Coal Tattoo

In this Wednesday Aug. 3, 2011 file photo, Senate Commerce Committee Chairman Sen. Jay Rockefeller, D-W.Va., gestures during a committee hearing on Capitol Hill in Washington.  (AP Photo/J. Scott Applewhite, File)

Finally, another of our state’s elected officials has stepped forward to express concern about the potential impacts of Patriot Coal’s bankruptcy on thousands of working coal miners, retired miners and families. Sen. Jay Rockfeller’s office has released a copy of this Sept. 7 letter the senator wrote to Irl Engelhardt, Patriot’s CEO, saying:

Generations of West Virginia coal miners have dedicated their careers to making Patriot and the entire coal industry a success. These employees and retirees have spent decades working hard under the promise of fair wages, safe working conditions, secure pensions, and lifetime health-care benefits. I am therefore troubled that Patriot has indicated that it is reviewing pension and health-care benefits as potential sources of savings as it restructures — especially since all of these benefits were contractually agreed to or voluntarily assumed by Patriot; the company from which it was spun-off, Peabody Energy; and the company it acquired, Magnum Coal Company, which itself was spun-off from Arch Coal Inc.

Sen. Rockefeller continued:

I understand that Patriot is in the process of reviewing its labor costs, along with other aspects of its business, and will soon submit a plan for revisions to the United Mine Workers of America. As this process moved forward, I urge you, in the strongest possible terms, to uphold the commitments that were made relating to pension, health care and other benefits for your employees and retirees. Any efforts to strip these individuals of their earned benefits through the bankruptcy process would be severely unjust.

Previously, the only elected officials here to say much of anything publicly about this situation was Attorney General Darrell V. McGraw, who entered the bankruptcy case to support the UMWA’s efforts to have the proceeding moved to bankruptcy court in Southern West Virginia.

In a news released issued on Sunday evening, Sen. Rockefeller’s office also provided a copy of a letter Rockefeller sent to UMWA President Cecil Roberts, saying:

I know that UMWA employees and retirees face substantial uncertainty as a result of the recent bankruptcy filing by Patriot Coal Corporation, which is why I sent the attached letter to Patriot’s Chairman and Chief Executive Officer on behalf of the company’s employees and retirees. As indicated in the letter, I firmly believe that any efforts on behalf of the company to strip employees and retirees of the benefits they have earned and that were promised to them would be severely unjust.

An update on W.Va.’s coal economy

The good folks over at the West Virginia Center for Budget and Policy have produced a fine report called the State of Working West Virginia 2012, which includes a chapter that provides a detailed primer on the state of West Virginia’s coal economy.

In that chapter, called West Virginia’s Mineral Resource Economy: The Gas Boom and the Coal Bust, Sean O’Leary and Ted Boettner break down employment and tax statistics, provide context about the continued importance of the coal industry to the state and its people, and warn about trouble ahead, given the projected declines in our state’s coal output in coming years.

Here’s a general overview, with a few quotes I pulled from the report:

For more than a century, the coal industry has played a significant role in the state’s economy. It has been a large supplier of jobs and wages, an important part of the state’s tax base, and an iconic part of its culture. Today, however, the state’s coal economy is diminishing because of market competition from cheap and abundant natural gas and Western coal, and from the exhaustion of many of the state’s thicker coal seams. Future federal regulations of greenhouse gases and mercury could also play a role in reducing demand for Central Appalachian coal.

… Each year, the EIA releases its Annual Energy Outlook that includes coal production projections for supply regions and coal types throughout the country. West Virginia is located in the Northern and Central Appalachian Regions. Over the next decade, EIA projects that coal production in the Central Appalachian Region will decline by 62 percent, from 196.7 million tons in 2009 to just 74.8 million tons by 2020. For the Northern Appalachian Region, EIA projects an increase of 30 percent over this same period – from 127.5 million tons in 2009 to 165.7 million tons by 2020. The combined decline in coal production for the two regions is about 26 percent.


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Where is the outrage for Patriot retirees?

This morning’s Gazette included an editorial about the growing concerns regarding pensions and retiree health-care for miners and their families, given the bankruptcy reorganization efforts of Patriot Coal. To quote the editorial:

The word “scam” once described the tactic of bleeding assets from a corporation, then filing bankruptcy to leave creditors stuck. The United Mine Workers of America alleges that something similar may have occurred in regard to Patriot Coal Corp.

Editorial writers cited my Sunday story on this issue, which was a follow-up to a previous Coal Tattoo post that quoted extensively from the latest issue of the UMW Journal article on the matter. We’ve published several stories on blog posts (see here, here and here) recently that touched on this issue. Perhaps I’ve missed it, but I haven’t seen much about the struggle ahead for Patriot workers and retirees from other West Virginia media outlets that typically spend a lot of time trumpeting the coal industry’s public relations campaigns and proclaiming their concerns for coal miner jobs.

