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Edited Transcript of ARLP earnings conference call or presentation 30-Apr-18 2:00pm GMT

Q1 2018 Alliance Resource Partners LP and Alliance Holdings GP LP Earnings Call

Tulsa Jun 12, 2018 (Thomson StreetEvents) -- Edited Transcript of Alliance Resource Partners LP earnings conference call or presentation Monday, April 30, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian L. Cantrell

Alliance Resource Partners, L.P. - Senior VP & CFO of Alliance Resource Management GP, LLC

* Joseph W. Craft

Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC

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Conference Call Participants

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* John David Bridges

JP Morgan Chase & Co, Research Division - Senior Analyst

* Lin Shen

Hite Hedge Asset Management LLC - Analyst

* Lucas Nathaniel Pipes

B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst

* Mark Andrew Levin

Seaport Global Securities LLC, Research Division - MD & Senior Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Alliance Resource Partners, L.P. and Alliance Holdings GP, L.P. First Quarter 2018 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Mr. Brian Cantrell, Senior Vice President and Chief Financial Officer. Please go ahead.

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Brian L. Cantrell, Alliance Resource Partners, L.P. - Senior VP & CFO of Alliance Resource Management GP, LLC [2]

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Thank you, Phil, and welcome, everyone. Earlier this morning, we released 2018 first quarter earnings for both Alliance Resource Partners or ARLP and Alliance Holdings GP or AHGP, and we'll now discuss these results as well as our outlook for the balance of the year. Following our prepared remarks, we'll open the call to your questions.

Before beginning, a reminder that some of our remarks today may include forward-looking statements that are subject to a variety of risks, uncertainties and assumptions that are contained in our filings from time to time with the Securities and Exchange Commission and are also reflected in this morning's press releases. While these forward-looking statements are based on information currently available to us, if one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect, actual results may vary materially from those we projected or expected. In providing these remarks, neither partnership has any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, unless required by law to do so.

Finally, we will also be discussing certain non-GAAP financial measures. Definitions and reconciliations of the differences between these non-GAAP measures and the most directly comparable GAAP measures are contained at the end of the ARLP press release, which has been posted on ARLP's website and furnished to the SEC on Form 8-K.

With the required preliminaries out of the way, I'll start this morning with a review of our operating and financial results for the most recent quarter and then turn the call over to Joe Craft, our President and Chief Executive Officer. As announced earlier this morning, ARLP reported strong financial results for the 2018 quarter, benefiting from an $80 million gain from the settlement of a coal contract dispute. Net income attributable to ARLP increased 48.6% to $155.9 million and EBITDA rose 28.7% to $228.7 million, both as compared to the 2017 quarter. Net income attributable to ARLP per basic and diluted limited partner unit for the 2018 quarter was $1.16 including the gain from the settlement and, excluding the gain from the settlement, matched The Street's consensus estimates.

Results for the 2018 quarter would have been even better had we not experienced weather-related transportation disruptions on the river systems, which delayed approximately 1.4 million tons of planned shipments during the 2018 quarter. We expect these tons will be shipped as soon as river conditions, barge and port operations return to normal.

As anticipated, coal sales price realizations fell 1.3% in the 2018 quarter compared to the 2017 quarter but were slightly higher than the sequential quarter due to improved price realizations on metallurgical coal sales at our Mettiki mine and sales mix in the Illinois Basin. Segment adjusted EBITDA expense per ton was impacted by reduced coal sales volumes during the 2018 quarter compared to both the prior year and sequentially, but we believe our EBITDA margins for the year will be comparable to ARLP's prior guidance once the inventory tons are shipped over the balance of the year.

The contribution to ARLP's financial results from our investments in oil and gas minerals and gas compression services continued to increase in the 2018 quarter. Primarily due to distributions from our preferred equity investment in gas compression services, income related to these activities in the 2018 quarter more than doubled compared to the 2017 quarter. Improved results from oil and gas minerals contributed to the 5.9% increase compared to the sequential quarter.

