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Consol Energy Inc (NYSE:CEIX)
Q2 2020 Earnings Call
Aug 10, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the CEIX and CCR Second Quarter 2020 Earnings Conference Call.

[Operator Instructions]

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

Nathan Tucker -- Manager, Finance and Investor Relations

Thank you, Cole, and good morning, everyone. Welcome to CONSOL Energy and CONSOL Coal Resources Second Quarter 2020 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 and in our SEC filings, and are considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. We do not take 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 regarding the companies on our websites www.consolenergy.com and www.ccrlp.com.

On the call with me today are Jimmy Brock, our Chief Executive Officer, Mitesh Thakkar, our Chief Financial Officer, and Jim McCaffrey, our Chief Commercial Officer. In his prepared remarks, Jimmy will provide a recap of our second quarter 2020 performance, specific insights on marketing and operations, and an update on our ongoing response to the COVID-19 pandemic. Mitesh will then discuss our liability management program, financial results, cash preservation efforts and outlook for the remainder of 2020. After the prepared remarks, there will be a Q&A session in which all three executives will participate.

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

Jimmy A. Brock -- President and Chief Executive Officer

Thank you, Nate, and good morning, everyone.

To this point, 2020 has been an extremely challenging year for us, our industry and the US, and global economies. We first dealt with the weak demand early in the year due to a warmer-than-normal winter, then the COVID-19 pandemic hit us all, with most economies across the world essentially grinding to a halt to try to stop the spread of this disease. This led to an unprecedented destruction in energy demand, specifically in the second quarter of 2020. From a demand perspective, Q2 '20 was the worst quarter that I've seen in my 40-plus-year career and the most challenging market conditions we've experienced in the 30-plus-year of history of Pennsylvania Mining Complex.

The widespread government-imposed shutdowns caused by the COVID-19 pandemic, created an unprecedented decline in energy demand, both domestically and abroad. In response, we idled our Enlow Fork mine early in second quarter, ran our Bailey mine on an as-needed basis and went into cash preservation mode. I'm proud of how our operations and corporate teams responded, as we quickly pivoted and pulled back on discretionary spending in an effort to protect our liquidity. The finance team moved early to secure an amendment to our credit agreement that essentially provides us with eight quarters of covenant relaxation. We'll also preserve full access to our $400 million revolving credit facility. To be able to secure this amendment in a challenging market was extremely impressive. We also want to thank our banking partners and investors for their overwhelming support and belief in us and our business.

As always, we continue to place the safety of our employees and their loved ones above all else. We announced last quarter that we adopted enhanced sanitation and social distancing measures at our operations and implemented staggered shifts, reduced elevator capacities and mandatory temperature checks at all mine entrance locations across our Pennsylvania Mining Complex. We continue to improve upon these practices every day, and we are proud of the buying from the entire CONSOL team and their dedication to safety. We will continue to monitor the risk posed by the COVID-19 pandemic, and we'll take any additional steps that we deem necessary to keep our employees, their families and their communities safe.

Before I dive into operational and marketing details, let me now provide a brief recap of the quarter. Despite the significant demand decline, we achieved several important goals during the second quarter. On the safety front, we delivered a very strong performance as our Bailey mine, Bailey Preparation Plant, CONSOL Marine Terminal and Itmann project each had zero recordable incidents. On the operation and marketing fronts, we faced significant headwinds from reduced customer demand. However, we were able to leverage our operational flexibility to help soften the impacts of these declining market conditions. We work with our customers throughout the quarter to identify solutions to help navigate this extremely challenging situation. These solutions included partial contract buyouts and in some cases, new future business. On the financial front, as I touched upon already, we completed a timely credit amendment. Additionally, our finance team continued to focus on cost reduction and liquidity conservation, which resulted in limited cash burn despite a significant decline in shipment volumes compared to Q2 of '19.

Now let me provide our second quarter operational performance. Coal production at the Pennsylvania Mining Complex decreased to 2.4 million tons in Q2 of '20 compared to 7.2 million tons in the year ago quarter. Decline was due to a significant reduction in customer demand, as most global economies shut down due to the COVID-19 pandemic. We also ran at a significantly reduced operating capacity, seeking to match production with demand. For its share of the Pennsylvania Mining Complex, CCR produced 600,000 tons of coal during Q2 of '20 compared to 1.8 million tons in the year ago quarter. On the cost front, our average cash cost of coal sold per ton was $25.90 in Q2 of '20 compared to $31.07 in Q2 of '19, as our operations team was successful in keeping tight control of our cash expenditures in the quarter.

The adjustments we made to our operations allowed us to reduce our overall average cash cost of coal sold per ton on our producing asset and to partially mitigate the financial impact of the reduced production volume. The improvement was primarily driven lower mine maintenance and supply cost, contractors and purchase service costs, and subsidence expense. The CONSOL Marine Terminal had a throughput volume of 1.6 million tons during the quarter compared to 3.7 million tons in the year ago period. Despite a decline in shipments, our terminal revenues for the quarter were only modestly impaired at $15.9 million compared to $16.7 million in the year ago quarter. However, cash operating costs were improved at $3.8 million versus $5 million in the year ago period as the terminal employees also successfully limited their cash expenditures in Q2 of '20.

