Alliance Resource Partners Lp (ARLP) SEC Filing 10-Q Quarterly report for the period ending Tuesday, March 31, 2020

Earnings Press Release
10-Q Quarterly Report
10-Q QoQ Changes
Alliance Resource Partners Lp
Ticker: ARLP CIK: 1086600

Exhibit 99.1

PRESS RELEASE

	CONTACT:
	Brian L. Cantrell
	Alliance Resource Partners, L.P.
	1717 South Boulder Avenue, Suite 400
	Tulsa, Oklahoma 74119
FOR IMMEDIATE RELEASE	(918) 295-7673

ALLIANCE RESOURCE PARTNERS, L.P.

Reports First Quarter 2020 Financial and Operating Results

Decisive actions taken amid the COVID-19 outbreak and market deterioration to safeguard employee health and safety, support communities and customers as an essential supplier to critical infrastructure, protect strong balance sheet and enhance liquidity

TULSA, OKLAHOMA, May 8, 2020 — Alliance Resource Partners, L.P. (NASDAQ: ARLP) today reported a net loss attributable to ARLP of $144.8 million, or $(1.14) per basic and diluted limited partner unit for the quarter ended March 31, 2020 (the "2020 Quarter"), which included non-cash impairment charges of $157.0 million. This compares to net income attributable to ARLP of $276.4 million, or $2.12 per basic and diluted limited partner unit for the quarter ended March 31, 2019 (the "2019 Quarter"), which included a non-cash net gain of $170.0 million related to the AllDale Acquisition. Excluding the impact of non-cash items (each described in more detail below), for the 2020 Quarter Adjusted net income attributable to ARLP and Adjusted EBITDA decreased to $12.2 million and $98.3 million, respectively, compared to $106.5 million and $188.8 million for the 2019 Quarter. (Unless otherwise noted, all references in this release to "net income" refer to "net income attributable to ARLP." For a definition of EBITDA, Adjusted net income attributable to ARLP, Adjusted EBITDA and related reconciliations to comparable GAAP financial measures, please see the end of this release.)

"ARLP entered the year anticipating challenging coal market conditions due primarily to low natural gas prices and the overhang of coal supply caused by the collapse of thermal export prices during the back half of 2019," said Joseph W. Craft III, Chairman, President and Chief Executive Officer. "Mid-way through the 2020 Quarter, it became evident that mild winter weather and natural gas prices falling to twenty-year lows, well below $2.00/mmbtu, were adding to the pressures on coal demand. The unanticipated disruptions created by the COVID-19 pandemic caused global energy demand to plummet, further negatively impacting our results for the 2020 Quarter as well."

Mr. Craft added, "All of our coal mines continued to operate during the 2020 Quarter given the essential, life-sustaining need for coal to be available to supply and ensure the reliability of the electric grid. As our coal inventories expanded, we cut back production hours while evaluating the needs of our customers. With a keen focus on our long-established Safety First initiatives, our mining operations delivered record safety results. Our marketing teams continued to work closely

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with customers to ensure safe, reliable delivery of coal that is vital to the critical infrastructure supporting the communities we serve. We also took prudent steps to protect ARLP’s strong balance sheet and enhance our liquidity. I am extremely grateful for the sacrifices and tireless efforts of the entire Alliance organization during these uncertain times.”

Operations Update

The actions taken by world leaders to combat the deadly coronavirus have caused a precipitous global decline in demand for coal, oil and natural gas. The price war initiated by Saudi Arabia and Russia created even more pressure on oil prices. The domestic coal and oil & gas industries have taken action to reduce supply in response.

ARLP previously announced it would reduce its coal production to match existing contracted sales commitments for 2020. Accordingly, we are now targeting coal sales and production this year of approximately 28.0 million tons and 27.0 million tons, respectively, or 25% to 30% lower than originally expected. To accomplish this objective, ARLP evaluated each of its mining operations to determine where it was possible to temporarily halt production while continuing to meet customer requirements from existing coal inventories. Following that evaluation, ARLP announced a temporary cessation of coal production at its River View, Gibson, Hamilton and Warrior mining complexes in the Illinois Basin and its MC Mining complex in East Kentucky (see March 30, 2020 and April 9, 2020 Press Releases).

To reliably service the needs of its customers, underground mining operations partially resumed this week at the River View mine, with six continuous mining units brought back into production. ARLP will continue to monitor coal inventories and work closely with customers to determine when coal production will resume at each of the remaining idled operations. However, as a result of the continuing impacts of the COVID-19 pandemic on ARLP's business, not all mines will return to previous production levels. As a result, on April 15, 2020, 116 employees of the Gibson County mining complex and 78 employees of the Hamilton mine were given notice that their employment would be permanently terminated on April 26, 2020.

