TORONTO (miningweekly.com) – US fossil fuels producer Consol Energy on Friday reported that it had closed several term coal deals totalling 10.8-million tons over a three-year period.

These agreements, along with 650 000 t of further commitments for 2016, increased Consol’s Pennsylvania operations’ 2016, 2017 and 2018 sold positions to 93%, 61%, and 49%, respectively, assuming the midpoint of the guidance range of 26-million tons, the company advised.

"These agreements demonstrate that even as markets continue to be challenged, customers are still incentivised to contract for term commitments to assure that they have a reliable supply of coal. The Pennsylvania operations coal has a quality advantage due to its high British thermal units (BTUs) that not only optimises plant performance, but also travels well to compete in non-traditional markets,” president and CEO Nicholas DeIuliis stated.

He noted that despite the domestic coal market being in the midst of a permanent structural shift, the company was capturing market share in the Upper Midwest, Ohio River Valley and South-Eastern US regions, which had traditionally been served by the company’s competitors in the Central Appalachian and Illinois Basins.

Consol expected its Pennsylvania operations to generate positive free cash flow in 2016, despite depressed natural gas prices and their linked effect on coal pricing.

“For 2017 and 2018, where we have committed pricing, the pricing is in steady contango. For the sold tons that are not priced in 2017 and 2018, our agreements are structured so that Consol will realise increases as natural gas prices improve and the new market realities begin to bring coal supply and demand into equilibrium,” DeIuliis said.

The company affirmed the previous estimated price range across the entire coal division for committed and priced tons in 2016 of $50/t to $55/t.

Consol also advised that it had added more natural gas hedges to further reduce risks related to commodity price volatility. The company’s hedged gas volumes included a combination of NYMEX financial hedges and index financial hedges (NYMEX plus basis). To protect the NYMEX hedge volumes from basis exposure, Consol advised that it entered into basis-only financial hedges and physical sales with fixed basis at certain sales points.

The company continued to add gas hedges through 2018. Consol’s 2016 NYMEX plus basis hedge position increased to 222 Bcf at an average hedge price of $3.28/Mcf. NYMEX plus basis hedge volumes were not exposed to basis differentials but instead had protected revenue. For instance, in 2016, NYMEX plus basis gas hedges locked in revenue of about $730-million, Consol said.