Q3 2022 Alliance Resource Partners LP Earnings Call
Okay.
Greetings and welcome to the Alliance Resource Partners third quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Anyone 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 your host Brian Cantrell Senior Vice President and Chief Financial Officer. Thank you you may begin.
Thank you, Doug and welcome everyone.
Earlier. This morning Alliance resource partners released its third quarter 2022 financial and operating results.
And we'll now discuss these results as well as our perspective on market conditions and the outlook.
Following our prepared remarks, we will 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 and.
Certainties and assumptions contained in our filings from time to time with the Securities and Exchange Commission.
And are also reflected in this morning's 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 or if our underlying assumptions prove incorrect actual.
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.
As a result of new information future events or otherwise unless required by law to do so.
Finally, we'll 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.
Yeah.
As announced earlier this morning Arlp's exceptional performance during the first half of this year continued into the 2022 quarter.
As we reported record revenues on coal sales prices.
In addition to these records ARLP also posted increases to coal sales and production volumes.
Oil and gas and coal royalty volumes and consolidated net income and EBITDA, all as compared to the 2021 quarter.
At our coal operations coal sales and production volumes increased eight 1% and 12, 5% compared to the 2021 quarter.
As previously mentioned coal sales price per ton increased during the 2022 quarter jumping, 45% to a record $59 94 per ton.
Increased sales volumes and record price realizations led coal sales revenues higher to $556 million, an increase of 52% compared to the 2021 quarter.
As noted in our release segment adjusted EBITDA expense per ton also increased during the 2022 quarter.
Reflecting continued inflationary pressures on numerous expense items, most notably labor related expenses materials and supply expenses and maintenance costs.
A few items in particular bear further mentioned with respect to cost increases we experienced during the 2022 quarter.
In the Illinois Basin, our Hamilton mine began a longwall move in early September that included bringing 194 longwall shields to the surface for repair and refurbishment.
This extensive repair work resulted in the completion of the Hamilton longwall move extending into the into mid October .
In Appalachia, Our tunnel Ridge mine also performed a longwall move in early September .
In addition, <unk> mining encountered adverse mining conditions and performed extensive maintenance on and made improvements to its coal preparation plant.
Despite these higher expenses margins at our coal operation Rose on the strength of record coal sales prices to drive segment, adjusted EBITDA higher to $224 $6 million.
An increase of 77, 8% over the 2021 quarter.
Turning now to Arlp's royalty segments compared to the 2021 quarter royalty sales volumes for oil and gas rose 33, 1% and price realizations jumped 31, 6%, leading oil and gas royalties revenue increased 75, 6% to $35 $3 million.
Our coal royalty segment also performed well during the 2022 quarter with royalty tons sold increasing five 8% and royalty revenue per ton climbing 17, 5%, both as compared to the 2021 quarter.
Total royalty segment, adjusted EBITDA increased 66% and seven 3% compared to the 2021 and sequential quarters, respectively jumping to a record $46 $9 million.
On the strength of a strong performance by our coal operations on royalty segments.
Arlp's consolidated total revenues for the 2022 quarter increased 51, 3% to a record $628 $4 million as compared to the 2021 quarter.
Net income and EBITDA also jumped significantly during the 2022 quarter, increasing 186% to $164 $6 million and 84% to $252 million, respectively over the 2021 quarter.
Financial results also improved over the sequential quarter with total revenues and net income both increasing one 9% and EBITDA rising to 6%.
ARLP generated $244 $5 million of free cash flow in the 2022 quarter more than double the free cash flow from the 2021 quarter and 210, 1% higher than the sequential quarter.
In keeping with our objective of returning cash to unitholders.
During the 2022 quarter, we paid $52 $3 million to unit holders through our quarterly distribution.
Our balance sheet metrics continue to improve during the 2022 quarter as we reduced arlp's net leverage to 0.2 times trailing adjusted EBITDA.
And we ended the quarter with $278 $5 million of cash and liquidity of $744 7 million.
ARLP is financial and operating results for the first nine months of 2022 were also much improved compared to the 2021 period.
Coal sales and production volumes increased 13, 4% and 15, 2% respectively.
While our royalty sales volumes for oil and gas and coal rose, 29% and 13, 1%, respectively, all as compared to the 2021 period.
Increased sales volumes and commodity prices drove total revenues higher by 55, 6% to $1 71 billion.
Increased revenues more than offset higher total operating expenses and income taxes.
<unk> net income higher by 187, 1% to $362 $7 million for the 2022 periods.
EBITDA for the 'twenty to 'twenty two period also increased 85, 3% to $646 $3 million compared to $348 9 million in the 2021 period.
I think it's also important to point out that these exceptional results were achieved despite ongoing shipping delays, primarily due to transportation disruptions.
While rail performance has improved recently, we continued to be negatively impacted by coal shipments falling below our expectations during the 2022 quarter.
