Arch Coal bids $86 million on Otter Creek

2010-03-17T00:00:00Z Arch Coal bids $86 million on Otter CreekBy MIKE DENNISON IR State Bureau Helena Independent Record
March 17, 2010 12:00 am  • 

Coal-mining giant Arch Coal Inc. on Tuesday offered to pay nearly $86 million for the right to develop state-owned coal in southeastern Montana’s Otter Creek Valley, setting up a vote this week on whether the bid will be accepted.

Gov. Brian Schweitzer, one of five state Land Board members who will vote on the bid Thursday, promptly declared it a good deal and said he hopes the board will approve it.

Schweitzer also said if the bid is accepted, the $86 million expected from Arch Coal likely will influence his pending decision on whether and where to cut the state budget, in the face of falling state tax revenue.

“I think that I will look much more favorably at some of the cuts we’ve been considering,” he said Tuesday evening. “I can tell you that 49 other states in America would pull out their front teeth with vise grips to have this kind of deal.”

Schweitzer is considering whether to approve $40 million in recommended state spending cuts for the next fiscal year.

Arch Coal, based in St. Louis, was the only coal company to submit a bid by Tuesday’s deadline, to lease the 572 million tons of state-owned coal.

The bid was at the 15-cents-a-ton minimum set by the Land Board last month, or $85.8 million.

If the Land Board accepts the bid, Arch Coal must pay the money up-front, giving it a 10-year window to start mining the huge coal field, which is about 150 miles east of Billings.

The state-owned coal is interspersed with 730 million tons of coal owned by Great Northern Properties, which agreed last November to lease its coal to Arch for 10 cents a ton.

Tuesday’s bid is the latest development in a decade-old tug-of-war over developing the Otter Creek coal, which was transferred by the federal government to the state in the 1990s when state agreed to block a proposed precious-metals mine north of Yellowstone National Park.

Environmental groups and some landowners near Otter Creek have fought the lease, arguing that a coal mine would destroy a pristine valley, lead to worsening climate change, and harm water resources in the area.

They also have said it will enable construction of the Tongue River Railroad, which is bitterly opposed by some Tongue River Valley farmers and ranchers. The railroad would run from Miles City to Ashland, and possibly ship coal from nearby Otter Creek.

Anne Hedges, program director for the Montana Environmental Information Center, said Tuesday that Montana is poised to give its coal away “for a fraction of what it’s worth.”

Hedges noted that Arch has huge mine operations in Wyoming, and said the Tongue River Railroad could benefit those mines by providing a new shipping route for their coal.

She also questioned whether the deal between Great Northern and Arch is an arm’s-length transaction, suggesting it could have been engineered to make a deal for the state coal more likely, at an affordable price for Arch.

“There is nothing good about this (deal) for Montana, from an economic perspective or an environmental perspective,” Hedges said.

Schweitzer, however, said the deal between Arch and Great Northern “is a real transaction,” and that the coal company has already paid the first of five installments on its $73 million bid with Great Northern.

The 15-cents-per-ton bid offered by Arch is three times what a state-hired appraiser said the Montana coal was worth a year ago, he added.

“I can’t imagine us getting a better deal than this,” Schweitzer said.

Schweitzer also noted that if the bid is accepted, the state gets that money up front — and more funds down the road, if a mine is developed.

“If they don’t develop it, we still have the coal, it’s in the ground, and we will have spent the $85 million on … teachers and books,” he said.

The Land Board originally set the minimum “bonus bid” at 25 cents a ton, back in December. The only company to respond by a Feb. 8 deadline was Arch, which said the amount was too high.

The Land Board decided a week later to lower the minimum bid to 15 cents a ton.

