Q4 2022 Alliance Resource Partners LP Earnings Call

January 30, 2023

[music].

Greetings and welcome to the Alliance Resource Partners L. P fourth quarter 2022 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If you would like to register a question. During today's conference. Please press star one.

On your telephone keypad, if 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.

It is now my pleasure to introduce your host Mr. Brian Cantrell, Senior Vice President and Chief Financial Officer. Thank you. Sir. Please go ahead.

Thank you Donna and welcome everyone.

Earlier. This morning Alliance resource partners released its fourth quarter and full year 2022 financial and operating results.

And we'll now discuss those results as well as our perspective on current market conditions and outlook for 2023.

Following our prepared remarks, we'll open the call to answer your question.

Before beginning a reminder, that some of our remarks today may include forward looking statements subject to a variety of risks uncertainties and assumptions contained in our filings from time to time with the Securities and Exchange Commission.

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 results may vary materially from those we projected or expected.

And 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 and finally, we will also be discussing certain non-GAAP financial measures today definitions and.

Patients are 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.

Now with the required preliminaries out of the way I'll begin with a review of our record results for the 22 fourth quarter and full year, and then turn the call over to Joe craft, Our chairman President and Chief Executive Officer for his comments.

For 2022 was certainly an interesting year with supply chain difficulties transportation challenges and inflationary pressures driving operating cost significantly higher.

Russia's invasion of Ukraine impacting global commodity flows post pandemic demand and prices and global governmental policies like commodity prices to historically high levels.

The alliance team responded to this turbulent market exceptionally well achieving record full year 2022 revenues.

EBIT.

And ending the year our results for the 2022 quarter were also strong as ARLP delivered record coal sales in oil and gas royalty revenues and significantly higher net income and EBITDA compared to the 2021 quarter.

Looking more closely at the 2022 quarter compared to the 2021 quarter.

Coal sales volumes increased two 3%, while royalty volumes for oil and gas minerals increased 42, 6% as production on Arlp's legacy properties outperformed our expectations.

And combined with the new volumes from the previously announced minerals acquisition in September and October of 2022.

Coal production declined three 5% from the 2021 quarter, primarily due to an unplanned outage at our Hamilton Longwall mine that I will discuss in more detail in a moment.

As a result, our coal royalty funds tons excuse me fell eight 5%.

We saw higher commodity prices during the 2022 quarter with coal sales price per ton, increasing 51% oil.

Oil and gas prices climbing 77, 2% per Boe.

In coal royalty revenue up one 5% per ton.

All as compared to the 2021 quarter.

For the 2022 quarter segment adjusted EBITDA expense per ton sold was $40 71.

Up 22% versus the 2021 quarter.

On a full year basis was 36.7.

703 per ton.

21, 5% versus 2021.

Our increased operating expenses in the 2022 quarter reflected a number of factors.

Including higher sales related expenses as a result of higher price realizations and coal sales volumes.

Inflationary pressures, particularly on wages raw materials.

Petroleum related supplies, such as resins, and lubricants higher freight costs passed on to us from our suppliers as well as $6 5 million of noncash accruals for various long term liabilities, such as workers compensation and asset retirement obligations at our non operating mines.

Also specific to the 2022 quarter.

Thermal event at our Hamilton mine.

Bolted in an unexpected outage that lasted approximately four weeks.

The responses by our mind rescue team members and our miners were exceptional.

Our personnel were kept safe with no injuries occurring no equipment was damaged.

And we work closely with federal and state regulators mining operations allowed us to return to normal production levels in December 2022.

However, we did incur approximately $5 $8 million of third party expenses directly related to the event and we lost approximately 500000 tons of production during the quarter.

Absent certain noncash accruals and third party expenses associated with the Hamilton event, Illinois Basin segment, adjusted EBITDA expense per ton for the 2022 quarter would have been more in line with the percentage increase we experienced in the Appalachia region for the 2022 quarters.

Our net income and EBITDA rose sharply in the 2022 quarter, increasing 313, 8% and 125, 7% respectively over the 2021 quarter.

These increases reflect higher sales volumes and price realizations, which more than offset the inflationary pressures and other impacts on costs that I previously described.

2022 full year results were also significantly higher compared to 2021.

Coal sales and production volumes increased $3 3 million tons up 10, 3% and 10, 2% respectively.

