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Bad Business Decisions are the True War on Coal

Coal Industry BLM Report


Over the past year, three of the United States’ major coal companies filed for bankruptcy: Alpha Natural Resources in August 2015; Arch Coal in January 2016; and Peabody Energy in April 2016. Although these companies and their trade association allies have often blamed environmental regulations for their precarious financial state, the truth is that debt-fueled acquisitions hobbled their finances at a time when market conditions were rapidly souring. Namely, Alpha Natural Resources, Peabody Energy, and Arch Coal bet big on future Chinese coal demand growth in 2011, going into debt to finance major expansions into metallurgical coal production during the year it was at peak price, only to see markets decline soon after the transactions were complete. At the same time, top executives were awarded record financial compensation, while slashing employee benefits and laying off workers.

  • Alpha Natural Resources debt-financed the acquisition of Massey Energy for $7.1 billion in 2011 to secure what it saw as “a big opportunity to advance Alpha’s position as a premier supplier of metallurgical coal.”
  • Arch Coal debt-financed the acquisition of metallurgical coal producer International Coal Group for $3.4 billion in 2011.
  • Peabody Energy debt-financed their acquisition of McArthur Coal for $5.1 billion in 2011 to expand metallurgical coal production in Australia.

These acquisitions happened at a time when the price metallurgical coal was at a three-year high, and right before its precipitous decline to two-thirds of its 2011-price in 2014.

Metallurgical Coal export price to China ($/short ton)
Year 2009 2010 2011 2012 2013 2014
Metallurgical $111.32 $122.59 $160.39 $151.70 $119.98 $100.85
United State Energy Information Administration, Export price to China of All Coal

Decreased Chinese demand for steel led to a slump in demand for metallurgical coal at the same time that an upsurge in fracked natural gas production undercut coal’s use in power generation, leaving the companies heavily in debt after coal prices fell.  Despite declining prices, these companies continued to produce coal, leading to overcapacity and further price declines; and coal executives were rewarded with million and multimillion dollar compensation packages in the years after these acquisitions.  Alpha Natural Resources Chairman and CEO Kevin Crutchfield’s total annual compensation increased by more than $1.5 million between 2012 and 2014. Arch Coal President and CEO John W. Eaves saw his total compensation increase from about $3.9 million in 2012 to more than $7.3 million in 2014. Peabody Energy, Chairman and Chief Executive Officer

Gregory Boyce’s salary jumped from about $9.4 million in 2012 to $10.7 million in 2013 to almost $11 million in 2014.  These massive compensation packages were delivered after the companies committed themselves to producing more metallurgical coal even as its price slumped from $160.39 per short ton in 2011 to $100.85 in 2014.

In November 2015, the consultancy McKinsey and Co. reported that “the United States has plenty of coal, but the world does not need it.” According to McKinsey, coal companies faced “crippling liabilities that will outlive mine closures” in response to overcapacity. McKinsey analyzed financial statements of major coal companies and concluded that coal producers would not be able to service the industry’s total debt of $70 billion even if supply and demand reached a balance. According to McKinsey, the single largest liability faced by major coal companies was long-term debt, not contractual obligations or pension obligations, and the companies’ current debt levels were not serviceable even at peak-coal prices.  The report concluded that the “the crisis the coal industry faces comprises a number of interlinked parts: Overcapacity and continuing demand shrinkage, chronic indebtedness and environmental liabilities, and in sufficient profitability, which together limit its freedom of maneuver.”10 These factors drove Alpha, Arch, and Peabody into bankruptcy. Along the way- and after filing for protection- the companies cut jobs and employment benefits and attempted to evade reclamation responsibilities in order to protect their bottom-lines. In one particularly egregious example, Alpha asked the bankruptcy court for approval of a $7.4 million incentive compensation plan (KEIP) in December 2015. The play was to pay bonuses to staff and differed from its retention plan aimed at executives. The KEIP was designed to offer $7.4 million to 17 executives contingent on meeting performance goals through 2016.

Instead of taking responsibility for their decisions, coal industry representatives lay the blame for their financial woes on mine workers, unions, environmental regulations, and the federal government in an effort to shirk their contractual obligations. In 2015, West Virginia Coal Association President Billy Raney blamed the federal government for the coal industry’s economic problems.  Raney said “for seven years the federal government has had its boot on our throat… They have absolutely influenced the market, they influenced the permits, they’ve created an absolute sphere of uncertainty that drives everyone into a real challenged environment.” Likewise, Alpha, Arch, and Peabody have repeatedly warned that public initiatives to stem the effects of global climate change could hurt their bottom lines by further reducing demand for coal.