Of course, it’s not like West Virginia political leaders are talking much about what Patriot’s bankruptcy means for 2,000 active union members in West Virginia and Kentucky, and more than 10,000 retirees and another 10,000 dependents, most of them in West Virginia, Indiana, Illinois, Kentucky and Ohio. Where is Sen. Joe Manchin on this issue? Or Gov. Earl Ray Tomblin? Republican challengers John Raese and Bill Maloney talk an awful lot about coal miners, but I haven’t heard them mention this issue. And what about the Republican ticket of Mitt Romney and Paul Ryan? Why aren’t they making this an issue, given that the West Virginia GOP convention delegation professes to care so much about coal miners that they’re wearing miners’ caps on the convention floor?

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About that coal deal with India …

About two dozen protesters opposed to coal development in Montana occupy the state Capitol Rotunda on Monday, Aug. 13, 2012, in Helena, Mont. Protesters plan a week-long sit-in at the Capitol. (AP Photo/Matt Gouras)

This week’s announcement of a deal to ship about 9 million tons of Appalachian steam coal to power plants in India certainly got a lot of media attention, in part because the story was promoted by the office of Kentucky Governor Steve Beshear, who said of the arrangement:

It’s no secret that the coal industry is in a state of flux in America, what with erratic market conditions, the uncertain regulatory atmosphere and the ever-changing energy picture. But international markets need coal, and this private partnership is a great example of a new market for Kentucky resources. My administration has worked hard to strengthen ties with India, and we’re looking forward to a long and successful partnership with many more economic opportunities.

For those who might have missed it, here are the basics of the story, as reported by Platts:

Kentucky and West Virginia coal mines will sell 9 million short tons of Central Appalachian steam coal annually to India for 25 years under a $7 billion deal unveiled Wednesday.

A significant portion of the coal will be produced by privately owned Booth Energy, which operates mines in both states, according to Ed Hatfield, president of Cincinnati-based River Trading.

 New Jersey-based FJS Energy LLC signed the long-term coal sales agreement with India’s Abhijeet Group. Although India produces coal, domestic production cannot keep up with demand.

Anand Kumar, executive director for Abhijeet, said during a news conference that the partnership “is an example of the strong potential between American producers and Indian customers. We see a significant growth of our mutually rewarding relationship.”

Obviously, this is good news for the companies involved and for the men and women who work for them, at mines like the ones that Booth Energy operates in West Virginia under the name Argus Energy. But how big of a deal is this really, what does it mean for the coal market in Appalachia, and what is perhaps the more important part of the story — the potential impacts on global warming — that nobody is giving much attention?

Well, consider that in the most recent year for which data is available (2010), Kentucky exported just 5.5 millions of the 101.4 million tons the state’s operators produced.  West Virginia, which leads the nation in coal exports, shipped 23,8 million tons (out of a total production of nearly 135 million tons) overseas.  So this deal alone will increase annual exports from the two states combined by nearly a third. That’s pretty big.

But does the deal live up to the hype that some are giving it, in newspaper stories that say stuff like this:

That’s a significant announcement for Appalachian mining companies, which have seen layoffs because of low demand for power-generating coal, and for India, which needs fuel to feed its growing hunger for electricity.

“I think that’s very, very confidence building to know that other countries depend on us,” said West Virginia Coal Association President Bill Raney.

Well, consider what Erica Peterson over at public radio in Kentucky explained in her initial story (Erica also did a fascinating follow-up story about the connections between this deal and one Kentucky lawmaker):

But is it a big enough deal? Over the past decade, Appalachia’s coal industry has been struggling. And energy analyst James Stevenson of IHS says this deal won’t quite close that gap.

“You’ve lost sort of 50, 60 million tons of production,” he said. “This is nine million, obviously that’s a small percentage of that. But probably the better upside here is that this could be the first of a number of deals.”

The most recent United Mine Workers of America Journal (it’s not online yet, sorry) list nearly 16 million tons of production cuts announced by Appalachian state mine operators since November 2011 alone.

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Coal job numbers: Looking to the future

Gazette photo by Chip Ellis

If you missed it, we had a story in this morning’s Gazette (posted online last night) that provides the first glimpse at government data reflecting the jobs impact on the layoffs various coal operators have announced since the first of the year. Here’s a bit of that story:

Coal-mining employment in West Virginia dropped by nearly 1,300 jobs in the second quarter of the year, according to preliminary numbers that illustrate the coal industry’s continued decline in the face of cheap natural gas, declining reserves, and competition from other coal regions.

New data from the U.S. Mine Safety and Health Administration put coal employment at about 23,300 during the period from April to June, a decline of about 5 percent over the previous three months.

The numbers are the first government statistics to reflect recent layoffs across the state’s coalfields. But some observers said they also show coal employment remains surprisingly strong, given the political campaign that alleges new environmental rules are destroying the industry.

