CONSOL Energy Inc

NYSE:CEIX

Earnings Call Transcript 2022-Q2

[Operator]

Good day, and welcome to the CEIX Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I'd now like to turn the one to Nathan Tucker, Director of Finance and Investor Relations. Please go ahead.

[Nathan Tucker, Director of Finance and Investor Relations]

Pardon me, one second. It looks like we are experiencing technical difficulties. Give me one second here. Thank you, and good morning, everyone. Welcome to CONSOL Energy second quarter 2022 earnings conference call. Any forward-looking statements or comments we make about future expectations are subject to risks, certain of which we have outlined in our press release and 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 undertake any obligations of updating any forward-looking statements for future events or otherwise.

We will also be discussing certain non-GAAP financial measures, which are defined and reconciled to comparable GAAP financial measures in our press release and furnished to the SEC on Form 8-K, which is also posted on our website. Additionally, we filed our quarterly on Form 10-Q for the quarter ended June 30, 2022, with the SEC this morning. You can find additional information regarding the company on our website, www.consolenergy.com, which also include the supplemental slide deck that was posted this morning.

On the call with me today are Jimmy Brock, our Chief Executive Officer, Mitesh Thakkar, Chief Financial Officer; Dan Connell, our Senior Vice President of Strategy; and Bob Braithwaite, our Senior Vice President of Marketing and Sales. In his prepared remarks, Jimmy will provide a recap of our key achievements during the second quarter of 2022 and specific insights on operations and sales. Mitesh will then provide an update on our balance sheet initiatives, financial performance and 2022 outlook. He will also highlight the recently completed refinancing of our revolver and accounts receivable securitization facility. Additionally, we will also discuss our recently announced enhanced shareholder return program before Jimmy lays out on the key focus areas for the remainder of the year. After the prepared remarks, there will be a Q&A session, which Dan and Bob will also participate.

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

[Jimmy Brock, Chief Executive Officer]

Thank you, Nate, and good morning, everyone. CONSOL Energy achieved very strong results on many fronts across the company during the second quarter of 2022. The Pennsylvania Mining Complex shipped 6.2 million tons in Q2 of '22, and for the second consecutive quarter, achieved the highest quarterly average coal revenue per ton sold since CEIX became an independent public company in 2017.

After adjusting for the effects of settlements of commodity derivative instruments, we achieved an average realized coal revenue of $72.18 per ton. Additionally, we increased our PAMC forward contracting position by 7.6 million tons through 2025.

The CONSOL Marine Terminal shipped 3.8 million tons in Q2 of '22 and for the second consecutive quarter generated its highest ever quarterly turmoil revenue and adjusted EBITDA.

Financially, CEIX achieved a Q2 '22 adjusted EBITDA of $216 million and generated $160 million in free cash flow. We also made substantial debt repayments in the quarter, while still increasing our unrestricted cash position and liquidity.

On the growth and diversification front, our Itmann project made significant strides in the second quarter, and we announced a startup to occur during the third quarter of 2022. Finally, we are very excited to announce that we are implementing a shareholder return program, which will begin in Q3 '22 and return a portion of our free cash flow generation back to shareholders. We will provide more color on this program shortly.

Let's now discuss our operational performance in more detail. Coal production at the Pennsylvania Mining Complex came in at 6.2 million tons in Q2 of '22, only slightly below our Q1 '22 performance despite multiple longwall moves in the second quarter compared to zero in the first quarter.

Intermittent railroad delays continued during Q2 '22. However, we saw continued improvements from our transportation partners throughout the quarter, as they work to increase their staffing levels. As such, productivity at the PAMC has continued to improve since midyear of 2021. Productivity in the first half of 2022, measured as tons per employee hour improved by 6% compared to the second half of 2021.

On the cost front, our PAMC average cash cost of coal sold per ton for Q2 '22 was $34.81, a significant increase from the $29.91 in Q1 of '22. Along with ongoing development costs associated with the fifth longwall, we continue to experience inflationary pressures on goods, services and repair and maintenance costs at our operations.

Additionally, a premature termination of a fixed power contract as a result of a semi bankruptcy also weighed on our cash cost during the quarter. On a positive note, the development of the fifth longwall continues to progress on track and will provide additional operational flexibility once completed toward the end of this year.

