May 1, 2017 - Alliance Resource Partners, L.P. (ARLP) today reported increased financial and operating results for the quarter ended March 31, 2017 (the "2017 Quarter") compared to the quarter ended March 31, 2016 (the "2016 Quarter"). On the strength of increased coal sales volumes and higher other sales and operating revenues, total revenues for the 2017 Quarter rose 11.7% to $461.1 million. Increased total revenues, lower total operating expenses and higher equity in earnings of affiliates combined to drive net income attributable to ARLP for the 2017 quarter up by 121.7% to $104.9 million, or $1.10 per basic and diluted limited partner unit, while EBITDA climbed 41.5% to $177.7 million, both as compared to the 2016 Quarter.
As previously announced, the Board of Directors of ARLP’s managing general partner approved a cash distribution to unitholders for the 2017 Quarter of $0.4375 per unit (an annualized rate of $1.75 per unit), payable on May 15, 2017 to all unitholders of record as of the close of trading on May 8, 2017. The announced distribution is equal to the distributions declared for the 2016 Quarter and the quarter ended December 31, 2016 (the "Sequential Quarter").
"ARLP started the year strong, posting increases to all of our major financial and operating metrics for the 2017 Quarter," said Joseph W. Craft III, President and Chief Executive Officer. "Operationally, we continued to benefit from recent efforts to reduce costs and minimize capital by shifting production to our lowest-cost mines. On the marketing front, we further strengthened ARLP’s sales contract portfolio by securing commitments for an additional 740,000 tons for deliveries through 2019 – including another 342,000 tons of 2017 shipments into the thermal and metallurgical export markets. We also recently completed our initial high-yield bond offering, successfully placing $400 million of senior unsecured notes due 2025 and garnering an industry-best corporate credit rating of Ba3/BB+. This financing provides ARLP with a stable, long-term capital structure with ample liquidity and flexibility to execute our strategy. With expectations for generating strong cash flows while maintaining a conservative balance sheet and robust distribution coverage, we believe ARLP is well positioned to once again consider gradually increasing distributions to our unitholders."
Consolidated Financial Results
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
Coal sales revenues for the 2017 Quarter increased 9.3%, compared to the 2016 Quarter, to $438.7 million due to increased coal sales volumes offset in part by lower coal sales price realizations. For the 2017 Quarter, strong performances at the Gibson South, River View, Hamilton and Tunnel Ridge mines drove total coal sales volumes up 28.9% to 9.6 million tons and production volumes higher by 15.0% to 10.2 million tons, both as compared to the 2016 Quarter. Coal sales prices decreased approximately 15.2% to $45.65 per ton sold for the 2017 Quarter, compared to $53.82 per ton sold for the 2016 Quarter. Other sales and operating revenues for the 2017 quarter increased approximately $7.8 million compared to the 2016 Quarter, primarily due to increased mining technology product sales by our Matrix Design subsidiary.
Even though coal sales and production volumes increased for the 2017 Quarter, operating expenses of $262.8 million were slightly lower compared to the 2016 Quarter. Reflecting the benefits of our recent efficiency initiatives to shift production to ARLP’s lower-cost operations, Segment Adjusted EBITDA Expense declined to $27.21 per ton sold in the 2017 Quarter, an improvement of 23.0% compared to the 2016 Quarter.
Depreciation, depletion and amortization decreased $5.5 million to $65.1 million in the 2017 Quarter, primarily due to the depletion of reserves at our Elk Creek mine in the 2016 Quarter and closure of the Pattiki mine in the Sequential Quarter, offset in part by an increase in coal sales volumes at the Hamilton and Tunnel Ridge mines in the 2017 Quarter. General and administrative expenses fell 7.0% in the 2017 Quarter, primarily due to lower outside services expense.
Increased earnings from our investments in oil and gas mineral interests led equity in earnings of affiliates higher by $3.7 million in the 2017 Quarter compared to the 2016 Quarter.
