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U.S.

Research
Published by Raymond James & Associates

February 27, 2012

Energy

Industry Brief
James M. Rollyson, (713) 278-5254, Jim.Rollyson@RaymondJames.com
David P. Feaster, Jr., Res. Assoc., (713) 278-5248, David.Feaster@RaymondJames.com

Energy: Stat of the Week _______________________________________________________________________________________

Will $2.50/Mcf Natural Gas Give the Coal Industry Gas Pains?
As our natural gas model continues to evolve, so too does our outlook for domestic coal demand. With our recent U.S. natural gas
price estimate reduction to $2.50/Mcf from $3.25/Mcf, we have increased our coal-to-gas switching estimate to approximately 2.6
Bcf/d in natural gas terms (or roughly 65 million tons of coal, plus another 10 million tons for a weaker electric generation outlook).
On a purely economic basis, we think the potential for switching is clearly meaningfully higher at the current price of natural gas.
However, structural challenges and, more importantly, coal contracts are likely to keep the actual amount of market share gain by
natural gas utility plants moderated in the short run. As we demonstrate in this note, the pure economics based switching potential
is highly sensitive to natural gas prices. Thus, if our 2013 and long-term natural gas price forecasts of $3.25/Mcf and $4/Mcf are
accurate, the switching potential will drop significantly under the 2011 delivered fuel cost scenario. Moreover, we also expect the
coal industry to respond in kind with production cuts necessary to offset at least most of the near-term demand loss, especially
considering current spot prices that reside below cash costs.
Economics 101 cheap natural gas is giving the coal industry heart burn
The current abundance of U.S. natural gas is clearly giving the coal industry its share of heart burn lately. The recent decline in
natural gas prices back into the sub-$3/Mcf range is wreaking all kinds of havoc in terms of investors, utilities, and coal producer
minds alike. Simply stated, weak natural gas prices vis--vis delivered coal prices would indicate that a fairly high percentage of coalfired plants are currently fair game to be dispatched ahead of natural gas-fired plants. Moreover, the warm start to the winter
season is further exacerbating the problem as total electric generation is currently running down 8% year/year through the first six
weeks of 2012, further adding to coal producers woes. If we look purely at simple economics, natural gas prices hovering around
$2.50/Mcf (which also happens to be our forecast for average 2012 natural gas prices), implies that as much as 12.7 Bcf/d equivalent
of coal-fired demand could be displaced by natural gas generation. The chart below details this concept based on 2011 actual
delivered fuel costs to coal-fired utilities on a $/MMBtu basis. Note that this compares to the 2011 average natural gas price of
roughly $4/Mcf (our long-term average price assumption), which implied about 2.5 Bcf/d of potential switching, compared to the 1.5
Bcf/d of switching that we calculate actually occurred. Our 2013 estimated natural gas price of $3.25/Mcf is also included for
comparison, reducing the potential switching amount to an equivalent of 6.6 Bcf/d.
Implied Coal-to-Gas Switching Potential At Various Delivered Fuel Costs
Coal Burn in Natural Gas Equivalents (Bcf/d)

40
Import
35

INT
WBIT

30

APP

25

PRB
20
15

2013E of $3.25/Mcf
= 6.6 Bcf/d

10
5

2012E of $2.50/Mcf
= 12.7 Bcf/d

LT Avg & 2011A of


$4/Mcf = 2.5 Bcf/d

$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
$2.20
$2.40
$2.60
$2.80
$3.00
$3.20
$3.40
$3.60
$3.80
$4.00
$4.20
$4.40
$4.60
$4.80
$5.00
$5.20
$5.40
$5.60
$5.80
$6.00
$6.20
$6.40
$6.60
$6.80
$7.00

Source: EIA, RJ&A Estimates

Please read domestic and foreign disclosure/risk information beginning on page 9 and Analyst Certification on page 9.
2012 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

International Headquarters:
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U.S. Research

Taking this one step further, if we were to run approximate economics on an output cost basis, rather than simply a delivered fuel
input cost basis, the problem looks a little worse. As shown in the table below, when accounting for recent spot coal and natural gas
prices, the all in cost ($/Mwh) to operate a coal-fired power plant burning different types of coal appears more expensive than
running a combined cycle natural gas plant (~7,000 heat rate), assuming $2.50/Mcf natural gas prices. When running a less efficient
natural gas peaking plant (~10,000 heat rate), only a PRB-fueled coal-fired power plant comes out ahead, and even that depends on
the proximity of said plant to the PRB (Powder River Basin) region (as transportation costs represent a higher percentage of the total
delivered cost of fuel). The moral of this story is that just based on the current input costs of coal and natural gas, the natural gas
plant would win out in most cases under the current relative pricing environment we are living in today with natural gas prices at
$2.50/Mcf. But simple economics are not the only factor to consider.

