Welcome to the Star-Tribune’s Energy Journal, a play-by-play of the past week in Wyoming’s world of energy. I’m your energy and natural resources reporter, Camille Erickson. Sign up for the newsletter at trib.com/energyjournal
Goodbye, Cloud Peak Energy?
It's been a tumultuous year for the Wyoming-based coal company Cloud Peak Energy, to say the least.
After falling $350 million in the red and filing for bankruptcy in May, the publicly traded company turned to the auction block. It sold off its most valuable assets: three Powder River Basin coal mines.
Cloud Peak valued its property at over $630 million in an August court filing, with the prized Antelope mine worth $487 million.
But just one month later, the bankrupt company had a reality check.
In a September operating report, Cloud Peak listed the Antelope Mine at just under $31 million — a 94 percent drop.
The value of the Cordero Rojo and Spring Creek mines also drastically declined.
All told, Cloud Peak listed total property at just $67.6 million. In other words, the company made an unprecedented $406 million write-off of its assets.
Why the big write off?
Cloud Peak auctioned off its three PRB mines to a newcomer to the basin: Navajo Transitional Energy Company, or NTEC. The insolvent company squeezed out $15.7 million in cash from NTEC, plus a $40 million promissory note. It also saddled the Navajo Nation-based company with steep reclamation costs.
But the total cash paled in comparison to the mines’ value Cloud Peak had on its books, or what it paid for for the mines in 2009.
Days later, Cloud Peak’s share price plunged 28 percent, scraping rock bottom at $0.02.
To Clark Williams-Derry, director of energy finance at the Sightline Institute, an environmental think tank, the shift is a telltale sign of Powder River Basin coal’s decline.
“This is a recognition of the destruction of value that has occurred in the PRB coal industry,” Williams-Derry said. “Cloud Peak bought these mines for hundreds of millions of dollars and they thought the mines would be worth hundreds of millions of dollars. But it turns out when you do an auction, the market only values it at a fraction of that amount.”
Though writing off asset values is not uncommon during bankruptcy, a massive markdown like this has not happened before for major mines in the PRB, according to Williams-Derry.
“They had to adjust their books to the reality,” he added.
But NTEC has stayed optimistic, blaming Cloud Peak’s bankruptcy on extenuating circumstances that it won’t face when entering as a main player in the PRB coal market.
The company has been steadfast in its belief that the purchase will generate millions of dollars in revenue for the Navajo Nation. To prove its point, the company assessed the financial viability of the three thermal coal mines in a study. The purchase of the three mines is a “prudent” decision, the study concluded.
You have free articles remaining.
Prepared by Energy Ventures Analysis, a consulting firm, the analysis concluded the basin will continue to pump out coal at a healthy annual rate of at least 250 million tons of coal for decades to come.
In the meantime, Cloud Peak's fate remains unclear. The company sold nearly all its assets at auction and does not operate coal mines outside of Wyoming.
Cloud Peak first emerged in the Powder River Basin in 2009 when international mining corporation Rio Tinto made moves to leave American coal production and sell its mines.
But once the sale of the three mines to NTEC officially closes, Cloud Peak will have washed its hands of the mines and all corresponding liabilities.
In other news...
A federal judge approved the sale of mines owned by bankrupt coal operator Blackjewel last week to Eagle Specialty Materials, an affiliate of FM Coal. The decision came one day after Campbell County approved a reduced tax plan for the new owner. FM Coal operates several mines in Alabama, but some landowners and environmentalists worry about the company's track record.
- A federal bankruptcy court approved the final sale agreement struck between bankrupt coal operator Cloud Peak Energy and an out-of-state company, Navajo Transitional Energy Company (NTEC), for three Powder River Basin coal mines on Thursday. But several Navajo Nation counsel delegates and environmental groups criticized the new venture (via Navajo Times).
- A joint venture between Peabody Energy and Arch Coal, if approved, would mean the companies control 25 percent of coal production nationwide (via S&P Market Intelligence).
WIND & SOLAR
- A draft resource plan unveiled Thursday by PacifiCorp outlined how the company will likely retire two-thirds of its coal fleet by 2030. But PacifiCorp’s development of wind energy capacity will only accelerate with the addition of 1,920 megawatts of wind capacity by 2024.
- A study conducted in Sheridan concluded that solar power has the potential to support both economic growth and energy supplies in the area (via Sheridan Press).
OIL & GAS
- Economic growth in Wyoming blossomed during the second quarter, with a surge in the number of construction jobs thanks to a continued boom in wind and oil projects, according to reports prepared by Wyoming’s Economic Analysis Division.
- Researchers at the University of Wyoming will install sensors around the Permian Basin to track how the uptick in petroleum production contributes to methane emissions.
- Shale production shows only 1 percent growth this year — a sign the industry may soon plateau (via Wall Street Journal).
- Chronic wasting disease hits Wyoming Range mule deer, according to Wyoming Game and Fish Department (via Jackson Hole News & Guide).
Last week in numbers
Friday oil prices: West Texas Intermediate (WTI) $52.45, Brent (ICE) $57.71
Friday natural gas: Henry Hub $2.24, Wyoming Pool $2.09, Opal $2.16
Baker Hughes rig count: U.S 860 (-8), Wyoming 34 (-1)
Quote of the week
“Some of our coal fleets and coal units are located in communities that have literally been built around those coal resources, so we’ve been engaged with stakeholders, employees and those communities over the past year. We have continued to set forth plans that will help us get to our next major milestones on that transition.”
— Chad Teply, PacifiCorp's vice president of resource development and construction