Foresight Energy LP Investor Presentation May 2017 FORESIGHT ENERGY

Transcription

1 Foresight Energy LP Investor Presentation May 2017 FORESIGHT ENERGY

2 Disclaimer It is understood and acknowledged that any person s access to, and use of, any of the attached materials constitutes their overall acceptance of the following: (i) the information contained in this presentation has not been independently verified and no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the information or opinions contained herein; (ii) the information set out herein may be subject to revision and may change materially before closing; (iii) no person should rely on statements or representations made within these materials nor should any person rely on the statements or representations made by any other source based on these materials; and (iv) neither Foresight Energy LP ( Foresight or the Company ) nor any other party involved in the preparation of the attached materials shall have any duty or liability to any person in connection with the attached materials. This presentation and the information contained herein have been prepared to assist interested parties in making their own evaluation of the Company and the facilities and does not purport to be all-inclusive. Each recipient of the information and data contained herein should take such steps as it deems necessary to assure that it has the information it considers material or desirable in making its decision to become a lender and should perform its own independent investigation and analysis of the facilities or the transactions contemplated thereby and the creditworthiness of the Company. The recipient represents that it is sophisticated and experienced in extending credit to entities similar to the Company. The information and data contained herein are not a substitute for the recipient's independent evaluation and analysis and should not be considered as a recommendation that any recipient enter into the facilities. The contents of this presentation are not to be construed as legal, regulatory, business, accounting or tax advice. You should consult your own attorney, business advisor, accountant and tax advisor as to legal, regulatory, business, accounting and tax advice. Under no circumstances is this presentation or the information contained herein to be construed as a prospectus, offering memorandum or advertisement, and neither any part of this presentation nor any information or statement contained herein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. This presentation is not, and is not intended to be, an offer to sell, or a solicitation of an offer to purchase, any securities or any other interest in the Company. This presentation is confidential. Any reproduction or distribution of this presentation, in whole or in part, or the disclosure of the contents hereof, without the prior written consent of the Company, is prohibited. The Company and its affiliates, officers, directors, employees, professional advisors and agents do not accept responsibility or liability for this presentation or its contents. Cautionary Note Regarding Forward-Looking Statements. This presentation contains, and oral statements made from time to time by our representatives may contain, forwardlooking statements about our business, operations, and industry, as well as the proposed transactions described herein, which involve risks and uncertainties, such as statements regarding our plans, objectives, expectations and intentions. You can identify these forward-looking statements by the use of forward-looking words such as outlook, intends, plans, estimates, believes, expects, potential, continues, may, will, should, seeks, approximately, predicts, anticipates, foresees, or the negative version of these words or other comparable words and phrases. Any forward-looking statements contained in this presentation speak only as of the date on which we make it and are based upon our historical performance and on current plans, estimates and expectations. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that the future developments affecting us will be those that we anticipate. Our future results and financial condition may differ materially from those we currently anticipate as a result of the various factors, many of which are outside our control. Furthermore, the successful consummation of the transactions described herein on the terms described herein, or at all, is subject to, among other things, agreement on principal terms between the parties, successful negotiation of definitive documentation and any conditions contained therein, all of which is not solely within our control. Factors that could affect the foregoing include, but are not limited to, the market price for coal, the supply of, and demand for, domestic and foreign coal, competition from other coal suppliers, the cost of using, and the availability of, other fuels, the effects of technological developments, advances in power technologies, the efficiency of our mines, the amount of coal we are able to produce from our properties, operating difficulties and unfavorable geologic conditions and other uncertainties. These factors should be read in conjunction with the risk factors included in Part I. "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ending December 31, You are cautioned not to place undue reliance on forward-looking statements, which are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except as required by law. 2

3 Non-GAAP Financial Measures Use of Non-GAAP Financial Measures. Management provides financial measures and terms not calculated in accordance with accounting principles generally accepted in the United States (GAAP). Presentation of non-gaap measures such as, but not limited to Adjusted EBITDA provides investors with an alternative method for assessing our operating results in a manner that, when coupled with the GAAP results and the reconciliation to GAAP results, enables them to more thoroughly evaluate our performance. These non-gaap measures provide a baseline for assessing the our future earnings expectations. Our management uses these non-gaap measures for the same purpose. The non-gaap measures included in this presentation are provided to give investors access to the types of measures that we use in analyzing our results. The calculation of non- GAAP financial measures herein is not necessarily comparable to similarly titled measures reported by other companies. These non-gaap measures may be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results, and they may exclude financial information that some consider important in evaluating our performance. Schedules that reconcile non-gaap financial measures used in this presentation to GAAP financial measures are included with this presentation. We define Adjusted EBITDA as net income (loss) attributable to controlling interests before interest, income taxes, depreciation, depletion, amortization and accretion. Adjusted EBITDA is also adjusted for equity-based compensation, losses/gains on commodity derivative contracts, settlements of derivative contracts, changes in the fair value of the warrants and material nonrecurring or other items which may not reflect the trend of future results. As it relates to derivatives, the Adjusted EBITDA calculation removes the total impact of derivative gains/losses on net income (loss) during the period and then adds/deducts to Adjusted EBITDA the aggregate settlements during the period. 3

