The New York Times had a revealing article late last week comparing mining practices at Massey Energy’s Upper Big Branch mine to other mines in the area – in particular, the TECO Coal Corporation’s E3-1. The differences in company culture and practices are stunning, and the big picture drives home the point that Massey Energy’s negligence almost amounts to homicide.
Though Don Blankenship, CEO of Massey, has made his lack of concern for safety well known, it’s worth digging a bit deeper into Massey’s corporate structure to see where else responsibility might lie.
For example, Massey Energy mines coal on land owned by National Resource Partners (NRP). NRP makes its money by leasing its land to mining companies in exchange for royalties. That means NRP’s profits are directly tied to the amount of coal the mining companies it leases to produces. An NRP SEC disclosure document [pdf] describes the financial relationship between NRP and a company like Massey Energy (emphasis mine):
We engage principally in the business of owning, managing and leasing coal properties in the three major coal-producing regions of the United States: Appalachia, the Illinois Basin and the Western United States. As of December 31, 2008, we owned or controlled approximately 2.1 billion tons of proven and probable coal reserves and 59% of our reserves were low sulfur coal. We lease coal reserves to experienced mine operators under long-term leases that grant the operators the right to mine and sell coal from our reserves in exchange for royalty payments.
Our revenue and profitability are dependent on our lessees’ ability to mine and market our coal reserves. Most of our coal is produced by large companies, many of which are publicly traded, with experienced and professional sales departments. A significant portion of our coal is sold by our lessees under coal supply contracts that have terms of one year or more. However, over the long term, our coal royalty revenues are affected by changes in the market price of coal.
In our coal royalty business, our lessees make payments to us based on the greater of a percentage of the gross sales price or a fixed royalty per ton of coal they sell, subject to minimum monthly, quarterly or annual payments. These minimum royalties are generally recoupable over a specified period of time (usually three to five years) if sufficient royalties are generated from coal production in those future periods. We do not recognize these minimum coal royalties as revenue until the applicable recoupment period has expired or they are recouped through production. Until recognized as revenue, these minimum royalties are recorded as deferred revenue, a liability on our balance sheet.
NRP has a direct financial incentive to see Massey Energy mine as much coal as possible, safe or not.
Did NRP know about Massey’s long record of safety violations? Did they encourage Massey’s conduct? They certainly had an incentive to, so it’s worth asking – to what degree is NRP and other land-owning organizations culpable in creating Massey Energy’s culture of negligence, abetting disasters like Upper Big Branch?