The CONSOL Marine Terminal had a throughput volume of 3.8 million tons during Q2 '22 consistent with the prior year period. However, terminal revenue for the quarter came in at $21.8 million, a significant increase of the $17.4 million in Q2 of '21. This was driven by substantial improvement in the throughput rate per ton due to increased export demand and commodity pricing strength.

CMT operating cash cost came in at $5.7 million for the quarter compared to $5.3 million in Q2 of '21. This resulted in CMT adjusted EBITDA of $15.1 million in Q2 '22 compared to $11 million in the prior year period.

Wrapping up the operations update, our Itmann project development works progressed on schedule in the second quarter with preparation plant, commissioning and production scale up now expected during the third quarter of 2022.

At the end of Q2 '22, relocation and construction of the Itmann prep plant was roughly 80% complete. The majority of the planned equipment was also installed during the second quarter. The new rail sidings and mainline rail construction activities are nearly complete with tie-in expected to occur in early August. Additionally, we have continued to build out our workforce in mining and equipment fleet in preparation for ramp up by the end of Q3 2022.

In Q2 of '22, the Itmann Mine produced approximately 35,000 tons of low-vol metallurgical coal and sold 51,000 tons into the export market. Our marketing efforts continued during the second quarter, and the Itmann product has been well received.

In conjunction with the plant start-up in Q3 of '22, we have successfully concluded a contract in the domestic market for a portion of the 22 Itmann volumes and discussions regarding additional trials for the product are ongoing.

On the marketing front. The demand for our PAMC product remained robust in the second quarter of 2022 due to a persistent lack of supply response in the coal space, coupled with supply shortages across the energy markets broadly. As such, we sold 6.2 million tons of PAMC coal at an average realized revenue per ton sold of $72.18 in Q2 of '22 compared to 5.9 million tons at $44.02 in the year ago period. Additionally, we improved our average realized coal revenue per ton by $12.58 in Q2 of '22 compared to the first quarter of this year.

Looking across the broader thermal coal markets, global demand remains robust as a result of tight supply. In the U.S., we are seeing domestic coal-fired electric generation units delaying retirements due to energy shortage and grid reliability concerns.

Internationally, Europe, Australia and Japan are all bringing back coal-fired electricity generation units due to grid reliability concerns in the face of a potential loss of Russian gas. Adding to the concerns of further declines in supply availability, the new incoming Colombian President is anti-fossil fuel and though not guaranteed could elect to ultimately gain fossil fuel extractions in the country. Colombia currently exports about 50 million to 60 million tons of thermal coal annually, which is already down considerably from roughly 90 million tons exported [ph] in 2016.

Persistent coal supply tightness remains a major theme and is keeping the markets for our products strong. On the back of this market strength, our sales team opportunistically secured additional sales contracts and increased our forward sale position by 7.6 million tons through 2025. We remain near fully contracted for 2022 and now have 19.6 million tons contracted for 2023.

Let me hand the call over to Mitesh to provide an on our financial performance in the quarter and some exciting developments for the company on the financial front.

[Mitesh Thakkar, Chief Financial Officer]

Thank you, Jimmy amie, and good morning, everyone. Let me begin by updating you on our refinancing and other balance sheet initiatives before I dive into the quarterly results and outlook.

Towards the end of 2Q and into early 3Q, we successfully renegotiated an amendment and extension of our revolving credit facility and our accounts receivable securitization facility.

First, on the revolver front, I'm pleased to note that we are successful in securing $260 million of commitment to extend a tranche of our revolving credit facility with the maturity of July 2026. We also have a non-extending tranche of the revolving credit facility of $140 million that will stay in effect through March of 2023, which enables us to maintain a $400 million revolver throughout that period.

The non-extending tranche of lenders made up $282 million of commitment in the previous version of our revolver, and they have chosen not to extend their commitments as the ESG concerns continue to drive the lending decision for many of the banks. We thank the departing lenders for the past support of CONSOL Energy.