Comparative Generation Dispatch Costs


$35.00

Dispatch Cost ($/Mwh)

$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
CAPP

NAPP

ILB

Gas Peaker

PRB

CC Gas

Source: Raymond James Estimates

Contracts, other factors providing some relief to gas pains


Looking beyond pure economic factors, there are many other pieces to the coal-versus-gas switching puzzle that come into play in
the short run. For starters, if one utility owned every coal and natural gas plant in the U.S. and they were all hooked up to the same
grid, dialing up natural gas plants and throttling back coal-fired plants would be a much easier exercise. The reality, however, is that
there are multiple owners of various power plant assets, which are also connected to different grids. Moreover, the utility plant
owners all have their own unique mix of generating capacity. Finally, there are also regulated utilities that march to the beat of a
different drummer and not just simple short-term swings in cost inputs/economics.
Another significant near-term factor to consider is coal supply contracts that are in place with various utilities/producers. Unlike the
high percentage of oil and natural gas that gets sold on the Nymex futures market, over 90% of coal is still sold through supply
contracts between producers and utilities, often at durations that span across multiple years. With only a handful of publicly traded
coal producers yet to report year-end 2011 results (that represented about two-thirds of total U.S. production in 2011), it appears
that over 96% of estimated thermal coal production volumes are currently committed and/or priced for 2012, based on current
production expectations. As most producers managed to contract additional volumes during 4Q11, we would expect that figure to
creep a little higher during the remainder of earnings season. From there, if we were to assume that: a) no further un-contracted
volumes are sold for the remainder of the year (given the weak natural gas market and initial electric generation trends); b) all of the
contracted volumes actually get shipped during the course of the year; and c) the remaining private producers (which represent
about 30% of the market) are in a similar contract position, then we are looking at total likely switching capacity in 2012 of around
3.2 Bcf/d (or roughly 80 million tons of coal). On the flip side, if we were to assume that producers hit the minimum anticipated
production volume guidance for the year, the total amount of incremental switching is closer to 2.0 Bcf/d (or roughly 50 million tons
of coal. We suspect the right answer is somewhere in the middle, which is why were modeling 2.6 Bcf/d (or about 65 million tons
of coal) for full-year average coal-to-gas switching gains.

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Producer
Arch
Alliance
Alpha
Cliffs Natural Resources
Cloud Peak
Consol
James River
Oxford
Patriot
Peabody
Rhino
TECO
Walter
Total

U.S. Research

Committed
128.8
33.2
90.8
0.5
94.3
49.7
7.9
8.4
20.0
200.0
4.1
3.2
4.3
645.1

Thermal Coal
% of Total
90.7%
99.1%
97.6%
95.0%
98.7%
98.7%
68.5%
97.0%
97.1%
100.0%
94.3%
90.0%
100.0%
96.6%

2012 U.S. Coal Contract Positions


Metallurgical Coal
Total Est.
Committed
% of Total
Total Est.
142.0
5.1
56.7%
9.0
33.5
0.3
25.0%
1.0
93.0
18.7
84.9%
22.0
0.5
3.7
60.0%
6.1
95.5
50.4
3.8
36.5%
10.4
11.5
0.0
0.0%
3.0
8.7
20.6
5.3
71.6%
7.4
200.0
4.4
0.5
100.0%
0.5
3.6
3.2
90.0%
3.6
4.3
9.3
75.0%
12.4
667.8
49.8
66.1%
75.4

Committed
133.9
33.5
109.4
4.1
94.3
53.5
7.9
8.4
25.3
200.0
4.6
6.4
13.6
695.0

Total Coal
% of Total
88.7%
97.0%
95.2%
62.7%
98.7%
88.1%
54.3%
97.0%
90.4%
100.0%
94.8%
90.0%
81.4%
93.5%

Total Est.
151.0
34.5
115.0
6.6
95.5
60.8
14.5
8.7
28.0
200.0
4.9
7.2
16.7
743.3

As of
4Q11
4Q11
4Q11
4Q11
4Q11
4Q11
3Q11
3Q11
4Q11
4Q11
3Q11
4Q11
4Q11

2012/2011
2011 Volume Chg
162.4
(11.4)
30.8
3.7
123.3
(8.3)
5.0
1.6
97.1
(1.6)
62.6
(1.9)
13.2
1.4
8.1
0.6
31.1
(3.1)
203.9
(3.9)
4.7
0.1
8.1
(0.9)
10.4
6.3
760.7
(17.4)

