Q3 2021 Alliance Resource Partners LP Earnings Call
To check.
Okay.
Brian gathering ready greetings and welcome to the Alliance Resource Partners L. P third quarter 2021 earnings conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
What should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce Brian Cantrell Senior Vice President and Chief Financial Officer. Thank you you may begin.
Thank you Daryl and welcome everyone.
Earlier. This morning Alliance resource partners released its third quarter 2021 financial and operating results and we'll now discuss these results as well as our perspective on market conditions and outlook.
Following our prepared remarks, we'll open the call to your questions before beginning a reminder, that some of our remarks. Today may include forward looking statements subject to a variety of risks uncertainties and assumptions that are contained in our filings from time to time with the Securities and Exchange Commission.
Also reflected in this morning's press release.
While these forward looking statements are based on information currently available to us.
One or more of these risks or uncertainties materialize or.
Or if our underlying assumptions prove incorrect actual results may vary materially from those we projected or expected.
In providing these remarks the partnership has no obligation to publicly update or revise any forward looking statement, whether as a result of new information future events or otherwise unless required by law to do so.
Finally, we will also be discussing certain non-GAAP financial measures.
Definitions and reconciliations of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures are contained at the end of Arlp's press release, which has been posted on our website and furnished to the SEC on form 8-K.
With the required preliminaries out of the way I'll begin with a review of our results for the quarter and then turn the call over to Joe craft, Our chairman President and Chief Executive Officer for his comments.
The exceptional performance delivered by alliance through the first half of the year continued into the 2021 quarter.
As we reported earlier this morning, ARLP again posted sequential increases to total revenues net income EBITDA and free cash flow.
Strong performance from both our coal operations and our royalty segments led total revenues higher by $53 million to $414 4 million.
With net increase income increasing $13 5 million to $57 5 million or <unk> 44 per unit and EBITDA climbing $17 $3 million to $135 $9 million.
Free cash flow also rose during the 2021 quarter, increasing $43 million to $119 $7 million.
ARLP strong cash flow performance during the 2021 quarter allowed us to have returned $12 $7 million to unit holders through the quarterly distribution, we paid in August and further improve our balance sheet as total leverage fell to <unk> 95 times, a 12% reduction from the sequential quarter and.
Liquidity increased to $102 $1 billion to $602 6 million.
ARLP financial and operating results for the 2021 quarter and the first nine months of 2021. We're also much improved compared to the 2020 quarter end period.
Compared to the 2020 quarter total revenues increased 16, 8% as a result of higher coal sales volumes and significantly higher oil and gas prices.
While net income jumped 111, 4% and EBITDA climbed 14, 4%.
Compared to the 2020 period coal sales volumes increased 15% during the 2021 period driving total revenues higher by 14% to $1 1 billion.
Coal production volumes also increased during the 2021 period jumping, 21% to $23 5 million tonnes compared to $20 1 million tons during the 2020 period.
Increased coal production and the benefits of ongoing cost control and efficiency initiatives that our mining operations.
<unk> segment, adjusted EBITDA expense per ton sold lower by 11, 1% to $28 82 per ton during the 2021 period compared to $32 43 per ton for the 2020 period.
Net income increased $295 million to $126 3 million.
Reflecting higher revenues and lower depreciation in the 2021 period and $157 million of noncash impairment charges in the 2020 period.
Excluding these impairment charges net income was $126 $3 million for the 2021 period compares to an adjusted net loss of $7 2 million for the pandemic impacted 2020 period.
EBITDA for the 2021 period increased 31, 5% to $348 9 million compared to adjusted EBITDA of $265 $3 million in the 2020 period.
Turning from our consolidated results, let's now take a closer look at the performance of Arlp's business segments.
Reflecting strong coal demand, which led to higher sales tons and price realizations at our coal operations.
Coal sales revenues rose 11, 1% to $362 $3 million during the 2021 quarter compared to the sequential quarter.
Segment, adjusted EBITDA expense increased modestly to $28 95 per ton sold as inflationary pressures are beginning to impact our coal operations.
Increased revenues more than offset higher per ton operating expenses driving segment adjusted EBITDA for our coal operations up by 10, 9% to $126 $3 million.
Arlp's royalty businesses also performed well during the 2021 quarter.
For our oil and gas royalties segment adjusted EBITDA during the 2021 quarter Rose 24, 1% to $19 $1 million as sales volumes and price realizations improved compared to the sequential quarter.
Benefiting from increased revenues and royalty tons sold during the 2021 quarter Arlp's coal business coal royalties business delivered $9 2 million of segment adjusted EBITDA and.
An increase of 35, 6% compared to the sequential quarter the.
The strong performance of both of these businesses resulted in Arlp's total royalty segment, posting a record $28 $3 million of segment adjusted EBITDA during the 2021 quarter.
And with that I'll now turn the call over to Joe for his comments Joe.
Thank you, Brian and welcome everyone.
Since our last earnings call.
Fuel prices and increased dramatically around the world as supply has fallen woefully short of demand.
Since the beginning of this year worldwide LNG prices have escalated fourfold in Asia and Europe.
The API two index with thermal coal prices has more than doubled as weather impacted unreliable renewable power generation did not show up at expected levels.
And utilities increasingly turn to coal in response to high natural gas prices.
In the United States natural gas prices and nearly doubled causing coal fire generation and Arlp's primary markets jumped 23% year over year.
Co generation could have been even higher.
Supply has been limited due to numerous issues.
None of which should be attributed to the producers of Americas, most abundant low cost fuel.
<unk>.