On a positive note, we were able to identify several new banks that recognize the improving credit profile of our balance sheet. The critical role that coal continues to play around the world in providing reliable low-cost energy and the important part that CONSOLs business plays in enabling America's energy independence. Accordingly, we were successful in securing more than $100 million of commitments from new lenders, many of whom are in the same communities that we currently serve.

In addition to these new lenders, we secured roughly $40 million of upsize commitments from existing extending lenders. We welcome the new lenders to the CONSOL family, and we thank all the extending lenders for their continued support and commitment.

In summary, while losing capacity is never easy, we are happy with our new revolving credit facility structure for several reasons. First, this amendment and extension rightsizes the facility to reflect the new CEIX, which now has the strongest balance sheet in its history and a lower need for external financing.

Second, our current lender group consists of more supportive lenders, thus reducing the future risk of its churn. Third, we maintain full access to our current $400 million revolver through its current maturity at the end of March 2023, which allows us to rebuild liquidity, while continuing to aggressively reduce debt and initiate a shareholder return program sooner.

Finally, when the facility drops to $260 million, in March 2023, we'll have the ability to add new lenders to the facility if we choose to do so. On the AR securitization front, we maintain the current $100 million capacity and extended the maturity to July 2025, due to several favorable modifications to the borrowing base calculations, we have successfully achieved a higher facility utilization.

Moving on to other balance sheet items. We have continued to take advantage of the opportunities presented by strong market fundamentals to further accelerate our financial goals and priorities.

In 2Q '22, we generated $160 million of free cash flow. We continue to make strides on our overall debt reduction goal, deploying most of our free cash flow for that purpose. In 2Q '22, we made total debt payments of $116 million, which included $75 million of Term Loan B payments and $35 million to fully retire our Term Loan A. We have now made total debt repayments of $154 million in the first half of 2022. I'm pleased to announce that we also made a $50 million discretionary payment on our Term Loan B at the end of July that is not reflected in our second quarter results. This brings our total debt repayments to more than $680 million since the beginning of 2018. We will continue down the path of significant debt reduction towards achieving our goal of approximately $300 million of aggregate growth stat [ph]

Additionally, in the quarter, our unrestricted cash balance increased by nearly $40 million, despite our significant debt reductions, bringing our total unrestricted cash to $262 million at the end of June 2022. When accounting for our restricted cash of $51 million, our total cash balance sat at $313 million at quarter end.

Furthermore, we ended 2Q '22 with a liquidity position of $504 million. This all led to a net leverage ratio of just under 0.5 times at the end of 2Q '22, which was reduced from just under one times at the end of 1Q '22. We remain excited by our progress on this front and expect to continue to better align our gross debt level with our mid-cycle EBITDA level.

However, one area of disappointment for us has been the lack of recognition of our balance sheet and liquidity improvements in our credit ratings. Both S&P and Moody’s continue to rate our corporate credit at essentially the same letter grade that it was lower to during depths of COVID.

The each [ph] have recently experienced analyst turnover issues, which may be contributing to this in action. While frustrating, we continue to work with them and emphasize the importance of our ratings for our borrowing costs. We are optimistic that with the recent debt reduction and revolver amendment, we can achieve some ratings improvement later this year.

Finally, let me provide some color around the financial rationale behind our shareholder return program announced this morning. We have prioritized a strong balance sheet since becoming a public company, but have really emphasized debt reduction over the last two-plus years given our shrinking access to capital markets.

In fact, over just the last four quarters, we have reduced our gross debt by $190 million and enhanced our liquidity by $104 million. Furthermore, our strong free cash flow visibility and extension of our revolving credit facility gives us comfort in our ability to continue to reduce debt meaningfully even while allocating some capital to our shareholder returns.

In the near term, we'll continue to allocate the majority of our free cash flow towards debt reduction. And as we achieve our target debt level, we'll consider a further increase to our shareholder returns. Jimmy will provide more details on this program in his closing remarks.

Our financial strategy has evolved since early 2020 from a very defensive posture [ph] focused on liquidity preservation during the COVID-related demand decline to opportunistic debt repurchases and asset sales, to growth mode in 2021 with our restart of the Itmann project and the redevelopment of the fifth longwall at the Pennsylvania Mining Complex. Ultimately culminating with this announced return program, again, this all stems from our ability to generate free cash flow in all parts of the cycle coupled with a prudent capital allocation strategy.

