Coal Bankruptcies Pile Up as Utilities Embrace Gas, Renewables

Date : 10/13/2019 @ 1:29PM
Source : Dow Jones News
Stock : Cloud Peak Energy Inc. (CLDPQ)
Quote : 0.0037  -0.0013 (-26.00%) @ 9:00PM

Coal Bankruptcies Pile Up as Utilities Embrace Gas, Renewables

Cloud Peak Energy Inc. (USOTC:CLDPQ)
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By Jonathan Randles 

More than half a dozen large U.S. coal companies have filed for bankruptcy in the past year, a signal that the one-time king of American energy is fading as it faces competition from cheap natural gas and renewable-energy sources while reckoning with the retirement of coal-fired power plants.

At least seven coal producers -- including Westmoreland Coal Co., Cloud Peak Energy Inc., Blackhawk Mining LLC and Blackjewel LLC -- have filed for chapter 11 bankruptcy since October 2018 and more companies could be following them to court. Murray Energy Corp., the largest private coal company in the U.S., and Foresight Energy LP recently entered forbearance agreements on interest payments to loans, starting the clock on restructuring negotiations.

The bankruptcies have affected thousands of workers and reshaped busy coal-mining regions across the U.S., and follow a larger wave of chapter 11 filings in 2015 and 2016. Mines dotting the Appalachian region and Powder River Basin, an arid terrain spread over Wyoming and Montana, have been flipped in bankruptcy to new owners or unloaded to lenders. Some mines, including those run by Blackhawk and Mission Coal LLC, wound up back in chapter 11 after being purchased in earlier bankruptcies at a discount.

"Even if you have a totally clean balance sheet, if you can't get the coal out of the ground at a price that works, you're going to have a problem, and that problem is way more challenging than fixing a balance sheet," said Fredrick Vescio, a managing director at investment bank Houlihan Lokey Inc.

The recent run of failures comes as the thermal coal market has continued to shrink despite action by President Trump to roll back Obama-era environmental restrictions on coal-fired plants. The sectorwide decline has been driven largely by a record production of inexpensive natural gas and growth of wind and solar energy, which has displaced coal used by U.S. power plants. Natural gas prices hit 20-year lows for June and July, averaging $2.40 and $2.37 per million British thermal units, respectively, according to the U.S. Energy Information Administration.

"I think that a lot of the management and boards of the coal-mining companies were unwilling to admit that this was really going to happen," said Karla Kimrey, a former vice president at Cloud Peak, which had roughly 1,235 employees when it filed for bankruptcy in May.

The shift is putting pressure on owners of coal-fired plants. Coal-based electricity powered 28% of the U.S. grid in 2018, down from 48% in 2008, according to the EIA. The agency projects coal's share of electricity generation to fall to 25% in 2019 and 22% in 2020.

"Clearly, President Trump is an advocate for coal, but the ones who really matter are the senior utility executives who are deciding where electricity generation will come from in the future," said Mark Levin, a managing director and senior analyst at Seaport Global Securities LLC.

Workers Hit Hard

Companies such as Westmoreland that exclusively produce thermal coal as opposed to a mix that includes the type of coal used for steelmaking, called metallurgical coal, haven't been able to last out the shrinking market.

Westmoreland avoided the earlier wave of bankruptcies but succumbed to chapter 11 last year carrying roughly $1.4 billion in debt and dealing with utilities it serves speeding up their retirement of coal-fired units.

The coal company used chapter 11 to slash union contracts and future medical benefits for retired workers and their dependents worth an estimated $329 million, saying it would liquidate and jobs would be lost if the benefits weren't terminated. Lenders that took over its coal mines agreed to provide $6 million, enough to fund retiree benefits for about a year.

In response, labor union United Mine Workers of America has been lobbying Congress to pass proposed legislation that would extend health benefits to retirees affected by the Westmoreland and Mission Coal bankruptcies.

"If I were to lose my health care, I don't have the resources to purchase a plan to make up the difference between what Medicare pays and what I need, especially with all the prescription medications I have," Westmoreland retiree Sam Ball told House lawmakers in July.

Hired by Westmoreland in 1976, Mr. Ball said he has black-lung disease, typically caused by prolonged exposure to coal-mine dust. Researchers in recent years have noted a resurgence of severe black-lung disease in Central Appalachia.

Workers at other coal companies also have felt the brunt of recent bankruptcies. About 1,700 coal workers in Wyoming, Virginia and eastern Kentucky were affected by the sudden collapse of Blackjewel, which didn't pay workers for the final month of work before it filed chapter 11 on July 1. Some former Blackjewel employees had their personal bank accounts overdrawn by more than $1,000 when the company's final payroll checks were unexpectedly frozen, according to testimony and court records.

The collapse spurred coal workers to mount a two-month protest in Harlan County, Ky., to block a train carrying coal they had mined. Meanwhile, the Justice Department said this month it is investigating Blackjewel for fraud.

Wide-Reaching Change

On the other side of the country, the Blackjewel bankruptcy has helped reshape operations in the Powder River Basin over the past year. Located where northeast Wyoming meets southeast Montana, mines in the basin produced more than 40% of U.S. coal in 2018.

A judge recently approved a sale of Blackjewel's Eagle Butte and Belle Ayr mines, which had been closed over the summer. The deal is intended to ultimately compensate Blackjewel workers, part of a series of transactions that earmarks funds for them. Mines owned by Cloud Peak, another Powder River Basin operator, were sold in chapter 11 by a tribal company owned by the Navajo Nation, which became the third largest coal producer in the U.S.

Change also has come outside bankruptcy court. Peabody Energy Corp. and Arch Coal Inc., the two largest producers in the Powder River Basin, agreed earlier this year to combine their mining operations in the basin through a joint venture to save costs.

Companies producing a mix of thermal and metallurgical coal also have wound up in bankruptcy. Although metallurgical coal prices had been strong the first half of the year, prices have been volatile. Export prices of premium coking coal from the East Coast fell to an average of about $158 per metric ton during the third quarter of 2019, from roughly $200 per metric ton for the first half of the year, according to S&P Global Platts.

Blackhawk said the price drop forced the company to delay its exit from chapter 11. Mission Coal, meanwhile, filed bankruptcy after producing significantly less coal than management aimed for. Its operations were formed by entrepreneur Tom Clarke, who acquires coal mines out of bankruptcy.

Ultimately, Mission Coal sold its mines in Alabama and West Virginia to Robert Murray's Murray Energy. When the deal closed in April, Murray Energy said the acquisition represented "a significant entrance into the metallurgical coal market."

Murray Energy and Foresight, which Murray Energy owns a majority stake in, recently decided to skip interest and other debt payments and both companies started talks with their respective lender groups that could lead to bankruptcy filings, The Wall Street Journal reported earlier this month.

Soma Biswas contributed to this article

Write to Jonathan Randles at jonathan.randles@wsj.com

 

(END) Dow Jones Newswires

October 13, 2019 09:14 ET (13:14 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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