In the 2020 Quarter, production volumes from our oil and gas mineral interests increased 51.4% compared to the 2019 Quarter as a result of a steady pace of development led by the additional mineral interests acquired in the Wing Acquisition, which we now call AR Midland. Segment Adjusted EBITDA for our Minerals segment increased 50.6% to $13.8 million in the 2020 Quarter compared to $9.1 million in the 2019 Quarter. A steep drop in crude prices toward the end of the 2020 Quarter led to a 9.2% reduction in average sales price per BOE compared to the 2019 Quarter partially offsetting the financial benefit of increased volumes.

A recent Wall Street Journal article read, "As people stay at home to avoid the new coronavirus, the petroleum business is experiencing a shock like no other in history. …the world’s thirst for oil has vanished, creating an unprecedented crisis for one of the planet’s most powerful industries." As many have said, we are in uncharted territory. We have seen WTI, the U.S. benchmark oil price, collapse from above $60 per barrel at the beginning of this year to briefly turning negative as producers paid purchasers to move barrels last month ─ causing domestic oil producers to slash capital budgets and announce plans to curtail production. With these disruptions, we anticipate earnings from our Minerals segment will be significantly lower in the near term. With oil prices at unsustainable levels, however, we expect WTI prices will eventually return to prices comparable to pre-virus levels. The positive aspect of lower crude production is the reduction of associated gas

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volumes leading many energy analysts to project natural gas prices around $3.00/mmbtu by the end of this year and possibly to continue throughout 2021. Not only would such an increase help mitigate lower BOE volumes and lower oil prices but also coal demand should increase from gas to coal switching by our utility customers.

While 43 states have announced plans to begin gradually re-opening the American economy this month, until there is better visibility into both the degree and the speed of the economic recovery post lockdown ARLP has withdrawn its initial 2020 operating and financial guidance provided on January 27, 2020, which of course did not reflect the impact of the COVID-19 pandemic.

We are continuing to monitor and may take further measures to minimize any adverse impact caused by the COVID-19 pandemic, but there can be no guarantee the measures will be fully effective.

Financial and Liquidity Update

Responding to the economic disruptions and uncertainties discussed above, ARLP has taken numerous actions to optimize cash flows and preserve liquidity. Compared to our initial expectations, we are reducing ARLP’s 2020 capital budget by 20.0% to 30.0%. Working capital requirements are expected to fall approximately $35.0 million by reducing coal inventories. General and administrative expenses will also be 20.0% to 25.0% lower this year due to reduced incentive compensation, stringent cost control and adjusting our corporate support structure to better align with current operating levels.

During the 2020 Quarter, ARLP completed an amendment of its revolving credit facility, expanding liquidity over the next four quarters and extending the maturity of this facility to March 2024. ARLP ended the 2020 Quarter with liquidity of $258.4 million and remained comfortably in compliance with its debt covenants, including total debt of approximately 1.6 times trailing twelve months Adjusted EBITDA.

As previously announced the Board of Directors of ARLP’s general partner (the "Board") decided to suspend the cash distribution to unitholders for the 2020 Quarter. At its quarterly meeting yesterday, the Board extended the suspension of distributions through the quarter ending June 30, 2020. We view the suspension of unitholder distributions as temporary and continue to believe that a sustainable distribution is an important contributor to long-term value for ARLP’s unitholders. The Board will continue to evaluate rapidly evolving economic conditions and intends to reassess its distribution decision following the second quarter.

Consolidated Financial Results

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Weak coal market conditions, lower commodity prices, and the recent lockdown of the global economy due to the COVID-19 pandemic significantly impacted our financial and operating results for the 2020 Quarter. Lower coal sales and transportation revenues, partially offset by increased oil & gas royalty and other revenues, resulted in total revenues for the 2020 Quarter of $350.8 million compared to $526.6 million for the 2019 Quarter. Operating expenses of $234.3 million for the 2020 Quarter were also lower compared to $302.7 million in the 2019 Quarter.

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Coal Operations –

Due to reduced coal sales volumes and prices, coal sales revenues for the 2020 Quarter decreased 33.9% to $314.6 million, compared to $476.0 million for the 2019 Quarter. Coal sales volumes declined 29.7% to 7.3 million tons in the 2020 Quarter due to weak market conditions and uncertainty caused by the COVID-19 pandemic. Primarily due to reduced shipments of thermal and metallurgical coal to international markets, coal sales price realizations declined 5.9% in the 2020 Quarter to $43.39 per ton sold, compared to $46.12 per ton sold during the 2019 Quarter, while transportation revenues and expenses decreased to $4.7 million from $30.2 million. Other revenues in the 2020 Quarter increased by $7.5 million to $17.1 million due to a customer buy-out of certain coal contracts at our Tunnel Ridge mine.