Let me now provide an overview of the coal markets and an update on our sales performance and accomplishments. There is no sugar coating how difficult the second quarter of 2020 was from a demand perspective. After a tough start to the year, where coal demand was impacted by mild winter weather and low natural gas prices, we were then hit with the widespread government-imposed shutdowns of non-essential businesses due to the COVID-19 epidemic. On a year-to-date basis, these shutdowns peaked in the second quarter as most global economies essentially shut down for multiple months to curve the spread of the coronavirus. This resulted in an unprecedented decline in energy demand as an increase in residential energy consumption couldn't nearly replace the decrease in the industrial demand.

On the power price front, average PJM West day-ahead power prices were 28% lower in Q2 of '20 compared to Q2 of '19. Additionally, Henry Hub natural gas spot prices averaged $1.70 per million BTU during the quarter, which was down 34% compared to Q2 of '19. These low natural gas prices and the overall demand decline resulted in a substantial reduction in coal burn in the US, which led to increased coal inventories for our customers. Similar to the first quarter of 2020, this translated into reduced demand for our coal and led us to complete several contract buyouts in the second quarter as we sought to help our customers manage their inventory levels. We leveraged our strong contracted position in the quarter to negotiate these buyouts, which involved the early termination of a portion of several customer contracts in exchange for payment of certain fees to us during the second quarter, and contributed $30.1 million to our miscellaneous other income. These substantial buyouts were key to helping us limit our operating cash burn in the quarter.

On a positive note, the EIA is estimating a significant domestic supply response in 2020 and projects a 29% decline in US coal production versus 2019. Additionally, low natural gas and crude oil prices have led to reduced activity and capital expenditures for E&P companies. IHS Markit reports that active US gas rigs stood at 76 in early July, down from 174 a year ago and down for more than 200 active rigs in January of 2019. As a result, several industry observers now expect natural gas prices to rise above $3 per million BTU in 2021, as gas production declines due to the lack of capital spending. This is leading to forecast of an additional 100 million to 125 million tons of incremental domestic coal burn in 2021. Finally, we believe the lack of investment across the coal space will limit the coal industry's ability to quickly ramp back up to meet this demand. This could be a very advantageous situation for us as we prioritize keeping our mines well-capitalized in strong markets, which gives us the ability to scale up very quickly.

On the export front, we began the year with the intent to ship 9 million to 10 million tons export in 2020. Through the first quarter, we were on pace to accomplish that with 2.4 million tons shipped. However, in the second quarter, we shipped roughly 800,000 tons. This was entirely caused by the worldwide economic shutdown created by the COVID-19 pandemic. It is important to note that these tons were not replaced by other tons or other fuels, that were lost due to unprecedented demand destruction. As global demand begins to recover and India's retail season restarts as monsoon season comes to an end, demand for our products remain strong. We have started receiving inquiries again, and we expect steady recovery for the second -- remainder of the year.

From a marketing perspective, it is encouraging to see that demand for our coal has steadily improved month-over-month since May, which was the lowest point of the demand for our coal this year. This recent demand improvement has allowed us to restart one longwall at our Enlow Fork mine after it was idled for most of the second quarter. We continue to maintain 100% of our existing customer base and have begun to see improvement from a contracting perspective beyond 2020. We announced this morning that during the second quarter of 2020, we successfully contracted 4.3 million tons for the 2021 through 2024 period. We are now 49% contracted for 2021, assuming a 26 million ton run rate and not including any potential 2020 deferrals. We're also fully contracted for 2020, but we understand the significant uncertainties that will exist in the marketplace. We will remain flexible, and we'll continue to work closely with our customers to manage our respective contractual obligations.With that, I will now turn the call over to Mitesh to provide the financial update.

Mitesh Thakkar -- Interim Chief Financial Officer

Thank you, Jimmy, and good morning, everyone.

Let me start by providing an update on our liability management program and credit facility amendment. I will then review our financial results for 2Q '20 and touch upon our cash preservation efforts and second half 2020 outlook.

As we have stated earlier, our top priority for 2020 was to remain laser-focused improving the risk profile of our balance sheet by reducing our outstanding debt and creating long-term value for CEIX shareholders and CCR unitholders. In the near term, we also realize how important liquidity is during these uncertain times. Since beginning of 2020, we have taken several steps to reduce our outstanding debt and capture the arbitrage that exists between different financing costs while maintaining strong liquidity.

Let me now summarize some of our key liability management initiatives since the beginning of the year. In the first quarter, we significantly reduced spending on our Itmann project, which deferred $25 million of capex. We then devoted that spending toward buying back approximately $43 million of our second lien notes at a significant discount to par value, which helped reduce our leverage and reduced annual interest expense by nearly $5 million. In the second quarter, we suspended CCR's cash distribution to all unitholders, which resulted in an annual cash conservation of approximately $22 million for CEIX and approximately $58 million for CCR. Due to our willingness to keep the mines well-capitalized in strong markets as we did in 2018 and 2019, we are now able to reduce capital spending at the Pennsylvania Mining Complex to $75 million this year, an approximately 50% decline from 2019 levels.

