When coal was king and Wyoming was churning out 400 million tons a year, it would have been unheard of for two Powder River Basin mines to flip ownership with little to no cash changing hands. It’s the kind of deal that happens with distressed assets, underperforming or idled operations heavy with debt. Not crown jewels.
But Contura Energy, a spinoff from coal giant Alpha Natural Resources, announced Monday that it is moving out of Wyoming. A little-known company called Blackjewel is acquiring its two mines and the 500 miners that work them, for the low price of picking up Contura’s Wyoming liabilities.
The coal sector has improved gradually since Contura was formed to take Alpha’s key Wyoming assets. The Powder River Basin, responsible for about 40 percent of the country’s coal production, has been settling into a new normal. The sector is bracing for long-term declines, but many remain hopeful for at least near-term stability.
That’s why the selloff of Contura’s assets came as a bit of surprise.
Some say the transfer of these two mines, once considered the best assets in Alpha Natural Resources’ portfolio, is heralding a period of heightened risk in the Powder River Basin. Others say it could simply be one more way the Wyoming coal market is adapting to the new normal.
Contura’s advantage, met coal
Though the news of the Contura sale was unexpected in Wyoming, it’s not that unusual given the circumstances, some say.
Over the first nine months of 2017, Contura lost money at Eagle Butte and Belle Ayr.
Most of Contura’s income was generated at its metallurgical mines in Appalachia. Met coal, used in steel production, is strong right now, said Chiza Vitta, coal analyst for Standard and Poor’s
By divesting the Powder River Basin mines, Contura will likely be less diverse, but more profitable going forward, he said.
The question for many is not why Contura wants out, but why Blackjewel is buying.
What is the draw?
Few coal experts in Wyoming are familiar with Jeff Hoops or his new company Blackjewel, formed in the summer to acquire Appalachian coal assets from Hoops’ other company, Revelation Energy. Hoops is also the founder of Lexington Coal Company. He has a long history in eastern coal, but his firms have a checkered past in Kentucky and West Virginia. Revelation is currently facing multiple environmental violations from state regulators, according to federal records.
Hooper declined an interview for this story, but said in an earlier email that Revelation and Blackjewel were separate entities and that the Eagle Butte and Belle Ayr mines still have high potential.
Indeed, Revelation spent the last year picking up challenged assets from Arch Coal and Alpha Natural Resources. In the Alpha case, Revelation was essentially paid to take Alpha’s coal leases.
Clark Williams-Derry, a coal analyst for the Sightline Institute, a think tank promoting a move away from fossil fuels, said the Blackjewel deal signifies a troubling trend for Wyoming.
“The new reality is that the PRB now attracts small companies and risk-hungry investors,” he said. “It’s a far cry from the old days, when large, well-capitalized businesses dominated Wyoming’s coal trade.”
Rob Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming, said he’s not yet convinced that the Blackjewel buyout represents a fundamental shift in Wyoming coal.
Though smaller companies like Blackjewel bring unique risks, they may also be flexible in a way that the major players are not, he said.
The large, publicly traded firms like Peabody and Arch are responsible to shareholders and have just emerged from bankruptcies that taught them caution. Blackjewel doesn’t necessarily have those restraints, he said.
“These companies may be more nimble,” Godby said. “We’ll have to see if that’s a risk or if that’s going to help the PRB.”
Low heat, no thanks
Wyoming coal has been in a holding pattern for more than a year. It’s emerged from the dark days of bankruptcies and layoffs, but uncertainties remain about the coal market long term.
Much has been made of recent coal plant closures that erased large clients for Powder River Basin mines. Peabody Energy and Cloud Peak Energy lost customers this year from early plant retirements, and both face a number of closures in the years to come.
The firms have said they are anticipating the smaller market and can adjust production accordingly.
Blackjewel’s new asset, Belle Ayr, is facing this same predicament. Its largest customer last year was Comanche Generating Station, a coal-fired plant that recently announced plans to retire two of its coal unites early, to be supplanted by new wind development. It is waiting regulatory for approval.
It’s unclear how the Belle Ayr and Eagle Butte transfer fits into a diminished coal sector. They produce a low-heat coal that many firms in the Powder River Basin have struggled to sell.
Low-heat coal is a particularly soft market, at a time when the Wyoming coal sector as a whole is adjusting to contractions, said Godby. In the case of larger firms, they can focus on their high-heat assets at other mines, blend or slow production of 8400 coal.
For Belle Ayr and Eagle Butte, that’s not an option, he said. That low-heat product is all they have.
Travis Deti of the Wyoming Mining Association said it’s impossible to predict how 8400 coal will fit into the fuel mix going forward.
But the coal in the Powder River Basin remains a dependable source of energy across the country despite challenges, he said.
“I think we are in a better place than some of the other mining basins,” he said. “As the long glide away from coal over the next century evolves, the last shovel of coal is going to be mined out of the PRB”.
Given the challenges to coal, and particularly to these two mines, some are watching the transfer to Blackjewel carefully.
For Shannon Anderson, a lawyer for the Powder River Basin Resource Council, the CEO’s environmental violations back East are concerning. The firm simply seems too willing to jump into a risky environment.
“They seem to be speculating, and they don’t have a proven track record,” she said.
State regulators have yet to approve the new ownership, which requires a transfer of permits and reclamation responsibilities. Those liabilities have been a chief concern of the Powder River Basin Resource Council, which lobbied during the bankruptcy period for stricter bonding on coal mines.
But even with bonding in place, the group doesn’t want Wyoming to end up responsible for a huge clean up effort if a company should fold.
“We think there needs to be a realistic, honest conversation with the community and workers,” she said. “This isn’t monopoly money to Wyoming. These are important assets.”