By Taylor Kuykendall and Hira Fawad

Data feature produced by S&P Global Market Intelligence research groups in cooperation with the news department to highlight emerging trends and topics of interest.

DEBTORS’ OMNIBUS REPLY IN SUPPORT OF THE MOTION FOR ENTRY OF AN ORDER (I) AUTHORIZING, BUT NOT DIRECTING, THE DEBTORS TO (A) REJECT THEIR COLLECTIVE BARGAINING AGREEMENTS, (B) MODIFY CERTAIN UNION-RELATED RETIREE BENEFITS, AND (C) IMPLEMENT TERMS OF THEIR SECTION 1113 AND SECTION 1114 PROPOSAL, AND (II) GRANTING RELATED RELIEF

While the coal sector still struggles to find footing in floundering markets for its product, many producers continue to dig coal as they navigate the process of restructuring debts and obligations in bankruptcy court.

An SNL Energy analysis looked at active and producing mines in the second quarter and compared that to a list of mines the U.S. Mine Safety and Health Administration currently lists as owned or operated by companies on SNL Energy's ongoing tracking of coal company bankruptcies. The analysis found that companies on this list, some of which may have since emerged from bankruptcy, accounted for 21.7 million tons of coal production in the second quarter, or roughly 10.4% of all the coal produced in the U.S. over this period.

That these companies continue to produce is not unusual. Many are simply hoping to reorganize and emerge on the other side of bankruptcy — leaner and free of certain financial obligations. Alpha Natural Resources Inc., one of the coal producers recently filing for bankruptcy, has said it plans to be positioned to take advantage of an eventual market turnaround.

In bankruptcy filings, Alpha executives called bankruptcy a "breathing spell" and an opportunity to maximize value in what was described as a "frenetic" U.S. coal industry.

"The U.S. coal industry as currently structured is unsustainable," Alpha Chairman and CEO Kevin Crutchfield noted in his declaration to the court.

Walter Energy Inc., a producer that primarily deals in metallurgical coal production, has said it hopes to emerge from the courts a "sustainable enterprise." In one document provided by Walter, the company said it aims to use the court to put in place a cost structure that will "position the company to be competitive and to thrive when the met coal market recovers."

Both companies have indicated in some form through their filings that a critical component of reorganizing will likely be the rejection or negotiation of agreements with its unionized employees and retirees. A similar route is being explored by Patriot Coal Corp. as it attempts to sell most of its assets to Blackhawk Mining LLC, which has expressed little interest in taking on Patriot's union liabilities.

"The stark reality is that [Patriot is] operating in the worst market conditions seen in decades while simultaneously facing ever-increasing regulatory and environmental burdens," Patriot wrote in a recent court filing. "As a result, the debtors must promptly sell substantially all of their operating assets because they are not viable as a going concern. The debtors cannot survive and will run out of cash in the very near future if they are unable to complete the Blackhawk transaction and would be forced to liquidate immediately. Period."

The trends within the SNL Energy analysis varied from state-to-state and by mining region. Predictably, regions where producers most often publicly lament high-cost structures or regulatory pressure have also seen more of their mines follow their respective companies to bankruptcy court.

In Central Appalachia, 37.5% of the coal mined in the quarter came from mines that were owned or operated by companies that have filed for bankruptcy since 2012. That compares to about 10.3% in Northern Appalachia and 9.3% in the Powder River Basin.

According to the analysis, 35.0% of the coal mined in West Virginia in the second quarter came from coal mines that have filed for some form of bankruptcy court protection in the past three years. That compares to 10.0% of the coal mined in Wyoming and 16.6% of coal mined in Pennsylvania.

In absolute tonnage, Wyoming producers recently filing for bankruptcy protection have produced 8.5 million of the 85.1 million tons of coal produced in that state. In West Virginia, the same figure is 8.3 million tons of 23.8 million tons.

Recent bankruptcies have provoked concern about what could happen to these companies if they are unsuccessful in re-emerging. The issue of self-bonding, a process in which companies self-insure against environmental obligations at their mining operations, has prompted scrutiny from state and federal officials.

Officials with the West Virginia Department of Environmental Protection recently notified Alpha it would not be allowed to take on additional self-bonding until further notice. The company has faced similar challenges in Wyoming. Alpha noted in bankruptcy filings that self-bonding issues could prove "detrimental" to its restructuring efforts.

Randy Huffman, cabinet secretary for the WVDEP, expressed concern over liabilities that could be left behind as companies proceed through bankruptcy courts in an interview with SNL Energy.

"The biggest problem I have — anytime you have a company filing bankruptcy, what they want to do, they want to split the company and keep the good assets and they want to sell the bad assets," Huffman told SNL Energy. "Well, they always end up selling the bad assets to somebody that's even less-off financially than they, which makes the future even worse. The assets get bled off, the coal gets mined out and the ability to pay for the reclamation costs gets compromised. We're concerned about that."

Following the recent bankruptcy filing of Alpha, some of the largest mines in the nation — located in Wyoming — are also producing coal under direction of a company currently navigating bankruptcy. The company's massive Eagle Butte and Belle Ayr mines produced 4.9 million and 3.7 million tons of coal, respectively, in the second quarter of 2015.

Alpha's currently producing mines also represent most of the production from companies recently seeking bankruptcy court production in Northern Appalachia. A few of those top mines include Cumberland, Emerald and Seven Pines.

Alpha and Patriot represent the bulk of Central Appalachia production coming from companies recently filing for bankruptcy court protection as well.