Q1 2020 Earnings Call
Well again shortly please continue to stay on Laurie.
[music].
Good morning, and welcome to the Alliance Resource Partners LP first quarter 2020, <unk> earnings Conference call.
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I would now like to turn the conference over to Brian Cantrell, Senior Vice President and Chief Financial Officer. Please go ahead.
Thank you are welcome everyone.
Earlier This morning Alliance resource partners released its first quarter 2020 earnings.
Discuss these results as well as our perspective on market conditions.
Following our prepared remarks, well open the call to your question.
Before we begin a reminder, that some of their remarks. Today may include forward looking statements that are subjected to lardy of risks uncertainties assumptions contained in our filings from time to time.
The Securities Exchange Commission and are also reflected in this mornings press release.
While these forward looking statements are based on information currently available to us if one or more of these risks or uncertainties materialize.
Our underlying assumptions prove incorrect.
Actual results may vary materially from those we projected are expected in providing these remarks. The partnership has no obligation to publicly update or revise any forward looking statement.
Whether as a result, the new information future events or otherwise unless required by law could do so.
Finally, we will also be discussing certain non-GAAP financial measures.
Definitions and reconciliations of these differences between these non-GAAP financial measures.
The most directly comparable GAAP financial measures are contained at the end of April piece press release, which has been posted on our website and furnished to the FCC on form 8-K.
With a required preliminaries out of the way. This morning, I'll begin with review of our results and I'm trying to call over to joke craft, our chairman President and Chief Executive Officer for his perspective.
As economic and market conditions began to ship significantly during the 2020 corridor.
Aero piece financial and operating results involved as well.
Early on performance from both our coal operations and minimal stagnant wasn't line, but our expectations.
That's the quarter progressed, however, coal markets began to come under pressure due to mild winter weather.
That's not really low natural gas prices.
Utility stockpiles and the continued absence of meaningful export opportunities.
Midway through the quarter, our coal operations began to work at reduced levels.
We've responded to the weakening coal market conditions by cutting production.
Late in the quarter, the global economy, you'd be kinda quickly significantly contract.
World leaders took actions to combat the deadly Corona virus pandemic.
Crushing demand for energy, leading to our decision on March Thirtyth temporarily idle our production at the Illinois Basin.
The effect of these circumstances resulted in Aero piece coal sales volumes and prices in the 2020 quarter falling by 29.7% and 5.9% respectively compared to the 29 team quarter I.
I believe in coal sales revenue was down 33.9% to $314.6 million.
Lower sales volumes also resulted in lower coal operating expenses, which declined 22.6% versus the 20 like team corridor.
On a per ton basis, However segment adjusted EBITDA expansion at our coal operations increased 10.6%.
The $32.25 per tonne compared to $29 in 17 cents and the 2019 quarter due to volume curtailments in response to reduce the man longwall move our Hamilton mine and a 60 cents per Todd increased at the federal Black lung excise tax imposed by the federal government effect.
January 120 20.
Reflecting these impacts Errol piece segment adjusted EBITDA from coal operations.
Dropped $97.9 billion or 46.9% lower than the 20 like team corridor.
Compared to the sequential quarter coal sales price realizations in the 2020 quarter improved slightly increasing to $43.39 per ton sold.
Higher per ton expenses in the Illinois Basin segment more than offset an exceptional 10 per cent per ton reduction that'd be appalachian segments cost per tonne.
Resulting in a 4.3 sequential increase the total segment adjusted EBITDA expense per ton from our cooperation.
Lower coal sales volumes were also the primary contributor to a 24.3% sequential reduction segment adjusted EBITDA from coal.
Turning now to our minerals segment oil and gas production volumes increased 51.4% over the 29 team quarter to approximately 5440 barrels of oil equivalent per day.
Primarily as a result of additional mineral interests, we acquired from wing last August as well as continued development by operators across our total metal position.
That's commodity prices weakened throughout the 2020 quarter.
Average sales price realizations per be OE decline falling 9.2 per cent compared to the 2019 corridor.
Increased volumes more than offset these lower price realizations.
Driving segment adjusted EBITDA higher by 50.6 per cent compared to the 29 team quarter.
Sequentially lower sales price realizations, and slightly lower volumes, which segment adjusted EBITDA down 5.6% for $13.8 million.
Our minerals segment contributed 12.3% or they are a piece consolidated segment adjusted EBITDA This quarter.