On the financing front, we raised approximately $29 million of capital through a sale-leaseback and multiple finance leases in the first half of 2020. And last but not the least, we proactively worked with our banking partners and Term Loan B investors to amend our credit facility early in the second quarter, which effectively provides us with eight quarters of covenant relaxation while also providing continued access to our $400 million revolving credit facility. We also added additional flexibility to repurchase our outstanding second lien notes without a leverage test. During this unprecedented demand decline brought on by the COVID-19 pandemic, keeping full access to our revolving credit facility cannot be understated. I thank our bank for working with us as we navigate these challenging market conditions.

Additionally, our credit amendment also included amending the affiliate loan facility between CCR and CEIX, which in turn also provided CCR with eight quarters of covenant relaxation and continue access to its $275 million intercompany loan with CONSOL Energy. Given the uncertainty in the marketplace, continued access to liquidity and financial flexibility will be paramount for both companies moving forward. Although the amended credit agreement also allows us to repurchase up to $25 million of our second lien notes without a leverage test, we did not execute any buybacks in the second quarter. Given the uncertainty created by global economic shutdowns, we decided to preserve our cash. However, we still retired $14 million of our outstanding debt in the second quarter of 2020 through required amortizations. In the quarter, we made repayments of $7.2 million, $6.3 million and $700,000 on our asset-backed financing arrangements, Term Loan A and Term Loan B, respectively. Our goal is to have significantly lower level of debt before our 2024 Term Loan B matures. And we'll continue to strive toward that goal.

With that, let me now recap our second quarter 2020 results. We'll review CEIX first, then CCR. CEIX reported a second quarter 2020 net loss attributable to CEIX shareholders of $18 million or $0.69 per diluted share compared to net income of $43.3 million or $1.56 per diluted share in 2Q '19. The CEIX also reported 2Q '20 adjusted EBITDA of $34.2 million and organic free cash flow of negative $24 million, which compares to $112.9 million and $34.8 million, respectively, in the year ago quarter. The significant decline in our earnings metrics compared to the year over period is a result of the unprecedented demand decline we experienced in the second quarter. In 2Q '20, we used $4.7 million of net cash flow on operations and spent $19.3 million on capital expenditures. As a result, CEIX ended the second quarter with negative $24 million of organic free cash flow.

Our cash flow from operations included a working capital use of $19 million due to significant decline in our accounts payable balance and a $10 million semiannual interest payment on our second lien notes. We ended the quarter with cash and cash equivalents of $33 million, down from $78 million at the end of the quarter. Notable cash outflows during the quarter included approximately $19 million in cash interest payments, approximately $14 million in mandatory debt payments and approximately $8 million in transaction costs related to the recently discussed amendment to our credit agreement. We also incurred $31.8 million in cash idle costs in 2Q '20. However, our $30.1 million in contract buyouts essentially offset this expense. After accounting for these items, we had a net cash burn of approximately $4 million in the linked quarter. This also accounts for all capital expenditures and working capital adjustments, as well as the remainder of the operating cash flow.

While the quarter more was ultimately disappointing from a shipment and cash flow generation standpoint, it was encouraging to see the response of the team and its ability to manage and preserve cash when tons were tough. At the time -- at the end of the quarter, we were in full compliance with our credit covenants and currently maintain full access to our revolving credit facility.

Now let me update you on CCR. This morning, CCR reported a net loss of $7.9 million, adjusted EBITDA of $6 million and distributable cash flow of negative $4.7 million for the second quarter. This compares to net income of $14.4 million, adjusted EBITDA of $27.6 million and distributable cash flow of $16.8 million, respectively, in the year ago quarter. In 2Q '20, CCR generated $6.5 million in net cash from operating activities, which included a $2.8 million improvement in working capital. After accounting for $4.1 million in capital expenditures and $1.6 million in finance lease payments, we were able to modestly reduce our outstanding debt on the intercompany loan with CEIX by $1 million in the second quarter. Nonetheless, due to the continued reduction in the trailing 12-month EBITDA, CCR finished the quarter with a net leverage ratio of 2.9 times.

Now let me move on to providing some color on what we expect for the remainder of 2020. Given the difficulty in forecasting the duration and severity of the COVID-19 pandemic, and the resulting economic slowdown in energy demand decline, our 2020 guidance remains suspended at this time. However, let me provide some qualitative guidance and comments on how the third quarter is progressing.

On the operational front, you may have noted that for much of the second quarter, Enlow Fork was idled and the Bailey mine ramped sporadically. We are pleased to announce that one longwall at the Enlow Fork mine resumed operation in July. Also one longwall at the Bailey mine and one longwall at the Harvey mine ramped consistently in July. This allowed us to ship more coal in July than we shipped in May and June combined. Earlier this month, we also restarted our fourth longwall, which is the second longwall at the Bailey mine. We expect August to be significantly improved compared to July, even though we have two longwall moves scheduled for the month.

It seems like shipments are now returning to more normalized levels, but a lot of uncertainties still exist. With COVID infections still rising domestically and globally, we remain cautious and will continue to remain market-driven, staying focused on cost containment and managing liquidity will be our top priorities. On our last earnings call, we laid out some targets, which called for nearly $100 million in cash savings. These starts included SG&A, cash interest and tax-related spending, as well as nearly $50 million reduction in capital expenditures versus 2019 figures. We have made good progress on these fronts, and we believe we can achieve an additional $25 million reduction in capital expenditures compared to 2019 levels as we prioritize cash reservation. We also expect a $13 million reduction in cash SG&A expense, which is above the $8 million to $10 million target we laid out last quarter.

