Good morning and welcome to the CONSOL Energy and CONSOL Coal Resources' First Quarter 2018 Earnings Conference Call and webcast. All participants will be in a listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Mitesh Thakkar, Director of Finance and Investor Relations. Mr. Thakkar, the floor is yours, sir.

Thank you, Mike, and good morning, everyone. Welcome to CONSOL Energy and CONSOL Coal Resources First Quarter 2018 Joint Earnings Conference Call. With me today are Jimmy Brock, our Chief Executive Officer; Dave Khani, our Chief Financial Officer; and Jim McCaffrey, our Chief Commercial Officer. We will start with prepared remarks by Jimmy and Dave and then open up the floor for the Q&A session. During the prepared remarks, we will refer to certain slides that are posted on our websites in advance of today's call. As a reminder, any forward-looking statements or comments we make about future expectations are subject to business risks, which we have laid out for you in our press releases or in previous SEC filings. 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 the press releases, and furnished to the SEC on Form 8-K. You will also find additional information on our websites, www.consolenergy.com and www.ccrlp.com. Before we start, I also wanted to note that this is a joint call for both companies. We will provide some additional information about CONSOL Energy's operations and financial results that are not included in CONSOL Coal Resources' operations and financial resource as appropriate. With that, let me turn it over to our CEO, Jimmy Brock.

Thank you, Mitesh. Good morning, everyone and thank you for joining us on today's call. The CONSOL team delivered a very strong first quarter performance. We not only outperform some of our key operational metrics, but we were also able to accelerate some of our financial objectives. From a CEIX perspective, we commenced the delevering process and started returning capital to our shareholders through some debt and equity buybacks under the plan previously approved by the CEIX board. From a CCR perspective, we had record distribution coverage on an industry-leading distribution yield that allowed further debt reductions simultaneously. We are also initiating some investment at the Pennsylvania Mining Complex and some really attractive efficiency improvement projects that should be beneficial to both companies. All of these was achieved due to our world-class asset base and our differentiated marketing and financial strategies. Some key highlights from the quarter include our Bailey Mine achieved record quarterly production in the first quarter of '18. Our marketing team was able to achieve the highest quarterly sales process for our coal since first quarter of 2015. Our finance team was able to restructure some of the Pennsylvania Mining Complex operating leases which reduced the 2018 cash band by approximately $10 million for CEIX and $2.5 million for CCR. We expect these savings to continue through 2020. CCR achieved a record quarterly adjusted EBITDA of $35 million, the highest since it's RPO [ph] in July of 2015. Now, let me review our operational performance for the first quarter of 2018. The Pennsylvania Mining Complex achieved a strong first quarter production of 6.7 million tons or an annualized run rate of 26.8 million tons, which is in-line with our sales guidance. At the end of quarter, we benefited from strong production at the Bailey Mine, partially offset…

Thank you, Jimmy, and good morning. This morning, I will provide a review of the quarter and an update to our 2018 guidance. Before I do so, let me provide some perspectives on the current energy markets. During the last earnings call, we discussed reviews on the coal pricing cycle and how global demand growth coupled with [indiscernible] is setting us up for sustainable pricing improvement for coal. As Jimmy just highlighted, the global demand for coal has been accelerating as well as the demand for all the commodities. This is important as we benchmark pricing of our product against these other commodities. While it's easy to compare thermal coal prices to domestic natural gas, we also watch and market off other key international thermal and net prices that tie to rising L&G, oil and steel prices. On Slide 10, we provide you the prices of various energy sources throughout the world including several wildly used benchmarks. As you can see from a dollar per MMG2 [ph] basis, there is a nearly an 80% arbitrage for Northern App Coal versus the global L&G market. As these commodities prices rise, this puts in more pressure on the consumer to close the gap. The key differentiator is that we have very high VQ [ph] coal and that all majority of our coal can be exported to our wholly owned export terminal in Baltimore. Our market reaches very broad with our product shipping to five continents last year. We believe this creates upside opportunities for us as global markets are going forward. There has also been an interesting development in the domestic oil and gas production markets. Investors in the past supported production growth are steering management team to raise overall returns, generate free cash flow and include shareholder-friendly actions, similar to the…