As noted in our press release earlier. This morning comparison to bail barrel Pcs sorry comparisons are there Lps net income in either the option to 2020 and 2019 quarters were impacted by several non cash factors.
For the 2020 quarter, our routine review of potential impairment was significantly influenced by the economic disruptions and uncertainties created by the Cobot 19 pandemic.
These uncertainties materially impacted our future cash flow estimates for all of our long lived assets have resulted in two areas of impairment related to current market conditions.
First we recorded a 25 million dollar asset impairment due to our decision this quarter to permanently close the Gibson North mine.
And the decrease on the estimated fair value of certain surplus mining equipment and Greenfield coal reserves.
In addition, we wrote off $132 million of goodwill related to our 2015 acquisition of the Hamilton mine.
Results for the 2019 quarter reflect that eight and that noncash gain of $170 million related to the January 2019, all Dale acquisition.
Excluding these non cash items.
Errol P. reported adjusted net income and adjusted EBITDA for the 2020 quarter of 12.2 million at 98.3 million respectively.
Pair 206.5 million and 188.8 million respectively for the 29 team corridor.
During the 29 team quarter Air L.P. successfully completed an amendment and a four year extension that's revolving credit facility.
The new facility provides for increased capacity of $537.75 million through may of next year at which time it steps down to $459.5 million.
And in addition gives us the flexibility to separately an AD space trapeze mineral interest in the future.
We ended the 2020 quarter with liquidity of $258.4 million and remain comfortably in compliance with our debt covenants, including total debt of approximately 1.6 times trailing 12 months EBITDA.
With that I'll now turn the call over to Joe Joe.
Thank you Brian good morning, everyone.
As you are all aware the global economic conditions for all commerce.
Then fundamentally altered this year as a result of the enforcing an unprecedented consequences or the cold at 19.
As especially true with respect to the energy industry.
Yeah, Brian mentioned this world leaders took actions to combat the deadly grown a virus crushing demand for oil natural gas and coal.
Hi, Good days press release, we went into more depth normal.
To help you understand the decisive actions we have taken.
In response to the Cobot 19 outbreak and the resulting demand destruction for energy in the United States.
Specifically, we took steps to safeguard employee health and safety.
Sure that we continued to meet customer requirements as an essential supplier.
Critical power generation infrastructure that supports the communities, which we operate.
All while protecting our balance sheet and enhancing our liquidity.
I'd like to take a moment to outline in more detail I response at each of these areas.
These trying circumstances are planning has centered on the well being of employees the needs of our customers and protecting our balance sheet.
It's inventories were growing at our mining operations. We began closely are working closely with their customers to assess anticipated shipping schedules.
It became clear we could meet our Illinois basin customer requirements for a period of time.
From existing inventories and the prudent thing to do what's that temporarily idle underground production.
And our Illinois Basin operations, beginning on March Thirtyth.
The MC mining complex in eastern Kentucky shortly thereafter.
To reliably service the needs of our customers production operations continued on a four day a week schedule.
And our tunnel ridge and Mettiki mining complexes.
This week, we partially we're saying production at our river view complex.
It's inventories at this go mine had been depleted.
We will continue to work closely with customers and monitor inventories at the mine remain idle.
And we'll resume production at those operations when necessary.
Safety burst has long been our number one focus and the health and wellbeing of employees is always the highest priority at alliance our decision to temporarily halt underground mining at various operations.
Lab furloughed employees to shelter at home, while continuing to recede full medical benefits for their families from alliance.
Including continued access to onsite health clinics and medical staff at each of our locations.
Prior to the furloughs each of our operations had already started to develop and implement protocols designed to reduce risk and increased protection for miners.
With production continuing at tunnel Ridge, and it kind of ridge and Mettiki and is our nation learn more about this pandemic, we continued to adapt and improved these measures at all of our minds.
Among the many precautions taken in our operations, we implement <unk>, we implemented staggered work shifts to promote distancing.
Wellness screenings enhanced cleaning and disinfecting its surface facilities touch points mine elevators underground transport communication systems and equipment.
We distributed Sanitizers threw out work areas provided BPP BP E.
Those working in combined spacers and limited unnecessary access to the mine locations.
Corporate offices have also done their part by implementing safeguards in light of CDC recommendations.
Well drilling doing all we can to protect employees and their families clearly benefits the communities, where we operate the alliance team has also led for opportunities to Atlanta hand in other ways.