Year to date, approximately 1 million tons of Arlp's planned coal shipments have been delayed.
As we close out 2022 ARLP is currently planning for its strongest coal shipping quarter, this year, but with low water levels and locked outages impacting barge movements.
And with the potential for a rail strike back on the table, we recognize the possibility that some shipments may shift into 2023 and.
And we've adjusted our current expectations for 2020 to coal sales volumes prices and costs Accordingly.
Turning to the outlook for Arlp's royalty businesses.
Oil and gas royalty volumes continue to be higher than anticipated as drilling and completion activity on our minerals acreage exceeds our expectation.
Increased production on Arlp's base acreage along with additional production from the two transactions. We recently closed led us to increase full year Boe volume expectations by nine 2% at the midpoint.
We expect the performance of our oil and gas royalty segment will exceed our previous expectations in 2022, and anticipate oil and gas royalty production volumes will increase next year as well.
For our coal royalty segment, the coal shipment delays I discussed previously have led us to slightly lower our full year 2022 guidance.
We've also modified guidance ranges for several consolidated items for the 2022 full year.
The range for anticipated income tax expense was increased to reflect the current full year performance expectations for our oil and gas royalty segment.
And the range for planned capital expenditures in 2022 was also increased to reflect Arlp's acquisition of the reserves adjacent to our tunnel Ridge mine and initial work this year to begin accessing a lower cost reserve area adjacent to the Riverview mines.
With that I'll turn the call over to Joe for comments on the market and his outlook for ARLP, Joe. Thank you, Brian and good morning, everyone.
I want to begin my comments this morning by thanking the entire alliance organization.
For their hard work and dedication.
Through their efforts ARLP has delivered outstanding performance so far this year.
And we are on track to achieve record financial results in 2022.
A significant accomplishment for a company with our 23 year growth history.
I'm extremely proud of all that has been accomplished and thankful for the unwavering focus of our teams on creating long term value for all of our stakeholders.
Attracting retaining and properly incentivising the talent.
Necessary to drive execution of ARLP strategy is critical to our success.
Since our inception, Arlp's long term incentive plan.
It has been an important tool to motivate key employees by aligning their interests with the long term performance of alliance.
To keep this plan in place for our future.
ARLP recently filed a proxy solicitation.
Requesting that unit holders approve an increase to the number of units available for award under this plan.
All additional units should be included in the amended plan can only be used for future LTE chip grants and cannot be issued for any other purposes.
The proxy advisory firms ISS and glass Lewis both recommended.
For our proposed plan Amendment and management encourages all unitholders to vote in favor of the proposal.
In case, you're wondering yes.
Now viral photos.
And the coal miner, who wanted so badly to be with this three year old son, when the Boi wanted to see the University of Kentucky play basketball for the first time in his life that.
That he showed up at last weekend's Blue light scrimmage steel and as miners close.
He is an employee at alliances subsidiary Excel mining.
Michael's picture has captured the hearts of tens of thousands of people around the country.
So we're ready to celebrate our hardworking caring family man chasing his American dream.
His picture his story and his work ethic are representative of more than 3000 employees working across excel ARLP and all of the alliances operating subsidiaries.
It is refreshing to see the heartfelt response, but those Americans that recognize the contribution of coal miners to our country's energy security.
During our last earnings call, we outlined many of the factors that.
That have contributed to the global shortages and the fuel is critical to providing the world with reliable low cost energy.
Misguided climate policies resulted and premature abandonment that base load power generation in favor of unreliable renewables and a drive to meet unrealistic arbitrarily set governmental and regulatory transition deadlines.
Constraints on access to capital limiting the ability of fossil fuel producers to increase supply of critical commodities essential to meeting rising power demand.
Disruptions related to the conflict in Ukraine labor shortages supply chain transportation challenges have all contributed to the energy crisis currently gripping the world.
As the executive director of the IEA recently stated.
The energy World is shifting dramatically before our eyes and responses around the world promise to make this a historic and definitive turning point.
The need for reliable affordable secure energy has become a clear focus for governments around the world as they react to the severe impact on their citizens.
Are you seeing potential power capacity shortages and rapidly escalating energy costs.
Post Coke excuse me coal consumption has increased in Europe is restricted Russian coal and natural gas supply has pushed many countries to delay planned retirements of coal fired power generation.
And bringing idled co plants back online.
We expect this new reality will persist at least over the next couple of years if not longer.
In the U S utility coal inventories continue to be at extremely low levels and.
And are expected to remain so through the winter.
Against this backdrop ARLP is well positioned for growth over the foreseeable future.
We anticipate buying activity from our domestic customers will increase as utilities seek to replenish depleted stockpiles next year.
We also anticipate favorable market conditions in Europe will provide attractive export opportunities next year as well as they try to replace 40 million tons of Russian imports that they received this year.