Let me now provide some additional color on our liquidity position. We ended the quarter with $346 million of liquidity. The reduction in liquidity compared to the first quarter was driven by reduced cash on the balance sheet and an $8 million reduction in availability under our securitization facility. As you can imagine, availability under our securitization facility is a function of qualifying accounts receivable outstanding, and in this case, was based on the receivables outstanding at the end of May, which was a very low shipment month. We anticipate that August will be a significantly higher shipment month compared to May and that the availability in the securitization facility will also increase, acting as a tailwind for liquidity at the end of 3Q '20.

Another potential source of liquidity and cash flow for CEIX and CCR could come from certain transactional opportunities. We are currently pursuing several such opportunities that could bring in significant additional cash flow and EBITDA contribution during the second half of 2020. Given the nature of these ongoing negotiations, we will not be able to disclose any additional information about these opportunities at this time. Stay tuned.

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

Jimmy A. Brock -- President and Chief Executive Officer

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 the remainder of 2020, and and address our plans for navigating the uncertainty we are facing in the current economic climate. First and foremost, safety will remain our top focus, and we will continue to adhere to our adjusted procedures and protocols in order to keep everyone safe and prevent any unnecessary exposure to COVID-19. We will continue to focus on implementing our enhanced cleaning and disinfectant practices at our mines, both on the surface and underground. Our corporate staff has proven its ability to work remotely very effectively. I continue to be impressed by our employees and their willingness to embrace these adjustments. I thank them for continuing to place saving above all else.

For 2020, our major focus of strengthening our balance sheet and bolstering our liquidity will be paramount as we navigate these uncertain times. In order to maximize our liquidity and ensure compliance with the covenants, we will take an all-hands-on-deck approach, and we will remain laser-focused on managing the things that are within our control. This involves adjusting our cost structure and operating schedules to best align them with demand and preserve margins, working closely with our customers to manage shipment and inventory levels, as well as contractual obligations, maintaining operational flexibility and limiting any discretionary spending. We will continue to pull as many levers as possible to strengthen our balance sheet and preserve cash flow. Also, if we begin to see sustained demand and as market conditions warrant, we expect to revert to our strategy of opportunistically taking advantage of the significant discount in the process of our debt securities. All of these things are within our control, and we believe we have the tools necessary to manage our way through this market.

Finally, we have begun to see improved demand beyond 2020 and are currently 49% contracted for 2021 and assuming a 26 million ton run rate and not including any potential 2020 deferrals. We are also fully contracted for 2020, but we'll remain nimble and willing to work closely with our customers as we weather the storm together.

In summary, our key priorities for the remainder of 2020 are, first, to ensure the health and safety of our workforce, their families and the communities in which we operate amid the ongoing COVID-19 pandemic; secondly, to safely and compliantly produce our high-quality coal to lowest possible costs; third, to continue to prioritize our liquidity through cash preservations and controlling the things that are within our control; fourth, to continue to improve our balance sheet and manage our liquidity; and finally, to work with our customers to ensure that the long-term nature of our relationships continue as we navigate this pandemic together.

One final item before we move on to the question-and-answer portion of today's call. As disclosed in our 10-Q filing this morning, it is with mixed emotions that I announce that my good friend and colleague, Jimmy McCaffrey is retiring. Jim's contributions to the success of CONSOL Energy over the last 40-plus years have been remarkable and significant. While I'm certainly thrilled for Jim and his family, I will miss his experience and wisdom.

With that, I will now turn the call over to Jim for a few comments.

James J. McCaffrey -- Senior Vice President of Coal Marketing

Thank you, Jimmy, and good morning, everyone.

After nearly 44 remarkable years with CONSOL Energy in this great industry, I've elected to retire October 1, 2020. This decision does not come lightly. I had plans to retire on two previous dates, but both times, Jimmy encouraged me to stay. As many of you know, back in 2015, I was diagnosed with Parkinson's disease. At that time, Jimmy and I agreed that if my health faltered, I could move on. I'm not running away from this market or this company, but I feel myself slowing down and others see this too. So it's time. And we have a succession plan in place that allows me this opportunity.

In fact, I have great confidence in the future of CONSOL. Therefore, I feel it best to leave the marketing and sales to Bob Braithwaite and Dan Connell, who are extremely talented and capable. I also consider this combination to be the very best in the business, along with our experienced marketing team. I still expect to spend some time around the business, and so I still hope to see my many friends in the coal community. I am fortunate that these friends include coworkers, analysts, investors and bankers, suppliers and vendors, transportation partners, our great customers, and yes, even competitors.

I want to thank Jimmy and all of the women and men of CONSOL Energy for a great career and even a better life. And finally, I want to thank the American coal miner, particularly those in our Pennsylvania Mining Complex. These men and women have been the true heroes of my life and should be celebrated as the American heroes that they truly are.

God bless you all. I hope to see you further on up the road.

