NPR MLP/Midstream Infastructure Conference


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NPR MLP/Midstream Infastructure Conference

  1. 1. Citigroup Capital Markets2012 MLP/Midstream Infrastructure ConferenceLas Vegas, NVAugust 22-23, 2012
  2. 2. Forward Looking StatementsThe statements made by representatives of Natural Resource Partners L.P. (“NRP”)during the course of this presentation that are not historical facts are forward-looking statements. Although NRP believes that the assumptions underlying thesestatements are reasonable, investors are cautioned that such forward-lookingstatements are inherently uncertain and necessarily involve risks that may affectNRP’s business prospects and performance, causing actual results to differ fromthose discussed during the presentation.Such risks and uncertainties include, by way of example and not of limitation:general business and economic conditions; decreases in demand for coal; changesin our lessees’ operating conditions and costs; changes in the level of costs relatedto environmental protection and operational safety; unanticipated geologicproblems; problems related to force majeure; potential labor relations problems;changes in the legislative or regulatory environment; and lessee production cuts.These and other applicable risks and uncertainties have been described more fully inNRP’s most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q.NRP undertakes no obligation to publicly update any forward-looking statements,whether as a result of new information or future events. 2
  3. 3. NRP Overview 3
  4. 4. Business Overview Revenues from NRP’s Assets (2011)• Own, manage and lease mineral properties in the U.S. – 2.3 billion tons of proven and probable coal reserves in three major coal producing regions – 380 million tons of aggregate reserves – Oil and gas• Lease reserves to experienced mine operators under long-term leases in exchange for royalty payment – >percentage of gross sales price or fixed price per ton – periodic minimum payments NRP Revenues (2011)• Own and lease infrastructure assets including ($ in millions) transportation, handling and processing facilities and receive throughput fees• Expect 2012 revenue guidance in range of $340 million - $365 million• Publicly traded on NYSE (“NRP”) with market cap of $2.3 billion(1)(1) Market data as of August 10, 2012. Unit price of $21.75 4
  5. 5. No Direct Operating Costs or Risks• Lack of ordinary operating costs and limited direct exposure to environmental, permitting and labor risks drive industry-leading margins Operating Cost Operating Risks• Capital Expenditures • Reclamation Exposure• Labor • Regulatory/Permitting• Employee Benefits • Competition• Property Taxes • Weather• Transportation / Processing • Economy Coal EBITDA Margins (2011) 87.5% 31.1% 26.0% 20.9% 20.0% 11.7% 11.4% 6.3% NRP Alliance Resource Peabody Penn Virginia Arch Coal Alpha Natural James River Coal Patriot Coal Partners Resource Resources 5Source: Company filings.
  6. 6. Overview of NRP’s Coal Business• Acts as a proxy for the coal industry• 5th largest owner of coal reserves in the U.S. – 2.3 billion tons• Strategically located in Appalachia, Illinois Basin, Western U.S. Illinois Basin• Increased production expected from development of Ill properties Reserves 276 mm tons• 2011 coal production of 49.2 mmt and coal royalty revenues of $279.2 million Production 9.4 mm tons % Metallurgical 0% % Underground 95% Key Lessees The Cline Group, Knight Hawk Coal Northern Powder River Basin Northern AppalachiaReserves 102 mm tons Reserves 494 mm tonsProduction 2.7 mm tons Production 5.3 mm tons% Metallurgical 0% % Metallurgical 2%% Underground 0% % Underground 99%Key Lessees Westmoreland Coal Key Lessees Alliance Resource Partners, Arch Coal, Metinvest Central Appalachia Reserves 1,281 mm tons Production 29.6 mm tons Southern Appalachia % Metallurgical 31% Reserves 123 mm tons % Underground 82% Production 1.7 mm tons Key Lessees Alpha Natural % Metallurgical 35% Resources, Arch % Underground 79% Coal, Mechel, Patriot Coal Key Lessees Cliffs Natural Resources 6
