Tongue River foes: Arch Coal has lost a lease on much of Otter Creek reserve

The Northern Plains Resource Council and Rocker Six Cattle Co. told the U.S. Surface Transportation Board that the Tongue River Railroad Co. (TRRC) can’t argue that it has a viable customer to ship coal over its planned rail line because TRRC co-owner Arch Coal has lost a private lease on much of the Otter Creek coal reserve.

Said an April 15 filing with the board from these opposing parties: “TRRC has repeatedly relied on misleading half-truths in its filings to support what has been at best a speculative project for more than three decades. Most recently, TRRC again asked the Board to hold this proceeding in abeyance indefinitely by arguing the Otter Creek mine is still viable. TRRC stated that ‘Arch still holds a valuable lease from the State of Montana for the Otter Creek tracts, for which it paid millions of dollars’ and that ‘an economic case for mining at Otter Creek’ is reflected in the record of this proceeding and in the Office of Environmental Analysis’ (‘OEA’) April 15, 2015 Draft Environmental Impact Statement (‘DEIS’).

“However, TRRC omitted an astoundingly important fact that did not surface publicly until recently—that Arch Coal’s lease for more than half of the Otter Creek coal tracts was terminated months ago by Great Northern Properties Limited Partnership (‘Great Northern Properties’). TRRC likely withheld this material fact because the lease termination is fatal to the very existence of the Otter Creek mine project. As the extensive record in this proceeding shows, the existence of the Otter Creek mine under virtually any conceivable market conditions depends on Arch’s consolidation of lease rights to the entire ‘checkerboard’ of Otter Creek coal tracts.”

Checkerboard is a reference to a land program dating back to railroad development in the 1800s where tracts in a checkerboard pattern were given over by the federal government to state and private ownership, and alternating tracts were retained by the federal government. The state of Montana got the federal tracts at Otter Creek from the U.S. government and leased them out to Arch Coal’s Ark Land subsidiary in 2010. Great Northern owns the old railroad tracts and leased them to Ark Land in 2009. It is impossible to develop a major surface mine, like Arch plans, on the alternating tracts without controlling it all. 

The two TRRC opponents said the only became aware of this information on April 11, when Great Northern Properties filed a letter about the lease termination in the Arch Coal Chapter 11 bankruptcy proceeding. That Great Northern letter, attached to the STB filing, says the lease was terminated in November 2015 for non-payment of advanced royalties by Arch.

The TRCC is trying to build a rail line from two points – Arch’s Otter Creek site and the site for a second prospective coal mine – to an interconnection with the BNSF Railway. TRRC has asked for a delay in the STB case because of a delay in Arch getting a state-issued permit for the Otter Creek mine.

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.