Coal producer Alliance Resource Partners LP (NASDAQ: ARLP) on July 26 reported that net income in the 2016 Quarter was $82.7 million, compared to $94.9 million for the quarter ended June 30, 2015.
Total revenues were $439.2 million in the 2016 Quarter compared to $604.7 million in the 2015 Quarter, as coal sales revenues declined due to lower coal sales prices and planned reductions in coal sales and production volumes. Other sales and operating revenues were also lower following the acquisition of the remaining equity interests in Illinois coal producer White Oak Resources LLC in July 2015.
Lower revenues were offset in part by reduced operating expenses and equity in loss of affiliates related to White Oak, which led to EBITDA of $169.6 million for the 2016 Quarter, compared to $182.4 million for the 2015 Quarter.
ARLP’s performance for the 2016 Quarter improved significantly compared to the quarter ended March 31, 2016 (the “Sequential Quarter”). Led by increased coal sales volumes, ARLP’s revenues rose 6.4% compared to the Sequential Quarter. Increased revenues combined with lower operating expenses helped drive net income higher by 74.8% and EBITDA up by 24.9%, both compared to the Sequential Quarter.
“ARLP once again delivered solid results in the 2016 Quarter,” said Joseph W. Craft III, President and Chief Executive Officer. “Our teams continued to perform well, overcoming continuing challenges facing our industry to deliver strong sequential increases to ARLP’s key operating and financial metrics. Our marketing group successfully drove increased coal sales volumes in the 2016 Quarter and secured additional coal sales agreements to further strengthen our contract portfolio. Operationally, ongoing efficiency initiatives continued to result in lower operating expenses and capital expenditures. Our finance group also made progress in its efforts to enhance ARLP’s liquidity by completing a new $33.9 million capital lease transaction.”
Coal sales revenues in the 2016 Quarter were $422.5 million as compared to $567.3 million for the 2015 Quarter primarily as a result of lower sales and production volumes due to idling the Onton and Gibson North mines in the 2015 fourth quarter, the planned depletion of reserves at the Elk Creek mine in the Sequential Quarter and reduced production at the River View and MC Mining operations in response to market conditions. Compared to the 2015 Quarter, these reductions were partially offset by volumes from the Hamilton mine acquired as part of the White Oak acquisition. ARLP’s coal sales revenue was also negatively impacted by lower total average coal sales price realizations in the 2016 Quarter, which decreased 2.0% to $53.05 per ton sold compared to $54.13 per ton sold in the 2015 Quarter.
Operating expenses in the 2016 Quarter decreased 34.3% to $246.5 million primarily as a result of the previously discussed reduction of coal production volumes, a favorable production cost mix due to ARLP’s initiatives to shift production to lower-cost operations, reduced selling expenses and a build in coal inventory at various mines. The lower-cost production mix and higher productivity from the Tunnel Ridge and Gibson South mines contributed to drive Segment Adjusted EBITDA Expense per ton down by 13.5% to $30.93 in the 2016 Quarter compared to $35.77 in the 2015 Quarter.
Total revenues decreased 26.9% to $852.0 million for the six months ended June 30, 2016 (the “2016 Period”) compared to the six months ended June 30, 2015 (the “2015 Period”) due to the previously discussed reduction of coal sales and production volumes at the Onton, Gibson North, Elk Creek and River View mines and the absence of coal royalty and surface facilities revenues from White Oak, offset in part by the addition of coal sales and production volumes from the Hamilton mine following the White Oak acquisition.
Total tons sold in the 2016 Quarter decreased 24.0% compared to the 2015 Quarter as a result of planned reductions of production volumes in both the Illinois Basin and Appalachian regions. In the Illinois Basin, coal sales volumes decreased 28.8% compared to the 2015 Quarter reflecting the idling of the Onton and Gibson North mines in the fourth quarter of 2015, the planned depletion of reserves at the Elk Creek mine in the Sequential Quarter and reduced unit shifts at the River View mine, partially offset by additional volumes from the Hamilton mine, which Alliance acquired in July 2015.
In Appalachia, coal sales volumes were 10.5% lower compared to the 2015 Quarter due to the scale back of production at the MC Mining and Mettiki mines and an inventory build at the Tunnel Ridge mine. Compared to the Sequential Quarter, increased coal sales volumes from the Tunnel Ridge longwall operation in northern West Virginia drove sales tons for the 2016 Quarter higher by 27.5% in Appalachia. Due to weak coal demand and excessive customer stockpiles, ARLP’s coal inventory remains elevated at 4.2 million tons at the end of the 2016 Quarter, compared to 3.8 million tons at the end of the Sequential Quarter.
ARLP’s total coal sales price per ton in the 2016 Quarter decreased compared to both the 2015 and Sequential Quarters reflecting challenging market conditions. Compared to the 2015 Quarter, reduced Illinois Basin coal sales prices also reflect lower-priced legacy contracts at the Hamilton mine assumed in the White Oak Acquisition. Sequentially, total coal sales prices per ton declined modestly in the 2016 quarter as lower coal sales price realizations in Appalachia were partially offset by higher prices in the Illinois Basin.
“Assessing the remainder of 2016, we are beginning to see some positive signs in the domestic thermal coal markets,” said Craft. “Rising natural gas prices and hot summer weather have recently resulted in increased coal burn and inventory reductions at many power plants. Through the end of the year, forecasted weather patterns appear favorable, the forward price curve for natural gas remains positive and additional coal supply reductions are anticipated. We expect these factors will support coal demand in our Illinois Basin and northern Appalachian markets and increases our confidence in ARLP’s near term outlook. Looking forward to 2017 and beyond, we expect the coal markets to return to more balanced supply/demand fundamentals, leading to improved pricing for producers. With our strategically-located, low-cost operations, conservative balance sheet and consistently strong performance, ARLP continues to distinguish itself from its competitors. We remain focused on achieving best-in-class results for our industry and committed to delivering long-term value to our unitholders.”
Based on results to date and expectations for the balance of 2016, ARLP is adjusting its 2016 full-year estimates for coal production to a range of 33.5 million to 34.5 million tons and coal sales volumes to a range of 35.0 million to 36.0 million tons. ARLP currently anticipates its 2016 average coal sales price per ton will be 2.5% to 4.5% lower at the midpoint compared to 2015 realizations, a slight improvement over initial 2016 guidance. Reflecting current sales volume and pricing estimates, ARLP now anticipates 2016 revenues, excluding transportation revenues, in a range of $1.82 billion to $1.91 billion.
ARLP is now essentially fully priced and committed for its estimated 2016 volumes and has also secured coal sales and price commitments for approximately 24.3 million tons, 15.0 million tons and 7.9 million tons in 2017, 2018 and 2019, respectively.
ARLP is a diversified producer and marketer of coal to major United States utilities and industrial users. ARLP, the nation’s first publicly traded master limited partnership involved in the production and marketing of coal, is currently the second largest coal producer in the eastern United States with mining operations in the Illinois Basin and Appalachian coal producing regions. ARLP currently operates nine mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia. It also operates a coal loading terminal on the Ohio River at Mount Vernon, Indiana.