Current statewide numbers are roughly the same as the last full quarter of George W. Bush’s presidency, according to jobs numbers mine operators report to MSHA.

West Virginia mining employment is up by nearly 1,800 jobs — more than 8 percent — since the Obama administration began initiatives aimed at cracking down on mountaintop removal mining. And, the most recent quarter’s figures show the seventh-highest number of jobs over the last 40 quarters, or 10 years.

So everyone is clear, many of the layoffs took effect in the second quarter of 2012, so they weren’t included in the first-quarter data that we previously published in the Gazette and discussed here on Coal Tattoo (see here, here and here).  And for those not familiar with the data, it’s reported to the government by coal operators and published by the U.S. Mine Safety and Health Administration, though various other agencies also keep similar figures.

What to make of all of this?

First of all, there’s simply no question that for the miners and families personally hit by these layoffs, it’s terrible news.  Roger Horton, a miner who started the group Citizens for Coal, spoke from personal experience when he testified to Congress last year about how mine closures can impact families and local communities:

The workforce and local union were obviously devastated but the county was also severely damaged. The school system and social welfare programs lost revenue that was vital to their existence and operation.

Entire communities were devastated. With nowhere to work and no prospect of the mine reopening any time soon, residents packed up and moved to other states to find lower paying jobs. Businesses that relied on the mine for their income — gas stations, restaurants, repair shops and equipment vendors — vanished.

But it’s also important, from a larger public policy standpoint, to put what’s happened and what is happening in context, and to base discussions about it around the facts — not the scare tactics of the mining industry’s public relations machine, the nonsense of President Obama’s coal-related campaign ads, or the rhetoric of those who don’t always fully understand the role coal still plays in many communities here.

Clearly, the net loss of 1,300 jobs to any industry in West Virginia is a troubling economic trend, right? Everybody can agree on that? But is it the end of the world, sky is falling, destruction of an industry that supporters fear and some opponents actually celebrate?

Remember that coal is a boom-bust industry. As the West Virginia Center for Budget and Policy has warned, by relying so heavily on one boom-bust industry for so long, West Virginia puts itself at risk for what happens when things go bust:

However, natural resource extraction tends to lead to economic boom and bust cycles, as production grows and shrinks, energy prices rise and fall, and the resources themselves are depleted over time. West Virginia has experienced this pattern over the past century. Since the state is so dependent upon natural resources, this pattern of booms and busts causes volatility in revenue streams, leaving communities vulnerable, underdeveloped, and less economically secure.

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Here’s the big coal-related financial news out early this morning:

Alpha Natural Resources, Inc. (NYSE: ANR), a leading U.S. coal producer, reported a second quarter loss of $2.2 billion or $10.14 per diluted share, compared with a loss of $50 million or $0.32 per diluted share in the second quarter of 2011.

A couple of important points:

— In the second quarter, Alpha recorded restructuring and long-lived asset impairment charges totaling $1.0 billion, primarily associated with current market conditions and the continued optimization of Eastern operations which included reductions in operating levels and idling of several operations, as well as actions to streamline the company’s organizational structure.

— In addition, Alpha recorded a non-cash goodwill impairment charge of $1.5 billion, reflecting the current coal market conditions, and lower expected production and shipment levels. None of these charges are anticipated to materially impact the company’s liquidity position or the future operation of its business.

Kevin Crutchfield, Alpha’s Chairman and CEO, said:

These are extremely challenging times in the U.S. coal industry, with softness in both the thermal and now the metallurgical coal markets and the pace at which the fundamentals changed. Alpha has taken decisive actions to ensure that our business is both well-suited to today’s demand environment and efficient enough to provide us with the flexibility to ramp-up our world-class asset base once market conditions improve. We have continued to optimize our Central Appalachia operations by adjusting our footprint, idling high cost thermal coal and lower-quality metallurgical coal production while focusing on our higher-margin metallurgical products. Additionally, we have reduced our overhead expenses. Unfortunately, this occurred at a time of heightened and sustained unemployment rates and a very tepid economic recovery in the United States. We sincerely regret the impact our production curtailments have had on good employees and their families, but the market environment with which we are faced left us no other options. We will continue to evaluate market conditions and will make further adjustments if market conditions warrant.

We have also taken proactive steps to ensure significant financial flexibility by amending our secured credit facility and relaxing certain of our covenants in the near-term. The amendment does not alter our total liquidity position, maintains all of our available credit facilities, does not increase our current borrowing rates, and does not force us to incur any additional debt.

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There was more troubling news for the coalfields this morning, with Alpha Natural Resources announcing more cutbacks in coal production in Kentucky:

Alpha’s Kentucky affiliates will discontinue mining at four mines and idle two coal preparation plants in Pike and Martin counties. Production will be scaled back at several other mines, and four contract mines will close. In aggregate the production cuts will reduce Alpha’s shipments of thermal coal by an additional two million tons this year and four million tons in 2013. These actions, together with expected reductions resulting from production optimization and schedule changes at various operations through the course of 2012, were fully anticipated in Alpha’s guidance provided in our first quarter 2012 earnings release issued on May 3, 2012, and Alpha’s 2012 shipment guidance remains unchanged.

