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By Brian R. Hook
Coal is more than a bridge to supply the country with energy until
other sources are found to meet the growing demand for power. “Coal
is the future,” declares Gregory Boyce, president and chief
executive of St. Louis-headquartered Peabody Energy, the world’s
largest coal company.
There’s so much coal available, it will sustain us for 100-plus
years,” said Boyce, who assumed responsibility as CEO at the
world’s largest private-sector coal company at the start of
the year. Record results at Peabody in 2005—encompassing records
in everything from safety, production, revenue, income and total-shareholder
return—are just some of the many factors fueling his visible
enthusiasm for the future of coal.
Net income at Peabody in 2005 increased 141 percent to $422.7 million or $3.15 a share, compared with $175.4 million or $1.38 a share in 2004. Revenues increased 28 percent to $4.6 billion. Sales volume increased 5.6 percent to an industry record 240 million tons. Peabody’s overall safety ratings at its mines improved 33 percent in 2005, making its safety performance 45 percent better than the U.S. average coal mine performance. To round out the records, Peabody also provided record shareholder return of 105 percent, placing the company among the top 10 large-cap stocks in the world.
Boyce expects the records to continue. The company targets 2006 earnings per share to increase up to 50 percent. He says the successes in 2005 mark the early stages of a long period of growth. “All of our markets are experiencing very strong demand and prices,” he says.
| Unit trains snake through Wyoming’s plains,
carrying coal from the 80-plus million ton-per-year North Antelope Rochelle Mine, the largest coal operation in North America. |
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At Peabody’s largest operating region in the Powder River Basin in Wyoming, coal
has tripled in price over the last year. Published prices for PRB coal have exceeded $20 per ton. PRB coal represents nearly two-thirds of Peabody’s current U.S. production. Peabody is also securing new business at higher levels in Colorado and Illinois Basin markets. Peabody currently has 9.8 billion tons of proven and probable coal reserves.
Another sign of strengthening demand
for coal: U.S. power-generator stockpiles of approximately 100 to 105 million tons of coal are at historic lows. Boyce says replenishing these inventories will take considerable time due to strong underlying demand and continued bottlenecks throughout the country’s rail transportation system.
Coal is in high demand in the United States and throughout the world. “U.S. and global market fundaments are exceptional,” Boyce says. Amid further increases in oil and natural gas prices, Peabody continues to see record demand for coal-based electricity plants that are operating at a higher rate capacity. Plus, new generating plants are being developed at a record pace across the country and around the globe due to surging demand for energy.
“We are a local company that is very active on a global basis,” Boyce says. “We have to know what’s happening in the energy space across the globe and we have to understand how that is going to impact our business.” A global perspective is one of Boyce’s strengths. Before arriving in St. Louis he worked in London as CEO for the energy portfolio for Rio Tinto, overseeing coal and uranium operations in five countries.
Boyce is capitalizing on his more than 30 years of experience in the mining industry around the globe to lead Peabody. He joined the firm in 2003 as president and chief
operating officer and last year was elected by the board to succeed long-time CEO,
Irl Engelhardt, who remains chairman. Engelhardt led Peabody through multiple owners, including a leveraged buyout in 1998 and a public offering on the New York Stock Exchange in 2001.
Now with Peabody selling coal in 13 countries on five continents, it continues to expand its global footprint. Peabody opened an office in Beijing last year, increased import activities from South America and plans to open an office in Europe.
“It’s a global energy market,” Boyce says. “There is a reason why our name is Peabody Energy. Because we’re all about delivering energy to our customers.” Currently, that energy supply mostly provides fuel for the generation of electricity. Peabody fuels approximately 10 percent of all U.S. electricity and three percent of worldwide electricity.
Boyce expects the demand to grow from other sectors as well. “Going forward, coal is going to be the energy supply for synthetic natural gas, it’s going to be the energy supply for transportation fuel, and ultimately the energy supply for the production of hydrogen,” Boyce says. “So, it is more than about coal mining, it’s about delivering energy solutions.”