And year over year coal sales revenues higher by $715 3 million or 51, 6%.

Higher coal sales revenues combined with a $63 $4 million increase in oil and gas royalty revenue drove Arlp's 2022, total revenues up by 53, 3% to a record $2 4 billion.

Net income increased 224% to $577 2 million and EBITDA Rose 96, 3% to $942 million both record results.

During 2022 alliance generated $604 $2 million of free cash flow before growth investments.

Returned $196 $3 million to unit holders through quarterly cash distributions, while reporting coverage of 345 times for the year.

And we reduced debt and financing leases by $16 9 million.

Exiting 2022 remains strong.

Arlp's total leverage ratio improved to four five times trailing adjusted EBITDA.

And with $296 million of cash and cash equivalents, our net leverage decreased to an all time low of one four times.

Our liquidity also increased to $762 8 million at year end.

As we disclosed earlier this month, we successfully closed our new revolving credit facility and term loan a financing.

This transaction was very well received in the market with oversubscribed demand, reflecting the positive fundamentals of our business and the strength of our balance sheet.

Our new $425 million revolving credit facility positions us well to manage Arlp's day to day operations while.

While the $75 million term loan proceeds allow us to term out the capital associated with infrastructure projects as we expand into new reserve areas at our river view and salvage operations.

The capacity, we obtained with this new financing enables us to use cash generated from operations to support our capital allocation plans.

Including increased unit holder distributions potential repurchase of our common units and senior notes.

And positioning to capitalize on growth opportunities in the future.

To that point, we announced today that the board authorized an increase to our existing unit repurchase program.

The program was previously established in May 2018, and had $6 5 million of remaining available capacity at year end.

The expanded program authorizes ARLP to repurchase up to $100 million of its outstanding limited partner common units.

Further increasing our flexibility and returning cash to unitholders.

Future unit repurchases will be subject to ongoing board review.

Based on a number of factors.

Including Arlp's financial and operating performance and other capital requirements.

As well as future economic business and market conditions. The unit repurchase program has no time limit at ARLP may repurchase units from time to time in the open market or in privately negotiated transactions.

The unit repurchase program authorization does not obligate or ARLP to repurchase any dollar amount or number of its units and repurchases may be commenced or suspended from time to time without prior notice.

Now turning to our initial guidance detailed in this morning's release 2023 is shaping up to be another strong year at ARLP.

We anticipate our overall coal sales volumes in 2023 to be in a range of 36 to 38 million tons, an increase at the midpoint of 4% over 2022.

Supported by our highly committed and priced coal contract book.

We are currently anticipating 2023 coal price realizations in the range of <unk> 67 to $69 per ton, an increase of 13% to 17% compared to 2022.

Currently $34 7 million tons are already priced and committed for 'twenty three.

ARLP has secured commitments and pricing for another $23 7 million tonnes in 2024.

With these commitments we continue to believe that ARLP should benefit from increased coal sales volumes and pricing over the next several years.

On the cost side, while we have recently begun to see some moderation in the inflationary factors we experienced in 2022.

We currently anticipate labor pressures and hybrid higher sales related expenses will continue to add to our cost in 2023.

From a comparative standpoint recall that inflation in 2022 built dramatically during the first half of the year before peaking in the third quarter.

And as a result, we expect segment adjusted EBITDA expense per ton to be higher during the first half of 'twenty three compared to 2022 levels before moderating in the back half of the year.

For the 2023 full year segment adjusted EBITDA expense.

Anticipated to increase by approximately 10% to 15% over 2022 full year levels.

To a range of $40 25 to $42 25 per ton sold.

One other item I would highlight is our anticipated capital expenditures in 2023.

Not surprisingly inflationary pressures are expected to impact maintenance capital. This year as we have previously discussed.

And Capex this year and next is expected to be higher as we move into a new reserve area at our River view mine.

Reflecting these impacts we currently anticipate capital expenditures to be in a range of $400 million to $450 million.

From $286 million in 2022.

This includes maintenance capital ranging between $350 million to $390 million.

Additionally, as we announced earlier this morning.

2023 guidance includes the benefits of our acquisition of an additional 2682 net oil and gas royalty actors in the Permian Delaware Basin.

The cash purchase price of $72 $3 million for this acquisition will be funded with available cash and is expected to close within the next 30 days with an effective date of January one 2023.