As a result, we currently anticipate Arlp's overall coal production.
In 2023 will increase by as much as 2 million tonnes over this year's level.
In order to help meet these needs.
Our confidence is supported by our contract book currently at $32 9 million tons already priced and committed.
For 2023, and another $22 8 million tons priced and committed in 2024.
With these commitments we continue to believe that ARLP should benefit from increased coal volumes and margins over the next several years.
We remain committed to our strategy of investing in our existing mining assets to maintain arlp's low cost position and to maximize the cash flow generation potential of our existing cooperations.
The announcements we made earlier this morning of our decisions to acquire additional reserves adjacent to our low cost tunnel Ridge Longwall mine.
And to access a lower cost higher yielding coal scene adjacent to our river view mine.
Evidence of this commitment.
With these commitments, providing cost savings and increased production capacity beginning in 2025.
And the two new production units in the Illinois Basin, we announced last quarter.
Will benefit US next year, we believe ARLP has the opportunity to expand its market share and sustained planned coal volumes through 2035.
We also remain focused on growing our oil and gas and coal royalty segments.
The recent acquisition of an additional 4322 acres in the Permian.
Increases arlp's total mineral position to approximately 62008 net royalty acres and provides line of sight growth and future oil and gas royalty volumes.
Our coal royalty segment is also expected to show future growth as a result of the tunnel ridge and Riverview activity previously discussed.
ARLP continues to make progress on its new ventures energy transition strategy.
We're increasingly confident in the management team commercial plans and technology of infant item electric.
Startup developer and manufacturer of high efficiency Electric Motors ARLP invested in last April .
We remain excited about our investment in <unk>.
<unk> four is their evaluation of numerous opportunities in the energy transition space has resulted in several initial investments for the fund.
ARLP recently elected to hold its commitment to Francis energy to support development of its EV.
Infrastructure charging network at our initial $20 million convertible note investment.
We remain interested in the EV infrastructure market and our new ventures team continues to evaluate opportunities to work with branches energy and others in this growing sector.
Arlp's management is excited about the opportunities in front of us and our future.
Our visibility into the cash flow generation sustainability of our core coal and oil and gas businesses.
<unk> board competence to excel radar previously targeted 10% to 15% per quarter unitholder distribution increased by bumping the distributions for the 22 quarter.
250 per unit, a 25% increase over the sequential quarter.
Looking forward, we believe ARLP is well positioned to deliver solid growth and attractive cash returns to our unitholders again next year.
That concludes our prepared comments and I will now ask the operator to open the call for questions.
Okay.
Thank you, ladies and gentlemen at this time well be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad.
Information from them.
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Our first question comes from the line of Nathan Martin with the Benchmark Company. Please proceed with your question.
Hey, good morning, Joe Brian Thanks for taking my questions.
That night.
I want to start with 2023 first.
The production up there I think last quarter you guys mentioned now maybe you could grow production of about 1 million tonnes year over year now we're.
Got into a possible 2 million ton increase first maybe just for clarification, what production or sales number are you guys using as a base.
This I didn't you mentioned there was some sales from this year could possibly carryover into 'twenty three.
Sticks, and then second Joe you mentioned in the past labor had kind of been a limiting factor to growth we'd love to get your update on labor as well. Thank you.
Yes for 'twenty two.
Guidance, we reduced that to $35 9 million as our base.
For 'twenty two.
That means we moved about 900000 tons is what we had committed in 'twenty two to rollover.
Potentially end of 'twenty three.
We're showing.
Tons committed in 'twenty, three and our guidance up to 32, 9% at the end of the quarter.
We probably added another where we are in discussion so I'd add probably another 1 million tons to that as we speak.
As far as our production again that would take that $36 million roughly to $38 million.
Next year assuming that.
We can continue to staff as we.
Quite projecting.
The last quarterly call, we talked about that Gibson.
South operation, adding a unit.
And we had talked about staffing the.
They ship.
All of that in October that was completed that mid mid month. So we are ram.
Ramping that up as we speak.
The second shift.
Have planned.
To come online in May 2023, and that's what we're factoring in to the assumptions that would allow us to get to the.
2023.
2 million tons that we talked about.
Some of our other operations, we've been adding some individuals that allow us just to additionally staff some of their.
Support units, whether they'd be shuttle car.
Upper opportunities.
Additional route bolsters that will increase some production.
We talked also about Audi, adding another development unit in Hamilton It will allow us to have oil production at Hamilton and 2023 as well so that's what we're assuming.
To achieve where we are to where we're going as far as our ability to secure.
The additional labor, we've seen the ability to do that.
We think.
That things are improving in that area.
Been able to with the pricing we have <unk>.
Implement some.
Some additional bonus opportunities that tie back to sales prices that.
Has allowed us to.
To be more competitive than most other opportunities there are.
