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CONSOL Coal Resources LP (NYSE:CCR)
Q1 2019 Earnings Call
May. 8, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the CEIX and CCR First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Mitesh Thakkar. Please go ahead, sir.

Mitesh Thakkar -- Director, Finance & IR

Thank you, and good morning everyone. Welcome to CONSOL Energy ticker CEIX, and CONSOL Coal Resources, ticker CCR, First Quarter 2019 Earnings Conference Call. Any forward-looking statements or comments we make about future expectations are subject to some risk, which we have laid out for you in our press releases or in our previous 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 the press releases and furnished to the SEC on Form 8-K. You can also find additional information on our websites consolenergy.com and ccrlp.com.

In conjunction with today's earnings release, we also issued a separate press release announcing the launch of our Itmann low-vol metallurgical coal project which we will refer to on this call. 10-Q's for both CEIX and CCR are also now available on our websites.

With me today are Jimmy Brock, our Chief Executive Officer; David Khani, our Chief Financial Officer; and Jim McCaffrey, our Chief Commercial Officer. In his prepared remarks, Jimmy will provide a recap of our key achievements during 1Q 2019 and provide specific insights on marketing and operations as well as the Itmann project. David will then discuss some macro trends, detailed financial performance for 1Q '19 and 2019 guidance for CEIX and CCR.

During the prepared remarks, we will refer to certain slides that were posted on our website in advance of today's call. After the prepared remarks, there will be a Q&A session, in which all three executives will participate.

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

James A. Brock -- Chairman & CEO of CONSOL Coal Resources GP LLC

Thank you Mitesh, and good morning everyone. I am very pleased to announce that we reported a solid set of operational and financial metrics this morning, despite the commodity price headwinds during the first quarter of 2019. Before I dive into the key drivers of our financial results, let me take a moment to congratulate our team for a very strong, safety performance during the quarter. The Pennsylvania Mining Complex employees improved their safety metrics by 70% compared to the year-ago period. The central preparation plant and the CONSOL Marine Terminal continue their strong safety performance with an incident-free quarter. I want to thank all of our employees for prioritizing safety above all else.

Let me now provide you with a brief overview on each of our key focus areas and highlights for the quarter. Our two main assets the Pennsylvania Mining Complex and the CONSOL Marine Terminal had strong operational quarters. Despite two longwall moves during the quarter, the Pennsylvania Mining Complex delivered production volumes slightly ahead of first quarter of '18, CONSOL Marine Terminal's first quarter throughput volumes, when annualized put us on track for a record volume year as well.

Our marketing and contracting strategy was validated once again, as our diversified domestic and international contracted position enables strong sales that posted a modest 7% year-over-year decrease in average revenue per ton, despite sharper 33% and 12% declines in average PJM West power process and prompt-month API 2 process, respectively.

On the financial front, CEIX took advantage of its improving credit profile and markets to lower its interest expense, expand liquidity and enhance its flexibility through the refinancing transaction we announced in March. More importantly, during the quarter, we also lowered our total outstanding debt by approximately $100 million, a continues strategic priority that we are focused on since November 2017 spin-off.

For CEIX, we have contended to reduce our outstanding debt. We are now in a position to shift toward discipline organic growth. In that regard, I am pleased to announce we have received board approval and are officially moving forward with our Itmann low-vol metallurgical coal project. I will discuss this in more detail shortly.

Now let me review our first quarter of 2019 operational performance in detail. Coal production at the Pennsylvania Mining Complex increased modestly to 6.8 in the first quarter of '19 compared to 6.7 million tons in the year-ago quarter. The improvement was due to higher production at the Enlow Fork and Harvey mines, partially offset by reduced production at the Bailey mine.

We're also seeing improved consistency at our Enlow Fork mine, as geological conditions steadily improve. For each the Pennsylvania Mining Complex, CCR produced 1.7 million tons of coal during the first quarter of 2019 in line with the year-ago quarter. On the cost front, our average cash cost of coal sold per ton was $29.71 compared to $29.21 in the year-ago quarter. The increase was largely driven by an increase in projects expenses and gas well plugging activities, partially offset by reduced lease expense.

