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How did Arch Coal reach the bankruptcy stage? An expert explains ...

(Wyoming) — With the recent announcement that Arch Coal has filed for chapter 11 bankruptcy , Pitchengine Communities wondered how the company could reach a stage at which it would be looking to erase $4.5 billion in debt from its balance sheet, while maintaining operations. Pitchengine reached out to Robert Godby, Director of the Center for Energy Economics and Public Policy at the University of Wyoming, for an explanation. "Arch finds itself in trouble because of investments they made in coal mines in Appalachia and the purchase of a large coal mining company in 2011 called International Coal Group," Godby explained. These assets produce coal for steel-making primarily, and the investment was a bet on continued high growth in China, which would have created real demand for this coal, Godby continued. "When this did not occur, Arch found itself with considerable debt and no revenues to cover the interest costs." Combined with the currently unfavorable coal market due to low natural gas prices undermining coal sales, to utilities and electricity generators, and also some unfavorable pension decisions in the East, as well as new environmental regulations that have undermined coal demand, Arch has been unable to meet its debt obligations, resulting in the bankruptcy filing, he said. "Overall – this is just another symptom of the general challenges in the coal sector, and the difficulties coal producers will likely face in the future as natural gas prices remain low due to the fracking boom, new environmental regulations, especially those for greenhouse gases, and due to slowing growth in Asian countries, particularly China," Godby explained. The bankruptcy poses a potential problem for Wyoming and for other Arch mines in terms of reclamation. "The company clearly is in no position to honor its reclamation responsibilities should it have to," Godby said, adding that in Appalachia and other areas of the country, this could become an issue. "In the Powder River Basin, this is less likely to be a problem as these profitable mines will remain open and therefore not pose any immediate reclamation liability. Further, were they to be sold the company taking them over would likely have to assume the reclamation expenses," Godby said. The bankruptcy may, however, highlight the risks of reclamation costs for states like Wyoming in the long term, he said. Colorado recently announced it was reconsidering self-bonding due to the rash of recent bankruptcies in the industry, and the risks current companies face. Wyoming may be forced to also reconsider its self-bonding practices in the future, potentially raising such financing costs for any future operators, Godby said. "This could also undermine the general competitiveness of coal mining in the longer term," Godby said. Godby believes the bankruptcy could raise uncertainty for other mines Arch owns elsewhere in the country, as such mines may be sold to other interests, or they may be closed if they have more marginal profitability. It could also slow development or expansions that were planned elsewhere. "I think it also raises a lot of uncertainty about a potential shake-out in the coal industry. The market is currently over-supplied, and desperate to see prices increase if possible." "This could be helped if some assets – Arch’s or others are permanently closed and bankruptcies like this create that opportunity, if for example takeovers and rationalization in the industry occurs. It is hard to say if it will be Arch’s or other mines, but I think in the longer term you can bet on mines closing across the country," Godby said. Even then, however, this may not help as long as natural gas prices remain low, he said. Read more from Godby here . *Feature photo abutyrin/Shutterstock / Pitchengine Communities* #dally #springcity #county17 #county10 #buckrail #reboot #shortgo #oilcity #news