<unk> opportunities in the areas.
We feel better today than we did last quarter about our ability to staff our operations.
I appreciate that color, Joe and then maybe again on 23.
As you mentioned you guys layered on looks like an additional call it 4 million tons to get to that $32 9 million ton number.
So now we have a sizable chunk committed and priced.
I think you mentioned last quarter and expectation to see price per ton increased somewhere in the neighborhood of $10 a ton year over year.
Can we get an update there just.
Maybe that.
It looks like on those 2023 tons.
Yeah I think.
We're on target.
To hit that number so I think if we look at.
$10 increase would be roughly 20%.
Year over year on our average sales price per ton basis.
So I would say, where we are right now in our plans and looking forward, we think that 20% plus or minus <unk>, 5% is probably still a good estimate that we will be in 2023.
Lots going to disappear down where the markets go.
Next year.
Pretty bullish on export pricing.
As we see Europe .
Being.
Their stockpiles being.
<unk> today in anticipation of winter in the Russia, Ukraine situation.
But next year after they deplete those inventories is going to be more difficult for them to replenish those inventories both natural gas and coal without.
The Russian production.
It's our opinion right now a base case that we are using as the that the Russian Ukrainian conflict will continue to mid year next year.
So that's forming the basis of our judgments.
As to the opportunity in the export market, which will.
Also put pressure on the domestic market. So we currently have 4 million tons and so.
If you missed.
Soon that we can close this extra 1 million tonnes.
We are negotiating right now.
I think.
We ship the same amount of export next year as we do this year as we plan to do this year.
It would suggest $1 5 million would go to the export market and then $2 5 million is available to either go to the domestic market or the export market and so we're in a similar situation.
This year that we were at 423 that we were in 2002.
Where we've got significantly more demand than we've got supply so.
Yeah.
We will have to.
Go to our domestic customers and give them that opportunity again to say.
What do they want to do they want to commit.
That tonnage soon.
Or would they prefer us just to go ahead and sell that the export market.
That's sort of where we stand in and trying to determine.
Exactly yes.
2023 might look like.
Got it thanks for those thoughts and I think just to confirm you said maybe exports could be flattish next year was that correct.
I'm, just saying if we do what we did this year.
Now we got two 5 million tons left to sell the same way we go to the 2 million ton. So.
Depending on who wants that goes most.
It could go with the domestic market could it could go to the export market.
And if the demand is robust it's possible we could increase some of Gibson the fifth unit that we've got based on our plan as a single minor unit.
So we do have the equipment that we could make that a super unit.
And then it will just depend on the market and our ability to get to people is the way that we could.
Again have a little bit more incremental production next year, we're not we're not anticipating that as we are creating a plan together a distant second.
Got it.
Thank you and then maybe just one more before I turn it over.
Regarding additional capex spending in 'twenty, two and you guys mentioned a couple of moving pieces, but how can we please get maybe a little more.
Specifics on the breakdown of where that additional it looks like the $70 million. So it's being allocated and then any early thoughts on 'twenty three capex, what that might look like maybe where do you think maintenance Capex is currently trending given all the inflationary pressures on your labor costs, we talked about I know in your release says $5 62.
Six cents per ton basis.
I'm curious if there was any additional color there I appreciate it.
Yes sure.
The increase for 2023.
Between the.
Reserves acquired adjacent at tunnel Ridge.
Work that we're beginning to do to access the new reserve area adjacent to review.
In total for those two projects will be deploying about 120 million over three years.
With approximately 38% to 40 of that actually being spent this year in 2022.
And you are correct the inflationary pressures that we've been experiencing this year, while we've seen some moderation or stabilization. If you will and pricing, we certainly havent seen costs come down yet.
We're actually right in the middle of our.
Planning process and.
And as we always do we will give an update on.
What we think maintenance capital will look like over the coming five years, when we discuss it in January .
So it may be a little bit premature to give guide.
Guidance with precision for next year, but will you should certainly expect to see an increase on a per ton basis, and we'll be providing more color on that.
Next call.
I appreciate that Brian .
I'll leave it there. Thank you guys saw Tom best of luck in the fourth quarter.
Thanks Nate.
As a reminder, its star one to ask your question. Our next question comes from the line of Mark Reichman with Noble capital markets. Please proceed with your question.
Good morning, and thank you for taking my question the first one on the.
Two transactions in the oil and gas royalty segment.
What is your expectation in terms of any of that in your 2022 guidance or what are your expectations for two.
2023, if you could just kind of elaborate on the impact of that acquisition.
Yeah.
When youre talking about 2022, youre, referring to the increase in volumes that we provided.
Yeah, Yeah, yeah yeah.
How much of that is from this acquisition and what would a full year.
Right look like.
I would say the amount for 2022 is a mix.
Drilling activity on our base acreage prior to these transactions.