Source: Company Reports, RJ Estimates

We have a couple of caveats to this analysis. There have been reports of producers being asked by utilities to defer the timing of
some shipments this year to later months, particularly given the decline in year/year generation as a result of the mild winter. If
these volumes are not made up by the end of the year, switching could be somewhat higher. Likewise, if utilities fully abide by their
contractual obligations but do not burn all of the coal they receive, switching could also be higher. As noted earlier, the flip side
would be that if producers are able to reach the minimums of production volume guidance, switching would only grow by
approximately 2.0 Bcf/d.
Historical coal to gas switching sums up to ~3.6 Bcf/d since 2009
The entire coal vs. gas switching discussion began in 2009, when natural gas prices started to dip below coal prices (on the margin)
for the first time. Due to a struggling economy and additional contribution from less cold weather, electric generation declined by
more than 4% for the year. Because of meaningfully softer natural gas prices, we switched approximately 2.1 Bcf/d of coal
demand to natural gas, peaking in the month of September as natural gas prices fell below the $3/Mcf threshold (averaging around
$4/Mcf for the year). With a rebound in the economy and easy weather comps, electric generation rebounded by more than 4% in
2010, but the level of switching ended relatively flat for the full year with 2009 levels. A much more muted market in 2011 (both for
natural gas prices and electric generation) led to further implied coal-to-gas switching, to the tune of 1.5 Bcf/d with data through
November. Thus on a cumulative basis, the natural gas industry has picked up approximately 3.6 Bcf/d of demand at the expense of
the coal industry since the start of 2009. As indicated in our graph on the front page, the entire coal generating fleet (based on 2011
generation levels) equates to about a 37 Bcf/d market in natural gas terms.
Implied Coal-to-Gas Switching

1.5
2009 Avg = 2.1 Bcf/d

2011 Avg = 1.5 Bcf/d

0.5
-0.5
2010 Avg = 0.0 Bcf/d

-1.5
-2.5
-3.5
-4.5
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11

YOY C/G Switching (Bcf/d)

2.5

Source: Energy Information Administration, RJ&A Research

To add insult to injury, year-to-date U.S. electric generation is off to a terrible start, given mild weather
Although the primary topic of this note is coal-to-gas switching, we would be remiss in not mentioning the fact that extremely mild
weather conditions thus far in the year have led to a massive year-over-year decline in electric generation. Through the first six weeks
of the year, electric generation in the U.S. is down some 8% over the same time frame in 2011. We obviously dont expect this trend
to hold true for the full year, but given current weather forecasts, mild weather is expected to persist for the remainder of the
winter. This compares to our initial 2012 electric generation estimate of a 0.5% decline for the year. When factoring in the year-todate weakness, further mild temps into March, a 0.5% decline in the shoulder seasons and summer months as well as some rebound
in November/December (on easy comps), our full year electric generation estimate now falls to a decline of 1.1% over 2011.
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U.S. Research
U.S. Electric Generation

105,000
2010

100,000

2011

95,000

2012

MMKWh

90,000
85,000
80,000
75,000
70,000
65,000

Week 52

Week 49

Week 46

Week 43

Week 40

Week 37

Week 34

Week 31

Week 28

Week 25

Week 22

Week 19

Week 16

Week 13

Week 10

Week 7

Week 4

Week 1

Source: Edison Electric Institute

When we combine ~65 million tons of coal demand lost from coal-to-gas switching and tack on another ~10 million tons from purely
year-over-year electric generation declines, less than about a million tons of growth from the industrial/steel part of the equation,
we estimate full-year 2012 coal demand to decline by 75 million tons.
Will there be enough coal production cuts to offset demand declines?
As noted in the table on the top of page 3, when we add up current production plans for 2012 by the publicly traded U.S. producers,
relative to actual 2011 production levels (adjusted to normalize M&A activity concluded during 2011), the total implied year-overyear production declines by the U.S. public producers is nearly 17.5 million tons. This includes some growth in domestic
metallurgical coal production and does not include potential cuts from the few producers that havent reported yet. Given some
remaining un-contracted coal, wed expect the public guys to reduce production levels by a bit more before year end. Meanwhile,
we suspect the private coal producers (that represent ~30% of total U.S. production) are likely to contribute an even greater amount
of cuts (mainly in the east), given an assumed relative cost disadvantage. Note that unlike the oil/natural gas business, coal
producers actually have to spend money each and every day in order to get coal out of the ground. Therefore, if the market remains
weak and current spot prices remain at levels that imply negative margins (as they do for many producers in Appalachia and even in
the PRB producers at present, using Nymex prices), production will get cut.