  7. 7. NRP – Significant Metallurgical Exposure• 20-25% of all the metallurgical coal U.S. Coal Production (5-Year Average) produced in the U.S. is produced from NRP properties – In 2006, it was as high as 30%• Historically metallurgical coal has made up a significant portion of NRP’s coal royalty revenue – 22% to 37% of production – 29% to 47% of coal royalty revenues NRP’s % of U.S. Met Production (5-Year Average) – 2Q 2012 YTD - 33% of production and 45% of coal royalty revenues• 17 lessees currently produce metallurgical coal from NRP properties• Increases in metallurgical demand or prices can have a profound impact on NRP 7
  8. 8. NRP’s Illinois Basin Growth Prospects• 2005 increased exposure to Illinois Basin• Production increased – 5% to 24% of total today – expected to continue to grow• Invested ~$586 million• Projects recent completion – Hillsboro (Deer Run) –should add 7-9 million tons on an annual basis – Sugar Camp infrastructure and ORRI – add ~$8 million in cash flows in 2012• Agreement with Cline Group - opportunities on up to 3 billion tons of coal reserves or infrastructure• Illinois Basin coal well situated – Additional scrubbers to handle Ill Basin coal – Transportation and BTU advantage over PRB coals – Thicker coal seams than Appalachia means very low operating costs compared to CAPP – Export capability through the mouth of the Mississippi River 8
  9. 9. Growing Infrastructure Business• Own preparation plants, rail load-outs and beltline structures for both coal and aggregates• Currently own 11 coal assets and 1 aggregate plant• Fees received based on • % of the gross selling price or • Fixed fee per ton of throughput• Recent Ill. Basin acquisition to provide significant increase for 2012 and beyond• Working to expand business 9
  10. 10. Overview of NRP’s Aggregates Business • 380 million tons of aggregates in 8 states • Currently less than 2% of revenues ($6.7 mm in 2011 on 5.9 mm tons production), but growing • Invested ~ $130 million since 2006 to acquire assets White County (Mar 2010) DuPont (Jan 2007) Limestone Sand and GravelNorthern California (Apr 2010)Silica Putnam County (Apr 2010) Limestone Livingston County (Feb 2011) Limestone Rockmart (Jun 2010) Slate States in which NRP has Aggregate properties and or Infrastructure Tyler, TX (Jun 2011) Does not include BRP properties. Frac Sand Date of acquisition in parenthesis. Wise County (Jul 2009) McMinn County (Mar 2011) Limestone Limestone 10
  11. 11. Oil and Gas Business Overview Oil and Gas Revenues from NRP’s Assets• Own, manage and lease oil and gas mineral properties in the U.S. – Over 386,000 net leased oil, gas and CBM acres – Additional un-leased mineral interests throughout United States• Interest types include fee mineral ownership, overriding royalty ownership – Actively work with operators to provide best scenario for successful development• Recent acquisitions include 19,200 net acres within the active Mississippian Lime play• Actively seeking to grow oil and gas portfolio through acquisitions States in which NRP has – Minerals, royalties, ORRI, Net Profits Interest Oil and Gas Revenue acquisitions – Provide development capital to operators in exchange for non-cost bearing interest 11
  12. 12. Growing Oil and Gas Royalties• In 2011 hired oil and gas team to focus on acquisitions of additional royalty properties and leasing of currently owned mineral acreage for oil and gas development• Since Dec 2011 acquired 19,200 net mineral acres in the Mississippian Lime oil play in Oklahoma for ~$64 million – Currently leased to several active operators – Continuing development through horizontal drilling• Continuing to lease BRP oil and gas acreage Oil being picked up from storage tanks in Oklahoma.• Actively working on leasing additional NRP properties• Oil and Gas royalties currently only 4% of revenues, but growing as further development occurs on NRP properties 12
