Alliance Resource Partners, L.P. (ARLP) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Alliance Resource Partners and Alliance Holdings GP Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s call is being recorded. I would now like to turn the conference over to Brian Cantrell, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Shannon, and welcome everyone. Earlier this morning, we released 2015 fourth quarter earnings for both Alliance Resource Partners or ARLP, and Alliance Holdings GP or AHGP, and we’ll now discuss these results, as well as our outlook for 2016. Following our prepared remarks, we'll open the call to your questions. Before we begin, a reminder that our remarks today may include forward-looking statements that are subject to a variety of risks, uncertainties and assumptions, which are contained in our filings with the Securities and Exchange Commission, and are also reflected in this morning's press release. 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 items and the most directly comparable GAAP financial measures are contained at the end of the ARLP and AHGP press releases, which has been posted on their respective websites and furnished to the SEC on Form 8-K. Now that we're through with the required preliminaries, I'll turn the call over to Joe Craft, our President and Chief Executive Officer. Joe?

Thank you, Brian, and good morning everyone. ARLP today reported financial and operating results for the year, which included record volumes of coal produced and sold. Financial results were impacted by non-cash items that Brian will discuss later on the call. Excluding these non-cash items, adjusted EBITDA for the 2015 year was $747.2 million and adjusted net income was $383.8 million, both amounts coming at above the guidance we gave on our third quarter conference call. Reflecting these excluded items, AHGP reported adjusted net income of $244.7 million for the 2015 year. Cash flow was also solid as distributable cash flow came in at a record $561.6 million and our distribution coverage ratio for the full year was a robust 1.6 times. Based with the weak power demand and persistently low natural gas prices, and ongoing regulatory pressures in an oversupplied coal market, we were able to achieve these results relying on ARLP's long-term coal sales agreements and our ability to reduce operating expenses and capital expenditures. Conditions in the U.S. thermal coal markets continued to deteriorate during the fourth quarter of 2015 as mild weather reduced overall power demand. Utilities responded by deferring contracted tons where possible, adding the excess tons they had to accept to their already above normal coal stockpiles, and staying out of the spot market for additional first quarter 2016 deliveries. U.S. coal producer likewise responded by making significant production cuts during the fourth quarter of 2015. Every coal basin has been affected. Total annual production for the year was near 900 million tons for the first time since 1986. Fourth quarter production was even worse at only 207 million tons, which puts it on an annual pace of about 828 million tons. Several producers have recently made announcements of additional layoffs in 2016. As a result, we expect U.S. coal supply will be closer to 800 million tons in 2016. Looking specifically at our primary markets, supply from the Illinois basin and the Northern Appalachian Basin regions during the fourth quarter of 2015 was 53 million tons or 212 million tons on an annual run rate basis. We expect total 2016 coal demand for these basins to be approximately 215 million tons, which is 20 million tons below 2015 levels. What is unclear, however, is whether utilities will meet this anticipated coal burn out of their inventories or by purchasing coal, taking advantage of low current spot prices. It is also unclear how the financial condition of industry producers will impact their production decisions. ARLP has elected to address this uncertainty by shifting production to our lowest-cost mines and reducing unit shifts and production days to curtail production and bring our production volumes more in line with our contracted coal sales. Specifically, we recently idled our Onton and Gibson North mines. As previously announced, our Elk Creek mine at Hopkins County Coal will deplete in the first quarter of 2016. Due to our current expectations for market demand, we will not increase production at our River View mine this year as previously planned. With these changes, our Illinois Basin production will be around 6.5 million tons less in 2016 compared with 2015, not counting the 2.3 million tons produced at the Hamilton Mine in 2015 prior to our acquisition. We believe these actions establish a reasonable baseline for our sales and production in light of current market realities, and we will continue to operate below our installed capacity until the market signals a need for additional tons. The impact of our response to current market conditions is reflected in ARLP's 2016 guidance that Brian will discuss in a few minutes. Even with this reduced production level, and costs incurred to keep production capacity available in the event additional demand materializes, based upon our guidance outlined below, we expect ARLP's 2016 distributable cash flow to cover its current unit-holder distribution by 1.1 to 1.2 times. In reflecting this expectation, Alliance's Boards have elected to maintain current quarterly unit-holder distributions at $0.675 per unit at ARLP, and $0.96 per unit at AHGP. Looking ahead, we continue to believe that ARLP can successfully navigate the current market, and is well-positioned to grow its production and cash flows as the market comes back into balance. Also want to take a moment this morning to discuss safety at ARLP's operations. We have a long history of providing our miners with safety, training, and technology that is second to none, and that has led to continuous improvements in safety at our mines for many years. In fact, during 2015, our operations had the best safety performance in ARLP's history, posting results that were 60% below the industry average for lost time incidents. While we are proud of these results, we are also well aware that despite our best efforts, accidents can occur. As evidenced by the recent tragedy at our Dotiki mine, everyone at Alliance is saddened by the tragic loss of our colleague, Nathan Phillips. And we are committed to keeping safety our highest priority by strengthening our safety-first culture every day. We continue to send our prayers to the Phillips family. I’ll now turn the call over to Brian for a more detailed review of our 2015 financial results and 2016 guidance. Brian?