CAPP Coal Prices vs. Cash Costs

$25

$140

$100
$80
$60
$40

CAPP Cash Costs/Ton


CAPP Prices
RJ 4Q Cost Estimates

$23
$21
PRB Prices ($/ton)

CAPP Prices ($/ton)

$120

PRB Coal Prices vs. Cash Costs


PRB Pricing
PRB Cash Cost/ton

$19
$17
$15
$13
$11
$9
$7

$20

Source: Company Filings, Thomson Reuters, RJ Estimates

$5

Source: Company Filings, Thomson Reuters, RJ Estimates

Looking back at history to get some idea how the current situation may play out suggests were due to see pretty significant cuts. In
2009, for example, the industry shed nearly 100 million tons of supply (or over 8%), as shown in the left hand graph below. We
suspect supply will get cut again this time around by enough to come at least close to offsetting demand and therefore keeping
inventories from ballooning to the degree they did in 2009. One major difference between the current market outlook and what
occurred in 2009 stems from the U.S. coal export picture. Expectations are that U.S. coal exports will remain fairly steady in 2012
(with a couple large players expecting slight growth), compared to a pretty significant decline (22+ million tons) in 2009 (shown
below) that helped drive a ~40 million ton rise in stockpiles. Either way, were certainly not done with production cuts if the weather
remains mild and if natural gas prices remain as weak as we think, causing coal to get displaced at the expense of natural gas.

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International Headquarters:
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U.S. Research

U.S. Coal Export Growth/Declines


YOY Production Change (MMtons)

YOY Production Change (MMtons)

U.S. Coal Production Growth/Declines


40.0
20.0
0.0
(20.0)
(40.0)
(60.0)
(80.0)

(100.0)

Source: EIA

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

24.5
14.5
4.5
(5.5)
(15.5)
(25.5)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: EIA

As a result, we estimate that around 50 million tons of U.S. coal production will be trimmed when all is said and done in 2012. Of
that, we expect nearly half of the reduction to occur in the PRB, where there are currently a little over 30 million less tons
committed for this year versus what was actually produced/delivered in 2011.
Bottom line
The picture is far from pretty for the U.S. coal markets right now, based on the combination of cheap natural gas-induced
competition and mild weather as the icing on the cake. Although the potential for coal-to-gas switching could approach 13 Bcf/d at
our $2.50/Mcf average natural gas price estimate, we think contract commitments as well as other logistical constraints will keep
the actual amount of switching far below this figure. As noted, we now estimate full calendar year coal-to-gas switching of ~2.5
Bcf/d, or about 65 million tons of U.S. coal demand based on current and anticipated coal contracts that we assume will actually be
honored. We add another ~10 million tons of coal demand hit being taken due to the weak year-to-date start in electric generation
trends to total 75 million tons of overall U.S. coal demand declines in 2012. On the bright side, were up to ~17.5 million tons of
year-over-year production cuts thus far with additional tons to be added during the remainder of earnings season and likely the rest
of the year by just the public producers. Add to that further cuts by the private producers, given the current implied margins, and
we estimate full year production declines of just over 50 million tons. When adding in slightly lower imports, slightly higher exports
and a reduction in waste coal and losses/unaccounted for coal, our model suggests only a modest build in inventories by year end of
around 10-15 million tons. Inventories are likely to rise by more than that in the short run, given the lack of cold weather, which
should be corrected to some degree once summer burn season kicks in. While it certainly aint pretty for the coal industry, its not a
complete disaster either.

2012 Coal Supply/Demand Factors


Electric Demand
All Other Demand
Production
Imports
Exports
Waste Coal/Losses
Net YOY Inv. Change
(80)

Source: RJ&A Estimates

(70)

(60)

(50)

(40)

(30)

(20)

(10)

10

YOY Change (MM Tons)

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U.S. Research

U.S. Rig Count Breakdown


2/24/2012
Total Count
U.S. Rig Count
By Basin*
Permian
Eagle Ford
Bakken
Marcellus
Haynesville
Granite Wash
Cana Woodford
Barnett
Mississippi Lime
DJ Basin
Uinta
San Joaquin Basin
Pinedale
Fayetteville
Piceance Basin
Powder River Basin
Arkoma Woodford
Utica
Other
Drill For
Oil
Dry Gas
Wet Gas
Thermal
Trajectory
Horizontal Oil
Horizontal Gas
Horizontal
% Horizontal

