Natural Resource Partners L.P. Reports Third Quarter Results and Increases Guidance

HOUSTON, Nov. 2 /PRNewswire-FirstCall/ -- Natural Resource Partners L.P. and today reported net income of $25.3 million for the third quarter 2006, up 18% from the $21.5 million reported for the same period in 2005. Net income per unit increased to $0.85 from $0.79 per unit in 2005. Distributable cash flow for the third quarter 2006 decreased slightly to $31.0 million from $32.1 million a year ago.

For the first nine months of 2006, NRP reported net income of $78.8 million, also up 18% over the same period last year. Net income per unit rose to $2.72 from $2.48 for 2005 while distributable cash flow increased 12% over last year to $95.5 million.

"Our lessees reported higher prices in the third quarter than we had anticipated, resulting in a much better quarter," said President and Chief Operating Officer Nick Carter. "Although there has been much written about coal prices being lower, especially in Central Appalachia, we are not seeing that trend in the prices reported to us by our lessees. We believe this is due to the diversity and quality of our properties and lessees and to the excellent job our lessees do in mining and selling our coal."

Third Quarter 2006 Financial Results

NRP reported a 7% increase in third quarter 2006 total revenues to $41.5 million from $38.7 million last year. Third quarter 2006 coal royalty revenues rose 8% to $36.9 million from $34.3 million last year, primarily due to a 7% increase in average royalty revenue per ton to a record $2.88 per ton. NRP experienced significant average royalty revenue per ton increases in all regions except Southern Appalachia, where the average royalty revenue per ton dropped $0.34 due to production from lower royalty rate leases. Average royalty revenue per ton in the Northern Powder River Basin included an upward annual price adjustment. A decrease in production in the Illinois Basin was more than offset by a slight increase in the Northern Powder River Basin.

Total third quarter 2006 expenses decreased approximately 13% to $12.9 million from the $14.8 million reported in the third quarter last year. Depreciation, depletion and amortization was $1.2 million lower due to production from lower cost properties and an approximate $800 thousand decrease in coal royalty and override payments by NRP due to the expiration of one override and another override being temporarily reduced due to production from adjacent properties.

While net income increased significantly for the quarter, changes in working capital led to a decrease in distributable cash flow of approximately $1.1 million for the third quarter 2006 versus 2005.

Year-to-date Financial Results

Total revenues for the nine month period increased 11% to $129.0 million from $116.7 million. Year to date coal royalty revenues improved 7% to $112.5 million compared to $104.8 million last year. This primarily results from a 6% increase in average coal royalty per ton to $2.80 per ton from the $2.65 per ton reported last year. Similar to our quarter results, production was consistent with our forecast, and was essentially flat as compared to the first nine months of 2005. Year to date approximately 24% of NRP's production and 29% of its coal royalty revenue was from metallurgical coal. Revenues other than coal royalty revenue grew 38% to a total of $16.5 million mainly due to increases in oil and gas royalties of $1.4 million, or 65%, over last year. In addition, we received $2.6 million related to the sale of timber assets in the first and second quarters of this year.

Total expenses were down approximately $2.0 million or 5% to $40.8 million year to date. Depreciation, depletion and amortization decreased 11% as a result of lower depletion rates. General and administrative expenses increased 10%, or $1.0 million, over last year primarily due to increased costs associated with managing a larger number of properties and incentive compensation accruals. Property, franchise and other taxes increased $0.7 million due to property and franchise taxes in additional states in which the partnership now operates. Coal royalty and override payments by NRP were down approximately $1.1 million, or 47%, due to the expiration of one override payment and the temporary reduction of another due to production occurring on adjacent property.

Distributions; Expected Conversion of NSP Units

On October 17, 2006, NRP announced its thirteenth consecutive increase in its quarterly distribution, raising the distribution to $0.85 per unit, or $3.40 per unit on an annualized basis, for both NRP and NSP. This represents a 15% increase in Natural Resource Partners' distributions compared to the third quarter of 2005. This distribution will be paid on November 14 to holders of record on November 1. Following the payment of the distribution in November, one-third of the currently outstanding subordinated units that trade under the ticker symbol "NSP" will convert into common units and begin trading under the "NRP" ticker symbol.

