Cloud Peak to buy down its coal export volume commitments at Westshore

Cloud Peak Energy (NYSE: CLD) announced Oct. 28 that Cloud Peak Energy Logistics LLC entered into an amended throughput agreement with Westshore Terminals LP (TMX: WTE) to eliminate both parties’ volume obligations for the 2016-2018 period in exchange for a series of payments.

Under the amended agreement, Cloud Peak Energy made an upfront payment to Westshore and will make quarterly payments from 2016 through 2018 in lieu of the previous take-or-pay commitments during this three-year period. If this amendment were in effect as of Sept. 30, Cloud Peak’s outstanding undiscounted port take-or-pay commitments at that time would have been about $454 million through the remaining term of the agreement if it do not ship any export tons. Except as amended, the original throughput agreement remains in place through the end of 2024.

The parties will meet on a quarterly basis during the next several years to discuss market conditions and any potential shipments and the terms for any shipments. If export shipments do not occur, it is expected that Cloud Peak’s Spring Creek Mine in Montana will have production volumes that will be reduced accordingly. Spring Creek is much closer via BNSF Railway to Westshore in British Columbia than Cloud Peak’s two mines in Wyoming.

“Westshore is a critical part of our effort to build a viable long-term Asian export business. We value our strong relationship with Westshore and appreciate their willingness to work with us in recognition of extremely depressed international prices. We believe in the long-term opportunity for Asian exports of Powder River Basin coal as oversupplies of seaborne thermal coal are rationalized. We are also engaged in active discussions with the BNSF regarding potential modifications to our rail take-or-pay commitments for our Asian export business. We are hopeful we can reach a mutually acceptable agreement with the BNSF and will provide an update on the outcome of those discussions as appropriate,” said Colin Marshall, Cloud Peak Energy’s President and Chief Executive Officer.

Cloud Peak is headquartered in Wyoming and is one of the largest U.S. coal producers and the only pure-play Powder River Basin coal company. It owns and operates three surface coal mines in the PRB, the lowest cost major coal producing region in the nation. The Antelope and Cordero Rojo mines are located in Wyoming and the Spring Creek Mine is  in Montana. In 2014, Cloud Peak Energy shipped approximately 86 million tons from its three mines to customers located throughout the U.S. and around the world.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.