FELP - Foresight Energy

[Paarslaars]

Nothing but good news yet the stock has dipped below 5$ for the first time in a while.

Usually I'm happy when this happens as I can add but this one is already a large position for me.

[PullTheTrigger]

Foresight Asks to Re-enter Deer Run Longwall Mine

 

http://www.coalage.com/news/latest/5578-foresight-asks-to-re-enter-deer-run-longwall-mine.html#.WQuglFXyuUk

 

More than a year after its Deer Run longwall mine in southern Illinois was temporarily sealed to put out a stubborn underground fire or hotspot, Foresight Energy LP may have plans to reopen the mine later this year. In April, the St. Louis-based company formally asked the federal Mine Safety and Health Administration for authorization to re-enter the mine near Hillsboro in Montgomery County to check on its status, an MSHA spokeswoman said. As of early May, there was no indication the federal agency had given its okay.

 

And from Montgomery County Feb 2017 minutes:

 

http://www.montgomeryco.com/images/docs/cbminutes/2017/2-14-17.pdf

 

Chairman Hertel stated that there has been some drilling activity at

the coal mine. Jones reported that he talked to Hillsboro Energy representative Roger

Dennison and they have drilled an air hole so they can get quality air down by the

longwall machine site.

 

 

 

[gadfly]

Foresight Asks to Re-enter Deer Run Longwall Mine

 

http://www.coalage.com/news/latest/5578-foresight-asks-to-re-enter-deer-run-longwall-mine.html#.WQuglFXyuUk

 

More than a year after its Deer Run longwall mine in southern Illinois was temporarily sealed to put out a stubborn underground fire or hotspot, Foresight Energy LP may have plans to reopen the mine later this year. In April, the St. Louis-based company formally asked the federal Mine Safety and Health Administration for authorization to re-enter the mine near Hillsboro in Montgomery County to check on its status, an MSHA spokeswoman said. As of early May, there was no indication the federal agency had given its okay.

 

And from Montgomery County Feb 2017 minutes:

 

http://www.montgomeryco.com/images/docs/cbminutes/2017/2-14-17.pdf

 

Chairman Hertel stated that there has been some drilling activity at

the coal mine. Jones reported that he talked to Hillsboro Energy representative Roger

Dennison and they have drilled an air hole so they can get quality air down by the

longwall machine site.

 

Thanks for posting the good news. With the stock down pretty significantly and earnings coming out in a week I was just looking at some historical data:

 

For June 2015 Qtr:

 

Net Debt: 1,642

YTM on most junior debt: 10.21%

Revenue: 249

Cash Cost Per Ton: 21.8

Avg Realized Price: 44.4

 

So now we have less debt  that is slightly more expensive while revenue, prices and costs are essentially the same. FELP was $12.7 at the end of June 2015 (although it did drop to $8.3 in following two months). Also, they did declare a .38 dividend during this time, so it's not really apples to apples, but still interesting to see similar numbers on everything except price...

 

 

 

 

 

 

[valcont]

Hallador energy, another ILB player reported earnings today and its up 13%. Whats interesting is their contracted prices on P12 of the Q.

 

http://www.snl.com/Cache/c2000479653.html

 

They have $41.26,$44.26,$44.99,$48.36 for 17,18,19,20. These prices are all at significant premium above the OTC curve. ILB mid range sulfur is $30.26 currently. They do insist that their coal has lower sulfur and chlorine compare to the Illinois based mines(they are in Indiana) but I doubt that they'll get $10 premium for that since most of the plants have scrubbers already. And their cash cost per ton is between $26-28.

[PullTheTrigger]

Murray should have had these attorneys.

 

http://www.mondaq.com/unitedstates/x/591242/trials+appeals+compensation/Foresight+Energy+Refinancing+Results+In+Big+Win+For+Stroocks+Clients

 

The value of the cash and equity that our clients received far exceeded their likely return had the litigation not been prosecuted and won and the subsequent restructuring not been crafted as carefully as it was.

 

 

[heth247]

Earning is out, no surprise. However, one thing I don't understand is that, in the balance sheet, their total liabilities remains about the same when compared to the end of 12/31/2016 ( 1,863 vs. 1,843), yet their cash on hand has decreased from $103M to $4M. Where did the $100M go? Here are the big items from the cash flow statement.

 

Investment in property, plant, equipment and development

                                                                        (19,908 )

Net cash used in investing activities                 (13,785 )

Debt extinguishment costs (57,645 )

Debt issuance costs paid         (27,328 )

Net cash used in financing activities                 (108,062 )

 

Are the debt extinguish cost + issuance cost mainly responsible for the decrease?

 

What is the "pushdown" accounting mentioned in the press release?  I noticed that from the balance sheet the total liability now includes a new "Intangible contracts 109,508" item.  Does that mean it comes from Murray Energy?

 

Thanks.

 

[Patmo]

The cash flow statement is literally meant to be a breakdown of the differences between starting and ending cash balance. So yes that would explain most of it, and look at the other items in the cash flow stmt to see how else the cash account was affected.