In comparing results for the 2018 quarter, I want to again remind everyone of the impact of our exchange transaction last July on the calculation of ARLP's per unit. As we have previously discussed, elimination of the IDRs in the exchange transaction significantly reduces the amount of ARLP's net income allocated to the general partners. This reduced allocation, along with the issuance of approximately 56.1 million common ARLP units, creates a lack of comparability between periods before and after the exchange. We have included at the end of this morning's earnings release a comparison of ARLP's actual EPU and pro forma EPU as if the exchange transaction had occurred on January 1, 2017, and we will again provide investors with a detailed pro forma presentation of ARLP's EPU in our upcoming Form 10-K filing -- 10-Q filing, pardon me, with the SEC.

We also want to provide an update on the previously announced simplification of our partnership structure. As a reminder, this simplification will be accomplished through a series of transactions, which will result in AHGP becoming a wholly owned subsidiary of ARLP and the distribution of all ARLP common units held by AHGP and its subsidiaries to the unitholders of AHGP in exchange for their AHGP common units. ARLP's Form S-4 has been declared effective by the SEC. Consent solicitation statements have been mailed to all AHGP unitholders, and certain unitholders owning the majority of AHGP's outstanding common units have agreed to support the simplification. We expect to complete the simplification of the Alliance partnerships during the 2018 second quarter, after which ARLP will be the only publicly traded Alliance entity.

Turning now to the balance sheet. We reduced our debt by $67.8 million and ended the 2018 quarter with ample liquidity of $671.4 million and leverage at a conservative 0.86x total debt to trailing 12 months adjusted EBITDA. ARLP's balance sheet remains a strength, with our stable long-term capital structure and simplified financial structure providing us the flexibility and capacity to execute our plans and take advantage of future opportunities.

With that, let me turn the call over to Joe for his take on the first quarter performance, our perspectives on the coal markets and ARLP's outlook for the balance of 2018. Joe?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [3]

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Thank you, Brian, and good morning, everyone. I am extremely pleased with our performance during the 2018 quarter. As Brian just mentioned, ARLP's strong performance to start the year bodes well for the balance of 2018. I am equally optimistic about our future and our ability to grow our cash flow as we increase production and reap the growing benefits from our non-coal investments.

Our financial results this quarter obviously benefited from the $80 million gain resulting from the settlement of a coal sales contract dispute. In addition to the cash payment received in the 2018 quarter, the settlement also provides ARLP with future conditional coal supply commitments, continued access to transloading capacity for exports from our Appalachian mine and the right to acquire 56.7 million tons of coal reserves adjacent to our Tunnel Ridge mining operation footprint.

ARLP also strengthened its contract portfolio during the 2018 quarter, reaching agreements to deliver up to 19.7 million tons to customers during the 2018 through 2022 time period, including an additional 4.8 million tons for delivery this year. Domestically, we anticipate U.S. power generators will be in the market for coal to replenish stockpiles over the balance of the year after a solid quarter of coal burn due to colder-than-normal temperatures year-to-date even with low natural gas prices.

Demand for ARLP coal in the international market remains strong. To date, we have booked commitments to export 7.3 million tons of thermal and metallurgical coal in 2018. Export commitments booked so far this year exceed the 6.7 million tons ARLP exported all -- for all of 2017, and we continue to evaluate additional opportunities in the international markets. We expect export sales could approach 20% of ARLP's total sales volume in 2018.

These sales commitments and favorable expectations led ARLP to increase our guidance for the year, specifically by increasing our planned production and sales volumes by 1 million tons to a range of 40 million to 41 million tons and 40.3 million to 41.3 million, respectively, or an increase at the midpoint of 7.7% and 7.9%, respectively, over 2017 levels. As a result of these increased coal volumes, we are raising full year 2018 guidance for revenues, net income and EBITDA, as outlined in this morning's earnings release, which, excluding the $80 million settlement gain, equates to an increase at the midpoint of 5%, 11.7% and 3.2%, respectively, over our initial 2018 guidance. We anticipate this improved performance will lead to strong distributable cash flow and distribution coverage in 2018, supporting management's expectation of increasing unitholder distributions by approximately 1% per quarter for the rest of this year.

