Westmoreland Coal (NasdaqGM: WLB), Oxford Resource Partners LP (NYSE: OXF) and Oxford Resources GP LLC, the general partner of Oxford, announced Jan. 2 the completion of Westmoreland’s acquisition of Oxford Resources GP and Westmoreland’s contribution of certain royalty-bearing coal reserves to Oxford Resource Partners in return for MLP common units.
Oxford is a major coal producer in Ohio. Also on Jan. 2, Westmoreland announced the acquisition of Buckingham Coal Co. LLC, another Ohio coal producer.
The completion of the Oxford GP acquisition and the contribution provide Westmoreland with a platform to implement a value-creating drop-down strategy, under which it intends to periodically contribute certain U.S. and Canadian coal assets to the MLP in exchange for a combination of cash and additional limited partner interests. Westmoreland expects these transactions to unlock value that is inherent in Westmoreland’s stable cash flow-generating business model, to the benefit of both its stakeholders and the MLP’s unitholders. The MLP will continue to operate as a stand-alone, publicly traded master limited partnership, with Westmoreland owning 77% of the fully diluted limited partner interests.
“We are pleased that these strategic transactions have come to a successful close and excited for Westmoreland to enter the MLP space,” stated Keith E. Alessi, Westmoreland’s Chief Executive Officer. “We believe our strategy with respect to the MLP will help ensure our continued long-term growth.”
“Oxford is very pleased that it has been able to join with Westmoreland,” said Oxford President and Chief Executive Officer Charles C. Ungurean. “This is the culmination of our efforts to bring increased value to our unitholders. We believe that this represents a great opportunity for our company, unitholders, employees and customers, as well as providing a MLP vehicle for Westmoreland and its shareholders.”
Westmoreland paid a total of $30m in cash to acquire Oxford GP, and received 4,512,500 common units of the MLP (on a post-split basis following the previously disclosed 12-to-1 reverse split of the MLP’s common and general partner units) as consideration for the contribution. The closing of these transactions followed the successful restructuring of both Westmoreland’s and the MLP’s debt arrangements, as well as the approval by the MLP’s public unitholders of the contribution and the MLP’s equity restructuring through certain previously announced amendments to its partnership agreement.
In connection with the closing, the MLP’s name was changed to Westmoreland Resource Partners LP (“Westmoreland LP”) and the name of the GP was changed to Westmoreland Resources GP LLC. The common units of Westmoreland LP will trade on the NYSE under the symbol “WMLP”.
Westmoreland buys Buckingham, does coal deal with AEP
On Jan. 1, 2015, Westmoreland also completed its acquisition of Buckingham Coal, an Ohio-based coal supplier, for a total cash purchase price of $34m, subject to customary post-closing adjustments. Separately, an affiliate of Westmoreland entered into a five-year coal supply agreement with AEP Generation Resources, an unregulated power production subsidiary of American Electric Power (NYSE: AEP), which includes an obligation to purchase a minimum of 5.5 million tons of coal.
“Westmoreland is happy to implement a long-term supply relationship with AEP,” said Alessi. “We were able to realize significant cost savings through this acquisition and we expect our supply agreement will provide additional value to our shareholders.”
Westmoreland Coal is the oldest independent coal company in the United States. Westmoreland’s coal operations include sub-bituminous and lignite coal mining in the Western United States and Canada, a char production facility, and a 50% interest in an activated carbon plant. Its power operations include ownership of the two-unit ROVA coal-fired power plant in North Carolina.
Oxford Resource Partners is a low-cost producer of high-value steam coal in Northern Appalachia. Oxford markets its coal primarily to large electric utilities with coal-fired, base-load scrubbed power plants under long-term coal sales contracts. A mainstay customer is AEP’s Conesville power plant in Ohio. Oxford exited active coal production in western Kentucky earlier this decade to focus on its Ohio business, which is based around a series of smallish strip mines.
U.S. Mine Safety and Health Administration data shows Buckingham Coal as controlled by James Graham and that it has two active deep mines in Perry County, Ohio. The No. 7 mine produced 391,974 tons in the first three quarters of 2014, and the No. 6 mine produced 957,641 tons during that same period.
The Oxford and Buckingham deals represent major consolidation in the Ohio coal business. The dominant producer, though, in Ohio is still Murray Energy, primarily due to its two big longwall mines in the state (Powhatan No. 6 and Century).