Feb 15, 2008
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Peabody Energy Quarterly Earnings Conference Call. For the conference today, all the participant lines will be in a listen-only mode; however, there will be an opportunity for your questions and instructions will be given at that time.
[Operator Instructions] And as a reminder, today's call is being recorded. With that being said, I would like to turn the conference now to the Senior Vice President, Investor Relations and Corporate Communications, Mr.
Vic Svec.
Vic Svec
Well thanks, John, and good morning everyone. Thanks for taking part in the conference call for BTU.
Today our new President and Chief Commercial Officer, Rick Navarre, will review our results and our outlook. Chairman and CEO, Greg Boyce will discuss the market, as well as Peabody's key focus areas for 2008.
And forward-looking statements should be considered along with the risk factors that we note at the end of our release, as well as the MD&A section of the 10-K. We also refer you to peabodyenergy.com for additional information.
And with that I'll turn the call over to Rick.
Richard A. Navarre
Thanks Vic. Good morning everyone, and thank you for joining our 2007 earnings review, and our outlook for 2008.
As we reflect on 2007, you will recall we had a number of significant accomplishments, and to name just a few, we completed three new mines in Australia which greatly enhances our position in the international coal markets. We executed the spin-off of Patriot Coal.
We completed major capital upgrades in the Powder River Basin. Expanded our global trade operations.
And we began construction of the Prairie State Energy Campus. We also had a few challenges, you will recall that we voluntarily cut 17 million tons of production from our plant in response to US markets in early 2007.
And we involuntarily reduced our volumes in Australia, incurring loss sales and higher costs due to coal-chain congestion. Yet through all of this we completed the transformation of our earnings platform and we set new records for ton sold, revenues and EBITDA.
The end result is a company that is in the best position to benefit from some very strong global coal markets. Let me remind everyone that the results we discuss today are from continuing operations, excluding Patriot Coal.
As to the Patriot spin-off, we do believe that it was a success for our shareholders as both Peabody and Patriot shares appreciated meaningfully after the spin. Furthermore, Peabody has improved its operating portfolio.
It is now 90% surface mines and 95% union free operations. We have reduced our liabilities by a $1 billion.
Lowered our exposure to permitting issues, production volatility and compliance challenges that largely affect the Eastern mines. And while we spun off these assets, we continue to participate in the Appalachia market through our trading and brokerage activities.
In fact we sold $4 million tons of export coal in the past several months, most of that coal coming from Eastern United States. Now let me begin with a high level review of 2007 results starting with our income statement.
Our continuing operations achieved record revenues of $4.6 billion, an 11% increase over last year on increased prices per ton in all US regions and higher Australian volumes. Our full year EBITDA was $956 million or 6% above last year.
Our earnings per share of a $1.56 as well as in our guidance and our earnings per share would have exceeded the high-end of our guidance but for $0.21 reduction in our expected tax benefit. The change in taxes was due to a non-cash true-up of the Excel purchase accounting, related to the impact of foreign exchange rates on deferred tax balances.
In addition, we reported $157 million of after-tax charges for discontinued operations this includes 10 months of Patriot results along with transaction costs which are well aligned with the estimates that we shared with you last quarter. Now, let me take you through the supplemental data.
For the year our US operations achieved higher prices in all regions, led by a 29% improvement in our premium PRB price realizations. Overall our US revenues grew 17% which led to a 20% expansion of our US per ton margins over last year.
In the Eastern US our operations delivered improved per ton margins over last year and nearly 80% of our mines turned in higher revenues per ton offsetting increased materials and commodity base increases. In the Western US, our costs trended down in the last quarter due to improved productivity and lower cost following the installation of our new dragline, and conveyer systems earlier in the year.
With the completion of these significant projects North Antelope/Rochelle is again the world's largest coal mine. Now shifting to Australia, Peabody doubled its volumes, and revenues were up nearly 40% in this region.
Australia's average realized price per ton was lower than the prior year due to change in mix to add thermal coal to our previously, predominantly met-based position, and we also had a $120 million in lower met pricing settlements in 2007 compared to 2006. However, as we look forward to the settlements that are just around the corner for the new year, we expect that we will significantly exceed 2007's met pricing levels, which should greatly improve our revenue profile going forward.
Our Australian costs were about $5 per ton lower than last year this is also related to the change in mix towards a more balanced portfolio of metallurgical and thermal operations. I'd like to also update you on the Australian coal chain, and I said in the fourth quarter we did see some improvement, but we think it also has a long way to go.
We've been very proactive this year in addressing the long term Australian transportation challenges with several initiatives aimed at securing export capacity. First we were successful in retaining the existing throughput allocations systems at the port of Newcastle, and second just last week we joined with a handful of other producers to approve construction of the new NCIG terminal at the Newcastle port.
Peabody is the second largest shareholder of this $30 million ton terminal and we will gain $5 million metric tons of dedicated throughput when it's completed in 2010. And we also expect to participate in the Goonyella Abbott Point rail and port expansion project which will increase our capabilities out of Queensland.
Now let me summarize our expectations for 2008, earlier I touched on a number of major capital projects at our operations which required significant investments over the past few years. These projects are largely complete and we are now targeting lower 2008 capital in the range of $350 million to $400 million.
As to our sales position in the United States, our 2008 production is largely committed and priced. At the same time we have $220 million to $240 million tons to price over the next two years, representing significant leverage to quickly improving US market conditions.
We are very pleased with our US sales position. In Australia, we have 9 to 10 million tons of planned 2008 production available for pricing and our Australian un-priced volumes should grow significantly in '09 and '10, as legacy contracts roll-off.
Many of these contracts were inherited from Excel, and in fact if our legacy volumes were available to be priced today they will contribute well more than $200 million of additional revenues. Now turning to our financial outlook for 2008.
We're targeting EBITDA of $1 billion to $1.3 billion which at the high-end, of course, would be as much as 35% above last year this reflects the benefits of higher pricing and volumes in both the US and Australia which I just mentioned is being in part held back by the inability to re-price legacy contracts out of Australia at current market rates, as well as higher fuel, explosive and currency costs in 2008 that will add $150 million to our costs. Our year-over-year earnings per share targets are being affected by higher non-cash, tax and DD&A expense of up to $0.85 per share.
The majority of this difference is tax related and is purely an accounting issue as we recognize tax benefits in 2007, due to our positive earnings outlook. I'll also remind you that we still maintain $1.8 billion of gross, net operating loss tax assets that will allow us to offset a significant amount of future cash tax payments.
So in summary, Peabody's expanded operating and trading platform is extremely well positioned in an international market that is experiencing strong demand and shortages of supply. We are uniquely positioned among US-based coal companies with geographic and product diversification that gives us the scale and reach to succeed in these inter-connected global markets.
To discuss the markets and Peabody's 2008 focus areas, I'll now turn the call over to our Chairman and CEO, Greg Boyce. Greg?
Gregory H. Boyce
Thank you, Rick, and I know everyone on the call joins me in congratulating you on your well-deserved promotion to President and Chief Commercial Officer. Those familiar with the Company know that Peabody has long benefited from Rick's financial acumen, strategic sense, transaction skills and ability to drive results.
And when I joined Peabody, almost five years ago, we established an action plan to create the new BTU. We were looking for a stronger platform for sustained growth.
We identified several key areas. We wanted a new safety focus and culture.
And we have just completed our three safest years in our 125-year history. We wanted to restructure the portfolio to target the very best growth markets, and we have since made acquisitions in Australia, Colorado, in the PRB, while spinning off Patriot Coal.
We are also very well positioned to participate in new developments in the best emerging coal producing regions of the world, China, Magnolia and Mozambique. We wanted an international operating and trading platform emphasizing the fast growth Pacific Rim markets.
And we now have one of the largest global coal trading platforms with offices on four continents. We wanted a business base that could capitalize on growing demand, while managing costs.
