Nearly 18 months after taking over operations of the Eagle Butte and Belle Ayr mines in Campbell County, Eagle Specialty Materials has worked out a deal settling tens of millions of dollars worth of unpaid federal coal taxes and royalties.
The deal, which will go before a federal bankruptcy court judge March 3, would allow ESM to come to terms on nearly $62 million in back federal royalty payments and interest left unresolved in the Blackjewel LLC bankruptcy. ESM bought the mines from Blackjewel in October 2019 as part of a bankruptcy sale.
After more than a year of negotiating with the U.S. Department of the Interior and the Blackjewel estate, the settlement would see ESM assume less than $30 million, which will be repaid through increased royalty payments moving forward, according to a motion filed with the bankruptcy court. The deal also waives large interested payments as long as ESM remains current with its reimbursements.
Under the deal, Eagle Specialty Materials would pay about $5 million of about $33.1 million owed for the Belle Ayr mine and about $17.6 million of $28.4 million owed for the Eagle Butte mine.
Some of the unpaid debt, more than $22 million, will be converted to an unsecured claim against the Blackjewel estate, which is still going through its bankruptcy process.
ESM also will replace Blackjewel’s federal performance bond with one of its own in the amount of $12.7 million.
What the deal means for ESM is that after nearly 18 months of owning and operating its Wyoming mines, it can get federal royalty permits in its name rather than continue to basically mine as a contractor for Blackjewel, which still holds the permits.
While the settlement, if approved, clears the way for ESM to operate the Wyoming mines free and clear, it also could set a troubling precedent, said the Sheridan-based watchdog group Powder River Basin Resource Council.
Leaving tens of millions of dollars uncollected goes against the Department of Interior’s obligation to manage the resource and get all the money owed to the American people, said Shannon Anderson, an attorney for the Resource Council.
“Did Interior get the best deal it could have and did they fight hard enough?” she asked. While clearing the way for ESM “is the whole point of this deal, whether it meets the standards under the Mineral Leasing Act remains to be seen.”
It’s concerning that the federal government is owed so much in the first place, Anderson said.
“They’re definitely at fault, because there was over a year of unpaid royalties (by Blackjewel) and Interior didn’t do anything about it. The debt never should’ve been as high as it was,” she said.
She also questioned writing off more than $22 million as an unsecured claim against the Blackjewel estate. There’s no money there to pay for its own bankruptcy, let alone any claims.
“It looks like they just said, ‘We’ve got to do something with that amount, so here it goes,’ but with the understanding that it likely will never be collected,” Anderson said.
She also said that as the coal industry continues to decline, the settlement could send the wrong message to companies looking to get out of their financial obligations.
“It definitely is troubling in it sets this precedent that you can forgive and excuse tens of millions of dollars in royalty debt,” she said. “With Arch out there looking to sell mines and who knows about anybody else, it sends a signal within the industry you may get a deal you may not have a few years ago.”
In a press release responding to the settlement, the Powder River Basin Resource Council calls it a “sweetheart deal struck between the Department of the Interior and ESM.”
Because Wyoming receives half of all federal coal royalties, writing off more than $30 million in debt means a direct loss of more than $15 million to the state.
“This terribly one-sided settlement allows Belle Ayr and Eagle Butte to keep operating for now,” said Bob LeResche, a Resource Council Board member, in the release. “But it forgives tens of millions of dollars in royalties that should have been supporting Wyoming schools and other federal projects.”
Anderson and the Resource Council also question ESM’s long-term ability to meet some mounting financial obligations during a time when production and sales are dropping. In addition to paying off the federal government through monthly installments, ESM already has installment agreements to pay off tens of millions of dollars in Blackjewel’s local and state production taxes.
As Powder River Basin coal continues to take a pounding with production down about 22% last year over 2019, the local industry quietly passed a milestone that represents the importance of thermal coal to the region.
The 12 Campbell County mines managed to produce nearly 207 million tons in 2020 as a prolonged weak market for PRB coal continued and the COVID-19 pandemic delivered a near knockout punch.
They also surpassed 8 billion tons mined in the basin since 1998.
The 8.1 billion tons produced over those 23 years averages out to more than 356 million tons a year, a number that shows coal’s heyday of a decade ago while also highlighting an accelerated downward trend.
Not only is last year’s overall production the lowest by far of the last 23 years, it’s also the lowest with the basin’s current buildout of 12 operating mines.
There’s a reason the 8 billion mark, while notable, isn’t something to celebrate, said Travis Deti, executive director for the Wyoming Mining Association.
