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Arch Coal Inc. Message Board

  • cadmium_telluride cadmium_telluride Jun 14, 2013 2:34 PM Flag

    A WLT Bad News is Good For Other Coal Names

    Today WLT plummetted and was twice halted. The second time halt still continues as of now. Looks like there is bad news that they pulled the loan. I can not tell if that means WLT could go bankrupt.

    If WLT does go bankrupt it's bad news for WLT share holders but good news for the rest of the coal names. This will be very different from PCX bankruptcy, in which the deliberately set PCX up for a failure to get rid of legacy pensions to the retired coal workers. A very dirty trick that I failed to see. But if WLT goes under, it is a case that it simply could not take it and endure it any more.

    I hope the shock and awe will prompt the entire US coal industry for a round of more aggressive production curtailment to turn things around. I applaud them for promising to curtail production since early 2012, and they really did what they promised and really delivered the curtailment.

    But now it seems their curtailments was NOT big enough. Yes it brings things more back to a supply/demand balance. Yes it did bring coal inventory down. But NO, the scale of curtailment is still a piecemeal curtailment. It simply won't cut. The industry needs a much bigger and much swifter cut to deliver the message that price must return to profitable level or the supply will not be there.

    I hope a WLT bankruptcy will deliver that message and get coal producers into a more serious production curtailment to turn things around soon.

    But at least the coal sector has curtailed production, What does natural gas companies do? There should be a massive wave of bankruptcy in the natural gas section. They continue to spend $186B in 2012 to drill wells and selling gas at deep discount. And they have not delivered a bit of the production cut they promised. WHY?

    Sentiment: Strong Buy

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    • Even if WLT goes BK( ( I doubt it, because no debt payments are due untit 2015 ) it would have no effect on coal production. WLT would still be producing the same output.

      When an airline files chap.11, they don't cease flying. PCX continues to produce.

      • 1 Reply to philoffill
      • I also doubt WLT will go bankrupt anything soon. But if bad things happen to WLT, it will send enough a shock wave that coal producers will really get more serious in curtailing production. A more aggressive production curtailment will cut supply and bring price up faster.

        The industry did curtail production as they promised since early 2012. So far it has achieved the goal of bringing coal inventory down. But I hope they curtail more in a more aggressive and decisive way to turn the market around faster. I can not stand their "let's wait and see" indifference regarding current market condition. When another one of their fellows, besides PCX, goes under I think it will really bring their attention to a more aggressive production cut. And that will be bullish.

        The shale gas industry, on the other hand, also promised aggressive production cut in early 2012, but they instead delivered continued production growth despite of heavy loss. I think at least half of the shale developers need to go belly up in a debt crisis to bring attention to them that they can not continue to drill and burn money recklessly.

        Sentiment: Strong Buy

    • Natural gas production is subsidized by the U.S. government - the producers get some sort of tax credits, yes? Therefore, they can still make a profit, even if they take a loss on the actual extraction of NG. Just another example of how interference by Government skews markets.

      • 1 Reply to tristrem
      • No, the shale gas industry is deeply un-profitable.

        Last year the shale industry spent $186B in shale development. That's just capital spending, not including regular production and maintenance costs.

        Total shal oil production was roughly 1.5M barrels per day, and shale gas production at 25 BCF/day. At $80 per barrel and $3.00 per mmBtu, the industry collects $195M revenue per day, or $71B for the year. That's only a fraction of the $186B capital they spent in 2012.

        The entire shale industry is a big bubble to burst. When it does there will be a huge wave of bankruptcies in the shale industry, halting drilling and productions. And it will send the coal sector skyrocketing, bringing huge profits for those who can stay in coal.

        Sentiment: Strong Buy