Jimmy A. Brock -- President and Chief Executive Officer

Thank you, Jim, and congratulations to you and your family.

We will now move to the Q&A session of our call. Cole, could you please provide the instruction to our callers?

Questions and Answers:

Operator

Absolutely.

[Operator Instructions]

Our first question today will come from Lucas Pipes with B. Riley FBR. Please go ahead.

Lucas Pipes -- B. Riley FBR -- Analyst

Hey, good morning everyone. And particularly, Jim, I will be missing you on these conference calls and your insights throughout the year. Congratulations --

James J. McCaffrey -- Senior Vice President of Coal Marketing

Well, thanks.

Lucas Pipes -- B. Riley FBR -- Analyst

[Technical Issues] And Jim, maybe kind of turning to the market first, kind of what's your sense for the appetite? There were some comments along those lines in the prepared remarks. But when you think about the sales book, today and where it stands for 2021, what needs to happen to make sure that all items are put to bed? And then I have a few follow-ups from there. Thank you.

James J. McCaffrey -- Senior Vice President of Coal Marketing

Well, first of all, as we've stated in our remarks, June was certainly better than May, and July is better than June. And we anticipate that in August will be better than July. The weather that we've had, the good summer weather, the slow increase in the gas price has benefited most of our customers, all of our customers. And so we're seeing a much better burn, much better capacity factors today than we saw just a few months ago. So that's encouraging. As Jimmy said, in the 49% that we have sold for 2021, we don't have any carryover in that number. We're anticipating that our domestic customers are going to take all of their shipments or at least the vast lion's share. Now again, there's a lot of uncertainty due to the COVID situation. But that's our view today.

And on the international front, we see inquiries picking up. From the time we took this company on the road, we said that we had the capability of pivoting from the export market to the domestic market and back again, better, more cost effectively and more efficiently than anybody else in the business, and that has not changed. But what changed in the second quarter was as there was no place to pivot to, there was just no place to go, the international markets just kind of sank. And we're starting to see those rebound now. We're seeing activity in India. We think that as the year moves on or into next year, we'll see some opportunity in Europe again and in Southeast Asia. So we're seeing that. We're fully contracted for the rest of the year. But our clarity is not perfect in terms of those international marketplaces just yet.

But we think as we get into the third quarter and get to the next call, we'll be able to provide a lot more clarity than we can today. But I'm encouraged by the last several weeks and the last month in the marketplace.

Lucas Pipes -- B. Riley FBR -- Analyst

I appreciate that color. And you mentioned you're fully committed for the second half. Would you be able to share a number in terms of tons of coal committed and if there's any pricing around that, I would certainly appreciate that as well? But most importantly, I'm kind of looking for your committed volumes for the second half of the year. I could imagine that they're quite elevated, kind of given what has been happening in the first half of the year.

James J. McCaffrey -- Senior Vice President of Coal Marketing

Well, I learned a long time ago, I don't belong in the prediction business, and this year is tougher to predict than ever. But setting the buyouts aside, we had 25 million tons contracted for this year. That has not changed. And we expect to get the value out of our contracts, and we expect to deliver the value that our customers expect from their contracts. So that's what we're looking at, Lucas.

Lucas Pipes -- B. Riley FBR -- Analyst

I appreciate that. Thank you. And then I have a question for Mitesh and maybe the broader team as well. But on the transactional opportunities, I appreciate you don't want to kind of get too much into the weeds. But could you provide a rough ZIP code in terms of dollar amount you're looking for kind of either on a single transaction in the aggregate? Any just kind of ballpark would be really helpful. Thank you.

Mitesh Thakkar -- Interim Chief Financial Officer

Lucas, like I said, like there are multiple opportunities, it's not one or two. So it's hard for me to predict. I mean all of them could execute, some could have happened in the second half, some could happen in first half of next year. So it's hard to put a time line and schedule around it. But I think it's fair to say these are meaningful opportunities and not just, for lack of a better word, small amounts we are talking about here.

Lucas Pipes -- B. Riley FBR -- Analyst

And where would you put the threshold of meaningful? Tens of millions, hundreds of millions?

Jimmy A. Brock -- President and Chief Executive Officer

I think you could say, tens of millions. And the one good thing about it, Lucas, is these opportunities that are out there fit well within our strategy, doesn't really affect the core part of our business. And we believe that moving forward, it's a very high likelihood, at least half of these will happen. And that's about all we can say at this point.

Lucas Pipes -- B. Riley FBR -- Analyst

Very helpful. I appreciate that information very much. And Jim, again, congratulations. I will miss you. And everyone, best of luck. Thank you.

James J. McCaffrey -- Senior Vice President of Coal Marketing

Thanks, Lucas.

Jimmy A. Brock -- President and Chief Executive Officer

Thanks, Lucas.

Operator

And our next question will come from Mark Levin with Benchmark Company. Please go ahead.

Mark Levin -- The Benchmark Company -- Analyst

Okay, great. yeah. First things first. Jim, congratulations. We're going to miss you very much. I hope you enjoy retirement, and can't tell you how much I've enjoyed getting to know you over the years and wish you all the best.

James J. McCaffrey -- Senior Vice President of Coal Marketing

That's very kind of you, Mark. Thanks.

