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Powder River Basin coal production down 4.9% in recent 12-month period

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Powder River Basin coal production down 4.9% in recent 12-month period

Powder River Basin coal production increased slightly in the second quarter compared to the prior quarter, but production for the 12 months ending in the period was down about 4.9% compared to production levels a year ago.

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Coal companies mined about 71.4 million tons of coal from the Powder River Basin in the second quarter of 2019, up from 70.4 million tons in the prior quarter but down from about 72.9 million tons a year ago, an S&P Global Market Intelligence analysis of federal production data shows. Miners in the region are struggling to compete against low-priced natural gas and the pressure has forced many of the companies to file for bankruptcy in recent years.

Of the 16 coal mines in the Powder River Basin, only four mines are run by operators who have not filed for bankruptcy court protection in the past five years. Those mines include Peter Kiewit Son's Inc.'s Buckskin mine, Western Fuels Association Inc.'s Dry Fork mine, Lighthouse Resources Inc.'s Decker mine and Black Hills Corp.'s Wyodak mine. The Wyodak and Decker mines have decreased coal production in the 12 months ending in the second quarter compared to year-ago totals, while production rose at the Buckskin and Dry Fork mines in the same period.

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The basin's two largest players, Peabody Energy Corp. and Arch Coal Inc., recently announced they were teaming up to create a joint venture of their coal assets in the Powder River Basin and Colorado. The coal giants operate the two largest coal mines in the country, North Antelope Rochelle and Black Thunder, which cumulatively account for about 50.7% of the coal production in the Powder River Basin.

"This combination is aimed at unlocking extraordinary synergies and creating exceptional value for customers and shareholders, by strengthening the competitiveness of coal against natural gas and renewables," Peabody CEO Glenn Kellow said during a July 31 earnings call reiterating the company's confidence around the transaction.

Peabody reduced production from the North Antelope mine by 10.9% in the 12 months ending in the second quarter. Production at the company's smaller Caballo mine rose by 4.0% while production from the Rawhide mine held roughly flat.

Arch reduced production at its Black Thunder mine by about 1.1% in the 12 months ending in the second quarter. Production at Arch's Coal Creek mine decreased 36.2% in the same timeframe. Even with the uncertainties created by Blackjewel LLC having to shut down two of its mines in the Powder River Basin and other concerns, Arch Coal COO Paul Lang said on a recent earnings call there was little response indicating utilities were worried about supply.

"What I find fascinating about this thing ... is we pulled out 35 million or 40 million tons out of the market," COO Paul Lang said. "And that was a combination of [coal quality and regions], and the market reaction was effectively zero. We've had a few calls, but to be honest, there's just not been a lot of concern over the issue, at least from the customer's perspective that we've heard from."

Cloud Peak Energy Inc., a pure-play Powder River Basin coal producer, recently announced it was selling substantially all of the company's assets to the Navajo Transitional Energy Co. LLC as part of its bankruptcy reorganization. The mines produced 47.4 million tons of coal in the 12-month period ending in the second quarter, down 10.4% from the year-ago period.

"With this purchase, NTEC becomes the third-largest coal producer in the United States," NTEC CEO Clark Moseley said in a news release about the purchase. "This growth will allow NTEC to support the Navajo Nation and its members as well as other local economies throughout the West."

The data also shows Blackjewel increased production at its Eagle Butte and Belle Ayr mines before filing for a Chapter 11 bankruptcy on July 1. The company's two mines increased production by 7.1% and 10.7%, respectively, in the 12 months ending in the second quarter. Initial attempts to fund a reorganization of the company failed in court and Contura Energy Inc. negotiating with federal officials to finalize a purchase of the mines after winning a bankruptcy auction sale earlier this month.

Westmoreland Mining Holdings LLC reduced coal production at the Rosebud and Absaloka mines in the most recent 12-month period. The company took over the mines following the Westmoreland Coal Co.s emergency from a bankruptcy reorganization in March.