Alliance Resource Partners, L.P. (ARLP) Q4 2014 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the Fourth Quarter 2014 Alliance Resource Partners and Alliance Holdings GP, Earnings Conference Call. My name is Jackie, and I will be your coordinator for today. At this time, all participants are in a listen-only mode, and we will be facilitating a question-and-answer session towards the end of today's presentation. [Operator Instructions]. I would now like to turn the presentation over to Mr. Brian Cantrell, Senior Vice President and Chief Financial Officer. Please proceed sir.

Thank you, Jackie, and welcome, everyone. Earlier this morning, we released 2014 fourth quarter earnings for both, Alliance Resource Partners, or ARLP and Alliance Holdings GP, or AHGP, and we will now discuss these results as well as our outlook for 2015. Following our prepared remarks, we'll open the call to your questions. Before we begin, I remind you that some of our remarks may include forward-looking statements that are subject to a variety of risks, uncertainties and assumptions, which are contained in our filings from time to time with the Securities and Exchange Commission, and are also reflected in today'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. 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 financial measures are contained at the end of the ARLP press release, which has been posted on ARLP’s Web site and furnished to the SEC on Form 8-K. Now that we're through the required preliminaries, I'll turn the call over to Joe Craft, our President and Chief Executive Officer.

Thank you, Brian and good morning everyone. This morning ARLP reported new annual operating and financial milestones, the 14 consecutive year of record performance. ARLP finished the year strong posting increases to quarterly coal sales and production volumes and revenues. These results combined with lower part and operating cost to drive ARLP’s EBITDA higher than 15.1% over the 2013 quarter while net income also increased 24.6% compared to the same period. For the 2014 year increased coal sales and production volumes, strong pricing and lower cost were the primary factors for a 17.2% improvement in EBITDA and 26.4% growth in net income. ARLP’s operations delivered the highest touching output in our history. The total coal production grew 5.1% in 2014, compared to 2013. The performance at Tunnel Ridge was particularly notable. Year-over-year production at the mine increased nearly 2.6 million tons, helping to drive segment adjusted EBITDA expense lower by $10.45 per ton in our Appalachia region. Volumes are also higher in the Illinois Basin, as production at Dotiki increased 12.7% over the prior year and our new Gibson South mine added approximately 840,000 tons to production at 2014. The increased volumes and other cost control measures helped to reduce our segment adjusted EBITDA expense per ton about 3.4% in 2014. ARLP’s marketing team also performed well during arguably one of the most challenging coal markets in the recent memory, selling more tons in 2014 at higher average prices than at any time in our history, and driving revenues to an all-time high of $2.3 billion. Through their efforts ARLP further strengthened its long-term coal sales position in 2014 by securing new commitments for the delivery of approximately 30.2 million tons through 2018. ARLP enters 2015 with approximately that 39.3 million tons or 92.6% at the midpoint of our estimated coal sales volume contractually committed and price for this year and 28.9 million tons priced and committed for 2016. As we celebrate our past success, ARLP also remains focused on our future. The transactions we announced today growing our total reserve base by 50% to 1.6 million tons, represents significant steps in securing our position as a low-cost, preferred provider to the markets we serve for many years to come. The reserves acquired has similar quality as our River View mine, is enjoying similar cost and transportation advantages compared to our competitors. These accusations, not only substantially increase our coal resource. They also provide ARLP with the flexibility to efficiently extend and expand existing operations and the opportunity to strategically develop new organic growth prospects in the future. While ARLP remains committed to building on a successful coal platform, we also saw an opportunity to taking modest step for expanding our base by investing in US oil and gas mineral interests. Although our current commitment to this activity is relatively small, we are hopeful that this investment could develop into another growth platform and be complimentary to ARLP strategy of increasing unit holder distributions through sustainable growth in cash flow. Entering 2015, the coal industry clearly continues to face significant challenges. As we look forward, however, we continue to believe that ARLP is well-positioned to successfully navigate these challenges and are confident that our strategy will continue to drive long-term value for our unit holders. Reflecting on our record performance and commitment to the future, Alliances boards approved increased unit holder distributions for the 27th consecutive quarter bringing our year-over-year distribution growth to 8.6% at ARLP and 10.6% at AHGP. At this time, I will turn the call back to Brian for a more detailed look at our financial results and guidance after which we will open the call to answer your questions. Brian?

