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Natural Resource Partners LP (NRP) Moves Into Bakken

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Natural Resource Partners LP (NYSE:NRP) a Master Limited Partnership, or “MLP,” continues to make strong progress diversifying from the leasing of its owned coal reserves. Natural Resource Partners recently presented at an industry conference. Please see the latest corporate slideshow here.

In 2005, 54% of total revenues came from steam coal royalties in central Appalachia. Pro forma for the company’s February acquisition of a 49% interest in OCI Wyoming, a soda ash operation, only 20% of revenues come from central Appalachian steam coal. Key to the story is that 25% of total revenues now come from non-coal related sources, and that percentage continues to grow.

Diversification Strategy’s Next Step – Oil & Gas Properties in the Bakken

On June 17, the company announced the purchase of “non-operated working interests in producing oil and gas properties located in the Bakken/Three Forks play, located in the Williston Basin of North Dakota and Montana from Abraxas Petroleum Corp. (NASDAQ:AXAS) for approximately $35.3 million in cash.

Historical financials for this asset were not included in the press release, but the acquisition is expected to be “immediately accretive to NRP’s unitholders.” Based on flat to declining revenues in some, (not all) coal-related segments, a third of total revenues could be coming from non-coal related sources by year-end. This is important because non-coal revenues should command a higher valuation.

What About Other MLPs?

While other MLPs offer attractive distribution yields, few have current yields of 9.8% or above. Of those that do, many have distribution rates that are less safe than that of Natural Resource Partners LP (NYSE:NRP).

Alliance Resource Partners, L.P.

One other attractive MLP is Alliance Resource Partners, L.P. (NASDAQ:ARLP). Alliance is simply the best coal producer in the US: best growth, best margins and operation from the best coal basins in the country. Alliance’s distribution yield is about 6.5%, but its distribution rate is increasing at 8%-10% per year.

CONSOL Energy Inc. (NYSE:CNX) and Cloud Peak Energy Inc. (NYSE:CLD) are the only other coal producers who might be considered in the same class as Alliance, but neither has a yield greater than 2%. Consol Energy’s business is currently being weighed down by its natural gas segment. Cloud Peak is 100% exposed to the Powder River Basin, not the place to be at the moment.

Back to Natural Resource Partners…

Natural Resource Partners LP (NYSE:NRP) has been distributing a steady $0.55 per quarter, giving it a 9.8% current yield. The unit price has been stuck in the low $20’s while other MLPs have moved higher with the overall market. By comparison, Natural Resource Partners is now yielding almost twice the average of other MLPs.

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