1981
471
246
204
131
84
76
61
55
50
41
31
30
24
23
23
17
15
13
386

2/17/2012
1994
471
241
202
134
86
77
63
56
55
41
32
30
29
23
22
17
16
15
384

W/W

YTD

YTD %

Y/Y

Y/Y %

(13)

(26)

-1%

282

17%

0
5
2
(3)
(2)
(1)
(2)
(1)
(5)
0
(1)
0
(5)
0
1
0
(1)
(2)
2

16
10
12
-7
-30
5
3
-4
2
-1
1
-2
-5
-3
-4
-4
-5
-3
-7

4%
4%
6%
-5%
-26%
7%
5%
-7%
4%
-2%
3%
-6%
-17%
-12%
-15%
-19%
-25%
-19%
-2%

120
99
47
8
-77
1
8
-22
23
13
7
7
-6
-2
-6
7
-4
7
52

34%
67%
30%
7%
-48%
1%
15%
-29%
85%
46%
29%
30%
-20%
-8%
-21%
70%
-21%
117%
16%

1265
264
446
6

1272
266
450
6

(7)
(2)
(4)
0

72
(37)
(62)
1

6%
-12%
-12%
20%

482
(73)
(123)
(4)

62%
-22%
-22%
-40%

692
473
1165
59%

682
481
1163
58%

10
(8)
2
0%

64
(66)
(2)
1%

10%
-12%
0%

332
(145)
184
1%

92%
-23%
19%

Source: Baker Hughes, Inc, Raymond James Estimates


*Includes all trajectories

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Raymond James

U.S. Research

Raymond James Weekly Oilfield Review


For Week Ending:

2/24/2012

12 Month Oil Calendar Strip

12 Month Gas Calendar Strip

Brent

Henry Hub

$130.00

$6.50

$120.00
$110.00

$5.50

$100.00
$90.00
$4.50

$80.00
$70.00

$3.50

$60.00
$50.00
$40.00

$2.50

2010

Price
Percent Change

2011

2012

2010

This
Week

Last
Week

Beginning
of Year

Last
Year

$120.96

$116.04
4.2%

$93.70
29.1%

$111.28
8.7%

Source: Bloomberg

Price
Percent Change

2011

2012

This
Week

Last Beginning
Week of Year

$3.09

$3.20
-3.3%

$4.63
-33.3%

Last
Year
$4.41
-29.9%

Source: Bloomberg

24-Feb-12
This
Week

17-Feb-12
Last
Week

25-Feb-11
Last
Year

Change From:
Last
Last
Week
Year

1,265

1,272

783

-0.6%

61.6%

710
6

716
6

906
10

-0.8%

-21.6%

1. U.S.Rig Activity
U.S. Oil
U.S. Gas
U.S. Miscellaneous
U.S. Total

1,981

1,994

1,699

-0.7%

16.6%

U.S. Horizontal

1,165

1,163

981

0.2%

18.8%

U.S. Directional

210

214

220

-1.9%

-4.5%

43

41

25

4.9%

72.0%

116

113

126

2.7%

-7.9%

72

69

66

4.3%

9.1%

62.1%

61.1%

52.4%

1.6%

18.5%

1,374

1,526

1,284

-10.0%

7.0%

701

705

623

-0.6%

12.5%

259.9
1,365.7
12,983.0
638.4

254.1
1,361.2
12,949.9
630.4

288.0
1,319.9
12,130.5
673.5

2.3%
0.3%
0.3%
1.3%

-9.7%
3.5%
7.0%
-5.2%

411.7

408.3

380.4

0.8%

8.2%

2,595
521
874,516

2,761
540
869,084

1,830
273
903,275

-6.0%
-3.5%
0.6%

41.8%
90.9%
-3.2%

6.1%
4.6%
-3.0%
1.1%
0.5%
3.8%

13.9%
11.6%
-32.0%
653.4%
-42.6%
7.9%

U.S. Offshore
U.S. Offshore Gulf of Mexico
Fleet Size
# Contracted
Utilization
U.S. Weekly Rig Permits *
2. Canadian Activity
Rig Count
3. Stock Prices

(2/24/12)

OSX
S&P 500
DJIA
S&P 1500 E&P Index
Alerian MLP Index
4. Inventories
U.S. Gas Storage (Bcf)
Canadian Gas Storage (Bcf)
Total Petroleum Inventories ('000 bbls)