And we are expanding our Australian capacity to more than 30 million tons while completing projects in the PRB and New Mexico. We wanted to serve an energy short world, with products and clean coal technologies.
And we're participating in projects to cleanly turn coal in the gas, transportation fuel and electricity, leading to a carbon reduced future. The following tremendous hard work by the Peabody team and significant well placed investments, we are positioned to benefit from these initiatives beginning in 2008, and we now have greater leverage to price, volume and growth improvements over the long term.
I would now like to discuss the global coal markets and Peabody's strategic priorities. As I review the extraordinary events and global dynamic that are shaping the current energy markets it's clear that we now have a new coal market paradigm.
That's what I would call coal convergence. For years, many accepted the links between oil and natural gas markets, but viewed coal as a localized product.
The facts are, however, that coal has become more multi-regional, in fact now more global. Demand in China or rains in Australia immediately impact the global markets; with that impact being felt all the way to the coal fields of Wyoming.
Let me just give a few examples, coal has been the fastest growing fuel in the world for each of the past five years, the strain this creates is showing through. Most visible are the rail and port limitations, and while coal chain expansions are underway, rising demand continues to render these additions insufficient.
Global benchmark coal pricing is rising from already high marks, stockpiles are very low and generators are increasingly concerned about supply. India utilities with plants with critically low inventories have been instructed to increase their imports by two thirds this year.
China with demand outstripping supply in critically low stockpiles, in many provinces, is encountering brownouts and directing all coal to go to electricity generation. Just last week coal exports were halted at least through the end of February.
Now this is stunning for a nation that has been the world's third largest coal exporter, much of this decade. More nations are keeping their coal at home to serve growing generation.
Strong electricity demand growth in South Africa, for instance, strength generation resulting in curtailments in export coal mining itself. The international coal demand impact on the US has been strong and rapid.
We believe that most US generators still have not realized they now compete with their European and Asian counterparts for the same coal. Conservatively net exports from the US should more than triple just between 2006 and 2008.
And as ports fill up in the East Coast we'll see significant demand out of the Gulf for Illinois Basin, Colorado and even PRB coals: all regions in which Peabody is number one. We're starting to see the benefits of this global convergence, with published PRB prices up more than 75%, on the forward year product in just over the past year.
Global metallurgical coal demand and pricing is equally strong. Ahead of settlements, spot coal is scarce, ports are constrained, and the world's largest met coal producing region is recovering from the recent typhoon.
All of this leaves the world short of metallurgical coal. Longer term coal demand trends are equally bright.
IAEA knows that coal increase its global market share in the coming decades, while EIA states that coal will account for most US generation capacity during that time. New coal plants are being rapidly developed around the world.
China alone added the equivalent of the entire United Kingdom grid just in coalfield generation last year, some 96,000 megawatts. India has greatly increased its plant build up and targets now more than 75,000 megawatts of new capacity by 2012, much of it, coalfield.
Even some Mid-East nations are talking about building coal plants, because of long term concerns about gas supply. And the US, which has become famous for loud opposition to major new energy projects of any kind, we're seeing the largest new power plant build-out in more than a quarter century.
So I against this backdrop, our global sales and trading team has been very active. Since the first of the year, we've sold Colorado and Midwest Coal to European customers, we've sold Western bituminous coal to Japan and even Powder River Basin coal through the Gulf to Europe.
And we continue to see strong interest from Europe. We have placed Indonesian coal into Korea and new business is just beginning to be booked for 2008 and 2009 at a time when the markets are routinely setting new highs.
This global activity increases the opportunities in the US, as PRB coal is also being moved into additional markets along the East Coast for test burns. And Illinois Basin coal is finding its way up the Ohio River to compete in traditional Northern Appalachian markets.
Clearly global demand is still outrunning supply, so we believe that these recent headlines represent not some temporary perfect storm, but a systemic long life demand greater than supply market, that is likely to continue for many years to come. High energy demand, lack of competing fuels, cost pressures in key markets, all support this new reality.
And the decisions we made in recent years to ramp up our global production and trading business will serve us very well over the next several years. So, our focus in 2008 is in the area of execution, to insure we are getting as much coal into these tight markets as possible.
We plan to improve productivity and costs, we are increasing our focus efficiency improvements and de-bottlenecking at all of our operations while aggressively managing commodity cost pressures. We will expand our access to high growth high margin markets.
We have the most global exports of any US-based company and that position will grow further in 2008 from our Australian, US, and trading platforms. And Rick has discussed our two long term projects in Australia to improve our dedicated throughput there.
We plan to increase our capital efficiency as we benefit from our strong investment program of recent years. And we're pursuing international development opportunities with projects we are evaluating in several countries to feed our growth pipeline.
And we will continue to advance our clean coal projects, ranging from coal to gas plants with ConocoPhillips and GreatPoint Energy to near-zero emissions projects such GreenGen and Coal21. So, in closing, I would like to thank Peabody's team of employees around the would, for a safe and successful 2007, and we look forward to benefiting from the strong nexus of our expanded production platform and increased pricing in 2008, and intend to build from that larger base, as we move forward.
So, thank you for your time. And John, I think we can now open up the line to questions.
Question And Answer
Operator
Certainly. [Operator Instructions] First to the line of John Hill with Citi, please go ahead.
John Hill
Thanks, and good morning every one. Just a question on the 2008 EBITDA guidance, if we can get a breakout between Australia, and then an idea of what kind of assumptions are in their both for trading and resource management?
That will be great.
Richard A. Navarre
Yeah, John, this is Rich. Let me start with the trading and resource management and then just kind of give you where we are on that, on those particular numbers.
As you know on trading and recourse management, what we typically told folks at the beginning of the year, from a standpoint of estimating and modeling, what might be the total contributions of those lines of business, they are a bit lumpy. So we generally would say, probably from a trading standpoint that you should think about a $75 million to $80 million number and will it...
it probably won't be pro rata by quarter, but that's essentially the number I'd shoot for at this point in time. With respect to trading, sorry resource management, you saw that we in '06, we were about $46 million on a continuing Op basis and then in '07 we are $86 million, which included the CNX gain of about $50 million.
So I'd probably pick... I'd by in the $40 million to $50 million range for that number at this point in time of the year.
As it relates to the Australian breakout of EBITDA, I don't think we're prepared to give that number at this point in time, until we finish and get good result with all the price settlements, and which as you know are still ongoing, and obviously moving very, very favorably, but it's too much information for us to put out right now with the settlements and discussions going on.
John Hill
Understood, understood. Just one quick follow-up, if we were to commit PRB tonnage for 2009 for Peabody's product mix, what time...
what type of pricing range do you think you could realize given where the market is today?
Richard A. Navarre
Well. I mean, we'd really commented on where the OTC market is today, and it's continue to improve significantly over the last several weeks.
I'd say right now you are talking the premium PRB products about $16 right now. We think that's only going to get better from our standpoint, because of what's happening in the global markets.
It has... it's just beginning to feel the effects of what's happening and what we are seeing across the entire globe as it relates to coal supplies and demand.
John Hill
Very good. Thank you.
Richard A. Navarre
Thanks John.
Operator
Our next question is from Paul Forward with Stifel & Nicolaus. Please go ahead.
Paul Forward
Yes, thanks. Looking at this first quarter guidance of EBITDA $175 million to $250 million, just considering the low end of that range.
You haven't had a quarter under $200 million since the first quarter 2005. It's a different company now, it's larger.
You made a lot of upgrades, various mines. We've had a few months of awfully strong pricing.
How can we reconcile that with the quarterly rate under $200 million at the low end of that guidance?
Gregory H. Boyce
Well, I think, Paul. First of all, good morning.
