tonnes over a six-year period and 13.7 million tonnes in the succeeding four years subject to agreement as to price. Of the quantities required under such contracts, Peak Downs will furnish about 1.5 million tonnes from its annual capacity. The remaining amount will be provided by the Saraji mine, which is expected to reach a production capacity of 4.5 million tonnes annually during 1977. Total coal shipments from these mines since their inception through July 31, 1976 were as follows: _ Tonnes Shipped --- Fiscal Year Japan Europe Australia Total Goonyella 1971 (commenced October 1971)..... 182,968 60,637 243,605 1972..................................................... 2,537,436 1,223,602 46,254 3,807,292 1973..................................................... 4,330,803 598,313 123,314 5,052,430 1974..................................................... 3,001,989 735,714 3,737,703 1975..................................................... 2,977,220 231,222 1,173 3,209,615 1976 (nine months)............................ 2,610,326 143,237 955 2,754,518 Peak Downs 1972 (commenced July 1972)............ 306,719 211,023 517,742 1973..................................................... 1,562,276 1,584,413 3,146,689 1974..................................................... 3,135,533 1,789,582 4,925,115 1975..................................................... 2,644,823 1,472,539 4,117,362 1976 (nine months)............................ 2,234,529 1,371,317 3,605,846 Saraji 1975 (commenced December 1974) . 1,585,689 1,194,470 2,780,159 1976 (nine months)............................ 1,681,795 906,787 181,299 2,769,881 During recent years, coking coal shipments from the Australian mines have been below the annual delivery rates expected under long-term sales agreements. During these years production was adversely affected by labor disputes, weather conditions and clauses in the sales agreements that allow some flexibility in the timing of coal deliveries. The sales agreements generally provide for short-falls in annual deliveries either to be cancelled or to be made after completion of all other deliveries. See "Utah Management's Discussion and Analysis of the Statement of Consolidated Income." In particular, the 1975 coking coal shipments from the Blackwater, Goonyella and Peak Downs mines were below prior-year levels as coal industry labor problems in Australia had an adverse effect on performance. Utah suspended activities for three weeks at the Goonyella, Peak Downs and Saraji mines but continued operations on a restricted basis at the Blackwater mine to supply a power generating plant in southeastern Queensland which was experiencing a critical shortage of steam coal due to labor and other problems encountered by its normal suppliers. Blackwater's steam coal deliveries to this distant location instead of to Gladstone contributed to its decline in coking coal shipments due to the unusual diversion of railway rolling stock normally used for coking coal deliveries. See "Employee Relations." Steam Coal Navajo Mine and San Juan MineUnited States At its Navajo mine, located on the Navajo Indian Reservation in the northwest corner of New Mexico, Utah has established the existence of a deposit of subbituminous coal having an average heat content of approximately 8,800 British thermal units ("BTU's") per pound which is recoverable by strip mining methods. Such coal deposit was estimated to contain approximately 1.087 billion tons at October 31, 1975. The deposit is located in an area of 31,416 acres held under a lease from the Navajo Tribe, the term of which continues as long as the substances are produced from the leasehold in paying quantities. The chairman of the Navajo Tribal Council has advised Utah that the Navajo Tribe intends to seek renegotiation of the royalties provided for by the existing lease. Long-term water permits (necessary for the successful utilization of the Navajo mine reserves) with rights to obtain up to 95,000 acre-feet of water 48 annually have been obtained from governmental regulatory authorities. Approximately 41% of these water rights have been assigned to the utility companies to which Utah sells coal. See "Pending Legal ProceedingsNavajo Mine, New Mexico." Utah sells coal under two fuel supply agreements, one with Arizona Public Service Company ("APS") and the other with a group of six utilities including APS, to fuel five mine-mouth generating units with a combined capacity of 2,085,000 kilowatts at the Four Corners Power Plant in New Mexico. Both contracts are for a period of 35 years (expiring in 2004) with options on the part of the utilities to renew for an additional 15 years. Fulfillment of the remaining terms of the agreements, excluding options, will require delivery of approximately 268 million tons of coal from the Navajo mine as of July 31, 1976. Although these fuel supply agreements contain escalation provisions to protect against cost increases, these provisions have not been sufficient to prevent some decline in the profitability of these contracts. Coal reserves under the coal mining lease sufficient to fulfill the requirements of the fuel supply agreements have been conditionally assigned jointly to the owners of the generating units, such assignment to become effective in the event of default by Utah under either of the agreements or default by Utah under the coal mining lease. Utah considers the possibility of default by it under these provisions to be remote. Deliveries for each of the five years ended October 31, 1975 and the nine months ended July 31, 1976 were as follows: Average BTU Content Per Fiscal Year Tons Sold Pound 1971................................................ 6,811,316 8,976 1972................................................ 6,645,506 9,009 1973................................................ 7,179,311 8,953 1974................................................ 7,101,619 8,802 1975................................................ 6,202,557 8,753 1976 (nine months)...................... 4,193,046 8,763 The decline in average BTU content per pound in recent years is due primarily to the mining of lower grade coal seams. Although no assurance can be given as to the average BTU content of future coal production, Utah does not expect such content to be significantly different from the 1976 average. In 1973 Utah signed contracts with Pacific Coal Gasification Company ("Pacific"), a subsidiary of Pacific Lighting Corp., and Transwestern Coal Gasification Company ("Transwestern"), a subsidiary of Texas Eastern Transmission Corp., to provide Navajo coal to be used in the production of "substitute natural gas"* for delivery to the Southern California market. The Federal Power Commission has conditionally approved the plan of Pacific and Transwestern to sell gas made from coal in interstate commerce. Participating utilities presented testimony before the Commission to the effect that the process is technically and commercially feasible, although the technical capability has not yet been demonstrated for a plant of the size required and the economic feasibility cannot be predicted until the ultimate rate structure is determined. Present plans call for Pacific and Transwestern to build and operate jointly a coal gasification plant to be supplied with Navajo coal. The initial planned output would be 250 million cubic feet of gas per day which would require mine production of approximately 9.6 million tons of coal annually. Utah's unassigned coal reserves in the Navajo lease area, other than those covered by a conditional purchase option held by Western Coal Company (as described in the succeeding paragraph), are conditionally committed to supply additional gasification plants which may be constructed by the utilities. The coal contracts contain covenants designed to protect Utah's capital investment in the event gas production is delayed. While the contracts do not provide protection if the project is cancelled, Utah's capital investment to establish sufficient coal production will not be substantial until requisite approvals have been obtained. Commencement of the project is subject to final approval of the Federal Power Commission, execution of a plant site lease between the utilities and the Navajo Tribe, and the securing of adequate financing by the utilities as well as receipt of government permits required for the construction and operation of the plant. An environmental impact statement has been prepared by the Bureau of * Substitute natural gas can be defined as a gas having a BTU content similar to natural gas, but which has been derived from hydrocarbon feedstock such as subbituminous coal. 49