5. Spot Prices (US$)


Oil (W.T.I. Cushing)
$109.49
$103.24
$96.14
Oil (Brent)
$125.13
$119.58
$112.14
Gas (Henry Hub)
$2.59
$2.67
$3.81
Residual Fuel Oil (New York)
$116.13
$114.88
$15.41
Gas (AECO)
$2.13
$2.12
$3.71
UK Gas (ICE)
$9.78
$9.43
$9.07
Sources: Bak er Hughes, ODS-Petrodata, API, EIA, Oil Week , Bloomberg
* Note: Week ly rig permits reflect a 1 week lag

2012 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

International Headquarters:
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Raymond James

U.S. Research

Raymond James Weekly Coal Review


For Week Ending:

2/24/2012

12 Month Big Sandy Barge Prices

12 Month Powder River Basin 8800 Prices

$90 .00
$17 .00

$15 .00

$75 .00

$13 .00
$60 .00

$11 .00

$9.00
$45 .00
$7.00

$30 .00

$5.00

2010

Price
Percent Change

2011

2010

2012

This
Week

Last
Week

Beginning
of Year

Last
Year

$60.75

$60.00
1.3%

$74.10
-18.0%

$70.25
-13.5%

Source: Bloomberg

1. Coal Prices
Eastern U.S.
CSX 1%
Western U.S.
Powder River 8800
2. Production
Eastern U.S.
Western U.S.
Total

Price
Percent Change

2011

2012

This
Week

Last Beginning
Week of Year

$8.95

$8.80
1.7%

$13.00
-31.2%

Last
Year
$14.00
-36.1%

Source: Bloomberg

24-Feb-12
This
Week

17-Feb-12
Last
Week

25-Feb-11
Last
Year

Change From:
Last
Last
Week
Year

$60.75

$60.00

$70.25

1.3%

-13.5%

$8.95

$8.80

$14.00

1.7%

-36.1%

17-Feb-12
8,481
11,232
19,713

10-Feb-12
8,474
11,588
20,062

18-Feb-11
9,096
12,528
21,624

0.1%
-3.1%
-1.7%

-6.8%
-10.3%
-8.8%

Source: Bloomberg

Company Citations
Company Name
Alliance Holdings GP L.P.
Alpha Natural Resources
Arch Coal Inc.
Cloud Peak Energy
CONSOL Energy Inc.
James River Coal Company
Oxford Resource Partners L.P.
Peabody Energy Corp.
Rhino Resource Partners L.P.
Walter Energy Inc.

Ticker
AHGP
ANR
ACI
CLD
CNX
JRCC
OXF
BTU
RNO
WLT

Exchange
NASDAQ
NYSE
NYSE
NYSE
NYSE
NASDAQ
NYSE
NYSE
NYSE
NYSE

Currency Closing Price RJ Rating


$
49.34
2
$
20.46
1
$
14.29
3
$
18.25
2
$
36.33
1
$
6.30
2
$
14.00
2
$
36.33
2
$
19.75
2
$
66.31
2

RJ Entity
RJ & Associates
RJ & Associates
RJ & Associates
RJ & Associates
RJ & Associates
RJ & Associates
RJ & Associates
RJ & Associates
RJ & Associates
RJ & Associates

Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for rating
definitions. Stocks that do not trade on a U.S. national exchange may not be approved for sale in all U.S. states. NC=not covered.
2012 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

International Headquarters:
The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863

Raymond James

U.S. Research

Important Investor Disclosures


Raymond James & Associates (RJA) is a FINRA member firm and is responsible for the preparation and distribution of research created in
the United States. Raymond James & Associates is located at The Raymond James Financial Center, 880 Carillon Parkway, St. Petersburg,
FL 33716, (727) 567-1000. Non-U.S. affiliates, which are not FINRA member firms, include the following entities which are responsible for
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or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not
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individual clients. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital
may occur. Investors should consider this report as only a single factor in making their investment decision.
Investing in securities of issuers organized outside of the U.S., including ADRs, may entail certain risks. The securities of non-U.S. issuers may
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from purchasing the securities mentioned in this report. Please ask your Financial Advisor for additional details.
The information provided is as of the date above and subject to change, and it should not be deemed a recommendation to buy or sell
any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such
information is accurate or complete. Persons within the Raymond James family of companies may have information that is not available
to the contributors of the information contained in this publication. Raymond James, including affiliates and employees, may execute
transactions in the securities listed in this publication that may not be consistent with the ratings appearing in this publication.
Additional information is available on request.