Looking forward the buy in administration as domestic domestic.
Domestic energy policy agenda, combined with ESG obsessions in Europe, and the United States.
Will most likely continue to restrict growth in fossil fuel production.
Absent any significant global demand destruction, we expect fossil fuel prices will remain at elevated levels through next year and into 2023.
We have benefited from the market uplift this year.
As reflected in our updated full year 2021 coal sales guidance.
Assuming no delivery delays through the end of this year coal sales volumes will be 15% higher independent make impacted 2020 levels.
As natural gas prices are projected to remain favorable for cogeneration next year and coal stocks for our customers are at critically low levels. We are currently targeting a 6% to 12% increase in coal sales volumes in 2022 over 2021 levels to help meet the needs of the market.
Place.
ARLP has responded to rising coal demand our employees are working extra hours.
To increase current production in our mining operations are focused on retaining arlp's exceptional workforce and attracting new employees to further increase coal production.
Arlp's customers are rewarding us for our efforts to meet their needs. During this critical time.
Providing new commitments during the 2021 quarter for the delivery of $2 1 million tonnes.
Over the balance of this year.
ARLP is now sold out for 2021 and as a result of recent contract pricing.
We are increasing our estimated full year coal price realization by $1 10 per ton so for this year.
During the 2021 quarter, we also strengthened our long term coal contract book entering into new contracts for the delivery of another $13 2 million tonnes.
Over the 2022 through 2024 timeframe.
And since the end of the 2021 quarter, securing new agreements for the delivery of an additional $10 7 million tons over the same three year period.
As of today, we have $29 9 million tons committed and priced for 2022.
Of which $2 4 million tons are committed to the thermal export market for delivery next year.
ARLP has secured commitments were approximately 4 million tons of export sales in 2021.
Including 440000 tons of metallurgical coal.
We expect strong international demand for both thermal and metallurgical coal will continue into 2022, providing ARLP with the opportunity to place similar volumes.
Not more in the export markets at attractive prices next year.
In 2023, we have price commitments for $15 8 million tons all in the domestic market.
Market fundamentals for Arlp's royalty segment are also favorable.
Our oil and gas royalties business commodity prices have increased significantly since the beginning of the year and the forward price curve for oil natural gas and gas liquids remains very favorable.
Production from our existing acreage continues to improve from pandemic lows.
We expect that trend to continue as E&P operators modestly increased drilling and completion activity.
And we anticipate the contribution from oil and gas royalties to Arlp's consolidated results will also increase as a result of our recent acquisition of approximately 1500 net royalty acres in the Delaware portion of the Permian Basin.
With the active development already underway and a significant inventory of wells to be ultimately compete completed on the acquired acreage. This transaction should provide a long term uplift to the performance of our oil and gas royalties business.
We also anticipate steady growth from our coal royalty business has increased coal sales volumes and prices from Arlp's mining operation should benefit this part of our business as well.
As a result, we expect the contribution of our total royalty segment to Arlp's consolidated results will continue to increase in the future.
In closing I want to address our thoughts on setting unit holder distributions.
After suspending unit holder distributions in response to the challenges and uncertainties created by the pandemic.
Arlp's performance and outlook had improved to the point that we were pleased to reinstate unitholder distributions earlier this year.
Targeting an annualized distribution level at approximately 30% of anticipated full year free cash flow at the time.
Arlp's performance. Since then has obviously been exceptional well above our expectations.
And the positive future outlook for energy markets fundamentals contributed to the board's decision this quarter to double the distributions to our unit holders compared to the sequential quarter.
As I just mentioned.
Oil and natural gas market fundamentals appear to be extremely favorable for the next several years and with our long lived low cost strategically located assets.
ARLP is well positioned to deliver solid results for the foreseeable future.
We continue to believe we are well positioned to provide attractive cash returns to our unit holders and provide ARLP with the flexibility to pursue long term growth opportunities.
While maintaining a conservative balance sheet.
While ARLP is aggressively pursuing opportunities to benefit from current market conditions. We are also aware that significant uncertainties remain.
The same market environment that is so favorable to arlp's business today.
Should also serve as a wakeup call to politicians regulators financial institutions utilities and customers for our consumers.
Contemplate the future.
Policies favoring a rapid movement away from reliable base load generating capacity to an ever increasing premature reliance on intermittent power sources.
Already resulted in power disruptions in the United States and energy crisis.
In Europe, and power shortages in China and India.
We are hopeful that as the energy transition continues to evolve it.
It will do so in a way that not only continues to push new technologies and innovation.
But also with an honest recognition of the pace at which this can be deployed.
This requires an acknowledgement by these policymakers of the importance of that.
Coal fired power generation.
In order to maintain and maintain access to low cost reliable power and.
Until the transition is completed sometime over the next several decades.
Is the future of energy continues to evolve ARLP antennas to be there for our customers.
Abided, a fuel essential to meeting their needs today and profitably investing in opportunities that will help them keep the lights on in the future.
That concludes our prepared comments and I'll now ask the operator to open the call for questions.
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Our first questions come from the line of Nathan Martin with the Benchmark Company. Please proceed with your questions.
Thank you good morning, Joe Brian Congrats on the quarter.
Thanks, Nate I appreciate it.
Coal production I would say it came in a little lighter than expected I'm guessing that's driven the decrease in full year shipment guidance given the strong market. We're seeing as you guys pointed out some of those probably.
Weren't expecting a downward revision obviously.
<unk> guidance, so it looks like it would imply a very strong fourth quarter on both the production and shipment side could.
Could you guys, maybe talk about factors, leading to that change labor a factor at all there you also mentioned.
