Coal Bankruptcies Pile Up as Utilities Embrace Gas, Renewables

Source: By Jonathan Randles, Wall Street Journal • Posted: Monday, October 14, 2019

Despite President Trump’s promise to boost coal, at least seven large coal producers have filed for bankruptcy since October 2018

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.