  13. 13. Platform for Additional Growth -BRP Mineral Venture - ~ 9 mm acres •Formed venture with International Paper June 2010 - BRP •Own and manage ~9.1 million acres of mineral rights previously held by IP •NRP paid $42.5 million and has annual cumulative preferred distribution of $4.25 MM and 51% of any excess income •Royalty based model similar to NRP other assets •NRP has received distributions with regard to: •2012 (Jan – Apr) - $3.7 million •2011 - $6.9 million •2010 - $2.5 million (7 months) Current Income Development Oil and gas royalties √ √ ~75% of properties are located in Coal royalties √ √ the Gulf Coast region with next Aggregate royalties √ √ largest region the Pacific Cell tower royalties √ Northwest Coal bed methane √ Geothermal √ Water rights √ Precious metals √ Industrial minerals √ 13
  14. 14. Consistent Growth and Diversification of Revenues 2012E reflects the midpoint of the guidance range updated in August 2012. 14
  15. 15. Paid to Wait for Coal Turnaround• Current quarterly distribution - $0.55 per unit• Large cash balance to help protect distribution in weak markets 15
  16. 16. Unique Tax Attributes for Individuals• Portion of current income deferred due to depletion, depreciation• Current income predominantly taxed at Section 1231 – capital gains rates• At sale of units - very little recapture of depreciation and depletion• If units are held for more than one year, majority of all income generated by the partnership is taxed at capital gains rates 16
  17. 17. Poised for Growth in 2013 and beyond• Potential for Higher 2012 coal production – NRP’s lessees produced 49.2 million tons in 2011 – NRP forecasts 2012 coal production of 48 million tons to 54 million tons • Some lessees moving back onto NRP property from other lessees • Increasing ILB tonnage in 2012 and 2013 based on earlier acquisitions• Growth in infrastructure and transportation – Increasing throughput from rising coal tonnage in ILB – New ILB infrastructure assets – Sugar Camp – New infrastructure assets in aggregates• Growth in oil and gas due to recent acquisitions• Increased aggregates platform – Since 2009 acquired 9 properties for ~$102 million – Combination of producing and greenfield projects – Providing growth in 2012 and beyond• Mineral venture with International Paper (BRP LLC) 17
  18. 18. Supplemental Information: Coal Markets 18
  19. 19. Coal – Fastest Growing Fossil Fuel in 2011 – Up 5.4%2011 - Global primary energy consumption Global Energy Consumption (2011 vs. 2010) increased 2.5% Coal was fastest growing fossil fuel up 5.4% Renewables fastest growing fuel but only accounts for 1.6% of global energy consumption30.3 % - Coal’s share of world energy Global Energy Consumption - 2011consumption in 2011 - highest since 1969 (million tonnes oil equivalent)Asia Pacific is largest energy consumer 39.1% of global energy consumption 68.6% of global coal consumption12th consecutive year oil’s share of Globalenergy consumption has declined – lowestsince 1965Source: BP Statistical Review of World Energy June 2012 19
  20. 20. Global Coal Consumption Continues to Increase Three largest global consumers of coal in 2011 China – 49% U.S. – 14% Global Coal Consumption (million tonnes oil equivalent) India – 8% Global coal consumption increased 56% between 2001 and 2011 China increased ~155% India increased ~104% Global coal consumption increased 19% between 2006 and 2011 U.S. coal reserves make up 28% of the world’s total coal reservesSource: BP Statistical Review of World Energy June 2012 20
  21. 21. Current Coal Markets• Weak domestic thermal market – Historically high inventories – Low natural gas prices – Unseasonable weather – Regulatory environment• Weaker but Stable Met market – Domestic steel production increased 2012 – Global met coal quarterly benchmark increased to $225 but expected to drop to ~ $190 as a bottom• Exports at new highs – 2011 exports of 107 mm tons – all time high – June YTD exports reported at 66.0 mm tons – 24% above the same period last year – 2012 expected to exceed 2011 – New export capacity proposed – could reach as high as 270 mm tons if all proposed get built Source: National Mining Association, Raymond James, Industry trade publications and NRP estimates 21
  22. 22. U.S. Coal Exports 22