Some issues, maybe delivery delays affecting that maybe a little color. There and then kind of looking ahead to 2022 I think that caught you guys said shipments should be up about 6% to 12% year over year can you give us an idea how you plan to increase tons. There. Thank you.
Sure.
Yes, we have had.
Shipments were definitely impacted.
By some supply chain issues from the transportation sector.
Sure.
We had several we had some planned shipments that did not occur because of the.
Yes.
The unavailability of transportation equipment.
We continue to see that as a challenge going forward we do.
Expect to hit our guidance with fourth quarter shipments assuming the transportation.
<unk>.
At this.
Time, we have commitments that that will happen but.
<unk>.
We'll have to wait and see on that as far as our production Covid still has impacted our operations. So we did have.
Quite a few employees.
We're off this past quarter that impacted production somewhat and not significantly but it did account for some of that shortfall.
Working extra time.
This quarter.
To try to make sure that we can achieve our objectives for the year.
So we are working extra days on the weekends to try to meet that.
Objective in addition.
Starting next week, we've added a unit of production.
At our <unk> mining operation in Appalachia.
And it will be fully staffed and producing some additional tons in the fourth quarter going into next year.
So we are.
Looking at adding some production next year.
That'll be driven primarily by again working extra hours and extra days.
As well as <unk>.
Maybe adding a few units so that 6% to 12%.
And it will be largely dependent on labor force and supply chain.
We feel good about having the equipment based on what we have.
Within our operations.
That's going to be an availability issue for most people, but not for us.
Or is the equipment availability I'm speaking.
Labor, we are feeling good about our ability to attract labor.
Since we have commitments that are starting to grow over the next three years.
And strong support from our domestic customers.
<unk>.
Have you given us sufficient signals.
Provide the confidence to try to bring on a unit or two.
That growth right now is probably.
Two thirds, mostly in the Illinois basin.
Is basically where the growth is except for the AMC mining that I spoke of earlier.
I think that answers your questions unless there's.
Yes, no I appreciate.
Appreciate the color there absolutely if I may kind of shifting over to the pricing side of the equation.
It looks like here in the chair in 'twenty, one you guys layered on nearly 1 million tons.
Pretty strong pricing levels, obviously, your full year guidance moved up by about a $1 60 at the midpoint.
If you look at 2022, it looks like you basically doubled their committed and priced tons there.
You guys had such a significant portion of 2022 locked in can you can you give us any idea how pricing looks like for 2002.
Well given the UI, we have it's hard to give you the price target.
There is still uncertainties there.
Prices are continued to be strong we are booking some.
Very attractive prices relative to <unk>.
What this year's prices are at the same time.
There was quite a bit of tonnage that we book.
It was earlier in the cycle. So we didn't.
And we haven't been able to time everything at the top of the market.
Got it.
To say that we expect revenues.
To be higher next year.
Can't give you a precise number right now but.
We feel like next year 2022 is going to be a very.
Attractive year relative to what we've seen the last two to three years.
Got it I appreciate that Joe.
And then just maybe one final question I know I asked you last quarter offer your thoughts on free cash flow allocation.
Thank you said you'd be in better position to answer that on the next call. Obviously you guys felt strongly enough about what you are seeing in the markets to increase double the distribution really can also added some acreage on the oil and gas side.
I understand there is some uncertainty out there still as you mentioned in your prepared remarks, but maybe any other color you can provide on what your priorities are from a capital allocation standpoint, with the potential step up in free cash that you guys could do next year. Thanks.
Greg one of the.
Uncertainties.
Headwind that we're looking at is just what the by the administration is going to do.
They promoted these infrastructure bills.
Which.
On the one hand and tries to encourage workers.
With what we call it true infrastructure and then they've got a social inflation.
<unk> infrastructure build it tends to.
As people is not people not to work.
I don't know whats going to happen there.
It's amazing to me that.
For two years or three months they stick with one particular type Bill and then all of a sudden.
Everything is changing and nobody really knows what is going to be in the bill.
What the impact is going to be I think.
The positive news for people in the coal business. It looks like Senator <unk> been successful in keeping out some of the draconian measures that were in the earlier bills.
But we really need to see what in the world comes out of the buying administration.
This quarter heading into next year and what their reaction is going to be rare.
Relative to whether it be legislation incentivising.
Alternatives.
More importantly, what position are they going to take towards our financial institutions.
And the access to capital.
Because there have been signs recently that the federal reserve has been encouraging.
The banks not the Linda the coal industry.
So we need to.
Really assess.
How.
The buy in administration handles the rest of the year as we think about.
<unk>.
How we allocate capital going into 2022 and beyond.
The fundamentals are very strong.
We're seeing a lot of opportunities in the oil and gas sector.
We're continuing to evaluate things in the transition.
Most of those things appear to.
I have a little longer lead time, instead of the immediate type acquisitions.
We're continuing to spend quite a bit of time looking in that area.
So our challenges like most people know our supply chain shortages.
Transportation shortages weather the economy by regulations inflation is a big one.
So NAND Kobe.
Once the pandemic Glenn David Garner.
Subside or are we going to see another wave so theres just a lot of.
Different.
Issues in front of us.
But we feel like we're well positioned.
To manage those going forward.
I wish I had better clarity, but.
Like I said.
Insistence on trying to pass this legislation at a time when.
There is already a worker shortage I don't know, how thats going to shake out.
Got it Joe I appreciate those comments.
All the variables there just real quick.
Follow on on the labor side of things and then the inflation as you just pointed out as well. So you guys are seeing.
