Tampa, Florida-based Walter Energy, a US producer and exporter of premium hard coking coal for the global steel industry, Wednesday announced several key steps in its execution of a long-term strategy for expanded coking coal production.
"Today's announcements truly set the stage for the next evolution of Walter Energy," said Joe Leonard, interim CEO of Walter Energy. "We are thrilled at the opportunities these initiatives present to grow our reserve base and production footprint in Alabama and we will continue to explore opportunities to grow our natural resources and energy enterprise."
The company announced that Walter Natural Gas, LLC, a wholly owned subsidiary, has entered into a definitive purchase agreement to acquire the Alabama natural gas interests of HighMount Exploration and Production LLC, for approximately $210 million in cash. The transaction is expected to close in the second quarter 2010 and is subject to a number of customary closing conditions.
"Acquisition of these gas assets is extremely important to Walter Energy's coal production growth strategy, helping to ensure that future coal production areas are properly degasified, thereby improving safety and operational efficiency," said Walter Energy President and COO George R. Richmond. "In addition, on a stand-alone basis, the assets provide long-life, low-cost production, stable cash flows and are complementary to our existing gas business."
The acquisition includes HighMount's Alabama coal bed methane operations, including approximately 1,300 existing conventional gas wells, pipeline infrastructure and related equipment located adjacent to the company's existing underground mining and coal bed methane business located in Tuscaloosa County, Alabama. Current proven reserves are approximately 190 bcf (billion cubic feet), with current annual coal bed methane production of 8.5 bcf. The purchase price equates to approximately $1.10 per mcf of proven reserves, and the acquisition is expected to be accretive to Walter Energy's 2010 earnings. The acquisition more than doubles the Company's annual coal bed methane production to over 14 bcf. Approximately 50 of HighMount's Alabama employees are expected to join the Company upon closing of the transaction.
Additonally, Walter Energy has signed a non-binding letter of intent to lease approximately 52 million tons of Blue Creek coking coal reserves in Tuscaloosa County, Alabama and acquire the existing North River steam coal mine in Fayette County and Tuscaloosa County, Alabama from Chevron Mining, Inc., a subsidiary of Chevron Corporation.
"Chevron's Blue Creek reserves are high-quality, high-vol coking coal and, if consummated, this acquisition gives us opportunities to blend this coal with coal from our No. 7 Mine to make an outstanding hard coking coal product, similar to that from our No. 4 mine," said Richmond.
"We are optimistic that we will be able to consummate this transaction in the near term," said Leonard. "With this transaction, we are rapidly closing in on the last remaining reserves of coal from Alabama's Blue Creek seam and some of the highest quality coking coal in the world."
The transaction with Chevron Mining, Inc. is subject to a number of conditions, including, but not limited to, the negotiation and execution of a definitive purchase and sale agreement, completion of due diligence, approval of the transactions by the boards of directors of Walter Energy and Chevron Mining, Inc. and the receipt of required third party consents and approvals. Accordingly, there can be no assurance whether or when this transaction will be completed.
In a separate transaction, Walter Energy said that it has signed a letter of intent to lease approximately 22 million tons of Blue Creek coking coal reserves, which are adjacent to the Chevron reserves and are of similar quality. Terms of the lease, including royalty rates, are consistent with existing lease agreements. These reserves are just to the north of the 32 million tons of reserves the Company leased in late 2008.
Finally, the Company announced that Walter Minerals' Reid School Mine would begin production in May 2010. The mine has approximately 0.6 million tons of high quality, high-vol coking coal reserves and is expected to produce 0.2 million tons of annual production over the next three years. Approximately half of the production will be used by Walter Coke and the remainder will be sold in the open market. The Reid School Mine is located in Blount County, Alabama and will employ approximately 45 people.