Coal landholder Natural Resource Partners LP (NYSE: NRP) on Aug. 7 reported revenues of $86.8m for the second quarter of 2013 compared to $90.7m for the second quarter of 2012 and distributable cash flow, a non-GAAP measure, of $90.7m compared to $83.7m for the second quarter of 2012.
“Our lessees continue to perform much better than the industry average. Production by lessees from NRP’s properties increased 19% for the first six months of 2013 over the first six months of 2012, compared to a nationwide production decrease of over 4% for the industry for the same period. From an operating perspective, our first six months were virtually in line with our projections,” said Nick Carter, President and COO.
Second quarter 2013 total revenues decreased from the same period of 2012 due to a decrease in coal royalty revenues. Coal royalty revenues decreased 7% from 2012 to $58.2 million due primarily to decreases in realizations for metallurgical coal. Met coal accounted for 28% of NRP’s production and 40% of its coal royalty revenues for the second quarter of 2013 compared to 35% of production and 45% of coal royalty revenues in the second quarter of 2012.
Coal production volumes increased 24% to 14.9 million tons, while average coal royalty revenue per ton decreased 26% to $3.91 per ton. NRP said it benefitted during the quarter from the diversity of its coal assets, with an increase in production from all regions other than Central Appalachia as compared to the second quarter of 2012. In Southern Appalachia, the increased production was mainly due to sales that were idled for much of 2012 due to the destruction of a prep plant. In Northern Appalachia, the increased production was due to a longwall that has moved onto NRP property. In the Northern Powder River Basin, the increase was due to the checkerboard nature of reserve holdings in a mine.
Net income and net income per unit decreased in the second quarter of 2013 compared to the 2012 period. In addition to the lower revenues and higher expenses which were predominantly non-cash, a small portion of the decrease was due to an increase in the number of units outstanding in 2013 versus the same quarter in 2012.
NRP provided updated guidance for 2013. Expected coal royalty revenues have decreased by 4%, resulting in an expected decrease in total 2013 revenues of 2%. The decrease in revenues, together with an increase in operating expenses primarily due to increased depreciation, depletion and amortization relating to a reserve swap made in the first quarter of 2013, result in a $0.20 per unit decrease in expected net income for 2013. Distributable cash flow for 2013 has been increased by $40m, primarily due to NRP’s investment in OCI Wyoming, a producer of soda ash.
“Due to our continued diversification, including the investment in OCI Wyoming, we are raising our distributable cash flow forecast. In addition, even after considering the weakness in the coal markets, our lessees indicate that they are seeing the beginnings of a better market for their coal. However, until expected market improvements materialize into increased royalty payments to us, we have chosen to lower our 2013 guidance for coal royalty revenues,” said Carter. “These revenue revisions coupled with higher depreciation, depletion and amortization expenses, because of where our lessees are mining, and general and administrative expense result in a decrease in our guidance on net income per unit.”
The company expects 50 million to 56 million tons of coal to be produced from its properties in 2013, against original guidance of 48 million to 56 million tons.
Natural Resource Partners is a master limited partnership headquartered in Houston, Texas, with its operations headquarters in Huntington, W.Va. NRP primarily owns coal, aggregate and oil and gas reserves across the U.S. that generate royalty income for the partnership.