“Well, 2020 was a tough year, and came on top of other tough (recent) years,” Deti said. “I don’t think they can get any tougher. We were continuing to see the customer base contracting and we all know production drives demand, which drives employment.”
The COVID-19 pandemic also was a gut-punch to the industry, Deti said. That’s because months of shutdowns taking manufacturing offline and curtailing business activity overall greatly reduced the nation’s demand for electricity.
“Those shutdowns across the country commanded the lower demand for electricity,” Deti said, adding that it still hasn’t recovered.
Given the outlook halfway through 2020 when the shutdowns were still on and power companies continuing to move away from coal-fired generation, Deti said the only positive to take from last year’s numbers is that production cracked the 200 million mark. Last summer, it didn’t look like that would happen.
“Going forward, I’m glad we broke 200 million tons, which is probably the best we could’ve hoped for in a struggling industry,” he said. “It’s frustrating and it’s confounding when you look at what’s going on today, but nobody’s going to build a new power plant.”
While the pandemic helped hasten the downfall of thermal coal in the United States, it was already moving in that direction, said Rob Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming College of Business.
While it’s been anticipated for the past several years, 2020 also is notable because it finally confirmed contraction of the Powder River Basin through mine closures. After the Decker mine in Montana ceased operations during the bankruptcy of its parent company, Lighthouse Resources, Arch Resources Inc. announced the impending closures of its Coal Creek and Thunder Basin mines in Campbell County.
While Coal Creek has been moving toward closure for a couple of years, Black Thunder continues to be one of the world’s largest producing thermal coal mines. Last year, Arch’s mines produced 52.3 million tons of coal, or about 25% of the PRB’s overall production.
That a large player like Arch is throwing in the towel on thermal coal is a turning point, Godby said.
“The larger companies like Arch and Peabody (Energy Corp.) can kind of manage themselves better,” he said. “The smaller companies … can’t really do anything that reduces revenues. NARM (Peabody’s North Antelope Rochelle mine) and Black Thunder can produce for a different market and they don’t need to get into a situation where it’s a cutthroat competition.”
NARM, perennially the world’s No. 1 producing coal mine, dug 66.1 million tons in 2020. That’s far and away the most from the PRB but a fraction of the record 118 million tons the mine produced in 2014.
By the numbers
Overall, coal production was down nearly 60 million tons from the 266.8 produced in 2019, or about 22%. Compared to 2011 when the PRB produced 426.4 million tons, last year’s final tally represents a decline of 219.5 million tons, or more than 51%.
By comparison, during the “bust” of 2016 that saw several high-profile coal bankruptcies rock the Powder River Basin and create mass job losses, the basin’s production was down 21%.
Another number worth noting, Godby said, is that Black Thunder and NARM combined to produce 116.3 million tons in 2020, or about 56% of the PRB’s overall output. Historically, however, those large mines have typically accounted for more than 60%, which shows their hold as the anchor mines of the basin is slipping.
The trigger likely was the final federal denial of a proposed joint venture between Arch and Peabody, Godby said.
“What people miss with the joint venture is there was clearly a front-seat player and a backseat player there, and the backseat player wasn’t going to be the active manager of the mines,” he said.
He was referring to a plan that would have merged the companies’ Western assets with Peabody as 66% owner and operator. With a minority 33% share, Arch could step back and let someone else deal with its thermal coal assets. Without the joint venture, Arch has made it clear it has no intention of maintaining a long-term commitment to the PRB.
“If you look at what Arch was willing to do in that joint venture, they were really looking to reduce their involvement in the PRB,” Godby said. “When that didn’t happen, Plan B kicked in.
“The headline out of 2020 is the production decline and COVID. But if you look beyond the headline, I think had COVID not happened, we’d have had continued contraction. What COVID did was it accelerated existing trends.”
One of those accelerated trends was a contraction of the local coal workforce by 723 jobs in 2020, according to the federal Mine Safety and Health Administration. That represents about a 16% drop in the workforce over 2019, from 4,578 to 3,855. By comparison, that’s a larger percentage of the workforce that was lost during 2016, when the 851 fewer jobs represented 15.3% of the workforce.
Pacing the downturn was the Antelope mine in southern Campbell County. The mine, owned by Navajo Transitional Energy Co., was down 138 jobs from the previous year, or 24%. Black Thunder was down 232 positions, or 19%, and NARM was down 227 people, or 18%.
