https://www.washingtonpost.com/news/energy-environment/wp/2016/04/13/coal-titan-peabody-energy-files-for-bankruptcy/
[Well, I guess you can keep investing in coal and other fossil fuels,
but it's getting to be more of a challenge.
links in on-line article]
How coal titan Peabody, the world’s largest, fell into bankruptcy
By Chris Mooney and Steven Mufson
April 13, 2016
In the starkest sign yet of declining fortunes in the coal industry, St.
Louis-based Peabody Energy, the largest and most storied U.S. coal
company, announced early Wednesday that it was filing for Chapter 11
bankruptcy.
The company cited an “unprecedented industry downturn,” which it
attributed to a range of factors including an economic slowdown in
China, low coal prices and “overproduction of domestic shale gas.” In
the United States, cheap natural gas, driven by the shale-gas boom, has
been steadily eating into coal’s share of electricity generation.
But Peabody was also weighed down by debt from its poorly timed $5.2
billion acquisition of Macarthur Coal of Australia in 2011, near the
peak for coal prices there as Peabody underestimated rival coal supplies
and overestimated the growth of Chinese coal consumption. “The
debt-laden capital structure became unsustainable as cash flows worsened
and access to capital markets evaporated,” Fitch Ratings said Wednesday.
Peabody said that its mines would continue operating and that its
operations in Australia were not included in the Chapter 11 filing. The
company also said it expected its shares to halt trading on the New York
Stock Exchange.
In a statement, the firm’s president and chief executive, Glenn Kellow,
said: “This was a difficult decision, but it is the right path forward
for Peabody. We begin today to build a highly successful global leader
for tomorrow.”
Shares of Peabody, whose stock trades under the symbol BTU — which is
also a basic unit of energy, the British thermal unit — closed Tuesday
at $ 2.06, leaving the company’s market capitalization at a measly $38
million. Shares have plunged more than 99 percent from their 2008 peak
and from where they stood just five years ago. Dividend payouts to
shareholders were halted in July 2015.
The firm dates to the 1880s. As a Peabody historical retrospective
noted, Francis Peabody, its founder, began selling coal from the back of
a mule-drawn wagon in Chicago in 1883. He opened Peabody’s first mine a
few years later.
The company survived the Great Depression and notes that its coal fueled
not only U.S. life in World Wars I and II but a historic Antarctic
exploration by Richard Byrd in 1939. It was listed on the New York Stock
Exchange in 1949 and became the world’s largest publicly held coal
company amid the oil embargo of the 1970s.
The company’s expensive purchase of Macarthur’s Australian coal
operations was based on an optimistic assessment of the outlook for
coal. “Enormous energy needs around the world point to the early stages
of what we expect to be a long-lived supercycle for coal – a period of
sustained market expansion to meet the requirements of an emerging
global middle class,” Peabody’s annual report for 2011 said, featuring
photos of cargo ships from Hong Kong and skyscrapers in Shanghai.
But Peabody sales volume has sagged along with coal prices. In 2015,
sales from mining slipped by 7 percent and were down 9 percent from
2011. The company was forecasting a 13 percent drop in U.S. coal sales,
its main market. “Peabody is in a tough spot,” a J.P. Morgan note to
investors said in February.
Peabody is the latest in a string of coal-company bankruptcies that have
also engulfed other industry leaders, including Alpha Natural Resources
and Arch Coal. The upheaval has raised concerns that the industry will
not be able to afford to pay for cleanup costs related to its many mines
across the country.
“Bankruptcy restructuring could provide coal companies with a way of
escaping obligations to restore land,” reported The Washington Post’s
Steven Mufson and Joby Warrick earlier this month. The issue has even
drawn attention in the U.S. Senate. “American taxpayers should not be
left on the hook to clean up coal mines when coal companies go bankrupt.
The pollution they create is their responsibility to clean up, and we
should have laws on the books that force them to do that,” said Senator
Maria Cantwell (D-Wa.), ranking member of the U.S. Senate Energy and
Natural Resources Committee, in a statement to the Post.
However, Peabody said Wednesday that the bankruptcy filing “does not
change Peabody’s approach toward best practices in mining and its focus
on sustainability to create high-quality land restoration for
generations that follow.”