Thank you, Joe. As outlined in our releases this morning, while ARLP remained profitable and generated strong cash flow in 2015, reduced coal sales prices drove revenues, EBITDA, and net income lower in 2015 compared to 2014. Revenues for the 2015 year decreased 1.2% to $2.27 billion, as lower coal sales prices and customer deferrals of approximately 1.8 million tons scheduled for delivery in 2015 more than offset our record coal sales volumes and led to higher-than-normal inventories at our mines at the end of the year. In addition to lower coal sales prices, our financial performance in 2015 was also impacted by several significant items. First, ARLP booked $101.1 million of non-cash asset impairments related to the idling of our Onton mine, lower coal sales pricing available to our MC Mining mine, and the surrender of leases that were no longer strategic to our operations. ARLP's results for the 2015 year were also impacted by items related to White Oak. As discussed in our previous earnings calls, prior to closing the White Oak acquisition last July, losses passed through to ARLP in 2015 related to our equity investment in White Oak increased $31.8 million to $48.4 million compared to 2014. Upon completion of the business combination accounting for the acquisition, we also recorded in the 2015 quarter a $22.5 million non-cash net gain, primarily to reflect the value of ARLP's [indiscernible] agreements negotiated as part of the initial transaction structure with White Oak. Excluding the impact of non-cash items, ARLP's adjusted EBITDA for the 2015 year was $747.2 million, or 7% lower than the 2014 year. Reflecting these excluded items, adjusted net income for the 2015 year declined 22.8% to $383.8 million at ARLP; and at AHGP, by 13.9% to $244.7 million, net of amounts attributable to non-controlling interests. On a per-ton basis, total average coal sales price realizations in 2015 fell 3.5% year-over-year to $53.62. This was slightly below our initial expectations to the greater-than-anticipated deterioration of the coal markets last year. On the cost side, we entered 2015 anticipating segment adjusted EBITDA expense per ton would increase 4% to 5% over 2014. Reflecting the production optimization and cost reduction efforts previously discussed by Joe, however, cost per ton in 2015 actually improved by 1.7% compared to 2014. Looking briefly at results for the 2015 quarter, total revenues decreased 8.2% to $542.2 million, as coal sales revenues fell 6.1%, due to lower coal sales prices and volumes, and, as anticipated, a decline in other sales and operating revenues following the White Oak acquisition. Results for the 2015 were also impacted by the non-cash items I discussed earlier. Specifically, $89.4 million of impairments related to our MC Mining and Onton mines and surrendered leases, which were partially offset by the $22.5 million non-cash net gain related to final business combination accounting for the White Oak acquisition. Excluding these non-cash items from the 2015 quarter, ARLP's adjusted EBITDA was $186.8 million, a decrease of 7.7% compared to the 2014 quarter. Reflecting these excluded items, adjusted net income in the 2015 quarter decreased 28.6% to $88.4 million at ARLP; and at AHGP, by 19% to $57.5 million, again, net of amounts attributable to non-controlling interests. Comparing the 2015 quarter to the sequential quarter, total coal sales price fell slightly to $52.70 per ton. Segment adjusted EBITDA expense per ton increased 1.7% to $33.19, while segment adjusted EBITDA of $202 million was comparable. In the Illinois Basin, a 7.7% improvement in segment adjusted EBITDA expense per ton more than offset a slight decrease in coal sales price per ton, leading to 16.1% increase in segment adjusted EBITDA, all as compared to the sequential quarter. In Appalachia, segment adjusted EBITDA expense per ton increased sequentially by 28.8%, as our Tunnel Ridge mine reduced production in response to lower demand and high coal inventory levels, which led segment adjusted EBITDA for the region lower to $29.1 million in the 2015 quarter. Let's now take a turn and look at our initial guidance for 2016. Looking first at capital expenditures and investments, ARLP is reducing capital expenditure significantly in 2016 to an estimated range of $134 million to $142 million, including maintenance capital expenditures, compared to $287.8 million in 2015. As noted in our release, anticipated capital expenditures in 2016 are primarily related to our maintenance capital expenditures, which include equipment rebuilds and replacements, mine extension, and other infrastructure projects at various operations. Based on utilization of used equipment acquired from others and redeployment of equipment from ARLP's idled operations to our other mines, we