Now let me recap our second quarter financial results and the outlook for the remainder of the year. This morning, we reported a very strong 2Q '22 financial performance. We ended the quarter with net income of $126.3 million or $3.54 per diluted share and adjusted EBITDA of $216.3 million. Furthermore, we generated $159.9 million of free cash flow, primarily driven by $198.4 million of cash flow from operations and capital expenditures of $39.4 million.

For the PAMC, we are pleased to announce that due to the strong 2Q '22 performance and improved outlook, we are raising our expected average realized core revenue guidance to a range of $64 to $67 per ton net of settlements of commodity derivatives. Our updated guidance assumes average PJM West day-ahead power forwards of $88.44 per megawatt hour at the midpoint of the second half of 2022.

For every $10 per megawatt hour change in PJM West power prices during the second half we estimate the weighted average realization across our entire portfolio for the full year of 2022 will change by approximately $0.07 per ton at the midpoint price.

Additionally throughout this year, we have been successful in opportunistically blending and extending certain contracts to push out lower-priced volumes into future years and replacing them with volumes that better match current market pricing, thereby creating a win-win situation for ourselves and our customers.

This gives certain customers the desire volume commitments for multiple years, while simultaneously improving our near-term pricing and balancing our sales book over a multiple year period by pushing lower priced tons to future years that are much less contracted.

Additionally, for the PAMC, we are improving our 2022 sales volume guidance range to 24 million to 25 million tons, as the operations ran very well in the first half of 2022, and the transportation bottlenecks have gradually improved since the end of 2021. However, on the flip side of those improvements, we are increasing our PAMC cash cost of coal sold guidance to a range of $32 to $34 per tone.

Ongoing inflationary pressures continue to create an upward push in the second quarter - and while our operations and supply chain teams have done a great job of managing costs as best as possible, certain increases are out of our control.

According to FactSet, the analysts currently estimate the U.S. producer price index for 2022 will increase by 11.6% compared to an expectation of 2.6% increase just one year ago. Price increases for items such as steel, lease of lubricants power and services have been a headwind so on this year.

Despite this, we still expect an improvement to our cash margin of $3 per ton at the midpoint of our guidance ranges as compared to last quarters guide. Potentially offsetting some of the operating cost increases is a deduction to our capital expenditure guidance range to $150 million to $185 million. And this is mainly driven by some delays in equipment deliveries and rebuild that had been included in our initial guidance.

For Itmann, our preparation plant project is now on track for 3Q '22 startup and we are reaffirming our production guidance of 300,000 to 500,000 tons for 2022. We expect to provide additional operational guidance for the Itmann mine on our next call and in conjunction with the ramp-up to the full run in production.

We are very pleased with how 2022 has progressed to this point and our ability to optimize our sales force. Looking ahead, we remain even more excited about our future prospects.

We continue to strengthen an already strong book of business for 2023 and beyond. And next year, we expect higher sales volume from both the PAMC and Itmann that could further add to the upside.

Additionally, we continue to bolster our balance sheet and lower the fixed cost of running the business through lower debt servicing cost. All these factors have put us in a good position to share the upside with our stakeholders.

With that, let me turn it back to Jimmy to touch on the shareholder return program and our key priorities for the rest of 2020

[Jimmy Brock, Chief Executive Officer]

Thank you, Mitesh. Now let me touch on the details of our announced shareholder return program that we are very excited about, as we are promised for our third quarters, several conditions needed to be met before looking to shareholder returns. We wanted to get below one times leverage, reduce a significant portion of our gross debt and derisk our Itmann development projects.

We are happy to report these conditions have now been met. We set just below 0.5 times net leverage at the end of Q2 '22. Our Itmann project is doing a ramp-up to full production. And though we still have more work to do on our debt reduction targets, we feel comfortable about our ability to achieve our target gross debt level in the near term, while still implementing a shareholder return trade.

We have engaged many of our shareholders during the second quarter and based on their feedback, we believe it is prudent to initially focus on dividends as the preferred means of shareholder return with the flexibility to opportunistically repurchase shares of our common stock.

