NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Operations
Natural Resource Partners L.P. (the "Partnership"), a Delaware limited partnership, was formed in April 2002. The general partner of the Partnership is NRP (GP) LP ("NRP GP"), a Delaware limited partnership, whose general partner is GP Natural Resource Partners LLC, a Delaware limited liability company. The Partnership engages principally in the business of owning, managing and leasing a diversified portfolio of mineral properties in the United States, including interests in coal and other natural resources and owns a non-controlling 49% interest in Sisecam Wyoming LLC ("Sisecam Wyoming"), a trona ore mining and soda ash production business. The Partnership is organized into two operating segments further described in Note 7. Segment Information. As used in these Notes to Consolidated Financial Statements, the terms "NRP," "we," "us" and "our" refer to Natural Resource Partners L.P. and its subsidiaries, unless otherwise stated or indicated by context.
The Partnership’s operations are conducted through, and its operating assets are owned by, its subsidiaries. The Partnership owns its subsidiaries through one wholly owned operating company, NRP (Operating) LLC ("Opco"). NRP GP has sole responsibility for conducting the Partnership's business and for managing its operations. Because NRP GP is a limited partnership, its general partner, GP Natural Resource Partners LLC, conducts its business and operations, and the board of directors and officers of GP Natural Resource Partners LLC makes decisions on its behalf. Robertson Coal Management LLC ("RCM"), a limited liability company wholly owned by Corbin J. Robertson, Jr., owns all of the membership interest in GP Natural Resource Partners LLC. Subject to the Board Representation and Observation Rights Agreement with certain entities controlled by funds affiliated with Blackstone Inc. (collectively referred to as "Blackstone") and affiliates of GoldenTree Asset Management LP (collectively referred to as "GoldenTree"), RCM is entitled to appoint the directors of the Board of Directors of GP Natural Resource Partners LLC (the "Board of Directors"). RCM has delegated the right to appoint one director to Blackstone.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Consolidated Financial Statements of the Partnership have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"). The Consolidated Financial Statements include the accounts of Natural Resource Partners L.P. and its wholly owned subsidiaries. The Partnership has an equity investment in Sisecam Wyoming through which it is able to exercise significant influence over but does not control the investee and is not the primary beneficiary of the investee’s activities and is accounted for using the equity method. Intercompany transactions and balances have been eliminated. Reclassifications have been made to prior year amounts in the Consolidated Financial Statements to conform with current year presentation. These reclassifications had no impact on previously reported total assets, total liabilities, partners' capital, net income (loss) or cash flows from operating, investing or financing activities.
Use of Estimates
Preparation of the accompanying financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities on the accompanying Consolidated Balance Sheets, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses on the accompanying Consolidated Statements of Comprehensive Income (Loss) during the reporting period. Actual results could differ from those estimates. The most significant estimates pertain to coal and aggregates mineral rights and related cash flow estimates which are used to compute depreciation, depletion and amortization and impairments of coal and aggregates properties and related intangible assets and commitments and contingencies.
Fair Value
The Partnership discloses certain assets and liabilities using fair value as defined by authoritative guidance. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See Note 12. Fair Value Measurements for further details.
There are three levels of inputs that may be used to measure fair value:
• | Level 1—Quoted prices in active markets for identical assets or liabilities. |
• | Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
• | Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial assets and liabilities whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Cash and Cash Equivalents
The Partnership considers all highly liquid short-term investments with an original maturity of three months or less to be cash equivalents.
Allowance for Doubtful Accounts
The Partnership records an allowance for doubtful accounts for its accounts receivable and notes receivable comprised of estimated credit risk and non-credit risk (e.g., legal disputes) losses. Receivables are written off when collection efforts are exhausted and future recovery is doubtful. The Partnership includes an allowance for current expected credit losses ("CECL") on its financial assets based on the loss-rate method. NRP assesses the likelihood of collection of its receivables utilizing historical loss rates, current market conditions that include the estimated impact of the global COVID-19 pandemic, industry and macroeconomic factors, reasonable and supportable forecasts and facts or circumstances of individual customers and properties. See Note 18. Credit Losses for more information. The total allowance related to accounts receivables included in accounts receivables, net on the Partnership's Consolidated Balance Sheets was $4.5 million and $3.2 million at December 31, 2022 and 2021, respectively. The total allowance related to short-term notes receivables included in other current assets, net on the Partnership's Consolidated Balance Sheets was $0.0 million and $0.1 million at December 31, 2022 and 2021, respectively. The total allowance related to the Partnership's long-term financing receivable included in long-term contract receivable, net on the Consolidated Balance Sheets was $1.0 million and $1.1 million at December 31, 2022 and 2021, respectively. The Partnership recorded bad debt expense of $1.1 million, $2.6 million and $4.0 million included in operating and maintenance expenses on its Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2022, 2021 and 2020, respectively.
Mineral Rights
Mineral rights owned and leased are recorded at its original cost of construction or, upon acquisition, at fair value of the assets acquired. Coal and aggregates mineral rights are depleted on a unit-of-production basis by lease, based upon minerals mined in relation to the net cost of the mineral properties and estimated economic tonnage therein.
Intangible Assets
The Partnership’s intangible assets consist of mineral royalty and transportation contracts that at acquisition were more favorable for the Partnership than prevailing market rates, known as above-market contracts. The estimated fair value of the above-market rate contracts are determined based on the present value of future cash flow projections related to the underlying assets acquired. Intangible assets are amortized on a unit-of-production basis by asset based upon minerals mined or transported in relation to the net book value of the intangible asset and estimated economic tonnage expected to be mined or transported during the above-market contract term.
Asset Impairment
The Partnership has developed procedures to evaluate its long-lived assets, including intangible assets, for possible impairment periodically or whenever events or changes in circumstances indicate an asset's net book value may not be recoverable. Potential events or circumstances include, but are not limited to, specific events such as a reduction in economically recoverable tons or production ceasing on a property for an extended period. This analysis is based on historic, current and future performance and considers both quantitative and qualitative information. A long-lived asset is deemed impaired when the future expected undiscounted cash flows from its use and disposition is less than the asset's net book value. Impairment is measured based on the estimated fair value, which is usually determined based upon the present value of the projected future cash flows compared to the asset's net book value. The Partnership believes its estimates of cash flows and discount rates are consistent with those of principal market participants.
The Partnership evaluates its equity investment for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such investment may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, management compares the estimated fair value of the investment to the carrying value of the investment to determine whether potential impairment has occurred. If the estimated fair value is less than the carrying value and management considers the decline in value to be other than temporary, the excess of the carrying value over the estimated fair value is recognized in the financial statements as an impairment loss. The fair value of the impaired investment is based on quoted market prices (Level 1), or upon the present value of expected cash flows using discount rates believed to be consistent with those used by principal market participants (Level 3), plus market analysis of comparable assets owned by the investee, if appropriate (Level 3).
Accrued Liabilities
Included in accrued liabilities on the Partnership's Consolidated Balance Sheets at December 31, 2022 were $9.5 million of accrued employee costs and $2.4 million of other accrued liabilities. These amounts were $7.7 million and $2.6 million of accrued employee costs and other accrued liabilities, respectively, at December 31, 2021. Other accrued liabilities at both December 31, 2022 and 2021 included property taxes.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Revenue Recognition
Mineral Rights Segment Revenues
Royalty-based leases. Approximately two-thirds of the Partnership's royalty-based leases have initial terms of five to 40 years, with substantially all lessees having the option to extend the lease for additional terms. For these types of leases, the lessees generally make payments to NRP based on the greater of a percentage of the gross sales price or a fixed price per ton of mineral mined and sold. Most of NRP’s coal and aggregates royalty leases require the lessee to pay quarterly or annual minimum amounts, either made in advance or arrears, which are generally recoupable through actual royalty production over certain time periods that generally range from three to five years.
The Partnership has defined its coal and aggregates royalty lease performance obligation as providing the lessee the right to mine and sell its coal or aggregates over the lease term. NRP then evaluated the likelihood that consideration it expected to receive from its lessees resulting from production would exceed consideration expected to be received from minimum payments over the lease term.
As a result of this evaluation, revenue recognition from the Partnership's royalty-based leases is based on either production or minimum payments as follows:
• | Production Leases: Leases for which the Partnership expects that consideration from production will be greater than consideration from minimums over the lease term. Revenue for these leases is recognized over time based on production as royalty revenues, as applicable. Deferred revenue from minimums is recognized as royalty revenues when recoupment occurs or as production lease minimum revenues when the recoupment period expires. In addition, NRP recognizes breakage revenue from minimums when NRP determines that recoupment is remote. This breakage revenue is included in production lease minimum revenues. |
• | Minimum Leases: Leases for which the Partnership expects that consideration from minimums will be greater than consideration from production over the lease term. Revenue for these leases is recognized straight-line over the lease term based on the minimum consideration amount as minimum lease straight-line revenues. |
This evaluation is performed at the inception of the lease and only reassessed upon modification or renewal of the lease.
Oil and gas related revenues consist of revenues from royalties and overriding royalties and are recognized on the basis of volume of hydrocarbons sold by lessees and the corresponding revenues from those sales. Also, included within oil and gas royalty revenues are lease bonus payments, which are generally paid upon the execution of a lease. The Partnership also has overriding royalty revenue interests in certain coal and aggregates mineral rights. Revenue from these interests is recognized over time based on when the coal is sold.
Carbon neutral initiatives. Revenues related to consideration for carbon neutral initiatives that are recognized at a point in time upon satisfaction of NRP's performance obligation.
Wheelage revenues. Revenues related to fees collected per ton to transport foreign coal across property owned by the Partnership that is recognized over time as transportation across the property occurs.
