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Foresight increasing focus on exports amid flat domestic thermal coal prices

Illinois Basin thermal coal producer Foresight Energy LP is increasing its focus on exports as it faces low natural gas prices and "comfortable" utility inventory levels on the domestic front.

"We have focused a significant amount of time on our export market opportunities in an effort to tighten domestic supply and maximize coal sale realizations," CEO, Chairman and President Robert Moore said on a March 7 earnings call, adding that the domestic thermal coal market "remains challenging" and pricing will likely be relatively flat in 2018.

"Natural gas prices remain too low, and most electric utilities appeared comfortable with the current inventory levels, especially considering current weather forecasts," he said.

Foresight's focus mirrors that of Cloud Peak Energy Inc., whose CEO recently said exports are the only option for growth in a calming domestic market. Arch Coal Inc. reported a strong bump from coal exports in the fourth quarter of 2017, while CONSOL Energy Inc. also is finding upside potential overseas.

Robert Murray, CEO and founder of Murray Energy Corp., which owns a major stake in Foresight, told S&P Global Market Intelligence that his company is growing substantially in exports, due in part to difficult conditions domestically.

Murray Energy "historically exported relatively small amounts of coal around the world," he said. "In 2018, we will export 22.5 million tons out of our 76 million tons of production."

Moore said coal-fired electric generation in Europe is at peak levels because of cold weather and natural gas shortages in some countries, and while export coal prices have "declined sharply" in the past few weeks, Foresight locked in some export tons bound for Europe at high prices early in 2018.

"We've also made good progress in placing our product in India, Turkey, Egypt and several other countries around the world," Moore said.

Foresight reported a net loss of $74.2 million in the fourth quarter of 2017, compared with a net loss of $85 million in the same period of 2016.

Adjusted EBITDA for 2018 is expected to be $280 million to $310 million, with estimated capital expenditures between $70 million and $80 million.

The partnership projected sales volumes for 2018 of 21.5 million to 22.8 million tons, with more than 5 million tons sold into the international market, according to its earnings report.

Moore said Foresight is capable of exporting up to 11 million tons to reach potential demand, "but I don't foresee us doing that kind of volume on an export basis."

Transportation issues could complicate Foresight's export plans.

"We are incurring some problems with the [Canadian National Railway Co.]. They have not been all that efficient for us," Moore said.

Foresight is focused on shipping via rail to the Convent Marine Terminal near New Orleans due to a take-or-pay obligation on 5 million tons of coal, but Moore said the economics are better for river shipments right now.

"We can midstream and we can do that at a good price. And just given where the export volumes are, I wouldn't be surprised if we aren't midstreaming some volumes later this year," he said.