Since the fourth quarter of 2017, we have seen modest inflation in the cost of suppliers that contained steel and other commodities for which prices are strengthening, as well and the cost of contract labor. We have been successful in managing these cost prices and keeping our overall cost increase under our target 5% annual limit through productivity gains and automation as we have discussed in previous earnings calls. This quarter, we did more of the same. The CONSOL Marine Terminal had a very strong first quarter of 2019 with throughput volumes of 4 million tons, an increase of approximately 15% compared to the year-ago period. Off note, during the first quarter of 2019, the CONSOL Marine Terminal posted the highest shipment levels of any terminal of the US East Coast. The combination of our Pennsylvania Mining Complex and the CONSOL Marine Terminal provides us with a strategic advantage which helps us to lock-in longer term deals in the export markets.

With that, let me now provide an overview of the coal markets and an update on our sales performance and accomplishments. This was a turbulent quarter in the commodity markets. PJM West power process which drive our domestic netback contract pricing were 33% lower in the first quarter of 2019 compared to the first quarter of 2018.

As a result, we saw a significant decline in revenues generated from netback contracts compared to the year-ago period. On a positive note, in 2019 our exposure to netback contracts is lower than in 2018. In the export markets, API 2 prices declined 20% during the first quarter of 2019, and 33% through April 30th due to pullback in global LNG prices weak weather related demand in Japan and Korea, and softening demand in Europe, due in part to an influx of Russian coal.

The good news for owners of CONSOL Energy is that the impact of our softening API 2 on our earnings was muted due to our prudent contract and strategy. As you may recall, we have a multi-year 14 million ton contract with fixed pricing through mid-2019 and collars through mid-20. We acted when export prices were very attractive to help derisk a significant portion of our revenues, allowing us to protect that value for our shareholders.

I am very pleased to announce this morning, that we have now extended our current contract to lock-in another 3.65 million tons of coal under the same collars for the second half of 2020. The incremental tons are split approximately 68% thermal and 32% crossover metallurgical coal from the Pennsylvania Mining Complex.

We also extended our take-or-pay contracts as CONSOL Marine Terminal through the end of 2020, under the existing terms. For CONSOL shareholders, this contract extension provides three major benefits. First, it provide significant pricing upside potential from current levels, if API 2 prices improve while protecting against downside risk by maintaining a floor that is above where the current spot API 2 netback prices are. Second, it improves our contracted position for 2020 to 71%. This additional earnings visibility now only supports our existing share and debt repurchase programs but also supports our growth investments. Third, it locks-in a strong export position for 2020 which now accounts for over 25% of our anticipated 2020 sales volume while making sure that our CONSOL Marine Terminal revenues continue to stay strong.

The importance of this contract extension cannot be overstated at this time, when global coal producers are finding it difficult to sustain their 2018 export levels. In essence, we believe that we just cemented our position, as one of the leading exporter of thermal and crossover metallurgical coals from the US East Coast.

Let me now move to another very exciting part of our strategy, the Itmann project. As many of you may recall, we have been working on elevating the feasibility of our Itmann project for quite some time. After going through a rigorous capital allocation progress, I am pleased to announce that we have decided to move forward with the Itmann project. The Itmann project is expected to ramp-up in 2021, and produce north of 600,000 tons of high-quality low-vol coking and coal annually.

As Mitesh mentioned, you can find most of the details in the press release we issued this morning as well as our slide deck on Slide number 8. But let me highlight some of the key benefits of this project. First, it is a high quality product that will be served in a market where suppliers tap(ph). Itmann is expected to produce a high-quality low-vol metallurgical coal products, while we are starting to see several larger high-vol A and B projects have been developed in the US, the pipeline for low-vol met coal projects is relatively light and low-vol suppliers recently come off line in Central Appalachian. Itmann is expected to fill this void.

Second, it has a long life. Similar to the Pennsylvania Mining Complex, Itmann has a very long life reserve, after the initial capital spending, we expect 25 plus years of production at maintenance capital levels. Third, it has diversity to our portfolio. The Itmann product expands our portfolio, which currently doesn't include any low-vol met coal production. Over time, we expect our portfolio to consist of approximately 24 million to 25 million tons of thermal coal; 2 million to 3 million tons of crossover metallurgical coal, and over 600,000 tonnes of low-vol metallurgical coal.

Finally, the internal rate of return are very compelling. At sustained current met coal prices, we expect the project to generate around 40% rate of return and at the long-term consensus met coal price forecasts of approximately $163 a ton for Australian Premium low-vol coal, we expect project to generate an approximate 25% rate of return. Based on our analysis, we believe the returns on the Itmann project will significantly exceed our cost of capital, even if we use a $150 a ton met coal price.

