Huge U.S. coal company declares bankruptcy

Bad investments, cheap natural gas and air pollution regulations led to Arch's decline.

 

One of the nation’s largest coal companies, Arch Coal, filed for bankruptcy Monday, making it the second company with large Western mines to seek Chapter 11 restructuring in recent months. 

The St. Louis-based company announced that it expects to continue to operate its mines and pay its 4,600 employees while it seeks a bankruptcy court’s approval for its debt restructuring.  Arch said its lenders had agreed to reduce its debt by more than $4.5 billion, but that deal would have to be approved by the court.

Responding to its employees’ and retirees’ fears, Arch said it does not anticipate major layoffs or disruptions to its pensions due to the bankruptcy. But it conceded that market conditions may impact staffing. The company operates two surface mines in Wyoming’s Powder River Basin as well as the underground West Elk mine in Somerset, Colorado. It has proposed opening a surface mine in southeastern Montana, the Otter Creek project. It also has mines in Appalachia and Illinois.

Black Thunder, Arch's largest mine, helps Wyoming lead the nation in coal production.
EcoFlight

“Over the past several years, a confluence of economic challenges and regulatory hurdles has hobbled the coal industry,” John Drexler, Arch’s chief financial officer, said in a filing with a U.S. bankruptcy court in Missouri.  The company could no longer pay annual fees of $360 million on its $5 billion debt, given the “current depressed coal market.”

The company’s financial troubles stem from its purchase of the International Coal Group for $3.4 billion in 2011, which made it the second largest producer of metallurgical coal, used to make steel. Following that deal, world prices for metallurgical coal tanked, leaving Arch swamped in debt. As HCN has reported, Virginia-based Alpha and Peabody, the world’s largest private-sector coal company, made similar bad investments in metallurgical coal mines when prices were near peak. Peabody’s stock, already a fraction of what it was just a few months ago, dropped 20 percent on Monday following Arch’s news.

Adding to the coal giants’ troubles, electric companies have been switching to natural gas, both because of its low price and because of state and federal air pollution regulations. Coal is the dirtiest source of electricity both in terms of conventional air pollution and the carbon emissions that contribute to climate change. By requiring states to reduce greenhouse gas emissions from their electricity sectors, President Obama’s Clean Power Plan is expected to further reduce the use of coal in coming years unless the plan is stopped by pending legal challenges from states and utilities.  

Arch anticipates that by the time those cases make it through the courts, coal’s fate may already be sealed. “By the time legal challenges have been resolved, it is possible that many of the required investments may have already been made, resulting in further coal plant retirements, which would have severe consequences for Arch’s business,” Drexler writes in his declaration.

U.S. coal companies’ hopes that a growing export market would offset domestic declines have not materialized. The international climate change agreement reached in Paris in December puts pressure on countries around the globe to reduce their coal use.

Although it’s too early to know what impact the bankruptcy will have on Arch’s various operations, the company’s Powder River Basin mines are among its most profitable and likely will keep operating, even after the company makes it through bankruptcy either by Arch or new owners, according to experts.  They “are among the few assets right now creating cash and revenues for Arch and therefore they are likely to be quite safe,” says University of Wyoming economic professor Robert Godby. West Elk’s prospects are less clear. The mine already struggles with profitability, so much so that Arch negotiated a lower royalty rate with the federal government because of the relative high cost of mining the coal.

Environmental groups hoped that the federal government would not continue to reduce Arch’s royalty rates and otherwise prop up the company, given the outsized role greenhouse gas emissions from coal play in climate change.  Environmental groups also worried about the implications of Arch’s bankruptcy for the reclamation of its massive surface mines in  Wyoming.

WildEarth Guardians wrote to Arch beseeching the company to use the bankruptcy to plan an orderly exit strategy. “This needs to be about emerging from bankruptcy with a plan for going out of business,” says Jeremy Nichols, who directs the group’s climate and energy programs. “The reality is that’s where the world is going.”

Elizabeth Shogren is HCN's DC correspondent. 

