Item 2. Properties
ITEM 2. PROPERTIES
Coal Mineral Resources and Reserves
Overview of Coal Properties
Our coal properties are located in the Illinois Basin and the Appalachia Basin. Our Illinois Basin properties are located in western Kentucky, southern Illinois, and southern Indiana. Our Appalachian properties are located in eastern Kentucky, Maryland, western Pennsylvania, and northern West Virginia. Mining operations on our coal properties consist of underground mines that produce bituminous coal that is sold to customers principally for electric power generation (thermal) and the production of steel (metallurgical). In addition to our coal mining operations, we also hold coal mineral interests that we lease/sublease to our operations or hold for lease/sublease to our operations or others. For a detailed overview of our coal mining operations and our coal royalty activities, please see "Item 1. Business—Coal Mining Operations" and "Item 1. Business—Mineral Interest Activities", respectively.
Evaluation and Review of Coal Mineral Resources and Reserves
Numerous uncertainties are inherent in estimating coal mineral resources and reserves, and the estimates are subject to change as additional information becomes available or circumstances change. Significant factors and assumptions related to the uncertainty in estimating coal mineral reserves and resources include:
● geological and mining conditions, which may not be fully identified by available exploration data and/or differ from our experiences in areas where we currently mine;
● the percentage of coal in the ground ultimately recoverable;
● historical production from the area compared with production from other producing areas;
● the assumed effects of regulation and taxes by governmental agencies;
● future improvements in mining technology; and
● assumptions concerning future coal prices, operating costs, capital expenditures, severance and excise taxes, and development and reclamation costs.
Each of the factors which impacts reserve and resource estimation may vary considerably from the assumptions used in making the estimation and, as a result, the estimates in this report may not accurately reflect our actual coal reserves and resources. Actual production, revenues and expenditures with respect to our coal reserves will likely vary from the assumptions used in these estimates, and these variances may be material. Government regulations and other pressures may result in closure of coal-fired electric generating plants earlier than assumed. Such changes would reduce the economic viability of our mining operations and could have a material adverse impact on our operations and financial results. Additionally, the estimates of coal reserves and resources may be adversely affected in future fiscal periods by the SEC's recent rule amendments revising property disclosure requirements for publicly traded coal mining companies, with which we are complying for the first time in this report.
Under SEC rules, a mineral resource is a concentration or occurrence of material of economic interest in or on the Earth's crust in such form, grade or quality, and quantity that there are reasonable prospects for economic extraction. A mineral resource is a reasonable estimate of mineralization, taking into account relevant factors such as cut-off grade, likely mining dimensions, location or continuity that, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable. A mineral reserve is an estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted.
Our coal mineral resource and reserve estimates included in this Annual Report on Form 10-K were prepared by an independent, qualified engineering firm, RESPEC Company, LLC ("RESPEC"). We provided RESPEC with property control, mine plans, production, revenue, costs, capital, and other information considered by RESPEC in making their estimates. As part of our internal controls, our geologists and engineers review the integrity, accuracy, and timeliness of the data provided to RESPEC that they considered in calculating their coal mineral resource and reserve estimates. We also review the geologic data, mining assumptions, and methodology used by RESPEC to estimate our coal mineral
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resources and reserves. Our geologists and engineers also met with RESPEC periodically during the year to discuss the assumptions and methods used in the coal mineral resource and reserve estimation process.
RESPEC, an independent third-party engineering firm, does not own an interest in any of our properties and is not employed on a contingent basis. RESPEC's Technical Report Summaries for each of our material mining operations are included as exhibits to this Annual Report on Form 10-K.
Summary of Coal Mineral Resources and Reserves
Coal Mineral Resources
Most of our coal properties designated as mineral resources are of thickness, quality, and mineability similar to that of our mineral reserves, and all are proximal to existing infrastructure such as power, water, transportation, facilities, etc. However, we have not completed pre-feasibility or feasibility studies with respect to our coal properties designated as mineral resources, as is required to convert the mineral resources into mineral reserves. There is no certainty that all or any part of our mineral resources will be converted into mineral reserves.
The following table sets forth our coal mineral resources, exclusive of coal mineral reserves, at December 31, 2021:
Heat
Resources (tons in
Content (Btus
Pounds SO2 per MMBtu
Resource Classification
Ownership
millions)
per pound)
<1.2
1.2-2.5
>2.5
Measured
Indicated
Combined
Inferred
Owned
Leased
Total
(1)
Illinois Basin
Dotiki (KY)
12,100
—
2.3
73.7
51.2
24.8
76.0
—
27.6
48.4
76.0
Henderson/Union (KY)
11,450
—
3.2
520.3
175.4
286.0
461.4
62.1
74.6
448.9
523.5
Sebree South (KY)
11,750
—
—
43.5
22.1
16.8
38.9
4.6
0.3
43.2
43.5
Hamilton County (IL)
11,650
5.1
33.8
398.8
187.1
239.3
426.4
11.3
32.6
405.1
437.7
Region Total
5.1
39.3
1,036.3
435.8
566.9
1,002.7
78.0
135.1
945.6
1,080.7
Appalachian Basin
Mountain View (WV)
13,200
—
0.5
6.3
2.1
4.5
6.6
0.2
1.7
5.1
6.8
Penn Ridge (PA)
12,500
—
—
78.0
21.9
53.2
75.1
2.9
78.0
—
78.0
Region Total
—
0.5
84.3
24.0
57.7
81.7
3.1
79.7
5.1
84.8
Total
5.1
39.8
1,120.6
459.8
624.6
1,084.4
81.1
214.8
950.7
1,165.5
% of Total
0.4%
3.4%
96.1%
39.5%
53.6%
93.0%
7.0%
18.4%
81.6%
100.0%
(1) Combined resources are defined as measured plus indicated resources.
