The state Land Board might consider lowering the minimum bid for 570 million tons of state-owned coal in southeastern Montana’s Otter Creek Valley, after getting no bids by a deadline this week, state lands officials said Thursday.
In a memo prepared for the Land Board’s meeting next Tuesday, Department of Natural Resources and Conservation officials outlined the value of several lower-priced bids on the coal tracts, which are about 150 miles east of Billings.
“We are trying to assist the Land Board in furthering the negotiations if they care to,” said Mary Sexton, director of the department. “This is looking at the short term and the long term.”
Bid options outlined by DNRC staff would reduce the present-value price of the coal anywhere from $30 million to $170 million. It said the present value of the original bid price is about $1 billion.
The Land Board, which is composed of the state’s top five elected officials, voted Dec. 21 to offer the coal for lease for possible development. It set a minimum, upfront bonus bid of 25 cents a ton and a 12.5 percent royalty. Royalties are paid as the coal is mined, based on its sales price.
The board set a Feb. 8 deadline for bids, but the only thing submitted by the deadline was a letter from a subsidiary of coal-mining giant Arch Coal Inc., saying the price was too high.
Arch Coal recently agreed to a 10-cents-per-ton bonus bid to lease 730 million tons of privately owned coal in the Otter Creek Valley — coal that is interspersed with the state-owned coal.
Arch Coal officials have said the company could develop a mine without the state-owned coal, but that it would be much more economical to include the entire coal field in any development.
The Land Board is scheduled to meet Tuesday and discuss whether to revise the minimum bid on the state’s Otter Creek coal.
Gov. Brian Schweitzer, a member of the board, earlier this week likened Arch Coal’s letter to an opening offer in a real-estate transaction, and indicated that he thinks the state should negotiate with them.
Officials with environmental groups opposed to developing the coal denounced the idea of lowering the bid price, saying the price was already too low.
“For the price of a postage stamp (that Arch Coal) used to send a letter to say the price is too high, they get, at worst, a $28 million price cut,” said Anne Hedges, program director for the Montana Environmental Information Center. “We’re operating as though we are a third-world country, and the corporation gets to dictate how we control our resources.”
DNRC staff looked at the effect of lowering the bonus bid to as low as 14 cents a ton, and the royalty to as low as 10 percent.
Sexton said with coal tracts as large as Otter Creek, determining the long- and short-term value and risk “is an art form, and that’s why we’re in these negotiations.”