Management and human resources personnel are meeting with employees today at the affected sites in Kentucky. Of the 436 employees affected by these reductions, 286 employees will be offered positions at other operations in Kentucky, southern West Virginia and Virginia, while about 150 jobs will be lost. Employees who are displaced will remain on the payroll and will receive their normal wages and benefits for a 60-day period.

This announcement comes as Moody’s Investors Service issued a grim analysis for the coal industry:

Moody’s Investors Service has lowered its outlook on the fundamentals of the U.S. coal industry to negative and expects some of the decline in U.S. coal consumption to be permanent.

Electricity producers’ demand for coal has diminished recently as natural gas prices have sunk to new lows. The ratings firm said it expects coal producers’ operating margins to continue to deteriorate this year and sees U.S. coal prices to fall at least 5% in 2013.

 Alpha and Moody’s both cited the decreased demand for steam coal, fueled by the mild winter and low natural gas prices, and also said that new U.S. EPA regulations were speeding up power plant closures, adding to coal’s problems competing in the energy marketplace. Alpha CEO Kevin Crutchfield commented:

This year, utilities in the U.S. are expected to burn the least amount of steam coal than at any time in the last 20 years, and the pressure’s been very intense on coal sourced from eastern Kentucky, particularly operations rendered uncompetitive due to fuel switching, relatively high rail rates and competition from Illinois Basin coal. Layoffs are an unfortunate last resort, and it’s tough for miners that want to work but are unable to because of factors beyond their control and the company’s control.

The U.S. coal industry is confronting a ‘new normal,’ and we want to be sure we have the appropriate operating model, talent and agility to not just survive but emerge a winner. That means ensuring our thermal coal assets are sustainable through the business cycle, particularly in the onerous regulatory environment we’re confronting. It also means preserving and enhancing our valued metallurgical coal franchise, and maintaining the sound financial base we currently have as we maneuver through this tough environment.

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Patriot Coal names new leadership team

Here’s today’s announcement from Patriot Coal:

Patriot Coal Corporation (NYSE: PCX), a leading producer and marketer of coal in the eastern United States, today announced a new executive leadership team to improve its operating and financial structure.

The following appointments by the Patriot Board of Directors are effective immediately:

  • Irl F. Engelhardt has been named Chief Executive Officer.  He succeeds Richard M. Whiting, who is leaving Patriot after serving as President and CEO since 2007. As CEO, Engelhardt will have overall responsibility for the Company and will focus on corporate strategy, financing activities, corporate development and optimization of the Company’s asset portfolio.  Engelhardt will also continue to serve as Chairman of Patriot’s Board of Directors.
  • Bennett K. Hatfield has been named President and will continue to serve as Chief Operating Officer of Patriot. He will be responsible for overseeing the execution of Patriot’s operations, sales and marketing plans.  To help ensure that Patriot’s operations anticipate and respond effectively to changing market conditions, the Company’s marketing teams will now report directly to Hatfield.
  • Michael M. Scharf has been named Lead Independent Director of the Patriot Board. He has been a member of the Board since 2007 and currently chairs Patriot’s Nominating & Governance Committee.

Engelhardt said, “Ben and I will immediately focus on improving Patriot’s competitive position as well as its financial structure to enhance value for our shareholders and all other groups who have a stake in the Company’s success. Our team has successfully navigated the inherent cycles in the energy industry in the past, and I am confident Patriot can overcome the industry challenges that we currently face.  As we move forward, I could not have a better operating partner than Ben, who has demonstrated outstanding leadership and a deep knowledge of the coal industry in his 30-year career.”

Engelhardt added, “On behalf of the Board and the senior management team, we thank Rick for his contributions, commitment and service to Patriot. As President and CEO, he guided Patriot through a complex spin-off and its emergence as a standalone public company. We wish him well in his future endeavors.”

The shakeup comes amid financial troubles for Patriot that have, as we noted in Friday’s roundup, have had all sorts or rumors flying. The Wall Street Journal reported this morning:

Shares were up 3.3% in premarket trading to $2.54. Through the most recent close, the stock is down 71% so far this year.

Patriot recently said that it is working with private-equity firm Blackstone Group LP (BX) on a refinancing effort. Patriot, like other U.S. coal producers has struggled this year as decade-low natural gas prices have sapped demand for power-plant coal.

The company recently lowered its sales volume outlook for metallurgical coal for the rest of the year, citing the potential default of a key customer. The three major ratings agencies recently lowered Patriot’s credit ratings.