are currently estimating maintenance capital expenditures of approximately $3.98 per ton produced in 2016. Reflecting these near-term anticipated savings, and consistent with our approach of estimating maintenance capital over a long-term horizon, due to be inherently cyclical nature of these expenditures, for distribution planning purposes ARLP is currently estimating total average maintenance capital expenditures of approximately $4.75 per ton produced over the next five years. That's down from our most recent estimate of $4.96 per ton. In 2015, ARLP also funded $64.5 million of investment activities related to White Oak equity contributions and oil and gas mineral acquisitions. For 2016, ARLP currently anticipates funding investments of approximately $60 million to $70 million, all of which is related to acquisitions of oil and gas minerals. In summary, ARLP currently anticipates total capital expenditures and investments in a range of $194 million to $212 million for 2016, well below its 2015 total of $352.3 million. As Joe discussed earlier, ARLP is adjusting coal volumes to reflect anticipated market conditions in 2016. With these adjustments, we are currently estimating 2016 coal production in a range of 33.7 million to 35.7 million tons, and coal sales volumes in a range of 34.6 million to 38.1 million tons, of which approximately 34.3 million tons are priced and committed. ARLP has also secured coal sales and price commitments for approximately 19.1 million tons, 14.5 million tons, and 7.1 million tons in 2017, 2018, and 2019, respectively. Based on these existing commitments and expectations for filling its current open position, ARLP anticipates its average coal sales price per ton will be approximately 3.5% to 6% lower in 2016 compared with 2015, primarily due to deterioration in the near-term coal markets. Reduced coal sales volumes and pricing, as well as other revenues, are expected to drive 2016 revenues, excluding transportation revenues, to a range of $1.82 billion to $1.95 billion. For 2016, ARLP is currently expecting to generate EBITDA in a range of $545 million to $615 million, and net income in a range of $230 million to $300 million. In addition, ARLP currently anticipates total segment adjusted EBITDA expense per ton at the 2016 midpoint will be comparable to 2015, as cost reduction initiatives mitigate the impact of lower coal volumes. Lower anticipated coal sales volumes are expected to drive total segment adjusted EBITDA per ton at a 2016 midpoint down by 11% to 12%, compared to the prior year. Turning now to ARLP's balance sheet, we exited 2015 with total liquidity at a healthy $442.5 million, and a conservative leverage ratio of 1.2 times total debt to EBITDA. In 2016, we are evaluating opportunities to enhance ARLP's debt capacity by fully utilizing our $100 million receivables securitization facility and expanding our capital sale-leaseback program. We also intend to work with our banks to extend the term of ARLP's existing credit facilities to give the debt capital markets time to recover. Assuming we are able to expand ARLP's debt capacity as just outlined, and reflecting reduced operating and financial expectations for this year, we expect ARLP's leverage ratio may increase modestly in 2016, but should remain quite conservative at 1.4 to 1.6 times. We continue to believe that our strong balance sheet provides ARLP with strategic advantages in a difficult market, and should provide us the financial flexibility to take advantage of opportunities that develop as we execute our strategy. We've provided a lot of information and covered a number of topics this morning. And, in closing, we'd like to offer some perspective. We are all well aware that the current downturn across the commodity space has decimated many companies, especially in the energy sector, and coal in particular. Has Alliance been impacted? Absolutely. But we have responded by making the hard decisions to cut production, reduce costs, slash capital, and stabilize our unit-holder distributions. We believe these decisions have created a sustainable platform that will serve Alliance well until the markets recover. Keep in mind that through all of this turmoil, Alliance has remained profitable, generated solid cash flow, and maintained a conservative financial structure. Alliance entered this downturn as an industry leader. And with our exceptional people and strategically located low-cost operations, we expect to emerge with strength. We have always taken the long view, and we are confident that Alliance is positioned to succeed for many years to come. This concludes our prepared comments. We appreciate your continued support and interest in both ARLP and AHGP. And now with Shannon's assistance, we will open the call to your questions. Shannon?