As an example, Errol piece matrix design group subsidiary.
As being in using three D printing technology to produce based fields.
And delivering these fields to health care providers. During this time a neat.
I am extremely grateful to the entire alliance organization for their sacrifices and tireless efforts and these uncertain times.
They resilience flexibility dedication and initiative or inspiring and each of them have my heart Bell appreciation.
We have always viewed aero piece strong balance sheet is a competitive advantage.
And we have taken action to protect this advantage in hand and enhance our liquidity.
As Brian mentioned earlier successfully amending and extending our revolving credit facility was a key step.
This environment, we are laser focused on optimizing cash flow.
Our operations have worked diligently to reduce capital budgets without jeopardizing safety or the long term viability of they are obese assets.
The entire organization has identified cost and expense savings.
It will reduce DNA and working capital requirements.
We currently anticipate these initiatives initiatives will result in cash savings this year approximately $100 million.
In addition, the board's decision to suspend distributions for this quarter and the upcoming quarter will further help us preserve liquidity during these uncertain times.
All these actions required hard choices.
We recognize that the next several months will likely be difficult.
We made the decisions necessary to ensure LP maintain sufficient liquidity.
Stays in compliance with financial covenants and emerges from the current environment. This spring.
Well no one has dealt with economic and market conditions that are facing us today.
They are LP has a track record of successfully navigating through previous.
Our challenges and we are confident about our ability to do so again.
We have great assets and great people and we are confident the better times around the horizon.
We plan to be there when conditions improve ready to leverage our strengths to take advantage of the opportunities that will follow with a goal of creating meaningful long term growth for our unit holders.
In closing until there is a better visibility into both the degree of the speed of economic recovery recovery close locked down.
LP has withdrawn its initial 2020 operating and financial guidance provided earlier this year.
Notwithstanding LP recently announced.
It would reduce its coal production to match existing contracted sales commitments for 2020.
Accordingly, we are now targeting coal sales and production this year at approximately 28 million.
And 27 million times, respectively, or 25% to 30% lower than originally guided.
We also expect the contribution from our minerals segment. This year will be meaningfully below January guidance.
Due to the anticipated lower commodity prices and our lessees throttling back production.
As we look beyond this year, we're hopeful that reopening of the U.S. economy will be swift.
And supply and demand for coal oil and natural gas.
Well reach a healthy balance sooner than later.
I mentioned in our press release this morning, as we get passed the next quarter our results should be on the road to recovery.
I believe this year will provide a new foundation for future growth for our partnership.
For the past 20 years, the alliance strategy for success.
As Ben to create sustainable growth in cash flow and deliver consistent growth in distributions.
We are committed to continuing to pursue this strategy.
More importantly, we are committed to achieving it.
This concludes our prepared comments and now with the operators assistance, we will open the call to your questions.
We will now begin the question and answer session.
Good question you can press Star then one on your Touchtone phone.
If you're using the speakerphone, please pick up your handset before pressing the key.
It was try your question. Please press Star then too.
Our first question today comes from Mark Levin with Seaport Global.
Oh, thanks, very much and congratulations on the on the revolver Amendment and extension just a few quick questions.
Maybe I'll start with you Brian.
When you're thinking about excess cash flow in in 2020, I think you referenced $100 million the cost savings. This year. So when you think about excess cash flow and I realize you guys aren't giving guidance, but you've you've lowered your capex a fairly meaningfully again.
Any scenarios this year in which you can envision not generating meaningful excess cash.
I mean, obviously mark there.
Mendis uncertainty out there.
But I'm sure as you can imagine we've run through multiple scenarios.
Trying to stress test.
Our operation and our financial performance you know our key focused on managing for cash.
We look at the levers we pulled thus far I can tell you that all of those efforts are ongoing we're continuing to.
Critically evaluate any other levers that we can continue to a pole.
We feel very comfortable that will stay in compliance with our covenants.
And that we have a likely the ability to not only sustain the liquidity. We had at the end of the first quarter, but have an opportunity to see that liquidity expand throughout the year.
Okay, Great Fantastic and then the second question just gets down to maybe calibrating what costs look like in a 28 million tons a year kind of world.
Obviously, you're gonna have less fixed cost leverage than what you would envision going into the year. So I assume there would be you know upward pressure or meaningful upward upward pressure there, but then I also would assume that you're kind of shifting things around and focusing on either your lower cost operations or some of the other things that you had mentioned without getting.
