Foresight Energy LP (NYSE:FELP) today reported financial and operating results for third quarter 2016. Sales volumes of 5.3 million tons during third quarter 2016 generated coal sales revenue of $228.5 million contributing to Adjusted EBITDA of $85.4 million, cash flows from operations of $72.7 million and a net loss attributable to limited partner units of $24.3 million, or $(0.19) per unit. Sales volumes for third quarter 2016 increased 4.4% compared to second quarter 2016 and were 7.5% lower as compared to the prior year third quarter. The current quarter benefited from $10.5 million of insurance recoveries for the reimbursement of mitigation costs incurred at our Hillsboro operation related to the combustion event. However, third quarter 2016 results were negatively impacted by $13.2 million in debt extinguishment costs, of which $11.0 million were non-cash, $6.1 million of debt restructuring costs, and $6.0 million of losses on commodity derivative contracts.
“Despite challenging market conditions and all of the activities related to the global restructuring of our indebtedness, we delivered very solid operating and financial results for the third quarter. These results demonstrate the superior quality of our asset base and our operational excellence,” said Robert D. Moore, President and Chief Executive Officer. “Our operating costs continue to be best-in-class and allow us to generate positive Adjusted EBITDA margins at all points in the commodity cycle. Additionally, domestic and export realizations showed modest improvement during the quarter allowing us to contract over 4.0 million tons for delivery though 2018.”
During the quarter, as described in FELP’s Form 8-K filed on September 6, 2016, Foresight completed an out-of-court restructuring of more than $1.4 billion in indebtedness. This restructuring resolved the various defaults and events of default related to the December 2015 Delaware Court of Chancery opinion that the equity transaction involving Murray Energy and Foresight Reserves constituted a “change of control.” The restructuring provided for, among other things: (1) an amendment and restatement of the Partnership’s senior credit facility, restoring access to our revolving credit facility while also amending certain commitment levels and financial maintenance covenants; (2) an amendment and restatement of the Partnership’s receivables securitization facility; (3) amendments and waivers related to the Partnership’s longwall equipment leases and financings including a reduction in certain maturities; and (4) amendments and other modifications to governance documents and existing agreements by and among the equity sponsors, as well as, the execution of various mutual releases among the participants in the restructuring. Please refer to the Current Report on Form 8-K filed with the Securities and Exhange Commission (“SEC”) on September 6, 2016 and the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 filed with the SEC today for more information regarding the debt restructuring.
“The resulting transaction addresses the change of control litigation and improves the Partnership’s long-term leverage profile, which better positions the Partnership as it continues to operate in a difficult environment,” added Mr. Moore.
In addition to strong production, Foresight’s operations continue to make significant improvements in the area of safety. During third quarter 2016, Foresight’s Macoupin operation was the recipient of an award from the Joseph A. Holmes Safety Association for having the lowest total reportable incident frequency rate for the second quarter of 2016. “All of our operations have put a renewed emphasis on safety initiatives and we have seen improvements in various safety metrics including reportable and lost time incidents. This is a credit to our employees and their efforts,” stated Mr. Moore.
Coal sales totaled $228.5 million during third quarter 2016, a decrease of $22.7 million from the prior year third quarter. This decrease was primarily due to reduced sales volumes attributed to difficult coal market conditions driven by oversupply in the market, excess utility stockpiles and continued low natural gas prices. However, during the third quarter, the Partnership began to see some improvement in the international markets as export thermal coal pricing improved significantly.
Cost of coal produced was $110.3 million for third quarter 2016 compared to $128.2 million for the same period 2015. The decrease during the current quarter was due to lower sales volumes, as well as a reduction in our cash cost per ton sold, driven largely by synergies related to the transaction with Murray Energy, including lower mine overhead costs and operational efficiencies, plus the benefit of the insurance recoveries for the reimbursement of mitigation costs related to the Hillsboro combustion event which totaled $10.5 million.
Transportation costs declined slightly from the prior year period due to lower export sales volumes offset partially by higher charges for shortfalls on minimum contractual throughput volume requirements.
Selling, general and administrative expenses increased $2.6 million in the third quarter 2016 compared to the third quarter 2015 due to incremental litigation accrual expenses.
Interest expense for the third quarter 2016 increased $8.0 million from the prior year period due primarily to higher effective interest rates under the new and amended debt instruments as well as higher interest rates under the term loan, revolving credit facility and A/R securitization facility prior to the closing date of the restructuring transactions due to default interest rates being in effect.
As a result of the completion of the global restructuring, Foresight also recognized $6.1 million in debt restructuring costs and a $13.2 million loss on the extinguishment of debt during the third quarter 2016.
Cash flows provided by operations for third quarter 2016 reached $72.7 million and Foresight ended the quarter with $76.8 million in cash and cash equivalents, representing an increase of $31.7 million from second quarter 2016. During third quarter 2016 capital expenditures were $14.7 million and year-to-date capital expenditures are down $41.5 million as compared to the nine months ended September 30, 2015.
