Wyoming News Exchange

Judge allows potential Blackjewel sale to Contra
 
By Greg Johnson
Gillette News Record
Via Wyoming News Exchange
 
GILLETTE — About 700 locked out Blackjewel LLC coal miners are closer to returning to work after a U.S. Bankruptcy Court judge approved the company’s motion to potentially sell its flagship Wyoming properties and a mine in West Virginia to Contura Energy.
A deal has been reached with Contura to be the stalking horse bidder for the Belle Ayr and Eagle Butte coal mines in Wyoming and Pax Surface Mine in West Virginia. An expedited bid and sale schedule also was set that could see new owners for some or all of Blackjewel’s 32 operations in four states by Aug. 5.
The ruling also paves the way for Contura to make an immediate $8.1 million deposit on the potential sale that Blackjewel will use to pay a skeleton crew of workers who are maintaining its properties. The company had run out of money as of Thursday.
If Contura is the only or highest bidder for the Wyoming mines and Pax, and it survives any objections from Blackjewel creditors and debt holders, the mines could be open and producing coal again within a couple of weeks.
Because of Blackjewel’s desperate financial squeeze, Judge Frank W. Volk agreed to speed up the bankruptcy process partly because of the extraordinary hardship the prolonged lockout is affecting the company’s 1,700 employees, who have been out of work for nearly a month.
“This appears at the present time to be the only path forward to get some of the going concern value out of these assets and pull back the majority of the employees,” he said in making his ruling Friday morning.
He approved termination of the company’s 401(k) program, which will give employees immediate access to the money in their retirement accounts.
“With respect to termination of the 401(k) plan, it serves the workers better to have immediate access to those contributions they’ve paid in and are otherwise entitled to,” Volk said. “There is an urgent need for those funds.”
The hearing started Thursday and was continued Friday to hear more objections from a host of attorneys representing Blackjewel creditors, lien holders and even a class-action lawsuit brought by employees.
Those objectors including a pair of attorneys representing Campbell County and tens of millions of dollars it is owed by Contura and Blackjewel going back to 2015. Along with concerns about fast-tracking the sale process, they’re concerned a sale will reset the clock on those back taxes.
“The county will be … left holding the bag with its claims wiped out,” said Jeffrey Liesemer, a Washington, D.C.-based attorney for the firm Caplin and Drysdale. “These taxes go to fund schools, they pay teachers. We’re not trying to protect a profit margin here.”
Although Volk ultimately approved Blackjewel’s motion on Contura and the bid/sale process, it wasn’t without reservations.
At the outset of the hearing Thursday afternoon, he said the schedule is basically unprecedented in a Chapter 11 case like this and he has some concerns about the “manageability” of a process that would have bids in by Wednesday, an auction Thursday (if there are multiple qualifying bids) a sale hearing with the U.S. Bankruptcy Court Aug. 2 and a closing date of Aug. 5.
“I never imagined in a million years I would approve a sale of this nature on such a short timetable,” Volk said. “But this (case) has some very unusual components.”
One of those components is that Blackjewel’s 32 coal operations have been shut down since July 1, meaning the company has no money coming in as it tries to reorganize. It also means about 1,700 employees, including nearly 600 from the Wyoming mines, have been out of work for more than three weeks.
Stephen Lerner, a Cincinnati, Ohio-based attorney representing Blackjewel, said the company ran out of money by the end of the day Thursday to maintain a skeleton crew of about 140 employees across its properties in four states.
Without Friday’s approval and the $8.1 million payment from Contura, he said Blackjewel would have had to immediately change its bankruptcy to a Chapter 7 liquidation.
While admitting the timetable is extremely fast, it’s also “the only and last and best hope for this set of Debtors to maximize value” of the company’s assets, Lerner said.
“It also has the possibility of returning more than 1,000 employees to work,” he said, adding that not only is there an agreement for Contura to buy its Western assets and the Pax Surface Mine in West Virginia, but Blackjewel also has had interest from other parties in buying parts or all of its East assets in Kentucky, Virginia and West Virginia.
“Quite a few parties have collectively expressed an interest in all the properties in the East,” he said. “That doesn’t mean we’ll actually get bids … (but) we’re now seeing substantial interest in the East.”
Lerner said the quick turnaround won’t alienate any potential bidders from the process because the company and its agents have already reached out to any parties that would potentially have an interest in buying any or all of Blackjewel’s assets.
Volk also took judicial notice of headlines and news coverage generated over the past three weeks and “the pervasive nationwide coverage of the difficulties Blackjewel has gone through.”
That “pervasive” coverage is another reason Lerner said Blackjewel is comfortable asking for the shortened timetable.
“It’s impossible to believe there’s any party that might have any interest in acquiring these assets (who) doesn’t know anything about this case,” he said. “I can’t say every rock has been looked under … but we’re comfortable this is more than reasonable that every party with a conceivable interest has been reached out to.”
Since filing for bankruptcy July 1 and then having to shut down its mines when $20 million in emergency financing was pulled, Blackjewel had been working to secure financing to allow its mines to reopen and resume operating during the Chapter 11 process.
