Cloud Peak Energy Inc. Announces Results for the Fourth Quarter and Full Year 2017

GILLETTE, Wyo.–(BUSINESS WIRE)–Cloud Peak Energy Inc. (NYSE:CLD), one of the largest U.S. coal
producers and the only pure-play Powder River Basin (“PRB”) coal
company, today announced results for the fourth quarter and full year
2017.

Highlights and Recent Developments

• Net income for the fourth quarter of $17.8 million on 13.5 million
  tons of shipments, which included a valuation allowance release of
  approximately $30 million related to the anticipated recovery of AMT
  value.
• Achieved the lowest all injury frequency rate, 0.17 injuries per
  200,000 hours worked, in the Company’s history.
• Ended the year with $107.9 million of cash and cash equivalents, up
  $24.2 million from 2016, undrawn $400 million Credit Agreement, and
  total available liquidity of $507.9 million.
• Exported 1.1 million tons during the fourth quarter and 4.2 million
  tons for the full year 2017, while selling 2.5 million tons for first
  half 2018 delivery at prices higher than those realized in 2017.
• Extended logistics agreements with Westshore and BNSF through the end
  of 2020, at 5.5 million tons per year, while reducing the per annum
  take-or-pay commitment.
• Entered into a long-term agreement with JERA Trading for the supply of
  coal to two new coal-fired integrated gasification combined cycle
  plants being developed in the Fukushima Prefecture in Japan. Shipments
  are expected to commence as early as the end of 2019 and continue for
  up to forty months, reaching up to 1.1 million tons in the final
  contract year.
• In early 2018, the Company received approval for the Antelope Lease by
  Modification (“LBM”) that was applied for in December 2012. This LBM,
  which is subject to challenges by certain environmental activist
  groups, is expected to add approximately 14 million tons of 8800 Btu
  coal at below-average mine strip ratios.

Fourth Quarter and Full Year Results

• Net income was $17.8 million for the fourth quarter of 2017, which
  included a valuation allowance release of approximately $30 million
  related to the anticipated recovery of Alternative Minimum Tax (“AMT”)
  value, as well as improved logistics volumes, offsetting lower
  domestic volumes. This compares to net income of $24.5 million for the
  fourth quarter of 2016, which included $17.0 million of depreciation
  credits relating to lower asset retirement obligation liabilities.
• Adjusted EBITDA of $19.0 million and shipments of 13.5 million tons
  during the fourth quarter of 2017 compared to Adjusted EBITDA of $40.0
  million and shipments of 16.7 million tons for the fourth quarter of
  2016.
• Full year net loss of $6.6 million for 2017 as compared to net income
  of $21.8 million for 2016. The prior year net income was positively
  impacted by non-cash Asset Retirement Obligation liability adjustments
  that reduced depreciation expense by $53.3 million.
• 2017 Adjusted EBITDA was $104.9 million, a six percent increase,
  compared with $98.6 million for 2016. Increased export sales drove
  this year-over-year improvement.

Colin Marshall, President, Chief Executive Officer, and Chief Operating
Officer, commented, “Fourth quarter shipments were in line with our
contracts but lower than anticipated due to the slow start to winter
delaying purchasing. Export demand remained strong allowing us to export
1.1 million tons during the quarter and 4.2 million tons for the full
year. We now expect to export approximately 5.5 million tons in 2018 and
have extended our rail and port agreements to 2020. Domestically, we
expect to see greater balance in coal supply and demand and improvements
in coal prices that will begin to increase to more sustainable levels.”

Health, Safety, and Environment

During the fourth quarter of 2017, among the Company’s approximately
1,150 full-time, mine site employees, there was one reportable injury.
The 2017 Mine Safety and Health Administration (“MSHA”) All Injury
Frequency Rate (“AIFR”) was 0.17, a decrease from the full year 2016
rate of 0.25, and the lowest in the Company’s history. During the 26
MSHA inspector days at the mine sites in the fourth quarter 2017, the
Company received no significant and substantial citations.

The Spring Creek Mine received the Office of Surface Mining Reclamation
and Enforcement 2017 Excellence in Surface Coal Mining Reclamation
Award. This prestigious national award recognized the mine’s reclamation
success over many years. There were no environmental notices of
violation (“NOV”) in 2017 and the Company’s last environment NOV was in
2014, over three years ago.

Operating Results

Owned and Operated Mines

The Owned and Operated Mines segment comprises the results of mine site
sales from the Company’s three mines primarily to its domestic utility
customers and to the Logistics and Related Activities segment.