At December 31, 2021, we had approximately 1.165 billion tons of coal mineral resources. Tonnages are reported on a clean recoverable basis with pricing based on available third party forecasts and historical pricing adjusted for quality at the end of 2021 ranging from $36.00 to $67.00 per short ton, which are the prices used by RESPEC to estimate the amount of coal mineral resources. All resources are classified as underground mineable in the exploration stage.
Coal Mineral Reserves
Our reserves are assigned to our active operations and are (1) currently in production, (2) economically viable, and (3) meet the other requirements to be considered reserves as defined by the SEC.
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The following table sets forth coal mineral reserve information, exclusive of the coal mineral resources above, at December 31, 2021, about our coal operations:
Heat
Content (Btus
Pounds SO2 per MMBtu
Classification
Ownership
Reserves (tons in millions)
per pound)
<1.2
1.2-2.5
>2.5
Proven
Probable
Owned
Leased
Total
Illinois Basin Operations
Warrior (KY)
12,300
—
—
77.1
61.4
15.7
18.7
58.4
77.1
River View (KY)
11,450
—
—
214.6
117.8
96.8
62.0
152.6
214.6
Hamilton County (IL)
11,650
—
—
128.5
57.6
70.9
22.5
106.0
128.5
Gibson (South) (IN)
11,500
0.7
12.4
39.5
44.2
8.4
18.3
34.3
52.6
Region Total
0.7
12.4
459.7
281.0
191.8
121.5
351.3
472.8
Appalachian Basin Operations
MC Mining (KY)
12,800
11.9
1.0
—
9.1
3.8
—
12.9
12.9
Mountain View (WV)
13,200
—
4.2
3.5
6.4
1.3
—
7.7
7.7
Tunnel Ridge (WV)
12,600
—
—
53.7
28.6
25.1
—
53.7
53.7
Region Total
11.9
5.2
57.2
44.1
30.2
—
74.3
74.3
Total
12.6
17.6
516.9
325.1
222.0
121.5
425.6
547.1
% of Total
2.3%
3.2%
94.5%
59.4%
40.6%
22.2%
77.8%
100.0%
On December 31, 2021, we had approximately 547.1 million tons of coal mineral reserves. Tonnages are reported on a clean recoverable basis with pricing based on available third party forecasts and historical pricing adjusted for quality at the end of 2021 ranging from $36.00 to $67.00 per short ton, which are the prices used by RESPEC to estimate the amount of coal mineral reserves. All reserves are classified as underground mineable in the production stage.
Mining Operations
The following table sets forth production and other data about our mining operations:
Tons Produced
Operations
Location
2021
2020
2019
Transportation
Equipment
(in millions)
Illinois Basin Operations
Dotiki (1)
Kentucky
—
—
1.3
CSX, PAL, truck, barge
CM
Warrior
Kentucky
4.1
3.6
3.7
CSX, NS, PAL, truck, barge
CM
River View
Kentucky
9.9
9.4
11.3
Truck, barge
CM
Hamilton County
Illinois
4.9
2.6
5.9
CSX, EVW, NS, barge
LW, CM
Gibson (North) (1)
Indiana
—
—
1.8
CSX, NS, truck, barge
CM
Gibson (South)
Indiana
3.3
2.3
5.5
CSX, NS, truck, barge
CM
Region Total
22.2
17.9
29.5
Appalachian Basin Operations
MC Mining/Excel
Kentucky
1.3
0.5
1.0
CSX, truck, barge
CM
Mountain View
West Virginia
1.5
1.8
2.1
CSX, truck
LW, CM
Tunnel Ridge
West Virginia
7.2
6.8
7.4
CSX, NS, barge
LW, CM
Region Total
10.0
9.1
10.5
TOTAL
32.2
27.0
40.0
(1) Closed
CSX
-
CSX Railroad
EVW
-
Evansville Western Railroad
NS
-
Norfolk Southern Railroad
PAL
-
Paducah & Louisville Railroad
CM
-
Continuous Miner
LW
-
Longwall
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Individual Property Disclosures
We consider the following properties to be material based on multiple factors including, but not limited to, the property’s contribution to our overall business and financial condition. Please see Coal Mineral Resources and Coal Mineral Reserves sections above for information about the coal mineral resources and reserves held by these material properties. In addition to the following information, Technical Report Summaries for these material properties with additional information are included as exhibits to this Annual Report on Form 10-K.