Here's how the shareholder return program work. Under this program, at the discretion of the Board of Directors, CEIX will return a portion of its free cash flow generation back to shareholders in the form of quarterly dividends and/or share repurchases.

Based on the free cash flow results from Q3 '22, the first payment under this new program will happen in the fourth quarter and return approximately 35% of free cash flow.

In the short term, the majority of our remaining free cash flow will be allocated toward our debt reduction goals. Once our target gross debt level is achieved, we expect to further increase free cash flow allocation percentage.

In order to kick off the program, we are also pleased to announce that the Board of Directors has elected to pay a special dividend of $1 per share on August 24 to all shareholders of record as of August 16 based on our Q2 '22 results and excess free cash flow generation.

We also announced this morning that in conjunction with the initiation of the shareholder return program, our Board of Directors has increased its previously authorized repurchase program to an aggregate amount of up to $600 million and extended the duration of the program by two years to December 31, 2024. We now have $381 million of availability to repurchase our second lien notes and shares of CEIX common stock.

We appreciate the patience of our holders, as we navigated through the significant debt burden associated with our spend, as well as a tough 2020 due to COVID-related demand destruction. However, we believe our capital allocation approach would set us up for success, and it is very rewarding to see it pan off now for our shareholders. Rest assured, we are not finished. We have more work to do on the debt reduction front, but we are well on our way.

For the remainder of 2022, we have a few key focus areas to help [ph] our success this year and beyond. First, we are focused on bringing the fifth longwall back in the operation in late Q4 and are working with our operations, marketing and logistics partners to ensure that we remain on track. We are also fully committed to getting our Itmann prep plant up and running this quarter.

Second, our sales team remains opportunistic in its approach and will continue to balance revenue visibility and contract duration with a market optionality and arbitrage maximization. We expect to continue to layer in additional business for 2023 and beyond. And depending on the breadth of this ongoing demand stream, we expect into next year with a very strong contracted book of sales. This would allow us to turn our full attention to future years sooner than what is typical.

Third, strengthening our balance sheet and liquidity is always a major focus. I'm very proud of our work to successfully amend and extend the revolver and AR securitization facility. We expect that this will increase our financial flexibility for years to come. And from perspective allow us to focus on reducing our long-term gross debt level. Our strong free cash flow generation and expectations for the near term should allow us to accelerate this goal.

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

[Nathan Tucker, Director of Finance and Investor Relations]

Thank you, Jimmy. We will now move to the Q&A session of our call. At this time, I'd like our operator, please provide the instructions to our callers.

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] Our first question comes from Lucas Pipes from B. Riley Securities. Please go ahead.

[Lucas Pipes, B. Riley Securities]

Thank you, operator. Good morning, everyone and congrats on the results and the announcement of the shareholder return program.

[Jimmy Brock, Chief Executive Officer]

Thank you, Lucas. Good morning.

[Lucas Pipes, B. Riley Securities]

Morning. So a few questions. I'll try to keep it short. On the contracted position for 2023, 19.6 million tons are fixed. Could you share what prices of access?

[Jimmy Brock, Chief Executive Officer]

Sure. Let me first give you the breakdown here, Lucas of our prep volume for ’23, so at 19.6%, with about 12.5 million tons contracted domestic, of that 12.5 million, about 2.5 million is linked to our power prices and then 7.1 million tons export.

Based on where API2 forwards are today, also power prices, we're seeing our realization across 19.6% coming in, call it, low to mid-70s. But also keep in mind, we expect to have five longwalls in operation throughout next year. And then although we haven't announced guidance, I think it would be safe to assume that we will expect a year-over-year improvement in terms of our production sales longs [ph] which would give us, let's just call it, six-plus million tons of our production left to sell, which I will tell you, we have the majority of that earmarked for the export markets.

[Lucas Pipes, B. Riley Securities]

That's very helpful. And a quick follow-up. The export portion of the 19.6, is that floating with API2? Or is it at the cap in the average price you just mentioned? How should we think about the export piece?

[Jimmy Brock, Chief Executive Officer]

Yeah. I would say about 3.5 of the 7.1 are linked to API2. I will tell you that we're significantly above where the cap is. So I think how '23 is trading roughly around 250, 260 today, that would have to drop significantly in order for us to get below what that cap is and then the balance would be fixed price.

