The bankruptcy court for Patriot Coal on Nov. 25 approved the sale of some western Kentucky property interests to Alliance Resource Partners LP, which is also a major coal producer in that region.
St. Louis-based Patriot sought Chapter 11 protection in July 2012 and is hoping to emerge from reorganization in December. The sale to Alliance raises some cash to help support its operations going forward. Its case is being handled in the U.S. Bankruptcy Court for the Eastern District of Missouri.
The sale deal terms and benefits include:
- Patriot will receive $5m in cash and an overriding royalty of 1% on coal mined in excess of 7.0 million tons as consideration for the sale of interests in certain leased and owned coal reserves pursuant to the Highland Sale (called the “Highland Property”), including the sale of coal reserves in the Perimeter Area. The Perimeter Area is not accessible by Patriot due to geological constraints and so it is unable to realize any value from mining the Perimeter Area. This sale consists of 15 million SEC-rule-compliant recoverable tons of leased coal reserves, 15.7 million non-SEC recoverable tons of leased coal reserves and 6.9 million SEC recoverable tons of owned coal reserves. This coal is in the #7, #9 and #11 coal seams.
- The Patriot debtors’ sale of their coal mining interests in the Highland Property also includes a transfer of the #11 Seam Area coal reserves to Alliance. The debtors’ ability to mine the #11 Seam Area coal reserves has been significantly reduced over time due to adjacent mining projects at the debtors’ Highland mine, which generally preclude concurrent operations in the #11 Seam Area. The debtors’ expect their mining operations in the adjacent areas to continue for at least the next 20 years. Alliance has current mining operations and infrastructure in the #11 Seam Area with contiguous property to the #11 Seam Area. Therefore, the debtors believe they will receive significantly more value by conveying their interests in the #11 Seam Area through the Alliance transaction as opposed to attempting to mine the coal reserves themselves.
- Under the “Potter Sale,” the debtors will convey their interests in approximately 10.8 million tons of leased coal reserves from the Potter Release Area to Alliance in exchange for an overriding royalty of $0.15 per ton mined. Under the lease governing the debtors’ interests in the Potter Release Area, the debtors have a good faith obligation to release approximately 10.8 million tons back to the lessor if the property was not part of the debtors’ mining plans by the end of 2012. The Potter Sale will allow the debtors to realize value from the Potter Release Area instead of releasing the coal reserves to the lessor. Also, like the Highland Property, the Potter Release Area is not accessible by the debtors due to geological constraints. There are approximately 10.8 million SEC recoverable tons of leased coal reserves from the #7, #9 and #11 seams at the debtors’ Highland area mine (the “Potter Release Area”).
- Under the “Gryphon Sale,” the debtors will transfer to Alliance approximately 4.4 million tons of owned coal reserves in exchange for $1.5m in cash and an overriding royalty of 4.0% on coal mined in excess of 1.5 million tons. The coal reserves comprising the Gryphon Area correspond to Alliance’s future mining plans, and the debtors determined that they will be able to generate more value from selling their interests in the Gryphon Area pursuant to the Gryphon Sale than if they were to mine the coal themselves. There are about 4.4 million SEC recoverable tons in the Gryphon area in non-contiguous tracts in the #9 seam that are just to the southwest of Patriot’s Bluegrass mining complex.