Since this acquisition involves an entity owned by Mr. Kraft.

Terms of the transaction were approved by the board and its conflicts committee, which is comprised entirely of independent directors.

This acquisition not only further enhances our existing high quality Permian royalty portfolio.

That is expected to add approximately 250000 total barrel of oil equivalent in 2023 weighted 67% towards oil and Ngls.

We will be immediately accretive to cash flow.

Before I turn the call over to Joe Let me take just a moment to comment on my upcoming retirement that we announced last March.

Im extremely proud to have been a part of this incredible organization that Joe started 26 years ago.

And what ARLP has grown to become.

As you know, our vice President of corporate Finance and Treasurer carry Marshall will be assuming the CFO role effective April one.

And I can't think of anyone more capable and prepared to carry.

It has been an honor and a pleasure working with my colleagues at alliance, our investors bankers and analysts the.

The future at ARLP is bright and I look forward to following closely as a loyal interested investor for many years in the future.

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.

You know Brian you know please let me express my heartfelt appreciation.

To you for your service and commitment to ARLP and <unk>.

Nearly two decades that bandwidth us.

I appreciate everything you've done for me and our partnership.

And wish you continued success and happiness in the next chapter of your life.

I also want to Echo your observations that we have the best possible replacement for him for use and carry Marshall.

Gary has been a critical contributor to ARLP success from the beginning.

Having been closely by my side since 1994.

When he joined the group as a manager of financial planning.

Thank you, Brian and congratulations care.

Thanks, Joe.

I want to begin my comments this morning by thanking the entire alliance organization for their hard work and dedication since the pandemic began in 2020.

The challenges have been unprecedented.

And their resilience and determination to not only persevere, but to thrive need to be recognized.

Through their efforts ARLP delivered record financial results in 2022.

I am extremely 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.

Now, let me share some thoughts on the state of the industry and our strategy for growth and value creation going forward.

As Brian mentioned in his opening remarks, 2022 was a historic year for ARLP.

But it was also a year that emphasize the importance of keeping coal fired generation in the mix for years to come.

Providing a reminder for the need to value energy security and resilience for our nation and nations around the world.

During the quarter the U S experienced another major event with the arrival of winter Storm Elliot.

It put an exclamation point on this fact consistent.

Consistent with what we have talked about on all of our earnings calls this year.

Winter Storm Elliott brought severe cold across much of the continental yes.

Straining the grid in a way that has become all too common in recent years.

During the storm electricity demand soared as natural gas wells froze pipeline deliveries were constrained.

And renewable sources, we are unable to respond with significance Brazil.

Resulting in a severe price spikes for consumers in many states.

As tragic as the storm's impact was let me repeat.

It was merely the latest highlight the need for a diverse mix of energy sources and in particular, the vital role coal plays.

This was evidenced by the fact that the U S coal fired generation in December was at a three year high. Despite the retirement of almost 28 gigawatts of coal fired generating capacity nationwide over that same three year period.

As you have heard repeatedly over the years. It is still true today co keeps the lights on especially at times when we need it most.

Policy decisions continue to challenge our industry.

But advanced like Winter storm Elliott in the not too distant winter storm, Yuri which devastated many lives in homes in Texas reinforce the urgency and need for an all of the above strategy.

Embracing energy security reliability and affordable electricity.

The past forced retirements of a significant portion of the country's coal fired generation has exposed the grid.

Especially in the regions that comprise comprised our primary market.

Where many utilities recently have reported delaying previously announced coal plant retirements for several years.

As the nation continues to embark on its transition of the energy and related infrastructure. We believe ARLP can play a vital role in the conversation and any changes to the U S power grid.

We will create opportunities for ARLP to leverage <unk>.

Long standing relationships with electric utilities regulators and other customers to create additional avenues for growth.

While at the same time having.

Having the opportunity to rely on the coal plants, we serve until we can responsibly get there.

Again, we do not view.

Our country's future energy needs as an either or solution, but in and solution.

Which we will continue to advocate and support as we continue to highlight the reality of the situation.

Now turning to the current market and commodity pricing environment.

U S natural gas prices continue their decline heading into the new year with a Henry hub spot price down sharply this month.

The warmer than usual January bills in underground storage of natural gas and the Freeport LNG export terminal remaining offline.

All factors contributing to the weakness in near term pricing.

Falling natural gas prices in the middle of winter.