[Green King]

This one-time cost should be amortized across the lifetime of the debt.

[gadfly]

Any ideas why PP&E almost doubled from 1.3 billion to 2.6 billion. I'm guessing it has something to do with the new pushdown accounting?

 

I'm interested to see what the investor presentation to be posted this afternoon will look like. This was discussed on the call for anyone that didn't listen. They also mentioned 280-310 EBITDA guidance and 20-22 million tons in 2017.

 

[PullTheTrigger]

Did they take any questions on the call?

[gadfly]

no, just the EBITDA  and production guidance (also mentioned around 90% was priced for 2017 and they expected a decent spot market in the second half).

 

Also talked about having a lot to say about distributions on the next call.

 

Everything else was included in the release.

[heth247]

Any ideas why PP&E almost doubled from 1.3 billion to 2.6 billion. I'm guessing it has something to do with the new pushdown accounting?

 

I'm interested to see what the investor presentation to be posted this afternoon will look like. This was discussed on the call for anyone that didn't listen. They also mentioned 280-310 EBITDA guidance and 20-22 million tons in 2017.

 

I haven't listen to the conference yet. But that is EBITDA, not adjusted EBITDA, correct?  They have done $308MM adjusted EBITDA in 2016 on 19M tons, and $338MM  adjusted EBITDA on 22M tons in 2015.

[heth247]

Just saw the CC transcript is posed on SA:

The 18.6 million tons represents between 84% to 91% of our projected production of 20.5 million to 22 million tons for 2017. At these production levels, we expect EBITDA of $285 million to $315 million and capital expenditures to total between $68 million and $73 million.

 

So, does this mean that the adjusted EBITDA for 2017 to be between 285+68=$353MM and 315+73=$388MM ?

Their debt covenant  leverage ratio is computed based on adjusted EBITDA, correct?

 

[Guest roark33]

FYI:

http://investor.foresight.com/Cache/1001224033.PDF?O=PDF&T=&Y=&D=&FID=1001224033&iid=4313108

 

[awindenberger]

FYI:

http://investor.foresight.com/Cache/1001224033.PDF?O=PDF&T=&Y=&D=&FID=1001224033&iid=4313108

 

"Sponsors Focused on Generating Cash Flow and Growing Distributions"

 

I like it! The question now is, how quickly?

[PullTheTrigger]

— Ownership of subordinated units further incentivizes Murray to support growth and distributions above MQD

[heth247]

FYI:

http://investor.foresight.com/Cache/1001224033.PDF?O=PDF&T=&Y=&D=&FID=1001224033&iid=4313108

 

Well, from page 11 of the presentation, the $285~$315MM guidance for 2017 is indeed adjusted EBITDA.  Guys, aren't you disappointed that it is so low?  They have done $308MM in 2016 at the bottom of the cycle, on 19M tons. And now they are estimating $285MM on 20M tons for 2017, or $315MM on 22M tons? The number just does not make sense to me.

 

What have I missed here?  I do notice that there is some fine-print about "pushdown accounting" on the same page.

[Patmo]

300mil is plenty fine to me. They give you a reconciliation to their adjusted ebitda until 2012. Do a high level comparison and it is within a reasonable expectation.

 

Some additional thoughts:

• Last year is an exceptional year, not a great basis for comparison. The belt was tightened hard, look at the capex spending for example. It is anemic. I bet people brought their own coffee to the office and crap.
  
• This estimate has to be a lowball. First quarter is already quite a ways ahead YoY. These guys are pretty incentivized to bend that way, I think.
  
• 300mil ebitda would not be disappointing at all if it happened anyway, par for the course
  
• Business is business, results aren't ever going to be completely linear. 300mil in 2017 is not a disappointment, rather 300mil in 2016 was a very nice surprise. Think of all the challenges the company faced, it's a pretty phenomenal result
  

 

Foresight's business has been put to the grinder and proved sound, and there is nothing to worry about there in my opinion. The scary stuff is in the game theory bullcrap. With all the pieces that moved, there could be agency issues developing. I am sure somebody more skilled could assess this properly but I can't. Management's comments in the Q are a bit soothing in that regards so that is nice.

 

 

[valcont]

 

At the midpoint of their guidance, you have $300m EBITDA for 2017. Take out $60m capex and $115m interest expense and you get $125m excess cash flow. Granted most will be used to pay off the principal but thats the underlying economics of this commodity play in a low price environment. And this is without the Deer mine which is the lowest cost and produce quarter of their volume. Lets see what comes out of it this year.

 

If all the coal companies are claiming that the utilities's inventories are depleting and there will be improved pricing this summer, then I am inclined to believe that. Maybe that's why they are waiting until next quarter to announce their distribution policy. They have contracted out 18m tons already so lets see what kind of spot price they get this summer.

 

I am surprised by this presentation. I thought Murray was going to take it private but looks like he changed his mind(or maybe the creditors did it for him). The presentation talks about distribution, drop downs , Cline and Murray's stake in the company implying that they are trying to keep it public and grow distributions. If that's the case , then I am happy to hold it because I just can't figure out how Murray can screw the unit holders by taking it private.