Any thoughts on what that might add on the cost side going into next year.
Well, we're hoping that our productivity improvements will offset.
Those increases, but there is definitely.
Inflationary pressure with steel prices.
Natural gas prices oil prices.
Labour component small relative to some of the others that are double digit.
And prices, but we think our margins will expand next year.
Based on the benefit of higher revenues that will more than offset any cost increases.
Perfect.
It's all I have for now thank you guys for the time and best of luck in the fourth quarter.
I appreciate it.
Thank you our next questions come from the line of Lin Shen with Hite. Please proceed with your question.
Hey, good morning, Thanks for taking my call almost as great quarter end.
I'm just wondering.
Some of the peers talk about a data set of our target to reduce their <unk>.
Correct operating greenhouse gas emission target and.
I'm just wondering if all aligned.
Is there such a approach or is there anything you can working on you're seeing some low hanging fruit, we can do a fall.
Maybe improve your ESG.
I'm not sure.
It didn't come very clear to me what you. Your question could you repeat the question I was just like some company called help me to talk about they can they are working on to reduce their green.
Greenhouse gas emissions, while their operations I'm. Just wondering is the lines also working on some approach too.
Reduce your greenhouse gas emission free operations or some other like growth like that.
We're constantly looking at efficiency opportunities we've also.
Made some small investments in some offsets carbon offsets.
On the methane.
Emissions from closed operations.
Which we're continuing to look at we're looking at other credits also.
Potentially in the forest areas timber area.
So.
That would be my response to that Brian do you have anything more.
Yep.
So you don't see any near term a big opportunity for you too.
Matt.
Something like carbon capture Ccs, Greg how are you doing.
Foresee any near term opportunity is big there.
I think the carbon capture would be more on the consumption side.
On the operator at the utility level.
Which I don't really see anything in the near term on that.
From our existing customer base.
Sure.
Got it and also wanted to follow up.
When you look at 2022 do you think about it.
You probably will export more than <unk>, one or what are you seeing spot export market would likely too.
We do believe the export market is going to be.
Constructive it is going to be robust it will be there for us.
What we have to.
The balance is what are the demands for our domestic customers.
And.
So it's going to be a matter of communication and commitment.
We have long time.
For the longest time really rely on our domestic base and I think if we're asking our customers that.
For new commitments to commit for three years.
If they would commit for three years and I think our preference would be to serve that market as opposed to that.
To be in the in the export market on short term basis.
If on the other hand, we've got some export customers are willing to contract or commit.
Multiple years also.
So we're looking for long term.
Supply so that we can support bringing on the additional people.
To meet those needs.
Okay, great. Thank you very much appreciate it could be higher could be lower depending on what the domestic market Brian.
Great. Thank you.
Thank you. Our next question comes from the line of Shelly Mcnulty with Louis. Please proceed with your questions.
Hi, Thanks, Yeah, I just wanted to go back to your comments about kind of waiting on.
<unk> administration.
Kind of concerning comments from the fed in regards to.
Yes, advising bank not to lend you call is that is that kind of at this point prohibiting you from being able to.
Come to refinance your bonds that are callable is that.
Would you characterize it stopping you from doing it at this point or.
If you wanted to refi tomorrow, you have banks that would be willing to.
<unk> your agents.
And we think the markets are open today.
Today issue.
Trying to think through.
<unk>.
Access to capital the.
From the banks in particular, when our revolver renews in a couple of years.
So thats the primary concern right now I think.
The bonds were.
Interest rates are and where the strength of our balance sheet as we've gotten some favorable responses currently.
But theres just an uncertainty there.
Debt.
Just puts a premium.
On us to have a strong balance sheet, we just feel like that there is.
We just it's hard to know three years from now where.
Where the markets are going to be.
Given how fast they've gone up.
Will there be a balance or not.
Believer that.
Sure.
We're going to have the supply chain disruption for awhile.
Don't see anything changing that especially at the buy in administration passes.
This second.
Slug of <unk> trillion.
That puts money in People's pockets.
And encourage them not to work. So if people don't show up to drive trucks that the ports are anywhere throughout the supply chain.
Our economy.
I'm just very concerned that.
That we're going to continue to have a lot of the.
Disruption in the supply side of the business and it could go to.
Anything and everything.
In the area.
That we're not immune to having <unk> products coming to the coal mine as an example.
FX everything throughout the economic.
Economic food chain here.
So I think the policy is really need to be focused on what's good for the economy as opposed to the 2022 election, which is my opinion is whats driving their urgency to try and get something passed as method do.
What's right for America, and my my opinion.
We just have to wait and see I cant.
Yes.
Okay got it and then.
We are expert at times, what is the major market that Youre youre exporting to at this point.
So we have.
Markets to India.
Some to Europe.
Sure.
So in the Middle East.
Uh huh.
Little bit.
Far east not a lot.
Mhm.
And what's the kind of <unk>.
Breakeven that you need to see to make the margin more attractive.
Export side.
And in parallel going on.
The.
The price is there I mean, the price markers are there it's just.
It didn't matter.
Whether we should be selling into the export market or the domestic market.
Were further challenged by the fact that we really have no supply to sale for the next two quarters and maybe three.
So.
When we're looking at what participation we would have in the export market.
And last week and bring on these additional tonnes.
We're looking at second half of next year.
What can happen in that price curve compared to where we are today, but I still believe that.
There is definitely going to be opportunity from a price standpoint for us to sell into that market and it's really just a matter.
Where the domestic customers would they prefer to have the tons stay in America.
They are not willing to commit longer term.
