After a name change last summer, PVR Partners LP (NYSE:PVR), formerly Penn Virginia Resources Partners, set out on a path to switch its business model from coal-oriented loser, to natural-gas-and-coal-diversified winner. This master limited partnership has a lot going for it, so today we’re going to take a closer look.
The right way to play coal
Kinder Morgan Energy Partners LP (NYSE:KMP) made headlines when it announced that it planned to augment its terminals business by buying up natural resource properties and charging a fee for its customers to mine them. It seemed like a great way to play coal while mitigating commodity risk, it seemed new and different, but PVR Partners LP (NYSE:PVR) has been doing that forever! Really, though, since 1882.
PVR Partners LP (NYSE:PVR) controls about 871 million tons of coal reserves, and it does not mine them. Instead, its coal customers are some of the bigger names in the industry, including Arch Coal Inc (NYSE:ACI) and Cliffs Natural Resources Inc (NYSE:CLF), and they do the dirty work. Those two companies were among PVR Partners LP (NYSE:PVR)’s lessees that mined 30.2 million tons of coal from its 98 mines last year. Though coal volumes are down so far this year, PVR Partners LP (NYSE:PVR)’s business is based on royalties and long-term contracts, which means there hasn’t been much pain, relative to what the rest of the industry is experiencing.
Additionally, the majority of its coal revenue comes from its properties in Appalachia. The advantage here is the proximity to East Coast export terminals, compared to the mines out West, where export terminal projects are being canceled right and left. Exports are driving the industry as domestic consumption has dropped off in recent years, and therefore the location of these eastern mines is increasingly important.
PVR Partners LP (NYSE:PVR) is not looking to grow its coal business at all, opting instead to focus on developing the midstream side of things. Still, it remains a cash cow for now.
Let’s talk money
The other thing PVR has going for it, that will be especially important in the coming days of rising interest rates, is that it acquired its general partner in 2011. Enterprise Products Partners L.P. (NYSE:EPD) is one of the other rare examples of an MLP with no general partner, that therefore does not pay out a 2% GP stake, or incentive distribution rights.