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W.Va. coal-mining jobs on rise under Obama

There’s no doubt that next week’s taxpayer-funded coal industry pep rally against President Obama and the U.S. Environmental Protection Agency will feature industry officials and their political supporters arguing that the current administration’s policies are killing the coal industry, and putting West Virginians out of work.

Republican political operatives — folks that probably wish Don Blankenship would run for governor — are already gearing up their spin that West Virginia has “fewer coal miners” because of President Obama and EPA.

But over at the West Virginia Center for Budget and Policy, Ted Boettner dares to try to insert some facts into this whole discussion. Writes Ted:

While the Obama administration and the EPA may be taking a harder look at mountain top removal mining permits, a quick look at coal mining employment in West Virginia reveals that since Obama took office in the winter of 2009 coal mining employment has grown by over 1,500 jobs or by 7.4%. If we measure from the end of the national recession in June 2009 (or the 2nd Quarter of 2009) to the third-quarter of 2011 (the latest available data), employment in the coal mining industry has grown by 3,100. For comparison, total employment in West Virginia has only grown by 2.9% over this period.

Here’s the chart, which supports what we’ve previously published in the Gazette on this issue:


Here’s the latest, just out this morning from Alpha Natural Resources:

Alpha Natural Resources, Inc., a leading U.S. coal producer, reported a first quarter net loss of $29.1 million or $0.13 per diluted share compared to net income of $49.8 million or $0.41 per diluted share last year. Excluding amortization of acquired intangibles, changes in fair value and settlement of derivative instruments, merger-related expenses, UBB expenses, severance charges arising from the production adjustments announced February 3, a weather-related property damage loss, and related tax impacts of these items, the first quarter 2012 adjusted net loss was $58.2 million or $0.27 per diluted share, compared to net income of $78.9 million or $0.65 per diluted share last year.

Earnings before interest, taxes, depreciation, depletion and amortization, or EBITDA, for the first quarter 2012 was $222.1 million, compared to $193.0 million in the year ago period. Excluding the change in fair value and settlement of derivative instruments, merger-related expenses, UBB expenses, severance charges arising from the production adjustments announced February 3, and a weather-related property damage loss, first quarter 2012 adjusted EBITDA was $210.5 million.

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There’s interesting new on the coal business today in the earnings statement from Arch Coal, and this quote from John W. Eaves, Arch’s president and chief executive officer:

The severe weakness in U.S. thermal coal markets impacted our first quarter results and, consequently, we are resetting our 2012 expectations … Based upon an unprecedented build in power generator coal stockpiles year to date, the continued erosion in natural gas prices and relatively soft global metallurgical demand, we are further curtailing our production in 2012.  While lower planned volumes will have predictable consequences on our near-term financial results, we believe we are taking the right steps now to position Arch for success as coal markets recover.

The company said:

Arch is taking several aggressive steps to increase operational efficiency and productivity during the cyclical market downturn, including:

— Matching production levels to current demand to help reduce the oversupply in domestic thermal markets, which includes leaving nearly all unsold thermal volumes in the ground to preserve the future value of those reserves.  In total, Arch expects to reduce annual volumes by 25 million tons in 2012 versus originally planned levels.

— In the Powder River Basin, Arch idled one dragline, placed another into reclamation and meaningfully limited railcar loadings at Black Thunder’s West Loadout during the first quarter. The company plans to have a total of three draglines and supporting equipment on idle in the second quarter.

In Appalachia, Arch delayed the startup of Mountain Laurel’s longwall in the first quarter following the successful transition to the Cedar Grove seam, as well as closed five thermal operations and further curtailed production at other thermal mines. Since the market downturn, Arch subsidiaries have eliminated approximately 500 positions.

— In the Western Bituminous Region, Arch continued to rationalize supply at the company’s higher-cost mines.

Most interestingly, Eaves said this:

The U.S. coal industry is in the midst of a restructuring that will cause some players to exit the market and others, like Arch, to pare back operations until market conditions improve.

What you didn’t see in the Arch statement was a lot of complaining about an “attack on coal” by the U.S. Environmental Protection Agency … And what we still haven’t heard from West Virginia political leaders is any real discussion about a plan for dealing with the results of major declines in the region’s coal industry.

Alpha takes $745M ‘goodwill impairment’ charge

We haven’t seen any comments from our friends at Alpha Natural Resources on yesterday’s release of the state report on the Upper Big Branch Mine Disaster. So we still don’t know if Alpha CEO Kevin Crutchfield thinks the deaths of 29 coal miners on April 5, 2010, was — as Massey officials contended — an “Act of God.”

But here’s some interesting news out this morning from Alpha, with the release of its latest quarterly financial report:

Alpha Natural Resources, Inc. (NYSE: ANR), a leading U.S. coal producer, reported a fourth quarter 2011 net loss of $733.3 million or $3.34 per diluted share compared to net income of $10.8 million or $0.09 per diluted share in the fourth quarter of 2010.