And if they don't then we'll probably end up turning to the export market.
Mhm.
On the on the shipments that got impacted by logistical.
He is.
I would assume mostly just impacted the domestic shipments not yours.
Blended shipments so.
If you can't move the time because of the domestic freight or whatnot can you kind of move them into the export market quickly on a spot basis just to kind of.
Yes.
Okay.
Yes.
Transportation is going to be impacting both domestic and export the same time so.
So its not theres either theres only so many train crews there have an employee.
Work issues also try to fill their seats on their training.
So most of it's a labor issue for the for the railroads.
You've got.
The vessels on the seas.
Yes.
Just a it's a logistics timing issue.
Yes.
Again, our challenge in America as most producers are all sold out.
So it's hard to say.
Full advantage of these high prices that you see in the near term.
Okay.
And the ability to restock inventory.
For next year, a kind of.
Limited in the sense that.
Some of that capacity that close.
During the pandemic.
Is it able to quickly we start or has there been too much domestic coal capacity permanently shut because of that right Eric.
We don't want the call anymore.
And we're going to be possible for the utility to restock inventory level to a point, where we have a big cushion.
And I know, it's dependent on that I know is dependent on the policy too but I.
Are they wanting to restock or are they.
Are they comfortable with operating at these levels of inventory.
Utilities.
Utilities would love to be restocking right now.
But they are more focused on just maintaining theyre getting the code that they have gone under contract. So that they are prepared for the winter without having.
To run Alco I mean, they are very low.
The lowest I've seen in a long time.
So everybody is focused on trying to make sure we meet the commitments that they've made and I think <unk> restocking.
From a producer standpoint, yes, the pandemic did impact the coal production by 20%.
And once you close at those operations it is tough to bring them back and I think that.
Thinking of new operations, I know Theres, a couple of people out there trying to do it but most of.
What we see of new productions, all metallurgical coal.
Just been an abandonment that most producers of the thermal business.
I mean, we're one of the very few that is committed to the thermal business.
For the life of the power plants through 2000 35000 40045.
So it's hard for.
People to get financing to open new thermal mines I, just don't see it happening.
There is excess capacity because of the pandemic, where people like us that where we don't have to make.
Large investments, we just have to hire people.
Uh huh.
To get to full capacity.
And I think thats, what most other people will be doing most other people.
In the thermal business are doing it the way we're doing it and that's really just working extra hours.
And trying to them.
Increased our production that way as opposed to thinking about making capital investments that would bring on supply.
We would have an overhang.
In the future.
Thank you. Our next question comes from the line of Matthew Fields with Bank of America. Please.
Hi, I just wanted to ask about.
The strong balance sheet that you sort of.
Highlighted at that sort of a continuing priority for you.
Pre pandemic you had always kind of talked about one turn of leverage as that kind of a comfortable level and now as we.
Now as we get sort of.
Into a more favorable environment for you and you are starting to increase the distribution.
We're kind of at that one turn of leverage and it just wanted to get a sense of where you are at this inflection point of <unk>.
Balancing the balance sheet versus shareholder interest and kind of where you want to see the balance sheet maintained as you kind of try to address shareholders.
I haven't had their distributions in a while.
I think the.
Objective is the same.
I think her.
Next year, probably because EBITDA is going to be higher you're going to see that drop below that.
Our concern is 2023, there is a lot of plants that are scheduled to close in the coal space.
We need to see again, what the buying policies do not only legislative.
Our legislative believe that from a regulatory standpoint.
As to.
Whether or not these coal plants will stay up longer or whether they will close faster.
And so when we are trying to think about.
No.
Yeah.
The transition.
We need to be able to continue.
Make acquisitions, so that our EBITDA will grow from things other than coal.
So that as we look to 2000 32035.
That our company.
Has strong growth.
For the long term and instead of trying to think that the coal business going to be around for the next 50 years.
Which would allow us to return to.
Coverage ratio is likely pad when we had more security.
That we had a longer runway.
So I think both the access to capital.
And the future demand for our products are too.
Major issues that influence what our reserves have to be.
So that we can.
Have.
The ability to.
I have a strong balance sheet. So that we can survive in no matter what.
Environment is presented to us, but at the same time still be able to.
And return sufficient amount of cash to the shareholders, which support strongly.
As a major shareholder.
But.
We have to be prudent and looking not only for the short term but.
For the intermediate term and the challenges our industry faces and I am hopeful that.
As I said in my prepared remarks, I am hopeful that our policymakers with X <unk>.
Except the fact that you can't replace fossil fuels overnight.
And I don't know why they why the financial community thinks that we can I don't know why they can't see the need to finance.
So fuel is through the transition.
As opposed to saying well I know the transition is going to occur until 2000, 35040, but I'm not I'm going to stop lending to you tomorrow.
Doesn't make sense to me.
But unfortunately, there are banks out there that are taking that position.
And so that influences.
How we can.
Think about our balance sheet and therefore, we can't use leverage like most other industries can.
So when you look at our balance sheet it is conservative relative to others because.
We do have lenders that are shying away from.
The code word unfortunately.
So so not at the risk of oversimplifying. It sounds like you know trying to play some offense and defense with offense being that the royalty business and then defense being kind of your.
Our strong balance sheet too and the absence of information on what the regulatory and legislative policy is going to be in.
Maybe that one turn of leverage which was our pre tax pre pandemic levels is are.
Are you, saying is that.
I don't want to put words in your mouth. So.
$150 million of debt too much.
Now Matt.
No no we think that that's very doable and we could even take on some more.
But what I'm trying to say as we look at different scenarios.