Into specific guidance can you maybe directionally give us some idea about how to think about cost for the balance of year given those factors.
Yeah I think.
It's you know as we'd look at trying to anticipate that it's really difficult to.
To know exactly.
Yeah.
What our production levels are going to be I think we believed that the way we have planned it so we hope to bring down it.
Inventory in the second quarter, so that in the back half a year.
We're essentially producing demeter contractual commitments.
And that should allow us to operate at more normal run rates as opposed to what we've been running through the first there through the first quarter and.
For those mines had been running in April where we've been running it reduced shifts.
So running at reduced shifts there is very.
<unk>.
And that's one of the reasons why you've seen the elevated cost.
In the first quarter, if you're willing basins because we've been.
Through the first quarter in most cases, we were operating it.
40 ships at most the operations we were taken time offers safety training et cetera. So.
And as we go forward, we're not exactly able to move the everything to low cost operations, because we have contracts that are.
Our design to be sold from specific mind.
And we are not.
You don't have the flexibility to just move all of our production to the lowest cost operations to satisfy some of those contracts.
But as we think through what that cost level should be it should.
Trend back or something closer to that.
What we would be but we are going to be operating it at a.
Lower capacity.
So it won't go back to or pre guidance levels are our January.
Levels, but I don't think it's going I mean, it should be better than what you're.
You will see in the second quarter second quarter is going to be bad just because we had most of our minds down in the month of April Uh Huh.
And once we get through that I think the second half of the year.
The cost should be.
Probably slightly less than what we've seen in the.
In the first quarter for the only basin that we should be able to.
Bringing our minds back with the staffing level bits.
Is efficient as it is possible.
Yeah again.
The sizing the mine with the overhead if we do have so.
Hopefully that's helpful and.
That's very helpful. Jim exceedingly helpful. And then my last question just asked to bring me just.
Sure.
Our geology hasn't changed right.
And our people haven't changed.
So what we're dealing with like everybody else in America in most cases is a demand issue.
And trying to time, our supply through that demand.
Fortunately because the demand was supposed to be here it created inefficiencies.
I think we've taken steps to eliminate those as much as possible at the same time, we want to be ready.
If and when.
Our customers May see it serves later on if natural gas prices rise like some people are projecting so it's a balancing act.
As we said in his prepared comments, we're very focused on cash flow, but we're very focused on meeting the needs of our customer so.
2020 is gonna be an unusual year.
And I'd just caution everybody not too.
I think in terms of what happens quarter to quarter.
That is going to be sort of baked indicate as we move forward, we will get back to operating our minds at full capacity.
And we will get back to being at low cost producer that but sets us apart.
In the industry, Yeah marketing on those comments, we did indicate that the good news is we're working very very closely what our customers and.
Indications, we have from all of them are that they currently intend to take the contractual commitments that we have in front of us, but as you noted.
We also said that volumes are likely to be a less than half.
What they were in the first quarter as we look at the second quarter. So trying to anticipate timing of when demand begins to ramp back up the pace of how that demand ramps back up.
All of those will influence the cost so you do need to look through the current volatility and uncertainty looked at our asset base look at our overall cost structure longer term look at our contractual relationships and our customer relationships.
And see through this that's the way we're trying to approach it.
Not all that all makes sense and I was going to just on 2021. So I think at the end of last quarter, you guys about 18 million tons roughly.
Put put to bed I'm curious, where there any deferrals that you saw or are seen in 2020 that would maybe change that contractual position in 2021 and had any impact on how to think about price in 2021 on those contracted tons.
We currently we're still at that number.
The end of the first quarter right. Yeah. So I think as Brian said Weve talked all our customers.
You know the they'd all indicated a willingness or desire to take at the minimum levels about contracts.
Yeah, Yeah as we go forward yeah.
There.
Yeah, we'll just have to see how the the demand plays out.
But I think the intention Oliver customers is not under contracts and take this year and believe they need to do so is there thinking about what their needs are for recovering economy.
Okay 70.
Real quick market, we noted what are.
Since back in January was for 2021 contractual commitments. Our total commitments in 24 29.4 million I worked telling my point of yet today, Yes, that's got the point as those contracts generally have.
Minimum or maximum.
Parameters around that so we haven't lost contracts, we haven't really experienced deferral at this point, but not surprisingly people are looking to take at the minimum levels as Joe mentioned deferrals into next year, Yes, we have seemed to deferrals quarter to quarter yeah. Yeah.