Thank you, Joe. Looking first at our full year results as Joe just mentioned, ARLP once again posted new annual records in 2014 for our major operating and financial metrics led by higher volumes at our Tunnel Ridge and MC Mining operations in Appalachia as well as added production from our New Gibson South mine and strong performance at our Dotiki mine in the Illinois basin. ARLP's operations delivered solid results, year-over-year coal production increasing approximately 2 million tonnes to 40.7 million tons and total coal sales volumes climbing by approximately 900,000 tons 39.7 million tons in 2014. For the year, volume and pricing growth drove ARLP's revenues higher by 4.3% in 2014 to a record $2.3 billion. Increased volumes and revenues combined with lower operating cost have pushed ARLPs EBITDA and net income to new records in 2014, totalling $803.7 million and $497.2 million respectively. While we came into 2014 expecting per ton results would be comparable to 2013, ARLP's per ton metric also showed year-over-year improvement. Better than anticipated performance at Tunnel Ridge resulted in a favorable sales mix lead ARLP's annual average coal sales price slightly higher in 2014 compared to the prior year. Increased volumes at Tunnel Ridge also drove segment adjusted EBITDA expense per ton in Appalachia, lower by 20.8% and contributed to lower consolidated operating expense in 2014 as well. But ARLP's total segment adjusted EBITDA expense dropping $34.78 per ton, an improvement of $1.24 per ton compared to the prior year. Increased pricing and lower cost drove ARLP's 2014 segment adjusted EBITDA higher by $2.75 per ton sold or 14.2% compared to 2013. Looking briefly at results for the 2014 quarter as discussed during our last call, ARLP anticipated that our results could be impacted by transportation shortages, we expect this persist through the end of the year and our expectations proved to be accurate as transpiration challenges in October and November contributed to a 385,000 ton build in inventory during the 2014 quarter. Despite these transpiration challenges, ARLP delivered strong performance during the 2014 quarter posting increases for total coal sales and production volumes, revenues, EBITDA and net income compared to both the 2013 and sequential quarters. Let’s now turn to our initial guidance for 2015. Looking first at capital expenditures and investments, ARLP currently anticipates 2015 total capital expenditures in a range of $300 million to $330 million including maintenance capital expenditures and this compares to $311.5 million in 2014. As noted in our release, these expenditures include $19 million to $29 million for the purchase of coal reserves, mining equipment and underground infrastructure from Patriot, additional reserve acquisitions related to our participation in the White Oak mine No.1, expansion of preparation plant capacity at the River View mine and the purchase of additional equipment at our Gibson south mine. Consistent with our approach of estimating maintenance capital over a long-term horizon due to the inherently cyclical nature of these expenditures for our distribution planning purposes ARLP is currently estimating total average maintenance capital expenditures of approximately $5.55 per tonne produced over the next five years. In addition to the capital expenditures just discussed, in 2015 ARLP also currently expects to fund equity investments of approximately $25 million to $30 million. Included in this total is an estimated $15 million to $20 million related to the previously discussed commitment to acquire oil and gas mineral interests. Regarding ARLP’s preferred equity commitment to wide out, we currently anticipate our funding to this commitment in 2015 will be less than $10 million, down significantly from the approximately $99.8 million funded in 2014. In summary, ARLP currently anticipates total capital expenditures and equity investments in a range of $ 325 million to $360 million for 2015, well below its 2014 total of approximately $443.4 million. Reflecting current market conditions, ARLP is estimating 2015 coal production in a range of 40.4 million to 42.5 million tonnes or approximately 4 million tonnes below our installed capacity. This range reflects our plans to maintain to get some complex at its current operating level of six production units during 2015. We do anticipate that improved performance by transportation providers in 2015 will help us return ARLP’s coal and employers to more normalized levels by the end of the year. Reflecting this expectation and based on our current production estimates, coal sales volumes for 2015 are currently estimated at a range of 41.4 million to 43.5 million tonnes, of which approximately 39.3 million tonnes are priced and committed. Based on these existing commitments and expectations [for filling] [ph] its current open position, ARLP anticipates its average coal sales price per tonne to be approximately 2% to 3% lower in 2015 compared to 2014. Lower realizations in 2015 primarily reflect the impact of two factors. First, deteriorating market conditions for the low-sulfur coals produced by the [Gibson complex] [ph] and MC Mining and the customer breach of an above market coal supply agreement, which is now in litigation. Increased coal sales volumes and additional other revenues from wide out are expected to more than offset lower local sales prices resulting in 2015 revenues in the range of $2.39 billion to $2.48 billion, excluding transportation revenues. And this is approximately 6.8% higher at the midpoint compared to 2014. For 2015, ARLP is currently expecting to generate EBITDA in a range of $765 million to $825 million comparable to 2014 results at the midpoint. Net income for 2015 is estimated in the range of $395 million to $455 million. In analyzing ARLP’s current guidance for EBITDA and net income, I think it would be helpful to elaborate on several factors, which are expected to impact our results in 2015. First, our current plans to operate at less than full capacity this year. obviously affect our cost and margin expectations. In addition, we expect lower plant recoveries MC Mining in 2015, compared to 2014. As a result, ARLP anticipates segment adjusted EBITDA expense per tonne. We will increase at the midpoint of our 2015 guidance by 4% to 5%, compared to 2014. And this will drive realized margins per tonne lower 7% to 8%. These expectation s combined with the impact of the contract breach we discussed a few minutes ago caused ARLP to lower its initial 2015 estimates for EBITDA and net income below our previous expectation. Supply and demand dynamics continue to evolve, however. And our excess production capacity provides ARLP with the opportunity to quickly respond to any improvement in the coal market, providing potential upside to our expectations for 2015 and beyond. Second, compared to 2014 net income in 2015 is impacted by a $71.6 million increase in depreciation, depletion and amortization. This increase is primarily due to the acceleration of depreciation of the Hopkins mine, increased production at the Gibson South mine, amortization of the acquisition cost of coal sales contracts, purchase from [indiscernible] and increased DDNA attributable to our coal reserves and surface facilities related to our investments in White Oak. Finally, on a positive note with the White Oak mine No. 1 Long andwall in production for a full year, ARLP anticipate increased coal royalties and throughput service revenues from White Oak to drive other revenues higher in 2015 by an estimated $75 million to $85 million, compared to $21.2 million related to White Oak in 2014. Based on estimates from White Oak, ARLP ‘s EBITDA is expected to benefit by approximately $30 million to $35 million in 2015, compared to a negative impact on 2014 EBITDA of $3.4 million. Net income related to White Oak is also expected to increase in 2015, to a range of $20 million to $30 million compared to a loss of $5.7 million in 2014. I will close with a brief comment on our balance sheet. During the 2014, quarter ARLP completed the receivable securitization facility, increasing our liquidity by an additional $100 million at an attractive cost capital. We entered 2015 with total liquidity of approximately $579.2 million, our debt to EBITDA ratio at a conservative one times leverage, and a daughter, distribution coverage of 1.72 times. Our strong balance sheet should serve ARLP well in a difficult market, and you will you provide us the financial flexibility to take advantage of opportunities that we develop as we execute our strategy. This concludes our prepared comments. And now with Becky’s assistance, we will open the call to your questions.