Tend to increase the risk of lower than expected coal burn.

Which could cost coal stockpiles to grow faster than anticipated.

However, eastern U S coal pricing has not been meaningfully impacted so far.

Since we along with most of our competitors are either fully committed or had very little inventory available.

This is evidenced by our year end co inventory of 500000 tonnes of which 200000 tons were staged.

Export in early 2023.

Our planned January shipments around schedule, keeping our inventories at relatively low levels.

Internationally, a number of factors are impacting global energy trade routes and in our view will continue to drive higher demand and pricing in the back half of 2023 and for several years to come if.

If not permanently.

Our primary trading partners for thermal coal in Europe are faced with the consequences.

I'm, losing roughly 40 million tons per year of Russian coal imports for power generation.

Which resulted in skyrocketing prices in 2022.

And while mild weather so far this winter in Europe has resulted in API two prices easing.

Peaks during the last year, we expect them to rebound sometime in mid year 2023.

Meanwhile, China's ban on imports of Australian coal.

Is slowly being relaxed putting additional pressure on European supply.

Three Chinese power generators, and a steelmaker were recently cleared.

By their regulators to by Australian coal.

Is believed easing of the band will continue to broaden allowing other Chinese entities to pursue Australian thermal and metallurgical coal.

As Europe continues to replace your Russian supply in Australia supply becomes more competitive as China's economy reopens, we believe coal demand will grow as European stockpiles will need to be replenished ahead of next winter and extend further into 2024.

Again, we expect this increase in demand will lift oil gas and coal prices here this year.

Turning to our own book and guidance, 94% of our coal sales are priced and committed in 2023, which includes $3 3 million tons for export markets.

Giving us strong visibility and certainty into our 2023 guidance.

Of our roughly $2 3 million tonnes of unsold coal this year.

Assuming production of 37 million tons, which is at the midpoint of our guidance we.

We expect at least one half will be sold into the export market.

With the balance to either go to the export or domestic market as pricing dictates.

Even though we are guiding for higher costs as Brian mentioned.

We expect a favorable.

Market forces and our current coal sales commitments will drive topline growth.

That should more than offset these inflationary pressures.

Margins are expected to expand to record levels in 2023.

Now turning to our capital allocation priorities. Our primary focus is to provide well covered distributions and attractive returns to our unit holders over the long term.

Last week, we announced that our board approved a 40% increase in our quarterly distribution.

Equating to an annualized rate of $2 80 per unit.

We elected to declare a quarterly distribution distribution increase to a level that we expect to maintain throughout the year as opposed to smaller increments each quarter.

This was based on our confidence in high visibility in 2023, and 2020 for expected cash flows committed tons and strong financial position.

After distributions, we will continue to support our collaborations funding appropriate maintenance capital requirements and investing in high return efficiency projects with near term paybacks that maintain our low cost competitive advantage.

Thereafter.

Alliances robust cash flow generation uniquely positions us to pursue attractive investments that meet the evolving energy needs of tomorrow and are consistent with our proven track record to date <unk>.

Including investments in oil and gas royalties as evidenced by the Permian Basin acquisition announced today.

We took the next step in our diversification strategy in early 2022, with three energy transition investments totaling $87 million in outstanding commitments.

In September we hired a dedicated team of leaders to join our new ventures group.

To continue these efforts of identifying evaluating and executing our commercial opportunities beyond coal and oil and gas royalties.

The team is focused on highly strategic investments.

Allow ARLP to leverage its core competencies and relationships with the electric utilities industrial customers in federal and state governments.

As we embark on this new journey, we will maintain a disciplined and process oriented approach to allocating capital.

Absent available opportunities to invest in these businesses.

We will continue to maintain flexibility evaluating other high return uses of cash which.

Which as Brian noted may include redeeming a portion of our senior notes outstanding unit buybacks as well as providing well covered cash distributions.

In closing I am very proud of Arlp's 2020 to record levels of revenues net income and EBITDA.

While at the same time equally excited about the opportunities in front of us.

Our operations are running well our coal contract book is heavily committed at very attractive levels and our financial position has never been stronger.

Looking forward, we believe ARLP is well positioned to deliver solid growth and attractive cash returns to our unitholders in 2023 and beyond.

That concludes our prepared comments.

And I will now ask the operator to open the call for questions.

Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.

Formation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Again, Thats Star one to register a question at this time.