[Lucas Pipes, B. Riley Securities]

Understood. That's helpful. Thank you. And then you priced an incremental 3.3 million tons compared to the prior quarter. There are always a few moving pieces here. But why not more? And was it all incrementally domestic? And if so, could you again please share kind of roughly the pricing ballpark on those incremental tons? Thank you.

[Jimmy Brock, Chief Executive Officer]

Yes. So we did some optimization in 2022, as Mitesh mentioned, that was about 0.5 million tons. in 2022 that got moved out into future years. Majority of that did get moved out to 2023, that would have been domestic. When you take the domestic and domestic tons optimization tons, plus incremental tons that we sold, I think when you do the - back of the envelope calculation, the 3.3 for metal tons that we now have in '23 were sold well north of $100, call it closer to 120.

[Lucas Pipes, B. Riley Securities]

Okay. And that's domestic?

[Jimmy Brock, Chief Executive Officer]

I'm sorry, domestic and export, more heavily weighted toward domestic, about 70% domestic, 30% export.

[Lucas Pipes, B. Riley Securities]

Okay. That's very helpful. Thank you very much for that. Now I do want to touch on one of the industry points that was raised, the 12 gigawatts of coal-fired generation that has announced retirement delays. Do you have a rough regional breakdown for those extensions. How much of that would fall within the geographic footprint of CONSOL?

[Jimmy Brock, Chief Executive Officer]

I don't have that breakdown, the specific breakdown, Lucas. But what I can tell you is what we're seeing is customers that were, I would say, concerned about long-term deals. And what I mean by deals if their claims or units are going to be running to the future. I think you're now starting to sense that they will be needed. So we're starting to see longer duration contracts because of that. And I would say, higher volumes than they traditionally would contract out.

So I don't have the specific breakdown, but I can tell you the majority of customers in the PJM and then also into the Southeast are starting to get a sense as though coal will be a vital part of their energy mix for years and years to come.

[Lucas Pipes, B. Riley Securities]

That's helpful. I'll cut it to one last one. You mentioned cancellation of the power supply agreement due to a bankruptcy of the supplier. What's the power situation on the cost side today? Are you floating with spot or have you locked in something else? And what's the cost impact of that? Thank you very much.

[Jimmy Brock, Chief Executive Officer]

Yes. So Lucas, right now, we are more spot driven on the power side from the cost perspective, but our sensitivity to the cost piece is much lower than our sensitivity on the revenue piece. So higher power prices is a significant net benefit for us.

[Lucas Pipes, B. Riley Securities]

Got it. Okay. I appreciate it. I'll turn it over from now. Best of luck.

[Jimmy Brock, Chief Executive Officer]

Thank you

[Operator]

[Operator Instructions] The next question comes from Michael Dudas from Vertical Research. Please go ahead.

[Michael Dudas, Vertical Research]

Good morning, gentlemen.

[Jimmy Brock, Chief Executive Officer]

Morning.

[Mitesh Thakkar, Chief Financial Officer]

Morning.

[Michael Dudas, Vertical Research]

Jimmy, you characterized the mind of buyers of coal heading into the European or Asian markets today. Obviously [indiscernible] the dynamics in the energy markets, but given the other cycles that you guys have participated in, like maybe ’07, ’08 cycle, maybe the ’12, ‘13 cycle, is there going to be more patience? And given where prices are, is it more willing to be more variable on it? Or how are you guys thinking about relative - especially as you look at longer term making significantly higher floor prices for your products and has been witnessed in the last 20 years.

[Jimmy Brock, Chief Executive Officer]

Yes. I'll take the first part of that, and then we'll let Bobby talk about some of the specifics. But back in looking at the cycles, I think the one thing that we're seeing different here is the cognizant supply, before as soon as the market prices start to go up and reach attractable prices, you saw a lot of production increases. You're not seeing that today, although they may be a little, but some of that is because of - we went through COVID, people were serving cash. The investments are just not made and the capital is not invested to bring on that.

So I would say the one big difference, particular in my career and I've certainly been through all of those cycles is there's not the supplier response to drive that price back down as quickly. Now obviously, there's things that we don't know looking into the future, such as this Russian, Ukraine war and those type of things that play on the energy market in general.

