August 30, 2018 Read More →

Falling demand prompts Peabody to cut coal mine lease acreage

S&P Global Market Intelligence ($):

Peabody Energy Corp. has asked the U.S. government to let it relinquish thousands of acres of coal leases associated with two of its Powder River Basin coal mines as the region faces ongoing pressure from waning domestic utility demand.

Documents from the U.S. Bureau of Land Management show Peabody, the largest coal company in the U.S., applied to relinquish 2,740 acres of federal coal lands at its Caballo mine in February 2017. Peabody applied to relinquish another 1,775 acres of federal coal property from the Caballo mine and 1,136 acres from its Rawhide mine in June of this year.

Peabody sold a combined 21.4 million tons of coal in 2017 from Rawhide and Caballo, according to an annual report. The company estimates it held about 294 million tons and 477 million tons of proven and probable reserves at its Rawhide and Caballo mines, respectively, at the end of the year. The combined 771 million tons of proven and probable reserves are of a lower heat content than the company’s larger North Antelope Rochelle mine, which reported 1.80 billion tons of proven and probable reserves.

Coal from the Powder River Basin is generally of a lower quality than that from eastern U.S. coal mining regions and also typically has a longer distance to travel to customers in the U.S. and abroad. However, the coal is also easily and cheaply mined compared to eastern U.S. reserves. While much of the coal burned in the U.S. for power still comes from the Powder River Basin, demand from the region has taken a major hit in recent years.

As overall U.S. coal demand pinches Powder River Basin producers, mines with the lowest-quality coal find it more difficult to economically justify mining that coal. While Peabody’s flagship North Antelope Rochelle mine churns out coal with an energy content of about 8,800 Btu/lb Caballo produces coal with about 8,400 Btu/lb while Rawhide’s coal boasts just 8,300 Btu/lb.

“The definition of [what is economical to mine] is getting tighter and murkier as more coal plants close, because that coal is in less demand,” said Tom Sanzillo, director of finance for the Institute for Energy Economics and Financial Analysis. “That all makes sense as a sort of rationalizing of a market that is shrinking and perhaps the beginning of an exit strategy from the 8,400 line completely.”

More ($): Peabody relinquished thousands of acres of federal coal leases in recent months

Comments are closed.