Today's first question is coming from Mark Reichman of notebook capital markets. Please go ahead.

Good morning, and thank you for taking my question.

Mark I was wondering if you could good morning.

So I was just wondering if you could contrast, the overall market.

And pricing dynamics are.

For your coal produced in the Illinois basin versus Apple nature.

And whether you think the outlook for Illinois Basin looks a little stronger you know moving forward and then also did you did you get the other unit at the Hamilton mine added.

So the other unit was for the Gibson mines.

And so we have added the unit and it is staff.

One shift.

Got the second shift yet to be.

Deployed and that's anticipated to come online.

Time in the second quarter of this year.

So back to the Illinois basin versus the Appalachia.

Most of our Appalachia production is targeted for the export market and that we have done so.

And.

So you have the unsold position about half is Illinois basin and half of it is.

For Appalachia.

And so.

So we do have the flexibility in Illinois basin.

To either sell that tonnage either domestically or the export market, depending on what the market pricing will be.

Currently there's really not much activity in the market.

We are seeing more inbound opportunities from the export market than we are domestically.

Given the warm weather.

Weather and the inventory build that the utilities did for coal.

In the fourth quarter.

So it's hard to.

To answer specifically your question at the moment I mean, we believe that.

In the back half of the year.

Most of our customers still have an open position and there will be.

Request for additional tons weather dependent.

More likely for the rest of the winter as well as the summer.

So.

Again, most of our book is pretty much so for the first half and our open position is really opening up in the second half.

When we do see favorable markets compared to what we're seeing it.

The current moment in time.

Okay I just had one more question then I'll get back in the queue with respect to the acquisition.

Brian talked about.

The barrels of oil equivalent, but like the last acquisition can you provide some additional information in terms of like the number of producing wells.

The wells to be completed in a number of permitted locations.

Hey, Mark I'll give you some.

Aggregate statistics at the end of 2022, we had 12833 producing wells on our acreage, which was an increase from the <unk>.

Year end 2021 level up to 661 wells.

We currently have 67 wells are at the end of the year, we had 67 wells running on our acreage and increase of 35 over year end 2021 levels.

And permitted locations, we currently have or at the end of the year, We had 779 total permitted locations.

On our acreage with 923 wells wells being drilled in.

8130 being completed.

Okay, great well, thank you very much.

You bet.

Thank you. The next question is coming from Nathan Martin of the Benchmark Company. Please go ahead.

Hey, good morning, Joe Brian Thanks for taking my questions.

And great to see significant quarter over quarter increase in the distribution I heard those comments about how you just it sounds like just knocked it out of one big chunk, maybe should kind of see that flattish throughout the year.

I had a question related to the target I think in the past you guys had mentioned around a 30% targeted payout is that still the case any conversations going on with the board about adjusting that level and then any thoughts on target distribution coverage ratio as we look ahead or should we still just think about this more as a targeted payout it would fluctuate.

Depending on cash generation.

I'd say that we have moderated.

That view from that cash generation.

<unk> two.

More of a coverage ratio perspective, given the strong growth in cash flows that we have seen over the year and what we've locked in with contracts going forward. So we believe at the levels we are today.

Now that we can pay out of distribution at this coverage ratio that will be anywhere from two two to two five times coverage.

And still have sufficient cash flow to be participate in trying to grow the company.

Okay.

Great appreciate that update Joe.

As you guys talked about you know some notable weakness in the gas and thermal coal markets to start the year again, 94% committed in price for 'twenty three at the midpoint of guidance.

A portion of those tons are susceptible to price fluctuations in either domestic or export market. I mean is that variability largely incorporated into your realized price per ton guidance.

So the committed tons are all fixed price I mean, they're all prices committed so we know what the price is they have been factored into our guidance.

Our UI production.

Tons, we have open to the market again, we projected what we believe the market is.

We think that.

That again based on our view of where the market is going to be in 2023.

That we can definitely achieve those levels and right now they're sort of priced at the mid point of the guidance. We gave you.

And when you factor in both the committed and are you at price situation.

I think the volume is dependent on.

The economy.

I believe in most people believe that China is reopening has not been factored into the market I believe it's going to happen.

And I think that gives us confidence that the second half of the year has gone up.

He is going to be very supportive of the export market.

That will.

MISO has set the standard of where the pricing is going to be.