These solutions are in greater demand as emerging economies increase per-capita energy use. China, for instance, uses only about one-tenth the electricity per capita as the United States. A similar scenario is unfolding in India and other emerging countries around the globe. “Yet even at these low levels their recent economic growth and energy demand have forever changed the international and U.S. energy markets,” Boyce says.
China and India have also recently started to combine efforts to secure energy assets around the world. Boyce also cites other recent global developments, including Russia temporarily halting natural gas supplies to Eastern Europe. Plus, Iran continues to threaten to withhold its oil supply as part of its effort to satisfy nuclear ambitions.
Boyce says the need for finding new
energy sources was driven home during the recent State of the Union Address when the President told the nation: “We have a problem: America is addicted to oil, which is often imported from unstable parts of the world.” The President added that other sources of energy are needed.
One alternative source can be found right here at home, Boyce says. “My view is that coal is the 21st Century fuel.” He says the only thing stopping the country from realizing its coal resources is the amount of money put into deploying technologies that already exist. He notes that countries like South Africa already get a large amount of fuel from liquefying coal. “This is technology that’s been around for 40 to 50 years,” Boyce says.
When oil cost only $10 a barrel, Boyce says coal-to-liquids could not compete. But now that oil costs more than $50 a barrel, it is economical to liquefy coal. Boyce adds that the economic case for producing synthetic natural gas from coal is very similar to oil.
Boyce says new markets for coal are rapidly emerging due to conversion initiatives. Coal-to-natural gas and coal-to-liquid fuel will greatly expand the product line for coal and Peabody, he says. The U.S. Department of Energy for the first time estimates coal-to-liquid applications will add another 190 million tons per year of additional demand for coal over the next 25 years. “Conversion represents enormous value creation potential as we seek to close the valuation gap between coal, oil and natural gas,” he says.
Boyce says that recent transactions have valued natural gas reserves at $2.50 to $3 per thousand cubic feet. Peabody has the equivalent of 243 trillion cubic feet of natural gas potential in its coal reserves. “Yet we are valued at just five cents per thousand cubic feet. That’s just two percent of the value of some natural gas companies,” he says.
| (Left to right): Paul M. Wagner, Purchasing Manager; Lina A. Young, Vice President of Enterprise Resource Planning Program and Gregory Boyce, President and CEO. |
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Peabody has a number of conversion investments in the pipeline. Peabody is a founding member of the FutureGen Industrial Alliance—a coalition of global energy companies from four continents that plan to develop the world’s first coal-fueled electricity generating plant to produce hydrogen, achieve near-zero emissions and sequester carbon dioxide. The alliance and the U.S. Department of Energy are partnering in the $1 billion project. Site selection is scheduled to start this year with construction beginning within three years. A number of states, including Illinois, are vying to host the project.
Peabody is proceeding with site selection with ArcLight Capital Partners LLC to advance the development of a commercial-scale coal gasification project in Illinois. ArcLight is a Boston-based energy investment firm with more than $2.5 billion under management. The facility will use technology from the Houston-based oil-giant ConocoPhillips to transform coal into pipeline-quality synthetic natural gas.
Peabody also purchased a 30 percent interest, totaling up to $6 million, in Econo-Power International Corp. in October last year. EPIC, a privately held Houston-based firm, owns and markets modular coal gasifiers for industrial-based applications.
Some of the most advanced technology on the market is also going into a $2 billion project in Washington County, Ill. The Prairie State Energy Campus is designed to provide clean, low-cost electricity to help meet the growing energy needs in the Midwest. It will be fueled by approximately six million tons of Illinois coal per year produced from an adjacent underground mine. Peabody is partnering with the Prairie State Interest Group, which includes five Midwest electricity suppliers, who have an ownership position in the project and will use the plant’s output to serve their customers.
| Peabody’s Rawhide Mine in Wyoming was the most productive mine in America in 2004, accessing coal from seams up to 100 feet thick. |
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Boyce says this development will help boost use of Illinois Basin coal. The state has a rich coal history, and demand for Illinois coal is increasing thanks to technologies that allow clean use of the state’s coal. “With all of today’s advanced controlled technologies, it actually will be one of the cleanest, most efficient plants,” Boyce says.