 

[PullTheTrigger]

http://www.montgomeryco.com/images/docs/cbminutes/2017/3-14-17.pdf

 

Montgomery County Minutes - March 2017:

 

4. Coal Mine Update: Jones reported that he spoke with Deer Run Mine representative Roger Dennison this

morning and he said that the ventilation testing came back positive at the site which is encouraging news.

 

No update in April minutes.

[heth247]

http://www.montgomeryco.com/images/docs/cbminutes/2017/4-11-17.pdf

 

Montgomery County Minutes - March 2017:

 

4. Coal Mine Update: Jones reported that he spoke with Deer Run Mine representative Roger Dennison this

morning and he said that the ventilation testing came back positive at the site which is encouraging news.

 

No update in April minutes.

 

That's a great find, Dave!  Thanks. I believe the link should be

http://www.montgomeryco.com/images/docs/cbminutes/2017/3-14-17.pdf

 

[heth247]

300mil is plenty fine to me. They give you a reconciliation to their adjusted ebitda until 2012. Do a high level comparison and it is within a reasonable expectation.

 

Some additional thoughts:

• Last year is an exceptional year, not a great basis for comparison. The belt was tightened hard, look at the capex spending for example. It is anemic. I bet people brought their own coffee to the office and crap.
  
• This estimate has to be a lowball. First quarter is already quite a ways ahead YoY. These guys are pretty incentivized to bend that way, I think.
  
• 300mil ebitda would not be disappointing at all if it happened anyway, par for the course
  
• Business is business, results aren't ever going to be completely linear. 300mil in 2017 is not a disappointment, rather 300mil in 2016 was a very nice surprise. Think of all the challenges the company faced, it's a pretty phenomenal result
  

 

Foresight's business has been put to the grinder and proved sound, and there is nothing to worry about there in my opinion. The scary stuff is in the game theory bullcrap. With all the pieces that moved, there could be agency issues developing. I am sure somebody more skilled could assess this properly but I can't. Management's comments in the Q are a bit soothing in that regards so that is nice.

 

I agree that $300MM is plenty, but not on the middle point of 21MM tons. They did $308MM on 19MM tons in 2016. So $300MM on 21MM tons implies that their ebitda margin have a significant drop. Maybe they are just trying to be conservative or maybe this is due to the new "pushdown accounting". But I will be disappointed if this is the actual realized number.

 

[heth247]

Here is the reply from FELP's IR, regarding my question on the low guidance:

 

What you’re seeing for the ranges lower than what you’re expecting is a lower implied realized price driven by an open ton position receiving a lower price than some of what is contracted.  Further, each year a portion of old contracts fall off.  They are renewed in different market conditions where prices differ (good or bad) from where they were originally contracted.  So, we have some higher priced contracts rolling off into lower priced contracts.  Given the market conditions from recent years, this is something all coal companies have had to deal with. 

 

 

[Patmo]

 

At the midpoint of their guidance, you have $300m EBITDA for 2017. Take out $60m capex and $115m interest expense and you get $125m excess cash flow. Granted most will be used to pay off the principal but thats the underlying economics of this commodity play in a low price environment. And this is without the Deer mine which is the lowest cost and produce quarter of their volume. Lets see what comes out of it this year.

 

If all the coal companies are claiming that the utilities's inventories are depleting and there will be improved pricing this summer, then I am inclined to believe that. Maybe that's why they are waiting until next quarter to announce their distribution policy. They have contracted out 18m tons already so lets see what kind of spot price they get this summer.

 

I am surprised by this presentation. I thought Murray was going to take it private but looks like he changed his mind(or maybe the creditors did it for him). The presentation talks about distribution, drop downs , Cline and Murray's stake in the company implying that they are trying to keep it public and grow distributions. If that's the case , then I am happy to hold it because I just can't figure out how Murray can screw the unit holders by taking it private.

 

Thats the part that I mentioned felt a bit soothing, the general direction intended seems to be favorable to commons. One question I have is how much power does the gp have to lord over the lp. Could he lower MQD's, direct more profits toward the gp and give his subs an easier route to catch up, at the expense of the commons? Any pro care to share the intricacies of gp/lp dynamics?

[valcont]

I had to read up quite a bit on push down accounting. Haven't heard of it until last week. One of the thing I wasn't clear on is if the pushdown accounting transfer an acquiree's debt onto the sub's balance sheet (in some kind of twisted LBO way). The IR just confirmed that its just a fair value adjustment.

 

"Thanks for the email.Pushdown accounting is just a fair value adjustment.  There is no increased interest as a result.  The interest expense going forward will change from what was realized in Q1, but that is the result of the refinancing completed in March and not due to assumption of any of Murray Energy's liabilities."

 

Basically, rather than preparing the consolidating balance sheet to adjust the subs value, the pushdown accounting revalues the subs assets/liabilities to the fair value on a set date and establish the new basis.