“The biggest coal giant has fallen, and Peabody Energy’s bankruptcy
should serve as a wake-up call to anyone promising that coal’s glory
days will return,’ said Mary Anne Hitt, director of the Sierra Club’s
Beyond Coal campaign, in a statement. “As Peabody grapples with the
reality that the world is turning away from coal, it’s essential that it
doesn’t turn away from its obligations to workers, communities, and the
environment.”
It is hard to separate the reversals of fortune in the coal industry
with a growing push to address climate change — epitomized by the
December 2015 Paris climate agreement, a global signal that the world
intends to move, over the long term, away from fossil fuels. Yet a more
immediate reason appears to be the natural-gas boom, which has brought
coal a sudden and cheap competitor long before U.S. climate regulations,
in the form of the Clean Power Plan, are scheduled to go into effect.
Peabody nonetheless said, in the statement announcing its bankruptcy
filing, that it still saw many future opportunities for the coal business.
“Globally, thermal coal is expected to continue to fuel hundreds of
existing coal generating plants as well as scores more that are under
construction,” it stated. “Coal currently fuels approximately 40 percent
of global electricity and is expected to be an essential source of
global electricity generation and steel making for many decades to come.”
=====================================================================
https://www.washingtonpost.com/business/economy/can-coal-companies-afford-to-clean-up-coal-country/2016/04/01/c175570c-ec73-11e5-a6f3-21ccdbc5f74e_story.html?tid=a_inl
By Steven Mufson and Joby Warrick
April 2, 2016
A worsening financial crisis for the nation’s biggest coal companies is
sparking concerns that U.S. taxpayers could be stuck with hundreds of
millions, if not billions, of dollars in cleanup costs across a
landscape of shuttered mines stretching from Appalachia to the northern
Plains.
Worries about huge liabilities associated with hundreds of polluted mine
sites have mounted as Peabody Energy, the world’s largest publicly
traded coal company, was forced to appeal to creditors for an extra 30
days to pay its debts. Two of the four other biggest U.S. coal companies
have declared bankruptcy in the past six months.
Under a 1977 federal law, coal companies are required to clean up mining
sites when they’re shut down. But the industry’s plummeting fortunes
have raised questions about whether companies can fulfill their
obligations to rehabilitate vast strip mines in Western states — many of
which are on federally owned property — as well as mountaintop-removal
mining sites in the East.
A number of smaller companies have defaulted or skimped on cleanup
obligations, leaving behind abandoned strip mines and denuded mountains.
Some are simply eyesores, unhealed scars on the landscape that can be
seen for miles. Others are perpetual sources of water pollution, slowly
leaking acidic and otherwise toxic wastes into streams and groundwater
supplies.
Now coal giants are facing outcomes similar to those experienced by some
of the smaller companies. Several are struggling to make payments on
debts for ill-timed multibillion-dollar acquisitions of their rivals in
recent years. On top of that, they have been financially squeezed by
competition from cheap natural gas and declining U.S. and Chinese demand
for coal.
The biggest coal companies typically pay third parties to ensure that
mine sites are cleaned up in the event of financial hardship. But in
recent years, many coal companies have relied on a cheaper technique
called “self-bonding,” pledging only their own names and financial
wherewithal to guarantee their cleanup obligations.
With mounting losses and debt loads, the companies do not have enough
money to pay for all their obligations, and self-bonding is “not worth
[the] paper [it’s] written on,” Steve Jakubowski, a bankruptcy lawyer
with the firm Robbins, Salomon & Patt, said in an email. In a
bankruptcy, where Alpha Natural Resources is now, a judge can decide
which creditors are paid and how much — and state and federal
governments could be left holding the bag for reclamation costs.
“There is a lot of liability out there and a lot of uncertainty,” said
Shannon Anderson, a lawyer with the Power River Basin Resource Council,
a Wyoming nonprofit group that supports tougher rules for cleaning up
mine sites.
Peabody alone has cleanup obligations of nearly $1.4 billion guaranteed
by self-bonding, according to statements filed by the company last year
with the Securities and Exchange Commission. Arch Coal and Alpha — the
nation’s second- and fourth-largest coal companies — have
self-guaranteed liabilities exceeding $485 million and $640 million,
respectively, in reclamation costs.
The coal giants are currently in no condition to spend those amounts.
Arch and Alpha filed for Chapter 11 bankruptcy protection last year.