Of the 12 local PRB mines, only two — Eagle Specialty Materials’ Eagle Butte and Belle Ayr mines — saw production increase last year. Combined, the mines produced 23.5 million tons, up 1.7 million tons over 2019, or about 8%.
Expect a bump
While 2020 was a bad year overall for Powder River Basin coal, the outlook for this year is more promising, Godby said. That’s because much of the industry and power generation lost during the first months of the pandemic are coming back online. Also, natural gas prices are up and expected to stay higher.
“We’re expecting production in the neighborhood of 225 to 230 million tons possibly in the coming year,” he said. “Still, we have to recognize coal is a declining industry. Primarily this year, we don’t expect a March, April, May like we had last year with all the shutdowns and a huge drop in electricity demand.”
The danger this year could be mistaking a small bump for coal as a recovery or prolonged upturn for the industry, Godby said.
“People tend to focus on what they can take as positive out of this,” he said. “But hopefully people don’t take the positive for a recovery. That’s the danger, to say this is a recovery. No matter how you look at it last year, we didn’t have a good year.
“That shouldn’t be interpreted that because it’s better than it could’ve been that it’s OK. Let’s fact it, though, if I had to look at 2020 with one word, of course it would be ‘depressing.’”
Wyoming is facing a growing budget deficit and historic shortfalls in revenue due to a continuing decline in fossil fuels, and things are expected to get worse.
To survive, Wyoming needs to do two things: significantly cut government programs and services, including K-12 education, and create new revenue streams, preferably without increasing taxes. That was the message five local Republican legislators want to get out to the public ahead of the reconvening of the 2021 Legislature in March.
Reps. John Bear, Timothy Hallinan, Bill Fortner and Chris Knapp and Sen. Troy McKeown sent out a press release outlining the state’s growing deficit and their priorities as legislators.
“There’s a lot of misinformation about this, so we thought it’d be a good way to inform the public,” Hallinan said.
“It’s a difficult subject, and depending on what people’s sources are, they may be getting good or bad information,” Bear said. “We certainly want to make sure we get accurate information out there.”
Bear said the press release isn’t meant to combat any particular misinformation. Rather, it’s part of an effort to be transparent, giving “the people the information to make good decisions regarding the legislation and budget measures they choose to support or oppose as well as their requests to representatives for that same purpose.”
According to the press release, the state is facing a $171 million deficit in this 2021-2022 biennium, and the Legislative Service Office is projecting the shortfall to increase to $721 million in 2023-24 and $985 million for 2025-26.
The School Foundation Program, or K-12 education funding, has a $298 million shortfall this biennium and is projected to grow to $546 million by 2023-24 and $649 million by 2025-26. And soon there could come a point where there’s no money for maintenance of school buildings.
The first paragraph of the press release reads that the Legislature and residents “have to decide: Our government must either significantly reduce government services and programs or create new revenue streams (taxes). Neither will be easy.”
Bear, Fortner and McKeown signed a contract saying they would not support any new taxes, and they’re sticking to that. Instead, they, along with Knapp, hope to find ways of increasing the state’s revenue without increasing the burden on the people and industries who pay taxes.
Education will “inevitably” be reduced. It is “one of the only areas that has not yet been significantly reduced,” the press release reads.
“There has to be some cuts somewhere,” Hallinan said, adding that there doesn’t seem to be a willingness from school districts to cut.
“It would be silly to think we could cut our budget and leave that one entity alone,” McKeown said.
It also is time for Wyoming to consider reducing government instead of expanding it, McKeon said, and “take a good hard look at what right-sized state government is.”
Wyoming residents get much more in government services than they pay in taxes and need to ask themselves moving forward how much they’re willing to pay for those services, Knapp said.
“We’ve relied on the mineral industry so much that we never had to ask that question,” Knapp said.
Wyoming needs to come to terms with what government is for and define its core services, he added.
“That will allow it to cut where it’s needed,” he said. “But you can’t just cut your way out of this either.”
Republican lawmakers are “committed to creating long-term economic growth,” according to the press release.
“I believe Wyoming can revenue our way out of this,” Knapp said.
By marketing itself as a source of energy, including coal, oil, natural gas and wind, rather than just focusing on coal, Wyoming power can become more palatable to states like California that are focused on renewable energy, Knapp said.
The press release reads that “fossil fuels have taken a hit” and the industry is expected to continue to struggle under the Biden administration. Low taxes and minimal regulations are the key to economic growth, Bear said.
“If we can create a good business atmosphere where revenue streams increase, we all win,” Bear said.
Presidents Donald Trump, Ronald Reagan and John F. Kennedy “all grew the economy by cutting taxes, and they grew it huge,” McKeown said.
