$100M in ‘unaccounted for’ liabilities put Alpha mine cleanups at risk

Gazette-Mail file photo
Then-Alpha Natural Resources CEO Kevin Crutchfield (right) during a 2011 appearance with Gov. Earl Ray Tomblin when Alpha bought Massey Energy. The name of the road to the company’s regional headquarters was renamed “Running Right Way” after Alpha’s safety slogan.

Fewer than four months after emerging from bankruptcy, Alpha Natural Resources has revealed $100 million in what it calls “unaccounted for obligations” state regulators worry put the company at further risk of financial failure. This increased fears about there being adequate money available to complete proper reclamation on hundreds of Alpha mining permits across West Virginia.

The Alpha disclosure — made in a bankruptcy court filing three weeks ago — brought a strongly worded objection from the West Virginia Department of Environmental Protection. It also brought a related lawsuit by the DEP that threatens the possibility state officials could eventually block a half-dozen former top Alpha executives or affiliated companies from obtaining new coal-mining permits anywhere in the country.

In one court filing last week, DEP lawyer Kevin Barrett referred to the amount of Alpha’s unaccounted for obligations as “whopping,” saying the issue “is devastating” and “seriously threatens” the reorganized company’s ability to perform its legal obligations to reclaim remaining mine sites.

“That’s a lot of money,” said DEP Secretary Randy Huffman. “We just felt like we needed to take some action.”

The DEP filed a legal complaint in U.S. Bankruptcy Court in Richmond, Virginia, against Alpha and against six former Alpha executives who are now running a new company that took over Alpha’s most valuable holdings as part of its bankruptcy reorganization.

The complaint seeks to void previous DEP agreements for which the state could not hold those former Alpha officials responsible if the reorganized Alpha ended up going belly up and leaving mines unreclaimed.

If the DEP’s request is granted, those six officials could be linked to any Alpha reclamation problems on the federal government’s “applicant violator system.”

The so-called “AVS” is a system that aims to prevent companies or individuals with unresolved environmental violations or unreclaimed mine sites from getting new coal-mining permits.

The DEP’s action in the Alpha case is the latest move regarding growing concerns from environmental regulators, citizen groups and labor organizations that the historic downturn in the Appalachian coal market will leave behind billions of dollars in “legacy liabilities” that range from scarred land and polluted streams to financially strapped health care and pension programs and unpaid taxes.

In the Alpha bankruptcy, most of the company’s larger and more valuable properties — primarily in the western U.S. — were transferred during the court-approved reorganization to Contura Energy, a new company formed by Alpha’s major lenders and now led by former Alpha CEO Kevin Crutchfield. The reorganized Alpha was left with 17 mines and seven preparation plants in West Virginia and Kentucky.

Crutchfield is named as a defendant in the DEP complaint, as are five other former Alpha officials who are now members of Contura’s top management team: Andy Eidson, Gary Banbury, Keith Hainer, Mark Manno and Kevin Stanley.

During the bankruptcy case, DEP officials reached a deal they said would provide “hundreds of millions of dollars” from Alpha for reclamation of the company’s more than 500 mining permits across West Virginia. Environmental groups expressed concern about the arrangement, though, noting that, to a large extent, it relied on the reorganized Alpha’s ability to remain financially viable at least 10 years into the future to provide that reclamation money.

In its Nov. 3 disclosure to the bankruptcy court of its “unaccounted for obligations,” Alpha proposed a settlement with Contura and its lenders to offset some portion of the shortfall.

But DEP lawyers argue there must be more to the story. They note that then-Alpha officials “jockeyed for positions at Contura and then assumed those positions” after the bankruptcy reorganization was approved by the court.

“The failure to properly account for those liabilities in the disclosure statement projections cannot reasonably be characterized as an error or mistake,” the DEP lawsuit states. “Alpha’s senior management, including each of the individual defendants named above who prepared the projections, effectively sat on both sides of the Contura transaction and, in that position, had intimate and unique knowledge of the debtors’ business operations and affairs and the terms and provisions of the agreement governing that transaction.”

In a press release Friday afternoon, independent members of Contura’s board of directors said the DEP’s court filing included allegations the board believed “to be inaccurate and defamatory as they are made without any evidence whatsoever, with no basis in fact, and without merit.”

“The efforts of Alpha’s and Contura’s dedicated management teams continue to ensure the preservation of thousands of jobs and provide value to both companies’ diverse set of stakeholders,” the press release said. “We challenge any inference to the contrary. We intend to work with all parties to resolve these allegations and will vigorously defend the hard-earned reputations and integrity of management to the fullest extent.”

Reach Ken Ward Jr. at

kward@wvgazettemail.com,

304-348-1702 or follow

@kenwardjr on Twitter.

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