But as you noted and hopefully you noted in our release there are about 1200, producing wells currently on that acreage.
But we do anticipate a portion of the increase is also attributable to.
These two these two transactions.
As I mentioned earlier in my comments to Nate.
We are in the middle of our planning process, which includes an updated reserve report from our engineering advisors.
So.
As you know mark volumes can get a bit complicated if you have to take into account not only.
New wells drilling et cetera, but also the decline curve.
Right again that we will be providing a specific update in terms of what are our views for 2023.
In January .
Well, Brian I think it's great to see that you've been able to invest to grow you know your existing businesses.
When you think about.
You're adding those units at Hamilton and Gibson South.
But when you think about Riverview and tunnel ridge.
How are you thinking about opportunities to boost production there.
You mentioned some of those you won't really see an impact until 2025.
And you're going to be making those three year stage investments and then just maybe lastly on to that.
Do you think about your acquisitions and kind of the oil and gas in the coal business.
Where did these kind of emanate from that I mean, what kind of led led led these opportunities are there.
Do you see it.
Broader range of opportunities to invest money going forward.
I'll touch on the oil and gas first.
Joe will probably comment on the coal side.
Following that.
As you know, we've got our own internal technical group with regard to our oil and gas activity in particular.
We are actively involved in evaluating.
Opportunities were.
Counterparties are looking to.
Sell their positions.
We also participate in a ground game, which is really more going in front of individual landowners.
To see if we can acquire their mineral interest.
That are part of a larger package.
So we probably review.
In excess of 50 deals per year.
And the oil and gas space.
As we've always been we're very disciplined in our underwriting there so.
So we.
Just a lot of frogs, if you will perform we pick things that ultimately we believe we can acquire.
At pricing Thats going to give us an appropriate return.
So it comes from a variety of sources on the oil and gas front, then Joe may want to touch on the coal side.
At Tunnel Ridge, we are operating at full capacity.
Going into 2023, we've got some shorter panels before we accessed the reserves that we just acquired.
So that we.
We just don't have additional capacity.
At tunnel Ridge to increase production no matter what the market is.
As we look forward.
To 2023.
<unk>, we would have some additional capacity.
We are as I mentioned earlier.
We are adding some people to.
Increase production, there as well, but it's only incremental without adding any new units of equipment there.
And.
We could we do have the plant capacity to do that.
But as we're trying to transition.
We believe based on our ability to attract the labor that we need to complete.
To increase that volume.
We just can't project that we can do that right now with any certainty. So that's some upside, but it's not built into our plans.
As we as we're currently evaluating our ability to.
To increase production there in 2023.
Our next question comes from the line of David Maris with singular research. Please proceed with your question.
Oh, Hey, guys. Thanks for taking the question.
So you guys finished the quarter with a <unk>.
Really robust liquidity position, probably the most robust you've had.
And quite some time.
Obviously, it looks like some of that's going to go into Capex.
Could you talk about some thoughts around what you would do with.
Rest of that cash.
And our capital allocation.
Strategy or objectives really has not changed since we had the conversation on our last call.
So we will focus on maintaining our operations as you just mentioned.
I'm trying to make sure that we can maintain our low cost.
Status and Brian just shared with you some of the allocations on our growth capital related to our existing operations by improve.
Improving our cost structure going forward and our ability to potentially increase some tons in 2025.
We've talked about our distributions. So we will continue to.
Distributable cash.
Our unitholders will look at some debt repayment.
As a possibility.
As we've got our $400 million.
Term.
Note that comes due in two or three years may of 'twenty five yeah. Yeah. So we may look at doing taken some of that down.
<unk>.
And then we're also committing to invest in the oil and gas segment whatever.
General and whatever cash flow they generate we anticipate will continue.
To invest in the oil and gas minerals segment.
And then we've got our new ventures group debt.
We're building with staff to continue to look for investments.
That would be not related to either coal or oil and gas that will provide future growth opportunities as well.
As we evaluate opportunities in the transition area.
So to speak so thats the areas.
Capital allocation.
That we are targeting today, we're also looking at our matrix subsidiary.
Continues to develop technology and products.
That we think have long term growth opportunities and we will be allocating capital to help them in their efforts as well.
Yeah.
Wood Wood L. P unit repurchases will be something that would be considered at some point and can you give us any kind of framework around how you think about that please.
I think if we did any.
Unit purchases it would be very small.
Would be only too.
Potentially.
Yes, basically replace those units that would be issued under our long term incentive plan, which are not very significant so.
Buyback program of units is would be considered but it's not a top priority.
Got it thanks, so much for taking the question I appreciate it.
Yes.
Our next question comes from the line of Dave storms with Stonegate capital market. Please proceed with your question.
Morning, gentlemen, thanks for taking my question just one for me when you talk about supply chain being an issue and specifically around the potential for a strike. How are you thinking about the possibility of a strike happening since that could be a pretty binary situations.
