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Peabody Energy emerges from bankruptcy; it's better positioned for the future, expert says

A view of the outside of the Peabody Energy building in St. Louis.
St. Louis Public Radio
Peabody Energy renewed its lease on its downtown St. Louis headquarters building in late 2016.

Peabody Energy has emerged from bankruptcy with less debt and a shift in focus. The St. Louis-based coal company spent roughly a year under Chapter 11 protection and some of the same industry-wide challenges remain – government regulation and cheaper energy producing options, such as natural gas.

In a release when Peabody emerged from bankruptcy earlier this month, Chief Executive Officer Glenn Kellow sounded upbeat.
"Coal remains an essential part of the energy mix, and Peabody is the largest U.S. coal producer, while our Australian platform has access to the higher-growth Asia-Pacific region.”

"We believe that ‘The New BTU’ is well positioned to create substantial value for shareholders and other stakeholders over time," he said. BTU is Peabody's symbol on the New York Stock Exchange. The company resumed trading under that ticker symbol once it completed  the bankruptcy process.

Robert Godby  is director of the University of Wyoming Center for Energy Economics and Public Policy. He shared his thoughts with St. Louis Public Radio on Peabody, the current state of coal and where the industry might be headed.

On a post-bankruptcy Peabody

Going through the bankruptcy process helped the company shed roughly $5 billion in debt, which was “an anchor they were dragging around,” he said. Much of that debt problem developed after Peabody acquired some Australian mines in 2011 for slightly more than $5 billion.  Godby said the leaner Peabody has a tighter capital structure that should be better positioned to react to issues the coal industry is facing.

On Peabody's strategy

The coal company appears to be changing direction. Godby said the firm has been focused on trying to expand output, adding that Peabody has been the “poster child company” in the sector trying to grow its reach and use of coal. Now, the focus is on maximizing company value. Godby said that could be taken as an admission the coal industry has changed because of pressure from natural gas and alternative energy sources.

On coal's challenges

Rob Godby's areas of study include environmental and natural resource economics and policy, macroeconomics, and experimental economics.
Credit University of Wyoming Television (UWTV)| YouTube
Rob Godby's areas of study include environmental and natural resource economics and policy, macroeconomics, and experimental economics.

Natural gas was relatively cheap compared to coal before Peabody declared bankruptcy, and that has not changed. Godby said that is prompting energy producers to build more natural gas power plants instead of coal-fired facilities. That’s mainly due to future uncertainties. Companies don’t want into invest billions of dollars into a plant that should last for a half century, only to be forced to stop using it in 10 to 20 years.
Godby sees greenhouse gas regulation as another key issue for coal’s future. It’s not known how that debate will end. He says the current administration in D.C. has essentially put a pause on those federal rules but adds, “that’s not a permanent thing.”

On how coal can compete

Godby says coal companies are already becoming more efficient so they can better compete. Some, like Peabody and Arch, have improved those efficiencies after going through the bankruptcy process. He also says the search is on for possible new coal markets, but any solid options could be a long way off. The Trump administration’s efforts to eliminate regulation could help in the short-term. But longer-term planning is focusing on developing a system involving many types of energy, and industry leaders need to figure out how coal will fit into that mix.

On the industry's future

Godby said one of the biggest questions is how the value of coal can be maximized. Coal is still regarded as an asset, mainly because a lot of it is on federal land, “so it belongs to all of us.” He said industry leaders and the public appear to be interested in figuring out an answer, especially if it’s environmentally sound. Even with the challenges, Godby is convinced, “coal will be here for years to come.” But the shape of the industry remains in question, even as more of the big players get on more solid financial footing, like it appears Peabody has done by shedding roughly $5 billion in debt through the bankruptcy process.

Follow Wayne Pratt on Twitter: @WayneRadio

Wayne is the morning newscaster at St. Louis Public Radio.