Analyst Information
Registration of Non-U.S. Analysts: The analysts listed on the front of this report who are not employees of Raymond James & Associates,
Inc., are not registered/qualified as research analysts under FINRA rules, are not associated persons of Raymond James & Associates, Inc.,
and are not subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public companies,
and trading securities held by a research analyst account.
Analyst Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus
system. Several factors enter into the bonus determination including quality and performance of research product, the analyst's success
in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors
may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general
productivity and revenue generated in covered stocks.

The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part
of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
contained in this research report. In addition, said analyst has not received compensation from any subject company in the last
12 months.

Ratings and Definitions


Raymond James & Associates (U.S.) definitions
Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and outperform the S&P 500 over the next six to 12 months.
For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at least 15% is expected to be realized
over the next 12 months.
Outperform (MO2) Expected to appreciate and outperform the S&P 500 over the next 12-18 months. For higher yielding and more
conservative equities, such as REITs and certain MLPs, an Outperform rating is used for securities where we are comfortable with the relative
safety of the dividend and expect a total return modestly exceeding the dividend yield over the next 12-18 months.
Market Perform (MP3) Expected to perform generally in line with the S&P 500 over the next 12 months.
Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold.
Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage
impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be
providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should
not be relied upon.
2012 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC.

International Headquarters:
The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863

Raymond James

U.S. Research

Raymond James Ltd. (Canada) definitions


Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least 15% and outperform the S&P/TSX Composite Index
over the next six months.
Outperform (MO2) The stock is expected to appreciate and outperform the S&P/TSX Composite Index over the next twelve months.
Market Perform (MP3) The stock is expected to perform generally in line with the S&P/TSX Composite Index over the next twelve months and
is potentially a source of funds for more highly rated securities.
Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next six to twelve months
and should be sold.
Raymond James Latin American rating definitions
Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0% over the next twelve months.
Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over the next twelve months.
Market Perform (MP3) Expected to perform in line with the underlying country index.
Underperform (MU4) Expected to underperform the underlying country index.
Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage
impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be
providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should
not be relied upon.
Raymond James European Equities rating definitions
Strong Buy (1) Expected to appreciate, produce a total return of at least 15%, and outperform the Stoxx 600 over the next 6 to 12 months.
Outperform (2) Expected to appreciate and outperform the Stoxx 600 over the next 12 months.
Market Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months.
Underperform (4) Expected to underperform the Stoxx 600 or its sector over the next 6 to 12 months.
In transacting in any security, investors should be aware that other securities in the Raymond James research coverage universe might carry a
higher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other available investments.
Rating Distributions
Coverage Universe Rating Distribution

Investment Banking Distribution

RJA

RJL

RJ LatAm

RJA

RJL

RJ LatAm

Strong Buy and Outperform (Buy)

56%

71%

39%

14%

42%

14%

Market Perform (Hold)

38%

28%

54%

5%

30%

3%

Underperform (Sell)

6%

1%

7%

4%

0%

0%

Suitability Categories (SR)


For stocks rated by Raymond James & Associates only, the following Suitability Categories provide an assessment of potential risk factors for
investors. Suitability ratings are not assigned to stocks rated Underperform (Sell). Projected 12-month price targets are assigned only to
stocks rated Strong Buy or Outperform.
Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater stability of principal.
Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, possibly a small dividend, and the potential
for long-term price appreciation.
Aggressive Growth (AG) Medium or higher risk equities of companies in fast growing and competitive industries, with less predictable earnings
and acceptable, but possibly more leveraged balance sheets.
High Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive issues,
higher price volatility (beta), and risk of principal.
Venture Risk (VR) Companies with a short or unprofitable operating history, limited or less predictable revenues, very high risk associated
with success, and a substantial risk of principal.

2012 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

International Headquarters:
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Raymond James

U.S. Research

Raymond James Relationship Disclosures


Raymond James expects to receive or intends to seek compensation for investment banking services from the subject companies in the
next three months.
Company Name

Disclosure

Alliance Holdings GP
L.P.

Limited Partnerships may generate Unrelated Business Taxable Income (UBTI), which can
create a tax liability that must be paid from a retirement account. You should receive a
Schedule K-1 from the partnership annually that would include UBTI and other financial
information. Please consult with your tax advisor to determine whether you must file and pay
tax from your account.
Raymond James & Associates co-managed a follow-on offering of AHGP shares in March 2011.
Raymond James & Associates makes a NASDAQ market in shares of AHGP.