Henderson/Union
The Henderson/Union Resources are located in Henderson and Union counties, Kentucky at 37°44'30"N, -87°46'07"W and currently have control in over 1,600 tracts encompassing over 127,000 acres. The property is controlled through both fee ownership and leases of the coal. Existing and proposed facilities are on controlled land. The coal mineral resources are controlled by Alliance Resource Properties. The base leases are with private owners and WKY CoalPlay or its subsidiaries, which are related parties. See "Item 8. Financial Statements and Supplementary Data — Note 21 – Related Party Transactions" for more information about our WKY CoalPlay transactions. These base leases generally provide for a term that can be extended until exhaustion of the leased coal. Local infrastructure is as follows:
Major Roads: Interstates 69 and US-60,
Railroads: None,
Airport: Evansville Regional Airport (EVV),
Town: Morganfield,
Docks: River View, Hamilton 1, UC Processing, on the Ohio River,
Water: Local municipalities and mine sources,
Electricity: Kentucky Utilities (KU),
Personnel: Regional.
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Description
The potential underground mine(s) would utilize room-and-pillar methods operating a heavy media, float/sink style preparation plant. Exploration continues as needed to fulfill possible permitting and development requirements. Multiple access points are available for development. Access is available from the active River View mine, which began production in 2009. All equipment, facilities, infrastructure, and underground development are in good working order and maintained to industry standards. Access at the Hamilton and UC Coal, LLC sites are considered "brownfield" developments. Though some facilities and permitting are in place, significant upgrades to existing infrastructure and new construction would be needed to bring them into good working order that meets industry standards. The property associated with Henderson/Union has no book value as of December 31, 2021 but does have outstanding advanced royalties with WKY CoalPlay or its subsidiaries. See "Item 8. Financial Statements and Supplementary Data — Note 21 – Related Party Transactions" for more information about advanced royalties that Henderson/Union has with WKY CoalPlay.
History
The Henderson/Union property contains resources in four seams, the West Kentucky No. 11 (WKY11), the West Kentucky No. 9 (WKY9), the West Kentucky No. 7 (WKY7), and the West Kentucky No. 6 (WKY6). Island Creek Coal Company ("Island Creek") operated mines in the area and controlled a portion of the property. Under a joint venture, Texas Gas Service also controlled a large interest in the mineral rights. Lastly, Peabody Coal Corporation ("Peabody") and Patriot Coal Corporation ("Patriot") operated mines in the area and controlled a portion of the reserves. We consolidated control of the property through multiple transactions from 2005 through 2015. Island Creek operated the Ohio #11 and Uniontown #9 mines. Island Creek also operated the Hamilton #1 and #2 mines in Kentucky. Peabody and later Patriot operated the Camp complex and Highland mines to the southeast and east. Both the WKY9 and WKY11 seams were mined at these locations. No mining has occurred on the property in the WKY7 or WKY6 seams.
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Approximately 1,050 exploration holes have been drilled within and adjacent to the Henderson/Union area to assess thickness and mineability of the WKY11, WKY9, WKY7, and WKY6 seams. From these holes, over 410 samples were collected and analyzed to determine coal quality characteristics. Also, over 150 oil/gas well geophysical logs drilled by various companies have been interpreted to supplement the exploration drilling. In general, all drilling has shown highly consistent coal seams of mineable thickness and quality for the high sulfur, thermal utility market.
Encumbrances
Our revolving credit facility is secured by, among other things, liens against certain Henderson/Union surface properties and coal leases. Documentation of such liens is of record in the Offices of the Henderson and Union County Clerks. Please read "Item 8. Financial Statements and Supplementary Data — Note 8 – Long-term Debt" for more information on our revolving credit facility.
The Kentucky Department of Natural Resources ("KYDNR"), Division of Mine Permits ("DMP") is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations. In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining.
Geology and Reserves
Henderson/Union contains coal resources in four seams ranging in depths from about 100 to 750 feet. The table below summarizes mineral resources as of December 31, 2021 using a cut off thickness of 4.00 feet:
Quality, Washed, Dry Basis
% Recovery
Resources
Tons (millions)
Thickness (ft)
% Ash
% Sulfur
Btu
lbs. SO2
In-Seam
Prep Plant
Henderson/Union
Measured Mineral Resources
175.4
4.71
8.15
3.01
13,241
4.54
87.10
54.76
Indicated Mineral Resources
286.0
4.62
8.23
2.86
13,242
4.33
88.03
53.77
Combined Mineral Resources
461.4
4.66
8.20
2.92
13,241
4.41
87.67
54.14
Inferred Mineral Resources
62.1
4.48
8.16
2.60
13,321
3.91
89.66
52.14
River View
River View is located in Union County, Kentucky at 37°45'37"N, -87°56'42"W and currently has approximately 54,250 underground acres permitted. The mine is controlled through both fee ownership and leases of the coal. The coal mineral reserves are leased or held for lease to River View by Alliance Resource Properties. River View either owns or controls the surface properties upon which its facilities are located including the preparation plant, refuse areas, mine offices, conveyor systems, shafts and slopes. The coal mineral reserves currently assigned to and controlled by River View are pursuant to a 2009 Coal Lease and Sublease Agreement from Alliance Resource Properties. The base leases are with private owners and generally provide for a term that can be extended until exhaustion of the leased coal. Local infrastructure is as follows:
Major Roads: Interstates 69 and US-60,
Railroads: None,
Airport: Evansville Regional Airport (EVV),
Town: Morganfield,
Docks: River View on the Ohio River,
Water: Uniontown Water Department and mine sources,
Electricity: Kentucky Utilities (KU),
Personnel: Regional.
