May 19, 2016 Read More →

SNL Data Dispatch: U.S. Coal Companies Tightening Supply in Face of Bankruptcies

By Taylor Kuykendall and Arsalan Gul in SNL:

The latest coal miner employment and production data indicates producers took huge steps towards a long-sought and much-needed tightening of domestic coal supply with those undergoing restructuring cutting the most production.

A coal supply overhang across the U.S. has kept a lid on prices as demand has rapidly dropped off due to natural gas competition, environmental regulation and mild weather patterns decreasing electricity demand. The state of the market has been particularly troublesome for the debt-laden companies now going through bankruptcy reorganization due to unrealized expectations on global metallurgical coal demand.

A new S&P Global Market Intelligence analysis of production data shows that some of the nation’s top producers have accelerated their own efforts in supply rationalization in the past few quarters. Three companies that own some of the largest mines in the nation – Peabody Energy Corp.Arch Coal Inc. and Alpha Natural Resources Inc. — have also brought the largest amount of coal offline, on a quarterly basis, since the fuel’s near-term production peak in the fourth-quarter of 2011. All three companies are currently going through bankruptcy reorganization.

Environmentalists and other activists have been highly critical of coal companies in bankruptcy. In a recent report, Public Citizens called on CEOs of bankrupt coal companies to divert bonuses they have received toward laid-off coal workers affected by declining production. They claim it is bad business decisions on management’s part that have landed the companies in their current position.

“It is unfortunate that the political discourse has been framed by this fictitious ‘war on coal’ narrative, when the truth reveals an industry hampered largely by market forces and poor financial decisions,” said Tyson Slocum, director of Public Citizen’s Energy Program. “We need an honest dialogue about the future of our energy system and how to prioritize investing in coal mining communities that have been hurt by the transition.”

The data analysis groups mines by current ownership, therefore production cuts over the period at mines that were bought and sold are attributed to the current owner.

Mines currently owned by Peabody have cut 21.8 million tons of coal output between the 2011 near-term national peak in coal production and the first quarter of 2016, about 40.1% lower. Peabody recently secured approval for its debtor-in-possession financing as it prepares to readjust to current market conditions.

“This marks another important step as we move through the Chapter 11 process and reposition the company for long-term success,” Peabody President and CEO Glenn Kellow said in a recent press release.

Respectively, Arch and Alpha mines produced 17.1 million tons and 13.4 million tons fewer in the most recent quarter than the near-term nationwide peak in coal production.

Companies that have not filed bankruptcy are also responding to a market signal to cut back on production. Cloud Peak Energy Inc. mines produced about 49.2% less coal in the first three months of 2016 than it did when U.S. quarterly coal production peaked. Peter Kiewit Sons’ Inc. produced about 66.3% less coal in the period.

“We’re currently a non-profit,” Cloud Peak President and CEO joked at a recent hearing on potential reforms to the federal leasing process. In remarks in opposition to potential reforms that could make it more difficult or expensive to mine on federal lands, a large piece of Cloud Peak’s business, Marshall emphasized that coal is already in a tight spot.

“With most federal coal producers bankrupt, coal prices at historic lows and taxes and fees on Powder River Basin coal alone at over 40% of the selling price there is no economic justification whatsoever to increase royalties or lease rates,” Marshall said. “To put this in context, last year Cloud Peak Energy paid $303 million in taxes and royalties when our business suffered a net loss of $204 million.”

Other companies that currently own mines where there have been major supply cuts include Murray Energy Corp.,Virginia Conservation Legacy Fund Inc.Rosebud Mining Co.Revelation Energy Holdings LLCTexas Energy Future Holdings and Westmoreland Coal Co.

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