Other revenues. Other revenues consist primarily of rental payments and surface damage fees related to certain land owned by the Partnership and are recognized straight-line over time as it is earned. Other revenues also include property tax revenues. The majority of property taxes paid on the Partnership's properties are reimbursable by the lessee and are recognized on a gross basis over time which reflects the reimbursement of property taxes by the lessee. Property taxes paid by NRP are included in operating and maintenance expenses on the Partnership's Consolidated Statements of Comprehensive Income (Loss).
Transportation and processing services revenues. The Partnership owns transportation and processing infrastructure that is leased to third parties for throughput fees. Revenue is recognized over time based on the coal tons transported over the beltlines or processed through the facilities.
Contract Modifications
Contract modifications that impact goods or services or the transaction price are evaluated in accordance with ASC 606. A majority of the Partnership's contract modifications pertain to its coal and aggregates royalty contracts and include, but are not limited to, extending the lease term, changes to royalty rates, floor prices or minimum consideration, assignment of the contract or forfeiture of recoupment rights. Consideration received in conjunction with a modification of an ongoing lease will be deferred and recognized straight-line over the remaining term of the contract. Consideration received to assign a lease to another party and related forfeited minimums will be recognized immediately upon the termination of the contract. Fees from contract modifications are recognized in lease amendment revenues within royalty and other mineral rights revenues on the Consolidated Statements of Comprehensive Income (Loss) while modifications in royalty rates and minimums will be recognized prospectively in accordance with the above lease classification.
Contract Assets and Liabilities from Contracts with Customers
Contract assets include receivables from contracts with customers and are recorded when the right to consideration becomes unconditional. Receivables are recognized when the minimums are contractually owed, production occurs or minimums accrued for based on the passage of time.
Contract liabilities represent minimum consideration received, contractually owed or earned based on the passage of time. The current portion of deferred revenue relates to deferred revenue on minimum leases and lease amendment fees that are to be recognized as revenue on a straight-line basis over the next twelve months. The long-term portion of deferred revenue relates to deferred revenue on production leases and lease amendment fees that are to be recognized as revenue on a straight-line basis beyond the next twelve months. Due to uncertainty in the amount of deferred revenue that will be recouped and recognized as coal royalty revenues from its production leases over the next twelve months, the Partnership is unable to estimate the current portion of deferred revenue.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Equity in Earnings of Sisecam Wyoming
The Partnership accounts for non-marketable equity investments using the equity method of accounting if the investment gives it the ability to exercise significant influence over, but not control of, an investee. The Partnership's 49% investment in Sisecam Wyoming is accounted for using this method. Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and the proportionate share of earnings or losses and distributions. The basis difference between the investment and the proportional share of investee's net assets is attributed to net tangible assets and is amortized over its estimated useful life. The carrying value in Sisecam Wyoming is recognized in equity in unconsolidated investment on the Partnership's Consolidated Balance Sheets. The Partnership's adjusted share of the earnings or losses of Sisecam Wyoming and amortization of the basis difference is recognized in equity in earnings of Sisecam Wyoming on the Consolidated Statements of Comprehensive Income (Loss). The Partnership decreases its investment for its proportional share of distributions received from Sisecam Wyoming. These cash flows are reported utilizing the cumulative earnings approach. Under this approach, distributions received are considered returns on investment and classified as operating cash inflows unless the cumulative distributions received exceed the Partnership's cumulative equity in earnings. The excess of cumulative distributions received over the Partnership's cumulative equity in earnings are considered returns of investment and classified as investing cash inflows.
Property Taxes
The Partnership is responsible for paying property taxes on the properties it owns. Typically, the lessees are contractually responsible for reimbursing the Partnership for property taxes on the leased properties. The payment of and reimbursement of property taxes is included in operating and maintenance expenses and in royalty and other mineral rights revenues, respectively, on the Consolidated Statements of Comprehensive Income (Loss).
Unit-Based Compensation
The Partnership has awarded unit-based compensation in the form of equity-based awards and phantom units. Compensation cost is measured at the grant date for equity-classified awards and remeasured each reporting period for liability-classified awards based on the fair value of an award and is recognized over the service period, which is generally the vesting period. Forfeitures are recognized as they occur. Unit-based compensation expense for all awards is recognized in general and administrative expenses and operating and maintenance expenses on the Consolidated Statements of Comprehensive Income (Loss). See Note 16. Unit-Based Compensation for more information.
Deferred Financing Costs
Deferred financing costs consist of legal and other costs related to the issuance of the Partnership’s debt. These costs are amortized over the term of the respective line-of-credit or debt arrangements. Deferred financing costs related to the Partnership's revolving credit facility are included in other long-term assets, net on the Partnership's Consolidated Balance Sheets. Deferred financing costs related to the Partnership's note agreements are included as a direct deduction from the carrying amount of the debt liability in current portion of long-term debt, net or long-term debt, net on the Partnership's Consolidated Balance Sheets.
Income Taxes
The Partnership is not subject to federal or material state income taxes as the unitholders are taxed individually on their allocable share of taxable income. Net income (loss) for financial statement purposes may differ significantly from taxable income reportable to unitholders as a result of differences between the tax basis and financial reporting basis of assets and liabilities. In the event of an examination of the Partnership’s tax return, the tax liability of the unitholders could be changed if an adjustment in the Partnership’s income is ultimately sustained by the taxing authorities.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
3. Revenues from Contracts with Customers
The following table represents the Partnership's Mineral Rights segment revenues by major source:
| | For the Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Coal royalty revenues | | $ | 226,956 | | | $ | 104,089 | | | $ | 51,868 | |
Production lease minimum revenues | | | 5,854 | | | | 14,269 | | | | 21,749 | |
Minimum lease straight-line revenues | | | 18,792 | | | | 20,564 | | | | 16,796 | |
Carbon neutral initiative revenues | | | 8,600 | | | | 13,790 | | | | — | |
Property tax revenues | | | 5,878 | | | | 6,028 | | | | 5,786 | |
Wheelage revenues | | | 13,961 | | | | 10,065 | | | | 7,025 | |
Coal overriding royalty revenues | | | 3,434 | | | | 4,367 | | | | 4,977 | |
Lease amendment revenues | | | 3,201 | | | | 4,696 | | | | 3,450 | |
Aggregates royalty revenues | | | 3,299 | | | | 1,889 | | | | 1,717 | |
Oil and gas royalty revenues | | | 16,161 | | | | 4,506 | | | | 5,816 | |
Other revenues | | | 877 | | | | 933 | | | | 982 | |
Royalty and other mineral rights revenues | | $ | 307,013 | | | $ | 185,196 | | | $ | 120,166 | |
Transportation and processing services revenues (1) | | | 21,072 | | | | 9,052 | | | | 8,845 | |
Total Mineral Rights segment revenues | | $ | 328,085 | | | $ | 194,248 | | | $ | 129,011 | |
(1) | Transportation and processing services revenues from contracts with customers as defined under ASC 606 was $17.9 million, $5.4 million and $5.0 million for the year ended December 31, 2022, 2021 and 2020, respectively. The remaining transportation and processing services revenues of $3.2 million, $3.6 million and $3.8 million for the year ended December 31, 2022, 2021 and 2020, respectively, related to other NRP-owned infrastructure leased to and operated by third-party operators accounted for under other guidance. See Note 17. Financing Transaction for more information. |
| The following table details the Partnership's Mineral Rights segment receivables and liabilities resulting from contracts with customers: |
| | December 31, | |
(In thousands) | | 2022 | | | 2021 | |
Receivables | | | | | | | | |
Accounts receivable, net | | $ | 39,004 | | | $ | 22,277 | |
Other current assets, net (1) | | | — | | | | 769 | |
Other long-term assets, net (2) | | | 75 | | | | 250 | |
| | | | | | | | |
Contract liabilities | | | | | | | | |
Current portion of deferred revenue | | $ | 6,256 | | | $ | 11,817 | |
Deferred revenue | | | 40,181 | | | | 50,045 | |
(1) | Other current assets, net includes short-term notes receivables from contracts with customers. |
(2) | Other long-term assets, net includes long-term lease amendment fee receivables from contracts with customers. |
The following table shows the activity related to the Partnership's Mineral Rights segment deferred revenue:
| | For the Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Balance at beginning of period (current and non-current) | | $ | 61,862 | | | $ | 61,554 | | | $ | 51,821 | |
Increase due to minimums and lease amendment fees | | | 19,073 | | | | 19,842 | | | | 41,557 | |
Recognition of previously deferred revenue | | | (34,498 | ) | | | (19,534 | ) | | | (31,824 | ) |
Balance at end of period (current and non-current) | | $ | 46,437 | | | $ | 61,862 | | | $ | 61,554 | |
The Partnership's non-cancelable annual minimum payments due under the lease terms of its coal and aggregates royalty and overriding royalty leases are as follows as of December 31, 2022 (in thousands):
Lease Term (1) | | Weighted Average Remaining Years | | | Annual Minimum Payments | |
0 - 5 years | | 2.2 | | | $ | 21,981 | |
5 - 10 years | | 3.6 | | | | 7,517 | |
10+ years | | 12.7 | | | | 27,221 | |
Total | | 7.4 | | | $ | 56,719 | |
(1) | Lease term does not include renewal periods. |
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
4. Class A Convertible Preferred Units and Warrants
On March 2, 2017, NRP issued $250 million of Class A Convertible Preferred Units representing limited partner interests in NRP (the "preferred units") to certain entities controlled by funds affiliated with The Blackstone Group Inc. (collectively referred to as "Blackstone") and certain affiliates of GoldenTree Asset Management LP (collectively referred to as "GoldenTree") (together the "preferred purchasers") pursuant to a Preferred Unit and Warrant Purchase Agreement. NRP issued 250,000 preferred units to the preferred purchasers at a price of $1,000 per preferred unit (the "per unit purchase price"), less a 2.5% structuring and origination fee. The preferred units entitle the preferred purchasers to receive cumulative distributions at a rate of 12% of the purchase price per year, up to one half of which NRP may pay in additional preferred units (such additional preferred units, the "PIK units"). The preferred units have a perpetual term, unless converted or redeemed as described below.