The state needs to “figure out how to do that, instead of taxing all the beleaguered people in Campbell County more and going after coal mines that are struggling,” he said.
Looking ahead to March 1, when the Legislature is back in session, Bear hopes for positive change.
“Those of us who are looking for smaller government and less spending have not been on the winning side of things yet, but that could change,” he said.
Bear said he doesn’t think any of this year’s proposed taxes will survive the legislative session.
“I don’t think the sentiment of the people of Wyoming has changed, so unless representatives are willing to go against the wishes of the people,” there won’t be any new taxes, he said.
There will be some “interesting debate” to say the least, Bear added.
“It’s going to be kind of a mess, because there’s a significant group that doesn’t want to raise tax and another group that doesn’t want to cut anything,” Hallinan said. “It’s going to be a very exciting session.”
More and more people in Campbell County have received the COVID-19 vaccine as drive-thru vaccination clinics for seniors have gone on unimpeded and more of the county’s population has become eligible for the vaccine.
This past week, Campbell County Public Health worked on wrapping up the second-dose clinics for the Gillette Police Department, Campbell County Sheriff’s Office and Campbell County School District, “so that we can now start scheduling the next of the clinics at Public Health,” said county spokesperson Ivy McGowan.
Going forward, she said Public Health’s goal is to schedule future clinics by appointment at its main office, as it has been doing on a limited basis for the past few weeks. Set dates have not been announced yet, but people can call Public Health now to set up a future vaccination appointment.
While the past few clinics at its main office have been designated for specific eligibility groups and designated primarily as either first dose or second dose clinics, McGowan said the clinics will likely be intermixed going forward, with time slots available for anyone eligible to come in and get either their first or second shots as needed.
As with past clinics, the county’s vaccine supply is still a major factor in determining how many appointments will be available. With the county now vaccinating people in Phases 1a, 1b and 1c, a large part of the population is vaccine eligible.
Phase 1c includes people experiencing homelessness, living in group home settings and critical infrastructure workers.
Who falls into the critical infrastructure grouping is defined by the Cybersecurity and Infrastructure Security Agency, but includes many types of workers who interact with the public in some capacity.
“We are taking people at their word,” McGowan said. “We’re not asking them to bring in any documentation or prove they’re in one of the groups.”
Vaccine shipments delayed
The Wyoming Department of Health said last week that the severe weather in other parts of the country will affect COVID-19 vaccine shipments to Wyoming.
The state expected that its shipment of 5,700 first doses and 3,700 second doses of the Moderna vaccine would not make it last week. The shipments to Walmart pharmacies in the Federal Retail Pharmacy Program were also expected to be affected.
But in Campbell County, it is still unclear exactly how that supply disruption will impact Public Health and its vaccination plans.
“We don’t know exactly what the impacts are going to look like right now,” McGowan said.
Although she believes the county will get its shipment as planned this week, it’s still uncertain exactly how the shortage could trickle down locally. However, with weather conditions improving in parts of the country, McGowan was optimistic that the logistical problems could solve themselves soon.
Help from the hospital
Campbell County Health finished its second round of vaccinations for health care professionals in Phase 1a last week and is close to clearing out its supply of the Pfizer COVID-19 vaccine.
Residents and staff at the Legacy Living and Rehabilitation Center will be getting their second doses of the vaccine Tuesday, said Robert Quintana, CCH pharmacy director.
“Both of those are big wins, both of those are great to get through all of the staff and all of the residents who wanted the vaccine,” Quintana said.
Once the hospital’s ultra-low temperature, specialty freezer is out of vaccine, Quintana said that the health care system will continue to work with the county and state to receive the next marching orders.
But as the weeks since the first COVID-19 shot in the county have gone by, CCH and Public Health have grown more efficient in vaccine distribution, giving Quintana confidence that efficiency will carry over to whatever the next phase of the rollout holds.
“It’s just like any other process, the more you do it, the more it becomes familiar,” Quintana said. “It became a lot more efficient and we became a lot more adept at it.”
Down the line, Quintana said CCH would like to hold public clinics and administer straight to the public as well, but plans for that have not been yet formed at the state or county levels.
Many kinks were thrown in the way of the vaccine rollout across the country and just when it began to smooth out, extreme weather got in the way. But CCH and Public Health have preached adaptability from the start, which Quintana said has been the one constant.
“It’s Mother Nature and God. They win,” Quintana said. “We’ll flex with what they do and we’ll act accordingly.”