[Operator Instructions]. And please standby for your first question. And your first question comes from the line of John Bridges with JP Morgan. Please proceed.

Congratulation for the results. Most of market seems to like them, I see they are up again, you’re up a little bit this morning. Just wondered the, I know it’s small but the investments in oil and gas, what’s the logic behind that? I know you’ve spoken about looking at other sectors, but where do you see that -- where would you like to see that developing?

Right, we have been looking at another opportunities to invest or cash flows and we have been fortunate to find this opportunity with an experienced and talented group of folks who that have been in the land company business for several decades. So we are investing in a limited partnership. We’ll have about 70% of their limited partnership. So we are committing roughly $50 million to be invested over 3 to 4 years time, depending on the opportunity. We are hopeful that that will prove to be successful, and we can continue to make additional contributions in the future. We believe that The US will be one of the top global producers of crude oil and the prices that we are seeing today have provided a good opportunity, we believe, to make an investment and be able to meet our return threshold. So we are starting in a $50 million commitment level and if this proves to be successful, which we are optimistic it will, then we can continue to add to that, as, you know, as opportunities present themselves.

Good. Where is this company active?

They are active in all basins, so they will be looking at opportunities in all of the major producing basins. I'm sure there will be a concentration on those basins that have opportunities for low cost production so that we can get the benefit of drilling activity as opportunities present themselves.

