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Northern Appalachia coal production drops with widespread cuts across basin

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Northern Appalachia coal production drops with widespread cuts across basin

Coalproduction at the 25 top producing coal mines in the Northern Appalachian Basintumbled by more than 5 million tons to 21.8 million tons in the first quarterof 2016 from the year-ago period thanks to declining output at all but ahandful of facilities in the region.

Theyear-over-year drop put the basin's highest producing mines on track to finishthe 12-month period down 12.9% from the same period in 2015 with a fall of 13.7million tons.

Hometo a number of mines owned by privately-held Murray Energy Corp. and some of 's last remainingcoal assets, the basin saw production slide at most of its operations for boththe quarter and 12-month period.

Thebasin's overall output, drawn from all reporting mines, amounted to 24.8million tons during the first quarter, down from 32.6 million tons. For the12-month period, the entire basin produced 110.4 million tons, a 17.3% dropfrom the same period in 2015.

Theregion's broader decline was attributed to waning demand and oversupply,according to Tom Clarke, president and CEO of the ,which saw production at its Federal No. 2 mine slide nearly 30% for the12-month period from the same time in 2015.

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"InNAPP there still needs to be a major, major shakeout," Clarke said. "Weneed to see declines in production capacity that match the decline in demand —we're talking 30%."

Clarkeadded that the mine's actual performance has been improving, but the lack ofdemand had forced production down to three days a week to keep storage down.Further, offers that had been coming through for seaborne coal had beenprohibitively low.

"I'drather eat that coal than sell it for that price," he said in reference toa recent offer.

Murray'sMarshall County mine led the basin in output during the 12-month period with10.1 million tons, down about 4% from the previous year's period.

Byincreasing output, the Marshal County mine displaced CONSOL Energy's Baileyfacility as leading producer for the 12-month period. However, the Bailey minedid report the largest quarterly production with 2.8 million tons. For the12-month period, the mine's production fell 16.9% to finish with just under10.1 million tons.

CONSOLreduced its exposure to the coal sector in favor of natural gas over the lastyear, spinning off CNX CoalResources LP into a master limited partnership. CNX Coal owns aminority interest in CONSOL's three underground coal mines in Pennsylvania.

Whilethe company's Enlow Fork mine reported only a slight decline in productionduring the quarter, output from its Harvey mine plummeted from a million tonsin the first quarter of last year to just 114,349 tons in the latest quarter.

Thedrop at Harvey left the mine's production down nearly 32% for the 12 monthperiod with 2.7 million tons compared with the nearly 4 million tons producedduring the year-ago period. The fall in production also put CNX Coal on trackto report a collapse in net income during the first quarter of the year withjust $2.5 million compared to the $17.3 million reported in the year-ago period.

Despitethe loss, CNX Coalleadership highlighted the effect of cost-saving measures in light of theindustry's broader challenges.

"TheCNXC team delivered excellent operational performance during the first quarterof 2016 and helped offset declining cash margins in the face of challengingcoal markets and further deterioration in coal prices." said Jimmy Brock,CEO of CNX Coal's general partner. "Specifically, the cash cost per ton inthe first quarter was the lowest since first quarter of 2009, despite theinconsistent customer shipments that we noted in January."

Murray'sPowhatan No. 6 mine reported a decline in production in the first quarter with1.2 million tons, finishing the 12-month period with 4.6 million tons, or an8.6% decline. The facility is expectedto wind down overall production by November of this year, which is a slightextension of the originally planned July closure.

TheOhio-based producer's other mines all reported lower output during the firstquarter compared to last year, with production at its Marion County mineshowing the most significant decline with a drop of over a million tons tofinish the period with 569,148 tons.

Accordingto company spokesman, Gary Broadbent, the reduction at the Marion County minewas due to it being idle for the "entire first quarter of 2016." Thecompany's broader decline in production was due primarily to the minesoperating at a "reduced production schedule."

"Thesedeclines were directly caused by electric power load losses, due to the declineof manufacturing in America, the Obama Administration's increased regulation ofcoal mining and outright prohibitions on the use of coal by electric utilities,and the increased utilization of natural gas to generate electricity inAmerica," Broadbent said.

Unlikeother producing basins, Northern Appalachia is home to few mines owned bycompanies now under bankruptcy protection among its most productive operations.While some of the mines owned by ArchCoal Inc. and AlphaNatural Resources Inc. reported declines for the 12-month period,the former's Leer mine saw a 10.4% increase while the latter's Cumberland mineincreased production by nearly 2% for the period.

Archhas previously stated that it would keep production online at active minesthroughout the bankruptcy process.

Someof the basin's largest percentage declines in production for the 12-monthperiod were seen at mines owned by bankrupt companies, including a 40.8% dropat Alpha's Seven Pines facility and a 58.4% collapse at its Emerald No. 1 mine,with the latter dragged down by no first-quarter output.

Latelast year, Alpha announcedthat it would close the Emerald mine after an earlier delay.