4 Overview of Foresight Energy LP Foresight Energy LP ( Foresight or the Company ) is a thermal coal producer that controls approximately 2.1 billion tons of proven and probable coal reserves in the Illinois Basin ( ILB ) Major supplier of thermal coal to domestic power plants, industrial users and international customers Four state-of-the-art longwall mines 1 and one continuous miner operation across four mining complexes Operations represent some of the most productive and lowest cost mines in the U.S. Produce high-heat content coal with ability to ship domestically and internationally Mines are strategically located near multiple rail and river access points to provide transportation optionality Well-positioned to remain profitable throughout the cycle due to its low cost structure and high heat content For LTM ended March 31, 2017, Foresight sold 20.8 million tons ( Mst ) of coal, generating total revenues and Adjusted EBITDA of $940.1 million and $322.5 million, respectively $1.4bn investment by Murray Energy Corporation ( Murray Energy ) in 2015 has generated significant synergies and created the dominant U.S. coal producer focused on high high-heat content thermal coal Recently completed refinancing that removed potential dilution from the Convertible PIK Note and allows Foresight to resume distributions on common units, subject to the discretion of management and terms of financing documents Favorable outlook with evolving U.S. political landscape, stabilization of domestic and seaborne thermal prices, improved capital structure, and clear path to resume distributions 1 Includes Hillsboro which is currently idled. 4

5 What s Happened Over the Past Year? Strengthened Capital Structure Enhanced by Coal Industry Tailwinds Industry Business / Ownership Capital Structure ILB continues to take market share from high-cost Central Appalachian ( CAPP ) and low-btu Powder River Basin ( PRB ) coals Prices rose significantly during the second half of 2016 and early 2017, after reaching historic lows in the first half of 2016 Domestic: Hot summer in 2016 saw increased natural gas prices and significant destocking of coal inventories Seaborne: Chinese policies restricting production combined with increasing Chinese and Indian imports to lead seaborne price recovery Favorable outlook for domestic coal market supported by evolving U.S. political landscape and resilient natural gas prices despite mild winter Seaborne pricing expected to remain near current levels on-the-back of Chinese coal supply restrictions Consolidated ownership with Murray Energy owning 80% GP interest, 77.5% IDRs and 51% LP interest Recent refinancing consolidated ownership under Murray Energy, which solidifies benefits of Murray Energy-Foresight combination Murray Energy is the largest domestic private owner / operator of coal assets with significant expertise in longwall mining and marketing high heat content coal Cash costs decreased by ~$1/ton, in 2016 despite our mine operating below capacity due to market conditions Increased cash balance by over $85mm during 2016 despite most challenging coal market in last 15 years Following out-of-court restructuring and recent refinancing, Foresight has simplified capital structure with greater operational and financial flexibility Extended debt maturity profile and reduced debt and total annual interest expense Murray Energy backstopped $61mm common equity issuance as part of refinancing Refinancing removed overhang related to potential dilution from Convertible PIK Notes Refinancing allows Foresight to resume distributions on common units, subject to the discretion of management and terms of financing documents 5

6 Foresight Overview

7 Portfolio of Tier 1 Assets in the Illinois Basin with Large Reserve Base Williamson Energy Reserves: 376 Mst Mine Method: Longwall Total Longwall Capacity: 1 Current Longwalls Operating: 1 Productive Capacity per Longwall 7.5 Mst/yr Macoupin Energy Location of Assets Hillsboro Energy Macoupin Energy Reserves: 64 Mst Mine Method: FCT 1 with CM Unit Productive Capacity 2.5 Mst/yr Southern Illinois Sugar Camp Complex Reserves: 1,337 Mst Mine Method: Longwall Total Longwall Capacity: 4 Current Longwalls Operating 2 Productive Capacity per Longwall 7.5 Mst/yr Headquarters St Louis, Missouri 25 miles Viking Energy Hillsboro Energy (Currently Idle) Reserves: 322 Mst Mine Method: Longwall Total Longwall Capacity: 1 Current Longwalls Operating Idle Productive Capacity per Longwall 7.0 Mst/yr Blue shaded areas denote reserves Williamson Energy Sugar Camp Energy 1 Flexible Conveyor Train. 7

