April 13, 2016

4 Things To Know About Peabody Energy’s Bankruptcy

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A P&H 4100 shovel loads coal at Peabody Energy's North Antelope Rochelle coal mine

Peabody Energy

A P&H 4100 shovel loads coal at Peabody Energy's North Antelope Rochelle coal mine

What does bankruptcy actually mean on the ground?

For now, not very much. In Chapter 11 bankruptcy a company reorganizes but doesn’t shut down. In a statement, Peabody said it plans to continue operating its mines as usual while it restructures.

In the longer-term, we’ve seen some other bankrupt coal companies, like Alpha Natural Resources, try to sell off their assets. “Some [coal] assets in the longer-term are going to be competitive and some aren’t,” says James Stevenson, a coal analyst with IHS Global. “Exactly who ends up owning those assets in the wake of [all these] bankruptcies, that’s somewhat up in the air.”

How will this affect workers in Wyoming?

Peabody’s dire financial situation has already affected workers in Wyoming, with mass layoffs from the company’s Powder River Basin mines in March. Whether the bankruptcy declaration will have any further effect on employment remains to be seen.

As other coal companies have worked their way through bankruptcy, many of them have tried to cut costs by shedding worker benefits, like retirement and healthcare. Peabody said in a letter to employees obtained by S&P Global Market Intelligence there are currently no planned cuts, but that could change in the future.

What does Peabody have to say about its bankruptcy declaration?

In its statement about the bankruptcy, Peabody attributed its financial problems to “a dramatic drop in the price of metallurgical coal, weakness in the Chinese economy, overproduction of domestic shale gas and ongoing regulatory challenges.”

Peabody made a huge bet on the metallurgical coal market in 2011 when it spent $5 billion acquiring new coal mines. In hindsight, that bet proved disastrous—the bottom dropped out of the market shortly thereafter. Cheap natural gas has also eaten into coal’s market share in the United States, with natural gas producing almost as much electricity as coal in 2015 for the first time in history.

What does it mean for the energy sector?

Coal is rapidly losing its market share to other sources of energy, particularly natural gas. Year-to-date in 2016, Wyoming coal production is down 30 percent and natural gas is expected to be the dominant fuel source for U.S. power in 2016. Energy efficiency and renewables are also cutting into coal’s markets—a trend that is expected to continue. As Wyoming governor Matt Mead said in a recent press conference, “I predict that things will get worse before they get better [for the coal industry].”

Check out our interactive timeline of events leading up to the bankruptcy.