In summary, I'm very excited as we move forward with the Itmann project.

With that, let me now hand it over to David, to go over some of macro trends and our financial performance.

David M. Khani -- CFO & Director

Thanks, Jimmy and good morning. While we've seen softening of coal and natural gas prices during the past few months, I want to remind everyone about the benefit of our focus on sustainability we've been driving toward and highlighting on the last few conference calls. We are positioned very well to handle a weakening commodity price as our operations are well capitalised, our balance sheet is close to our debt target, debt levels, and our contracted position is very solid with duration. This is why we are comfortable with allocating capital toward modest met coal growth with our Itmann projects. This is a control piece of capital spend and ties to our allocation process. So let's talk about what we're seeing out there in the marketplace. The demand for thermal coal has slowed down, slightly exacerbated by less favourable weather this winter.

Also, as export prices have been strong, we've seen US, Russian and Indonesian exports increase. This is why we're very focused on building our domestic contract book in the second half of 2018 while others were focused on shorter term, higher priced export opportunities. Now we expect that over the next year, global export thermal coal shipping should recede. We also expect multi-year demand growth from new coal-fired generation under construction.

Outside of these cyclical down dips, we continue to believe that high-Btu seaborne thermal coal has stable supply demand dynamics. As we highlighted on Slide 9, coal-fired generation capacity build out continues around the world driven largely by Asia. According to our analysis of data from IHS Markit, approximately 111 gigawatts of new coal-fired capacity is under construction globally for commissioning between 2019 and 2024.

Furthermore, an additional 300 gigawatts of new coal-fired capacity is in the planning stages. We believe, this bodes well for seaborne thermal coal demand particularly high-Btu Northern App coal. We are seeing similar trends with other fuels too. LNG prices have recently come under pressure as new supply comes online in 2019. According to Wood Mackenzie, approximately 38 million metric tons of new LNG supply is coming to market this year, and that is weighing on prices.

However, Widmark also believes that LNG demand is expanding at a rapid pace and slowing supply additions in the next two years will create a deficit in the LNG market again.

So in summary, with signifying coal-fired capacity is still being built and the LNG market moving back toward a deficit in two to three years, we believe the seaborne thermal coal market will remain attractive for us. In the near-term, we have protected our revenue stream through our export contracts that we already have in place.

Let me shift to the domestic natural gas where storage levels are very low but have been filling quickly in the spring, mainly from last year supply growth. However, we are continue to see forced discipline being placed on the E&P industry which is drawing down capital spending, particularly in Appalachian. This capital discipline combined with delays in major pipelines is causing a meaningful shift down in natural gas production growth expectations this year into 2020.

Now let me move over to our financial performance, where I'm very pleased to recap the first quarter and give an update our 2019 guidance. We will review CEIX first, then CCR.

CEIX reported net income attributable to CEIX shareholders of $14.4 million, which includes a $19.2 million after tax loss and debt extinguishment related to the refinancing. Excluding this impact, our adjusted EPS came-in at a $1.21.

CEIX also reported adjusted EBITDA of $118.5 million and organic free cash flow of $48 million. This compares to net income attributable to CEIX shareholders of $62.4 million, adjusted EBITDA of $150.3 million, and organic free cash flow of $93.8 million, respectively in the year-ago quarter. The decline in earnings metrics compared to the year-ago period is mostly from lower PJM West power prices. Our fixed price domestic and export contracts performed well in the quarter.

Jimmy highlighted the modest increase in unit costs which averaged about 1.7% in the first quarter 2019 versus the first quarter of 2018 with lower prices and slightly higher costs, our cash margins declined $4.10 to $19.67 per ton. We have multiple programs in place to help tamp down inflation. During the quarter, we generated $82.2 million of cash flow from operations and spent $34.2 million in capital expenditures, resulting in $48 million of organic free cash flow.

Our cash flow from operations included an $18.6 use of working capital as March was a heavier shipment month compared to February which moved some cash collection into April.

Now let me update you on our leverage and liquidity position. After our first quarter of 2019, refinancing and debt pay down, we've lowered our annual interest expense by $15 million, improve operational financial flexibility, extended maturities and boosted liquidity. What's really important is that we've expanded or access to capital and continue to brand our company with key low cost capital allocators.