When it became apparent the company couldn’t get that financing, it’s since shifted focus to a controlled sale of assets under Chapter 11, which also has proven to be a challenge.
Only Contura Energy has been willing to become a stalking horse bidder, but only for Eagle Butte, Belle Ayr and Pax. Blackjewel bought the Wyoming mines from Contura in December 2017, and Contura still holds the state mining permit and obligations for nearly $250 million in reclamation at the two mine sites.
If Contura is the winning bidder for the assets it wants, it will pay an additional $12.5 million in cash. And while the company isn’t thrilled about the potential for owning the Wyoming mines again, a Contura attorney at Thursday’s hearing said it needs to protect its financial obligations.
“Contura’s divestment of these (Powder River Basin) assets over a year and a half ago was strategic decision to focus on our met-heavy Eastern asset base. … Our considerations changed when Blackjewel declared bankruptcy,” said Contura’s Interim Chief Executive Officer Andy Eidson in a Thursday press release. “Absent another qualified purchaser for the assets, we have determined that the most prudent path forward is to reacquire these mines to reestablish operations, resume safe and responsible coal production and bring hundreds of miners back to work.”
Contura would bring back “the majority of the displaced Wyoming employees associated with the Belle Ayr and Eagle Butte mines” and resume operations as soon a possible, according to the press release.
Along with 580 employees in Wyoming, the Pax Surface Mine in West Virginia employs about 100 people, leaving about 1,000 workers from Blackjewel’s Appalachia operations in limbo about if or when they may again work at their mines.
Lerner said Friday that, based on interest so far in the East assets, about 300 of those workers may eventually be recalled.
If there aren’t any qualifying bidders for the Appalachia assets, Blackjewel will have no other recourse than to immediately convert those mines to a Chapter 7 bankruptcy liquidation, Lerner said.
“Because it’s possible we won’t sell every asset … we’ll likely convert what’s left to Chapter 7,” he said. “We never wanted there to be a free-fall here. What we don’t want to do is complete the sale on Aug. 5, then convert (the other assets to Chapter 7) and have total chaos. We can’t eliminate all chaos.”
That hundreds of Campbell County coal miners could soon be back to work is reason to smile, said Campbell County Commission Chairman Rusty Bell. That’s something Blackjewel miners haven’t been doing much of lately.
“We’re excited and everybody wants to get the miners here back to work — well, you’d want all the miners to get back,” he said. “However quickly they can ramp up and we start back at it the better.”
He said waking up to the news of a potential deal to bring the mines back online was a pleasant surprise Thursday morning.
“That was good news, and we all could use and want some good news,” Bell said.
While some Blackjewel workers have already found other jobs and moved on, Bell said he hopes the final outcome is that Eagle Butte and Belle Ayr have better management than they did under Blackjewel.
“Hopefully, the company comes back and is managed better and it’s more successful and stronger than it was a month ago and a year ago,” he said. “I think the management has been lacking.”
Bell and other Campbell County officials have had a lot of experience with Blackjewel’s style of management, which includes not paying its production taxes and other mandated royalties. Along with large amounts owed for federal taxes and royalty payments, the company lists more than $37 million in unpaid ad valorem taxes to Campbell County.
Since taking over operation of the mines in December 2017, Blackjewel hadn’t paid any county taxes until March of this year. After the county threatened to take action and exercise liens on assets, Blackjewel entered into an installment agreement with the county to repay $17 million in overdue production taxes for 2017. The payment schedule had run through April 2020 and would have caught the company up on its 2018 taxes as well. It had made $5 million worth of payments on the installment plan before filing for bankruptcy three days past its deadline for another $1 million payment.
Bell said those tax revenues may not be a total loss, but the county will have to fight for it through the bankruptcy sale process. That won’t be the case for about $25 million the county is owed by Cloud Peak Energy Corp., another large Powder River Basin coal producer going through Chapter 11 reorganization. A judge in Cloud Peak’s case has already ruled Campbell County doesn’t have a priority claim to those taxes.
The potential to lose at least $52 million through the two bankruptcies is something Bell said he hopes will be enough to get the attention of the state Legislature to give counties more leverage to collect production taxes from coal, oil and gas producers.
About 73 percent of the ad valorem taxes collected by Campbell County are passed through to the state, earmarked for education, Bell said. That means not paying taxes here hurts everyone across the state.
“They are going to have to be the ones to change the rules,” he said about state lawmakers. “They either need to collect it or make it easier for us to collect it.”
Reacting to the potential sale of the mines to Contura, the Powder River Basin Resource Council, a Sheridan-based land advocacy group, urges state and federal officials to make sure those unpaid taxes, along with reclamation obligations, are accounted for.
“The state of Wyoming and the Department of Interior should demand that Contura pay all unpaid county taxes, federal royalties, as well as the employee benefits and taxes before the transfer of federal leases from Blackjewel to Contura,” said the group’s chairperson, Joyce Evans, in a prepared statement.