What would expenses look like a best practice to take place versus the strike did not take place.
I think on the rail strike.
Theres continued negotiations they are several of the.
Various union there is like a dozen different unions that are impacted by <unk>.
Depreciation in the rail sector.
I think there are several of them that have already voted.
Down the most recent proposal we know the railroads in the U S government.
Is involved along with labor unions.
It's a possibility we are still.
Believing that Federer.
Government.
We'll be involved enough to prevent a major disruption to our economy and at a rail strike occur.
So we're placing a low probability on it however, it could happen if it does happen.
Then there would be disruption obviously, we believe the railroads would still operate and exactly how they would allocate that it's hard it's hard to judge.
Most of our operations the majority of our operations, our barge traffic as opposed to rail.
I would expect that there would be more demand trying to to move.
The utilities that large but.
It's just hard to predict exactly what would happen from what we understand is to the issues that are still outstanding that they are negotiating with.
It's all about money and it doesn't seem like there.
I don't know I don't have predicted what the negotiations are but.
It seems like.
They are reasonably solvable.
This is mostly just about money and not other working.
Conditions are work and standards.
Could get more emotional I guess, but.
I don't know.
They don't have to predict it.
Handicap that anymore than what I'd, just add I wish I could.
Let's hope that that's perfect. Thank you.
Okay.
Our next question comes from the line of Mark Zand with Wexford. Please proceed with your question.
Hey, Joe Hello, Brian Mark.
Brian One can you give us an update on where you stand on.
Your.
Renegotiation of or your revolver and when do you think you'd be in a position to begin to start to.
Retire.
Your bonds.
Sure.
Currently in discussions with our lead banks.
And are anticipating a formal launch.
To amend and extend our current revolving credit facility will happen some.
Sometime in the next few weeks.
And we're working we would be working to have everything wrapped up.
Either before or very shortly after year end.
To put a new facility in place.
And I think you would.
<unk> today are trading at like 97, five or so.
To the extent, we would have the ability to go in and begin bringing down the quantum of the outstanding debt.
And open market purchases.
You could see us start doing so.
First quarter of next year.
Okay got it thanks, and then the one area that.
We were a little bit maybe.
Maybe hoping for a little bit better was sort of price realization from the Illinois basin.
You had a big jump between Q1 and Q2 and then.
Q2 over Q3 over Q2 was a dollar and change.
And I guess are sort of hope was that you know you'd be layering in sort of some higher higher price spot sales.
Can you give us any sense on where you think Q4 will be relative to where Q3 was in terms of realization for the Illinois basin.
Yeah.
If we are able to ship the tons that we have scheduled.
The words, if theres no transportation interruptions.
We should see about a 5% increase over the current <unk>.
Third quarter.
So that's looking at the total not by the Illinois Basin, but just if you looked at consolidated.
For the coal it would be close to $64.
We were able to ship.
What we have projected.
Without interruption for the program.
64, that's very helpful. Thanks, Joe.
Good thanks, very much guys.
Thank you Mark.
Our next question comes from the line of Lucas pipes with B Riley. Please proceed with your question.
Thank you very much for taking my question. Good morning, everyone and Joe was great to hear your recognition of that workforce earlier.
I also have a quick question on the pricing side you mentioned.
You know opportunities both in the domestic and export market and you'll sell.
Remaining tons for 2023 into the highest priced market, where would you put the net backs today, who export tons for 2023 versus the domestic market. Thank you very much.
Good day.
We've seen the API to drop off pretty significantly from the last quarter.
So today those prices would be comparable to domestic probably still maybe $15 above but we do anticipate that the API two is going to.
Bounce back.
Do something that we felt more of an average in 2002.
Then what is currently trading at.
Yeah.
So we do think that theres going to be quite a sizable spread between the export market in the domestic market in 'twenty three.
What's happening in the domestic market in 2003, we will somewhat be determined by natural gas in a way.
Natural gas prices there was an article in the Wall Street.
Hey.
Talking about the pressure in the prices going down and that data is more I don't know what's going on right now, but when I look this morning, it was up.
Almost 10%.
Natural gas can be volatile.
As we know so.
On the domestic side I think another thing and I mentioned this last quarter and it's continuing to.
To prove to be true.
Is that the utility commissions are starting to that.
Ask tough questions to the utilities as to why.
Theyre, making economic choices to burn natural gas when natural gas is higher than coal.
So.
Think that there is a desire for these utilities to.
More than likely have to or want to buy more coal next year than they've done in the past and that could potentially put some pressure on pricing to wear.
What we may see currently and in the year.
Trade publications as to what.
What the price is there could be.
Some upward price pressure.
Mystic prices as well so.
We're in a very favorable pricing environment going into 2023.
Very helpful.
Would you put the 2023.
Pricing for Illinois Basin coal approximately again 2023.
