Coal landholder Natural Resource Partners LP (NYSE: NRP) on Aug. 6 reported revenues of $90.6m for the second quarter of 2014 compared to $86.8m for the second quarter of 2013.
Net income per unit was $0.28 in the second quarter of 2014 versus $0.37 per unit in the second quarter of 2013.
“Strong performances in the first half of the year from our oil and gas, soda ash and Illinois coal businesses offset the challenges that we continue to face in the Appalachian coalfields,” said Nick Carter, President and COO. “Our diversification efforts have provided significant benefits to NRP and consequently our combined operating results for the first six months were in line with our expectations.”
“Following through on our stated goal earlier this year, we have used the excess cash generated by our substantial distribution coverage to reduce our leverage,” said Dwight Dunlap, Chief Financial Officer. “We intend to continue to pay down our debt over the remainder of the year and use our liquidity and improved credit to fund the growth and continued diversification of NRP.”
Excluding a $5.6m impairment charge taken in the second quarter, NRP is reaffirming its initial guidance for 2014. While NRP anticipates that coal-related revenues may be lower than the initial guidance, revenues from other sources are expected to increase, offsetting those declines.
“We are pleased that our first half results matched our expectations, and anticipate continued strong performance in the second half of the year from our soda ash, oil and gas and Illinois Basin coal operations,” said Wyatt Hogan, Executive Vice President.
While the thermal coal market was starting to show signs of recovery earlier this year aided by the cold winter and higher natural gas prices, the cooler than anticipated summer so far has dampened some of the optimism around thermal coal prices. The global metallurgical coal market continues to suffer from oversupply in addition to reduced demand from China, and NRP does not anticipate met coal prices recovering in 2014.
NRP has exposure to three mines included in a recent WARN notice issued by Alpha Natural Resources (NYSE: ANR) for strip mines in West Virginia, but even if these mines are ultimately idled in October as Alpha indicated, it would not have a material impact on NRP’s 2014 forecast as the mines are projected to continue full operations through the third quarter. While other lessees have also announced potential idling of mines through WARN notices, NRP does not anticipate a material impact on its 2014 results. In contrast, NRP believes that thermal coal production from its low-cost Illinois Basin properties will continue to remain strong. NRP is heavily invested in Illinois coal reserves held by coal operator Chris Cline’s newly-public Foresight Energy.
Coal production volumes on NRP properties in the second quarter decreased 20% to 11.9 million tons, while average coal royalty revenue per ton decreased 1% to $3.86 per ton, which led to a 21% reduction in coal royalty revenues to $45.8m from the second quarter 2013. The reductions in production and price realizations were primarily related to NRP’s Appalachian properties.
Metallurgical coal accounted for 36% of NRP’s coal production and 43% of its coal royalty revenues for the second quarter of 2014 compared to 28% of production and 40% of coal royalty revenues in the second quarter of 2013.
Revenues other than coal-related revenues nearly doubled from the second quarter 2013 primarily due to increased oil and gas revenues and an investment in the soda ash business.
Net income attributable to the limited partners and net income per unit decreased in the second quarter of 2014 compared to the 2013 period to $30.8m, or $0.28 per unit, from $40.2m or $0.37 per unit. About half of the decrease was associated with the non-cash impairment charge. Before considering the impairment, net income attributable to the limited partners and net income per unit were $36.3m and $0.33 per unit, respectively.
Natural Resource Partners is a master limited partnership headquartered in Houston, Texas, with its operations headquarters in Huntington, W.Va. NRP is principally engaged in the business of owning and managing mineral reserve properties. NRP owns interests in coal, aggregates and industrial minerals and oil and gas across the United States that generate royalty and other income for the partnership. In addition, NRP owns an equity investment in OCI Wyoming, a trona/soda ash operation, and owns non-operated working interests in oil and gas properties.