Mike Dennison:  443-4920 or mike.dennison@lee.net

Copyright 2016 Helena Independent Record. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

(13) Comments

  1. EnvEngineer
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    EnvEngineer - March 17, 2010 11:40 pm
    As a soon to be a future graduate from a Montana school, a big concern is that I have to pay back my college loans. I have been fortunate enough to get scholarships and work two jobs through school. I have had to still take out student loans to obtain my education. It has been an out of state industry that has offered me a job that will allow me to pay my loans back sooner than expected. It saddens me that I have to leave my home state. MONTANA NEEDS INDSTRY WITH GOOD PAYING JOBS. When are you going to invest in me, the student and keep me here? This argument has been going on for years. You argue back and forth about the negativity that this will bring to our community, family and environment. What about the positive side of industry? For the community it creates jobs for the unemployed and future scientists. Jobs created, pays taxes. If anyone has done there research on Arch Coal, you will see from there website that they give back to the exceptional teachers that help our future students succeed. For the health of our families, every industry no matter who they are, have to follow strict state and federal regulations. This includes soil, water and air! For the environment, after the land has been disturbed, the land must be restored to the natural and productive state as it once was. Montana needs JOBS, especially right now with the economy. Look at all of the men and women that have lost there jobs in Western Montana. We continue to educate our Montana children in Montana colleges, yet we are still failing to hire them with decent paying jobs to keep them here. We can't keep depending on Tourism. Bring Arch Coal to Montana! This is a great opportunity to keep our families in Montana and bring in revenue.
  2. mtbiker
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    mtbiker - March 17, 2010 3:15 pm
    HakonMontag:

    You raise an important point. We obviously cannot cease all activity in our modern society. However, if we are to pass on anything that resembles a healthy and vibrant state to our children, we must make changes.

    The first step is to hold polluters accountable for their pollution, i.e., make coal companies pay for carbon they emit, that impacts the health of everyone. This will level the energy playing field. Second, we must ramp up clean renewable energy production, namely wind and solar. Contrary to popular myth, wind and solar, used in conjunction with a smart grid, can provide base-load (as a recent study by the State of North Carolina, among others, has shown). Third, we need to change the infrastructure of our society, namely smart growth (i.e., compact and low impact, high efficiency) and new transportation (i.e., public transport, trains, light rail, buses). As it is today, among the fifty states, Montanans pay the second highest percentage of our incomes for gas. We can keep this money and not send it to the Middle East if we have a better transportation infrastructure.

    So, there is a better path forward, but it does not involve coal.
  3. wooleybugger
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    wooleybugger - March 17, 2010 3:12 pm
    I believe the $87 million is just a bonus the company has to pay before they begin mining our State's coal. This is only a small fraction of the proceeds that our state would collect when compared to the 12.5% royalty earnings on any of our coal mined and sold by Arch. To give you an idea, look at the spot price for Powder River coal in March 2010 at $12.70/ton and multiply that by 572 million tons to be produced over a 20-30 year period and you get a total of nearly $1 Billion. So what does it matter if we lose a few $million on a bonus price in order to get a company willing to come here and make our state a $Billion? We could use the jobs, the money, and possibly free up some general fund money to go towards encouraging the construction of renewable energy projects.
  4. joeydef
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    joeydef - March 17, 2010 12:29 pm
    If the only bid was from Arch, and no one else is biting, we really have no choice....we could just leave it alone and not mine the coal....that would make great sense! If someone would hurry it up and come up with alternative energy resources for the masses, do it...otherwise if no one else is going to come in and mine this area, we really don't have a choice. Dropping from .25 cents/ton to .15 cents/ton is an overall sign that we are still not fully recovered....
  5. mtbiker
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    mtbiker - March 17, 2010 11:35 am
    DonaldM:

    The most glaring flaw in your reasoning is that it assumes (without warrant) an arm's-length transaction. If I have a rare book worth a million dollars, and I decide to sell it to my girlfriend for $50, that does not mean that the book is only worth $50. Here, Arch forced this decision on the State and there have been no other bidders. Doesn't sound like an arm's length transaction to me.