Thank you, Dave. Before we move on to the Q&A session, let me take this opportunity to lay out some key priorities for us. For CEIX, our priorities are very clear: de-risk the balance sheet. We made some very good progress since the spend, but we have more work to do on this front. Grow opportunistically. Our capital allocation process has helped us identify some small, but higher rated return projects. We also recently formed an in-house business development team which consist of individuals from key verticals within the company, operations, marketing, land, permitting and finance. The team is evaluating a significant number of asset monetizations or investment opportunities. Improved shareholder returns. As David mentioned, we will be rate-of-return driven. As we improve our rate of return and lower our cost of capital over time, we will create tremendous value for our shareholders. At all times, our internal projects will compete against shareholder repurchases as well as debt repayments which are subject to certain limitations. For CCR, our number one priority is to maintain an attractive distributions with adequate coverage for all unit holders. Our second priority is to opportunistically from some of the projects that our sponsor executes FEAMC. Finally, we will continue to delever the balance sheet and position ourselves to withstand the cyclicality and the commodity prices. While this was a great quarter for us, we have several attractive opportunities in front of us. First, our new export contract is kicking in during the second quarter of 2018 which will give us a pricing uplift on our export volumes. Second, the Enlow Fork Mine geology is improving, which should help us better control our cost. Third, the sulfur content of our coal is expected to further improve the '19 and '20, which should enable us to expand certain markets for our product and capture higher pricing. Fourth, with coal and gas inventories at significantly low levels, we expect to continue to see improving domestic contract prices for '18 through 2020. Finally, we have a management team and workforce that are highly motivated and excited to be a stand-alone coal company again. They continue to be highly productive and are looking for new innovative ways to reduce cost while adhering to our values of safety and compliance. With that, I will hand the call back over to Mitesh for further instructions.

Thank you, Jimmy. We'll now move over to the Q&A session. Mike, can you please provide the instruction to our callers?

Yes, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question will come from Mark Levin of Seaport Global. Please go ahead.

Great. Thanks very much. Congratulations on really one of the better quarters -- I think maybe the best quarter I can remember in a very long time from CONSOL. So congrats on that. Let me ask you a couple of questions. With regard to kind of just thinking about Q2 through Q4, obviously Q1 was huge, $150 million of adjusted EBITDA, but if I take the midpoint of your guidance, let's call the number around $400 million, it seems like that there's a fall off in Q2 through Q4. Is that a function of the net back contracts impacting the realized price by $5 in this quarter? How should we think maybe back Q2 through Q4?

Yes. One, the net debt contracts are very strong in the first quarter. They could be strong in Q2 through Q4, but we obviously want to be very careful with weather because weather is important factor. The second thing as I would say, we have the export contracts kicking in that it takes the material pricing up as well; and then third is if you listen to my commentary, we are going to hopefully walk our guidance up over time. So as we outperform well, we should hopefully -- you should see the numbers up. You should be careful about -- we're thinking about what Q2 through Q4 is relative to Q1.

Mark, this is Jim. Let me jump in a little bit, too. We target export contracts. In the first quarter, we shipped about $1.9 million tons of export. Only 200,000 tons of that was net crossover. As we look for the balance of the year, we expect to ship another 1.3 million to 1.5 million tons of net crossover at a $10 premium to what we shipped the first 200,000 tons. On the thermal side, we expect to ship similar levels to be around 5 million to 6 million tons as the end of the year of thermal sales and we would expect those to be $5 higher than we showed in the first quarter. We expect some solid strength on the export front. Now on the domestic front, on the net back contracts, we gave a lot of color last time about how to take a look at depreciation of those contracts versus a base point of $32.50 a megawatt hour. The good news is we saw great results in the first quarter, but we've continued to see solid results into April and we're seeing some volatility in the power markets that we think will help us continue to promote solid, solid net back pricing. Now, will it be quite as strong as Q1? Perhaps not, but we expect solid performance from those contracts still.

All that leads me to the conclusion to David's last point, that maybe there could be some upside to where EBITDA guidance is. On the second point, just in terms of 2019, so just thinking it out a year from now, anything that you can say or color that you can give us on how to think about what pricing might look like? I realized the net -- but we don't know what the weather is going to be and what the net backs are going to do -- but just broadly speaking, how to think about where stuff is getting priced in '19 versus '18.

Well, we talked about the new export contract we have and I don't think there's any secret that we need to deal with X coal. I think the market is aware of that now. As we look into '19 and we're seeing very consistent performance with pricing, me and my team have been traveling some of the expo [ph], we've been to four different areas of the world in the last quarter and we're seeing surprising eye-opening interest in our products. I anticipate that based upon export pricing, there will be a strong, if not stronger and I'm still excited about the net back pricing. We look at the weather like the bottom cycle and we say, 'Hey, that's a big anomaly which drove pricing' but if you look at the last five winters, '14 and '15 both had strong periods; '18 have strong periods, so I'm going to suggest to you that '16 and '17 was the anomaly with specially weak winter weather. And even in those years, our net back pricing was at or slightly above the rest of our market pricing. I'm anticipating some more volatility in the marketplace based upon some increased economic activity. The fact that we've had some retirements for both coal and new and the home resiliency and price formation discussions continue -- all of that would benefit us in terms of where we see power pricing moving to.