ARLP's increased expectations for 2018 are in keeping with the capital allocation priorities we outlined during our last earnings call in January: namely to, first, invest in our company to build future cash flow growth; second, to return cash to our unitholders. On the first priority, we are currently investing in our core coal business by bringing 2 units back into production at the Gibson North mine to meet increased international demand opportunities. We are also evaluating an investment in a new coal mine in East Kentucky as reserves depleted our MC Mining operation in 2020. This opportunity will allow ARLP to maintain our market share for low-sulfur, high-BTU coal in both the domestic and international coal markets. In addition, we are encouraged by the results to date from ARLP's investments in oil and gas minerals and gas compression services and are actively evaluating opportunities to further increase cash flow growth from these activities as well as other coal and non-coal investments in the future.

The increased distribution just announced by our board is one way ARLP is committed to returning cash to our unitholders. In addition to management's objective of increasing distributions by 1% per quarter in 2018, we are also actively evaluating the potential benefits of returning cash to unitholders through a unit buyback program.

This concludes our prepared comments. And now with the operator's assistance, we'll open the call to your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Mark Levin with Seaport Global.

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Mark Andrew Levin, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [2]

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Congrats on a good quarter, particularly under, it sounds like, some pretty tough circumstances logistically. Just a few questions. And Joe, you really kind of got to it right at the end there when you mentioned about considering a buyback. I was just trying to get a better handle for how you view the relative return opportunities with regard to where the units are trading now, obviously, at a 12% yield, I think around there, which is pretty high by anybody's standards, I would think, versus some of the coal opportunities that you've discussed and also some of the non-coal E&P opportunities you've discussed. I know the units have gotten weaker in the first quarter, and I'm just curious if that's kind of changed your view in terms of return preference or return -- what you see the most upside in.

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [3]

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Yes. I think the decline in the price of the units from the first quarter are really hard to understand, so that has increased our urgency, I guess, to make that evaluation. But we do -- as you just mentioned, we've got to compare that against our other options for investments. And the good news is there's plenty of those that we've got on our plate right now also. So we're in a process trying to bring those to probability of success, if you will, to determine exactly how much leverage is prudent as we think about competing capital for the long-term versus maybe being opportunistic on whether to be an investment in assets or investment in our units. So it's sort of a high-class problem, I guess. We've got plenty of opportunities to make some great investments with our excess cash flow.

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Mark Andrew Levin, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [4]

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No, that makes perfect sense. Second question, also more bigger -- or bigger picture. Given some of the -- I guess, the noise in the MLP space over the last quarter and some of the regulator decisions and kind of what's going on there, has there been any sense or any thought process around potentially converting from an MLP structure to a C corp structure, serious consideration? Or is that something that's off the board at this point?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [5]

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I think -- we're evaluating those options as well. I do not believe we would convert to the full up C. I think the hybrid is worth looking at. It's -- again, it's hard to understand why we, as an MLP, are trading at a little over 3.3 multiple on EBITDA and our C corp competitors, if you will -- or the analyst estimates when they value the C corps are saying they're 5 to 8x. So I don't really understand that when we're a more tax-efficient vehicle. But -- so it causes us to have to think about -- well, maybe looking at the hybrid. But the tax benefits of the MLP structure are so -- they're so much better than the C corp that I can't imagine that we would convert to full up C. But if we can take advantage in a partial way, then we have to evaluate that.

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Mark Andrew Levin, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [6]

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No, that makes perfect sense.

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [7]

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If you look at tax just as an example, I mean, we've got our bonds trading at a little under 6% at an interest rate -- tax rate -- I mean, we've got our units that have a 20% reduction to the normal income tax rates for individuals, and yet, they are trading at 12. It just doesn't make sense.