Okay, and just a follow-up, I guess the state of the market you’re getting some significant savings in your capital investment. I would mention that you are not going direct to the original equipment manufacturer for some of the equipment you are looking for?

That’s correct. There is opportunity to pick up used equipment, in addition to the Patriot opportunity, there are other opportunities for us to buy used equipments, and that’s one of the reasons why our maintenance CapEx number reduced a little bit this quarter compared to prior quarter guidance.

Okay great, well done guys, congratulations!

Thank you, John.

And your next question comes from the line of Brian Dew CD [ph] Please proceed. Brian Dew CD [ph]: Great, thanks. Congrats on a good quarter, guys. Your guidance on the revenues and then maximum amount of per tonne basis and then cost, would you be able to break that down more Appalachia versus Illinois Basin, if there is material difference in the percentages?

Yes, I think that on the cost side the increases are probably going to be a little bit more weighted to the Appalachia area and really the revenue as well. If we look at the NYMEX curve, for example for low sulphur coal, it has dropped quite a bit and that low price for low sulphur in the Central Appalachia sort of transferring over to our low sulphur coal at Gibson County. So there will be some impact in the Illinois Basin relative to the revenue side but outside that most of it is going to be on Appalachia side for both revenue and cost. Brian Dew CD [ph]: Okay. And then on this customer breach, can you give more details on how many tonnes we are talking about and then what those tonnes, and are they still taking it or are you placing it with someone else?

The contract that is in dispute had a term going through 20:20 and the range of sales is anywhere from 700,000 to 800,000 a year. It varies from year to year. And the allegation -- and the utility is claiming its Mercury -- the match rule related, so the impact will start in April 15, which is the effective date of the Mercury rule. So as to the impact relative to damages, we are not in a position to talk about that today since it is in litigation. But that's the range of the size of the sales that were impacted. So, we do continue to sell for that customer, not necessarily back to back, but we are selling to that customer without a contract as well as selling to them in a spot market. Brian Dew CD [ph]: Got it. And may be just the last one on the transportation inventory build, what's happening along the gas markets; are you seeing service improve and then working on those inventories, that's something we can expect but maybe in the first quarter, first half as opposed to second half? Or would you expect that evenly distributed throughout the year?

Yes, we have seen the transportation improve, particularly in December and it's done better in January, so as far as the pace I think it will probably throughout the year as opposed to just being able to get the full benefit in the first quarter. Some of that is driven by customer needs and expectations as well as the transportation, so we are not anticipating transportation to be a bottleneck in 2015. It's really going to be dependent on what the customers’ needs are.

And your next question comes from the line of Sam Dubinsky with Wells Fargo. Please proceed.

Great guys thanks for taking my question, just a very high level, how much excess supply on a tonnage basis do you think there is in the Illinois Basin, on supply basis. And then on the demand side, what do you think is the biggest lever going forward. Is it going to be the dollar strength impacting export markets for some of your competitors? Is it weather, the natural gas, or what do you think will be the biggest lever on a demand side to kind of tie your things up?

I think on the supply/demand for Illinois Basin, we think it's relatively -- it's closer to being in balance in what the markets are currently projecting. Now we know when you look at some of this excess capacity that we are pulling off, most of that is in Illinois Basin, so that's sort of on the magnitude of that 4 million tons. We’d like to believe that's going to bring it back into balance. So, it's hard to know what other people anticipate when they are looking at supply, demand; whether they were [factoring] us producing that or not and how that plays into the market, but with Patriot reducing their production and as proven we are not producing 4 million that we were capable of producing in 2015. We think it's relatively close. The demand-side, on the other hand, I think natural gas prices are a factor, and weather is a factor and exports are a factor. So, all three of those are factors, so as we look at the oil price decline and what that's going to do the natural gas supply, with different views on whether that's going to be U-shaped or U-shaped and how fast supply will follow-up on associated gas, for example. So, it's really hard to know, but I think that's a catalyst to the demand side for coal. So, we are expecting to lose some market in 2015 relative to 2014 from coal to gas switching. But, our projections are quite as much as what Peabody said yesterday. I think when we look at the amount of tonnage that’s contracted by us and others, we don't believe it can drop that much unless utilities decide not to take tonnes under the contracts, but as we look at demand going forward, it’s gas driven, it’s export driven, weather driven. These are three factors.

[indiscernible] can I pause the range has missed answer, but what was the size of the contract in the customer breach. How big is that on a tonnage basis? And what’s the timeframe for resolutions like multiyear?