As a result, we've been reducing our cost of capital. Our leverage ratio sits around 1.7 times and liquidity at $504 million. We expect to continue to generate nice free cash flow which will enable us to fund a Itmann, pay down debt and buyback stock. This quarter, we also recognize the new lease accounting which as we noted in last quarter's conference call, recorded an asset and liability on our balance sheet which has no impact on our bank covenants.

Now this morning, CCR reported net income of $15.2 million, adjusted EBITDA of $28.2 million and distributable cash flow $17.3 million. This compares to $22 million, $35.1 million, and $25.3 million respectively in the year-ago quarter. In the first quarter of 2019, CCR generated $25.2 million in net cash from operating activities which includes a $2.5 million use in working capital, after accounting for $8.1 million in capital expenditures and $14.4 million in distribution payments, rereduced our outstanding debt by $1.5 million on the inter-company loan with CEIX.

Nonetheless, CCR finished the quarter with a $113.9 million of liquidity, and net leverage ratio 1.5 times and a distribution coverage of 1.2 times. We believe the year-to-date distribution coverage, contracted position and low leverage on our balance sheet should provide added comfort to our unit-holders regarding the long-term sustainability of our current distribution.

Now let me provide you with an outlook for 2019. As stated before, our guidance philosophy remains to measure the risk appropriately and attempt to improve upon our guidance through strong execution, as the year progresses. We attempt to capture on multitude of risks through our guidance ranges that help us protect against unforeseen situations, this quarter was no different. For example, we recognize the weakness in the 2019 forward curve for PJM West power prices early on, and set our guidance range appropriately.

We also focused on shipping to top performing power plants in other regions and benefit from colder weather in some of those regions. And while we beat consensus estimates in the first quarter, we are maintaining all of our current guidance ranges for our key operating metrics due to the weaker commodity environment. We are constantly working on internal projects to improve final (ph) base plan and provide upside to our revenue, cost and EBITDA ranges.

For capital spending, we are modestly raising our 2019 CEIX CapEx guidance range by $20 million to $30 million to $155 million to $185 million to reflect the Itmann project. The CapEx range for CCR remains unchanged at $34 million to $38 million. While we are focused improving our corporate values, senior management has also incentive compensation tied to free cash flow generation and total shareholder returns.

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

James A. Brock -- Chairman & CEO of CONSOL Coal Resources GP LLC

Thank you, Dave. Before we move on to the Q&A session, let me provide some final thoughts to summarize the quarter and our execution strategy. First, we continue to strengthen the core of our business which is the Pennsylvania Mining Complex and the CONSOL Marine Terminal. Both of these assets are running at very high levels of utilization, and we continue to invest in them and support them by providing an adequate amount of capital to ensure sustainability for long periods of time.

From a marketing perspective, we continue to provide a backlog of sales and visibility for our mines to run at optimal production levels to our incentive contract and strategies. Second, we remain weighted term driven and take on projects that will improve the value per share for our owners. The refinancing transaction and the Itmann project went through the same filters and should have long-term value creation. We are very excited about our Itmann project which will provide us some diversification and a long duration, low cost asset.

Third, we continue to derisk our cash flows to fund our capital return programs and growth initiatives. If we can lock in good value on the cash flows in the near-term it reduces the overall risk to the enterprise, enables us to move forward with prudent investments and growth projects or and buying back our shares or debt, all of which we consider to be long-term assets. We can achieve this derisking through base-loading our mines, controlling our costs, and locking-in attractive contracts such as the recent extension of our export contract.

Looking forward, we are executing our plans and expect to deliver on our goals. We have an extremely dedicated and talented workforce, embracing technology and innovation to safely and (inaudible) deliver exceptional performance.

Before I hand it over to Mitesh, let me provide some quick comments on an equally important topic, ESG. As many of you may know, we made two announcements in the first quarter to emphasize our ESG focus. In February, we announced the election of Sophie Bergeron, as a new Director to succeed Pete Carpenter on the CEIX board. I thank Pete for his counsel throughout the spin process and first year as a public company. Sophie brings a very diverse perspective to our board, among other things. She has a very strong roots in mining, engineering and operations. Her position as General Manager for Goldcorp's Eleonore mine and her earlier services Xstrata adds unique experience to guide us on operating and improvement initiatives. On behalf of the Board, I welcome her to CONSOL Energy.