Thank you. [Operator Instructions] Our first question is from Mark Levin with BB&T Capital Markets, you may begin.

Good morning guys. Appreciate all the color and guidance this morning. A quick question as it relates to the distribution, I guess you mentioned having the distribution covered at well more than 1 times in 2016 based upon your projections. Is it implied or implicit in your distribution coverage expectations that the distribution will not be cut in 2016?

Thanks for your question. Thanks for joining the call. I think we will continue, and the Board will continue to have to evaluate this distribution decision on a quarterly basis. As we’ve indicated in our call remarks today, there's still a lot of uncertainty as to what the utilities are going to do, as far as their purchasing for 2016. I believe our guidance is trying to take a very conservative view by bringing our production in line with our contracted position. We are hopeful that our customers will take their contracted position in 2016. However, there were deferrals in 2015. So we're going to have to continue to lead the markets and make that determination on a quarter-by-quarter basis. There's also a case that can be made that some distribution reset may be prudent to preserve liquidity. So as we assess the access to capital, I'm sure the Board will take that into consideration also. So, I can't give you any firm guidance on what the future distribution policy will be. I can just say that for this particular quarter, we feel like that the weather impact has created sort of a situation that we don't think is sustainable and permanent. We do believe that our plan is achievable, and we feel like it's got more upside than downside. But having said that, we're going to have to evaluate what, in fact, goes on, on a quarter-by-quarter basis, and I'm sure that the Board will do the prudent and the right thing for the unit-holders for the long-term, best interest of both shareholders.

And Joe, my follow-up question has to do with M&A. Clearly you guys are in the very enviable position, I suppose, of being one, if not only, coal producer in the U.S. with the ability to make large-scale acquisitions and even small acquisitions, for that matter. As you look at the M&A landscape, do you feel like you guys are likely or unlikely to make a coal-related acquisition in 2016? Thank you.

I think the opportunity is there for us to participate with some form of a transaction in 2016. As you say, the markets are – create an environment where you can make several scenarios where making an acquisition makes sense. We continue to evaluate any and all opportunities that present themselves. The key question always usually revolves around value, and that's going to have to be a determining factor, I think. We definitely would be interested if the right opportunity presented itself, if we could reach agreement on a win-win situation where someone would be interested in trying to have more certainty with their own individual situation. So, I can't really handicap it. However, I can say that we are very busy looking at any and all opportunities that may present themselves.