NRP also issued two tranches of warrants (the "warrants") to purchase common units to the preferred purchasers (warrants to purchase 1.75 million common units with a strike price of $22.81 and warrants to purchase 2.25 million common units with a strike price of $34.00). The warrants may be exercised by the holders thereof at any time before the eighth anniversary of the closing date. Upon exercise of the warrants, NRP may, at its option, elect to settle the warrants in common units or cash, each on a net basis.
After March 2, 2022 and prior to March 2, 2025, the holders of the preferred units may elect to convert up to 33% of the outstanding preferred units in any 12-month period into common units if the volume weighted average trading price of our common units (the "VWAP") for the 30 trading days immediately prior to date notice is provided is greater than $51.00. In such case, the number of common units to be issued upon conversion would be equal to the per unit purchase price plus the value of any accrued and unpaid distributions divided by an amount equal to a 7.5% discount to the VWAP for the 30 trading days immediately prior to the notice of conversion. Rather than have the preferred units convert to common units in accordance with the provisions of this paragraph, NRP would have the option to elect to redeem the preferred units proposed to be converted for cash at a price equal to the per unit purchase price plus the value of any accrued and unpaid distributions.
On or after March 2, 2025, the holders of the preferred units may elect to convert the preferred units to common units at a conversion rate equal to the Liquidation Value divided by an amount equal to a 10% discount to the VWAP for the 30 trading days immediately prior to the notice of conversion. The “liquidation value” will be an amount equal to the greater of: (1) (a) the per unit purchase price multiplied by (i) prior to March 2, 2020, 1.50, (ii) on or after March 2, 2020 and prior to March 2, 2021, 1.70 and (iii) on or after March 2, 2021, 1.85, less (b)(i) all preferred unit distributions previously made by NRP and (ii) all cash payments previously made in respect of redemption of any PIK units; and (2) the per unit purchase price plus the value of all accrued and unpaid distributions.
To the extent the holders of the preferred units have not elected to convert their preferred units before March 2, 2029, NRP has the right to force conversion of the preferred units at a price equal to the liquidation value divided by an amount equal to a 10% discount to the VWAP for the 30 trading days immediately prior to the notice of conversion.
In addition, NRP has the ability to redeem at any time (subject to compliance with its debt agreements) all or any portion of the preferred units and any outstanding PIK units for cash. The redemption price for each outstanding PIK unit is $1,000 plus the value of any accrued and unpaid distributions per PIK unit. The redemption price for each preferred unit is the liquidation value divided by the number of outstanding preferred units. The preferred units are redeemable at the option of the preferred purchasers only upon a change in control.
The terms of the preferred units contain certain restrictions on NRP's ability to pay distributions on its common units. To the extent that either (i) NRP's consolidated Leverage Ratio, as defined in the Partnership's Fifth Amended and Restated Partnership Agreement dated March 2, 2017 (the "restated partnership agreement"), is greater than 3.25x, or (ii) the ratio of NRP's Distributable Cash Flow (as defined in the Restated Partnership Agreement) to cash distributions made or proposed to be made is less than 1.2x (in each case, with respect to the most recently completed four-quarter period), NRP may not increase the quarterly distribution above $0.45 per quarter without the approval of the holders of a majority of the outstanding preferred units. In addition, if at any time after January 1, 2022, any PIK units are outstanding, NRP may not make distributions on its common units until it has redeemed all PIK units for cash.
The holders of the preferred units have the right to vote with holders of NRP’s common units on an as-converted basis and have other customary approval rights with respect to changes of the terms of the preferred units. In addition, Blackstone has certain approval rights over certain matters as identified in the restated partnership agreement. GoldenTree also has more limited approval rights that will expand once Blackstone's ownership goes below the minimum preferred unit threshold (as defined below). These approval rights are not transferrable without NRP's consent. In addition, the approval rights held by Blackstone and GoldenTree will terminate at such time that Blackstone (together with their affiliates) or GoldenTree (together with their affiliates), as applicable, no longer own at least 20% of the total number of preferred units issued on the closing date, together with all PIK units that have been issued but not redeemed (the "minimum preferred unit threshold").
At the closing, pursuant to the Board Representation and Observation Rights Agreement, the Preferred Purchasers received certain board appointment and observation rights, and Blackstone appointed one director and one observer to the Board of Directors.
NRP also entered into a registration rights agreement (the "preferred unit and warrant registration rights agreement") with the preferred purchasers, pursuant to which NRP is required to file (i) a shelf registration statement to register the common units issuable upon exercise of the warrants and to cause such registration statement to become effective not later than 90 days following the closing date and (ii) a shelf registration statement to register the common units issuable upon conversion of the preferred units and to cause such registration statement to become effective not later than the earlier of the fifth anniversary of the closing date or 90 days following the first issuance of any common units upon conversion of preferred units (the "registration deadlines"). In addition, the preferred unit and warrant registration rights agreement gives the preferred purchasers piggyback registration and demand underwritten offering rights under certain circumstances. The shelf registration statement to register the common units issuable upon exercise of the warrants became effective on April 20, 2017. If the shelf registration statement to register the common units issuable upon conversion of the preferred units is not effective by the applicable registration deadline, NRP will be required to pay the preferred purchasers liquidated damages in the amounts and upon the term set forth in the preferred unit and warrant registration rights agreement.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Accounting for the Preferred Units and Warrants
Classification
The preferred units are accounted for as temporary equity on NRP's Consolidated Balance Sheets due to certain contingent redemption rights that may be exercised at the election of preferred purchasers. The warrants are accounted for as equity on NRP's Consolidated Balance Sheets.
Initial Measurement
The net transaction price was allocated to the preferred units and warrants based on their relative fair values at inception date. NRP allocated the transaction issuance costs to the preferred units and warrants primarily on a pro-rata basis based on their relative inception date allocated values.
Subsequent Measurement
Subsequent adjustment of the preferred units will not occur until NRP has determined that the conversion or redemption of all or a portion of the preferred units is probable of occurring. Once conversion or redemption becomes probable of occurring, the carrying amount of the preferred units will be accreted to their redemption value over the period from the date the feature is probable of occurring to the date the preferred units can first be converted or redeemed.
Activity related to the preferred units is as follows:
| | Units | | | Financial | |
(In thousands, except unit data) | | Outstanding | | | Position | |
Balance at December 31, 2019 | | | 250,000 | | | $ | 164,587 | |
Distribution paid-in-kind | | | 3,750 | | | | 3,750 | |
Balance at December 31, 2020 | | | 253,750 | | | $ | 168,337 | |
Distribution paid-in-kind | | | 15,571 | | | | 15,571 | |
Balance at December 31, 2021 | | | 269,321 | | | $ | 183,908 | |
Redemption of preferred units paid-in-kind | | | (19,321 | ) | | | (19,321 | ) |
Balance at December 31, 2022 | | | 250,000 | | | $ | 164,587 | |
In February 2023, the Partnership received a notice from holders of the Class A Preferred Units exercising their right to either convert or redeem, at the election of NRP, an aggregate of 47,499 Class A Preferred Units. The Partnership chose to redeem the preferred units for $47.5 million in cash plus any accrued and unpaid distributions, utilizing cash on hand and borrowings under the Opco Credit Facility. Of the originally issued 250,000 Class A Preferred Units, 202,501 Class A Preferred Units remain outstanding as of the date of this report. The 30-day VWAP ending on the business day prior to the redemption was $51.01.
Subsequent adjustment of the warrants will not occur until the warrants are exercised, at which time, NRP may, at its option, elect to settle the warrants in common units or cash, each on a net basis. The net basis will be equal to the difference between the Partnership's common unit price and the strike price of the warrant. Once warrant exercise occurs, the difference between the carrying amount of the warrants and the net settlement amount will be allocated on a pro-rata basis to the common unitholders and general partner.
On November 10, 2021 (the "exercise date"), Blackstone exercised all of its 997,500 warrants with a strike price of $22.81 and NRP settled the warrants in cash on a net basis. NRP delivered the net cash settlement amount of $9.2 million. The 15-day VWAP ending on the business day prior to the exercise date was $32.02.
Activity related to the warrants is as follows:
| | Warrants | | | Financial | |
(In thousands, except warrant data) | | Outstanding | | | Position | |
Balance at December 31, 2019 and 2020 | | | 4,000,000 | | | $ | 66,816 | |
Warrant settlement | | | (997,500 | ) | | | (18,852 | ) |
Balance at December 31, 2021 and 2022 | | | 3,002,500 | | | $ | 47,964 | |
Certain embedded features within the preferred unit and warrant purchase agreement are accounted for at fair value and are remeasured each quarter. See Note 12. Fair Value Measurements for further information regarding valuation of these embedded derivatives.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
5. Common and Preferred Unit Distributions
The Partnership makes distributions to common and preferred unitholders on a quarterly basis, subject to approval by the Board of Directors. NRP recognizes both common unit and preferred unit distributions on the date the distribution is declared.
Distributions made on the common units and the general partner's general partner ("GP") interest are made on a pro-rata basis in accordance with their relative percentage interests in the Partnership. The general partner is entitled to receive 2% of such distributions.
Income (loss) available to common unitholders and the general partner is adjusted by preferred unit distributions that accumulated during the period. NRP adjusted net income (loss) available to common unitholders and the general partner by $30.0 million, $31.6 million and $30.2 million during the year ended December 31, 2022, 2021 and 2020, respectively as a result of accumulated preferred unit distributions earned during the period.