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Description
The underground mine is currently in production using room-and-pillar methods utilizing a heavy media, float/sink style preparation plant. Exploration continues as needed to fulfill mining and permitting requirements. The mine began production in 2009. All equipment, facilities, infrastructure, and underground development are in good working order and maintained to industry standards. Total book value of the property and any associated plant and equipment for River View as of December 31, 2021 was $199.3 million.
History
Island Creek operated mines in the area and controlled a portion of the property. Under a joint venture, Texas Gas Service also controlled a large interest in the mineral rights. Lastly, Peabody and Patriot operated mines in the area and controlled a smaller portion of the reserves. We consolidated control of the property through multiple transactions from 2005 through 2015. Island Creek operated the Ohio #11 and Uniontown #9 mines to the west of River View. Island Creek also operated the Hamilton #1 and #2 mines to the southwest. Peabody and later Patriot operated the Camp complex and Highland mines to the southeast and east. Both the WKY9 and WKY11 seams were mined at these locations.
Approximately 630 exploration holes penetrate the WKY11 seam and about 450 holes penetrate the WKY9 seam within and adjacent to the River View resource/reserve area to assess thickness, quality, and mineability of the seams. River View has drilled over 80 holes on the property to supplement the historic data. Also, over 300 oil/gas well geophysical logs drilled by various companies have been interpreted to supplement the exploration drilling.
Encumbrances
Our revolving credit facility is secured by, among other things, liens against certain River View surface properties and coal leases. Documentation of such liens is of record in the Office of the Union County Clerk. Please read "Item 8.
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Financial Statements and Supplementary Data — Note 8 – Long-term Debt" for more information on our revolving credit facility.
Accounts receivable generated from the sale of coal mined from this property are collateral for our accounts receivable securitization facility, evidenced by financing statements of record in the Office of the Union County Clerk. Please read "Item 8. Financial Statements and Supplementary Data — Note 8 – Long-term Debt" for more information on our accounts receivable securitization facility.
The KYDNR, DMP is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations. In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining. All applicable permits for underground mining, coal preparation and related facilities, and other incidental activities have been obtained and remain in good standing.
Geology and Reserves
River View extracts coal underground from the West Kentucky No. 11 and No. 9 seams at depths ranging from 200 to 500 feet. The table below summarizes mineral reserves as of December 31, 2021 using a cut off thickness of 4.00 feet:
Quality, Washed, Dry Basis
% Recovery
Reserves
Tons (millions)
Thickness (ft)
% Ash
% Sulfur
Btu
lbs. SO2
In-Seam
Prep Plant
River View
Proven Mineral Reserves
117.8
4.69
7.57
3.13
13,284
4.71
86.46
53.80
Probable Mineral Reserves
96.8
4.60
7.71
3.11
13,235
4.71
86.24
52.19
Total Mineral Reserves
214.6
4.65
7.63
3.12
13,262
4.71
86.36
53.07
The River View mine had 223.3 million tons of coal mineral reserves at the end of 2020. The year over year reconciliation is as follows:
River View Yearly Reserve Reconciliation
(millions)
Tons as of December 31, 2020
223.3
Production
(9.9)
Mineral Acquisition / Deletion
0.9
Normal Course Adjustments
0.3
Tons as of December 31, 2021
214.6
Normal course adjustments are associated with numerous slight changes in the geologic model.
Hamilton
Hamilton, a longwall mine located in Hamilton County, Illinois at 38°10'12”N, -88°36'47"W, currently has approximately 10,500 underground acres and 1,300 surface acres permitted. The mine property is controlled through both fee ownership and leases of the coal. The coal mineral reserves and resources are leased or held for lease to Hamilton by Alliance WOR Properties, LLC ("Alliance WOR Properties"), a subsidiary of Alliance Resource Properties. Hamilton either owns or controls the surface properties upon which its facilities are located including the preparation plant, refuse areas, mine offices, conveyor systems, shafts and slopes. Hamilton (or Alliance WOR Properties) currently controls approximately 53,348 acres of coal mineral reserves and resources and subsidence rights, and 1,400 acres of surface properties. The underlying base coal leases are with private owners and are comprised of a large number of leases originally taken by AMAX Coal Company and Old Ben Coal Company ("Old Ben") in the mid to late 1970’s and early 1980’s (the "Old Ben Leases"), leases acquired by Consolidation Coal Company in the late 1980’s (the "Consol Leases"), and subsequent leases taken directly by White Oak Resources, LLC or affiliated companies and/or Alliance WOR Properties. Local infrastructure is as follows:
Major Roads: Interstates 64,
Railroads: CSX and EVW,
Airport: Evansville Regional Airport (EVV),
Towns: McLeansboro and Mt. Vernon,
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Docks: Mount Vernon on the Ohio River,
Water: Hamilton County Water District and mine sources,
Electricity: Wayne-White Electric Co-op (WWEC),
Personnel: Regional.
Description
The underground mine is currently in production using longwall and room-and-pillar methods utilizing a heavy media, float/sink style preparation plant. Exploration continues as needed to fulfill mining and permitting requirements. The mine began production in 2014. All equipment, facilities, infrastructure, and underground development are in good working order and maintained to industry standards. Total book value of the property and any associated plant and equipment for Hamilton as of December 31, 2021 was $347.1 million.
History
There were no previous operations on the Hamilton reserves property prior to our predecessor, White Oak Resources LLC, who began construction of the mine in 2011.
