Peabody Energy cuts forecast for its U.S. coal production

Peabody Energy (NYSE:BTU), the nation’s largest coal producer, said April 23 that it has reduced its U.S. volume guidance for coal production by 10 million tons.

Peabody expects to sell between 180- and 190- million tons in 2015. Previously it had expected to sell between 190-and 200-million tons this year.

Peabody also said that its revenue per ton could be between 3% and 5% lower than 2014. Previously, Peabody had said that its 2015 revenue per ton would be between 2% and 4% lower than 2014 levels.

Peabody’s 2015 U.S. production is fully priced with 2016 U.S. production approximately 40% to 50% un-priced based on revised expectations for 2015 production levels. Peabody has approximately 75 million tons of southern Powder River Basin production for 2016 delivery that is priced 9% above expected 2015 realized levels, according to the company’s earnings materials.

“In the face of market headwinds, Peabody’s first quarter performance demonstrates the underlying strength of our business as ongoing cost improvements largely overcame lower coal prices and the impact of hedging,” said Peabody Energy President and CEO-Elect Glenn Kellow. “While our team has made considerable strides in driving down costs, we know we have further work to do, and we are implementing a wide range of initiatives to provide sustainable results and generate shareholder value.”

Peabody said in its earnings release that it has reduced its global workforce more than 20% percent over the last three years. Capital spending targets have been further reduced, and are primarily allocated to safety and sustaining capital items.

Peabody also reported first quarter 2015 revenues of $1.54bn, compared with $1.63bn in the prior year due to lower realized pricing and a shift in U.S. production mix toward the southern Powder River Basin. First quarter Adjusted EBITDA of $165.6m declined 6% from the prior year, and includes the impact of $100 million in lower pricing and the timing of Resource Management transactions.

Within U.S. coal markets:

•Coal generation declined 14% through March and natural gas generation increased 14% on lower natural gas prices that averaged $2.82 per mmBtu compared to $4.26 per mmBtu in 2014. As a result, Peabody now projects 2015 U.S. coal demand to decline 80 to 100 million tons;

•U.S. coal production is expected to decline in 2015, with growing curtailments occurring in the second half of the year. U.S. exports are expected to decline 30 to 40 million tons this year, with metallurgical coal exports now expected to be 10 to 15 million tons lower than 2014; and

•Peabody has reduced its 2015 U.S. volume targets by 10 million tons in light of current market conditions.

While an estimated 35% of U.S. electricity will be generated by coal in 2015, coal’s share of U.S. electricity generation is projected to increase to nearly 40% in 2017 on higher natural gas prices and rising coal plant utilization that partly offset the impact of coal unit retirements.  Southern Powder River and Illinois Basin demand is anticipated to rise 50 to 70 million tons during that time. 

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.