We have issued an updated research report on Natural Resource Partners LP NRP. Increasing usage of natural gas and proposals for curbing carbon emissions are affecting the demand for coal used in power generation. However, the partnership’s diversification into non-coal assets is to some extent helping it to offset the weakness and may provide a more balanced portfolio in the future.
Houston, TX-based Natural Resource Partners’ fourth-quarter earnings missed the Zacks Consensus Estimate and declined year over year. Revenues, however, surpassed the estimates.
The partnership’s efforts to expand its unconventional asset base through systematic acquisitions are commendable. This has enabled the partnership to diversify its revenue stream away from coal.
The acquisition of oil and gas assets in 2014 has scaled down the partnership’s coal operations substantially and is yielding positive results as well. In 2014, Natural Resource’s revenues from oil and gas properties increased a massive 248.7% to $59.6 million from $17.1 million in 2013.
However, the new proposal of the U.S. Environmental Protection Agency (EPA) to lower carbon emission, if implemented without any revisions, will certainly discourage the production of power from the fossil fuel and thereby lower demand for coal.
Moreover, coal is being increasingly replaced by natural gas for power production due to the latter’s clean burning nature and increasing regulatory pressure to curb carbon pollution. Adding to the severity, some of the major lessees of the partnership are idling production at the mines, leading to a loss of coal royalty revenues.
The overall softness in the coal demand is not only impacting Natural Resource Partners but other coal players like Peabody Energy Corp. BTU and Arch Coal Inc. ACI as well.
Natural Resource Partners currently has a Zacks Rank #5 (Strong Sell). A better-ranked stock in the coal industry is Hallador Energy Co. HNRG, sporting a Zacks Rank #1 (Strong Buy).
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