The U.S. Bankruptcy Court for the Eastern District of Missouri is due to a hold a Dec. 17 confirmation hearing on Patriot Coal’s new plan of reorganization, which was outlined in Oct. 26 filings with the court.
Patriot, a major coal producer in western Kentucky and in Appalachia, has been in Chapter 11 bankruptcy protection since July 2012. Recent deals with major parties, including Arch Coal and Peabody Energy, which formerly owned some of Patriot’s mining operations, have apparently cleared the way for Patriot’s emergence from Chapter 11.
Patriot noted in its Oct. 26 second amended disclosure statement that in light of decreased demand for both thermal and metallurgical coal, it became uneconomical to operate certain of its mining complexes, and the Patriot companies took steps to reduce coal production to match expected sales volumes. In January 2012, Patriot announced the idling of four metallurgical coal mines and production curtailment at one additional metallurgical coal mine. In February and April 2012, Patriot announced the closure of additional mines due to reduced thermal coal demand.
With the idling of operations during 2012, approximately 1,000 employee and contractor positions were eliminated. From the beginning of 2012 to the July 2012 bankruptcy petition date, Patriot decreased its annual thermal coal production by just under five million tons compared to 2011.
In 2012, the Patriot companies sold a total of 24.9 million tons of coal, selling 75% of this coal to domestic and global electricity generators and industrial customers and the remaining 25% to domestic and global steel and coke producers. In 2012, 45% of the total sales volume was composed of export sales. In the first six months of 2013, the Patriot companies sold 11.2 million tons of coal, with 51% of total volume in the form of export sales.
In describing recent poor coal markets, the Oct. 26 disclosure statement said: “Over the last several years, coal’s share of the U.S. energy market and prices for thermal
coal have both markedly declined. Coal’s share of total electricity generation, for example, declined from 45% in the first quarter of 2011 to 36% in the first quarter of 2012. Vast resources of natural gas have been unlocked through the discovery of shale deposits and technological advancements in drilling, causing the price of natural gas in the United States to fall. In 2012, the price of natural gas fell to a ten-year low. Moreover, the mild winter in 2012 resulted in lower coal burn for electricity generation. Heating degree days were 21% below normal in the first quarter of 2012. These factors, in turn, caused coal inventories at U.S. electricity producers to expand to over 200 million tons at the end of March 2012. Rail car loadings for the first quarter of 2012 were consequently down 10% year-over-year, with the lowest loadings since the beginning of 1994. As a result, the coal industry as a whole has been forced to reduce production, idle mines and lay off workers.”
As for the met coal market that Patriot is largely designed to play in out of some of its Central Appalachia operations: “Metallurgical coal (which varies from thermal coal based primarily on its chemical composition) is suitable for carbonization to make coke for use in manufacturing steel. The demand for metallurgical coal is dependent on the strength of the global economy, and in particular, on steel production in countries such as China and India, as well as Europe, Brazil and the United States. In response to the global economic downturn and distressed international financial markets, the demand and price for metallurgical coal have declined.”