What we are trying do is establish a guidance range there that makes sense for what we see going forward. A couple of things, obviously with the Australian platform now, there is a high variability from the first quarter of any year to the back three quarters, because the pricing changes that take place in the marketplace don't go into effect until the beginning of the second quarter.
But more importantly, we are still working our away through variability relative to the port situation in Australia. And as I mentioned in my remarks, the Queensland area has and is trying to recover from the typhoon that for some of the producers was a devastating effect.
Fortunately for us, we didn't have near those effects. But having said that, our guidance range is really designed to take into account the fact that there is a lot of moving parts yet that we are facing going forward in this quarter, and we felt that that range was appropriate.
Richard A. Navarre
And I'll also add, Paul, is couple of long, long moves that are in first quarter as well. So it's just, we feel much more comfortable with the out quarters run-rate and we've got price settlements that will improve most beginning to the Japanese fiscal year.
So, there is really is going to be a change in what you see between Q1 and Q2, Q3 and Q4.
Paul Forward
Okay. And on the...
I know you don't want to talk about pricing but thinking about this full year '08 guidance, you got a much better handle on costs. Is there...
if you were to go by region on a cost per ton basis, production costs, would you be able to give us some kind of broad sense of escalation in operating cost, Australia, Eastern US, Western US, in your guidance? Thanks.
Richard A. Navarre
Yeah, Paul, it's Rick again, let me give you a couple of... I'll give you some directional information as it relates to cost.
And I think we feel pretty good about cost going into the year with some of the capital investments that we made last year, so let me plus by that... plus the mines that we have in Australia and we are also bringing on some lower cost production later in the year with the El Segundo mine to replace a lot of Lee Ranch production.
So, if you kind of look at it by region, I think we are starting with PRB where we got the most tons. We feel pretty good about the PRB, we will have a little bit higher sales related tax which you...
we really shouldn't care about that, because that's obviously a good thing. Obviously diesel fuel is having an impact across our platform.
But I think even with diesel fuel cost being up and explosives cost being up substantially, and because of higher natural gas and PRB, I think, we will have cost that are... with those couple of percent.
We think we have given a couple of percent over the last year, taking out sale relating cost. So that's...
that will be the best inflation hold that we've had in the last couple of years, I am sure. As it relates to Australia, we should see, we would hope that cost would come down a bit even though costs are being impacted, once again, by higher diesel fuel cost.
And we would think that there is probably going to be another $2 to $3 in currency in cost in 2008, because obviously the rates ramped-up pretty rapidly last year, we didn't have a full impact of near 90 plus currency rate in the number, but nevertheless well it's probably $2 but nevertheless we still should come down a couple of bucks because we have more efficient and lower cost operations going forward. As we look to the East, pretty flat on the cost structure except for commodity cost, M&S cost and fuel cost which could cost us a couple of bucks in that particular region.
Paul Forward
Okay. Thanks for that Rick.
Gregory H. Boyce
The only... Paul, it's Greg, the only thing just on a quarter-by-quarter basis, Australian costs, we won't see the full impact probably until the later quarters given that demurrage is likely to be high again in the first quarter of this year.
And we... costs are sensitive to the volumes that we can ship.
Richard A. Navarre
That's very fair, because we had some demurrage that we thought we are going to incur in Q4, they kind of pushed into Q1 because of that we didn't move out.
Paul Forward
Great, thank you.
Operator
Our next question is from the line of David Gagliano with Credit Suisse. Please go ahead.
David Gagliano
Hey. Just had a couple of quick questions, first of all on the volume targets for '08.
I am just wondering if you could give us a little more visibility in terms of the US regional breakdown in '08. I know we have Australia $23 million to $25 million, I think is the number.
Can you give us a split between the East and the West?
Richard A. Navarre
I think... I am checking, Dave.
Gregory H. Boyce
Okay, and just to give you a little more color on Australia. We anticipate a several million ton increase overall on Australia volumes.
Couple of million of that will stay at home in the country, so on a net basis, we'll have a small increase, maybe a million tons or so that we anticipate into the export market.
David Gagliano
Okay.
Richard A. Navarre
But we are look at probably 7% up in the West, on total tonnage, year-over-year. So we'll do a little better in Colorado, than we had done in last year.
We got the prep plan up and running that allows to move out higher quality coal both into the export market as well as into this natural market, and then in the PRB we will be up with some of the upgrades that we have done out there as well. So, we probably got 7% improvement in the West off of what was last year 161 million tons.
David Gagliano
Okay.
Gregory H. Boyce
But we will be adding the El Segundo operations in New Mexico in the back-half of the year.
David Gagliano
Okay.
Richard A. Navarre
And then there might be a slight increase as well in the Southwest. On the East side you probably see pretty flat for the most part...
maybe up $1 million tons.
David Gagliano
Okay, and just as a follow-up, obviously, it looks like you didn't commit much or anything actually for 2009 in the fourth quarter. But Greg, in your prepared remarks it sounded like to me you have clearly become more aggressive since the beginning of this year on pricing some of those open positions.
I'm just wondering if you could wrap some numbers around those comments, how much have you committed since the beginning of this year and... if what kind of pricing should we be thinking about in terms of those commitments since the beginning of this year?
Richard A. Navarre
I'd said that we probably haven't committed... we have committed very little since the beginning of the year.
Gregory H. Boyce
In the beginning of this year, I mean, I think to step-back and say that, obviously, you know I think you heard the comments very well. I mean, our expectations are that these markets are going to be continuing to improve, and so we are being very, very careful in terms of any contracting for '09 and '10 that we are doing, certainly out of the US platform.
What we have been selling in the first part of this year is almost predominantly been into the exports markets, which you know, all of the traded indices... to give you an idea of the direction of all that pricing.
So, you know, all of this bodes very well for the annual mating season, if you will, that I would call it, coming out of the PRB which typically doesn't start for another month or two, it will be interested to see if that gets accelerated some when people recognize that this is a global marketplace. And I would say that there is a significant number of PRB consumers right now that are just starting to realize what's happening with the global marketplace.
David Gagliano
Okay, obviously, I must have misunderstood the prepared remarks. You were thinking more I mean...
the commentary is more directed towards... during the course of the year and 2007 you had become more aggressive, and presumably that was the misunderstanding on my side.
But the question then is six months from now, if you had a crystal ball, what would you like your 2009 open position to be, in the perfect world in terms of how much you want committed in price.
Gregory H. Boyce
Okay, I think I understand both parts of the question better. You are correct, in the back-half, and particularly in the fourth quarter of 2007, we were not rushing out to sell coal into the then market for, say, PRB or Colorado or even Illinois Basin coal, because we did have a view in terms of what was happening in these global marketplaces that eventually there would be a coal back to the US.
So, we have not placed as much coal as we normally would have for '09 and '10 in the last quarter of 2007. Going forward, I mean it really depends on how quickly we see the market convergence into the PRB from what's happening on a global basis.
Obviously, the global marketplace is extremely strong. We are still waiting to see what the thermal coal settlements are out of Australia into the Pacific Rim and we are still waiting to see what the metallurgical coal shipments settlements will be out of Australia into the Pacific Rim.
They will set the tone for every single market, in my view, spilling all the way back to the Powder River Basin, once those settlements are complete.
David Gagliano
Perfect, thanks. Very last question; what is the assumed price...
within your 2008 guidance, I'm just wondering what you're assumed price is for the $6 million tons roughly of un-priced met coal in Australia?
Gregory H. Boyce
Well I would love to give you that number but I am sure there is a few competitors on the call that would love to hear it as well. So, I'll pass on that one, Dave.
David Gagliano
All right. Thanks very much.
Operator
And next go to line of Shneur Gershuni with UBS, please go ahead.
Shneur Gershuni
Hey, just a couple of quick question, I guess. First and foremost, just with respect to your guidance.