Over 180 exploration holes have been drilled in the Hamilton reserve area by other companies to assess thickness, quality, and mineability of the Herrin and Harrisburg seams. White Oak Resources LLC drilled over 90 holes in the reserve area starting in 2008. Also, over 70 oil/gas well geophysical logs drilled by various companies have been interpreted to supplement the exploration drilling.
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Encumbrances
Our revolving credit facility is secured by, among other things, liens against certain Hamilton surface properties, coal leases and owned coal. Documentation of such liens is of record in the Office of the Hamilton County Clerk. Please read "Item 8. Financial Statements and Supplementary Data — Note 8 – Long-term Debt" for more information on our revolving credit facility.
The Consol Leases are encumbered by an overriding royalty payable to Sustainable Conservation, Inc. ("Sustainable") in the amount of the greater of $0.25 per ton or 0.75% of the average sales realization price received per ton, which sums can be credited against approximately $481,000.00 previously paid to Sustainable for the assignment of the Consol Leases.
The Illinois Department of Natural Resources, Land Reclamation Division is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations. In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining. All applicable permits for underground mining, coal preparation and related facilities and other incidental activities have been obtained and remain in good standing.
Geology and Reserves
Hamilton extracts coal underground from the Herrin (Illinois No.6) seam at depths ranging from 900 to 1100 feet. The table below summarizes mineral reserves as of December 31, 2021 using a cut off thickness of 4.00 feet:
Quality, Washed, Dry Basis
% Recovery
Reserves
Tons (millions)
Thickness (ft)
% Ash
% Sulfur
Btu
lbs. SO2
In-Seam
Prep Plant
Hamilton County
Proven Mineral Reserves
57.6
6.37
8.04
2.81
13,407
4.20
86.71
53.85
Probable Mineral Reserves
70.9
6.63
7.99
2.83
13,423
4.21
86.82
57.34
Total Mineral Reserves
128.5
6.52
8.01
2.82
13,416
4.21
86.77
55.78
The Hamilton mine had 125.0 million tons of coal mineral reserves at the end of 2020. The year over year reconciliation is as follows:
Hamilton County Yearly Reserve Reconciliation
(millions)
Tons as of December 31, 2020
125.0
Production
(4.9)
Mineral Acquisition / Deletion
1.0
Mine Plan Adjustment
6.7
Normal Course Adjustments
0.7
Tons as of December 31, 2021
128.5
Normal course adjustments are associated with numerous slight changes in the geologic model.
Gibson South
Gibson South is located in Gibson County, Indiana at 38°18'22"N, 87°42'30"W and currently has approximately 23,350 underground acres permitted. The mine property is controlled through both fee ownership and leases of the coal. Gibson South holds rights to approximately 21,600 gross acres of coal. Leases generally have an initial term with automatic extensions for as long as mining operations are conducted within a described area. Local infrastructure is as follows:
Major Roads: Interstates 69 and 64,
Railroads: CSX and NS,
Airport: Evansville Regional Airport (EVV),
Town: Princeton,
Docks: Mount Vernon on the Ohio River,
Water: Gibson Water, Inc. and well water,
Electricity: Western Indiana Energy REMC,
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Personnel: Regional.
Description
The underground mine is currently in production using room-and-pillar methods utilizing a heavy media, float/sink style preparation plant. Exploration continues as needed to fulfill mining and permitting requirements. The mine began production in 2014. All equipment, facilities, infrastructure, and underground development are in good working order and maintained to industry standards. Total book value of the property and any associated plant and equipment for Gibson South as of December 31, 2021 was $118.8 million.
History
In November 1997, pursuant to (a) Assignment of Underground Coal Leases, (b) Partial Assignment of Underground Coal Leases and (c) Special Corporate Warranty Deed, Old Ben conveyed to MAPCO Land & Development Corporation various coal leases and fee coal interests within a large property boundary located in Gibson County, Indiana. MAPCO Land & Development Corporation changed its name to MAPCO Coal Land & Development Corporation, and MAPCO Coal Land & Development Corporation merged into Alliance Properties, LLC (“Alliance Properties”) effective August 4, 1999.
Old Ben ran large exploration programs across multiple years to examine thickness, mineability, and quality, drilling a total of 137 holes. Another 73 holes were drilled in the western area of the property by owners of an adjacent mine.
After the original Old Ben acquisition, Alliance Properties and Gibson County Coal continued to acquire additional coal leases and fee coal interests in the area. In addition, beginning in or around 2006, the leases originally acquired from Old Ben began to expire by their terms, and Alliance Properties/Gibson County Coal began a program of either amending the expiring leases or entering into new, direct leases with the coal owners. Alliance Properties merged into Gibson County Coal on February 19, 2018.
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Encumbrances
Our revolving credit facility is secured by, among other things, liens against certain Gibson County Coal surface properties, coal leases and owned coal. Documentation of such liens is of record in the Office of the Recorder of Gibson County, Indiana. Please read "Item 8. Financial Statements and Supplementary Data – Note 8 – Long-term Debt" for more information on our revolving credit facility.
Accounts receivable generated from the sale of coal mined from this property are collateral for our accounts receivable securitization facility, evidenced by financing statements of record in the Office of the Recorder of Gibson County, Indiana. Please read "Item 8. Financial Statements and Supplementary Data — Note 8 – Long-term Debt" for more information on our accounts receivable securitization facility.