But I do believe that the markets are going to remain strong for at least the next couple of years, that’s what we're looking at. And then when you look at where the cos going into different regions, and that also plays into what we do, whether we would hold back summer, we would go ahead and move for those contracted positions. And obviously, we would sacrifice a little bit of price for duration.

[Bob Braithwaite, Senior Vice President of Marketing and Sales]

Yeah, then Michael, on the marketing side, just talking with our customers over in Europe, obviously, there's a strong appetite to continue to contract for the challenge today. Obviously, in the near term, is that all the ports are nearly full with Russian coal and then you have the Rhine River situation, which is exacerbating the problem.

The utilities need the coal. So once this fire and labor situation, correct, which we think will be sometime late August, early September. Obviously, the August 10 ban of Russian coal will take effect here. So that obviously will reduce them out of Russian or eliminated the Russian coal coming in. They obviously looking – European to be looking at Colombia, U.S. to backfill a lot of that need.

So I think in Q4, there is obviously going to be a strong demand and desire to contract additional volumes. We have been successful in contracting volumes in '23 to Europe. I will tell you that the only reason why I don't think we have more done today, it's just due to lack of liquidity in the API2 markets and then also the cost of hedging for these utilities, mainly utilities in Europe feel like on a fixed price - price basis from the producers. And then when they go – they do is go out and they hedge power prices, carbon prices and API2.

So with that being said, I think there's still a lot of opportunity for us to move more coal into Europe potentially as early as late Q4 of '22, which kind of fits really well within our program as we have our fifth longwall coming online and then ‘23 as well and well beyond that.

[Michael Dudas, Vertical Research]

As your historical commitment to the Indian market change on this part how are they thinking about their needs and given where prices and availability is?

[Bob Braithwaite, Senior Vice President of Marketing and Sales]

Yes. We’re having calls with the Indians quite often, there certainly is strong demand there. Petco prices are off a little bit. So the biggest arb [ph] for us continues to be to ship coal into Europe. But ultimately, India is still a growth market and we fully expect to continue to send coal to India for decades to come.

[Michael Dudas, Vertical Research]

That's encouraging. And then Jim you just made to remind us when you contemplated the investment into the project, what kind of longer-term price for the product that you budget in? And maybe tie that into cost inflation over the past several years, given what's happened where the market is today? And are you willing to sell on to the market, which everyone seems to be at the new…

[Jimmy Brock, Chief Executive Officer]

Well, I'll take the first part, and then we'll let Dan weigh in as well. We started thinking about the Itmann project, we started to invest in it. I think it was somewhere around 2019 and obviously, we had the COVID situation come on 2020 to where we had to pull back on capital.

But make no mistake about it, we still very, very excited and feel good about this project. So we did the sensitivities whenever we put it in and understand that at the time the met markets are somewhat volatile. And I think we did a benchmark of around 150 when we put that in and did the net back to the coal mine, we feel very good about the project at that number.

Obviously, the prices are elevated today, but we still feel like that Itmann is going to be a very good project for us. As I said before, some of the best quality there, and we think it's going to travel well and be well received from our customers. Dan, do you have anything you want to add

[Daniel Connell, Senior Vice President, Strategy]

I mean I think you covered it pretty well, Jimmy. Mike, I guess you also were asking about the potential to send Itmann into the thermal market. I'd say we evaluate all of the options. But right now, our priority with Itmann is taking a long-term view and really getting the brand established in the marketplace, so as we ramp production up in the second half, we'll be looking to complete trials with a number of potential customers to get a coal established on the med side as our top priority. And then obviously, to the extent that we have additional tons to sell, having accomplished that we will consider the best arbitrage opportunity. And our terminal is a valuable asset for us in managing the logistics associated with all of that as well.

[Michael Dudas, Vertical Research]

That makes perfect sense. I just - but are you - do you get the sense that we're going to see some of these new dynamics on the reverse crossovers as I can consider it given where the markets are. Is that something that is tangible? Or is it because of quality issues and logistics, it's a little bit more just around the edges just generally in the market? Thanks.

