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Within the Coal Industry Itself, Less Reliance on Coal

February 27, 2015
Lisa Hamilton

It’s increasingly evident that if U.S. coal companies are to survive they must diversify.

This truth is obvious even to some coal-industry executives, most notably perhaps Bob Murray, the outspoken CEO of Murray Energy who famously said this a few months ago:

“We have the absolute destruction of the United States coal industry. It isn’t coming back. It’s permanent. Virtually all of it is permanent. And if you think it’s coming back, you don’t understand the business. Or you’re smoking dope.”

Murray is well known for railing against regulation of all kinds and for blaming emission-control rules especially for coal’s long slide. His rhetoric is laced at times with political vitriol that tends to obscure his message, but his point remains. The U.S. coal industry is in decline.

Some industry leaders have responded to this reality by putting forth fantastical schemes to export coal to foreign countries that don’t need it or want it. The prime examples here are Peabody Energy, Arch Coal, and Alpha Natural Resources, all of which are banking on a global recovery in seaborne thermal coal prices to realize their dream of turning the Powder River Basin of Montana and Wyoming into an energy source for emerging economies on the other side of the world.

Murray is doing something more practical. He’s diversifying into natural gas.

He isn’t doing it in flamboyant fashion, to be sure, but he is doing it, as can be seen in legal filings that are part of a copyright lawsuit filed by Murray Energy subsidiary American Energy Corporation in 2013 against a competitor over rights to the “American Energy” name.

Discovery motions in the case, and other public-record filings, show that Murray has sold natural gas development leases to Oklahoma-based Gulfport Energy on nearly 6,000 acres in eastern Ohio. The terms of the lease aren’t known, but neighboring property owners have reportedly agreed to deals that pay up to $8,000 per acre with 20 percent production royalties (You can see one of the leases here). This is no small sum — a 6,000-acre lease, at that rate, would be is worth $50 million from the get-go, so Murray is acting on a lucrative opportunity.

He is not alone in the coal industry in his realization that times, and markets, are changing.

Although Alpha has announced recently that it will delay drilling its first natural gas wells until the second half of the year, CEO Kevin Crutchfield is also diversifying and has taken steps to capitalize on low gas prices by entering into a shale gas joint venture with a division of The French utility company EDF.

Consol Energy, which is headquartered outside Pittsburgh, touts itself as a diversified company that produces coal, yes, but is relying more on it now on natural-gas exploration and production. The company’s 2014 revenue increased by nearly 13 percent to $3.72 billion over $3.29 billion in 2013, an improvement analysts attribute to the performance of its natural gas division.

Lisa Anne Hamilton is an IEEFA regulatory consultant.

Lisa Hamilton

Regulatory Consultant Lisa Anne Hamilton has provided legal support to Skadden Arps Meagher Slate & Flom and the Financial Institutions Group of Davis Polk & Wardwell. She is a member of the legal bar in New York, Maryland, and the District of Columbia.

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