We're not in position to tell you that.
It's so volatile.
And again, we're in the middle of negotiations.
Yeah.
Yes don't feel comfortable being able to give you what our price expectation is at this time time I think that.
As I mentioned earlier, when we look at the total.
Average sales price, we do believe that at <unk>.
20% Mark year over year is definitely achievable.
There could be another 5% or so upside to that.
Yes.
If we are able to achieve the numbers I'm, helping you in that regard without giving you a specific number.
For our particular gold miner particular markets.
And Thats constructive free.
That's helpful. Thank you and then last one from me.
The Mississippi River conditions, how how.
How do you expect that to play out what's embedded in your guidance in terms of continued disruption there. Thank you very much.
We have oh.
Additional we have volume in our current inventory that's actually.
Down at the docks, so ready to load our export commitments shipments for this year.
So it is possible that.
That it would affect the timing.
The.
<unk> shipments in the export market.
It's hard to predict but we do believe that it'll be more of a timing issue as opposed to.
A volume issue. So we will be able to participate at the levels that I discussed earlier.
There may be a timing disruption, but not necessarily.
The financial impact.
Yeah.
Okay.
Five or six month time horizon.
And if river conditions remain.
Difficult can.
Can you move more tons onto the rail or.
Yeah.
Yeah, I think on the river conditions, we'll have plenty of opportunity to domestic market is as opposed to shipping it in the export market because these are more lower Mississippi.
River issues that really affect that export market not the domestic market.
And the locks that we talked about.
We believe there is good progress on that but we're not going to affect their domestic shipments.
Very helpful, Joe and Brian continued best of luck.
Thanks Lucas.
Our next question comes from the line of Vishal Iyer, and private Investor. Please proceed with your question.
Hey, good morning, Joe and Brian Hey, first and foremost thanks for all the fantastic work on the fierce focus the entire team all the employees the management everybody is done.
Very happy as an individual investor.
And with regards to the new ventures team in particular.
Again, it's more of a perception.
At a time and we are actually really doing well with coal oil gas and everything.
Looking at the geopolitics on how things are shaping up for the future wouldn't us investing money with EV and other stuffs part of new ventures wouldn't that be perceived as a distraction rather than trying to deploy that capital into maybe execution excellence with our coal and oil and gas.
Thank you.
Yeah, we don't consider it a distraction we've got dedicated investments.
Teen investing looking at those investments so it's not distracting anyone from pursuing.
What opportunities would be.
Incremental to either oil and gas or our cooperation so.
So we just.
I think that there's a lot of opportunities.
That the government is incentivizing people to invest in.
So and.
And we think it's prudent.
<unk> mid term elections will sort of shed some light on the mood of the country as to where.
And our future energy policy.
No.
<unk> that we're seeing some reassessment.
Among utilities and governments around the world.
Yes.
Their commitment.
To move towards that.
Paris.
Our core there.
Climate change objectives.
So there has been a pause, but theres not been a movement away from that so in most cases to governments have said, where we're going to have to push pause button for right now, but that does not change our objected to still continue to move away from fossil fuels.
So we just need to read the political situation and I think it's just prudent for us to.
Look for opportunities to invest in long term investments excuse me and assets that can provide some additional.
Diversification opportunities in our portfolio that could be very attractive investments given the incentives that the government is putting in place in those areas but.
But we'll be prudent were not going to.
Take care.
Risks that.
We don't consider to be.
Any different than what we've done for the last 20 something years. So.
We're very focused on.
Making good cash flow long term.
Investments that will allow us to sustain.
The type of performance that we've been known.
To do over the last 23 years of our history.
Oh.
Thank you.
One follow up question regards to the ongoing rail strike and some of the stuff we see in the Mississippi with the barges and stuff are there any particular execution excellence initiatives that is ongoing within the LLP to to focus more on the excellence given some of these roadblocks that better outside of Arlp's controlled that are coming out.
Thank you.
Hi.
I think with respect to how we manage our transportation for our coal business.
It is a daily exercise we are in constant contact not only with our customers, but also with the transportation providers.
That's just the way you need to run your business.
The current environment notwithstanding.
So we are absolutely focused on it we have teams dedicated to make sure that.
Any challenges that we are experiencing are made very clear to customers.
Rail's embargoes in trucks.
And that's.
That's not going to change so we recognize how important it is and.
We've got people that are on it every single day.
Okay. Once again as a small investor. Thank you Joe. Thank you Bryan we're very very happy to be associated with ARLP. Thank you.
Thank you Vicky.
Our next question comes from the line of Arthur Calibrate Keynotes with ANC capital. Please proceed with your question.
Thank you very much.
Great quarter guys. It's good to see the good good guys do well.
Let me ask you something I've been reading a lot on your net funded on the oil and gas business are you guys affected at all I've been reading about the Oaxaca terminal or hub area, where some gas is it negative prices.