Mark Levin -- The Benchmark Company -- Analyst

Absolutely. And I know the sales team is in good hands with Bob and Dan, I'm sure you've trained them very well. Let me move first to a question for Mitesh, if I can. Mitesh, are you confident -- I know you lowered the capex guidance again. And I know there are a lot of different moving pieces. But do you feel at this point, you guys will be able to generate at least break-even organic free cash flow in the second half of the year?

Mitesh Thakkar -- Interim Chief Financial Officer

Mark, like Jim said, like there are a lot of moving parts with respect to shipments and everything else. But yes, it is possible that we are going to have free cash flow in the back half of the year. But again, everything depends on the shipments. But as we sit today and the looking glass that we have, although it's not as clear, but I think that's definitely what we are shooting for here.

Mark Levin -- The Benchmark Company -- Analyst

Okay. Great. And related to that point, and maybe this is for Jimmy, if you're comfortable, what were you -- if you just kind of take you to the July or the August kind of production run rates, would you be comfortable maybe sharing what those annualized to? Just trying to get a feel for -- obviously, it doesn't look like you'll hit 25 million tons this year. But just trying to figure out like what the operations are running at on an annualized basis to get a feel for kind of how far along you guys are post the trough?

Jimmy A. Brock -- President and Chief Executive Officer

Yeah, Mark, I would say it's kind of hard even for us to annualize the numbers today, but it is encouraging, as Jimmy McCaffrey stated earlier, we did restart our fourth longwall this morning. And as we move forward, if we continue to get these inquiries and we see some of the inventory levels coming down and obviously, with the burn capacity of what it's been in the last two months, we're very hopeful that we can get back to somewhat of a normal run rate in the second half of the year.

Now there are a lot of uncertainties that are still tied to that. One is our export is a big piece of our business. So what happens there with the COVID-19 situation and others is a big part of it. But we are encouraged that moving forward will be able to get back to somewhat of normal operations that we've had. And we'd certainly like to see the natural gas prices moving higher, that should help even further going into 2021. But for the second half of this year, as Mitesh said in his remarks, it's very hard to give a whole lot of quantitative guidance just due to all the uncertainties that are there.

Mark Levin -- The Benchmark Company -- Analyst

That makes sense. Well, maybe I'll ask a qualitative question then. Obviously, natural gas prices have moved a lot higher. And if you look at kind of the calendar '21 prices, they're even even higher than that. And we've clearly seen a lot of net production go lower. I guess that's the good news. On the bad side, I guess, there's still a lot of inventory still sitting on the ground, maybe record inventory. If the present dynamic were to continue, meaning gas prices where they are right now or getting better as the contracts kind of move into the future and production kind of stays where it is, and if the weather is normal -- I realize three major issues there, but how long do you think it would take to get the market back to some sense of supply/demand balance, if you had to venture a guess from what you see?

Jimmy A. Brock -- President and Chief Executive Officer

My best guess at this time, if I were trying to give you a straight answer, which I will, Mark, is somewhere between three to six months. I think if you look at our domestic customers that are here, they're somewhat getting back to normal faster than we anticipated. That's because of the weather and the burn, obviously, but I would think it's probably going to be three to six months before we see those inventory numbers levelized to a number that we feel comfortable forecasting going forward.

Mark Levin -- The Benchmark Company -- Analyst

That's great help. And then last and final question for Mitesh. Just so I think I heard it correctly, but I just want to make sure, did you mention in your remarks, Mitesh, in SG&A going forward, kind of at the $8 million to $10 million level? Did I hear that right?

Mitesh Thakkar -- Interim Chief Financial Officer

No. I think what I suggested -- well, actually, that was the remark I made in comparison to last year, that earlier we forecasted for $8 million to $10 million decline. Now we are forecasting $13 million decline. So on a quarterly basis, I think, Mark, you're still in the ZIP code, but it's in a different way than I positioned it.

Mark Levin -- The Benchmark Company -- Analyst

I got it. Perfect. Great. Thank you for the clarification. And absolute best of luck, particularly Jim.

James J. McCaffrey -- Senior Vice President of Coal Marketing

Thanks, Mark.

Jimmy A. Brock -- President and Chief Executive Officer

Thanks, Mark.

Operator

And our next question will come from Matthew Fields with Bank of America. Please go ahead.

Matthew Fields -- Bank of America -- Analyst

Hey everyone. And best of luck in retirement, Jim.

James J. McCaffrey -- Senior Vice President of Coal Marketing

Thank you, Matt.

Matthew Fields -- Bank of America -- Analyst

I wanted to ask about bonding requirements, first of all. Some of your peers have sort of mentioned discussions with insurance companies heading into the third quarter, requiring some increased collateralization. Have you had similar discussions about that into August?

Mitesh Thakkar -- Interim Chief Financial Officer

You're talking about surety bonds, right?

Matthew Fields -- Bank of America -- Analyst

Yeah.

Mitesh Thakkar -- Interim Chief Financial Officer

Yeah. So I think you might have noticed for the quarter, we did not see any increase in the bonding requirements. We did have calls with a lot of our surety providers, even while we were going through the amendment of the credit facility and stuff like that. Generally, everybody is comfortable. We are not seeing any significant increase there. You have somewhere -- you could see, for different reasons, somebody needing more collateral, somebody giving up some collateral. So we are seeing some natural churn, but not any significant increase.

