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Natural Resource (NRP) to Sell Williston Assets for $116.1M
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Natural Resource Partners LP’s (NRP - Free Report) unit, NRP Oil & Gas LLC, has inked a deal to sell its non-operated oil and gas working interest assets in Williston Basin to Lime Rock Resources IV-A, L.P. for $116.1 million. With this sale, Natural Resource Partners will effectively exit the non-operated oil and gas working interest business.
The sale is expected to close by July end, subject to customary closing conditions. Natural Resource Partners intends to use the proceeds from the transaction to repay the $75 million NRP Oil and Gas revolving credit facility entirely as well as to repay other existing debts.
Rationale behind the Asset Sale
Coal royalty is the primary source of revenue for Natural Resource Partners. However, the demand for coal in U.S. is falling because of increased usage of natural gas and renewable energy sources. As a result, coal production in the U.S. in 2016 is expected to be much lower than the 2015 levels, which will translate to reduced coal royalty revenues at Natural Resource Partners.
Natural Resource Partners’ first quarter of 2016 total royalty revenues declined by $15 million primarily due to a 3.0 million ton reduction in sales and a 61 cent decrease in the combined average coal royalty revenue per ton.
Given this scenario, hiving off non-operated oil and gas working interest assets and utilizing the proceeds to repay debts seems like a logical as well as a prudent move for Natural Resource Partners.
To cope with the challenges created by ongoing drop in coal demand and prices, Natural Resource Partners has opted for a reverse stock split to save its units from being delisted from the exchange and also lowered its cash distribution rate by nearly 87% to utilize the savings to lower its debt levels.
How are Other Coal Miners Coping?
Given that a recovery in the coal industry is uncertain as of yet, other coal mining companies have also been looking to divest or trim their assets to minimize losses. A prominent coal operator, CONSOL Energy Inc. (CNX - Free Report) recently closed the sale of Buchanan Mine and certain other metallurgical coal reserves, thereby shifting its focus toward the booming natural gas business.
In a similar move, SunCoke Energy, Inc. (SXC - Free Report) has decided to downsize its coal mining business amid persistent softness in coal demand and prices. The company will divest its coal mining assets to Revelation Energy, LLC in a transaction which is expected to close by the end of 2017. (Read more: SunCoke (SXC - Free Report) to Shed Coal Mining Assets amid Weak Prices)
Zacks Rank & a Key Pick
Natural Resource Partners currently carries a Zacks Rank #3 (Hold).
A better-ranked stock in the same space is Westmoreland Coal Co. , carrying a Zacks Rank #2 (Buy).
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Natural Resource (NRP) to Sell Williston Assets for $116.1M
Natural Resource Partners LP’s (NRP - Free Report) unit, NRP Oil & Gas LLC, has inked a deal to sell its non-operated oil and gas working interest assets in Williston Basin to Lime Rock Resources IV-A, L.P. for $116.1 million. With this sale, Natural Resource Partners will effectively exit the non-operated oil and gas working interest business.
The sale is expected to close by July end, subject to customary closing conditions. Natural Resource Partners intends to use the proceeds from the transaction to repay the $75 million NRP Oil and Gas revolving credit facility entirely as well as to repay other existing debts.
Rationale behind the Asset Sale
Coal royalty is the primary source of revenue for Natural Resource Partners. However, the demand for coal in U.S. is falling because of increased usage of natural gas and renewable energy sources. As a result, coal production in the U.S. in 2016 is expected to be much lower than the 2015 levels, which will translate to reduced coal royalty revenues at Natural Resource Partners.
Natural Resource Partners’ first quarter of 2016 total royalty revenues declined by $15 million primarily due to a 3.0 million ton reduction in sales and a 61 cent decrease in the combined average coal royalty revenue per ton.
Given this scenario, hiving off non-operated oil and gas working interest assets and utilizing the proceeds to repay debts seems like a logical as well as a prudent move for Natural Resource Partners.
NATURAL RESOURCE PARTNERS LP Price
NATURAL RSRC LP Price | NATURAL RSRC LP Quote
Initiatives to cope with Tough Times
To cope with the challenges created by ongoing drop in coal demand and prices, Natural Resource Partners has opted for a reverse stock split to save its units from being delisted from the exchange and also lowered its cash distribution rate by nearly 87% to utilize the savings to lower its debt levels.
How are Other Coal Miners Coping?
Given that a recovery in the coal industry is uncertain as of yet, other coal mining companies have also been looking to divest or trim their assets to minimize losses. A prominent coal operator, CONSOL Energy Inc. (CNX - Free Report) recently closed the sale of Buchanan Mine and certain other metallurgical coal reserves, thereby shifting its focus toward the booming natural gas business.
In a similar move, SunCoke Energy, Inc. (SXC - Free Report) has decided to downsize its coal mining business amid persistent softness in coal demand and prices. The company will divest its coal mining assets to Revelation Energy, LLC in a transaction which is expected to close by the end of 2017. (Read more: SunCoke (SXC - Free Report) to Shed Coal Mining Assets amid Weak Prices)
Zacks Rank & a Key Pick
Natural Resource Partners currently carries a Zacks Rank #3 (Hold).
A better-ranked stock in the same space is Westmoreland Coal Co. , carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>