The contract goes to 2020 and the annual amount anywhere from 700,000-800,000 tonnes a year. And the customer has indicated they'll stop taking that tonnage April 15, 2015. So, in April 2015 to 2020 on that annual basis now give me what the tonnage is?

And now on a resolution timeframe?

We would expect the resolution to be probably midyear 2016. That's a guess, don't know for sure.

Okay. I'm not a legal expert, but is there a chance that maybe damage could be troubled or things like that for infringement or would you recognize the life of the value of the contract, if you want or how this tend to work its way out in terms of what you're seeking.

Yeah. Given the fact that it’s in litigation, I'm not prepared to talk about the range of damages at this moment in time.

Okay, great. This is my last question, just on the cost side. [indiscernible] let’s pretend demand stays where it is. Are now leverage to kind of reduce costs or CapEx further than where you are going to today [indiscernible]?

I think that it's possible that one of the factors in our CapEx we had $ 30 million worth of carryover from 2014 and 2015. So, it's very possible we could see something of that magnitude again in ’15 to ’16 from a timing standpoint. On the cost savings, there are some opportunities for some cost savings in these numbers. For example, we are not a big diesel user because we are not a surface mine, but at the same time, we do use enough that its meaningful. So, if the oil prices persist and going out of range, we could get savings of $5 million or minus on that factor that we did not include in these estimates. So we did not assume a $45 oil price, when we put our budget together. We are closer to probably $65 when we put our plan together. So, there's some opportunity there. We're focused on cost control. So yeah, I believe that there is opportunity for us to be better than what we've got, but it’s giving our best estimate at this time.

Okay. Thank you very much. God luck.

And your next question comes from the line of Paul Forward with Stifel. Please proceed.

Good morning.

Good morning, Paul. Q – Paul Forward – Stifel: I think Joe, you have mentioned that 50 million, that you are looking at spending on our investing on the oil and gas side of things, just wanted to, but you have obviously also been active in picking up reserves, can you look at -- because we have seen energy prices, coal prices all come down, can you describe right now the opportunity set as you see it as far as where the best kind of acquisition values might be. If you would have compared that investment in the oil and gas side to either what’s available in coal in the Illinois basin or coal outside the Illinois basin? How do you approach the kind of line up one opportunity against another and come to a decision on how you might invest outside of what your current operations?

Eric, one of the factors is that we are looking for long-term stable cash flow and so when we think in terms of, again, the US being a top global producer of oil, we saw that as an opportunity for us to invest in long-term assets and it will provide opportunities for long-term cash flows and that will allow us to have a base to be able to have our sustainable growth. So we see that very complementary to what we are doing as an opportunity where we can pretty much predict what those returns are and feel comfortable on a risk-reward basis. And it’s a very attractive opportunity. With our debt capacity where it is I mean, we've got the opportunity to make several investments if we think that both coal space as well as the other mid-stream space, if we think that the risk-reward presents itself the way it will be a solid, good, long-term investment for us. So as we look at the coal landscape and one of the drivers for us to do what we did in effectively doubling our reserves and our past success has primarily been driven by organic growth. And we’re fortunate that we were able to secure all these reserves right in our backyard essentially putting together very impressive block of goal contiguous with each other gives us tremendous functionality and scale that as we look at how can you go into business. We felt like that was the best opportunity for us to have a low-cost entry of capital with low cost reserves, with low cost transportation. So it just fit our model. We had our eyes on these reserves for many years. I think with the pressures of the coal business, the owners of these reserves decided that they would rather have the cash and hold on to that for themselves. And so the opportunity presented itself in 2014 - 2015 for us to make that acquisition. If we think beyond that, we will continue to evaluate opportunities. I think that the criteria has to be a low-cost opportunity, and like that to have a low cost reserve if we're going to look at an operation and/or another reserve, it has to be a low-cost opportunity where we see that can have a sustainable cash flow for 10 years time horizon, plus or minus. So that’s what we would be looking for.

Great, and as you look at your newly acquired reserves, when you think about the timetable of actually going in and putting capitals to work and developing them, assuming that it’s a fairly long time frame for doing this and you would need to have support from customer commitments to take that call before you would really make significant investments. Is there any sort of time frame that you could look at as far as when you would anticipate going ahead and developing the newly acquired reserves?