The tax numbers, I guess, kind of surprising towards been for the past couple years and so forth. I was wondering if you could give us some color on what has changed and also if you can comment on the depreciation numbers as well too, because that seems to be quite high as well.
Richard A. Navarre
Okay, well from a tax standpoint, if you follow this over the last couple of year what you will see and what happened in 2007 is that you know we have deferred tax assets that are net operating loss carried forwards that we had reserved, because at the time we incurred those or receive those benefits we were coming out of an LBO without a lot of visibility into the future with respect to taxable income. As we updated our plan in the fourth quarter of this year and looked at our numbers and saw the visibility, saw our tax position going forward that we would be a tax payer and be able to utilize those benefits to offset cash payments, we were able to fully recognize those, essentially releasing a valuation allowance.
It's a bit technical, but that's essentially what we did and it was a 100 plus, $190 million credit to our tax-line in 2007. Somewhat offset by some of the other issues we talked about as related to purchase accounting around the Excel transaction.
So, but those valuation allowances, they are essentially gone now. So, basically what we have left are the deferred tax assets which will offset cash payments, but they won't have any impact on our book accounting going forward.
So, we will be... from the book standpoint closer to 15% to 20% tax expense number going forward.
That's the major shift, and that's a pretty big number when you think about it, from an EPS standpoint. It has no impact on our cash and has no impact on our EBITDA.
DD&A is purely a function of pushing back the purchase price for Excel and some of the capital investments that we made in the past several years, also non-cash as it relates to ongoing feature earnings.
Gregory H. Boyce
I guess... I might just add something to this.
I think there's a little bit of a message in the capital cost in the DD&A impact that we are seeing, and that is the capital barriers to entry in this business have gotten significant. For anybody wanting to either build new capacity or bring on expanded capacity, the cost of steel, the cost of equipment, the cost of labor to build things, is significantly higher than it was.
And I feel really good about what we have completed in Australia and in the Powder River Basin and in Colorado, because we've got that behind us, but I think there's a message, as I said, in the DD&A charges and the capital charges. We spent more than we thought we were going to spend for those facilities.
For anybody thinking about on today is going to have to incur higher costs going forward.
Shneur Gershuni
Okay, if I can just follow up with just two more questions here. Just with respect to Australia, have you declared any force majeure at all, given the situation that's going on or do you feel that you are operationally sound at this point?
Gregory H. Boyce
No there was a couple of levels of force majeures that were declared over the last couple of weeks. Part of the force majeures were on the transportation network by the railroads, those were lifted fairly quickly, once the system opened up.
We had a period of time at North Goonyella where we had a force majeure claimed, but even that now has been lifted, so we have seen an impact on a certain amount of our tonnage, but we are now have lifted those force majeures.
Shneur Gershuni
And finally if can I just turn to your comments about sending coal to Japan and so forth. I was just wondering if you can sort of walk us through the mechanics, are you actually shipping coal out of the West or is there some sort of swap going on of some sort, and also if you can talk about increasing test burns into the Eastern market, given the fact that Northern App and Central App appears to be very tight right now and there may be a BTU gap for the utilities on a go forward basis?
Gregory H. Boyce
Okay starting with the exports first, that was Western bituminous coal that was railed to the West Coast and shipped out of the West Coast into the Japanese market, so it wasn't a traded process, it was an actual delivered through the West Coast process. And you are absolutely right in terms of the Powder River Basin and the pull into the East Coast, as these very significant amounts of East Coast coal is being sold into the international markets the request for Powder River Basin coal to fill behind...
both Illinois Basin and Powder River Basin coal to fill behind that Eastern Coal as well as now the utilities that are wanting to increase their mix of PRB coal in their burn to make sure that they have got sufficient supplies. We've...
there has been once instance where even to replace imported coal that was not available for the East Coast utilities, PRB coal is being burned in place.
Richard A. Navarre
Yeah, I think we see, without going to the exports again, just to kind of add to what Greg said, we sold as much export coal in January as we did in all of 2007, very strong market.
Gregory H. Boyce
I mean, one of the numbers we haven't talked about is, I think that the inventory levels in this country are coming down to the tune of two million tons a week so far this year, and that's as compared to only a million tone reduction in all of January of last year to just give a sense as to how much of this volume is now starting to move into the export marketplace.
Shneur Gershuni
Great, thank you very much.
Operator
And next question is from the line of Jim Rollyson with Raymond James. Please go ahead.
James Rollyson
Hey, good morning, everyone.
Richard A. Navarre
Good morning, Jim.
James Rollyson
Greg, could you maybe talk about the moving PRB prices we have seen at least the Nymex stuff, and you guys always talk about the contract market and kind of how that sometimes differs from the spot price market, it seems like the inventory situation in the US right now, I'm glad that's changing, is a little bit higher on the PRB coal side than it's been on the Eastern Coal side. Do you think this kind of pop we have had just in the past week or two with some of these events is that a sustainable move or is it just or we kind of gradually moving higher within the context of this tightening global market to where we need to see inventories maybe coming down before this move up to the mid-teens is more sustainable.
Just kind of give your thoughts on that.
Gregory H. Boyce
Hey, I think, if we you go back and look over the last three or four years and you look at what has happened when the CAP and the Eastern prices have gone up to the levels they are right now, in fact even slightly lower, and you look at that gap then between the Western Coals and the Eastern Coals, there was always a lag effect before that pricing in the West caught up. I think our view is we are in that ketchup zone.
And the question is whether it's sustainable or not is less related to the size of the PRB inventories in my view and more related to views on how strong and how long the export markets will be there. And, of course, as our comment said, our view is, given global demand and the struggles of the supply chain to keep up, we think the export markets are going to be strong and pulled back to the PRB for a long period of time.
James Rollyson
Thanks for that. And just as a follow-up.
You talked about, briefly, the concept of exporting some PRB coal which is probably the last type of coal in the US that would go for export. Can you talk about what you are seeing there from how that might develop on a longer term basis?
Gregory H. Boyce
Well, on a longer term basis, we are discussing more PRB coal to move through the Gulf and into the Atlantic Basin, as an initial endeavor, and series of sales. The question to become at what point, some people ask when does it start moving directly into the Pacific market, based on our view of the global conversion in these markets, it really is, because the biggest demand for coal right now is the Pacific Rim and it's keeping so much of that coal at home and/or diverting so much of what's available out of South Africa into the India Pacific Rim market that in effect the PRB is displacing coals because of Pacific Rim demand.
So, it doesn't really physically need to go to West Coast and move into Japan, it just needs to displace coals that are coming from elsewhere going there, so we are already seeing that in our view.
Richard A. Navarre
One of our moves as we got PRB into the East Coast to a coastal plant replace Indonesian coal that had that needed to stay behind. So it's a huge pool.
I mean the impact of China shutting down its exports, there is a lot of things going on that are really this market is very strong.
James Rollyson
Great. Thank you.
Operator
Our next question is from the line John Bridges with J.P. Morgan.
Please go ahead.
John Bridges
Good morning everybody, Greg, Rick. Congratulations Rick.
Richard A. Navarre
Thank you, John.
John Bridges
The exports, the Western bit exports to West Coast. Where do they go out off?
Was that Vancouver?
Gregory H. Boyce
Actually those... that exports went out through California.
John Bridges
I thought the Los Angeles port was closed.
Richard A. Navarre
Coal has been shipped out of the West Coast.
John Bridges
Okay. Because the terminal was gone, so what sort of capacity is there out of California?
Gregory H. Boyce
It would not be significant capacity, John, I mean, if exports were to significantly ramp up directly out of the West Coast then the port of Vancouver would have to come into play.
John Bridges
Right, and read the comment on exporting PRB. You pulled back on capacity last year.
What sort of capacity have you got there, the PRB, that could be put into that export market?
Gregory H. Boyce
Well, it's a good question, John. I mean, our Powder River Basin team has just done a stupendous job in terms of delivering the capital projects for the productivity and the cost reductions that we were looking for particularly at our North Antelope Rochelle Mine.