Shipments during the fourth quarter of 2017 were 19 percent lower than
the fourth quarter of 2016, primarily due to lower shipments at the
Company’s Antelope and Cordero Rojo mines, partially offset by increased
sales at Spring Creek due to higher export demand. With natural gas
prices averaging approximately $3.00 per MMBtu, utility coal-fired power
plants continued to run during the fourth quarter of 2017 and drew down
PRB coal inventories to approximately 75 million tons at the end of
December 2017, a decline of 9 million tons from December 2016 levels.
This decline was less than anticipated due to the mild summer and slow
start to winter. Cold January weather is expected to have accelerated
coal stockpile reductions.

Revenue from the Owned and Operated Mines segment decreased 20 percent
in the fourth quarter of 2017 compared to the fourth quarter of 2016
primarily due to lower shipments as well as a lower average realized
price per ton. Shipments were lower in the fourth quarter of 2017
compared to the fourth quarter of 2016 due to the atypical shipping
patterns experienced. Specifically, domestic shipments were higher in
the first half of 2017 than 2016 and lower than 2016 in the latter half
of 2017. Cost per ton was $10.08 for the fourth quarter of 2017 compared
with $8.96 for the fourth quarter of 2016. The higher cost per ton in
2017 was primarily driven by lower production rates, increased strip
ratios, and higher per ton labor and fuel costs. Full year 2017 costs
per ton of $9.78 were in line with full year 2016.

Operating income was lower in the fourth quarter and full year 2017 as
compared to the same periods in 2016 primarily due to the absence of the
2016 non-cash accounting income of $53.3 million for asset retirement
obligation remeasurements that were largely driven by updated cost
guidelines issued by the Wyoming Department of Environmental Quality.

Logistics and Related Activities

The Logistics and Related Activities segment comprises the results of
the Company’s logistics and transportation services to its domestic and
international export customers.

Strong Asian utility demand and current pricing allowed the Company to
export 1.1 million tons during the fourth quarter of 2017. Fourth
quarter 2017 segment operating income was $1.3 million, as compared to a
loss of $5.1 million for the fourth quarter of 2016. During the fourth
quarter of 2016, there were 0.4 million tons of export shipments and the
net loss primarily reflected the contracted take-or-pay expense
incurred. The 2017 fourth quarter reflects the shipment of 1.1 million
tons in nine vessels. Segment operating income (loss) includes
amortization of logistics contract amendment payments settled in the
previous year. With the recent extensions, this non-cash amortization
will reduce but continue to the end of the extended logistics agreements
in December 2020.

Adjusted EBITDA for 2017 includes certain minimum payments pursuant to
the Company’s rail and port agreements and unexpectedly high demurrage
charges caused by rail delays as shipments ramped up during the first
half of 2017. The Company exported 4.2 million tons during 2017 in 32
vessels.

Cash, Liquidity, and Financial Position

Cash and cash equivalents as of December 31, 2017 were $107.9 million.
During the fourth quarter, the cash used by operations totaled $5.0
million, while capital expenditures (excluding capitalized interest)
were $1.8 million.

During 2017, the Company reduced the amount outstanding on undrawn
letters of credit used as collateral for reclamation bonds by $44.5
million from $67.5 million as of December 31, 2016, ending the year with
$23.0 million in undrawn letters of credit. This amount was fully
transitioned to the Company’s A/R Securitization Program in the fourth
quarter of 2017, leaving no amounts drawn or utilized against the Credit
Agreement.

At December 31, 2017, the borrowing capacity under the $400 million
Credit Agreement was fully available. Including cash on hand and the
availability under the A/R Securitization and Credit Agreement, the
Company ended the quarter with total available liquidity of $507.9
million. The Company intends to extend or replace the Credit Agreement
before its maturity in February 2019 and expects that any replacement
facility will be significantly smaller than the current Credit Agreement.

The recently enacted tax legislation, commonly referred to as the “Tax
Cuts and Jobs Act” (“TCJA”), made significant changes to U.S. tax laws.
The material immediate impact of TCJA to the Company is the elimination
of the corporate alternative minimum tax (“AMT”), and the ability to
offset regular tax liability or claim refunds for taxable years 2018
through 2021 for AMT credits carried forward from prior periods. The
Company currently anticipates it will realize approximately $30 million
in AMT value over the next four years with approximately half of this
value realized in 2019 for taxable year 2018.

Government Affairs

Throughout 2017, the Trump Administration continued its efforts to
promote the use of America’s energy resources, alleviate unnecessary
regulatory burdens, and implement balanced, common-sense energy
policies. More recently, for example, in October 2017, the Environmental
Protection Agency (“EPA”) proposed a rule to repeal the Clean Power Plan
(“CPP”). In late December 2017, the EPA issued an Advance Notice of
Proposed Rulemaking (“ANPRM”) for a potential CPP replacement rule and
currently seeks comments on what the EPA should include in a potential
new, existing-source regulation under the Clean Air Act. Cloud Peak
Energy believes an appropriate replacement rule is needed to help
provide longer-term certainty for coal plants. The EPA has also
announced efforts to reform the New Source Review regulatory program,
which could facilitate upgrades to some existing coal power plants.

