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
  • RARE CHIRICAHUA RIPARIAN LAND FOR SALE: NEAR CHRICAHUA NATIONAL PARK
    2 (20 acre sites): 110 miles from Tucson:AZ Native trees: Birder's heaven: dark skies: Creek: borders State lease & National forest: /13-16 inches of rain...
  • DIRECTOR - SONORAN DESERT INN & CONFERENCE CENTER
    The Sonoran Desert Inn & Conference Center is a non-profit lodging and event venue in Ajo, Arizona, located on the historic Curley School Campus. We...
  • CANYONLANDS FIELD INSTITUTE
    Field Seminars for adults: cultural and natural history of the Colorado Plateau. With guest experts, local insights, small groups, and lodge or base camp formats....
  • PLANNED GIVING OFFICER
    National Parks Conservation Association (NPCA), the nation's oldest and largest national parks nonprofit advocacy organization seeks a Planned Giving Officer. Do you find energy in...
  • DEPUTY DIRECTOR
    The Methow Valley Citizens Council has a distinguished history of advocating for progressive land use and environmental values in the Methow Valley and Okanogan County...
  • ACTING INDIGENOUS AFFAIRS DESK EDITOR
    High Country News is seeking an Acting Indigenous Affairs Editor to oversee the work of our award-winning Indigenous Affairs Desk while our editor is on...
  • GRANTS PROGRAM DIRECTOR
    The Cinnabar Foundation seeks an enthusiastic, team-oriented and knowledgeable Grants Program Director to work from their home in Montana. Established in 1983, the Cinnabar Foundation...
  • ARTEMIS PROGRAM MANAGER
    The Artemis Program Manager will work with National Wildlife Federation sporting and public lands staff to change this dynamic, continue to build upon our successful...
  • ALASKA SEA KAYAK BUSINESS FOR SALE
    Well-known and successful sea kayak, raft, hike, camp guiding & water taxi service. Sale includes everything needed to run the business, including office & gear...
  • MEMBERSHIP AND EVENTS PROGRAM COORDINATOR
    Great Old Broads for Wilderness seeks a detail-oriented and enthusiastic Membership and Events Coordinator to join our small, but mighty-fun team to oversee our membership...
  • PROGRAM DEVELOPMENT FACILITATOR
    ABOUT THE HIGH DESERT MUSEUM Since opening in 1982, HIGH DESERT MUSEUM has brought together wildlife, culture, art and natural resources to promote an understanding...
  • LAND STEWARD, ARAVAIPA
    Steward will live on-site in housing provided by TNC and maintains preserve areas frequented by the visiting public and performs land management activities. The Land...
  • DEVELOPMENT WRITER
    Who We Are: The Nature Conservancy's mission is to protect the lands and waters upon which all life depends. As a science-based organization, we create...
  • DEVELOPMENT DIRECTOR
    Driggs, ID based non-profit. Full time. Full job description available at tvtap.org. Submit cover letter and resume to [email protected]
  • ENVIRONMENTAL AND CONSTRUCTION GEOPHYSICS
    - We find groundwater, buried debris and assist with new construction projects for a fraction of drilling costs.
  • SPRING MOUNTAINS SOLAR OFF GRID MOUNTAIN HOME
    Located 50 miles northwest of Las Vegas, Nevada in the pine forest of Lee Canyon at 8000 feet elevation. One of a kind property surrounded...
  • MAJOR GIFTS MANAGER - MOUNTAIN WEST, THE CONSERVATION FUND
    Cultivate, solicit and steward a portfolio of 75-125 donors.
  • NATURE'S BEST IN ARAVAIPA CANYON
    10 acre private oasis in one of Arizona's beautiful canyons. Fully furnished, 2123 sq ft architectural custom-built contemporary home with spectacular views and many extras....
  • HEALTH FOOD STORE IN NW MONTANA
    Turn-key business includes 2500 sq ft commercial building in main business district of Libby, Montana. 406.293.6771 /or [email protected]
  • LUNATEC ODOR-FREE DISHCLOTHS
    are a must try. They stay odor-free, dry fast, are durable and don't require machine washing. Try today.