The Indiana Department of Natural Resources, Division of Reclamation is responsible for oversight of active coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations. In addition to state mining and reclamation laws, operators must comply with various federal laws relevant to mining. All applicable permits for underground mining, coal preparation, and related facilities and other incidental activities have been obtained and remain in good standing.
Geology and Reserves
Gibson South extracts coal underground from the Springfield (Indiana No.5) seam at depths ranging from 450 to 650 feet. The table below summarizes mineral reserves as of 12/31/21 using a cut off thickness of 4.00 feet:
Quality, Washed, Dry Basis
% Recovery
Reserves
Tons (millions)
Thickness (ft)
% Ash
% Sulfur
Btu
lbs. SO2
In-Seam
Prep Plant
Gibson South
Proven Mineral Reserves
44.2
6.10
6.97
1.92
13,506
2.84
95.05
74.87
Probable Mineral Reserves
8.4
5.46
7.91
2.33
13,349
3.49
93.39
72.12
Total Mineral Reserves
52.6
6.00
7.12
1.98
13,482
2.94
94.79
74.44
The Gibson South mine had 54.7 million tons of coal mineral reserves at the end of 2020. The year over year reconciliation is as follows:
Gibson South Yearly Reserve Reconciliation
(millions)
Tons as of December 31, 2020
54.7
Production
(3.3)
Mineral Acquisition / Deletion
0.9
Normal Course Adjustments
0.3
Tons as of December 31, 2021
52.6
Normal course adjustments are associated with numerous slight changes in the geologic model.
Tunnel Ridge
Tunnel Ridge, located at 40°09’17" N, -80°39’26"W, is an underground longwall mine in the Pittsburgh No. 8 seam of coal, and currently has approximately 20,890 underground acres permitted. The mine property is controlled through both fee ownership and leases of the coal. The vast majority of the coal mined and to be mined by Tunnel Ridge is leased from the Joseph W. Craft III Foundation and the Kathleen S. Craft Foundation. Please read "Item 8. Financial Statements and Supplemental Data - Note 21 – Related Party Transactions" for additional information on this lease. Tunnel Ridge either owns or controls the surface properties upon which its facilities are located, including the preparation plant, refuse areas, mine offices, conveyor systems, shafts and slopes. Local infrastructure is as follows:
Major Roads: Interstate 70,
Railroads: None,
Airport: Pittsburgh International Airport (PIT),
Town: Wheeling,
Docks: Tunnel Ridge on the Ohio River,
Water: Ohio County Water District and mine sources,
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Electricity: American Electric Power (AEP), West Penn Power (WPP)
Personnel: Regional.
Description
The underground mine is currently in production using longwall and room-and-pillar methods utilizing a heavy media, float/sink style preparation plant. Exploration continues as needed to fulfill mining and permitting requirements. The mine began production in 2010. All equipment, facilities, infrastructure, and underground development are in good working order and maintained to industry standards. Total book value of the property and any associated plant and equipment for Tunnel Ridge as of December 31, 2021 was $238.8 million.
History
Valley Camp Coal Company ("Valley Camp") operated mines on the property prior to Tunnel Ridge's operations.
Valley Camp drilled 24 exploration holes in and adjacent to the reserve area to check thickness, quality, and mineability of the Pittsburgh No. 8 seam. Tunnel Ridge accounts for over 80 of the remaining holes. Also, Tunnel Ridge has collected over 600 channel samples to supplement the exploration drilling.
Encumbrances
Our revolving credit facility is secured by, among other things, liens against certain Tunnel Ridge surface properties, coal leases and owned coal. Documentation of such liens is of record in the Office of the County Commission of Ohio County, West Virginia and the Office of the Recorder of Deeds of Washington County, Pennsylvania. Please read "Item 8. Financial Statements and Supplementary Data — Note 8 – Long-term Debt" for more information on our revolving credit facility.
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Accounts receivable generated from the sale of coal mined from this property are collateral for our accounts receivable securitization facility, evidenced by financing statements of record in the Office of the County Commission of Ohio County, West Virginia and the Office of the Recorder of Deeds of Washington County, Pennsylvania. Please read "Item 8. Financial Statements and Supplementary Data — Note 8 – Long-term Debt" for more information on our accounts receivable securitization facility.
Tunnel Ridge is located on the West Virginia / Pennsylvania State boundary, operating in each state. As such, regulatory requirements must be met pertaining to mining facilities located in each state.
For operations in West Virginia, the West Virginia Department of Environmental Protection ("WVDEP") is the regulatory authority over mining activities. Within the WVDEP, the Division of Mining and Reclamation is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations.
For operations in Pennsylvania, the Pennsylvania Department of Environmental Protection (PADEP) is the regulatory authority over mining activities. Within the PADEP, the Bureau of District Mining Operations is responsible for review and issuance of all permits relative to coal mining and reclamation activities, and financial assurance of comprehensive environmental protection performance standards related to surface and underground coal mining operations.