In March. CEIX released its inaugural corporate sustainability report that highlighted our principles, culture and initiatives that we prioritize at CONSOL Energy. For example, these initiatives include developing innovative technologies, enhancing employee safety, and reducing environmental impacts. These issues are very important for us and our shareholders. We continuously strive to be at the leading edge on this front.

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

Mitesh Thakkar -- Director, Finance & IR

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

Questions and Answers:

Operator

Yes, thank you. (Operator Instructions) And this morning's first question comes from Matthew Fields with Bank of America Merrill Lynch.

Matthew Fields -- CONSOL Coal Resources LP -- Bank of America Merrill Lynch.

Hi, everyone. Just want to ask about the increased CapEx guidance for -- in development. Should we expect to see the same level of CapEx in 2020, as well, given the continued development over that period?

James A. Brock -- Chairman & CEO of CONSOL Coal Resources GP LLC

No, the capital guidance that we gave is a really two year project. It'll start in the first year and ramp-up into 2021. But that is the total capital expenditure that we'll have.

Matthew Fields -- CONSOL Coal Resources LP -- Bank of America Merrill Lynch.

Also should we expect an overall Company wide 155 to 185 level for 2020 as well?

Mitesh Thakkar -- Director, Finance & IR

We're not giving guidance for 2020. But I think for -- to Jimmy's point, I think we'll have a higher CapEx spend on Itmann in year two than year one. But that does not mean our overall capital number will be about the same, it could be down or it could be up. We have to go through the capital allocation process for next year.

Matthew Fields -- CONSOL Coal Resources LP -- Bank of America Merrill Lynch.

Okay, got it. And then you mentioned sort of the -- you're able to do this and maintaining your target that levels. Can you just remind us kind of what those target debt levels are?

James A. Brock -- Chairman & CEO of CONSOL Coal Resources GP LLC

Well, we said on the last earnings call that we expected to have reduced our overall debt from the spin about 25%, which would mean apply about another $50 million reduction of debt by the end of this year. We haven't given you the 2020 level but I would just tell you that debt level will continue to tick down into 2020.

Matthew Fields -- CONSOL Coal Resources LP -- Bank of America Merrill Lynch.

Okay great. That's very helpful. And then, I know that your bonds are not callable, but obviously they are high coupon and they trade, as if they make it called early you know, they don't have a whole lot of RPE capacity in them. So you find an early take out of those bonds to give yourself a wider latitude for share buybacks, an attractive possibility?

James A. Brock -- Chairman & CEO of CONSOL Coal Resources GP LLC

We actually feel we have adequate RP coverage already and so we don't feel like we're constrained by the RP basket of the second lean but we will be very rate of return driven with a focus of continue to delever. And so we'll look at all pieces of our capital structure and determine how we're going to get there as well as including buyback stock and funding our growth initiatives.

Matthew Fields -- CONSOL Coal Resources LP -- Bank of America Merrill Lynch.

Okay, great. That's it for me. Thanks.

Operator

And the next question comes from Michael Dudas with Vertical Research Partners.

Michael Dudas -- Vertical Research Partners, LLC -- Analyst

Good morning, gentlemen. I think, I appreciate your efforts on ESG. I think it's much more important as we move forward especially from the mining sectors, I think it's well that you have discussed that in your prepared remarks. Turning down on Itmann, as you did the analysis, what -- you just reminds a good low-vol coal. What the type of market are you thinking about? Have we done a market or analysis, especially when you think about how you placed your coal with top quality utilities within near the mine. Are you thinking similar with this type of coal, or it just be more of a high quality than the end-market (inaudible) some of the coal coming outside the US. How do you think about the positioning that with the timing and the opportunity to market?

James A. Brock -- Chairman & CEO of CONSOL Coal Resources GP LLC

Yes, I'll take the first part of it and then turn it over to our expert in the market, Jim McCaffrey. But, when we were looking at the Itmann project and as I mentioned in the remarks, we've done a lot of due-diligence on the project. We had, we drilled extra core holes to make sure that we had the quality aspects of the core data that we needed. And we think that it'll easily fit into marketplace, it's a very high-quality coal, there's not a lot of that in the low sulfur markets, particularly with some coming off in Central Appalachian. And Jim, do you have something you want to add to that?