And we feel very good about.
The next four or five years, if markets were working.
We would be having a totally different conversation.
But.
Unfortunately, we've got government interference in markets.
And it goes through everything we do.
Whether it's a burke weathers.
The fed.
Whether it's the regulatory I mean, theyre constantly whether it's the legislative giving.
Wind and solar all of these tax credits when they don't need them I mean, they say they don't need them and yet the government keeps throwing they want through a $300 billion, Adam Mccord and the last thing I read.
Some people tell me that it's really going up to 600 over 20 years.
When it it was a year or year to year now all of a sudden they think they need to do it for 10 years, what's that all about.
So yes so.
We feel like we can sustain.
500 or $600 million of debt.
But at the same time, we need to see how these policies impact other people's behavior.
Towards it's not what we can support its what we can borrow at a reasonable financial institutions will allow us to do.
And so that mix yes.
Practically speaking.
That mean that.
Youre going to have to hold more cash on your balance sheet and depend less on our revolver, which may or may not be as available to you after 2023.
Or where.
We're in the process of looking at alternative markets and there are some there are people out there that see the strong credit.
And realize that.
Yes, we're going to be there for the next 20 years.
We're solid credit but.
So there are alternatives that we're looking at we just don't have good idea of what the pricing is going to be.
Two years from now as opposed to the pricing today I mean, it's attracted today, but we don't need the money today.
We needed a couple of years from now.
When our revolver about are you talking about going into the private debt market or sort of a private revolver with.
Our non bank institution.
The ladder.
Okay, that's very interesting I.
I appreciate it and good luck.
The rest of this year and next.
Okay. Thank you.
Thank you. Our next question is coming from the line of Scott Ferguson with Pacific value. Please proceed with your questions.
Hi, guys.
Good morning.
Just a couple of questions I'll, just rattle them off on.
And I'll, let you go but.
I know you guys touched on this.
Earlier question, but.
Just ballpark.
The amount of tonnage you guys have booked for next year.
How much was booked before this.
Price run up.
And then secondly, you guys in the past I've mentioned.
Investments.
You guys were.
Close to pulling the trigger or.
We're looking at that.
Outside of oil and gas.
Are those still on the table and.
And potential timing.
So thanks guys.
As far as the booking of business.
I'd say that most of this was really pretty ratable.
Ever since our last call so.
So we look.
In August September and October.
So I'd say, it's probably a third a third a third I don't know maybe its a little maybe it's something in that neighborhood B, what I would guess.
I haven't really looked at it that way but.
I would say that it's probably in that ZIP code of a third a third a third.
Maybe.
Yeah, I don't know.
That's about right.
I mean, I think if you look at our <unk>.
Committed tons at the end of the second third quarter compared to the end of the second quarter, we about doubled it this quarter.
And then as we mentioned in the call.
Since the end of the third quarter, we booked another 10.
$10 7 million tons of volumes so.
Tough to time the market, obviously, I think Joe's characterization of we are constantly in the market we're constantly booking.
Agreements at pricing Thats attractive at that time.
So we.
Definitely caught some of the uplift I mean, the fact that we were able to increase our.
Full year sales price realizations by $1 10.
<unk>.
And one quarter speaks to that.
But it has been occurring on a more ratable basis.
And we increased last quarter also in anticipation of some of that so.
When we get.
Our revenue is up $150 million I think for the year. So.
So we were able to capture some of that.
For the July call and then we had some after.
As far as the acquisitions.
Non fossil.
What were we looked at and some of the transit trend physician type investments.
We're seeing significant inflation.
And some of the.
Fundamental elements to go into different.
Aspects of.
The various different.
Alternatives that we've been looking at.
We still have most of the products are.
Actually supplied from overseas from China.
So there's still been some issues on what the tariffs are going to be and not be.
So as we see the economics of what.
Has driven the growth in some of those.
Renewable spaces.
Looking forward appears to us.
The costs are going to be higher, but we haven't seen a desire.
On Ppas as an example.
Adjusting to that.
We've also sort of formed a view that.
If theres going to be a fast acceleration towards.
When so where batteries.
Then we think that.
Right, so youre going to be better than a little later than they are today.
It may be prudent to wait a while.
Before jumping into that space, especially if there's 10 year.
Tax credits instead of one year tax credits.
So much of what was driving.
A one year deal was we're trying to do something sooner than later was caused tax credits were expiring it sounds like they are going to get extended so.
To me that takes some of the urgency off.
And allows for.
Participation at a better entry point in trying to do something sooner.
Baird later.
Thank you. Our next question from the line of Arthur Calibrate Peanuts with ANC capital. Please proceed with your questions. Thank you very much guys hi, its great to see these numbers in black and white.
Good for you.
And good for US question Joe.
I'm reading all this stuff in India three days worth of supply, Spain is a disaster, England had to turn on a coal plant, which is basically blow up but David will realize the wind doesn't blow and all this other stuff.
And I was wondering.
If those guys have to they have to take their inventories up worldwide.
You're realizing it now what does that mean I mean.
For you because you made a statement earlier, which caught my attention. When you said you would rather keep the coal domestically because he wants to meet your contracts and I get that.
And at some point I think the guys in India pick a country youre going to be like we're going to play and we're going to do this three year contracts or something like that and I'm sure you're probably getting phone calls from those guys. So how does this play out because I just kind of think your phones getting moving them off the hook with guys are finally, saying, okay, I'm not going to a one year or less than a year contract I want to go longer.