The following table shows the distributions declared and paid to common and preferred unitholders during the year ended December 31, 2022, 2021 and 2020, respectively:
| | | | Cash Distributions | | | Paid-in-kind Distributions | |
| | | | Common Units | | | Preferred Units | |
| | | | | | | | Total | | | | | | | Total | | | Total | |
| | | | Distribution | | | Distribution(1) | | | Distribution | | | Distribution | | | Distribution | |
Date Paid | | Period Covered by Distribution | | per Unit | | | (In thousands) | | | per Unit | | | (In thousands) | | | (In units) | |
2022 | | | | | | | | | | | | | | | | | | | | | | |
February 2022 | | October 1 - December 31, 2021 | | $ | 0.45 | | | $ | 5,672 | | | $ | 30.00 | | | $ | 7,500 | | | | — | |
February 2022 (2) | | July 1 2020 - September 30, 2021 | | | — | | | | — | | | | 78.31 | | | | 19,579 | | | | — | |
May 2022 | | January 1 - March 31, 2022 | | | 0.75 | | | | 9,570 | | | | 30.00 | | | | 7,500 | | | | — | |
August 2022 | | April 1 - June 30, 2022 | | | 0.75 | | | | 9,571 | | | | 30.00 | | | | 7,500 | | | | — | |
November 2022 | | July 1 - September 30, 2022 | | | 0.75 | | | | 9,571 | | | | 30.00 | | | | 7,500 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
2021 | | | | | | | | | | | | | | | | | | | | | | |
February 2021 | | October 1 - December 31, 2020 | | $ | 0.45 | | | $ | 5,630 | | | $ | 15.00 | | | $ | 3,806 | | | | 3,806 | |
May 2021 | | January 1 - March 31, 2021 | | | 0.45 | | | | 5,672 | | | | 15.00 | | | | 3,864 | | | | 3,864 | |
August 2021 | | April 1 - June 30, 2021 | | | 0.45 | | | | 5,671 | | | | 15.00 | | | | 3,921 | | | | 3,921 | |
November 2021 | | July 1 - September 30, 2021 | | | 0.45 | | | | 5,672 | | | | 15.00 | | | | 3,980 | | | | 3,980 | |
| | | | | | | | | | | | | | | | | | | | | | |
2020 | | | | | | | | | | | | | | | | | | | | | | |
February 2020 | | October 1 - December 31, 2019 | | $ | 0.45 | | | $ | 5,630 | | | $ | 30.00 | | | $ | 7,500 | | | | — | |
May 2020 | | January 1 - March 31, 2020 | | | — | | | | — | | | | 15.00 | | | | 3,750 | | | | 3,750 | |
June 2020 (2) | | January 1 - March 31, 2020 | | | — | | | | — | | | | 15.45 | | | | 3,863 | | | | — | |
August 2020 | | April 1 - June 30, 2020 | | | 0.45 | | | | 5,630 | | | | 30.00 | | | | 7,500 | | | | — | |
November 2020 | | July 1 - September 30, 2020 | | | 0.45 | | | | 5,630 | | | | 15.00 | | | | 3,750 | | | | 3,750 | |
(1) | Total common unit distribution includes the amount paid to NRP's general partner in accordance with the general partner's 2% general partner interest. |
(2) | Redemption of preferred units paid in kind plus accrued interest. |
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
6. Net Income (Loss) Per Common Unit
Basic net income (loss) per common unit is computed by dividing net income (loss), after considering income attributable to preferred unitholders and the general partner’s general partner interest, by the weighted average number of common units outstanding. Diluted net income (loss) per common unit includes the effect of NRP's preferred units, warrants, and unvested unit-based awards if the inclusion of these items is dilutive.
The dilutive effect of the preferred units is calculated using the if-converted method. Under the if-converted method, the preferred units are assumed to be converted at the beginning of the period, and the resulting common units are included in the denominator of the diluted net income (loss) per unit calculation for the period being presented. Distributions declared in the period and undeclared distributions on the preferred units that accumulated during the period are added back to the numerator for purposes of the if-converted calculation. The calculation of diluted net income per common unit for the year ended December 31, 2022 and 2021 includes the assumed conversion of the preferred units. The calculation of diluted net loss per common unit for the years ended December 31, 2020 does not include the assumed conversion of the preferred units because the impact would have been anti-dilutive.
The dilutive effect of the warrants is calculated using the treasury stock method, which assumes that the proceeds from the exercise of these instruments are used to purchase common units at the average market price for the period. The calculation of diluted net income per common unit for the year ended December 31, 2022 includes the net settlement of warrants to purchase 0.75 million common units with a strike price of $22.81 and the net settlement of warrants to purchase 2.25 million common units with a strike price of $34.00.The calculation of diluted net income per common unit for the year ended December 31, 2021 includes the net settlement of warrants to purchase 0.75 million common units with a strike price of $22.81 but does not include the net settlement of warrants to purchase 2.25 million common units with a strike price of $34.00 because the impact would have been anti-dilutive. The calculation of diluted net loss per common unit for the year ended December 31, 2020 does not include the net settlement of warrants to purchase 1.75 million common units with a strike price of $22.81 or the net settlement of warrants to purchase 2.25 million common units with a strike price of $34.00 because the impact would have been anti-dilutive.
The following table reconciles the numerators and denominators of the basic and diluted net income (loss) per common unit computations and calculates basic and diluted net income (loss) per common unit:
| | For the Year Ended December 31, | |
(In thousands, except per unit data) | | 2022 | | | 2021 | | | 2020 | |
Allocation of net income (loss) | | | | | | | | | | | | |
Net income (loss) | | $ | 268,492 | | | $ | 108,902 | | | $ | (84,819 | ) |
Less: income attributable to preferred unitholders | | | (30,000 | ) | | | (31,609 | ) | | | (30,225 | ) |
Net income (loss) attributable to common unitholders and the general partner | | $ | 238,492 | | | $ | 77,293 | | | $ | (115,044 | ) |
Add (less): net loss (income) attributable to the general partner | | | (4,770 | ) | | | (1,546 | ) | | | 2,301 | |
Net income (loss) attributable to common unitholders | | $ | 233,722 | | | $ | 75,747 | | | $ | (112,743 | ) |
| | | | | | | | | | | | |
Basic net income (loss) per common unit | | | | | | | | | | | | |
Weighted average common units—basic | | | 12,484 | | | | 12,337 | | | | 12,261 | |
Basic net income (loss) per common unit | | $ | 18.72 | | | $ | 6.14 | | | $ | (9.20 | ) |
| | | | | | | | | | | | |
Diluted net income (loss) per common unit | | | | | | | | | | | | |
Weighted average common units—basic | | | 12,484 | | | | 12,337 | | | | 12,261 | |
Plus: dilutive effect of preferred units | | | 6,176 | | | | 9,604 | | | | — | |
Plus: dilutive effect of warrants | | | 783 | | | | 74 | | | | — | |
Plus: dilutive effect of unvested unit-based awards | | | 210 | | | | 178 | | | | — | |
Weighted average common units—diluted | | | 19,653 | | | | 22,193 | | | | 12,261 | |
| | | | | | | | | | | | |
Net income (loss) | | $ | 268,492 | | | $ | 108,902 | | | $ | (84,819 | ) |
Less: income attributable to preferred unitholders | | | — | | | | — | | | | (30,225 | ) |
Diluted net income (loss) attributable to common unitholders and the general partner | | $ | 268,492 | | | $ | 108,902 | | | $ | (115,044 | ) |
Add (less): diluted net loss (income) attributable to the general partner | | | (5,370 | ) | | | (2,178 | ) | | | 2,301 | |
Diluted net income (loss) attributable to common unitholders | | $ | 263,122 | | | $ | 106,724 | | | $ | (112,743 | ) |
| | | | | | | | | | | | |
Diluted net income (loss) per common unit | | $ | 13.39 | | | $ | 4.81 | | | $ | (9.20 | ) |
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
7. Segment Information
The Partnership's segments are strategic business units that offer distinct products and services to different customers in different geographies within the U.S. and that are managed accordingly. NRP has the following two operating segments:
Mineral Rights—consists of mineral interests and other subsurface rights across the United States. NRP's ownership provides critical inputs for the manufacturing of steel, electricity and basic building materials, as well as opportunities for carbon sequestration and renewable energy. The Partnership is working to strategically redefine its business as a key player in the transitional energy economy in the years to come.
Soda Ash—consists of the Partnership's 49% non-controlling equity interest in Sisecam Wyoming, a trona ore mining operation and soda ash refinery in the Green River Basin of Wyoming. Sisecam Wyoming mines trona and processes it into soda ash that is sold both domestically and internationally into the glass and chemicals industries.
Direct segment costs and certain other costs incurred at the corporate level that are identifiable and that benefit the Partnership's segments are allocated to the operating segments accordingly. These allocated costs generally include salaries and benefits, insurance, property taxes, legal, royalty, information technology and shared facilities services and are included in operating and maintenance expenses on the Partnership's Consolidated Statements of Comprehensive Income (Loss).
Corporate and Financing includes functional corporate departments that do not earn revenues. Costs incurred by these departments include interest and financing, corporate headquarters and overhead, centralized treasury, legal and accounting and other corporate-level activity not specifically allocated to a segment and are included in general and administrative expenses on the Partnership's Consolidated Statements of Comprehensive Income (Loss).
