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Alpha Natural Resources, Inc. (ANR) Adapts to the Energy Environment

Coal producers aren’t exactly experiencing too many reasons to celebrate these days. Low natural gas prices and tightened environmental regulations are forcing utilities to switch fuel sources, which has put quite a lot or pressure on coal demand and margins. This is causing many producers to adapt to this new operating environment in an effort to keep, well, operating.

Alpha Natural ResourcesThis reduced demand and over-supply in both the global metallurgical market and U.S. thermal market has forced Alpha Natural Resources, Inc. (NYSE:ANR) to take a hard look at its operations. The company has moved quickly to adapt. Over the past year, it has identified and executed on several key areas in an effort to reposition in light of the challenging operating environment.

What Alpha has done is reduce its operating footprint by idling uneconomic and high-cost production. The company took hard-hitting action by announcing about 1,200 job cuts, which equated to about 9% of total employees last September, as it idled east coast mines and reduced its Powder River Basin production.

The company also identified areas where it could cut back on capital expenditures to further cut costs as it reevaluates operations in in an effort to reduce operating expenses by $150 million per year. Finally, the company bulked up its liquidity position and improved its balance sheet so that it ended the year with around a billion dollars of cash and marketable securities, and total liquidity of nearly $2.1 billion.

While Alpha has completed its latest restructuring efforts, it will continue to evaluate and adjust its business, as necessary. The company will increase its focus on Metallurgical coal, as thermal coal demand will likely to continue to stagnate due to natural gas usage by power companies. Without question, these are tough times for coal producers.

Other industry peers are adjusting to market environments in their own way. CONSOL Energy Inc. (NYSE:CNX),  for example, is turning the bulk of its attention to natural gas production in the Marcellus and Utica shales. The company is all but abandoning plans to grow its coal business going forward, with no plans to invest in any new major coal growth projects after next year. Instead, a majority of its capital will be devoted to increasing natural gas production, with its recently signed $500-million deal to drill at least 50 wells on property controlled by the Pittsburgh International Airport as just one more example.