The federal government has yet to recoup over $50 million in unpaid royalty payments and other past due charges from bankrupt coal firm Blackjewel, according to a recent court order. The royalty delinquencies have stalled the transfer of federal mine leases to the new owner of two Wyoming coal sites and left the fate of the bankruptcy case unclear.
When Blackjewel filed for Chapter 11 bankruptcy in July 2019 and abruptly closed down some of the largest mines in the world, it owed the U.S. Department of Interior over $50.1 million in royalty payments and additional fees for extracting coal at the Belle Ayr and Eagle Butte mines.
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Though a new company called Eagle Specialty Materials has since taken over all operations at the two mines, the federal government — and consequently American taxpayers — has yet to be paid what it’s due.
According to a court order filed Thursday, Eagle Specialty Materials will be liable for all royalty payments associated with the two coal mines for the period after Oct. 18, the date the company began operating the mines. But it remains unclear who will be responsible for the over $50 million in delinquent royalty payments racked up by Blackjewel before and shortly after the bankruptcy began.
In addition to the millions of dollars owed by Blackjewel, the Interior Department is also owed nearly $886,000 in royalty payments and fees for coal produced between the time Blackjewel petitioned for bankruptcy on July 1, 2019, and the sale of the mines to Eagle Specialty Materials on Oct. 17, 2019.
It remains unclear if a company will step up to settle all these liabilities, or if the federal coal leases will ultimately be relinquished.
In October 2019, Eagle Specialty Materials purchased the two mines from Blackjewel and restarted production soon after the sale was finalized. But even after nearly a year leading operations at the two mines, the new company has yet to secure the federal leases from the previous owner.
According to the Mineral Leasing Act, all outstanding liabilities must be settled before a lease transfer can take place. Outstanding violations need to be resolved too, among several other requirements. The new company only obtained a license to mine as a contract operator in Wyoming but still does not have the required federal leases.
Mark Squillace, a professor of natural resources law at the University of Colorado Law School, found the court’s order on the federal leases “troubling.”
“It’s at least possible that both Blackjewel and Eagle Specialty Materials are going to try to get out and not pay the $50 million,” Squillace said. “And to my mind, this (lease transfer) should not be allowed to go forward without some assurance that the government is going to get royalty payments, as required by law.”
In the meantime, Friday’s court order also clarifies that Blackjewel will not take responsibility for any “liabilities, claims and obligations arising out of or related to ESM’s operation of the Belle Ayr and Eagle Butte mines,” despite still holding the federal leases.
Eagle Specialty Materials did not immediately respond to a request for comment.
But as of May 31, the U.S. Office of Natural Resources Revenue said Eagle Specialty Materials had remitted its monthly payments to the federal government since assuming ownership of the mines in October.
To work out these remaining details on the lease transfers, the Interior Department “agreed to extend the deadline within which the Debtors may assume the (leases)” until Dec. 31, court documents filed Thursday stated.
Meanwhile, the public remains in the dark over the specifics of the agreement struck between the Interior Department and the coal companies. The agency declined to provide additional details.
“The Department’s claim in unpaid royalties remains pending in Blackjewel’s bankruptcy case,” a spokesman for the U.S. Office of Natural Resources Revenue said in a statement. “The Department, through the representation by the Department of Justice, is continuing to pursue that claim.”
If Eagle Specialty Materials fails to pay off Blackjewel’s existing debts, or refuses to take on the eight federal leases tied to the Eagle Butte and Belle Ayr mines, the leases could be relinquished, according to Shannon Anderson, a staff attorney with the landowner group, Powder River Basin Resource Council.
When energy companies obtain federal leases and extract minerals from public land in Wyoming, they must pay royalties to the government. But it’s not only the federal government that benefits from timely payments of royalties from mineral extraction. About 48% of federal of royalties from coal travel back to Wyoming. At a time when the state faces a daunting $1.7 billion revenue shortfall, collecting royalty payments proves all the more important.
“The Interior Department is essentially a fiduciary for us, as American taxpayers,” Anderson said. “... The coal is really not owned by them, it’s owned by you and me.”
When exactly a responsible party will cough up over $50 million to settle Blackjewel’s lingering debts remains unknown too. Coal markets have crashed into tough times this year, with production at the Belle Ayr mine declining 40% and Eagle Butte 25% during this year’s second quarter.
Follow the latest on Wyoming’s energy industry at @camillereports