8 Illinois Basin is the Most Attractive U.S. Coal Basin Industry Dynamics Over Time Overview of Basins Installation of scrubbers not mandatory ILB NAPP CAPP PRB Pre-MATS ( ) Preference for low sulfur coal High demand for PRB and CAPP coal, even if relatively lower heat content and higher cost Cost Low Cost Longwall Low Cost Longwall Highest Cost Surface / LW / CM Low Cost Surface Mining MATS Regulation Current Environment (since 2012) Mercury and Air Toxics Standard ( MATS ) required all power plants to install scrubbers to reduce SO 2 and NO 2 emissions or retire Resulted in significant closures due to costs ~35 GW of domestic electricity generation expected to be retired between , to be partially offset by remaining plants running at higher utilization rates Neutral to sulfur content Preference for lower cost, high Btu coal, irrespective of sulfur content Shift in demand toward ILB and Northern Appalachian ( NAPP ) coals Increase in capacity factors of scrubbed plants to replace retiring capacity Value Transport High Btu Sulfur Neutral River Railroads Truck High Btu Sulfur Neutral River Railroads High Btu Low Btu Low Sulfur Low Sulfur Limited Use of Barges Long Distance Railroads (Captive) Demand Growing Declining Declining Declining 8 Source: Company filings, EIA

9 Industry Leading Productivity Drives Low Cash Costs & Attractive Margins Productivity for the Top 35 U.S. Underground Coal Mines in 2016 (Clean tons per man-hour) Reported 2016 Cash Margin per Ton ($/ton) 3 Williamson Sugar Camp¹ $22.65 Macoupin² 9.4 $14.30 $14.23 $1.74 Top 35 U.S. Underground Coal Average: 7.7 TPMH Foresight NAPP Average ILB Average PRB Average 9 Foresight Energy All Other Coal Producers Source: Company filings, MSHA and Wood Mackenzie Note: Excludes U.S. underground coal mines with production of less than 100,000 tons per annum. 1 M-Class and Viking LW mine aggregated. 2 CM mine. 3 Shown before transportation costs given significant differences in export tonnage profiles between producers. NAPP margin does not include metallurgical coal mines. CAPP excluded due to negative margin in 2016.

10 Multiple Competing Transportation Options Enhance Cash Cost Position Transportation Optionality Map of Assets and Logistics Network Complex Rail River/Barge Truck CN UP NS CSX BNSF OH MS Williamson Sugar Camp Hillsboro Macoupin Leverage Transportation Carriers Arbitrage Opportunities Ohio River Mississippi River Market Diversity 33% 30% 24% 17% 25% 31% 31% 28% 36% 42% 51% 52% Rail / Truck Barge Export Convent Marine Terminal Foresight Operations Coal Terminal Foresight Customers Scrubbed Plants United Bulk Terminal Key Rail Lines CN CSX NS Source: Management and Ventyx Velocity Suite 10

11 Contracted Volumes Provide Stable and Predictable Cash Flows Contract Position 2017E Coal Sales and Contracted Position Well-established, blue-chip customer base committed to multiyear contracts Customers diversified across the U.S. and seaborne markets, with majority of customers being U.S. domestic utilities Foresight benefits from 18.6Mt of contracted and priced volume in 2017, providing stable and predictable cash flows going into 2018 Uncontracted tons provide flexibility to opportunistically move tonnage between domestic and seaborne markets with changes in price outlook In Q1 2017, coal sales volumes increased by 1.5mm tons compared to Q1 2016, principally driven by increased shipments into export markets 20.5mm tons 9% 91% 22.0mm tons 16% 84% Low Priced / Contracted High Uncontracted 11

12 2017E Guidance Range 2017E Adjusted EBITDA ($mm) 2017E Capital Expenditure ($mm) $315 $285 $68 $73 Low High Low High A reconciliation of estimated 2017 Adjusted EBITDA to U.S. GAAP net income is not provided because U.S. GAAP net income for the projection period is not assessable. The Partnership s net income in future periods will be impacted by the effects of pushdown accounting. The amount of such gains and losses from the effects of pushdown accounting could be significant, such that the amount of additional net income would vary substantially from the amount of projected Adjusted EBITDA. 12