The following table summarizes certain financial information for each of the Partnership's business segments:
| | Operating Segments | | | | | | | | | |
(In thousands) | | Mineral Rights | | | Soda Ash | | | Corporate and Financing | | | Total | |
For the Year Ended December 31, 2022 | | | | | | | | | | | | | | | | |
Revenues | | $ | 328,085 | | | $ | 59,795 | | | $ | — | | | $ | 387,880 | |
Gain on asset sales and disposals | | | 1,082 | | | | — | | | | — | | | | 1,082 | |
Operating and maintenance expenses | | | 34,743 | | | | 160 | | | | — | | | | 34,903 | |
Depreciation, depletion and amortization | | | 22,519 | | | | — | | | | — | | | | 22,519 | |
General and administrative expenses | | | — | | | | — | | | | 21,852 | | | | 21,852 | |
Asset impairments | | | 4,457 | | | | — | | | | — | | | | 4,457 | |
Other expenses, net | | | — | | | | — | | | | 36,739 | | | | 36,739 | |
Net income (loss) | | | 267,448 | | | | 59,635 | | | | (58,591 | ) | | | 268,492 | |
As of December 31, 2022 | | | | | | | | | | | | | | | | |
Total assets | | $ | 566,615 | | | $ | 306,470 | | | $ | 4,046 | | | $ | 877,131 | |
| | | | | | | | | | | | | | | | |
For the Year Ended December 31, 2021 | | | | | | | | | | | | | | | | |
Revenues | | $ | 194,248 | | | $ | 21,871 | | | $ | — | | | $ | 216,119 | |
Gain on asset sales and disposals | | | 245 | | | | — | | | | — | | | | 245 | |
Operating and maintenance expenses | | | 26,880 | | | | 169 | | | | — | | | | 27,049 | |
Depreciation, depletion and amortization | | | 19,075 | | | | — | | | | — | | | | 19,075 | |
General and administrative expenses | | | — | | | | — | | | | 17,360 | | | | 17,360 | |
Asset impairments | | | 5,102 | | | | — | | | | — | | | | 5,102 | |
Other expenses, net | | | 24 | | | | — | | | | 38,852 | | | | 38,876 | |
Net income (loss) | | | 143,412 | | | | 21,702 | | | | (56,212 | ) | | | 108,902 | |
As of December 31, 2021 | | | | | | | | | | | | | | | | |
Total assets | | $ | 675,579 | | | $ | 276,004 | | | $ | 2,240 | | | $ | 953,823 | |
| | | | | | | | | | | | | | | | |
For the Year Ended December 31, 2020 | | | | | | | | | | | | | | | | |
Revenues | | $ | 129,011 | | | $ | 10,728 | | | $ | — | | | $ | 139,739 | |
Gain on asset sales and disposals | | | 581 | | | | — | | | | — | | | | 581 | |
Operating and maintenance expenses | | | 24,610 | | | | 185 | | | | — | | | | 24,795 | |
Depreciation, depletion and amortization | | | 9,198 | | | | — | | | | — | | | | 9,198 | |
General and administrative expenses | | | — | | | | — | | | | 14,293 | | | | 14,293 | |
Asset impairments | | | 135,885 | | | | — | | | | — | | | | 135,885 | |
Other expenses, net | | | 79 | | | | — | | | | 40,889 | | | | 40,968 | |
Net income (loss) | | | (40,180 | ) | | | 10,543 | | | | (55,182 | ) | | | (84,819 | ) |
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
8. Equity Investment
The Partnership accounts for its 49% investment in Sisecam Wyoming using the equity method of accounting. Activity related to this investment is as follows:
| | For the Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Balance at beginning of period | | $ | 276,004 | | | $ | 262,514 | | | $ | 263,080 | |
Income allocation to NRP’s equity interests (1) | | | 64,712 | | | | 26,979 | | | | 15,205 | |
Amortization of basis difference | | | (4,917 | ) | | | (5,108 | ) | | | (4,477 | ) |
Other comprehensive income | | | 15,506 | | | | 2,889 | | | | 2,916 | |
Distribution | | | (44,835 | ) | | | (11,270 | ) | | | (14,210 | ) |
Balance at end of period | | $ | 306,470 | | | $ | 276,004 | | | $ | 262,514 | |
(1) | Amounts reclassified into income out of accumulated other comprehensive income (loss) were ($6.8 million), $0.0 million and $1.7 million for the year ended December 31, 2022, 2021 and 2020, respectively. |
The difference between the amount at which the investment in Sisecam Wyoming is carried and the amount of underlying equity in Sisecam Wyoming's net assets was $121.3 million and $126.3 million as of December 31, 2022 and 2021, respectively. This excess basis relates to property, plant and equipment and right to mine assets. The excess basis difference that relates to property, plant and equipment is being amortized into income using the straight-line method over 27 years. The excess basis difference that relates to right to mine assets is being amortized into income using the units of production method.
The following table represents summarized financial information for Sisecam Wyoming as derived from their respective financial statements for the years ended December 31, 2022, 2021, and 2020:
| | For the Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Net sales | | $ | 720,120 | | | $ | 540,139 | | | $ | 392,231 | |
Gross profit | | | 162,575 | | | | 80,550 | | | | 54,838 | |
Net income | | | 132,065 | | | | 55,059 | | | | 31,030 | |
The financial position of Sisecam Wyoming is summarized as follows:
| | December 31, | |
(In thousands) | | 2022 | | | 2021 | |
Current assets | | $ | 340,437 | | | $ | 206,315 | |
Noncurrent assets | | | 292,915 | | | | 297,210 | |
Current liabilities | | | 111,258 | | | | 73,181 | |
Noncurrent liabilities | | | 144,290 | | | | 124,749 | |
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
9. Mineral Rights, Net
The Partnership’s mineral rights consist of the following:
| | December 31, | |
| | 2022 | | | 2021 | |
(In thousands) | | Carrying Value | | | Accumulated Depletion | | | Net Book Value | | | Carrying Value | | | Accumulated Depletion | | | Net Book Value | |
Coal properties | | $ | 661,812 | | | $ | (269,037 | ) | | $ | 392,775 | | | $ | 670,650 | | | $ | (253,503 | ) | | $ | 417,147 | |
Aggregates properties | | | 8,655 | | | | (3,410 | ) | | | 5,245 | | | | 8,747 | | | | (2,975 | ) | | | 5,772 | |
Oil and gas royalty properties | | | 12,354 | | | | (9,600 | ) | | | 2,754 | | | | 12,354 | | | | (9,115 | ) | | | 3,239 | |
Other | | | 13,150 | | | | (1,612 | ) | | | 11,538 | | | | 13,151 | | | | (1,612 | ) | | | 11,539 | |
Total mineral rights, net | | $ | 695,971 | | | $ | (283,659 | ) | | $ | 412,312 | | | $ | 704,902 | | | $ | (267,205 | ) | | $ | 437,697 | |
Depletion expense related to the Partnership’s mineral rights is included in depreciation, depletion and amortization on its Consolidated Statements of Comprehensive Income (Loss) and totaled $20.9 million, $17.6 million and $8.8 million for the year ended December 31, 2022, 2021 and 2020, respectively.
Impairment of Mineral Rights
During the years ended December 31, 2022, 2021 and 2020, the Partnership identified facts and circumstances that indicated that the carrying value of certain of its mineral rights exceed future cash flows from those assets and recorded non-cash impairment expense included in asset impairments on the Consolidated Statements of Comprehensive Income (Loss) as follows:
| | For the Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Coal properties (1) | | $ | 4,365 | | | $ | 5,015 | | | $ | 114,302 | |
Aggregates properties (2) | | | 92 | | | | 87 | | | | 21,583 | |
Total | | $ | 4,457 | | | $ | 5,102 | | | $ | 135,885 | |
(1) | The Partnership recorded $4.4 million of impairment expense during the year ended December 31, 2022, primarily related to assets whose undiscounted future net cash flows were less than their net book values. Of this amount, $2.6 million of impairment expense related to an asset with $4.3 million of net book value, resulting in a fair value of $1.7 million at December 31, 2022. The fair value of the impaired asset at December 31, 2022 was calculated using a discount rate of 15%. The Partnership recorded $5.0 million of impairment expense during the year ended December 31, 2021 primarily related to the full impairment of an asset resulting from a lease termination. The partnership recorded $114.3 million of impairment expense to impair certain assets during the year ended December 31, 2020 primarily related to weakened coal markets that resulted in termination of certain coal leases and changes to lessee mine plans resulting in permanent moves off certain of our coal properties. NRP compared the net book value of its coal properties to estimated undiscounted future net cash flows. If the net book value exceeded the undiscounted future cash flows, the Partnership recorded an impairment for the excess of the net book value over fair value. A discounted cash flow model was used to estimate the level 3 fair value. Significant inputs used to determine fair value include estimates of future cash flows from coal sales and minimum payments, discount rate and useful economic life. Estimated cash flows are the product of a process that began with current realized pricing as of the measurement date and included an adjustment for risk related to the future realization of cash flows. |
(2) | The Partnership recorded $0.1 million of aggregates royalty property impairments during the year ended December 31, 2022 and 2021. The Partnership recorded $21.6 million of aggregates royalty property impairments during the year ended December 31, 2020 primarily related to decreased oil and gas drilling activity which negatively impacted the outlook for NRP's frac sand properties. NRP compared the net book value of its aggregates and timber properties to estimated undiscounted future net cash flows. If the net book value exceeded the undiscounted cash flows, the Partnership recorded an impairment for the excess of the net book value over fair value. A discounted cash flow model was used to estimate the level 3 fair value. Significant inputs used to determine fair value include estimates of future cash flows from aggregates sales and minimum payments, discount rate and useful economic life. Estimated cash flows are the product of a process that began with current realized pricing as of the measurement date and included an adjustment for risk related to the future realization of cash flows. |
While the Partnership's impairment evaluation as of December 31, 2022 incorporated an estimated impact of the global COVID-19 pandemic, there is significant uncertainty as to the severity and duration of this disruption. If the impact is worse than we currently estimate, an additional impairment charge may be recognized in future periods.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
10. Intangible Assets, Net
The Partnership's intangible assets consist of above-market coal royalty and related transportation contracts with subsidiaries of Foresight Energy Resources LLC ("Foresight") pursuant to which the Partnership receives royalty payments for coal sales and throughput fees for the transportation and processing of coal. The Partnership's intangible assets included on its Consolidated Balance Sheets are as follows:
| | December 31, | |
(In thousands) | | 2022 | | | 2021 | |
Intangible assets at cost | | $ | 51,353 | | | $ | 51,353 | |
Less: accumulated amortization | | | (36,640 | ) | | | (35,223 | ) |
Total intangible assets, net | | $ | 14,713 | | | $ | 16,130 | |
Amortization expense included in depreciation, depletion and amortization on the Partnership's Consolidated Statements of Comprehensive Income (Loss) was $1.4 million, $1.3 million and $0.2 million for the year ended December 31, 2022, 2021 and 2020, respectively.