Geology and Reserves
Tunnel Ridge extracts coal underground from the Pittsburgh No.8 seam at depths ranging from 300 to 800 feet. The table below summarizes mineral reserves as of December 31, 2021 using a cut off thickness of 4.00 feet:
Quality, Washed, Dry Basis
% Recovery
Reserves
Tons (millions)
Thickness (ft)
% Ash
% Sulfur
Btu
lbs. SO2
In-Seam
Prep Plant
Tunnel Ridge
Proven Mineral Reserves
28.6
6.89
8.12
3.32
13,685
4.86
69.21
51.90
Probable Mineral Reserves
25.1
7.02
8.23
3.47
13,650
5.09
67.87
52.69
Total Mineral Reserves
53.7
6.95
8.17
3.39
13,669
4.97
68.58
52.27
The Tunnel Ridge mine had 64.0 million tons of coal mineral reserves at the end of 2020. The year over year reconciliation is as follows:
Tunnel Ridge Yearly Reserve Reconciliation
(millions)
Tons as of December 31, 2020
64.0
Production
(7.2)
Mine Plan Adjustment
(3.1)
Tons as of December 31, 2021
53.7
Oil & Gas Reserves
Our mineral interests are primarily located in three basins, which are also our areas of focus for future development. These include the Permian (Delaware and Midland), Anadarko (SCOOP/STACK) and Williston (Bakken) Basins. At December 31, 2021, we had approximately 42,000 developed and undeveloped net acres held at a weighted average royalty of 17.0%. Our net acres standardized to 1/8th royalty equates to approximately 57,000 net royalty acres, including approximately 3,976 net royalty acres owned through our equity interest in AllDale III.
The following table presents our estimated net proved oil & gas reserves, including our share of reserves owned through our equity interest in AllDale III, as of December 31, 2021 based on the reserve report prepared by our internal engineering team. The reserve report has been prepared in accordance with the rules and regulations of the SEC. All of our proved reserves included in the reserve report are located in the continental United States.
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As of December 31, 2021
Crude Oil
Natural Gas
Natural Gas Liquids
Total
(MBbl)
(MMcf)
(MBbl)
(MBOE) (2)
Estimated proved developed reserves
5,493
28,426
3,039
13,269
Estimated proved undeveloped reserves
1,353
4,126
578
2,618
Total estimated proved reserves (1)
6,846
32,552
3,617
15,887
(1) Proved reserves of approximately 1,285 MBOE were attributable to noncontrolling interests as of December 31, 2021.
(2) Natural gas reserve volumes are converted to BOE based on a 6:1 ratio: 6 Mcf of natural gas converts to one BOE.
Estimates of reserves as of December 31, 2021 were prepared using product prices equal to the unweighted arithmetic average of the first-day-of-the-month market price for each month in the period from January through December 2021. The average realized product prices weighted by production over the remaining lives of the properties are $63.57/Bbl for oil, $2.98/Mcf of natural gas and $21.13 per barrel of NGL. These prices are adjusted for energy content, associated average differential and transportation deducts by producing area to arrive at the net realized prices by product. For 2021, NGL prices averaged approximately 37% of the posted oil prices during the course of the year with an additional $3.49/Bbl deducted for transportation costs.
The following table summarizes our changes in proved undeveloped reserves (in MBOE):
Beginning balance, January 1, 2021
4,533
Sales of PUDs
(12)
Transfers of PUDs to estimated proved developed
(1,469)
Extensions and discoveries
971
Revisions of previous estimates
(1,405)
Ending balance, December 31, 2021
2,618
As a mineral interest owner we have no transparency into or control over our operators' investments and operational progress to convert PUDs to proved developed producing reserves. We do not incur any capital expenditures or lease operating expenses in connection with the development of our PUDs, which costs are borne entirely by our operators. As a result, during the year ended December 31, 2021, we did not have any expenditures to convert PUDs to proved developed producing reserves. PUDs that have not been developed within two years of permitting are reviewed and removed from proved reserves as necessary. As of December 31, 2021 approximately 16.48% of our total proved reserves were classified as PUDs.
Evaluation and Review of Reserves
Numerous uncertainties are inherent in estimating reserve volumes and values, and the estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production of the reserves may vary significantly from the original estimates.
Under SEC rules, proved reserves are those quantities of oil & gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible–from a given date forward, from known reservoirs and under existing economic conditions, operating methods and government regulations–prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. If deterministic methods are used, the SEC has defined reasonable certainty for proved reserves as a "high degree of confidence that the quantities will be recovered." All of our proved reserves as of December 31, 2021 were estimated using a deterministic method. The estimation of reserves involves two distinct determinations. The first determination results in the estimation of the quantities of recoverable oil & gas and the second determination results in the estimation of the uncertainty associated with those estimated quantities in accordance with the definitions established under SEC rules. The process of estimating the quantities of recoverable oil & gas reserves relies on the use of certain generally accepted analytical procedures. These analytical procedures fall into three broad categories or methods:
(1) performance-based methods,
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(2) volumetric-based methods and
(3) analogy.
These methods may be used singularly or in combination by the reserve evaluator in the process of estimating the quantities of reserves. The proved reserves for our properties were estimated by performance methods, analogy or a combination of both methods. Performance methods include, but may not be limited to, decline curve analysis, which utilized extrapolations of available historical production data. The analogy method was used where there were inadequate historical performance data to establish a definitive trend and where the use of production performance data as a basis for the reserve estimates was considered to be inappropriate.