Alpha Natural Resources Went Bankrupt In August 2015; Moved To Cut Worker Benefits;

Increased Spending On Lobbying; Blamed Environmental Regulation.  Alpha Natural Resources filed for Chapter 11 bankruptcy protection on August 3, 2015.  SNL Power Policy Week attributed the bankruptcy to “decline in utility coal demand and significant debt levels weighted against a weak metallurgical coal market…” In September 2015, Alpha secured a $692 million bankruptcy loan to fund operations that did not require it to cut benefits its unionized membership. However, six weeks later, Alpha filed a motion to terminate unvested non-pension worker benefits.  Alpha told the court that the benefits represented a $125 million liability to 4,500 nonunion employees. The plan was decried by former Alpha chairman and CEO Mike Quillen who said “to suddenly try to eliminate retiree health benefits of thousands of families goes against the values the company was built on.” SNL Daily Coal Report noted that Alpha increased lobbying spending by 190 percent during the fourth quarter of 2015- the same time that it was trying to eliminate healthcare benefits.[17]  Since, Alpha has petitioned the court to break contracts with the United Mine Workers to modify retiree healthcare benefits, and paid a total of $28.4 million in bankruptcy advisory fees. It has also repeatedly warned that public initiatives to stem the effects of global climate change could hurt its bottom line by “reduc[ing] the value of our coal and gas assets.”

Alpha Natural Resources – Alpha And Wyoming Negotiated Bonding Agreement That Secured Only 15 Percent Of Estimated Reclamation Cost; Reorganization Plan Omitted

Reclamation Liabilities In Wyoming. Alpha’s bankruptcy petition came after the Wyoming Department of Environmental Quality determined that Alpha was not qualified for self-bonding, and set a 90-day deadline for it to cover $411 million in estimated reclamation costs. These costs were not addressed in Alpha’s restructuring plan.22  Wyoming and Alpha worked out a deal in September 2015 so that the state would have a “superpriority claim” of just $61 million should

Alpha stop operating.  In exchange, Wyoming did not revoke Alpha’s permits.  The Office of Surface Mining and Reclamation sent notices to Wyoming state regulators questioning whether the regulators’ handling to self-bonded companies in bankruptcy, such as Alpha and Arch, complied with state and federal requirements.

In 2014, after attempting to cut worker benefits and having to go into bankruptcy, Alpha Natural Resource rewarded four top executives with more than $14 million in total compensation.

Alpha Natural Resources  Total Compensation To Top Executives
Officer Year Total Compensation
Kevin Crutchfield 2014 $7,775,349
Chairman And Chief Executive Officer 2013 $7,955,008
2012 $6,193,368
Frank J. Wood

Executive Vice President And Chief Financial Officer

2014 $2,162,315
2013 $2,049,137
2012 $2,302,020
Philip Cavatoni

Executive Vice President and Chief Financial and Strategy Officer

2014 $1,976,111
2013 $1,811,660
2012 $2,544,626
Vaughn R. Groves

Former Executive Vice President, General Counsel, and Corporate Secretary

2014 $2,757,693
2013 $1,588,928
2012 $1,683,694
Brian D. Sullivan

Executive Vice President and Chief Financial Officer

2014 $1,600,090
Total $42,399,999
Alpha Natural Resources Form DEF 14A, filed April 9, 2015



Arch Coal’s 2016 Bankruptcy “Primarily Triggered Because Of Debt Incurred By Their

Acquiring Operations In Central Appalachia” To Expand Metallurgical Mining Operations. According to an article in Platts Coal Trader, “A bulk of Arch’s debt came from its $3.4 billion deal in 2011 to acquire International Coal Group.” Securities brokerage Clarksons Platou Managing Director Jeremy Sussman concluded that Arch failed because of the debt it assumed to expand metallurgical coal operations.  Unlike Alpha and Peabody, Arch did not have a unionized workforce when it went into bankruptcy. Like Alpha, Arch Coal stated in its annual reports to investors that efforts to curb global climate change could impact its business by reducing demand for coal. This year, Arch laid off 230 employees from its Black Thunder Mine including Sean Natchke who told Black Hills Fox that “Times are tough, and it almost seems like it’s cutting out your legs from under you before the wheelchair was invented. So it makes it really tough.” Arch’s president countered that “We have made every effort to preserve as many positions as possible, and this decision was made only after a number of other cost-cutting measures were exhausted.” Natchke told Black Hills Fox that “A normal company might just give you the boot to the curve and say ‘good luck, have fun.’ But Arch did a really good job at making the transition as easy as possible for us.”30

Arch’s efforts to make the transition to unemployment as easy as possible did not include cutting executive compensation. During the year ahead of its bankruptcy, Arch Coal paid executives five executives almost $20 million dollars, and paid more $18.5 million to bankruptcy advisors.