Yeah that makes sense last question is to 75 gas kind of the magic number you had to pick a sort of magic number where you think some of the coal capacity starts to ramp up in some of your customers really start cutting back on line whats the magic gas number I realize it depends on a number of different factors, but if you had to just pick one number what would it be.
I think and the MISO PJM, that's probably a good number.
Go to southeast you, probably need a little higher number yes.
Okay, great. Thanks, guys appreciate it.
Thanks Mark.
Our next question comes from the Lucas pipes with B. Riley FBR.
Hey, good morning, everyone.
Morning book as well.
I also good job.
Taking decisive action here doing just that make it.
Their safety.
Hi, I wanted to.
Kind of touched on the market Alan Seth.
You know, obviously, a low cost producer you've taken a lot of tops out.
Happen.
Seen similar actions from some of your peers maybe.
You could comment on that how did you see more more supply cuts across across the basin.
No.
Second half the year 2021.
What what are your expectations for the supply side.
I appreciate your color on that thank you.
Relative to.
The response of others.
I think others have been back done similar ER and the situation.
They haven't actually.
Yeah, they haven't publicly announced that they idled their operations for full month.
But we do believe that.
Oh everybody's working at reduced shifts a they're taking time off.
They're having to manage.
Their supply to meet.
No there <unk> customer transactions, because there's just no spot market so everybody's trying to.
Operate for cash flow.
So we do believe that supply is coming off.
And it will come off for the year. So specifically I think you ask Illinois basin.
On the last call, we targeted thinking production was going to be around.
Mid eighties.
And.
At this time I would say, it's going to be in that mid Seventys ER.
That again I think last time, when I said the mid eighties.
We were taken five to 6 million times export and we're still that's that assumption is still baked into that mid seventies.
Number as far as are the production in April and Illinois Basin.
I'd say that.
Nap.
For me everything sort of hovering around that 30%.
Drop.
Whether it be everything we're doing about 30% to our contracts.
It seems to translate.
Comparably.
Across the base, that's where we're Andre.
That's that's very helpful I I plus year here.
Yes, yes.
And then maybe switching side to the minerals business.
Well, what do you think is kind of set the longer term.
Look swaps, but that is instead, an area, where you plan on deploying capital on the other side of this or or are you taking another look at this given the.
Unprecedented shopping in oil prices you, how how are you thinking about the sector and house that's it.
Well, Oh, we still have confidence.
And in that segment, we feel like the assets that we have.
Our and the core of the core Oh, we feel like they're outstanding they're outperforming they will outperform the average.
And the various basins because of their location in their quality.
Nobody could foresee a pandemic and they're planning horizon.
I do believe that yeah.
United States and values being energy independent and will do anything and everything they can do.
To maintain or that position in the world economy like.
Like our country needs you asked continued to be the largest producer in the world you're possible.
So we do believe it will bounce back everything's back the demand.
And supply I think supplies running out faster than probably people might have thought.
As a minimal owner that's good for US, we don't really want to see him.
Using oil and giving it away or selling it in a teams.
It's especially.
If we can get the economy Rolling you would expect a pretty.
Significant.
Increase in prices back to that level, where sustaining a which we think is at least mid 40. So.
Uh huh.
Good.
From a long term strategic way.
Nothing's changed in answer to your specific question.
You know the timing of when it bounces back again.
Demand is going to to increase we're already starting to see signs of that gradually but we're seeing sign for peeled back down the road people getting back on airplane.
ER and supplies coming out probably at a faster clip than people thought and that should allow for us to get to that that balance.
I can't give you that precise timing because it really depends on when the economy in fact roll back but.
We will be a looking for opportunities in that space. It may take time for.
Sellers.
Minerals to adjust to the new reality or you know we haven't seen very.
It may people rushing out the door in a panic mode wanting to sell their minerals, oh, but $10 oil.
But if they did we definitely see there to help them.
[music].
Exit the some of that space.
So we feel like it's yeah.
All the attributes that attracted us to that space.
ER still are intact.
In hindsight, we should have instituted.
Some hedging ER, which we did not do and I think once we get back.
To a fair price point, it's sustainable for the industry leader to maintain.
Are you know its production level, that's something we definitely will have to evaluate probably implement so that we.
You know can hedge against such a sudden drop in pricing, which again was <unk>.