For a certain price because if you run out of electricity in like India. I mean, the guy running utility is going to get killed right. I mean in all of these countries I mean, I don't think the guys people would get what's going on out there. So just if you could just expand on that.
Yeah, So couple of things.
As I mentioned earlier, we are having conversation with some export customers that are willing to commit longer term back to your point.
Second is that used to them is that like do they finally acquiesce.
Well, we announced the new paradigm.
This year, we actually had a customer that committed for a full year normally there quarter to quarter vessel by vessel is what we participated in.
This year, we've had actually two customers that have committed for longer term.
Within a year now we're talking about even longer.
I think when you look at Europe.
I mean, one of the.
You're exactly right.
Sort of.
Should be a wakeup call.
What we're seeing is now that oil being replacing natural gas either.
These guys are.
Or trying to scramble around to try to make sure that people have enough.
Gas for the winter.
So it's.
I never see anything like it is all I can say.
Okay I'm sorry go ahead I'm sorry.
Yeah, but.
Yes.
We're very focused on.
Trying to.
Okay.
Full benefit of what the market's bmo's, but.
We feel that our best policy is to really think longer term than short term.
Given the headwinds facing the coal industry.
Politically like I've mentioned before.
Oh no.
I mean, I don't know what the.
Industry would have been like if you took the pro forma closures for 2003, and you had them this year right.
Okay.
Those electrons got substituted by Nat gas I mean, I'm in Boston Nat gas in Maine is like if the permanent there's like 20 Bucks right. We're at $5 50 on our Cushing and guys still don't get this because they look at gasoline in terms of what energy costs are rather than electricity until it hits, which is going to start hitting about two or three months.
Okay.
And can you get work I've talked to you guys on energy guys and one of the things.
Come back from some utility guys.
Well.
Worry about is the ability you guys being able to get workers and extra shifts we start our mind.
Because I'm sure there's a lot of guys that even though the pay would be greater probably would want to go back because I can make more money for a year, but then the administration of all the talk is calls going away, although that make less money and have more certainty in what I'm doing than just go to a coal mine.
<unk> four year.
I'm just wondering how tough it is.
Yeah, that's why it's important that's why it's important to.
Again long term contracts, so the weaken not only talk about it but reinforce it.
With commitment.
There is potential that we could have some even longer term contracts that were in conversations with right now.
But one of the things that May have mentioned this.
And there's so many colors I don't know.
Where theres last quarter or not but we have one customer that actually came to our coal mines.
And talk to our men, saying, we need yes, we need you for 15 years.
That is how long at a minimum and thats how long our plants are going to run. So we appreciate what you do.
Even though we can't commit for 15 years.
Contractually because a company policy, but we're here to tell you that we need G.
And that was very impactful.
And so what we've seen.
As.
With the fortunes that have turned.
And with the price signals that we have.
And the opportunity to.
Reposition.
Pay policies without yeah.
In a way.
Make it more attractive.
Yeah.
People have had a taste of going to a manufacturing job that is the same thing every day, whereas they come to a coal mine it's different every day.
Every day they work they are working in a different place.
And.
So we've had great success.
We've hired over 150 people in the last quarter that had left us earlier in the year.
Wow, because they see the opportunity over the next several years.
And as I mentioned, we were just able to recruit to shifts in eastern Kentucky.
Which is amazing given the fact that we're competing against metallurgical coal gas.
They are trying to hire the same folks so.
We've got great benefits, we got great culture, we've got great people.
Uh huh.
Yes.
Yes, we feel.
If any bank and hire employees it to us.
So we feel that.
I'm sure there is other of our competitors feel the same way but.
I mean like I say, we've been able to hire that many people just in the last quarter.
Given that.
The strength of these three year contracts that we've been able to secure.
And during that time.
We are.
The same time, if <unk> comes out.
SaaS pay people more money to stay at home.
Yes, you bet.
Okay.
And not everybody became a computer code or like the two P administrations settled.
Mine is going to become computer programmers so yeah right.
Yes, let me ask you one other thing you said something to win the utilities if they can.
Paul a coal plant and to restart it.
It doesn't happen overnight you made a statement like that earlier.
On the remarks I mean.
That was a toll that was worth coal mine not the answer.
Okay got it is that the utilities I think once.
Coal plant.
Outline its.
Sure.
Very unlikely that it will start backup now having said that the areas of plant in the UK that they went back and.
Brought out of the multiple yeah, but its unlikely that youll see any coal plant is being closed.
Brought back into service.
Until the policies change.
At the federal level.
I'm sorry.
Alright.
By unless the government says we need you like they did in 19 seventies, when we had an energy crisis.
Do you think in Alaska, and then I'll take it with you guys offline.
I don't think theres going to be a price on that gas electricity eventually.
It's people to get off your back and realize what's going on in plus I think.
Yuri Superstorm cold stormy and.
The events in Texas and Houston.
To me that would've been a wakeup call, but it seems like we've forgotten about it.
As I think about it and you think about it is there is there like a price where people the electricity bills like I said, they haven't we set yet for the rates they are starting to but they haven't fully a customer at a seasonal low.
That's the wake up call.
I mean, because I think eventually price stretched all regulations.
You think so.
Yeah.
When you look at fossil fuels, mostly oil and some natural gas what it does and permeates through.
Any and all products. This morning, I think Wall Street Journal had a D alone.
Maybe diapers.
And showing the increasing cost of baby diapers and.
Traced it back the lumber in oil.
And Thats true with so many products that we use I think that's the one thing that most people in America don't understand.
As all the byproducts.
That we use day to day.
That are derivatives of oil.
Yeah.
But <unk>.
