West Virginia works out deal for reclamation of Patriot Coal sites

The West Virginia Department of Environmental Protection said Oct. 6 that it has reached an agreement with Patriot Coal that will set aside more than $50 million for the bankrupt coal company’s environmental cleanup responsibilities.

The agreement, which is subject to bankruptcy court approval, will not only pave the way for the reclamation of Patriot’s legacy liability sites in north-central and southern West Virginia, it should also help ensure the continued employment of many of Patriot’s miners, the DEP noted.

“Without this deal, Patriot could walk away from its reclamation obligations and leave that work to the state,” said DEP Cabinet Secretary Randy C. Huffman. “The DEP’s aggressive bankruptcy strategy ensures that significant funding will be provided for reclamation over and above the amount of Patriot’s mining bonds.”

Reclamation bonds, a form of insurance, are required of every coal producer, with the state able to cash in the bonds to at least partially pay for reclamation work if a coal operator goes out of business.

In June, Patriot announced that it would sell substantially all of its ongoing operations in southern West Virginia to Blackhawk Mining LLC as part of its proposed bankruptcy plan. That plan, however, proposed to leave behind all of Patriot’s environmental legacy sites – including the Hobet, Apogee and Catenary mining complexes – in a liquidating trust without any funding to continue mining Patriot’s remaining operations or complete reclamation and water treatment. Because of this, DEP filed an objection to the plan with the U.S. Bankruptcy Court for the Eastern District of Virginia in Richmond. The agreement announced Oct. 6 resolves that objection.

Under the agreement, the surety bonds Patriot posted to obtain its mining permits will remain fully in place, but Patriot will post an additional $12.5 million in cash as additional financial assurance for its reclamation and water treatment obligations in West Virginia. Patriot’s existing hedge fund investors will provide the additional cash needed to fund Patriot’s obligations under the agreement. Also, Blackhawk Mining has agreed to provide $7.5 million of reclamation services on Patriot’s former mining sites.

In addition to providing for the continuing reclamation of Patriot’s legacy sites, the agreement allows for the continued operation of Patriot’s Federal Mining Complex in north-central West Virginia. Under the agreement, Virginia Conservation Legacy Fund, the entity expected to undertake and oversee the reclamation of Patriot’s former mining sites, will commit an additional anticipated $30 million or more from the operations of the Federal complex and other sources to perform reclamation of the legacy sites.

Virginia Conservation Legacy Fund expects to continue to employ Patriot’s union and nonunion employees both in the operation of the Federal Mining Complex, which based around the Federal No. 2 longwall mine in the Pittsburgh coal seam, and in the performance of its reclamation operations.   

The agreement is subject to a number of conditions.  The bankruptcy court must first approve Patriot’s bankruptcy plan, the sale to Blackhawk Mining and the transfer to Virginia Conservation Legacy Fund. A number of Patriot’s creditors continue to oppose approval of Patriot’s plan. Also, both Blackhawk and Virginia Conservation Legacy Fund will have to satisfy various sale conditions. If the bankruptcy court approves the deals, both transactions and Patriot’s plan should be completed by Oct. 23, the DEP said.

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.