High Country News Classifieds
  • STAFF ATTORNEY
    Staff Attorney The role of the Staff Attorney is to bring litigation on behalf of Western Watersheds Project, and at times our allies, in the...
  • TEST
    test
  • ASSISTANT VICE PRESIDENT FOR DIVERSITY AND INCLUSION
    Northern Michigan University seeks an outstanding leader to serve as its next Assistant Vice President for Diversity and Inclusion. With new NMU President Dr. Brock...
  • EXECUTIVE DIRECTOR
    The Clark Fork Coalition seeks an exceptional leader to serve as its Executive Director. This position provides strategic vision and operational management while leading a...
  • GOOD NEIGHBOR AGREEMENT MANAGER
    Help uphold a groundbreaking legal agreement between a powerful mining corporation and the local communities impacted by the platinum and palladium mine in their backyard....
  • EXECUTIVE DIRECTOR
    The Feather River Land Trust (FRLT) is seeking a strategic and dynamic leader to advance our mission to "conserve the lands and waters of the...
  • COLORADO DIRECTOR
    COLORADO DIRECTOR Western Watersheds Project seeks a Colorado Director to continue and expand WWP's campaign to protect and restore public lands and wildlife in Colorado,...
  • DIGITAL MEDIA SPECIALIST, THE NATURE CONSERVANCY: WYOMING, MONTANA AND UTAH
    Digital Media Specialist - WY, MT, UT OFFICE LOCATION Remote and hybrid options available. Preferred locations are MT, WY or UT, but applicants from anywhere...
  • GRANT WRITER (PART-TIME, FREELANCE CONTRACT) HIGH COUNTRY NEWS
    High Country News seeks an energetic, articulate and highly organized grant writer to support a growing foundations program. This position works closely with our Executive...
  • EXPERT COMPUTER & TECH HELP, PROVIDED REMOTELY
    From California, I provide expert tech help remotely to rural and urban clients. I charge only when I succeed. Available 7 days. Call for a...
  • ACCOUNTING AND OPERATIONS GENERALIST
    What We Can Achieve Together: The Accounting and Operations Generalist provides accounting and operations related services, including lease administration and compliance support, to the Arizona...
  • LANDSCAPE ECOLOGIST
    Landscape Ecologist, Arizona What We Can Achieve Together: The Landscape Ecologist provides technical and scientific support and leadership for conservation initiatives and strategies in landscape...
  • MULESHOE RANCH PRESERVE STEWARD
    What We Can Achieve Together: The Muleshoe Ranch Preserve Steward lives on site in housing provided by The Nature Conservancy and performs and coordinates construction...
  • GILA GRASSROOTS ORGANIZER
    Position Summary New Mexico Wild is seeking an experienced and energetic professional who is passionate about public lands and community engagement to fill our Gila...
  • ASSISTANT PROFESSOR OF HISTORY - INDIGENOUS HISTORIES OF THE NORTH AMERICAN WEST
    Whitman College seeks applicants for a tenure-track position in Indigenous Histories of the North American West, beginning August 2024, at the rank of Assistant Professor....
  • DAVE AND ME
    Dave and Me, by international racontuer and children's books author Rusty Austin, is a funny, profane and intense collection of short stories, essays, and poems...
  • CHIEF FINANCIAL OFFICER
    Rural Community Assistance Corporation is looking to hire a CFO. For more more information visit: https://www.rcac.org/careers/
  • EXECUTIVE DIRECTOR
    The Absaroka Beartooth Wilderness Foundation (ABWF) seeks a new Executive Director. Founded in 2008, the ABWF is a respected nonprofit whose mission is to support...
  • CANYONLANDS FIELD INSTITUTE
    Field seminars for adults in natural and human history of the northern Colorado Plateau, with lodge and base camp options. Small groups, guest experts.
  • COMING TO TUCSON?
    Popular vacation house, everything furnished. Two bedroom, one bath, large enclosed yards. Dog-friendly. Contact Lee at [email protected] or 520-791-9246.