Matthew Fields -- Bank of America -- Analyst

Okay. Thanks for that. That's helpful. And then on the transactional opportunities, it sounds like you're saying sort of a lot in the tens of millions, nothing like any kind of major leasebacks of your infrastructure facilities like CMT or something like that?

Mitesh Thakkar -- Interim Chief Financial Officer

No. These are more like asset sales right of ways. We own a lot of land. There are some land transactional opportunities, those kind of stuff.

Matthew Fields -- Bank of America -- Analyst

Okay. Is a sale or a sale-leaseback of CONSOL Marine Terminal, at least on the discussion blocks? Is that -- you're producing $40 million EBITDA, at least now. Obviously, we'll see what the future holds, but that's a pretty valuable asset that could use -- reduce a lot of your debt load.

Mitesh Thakkar -- Interim Chief Financial Officer

So it is not part of the opportunities that we were talking about, but we are a public company, and we are open for business, like we look at everything possible. And if there is an opportunity there, we'll definitely consider it.

Jimmy A. Brock -- President and Chief Executive Officer

Yeah, and I'll add to that. It's a business strategy move. We've had several inquiries about the Baltimore terminal, that we have evaluated over time. But keep in mind, that's also a critical piece of our business as well. So it would have to be something very attractive for both of us, and we still would have to have a way to use that term on our business going forward.

Matthew Fields -- Bank of America -- Analyst

Okay. That's fair. And then lastly, just a follow-up on the new credit agreement. Just -- I want to make sure I'm reading it right. It seems like you don't have any more capacity this year, secondly in repurchases, but you refresh $25 million on January 1, '21, is that the right way to think about it? Because you're not under 2.0 times net leverage?

Mitesh Thakkar -- Interim Chief Financial Officer

I think the $25 million refers to -- the way it was structured is we had a share repurchase bucket of $25 million, which is annual. We have not used any of that this year. And what we did is we created an ability to buy back our second lien through that share repurchase bucket, the share repurchase is subject to leverage test, but the second lien is not. So we can't do second lien buyback through that bucket.

Matthew Fields -- Bank of America -- Analyst

Okay. All right. And that's a one-time as opposed to the $25 million annual second lien?

Mitesh Thakkar -- Interim Chief Financial Officer

So it's an annual bucket. It's an annual bucket. So it refreshes every year.

Matthew Fields -- Bank of America -- Analyst

Got it. All right. That's what I thought. Okay. Thanks very much, and good luck in the back half here [Phonetic].

Jimmy A. Brock -- President and Chief Executive Officer

Thank you, Matthew.

Operator

[Operator Instructions]

And our next question will come from Nick Jarmoszuk with Stifel. Please go ahead.

Nicholas Jarmoszuk -- Stifel -- Analyst

Hi, thanks for taking the questions. The first one with the 2021 contract book. Directionally, can you give us a sense for whether pricing was up or down or flat on a like-for-like basis?

James J. McCaffrey -- Senior Vice President of Coal Marketing

We're in the middle of several negotiations. So from a competitive point of view, I don't really want to discuss price. But I will say this, if you look at the published markets, Coaldesk and Evolution, primarily, the tons we've booked are better than the published markets have advertised.

Nicholas Jarmoszuk -- Stifel -- Analyst

Okay. All right. And then for 2021 capex, how can we think about that relative to the 2020 spend?

Mitesh Thakkar -- Interim Chief Financial Officer

We have -- obviously, we don't have a 2021 guidance out there for capex. But it is -- depending on how market conditions play out, I think we are going to be market-driven. Like we obviously deferred a lot of the capex, particularly on the growth side this year. And if the market turns out to be one where we are able to go back into some growth capex here, that will probably move the needle. I think on the maintenance side, this year, we are demonstrating our ability to run at a very low level of maintenance capex. We have done that in the past. And again, we'll have to see how balance of 2020 plays out to give you a better color. But we can continue to run on the maintenance capex if we need to.

Jimmy A. Brock -- President and Chief Executive Officer

And one thing that I'll add to that, Nick, as we said many times before that we are well capitalized in the Pennsylvania Mining Complex. We are and that we would -- our capital spend would be tied to the demand and how we run -- operate the coal mines. That has certainly been a base as the volume pulls back, even in years past, you've seen us adjust that capital spend to come back. And the one benefit, I'll say that you get from that moving forward is we learn from every one of these exercises. So we like to think that our capital stays around $4 a ton moving forward, and the team has done a really good job of balancing that. And we think we can do it moving forward.

Nicholas Jarmoszuk -- Stifel -- Analyst

Okay. And then final question, just on the Xcoal contracts and the discussions there. Is there any update you can provide?

James J. McCaffrey -- Senior Vice President of Coal Marketing

Well, let me say this. We have booked some tons for the second half, both with Xcoal and with the third -- some third-party players all those tons have been booked on a spot basis. But by no means are we willing to give up on the Xcoal contract for this year or in the future. So we expect to get our value out of the contract. Xcoal expects to deliver it, and we should have more clarity about that as we get into the next quarter.