13 Coal Expected to Benefit from Evolving U.S. Political Landscape Rolling Back Existing EPA Regulations On March 28, 2017 President Trump signed the Executive Order on Energy Independence, which calls for a review of the Clean Power Plan ( CPP ) Domestic energy regulators can submit plans to the White House to revise or rescind regulatory barriers that impede progress towards energy independence Trump Administration may repeal the EPA s endangerment finding, thereby removing legal support for much of the EPA s previous action on climate change, including the CPP The endangerment finding was issued in 2009 after the U.S. Supreme Court ruled that greenhouse gases must be regulated under the Clean Air Act if they endanger health Trump Administration may also end government-sponsored legal defense of the CPP, which is presently subject to judicial challenges The Republican-controlled Congress could lower federal tax and royalty rates on coal Various changes could alleviate regulatory burdens on industries that burn coal and result in increased demand On February 16, 2017 Trump signed legislation under the Congressional Review Act revoking the Stream Protection Rule which imposed new requirements to avoid damage to waterways outside mine boundaries Transferring Environmental Policy Back to the States The EPA could transfer or delegate regulatory power to states, including allowing states more latitude to set environmental policy Limiting sue and settle practice, where the EPA negotiates directly with regulated businesses and excludes state regulators New EPA administrator could also aim for more industry representation on the EPA s Science Advisory Board Phasing Out Subsidies for Renewables Trump has indicated that the Administration would work to remove subsidies so that all fuels can compete on a level basis 13

14 Foresight-Murray Energy Partnership

15 Transaction With Murray Created the Dominant U.S. Coal Producer 2.1 Billion Tons of Reserves 2.1 Billion Tons of Reserves Best Positioned Coal Producer Perfect Strategic Fit Operational Expertise Operational and Manufacturing Expertise Leadership Position in Premier Coal Basins Significant Synergies Pure-Play ILB Producer Exposure to ILB and NAPP Enhanced Transportation Optionality 15

16 Murray is the Largest Privately Owned Coal Company in U.S. Asset Map Commentary Founded in 1988 by Mr. Robert E. Murray 11 active coal mines across 10 mining complexes in NAPP, ILB, Uintah Basin and Colombia, South America Tier I assets across premier coal basins with 2.1bn tons of high Btu coal Low cost producer, driven by longwall mining and low transportation costs Multiple transportation options at each complex for wide market access Strong customer relationships with long term off-take agreements Best-in-class management team 2016 Reserves and Production by Basin Reserves Other¹ 4% Production Other¹ 10% ILB 25% NAPP 71% ILB 10% NAPP 80% Total Reserves 2 : 2.1bn tons Total Production: 49.3mm tons Source: Company disclosures 1 Includes Uintah Basin in the U.S. and the La Francia mine in Colombia, South America. 2 Proven and Probable Reserves as of December 31, 2016 of 2.1 billion tons, excluding Foresight. 16

17 Ownership Structure Incentivizes Sponsors to Grow Distributions History of Sponsors Ownership Organizational Structure In 2006, the Cline Group formed Foresight Energy to develop and operate Illinois mining assets and completed the IPO in 2014 In 2015, Murray acquired an economic interest in FEGP and FELP for $1.4bn cash consideration, including: 34% voting interest in FEGP with 77.5% of the IDRs 50% interest in FELP, representing all subordinated units Cline & Affiliates 20% Voting Interest 22.5% IDRs 80% Voting Interest 77.5% IDRs Murray Option to acquire an additional 46% of the voting interest in Foresight GP In 2017, as part of a refinancing, Murray consolidated its ownership in Foresight: Additional $61mm investment for common LP units Foresight GP 58% Common LP 12% Common LP 100% Subordinated LP Exercised the option to increase its GP stake to 80% for $15mm Murray now owns 51% of the LP units (12% common / 100% subordinated), 80% of the GP interest and 77.5% of the IDRs of Foresight With ownership of IDRs, Cline and Murray are economically incentivized to grow distributions Ownership of subordinated units further incentivizes Murray to support growth and distributions above MQD Public Unitholders 30% Common LP Foresight LP 17 Source: Company disclosures; market data as of May 08, 2017