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Mark Andrew Levin, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [8]

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No, I absolutely agree with you on that point. Last question for me is more specific. I guess you guys put some 19 tons to bed. You changed your '18 realization higher. I guess, my -- 2 parts. One is, what caused you to change the '18 -- move the '18 realization? Was that an export-driven increase? Or was that a utility coal-driven increase or some combination of the 2? And then the last question and then I'll hang up is 2019 price realizations. Maybe any early thoughts in terms of whether or not that will be flat, down, up versus '18?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [9]

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I think that it was a combination of the 2, largely driven by the export market. I think when you look at our sales mix, we were able to sell close to half -- I'm not exactly sure how much in the quarter of metallurgical tons that do lift that price. But for the year, I think we've got about 500,000 tons. So that rolls into our forecast, and those are prices that do lift our sales -- average sales price. The export market has been very good, and so we have been getting prices equal to, if not better, in certain -- at certain coal mines in the export market than we are getting domestically. But because of the export shipments bringing a tightness in the marketplace, that's also impacted some of the domestic prices. As we looked at 2019, we think the unidentified price has the potential to go higher. Again, back to the discipline in the coal industry as far as what supply/demand is. And I think, at the same time, as we look forward, we think the margins are going to be comparable in 2019 as they are in 2018 as we're trying to think through the forward look of what our cash flow will be.

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Operator [10]

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(Operator Instructions) The next question comes from Lucas Pipes with B. Riley FBR.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [11]

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I wanted to ask a couple of more questions on the capital allocation side. Obviously, you've been very busy both in terms of evaluating distributions and then buyback programs and such. But then also, on the investment side, last quarter, you mentioned potentially having an interest in met coal. So my first question on the capital allocation side is to what extent you continue to look at met coal opportunities in the U.S.?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [12]

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We are continuing to look at that. I would say that, of the opportunities we're looking at, it's lower in the priority ranking. I think that met coal opportunities we would look at probably would not happen this year. It's possible, but it's lower on our ranking at this moment in time. We're looking at -- we'll continue to make investments in it, but it's -- we got other investments that are more attractive to us in 2018.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [13]

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So maybe not to lead with any questions on what those could be, could you describe those priorities?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [14]

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Well, I'd prefer not to just because we're in the middle of evaluation and handling negotiations in some of them. And it's just better, I think, not to address those until we have something where we've got something closer to a definitive arrangement.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [15]

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Okay, fair enough. And then you mentioned, Joe, evaluating the potential for a new mine due to depletion in 2020, and I wanted to tie that into the M&A capital allocation discussion. Wouldn't it maybe make more sense to purchase some competitors in the region to maintain market share? How do you think about that?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [16]

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We feel like the reserve we're looking at is very low cost -- excuse me, will be a low-cost operation from an operations perspective. It will allow us to take advantage of the existing capital that we already have deployed and allows us to maintain the management team that we think is the best in Eastern Kentucky. So as we think of the risk-return benefits, we feel like our best option is to invest in the team we have and utilize the assets. And we think we can get a higher return as opposed to trying to buy someone that you don't know always -- you don't always know what you're getting when you're making a purchase of another asset.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [17]

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Do you have a sense for the development cost of that new mine?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [18]

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It's in the probably $60 million, plus or minus, range, and that'll be over a 3-year period. It would be a small amount this year. It'll grow more into '19 and '20 as we would try to move this to be seamless with the depletion of our MC Mining reserves.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [19]

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Got it. And how many tons per year would this operation produce roughly?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [20]

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Around 1.3 million, I think, something like that.

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Brian L. Cantrell, Alliance Resource Partners, L.P. - Senior VP & CFO of Alliance Resource Management GP, LLC [21]

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Right.