Arch Coal, Inc.

Total Compensation To Top Executives

Officer Year Total Compensation
John W. Eaves Chief Executive Officer 2014 $7,345,397
2013 $4,348,086
2012 $3,950,465
John T. Drexler Chief Financial Officer 2014 $3,285,040
2013 $2,034,571
2012 $1,892,470
Paul A. Lang Chief Operating Officer 2014 $4,581,284
2013 $2,837,362
2012 $2,603,060
Kenneth D. Cochran Senior Vice President Operations 2014 $2,305,015
2013 $1,368,410
Robert G. Jones

Senior Vice President Law, General Counsel, and Secretary

2014 $2,415,564
2013 $1,510,896
2012 $1,514,766
Total $41,992,386
Arch Coal Form DEF 14A, filed March 20, 2015


Arch Coal – Interim Financing Package Covers Less Than 20 Percent of $468 Million in

Reclamation Expenses. A federal bankruptcy judge approved Arch Coal’s request for a $275 million bankruptcy loan. The Billings Gazette reported that “The interim financing package included $75 million to cover reclamation, which can be applied toward Arch’s cleanup costs. Environmentalists had opposed the proposal, noting it guarantees roughly 16 percent of the company’s $468 million in estimated reclamation.” The Office of Surface Mining and

Reclamation sent notices to Wyoming state regulators questioning whether the regulators’ handling of self-bonded companies in bankruptcy, such as Alpha and Arch, complied with state and federal requirements.


Peabody Energy Filed For Bankruptcy In March 2016 After Deal To Sell Assets In New Mexico And Colorado To Bowie Resource Partners Failed; Bankruptcy Seen “exclamation point on the industry’s struggles and their ripple effect.” Peabody’s failed $358 million deal with Bowie Resources to sell its New Mexico and Colorado assets put the company at risk of defaulting on loans and lenders pressured the company to enter bankruptcy SNL Daily Coal Report noted that “global headwinds against coal” forced Peabody into bankruptcy. Fox Business

News reported that “The bankruptcy of Peabody Energy (BTU), the world’s largest private coal producer, puts an exclamation point on the industry’s struggles and their ripple effect.” Peabody Energy paid bankruptcy advisors a total of $27.5 million through April 2016 and some were paid as much as $1,075 per hour.

2007: Peabody Energy Lumped Employee Benefits Obligations And Underperforming Mines On The Newly Created Patriot Coal Corporation; Patriot Went Bankruptcy Twice. Peabody Energy spun-off certain mines and liabilities when it created Patriot Energy as a separate company in 2007. Patriot filed for bankruptcy in 2012 and, in 2013, sought to slash healthcare coverage for retired union workers and do away with its collective bargaining agreement with the United Mine Workers of America. UWMA said Patriot’s request would “put thousands of retired coal miners, their dependents or their widows on the path to financial ruin, worsening health conditions or even death.” In 2013, Patriot sued Peabody to block it from using Patriot’s bankruptcy to cut its own obligations to retirees.

When Peabody argued that it no longer had to pay future benefits, Secretary of State Hillary

Clinton said “I hope Peabody does the right thing, reverses course and honors the commitments it’s made.” Patriot and its Creditors also asked the bankruptcy court for permission to probe whether Peabody’s decision to transfer to Patriot certain mines and certain environmental and healthcare liabilities was proper under the law. Patriot also sought permission from the bankruptcy court to annul its union contracts. The court approved the request, after which Patriot and the Union settled to mitigate the effect of a cut to wages and benefits.

