loan B.

(Operator Instructions) The next question comes from Matthew Fields from Bank of America.

Thanks for the disclosure on the bond repurchases in 4Q. Have you purchased any more bonds -- second lien bonds in the first quarter to-date?

So Matt, our approach to bond repurchases, as you are following our -- the bond markets, you know our bonds are very volatile. So we try not to do anything significant in any given week, we do bits and pieces. And you're right, we did buy some bonds earlier in this year. So 2020, I think we have done probably high single digits of bond repurchases, but we'll continue to do that. I think our game plan remains the same, like we can't predict where the market is going. So we are just going to dollar cost average it. And in a way it works, it has worked out in our favor over last 3 to 6 months because the prices have been coming down.

Yes. So given that, now your bonds right today are kind of in the mid-60s, which is 21%, 22% yield. So given the attractiveness sort of now versus during the -- over the course of last year, do you think that bond repurchases will be more aggressive in 2020, 0 risk plus 20% IRR on that investment?

I would not say more aggressive. I would continue to maintain measured approach to it. We will continue to participate in the marketplace. But as you noticed that we have elevated the priority of that capital return project to above Itmann. So you can imagine how strongly we feel about that.

Currently, where it sits today, it ranks pretty high among our capital allocation returns.

Okay, great. And then kind of wanted to follow-up on Nick's question on the CCR distribution. Don't have the Q yet or the K, I guess, for that yet. But through the 9 months, CCR's basically been borrowing on that intercompany loan to pay this distribution. And I know that you got a chunk of that distribution, but how sustainable is that practice? And should that really continue?

So we -- again, like Jimmy said, we'll look at it on a quarterly basis with an annual outlook in mind. And again, it's too early to tell. Market conditions could change. But generally speaking, I think the way we think about things is whether CCR has generated enough distribution or expect to generate enough distribution in the year. And sometimes, things could change. And I think you will have to stay tuned for that till our April decision.

This concludes our question-and-answer session. I would like to turn the conference back over to Nathan Tucker for any closing remarks.

Thank you, Jason. We appreciate everyone's time this morning, and thank you for your interest in and support of CEIX and CCR. Hopefully, we were able to answer most of your questions today. We look forward to our next quarterly earnings call. Thanks, everybody.

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