ANR hitting the gas pedal during reorganization:
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Posted On: 01/25/2016 9:44:34 AM
ANR hitting the gas pedal during reorganization:
Alpha Natural Resources' 5-year business plan goes heavy on gas
November 5, 2015 12:00 AM
By Anya Litvak / Pittsburgh Post-Gazette
Sometime between July and October, bankrupt Virginia-based miner Alpha Natural Resources decided to hit the gas pedal.
Everything is still fluid, the company warned, as Alpha works to reinvent itself. Still, in a proposed five-year business plan released this week, management revealed its belief that natural gas will play an increasingly important role.
Like other miners who got into gas after shale development began, Alpha dipped its toe into the Marcellus Shale through a 2010 joint venture with Canonsburg-based Rice Energy Inc. It sold its interest to Rice in 2013 and that same year inked another joint venture with EDF Energy to explore some 20,000 acres in Greene County. In July, Alpha paid EDF $126 million to become the sole owner of that program.
Although that seemed like doubling down on gas, everything was up in the air when Alpha filed for Chapter 11 bankruptcy protection in August. Its initial thoughts were to devote between zero to $15 million to the Marcellus program in the next two years.
Then, in early October, the company presented to lenders its vision, which included leasing more land in Greene County, building out gas gathering infrastructure and spending $400 million over the next five years on the natural gas effort.
Alpha is awaiting the results of its first two wells in Franklin Township that were drilled earlier this year.
Even if the plan were set in stone, gas would still make up a small fraction of Alpha’s revenue and is not projected to be profitable in the next five years. It will, however, eat up one-third or more of the company’s capital expenditures.
Over the next two years, Alpha expects its Cumberland Mine near Waynesburg will be the main moneymaker. It will spend money to expand the operation there in 2016 and 2017.
After that, Alpha believes the market for its metallurgical coal, which is produced in Central Appalachia, will improve to the point where it becomes the company’s main source of revenue. Metallurgical coal is used in steel making.
Andrew Cosgrove, an equity analyst at Bloomberg Intelligence, said the price forecast that Alpha is using makes him skeptical. “That’s a little worrisome that the met [coal] projection might be a little bit too bullish,” he said, especially since the company’s proposed business plan shows met coal sales driving half of its cash flow toward the end of the decade.
According to Mr. Cosgrove, the conditions currently weighing on met coal prices — such as competition for Alpha’s exports from Russia and other countries’ miners, and slumbering demand from steel mills in the U.S. — aren’t likely to improve in the near future.
Alpha Natural Resources' 5-year business plan goes heavy on gas
November 5, 2015 12:00 AM
By Anya Litvak / Pittsburgh Post-Gazette
Sometime between July and October, bankrupt Virginia-based miner Alpha Natural Resources decided to hit the gas pedal.
Everything is still fluid, the company warned, as Alpha works to reinvent itself. Still, in a proposed five-year business plan released this week, management revealed its belief that natural gas will play an increasingly important role.
Like other miners who got into gas after shale development began, Alpha dipped its toe into the Marcellus Shale through a 2010 joint venture with Canonsburg-based Rice Energy Inc. It sold its interest to Rice in 2013 and that same year inked another joint venture with EDF Energy to explore some 20,000 acres in Greene County. In July, Alpha paid EDF $126 million to become the sole owner of that program.
Although that seemed like doubling down on gas, everything was up in the air when Alpha filed for Chapter 11 bankruptcy protection in August. Its initial thoughts were to devote between zero to $15 million to the Marcellus program in the next two years.
Then, in early October, the company presented to lenders its vision, which included leasing more land in Greene County, building out gas gathering infrastructure and spending $400 million over the next five years on the natural gas effort.
Alpha is awaiting the results of its first two wells in Franklin Township that were drilled earlier this year.
Even if the plan were set in stone, gas would still make up a small fraction of Alpha’s revenue and is not projected to be profitable in the next five years. It will, however, eat up one-third or more of the company’s capital expenditures.
Over the next two years, Alpha expects its Cumberland Mine near Waynesburg will be the main moneymaker. It will spend money to expand the operation there in 2016 and 2017.
After that, Alpha believes the market for its metallurgical coal, which is produced in Central Appalachia, will improve to the point where it becomes the company’s main source of revenue. Metallurgical coal is used in steel making.
Andrew Cosgrove, an equity analyst at Bloomberg Intelligence, said the price forecast that Alpha is using makes him skeptical. “That’s a little worrisome that the met [coal] projection might be a little bit too bullish,” he said, especially since the company’s proposed business plan shows met coal sales driving half of its cash flow toward the end of the decade.
According to Mr. Cosgrove, the conditions currently weighing on met coal prices — such as competition for Alpha’s exports from Russia and other countries’ miners, and slumbering demand from steel mills in the U.S. — aren’t likely to improve in the near future.
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