Losses continue to mount among Powder River Basin coal producers, signaling a potential shakeup in an industry that supports some 17,000 jobs in the state and makes up 11 percent of all revenue to state and local governments.
St. Louis-based Arch Coal Inc., operator of the Black Thunder coal mine south of Wright, Wyoming reported this morning a net loss of $168 million and a 9.7 percent decline in revenue for the second quarter of 2015. Shares in the company traded at 19 cents on Thursday.
Peabody Energy Corp., operator of three Powder River Basin mines including the massive North Antelope Rochelle Mine, reported a $1 billion loss in the second quarter. Cloud Peak Energy, the only operator with no mines outside the basin, reported a $53 million second quarter loss.
In a webcast this morning, Arch Coal president Paul Lang said that despite the company’s losses, its Powder River Basin operations — Black Thunder mine — remain “cash-positive.” The large-scale, low-production-cost mine realized a 58 cents per ton profit margin in the second quarter.
Low natural gas prices continue to put downward pressure in the U.S. thermal coal market in which Powder River Basin coal competes, Lang said. Arch believes Powder River Basin coal will continue to compete well in that market — particularly with its own higher-ranked 8,900 British thermal heating unit (Btu) coal compared to 8,400 Btu coal in the basin.
“The higher quality mines like Black Thunder will continue to remain strong,” Lang said during Arch’s Thursday morning webcast.
Arch Coal, whose board of directors include former Wyoming Gov. Dave Freudenthal and Casper-based oil and gas businessman Peter Wold, took on a lot of debt to bet on metallurgic coal several years ago — a bet that didn’t pay off, according to University of Wyoming economist Rob Godby.
Although Powder River Basin mines remain “cash positive” many industry experts doubt whether they are profitable enough to resolve the mountains of debt that top producers in the basin carry. Alpha Natural Resources is being delisted from the New York Stock Exchange, and reportedly is in discussions for a possible reorganization under bankruptcy. Lenders that hold 50 percent of some $1.9 billion in Arch’s loans are arguing against the company’s proposed debt swap to improve its cash position.
As the basin’s top producers continue to cut costs and prepare for weaker market demand, the industry also faces tighter carbon dioxide emission limits under the Obama administration’s Clean Power Plan. The administration is expected to roll out its final version of the plan on Monday, placing a CO2 cap on new coal facilities and CO2 reduction goals for the existing U.S. coal fleet.
Meanwhile, industry experts say there’s little chance of relief for Powder River Basin producers in the international export market.
While Wyoming’s elected leaders are focused on litigating against tighter emission regulations and attempting to revitalize research and development of cleaner technologies for coal’s long-term future, there’s little they can do to address market pressures and the bad bets some operators made on metallurgic coal.
“If anyone is waging a war on coal it’s the natural gas industry, and that’s been happening for several years now,” said Shannon Anderson of the Powder River Basin Resource Council, a Sheridan, Wyoming-based landowner advocacy group.
Anderson said her organization’s members are concerned whether Powder River Basin operators under debt can meet their mine reclamation obligations — which amount to nearly half a billion dollars for some operators. Their assets are not in balance with their reclamation obligations, she said, which currently are guaranteed under a self-bonding mechanism. The Wyoming Department of Environmental Quality has already called into question whether Alpha Natural Resources still qualifies to self-bond for its reclamation obligations, while the agency reviews the status of other operators that self-bond in the basin.
The situation leaves many to speculate on the future of Powder River Basin coal mine ownership if there are bankruptcies, and what it might mean for local economies and state revenue — not to mention jobs, pensions and retirement for coal miners and their families.
“It’s hard because there’s not easy answers,” said Anderson. “It’s a really challenging time, but we’ve got to face the reality” of a potentially diminished coal industry in Wyoming.