In early February 2018, the Section 45Q carbon capture tax credits were
included in the Bipartisan Budget Act that was enacted into law. This
bipartisan amendment is a critical step towards the potential
commercialization and deployment of technologies needed to address
societal concerns about CO2 and the environment while ensuring Americans
continue to enjoy safe, reliable and affordable baseload electricity
generated from coal. Cloud Peak Energy will continue to advocate for
policies that promote investments in the nation’s existing coal power
plant fleet and building new plants with advanced fossil fuel
technologies, including carbon capture.

Domestic Outlook

Mine shipments to domestic customers during the fourth quarter of 2017
were 12.5 million tons, as compared to 14.2 million tons shipped to
domestic customers in the third quarter of 2017. Typically, the fourth
quarter has lower shipments than the third quarter as customers take
their units offline for their routine maintenance scheduled before the
winter demand season begins. Cloud Peak Energy customers continued to
take their contracted volumes during the fourth quarter and generally
finished the year shipping their contracted volumes.

Natural gas prices remained around $3.00 per MMBtu during most of the
fourth quarter of 2017, as supply stabilized and a ramp-up in liquefied
natural gas (“LNG”) exports increased demand. As of December 29, 2017,
U.S. Energy Information Administration data showed that natural gas
inventories have declined by about six percent, compared to December
2016 levels. Recent cold weather has increased inventory draws and
pricing which is positive for coal demand in 2018.

Energy Ventures Analysis estimates there were 75 million tons of PRB
coal inventories at utilities at the end of December 2017, a decline of
9 million tons from December 2016 levels. With the colder weather
experienced at the start of 2018, the Company believes customers will
continue to layer in purchases during 2018 for in-year delivery.

Historically, the Company’s core cash mining costs, excluding royalties,
production taxes, and fuel, have increased as a result of increasing
strip ratios and haul distances. Strip ratios increase as coal seams
naturally deepen and require additional overburden removal, which is
common in the PRB. Haul distances increase as mining pits progress
further from the load-out. For 2018, the Company’s mine plans indicate
that the strip ratio will increase more than recent years resulting in
higher costs. These anticipated higher costs and lower volumes will
reduce the contribution from the Owned and Operated Mines segment in
2018.

For 2018, the Company plans to ship between 52 and 56 million tons, with
current commitments to sell 45 million tons, which includes 2.5 million
tons contracted with export customers. Nearly all of the 45 million tons
are under fixed-price contracts with a weighted-average price of $12.30
per ton. The approximately 11.0 million tons for 2018 that were priced
during the fourth quarter of 2017 averaged $11.74 per ton, in line with
prevailing prices at that time for the qualities of coal contracted.

The Company is contracted to sell 24 million tons in 2019. Of this
committed production, 17 million tons are under fixed-price contracts
with a weighted-average price of $12.63 per ton. For 2019, there were
5.0 million tons contracted during the fourth quarter of 2017 at an
average price of $11.55 per ton.

International Outlook

International thermal coal prices gained strength during the fourth
quarter 2017 due to import demand growth led by China, South Korea, and
other Southeast Asian countries. China has led the growth in imports of
thermal coal, increasing its imports in 2017 by 18 million tonnes, or 11
percent, compared to the prior year period. Chinese domestic production
continued to rebound with an increase of approximately 146 million
tonnes, or four percent, in 2017. China’s strong domestic production and
imports were driven by an increase in electric generation of nearly
seven percent in 2017, which was mostly supplied by coal-fired
generation. Recent cold weather in China appears to be strengthening
import demand. In South Korea, the commissioning of several new
coal-fired units in 2016 and 2017 increased imports of thermal coal by
approximately 16 million tonnes, or 17 percent, in 2017 compared to 2016.

The Company exported 1.1 million tons during the fourth quarter 2017 and
finished 2017 with 4.2 million tons of exports. Pricing remains
favorable for Cloud Peak Energy, and the Company expects export
shipments of 5.5 million tons in 2018. The Company has sold over 2.5
million tons for delivery in the first half of 2018. The higher expected
export volumes and pricing are anticipated to partially offset the lower
expected contribution from the Owned and Operated mines.

Cloud Peak Energy extended its logistics agreements with Westshore and
BNSF through the end of 2020, at 5.5 million tons per year, while
reducing the per annum take-or-pay commitment. The Company also entered
into a long-term agreement with JERA Trading for the supply of coal to
two new coal-fired integrated gasification combined cycle plants being
developed in the Fukushima Prefecture in Japan. Shipments are expected
to commence as early as the end of 2019 and continue for up to forty
months, reaching up to 1.1 million tons in the final contract year.

