Alliance Resource Partners LP, the biggest coal producer in the Illinois Basin, made most of its money in the first quarter from oil and natural gas royalties.
The company reported $171.8 million in income from oil and gas in the first quarter, accounting for 62 percent of its earnings, according to a statement Monday. It comes after Alliance increased its stake in AllDale Minerals, giving it control of about 43,000 acres in the some of the biggest U.S. oil and gas regions — including the Permian and Appalachian basins — where it earns royalties from drilling companies.
The shift for Alliance underscores how weak demand for coal has become in America as power generators switch to cleaner-burning alternatives. Alliance Chief Executive Officer Joe Craft acknowledged during an earnings call that the global coal market is “under pressure.” That’s prompting the company to delay plans to grow in the Illinois Basin while it considers additional acquisitions to earn more oil and gas royalties.
“We are actively working with advisers to evaluate numerous additional investment opportunities that appear to be available in the oil and gas mineral sector,” Craft said.
The shares rose 1 percent to $19.58 at 1:41 p.m. in New York.
While oil and gas royalties accounted for a lion’s share of Alliance’s net income, a better way to evaluate their impact on the company is looking at adjusted earnings before income, taxes, depreciation and amortization, said Lin Shen, an analyst with Hite Hedge Asset Management. They contributed $9.1 million, or about 4.8 percent, of the company’s $188.8 million in adjusted EBITDA.
Still, the royalty revenue stream is good news for the company, and more deals seem likely this year, Shen said in an interview Monday.
“I think they can do one or two, but I’m not sure what size,” Shen said. “If they can execute, it will be a good story.”