When we start making decisions to sell or <unk> coal.

Yes.

Joe mentioned during his opening comments.

We're anticipating pricing to firm up in the back half of the year and as you look at our commitments for 2023 most of our open tons are in the back half of this.

This year so.

As Joe just articulated we feel pretty confident about the price levels that we're projecting for this year.

So Bryan Bai Bai firm up in the back half of the year, you're thinking pricing increases kind of move throughout the year from the first half and second half, but you are saying or am I misunderstanding.

Yes.

Okay Perfect and then also just kind of thinking about the cadence throughout the year and any way to think about it from a shipment standpoint, and a longwall moves to keep in mind and I think Brian you also said just to confirm the first half expenses likely higher than second half expenses.

On shipping, we obviously have the normal seasonal.

Impacts of monitors vacation holidays et cetera.

We do have more longwall moves scheduled for 2023 last year, we had a total of six this year, we have a total of eight.

I believe we have a longwall moves scheduled in the first quarter.

At both.

<unk> and tunnel Ridge.

<unk>.

Okay.

I'm, sorry, Oh Im sorry, two at tunnel Ridge.

In the first half of the first quarter of this year so.

After that it'll it'll be spread out over the balance of the year.

I would.

Believes that our deliveries are going to be fairly consistent in the first and second quarters and then as we book up the rest of our open position.

The back half of the year should remain strong as well.

Yeah. So as Gibson is a second unit comes on in the second quarter Youll see that bump up for the second for the third and fourth quarters right.

So you got when you look at the sequential quarter over the fourth quarter you can.

You know we had the impact at Hamilton.

<unk> 5 million tonnes.

So as you think about the first couple of quarters it should be.

Similar to the sequential quarter.

In the first half the first half of the year and then the second half slightly higher for that second unit at Gibson.

Okay, Joe so basically get that half a million tons back it sounds like in <unk> versus <unk> with Hamilton seemingly behind the event occurred in the.

First quarter second quarter flattish and Gibson second shift comes on we should see a Boe.

There may be it may not get the full amount back until the second quarter due to the number of longwall moves we got in the first quarter.

But it's pretty it's pretty close.

Got it really appreciate that color.

And then just finally on Capex, guys and I'll get back in queue.

They were a little bit higher than I expected it looks like 'twenty two capex came in a little lower than your your updated guidance. Many items that kind of carry forward all incorporated within three or four year guidance.

It looks like growth and maintenance grew about 100 million excuse me that maintenance grew roughly $100 million year over year I'm, assuming again that the main driver of the year over year guidance increase but.

But can we get a little more color on maybe what's what's included in the growth piece as well. Thanks.

On the growth piece as we mentioned last quarter and in our opening remarks, we are moving into new reserve areas.

Riverview.

And the main portion of the capital expenditures related to that will be incurred in this year and next.

Other factors impacting maintenance capital, where obviously projecting increased volumes.

Which by definition, you'll have higher maintenance capital costs associated with that.

The inflationary impacts.

Our suppliers maintenance equipment et cetera.

Is also reflected.

And then Nate as you know.

Maintenance capital year over year, it can be pretty heavily influenced by just the timing of rebuild schedules et cetera, and 2023, we have an occurrence.

More rebuilds during this particular point in time than we've seen recently.

Got it I appreciate that Brian .

Thank you guys both for your thoughts on time and Brian again, congratulations on your upcoming retirement.

Late that night. Thank you.

Thank you. The next question is coming from Dave storms at Stonegate. Please go ahead.

Good morning, and thank you for taking my question.

Just wondering if you could give a little more color as to what.

Are you seeing on transportation expenses as inflation starts to turn a corner.

So we've just outside of any seasonal moves.

Yeah.

The transportation expenses.

We are seeing better performance.

Benches are.

Still elevated.

As we run into going into the year.

Some of that is tied to pricing in the export market. So there could be.

Some.

Softening of that again, there's not been much activity.

Because of our sold out position. So we'll have to wait and see how that goes through the back half of the year.

I'm not sure I understood. Your second part of your question.

I think that that color I appreciate it.

Yes.

Well, but for US transportation expenses are a pass through.

Except for export except for example, that's correct. So it really has an influence on.

Decisions, we make around work where can we achieve the highest netback at our operations is that in the domestic market or the export market.

That's perfect. Thank you.

And then on dose.

Export.