Great. Thanks for the color.

Thanks, Mark.

Thank you. Our next question is from Lucas Pipes with FBR Capital Markets. You may begin.

Hey, good morning, everybody.

Good morning, Lucas.

My first question is pretty profane, but I hope you could maybe give me and investors that care about this very much a little bit of an update. And that is, where would you put the current spot prices for your products in the Illinois Basin? And, similarly, when you think about 2016, 2017, if you were to place additional volumes in the market, at what level do you think you would be able to realize for those tons?

Lucas, I think the best way to answer that question is to talk about what we’ve actually contracted since our last call. In total, we've contracted about 7.5 million tons breaks [ph] through 2019 at an average price of about $41.73 per ton. That weighted average price reflects lower pricing in the near-term, but also includes contango in the out years at roughly 5% to 7% year-over-year. Looking specifically at the Illinois Basin, we contracted for about 6.5 million tons at an average price of $41.90. And in Appalachia, we contracted for 1.1 million tons at an average price of $40.66.

That is very helpful. Thank you for that. And then maybe turning to the industry more broadly, Joe, about a week ago or so, we saw the news that there will be a pause for new federal leases – coal leases. When you think about the potential long-term impact that it has on the different basins, is the Illinois Basin actually a beneficiary of that?

I believe, yeah, obviously, the major impact is to the Powder River Basin. So when you look east of the Mississippi, there's very little federal leasing of coal. The action by President Obama was purely political. I think to be able to really understand the impact on a longer-term basis, you have to determine who the next president is going to be, because this is a political decision. It's not anything, but that. If there was any basis or reason for it, they would have put a moratorium on all federal leasing of all fossil fuels. So, Obama is continuing to favor certain industries, picking winners and losers, and it's a political statement. So, we don't think it will have any short-term impact. And we believe that the next president will be hopefully more focused on the problems in America, and not trying to make political statements with every decision they make, and that this moratorium will be short-lived.

That's helpful. Thank you for your perspective. And if I maybe…

If it's not, then yes, the Illinois Basin will benefit as well as all other Eastern producers, because it will have an impact on, obviously, replacement of production. I think that goes without saying.

Got it, okay. And maybe to one last question. You are taking about 15% off your production volumes, versus prior guidance. When you look across the industry, I think it's fair to say that, at this point, you are taking a leadership role. Where would you say the supply response is going to shake out for the Illinois Basin more broadly? Would you expect a lot of tons to come offline? If you could maybe share your perspective on the broader supply response in this market, I would appreciate that.

Yeah, I mean, I think that we do see others that have also pulled back. I mean, if you look at MSHA data for Illinois Basin in third quarter, the MSHA data would suggest there was 31.8 million tons produced; in the fourth quarter, 26.2 million tons. So when you look at 2016, we are currently expecting that that supply will probably be closer to the 26 million than the 31.8 million. So, overall, we think first quarter is going to continue to probably be at the lower run rate. And the out years will, in large part, be dependent on how the customers make decisions on their buying habits. If they start taking coal out of inventory, then I think that the 2016 could actually go down. If they decide to take advantage of buying coal at what they may perceive to be good, attractive prices, and keep their inventories higher, then you could see that roll up a little bit. So, overall, we would expect 2016 production to be somewhere in a range of 105 million tons to 115 million tons for – depending on how the utilities make their buying decisions in 2016. Our own assumption assumes it will probably be somewhere – at the 110 million, based on what we've projected the demand to be, and what we think the utilities' buying habits would be.

Got it. That's helpful. I appreciate that, and good luck this year.

Thanks, Lucas.

Thank you.

Thank you. [Operator Instructions] Our next question comes from Paul Forward with Stifel. You may being.