Peabody Energy – Potentially operating outside the law by extracting coal “while failing to meet criteria for self-bonding;” obligations totaled more than $1 billion. Federal officials warned state regulators in Wyoming, Colorado, and New Mexico that Peabody Energy was potentially operating outside of the law by continuing to “extract coal while failing to meet criteria for self-bonding.” As Environmental Law and Policy Center Executive Director Howard Learner said, “The risk is that Peabody’s responsibility to clean up from its mining operations will be washed away in a bankruptcy proceeding, and Illinois taxpayers will be left holding the financial bag.”   Midwestern Energy News reported that “The federal regulations on self-bonding, developed in 1983, make clear that companies with a chance of bankruptcy should not be eligible.”[45]

Peabody Energy rewarded its executives with multimillion dollar compensation packages ahead of its decision to enter bankruptcy.

Peabody Energy

Total Compensation To Top Executives

Officer Year Total Compensation
Gregory H. Boyce

Chairman and Chief Executive Officer


2014 $10,994,083
2013  $10,789,389
2012 $9,491,405
Glenn L. Kellow Chief Operating Officer 2014 $5,579,516
2013 $3,978,864
Michael C. Crews Chief Financial Officer 2014 $2,899,077
2013 $3,018,233
2012 $3,840,069
2011 $2,515,172
Charles G. Meintjes President – Peabody Australia 2014 $2,937,597
2013 $3,286,010
2012 $2,299,042
Kemal Williamson President – Peabody Americas 2014 $2,403,824
Total $64,032,281
Peabody Energy Corp. Form DEF 14A Filed: March 24, 2015 (Period: May 4, 2015)



Cloud Peak Energy Only Mines Thermal Coal.  As of February 2016, Cloud Peak Energy had $491 million in debt and more than half of that is not due until 2019. Debt-wise, Cloud Peak Energy is in a comfortable place compared to Alpha, Arch Coal, and Peabody Energy, and the company is actively managing for a future defined by low coal prices and significantly reduced demand.[46]  However, Cloud Peak Energy actively blames environmental regulation and the federal government for coal’s market woes, just like Alpha, Arch, and Peabody Energy.

Cloud Peak Energy’s Stable Financial Position and Operations Partly Stems from the Fact

That It Took Advantage of a Royalty Valuation Loop-Hole. In 2011, 19 percent of Cloud Peak Energy’s revenue came from selling just five percent of its coal in Asian markets. A Reuters investigation found that the practice of valuing coal at low domestic prices for royalty purposes then re-selling it abroad for higher international prices may “pad the bottom line for the mining sector”  if Asian exports surge. When asked about it, Cloud Peak Energy spokeswoman Karla Kimrey said “If you look at the regulations, we are not required to do a net-back.”  Cloud Peak Energy claimed that it paid all that the regulations required.[47]

Cloud Peak Energy Blamed Public Concern About Climate Change For Weak Market; Lashed Out At Proposed Change To Royalty Regulation.  Cloud Peak Energy Chief Executive

Office Colin Marshall told investors that the Obama Administration, “with the active NGO assistance,” deliberately makes it difficult for the company to mine coal.  He added that “the outcome of the next election could have an impact on” the outcome of the federal coal leasing moratorium and review process.  Cloud Peak Energy has warned that climate change could impact its ability to transport coal, which would hurt its operations. Although Cloud Peak Energy does not expect the moratorium to impact its operations in the near term, it disclosed that a change to ONRR’s coal royalty valuation regulations “could adversely impact its vertically integrated logistics business.” In fact, the proposed rule already influenced its decision not to export coal this year. According to Cloud Peak Energy, “The potential regulatory cost increases from this ONRR proposal, combined with already depressed international prices, influenced our decision not to make 2016 export sales.”


Cloud Peak Energy 

Total Compensation To Top Executives

Officer   Total Compensation
Colin Marshall Chief Executive Officer 2015 $4,190,832
2014 $4,078,258
2013 $4,098,089
2012 $3,709,436
Gary Rivenes Chief Operations Officer 2015 $1,929,931
2014 $1,873,423
2013 $1,866,930
2012 $1,699,345
Heath Hill Chief Financial Officer 2015 $1,303,353
James Orchard

Senior Vice President, Marketing and Government Affairs

2015 $1,226,316
2014 $1,196,660
2013 $1,221,928
2012 $1,124,975
Bryan Pecherskey

Executive Vice President, General Counsel, and  Corporate Secretary

2015 $1,219,051
2014 $1,033,982
2013 $1,029,053
2012 $921,182
Michael Barrett

Former Executive Vice President and  Chief Financial Officer

2015 $147,084
2014 $1,667,939
2013 $1,686,695
2012 $1,533,324
Total $38,757,786
Cloud Peak Energy Form Def A Filed March 28, 2016