Alpha explained:

The Company recorded a $745 million goodwill impairment charge in the fourth quarter of 2011.  This non-cash charge resulted from the Company’s annual goodwill impairment testing required under generally accepted accounting principles and related to the Company’s Eastern Coal Operations reporting segment.  During the fourth quarter, domestic and international coal markets declined as a result of slowing economic activity, fuel switching for electricity generation due to low priced natural gas, and recently effective and anticipated U.S. environmental regulations that discourage the use of coal.  As a result of these changes to the near-term market outlook as well as updated projections of production volumes and cash operating costs, and the Company’s market valuation as of the goodwill testing date, the implied fair value of goodwill at several reporting units was determined to be less than its carrying value, thereby necessitating the impairment charge.  This non-cash charge will not impact the Company’s ongoing business operations nor will it affect liquidity, cash flow from operations or financial covenant compliance for any of the Company’s outstanding debt.

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Telling the truth about W.Va. mineral taxation

The good folks over at the West Virginia Center on Budget and Policy just posted a fascinating new item on their blog. It’s headlined, “Getting the Story Right: Mineral Taxation in Wyoming and West Virginia” and it concludes:

West Virginia’s mineral property and severance taxes are not out line with a conservative state like Wyoming and not a barrier to creating a permanent mineral trust fund. Our only barrier seems to be that we are not doing as good a job as Wyoming in ensuring that our state benefits from its rich natural resources.

In short, this post by center executive director Ted Boettner and policy analyst Sean O’Leary found that state officials and local university researchers leave out a significant part of the story when they compare how West Virginia taxes coal and natural gas compared to Wyoming. As they explain:

Last week, I was asked to present before the Senate Economic Development Committee on our projected estimates regarding S.B. 182 – which creates the WV Future Fund proposed by Senate President Jeff Kessler.

During the meeting, Mark Muchow, the Deputy Secretary of the WV Department of Revenue, also presented the committee with a history of the WV severance tax. At the end of his presentation, Muchow also compared the mining (oil, natural gas, and coal) gross domestic product of Wyoming and West Virginia, showing that Wyoming’s natural resource economy was about twice the size of West Virginia. In response to questions about the taxation of minerals in Wyoming and West Virginia, Muchow also told legislators that West Virginia taxes mineral property while Wyoming does not.

After doing a little research after the meeting, I discovered that Muchow failed to mention that Wyoming does levy a county gross products tax based on the taxable value of minerals produced in the county. According to the Wyoming Department of Revenue, this ad valorem property tax brought in over $1.2 billion dollars in revenue for Wyoming county governments in 2009 based on 2008 taxable mineral production values. Of the $1.2 billion, approximately $967 million was from coal and natural gas. According to two reports conducted by West Virginia University on the economic impact of the natural gas and coal industry in the state, total West Virginia property tax revenue in 2008 for coal was $90.8 million and $58.3 million for natural gas – a total of $149.1 million. According to these estimates, West Virginia collected about 15.4 percent of the amount in natural gas and coal property taxes that Wyoming collected in 2009.

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And so it begins: Coal layoffs sign of things to come?

If you don’t read the Saturday newspaper, you might have missed this story, outlining two troublesome announcements last week by major coal producers here in West Virginia:

Alpha Natural Resources announced late Friday that it plans to idle several Appalachian coal mines and reduce work schedules at others, citing reduced coal demand as more electricity utilities move toward using natural gas.

The company said many of the affected workers would be able to transfer to other Alpha operations but that about 320 workers would be displaced “within the next few weeks.”

The announcement is the second such move by a major coal producer this week, coming just one day after Patriot Coal said it was closing its Big Mountain complex in Boone County.

You can read for yourselves the announcement from Alpha here and the one earlier in the week from Patriot here.  Alpha made a separate announcement of its moves, in anticipation of the release of its quarterly earnings data on Feb. 24. Patriot wrapped word of its closure of the Big Mountain Complex in Boone County inside its quarterly earnings statement.

For those who missed the details of the Alpha closures and schedule cutbacks — Alpha didn’t bother to include that in its press release — here’s the way company spokesman Ted Pile explained it in an email to me:

West Virginia:

— #2 Gas mine in Kanawha County is being idled immediately as is the Randolph Mine in Boone County. Both are underground.

–The Black Castle surface mine in Boone County is reducing its work hours

–Camp Branch surface mine in Logan County is reducing work schedules

–Progress/Twilight surface mine is cutting back work schedules (Boone Cty.)

–Alloy Powellton mine in Fayette County s eliminating one underground section


— the Cave Spur and Perkins Branch underground mines are idled immediately. Both are in Harlan County.

— the Coalgood surface mine in Harlan County will be phased out by the middle of this year and the Big Branch West surface mine in Knott County will close in early 2013.