Impossible.
Yes there.
And my views.
Joe I really appreciate the color.
You and everybody best of luck.
<unk>.
Thanks Lucas.
As a reminder, who would like to ask a question. Please press Star then one that's fine.
Our next question comes from Nick your remote check with Stifel.
Hi, good morning.
I wanted to ask you about the $2 75 natural gas price, if we hit that area, what sort of demand pick up do you think you could see.
We would take a minute.
Yes.
To predict but.
Because you got Uh huh.
You've got to overlay that question with what is the economic impact what is the demand of you know.
In general for energy.
Uh huh, so if we could get back to say 2019 levels.
Uh huh.
In the economy is going to be running it it's something similar to 2019 that could be a very sizable number if you.
I think it's something less than that say, 10% or so.
Less than 2019 levels than maybe.
We are thinking it could be a 20 million times per.
And that's what I'm looking at is the eastern U.S. I'm not looking at the total.
You asked market when I say that so.
I would just be looking in our market area.
The Oh something in that.
And that level Dylan.
Safely back.
So with that or the Illinois incremental for Illinois basin demand and NEP demand or would that be more skewed toward what.
One day, so no oh, yeah for boat and next thing through the flow through a higher gas price environment too.
A benefit to a coal producer.
As Joe said, it's obviously clearly driven by overall electricity demand.
And decisions that off the utilities will need to make around how they manage their inventories right. There at high stockpile levels today. So it could just physically take time to work those stockpiles down the quote on quote normal levels or they could say I'm going to keep a higher.
That's very good point and my numbers were assuming that they would work off inventory first right.
So Brian.
Yes, if they decide that they want to keep their inventory levels because of.
Concerns about whatever second waves or whatever.
Did that number could go higher.
And on the 100 million of cash savings.
Between Gionee and working capital can you give us a split between those two items.
It's both its capex working capital and he and I just thought not just those two items.
Yeah.
The capex.
You had talked about.
Close to 30%, but the range that we gave initially was 165 to 190 I believe.
You know so the.
25% to 30% downtime is at the midpoint of that.
Taking capital was 35 million plus or minus.
And if you look at last year's GE and I, we indicated that coming down I believe it was 25% to 30% off of that number some of that was noncash some of that was non cash around a portion of the incentive compensation.
Okay with the working capital should we see most of that benefit in the second quarter.
We hope so.
Yeah.
And then Oh last item I'm.
Understanding that distributions and suspended for first quarter second quarter.
You talk about any board discussions.
Around once distributions re commence whether there's going to be a change in policy to take advantage of the discount where the bonds are trading where they are crazy currently yielding close to 20%.
It could there be a change in methodology, where half of the excess cash flow goes to open market purchases in the bonds and the other half goes too.
Unitholder distributions.
We had we had our board meeting yesterday.
And.
All the questions that you just asked.
[music].
Yeah, I think the decision is that we're going to have that discussion at the next meeting which will be in July we did not have it at this meeting.
No just so much uncertainty right now as to what the timing of everything is we felt that we would have better information.
In the next quarter to address these questions and try to tackle.
At this meeting because when we tried to look at that as a management team the variables.
Assumptions were.
So many.
That you found yourself [laughter], saying if this happens and then we would do this at this at when we do that.
And we just need a little bit more clarity.
How fast the economy is going to rebound before.
A weekend really answer those are feel like weeks and make decisions that are in the long term best interest to everybody. So we deferred that decision until the next quarter.
Okay, but.
Am I supposed to do.
Here are you say that.
Open market purchases of bonds, maybe on the table going forward.
Everything's on the table everything is open for us to.
Preserve our liquidity.
And.
<unk>.
Long term value for our shareholder or unit holders so everything.
<unk>.
Are we need to look at everything for energy from incentive compensation to.
And distribution policy to capital allocation generally everything's on the table. This is a.
I like I said in my prepared comments, we feel like this year, we now got to do foundation from which to build and grow.
And Oh, we need to look at everything in that light.
Understood. Thank you.
<unk>.
Our next question comes from Shell evening, MLP with Loomis Sayles.
Hi, Thanks, Thanks for taking my question I've a question on.
Dirty bomb I.
I believe you have about 280 million of surety bonds outstanding kind of want you to.
Educate me on.
All that work and they renewed annually, who provide the surety bonds to you today very diverse group of small insurance companies.
