Bankrupt Patriot Coal Corp. agreed Thursday to become the first U.S. coal operator to phase out and eventually stop all large-scale mountaintop removal mining in central Appalachia under an agreement reached with three environmental groups that sued over pollution from several West Virginia operations.

St. Louis-based Patriot said the proposed agreement allows it to postpone as much as $27 million in expenses into 2014 and beyond, improving its liquidity and the likelihood it can successfully emerge from Chapter 11 protection as a viable business.

The deal comes as Patriot tackles litigation that must be resolved during those proceedings. The terms would be binding on any subsidiaries it sells or spins off.

Presented to U.S. District Judge Robert Chambers in Huntington for consideration, the agreement stemmed from water pollution lawsuits filed by the Sierra Club, Ohio Valley Environmental Coalition and West Virginia Highlands Conservancy.

In exchange for phasing out mountaintop removal and agreeing to caps on the amount of coal it produces from strip mining, Patriot gets additional time to install selenium treatment systems at several mines.

Patriot is one of the largest mountaintop removal operators in the region.

Michael Brune, executive director of the Sierra Club, called the agreement a historic moment in the fight against what he called an “abhorrent” form of mining.

“Patriot Coal may be the first company to cease mountaintop removal mining, but because of the tireless efforts of committed volunteers and community organizations, it certainly won’t be the last,” he said.

Mountaintop removal is a highly efficient but particularly destructive form of strip mining unique to West Virginia, Kentucky, Virginia and Tennessee. Coal companies blast apart mountain ridge tops to expose multiple coal seams. The resulting rock and debris is dumped in streams, creating so-called valley fills.

People who live near the operations complain about not only property damage but also health problems they believe are related to the dust and water pollution the operations create. Whether the practice should continue has been the source of intense conflict in West Virginia, where surface miners depend on it for their livelihoods.

The agreement caps the amount of coal that Patriot can mine from surface operations at 6.5 million tons in 2014, falling to 5 million tons in 2017. By January 2018, the amount is limited to no more than 3 million tons a year.

Under the settlement, Patriot agrees to immediately retire the giant dragline machine at its Catenary mine complex and to retire the dragline at the Hobet mine complex in 2015. It allows Patriot to sell that equipment at its discretion, as long as the buyers agree not to use them in Kentucky, Tennessee, Virginia or West Virginia.

It also will withdraw applications for two valley fill permits that are pending with the U.S. Army Corps of Engineers and surrender its right to a third permit.

Patriot says it will only conduct “small-scale surface mining” at existing and planned underground mines. That lets the company move ahead with plans to open the Huff Creek Surface mine next to a new underground mine.

The agreement also requires Patriot to make a $500,000 donation to a nonprofit land-use organization of the plaintiffs’ choosing and requires Patriot to ask the U.S. Bankruptcy Court for permission to pay the environmental group’s $96,000 in legal fees.

Cindy Rank of the West Virginia Highlands Conservancy has long argued that if companies had to pay the “real costs” of mountaintop removal, it wouldn’t be economically feasible. Selenium pollution is one of those costs.

Selenium is a naturally occurring element that surface mining can release into waterways. Studies have found it’s toxic to aquatic life. In humans, high-level exposure can damage the kidneys, liver, and central nervous and circulatory systems.

“Hopefully, it’s now become clear that when coal companies are required to prevent illegal selenium pollution and pay the costs for cleanup themselves,” Rank said, “it simply doesn’t make economic sense to continue this destructive form of mining.”