Yes, in 2015. We did announce in this earnings release that we will begin immediately to expand our preparation plan, the capacity of our preparation plan at River View that will allow us to move three units of equipment from our Hawkins County mine County mine that is depleting in early 2016. So, we’ll be moving those units and some people over in the early 2016 timeframe that will allow us to immediately take advantage of some of this where we will have the ability to effectively mine the same amount of tonnage that Hopkins County is mining today with four units, we’ll mine with three units at Riverview. So, you'll see that cost differential going into 2016. As we go forward, we got our [indiscernible] operation as a reserve life in the [2021-2020] [ph] timeframe. So we can do the same thing there as we think through how you maintain market share, as we have other reserves that are depleting as opposed to doing other things that we had originally planned to sustain that market share and that EBITDA. So, we got those opportunities now whether we can grow beyond that, it's going be totally driven by depletion by our competitors and/or them deciding just to go ahead and idle operations that are uneconomic. As we think of where the prices are today, we believe that in the Eastern United States that almost half of the production that is being produced today is not making money. So the question is how long will the owners of those properties continue to stay in business when they're not making cash flow. As they fall off, that may also present opportunities for us to pick up that demand. We see demand being relatively flat. A lot is going to depend on what's going to go on with the lawsuits related to Clean Air Act, both Mercury Rule that’s having a hearing in the Supreme Court this year and the Greenhouse Gas Rules. So, that’s going to impact, but ultimately the demand for utilities or the demand for thermal coal [will be] [ph] in the United States and we are too hopeful that the export market will rebound at some point in time in the not too distant future. So that's another opportunity for increased demand. So as we see demand being flat today, supply is potentially coming off. We think that’s going to provide opportunities for us to be the low-cost provider, to go grab that market share as soon as it becomes available. The timing of which is hard to predict, but we want to be in a position that when it materializes, we will be a first mover to grab it.

Great. And just one last quick follow-up. You’ve mentioned the [indiscernible] Rule and that 700,000-tonne customer contractors or any other [indiscernible] exposure of that significant or was that the major.

We don't believe onto that contract. They have the right to do what they’re arguing that’s why we had a loss and we do not believe any of our other contracts, we have any of our customers that opportunity. So [indiscernible] 0:03:40.7 our contracts really give customers a right to terminate their agreement relative to this type of regulation.

Okay. Thank you.

[Operator Instructions]. And your next question comes from the line of Mark Levin with BB&T Capital Markets. Please proceed. Mark Levin - BB&T Capital Markets: Hey guys. A couple quick questions, the first is on 2016 pricing. I think you reference the fact that you had about 30 million tonnes committed and priced at this point, but they don’t give specific price guidance, but maybe directionally how you're feeling about 2016 pricing vis-a-vis 2015 and maybe where you were this year.

I think it is a follow-up to what I just said relative to supply. We have a view that there will be a supply adjustment in 2015. So, we're expecting a supply fall off, demand again to be stable. We're also expecting with the crude oil reduction, what that impact is going to be to natural gas that as we look to 2016 that gas prices will probably be higher than what the current curve is suggesting it to be suggesting it today. So we believe that the demand-supply balance will improve in 2016 and therefore it will give us an opportunity to be able to sustain our revenue, probably not totally at the level that we are expecting in ’15 but at a level that still allows us to maintain our current cash flow. Mark Levin - BB&T Capital Markets: Related to that point, Joe when you look at the market today obviously exports have come off fairly considerably, there are turn coming on in the market as well from White Oak for example and clearly from others and in the interim I recognize you mentioned sort of flattish kind of demand market, where are prices today have seen any degradation in prices over the last couple of months since the last time we spoke a quarter ago, how was the overall pricing environment Illinois Basin, holding up given these factors?

I would say for the local income they have been holding pretty static with where we were a quarter ago. It appears that the higher coring has probably dropped at couple of bucks since the last quarter is where we are seeing in the marketplace today but... Mark Levin - BB&T Capital Markets: With the pricing for low chlorine coal prices just crossing even in basin B above 41, 42 shore is that too lower to buy?

Yes, it could a little low but it is somewhere in $41 to $43 range. Mark Levin - BB&T Capital Markets: Got it okay and then my next question has to do with gas, obviously gas is now back in 285 sort of the popular role from when gas starts drifting below three bucks, the only basin can start feeling it a little bit, have you seen the impact of lower gas prices and then put in another way if gas were to kind of stay around like let’s just assume 285 for some period of time, how would that impact the only basin market in your ability to sell coal 16 and beyond?