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [22]

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But it could be expanded depending upon market opportunities. And as we think about market opportunities in the export market, we are becoming more and more encouraged that we can enter into long-term contracts with end users, and this is one mine that would be attractive in that regard. So it's possible we could actually increase that volume if we could get contracts to match.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [23]

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Got it. I may have a few more questions on that, but maybe to finish my questions on the capital allocation side. You continue to invest in oil and gas here in 2018. Looking out, what's your goal for the oil and gas business? Do you want to continue to contribute capital and grow that business? Or do you think it's now at a point where it ought to be self-funding?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [24]

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Well, the commitments we've made will -- the last commitment we made will be completely funded this year. So we're at a point where we've got to make the decision do we continue or not and at what level. So it could be that we do look at the cash flows coming from that entity and from that -- the previous investments and decide to scale the investments in the future based off of what we anticipate to get from our first 3 investments and commitments we made. But that's part of our decision process right now. But that decision is in front of us, and we'll be making that before the end of the second quarter. So we'll have more color on exactly what we're going to do on our next call, if not sooner.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [25]

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Very helpful. And now maybe to round out my questions with the export market. Can you give us a sense of the netbacks that you're realizing in the Illinois Basin on export tons? And Joe, you mentioned the ability to maybe enter into some longer-term contracts. What would those look like? Would those be multiyear agreements with fixed prices?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [26]

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So on your first question, a lot of our Illinois Basin coal that we're selling is coming from our Gibson County mine, which is a lower-sulfur operation. So we're not -- so we're able to get realizations that are above what you would consider to be the spot price in the Illinois Basin because of the lower sulfur. So we are not suffering this large sulfur discount, so to speak. So we're getting prices there that are definitely better than the domestic market and better than what you see as an Illinois Basin UI price on any index that you're looking at. As far as the other higher-sulfur Illinois Basin, those 2 are coming in at slightly higher. Again, I'll remind everyone that when we make a sale into the export market, we also get the benefit of not having to pay the $1.10 per ton excise tax that we have to pay to domestic. So when we get something similar to what our price would be in the domestic market, we are basically getting in another $1.10 margin lift. As far as the concept of being able to have a longer-term contract, it would be more commitment for tons, and the price would probably be indexed to an API 2, with maybe some basis differential. But it would be a floating price as opposed to a fixed price more than likely.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [27]

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Got it. I can't help but ask one final question, and I think I ask this almost every quarter. When you think about 2019 contracting kind of in -- I know not all tons are created equal in the Ohio river valley but kind of an average ton, what do you think would it -- what would it sell for in 2019 to domestic utility?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [28]

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Again, I think our pricing, what we've been able to book so far has been better than the indexes. I think I'm just going to leave it at that. I think we do have a mix between our high-BTU rail tons and the river tons. And so there is demand for those rail tons that is different than just a straight BTU differential. So when you look at our average sales price, you've got to factor that into our Illinois Basin price curve. So as we looked at 2019, as I mentioned on the first call, say, our pricing in Illinois Basin will be comparable in 2019 versus 2018.

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Operator [29]

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(Operator Instructions) The next question comes from John Bridges with JPMorgan.

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John David Bridges, JP Morgan Chase & Co, Research Division - Senior Analyst [30]

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I was just wondering -- obviously, pricing and supply/demand in Illinois is masked by the big pickup in export demand. But then with some of the changes that we're seeing there, mines coming off, et cetera, what do you see as the sort of medium-term trend in terms of the supply/demand dynamics there?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [31]

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I think they're imbalanced. The challenge gets to be on the demand side domestically because our customers do have -- in the Southeast, they've got the natural gas option and gas prices are low. So the challenge, even though we got maybe even the potential for supply/demand that's favorable to a producer, I mean, we've seen stocks drop, inventories, but at the same time, our customers do have the flexibility if their -- our price is pretty much somewhat capped by the natural gas price. So depending upon what they want to do relative to their coal burn versus gas mix, they're still able to keep the price pretty balanced even if there is a favorable supply/demand balance domestically. Export market is a little different, so that just gets into what the global price is, what API 2 does. And it's -- we've seen volatility in that the last month or 2. At the same time, even with that volatility, the export market is still very constructive for us as an option. And we can still make nice margins by participating in that, and that's why we're bringing up another 1 million tons of production this year, to be able to increase our cash flow by participating primarily in the export market.