2006 Guidance

NRP is increasing its 2006 guidance due to higher than anticipated prices for coal sold by its lessees during the third quarter. We now anticipate higher revenues than previously stated at the end of the second quarter. Following are some updated key projections for 2006:

Range Coal Royalty Revenues ($ millions) 142.0 - 146.0 Total Revenues ($ millions) 165.0 - 169.0 Net Income ($ millions) 98.0 - 102.0 Net Income per unit ($ per unit) 3.35 - 3.45 Distributable Cash Flow ($ millions) 118.0 - 122.0

Natural Resource Partners L.P. is headquartered in Houston, TX, with its operations headquarters in Huntington, WV. NRP is a master limited partnership that is principally engaged in the business of owning and managing coal properties in the three major coal producing regions of the United States: Appalachia, the Illinois Basin and the Powder River Basin.

For additional information, please contact Kathy Hager at 713-751-7555 or khager@nrplp.com . Further information about NRP is available on the partnership's website at http://www.nrplp.com/ .

Forward Looking Statements

This press release may include "forward-looking statements" as defined by the Securities and Exchange Commission. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the partnership expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements include comments regarding growth of the partnership and increases in distributions. These statements are based on certain assumptions made by the partnership based on its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the partnership. These risks include, but are not limited to, decreases in demand for coal; changes in operating conditions and costs; production cuts by our lessees; commodity prices; unanticipated geologic problems; changes in the legislative or regulatory environment and other factors detailed in Natural Resource Partners' Securities and Exchange Commission filings. Natural Resource Partners L.P. has no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Disclosure of Non-GAAP Financial Measures

Distributable cash flow represents cash flow from operations less actual principal payments and cash reserves set aside for scheduled principal payments on the senior notes. Distributable cash flow is a "non-GAAP financial measure" that is presented because management believes it is a useful adjunct to net cash provided by operating activities under GAAP. Distributable cash flow is a significant liquidity metric that is an indicator of NRP's ability to generate cash flows at a level that can sustain or support an increase in quarterly cash distributions paid to its partners. Distributable cash flow is also the quantitative standard used throughout the investment community with respect to publicly traded partnerships. Distributable cash flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities. A reconciliation of distributable cash flow to net cash provided by operating activities is included in the tables attached to this release. Distributable cash flow may not be calculated the same for NRP as other companies.