Tom staggered movement, how sticky do you view that.

Going into 2024.

The $40 million gap that Russia lapped.

We believe that that will continue to be there.

There is a lot depends on.

Several decisions that they make.

We do think that as you move towards the end of 'twenty four in that 25.

There may be opportunity for them to get more LNG, but then.

Into their country. They are trying to move to renewables, but they've opened up their own coal facilities, they've opened up coal plants.

So if you look at in addition to the Russian supply, we think there's like eight to 10 million tons of added demand in 2023 for coal plants that they've opened to meet their energy needs.

Those stay online.

It is hard to know.

But based on our four point.

4 million tons, or so that we're going to sell in the export market. We believe that there is.

More than a plenty of opportunities for that to sustain itself if not grow.

If you go back.

Before the pandemic, we were shipping it at 12 million ton rate.

So I think I'm.

Not sure we will get back to that level.

But there is opportunity for us to grow just with the demand that we've seen over the last six years or so.

So we don't need a lot of growth we just needs.

Stability.

<unk>.

We believe that with our low cost operations, we can compete in that global economy, and the four and a half to say seven five to 8 million tons over the next three to four years.

If there is not all alternatives in the domestic market.

Perfect. Thank you.

Thank you. The next question is coming from David Marsh of singular research. Please go ahead.

Good morning, Thank you guys congratulations on the quarter.

Also Brian Congrats on.

On the retirement and Carrie congrats on the promotion.

Thank you I appreciate that.

Just quickly one housekeeping question Brian .

Are you going to be staying on through the 10-K filing and do you have.

Kind of a targeted date in mind when Youll get the K filed.

Yeah.

We shouldnt be piloting the K towards the end of February .

And yes, I will be here.

Through that my targeted date is March 31.

Terry steps down on April one.

Got it got it and then.

Just.

I was intrigued by the acquisition activity in the comments regarding another one I was wondering if you guys could perhaps.

Kind of highlight some of your high level criteria I'm very encouraged by the fact that.

It sounds like Youre going to be.

Cash flow accretive immediately on this one that just closed just wanted to know if you could give us a little bit more color on your criteria when evaluating acquisitions.

Well, we have certain underwriting standards not only for.

Oil and gas but family.

We are very focused on having results.

Yeah.

We will give us.

Risk adjusted returns that will be more longer term in nature for our unitholders.

So our return thresholds for this particular acquisition profitably.

Obviously, you've been consistent with the past.

We committed to the oil and gas group royalty segment that we will allow them to reinvest.

Whatever cash flow they generate on an EBITDA basis.

The prior year.

So they have capacity for another $50 million or so beyond the investment we made that we announced today.

I'm, hoping that some people will want to sell their gas at current.

Current prices are so that could give us.

Opportunities there don't know if people will but.

So I think that we're very focused on those products or services and solutions that are needed for the long term.

And that's what we're looking for.

And then.

Right now.

The challenging part of acquisition is just where it has a cost of capital and interest.

Interest rates are moving.

So all kinds of mixed signals as to.

Whether the fed is going to be right or the market is going to be right on where interest rates are going to be or where they are.

So I think that obviously.

Obviously.

In order to have those attractive long term investments.

You have to have a significant.

Level of return above your cost of capital and our cost of capital is probably moving right now.

Could make 2023.

Valuations.

Maybe a little bit more conservative than what they would have otherwise been had we not been enough.

Higher cost environment in other words, we're going to make sure that we get a nice return above our cost of capital.

We may hedge a little bit on a higher cost of capital in 'twenty three than what possibly it will turn out to be.

Okay.

And I think that maybe.

That makes a lot sense those higher interest rates will obviously be impacting sellers perspective.

And so that just depends on.

What will be in the market.

From an acquisition standpoint.

As they look at their needs for cash and or their strategic options. If they are looking at.

Sure.

That makes a lot of sense I guess.

Yeah, the acquisitions announced.

Far really are.

Our oil and gas plays there is there anything on the coal side.

Where things could potentially become compelling.

There is.

As far as opportunities.

No there haven't been many in the gold space.

I think from a strategic standpoint.

Sure.

The only thing that.

With compete could potentially be an opportunities met go potentially that.

And that we've had on our list, which we are.

Enable that brown.

<unk> operation and.

So that's an area that I could see is possible, but it's not highly probable.