[Daniel Connell, Senior Vice President, Strategy]

Yes. I mean I would tell you that high haul coal alone would have a better success rate and potentially crossing over in the thermal markets. One thing if we were to take it into the thermal markets although I'd say a small percentage, we would likely use that and blend with our Bailey products to make a more superior product going forward. But Itmann by itself is not a cold that likely would be able to cross over by itself.

[Jimmy Brock, Chief Executive Officer]

Yes. The first priority for us, Mark will be to get all the trials done or we know the customers sell the brand and we know us there. Then we have a lot of decision points on where we take it

[Michael Dudas, Vertical Research]

Great. It makes great sense, guys. Thanks a lot.

[Operator]

The next question comes from Nathan Martin from the Benchmark Company. Please go ahead.

[Nathan Martin, the Benchmark Company]

Good morning, guys. Congrats on the quarter. Thanks for taking the questions. I think a lot of them have been addressed, but maybe looking at the additional 7.6 million tons layered on 25, can we give a breakdown of how those tons are spread across the next several years? And then maybe any early thoughts on how many total tons are committed to price for 2024 at this point and maybe with the domestic export is for there? Thank you.

[Bob Braithwaite, Senior Vice President of Marketing and Sales]

Sure, Nate. I'll take that. On the 7.6, 5.5 or domestic 2.1 were exporter for the total $7.6 million. The breakdown a little foggy here because we do have the optimization times on how they move, but I will just tell you that we had some incremental volumes. It's very small that we sold in 2022. Obviously, we increased our sold position in 2023 or $2.5 million and then $1.4 million in 2025. In terms of 2024, we prepared to really give pricing guidance. But I can tell you, we have just over 7.2 million tons sold for '24. And what I would tell you, based on the amount of open tons that we currently have and where the current I certainly could see a scenario by where we have our 24 average sales price north of our 23 average sales price.

[Nathan Martin, the Benchmark Company]

Extremely helpful, Bob. I appreciate that.

[Bob Braithwaite, Senior Vice President of Marketing and Sales]

And maybe kind of as we're looking at where API2 prices are today. Obviously, from an elevates we talked about strong global demand for thermal coal -- could you walk us through on how you're calculating netbacks as you see them right now?

[Jimmy Brock, Chief Executive Officer]

Yes. I think what I would tell you, Nate, is these markets, as you're well aware, extremely volatile. I mean we're seeing $20-plus swings in API 2 prices almost on a daily basis over the past couple of months. The good news is we have been able to lock in some volumes, term volumes at attractive prices during these times. What I would suggest to you, I think API 2023 right now is right around 260. -- based on what we've been seeing, the net back to the mine is in, call it, the mid or 100s. But again, as I mentioned earlier, it's a little bit of a challenge to get volumes committed long term today just based on the liquidity of the API 2 markets, as I mentioned. But I think that's a good kind of sensitivity looking at where prices are today, call it, $260

[Nathan Martin, the Benchmark Company]

Very helpful. Appreciate that. And then maybe, Bob, can you talk about how domestic contracting is going? I think you mentioned or Jinsaidt duration is an important factor for you guys. -- again, with these elevated netbacks, I hope that the power companies are seeing it out there as well as you had any success adding some times with some duration on the domestic side.

[Jimmy Brock, Chief Executive Officer]

Yes. I mean that's what's important for us. It gives us the visibility. Most of our domestic contracts that we have included last quarter were anywhere from 2 to 4 years in duration. And I would just say this, you've heard us say that we've shifted our focus to the export market. And that still holds true today, and that's where the growth is. But I certainly want to stress that our domestic customers, especially the ones that have been with us for decades are important to us and certainly would like we'll keep them in our portfolio for years to come.

[Nathan Martin, the Benchmark Company]

Great. I appreciate you as an your time invest like in the second half

[Operator]

There are no more questions in the queue. This concludes our question-and-answer session. I'd like to turn the conference back over to Nate Tucker for closing.

[Nathan Tucker, Director of Finance and Investor Relations]

Thanks, Jason. We appreciate everyone's time. Thank you for your support in CEIX, and we hope we answered your questions today, and we look forward to our next quarterly earnings call. Thanks, everyone.

[Operator]

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