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Coal Company Pain Accelerates as Bankruptcy Cases Rise

Coal Company Pain Accelerates as Bankruptcy Cases Rise thumbnail

The coal business, after fueling the Industrial Revolution and powering U.S. growth for much of the past century, is now beset by a glut of cheap natural gas and tighter regulation.

James River Coal Co. (JRCCQ) in many ways epitomizes these ills. After filing for bankruptcy almost four months ago with plans to sell its business, the Richmond, Virginia-based company has delayed an auction twice without announcing a buyer.

Lower prices, rising competition and oversupply have taken their toll on coal, cutting profits and pushing a number of companies to the brink of insolvency.

“Even assuming some level of modest price recovery, these companies are still burning cash for the foreseeable future,” Kuni Chen, an analyst at UBS AG (UBSN) in New York said in an interview. “There’s plenty of cash and liquidity to support that for a few years. But if this continues more than that, some companies will be close to bankruptcy.”

James River, more than $800 million in debt, is among at least a dozen U.S. coal-producers to enter bankruptcy since 2003, according to Fitch Ratings and data compiled by Bloomberg.

Photographer: Luke Sharrett/Bloomberg

The towboat Janis R. Brewer pushes coal barges upstream on the Ohio River in… Read More

A fracking boom has glutted the market with natural gas, luring some electric utilities away from coal. The electric-power sector will use 3 percent less coal next year and isn’t expected to recover to 2011 levels by 2040, the last year of a U.S. Energy Department forecast period.

Price Drop

Exports are failing to save U.S. miners. Slowing Chinese growth and rising competition from overseas, including increased Australian output, have sent the price of metallurgical coal, used in steelmaking, to a six-year low. Central Appalachian thermal coal, used in power plants to produce electricity, fell on the New York Mercantile Exchange by 4.6 percent in 2013 compared with 2012.

Coal plants capable of generating 60,000 megawatts, enough to power 48 million average U.S. homes, will shut by 2020 because of tighter pollution regulations, slow growth in power use, and competition from natural gas, according to the Energy Department. That’s about 20 percent of coal plants by capacity and about 6 percent of total power-generating capacity as of 2012.

It’s already begun: 3.2 percent of coal-fired capacity, enough for 8 million homes, disappeared in 2012. The balance of closings will occur by 2016, when new clean-air regulations take effect, the government said.

Photographer: Luke Sharrett/Bloomberg

Lower prices, rising competition, oversupply, tighter regulation and costly… Read More

EPA Targets

Power plant coal burning by 2020 must decline by 204 million tons, or 24 percent, to meet U.S. Environmental Protection Agency greenhouse gas targets announced June 2, Sanford C. Bernstein & Co. analysts led by Hugh Wynne estimated in a July 23 note to clients.

“The inefficient guys are getting pushed out of the market,” and there are “prospects for consolidation” of mining companies, said Andrew Cosgrove, an energy analyst for Bloomberg Intelligence.

“You’re not going to see them all disappear,” and company bankruptcies often occur for business reasons such as higher mining costs or economic competition, Cosgrove said in an interview.

David Hillman, a bankruptcy lawyer with Schulte Roth & Zabel LLP in New York, said in a June report that plans for 150 new coal plants have been canceled and profits from coal-fired electricity generators fell to $4 billion in 2011 from $20 billion in 2008.

Gas, Coal

Partly because of hydraulic fracturing, or fracking — pumping fluid underground to force trapped gas from shale deposits — natural gas caught up with coal in generating U.S. electricity in April 2012, the Energy Department said.

Photographer: F. Carter Smith/Bloomberg

Its busineses finally “reached the point of unsustainability” outside bankruptcy, James… Read More

It has become “increasingly difficult for coal mining companies to compete and even survive in the current energy market,” Hillman, Karen Park and Lucy Kweskin said in the report. They predicted more coal-mine bankruptcies, without identifying specific companies likely to file.

At least three coal-related energy producers filed for bankruptcy in less than two years, according to data compiled by Bloomberg: Longview Power LLC, Dynegy Inc. (DYN) and Edison Mission Energy. The bankruptcies of James River, America West Resources Inc. (AWSRQ), Trinity Coal Corp., Americas Energy Co., Clearwater Resources LP and Consolidated Energy add credence to the concern for the deteriorating market for U.S. coal.