And so we've actually been able to continue to grow our volumes there without having to bring on Greenfield capacity, it's one of the reasons why School Creek continues to get pushed out of it. But at the end of the day, depending on where these markets go, I'd remind everybody, we do have the School Creek facilities and the School Creek reserves to be fully developed if the market were to warrant that kind of development in the near-term.
But during the course of this year, we have some continued efficiency and productivity projects that we have got in place. So, there is a potential for a bit if warranted.
John Bridges
Okay. You had mentioned tire problem, so have you got that under control?
Gregory H. Boyce
Again, our team, throughout the West and the Midwest has done a great job in terms of extending our tire life. We grow our volumes last year with essentially a flat deliveries of tires from our suppliers, so what we have...
clearly, it's a risk everybody has, but we feel good about what our team is doing. The tire life that we are getting, and the ratable deliveries that we are getting from our suppliers.
So, at this point in time, it's not a major limiting factor for us. Part of that, as you remember, John, that with our in-pit crushing and conveying system in North Antelope Rochelle, and our new dragline that we started up mid-year last year, that freed up a lot of trucks that we had two choices, we could have stood down or deployed them into producing more coal for the market.
John Bridges
Okay. Just a bookkeeping question, you're giving us the comparable quarters based upon your numbers ex-Patriot.
Could you give us all of those for 2007, or will we get them with each quarter as they come through. It's just...
we just like to get our numbers straight?
Gregory H. Boyce
Well, we'll be doing certainly as we review each quarter. If we have them before that certainly we will put them on our website and put them in...
and that information will be probably included all in our 10-K anyway, so.
John Bridges
Okay. We will look for
Gregory H. Boyce
And, one thing just to point you at... on that point, John, you also know that the balance sheets will, the comparable balance sheets will also strip Patriot out and condense them down into one line item, so that they are much more comparable, going forward.
John Bridges
Okay, excellent. Thanks a lot.
Good luck guys.
Gregory H. Boyce
Thank you.
Operator
Our next question is from the line of Jeremy Sussman with Natixis Bleichroeder. Please go ahead.
Jeremy Sussman
Yeah, hi. Good morning.
Gregory H. Boyce
Good morning, Jeremy.
Jeremy Sussman
Good morning, Greg. In terms of the PRB exports to Europe, can you talk a little about maybe pricing and quality compared to what you'd be getting in the US?
Gregory H. Boyce
Well, currently we wouldn't be exporting at lower than mine-backed prices that I think we would be getting in the US marketplace. And, in fact, it's been certainly at a premium to what the OTC markets would, as we would with any contracted business out of the Powder River Basin.
So, it's a complicated movement, you have got rail, you have got barge, you got ocean vessels, but when you got the kind of trading platform that we have where we are involved in, particularly the ocean freight markets, 24/7, we have the ability to put these packages together and move quickly to convert them into sales back to mine.
Jeremy Sussman
I think that's fantastic. And I guess just in terms of...
in terms of acquisitions, is your focus still global or I guess, what are the thoughts these days?
Gregory H. Boyce
We continue to focus on any accretive acquisitions we can find.
Richard A. Navarre
And clearly, we have been very successful at building this global platform. We still are very active in terms of our international development, whether it's additional acquisitions, you know in the Australasian region or whether it's new developments in Mongolia and China, but we continue to look at all opportunities that make sense.
Jeremy Sussman
Sure, and I guess just last question, you touched upon it a little bit earlier but maybe go into a little more detail, just as we see some more exports out of the East Coast, what is the real opportunity for the PRB to come to the Southeast in terms of how much more can you even get blended in with current burnout there?
Richard A. Navarre
Well, that's a tough number to put your arms around, I guess, you know, it all is going to go with what how much gets exported, and what the demand increase is going to be because it's going to have to be replaced by some product, and it's either going to have to come from the Illinois Basin or is going to have to come from the Powder River Basin essentially. To give a sense for what the railroads are thinking, because they are a key part of that move...
in our Nov [ph] earnings call just recently, I know that the BN talked a lot about this particular topic and indicated that they expect a lot moves with the PRB to go to the east, to replace export coal and to be used in their blend stock and they were talking about... with their shipments, for their share of the joint line being up as much as 5% next year that's their forecast.
Jeremy Sussman
Okay, great, thank you very much.
Operator
And next we go to line of Mark Liinamaa with Morgan Stanley, please go ahead.
Mark Liinamaa
Good morning.
Gregory H. Boyce
Good morning, Mark.
Mark Liinamaa
As you think about price convergence and, of course, that sound tremendous, when you look at the prices that are in the international markets today, is that something that's going to be a guiding principle as you look to price contracts for 2009 and beyond doors are going to be a margin expectation given the cost structure in the various regions?
Gregory H. Boyce
Markets recommend... certainly we, its...
margins are important in any business but it's not, it doesn't drive our pricing at the end of the day. I mean we are in the market to get the right pricing and we want to be low cost producer on that cost curve.
And just because we are the low cost producer doesn't mean we should take a lower price than what the market should bare. So we are looking at conversion and what the net back and what are the alternatives to the customer and that's the way we should look at the markets.
Mark Liinamaa
And are the customers beginning more and more to recognize that kind of pricing dynamic over time?
Richard A. Navarre
I think, most... a lot of the customers are, I mean, you are getting into a market at the lowest delivered cost per million BTU and people are looking at that obviously and you look that coupled with some of the other handling charges and things.
I think you know there is always going to some basis differential, of course, between the products, the transportation and other issues. But I think as you look at all the movements that are going on around the world and look at the net backs, I mean, the smart folks are taking advantage of the arbitrage opportunities.
And the traders are doing it, the good utilities that have the sophisticated staffs are also looking at that.
Mark Liinamaa
That's great. And you may have already given this number and I may have missed it, but within your plant production, can you...
did you put an absolute number on what is earmarked for exports in your current book?
Richard A. Navarre
Such as realty [ph].
Mark Liinamaa
But within the say $200 million or so that you have planned is there a rough number that would be targeted domestically for export?
Richard A. Navarre
I don't think we have a target in there per se. I think the market is continuing to surprise us, probably, daily as strong...
how stronger it is. So, I wouldn't put a particular number.
As far as the overall US, we are probably targeting a growth of up to 30 million tons in exports. How much of that we'll get, we are not going to lay that number out, but I think we're estimating a $30 million ton growth in the export market on the US.
Mark Liinamaa
Okay. Thanks very much guys.
Operator
Our next question is from the line of Michael Molnar with Goldman Sachs. Please go ahead.
Michael Molnar
Good morning, everyone.
Gregory H. Boyce
Good morning, Michael.
Michael Molnar
Just, if you can just talk little about that estimate that we have been talking with exports on I think you said $75 million, can you just walk us through some of your logical analysis on how you come to thinking it might be about $75 million in exported ton?
Gregory H. Boyce
Well, you know that number is a combination of both the thermal coal and the met coal as we go forward. So, as we analyze what's happening, we starting looking at the international basins, we look at the Pacific ramp, what its needs are, we look at the Atlantic Basin, what its needs are, we calculate what we think the volumes are required to fill the demand gap and then we eventually bring that all the way back to the port capacities and the volumes out of the East Coast and the Gulf Coast of the US for exports which is where we see the vast majority of most...
virtually all of that export coming from. You know a specific breakdown little less met, maybe that 30, 36 to 38 range for tonnage, million tons on met coal and the remainder being thermal coal.
And as long as these markets continue to stay strong, I think we will start to see some of the ports that because of lack of usage, shall we say, come less efficient over the last couple years, claw back some of their productivities and actually increase their capacity over the next couple of years. And I will remind you we are actively involved in the port structure because we are still a third owner in DTA.