Good morning, Paul.

Good morning.

Brian, I think you had said that you started out 2015 thinking that your unit costs would be up 4% to 5%, and they actually improved by 1.7%. Going into 2016, you are anticipating basically flat costs, and obviously, shrinking margins with the declining average price. I was just wondering if you could talk a little bit about whether you might be able to actually pull those unit costs below the flat level. And just specifically looking at that really good number that you had in the Illinois Basin in the fourth quarter, with EBITDA expense of just over $28 per ton, is that something that might be repeatable in 2016? Because I guess we would say the anticipation of the full-year flat unit costs in 2016, that would anticipate an increase from that fourth quarter, that really strong fourth quarter rate that you had had in the Illinois Basin.

Right. And, obviously, all the per-unit costs are significantly impacted by volume expectations. So, we have clearly implemented a number of cost reduction initiatives that have been quite successful. And if volumes stayed level, you would likely see continued improvement in our overall cost per ton. But on a reduced volume basis, quite frankly, it's pulling it back by the 15% or so that we just talked about. Maintaining flat unit costs is quite an accomplishment. That being said, we're continuing to closely evaluate all of our costs. We think there are additional levers that we could pull, depending on how circumstances play out. So there is a possibility for improvement. As Joe mentioned, we think our guidance is likely a bit conservative, but we'll see how the year plays out.

Another factor is with the closing of Onton and with the closing of Gibson North and with the closing of Hopkins, there's some recovery costs as it relates to Hopkins, with the equipment that's underground, that is buried into these cost numbers. And with Onton [indiscernible] ongoing cost to maintain those operations. So we have not closed those on a permanent basis. So we're trying to keep those on “hot idle”. So that incurs cost, and so that's factored in. So you didn't see the full benefit of those additional costs at Onton and Gibson North in the fourth quarter.

And incurring those holding costs and maintaining that capacity available obviously gives us optionality, should the markets improve and we can bring production back online.

So we are hopeful that there will be opportunities in 2016 that allow us to have higher production. If we do, then our costs would reflect lower costs, just like Brian said.

Great. And I think you had also mentioned your anticipated $60 million to $70 million of investments going to the oil and gas side of things. I was wondering if you could talk a little bit about – in this really weak commodity price environment for oil and gas, what kind of returns do you see associated – if oil and gas stays at these levels, what kind of returns would you anticipate would be associated with those investments as they eventually result in returns to the company? And I know you talked a little bit about M&A earlier, but could you stack up the return potential from an oil and gas investment with what's potentially out there in coal these days?

Paul, I'll touch on the oil and gas investments. We entered into this seeing an opportunity to take advantage of pricing that has been occurring since the October of 2014-type time frame. The reduction in prices for oil and gas have allowed us to secure a broader footprint across the primary resource plays that we're focused in, at a much lower cost per acre than we had anticipated. The timing of when drilling occurs on our mineral interests is uncertain, but if you look at some recent transactions – Devon with Felix in Oklahoma, and Concho in the Permian – it suggests that, even in this price environment, E&P companies are willing to pay a nice premium to be in the right locations within these resource plays. And as we look at where we are positioned and overlay some of the recent transactions that have occurred, and we consider our average per-acre cost, we think that we're very well positioned and that the returns are going to be satisfactory to us.

As you try to answer your second question as how do we compare the two, we really don't compare the two. But I think if we look at any coal acquisitions and how they would relate, I would expect the coal returns would probably be greater, just because we look at our – exactly where we are with our current investments within coal, we are very well situated to weather the storm, if you will, in the short-term, and very well situated for the long-term to have – go back to closer to full capacity without acquisitions. So any acquisitions that we would make would have to be attractive enough that would encourage us to continue just to add to a portfolio that's already strong. So, I would expect that any transaction we do in the coal space would probably have higher returns than what we would be expecting on the oil and gas side.