It's probably the best way I would put it.

So most of our focus is.

Outside the coal sector on the acquisitions front.

In other words, there is nothing going on right now.

Got it. Thank you again guys congrats on the quarter.

Thanks, Dave.

Yes.

Thank you. The next question is coming from Abe Landa of Bank of America. Please go ahead.

Hi, Good morning, Thanks for taking my questions just a couple of questions on the balance sheet.

So I'm sure you're aware of the fixed income markets are getting into.

Paul Little we have seen some other coal companies take out some notes early and then in Europe .

Our capital allocation discussion you did mentioned you could potentially redeem a portion of your bonds.

Which I'm sure you know your bonds the call price kind of steps down to par.

First maybe more Holistically what are you thinking about your capital structure and even more specifically about your bonds.

Yes with respect to the bonds.

We needed to wait until we completed our bank financing to make sure that we have the flexibility we wanted to see.

Should we choose to go out and begin taking the bonds down.

We did achieve that flexibility.

And with the strong cash flow that we're generating.

We we.

Do have the opportunity to potentially.

Opportunistically repurchased in the open market as conditions warrant.

And then beyond that Youre correct, our bond call goes to par in may of this year.

We'll evaluate.

Market conditions.

Weather.

Thats right when the right time is to completely potentially take those bonds down before they mature in may of 'twenty five clearly, we've got plenty of time to manage that.

And.

We will be watching markets very very closely to try to.

Pick up some of those positions at attractive levels.

Okay.

Yeah, I mean, it will depend obviously on our other alternatives yes.

Many like other capital allocation alternatives.

Yes, if theres opportunity acquisition type opportunities are.

The pop up.

Yes, I mean, obviously managing our balance sheet is one of our core capital allocation priorities returning cash to unit holders.

His as well.

The distribution we announced.

A day are on Friday, I am sorry.

As Joe mentioned, we intend to currently intend to maintain that level through the year, so thats fairly well defined.

And with the flexibility we have been given with our bank refinancing.

Should conditions warrant.

We could return additional cash to unit holders through a repurchase program that the board elected the top off last week.

And then just two quick housekeeping.

It was good to see our credit agreement was extended.

I think it also within that node it included $75 million term loan.

<unk> uses and also is that currently undrawn.

No. The term loan was drawn at closing so that cash is now on our balance sheet.

In our prepared comments, we noted that we do have these <unk>.

The activity is going on at the River view and we acquired some additional coal reserves at tunnel Ridge. So we're using that $75 million to effectively turn those activities out for a more extended period of time, primarily.

Okay. Thank you so much I appreciate it.

Thank you. The next question is coming from Mark Reichman of Noble capital markets. Please proceed with your follow up.

Yeah, just on the guidance when you talk about the stronger second half and I would agree with those observations, but so coal prices in Illinois basin in the fourth quarter was $57 47, a ton and in Appalachia about $89 a ton.

I was just wondering how much of a leap.

You have to make in terms of on those opened our unpriced tonnage to meet your guidance.

Not much I mean, I think if you look at fourth quarter, and then you look at our guidance.

Like you said.

Fourth quarter averaged $67 84.

And so our guidance is swift.

677 to 79, nine so you can see where.

We're right on with what we have committed.

Anything that.

That we have opened.

Yeah.

It's going to be helpful to those numbers, so I think that that's.

Where you get to the.

Midpoint or the higher end of the range.

But if so I think we've got flexibility there within that range.

Yeah, we're in.

And I would tell you that I'm quite sure was there the pricing is conservative in our guidance.

The U S and then wishes.

I was just curious.

As the new ventures team.

You know what.

What kind of progress have you seen there in terms of if they come up with some pretty good ideas or what are your expectations there.

So primarily we they have established the process.

And we've established.

Internal resources as well as external resources to help us as we go through the many many many opportunities that are out there we're trying to.

To take those.

Multitude of opportunities and trying to narrow those into preferred areas.

So that we can.

Be efficient with our time and our resources our people resources.

So that where we're focused on the right targets. So.

They've made significant progress in a short period of time I think we've got.

A clear vision on how we want to approach.

Inbound opportunities that come to us we also have an approach that.

Thats very much proactive.

We are again using some outside sources to help us go target certain areas that will fit with what we believe to be our core competencies.

And give us those long term risk adjusted returns most of the things.

We're looking at are.

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