We believe that it has impacted, so we have seen some reduction in demand currently from lower natural gas prices at the same, it is not the significant amount but, so we anticipated there probably more RFPs coming out for Illinois basin than they are actually has been. So we have to seen the reason that they haven’t come out as because they are relying with that more natural gas than needing to add to their coal inventory but as I mentioned earlier we believe that with the contractual commitments that people have that there is not a material amount that can be displaced assuming that the customers want to their bring it Mark Levin - BB&T Capital Markets: And then one final question, we often think about Illinois Basin coal and your stance sort of coming online a sort of backfilling the decline in central Ap, can you may be talk about the opportunity that Illinois Basin has to compete in traditional northern Appalachia markets and do you see that as a meaningful opportunity or do you feel like it is more constrained to kind of traditional central Ap stuff.

I would say it is more constrained, I think that Northern Ap is fully supply and with the transportation differential that the northern Ap supplier would be able to take care their own market, it would be hard for Illinois Basin producers try go up and compete into the marketplace. So I think that would, that's not the same, in our situation we have flexibility under some of our contracts to supply either road so we may taken an opportunity to do that but as far as producers looking they are trying to take market share from Northern Ap producers or the demand being greater there, I don’t see that happening. Mark Levin - BB&T Capital Markets: Great perfect. I appreciate the color, thanks Joe.

And your next question comes from the line of Wilfredo Ortiz with Deutsche Bank. Please proceed.

Yes good morning. Just a very quick question. On the prices that have been committed for 2015 through 2018, could you give us a sense as to what is more Illinois Basin versus Central Appalachia or is it fairly balanced or more tilted to once versus the other?

For 2015, our exposure is mostly on the low sulphur side of our book, so that would include our Gibson County product and our MC Mining product and the out years, we would look at, we have got contracts in rolling off and there is a blend across the board on that given the fact that we are heavily weighted toward Illinois Basin and you would see sort of our pro-rata basis, I mean it will slowly open up on the similar production but we think that those are more opportunities just to extent our current agreements where we had a long term relationships with these customers and the prices we opening and stand to, to have reprise those contracts.

Got it, thank you.

And your next question comes from the line Lin Shen with Hite, please proceed.

Good morning and thank you for taking question. The first question is, you just mentioned a couple of times that you believe that demand is going to be flat but we hear from the natural gas producer their focus that every year there are some amount of coal to gas switch, so it seems that the total demand for coal should be shrinking year on year, so I was wondering can you talk about a little bit more detail why do you believe their demand can be flat for next couple of years.

We believe that cap productions are reduced, we are talking for Illinois Basin and Northern Ap...

For our market...

For our market and we believe that our markets, the cost of Illinois Basin and our Northern Ap for the plant that they built it, can compete very well in natural gas.

They are talking about their market share even though the basin is going to growing even the total demand may be shrink.

Yes, total demand may shrink I mean we don’t really, I mean we think demand in oil basin is about 140 to 145 million tonnes and we think it is going to stabilize there and that could move a little bit if the export market comes back but we see that the demand for the Illinois Basin right at 140 million to 145 million tonnes per year and that holding flat for the foreseeable future.

Great and now for another question is that, now you do have two public traded entity one is ARLP and another is GPFA, AHGP, now the GP is trading at about similar yield to the LP and things are the market does not much of their appreciation on the GP high attrition gross, I was just wondering like do you think the strategy of of about the margins in this two entity into one something you can consider in the near future?

Right we have considered that off and on and will continue to look at that. It has been sort of up and down, most of the year, 2014 it was very comparable it was like 10 basis point the difference pretty much on average then we had a little separation the last quarter and that's coming back, so there is something that we will continue to look at, I think we expect, we would like to believe AHGP should receive some premium for its growth but we will continue to be able to provide that distribution growth at ARLP so there should be some separation there. It is not, we can do what is right for our shareholders.

Okay thank you.

Ladies and gentlemen with that concludes our Q&A session. I will now like to turn the conference back to Mr. Brian Cantrell for closing remarks.

Thank you Jackie and appreciation to everyone for joining us today. Your support is well appreciated and your interest in both ARLP and AHDP and we look forward to talking to you all on our next call in April. Thanks very much.