TULSA, Okla.--(BUSINESS WIRE)--Alliance Resource Partners, L.P. (NASDAQ: ARLP) today reported significant increases to financial and operating results for the quarter ended September 30, 2020 (the "2020 Quarter") on improved demand for coal and oil & gas compared to the quarter ended June 30, 2020 (the "Sequential Quarter"). On a consolidated basis, total revenues increased 39.4% to $355.7 million, net income rose 158.3% to $27.2 million and EBITDA climbed 146.4% to $118.8 million, all as compared to the Sequential Quarter. With improved coal demand and a resumption of production at all of ARLP’s mining complexes, our coal operations delivered increases to coal sales and production volumes of 48.5% and 66.6%, respectively, leading coal sales revenue and Segment Adjusted EBITDA higher by 42.1% and 113.8%, respectively, all as compared to the Sequential Quarter. Our Minerals segment also reported improved performance compared to the Sequential Quarter as oil & gas production and price per BOE increased 13.9% and 9.5%, respectively, to drive total revenues from oil & gas royalties and lease bonuses up by 23.9% and Segment Adjusted EBITDA higher by 29.3%. (Unless otherwise noted, all references in the text of this release to "net income (loss)" refer to "net income (loss) attributable to ARLP." For a definition of EBITDA and Segment Adjusted EBITDA and related reconciliations to comparable GAAP financial measures, please see the end of this release.)

Compared to the quarter ended September 30, 2019 (the "2019 Quarter"), financial and operating results for the 2020 Quarter continued to reflect the impacts of reduced global energy demand and weak commodity prices as a result of lockdown measures imposed in response to the COVID-19 pandemic. Total revenues of $355.7 million in the 2020 Quarter were lower compared to $464.7 million for the 2019 Quarter, primarily due to reduced coal sales volumes and prices. Reflecting the lower revenues partially offset by reduced total operating expenses, net income for the 2020 Quarter was $27.2 million, or $0.21 per basic and diluted limited partner unit, compared to $39.1 million, or $0.30 per basic and diluted limited partner unit, for the 2019 Quarter. EBITDA in the 2020 Quarter of $118.8 million was also lower compared to $123.1 million in the 2019 Quarter.

"As we expected, ARLP’s performance during the 2020 Quarter benefited from improved economic activity, increased coal demand and recovering oil & gas production volumes and prices," said Joseph W. Craft III, Chairman, President and Chief Executive Officer. "Our coal operations responded to increased customer requirements by successfully ramping up production to meet contractual commitments while effectively mitigating the impacts of COVID-19 through the enhanced health and safety protocols implemented earlier this year. Stronger commodity prices led oil & gas operators to bring previously shut-in wells back online and slowly resume drilling and completion of wells on our mineral interests. The continuing efforts of the entire organization to optimize cash flow, reduce working capital and control capital expenditures and expenses enhanced our financial position and liquidity. As a result, all of ARLP’s operating and financial metrics improved significantly during the 2020 Quarter."

Financial and Liquidity Update

Compared to the Sequential Quarter, ARLP’s free cash flow increased 79.0% to $103.0 million, which contributed to liquidity expanding by 41.4% to $422.2 million and total debt reductions of $100.8 million. With total leverage improving to 1.69 times at the end of the 2020 Quarter, compared to 1.82 times at the end of the Sequential Quarter, ARLP’s balance sheet remains strong and comfortably in compliance with all debt covenants, including its total leverage covenant of 2.5 times. (For a definition of free cash flow and related reconciliations to comparable GAAP financial measures, please see the end of this release.)

As previously announced, the Board of Directors of ARLP's general partner (the "Board") suspended the cash distribution to unitholders for the 2020 Quarter. At its quarterly meeting last week, the Board extended the suspension of distributions through the quarter ending December 31, 2020.

Consolidated Financial Results

Our financial and operating results for the 2020 Quarter and the nine months ended September 30, 2020 (the "2020 Period") continued to be impacted by reduced global energy demand, lower commodity prices and economic disruptions caused by the ongoing effects of the COVID-19 pandemic, compared to the 2019 Quarter and the nine months ended September 30, 2019 (the "2019 Period").

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Total revenues for the 2020 Quarter decreased 23.5% to $355.7 million compared to $464.7 million for the 2019 Quarter. Operating expenses of $216.0 million for the 2020 Quarter were 22.4% lower compared to $278.3 million in the 2019 Quarter.