“The fourth quarter showed a continuation of customers taking their
contracted tonnages but remaining reluctant to contract additional coal
for 2018 due to reduced demand, increased natural gas production and
continuing elevated coal stockpile levels. Good cost control allowed us
to help offset reduced 2017 shipments and a lower average realized price
per ton. Our logistics business also helped offset subdued domestic coal
industry conditions. The improvement in export rail performance, strong
Asian customer demand, and improved seaborne pricing positioned our
exports well for the fourth quarter and into 2018. As a result, we ended
2017 at the high end of our Adjusted EBITDA guidance range,” commented
Marshall.

2018 Guidance – Financial and Operational Estimates

The following table provides the current outlook and assumptions for
selected 2018 consolidated financial and operational metrics:

Conference Call Details

A conference call with management is scheduled at 5:00 p.m. ET on
February 15, 2018 to review the results and current business conditions.
The call will be webcast live over the Internet from www.cloudpeakenergy.com
under “Investor Relations.” Participants should follow the instructions
provided on the website for downloading and installing the audio
applications necessary to join the webcast. Interested individuals also
can access the live conference call via telephone at (855) 793-3260
(domestic) or (631) 485-4929 (international) and entering pass code
4890537.

Following the live webcast, a replay will be available at the same URL
on the website for seven days. A telephonic replay will also be
available approximately two hours after the call and can be accessed by
dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) and
entering pass code 4890537. The telephonic replay will be available for
seven days.

About Cloud Peak Energy®

Cloud Peak Energy Inc. (NYSE:CLD) is headquartered in Wyoming and is one
of the largest U.S. coal producers and the only pure-play Powder River
Basin coal company. As one of the safest coal producers in the nation,
Cloud Peak Energy mines low sulfur, subbituminous coal and provides
logistics supply services. The Company owns and operates three surface
coal mines in the PRB, the lowest cost major coal producing region in
the nation. The Antelope and Cordero Rojo mines are located in Wyoming
and the Spring Creek Mine is located in Montana. In 2017, Cloud Peak
Energy shipped approximately 58 million tons from its three mines to
customers located throughout the U.S. and around the world. Cloud Peak
Energy also owns rights to substantial undeveloped coal and
complementary surface assets in the Northern PRB, further building the
Company’s long-term position to serve Asian export and domestic
customers. With approximately 1,300 total employees, the Company is
widely recognized for its exemplary performance in its safety and
environmental programs. Cloud Peak Energy is a sustainable fuel supplier
for approximately two percent of the nation’s electricity.

Cautionary Note Regarding Forward-Looking Statements

This release and our related quarterly investor presentation contain
“forward-looking statements” within the meaning of the safe harbor
provisions of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Forward-looking statements are
not statements of historical facts and often contain words such as
“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,”
“plan,” “potential,” “seek,” “should,” “will,” “would,” or words of
similar meaning. Forward-looking statements may include, for example:
(1) our outlook for 2018 and future periods for Cloud Peak Energy, the
Powder River Basin (“PRB”) and the industry in general; (2) our
operational, financial and shipment guidance, including export shipments
expected in 2018 and the anticipated timing, volumes and benefits of our
export supply agreement with JERA Trading; (3) estimated thermal coal
demand by domestic and Asian utilities; (4) coal stockpile and natural
gas storage levels and the impacts on future demand and pricing; (5) our
ability to sell additional tons in 2018 and future periods at improved,
economic prices; (6) the impact of the Trump administration energy
policies, ongoing state, local and international anti-coal regulatory
and political developments, NGO activities and global climate change
initiatives; (7) potential commercialization of carbon capture
technologies for utilities; (8) the impact of competition from other
domestic and international coal producers, natural gas supplies and
other alternative sources of energy used to generate electricity; (9)
the timing and extent of any sustained recovery for depressed thermal
coal industry conditions; (10) the impact of industry conditions on our
financial performance, liquidity and compliance with the financial
covenants in our Credit Agreement; (11) our ability to manage our
take-or-pay exposure for committed port and rail capacity; (12) our
future liquidity and access to sources of capital and credit to support
our existing operations and growth opportunities, including our ability
to renew or replace our credit facility before its early 2019
termination; (13) the impact of any hedging programs; (14) our ability
to renew or obtain surety bonds to meet regulatory requirements; (15)
our cost management efforts; (16) operational plans for our mines; (17)
business development and growth initiatives; (18) our plans to acquire
or develop additional coal to maintain and extend our mine lives; (19)
our estimates of the quality and quantity of economic coal associated
with our development projects, the potential development of our Youngs
Creek and other Northern PRB assets, and our potential exercise of
options for Crow Tribal coal; (20) potential development of additional
export terminal capacity and increased future access to existing or new
capacity; (21) industry estimates of the U.

Contacts

Cloud Peak Energy Inc.
Lorri Owen, 720-566-2932
Investor
Relations

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