The estimates of amortization expense for the years ended December 31, as indicated below, are based on current mining plans and are subject to revision as those plans change in future periods.
(In thousands) | | Estimated Amortization Expense | |
2023 | | $ | 990 | |
2024 | | | 1,133 | |
2025 | | | 1,052 | |
2026 | | | 1,052 | |
2027 | | | 1,052 | |
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
11. Debt, Net
The Partnership's debt consists of the following:
| | December 31, | |
(In thousands) | | 2022 | | | 2021 | |
NRP LP debt: | | | | | | | | |
9.125% senior notes, with semi-annual interest payments in June and December, due June 2025 issued at par ("2025 Senior Notes") | | $ | — | | | $ | 300,000 | |
Opco debt: | | | | | | | | |
Revolving credit facility | | $ | 70,000 | | | $ | — | |
Senior Notes | | | | | | | | |
5.55% with semi-annual interest payments in June and December, with annual principal payments in June, due June 2023 | | $ | 2,366 | | | $ | 4,730 | |
4.73% with semi-annual interest payments in June and December, with annual principal payments in December, due December 2023 | | | 6,004 | | | | 12,008 | |
5.82% with semi-annual interest payments in March and September, with annual principal payments in March, due March 2024 | | | 25,368 | | | | 38,053 | |
8.92% with semi-annual interest payments in March and September, with annual principal payments in March, due March 2024 | | | 8,023 | | | | 12,035 | |
5.03% with semi-annual interest payments in June and December, with annual principal payments in December, due December 2026 | | | 45,683 | | | | 57,104 | |
5.18% with semi-annual interest payments in June and December, with annual principal payments in December, due December 2026 | | | 11,643 | | | | 14,554 | |
Total Opco Senior Notes | | $ | 99,087 | | | $ | 138,484 | |
Total debt at face value | | $ | 169,087 | | | $ | 438,484 | |
Net unamortized debt issuance costs | | | (806 | ) | | | (4,939 | ) |
Total debt, net | | $ | 168,281 | | | $ | 433,545 | |
Less: current portion of long-term debt | | | (39,076 | ) | | | (39,102 | ) |
Total long-term debt, net | | $ | 129,205 | | | $ | 394,443 | |
NRP LP Debt
2025 Senior Notes
In 2022, NRP redeemed all $300 million of its 2025 Senior Notes. Included in loss on extinguishment of debt on the Partnership's Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2022, are $7.2 million of call premium and fees and the write off of $3.1 million of debt issuance costs. The cash paid for call premiums and fees is included in other items, net under cash used in financing activities on the Consolidated Statements of Cash Flows. The following describes the terms of the 2025 Senior Notes prior to their redemption.
The 2025 Senior Notes were issued under an Indenture dated as of April 29, 2019 (the "2025 Indenture"), bore interest at 9.125% per year and would have matured on June 30, 2025. Interest was payable semi-annually on June 30 and December 30. NRP had the option to redeem the 2025 Senior Notes, in whole or in part, at any time on or after October 30, 2021, at the redemption prices (expressed as percentages of principal amount) of 104.563% for the 12-month period beginning October 30, 2021, 102.281% for the 12-month period beginning October 30, 2022, and thereafter at 100.000%, together, in each case, with any accrued and unpaid interest to the date of redemption. In the event of a change of control, as defined in the 2025 Indenture, the holders of the 2025 Senior Notes may have required us to purchase their 2025 Senior Notes at a purchase price equal to 101% of the principal amount of the 2025 Senior Notes, plus accrued and unpaid interest, if any. The 2025 Senior Notes were issued at par.
The 2025 Senior Notes were the senior unsecured obligations of NRP. The 2025 Senior Notes ranked equal in right of payment to all existing and future senior unsecured debt of NRP and senior in right of payment to any of NRP's subordinated debt. The 2025 Senior Notes were effectively subordinated in right of payment to all future secured debt of NRP to the extent of the value of the collateral securing such indebtedness was structurally subordinated in right of payment to all existing and future debt and other liabilities of our subsidiaries, including the Opco Credit Facility and each series of Opco’s existing senior notes. None of NRP's subsidiaries guaranteed the 2025 Senior Notes. As of December 31, 2021, NRP was in compliance with the terms of the Indenture relating to their 2025 Senior Notes.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Opco Debt
All of Opco’s debt is guaranteed by its wholly owned subsidiaries and is secured by certain of the assets of Opco and its wholly owned subsidiaries, other than BRP LLC and NRP Trona LLC. As of December 31, 2022 and 2021, Opco was in compliance with the terms of the financial covenants contained in its debt agreements.
Opco Credit Facility
In August 2022, the Partnership entered into the Fifth Amendment (the "Fifth Amendment") to the Opco Credit Facility (the "Opco Credit Facility"). The Fifth Amendment extended the term of the Opco Credit Facility until August 2027. Lender commitments under the Opco Credit Facility increased to $130.0 million.
Indebtedness under the Opco Credit Facility bears interest, at Opco's option, at:
• | the higher of (i) the prime rate as announced by the agent bank; (ii) the federal funds rate plus 0.50%; or (iii) SOFR plus 1%, in each case plus an applicable margin ranging from 2.50% to 3.50%; or |
• | a rate equal to SOFR plus an applicable margin ranging from 3.50% to 4.50%. |
During the year ended December 31, 2022 the Partnership had $70.0 million in borrowings outstanding under the Opco Credit Facility and $60.0 million of borrowing capacity as of December 31, 2022. The weighted average interest rate for the borrowings outstanding under the Opco Credit Facility for the year ended December 31, 2022 was 7.17%. During the year ended December 31, 2021, the Partnership did not have any borrowings outstanding under the Opco Credit Facility and had $100.0 million in available borrowing capacity at December 31, 2021. Opco will incur a commitment fee on the unused portion of the revolving credit facility at a rate of 0.50% per annum. Opco may prepay all amounts outstanding under the Opco Credit Facility at any time without penalty.
The Opco Credit Facility contains financial covenants requiring Opco to maintain:
• | A leverage ratio of consolidated indebtedness to EBITDDA (as defined in the Opco Credit Facility) not to exceed 3.0x; and |
• | an interest coverage ratio of consolidated EBITDDA to consolidated interest expense and consolidated lease expense (in each case as defined in the Opco Credit Facility) of not less than 3.5 to 1.0. |
The Opco Credit Facility contains certain additional customary negative covenants that, among other items, restrict Opco’s ability to incur additional debt, grant liens on its assets, make investments, sell assets and engage in business combinations. Included in the investment covenant are restrictions upon Opco’s ability to acquire assets where Opco does not maintain certain levels of liquidity. In addition, Opco is required to use 75% of the net cash proceeds of certain non-ordinary course asset sales to repay the Opco Credit Facility (without any corresponding commitment reduction) and use the remaining 25% of the net cash proceeds to offer to repay its Senior Notes on a pro-rata basis, as described below under “—Opco Senior Notes.” The Opco Credit Facility also contains customary events of default, including cross-defaults under Opco’s Senior Notes.
The Opco Credit Facility is collateralized and secured by liens on certain of Opco’s assets with carrying values of $326.4 million and $345.0 million classified as mineral rights, net and other long-term assets, net on the Partnership’s Consolidated Balance Sheets as of December 31, 2022 and 2021, respectively. The collateral includes (1) the equity interests in all of Opco’s wholly owned subsidiaries, other than BRP LLC and NRP Trona LLC (which owns a 49% non-controlling equity interest in Sisecam Wyoming), (2) the personal property and fixtures owned by Opco’s wholly owned subsidiaries, other than BRP LLC and NRP Trona LLC, (3) Opco’s material coal royalty revenue producing properties, and (4) certain of Opco’s coal-related infrastructure assets.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Opco Senior Notes
Opco has issued several series of private placement senior notes (the "Opco Senior Notes") with various interest rates and principal due dates. As of December 31, 2022 and 2021, the Opco Senior Notes had cumulative principal balances of $99.1 million and $138.5 million, respectively. Opco made mandatory principal payments on the Opco Senior Notes of $39.4 million, $39.4 million and $46.2 million during the year ended December 31, 2022, 2021 and 2020, respectively.
The Note Purchase Agreements relating to the Opco Senior Notes contain covenants requiring Opco to:
• | maintain a ratio of consolidated indebtedness to consolidated EBITDDA (as defined in the note purchase agreement) of no more than 4.0 to 1.0 for the four most recent quarters; |
• | not permit debt secured by certain liens and debt of subsidiaries to exceed 10% of consolidated net tangible assets (as defined in the note purchase agreement); and |
• | maintain the ratio of consolidated EBITDDA (as defined in the note purchase agreement) to consolidated fixed charges (consisting of consolidated interest expense and consolidated operating lease expense) at not less than 3.5 to 1.0. |
In addition, the Note Purchase Agreements include a covenant that provides that, in the event NRP Operating or any of its subsidiaries is subject to any additional or more restrictive covenants under the agreements governing its material indebtedness (including the Opco Credit Facility and all renewals, amendments or restatements thereof), such covenants shall be deemed to be incorporated by reference in the Note Purchase Agreements and the holders of the Notes shall receive the benefit of such additional or more restrictive covenants to the same extent as the lenders under such material indebtedness agreement.