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Update: Declines projected for Appalachian coal

Here’s the latest from the U.S. Department of Energy’s Energy Information Administration, in a preview of its 2012 Energy Outlook issued this morning:

Over the next 25 years, the projected coal share of overall electricity generation falls to 39 percent, well below the 49-percent share seen as recently as 2007, because of slow growth in electricity demand, continued competition from natural gas and renewable plants, and the need to comply with new environmental regulations.

The average minemouth price of coal increases by 1.4 percent per year in the AEO2012 Reference case, from $1.76 per million Btu in 2010 to $2.51 per million Btu in 2035 (2010 dollars). The upward trend of coal prices primarily reflects an expectation that cost savings from technological improvements in coal mining will be outweighed by increases in production costs associated with moving into reserves that are more costly to mine. The coal price outlook in the AEO2012 Reference case represents a change from the AEO2011 Reference case, where coal prices were essentially flat.

Although coal remains the leading fuel for U.S. electricity generation, its share of total generation is lower in the AEO2012 Reference case than was projected in the AEO2011 Reference case. As a consequence, while still growing in most projection years after 2015, total coal production is lower in the AEO2012 Reference case than in the AEO2011 Reference case, with the gap between the two outlooks increasing substantially over the period from 2020 to 2035.
In the AEO2012 Reference case, domestic coal production increases at an average rate of 0.3 percent per year, from 22.1 quadrillion Btu (1,084 million short tons) in 2010 to 23.5 quadrillion Btu (1,188 million short tons) in 2035. Mines in the West account for nearly all the projected increase in overall production, although even Western coal production is expected to decline somewhat between 2010 and 2015 as low natural gas prices and the retirement of a sizable amount of coal-fired generating capacity leads to a decline in overall coal consumption in the electricity sector. On a Btu basis, the share of domestic coal production originating from mines in the West increases from 47 percent in 2010 to 56 percent in 2035, and the Appalachian share declines from 39 percent to 29 percent during the same period, with most of the decline occurring by 2020. In the Interior region, coal production remains relatively stable over the projection period, with production in 2035 higher than in 2010.

UMWA reaches deal with Alpha on Massey plants

This just in:

The United Mine Workers of America (UMWA) announced today that it has reached collective bargaining agreements with Alpha Natural Resources covering five Central Appalachia coal preparation plants which had previously been owned by Massey Energy. Workers at the plants had been working under the provisions of a previous contract that expired in 1998.

“This is a very good day for these workers and their families,” UMWA International President Cecil E. Roberts said. “They will get a substantial initial raise, the first they’ve had since 1998. They will get annual wage increases for the life of the agreement. They will get a $1,000 bonus. They will get shift differentials, a clothing allowance, sickness and accident benefits and the best quality health care benefits.

“I commend the workers at these plants for persevering so long and sticking with the UMWA in the face of constant attacks by the previous ownership,” Roberts said. “Massey simply refused to take any steps to reach a fair agreement as long as these workers stayed in the UMWA. But the workers stayed united and it ultimately paid off for them.

“I also want to recognize the fresh approach Alpha is taking with respect to recognizing the value of these employees,” Roberts said. “The UMWA is working to build a good relationship with Alpha at these and other operations where we represent the workers. We appreciate the company’s willingness to recognize and address the long-standing inequities the workers at these preparation plants were dealing with.”

The agreement covers some 145 workers at the following locations: the Bandmill preparation plant in Logan County, W. Va.; the Long Fork preparation plant in Pike County, Ky.; the Goals preparation plant in Raleigh County, W. Va.; the Chesterfield preparation plant operated by Alpha subsidiary Omar Coal Co. in Boone County, W. Va.; and the Power Mountain preparation plant in Nicholas County, W. Va.

The 5-1/2-year agreement goes into effect Jan. 1, 2012, and will continue until June 30, 2017.

Blankenship back in the coal business?

ABC News has this interesting report tonight:

There are new indications that Blankenship may be attempting a return to the industry that helped him build a massive personal fortune, but also tarnished his image as the man at the helm during the deadliest American mining disaster in decades …

… Kentucky state incorporation records show that scarcely a month after Blankenship agreed to step down as CEO of Massey Energy, he signed papers identifying him as the president of a newly-named company, McCoy Coal Group Inc. McCoy is the family name of Blankenship’s mother.

The status of McCoy Coal and Blankenship’s role with the firm remain unclear — calls to the company’s lawyer and to Blankenship’s attorney have not been returned.

The corporate records in question are online here.

Mining lobby admits it: Coal jobs are on the rise


We’re about to be treated to another episode in the continuing story of the attacks by the coal industry and its friends in Congress on any effort by the Obama administration to reduce mountaintop removal’s impacts on coalfield communities, protect the world from greenhouse gas pollution and ensure mining industry workers make it home to their families after each workday.