Compared to the 2019 Quarter, operating expenses for our coal operations decreased 22.6% to $232.9 million, primarily as a result of lower coal volumes. Segment Adjusted EBITDA Expense per ton increased 10.6% in the 2020 Quarter to $32.25 per ton, compared to $29.17 per ton in the 2019 Quarter. The increase is attributed primarily to the per ton cost impact of curtailed coal production in response to reduced demand, a longwall move at our Hamilton mine in the 2020 Quarter and a $0.60 per ton government-imposed increase in the federal black lung excise tax, effective January 1, 2020. Lower coal sales revenues, partially offset by lower expenses, caused total Segment Adjusted EBITDA from our coal operations to decline 46.9% to $97.9 million in the 2020 Quarter, compared to $184.6 million for the 2019 Quarter.

Minerals –

For the 2020 Quarter, our mineral interests contributed total revenues of $14.3 million from oil & gas royalties and lease bonuses, compared to $10.7 million for the 2019 Quarter. The increase in revenues is primarily due to higher volumes resulting from the Wing Acquisition in August 2019 as well as drilling and development activity on our mineral interests, partially offset by lower oil & gas sales price realizations. Comparative results between the 2020 and 2019 Quarters were also impacted by a non-cash acquisition gain of $177.0 million, of which $7.1 million was attributable to non-controlling interest, recorded in the 2019 Quarter associated with the AllDale Acquisition to reflect the fair value of the interests in AllDale I and II we already owned at the time of the acquisition. Our Minerals segment contributed net income of $2.4 million to the 2020 Quarter, compared to $171.8 million for the 2019 Quarter, which included the acquisition gain. Excluding the gain, Segment Adjusted EBITDA related to our Minerals segment increased to $13.8 million for the 2020 Quarter, compared to $9.1 million for the 2019 Quarter. (Please see ARLP Press Releases dated January 3, 2019 and August 2, 2019 for full descriptions of the AllDale and Wing Acquisitions, respectively.)

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

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

Segment Results and Analysis


							% Change
	2020 First			2019 First			Quarter /		2019 Fourth			% Change
(in millions, except per ton and per BOE data)	Quarter			Quarter			Quarter		Quarter			Sequential

Coal Operations

Illinois Basin
Tons sold		5.056			7.673		(34.1)	%		6.687		(24.4)	%
Coal sales price per ton (1)	$	39.38		$	41.35		(4.8)	%	$	37.84		4.1	%
Segment Adjusted EBITDA Expense per ton (2)	$	29.67		$	25.73		15.3	%	$	26.46		12.1	%
Segment Adjusted EBITDA (2)	$	50.0		$	122.7		(59.2)	%	$	78.6		(36.4)	%

Appalachia
Tons sold		2.195			2.648		(17.1)	%		2.745		(20.0)	%
Coal sales price per ton (1)	$	52.64		$	59.46		(11.5)	%	$	54.89		(4.1)	%
Segment Adjusted EBITDA Expense per ton (2)	$	36.31		$	37.67		(3.6)	%	$	40.35		(10.0)	%
Segment Adjusted EBITDA (2)	$	47.5		$	58.7		(19.0)	%	$	48.3		(1.7)	%

Total Coal
Tons sold		7.251			10.321		(29.7)	%		9.432		(23.1)	%
Coal sales price per ton (1)	$	43.39		$	46.12		(5.9)	%	$	42.95		1.0	%
Segment Adjusted EBITDA Expense per ton (2)	$	32.25		$	29.17		10.6	%	$	30.92		4.3	%
Segment Adjusted EBITDA (2)	$	97.9		$	184.6		(46.9)	%	$	129.4		(24.3)	%

Minerals (3)
Volume - BOE		0.495			0.327		51.4	%		0.498		(0.6)	%
Volume - oil percentage of BOE		50.8	%		40.9	%	24.2	%		45.2	%	12.4	%
Average sales price per BOE (3)	$	28.79		$	31.70		(9.2)	%	$	31.11		(7.5)	%
Segment Adjusted EBITDA Expense (2)	$	0.88		$	1.83		(51.7)	%	$	1.70		(48.1)	%
Segment Adjusted EBITDA (2)	$	13.8		$	9.1		50.6	%	$	14.6		(5.6)	%

Consolidated Total (4)
Total revenues	$	350.8		$	526.6		(33.4)	%	$	453.3		(22.6)	%
Segment Adjusted EBITDA Expense (2)	$	234.7		$	302.9		(22.5)	%	$	293.4		(20.0)	%
Segment Adjusted EBITDA (2)	$	111.7		$	206.6		(45.9)	%	$	143.9		(22.4)	%

The following information was filed by Alliance Resource Partners Lp (ARLP) on Friday, May 8, 2020 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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