The Tulsa, Oklahoma-based company posted both a record 2014 and fourth quarter in coal sales and production. Alliance recorded all-time high revenues of $2.3 billion and $500 million for the full year and quarter, respectively, translating to yearly net income of $497.2 million, 26% higher than in 2013. Sales totaled $39.7 million tons and production reached 40.7 million tons last year. In 2015, the company estimates sales of 41.4 million to 43.5 million tons and output of 40.4 million tons to 42.5 million tons.
Last year marked the 14th consecutive year of record financial and operating results for Alliance. Thanks in part to several new, large underground mines the company has brought on line in recent years, including Tunnel Ridge in Pennsylvania and West Virginia, River View in western Kentucky and Gibson South in southern Indiana, Alliance has the capacity to produce even more coal if demand warranted.
But for this year, at least, Alliance, which also has mines in Northern Appalachia and Central Appalachia, is going to keep its powder dry, so to speak, and produce approximately 4 million tons less than its installed capacity, Craft told analysts during a conference call to discuss earnings on January 28. He cited tepid U.S. electricity and export demand, regulatory pressures and low natural gas prices for that decision.
Craft believes that, for the most part, the supply/demand equation in the IB is more in balance “than what the markets are currently projecting.” Nevertheless, “when you look at some of this excess capacity we’re pulling off, some is in the IB.” With the 4 million tons Alliance will not be producing this year, coupled with Patriot Coal’s recent closing of the Highland No. 9 and Dodge Hill underground steam coal mines in western Kentucky, the market should be close to supply/demand equilibrium, he said.
Alliance secured sales contracts in 2014 representing 30.2 million tons through 2018, and it entered 2015 with 39.3 million tons, or 96% of its coal sales volumes, contracted and priced for the year. It has 30 million tons committed and priced for 2016.
Still, Craft expected to see more utility contracting activity last year. “We anticipated there would be more RFPs coming out for the ILB than there has been, and we assume the reason they haven’t come out is they’re relying more on natural gas,” he said.
During a series of recent transactions, including with Patriot, Alliance’s total coal reserves have increased by 50%, to 1.6 billion tons. The company is looking to take advantage if cash-strapped competitors go out of business.