18 Distribution Strategy & Outlook

19 Refinancing has Improved Foresight s Capital Structure In March 2017, Foresight executed a comprehensive refinancing of its capital structure Existing Revolver, 1 st Lien Term Loan, 2 nd Lien Notes and 2 nd Lien Convertible PIK Notes repaid with cash on balance sheet, equity investment from Murray Energy, new Revolving Credit Facility, 1 st Lien Term Loan and 2 nd Lien Notes The refinancing transaction provides significant benefits to Foresight and its common LP units, including: A simplified capital structure with greater operational and financial flexibility Extends maturity profile and removes potential dilution from Convertible PIK Notes Provides ability to resume distributions on common LP units, subject to the discretion of management and terms of financing documents FY 2016 Capitalization Maturity Profile ($ in millions) Capitalization Maturity Profile ($ in millions) $825 $300 $450 $ 98 $353 $296 $ 349 $170 $ st Lien Term Loan Undrawn Revolver 2nd Lien Notes 2nd Lien Convertible PIK Notes Drawn Revolver New Revolver New 1st Lien Term Loan New 2nd Lien Notes Note: Maturity profiles exclude Foresight s Trade A/R Securitization Facility, Longwall Financing Arrangements and Capital Lease Obligations. 19

20 Sponsors Focused on Generating Cash Flow and Growing Distributions Cash Flow Generation Capital Structure Multiple Growth Drivers Long-term sales contracts provide revenue visibility and stable cash flows Industry leading low-cost position generates positive cash flow through commodity cycle Broad market access through transportation optionality; diversified customer base Favorable coal industry outlook under the Trump Administration with upside through exports Strong, flexible capital structure designed for growth Clean balance sheet with no legacy pension and OPEB liabilities Recently completed refinancing allows Foresight to resume distributions on common units, subject to the discretion of management and terms of financing documents Under new capital structure, cash flow available for distributions will increase as Foresight delevers Multiple options to grow distributions available to sponsors: Large reserve base provides ability to increase production in response to demand Flexibility to increase export sales if seaborne markets continue to show strength Opportunistic M&A following coal industry transformation over last 24 months Unitholder Returns Focus on maximizing unitholder return through generating cash flow and growing distributions Continue to control costs and seek highest netback prices in domestic and seaborne markets Intend to reinstate distributions to common unitholders Seek to pay distributions utilizing percentage of excess cash flow Continue to evaluate potential for drop-down acquisitions or opportunistic M&A 20

21 Clear Roadmap to Unitholder Returns Leading Thermal Coal Producer with Exposure to Most Attractive U.S. Coal Basin Low Cost Operations Allow for Significant Cash Flow Through the Cycle Sponsors Strategically Aligned with Unitholders and Incentivized to Reinstate and Grow Distributions Strengthened Capital Structure Enhanced by Improving Industry Dynamics Expected Near-Term Deleveraging will Increase Cash Flow Available for Distributions 21

22 Appendix

23 Adjusted EBITDA Reconciliation For the Year Ended December 31, Three Months Ended March 31, ($ in Thousands) Net (Loss) Income Attributable to Controlling Interests 1 $125,831 $8,517 $137,567 $(39,454) $(178,789) $(41,704) $(111,184) Interest Expense, Net 82, , , , ,201 32,995 43,380 Depreciation, Depletion and Amortization 124, , , , ,212 36,417 39,298 Accretion on Asset Retirement Obligations 1,368 1,527 1,621 2,267 3, Transition and Reorganization Costs (Excluding Equity-Based Compensation) 2 17,111 2,574 2,241 Equity-Based Compensation 4,632 5,024 13,704 5,106 3, Long-Lived Asset Impairments 34,700 12,592 74,575 Loss (Gain) on Commodity Derivative Contracts (534) (2,392) (76,330) (45,691) 23, ,492 Settlements of Commodity Derivative Contracts (61) 19,204 61,223 12,644 5,119 3,724 Debt Restructuring Costs 3,930 21,821 9,710 Change in Fair Value of Warrants 17,124 (9,278) Loss on Early Extinguishment of Debt 77,773 4,979 13, ,510 Adjusted EBITDA $338,429 $363,438 $409,562 $338,408 $308,799 $50,244 $63,970 Capex 3 209, , ,725 85,026 54,584 5,040 19,908 Adjusted EBITDA - Capex $128,492 $152,712 $179,837 $253,382 $254,215 $45,204 $44,062 Total Revenues 845, ,412 1,109, , , , ,394 Adjusted EBITDA 338, , , , ,799 50,244 63,970 Adjusted EBITDA Margin 40.0 % 38.0 % 36.9 % 34.4 % 35.3 % 30.3 % 27.8 % 1 Included in net loss attributable to controlling interests are insurance recoveries for the reimbursement of mitigation costs and business interruption proceeds related to the combustion event at our Hillsboro operation for the year ended December 31, Equity-based compensation of $4.3 million was recorded in transition and reorganization costs in the consolidated statement of operations for the years ended December 31, 2015 and Capex is defined as investment in property, plant, equipment and development. 23