Lower royalty rate to be extended for West Elk coal mine

The Bureau of Land Management has decided to extend a royalty-rate reduction for some of the federally leased coal being produced at Arch Coal’s West Elk Mine near Somerset.

The agency, in its written decision, cited difficult geological and mining conditions as justifying the reduction.

The decision didn’t address the methane-capture concerns raised by Gov. John Hickenlooper in conditionally supporting the reduction. The BLM says methane capture is a separate issue from royalty-rate reductions, but it’s something the agency supports pursuing.

Said BLM spokesman Steven Hall, “A new working group has been formed in the North Fork Valley by stakeholders to work on the question of methane capture for all coal mines in the valley. The BLM hopes this grassroots group will be able to find solutions that work.”

Gregory Shoop, the BLM’s acting state director, issued Friday’s decision granting Arch Coal’s request for a 5 percent royalty rate for the coal in question, rather than the standard 8 percent rate for underground mines.

The reduction applies for five years, extending a previous five-year reduction. It is retroactive to Feb. 1, 2015, when the last reduction expired.

The BLM estimates that the previous reduction let Arch Coal recover as much as 8 million tons of coal that otherwise would have gone unmined, and the continued reduction will apply to another 10.2 million tons, or about 33 to 40 percent of expected total mine production over the five years.

The reduction applies to a coal seam that Arch Coal is mining that includes a 6-inch parting, which complicates its longwall mining operation. The BLM’s decision says the mine has to selectively cut the parting to segregate waste rock from coal, and must separate high-ash coal from low-ash coal, delaying production and increasing costs.

The mine also is encountering sandstone as it further develops the mine, requiring supplemental roof-support and the use of road aggregate, adding further costs.

In his decision, Shoop says not granting the rate reduction could result in the mine ceasing all of its operations in the coal seam, even where the parting doesn’t exist. Granting the reduction will encourage Arch Coal “to extend the life of the mine and increase overall coal recovery,” the decision says.

About half of federal coal royalties from a mine come back to the state where a mine is located, with some of that being distributed in local communities. The BLM has estimated that $8 million would be retroactively due to Arch Coal with the granting of the rate-reduction. It will be recovered as a credit against future royalties owed.

Hickenlooper has endorsed the reduction due to the potential for lost jobs and royalty and other revenues if production from the coal seam ceased. But he made his support contingent on the mine following through on its commitment to work with the state and local communities to develop a strategy to capture methane from the mine and possibly put it to beneficial use.

Environmentalists say the mine’s venting of methane makes it the largest industrial source of methane pollution in Colorado. Methane is a potent greenhouse gas.

“We appreciate the strong support from both the Bureau of Land Management and the Governor’s office,” Arch Coal spokesperson Logan Bonacorsi said by email. “West Elk is an efficient and technologically advanced mine with a highly skilled workforce, and a cornerstone of the North Fork economy. (Friday’s) action will help West Elk remain competitive while optimizing recovery of an important public resource.”

Matt Reed, with High Country Conservation Advocates in Crested Butte, said he thinks Arch Coal failed to make an adequate case for a royalty rate reduction, much less a retroactive one.

“It shortchanges Colorado and Gunnison County taxpayers and ultimately is unwarranted,” he said. “I think the royalty rate decision is divorced from the facts.”

The BLM’s decision can be appealed within 30 days to the Interior Board of Land Appeals.

Earlier this month, the U.S. Forest Service issued a draft decision expanding coal leases for the mine beneath some 1,700 acres of the Sunset Roadless Area. That expansion, which would require of building temporary roads and drilling methane vents on the surface, is opposed by some conservation groups. But a state-supported, Colorado-specific roadless rule for national forests allows for exemptions from roadless-area protections for North Fork Valley coal mining.


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