Peabody stock prices have fallen by more than 97 percent over the past
year, and the coal behemoth’s market value at Thursday’s closing price
was less than $44.3 million. Barclays Capital said the company’s
debt-to-capital ratio was a towering 88 percent.
Bankruptcy restructuring could provide coal companies with a way of
escaping obligations to restore land.
It wouldn’t be the first time the federal government covered the costs
of corporations’ environmental pollution. Something similar happened
during the 2010 General Motors bailout, when the federal government
injected money into an independent trust that took on the cleanup of
about 60 contaminated sites.
Obama administration officials have voiced concern recently about the
reliability of self-bonding agreements for some of the biggest coal
operations in the Powder River Basin, an area that straddles the Wyoming
and Montana border and contains some of the biggest coal mines in the
world. The Interior Department sent a letter last month to Wyoming
regulators warning that self-bonding agreements for two of Alpha Coal’s
mines had fallen “below the amount necessary to assure that the operator
will faithfully comply with all rules and regulations” if the company
goes out of business.
In Illinois, environmental groups and industry experts are closely
watching three Peabody mines with cleanup obligations of $92 million
covered by self-bonding. Howard A. Learner, executive director of the
Environmental Law and Policy Center, urged state officials in a blog
post to force the troubled company to buy surety bonds to “make sure
that our taxpayers aren’t holding the financial bag.” Selling surety
bonds is similar to paying insurance premiums to cover the cleanup
costs. But it might be too late for Peabody to find anyone interested in
taking that risk.
“If state officials don’t step up now, their next step might be standing
in line in the federal bankruptcy court to protect Illinois taxpayers,”
Learner said.
Jakubowski, the bankruptcy expert, said the coal companies will have a
hard time wriggling out of cleanup costs linked to mines that continue
to operate, and Anthony Young, an analyst at the Macquarie Group, a
global investment banking firm, said he expects that as much as 90
percent of Peabody’s mines, mostly in Wyoming’s Powder River Basin, will
continue to operate.
But cleanup costs tied to mines that have shut down or will shut down in
bankruptcy — most likely those such as Alpha’s in the Appalachians and
Midwest — could end up being billed to taxpayers.
How the big coal companies got to this point is a lesson in hubris and
overreach. Alpha bought rival Massey Energy for $7 billion. Arch Coal —
whose top executives received $8 million in bonuses the day before
filing for bankruptcy, according to a report by Environment & Energy’s
ClimateWire — bought International Coal for $3.4 billion. Peabody paid
$5.1 billion for Macarthur Coal. And Walter Energy bought Western Coal
for $3.3 billion.
In 2011, when the merger wave picked up speed, natural gas prices were
at a healthy $4 a thousand cubic feet, there was an international
commodity boom and China’s economy was speeding ahead. Now commodity
prices have slumped, China has slowed and natural gas prices hover
around $2 a thousand cubic feet.
“I understand what management was thinking at time,” Young said.
“Obviously, they didn’t stress-test their balance sheets. It has cost
people their companies and many people their jobs.”
Pavel Molchanov, an energy analyst at the advisory firm Raymond James,
said the entire industry is in long-term decline because of efforts to
reduce coal use and slow climate change.
“It really is striking that virtually every large U.S. coal producer is
bankrupt or on the cusp of bankruptcy,” Molchanov said.
The financial crisis highlights what environmental groups say are deep
inadequacies in cleanup requirements for coal companies. Often,
activists say, mining companies are simply given a pass after meeting
the most rudimentary requirements to cover up open pits with dirt and
rock. Some environmental groups are pressing for legislation requiring
“contemporaneous reclamation” — forcing mining companies to clean up
after each phase of mining rather than waiting for the entire project to
be completed.
A report last fall by the Natural Resources Defense Council said barely
10 percent of the 450 square miles of land torn up by mining in Montana,
North Dakota and Wyoming met reclamation requirements for final bonding
release.
“States are not holding the line on what is required,” said Sharon
Buccino, director of the NRDC’s Land and Wildlife Program. “You’re left
with a trashed landscape and contaminated water.”
Meanwhile, because of the financial crisis, taxpayers and coal
communities face the real possibility that even minimum cleanup
requirements will not be met, which Buccino said is “exactly why
self-bonding should be limited.”
“We should not have to sacrifice the health of the land and its
residents to the financial health of coal companies,” she said.
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