Back to your question I think it's going to take more than price I think it's going to take blackout.
Blackouts.
Before the politicians start to say Wow, I didn't know map policies, where we're.
Going to impact People's lives like they did in Texas, where you have over 50 people die.
I'm afraid that that's what it's going to take to get the policymakers.
And the.
Ceos of banks.
Yeah.
Right.
I realize it.
That the policies were advocating here and theyre going to China and taken investing over there, but they won't say it were.
China, 70% coal fired generation.
They got more power plants being built today than we have in existence.
Nothing.
Yes.
You would think that would wake up America.
Yeah.
Youre right unfortunate I agree with you, it's going to take like Scott to take blackouts.
The Boston area like in January or February when it's cold.
You shut down electricity manufacturing plants or I was a kid in the seventies.
I think thats what happened they just shut stuff down.
And and even FERC side, I noticed that solar grid operators in this region.
And as you just said you got to.
Got a storm, where nat gas it looks like thanks for the warning, but people don't get it yet you didn't need to youre going to be blackouts in the wintertime.
Suddenly unfortunately, something like that.
Okay.
Unfortunately that alright, thank you very much and I'll be back offline with you Ron.
I'll call you guys. Thank you.
Yes.
Thank you our next questions come from the line of Andrew Cosgrove with Bloomberg. Please proceed with your questions.
Hey, gentlemen, thanks for taking my questions.
Just one if you could just give us an idea on where current.
<unk> prices are today, and then I guess, along the same lines would be.
Assuming if you could expand if like the new kind of range for gas, obviously prop month is near 5%.
But if we were to settle somewhere closer to $3 50, what do you think the right price for I'll call it in that environment.
Yes.
Most of the.
Publications, you see out there are showing.
Prices in the.
$80 to $90 range.
Uh huh.
For Illinois basin pricing today.
Yes, I think that anything above $4.
Can support prices ni.
If youre just looking at coal.
Coal versus gas competition.
And at the same time, if you start thinking about coal on coal.
Would drop the price down to <unk>.
Some other price level right.
Which we just don't see happening in 2022.
It may.
It may happen towards the end of the year may not.
I just feel like that.
It's really difficult to bring on enough volume.
To meet the demand as I said in my prepared remarks.
If there had been enough coal supply, we would've seen more coal consumed in the fourth quarter than what we're going to see.
And so.
Right now as far as.
Trying to get coal mine that you can get powder River basin, and the market easier and you can the underground mines in the east.
And then you're also facing the competition of the export market like an earlier caller talked about that.
There are some folks that are.
Looking more to just sell in the export market in the short term but.
I can't give you exact price on the $3 50, we don't see go into $3 50, it's possible it could but.
We'll be definitely booked up in 2022 before that happens.
Alright, Okay, I mean, I think the color as far as what you just said with anything over four supporting somewhere near spot is pretty telling in and of itself. So I appreciate that.
I guess the other one would be.
If you could maybe expand on.
Any inflation.
Inflation on the rail side or barge side.
Maybe if you could just refresh my memory as far as how you guys move call down to the.
To the Gulf Coast, and then yeah anything as far as what that cost today versus where it was and where it might be going because I know on the met side.
Rail specifically.
I guess the rule of thumb prior to what's coming up next year was around 20 Bucks a tonne.
Obviously, I know, we're talking about different geographies, but thats going Thats gone a double next year.
So was just curious what that looks like.
His neck of the woods.
I think on the transportation side I don't consider it really inflation.
As a cost push to their pricing and I think it's more of a return.
It's all really supply and demand is.
Who can pay that.
I'm going to say, what price and what movement and we will commit.
So on the domestic side on the rail side that's usually.
Determined by our customers and then they usually have long term contracts at pricing associated with that.
So when we think about pricing for domestic.
Shipments.
In large part.
The customers.
Are able to maintain those prices.
Maybe back to your inflationary type levels.
And when you get into the spot market. It's just based on total supply and demand at the time you're shipping.
And.
Thank you.
Earlier.
Right now our last 660 days.
Both rail and <unk>.
Barge pricing was up quite a bit to get their fair share.
I'd say.
The economic rent on the higher prices.
But.
Going forward.
<unk>.
I think that.
We factored all of those and as to how we look at what our cash flows would be.
And.
So again, we're going to have a very strong 2022.
Unless the bottom falls out of the economy.
Okay.
And then just the last one would just be around.
Can you just remind me where.
The bookings were for 2023 before <unk>, So where you exited <unk> at on 2023.
And I think you said you are at $15 8 million tons right now alright.
And they just Brian just looking at that you can get another question or if anybody else has one.
Yes, I guess the other one I think you kind of answered before but.
The willingness from utilities trying to keep more coal olive ground and from an inventory standpoint.
I guess you guys kind of said that Theyre, just really just trying to focus on what they've contracted out so far and what theyre just focusing on those deliveries versus building up somewhat strategic stockpiles alright.
Alright, yes, what ethane.
Since the second quarter we.
About eight 2 million tons in the 2023.
Okay.
Alright, that's all I had thank you gentlemen, I really appreciate it and good luck the rest of the year.
Thank you.
Okay.
Thank you there are no further questions at this time.
I would like to turn the call back over to Brian Cantrell for any closing remarks.
Thank you Darryl good discussion this morning, and we appreciate everybody's time as well as your continued support and interest in alliance.
Our next call to discuss our fourth quarter and your full year of 2021 financial and operating results is currently expected to occur in late January and we hope you will join US again at that time. This concludes our call for today. Thanks to everyone for your participation and continued support of ARLP.
Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.
Okay.