Many companies not in bankruptcy are cutting production and reporting revenue declines.

Peabody Energy

Peabody Energy Corp. (BTU), the largest U.S. coal producer, reported a $524.9 million net loss for 2013 on $7.01 billion in sales. St. Louis-based Peabody said it’s in talks with Bentley Resources Ltd. about the sale of its Wilkie Creek mine in Australia.

Moody’s Investors Service yesterday downgraded Peabody to Ba3, matching Standard & Poor’s downgrade in May to BB-, three steps below investment grade.

A Peabody spokesman, Vic Svec, said the actions were “primarily related to the overall industry downturn.”

“Analysts recognize that Peabody is better positioned than others in the industry, given our geographic diversity, quality of assets and low capital and cost structure,” he said in an interview.

Peabody fell 79 percent from April 2011 through yesterday. The shares today rose 1.2 percent to $15.15 at 4:15 p.m. in New York trading.

July 22 the company forecast a third-quarter loss of 40 cents to 53 cents a share excluding one-time items, compared with a 19-cent loss average of 20 analysts’ estimates compiled by Bloomberg News.

Alpha Revenue

Alpha Natural Resources Inc. (ANR), based in Bristol, Virginia, the second-largest U.S. coal producer, is closing its Cherokee mine in Virginia, citing declining prices.

Alpha reported $4.25 billion in coal revenue in 2013, down from $6.18 billion in 2011. Its reported loss narrowed to $1.1 billion in 2013 from $2.4 billion the prior year. Moody’s gives it a “stable” outlook. Steve Hawkins, a spokesman for Alpha, declined to comment on the company’s financial situation.

Cloud Peak Energy Inc. (CLD) of Gillette, Wyoming, reported $1.39 billion in revenue last year, down 12 percent from $1.55 billion in 2011, according to data compiled by Bloomberg. Net income fell to $52 million last year from $190 million in 2011. Rapid Ratings in May scored Cloud “very weak” at 25 out of 100, putting it into a “high risk” group. Karla Kimrey, a spokeswoman for Cloud Peak, didn’t respond to phone and e-mail messages seeking comment.

Walter Energy Inc. (WLT) of Birmingham, Alabama, with 3,600 employees, reported a loss of $359 million last year on revenue of $1.86 billion. Tom Hoffman, a spokesman for Walter Energy, declined to discuss the company’s situation before its July 31 earnings report.

Auction Postponed

James River, after seeking court protection from creditors in April, aimed at a sale to one of 22 potential bidders that expressed interest. It postponed a closed-door auction last week for the second time in a month and re-scheduled for July 28.

The company in November idled four Kentucky mines that accounted for 16 percent of its output, putting about 200 workers temporarily out of work. It previously idled eight mines.

Its business finally “reached the point of unsustainability” outside bankruptcy, Chief Executive Officer Peter Socha said in court papers.

Beth Cook, a spokeswoman for James River, didn’t respond to phone and e-mail messages seeking comment on its case.

James River fell 6 percent to 22 cents today in over-the-counter trading.

According to the Schulte Roth report, coal companies in bankruptcy will “encounter unique challenges arising from legacy liabilities owed to current and former mining employees as well as mine cleanup obligations.” Land-reclamation obligations can’t be canceled in bankruptcy, the lawyers said.

Reclamation Cost

Reclaiming a closed mine costs an estimated $1.5 million per mine, according to Cornerstone Magazine, an industry publication. The U.S. Office of Surface Mining has awarded more than $4 billion in grants to clean up dangerous abandoned mine sites.

Industry-specific health issues include black lung disease, which the U.S. Labor Department estimates has contributed to the death of 76,000 people since 1968.

Patriot Coal Corp. (PATCA) filed for bankruptcy in July 2012, citing $1.6 billion in lifetime health-care obligations for its retirees as well as falling demand for its coal. Patriot, with 4,200 employees, was providing benefits to 21,000 people.

The company won permission to reject its union contract and modify the benefits. The union appealed and settled with Patriot before a court decision. It estimated the settlement will save it about $130 million a year, allowing it to be competitive.

