NRP

Business Context and Reporting Period

Natural Resource Partners L.P. (NRP), a master limited partnership owning coal properties in Appalachia, the Illinois Basin, and the Powder River Basin, reported its initial results as a publicly traded entity. The reporting period covers the timeframe from the IPO closing date of October 17, 2002, through December 31, 2002. This period includes one month of operations following the acquisition of coal reserves and surface lands from El Paso Corporation in December 2002.

Key Financial Metrics

Production totaled 7.3 million tons with an average royalty revenue of $1.58 per ton. Net income per limited partner unit was $0.28.

Material Changes and Operational Highlights

• Acquisition Impact: Results include revenue from the December 2002 acquisition of El Paso Corporation assets. Prior to the IPO (Oct 1-16, 2002), these properties generated $2.3 million in revenue from 1.4 million tons, which is excluded from the reported period.
• Revenue Composition: Coal royalties accounted for the majority of revenue ($11.5 million), supplemented by minimums recognized ($872k), override royalties ($226k), and other revenues ($1.26 million).
• Capital Structure: The company utilized a revolving credit facility and proceeds from the IPO to fund the acquisition of property ($57.4 million) and establish operations.

Guidance, Outlook, and Risks

2003 Outlook

• Production: Expected between 36.5 million and 38.5 million tons (80-84% Appalachia, 5-7% Illinois Basin, 10-14% Powder River Basin).
• Revenue: Coal royalty revenues projected at $57 million to $61 million; total revenues at $67 million to $71 million.
• Earnings: Net income expected between $30 million and $33 million; EBITDA between $54 million and $58 million.
• Per Unit: Net income per limited partner unit expected between $1.35 and $1.45.
• Seasonality: Revenues expected to be higher in the second half of 2003 due to increased production. General and administrative costs are expected to be higher in the first half due to audit and tax preparation expenses.

Distributions

NRP announced its first quarterly distribution of $9.8 million ($0.4234 per unit) payable on February 14, 2003. This amount is prorated for the partial quarter and equates to $0.5125 per unit on a full-quarter basis.

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 accuracy of the 2003 production volume guidance (36.5-38.5 million tons) against lessee commitments.
• Confirm the stability of the average royalty rate per ton ($1.58 in Q4 2002) given commodity price volatility.
• Monitor the utilization of the revolving credit facility and the impact of interest rates on EBITDA.
• Assess the timing of the expected second-half revenue increase to ensure it aligns with cash flow needs for distributions.
• Review the specific terms of the El Paso Corporation acquisition to understand the remaining deferred revenue obligations ($13.2 million).