Michael Molnar
Got it. And if you have to think about the key infrastructure limitation whether it be the rail or the tunnels themselves, what do you see as the first thing as more and more exports happen, that would be the bottleneck in the system, is it more just the terminals or do you see rail...
with some of the rail lines being the bottleneck as well.
Gregory H. Boyce
I think our sense right now would be... it would be some of the terminals themselves would be bottlenecks, but as they begin to become more efficient then we'll have to look at the rail network as well.
Michael Molnar
Okay, great. And just one last question, on the GreatPoint Energy investment, can you just give some color on what you, what did you see here that you found exciting?
Gregory H. Boyce
Well, clearly what's exciting about GreatPoint Energy investment is the development of that technology which would gasify the coal and produce a syngas at a significantly competitive price to the cost of natural gas. And at a lower cost point then some of the traditional gasification processes.
So that was really the interest that we had there. And number one, and number two, it would appear that it favors the western sub-bituminous type coals, which obviously, with our holdings out west is also of interest to us.
Michael Molnar
Thanks Greg. Thanks guys.
Operator
And next we go to line of Pearce Hammond with Simmons & Company. Please go ahead.
Pearce W. Hammond
Hey, Good morning.
Richard A. Navarre
Good morning, Pearce.
Gregory H. Boyce
Good morning, Pearce.
Pearce W. Hammond
Greg, I would like get your perspective on Queensland both your mines and the overall industry and when will things get back to normal following the recent flooding?
Gregory H. Boyce
Well I think the question about normal is probably going to be mine-by-mine and company-by-company specific. I can give you my general assessment.
There was a section of Queensland that was hit unbelievably hard with flooding. I think the Internet is a wash with the photograph of draglines that are covered all the way up above the house.
So, you're talking about pit flooding of 50 feet or 60 feet deep. Not everybody was hit to that extend, in our locations we had some localized water in our pits and the roads were cut-off, lot of the roads in Queensland cross through these rivers drainages and so you lose road access for a number of days that was probably the biggest impact to us.
All of that's been reestablished, we think within the context of the guidance that we have given for both the quarter and year, we have incorporated any of the impacts and we now are back up and running at our operations. But clearly when you look at for instance operations that have been flooded to the extent of some of them have, folks are talking about anywhere from three to six months or longer to where they get back to what they would call normalized operation.
So, it's going to be a slow build-up, you have got the likes of a number of the major produces there that have declared force majeure because of they... they were disproportionately hit with the rains and the flooding.
Pearce W. Hammond
Great, and on the contracts that Excel had committed internally in Australia, before you all had purchased them... if you were to mark those to market and I think that Rick had mentioned a figure earlier.
I think it was a top-line figure, but how much more EBITDA could you be receiving if those were to get essentially the pricing that's in the marketplace today on those $5 million tons.
Richard A. Navarre
So, Pearce, I think that numbers about $200 million to $250 million roughly.
Pearce W. Hammond
On the revenue side.
Richard A. Navarre
It's EBITDA as well, it all falls to the bottom-line.
Pearce W. Hammond
Okay, yeah, and then
Richard A. Navarre
Minor taxes and obviously, on taxes royalties are just small component of that... but yeah, most of it's going to fall to the bottom-line of the EBITDA.
Pearce W. Hammond
And then the Australian, those prices for those generators in Australia. I know they are obviously lower than, than spot can you give us an indication where those are, those legacy contracts and the roll off schedule.
I know they roll off over the course of the next two years, but.
Richard A. Navarre
Most, not kind for the export contracts and there's the domestic contract as you know that goes on for quite sometimes. And so that one will continue in the portfolio, but the export contracts, the majority of those will roll off in the next 18- to 24 months.
And they were... most of those were at market prices at the time we acquired the Company and return business deals that they were agreed too with the exception of maybe one contract that was a little bit lower than market, but just because it had a prepaid component to it that Excel agreed to, so that's all the detail that I can really provide on it.
Gregory H. Boyce
Pearce, when you look at our numbers that we provided, we got 9- to 10 million tons of our Australian production available for pricing for this next fiscal year starting April 1. And we say about two-thirds of that is the metallurgical coal.
If you then jump just one year to 2009, we've got 17- to 20 million tons of Australian coal on priced about half of that's met coal. And that just, that differential is not coming with significant production capacity, but a big jump in that is the roll off of some of these legacy contracts.
Pearce W. Hammond
Great, and one final question. Rick in the '08 guidance, how much demurrage is baked into that?
Richard A. Navarre
Well, it's certainly not... it's still a bigger numbers than we would like to put in there, Pearce, but it's roughly about $4 a ton on average, and that's coming down a couple of bucks from last year's number.
So, if we can beat that that would be great. We would be very happy about that, we beat the demurrage number we will probably move some more coal as well, but we need to be cautious in the numbers at this stage of the game until the queues are running fluently.
Pearce W. Hammond
Sure, well, thank you very much.
Gregory H. Boyce
Thanks Pearce.
Operator
And next we go to line of Luther Lu with Friedman, Billings, Ramsey. Please go ahead.
Luther Lu
Yes, good morning, just I have few clarifying questions. Hello?
Gregory H. Boyce
Yes. [Multiple Speakers]
Luther Lu
Okay. First question is the 9 million to 10 million tons for this remainder of the calendar year or for the fiscal year?
Gregory H. Boyce
It's for the Japanese fiscal year which starts April 1 and then would run through then the first quarter of next year.
Luther Lu
Okay, so for the remainder of 2008 you have three quarter of that?
Gregory H. Boyce
Yes.
Luther Lu
Okay. And for the met coal are they mostly still high quality met coal, low-vol type?
Richard A. Navarre
We've a mix of metallurgical grade calls, we've the highest quality, obviously, the Goonyella brand is obviously the highest quality coking coal. And we've got some semi-soft and a variety of different brands there.
I mean we can give you that information that breaks it down, so but I don't that off the top of my head.
Luther Lu
Okay, all right, and Rick, did you mentioned that the premium PRB right now is at $16?
Richard A. Navarre
That's approximately where the OTC is with the sulfur premium would put you up into the high $15- $16 range.
Luther Lu
Can you contract at that level right now or contract price is still little bit higher?
Richard A. Navarre
Well, what I can say, we haven't been doing a lot of contracting, because we're this point in time we are looking at the markets and the overall impact of the rest of the markets before we decide to secure any measurable business out of the PRB or any of those other basins at this point.
Luther Lu
Okay. And in terms of your 2008 currency hedge, what level are you at?
Richard A. Navarre
We're in pretty good shape for 2008, we are about 80% hedged in '08. A number that's probably about $0.80, $0.81 on Australian dollars compared to the rate it's about $0.90 today, it's about $0.89 or $0.90 right now, so we feel pretty good about that.
If we weren't hedged every $0.01 would be about $13 million impact.
Luther Lu
Every $0.01 is about $13 million.
Richard A. Navarre
On an un-hedged basis.
Luther Lu
Un-hedged, okay.
Richard A. Navarre
But as we are, as we are hedged we shouldn't have that currency volatility as much as we have last year.
Luther Lu
Okay.
Vic Svec
And Luther this is Vic. Were you asking about the legacy tons or the un-priced tons for 2008 out of Australia?
Luther Lu
I am talking about un-priced tons for Australia.
Vic Svec
Okay, the legacy tons are on a fiscal year basis, the un-priced tons are calendar year but, of course, that benefits us post the first quarter, once we get the Japanese fiscal year for most of those contract.
Luther Lu
Okay, so for the... from 2Q to 4Q, you have 9 million to 10 million tons un-priced coal.
Vic Svec
Exactly.
Luther Lu
Okay, got it. Thank you guys, very much.
Richard A. Navarre
Thank you.
Operator
Our next question is from the line of Gordon Howald with Calyon. Please go ahead.
