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By Rachel Leven
Jan. 11 — Arch Coal Inc.—one of the largest coal producers worldwide—filed for bankruptcy Jan. 11, but its proposal may face an environmental legal challenge regarding its reclamation obligations.
Arch, the second largest coal producer in the U.S., filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Eastern District of Missouri. Its proposed reorganization submitted to the court aims to reduce Arch's debt by $4.5 billion and would allow the company to continue mining at its active sites, which are in Wyoming, Colorado, Illinois, West Virginia, Kentucky, Virginia and Maryland.
“We are confident that this comprehensive financial restructuring will further enhance Arch's position as a large-scale, low-cost operator,” John Eaves, chief executive officer for Arch, said in a statement.
The company's proposed reorganization was prompted by declining demand for coal, partially due to a rise in natural gas, John Drexler, senior vice president and chief financial officer of Arch, said in a related filing. “Stricter enforcement,” new federal environmental rules on power plants and coal mining, and subsidies for “alternative energy sources” also played a role, he said.
The St. Louis-based company follows at least three major coal producers—Patriot Coal Corp., Walter Energy Inc. and Alpha Natural Resources Inc.—in the last year that filed for bankruptcy. Arch is the largest of those coal mining companies to seek bankruptcy protection. The bankruptcies have raised concerns about the financial ability of coal companies to fulfill hundreds of millions of dollars in reclamation obligations, channeling focus on regulations' impacts on the companies and on the potential for taxpayers to be left on the hook for the rest.
Arch's liabilities include, although may not be limited to, $266 million in third-party insured reclamation bonds, known as surety bonds, and $485 million in Wyoming-specific promised or self-bonded reclamation bonds. Arch is seeking for the court to allow the company to continue and renew its program related to its surety bonds.
Bob LeResche, chair of the Powder River Basin Resource Council, said his group may challenge the bankruptcy filing in court over Arch's proposal to initially pay the state of Wyoming $75 million, or roughly 15 percent of its existing promised Wyoming reclamation obligations. LeResche compared Arch's initial proposed reclamation payment for its self-bonded obligations to that of Alpha's, which will pay roughly 16 percent of its $244 million self-bonded Wyoming obligations under its court-approved agreement (In re Alpha Nat. Res., Inc., Bankr. E.D. Va., No. 3:15-bk-33896, 10/8/16).
“We didn’t react quickly enough to object to that [Alpha's Wyoming agreement],” LeResche said. “We’re going to try to stop this from being approved from the outset.”
Scott Janoe, a partner with Baker Botts LLP, noted that not all environmental obligations are tied to reclamation bonds and therefore the precise environmental impact is unclear. It is possible the company has other unbonded obligations, under, for example, the Comprehensive Environmental Response, Compensation, and Liability Act, “that can be significant.”
Janoe said it is significant and “bodes well” that the company is reorganizing, rather than ceasing to exist, because that means it may be able to ultimately meet its environmental obligations. Meanwhile, the environmental group WildEarth Guardians urged Arch in a Jan. 11 letter to “undertak[e] an orderly and effective end to its coal business.”
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