The Prairie State Energy Campus will create more than 450 permanent jobs and employ up to 2,500 workers at the peak of the four-year construction process. Plus, Prairie State will inject more than $2.8 billion into the economy over the first three decades of operation and will spark nearly $200 million in new spending in Washington County, according to an economic study by Southern Illinois University at Carbondale.
Boyce says that the 123-year-old company is rooted in the Midwest, committed to the area, and plans to keep St. Louis as its corporate home. “Peabody is great for St. Louis and St. Louis is great for Peabody,” Boyce says.
Staffing in St. Louis is currently at more than 370 employees. “The success of the company really is the people,” Boyce says. “You can have great coal in the ground. But you must have the people that know how to produce it and sell it to produce extraordinary results. At the end of the day, all of the credit has to go to the talent in our organization.”
AN ENERGETIC TEAM |
Peabody’s phenomenal growth and success is thanks to the talent of its employees and the depth of the company’s executive management team, said Peabody President and CEO Greg Boyce. Peabody’s executive team is marked by 125 years of combined company experience with each member averaging 27 years of industry experience. Peabody's executive team includes:
- Chuck Burggraf, Group Vice President of Technical Services
- Ian Craig, Managing Director of Australian Operations
- Sharon Fiehler, Executive Vice President of
Human Resources and Administration
- Rick Navarre, Executive Vice President and Chief Financial Officer
- Jiri Nemec, Group Vice President of U.S. Eastern Operations
- Fred Palmer, Senior Vice President of Government Relations
- Roger Walcott Jr., Executive Vice President of Resource Management
and Strategic Planning
- Rick Whiting, Executive Vice President of Sales, Marketing and Trading
- Kemal Williamson, Group Vice President of U.S. Western Operations
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Together the team has guided Peabody to achieve record safety results, financial performance and shareholder returns this past year with even better results expected in 2006. St. Louis-based Peabody is world’s largest coal company fueling 10 percent of all U.S. electricity and 3 percent of worldwide electricity. Peabody is the first coal company named to the Fortune 500 ranking and is listed among Fortune’s Most Admired companies. |
PEABODY
Launches National Campaign |
Peabody Energy wants to put the spotlight on coal as America’s 21st Century energy source. A media campaign launched by Peabody stresses that coal can be converted into clean electricity, natural gas, transportation fuels and even hydrogen.
The tagline for the campaign is “Yeah, Coal Can Do That.” Under the headline: “Energy for the 21st Century,” the campaign points out the many coal conversion technologies that can improve U.S. energy costs and reduce reliance on foreign oil and liquefied natural gas. Other themes include abundance, affordability and clean use.
“Simply put, if America has the will to be one of the great energy centers of the world, we have the resources right beneath our feet,” said Gregory Boyce, Peabody President and CEO
Continuing through this year, Peabody is placing its media message in national publications, including The Wall Street Journal, Washington Post, New York Times, Financial Times, Time, Business Week, and Fortune.
To reach the movers and shakers in Washington D.C., Peabody is placing ads in Roll Call, The Hill, and the National Journal/Congressional Daily. Peabody also launched a Web site at www.CoalCanDoThat.com to provide more information about coal.
A national public opinion poll conducted last fall by the Washington-based research firm Penn Schoen & Berland shows that when new information about the benefits of coal is shared with Americans, approximately three of four agree that “Coal is clean thanks to new technologies” and “U.S. coal is essential to our energy security.”
“It takes a national, state and local commitment,” Boyce said. “We’re extremely excited and feel very positive about what coal can do... and even more excited about the future for Peabody.” |
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