Coal Operations –

Coal sales volumes declined to 7.7 million tons in the 2020 Quarter compared to 9.3 million tons in the 2019 Quarter reflecting reduced export sales volumes. Coal sales price realizations fell by 3.3% in the 2020 Quarter due to lower priced thermal and metallurgical markets compared to the 2019 Quarter. Lower volumes and pricing resulted in a 20.1% decrease in coal sales revenues to $335.8 million compared to $420.0 million for the 2019 Quarter. Transportation revenues and expenses decreased to $6.2 million from $20.0 million primarily due to reduced coal shipments to international markets. Other revenues in the 2020 Quarter decreased by $6.8 million to $4.0 million primarily due to reduced sales of mining technology products by our Matrix Design subsidiary and lower volumes at our Mt. Vernon transloading facility.

ARLP’s focus on reducing coal inventories and matching production to meet customer requirements resulted in coal production of 7.2 million tons in the 2020 Quarter, a reduction of 28.5% compared to the 2019 Quarter. Operating expenses and outside coal purchases decreased 24.9% from the 2019 Quarter to $215.1 million, primarily as a result of lower coal production volumes.

Segment Adjusted EBITDA Expense per ton decreased 8.8% in the 2020 Quarter to $28.03 per ton, compared to $30.75 per ton in the 2019 Quarter. The decrease is attributed primarily to ongoing expense control initiatives at all operations, and, as discussed below in our segment results, a favorable sales mix from our lower cost mines and improved recovery percentages at certain operations. Costs per ton were further reduced by lower inventory costs and the absence of higher cost purchased tons sold at our Appalachian mines. These reductions were partially offset by higher excise and severance taxes per ton due to a $0.60 per ton increase in the federal black lung excise tax, effective January 1, 2020, and a greater mix of coal sales from operations in states with higher severance taxes per ton during the 2020 Quarter.

Lower coal sales revenues, partially offset by lower expenses, resulted in total Segment Adjusted EBITDA from our coal operations of $123.8 million in the 2020 Quarter, a 14.0% decline compared to $144.0 million for the 2019 Quarter. (For a definition of Segment Adjusted EBITDA and Segment Adjusted EBITDA Expense and related reconciliations to comparable GAAP financial measures, please see the end of this release.)

Minerals –

Primarily due to lower oil & gas sales prices in the 2020 Quarter compared to the 2019 Quarter, total revenues from oil & gas royalties and lease bonuses attributable to our mineral interests declined to $9.7 million from $14.2 million. Partially offsetting lower price realizations, revenues benefited from higher volumes as a result of the Wing Acquisition in August 2019. Our Minerals segment contributed Segment Adjusted EBITDA of $8.9 million for the 2020 Quarter, compared to a contribution of $12.2 million for the 2019 Quarter.

ARLP's expense reduction initiatives drove general and administrative expenses lower to $13.9 million in the 2020 Quarter, a reduction of 22.4% compared to the 2019 Quarter. Depreciation, depletion and amortization increased 10.8% to $80.2 million in the 2020 Quarter, primarily due to charges related to increased sales from coal inventory.

Comparative results for the 2020 Quarter were also impacted by a non-cash asset impairment charge of $15.2 million recorded in the 2019 Quarter due to the closure of our Dotiki mine.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Total revenues decreased 36.2% to $961.6 million for the 2020 Period compared to $1.51 billion for the 2019 Period. Lower revenues and a non-cash goodwill impairment charge of $132.0 million, partially offset by lower operating expenses, resulted in a net loss of $164.2 million, or $(1.29) per basic and diluted limited partner unit for the 2020 Period. This compares to net income of $373.6 million, or $2.86 per basic and diluted limited partner unit for the 2019 Period, which included a non-cash net gain of $170.0 million related to the AllDale Acquisition. Excluding the impact of non-cash items (each described in more detail below), Adjusted net income (loss) attributable to ARLP and Adjusted EBITDA for the 2020 Period decreased to $(7.2) million and $265.3 million, respectively, compared to $218.8 million and $472.9 million, respectively, for the 2019 Period. (For a definition of Adjusted net income (loss) attributable to ARLP and Adjusted EBITDA and related reconciliations to comparable GAAP financial measures, please see the end of this release.)

Coal Operations –

Due to reduced coal sales volumes and prices, coal sales revenues for the 2020 Period decreased 34.7% to $886.7 million, compared to $1.36 billion for the 2019 Period. Tons sold declined 32.5% to 20.1 million tons in the 2020 Period, primarily due to reduced shipments to international markets. Coal sales price realizations declined 3.1% in the 2020 Period to $44.03 per ton sold, compared to $45.46 per ton sold during the 2019 Period. Reduced export shipments also impacted transportation revenues and expenses, which declined $66.2 million to $16.7 million in the 2020 Period.