- financials follow - Natural Resource Partners L.P. Operating Statistics (In thousands except per ton data) (Unaudited) Three months ended Nine months ended September 30, September 30, 2006 2005 2006 2005 Coal royalty revenues: Appalachia Northern $2,292 $2,198 $8,330 $6,767 Central 24,568 21,950 74,953 70,022 Southern 5,471 7,098 16,088 18,455 Total Appalachia $32,331 $31,246 $99,371 $95,244 Illinois Basin 808 956 4,465 3,356 Northern Powder River Basin 3,763 2,065 8,703 6,154 Total $36,902 $34,267 $112,539 $104,754 Coal royalty production (tons): Appalachia Northern 1,177 1,161 4,391 3,577 Central 7,873 7,792 24,050 24,989 Southern 1,395 1,667 4,256 4,665 Total Appalachia 10,445 10,620 32,697 33,231 Illinois Basin 368 624 2,507 2,198 Northern Powder River Basin 1,985 1,447 4,983 4,144 Total 12,798 12,691 40,187 39,573 Average royalty revenue per ton: Appalachia Northern $1.95 $1.89 $1.90 $1.89 Central 3.12 2.82 3.12 2.80 Southern 3.92 4.26 3.78 3.96 Total Appalachia 3.10 2.94 3.04 2.87 Illinois Basin 2.20 1.53 1.78 1.53 Northern Powder River Basin 1.90 1.43 1.75 1.49 Total $2.88 $2.70 $2.80 $2.65 Natural Resource Partners L.P. Consolidated Statements of Income (In thousands, except per unit data) (Unaudited) Three months ended Nine months ended September 30, September 30, 2006 2005 2006 2005 Revenues: Coal royalties $36,902 $34,267 $112,539 $104,754 Oil and gas royalties 853 1,056 3,500 2,126 Property taxes 1,532 1,552 4,827 4,533 Minimums recognized as revenue 633 431 1,254 1,365 Override royalties 283 487 767 1,311 Other 1,288 942 6,114 2,590 Total revenues 41,491 38,735 129,001 116,679 Operating costs and expenses: Depreciation, depletion and amortization 7,009 8,221 22,098 24,725 General and administrative 3,475 3,527 11,010 10,001 Property, franchise and other taxes 2,142 1,954 6,486 5,738 Coal royalty and override payments 296 1,071 1,250 2,369 Total operating costs and expenses 12,922 14,773 40,844 42,833 Income from operations 28,569 23,962 88,157 73,846 Other income (expense) Interest expense (3,960) (2,889) (11,253) (7,916) Interest income 665 392 1,938 954 Net income $25,274 $21,465 $78,842 $66,884 Net income attributable to: (A) General partner $2,641 $1,103 $6,989 $3,088 Holders of incentive distribution rights $1,150 $363 $2,914 $943 Limited partners $21,483 $19,999 $68,939 $62,853 Basic and diluted net income per limited partner unit: Common $0.85 $0.79 $2.72 $2.48 Subordinated $0.85 $0.79 $2.72 $2.48 Weighted average number of units outstanding: Common 16,825 13,987 16,825 13,987 Subordinated 8,515 11,354 8,515 11,354 (A) Net income is allocated among the limited partners, the general partner and holders of the incentive distribution rights (IDRs) based upon their pro rata share of distributions. The IDRs are allocated 65% to the general partner and the remaining 35% to affiliates of the general partner. The IDRs allocated to the general partner are included in the net income attributable to the general partner. Natural Resource Partners L.P. Statements of Cash Flows (In thousands) (Unaudited) Three months ended Nine months ended September 30, September 30, 2006 2005 2006 2005 Cash flows from operating activities: Net income $25,274 $21,465 $78,842 $66,884 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 7,009 8,221 22,098 24,725 Non-cash interest charge 97 97 288 222 Gain from sale of assets --- --- (2,634) --- Change in operating assets and liabilities: Accounts receivable (2,332) 347 (2,439) (3,022) Other assets 282 (316) 525 285 Accounts payable 255 202 235 78 Accrued interest 1,020 2,385 2,237 2,554 Deferred revenue 625 315 1,033 (2,016) Accrued incentive plan expenses 996 1,389 2,506 2,613 Property, franchise and other taxes payable 158 388 (147) (382) Net cash provided by operating activities 33,384 34,493 102,544 91,941 Cash flows from investing activities: Acquisition of land, plant and equipment, coal and other mineral rights (54,401) (54,580) (105,839) (76,124) Proceeds from sale of assets --- --- 4,761 --- Net cash used in investing activities (54,401) (54,580) (101,078) (76,124) Cash flows from financing activities: Proceeds from loans 53,000 88,000 103,000 106,000 Repayments of loans --- (50,000) (24,350) (59,350) Distributions to partners (23,819) (19,216) (67,023) (55,113) Net cash provided by (used in) financing activities 29,181 18,784 11,627 (8,463) Net (decrease) or increase in cash and cash equivalents 8,164 (1,303) 13,093 7,354 Cash and cash equivalents at beginning of period 52,620 50,760 47,691 42,103 Cash and cash equivalents at end of period $60,784 $49,457 $60,784 $49,457 SUPPLEMENTAL INFORMATION: Cash paid during the period for interest $2,841 $427 $8,702 $5,139 Natural Resource Partners L.P. Consolidated Balance Sheets (In thousands, except for unit information) ASSETS September 30, December 31, 2006 2005 (Unaudited) Current assets: Cash and cash equivalents $60,784 $47,691 Accounts receivable 24,332 21,946 Accounts receivable - affiliate 59 6 Other 307 833 Total current assets 85,482 70,476 Land 12,461 14,123 Plant and equipment, net 25,070 5,924 Coal and other mineral rights, net 655,078 590,459 Loan financing costs, net 2,182 2,431 Other assets, net 1,095 1,583 Total assets $781,368 $684,996 LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable $817 $677 Accounts payable - affiliate 183 88 Current portion of long-term debt 9,350 9,350 Accrued incentive plan expenses - current portion 5,326 1,105 Property, franchise and other taxes payable 3,991 4,138 Accrued interest 3,771 1,534 Total current liabilities 23,438 16,892 Deferred revenue 15,884 14,851 Accrued incentive plan expenses 3,680 5,395 Long-term debt 300,600 221,950 Partners' capital: Common units (outstanding: 16,825,307) 298,571 292,990 Subordinated units (outstanding: 8,515,228) 126,351 123,114 General partner's interest 12,058 10,024 Holders of incentive distribution rights 1,549 582 Accumulated other comprehensive loss (763) (802) Total partners' capital 437,766 425,908 Total liabilities and partners' capital $781,368 $684,996 Natural Resource Partners L.P. Reconciliation of GAAP "Net cash provided by operating activities" To Non-GAAP "Distributable cash flow" (In thousands) (Unaudited) Three months ended Nine months ended September 30, September 30 2006 2005 2006 2005 Cash flow from operations $33,384 $34,493 $102,544 $91,941 Less scheduled principal payments --- --- (9,350) (9,350) Less reserves for future principal payments (2,350) (2,350) (7,050) (7,050) Add reserves used for scheduled principal payments --- --- 9,400 9,400 Distributable cash flow $31,034 $32,143 $95,544 $84,941