NEW YORK (AP) — Alpha Natural Resources Inc., one of the country's biggest coal producers, became the latest in a string of coal companies to seek bankruptcy protection amid an historic shift in the electric power sector brought on by cheap natural gas and stricter pollution regulations.
Alpha operates about 60 coal mines, many in parts of Appalachia that have seen the sharpest declines in coal demand and coal prices as electric power customers have switched to natural gas. It is the fourth U.S. coal company to seek bankruptcy protection in the last 15 months.
The bond rating agency Fitch expects coal companies to struggle in the future. "The sector default rate is likely to increase further in the near term," its analysts wrote in a note to investors Monday.
The boom in natural gas production in the U.S. brought on by improved drilling techniques and hydraulic fracturing has ushered in a period of sharply lower natural gas prices. At the same time, clean air regulations are dimming the future for coal-fired power because coal emits about twice as much carbon dioxide as natural gas, and far more pollutants such as soot and mercury.
The average price of coal used for electricity from Central Appalachia is 20 percent lower than last year, according to Platts. In June, the price hit an eight-year low.
President Barack Obama on Monday will announce the first ever set of rules limiting greenhouse gas emissions from existing power plants, a move that will likely reduce demand for coal even further.
Alpha, like many of its peers, is also struggling with a large debt load. Many coal producers borrowed money to fuel growth on the expectation that demand would soar around the world, especially in China, as hundreds of millions of people gained access to electricity.
Alpha took on debt, for example, to fund its $7.1 billion acquisition of Massey Energy in 2011. The company had approximately $3.14 billion in long-term debt for the quarter ended March 31, according to a regulatory filing.
But clean-air concerns are pushing countries around the globe to look for alternatives to coal, and coal production in developing countries has also increased, reducing the need for U.S. coal. Also, a slow-down in construction growth in China has depressed prices for coal used to make steel.
Alpha, based in Bristol, Virginia, was founded in 2002 and it went public three years later. It grew into one of the biggest companies in the sector through acquisitions that have left it with mines throughout Virginia, West Virginia, Pennsylvania, Kentucky, and Wyoming. The company has approximately 8,800 employees, according to its website, though it has announced the elimination of more than 800 jobs this year.
Coal jobs are being lost nationwide. Through the end of June, U.S. coal industry employment was down 24 percent since late 2011, according to the Labor Department, a decline of 21,000 jobs.
Back in August 2008, a share of Alpha Natural Resources sold for $104. On Monday, a share was worth about 4 cents. The company's bankruptcy case is being closely watched by local officials in areas where the company has mining operations.
"I guess we will have to wait and see how it does affect us," said Donald Baker, mayor and town manager of Clintwood, Virginia. "The coal business has not been good for a long time. These EPA rules just about killed coal."
"It's a tough time for anybody in the coal industry, not just Alpha."
Alpha rivals Patriot Coal Corp., Walter Energy Inc. and James River Coal Co., have also sought bankruptcy protection since the start of 2014.
In Logan County, West Virginia, coal will continue to have an important role in the county's economy. But efforts are underway to diversify, including increasing tourism and using previously mined land for agriculture, Logan County Commission President Danny Godby said.
Alpha made its bankruptcy filing with United States Bankruptcy Court for the Eastern District of Virginia in Richmond. The company said that is seeking protection from creditors to allow its normal business operations to continue uninterrupted.
In a letter to employees posted on Alpha's website on Monday, Chairman and CEO Kevin Crutchfield said that the restructuring process will likely last more than a year.
The company's current management team is expected to stay in place through the process. It has secured a debtor-in-possession financing package of up to about $692 million that will help it to reorganize.
Last month Alpha said that its shares were going to be delisted from the New York Stock Exchange. The company will no longer report its second-quarter financial results as scheduled on Wednesday.
AP Energy Writer Jonathan Fahey in New York and Associated Press writer Pam Ramsey in Charleston, West Virginia, contributed to this report.