That makes sense. Last question has to do with maybe one of David -- or definitely with one of David's comments with regard to the opportunities that you have. I think you mentioned, obviously looking for the highest return opportunities, whether it be buy backs as you get under 2x levered. But I think you also mentioned the bottle-necking opportunities. What's the opportunity there and maybe some of the internal stuff, some of the higher return internal projects that you have that you would highlight?

Some of those, Mark, are things that we currently have under way now. Some of it is automation. We're using some automation with our shares underground that could increase our yield and reduce our cost to prep plan as well. Then we also have some of the other projects that we'll value and we look at all of these opportunistically. We may have some opportunities and you have to stay tuned to get into some of the METCO [ph] markets, peer metallurgical markets, those things that we have. That's what this BD team is working on, but we're just under way on that. So you have to stay tuned for those.

Yes. Just note, what they'll do is they'll have two pushes to our forecast. One would be it could take our production op and it could take our cost down, so margins would improve. And these things will probably kick in, probably some point later this year into '19 and '20 as we deploy them because they have different time horizons when we put them in place. I'll just say the rates return are meaningfully above 30% or 40%. They are extremely high rates return.

David, are we talking like a million tons, two million tons? Any way to quantify what some of the stuff might mean?

Yes. I would say more than a million tons and less than five.

Got it. Perfect. Thank you very much.

Next, we have Lucas Pipes with B. Riley FBR. [Operator Instructions]. Please go ahead, sir.

Ted [ph] here for Lucas Pipes. First thing, good job on the quarter.

Thank you.

My first question is with inventories that's on the NAPP power plants below 20 days of burn and given the general demands right now, do you see the potential for any sales volume upside and if so, when would you expect these incremental domestic spots off to hit?

I think that based upon natural gas storage, based upon the inventory levels that we see PJM, based upon natural gas demand, based upon a number of different factors, that there is going to be desire for NAPP cost upon pricing in the second half of the year. I also think that most customers that come out looking for it find it it's pretty scarce. I think NAPP coal is going to be very tight and I think that tightness could continue into '19 as well. I talked to Mark about net back pricing and export pricing, but traditional domestic pricing for the quarter was in the upper 40s and I think there's room for improvement there as well.

Okay, got you. Great. And now shifting to exports. How do you guys think the breakdown of thermal exports by geography will change going forward in the coming years? And where is the interest from new export contracts and mostly coming from today? Would that be India?

Well, in 2017, we shipped 8.3 million tons of export coal -- 44% of that went to India and 35% of it went to Europe. The rest went to Asia and South America. As we look at our first quarter numbers and our first quarter, I think is a little imbalanced. We have 72% of our tons that we shipped go into India and 21% to Europe and the balance going to again, Asia and South America. I think that that balance will improve some or level up some as the year goes on, but I would expect to see continued strong demand for India. I spent 10 days in India in February. We visited over 20 different customers and like I said, the amount of demand we saw was pretty astonishing. When you're there, you get the feeling of India that this pet coke thing, sort of like match was in the United States. Nobody knows for sure it's going to happen, but everybody is taking steps to counteract in any way. And I think most people in India are very concerned about the Supreme Court continuing to reduce the limits on burning pet coke and all of that is going to be a big advantage for Northern App Coals.

Got you. That's good news. And then lastly, could you just offer maybe a little farther detail on the geology issues at Enlow Fork in the first quarter? Just perhaps a little bit more color? That will be all.

Yes. We've had some fast-drawn intrusions on one of our long haul panels at Enlow Fork, it's nothing new. We've dealt with this for the last year or so. It has been a little more predominant than it had been previously, but the management team is on that, the management very well. We are continually moving there and it's less severe now than it was it is improving and then about mid-'19, we'll be out of that north end of Enlow Fork is where the problem is and we'll be moving into the new reserves. But it's something that we're managing now, they are safely and can partly [ph] moving through it and it's only going to get better as we continue.

All right. Well, thanks so much, guys, and great job on the quarter again. Thanks.

Thank you.

Next with Nick Dromasic [ph] of Stifel.

Hi, good morning. Nick Charmer [ph] from Stifel. Question for you on the turkey regulatory front. When do you expect there to be a finalization regarding the sulfur content of the thermal whole there?

You know Nick, that's a great question. Everybody I talk to keeps saying 'two more weeks', 'two more weeks.' It's going to happen. I think that the issue is simply this, Turkey today has an input sulfur limits. You can't bring coal into the country at any higher sulfur limit than 1.2%. That input limit is going to be eliminated. They're going to start looking at affluent limits, emission limits going forward and I think that what's going on is they're looking at individual plants, stations, based upon their level of ability to scrub and that's what's delaying the process. They're visiting every individual plant that burns coal in Turkey and I think they'll all have different emission limits, but the input level is definitely going to be eliminated and that is what has taken the extra time.

