One of the newest companies to take over coal mines in the Powder River Basin has defaulted on its tax payments.
Eagle Specialty Materials LLC — the new owner of the former Blackjewel coal mines in Campbell County — missed its first production tax payment late last month, Campbell County Administrative Director Carol Seeger confirmed.
In the past 10 years, the amount of county tax delinquencies for energy production increased over 1,700 percent in the state — rising from just over $2 million in 2009 to $39.2 million in 2019. Over 59 percent of the total amount of delinquencies in the past decade occurred in Campbell County.
Though companies must pay mineral production taxes, known as ad valorem taxes, every 18 months, Eagle Specialty Materials promised Campbell County it would do things differently. It voluntarily agreed to pay taxes to the county for coal extracted at the Belle Ayr and Eagle Butte mines on a monthly basis when it purchased the two mines — two of the nation’s largest — from insolvent Blackjewel last year.
But the company’s first tax deadline on Dec. 25 came and went without sign of payment from the new company.
“It’s not the right way to get started and it is getting off on the wrong foot, so to speak,” said Rob Godby, an economist at the University of Wyoming. “I can imagine the county is not ringing alarm bells, but the whole reason Eagle Specialty Materials agreed to do monthly payments was to actually try to reduce uncertainty, and the fact that they’ve missed this very first payment, it just doesn’t bode well.”
Despite the late payment, the company has been staying in communication with the county, Seeger said.
“(Eagle Specialty Materials) is working with us since this is a new process paying monthly,” she said. “They did meet with me last week about the mechanics of doing that, so we’re continuing to work with them on how that’s going to happen.”
Eagle Specialty Materials CEO Michael Costello did not return multiple requests for comment.
According to the U.S. Mining, Safety and Health Administration, coal production dropped 82 percent at Eagle Butte mine and 91 percent at Belle Ayr mine in the third quarter of 2019 compared to the year prior. That was due largely to a significant scale-back in production during the peak of Blackjewel’s bankruptcy proceedings.
“Despite the fact that the mines have reopened, production (statewide) continued to trend down in the fourth quarter,” Godby noted. “It is alarming that we have seen a repeated pattern with struggling companies.”
Eagle Specialty Materials is not the only coal company facing declining production numbers. Wyoming’s total coal production dropped over 10 percent in 2019 compared to the year prior, according to the Energy Information Administration.
Eagle Specialty Materials owes the county taxes not only for the coal its extracted since assuming ownership of the mines in October, but also for some of the coal mined by Blackjewel before the bankruptcy.
Under an October agreement with Campbell County commissioners, Eagle Specialty Materials agreed to pay just half of the $17.5 million in delinquent taxes owed by Blackjewel.
Conversation over mounting unpaid taxes has surfaced at Wyoming’s Legislature multiple times over the years. But few changes have been made. Part of the issue comes down to timing. Ad valorem taxes are due a full year and a half after a company extracts minerals.
But the budget shortfalls often leave counties and the entire state in a pinch. According to a state economic report, 43 percent of the Wyoming School Foundation program’s revenue comes from mineral taxes and royalties collected throughout coal country.
However, Wyoming lawmakers will consider a bill this session that aims to address this problem. The proposed legislation would require companies to pay production taxes every single month, instead of every 18 months.
The increased frequency of payment would mirror the system used for severance taxes. Energy companies have been delinquent on $17.2 million in severance tax payments since 2010, far less than what they defaulted on in ad valorem taxes.
When Blackjewel filed for bankruptcy, it also owed the federal government tens of millions of dollars in federal royalties. Those outstanding royalties have yet to be settled by either the former or new owner of the two coal mines.
In November, the U.S. Interior Department submitted a motion to federal bankruptcy court stating Blackjewel owed nearly $886,000 in royalty payments and fees for coal produced after the company filed for Chapter 11 bankruptcy. That outstanding payment is in addition to the approximately $50 million in unpaid royalties, rent and other charges Blackjewel owed the federal government at the time the company filed for bankruptcy on July 1.
Follow the latest on Wyoming’s energy industry at @camillereports
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