Tons sold in the 2017 Quarter increased 28.9% to 9.6 million tons compared to the 2016 Quarter. Strong sales performance at the Tunnel Ridge longwall operation drove coal sales tons for the 2017 Quarter higher in Appalachia by 52.1% compared to the 2016 Quarter. In the Illinois Basin, coal sales volumes increased 20.5% compared to the 2016 Quarter reflecting increased sales from our River View, Gibson South and Hamilton operations, offset in part by the previously mentioned depletion of reserves at our Elk Creek mine in the 2016 Quarter and the closure of the Pattiki mine in the Sequential Quarter. In Appalachia, coal sales tons increased by 17.3% compared to the Sequential Quarter due to higher sales volumes at the Tunnel Ridge and Mettiki mines. Coal sales tons in the Illinois Basin fell sequentially by 16.9% primarily due to lower sales volumes at the River View and Warrior mines and the closure of Pattiki.
ARLP ended the 2017 Quarter with total coal inventory of 1.6 million tons, a reduction of approximately 2.2 million tons compared to the end of the 2016 Quarter. Coal inventory increased approximately 600,000 tons compared to the Sequential Quarter, primarily due to unanticipated shipment delays resulting from force majeure claims by two of our customers.
As anticipated, the expiration of higher-priced legacy contracts has impacted ARLP’s coal sales price realizations which decreased 15.2% per ton sold in the 2017 Quarter compared to the 2016 Quarter. Sequentially, total coal sales prices per ton declined 4.9% in the 2017 quarter as lower coal sales price realizations in the Illinois Basin were partially offset by higher prices in Appalachia primarily due to increased export shipments of metallurgical coal from the Mettiki mine.
Total Segment Adjusted EBITDA Expense per ton improved by 23.0% compared to the 2016 Quarter as a result of reduced expenses per ton in both the Illinois Basin and Appalachian regions. In the Illinois Basin, Segment Adjusted EBITDA Expense per ton decreased by 25.0% compared to the 2016 Quarter primarily due to reduced selling expenses, a significant increase of low-cost longwall production and improved recoveries at the Hamilton mine, and increased production and improved recoveries at our River View and Gibson South operations. Segment Adjusted EBITDA Expense per ton in Appalachia decreased by 21.4% compared to the 2016 Quarter as a result of increased production and sales volumes at our Tunnel Ridge mine resulting from improved recoveries and additional longwall production days due to no longwall move days during the 2017 Quarter. Lower sequential expenses per ton in Appalachia reflect increased sales volumes, lower inventory costs and no longwall move days at the Tunnel Ridge mine during the 2017 Quarter.
"Our expectations for improving coal markets in 2017 remain intact," said Mr. Craft. "Natural gas prices have been resilient so far this year, despite generally mild weather patterns, and the forward NYMEX curve continues to be favorable for coal. Stronger than anticipated export markets have also helped offset the mild U.S. winter and added additional support to domestic coal markets. Utility stockpiles in the markets we serve are moving closer to historic ranges and, assuming normal weather conditions, coal burn is poised to strengthen further as the year progresses. As a result, we expect buying activity to pick up as utilities look to fill open positions in the second half of 2017 and into 2018. With our strategically-located, low-cost operations and strong market presence, ARLP is well positioned to benefit from these improved fundamentals and remains committed to delivering industry leading performance and long-term value to our unitholders."
ARLP has secured volume and price commitments for approximately 35.5 million tons in 2017 and has also secured coal sales and price commitments for approximately 19.0 million tons, 9.1 million tons and 4.3 million tons in 2018, 2019 and 2020, respectively.
Based on results to date and expectations for the balance of the year, ARLP is increasing its estimates for 2017 full-year results to the following ranges: coal production of 38.1 million to 39.1 million tons, coal sales volumes of 38.5 million to 39.5 million tons, revenues (excluding transportation revenues) of $1.78 billion to $1.82 billion, net income of $290.0 million to $330.0 million and EBITDA of $605.0 million to $645.0 million.
ARLP is also updating its per ton estimates for 2017 compared to 2016. For the full-year 2017, we currently anticipate coal sales price per ton to be 11.0% to 12.0% lower, Segment Adjusted EBITDA Expense per ton to be 7.0% to 9.0% lower and Segment Adjusted EBITDA per ton to be 14.0% to 16.0% lower, each compared to our full-year results in 2016.
ARLP is maintaining its previous 2017 guidance for capital expenditures in a range of $145.0 million to $165.0 million and investments related to the acquisition of oil and gas mineral interests in a range of $20.0 million to $30.0 million.