In the starkest sign yet of shifting fortunes in the coal industry, St. Louis-based Peabody Energy, the largest and most storied U.S. coal company, announced early Wednesday that it was filing for Chapter 11 bankruptcy.
The company cited an “unprecedented industry downturn,” which it attributed to a range of factors including an economic slowdown in China, low coal prices and “overproduction of domestic shale gas.” In the United States, cheap natural gas, driven by the shale-gas boom, has been steadily eating into coal’s share of electricity generation.
But Peabody was also weighed down by debt from its poorly timed $5.2 billion acquisition of Macarthur Coal of Australia in 2011, near the peak for coal prices there as Peabody underestimated Australian supplies and overestimated the growth of Chinese coal consumption.
Peabody said that its mines would continue operating and that its operations in Australia were not included in the Chapter 11 filing. The company also said it expected its shares to halt trading on the New York Stock Exchange. In a statement, the firm’s president and chief executive, Glenn Kellow, said: “This was a difficult decision, but it is the right path forward for Peabody. We begin today to build a highly successful global leader for tomorrow.”
Shares of Peabody, whose stock trades under the symbol BTU — which is also a basic unit of energy — closed Tuesday at $2.06, leaving the company’s market capitalization at a measly $38 million. Shares have plunged more than 99 percent from their 2008 peak and from where they stood just five years ago. Dividend payouts to shareholders were halted in July 2015.
The firm dates to the 1880s. As a Peabody historical retrospective noted, Francis Peabody, its founder, began selling coal from the back of a mule-drawn wagon in Chicago in 1883. He opened Peabody’s first mine a few years later. The company survived the Great Depression and notes that its coal fueled not only U.S. life in World Wars I and II but a historic Antarctic exploration by Richard Byrd in 1939. It was listed on the New York Stock Exchange in 1949 and became the world’s largest publicly held coal company amid the oil embargo of the 1970s.
Peabody is the latest in a string of coal-company bankruptcies that have also engulfed other industry leaders, including Alpha Natural Resources and Arch Coal. The upheaval has raised concerns that the industry will not be able to afford to pay for cleanup costs related to its many mines across the country.
“Bankruptcy restructuring could provide coal companies with a way of escaping obligations to restore land,” The Washington Post reported earlier this month.
“The biggest coal giant has fallen, and Peabody Energy’s bankruptcy should serve as a wake-up call to anyone promising that coal’s glory days will return,’ said Mary Anne Hitt, director of the Sierra Club’s Beyond Coal campaign, in a statement. “As Peabody grapples with the reality that the world is turning away from coal, it’s essential that it doesn’t turn away from its obligations to workers, communities, and the environment.”
It is hard to separate the reversals of fortune in the coal industry with a growing push to address climate change — epitomized by the December 2015 Paris climate agreement, a global signal that the world intends to move, over the long term, away from fossil fuels. Yet a more immediate reason appears to be the natural-gas boom, which has brought coal a sudden and cheap competitor long before U.S. climate regulations, in the form of the Clean Power Plan, are scheduled to go into effect.
Peabody nonetheless said, in the statement announcing its bankruptcy filing, that it still saw many future opportunities for the coal business.
“Globally, thermal coal is expected to continue to fuel hundreds of existing coal generating plants as well as scores more that are under construction,” it stated. “Coal currently fuels approximately 40 percent of global electricity and is expected to be an essential source of global electricity generation and steel making for many decades to come.”