That’s right the House Natural Resources Committee is set to hold a hearing later this morning on what Ohio Republican Bill Johnson’s bill called the “Coal Miner Employment and Domestic Energy Infrastructure Protection Act”. Basically, this is a bill to stop the federal Office of Surface Mining Reclamation and Enforcement from rewriting the federal stream buffer zone rule, but it’s actually much broader, prohibiting OSMRE from taking any actions that would do any of the following:

— Adversely impact employment in coal mines in the United States;

— Cause a reduction in revenue received by the Federal Government or any State, tribal or local government, by reducing through regulation the amount of coal in the United States that is available for mining;

— Reduce the amount of coal available for domestic consumption or export;

— Designate any area as unsuitable for surface coal mining and reclamation operations; or

— Expose the United States to liability for taking the value of privately owned coal through regulation.

Now, to hear Rep. Johnson talk, there’s a major crisis in the nation’s coalfields, with workers and their families already suffering because of actions by the Obama administration’s Environmental Protection Agency:

Every day thousands of hardworking coal miners go to work to put food on their families’ tables and keep millions of American families supplied with reliable, low cost electricity. The Obama Administration has actively sought ways to put an end to the coal industry through onerous regulations and activist rulemaking. This bill will ensure that this Administration cannot continue its efforts to increase the cost of energy for millions of Americans and put thousands of coal miners and coal industry related workers out of work.

The federal government should not be in the business of blocking production of one of America’s most abundant natural resources and the source of livelihoods in communities across the country.

And not so long again, in celebrating a partial court victory over EPA, the National Mining Association’s president, Hal Quinn, said this:

With this decision, coal communities can get back to the business of producing affordable energy for Americans and put more Americans back to work.

So imagine my surprise to see the chart I’ve posted above right there at the top of the National Mining Association’s website, along with this fascinating bit of text:

Mining added 11,000 men and women to our payrolls over the last year, along with 17,000 new support jobs. In fact, U.S. mining added thousands more jobs over the last decade-America’s first job-loss decade in 75 years.

Jobs at U.S. metals mines climbed by 10 percent and coal mining employment rose by 8.5 percent since 2001 . . . mining support jobs grew by an astounding 32 percent.

Here are their specific numbers:

Of course Matt Wasson at Appalachian Voices has been trying to make the point that government data indicates that coal-mining jobs in West Virginia specifically are on the rise since EPA began its crackdown on mountaintop removal — and lawmakers should know this, since Joe Lovett of the group Appalachian Mountain Advocates made this very point during a previous hearing:

Since 2007, as production in Central Appalachia has shifted away from mountaintop removal and back toward underground mining, the increase in employment at underground mines has more than offset declines at other types of mines. Although mountaintop removal may benefit the bottom lines of big coal operators, it does not increase the number of coal mining jobs.

Since mountaintop removal permits have been slowed by litigation and EPA regulation, mining jobs have actually increased in the region.

Coal stockpiles at five-year low

In case anyone missed it, Friday’s “Today in Energy” item from the Department of Energy’s Energy Information Administration reported:

Total coal stockpile levels at U.S. electric power plants were 139 million tons in August 2011—the lowest total level for August since 2006. Bituminous coal stockpiles declined the most, down 27% since August 2009. Increases in the spot price of Central Appalachian coal as well as some supply disruptions in the late spring of 2011 contributed to declining stock levels.

Coal stockpile levels typically decline during summer months as power plants burn through stocks to meet seasonal peak electric demand for air conditioning load. Stockpile levels have been depressed throughout 2011 compared to 2009 and 2010 levels. According to average monthly data, the spot price of Central Appalachian coal (a key benchmark for the price of Eastern bituminous coal) was up 18% since August 2010. Flooding in April and May disrupted some coal deliveries, especially in the Southeast, and likely played a role in the declining stock levels going into the summer of 2011.

DOE: Six ports account for bulk of U.S. coal exports

Interesting post today from the Department of Energy’s “Energy Today” site:

Seaports in the Gulf Coast and East Coast account for most U.S. coal exports. Six seaports accounted for 94% of U.S. coal exports in 2010, up from 63% in 2000. Over 68% of total U.S. coal exports in 2010 were coking coal, which is used in making iron and steel. Steam coal, used to generate electricity, comprised the remaining 32% of exports.

Despite falling Midwest exports, overall U.S. coal exports have been resurgent, reaching nearly 71 million tons in the first eight months of 2011—the highest level in decades—driven by high global demand and significant weather disruptions of Australian coal exports. Combined annual exports from Norfolk, Virginia and Baltimore, Maryland increased 18 million tons from 2000 to 2010. For the first eight months of 2011, New Orleans, Louisiana coal exports grew 980% above the 2000 level and surpassed the record 2010 level by nearly 50% despite flooding along the Mississippi River disrupting barge traffic. Coal exports from Seattle, Washington have also risen sharply in recent years as significant coal production in the Powder River Basin seeks access to growing Asian coal markets.