The 8.92% Opco Senior Notes also provides that in the event that Opco’s leverage ratio of consolidated indebtedness to consolidated EBITDDA (as defined in the Note Purchase Agreements) exceeds 3.75 to 1.00 at the end of any fiscal quarter, then in addition to all other interest accruing on these notes, additional interest in the amount of 2.00% per annum shall accrue on the notes for the two succeeding quarters and for as long thereafter as the leverage ratio remains above 3.75 to 1.00. Opco has not exceeded the 3.75 to 1.00 ratio at the end of any fiscal quarter through December 31, 2022.
In September 2016, Opco amended the Opco Senior Notes. Under this amendment, Opco agreed to use certain asset sale proceeds to make mandatory prepayment offers to the holders of the Opco Senior Notes using an amount of net cash proceeds from certain asset sales that will be calculated pro-rata based on the amount of Opco Senior Notes then outstanding compared to the other total Opco senior debt outstanding that is being prepaid.
The mandatory prepayment offers described above will be made pro-rata across each series of outstanding Opco Senior Notes and will not require any make-whole payment by Opco. In addition, the remaining principal and interest payments on the Opco Senior Notes will be adjusted accordingly based on the amount of Opco Senior Notes actually prepaid. The prepayments do not affect the maturity dates of any series of the Opco Senior Notes.
Consolidated Principal Payments
The consolidated principal payments due are set forth below:
| | NRP LP | | | Opco | | | | | |
(In thousands) | | Senior Notes | | | Senior Notes | | | Credit Facility | | | Total | |
2023 | | $ | — | | | $ | 39,396 | | | $ | — | | | $ | 39,396 | |
2024 | | | — | | | | 31,028 | | | | — | | | | 31,028 | |
2025 | | | — | | | | 14,332 | | | | — | | | | 14,332 | |
2026 | | | — | | | | 14,331 | | | | — | | | | 14,331 | |
2027 | | | — | | | | — | | | | 70,000 | | | | 70,000 | |
Thereafter | | | — | | | | — | | | | — | | | | — | |
| | $ | — | | | $ | 99,087 | | | $ | 70,000 | | | $ | 169,087 | |
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
12. Fair Value Measurements
Fair Value of Financial Assets and Liabilities
The Partnership’s financial assets and liabilities consist of cash and cash equivalents, a contract receivable and debt. The carrying amounts reported on the Consolidated Balance Sheets for cash and cash equivalents approximate fair value due to their short-term nature. The Partnership uses available market data and valuation methodologies to estimate the fair value of its debt and contract receivable.
The following table shows the carrying value and estimated fair value of the Partnership's debt and contract receivable:
| | | | | December 31, | |
| | | | | 2022 | | | 2021 | |
| | | | | Carrying | | | Estimated | | | Carrying | | | Estimated | |
(In thousands) | | Fair Value Hierarchy Level | | | Value | | | Fair Value | | | Value | | | Fair Value | |
Debt: | | | | | | | | | | | | | | | | | | | |
NRP 2025 Senior Notes | | 1 | | | $ | — | | | $ | — | | | $ | 296,236 | | | $ | 300,000 | |
Opco Senior Notes (1) (2) | | 3 | | | | 98,281 | | | | 96,060 | | | | 137,309 | | | | 138,484 | |
Opco Credit Facility (3) | | 3 | | | | 70,000 | | | | 70,000 | | | | — | | | | — | |
Assets: | | | | | | | | | | | | | | | | | | | |
Contract receivable, net (current and long-term) (4) | | 3 | | | $ | 31,371 | | | $ | 24,833 | | | $ | 33,612 | | | $ | 26,010 | |
(1) | The fair value of the Opco Senior Notes at December 31, 2022 was estimated by management utilizing the present value replacement method incorporating the interest rate of the Opco Credit Facility at December 31, 2022. |
(2) | The fair value of the Opco Senior Notes at December 31, 2021 was estimated by management using quotations obtained for the NRP 2025 Senior Notes on the closing trading prices near period end, which were at 100% of par value. |
(3) | The fair value of the Opco Credit Facility approximates the outstanding borrowing amount because the interest rates are variable and reflective of market rates and the terms of the credit facility allow the Partnership to repay this debt at any time without penalty. |
(4) | The fair value of the Partnership's contract receivable was determined based on the present value of future cash flow projections related to the underlying asset at a discount rate of 15% at December 31, 2022 and 2021. |
NRP has embedded derivatives in the preferred units related to certain conversion options, redemption features and the change of control provision that are accounted for separately from the preferred units as assets and liabilities at fair value on the Partnership's Consolidated Balance Sheets. Level 3 valuation of the embedded derivatives are based on numerous factors including the likelihood of the event occurring. The embedded derivatives are revalued quarterly and changes in their fair value would be recorded in other expenses, net on the Partnership's Consolidated Statements of Comprehensive Income (Loss). The embedded derivatives had zero value as of December 31, 2022 and 2021.
Fair Value of Non-Financial Assets
The Partnership discloses or recognizes its non-financial assets, such as impairments of coal and aggregates properties at fair value on a nonrecurring basis. Refer to Note 9. Mineral Rights, Net for additional disclosures related to the fair value associated with the impaired assets.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
13. Related Party Transactions
Affiliates of our General Partner
The Partnership’s general partner does not receive any management fee or other compensation for its management of NRP. However, in accordance with the partnership agreement, the general partner and its affiliates are reimbursed for services provided to the Partnership and for expenses incurred on the Partnership’s behalf. Employees of Quintana Minerals Corporation ("QMC") and Western Pocahontas Properties Limited Partnership ("WPPLP"), affiliates of the Partnership, provide their services to manage the Partnership's business. QMC and WPPLP charge the Partnership the portion of their employee salary and benefits costs related to their employee services provided to NRP. These QMC and WPPLP employee management service costs are presented as operating and maintenance expenses and general and administrative expenses on the Partnership's Consolidated Statements of Comprehensive Income (Loss). NRP also reimburses overhead costs incurred by its affiliates, including Quintana Infrastructure Development ("QID"), to manage the Partnership's business. These overhead costs include certain rent, information technology, administration of employee benefits and other corporate services incurred by or on behalf of the Partnership’s general partner and its affiliates and are presented as operating and maintenance expenses and general and administrative expenses on the Partnership's Consolidated Statements of Comprehensive Income (Loss).
Direct general and administrative expenses charged to the Partnership by QMC, WPPLP and QID are included on the Partnership's Consolidated Statement of Comprehensive Income (Loss) as follows:
| | For the Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Operating and maintenance expenses | | $ | 6,694 | | | $ | 6,543 | | | $ | 6,559 | |
General and administrative expenses | | | 4,864 | | | | 4,611 | | | | 4,611 | |
The Partnership had accounts payable to QMC of $0.4 million on its Consolidated Balance Sheets at both December 31, 2022 and 2021 and $1.0 million and $0.9 million of accounts payable to WPPLP at December 31, 2022 and 2021, respectively.
During the years ended December 31, 2022, 2021 and 2020, the Partnership recognized $8.5 million, $3.3 million and $0.4 million in operating and maintenance expenses, respectively, on its Consolidated Statements of Comprehensive Income (Loss) related to an overriding royalty agreement with WPPLP.
Corbin J. Robertson, Jr. owns 85% of the general partner of Great Northern Properties Limited Partnership ("GNP"), a privately held company primarily engaged in owning and managing mineral properties and surface leases. As of December 31, 2022 and 2021 Partnership had $0.03 million and $0.1 million, respectively of accounts receivable from GNP included in accounts receivable, net on its Consolidated Balance Sheets related to amounts collected for surface leases that belong to NRP.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
14. Major Customers
Revenues from customers that exceeded 10 percent of total revenues for any of the periods presented below are as follows:
|
|
For the Year Ended December 31, |
|
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
(In thousands) |
|
Revenues |
|
|
Percent |
|
|
Revenues |
|
|
Percent |
|
|
Revenues |
|
|
Percent |
|
Alpha Metallurgical Resources, Inc. (1) |
|
$ |
102,352 |
|
|
|
26 |
% |
|
$ |
49,440 |
|
|
|
23 |
% |
|
$ |
33,227 |
|
|
|
24 |
% |
Foresight (1) (2) |
|
|
65,597 |
|
|
|
17 |
% |
|
|
37,366 |
|
|
|
17 |
% |
|
|
35,704 |
|
|
|
26 |
% |
(1) |
Revenues from Alpha Metallurgical Resources, Inc. and Foresight are included within the Partnership's Mineral Rights segment. |
(2) |
Revenues from Foresight in 2020 and 2021 were fixed as a result of the lease amendment the Partnership entered into with Foresight pursuant to which Foresight agreed to pay NRP fixed cash payments to satisfy all obligations arising out of the existing various coal mining leases and transportation infrastructure fee agreements between the Partnership and Foresight. Revenues from Foresight in 2022 represent traditional royalty and minimum payments. |
15. Commitments and Contingencies
Legal
NRP is involved, from time to time, in various legal proceedings arising in the ordinary course of business. While the ultimate results of these proceedings cannot be predicted with certainty, Partnership management believes these ordinary course matters will not have a material effect on the Partnership’s financial position, liquidity or operations.