Gordon Howald
Hey guys kind of just go back to that PRB pricing question for a second. I mean, can you really justify $16 PRB coal in contracts, not with the...
with [ph] account the market is seeing right now, last time PRB spiked, it was accompanied by rail problems, why wouldn't volumes just increase pretty dramatically to bring that price down. I am just trying to get a sense of contracting at these levels.
Richard A. Navarre
Maybe this is a little bit of clarification. The last time, actually, the PRB pricing spiked was actually when we weren't having rail problems, it was actually the opposite.
If we had rail problems which held PRB pricing back, which made that lag that Greg referred to earlier, take longer to go into effect because people weren't bidding on PRB coal, because it wasn't available because of the rail issues. When the rail became more fluid and they started taking test burns, and they started participating in moving more coal to the east, the pricing moved.
So and I mean
Gordon Howald
Do you think there is similarity ?
Richard A. Navarre
... discuss the questions, how do we justify $16 pricing, I mean, how do we it's...
I don't know how do you justify anything less than that when you look at the rest of the markets.
Gordon Howald
Do you think there is a lot of similarities than between what's happening now and what happened the last time... two years ago when the spike...
when the big spike happened there?
Richard A. Navarre
Well, there certainly are, I mean, and I think it's even magnified when you see what's happening, because the numbers are even larger, it's happened across a broader scale on the global platform, it's really hitting every country outside the US. You are seeing Central Appalachian coal has moved to $70; it wasn't $70 last time we had this discussion, two years ago.
So, that's pulling on Illinois Basin, that's beginning to pull on the Colorado coals. And this is the same thing that happened in the past, and you're seeing the PRB, if you can't get cap coal you can't get met coal because if you're going out of the export market you are going to have to burn something, and so the customers are beginning to realize that they need to have reliable supply, and they need to start securing some of that.
So, I think the situations are very similar if not amplified a bit.
Gordon Howald
I appreciate the color, thanks guys.
Operator
And next question is from the line of Lawrence Jordan [ph] with Lehman Brothers, please go ahead.
Unidentified Analyst
Good morning just I wanted to touch on free cash flow in the quarter. I guess, typically you offer up an operating cash flow number I didn't see it in this press release.
So, I guess, the first question is what was your operating cash flow, and then what was your revolver balance at year-end?
Richard A. Navarre
Sure, the reason you don't have a cash flow number this time in the release and it's purely just to because of the fact with the Patriot spin-off we have two different systems and we are still tackling the differences between Peabody and Patriot to get you to the right number. Obviously, we will be filing our 10-K in the next couple of weeks here, and we will get you the details on that...
I can give you a guess of the number for the overall free cash flow for the operating cash flow number, but I am not going to do that because. If I felt more comfortable I would have put it in the press release, but we know the total, we just need to break it out between the retiree and health care payments and such, between Peabody and Patriot.
The revolver borrowing was about in the 90s at the end of the year.
Unidentified Analyst
Back to cash flow, if you don't mind, could I ask you a different way, were there any material investing or financing activities in the quarter, absent common stock dividends, and obviously the revolver borrowings, was there anything else ?
Richard A. Navarre
No, not at all.
Unidentified Analyst
Okay, and then just lastly on exports, and I am hopping in between another call, so I apologize if you've already gone through this, but I believe earlier in the call you referenced that you are the largest exporter of coal in the US. And I guess, one, I wanted to confirm that statement, and two just follow up on that, because I was a little bit confused, I thought some of your competitors were a bit larger.
Gregory H. Boyce
Yes, now what we said was we are the largest exporter of coal of any of the US coal companies supplying coal into the export markets, because you have to understand it's not only what we export out of the US, but it's our entire Australian platform.
Unidentified Analyst
Okay, that makes sense, I am sorry, I just misheard them. Thank you very much.
Gregory H. Boyce
Thank you.
Operator
Our next question is from the line of Justine Fischer with Goldman Sachs, please go ahead.
Justine Fischer
Good morning.
Gregory H. Boyce
Good morning.
Justine Fischer
So, you guys said that you are pretty much committed in price for your domestic tonnage for 2008, right?
Richard A. Navarre
Pretty much, there is still a little bit to see that we have available, but
Justine Fischer
So, the one thing that I am grappling with, and it's not just with you guys, it's with most of the US coal companies that if most of the companies are pretty much committed and priced for their '08 steam coal tonnage, how can particular companies export that much more coal if you have already got it committed to people in the US, and then how can total US exports increased by 30 million tons when there is a finite amount of new projects coming online for steam coal.
Richard A. Navarre
Well, from our standpoint, I mean, a lot of... our export product is coming from a couple of different places.
It's coming from Colorado, where we had a capability to run the long-haul a little harder and produce a little bit more coal than we have in past, and we can move that coal through, from the... on the rail system.
We have, we can move some PRB coal, and we have access to the... trading and brokerage market.
So, from our standpoint, we have significant commitments from our, on our brokerage side that will allow us to move that coal into the export market and take advantage of that. So, we don't actually have to have, we can use other people's capacity, I guess, is the best way to say it from the trading side.
Unidentified Analyst
I mean, I guess, if I just go over the larger coal companies, I mean, pretty much Consol said last week, they are committed, Massey is pretty much committed, Arch with the exception of Mount Laurel, is largely, I guess they're the only ones that I am with... which companies do you think will be bringing on most of this additional 30 million ton.
Gregory H. Boyce
Well, a lot of what has already been committed is, particularly, in the fourth quarter of last year, was for the export marketplace. The other thing that you have to recognize is, this is one of the reasons why stock piles are coming down as rapidly as they are because there is a lot of movement.
Coal that is able to come out of those stock piles either through deferred shipments and/or just trading out of those utility stock piles and shipping coal directly to the export markets. So, it's a combination of the two, and as I said that when you see the stock piles coming down, 2 million tons a week, that's a huge signal as to what's happening on the export basis.
Richard A. Navarre
Hey, Justin, I think I would add that. I think where the disconnect is...
is we don't expect to see Central Appalachian production go up because of exports. As a matter fact we don't think it's going to continue it slide and decline.
Frankly what's happening is this coal is being sold into the export market... where what hasn't been realized yet is that when the customers in the US come out to buy coal, it may not be there, because it is already been sold in the export market.
So, it doesn't necessarily mean that there is going to be higher production... it mean it's already sold, so those customers are going to have to look elsewhere for their product.
Unidentified Analyst
And you guys said the utilities aren't yet knocking on your door the sign '09 coal?
Richard A. Navarre
Well, typically it's a little bit of... most utilities wait until after the winter to decide what they are looking for, for the future.
So unless they see what burns going to be, so that's been the traditional pattern.
Unidentified Analyst
Okay, and then you guys, I mean, given that the last spike we saw on PRB coal regardless of what the cause of it was... was close to where...
close to that $16 level, you guys must be assuming that PRB will go to the 20s, if you are not signing at that peak level, because...
Richard A. Navarre
So, once again I am saying there is not a lot of contracting activity at this point in time, and there are certainly no reason to believe on a net back basis that you can get some pretty strong prices out of the PRB over time.
Gregory H. Boyce
If you look at the fourth quarter of last year's PRB average, it wouldn't have been at those levels.
Richard A. Navarre
And this is more recently, the market has began to move into PRB in the last, really, you know this first quarter, really, this year and a little bit in... in December, so.
Gregory H. Boyce
And I would remind everyone, our sales strategy has always been to layer in good, high margin profitable business in all market condition. So, as we see going forward in the PRB, we talked about our unsold position over the next couple of years totals anywhere from 220 plus million tons, we will be layering in business going forward.
Unidentified Analyst
Okay, and then the question quick question is the export contracts that you guys were talking about, out of the Western bituminous region, et cetera, are those buy contracts or people approaching you to sign longer term contract, because I guess Consol had said previously that they are being approached for two to five year contract. So, your guys are looking at PRB Illinois Basin, et cetera, are they looking for long-term or is it more short term?