Government Forecast

While gas-fired generation will overtake electricity from coal in 2019, the fuel still will account for 32 percent of domestic electricity by 2040, the Energy Department said May 7.

In the long run, environmentalists see signs of coal’s demise in shrinking production and growing concerns over global warming.

Advocates look to growing demand in China and other developing countries seeking cheap energy. Germany and Japan are among developed countries burning more coal as they reconsider the risks of atomic power following Japan’s Fukushima Daiichi nuclear disaster in 2011.


7 Comments on "Coal Company Pain Accelerates as Bankruptcy Cases Rise"

  1. rockman on Sat, 26th Jul 2014 3:54 pm 

    During 2008 (before NG prices closed) US coal production averaged 293 million short tons according to the EIA. During the first quarter 2014 it was 242 million st. Or a 16% decrease. US consumption decreased about 11% during the period. Not great but not necessarily the end of life as the coal knows it. And over the same period exports increased 35% to record level.

    And, more interesting, US thermal coal prices are currently more then 40% higher then it was in 2009. I don’t seem to recall headlines 5 years ago crying about the oil industry going bust. So some coal companies are having financial problems. I would look at how those companies might have been mismanaged then blame a “crash” in coal production. Heck, I know more then one oil company that has gone under even though we have record high oil prices. Like all those companies that pissed away $billions the shale gas plays.

    US coal exports to China has increased over 300% in recent years. And Chinese spot coal prices have recently dropped to a 4 year low. I’m certainly not a coal expert but I can read the EIA stats. During this period coal prices in the US for electrical, commercial and industrial users remained flat. The cost to coke producers increased from $120/st to $190/st.

    King Coal has slipped a tad. But tmhe king is a long way from being dead IMHO.

  2. Norm on Sat, 26th Jul 2014 4:02 pm 

    Probably the real story is, the nuclear power industry and the frackers purchased more senators than the coal industry. Now, the guys with more money outlaw their competition with the anti-CO2 regulations. Hard to know all the dirty tricks being played in government, but this is probably an orchestrated scheme. Funny how when they outlaw coal, they don’t have a proper replacement. If it was an intelligent society, we’d go with Thorium nuclear fuel cycle in molten salt reactors. But since its not an intelligent society, we’ll probably go back to burning dried steer poop.

  3. synapsid on Sat, 26th Jul 2014 6:37 pm 


    I’m no expert either (well, not on coal anyway, ahem, ahem) but some of the problems must be legacy issues–note Patriot, above–and part of it I’d expect to be that Appalachian coal production costs about three times production of the Powder River Basin stuff; a lot of the closures are in the Appalachians. Costs money to take the tops off mountains, likely more than it does to stripmine eastern Wyoming.

    These articles on coal and its problems seem to refer only to Appalachian and Wyoming/Montana coal, but isn’t Illinois a big producer too? I’ve yet to read one that includes Illinois production in the discussion.

    Your post includes not a single LOL. You OK?

  4. Makati1 on Sat, 26th Jul 2014 9:29 pm 

    Shaking out the marginal producers or (as rockman says,) the mismanaged ones? I suspect that there is going to be a lot of shaking out in ALL industries over the next few years.

  5. Kenz300 on Sat, 26th Jul 2014 10:37 pm 

    There are safer, cleaner and cheaper ways to produce electricity than using coal………….. price and the availability of water for power generation will determine the future of fossil fuels and nuclear energy…..

    Wind and solar energy keep getting cheaper every year…….. and require little or no water to produce electricity.

  6. rockman on Sat, 26th Jul 2014 11:16 pm 

    Syn – I wonder how much of the difference in profit margins varies between areas as a factor of union vs non-union ops? Also probably need to consider all the new competition from the big increase from western gov’t lands. And from what I hear those companies have figured out to duck a good bit of the royalty payments to the feds. Also good to remember that Texas burns much more coal (lignite) than the rest of the states and we aren’t holding back. I also wonder how much completion from oil via rail might have increased shipping costs for eastern mines? And lastly I wonder how much debt companies took on to expand when coal prices boomed a few years ago.

  7. Kenz300 on Sun, 27th Jul 2014 7:17 pm 

    If the world is to have any hope of dealing with Climate Change there needs to be an end to building any more coal fired power plants. The oldest and dirtiest coal fired power plants need to begin to shut down.

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