    And this is not to account for externalities, mentioned in my previous post. The price of coal does not include the economic damage that it causes others (i.e., global climate change) when it is burned. Since there is no price on carbon, the price of coal is incorrectly low. This is what economists call a "market failure." Consequently, coal, which causes much harm to others when burned that is not paid for by those burning the coal (is PPL or Arch Coal going to pay for crop damage from drought or forest loss from climate change? Doubt it.), coal and energy from coal is incorrectly cheap. This results in our state government and private actors making economically inefficient decisions: if the costs of the externalities from burning coal are internalized (say by requiring carbon capture and sequestration, which, according to the Legislative Environmental Quality Council, makes energy from coal twice as expense), then it would likely be more economically efficient to invest in other energy sources (such as wind).

    Maybe it's the case, as has been said, that "socialism failed because it refused to acknowledge the economic truth and capitalism will fail because it refuses to acknowledge the environmental truth." I hope not, but the way our state policy makers are acting, this might be the case.

  6. Independent
    Report Abuse
    Independent - March 17, 2010 11:14 am
    DonaldM is right on. Anne Hedges is against any progress and spits out whatever drifts by her head as an excuse. MEIC is against all mining and timber harvest. They should really change their name.

  7. capital_city
    Report Abuse
    capital_city - March 17, 2010 10:35 am
    The public comment for DEQ's 2010 integrated water quality report will be opening soon. You can comment about anything that affects water quality in Montana.

    The comment period is open for 60 days only - and is not open as of yet. Call DEQ's Integrated Report Coordinator or Data Management Supervisor with questions and comments.

    Here is where to enter you comment, bookmark it: http://www.cwaic.mt.gov/comment.aspx
  8. mtwalker1
    Report Abuse
    mtwalker1 - March 17, 2010 10:25 am
    Arch Coal plays the gov for $42 million with nothing more than a postage stamp. What a joke of a deal.

    Would Schweitzer negotiate a sale of his own personal property like that? 40% cut with no counter...wow

    Only in the United States of Corporate America does this happen. We pay taxes for this????
  9. buffalo
    Report Abuse
    buffalo - March 17, 2010 10:07 am
    Gov. B.S. says “I can tell you that 49 other states in America would pull out their front teeth with vise grips to have this kind of deal.” He obviously knows nothing about WA state.

    I completely agree with mtbiker.
  10. HakonMontag
    Report Abuse
    HakonMontag - March 17, 2010 9:42 am
    And who says that progessives don't use scare tactics?

    While we're at it let's shut down all those nasty oil wells in Montana too. They serve no useful purpose. Close down all the mines and fill in the holes with fields of Daiseys.

    Maybe we should all go back to living the way the Indians did back in the day...TeePees...

  11. DonaldM
    Report Abuse
    DonaldM - March 17, 2010 9:00 am
    "Anne Hedges, program director for the Montana Environmental Information Center, said Tuesday that Montana is poised to give its coal away “for a fraction of what it’s worth.”

    An item is worth what a buyer is willing to pay for it. There was one bid and this is it. That is what it is worth, by definition.
  12. mtbiker
    Report Abuse
    mtbiker - March 17, 2010 8:42 am
    Looks like Governor Schweitzer wants to take out a pay-day loan to plug the hole in the budget. For $87 million today, we only have to pay with increased drought, beetle-killed forests, low to seasonal stream flows (where is snow pack 100% of average?), decreased agricultural productivity, decreased tourism, and coal barons establishing a beach head in our state for the next century and beyond. This seems like unabashed shortsightedness (our children and grandchildren can figure it out for themselves!) and vanity (look, a balanced budget).

    My suggestion: increase taxes on corporations (since they are "individuals" they should be taxed at the highest individual bracket), fund education, preserve a healthy environment, and keep the coal crooks out (Montana does not have to become the new West Virginia).
  13. checolbar
    Report Abuse
    checolbar - March 17, 2010 6:21 am
    Fantastic!
    Let's get it up and running as soon as possible!

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