And forgive me for my ignorance of that question, but are you guys close to that and does it affect you or.
Yes, so that's in the Permian, we believe it was an isolated incident that related to the pipeline that was having some maintenance issues at the time.
So there was a buildup of gas it needed to be here.
Sold at a discounted price we don't think it's a systemic issue. We think we believe it's an isolated incident.
Okay, Okay got it.
We're in that basin so.
Would affect it would affect some of our volumes, but it should not be in a significant event for us.
Okay, and then in terms of the.
Paul You said you had some I guess uncommitted Thompson the European guys are looking at it our guys are looking at it.
And is it a question of like.
Either not I'll say either price or are guys, just feeling I can get it when I need it and I'm surprised nobody's bid on it yet too to take those tons.
What sort of thinking going on in terms of somebody asked numbers. Yeah. Currently you've got specifically to Europe .
Stockpiles are they.
They prepared for the winter.
The Russian.
Embargoes, yeah, so they were able to accelerate shipments that they had it.
In Russia under contracts with Russia, before the embargo took effect and Oh.
In.
August .
This year.
So theres not a real need today for that tonnage, but there will be a need after the winter. So it's a timing issue.
And so they don't.
Yeah.
And as I mentioned, we're not too anxious to sell at these prices that the API two because there hasnt been that much activity and that's why you see this.
Swing in prices over the last month.
Once those buyers get into that start coming back to the market to replenish their stock than we anticipate those prices will rise.
So theres just not much activity right now because sellers don't want to sell at the prices and buyers don't have any place to put it right now so.
That's what's going on at this 10 seconds.
Okay and then on the just a couple more thank you very much for.
For taking the questions when I see general Motors, the TD auto guys to bet you see it sequentially. The bet on EV is just getting bigger and bigger I mean, the whole ranch's bet on the EV and I'm just wondering when would you guys look at when do you think we start seeing or are you guys are able to say to EV market is contributing to.
This demand in electronics or are we at that point, where you're almost able to like point and say this is what's going on for the demand for electricity or is it just I know, it's early but the bets are getting bigger and bigger sequentially.
Yeah. So.
We personally don't believe that the demand is being reflected in the IRR piece at the utilities are posting.
Some will say that it is.
They.
Look at <unk>.
Different factors to the way they think that they can manage that.
There is still.
A lot of discussion.
Net.
<unk>.
With the transition to wind and solar or taking some of that load.
That might be.
Specific to some of these factories et cetera.
When you think about Evs, yes, they are moving most.
The things that we're looking at as far as.
When we're going to start seeing.
Numbers of vehicles that are actually being sold in the market growing it's probably two years away.
2025, 24, 25, and then you start looking at.
These are plants that talk about converting.
Basically 100% of their production to Evs by 2000, 32035, you still have quite a bit of cars on the road that we're going to continue to be combustion.
Engines, because people aren't going to sell those cars immediately.
To replace him a lot of the visa.
We're going to be.
They're still going to have their combustion engine. So we.
We anticipate that we're not really going to see that until a couple of years from now.
And.
And a lot's going to depend again back to this energy policy in house.
Al the elections turned out and how our nation and start thinking about.
Their national security more so than their environmental policies that will help define.
The answer to your question.
And another thing that I think is underestimated, which is sort of where you're going that theyre going to be a large demand for power.
And the other thing that's underestimated is the expectations of people to want to have those batteries and do more and more.
Be charged faster and faster on the road.
And when you think of that that's going to consume a lot more power than this current <unk>.
Technology, that's being used in.
In the cars today.
So I think theres going to be more demand for electricity.
Customers are going to demand if in fact, they do grab.
Gravitate to the Evs as the auto sector is wanting them to date.
I think your point, if I'm interpreting it properly.
Well stated.
There will be a demand increase.
For electricity that probably understated.
In the minds of most policymakers across the nation.
Yeah, Yeah I agree. Thank you put it better than I did and then.
There was one other thing I was going to say.
Anyway I lost my train of thought the last thing is just a comment I saw that thing was a basketball player. It when there's some I think you guys with your lobbying muscle should turn that into a stamp have the government turned it into a stamp.
It was it was really it was really heartwarming almost like a normal guacamole type of thing for the modern era, but.
Well said and I'd like to comment how you laid out was a preamble. So thank you very much that was great. Thank you. Thanks, Arthur Thanks, guys.
There are no further questions I'd like to hand, the call back over to Brian Cantrell for closing remarks.
Appreciate it Doug and everyone. We appreciate your time this morning as well.
And also your continued support and interest in alliance, our next call to discuss our fourth quarter and full year of 2022 financial and operating results.
As currently expected to occur in late January and we hope everyone will join US again at that time. This concludes our call for the day. Thank.
Thanks to everyone for your participation and continued support of ARLP.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.