What do you think the market opportunity there is?

I think in the very short term, the market opportunities, 2 million to 4 million tons, I think in the long term it can grow to 2x that perhaps. Again, it depends upon the individual burners, how they want to blend coals. You have a bunch of power plants over there that have been burning low sulfur coal for quite some time. They will need some help in terms of converting the high sulfur coal and we have a team, we've always had a team of combustion experts that have benefited us in terms of helping our customers burn our Northern App coals and that's why I say in the short term, it's a more limited number, but in the long term, I think we can get it expanded.

Okay. And then question on your contract book. It looks like you were slightly active in the market. Coming in from 70% to 74%. But can you talk about what you're seeing the RFP environments and if there's been any change in the competitive environment since there was some consolidation earlier in the first quarter?

Like I mentioned to Mark, there are some customers coming out for spot business. No one is really out in the market for '19, but I'm convinced that there will be some opportunity to do some term deals as we roll into later in the year. I really think that our coal is going to be tight like I said. Right now, I'm keeping my powder dry as we take a look forward into '19 to '20. But I'm confident about being able to show [indiscernible].

Yes. We're actually ahead of our normal contracted percentage at this time of the year.

So stay tuned on that one.

Okay. It's all I had. Thank you.

Welcome.

[Operator Instructions] Next, we have a follow-up from Mark Levine of Seaport Global.

Thanks. Yes, one other question that just occurred to me. CSX has talked about verbalizing their rate structure to try and incentivize more NAPP utility coal burn out. I realize that's an issue that the utilities would directly negotiate with CSX. But I'm just curious if you have any preliminary thoughts on what we might to expect to see there or what you expect to see there? Do you think CSX, that this could help NAPP burn or is this something that we shouldn't get our hopes up too much about?

I think it's a little too soon to say about CSX, Mark, but I'm optimistic that they're talking about that. I'd say that that will benefit NAPCO burn. I just don't have enough detail to talk about it intelligently just yet.

Got it. And then the second question, you whipped my appetite on the met coal side. I know you guys earned significant amount of met coal reserves, I think some low vol reserves as well, some higher quality stuff. What are some of the options and thoughts you have around those reserves given the met market has obviously gotten a lot better in the last couple of years?

We look at it in a couple of different ways, Mark. One is it definitely had some diversity to our portfolio, so we like that, pleased of it. And every dollar that we spend in capital obviously competes. So we do have some very high quality coal reserves in the met market. We're currently evaluating those. We could do a couple of things: one, we made mine those ourself. One of these probably would not be long well-mined, it will be a continuous mine-to-mine that we may want to JV with someone who has expertise and are better continuous miners than we are. That opportunity set is out there as well and then the other is it's in a market to who has the markets pretty nice right now, so it could be an opportunity to outright monetize it. All of those things are being evaluated.

And we won't put a lot of capital in and so that we're not going to take a lot of commodity risk without having enough either contracted position or something. So we'll do it enough as called on low capital intensive way.

It makes sense. And how about M&A? Does M&A not just selling, but actually going out and buying some? Where does that rank in terms of the things that you've been talking about, whether it be the bottle-necking projects, some of the other internals? How does M&A look to you right now?

I think we would continue to look at those. Obviously, we're open to everything, but evaluation is an important metric there. We would look at the cost to capital, do the due diligence and see which project returns the house-rated capital.

For the risk that it presents. And again, it would have to be stuff that we understand and understand well before we'd ever take the change of doing any acquisitions. It might be mines as opposed to corporation.

Yes. It could be a mine. But the one thing -- when you do an M&A, you got to make certain you know what you're acquiring. And we're seeing a lot of times you go through due diligence, you pick something up and you have to invest significant capital to get the numbers that you anticipated getting. So we've seen over the last five or six years, there hasn't been a lot of capital invested in coal mines, so that would be at the fore front when we start to due diligence to look at them. But again, it will come down to valuation and how attractive we think that return can be for us.

It makes perfect sense. Thanks very much. Appreciate it.

Thank you.

At this time, we're showing no further questions. We'll go ahead and conclude our question-and-answer session. I will now like to turn the conference call back over to Mr. Mitesh Thakkar for any closing remarks. Sir?

Thank you, Mike. We appreciate everyone's time this morning and thank you for your interest and support on CEIX and CCR. Hopefully we were able to answer most of your questions today. We are available to answer any follow-up question you may have today. We look forward to our next quarterly earnings call. Thank you, everybody.

Thank you, sir and to the rest of management team, also for your time today. The conference call has now concluded. At this time, you may disconnect your lines. Thank you again, everyone. Take care and have a great day.

Thank you.