To estimate economically recoverable proved reserves and related future net cash flows, our engineering team considered many factors and assumptions, including the use of reservoir parameters derived from geological, geophysical and engineering data which cannot be measured directly, economic criteria based on current costs and the SEC pricing requirements and forecasts of future production rates. To establish reasonable certainty with respect to our estimated proved reserves, the technologies and economic data used in the estimation of our proved reserves included production and well test data, downhole completion information, geologic data, electrical logs, and radioactivity logs.
Our 2021 year-end proved reserves were prepared by our internal engineering team. Our engineering team works to ensure the integrity, accuracy, and timeliness of the data used to calculate our estimated proved reserves. Approximately 95% of our total 2021 year end proved reserve estimates were audited by NSAI. Our engineering team met with NSAI periodically during the period covered by the above referenced reserve report to discuss the assumptions and methods used in the reserve estimation process. Our engineering team provided historical information to NSAI for our properties, such as oil & gas production, well test data, and realized commodity prices. Our engineering team also provided ownership interest information with respect to our properties. Our internal petroleum engineer, primarily responsible for overseeing the petroleum reserves preparation, has over 20 years of engineering and operations experience in the oil & gas sector and a Bachelor of Science in Petroleum Engineering.
The preparation of our proved reserve estimates are completed in accordance with our internal control procedures. These procedures, which are intended to ensure reliability of reserve estimations, include the following:
● review and verification of historical data, which is based on actual production as reported by our operators;
● verification of property ownership by our land department;
● review of all our reported proved reserves semi-annually including the review of all significant reserve changes and proved undeveloped reserves additions by our internal petroleum engineer;
● internally prepared reserve estimates compared to reserves audit by NSAI;
● review of changes in reserves semi-annually by our internal petroleum engineer and by senior management; and
● no employee ' s compensation is tied to the amount of reserves booked.
NSAI, an independent third-party petroleum engineering firm, does not own an interest in any of our properties and is not employed on a contingent basis. When compared on a well-by-well basis, some of our estimates are greater and some are less than the NSAI estimates. NSAI is satisfied with our methods and procedures used to prepare the December 31, 2021 reserve estimates and future revenue, and noted nothing of an unusual nature that would cause NSAI to take exception with the estimates, in the aggregate, prepared by us. NSAI's audit report with the respect to our proved reserve estimates as of December 31, 2021 is included as an exhibit to this Annual Report on Form 10-K.
NSAI was founded in 1961 and performs consulting petroleum engineering services under Texas Board of Professional Engineers Registration No. F-2699. Within NSAI, the technical persons primarily responsible for auditing the estimates meet or exceed the education, training, and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers; both are proficient in judiciously applying industry standard practices to engineering and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines.
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Acreage Concentration
Our mineral interests, which include both proved reserves discussed above and unproved reserves, are primarily located in three basins, which are also our areas of focus for future operator development. These include the Permian (Delaware and Midland), Anadarko (SCOOP/STACK) and Williston (Bakken) Basins. Below is a chart reflecting our gross, net mineral and net royalty acreage associated with our mineral interests in each of our primary basins as of December 31, 2021.
Developed Acreage
Undeveloped Acreage
Gross
Net Mineral
Net Royalty
Gross
Net Mineral
Net Royalty
Basin
Permian Basin
249,660
5,345
6,930
525,983
14,574
19,431
Anadarko Basin
142,311
5,106
7,282
294,826
10,905
15,538
Williston Basin
113,579
1,834
2,399
113,437
1,803
2,369
Other
27,885
863
1,086
37,821
1,525
1,887
Total
533,435
13,148
17,697
972,067
28,807
39,225
Oil & Gas Production Prices and Production Costs
For the year ended December 31, 2021, 46.8% of our production and 70.0% of our oil & gas revenues were related to oil production and sales, respectively. The following table sets forth information regarding production of oil & gas and certain price and cost information for each of the periods indicated:
Year Ended December 31,
2021
2020
2019
Production:
Oil (MBbls)
825
948
741
Natural gas (MMcf)
3,490
3,635
3,664
Natural gas liquids (MBbls)
357
337
364
BOE (MBbls)
1,764
1,892
1,716
Average Realized Prices:
Oil (per Bbl)
$
66.84
$
39.04
$
54.30
Natural gas (per Mcf)
$
3.85
$
1.52
$
2.01
Natural gas liquids (per Bbl)
$
28.51
$
9.08
$
20.17
BOE (MBbls)
$
44.65
$
24.10
$
32.02
Unit cost per BOE:
Production and ad valorem taxes
$
4.46
$
2.64
$
4.82
Productive Wells
As of December 31, 2021, 6,572 gross productive horizontal wells and 4,167 gross productive vertical wells were located on the acreage in which we have a mineral interest. Of our productive horizontal wells, 965 are considered natural gas wells, while the remaining 5,607 primarily produce oil. Productive wells consist of producing wells and wells capable of production, including natural gas wells awaiting pipeline connections to commence deliveries and oil wells awaiting connection to production facilities. We do not own any material working interests in any wells. Accordingly, we do not own any net wells.
Drilling Results
As a holder of mineral interests, we generally are not provided with information as to whether any wells drilled on the acreage associated with our mineral interests are classified as exploratory or as developmental wells. We are not aware of any dry holes drilled on the acreage associated with our mineral interests during the relevant period.