Mitesh Thakkar -- Interim Chief Financial Officer

Nick, was your question more on 2021?

Nicholas Jarmoszuk -- Stifel -- Analyst

Well, you've got the volume contract with Xcoal and then the terminal contract as well. So that's what I was asking about [Speech Overlap].

Mitesh Thakkar -- Interim Chief Financial Officer

Are you asking about renewable -- renewal, or are you asking about the existing contract?

Nicholas Jarmoszuk -- Stifel -- Analyst

Renewal.

Mitesh Thakkar -- Interim Chief Financial Officer

Okay.

James J. McCaffrey -- Senior Vice President of Coal Marketing

As far as renewal, both those discussions have kind of meshed together, Nick, but we will be continuing to talk to Xcoal. One thing we will be paying attention to is if we want to keep the same concentration level that we've had in the past. So again, stay tuned.

Nicholas Jarmoszuk -- Stifel -- Analyst

Okay, thank you.

Operator

And our next question will come from Michael Dudas with Vertical Research. Please go ahead.

Michael Dudas -- Vertical Research -- Analyst

Good morning, everybody. And Jim, Godspeed.

James J. McCaffrey -- Senior Vice President of Coal Marketing

Thank you, Mike.

Michael Dudas -- Vertical Research -- Analyst

For Jimmy or Jim, could you just maybe update us on as your customer base for your coal, your thought trends, what you're hearing about plant closures, load factors and looking in maybe two, three years out, do you still have a pretty secure visibility on your ability to serve those types of customers? And are some of those customers looking at what's going on from the supplier sector of the side, certainly wanting -- after we get through this uncertainty on demand, wanting to get more aggressive with partnering with you as we get out the other side of this.

Jimmy A. Brock -- President and Chief Executive Officer

Well, I would say to start-up, we are certainly concerned with the closure of power plants, particularly the ones that have been accelerated. But when you go back to our original strategy that we want to serve these core must-run power plants, we still feel very good about the relationship with those customers. We've been able to ship to them. And we believe that if we can have a normal summer followed by normal winter, maybe even followed by normal summer after that, and we can get these gas prices back up to acceptable levels, then we think we're going to remain a part of that energy mix. And we feel pretty good about where we are there with these customers. But with that said, that's why the -- that's why the export market is very important to us as well. But we continue to believe that we're going to be able to provide a low-cost fuel and be a part of the energy mix going forward.

James J. McCaffrey -- Senior Vice President of Coal Marketing

Let me just add on to that briefly, Mike. We announced this morning that we booked 4.3 million tons in the second quarter for 2021. And those 4.3 million tons extended from '20 to '24. So obviously, we've booked some term business there. We're deep in conversations with a couple of other key customers about term business. I am -- there's a lot of uncertainty in the marketplace, but I'm relatively optimistic that we will find a way to get those done, and they will be beneficial to both us and the customer.

Michael Dudas -- Vertical Research -- Analyst

I appreciate that. Just my follow-up would be your updated thoughts on Itmann, pace of where you are, obviously, the slowing down opportunity from the spending side. The market that you see any visibility -- we're all looking for visibility. But as you think about the plans on Itmann, is it 12 months delayed? Is it a market-driven delayed? Just how that's going to fit in as we kind of emerge through this?

James J. McCaffrey -- Senior Vice President of Coal Marketing

Well, Itmann is a project that we're really excited about. It's going to be the best quality around when it comes to low-vol metallurgical coal. However, we do have a capital allocation process, and we have followed that. So the highest rate of return on our investment right now is probably our debt securities. So we have deferred or literally stopped most of the spending on the Itmann project. Now we are continuing with a very, very low-cost exploratory mining, as I called it before, it's very low volume tons, one crew, one ship today that's working there now. But we will not be spending a lot of money on Itmann moving forward until we have a better idea of where the market is and timing of what we need to continue that project.

Mitesh Thakkar -- Interim Chief Financial Officer

And just so you know, it's not really a question around Itmann's economics, it's more of a capital allocation question for us. I think it's a good project. It's just where your cash gets the most bang for its buck.

Michael Dudas -- Vertical Research -- Analyst

Yeah, I just wanted to get that confirmation. Gentlemen, thanks so much and best of luck, Jim.

James J. McCaffrey -- Senior Vice President of Coal Marketing

Thanks, Mike. Appreciate it.

Jimmy A. Brock -- President and Chief Executive Officer

Thank you.

Operator

And this will conclude our question-and-answer session. I'd like to turn the conference back over to Nathan Tucker for any closing remarks.

Nathan Tucker -- Manager, Finance and Investor Relations

Thank you, Cole. 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, everyone.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Nathan Tucker -- Manager, Finance and Investor Relations

Jimmy A. Brock -- President and Chief Executive Officer

Mitesh Thakkar -- Interim Chief Financial Officer

James J. McCaffrey -- Senior Vice President of Coal Marketing

Lucas Pipes -- B. Riley FBR -- Analyst

Mark Levin -- The Benchmark Company -- Analyst

Matthew Fields -- Bank of America -- Analyst

Nicholas Jarmoszuk -- Stifel -- Analyst

Michael Dudas -- Vertical Research -- Analyst

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