Cloud Peak Energy has a large customer base in Asia, notably in Japan and South Korea. The company is focusing on exports to Asia from the Pacific Northwest.
As noted earlier, stocks of companies with a higher share of revenues from met coal have lost more since the beginning of the year. Peabody Energy’s performance confirms this assertion.
With no immediate large debt maturities, the company can stay afloat with available liquidity for the next few quarters, even if it burns cash. That said, a large maturity of $1.5 billion is due in 2018.
Peabody Energy is the largest reserve producer in the Powder River Basin and the Illinois Basin. The company also operates in the Southwest, Colorado, and Australia.
The pattern is easy to understand. Those companies with a larger presence in met coal have lost more. The likelihood that Arch Coal will default—fail to repay its debt—increases at pace with its falling stock prices.
If yields are more than the coupon offered, notes trade on discount. This is because the market expectations,or yield, are higher than the interest rate, or coupon, offered by the company.
The company is the second-largest reserve holder in the Powder River Basin after Peabody Energy Corporation with reserves of 3.3 billion tons.
Just like Walter Energy, the majority of the assets on the company’s books include mineral rights, land, and mine development costs. In the event of default, these assets may fetch a lower price than book value.
In the current difficult environment, liquidity is essential for coal producers to survive, especially for those mining in the high-cost Appalachian region, such as Alpha Natural Resources and Arch Coal, Inc.
The price of met coal is generally higher than steam coal. So, while met coal accounted for just 22.5% of tonnage, it produced 36.1% of revenues.
While all coal stocks have lost ground since the beginning of 2014, Walter Energy is by far the worst performer, with a 91% drop in stock price to $1.52 now.
Because coal producers are burning cash and the near-term outlook for the industry is bleak, these companies have built up liquidity to survive until the industry recovers from the downturn.
Walter Energy has mining operations in the U.S., Canada, and the UK. Canadian operations include three surface mines while UK operations include a surface and an underground mine.
In this series, we’ll analyze major coal producers’ debt and liquidity positions, cash burn, probability of default and credit ratings in an attempt to find out which company will be next.
The number of horizontal rigs increased when large quantities of oil and gas in shale formations were discovered in the U.S. By the end of September 2014, the number of horizontal rigs increased by ~300%.
Baker Hughes said it expected Gulf of Mexico drilling activity to grow in 2014. The company anticipated an additional four or five deepwater exploration rigs.
Last week’s increase marks a return to the normal upward trend that has characterized land-based rig counts since the beginning of 2014.
Currently, there are 1,609 oil rigs at work in the U.S. The majority of the rigs, roughly 560, are in the Permian Basin.
The number of natural gas rigs decreased throughout most of 2014. The number of natural gas rigs can indicate major natural gas producers’ sentiment towards drilling.
This week’s rise in oil rig count marked the fifth increase in the past seven weeks, and the highest increase since April 25, 2014. In fact, this was the highest weekly rig count since January 2005.