ARLP’s temporary idling of production at certain mines in response to weak market conditions during the 2020 Period, reduced coal production volumes to 19.5 million tons compared to 31.4 million tons during the 2019 Period. Primarily as a result of lower coal production volumes, combined operating expenses and outside coal purchases for our coal operations decreased 30.0% to $633.8 million. Segment Adjusted EBITDA Expense per ton increased 4.2% in the 2020 Period to $31.59 per ton, compared to $30.33 per ton in the 2019 Period. The increase is attributed primarily to the per ton cost impact of lower coal volumes and higher excise and severance taxes discussed above. Lower coal sales revenues, partially offset by lower expenses, resulted in total Segment Adjusted EBITDA from our coal operations of $276.9 million in the 2020 Period, a 42.6% decline compared to $482.7 million for the 2019 Period.

Minerals –

For the 2020 Period, our mineral interests contributed total revenues of $31.8 million from oil & gas royalties and lease bonuses, compared to $37.3 million for the 2019 Period. The decrease in revenues is primarily due to lower average product prices, partially offset by higher volumes resulting from the Wing Acquisition in August 2019, and continued drilling and development of our mineral interests. Comparative results between the 2020 and 2019 Periods were also impacted by a non-cash acquisition gain of $177.0 million, of which $7.1 million was attributable to non-controlling interest, related to the AllDale Acquisition during the 2019 Period. Our Minerals segment contributed net income of $4.5 million for the 2020 Period, compared to $174.9 million for the 2019 Period, which included the acquisition gain. Excluding the gain, Segment Adjusted EBITDA related to our Minerals segment decreased 8.9% to $29.5 million for the 2020 Period compared to $32.4 million for the 2019 Period.

General and administrative expenses decreased $14.1 million to $41.1 million in the 2020 Period as a result of ARLP's expense reduction initiatives. Compared to the 2019 Period, depreciation, depletion and amortization increased 7.8% to $237.7 million primarily due to charges related to increased sales from coal inventory and increased oil & gas production from our Minerals segment in the 2020 Period.

During the 2020 Period, we recorded $157.0 million of non-cash impairment charges, which included a $132.0 million goodwill impairment charge associated with our Hamilton mine and a $25.0 million asset impairment charge due to the permanent closure of our Gibson North mine and a decrease in the fair value of certain mining equipment and greenfield coal reserves. These non-cash charges reflect the impact of weak coal market conditions and reduced global energy demand resulting from the COVID-19 pandemic. During the 2019 Period, we recorded an asset impairment charge of $15.2 million due to the closure of our Dotiki mine.

As a result of the redemption by Kodiak Gas Services, LLC of our preferred equity interest for $135.0 million cash in the 2019 Period, ARLP did not realize equity securities income in the 2020 Period, compared to $12.9 million realized in the 2019 Period.

Compared to the 2019 Quarter, total coal sales volumes decreased 17.4% in the 2020 Quarter due to the impacts of the COVID-19 pandemic and reduced export shipments. Driven by improved coal demand during the 2020 Quarter, ARLP’s coal sales volumes increased across all regions compared to the Sequential Quarter. Higher volumes at all of our mines in the Illinois Basin increased coal sales volumes by 55.8% compared to the Sequential Quarter. In Appalachia, coal sales volumes increased 35.2% compared to the Sequential Quarter primarily due to higher sales from our Tunnel Ridge mine. Total coal inventory fell to 1.2 million tons at the end of the 2020 Quarter, a decrease of 1.3 million tons and 0.5 million tons compared to the end of the 2019 and Sequential Quarters, respectively.

In the Illinois Basin, coal sales price per ton in the 2020 Quarter was comparable to both the 2019 and Sequential Quarters. In Appalachia, price realizations decreased by 11.1% compared to the 2019 Quarter primarily due to weak market conditions and the absence of higher priced metallurgical coal sales in the 2020 Quarter. Coal sales price per ton sold in Appalachia during the 2020 Quarter decreased by 6.3% compared to the Sequential Quarter, primarily due to an increased sales mix of lower-priced Tunnel Ridge sales tons in the 2020 Quarter.