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John David Bridges, JP Morgan Chase & Co, Research Division - Senior Analyst [32]

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Okay. Good stuff. And then with respect to the contract settlement, the -- what's the importance of the tons that you have accessed or you can buy close to -- was it Tunnel Ridge? And then the importance of the rail port -- river port capacity that you have access to.

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [33]

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It's not river port. It's basically -- they've got a rail. We can get grant -- we can gain access by barging some coal up to their [Warrington] facility and then putting it on the rail that allows that to go to the export market. So that's the advantage there that we were able to negotiate. On the availability of tons to buy, there are opportunities to buy tons in that area to put on those contracts, but we also have the ability with other suppliers that if we want to move tons to Illinois Basin that we got sold at Tunnel Ridge, we have the option to do that as well. So again, depending on the supply/demand and what our opportunities are, we could either brokerage those -- broker those tons or we could either decide to move some, what are now allocated tons to be sold out of Tunnel Ridge, we could sell those tons to customers out of the Illinois Basin. And that'll just be an evaluation dependent upon when the customers need the tons, what's available, and what the right decision to be made is.

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John David Bridges, JP Morgan Chase & Co, Research Division - Senior Analyst [34]

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Okay, great. And you mentioned a greater interest in rail tons. Could that be related to the difficulties you've been experiencing with the river in Q1? Or is this a bigger thing?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [35]

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No, I think it's just the high BTU, so it's 12,000-plus BTU. And so when you think in terms of that higher BTU, it has value when it travels a long distance.

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John David Bridges, JP Morgan Chase & Co, Research Division - Senior Analyst [36]

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So it's all part of the export mechanism?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [37]

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So when [back method] this -- the delivered pricing, since the transportation is based on tons and the buyer is looking at delivered BTU, you get an improvement in their analysis of the higher-BTU product because of the tons (inaudible) per million delivered on -- for the higher-BTU coal.

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Operator [38]

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And the next question comes from Lin Shen with Hite.

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Lin Shen, Hite Hedge Asset Management LLC - Analyst [39]

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Just one quick question, Joe. After the merge between ARLP and the GP, how should we think about the distribution policy for ARLP? You've been growing distribution every quarter now, but the market seems very weak for MLPs, not rewarding. So how should we think about your policy for distribution growth?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [40]

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Well, we -- as I mentioned in our -- in the previous -- in my introductory comments, we do plan to grow the distribution 1% per quarter, and that's at the ARLP level. So I hope that will continue. So once the simplification occurs, we'll still be paying out the 1% per quarter, assuming that everything goes as we have planned today. Obviously, that decision is made by the board on a quarterly basis. But if we can achieve our results for 2018, we would expect that you would see a distribution of 1% per quarter for the remainder of this year. And as we look to 2019, we will make a choice at that moment in time what the run rate would be. But the only guidance I can give you right now is that we are continuing to plan for 1% per quarter for ARLP for the rest of the year, which includes, obviously, the period of time after the simplification is closed and completed.

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Operator [41]

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(Operator Instructions) Seeing no further questions in the queue, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Brian Cantrell for any closing remarks.

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Brian L. Cantrell, Alliance Resource Partners, L.P. - Senior VP & CFO of Alliance Resource Management GP, LLC [42]

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Thank you, Phil. We appreciate everyone's time this morning as well as your continued support and interest in both ARLP and AHGP. Our next quarterly earnings release and call are scheduled for late July, and we look forward to discussing our results for the 2018 second quarter with you at that time.

For this morning, this concludes our call. Thanks to everyone for your participation.

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Operator [43]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.