Jim McCaffrey -- Chief Commercial Officer

Yes Mike, it's a very high quality low-vol coal. It's coming at around -- it should come at around 80.5 vol, 9,10 sulfur at 60 or greater CSR. So we've been talking it up in the marketplace. We have a lot of interest both domestically and internationally. We've had some people suggested that they'd be interested in doing some term but right now with the level of interest we have, we don't feel compelled that we have to run out and tie something up right away. So we're going to keep our powder dry and try to make sure we maximize the price for the...

Michael Dudas -- Vertical Research Partners, LLC -- Analyst

That makes sense to me. And my follow-up maybe for Dave. You've done a very admirable job of looking forward in the marketplace of positioning your contracting domestic and export and that's certainly (inaudible) through this. So how are you looking at -- look at the next six months given what we've seen a pretty strong downdraft. I know you have mentioned that there's hope in 2020 and 2021 pick-up on the thermal side. But how are you thinking about it? Are you being a little more patient in that marketplace and or you are getting setup to attack a certain market segment relative to others given where your coal pricing is now, what it looks like I think medium-term?

David M. Khani -- CFO & Director

You're going to have, I guess stay tuned because I think we are -- until we actually put the tons to bed but I think from what we'll see from a macro standpoint to try to help you a little bit is, we're watching gas production growth slow within within Appalachian as well as the target areas where we sold coal. We're starting to see a reaction to the low API 2 prices and starting to see -- particularly how the US slowing exports. And and we'll see continued production decline overall coming out of the US. And so I think we see so the next sort of six months sort of a recovery in the fundamentals and we'll figure out how we contract off that.

Michael Dudas -- Vertical Research Partners, LLC -- Analyst

You seem to be well-positioned to take advantage of that over the next six months. Thanks David, thanks gentlemen.

Operator

And the next question comes from Mark Levin with Seaport Global.

Mark Levin -- Seaport Global Securities LLC, Research Division -- Analyst

Great. Thanks, very much. So just a couple of quick questions. I guess, the first one is more big picture. So you guys put to bed an additional about 3.65 million tons of export coal of which 70% was thermal. I guess, the first question would be, how would you do that in an environment in which API 2 had fallen as much as it had during the quarter. We're kind of seeing other companies pull back a little bit. I'm just curious, how or what was the reason or how you were able to do it?

James A. Brock -- Chairman & CEO of CONSOL Coal Resources GP LLC

Mark, first of all, we already had the two-year contract that we had discussed. So both us, our customer and our partner, we're interested in extending it through the calendar year. We negotiated from a point of enterprise, kind of deal and rather just a specific deal. So it includes the thermal as well. Also, we partly didn't make it clear and our discussion this morning, we also priced out the tons for the second half of 2019. And you know, I could tell you that the combination of thermal and met coal in the second half of 2019. All said, will average over $50 for those calls for the year. So in 2019 is price, there is no more on price coal in 2019. Beyond that, I think, both Xcoal and us have a more positive view of the market than perhaps the current forwards indicate, the current forwards are a contango. If you look just 10 months ago, last September, the API 2 is in 98. No one was forecasting that it would fall as quickly as it fell. And then finally, during last fall, in discussions with our customer Xcoal and Dave and I, we talked about the hedging as much as we could for 2019 and 2020. So we strategically hedge that position when we had the opportunity to taking duration versus worry about getting every nickel out of every time. And that's paid off for us.

Mark Levin -- Seaport Global Securities LLC, Research Division -- Analyst

It sure has. Let me ask you and I know it's early, I want to talk a little bit about 2020 pricing relative to 2019 and tell me if I'm thinking about this incorrectly, obviously, PJM West power prices got hit very hard this calendar quarter. I think you referenced down 33% with weather and gas. So I would assume in 2020, just assuming normal weather or some type of recovery in that gas prices that you would get an uplift from PJM West. The other thing, and I think it was referred to in the press release, I think somebody had mentioned along the way about being in lower sulfur (inaudible) at PAMC whereby you might be able to extract more met coal. So when you think about all the moving pieces, if we look at kind of the reported prices for Northern App for 2020, it looks like prices have come down maybe $4 or $5, if you read, we believe or we we believe, what we read. When we think about all of these different pieces whether it be domestic prices coming down or PJM prices just getting back to normal or the easy comparison as it were and more met. How does 2020 feel from a pricing perspective relative to 2019, at this point. And then keeping in mind, you've committed 70% already.