What's kind of the tone, you're hearing them I'm reading and some you know coal company 10 paid you know I outlined at the risk that getting harder to win new type of instruments and are you being <unk> post more collateral, which you know you intend to use more letters of credit again.
Your revolver in order to meet that if you do can you just kind of lay out that kind of risk as it relates to alliance resource, it's well I mean, that's my first question and then I've a follow up thanks.
Or are we have a.
Group of underwriters and trench companies that we have very long relationships with that provide us far surety Bobby.
We are fortunate, but the support for US remain strong frankly, it's a credit risk assessment from their perspective.
Being said there are certain insurance companies underwriters.
Indicated they are looking to no longer provide surety bonds to the coal industry generally those will phase out over time, but the relationships that we have with other underwriters we feel like there is.
Currently sufficient capacity for those can be ultimately replace.
At this stage, we have not been I ask specifically to increase collateral postings et cetera.
Clearly there there's risk around this area, but all of the discussions that we've been having with or existing stable of underwriters working with or.
Brokers, who help us navigate the or others that are considering potentially entering the space opportunities open up.
You know where are we feel pretty good about where we stand today.
Subject to change clearly, but that's that's the current state of affairs.
Okay great.
And then as you may hear your reserve.
We like what kind of underlying assumptions, you're using for natural gas prices coal prices.
It's all the regions.
Yeah, we can [laughter] yeah address.
That's on the oil and gas side.
[music].
We probably believed that there.
He is strip is undervalued I mean, we think that the prices rebound faster than what the scripts and jets.
For both oil and natural gas.
Yeah.
And give you precise numbers because they change every day every.
Yeah, the Monday called.
Educate me on what's going on it.
Every week everything changes. So I gave you a number today, it's going to change on Monday, but from an FCC disclosure standpoint, we're following the FCC required guidelines and establishing our reserves, yeah, but as far as.
Our as looking at the market.
We think the oil and gas prices will rebound.
Probably higher than the spread.
I think likewise on the coal side I mean, there's on a co side its.
There's just no market activity.
So it's really hard to project there.
What what are the FCC guidelines then for coal as.
What do you what do you suppose you heard the FCC guidelines for disclosure on.
I see meeting your is theirs.
Well as he seaborne coal reserves essentially it's a judgment is what is a.
My doublet merchantable merger will meeting what can you mind the coal for in sale at a profit.
And that's similar to what we do for impairment test. So we do have a price curve.
That we.
I have in our guidance that supported by.
ER internal.
Numbers as well as out outside sources.
And but that's taking a longer term view these things go for.
10 years decades.
I thought your question was more specific what's going to happen in the next two quarters.
Or maybe next year, so maybe I misunderstood your question on shallow to get to a precise answer for.
You really can establish a rule of thumb you look at each operation qualities associated with that operation.
The merchantable opportunities related to those qualities transportation logistics et cetera that side.
Detailed analysis the.
Probably beyond the scope of this conversation.
Okay.
And then just in terms of like I'm, not familiar with felt like oil and gas segment and how you report.
The barrels oil equivalent reserves, but there's an assets.
Yes, it's called the pod they have not been developed.
Well I guess the they can.
Get eliminated from your reserve profiles, they haven't been developed within two years.
Permitting.
I'm just wondering in terms of the life of reserves that you have now.
With your mineral reserves.
All right.
How many years over there do you think you have.
And then what how do you think about the risk.
The thing so the pod in particular I guess, given if we you know keep have oil prices remain low for longer than expected anything yes.
Shelley the remember when you own the mineral interest you own the underlying.
Hydrocarbon in the reserve in perpetuity.
Which is what our position is.
The <unk>.
Reserve category going away as you described to really relates more to what can happen on the even p. side.
So yeah. So when we look at those too I mean, that's how we do it mean base down when the E.M.T. company files that permits that's where we can gauge what is most likely do occur.
And that's what our guidance was set on back in January now with the dropping pricing.
The M.P. companies are now having to reassess when they would actually complete those wells.
Huh.
There.
Been in there arise I mean, and that's the uncertainty we have right now as to what the volume as and and how fast that may decline as they decide.
How to pull back there completion crew cruise et cetera.
And how they adjust our capitol so when a permit by an operator expires if my calls that location.
All out of their words are based because they no longer have a lease in place <unk> as an example for us to preserve made remains intact. The pay some when it ends up being developed could definitely shift.
Most the M.P.'s are still trying to get through the other side also.
