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Bob Murray's strategy to keep 'best coal company in the world' out of bankruptcy

Two years ago, ahead of a cascade of coal bankruptcies and plummetingU.S. coal demand, Robert Murraystood before a crowd of coal's supporters in Florida and shared his goal of beingthe "last man standing"in the coal business.

Today, with over 50 coal company bankruptcy filings since 2012,he may not be far off.

SNL Image

Murray Energy CEO Robert Murray has dodged the bankruptcy trap that has ensnared many of his peers. His plan is to continue to survive in what may be a greatly reduced market for coal.

Photo: Sarah Smith

President Barack Obama may be able to "destroy the industry, but he can't destroy it all,"the CEO of Murray Energy Corp.speculated at the time. With U.S. coal's share of electricity generation now down toless than 30%, Murray is bracing for two options: coal's share at roughly the same level if the U.S.EPA's Clean Power Plan is defeated or the share falls to just 18% if the rule stands.

Murray envisions a historically smaller coal market in which Murray Energy provides aboutone-sixth of U.S. coal that will be burnedin the U.S. Murray said he conservatively estimates he will produce about 63 milliontons of coal this year. That is a healthy share of what the U.S. Energy InformationAdministration predictswill be about a 673 million ton market — a reduction from well over 1 billion tonsproduced per year only a few years ago.

"My planning horizon has been to see thermal coal marketsgo as low as 600 million tons a year and maybe as low as 550 and still compete withinthat market," Murray said in an interview with S&P Global Market Intelligence." … With little capital investment, I could mine 100 million tons a year. That'show cut back we are. To exist as a 100 million ton company in a 600 million tonmarket — being one-sixth — it's reasonable. It's doable."

Murray attributes his success to carefully chosen assets. His mines are situated in the NorthernAppalachia and Illinois coal basins and are built around high-heat, low-cost, longwall-minablecoal assets that have access to water transport where power plants using scrubbertechnology can take in higher-sulfur coal. Murray says that after safety, the number-onefocus at the company is "watching every penny we spend" and being as productiveas possible in the quest to be the lowest-cost coal producer.

Complicating Murray's efforts, however, are companies that tookon huge debt for expansion only to turn to bankruptcy. Now, those companies aredischarging their debts in court and returning to competition with cleaner balancesheets.

"In the bankruptcy, the judge relieves the company of allof their employees' past and present obligations first," Murray said. "[Thejudge] relieves their obligations to the creditors, lenders and lets them out ofbankruptcy and they don't close a coal mine. That is destroying the coal marketplaceand pulls every coal company into what I call the bankruptcy sewer."

Murray said the companies leave the mines open to avoid dealingwith costly reclamation surety bonds and physical reclamation of the mines. Theresult is coal supply has struggled to adjust to demand.

"It makes it extremely difficult in the industry becausethe law of supply and demand doesn't work," Murray said. "They keep dumpingthese liabilities on other people and that's clearly what it is: a dumping. 'Letsomebody else worry about it, with a judge's blessing.'"

4-point plan to stay outof bankruptcy

While he expects "next year is going to be worse" forcoal than 2016 was, Murray recently assured a crowd of coal supporters in Logan County, W.Va. that he has "the bestcoal company in the world." He's also recently completed what he called a "four-pointplan to avoid bankruptcy."

First, he said, Murray Energy had to act to shore up the financingof Foresight Energy LPafter Murray's purchaseof a large stake in the partnership. Shortly after Murray Energy $1.40 billion for Foresight, the lendersaccelerated about $600 million in debtand a Delaware court issued an opinion supporting them.

Murray says now Foresight's debt is shoredup and Murray Energy is operating the mines and marketing the coal.Murray said he hopes in coming months his company "will have a path to controlForesight Energy and bring it under Murray Energy, a private corporation."

The second step of Murray's plan involved an agreement with the United MineWorkers of America. He said that contract "provides security for miners andit provides savings for Murray Energy" but declined to go into details aboutthe contract.

The third step of Murray's plan was to approach his customersand figure out what Murray Energy can do to help them dispatch their coal powerplants. Some were buying natural gas power in the open market instead of burningcoal. Many of those contracts were take-or-pay contracts, but Murray said executingthat sort of option has its consequences.

"I learned probably 50 years ago, because I've been at thisfor 60, that you don't sue a customer.Ever. You'll never win," Murray said. "So, what do you do to get themto run their coal-fired plants? You reduce the price. That's all you can do."

Murray also touted "unique pricing strategies for our coalthat are not used in the United States." He said some of the company's contractswith utilities include a profit-sharing mechanism based on the utility's power sales.

"So, if our price reduction on the base price helps themdispatch better and they make money, then we share in a percentage of that,"Murray said. "It's very complicated … but it works."

The final step in his plan was to work with lenders to renegotiatean EBITDA covenant in the company's financing package.

"Our lenders have been with us a long time and they thinkwe are the best coal company in the country," Murray said. "They workedwith us and gave us that covenant relief. We've completed all of the four stepswe need to survive."

Looking forward as oneof Trump's 'energy guys'

Touting the merits of presidential candidate Donald Trump andRepublican gubernatorial candidate Bill Cole in West Virginia, Murray assured acrowd of coal industry supporters he was one of Trump's "energy guys."Murray said Trump will surround himself with persons such as Murray to advise himon energy and other issues. He said in recent prepared remarks he had already proposedelimination of 14 proposals and regulations to "the Trump Advisory Council,on which I serve."

"The whole problem with the coal industry today can be summarizedin one word," Murray said. "'Democrat.'Period. … This election has become so important."

Murray believes Democraticpresidential candidate Hillary Clinton wants to support the climate change effortsof Obama, not because of environmental benefits, but because of "millions ofdollars" of support from wind and solar manufacturers. He said she would continuepolicies like the wind production tax credit because it kicks back money to supportersof the Clinton Foundation and Clinton campaign such as billionaires Tom Steyer orElon Musk.

While he supportsTrump, he also warns thecandidate's promises to bring jobsback to the coal sector need to be tempered.

"He can't bring it back to where it was," Murray said."But he will stop the regulatory rampage of the U.S. EPA and all other branchesand departments of the government. That will be a good start. Then he will createa level playing field where all forms of electricity generation can compete fairlyand equally without government subsidies favoring political cronies."

Meanwhile, frustrated with the lack of action from Congress,Murray has taken his own steps to tussle with the U.S. EPA and other governmententities in expensive legal battles aiming to overturn burdensome regulations. Murraytakes particular pride in the U.S. Supreme Court's stay of the Clean Power Planthat he challenged inthe courts.

"A lot of people like to take credit, but I'm the guy that'sgot the name on it and filed first," Murray said. "I was joined by 29states and of course the Congress passed some kind of funky legislation a few monthsago that says they supported it after it was done. You know, our do-nothing Houseand Senate."