Environmental Compliance
The operations the Partnership’s lessees conduct on its properties, as well as the industrial minerals, aggregates and oil and gas operations in which the Partnership has interests, are subject to federal and state environmental laws and regulations. See "Items 1. and 2. Business and Properties—Regulation and Environmental Matters." As an owner of surface interests in some properties, the Partnership may be liable for certain environmental conditions occurring on the surface properties. The terms of substantially all of the Partnership’s coal leases require the lessee to comply with all applicable laws and regulations, including environmental laws and regulations. Lessees post reclamation bonds assuring that reclamation will be completed as required by the relevant permit, and substantially all of the leases require the lessee to indemnify the Partnership against, among other things, environmental liabilities. Some of these indemnifications survive the termination of the lease. The Partnership makes regular visits to the mines to ensure compliance with lease terms, but the duty to comply with all regulations rests with the lessees. The Partnership believes that its lessees will be able to comply with existing regulations and does not expect that any lessee’s failure to comply with environmental laws and regulations will have a material impact on the Partnership’s financial condition or results of operations. The Partnership has neither incurred, nor is aware of, any material environmental charges imposed on the Partnership related to its properties for the period ended December 31, 2022. The Partnership is not associated with any material environmental contamination that may require remediation costs. However, the Partnership’s lessees are required to conduct reclamation work on the properties under lease to them. Because the Partnership is not the permittee of the mines being reclaimed, the Partnership is not responsible for the costs associated with these reclamation operations.
As a former owner of the working interests in oil and natural gas operations, the Partnership is responsible for its proportionate share of any losses and liabilities, including environmental liabilities, arising from uninsured and underinsured events during the period it was an owner.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
16. Unit-Based Compensation
2017 Long-Term Incentive Plan
In December 2017, the 2017 Long-Term Incentive Plan (the “2017 LTIP”) was approved and it became effective in January 2018. The 2017 LTIP authorizes a total of 1,600,000 common units that are available for delivery by the Partnership pursuant to awards under the plan. The initial number of common units authorized for issuance pursuant to awards under the plan was 800,000 and in March 2022, an additional 800,000 units were authorized for issuance. The term is 10 years from the date of approval of the Board of Directors or, if earlier, the date the 2017 LTIP is terminated by the Board of Directors or the committee appointed by the Board of Directors to administer the 2017 LTIP, or the date all available common units available have been delivered. Common units delivered pursuant to the 2017 LTIP will consist, in whole or part, of (i) common units acquired in the open market, (ii) common units acquired from the Partnership (including newly issued units), any of our affiliates or any other person or (iii) any combination of the foregoing.
Employees, consultants and non-employee directors of the Partnership, the General Partner, GP LLC and their affiliates are generally eligible to receive awards under the 2017 LTIP. The 2017 LTIP provides for the issuance of a variety of equity-based grants, including grants of (i) options, (ii) unit appreciation rights, (iii) restricted units, (iv) phantom units, (v) cash awards, (vi) performance awards, (vii) distribution equivalent rights, and (viii) other unit-based awards. The plan is administered by the Compensation, Nominating and Governance Committee ("CNG Committee") of the Board of Directors, which determines the terms and conditions of awards granted under the 2017 LTIP. The Partnership recognizes forfeitures for any awards issued under this plan as they occur.
Unit-Based Awards
Unit-based awards under the 2017 LTIP are generally issued to certain employees and non-employee directors of the Partnership. Awards granted to employees either vest 3 years following the grant date or vest ratably over the 3 year period following the grant date. Awards granted to non-employee directors vest over a 1 year period. Directors are given the option to take immediate issuance of the vested awards or defer such issuance until a later date. Upon deferral of issuance, such units will continue to accumulate distribution equivalent rights ("DERs") until issuance.
In connection with the phantom unit awards, the CNG Committee also granted tandem DERs, which entitle the holders to receive distributions equal to the distributions paid on the Partnership’s common units between the date the units are granted and the settlement date. The DERs are payable in cash upon vesting but may be subject to forfeiture if the grantee ceases employment prior to vesting.
The Partnership's unit-based awards granted in 2022, 2021 and 2020 were valued using the closing price of NRP's units as of the grant date. The grant date fair value of these awards granted during the year ended December 31, 2022, 2021 and 2020 were $7.9 million, $3.8 million and $3.5 million, respectively. Total unit-based compensation expense associated with these awards was $5.8 million, $4.0 million and $3.6 million for the year ended December 31, 2022, 2021 and 2020, respectively, and is included in general and administrative expenses and operating and maintenance expenses on the Partnership's Consolidated Statements of Comprehensive Income (Loss). The unamortized cost associated with unvested outstanding awards as of December 31, 2022 is $6.3 million, which is to be recognized over a weighted average period of 1.9 years. The unamortized cost associated with unvested outstanding awards as of December 31, 2021 was $3.3 million.
A summary of the unit activity in the outstanding grants during 2022 is as follows:
(In thousands) | | Common Units | | | Weighted Average Grant Date Fair value per Common Unit | |
Outstanding grants at January 1, 2022 | | | 411 | | | $ | 23.00 | |
Granted | | | 208 | | | $ | 38.29 | |
Fully vested and issued | | | (233 | ) | | $ | 26.74 | |
Outstanding at December 31, 2022 | | | 386 | | | $ | 28.96 | |
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
17. Financing Transaction
The Partnership owns rail loadout and associated infrastructure at the Sugar Camp mine in the Illinois Basin operated by a subsidiary of Foresight. The infrastructure at the Sugar Camp mine is leased to a subsidiary of Foresight and is accounted for as a financing transaction (the "Sugar Camp lease"). The Sugar Camp lease expires in 2032 with renewal options for up to 80 additional years. Minimum payments are $5.0 million per year through the end of the lease term. The $5.0 million due to the Partnership in 2020 and 2021 was included in the fixed cash payments from Foresight resulting from contract modifications entered into during the second quarter of 2020 as discussed in Note 14. Major Customers. The Partnership is also entitled to variable payments in the form of throughput fees determined based on the amount of coal transported and processed utilizing the Partnership's assets. In the event the Sugar Camp lease is renewed beyond 2032, payments become a fixed $10 thousand per year for the remainder of the renewed term.
18. Credit Losses
The Partnership is exposed to credit losses through collection of its trade receivables resulting from contracts with customers and a long-term receivable resulting from a financing transaction with a customer. The Partnership records an allowance for current expected credit losses on these receivables based on the loss-rate method. NRP assessed the likelihood of collection of its receivables utilizing historical loss rates, current market conditions that included the estimated impact of the global COVID-19 pandemic, industry and macroeconomic factors, reasonable and supportable forecasts and facts or circumstances of individual customers and properties. Examples of these facts or circumstances include, but are not limited to, contract disputes or renegotiations with the customer and evaluation of short and long-term economic viability of the contracted property. For its long-term contract receivable, management reverts to the historical loss experience immediately after the reasonable and supportable forecast period ends.
As of December 31, 2022 and 2021, NRP recorded the following current expected credit loss (“CECL”) related to its receivables and long-term contract receivable:
| | December 31, | |
| | 2022 | | | 2021 | |
(In thousands) | | Gross | | | CECL Allowance | | | Net | | | Gross | | | CECL Allowance | | | Net | |
Receivables | | $ | 47,237 | | | $ | (4,461 | ) | | $ | 42,776 | | | $ | 28,869 | | | $ | (3,312 | ) | | $ | 25,557 | |
Long-term contract receivable | | | 29,984 | | | | (1,038 | ) | | | 28,946 | | | | 32,497 | | | | (1,126 | ) | | | 31,371 | |
Total | | $ | 77,221 | | | $ | (5,499 | ) | | $ | 71,722 | | | $ | 61,366 | | | $ | (4,438 | ) | | $ | 56,928 | |
NRP recorded $1.1 million, $0.5 million and $0.0 million in operating and maintenance expenses on its Consolidated Statements of Comprehensive Income (Loss) related to the change in the CECL allowance during the year ended December 31, 2022, 2021 and 2020, respectively.
NRP has procedures in place to monitor its ongoing credit exposure through timely review of counterparty balances against contract terms and due dates, account and financing receivable reconciliations, bankruptcy monitoring, lessee audits and dispute resolution. The Partnership may employ legal counsel or collection specialists to pursue recovery of defaulted receivables.
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
19. Leases
As of December 31, 2022, the Partnership had one operating lease for an office building that is owned by WPPLP. On January 1, 2019, the Partnership entered into a new lease of the building with a five-year base term and five additional five-year renewal options. Upon lease commencement and as of December 31, 2022 and 2021, the Partnership was reasonably certain to exercise all renewal options included in the lease and capitalized the right-of-use asset and corresponding lease liability on its Consolidated Balance Sheets using the present value of the future lease payments over 30 years. The Partnership's right-of-use asset and lease liability included within other long-term assets, net and other non-current liabilities, respectively, on its Consolidated Balance Sheets totaled $3.5 million at both December 31, 2022 and 2021. During the years ended December 31, 2022, 2021 and 2020, the Partnership incurred total operating lease expenses of $0.5 million, included in both operating and maintenance expenses and general and administrative expenses on its Consolidated Statements of Comprehensive Income (Loss).
The following table details the maturity analysis of the Partnership's operating lease liability and reconciles the undiscounted cash flows to the operating lease liability included on its Consolidated Balance Sheet:
Remaining Annual Lease Payments (In thousands) | | December 31, 2022 | |
2023 | | $ | 483 | |
2024 | | | 483 | |
2025 | | | 483 | |
2026 | | | 483 | |
2027 | | | 483 | |
After 2027 | | | 10,147 | |
Total lease payments (1) | | $ | 12,562 | |
Less: present value adjustment (2) | | | (9,092 | ) |
Total operating lease liability | | $ | 3,470 | |
(1) | The remaining lease term of the Partnership's operating lease is 26 years. |
(2) | The present value of the operating lease liability on the Partnership's Consolidated Balance Sheets was calculated using a 13.5% discount rate which represents the Partnership's estimated incremental borrowing rate under the lease. As the Partnership's lease does not provide an implicit rate, the Partnership estimated the incremental borrowing rate at the time the lease was entered into by utilizing the rate of the Partnership's secured debt and adjusting it for factors that reflect the profile of borrowing over the 30-year expected lease term. |