So we're all trying to see when when it is just like them back so.
Okay that helped my next question <unk>.
Oh Oh.
Oh good morning. Thank you a part of this question with that but I'd like to fall going up one the the.
100 million.
Expected cost reduction to G.N.A. and.
And development capital improvements and combined with the liquidity from it.
We saw any of the revolving credit.
Mapping out against his trailing ratio, you've probably duncanson able to calculate what kind of liquidity you potentially could see in the next.
Three three to six months.
And that some of this discussion about bonds Andorra opportunistic minimal purchases is there also equity reduction and it was done that from time to time, taking back unit is that part of the equation as well as it everything on the table.
At this stage I would not expect to see us engage in unit buybacks, we have a.
Small amount remaining on the original authorization from last year, which was $100 million I think we have six and a half million or so.
Ah remaining under that authorization.
But again everything is on the table, but our focus in the near term is to make sure that we maintain sufficient liquidity covenant compliance to managed through the current situation. The other thing that you're not taking into consideration we did.
Temporarily halted our distributions for two quarters.
Cash payout on those distributions is roughly 52 million a quarter I believe so.
So that's on top of the $100 million of capital reduction working capital reduction in G.N.A. reduction that we outline.
And and then I guess the second part of that so the unit purchases are on the table at least anything significant.
What you've talked about the mineral if the mental assets or opportunities came available or anything else is there anything from a strategic you know looking at the rest of the producers in your space you know everybody's been hit the same. It is you know a Mac huge macro event would the opportunity to be anything.
To dig deeper on the Cold site have you is that is that <unk> very high possibility or are you seeing anything yet.
Right 'cause holidays centers needed in the cold space and we're consolidator.
Napping.
Currently being gone but.
It needs to happen.
And.
Whether does or not I can't for Dick looked that <unk> that needs to happen and and we will we are a willing participant in there.
Right that's good to hear.
That's it thank you thank Chuck appreciate it.
Our next question comes from Eric Fred back like Pacific value.
Hmm.
Hey, guys think for taking my call.
Most of my questions have been answered I was just curious if there's any update on potential cool coal plant closures here in the next year too.
Considering what happened last month.
No there's no update on that yeah.
<unk>.
That's strange.
Yep.
Thanks.
<unk>. Thank you.
Our next question comes from Murray, Hi, with N.P. High K.L.L.C.
I'm here.
Can you hear me.
<unk>.
Good morning.
I'll tell ya listening to this call so for a change pretty darned positive to me and I'm, an investor Ah I don't want not a big and best drive about 13000 units I just doubled him recently.
And it from everything I read it just seems to me that you guys have to be unbelievably great managers.
But the question I haven't gotten looking over the figures you had a loss of $144.8 million.
The way I look at it she had 157 million of that was non cash and 132 million l. It well is that right off of goodwill.
It seems to me if he didn't have those two things you would add an operating profit somewhere around $12 million.
And I understand that you know writing off those intangibles is is a big deal, but it seems like a pretty good thing to do in this market.
So I.
Just one to ask if that.
Is somewhere near right.
Yeah. The way you walk through the math is correct as we.
Indicated in our comments when you exclude the noncash items are adjusted net income for the quarter was $12.2 million and are adjusted either was $98.3 million.
You know the asset impairment goodwill impairment those are reflective of.
Current market conditions, and the processors dictated by generally accepted accounting principles, absolutely our background.
Yes. It makes a lot of sense to me and I I just ran to really wanted to chime in I've done a lot of reading on the company and the last I've had it for a long time, but I've done a lot of reading on it. It just seems to me that everything you do in these markets in an industry. That's a tough industry to start with in coal you have such a strong.
Vision in it that you've just done a great job and I just wanted to chime in and say that.
Very much a nice little I have.
Thank you married appreciate the support in the comments.
Just concluded that question and answer session I'd like to hand to call back over to Brian Cantrell for any closing remark.
Thank you L.A.
Listen we appreciate everyone's time. This morning, it's obviously a challenging environment that we're all trying to manage through your continued support an interest in alliances very much appreciated we look forward to our next call in a discussion of our second quarter results as well as an update on our operational plans that are in place.
Time, that's concludes our call for today, thanks to everyone for your participation and your continued support an alliance.
Yeah.
Mm.
It kind of Texas now concluded. Thank you for attending today's pasting pacing <unk>.
[noise].