Total Segment Adjusted EBITDA Expense per ton decreased by 8.8% compared to the 2019 Quarter as a result of lower expenses per ton in both the Illinois Basin and Appalachian regions. In the Illinois Basin, Segment Adjusted EBITDA Expense per ton decreased 9.7% compared to the 2019 Quarter primarily as a result of reduced maintenance expenses per ton as well as lower materials and supplies expenses per ton. The reduced expenses reflect a greater mix of sales from lower cost River View production, the elimination of high cost Dotiki production in 2019 and improved recovery percentages at Gibson, partially offset by reduced total coal production volumes from the region. In Appalachia, Segment Adjusted EBITDA Expense per ton decreased 10.8% compared to the 2019 Quarter as a result of improved recoveries at our Mettiki and Tunnel Ridge mines, lower maintenance expenses across the region, lower inventory costs and the absence of higher cost purchased tons sold. Compared to the 2019 Quarter, expenses per ton for both segments were impacted by higher excise and severance taxes as discussed above. Sequentially, Segment Adjusted EBITDA Expense per ton decreased 26.0% in the Illinois Basin as a result of significantly higher volumes in the 2020 Quarter. In Appalachia, Segment Adjusted EBITDA Expense per ton decreased 13.6% compared to the Sequential Quarter due to higher sales volumes and an increased sales mix of lower-cost Tunnel Ridge production in the 2020 Quarter. Compared to the Sequential Quarter, both regions benefited from lower inventory costs per ton in the 2020 Quarter.

Segment Adjusted EBITDA for our Minerals segment decreased 27.1% to $8.9 million in the 2020 Quarter compared to $12.2 million in the 2019 Quarter primarily due to lower sales price realizations per BOE resulting from reduced demand amid the COVID-19 pandemic, partially offset by higher volumes, which increased 8.1% compared to the 2019 Quarter primarily as a result of production from the additional mineral interests acquired in the Wing Acquisition. Compared to the Sequential Quarter, Segment Adjusted EBITDA increased 29.3% due to higher price realizations and volumes, which increased by 9.5% and 13.9%, respectively.

Outlook

"Looking ahead, we remain cautiously optimistic," said Mr. Craft. "Our customers experienced strong coal burn during the 2020 Quarter and with a higher forward price curve for natural gas heading into the heating season, we currently estimate coal burn for the 2020 fourth quarter will be even better. As a result, we continue to expect total coal sales of approximately 28.0 million tons this year. Several utilities have recently issued solicitations seeking significant coal supply commitments for multi-year terms. ARLP currently has priced contract commitments for approximately 20.0 million tons in 2021 and, in anticipation of higher natural gas prices and improved energy demand, we are targeting total sales volumes for next year approximately 10.0% above 2020 levels."

Mr. Craft continued, "We currently anticipate results from our Minerals segment will improve modestly during the fourth quarter of 2020 as virtually all shut-in production on our acreage has been brought online and drilling and completion activity and commodity prices are expected to gradually recover. These favorable trends should be constructive for our operators as they establish their capital allocation and development plans for 2021. With our minerals strategically located in key basins, ARLP is well positioned to benefit from improved pricing for oil, natural gas and natural gas liquids and the increases in drilling and completion activity anticipated in 2021."

A conference call regarding ARLP's 2020 Quarter financial results is scheduled for today at 10:00 a.m. Eastern. To participate in the conference call, dial (877) 506-1589 and request to be connected to the Alliance Resource Partners, L.P. earnings conference call. Canadian callers should dial (855) 669-9657 and all other international callers should dial (412) 317-5240 and request to be connected to the same call. Investors may also listen to the call via the "investor information" section of ARLP's website at http://www.arlp.com.

An audio replay of the conference call will be available for approximately one week. To access the audio replay, dial US Toll Free (877) 344-7529; International Toll (412) 317-0088; Canada Toll Free (855) 669-9658 and request to be connected to replay access code 10148449.

About Alliance Resource Partners, L.P.

ARLP is a diversified natural resource company that generates income from coal production and oil & gas mineral interests located in strategic producing regions across the United States.

ARLP operates seven coal mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia. ARLP also operates a coal loading terminal on the Ohio River at Mount Vernon, Indiana. ARLP markets its coal production to major domestic and international utilities and industrial users and is currently the second largest coal producer in the eastern United States.

ARLP generates royalty income from mineral interests it owns in premier oil & gas producing regions in the United States, primarily the Permian, Anadarko and Williston basins.

In addition, ARLP also generates income from a variety of other sources.

News, unit prices and additional information about ARLP, including filings with the Securities and Exchange Commission ("SEC"), are available at http://www.arlp.com. For more information, contact the investor relations department of ARLP at (918) 295-7674 or via e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it..

The statements and projections used throughout this release are based on current expectations. These statements and projections are forward-looking, and actual results may differ materially. These projections do not include the potential impact of any mergers, acquisitions or other business combinations that may occur after the date of this release.

Brian L. Cantrell
Alliance Resource Partners, L.P.
(918) 295-7673