David M. Khani -- CFO & Director

Well let's take your question in three parts, one at a time. First of all, on the netback prices, the PJM netback prices, we 33% this year, and every other phase of our portfolio is up, the domestic -- fixed domestic prices, domestic met-ex for thermal export met. And with everything was up but the netback did weigh us down, thus resulting in being down 7% in the first quarter. Now, we just didn't get a pop in the first quarter issue that we had last year. So I would expect that we'll see normal pricing next year. I think there's some other things happening in the marketplace. But you know, we are forecasting based upon the forward power curves, and that's the best I can predict. As far as the met coal, the last several years, we've only been shipping like 1.5 million to 1.8 million. I think we'll get to 2 million this year. I think we'll see that in the following years and that is partly due to our improved quality that we've been discussing. We've talked about that in the last couple calls and we're finally going to reach that area where things are better. As far as the general overall domestic coal market for utilities, all I can tell you is as we have a sound strategic plan and when we look at our overall portfolio, we feel we have a solid floor at 45, and we expect that, if we execute our planned properly, we'll certainly be able to improve upon that.

James A. Brock -- Chairman & CEO of CONSOL Coal Resources GP LLC

And Mark one thing, you stated there. As we move into new block of reserves that (inaudible) into the East block of reserves, the sulfur content does get lower, it'll have throughout the life of those reserves. And on top of that, the conditions has proved as well. The geological conditions that we expect to be able to produce and have a better product come out of it and which will really help in our blend. And those remaining tons for 2020, we remain open and optimistic and the greatest thing is we have an asset and a operation that is very flexible and a lot of optionality to us to deliver.

Mark Levin -- Seaport Global Securities LLC, Research Division -- Analyst

Yes. That make sense.

David M. Khani -- CFO & Director

If we go back to your previous question, the reliability of our operation also helps us kind of place the hedges that we place to get the results that we need. So it's great working with the team, you know is going to deliver.

Mark Levin -- Seaport Global Securities LLC, Research Division -- Analyst

Now that makes sense. And then my last question just for David. When you think about the cadence of the EBITDA Q2 through Q4, maybe longwall moves and maybe some early thoughts on sitting here in the middle of almost -- I guess 10 days into May. How Q2 would look, what are the puts and takes versus Q1 from an EBITDA perspective.

David M. Khani -- CFO & Director

Yes, I'll just say I want to be careful without going from quarter-to-quarter. I'd just say normally you know that we have our normal vacation period in the third quarter, so that generally hurts from a production standpoint. But otherwise, I'd just tell you that the other quarters are fairly normal. And obviously, we'll be, in part the second half we'll start to get the benefit of the lower sulfur and maybe a little bit momentum.

Mark Levin -- Seaport Global Securities LLC, Research Division -- Analyst

Okay, great. Thanks guys. Appreciate it.

Operator

(Operator Instructions) And the next question comes from Lucas Pipes with B. Riley FBR.

Lucas Nathaniel Pipes -- B. Riley FBR, Inc., Research Division -- Analyst

Hi, good morning everyone and congrats on a good quarter and the Itmann announcement. I wanted to ask a little bit more about Itmann and the strategic considerations that went into that announcement. So at first, how did you evaluate that project versus for example increased share repurchases. Secondly, should we think of Itmann as kind of a one-off great project or is this potentially a bridgehead into greater met coal exposure. Thank you very much.

David M. Khani -- CFO & Director

Well first, we spent a lot of time strategically looking at Itmann . We wanted, if you remember, at the very start of our company, we had three priorities that we wanted to deliver on. We delivered on the debt repayment, so we've got a balance sheet in excellent shape to whereas we can go out and look at projects like this. And we put a rate of return. So with the met prices, they've been pretty stable for the last two years, we think they're going to remain somewhere around they're stable. But we built into our plan, a lower price and a rate of return was still really good. Like I said, $150 a ton, is still around 25% rate of return. So we wanted to develop that block, it's a really good long duration asset, a very high quality and we wanted to tie that into our portfolio to have some diversity. So now we have some low-vol metallurgical coal, that's in our portfolio, our sales portfolio where the crossover maintenance and thermals are mentioned earlier. And we think it's one that we can go down and maybe add onto that, we're gonna be able to get the coal out, we're gonna be able to take it to market, there's other reserves around us, and right now with the reserve base we have, we could mine at Itmann for plus 25 years, that 600,000 range that we talked about in the press release. So we feel really, really good about the diversification it provide us, about the market opportunities we have and about the cost structure and how we can develop the Itmann project. And could this get bigger, and yes this could get bigger. There's opportunities in and around there to either expand the Itmann project as it is or other reserves in and around. So yes, you could see us over time getting bigger in met.