Richard A. Navarre
Most of what we have done recently has been shorter term, but we are... people are starting to enquire about longer term business.
Gregory H. Boyce
So, we will like to have some deals all the way with '08, '09 and continuing to look for opportunities and potentially extend that out.
Operator
Our next question is from the line of Sanil Daptardar with Sentinel Asset Management. Please go ahead.
Sanil Daptardar
Thanks. During the presentation that you mentioned that the demand is outstripping supply, do you plan to reverse the production cutbacks of 2007?
Gregory H. Boyce
Well, we have essentially... we have essentially build those back in.
I mean if you remember, the biggest part of our production cutbacks, back in 2007 for the near-term was volumes growth in the Powder River Basin. Incrementally, when you look at what we are adding in '08, and '09, we are bringing some of that back.
The biggest difference is the timing of School Creek. We've not changed that in terms of, we've not brought into any 2008 production.
But we'll just have to see how the market materializes over the course of the next six to nine months.
Sanil Daptardar
Okay. The 4 million ton in export you talked about mostly the Western US was for 2007, right, the entire 2007 you only expected 4 million tons from the US?
Gregory H. Boyce
That was business that we sold that we booked for '08 and '09.
Sanil Daptardar
I see, so what was the export for 2007 from the US?
Gregory H. Boyce
Total US exports?
Sanil Daptardar
Yes.
Gregory H. Boyce
4 million, 5 million.
Richard A. Navarre
From us 4 million, 5 million tons.
Sanil Daptardar
4 million, 5 million tons. So, if the business book for '08, '09 are 4 million tons in export is the same volume that you had in 2007.
If the export demand was so strong, is there a possibility that this export number may go higher during the course of 2008.
Gregory H. Boyce
I think your question is there the possibility that the exports will be even stronger than we think they will be... I think the answer to that is, yes.
Sanil Daptardar
Okay, and primarily it would be to the European markets or would you be exporting to the Asian markets from here.
Gregory H. Boyce
Well, it would be direct, primarily, probably, to Europe, but that's us that's saying indirectly, it's going to be into the Asian markets, because that's why there is a shortfall in the Europe.
Sanil Daptardar
Okay. To the previous question you mentioned about...
to the earlier questions that the more demand in the US, the utilities are mainly signing the short term contracts. So, now if one extrapolates that if they are looking at short term contracts, there is sufficient stock piles that they have, and there might be an implied message that they think that the coal prices may come down.
But according to you it doesn't seem so that the coal prices are going come down, but if they are not worried about the prices going high. If they are worried about price higher they would have gone for longer term contracts currently, but they are not doing so.
So, what... where are things basically uneven here, where are things are being missed here.
Gregory H. Boyce
I think the mix [ph] it is correct, is I don't think... and maybe you misunderstood, we didn't said that the utilities were signing short term contracts.
I think, what we said that this is typically a low in the buying period in January where customers are typically waiting for the winter to be over before they decide how much they are going to buy. But I think we haven't seen a change in buying patterns that would suggest that they are going to shorter term contracts at all.
Sanil Daptardar
I see, okay. Well, thanks.
Gregory H. Boyce
Thank you.
Operator
Our next question is from the line of Gilbert Alexander with Darshel [ph] Associates. Please go ahead.
Unidentified Analyst
Good morning. Could you give me an idea of where coal inventories are now as far as they supply.
And where they could be at the end of the first quarter?
Gregory H. Boyce
Well, I think, if you look around the different coal producing regions. In the east the inventories are coming down very rapidly, probably short in Northern App, with the recent draw downs getting close to being below average, Central App, Illinois Basin in tight.
The Western inventories, the Powder River Basin inventories are probably still slightly above average. And those are the ones that I think will start to come down very rapidly, now that the others have come into a lower than normal average.
Unidentified Analyst
And on Green Point, can you give us any color, as what technical problems still have to be overcome?
Gregory H. Boyce
I think it's early days for that. And we'll just leave it at that, it's obviously an emerging technology.
But it's one that ourselves as well as a number of other major companies have looked at, and are looking to support the next stage development and potential commercialization.
Operator
Our final question today will be from the line of Mike Tian with Morningstar. Please go ahead.
Mike Tian
Hi, good morning guys.
Gregory H. Boyce
Good morning.
Mike Tian
My question is about coal inventories as well. I am just looking at the latest EIA numbers.
And I see that bituminous stocks are pretty stable, however, sub-bituminous stocks have risen, like, 20% year-over-year. And of course this is a continuation of a three-year trend now.
My question is how long do you think this can continue, and which stocks are going to continue to rise before the contract prices and what not gets damaged, before this starts to impact prices and demand?
Gregory H. Boyce
Yeah, well, I am not sure whether you're referencing volume of inventory or days burn of inventory?
Mike Tian
Volume. I see that sub-bituminous is up to about 81 million tons.
Gregory H. Boyce
Yeah, I understand, but we only look at days burn, because the market and the generating capacity in the country is growing as well. So the only real relevant data is the days burn which we don't see is quite as out of line as the volume which show; number one.
Number two; I think, as we've talked about the PRB pricing has been increasing even given the inventory situation, and that's a pretty clear signal as I think is where people think these things are going to sort out over the course of the next two to three months or first half of the year.
Mike Tian
Right, but the prices have been increasing compared to the volume, that's what you said, right? Because right now you said it is low, so are you really basing these prices on very few transactions?
Gregory H. Boyce
Well, again as we said earlier, when you look at how rapidly... and if you scale things back, if you go back a year ago when we talked about the inventory situation in the country.
Everybody was talking about cutting back production because there were these very large build-up of inventories. And now we sit here today and we've not only eradicated the eastern overhang, we've got significant increased volumes and exports.
And now in addition, we have got Illinois Basin and Western bituminous and Western sub-bituminous coals starting to move into the export market. So it's very rapidly going to change the inventory situation here in the US, particularly for the Western sub-bituminous coals.
So, you look at all of those dynamics, and they are much more of an impact on what the pricing environment is going to be then exactly what the today's inventories is in this stock pilled. As I said if you look at it in terms of days burn, which is really ultimately what the, utilities need to look at, the numbers are not as high as they would if you are looking at pure ton.
Mike Tian
Right, okay. Just then a broader sort of view question, you said that the demand is increasing about 2% a year, if I remember correctly, and according to the EIA we cut supply or cut production by a little bit less than a percent, in that light why is stock piles still going up?
Gregory H. Boyce
Well, on a country basis, stock piles I don't believe on a days burn basis are going up, so I'm not... maybe can follow up our conversation, but our view is that stock piles are coming down; number one.
Number two; the first thing that had to be reduced was the over, if you will, the overcapacity, that's all come out of the market, and now what we are seeing is significant draw down on a rapid base in inventories, and we think that trend will continue.
Operator
And that would conclude the question-and-answer session. I'll turn it back to the presenters for any closing comments.
Gregory H. Boyce
Well, thank you all very much. As you can tell when you look at, and we look at, what's happening in the global energy markets, and particularly what's happening in every coal market across the globe, it is a very dynamic time in the business.
When you look at what we have accomplished with our platform and where we are positioned in all of these marketplaces, we look for a very good 2008. So, I thank you for your interest.
Operator
Ladies and gentlemen that does conclude your conference for today. This conference is available for replay, it starts today, January 31st, at 3:15 PM Central Time, will last until March 1st,2008, at midnight, you may access the replay at any time by dialing 1-800-475-6701, international parties please dial 320-365-3844, the access code for the conference is 900053.
Those numbers again, 1-800-475-6701 or 320-365-3844, and the access code 900053. That does conclude your conference.
Thank you for your participation. You may now disconnect.