Alpha Natural
Resources

Raymond James & Associates received non-securities-related compensation from ANR within
the past 12 months.

Arch Coal Inc.

Raymond James & Associates received non-investment banking securities-related


compensation from ACI within the past 12 months.

Cloud Peak Energy

Raymond James & Associates received non-securities-related compensation from CLD within
the past 12 months.

CONSOL Energy Inc.

Raymond James & Associates received non-securities-related compensation from CNX within
the past 12 months.

James River Coal


Company

Raymond James & Associates co-managed a follow-on offering of JRCC shares in March 2011.
Raymond James & Associates co-managed an offering of convertible debt for James River Coal
Company in March 2011 and a public offering of debt for the company in March 2011.
Raymond James & Associates makes a NASDAQ market in shares of JRCC.

Oxford Resource
Partners L.P.

Limited Partnerships may generate Unrelated Business Taxable Income (UBTI), which can
create a tax liability that must be paid from a retirement account. You should receive a
Schedule K-1 from the partnership annually that would include UBTI and other financial
information. Please consult with your tax advisor to determine whether you must file and pay
tax from your account.
Raymond James & Associates received non-securities-related compensation from OXF within
the past 12 months.

Rhino Resource
Partners L.P.

Limited Partnerships may generate Unrelated Business Taxable Income (UBTI), which can
create a tax liability that must be paid from a retirement account. You should receive a
Schedule K-1 from the partnership annually that would include UBTI and other financial
information. Please consult with your tax advisor to determine whether you must file and pay
tax from your account.
Raymond James & Associates lead-managed an initial public offering of RNO shares in
September 2010 and a follow-on offering of RNO shares in July 2011.
Raymond James & Associates received non-securities-related compensation from RNO within
the past 12 months.

Walter Energy Inc.

Raymond James & Associates received non-investment banking securities-related


compensation from WLT within the past 12 months.
Raymond James & Associates received non-securities-related compensation from WLT within
the past 12 months.

Stock Charts, Target Prices, and Valuation Methodologies


Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and
quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness;
competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to change depending on
overall economic conditions or industry- or company-specific occurrences. Only stocks rated Strong Buy (SB1) or Outperform (MO2) have
target prices and thus valuation methodologies.

2012 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

International Headquarters:
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11

Raymond James

U.S. Research

Risk Factors
General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James research:
(1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact expected
revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes
toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or
practices could alter the prospective valuation; or (4) External factors that affect the U.S. economy, interest rates, the U.S. dollar or major
segments of the economy could alter investor confidence and investment prospects. International investments involve additional risks such as
currency fluctuations, differing financial accounting standards, and possible political and economic instability.

Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability
categories, is available at rjcapitalmarkets.com/SearchForDisclosures_main.asp. Copies of research or Raymond James summary
policies relating to research analyst independence can be obtained by contacting any Raymond James & Associates or Raymond James
Financial Services office (please see raymondjames.com for office locations) or by calling 727-567-1000, toll free 800-237-5643 or
sending a written request to the Equity Research Library, Raymond James & Associates, Inc., Tower 3, 6th Floor, 880 Carillon Parkway,
St. Petersburg, FL 33716.
For clients in the United Kingdom:
For clients of Raymond James & Associates (RJA) and Raymond James Financial International, Ltd. (RJFI): This report is for distribution
only to persons who fall within Articles 19 or Article 49(2) of the Financial Services and Markets Act (Financial Promotion) Order 2000 as
investment professionals and may not be distributed to, or relied upon, by any other person.
For clients of Raymond James Investment Services, Ltd.: This report is intended only for clients in receipt of Raymond James Investment
Services, Ltd.s Terms of Business or others to whom it may be lawfully submitted.
For purposes of the Financial Services Authority requirements, this research report is classified as objective with respect to conflict of
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For institutional clients in the European Economic Area (EEA) outside of the United Kingdom:
This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be
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For Canadian clients:
Review of Material Operations: The Analyst and/or Associate is required to conduct due diligence on, and where deemed appropriate
visit, the material operations of a subject company before initiating research coverage. The scope of the review may vary depending on
the complexity of the subject companys business operations.
This report is not prepared subject to Canadian disclosure requirements.
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October 2010, all lead Brazil-based Research Analysts writing and distributing research are CNPI certified as required by Art. 1 of APIMECs
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Non-Brazil-based analysts writing Brazil research and or making sales efforts with the same are released from these APIMEC requirements as
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This is RJA client

releasable research

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2012 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

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12