Business Context and Reporting Period
Natural Resource Partners L.P. (NRP), a newly formed master limited partnership headquartered in Houston, Texas, filed this 8-K on November 25, 2002. The partnership was created through the contribution of coal properties from four entities: Western Pocahontas Properties, Great Northern Properties, New Gauley Coal Corporation, and Arch Coal, Inc. NRP completed its initial public offering on October 17, 2002. This report provides pro forma results for the third quarter and nine months ended September 30, 2002, to illustrate operations as if the partnership had existed during those periods.
Key Financial Metrics
Pro Forma Third Quarter 2002 (Ended Sept 30)
- Total Revenues: $14.3 million
- Coal Royalty Revenues: $12.8 million
- Excess of Revenues over Direct Costs and Expenses: $7.3 million
- Production: 7.8 million tons
- Average Royalty Revenue per Ton: $1.64
Pro Forma Nine Months 2002 (Ended Sept 30)
- Total Revenues: $39.7 million
- Coal Royalty Revenues: $35.6 million
- Excess of Revenues over Direct Costs and Expenses: $21.0 million
- Production: 21.6 million tons
- Average Royalty Revenue per Ton: $1.65
Note: The filing includes a correction regarding the "Other" revenue line item for the nine-month period, which was adjusted to $1,777,000 from an originally reported $2,111,000.
Material Changes vs. Prior Period
- Revenue Growth: Pro forma coal royalty revenue increased 17% in Q3 2002 compared to Q3 2001 ($12.8M vs. $10.9M). Year-to-date coal royalty revenue increased 15% ($35.6M vs. $31.1M).
- Production Growth: Q3 production rose 11% to 7.8 million tons, driven by a new mine opening and a longwall mine moving onto property. Year-to-date production increased 6.7% to 21.6 million tons, primarily due to two longwall mines moving onto properties in West Virginia.
- Price Realization: Average royalty revenue per ton increased 6.5% in Q3 to $1.64 and 7.1% year-to-date to $1.65.
Guidance, Outlook, and Risks
Fourth Quarter 2002 Guidance
- Production: 7.3 to 7.7 million tons total (Appalachia: 5.7-5.9M; Illinois Basin: 0.5-0.6M; Northern Powder River Basin: 1.1-1.2M).
- Average Revenue per Ton: $1.62 to $1.64 total.
- Total Revenues: $13.3 million to $14.4 million.
- Direct Costs and Expenses: Includes Depreciation, Depletion, and Amortization of $4.8M-$6.2M and General and Administrative expenses of $1.1M-$1.2M.
Distributions
NRP intends to pay its first quarterly distribution to unitholders in February 2003. This distribution will be pro-rated to cover the period from the IPO completion (October 17, 2002) through December 31, 2002.
Risks and Contingencies
Forward-looking statements are subject to risks including decreases in coal demand, changes in operating conditions and costs, production cuts by lessees, commodity price fluctuations, unanticipated geologic problems, and legislative or regulatory changes.
Investor Verification Checklist
- Verify the pro forma nature of the financial data, as it excludes certain costs like general and administrative expenses in the historical comparison tables.
- Confirm the impact of the correction to the "Other" revenue line item ($1,777 vs. $2,111) on the nine-month total revenue calculation.
- Monitor the actual Q4 2002 production and revenue against the provided guidance ranges.
- Review the timing and amount of the first pro-rated distribution to be paid in February 2003.
- Assess the dependency on lessee production levels, as NRP operates as a royalty owner rather than an operator.