Lucas Nathaniel Pipes -- B. Riley FBR, Inc., Research Division -- Analyst

And that would be on the organic side. So it's not something that you may increase or bolster further through M&A or what could M&A bid in on the met coal side on the back of Itmann?

David M. Khani -- CFO & Director

Well I think to get to that 600,000 tons that we announced, you're pretty much going to run three CM units. So you could increase but put in a fourth CM unit in but remember we always run to the market to see what's there but if you want to grow in much larger production volumes from met, you'd probably have to bulk something onto it and quite frankly, we'll be looking at a future, same as we have been for the right opportunity to add something to it, if it presents itself and it's at the right valuation metrics.

Lucas Nathaniel Pipes -- B. Riley FBR, Inc., Research Division -- Analyst

That's very helpful, thank you. And then, to switch on to the broader market, you are in the enviable position in terms of accessing the seaborne market both from your cost structure, the Baltimore terminals. But when you think, and you commented on this early on the call that you are seeing US exports start to decline. So if this current market were to persist and contracts start to roll off or some of your peers, where do you see kind of the soft spots in the market. I would appreciate your comments on that. And then, just in general, how quickly do you see the seaborne market recover. I would appreciate your thoughts on this? Thank you.

James A. Brock -- Chairman & CEO of CONSOL Coal Resources GP LLC

I'm not sure what you mean specifically by soft spot, Lucas. But certainly, if you look at the API 2 to prompt today, you know the prompt is around $64 I think this morning to give or take a little bit and the five year prompt in calendar 2022. I mean, the five year curve in 2022, only gets us to about $73.50. So I think that there are players that will have considerable trouble continuing to deliver that, thus our thoughts about reduction in other US exports, and I think ultimately that becomes an advantage for us as there's less players in the market, more opportunity for us to deliver to that subset of international customers. You know we delivered over 2 million tons of export thermal in the first quarter to different kind of countries, 1.1 million went to India and 0.5 million went to Europe, the rest were scattered out. So I feel like we're very solidly positioned, and I feel that in the long run, we're going to have players drop out and that's going to be advantage.

Lucas Nathaniel Pipes -- B. Riley FBR, Inc., Research Division -- Analyst

That's helpful. So you think this could shake out some of your competitors as contracts fall off and then you have a greater, larger market share of following that. Is that kind of the way you think about it?

David M. Khani -- CFO & Director

I think gaining market share in any market whether it's the domestic utility, the domestic thermal met or thermal exporters, is going to be key for us going forward. And I think that this is going to help create opportunities to do that.

James A. Brock -- Chairman & CEO of CONSOL Coal Resources GP LLC

And then don't forget Lucas that the export market is actually growing from a demand standpoint overtime. And so there's obviously cyclical downturns and there's competition from LNG moments in time that create downdrafts here. But in general it's growing and it's growing about 1% to 1.5% a year on average.

David M. Khani -- CFO & Director

We believe in the demand there Lucas. So we think that demand is going to stay strong. And there's no tremendous amount of production and there's no tremendous amount of inventory. So a small change in advance can change the market pretty quickly.

Lucas Nathaniel Pipes -- B. Riley FBR, Inc., Research Division -- Analyst

Got it. Very helpful. I will jump back in the queue. Appreciate your color very much. Thank you.

Operator

Thank you. And as as there are no more questions. I would like to return the conference over to Mitesh Thakkar for any closing comments.

Mitesh Thakkar -- Director, Finance & IR

Thank you. Thank you, very much. 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. Thank you, everybody.

Operator

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

Duration: 48 minutes

Call participants:

Mitesh Thakkar -- Director, Finance & IR

James A. Brock -- Chairman & CEO of CONSOL Coal Resources GP LLC

David M. Khani -- CFO & Director

Jim McCaffrey -- Chief Commercial Officer

Matthew Fields -- CONSOL Coal Resources LP -- Bank of America Merrill Lynch.

Michael Dudas -- Vertical Research Partners, LLC -- Analyst

Mark Levin -- Seaport Global Securities LLC, Research Division -- Analyst

Lucas Nathaniel Pipes -- B. Riley FBR, Inc., Research Division -- Analyst

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