Land Board mulls lower price on Otter Creek coal

2010-02-12T00:00:00Z Land Board mulls lower price on Otter Creek coalBy MIKE DENNISON IR State Bureaxu Helena Independent Record
February 12, 2010 12:00 am  • 

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.”

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(3) Comments

  1. mtwalker1
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    mtwalker1 - February 12, 2010 9:59 pm


    Have to agree with Ann Hedges on this one. It's not as if coal is perishable and will spoil if left sit. The coal will only get more valuable over time especially with advances in technology, and the continued depletion of other fossil fuels.
  2. mtbiker
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    mtbiker - February 12, 2010 5:08 pm
    The apparent reason for leasing the Otter Creek coal tracks for strip mining is money. If we (the State of Montana) let Arch Coal remove this coal, they will pay us an up-front price and then royalties as they remove the coal.

    But this is no jackpot for the State that we can take free from any repercutions. In fact, the money the state would get is more like a high interest payday loan. Why? Because there are costs that we (the people of Montana, not Arch Coal) will pay if this coal is mined. And the costs are significant, which is why the land board should not lower its price, and leave the this land undisturbed.

    First, the damage caused by strip mining is significant. It leads to air and water pollution and renders the land unusable for farming or ranching. While a strip mine operator has to pay a deposit (reclamation bond) before it mines, historically such deposits have proven insufficient (consider Libby, Zortman and Landusky, Butte) and tax payers have been left on the hook for clean up costs.

    Then when the coal is burned it produces toxic pollutants and greenhouse gases. Since the coal will likely be sold to China, it is nearly certain that their will be no pollution control (think scrubbers) on the emissions when the coal is burned. One may think, well that's in China, so what? Well, first, high altitude air pollution from China can reach the US (see http://www.nytimes.com/2006/06/11/business/worldbusiness/11chinacoal.html). Second, mercury (a strong neurotoxin, i.e., it damages the brain) emitted from coal burned in China will end up in fish consumed in the US. Third, GHGs have a global effect, climate change.

    Climate change will affect Montana by leading to warmer temperatures, and more frequent dought. The results: less snow pack and lower summer stream flows for irrigation, stock watering, and domestic use. Warmer streams are also poor habitat for cold water fish, like trout. Glaciers will continue to recede (see http://www.livescience.com/environment/060324_glacier_melt.html). Bug infestations (and disease vectors, i.e., diseases that would otherwise be killed by cold weather) will worsen. So, one sees that the results will harm some of the pillars of Montana's current economy: agriculture and ranching, as well as logging and tourism. It will also negatively affect the health of all Montanans. Meanwhile, Arch Coal is gone, laughing all the way to the bank.

    The result of this longwinded discourse is that leasing Otter Creek may lead to cash in the short term, but the cash will have a high interest rate attached to it that in the long run our children will pay.

  3. HakonMontag
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    HakonMontag - February 12, 2010 10:33 am
    The loons at the state level will more than likely price themselves...and us...right out of the market.

    You have to go by market value...not what you want or wish the price to be.

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