Okay, great. And maybe last question, for 2017 you added a couple million tons of commitments during the quarter, so you are now at 19.1 million tons. And obviously you'll be trying to fill that book as 2016 goes along. I guess the question there is, how active are you now? Is there any real kind of expectation we could see that over the next quarter or two, that that number would be up significantly for 2017 as you report the next couple of quarters? Or do you think that it really is that the utilities are holding back on their discussions, and that we might see the book get filled more in the second half of the year?

We are pursuing discussions with all our customers currently, and I would hope that we would have announcements during the first half of this year. So as we try to think towards 2017, and planning what our production levels should be, it's important for us to have a sense of where our customers – what they would like to do. Because quite a bit of the unidentified tons we got in 2016 are contracts that we currently had. So that's market share we hold today. And we need – I think both parties would like to get some certainty in 2017 as to what each party's position is going to be. So we are engaged in conversations in that regard. Hopefully, by the end of second quarter, we'll have more information for you on what that position would be.

Okay. Thanks a lot, Joe. Thanks, Brian.

Thanks, Paul.

Thank you. Our next question is from Chris Straub [ph], Private Investor.

Good morning, gentlemen. I just want to say thanks for all your information. A lot of it went over my head. I'm just a layman investor with you all for probably 10 years. I do notice that the effective yield yesterday was very high – 23%, 27% – and you did state that you can cover the current distribution. And you forecasted, I think, which is pretty nice, 1.1 times to 1.2 times. Is there a point where – and I've heard from other companies that say our cost of capital from the stock price is too high, therefore, we're cutting our dividend. And I know you guys can't give much more forecast than that, but I guess that is a real concern to your average investor out here. And I guess just looking for assurances. And not that there are any, but you guys always seem to do the right thing for us as shareholders. So, [indiscernible] covered a lot of it before, so I apologize.

I think on your question on cost of capital, we have not been a serial issuer, I think is fair to say, of equity. We've only done one acquisition with equity in our history, and that was in our early years. And I regretted that in hindsight. So I think when we look at cost of capital as to where our distribution yield is trending, that should not be a concern. I think that the bigger issue really gets back to access to capital and the debt markets and the preservation of liquidity. That, as I mentioned earlier in the call, is a factor. So when we do determine on how we manage our balance sheet, and what that access to capital is, I think that is a factor that reasonable men could suggest you ought to do one thing or the other relative to the distribution. But we're going to continue to monitor that. We feel with our balance sheet and our track record, and our future low-cost profile that we have, the market demand that we've got with our customers, that those markets should be available to us. But that's something that has to continue to be evaluated in making the distribution decision.

Sure. Okay. Well, I appreciate that. Have you seen your cost for debt changing much or significantly?

We have heard – they're talking about extending – maybe I should let Brian do this, because he's the one --. Go ahead, Brian.

Obviously, we're in constant contact with our financial advisers and bankers. Without question, the debt markets have increased the cost of capital that's available, and we would be impacted by that. We are fortunate that we don't have any immediate maturities under our current revolver. So we are planning to work with our banks to extend that out, allow the debt markets to settle a little bit, and look to potentially access those when the environment is a little bit more attractive. As we have been talking with our bankers on extensions, we do anticipate a modest uptick in cost underneath those facilities. On a broader basis, we will address that probably sometime in the 2017, early 2018 time frame, as we look at longer-term maturities.

Okay. Are the banks or any other -- do you have any loan restrictions or covenants as far as -- that might reflect on, or are factored by your distribution that you elected to pay out?

I would just say we have no concerns around our current covenants at all.

Good deal. Okay. Wow. So, paying out effectively 23% to 27% between your two different stocks. It's pretty nice, and look forward to receiving that, I guess. I don't know what else to say.

Appreciate the call, Chris.

Yes, thank you very much. Bye-bye.

Thank you. Our next question is from Jessica Idiculla with Citi. You may being.

Hi, good morning.

Good morning, Jessica.

I just had a really quick follow-up question on the oil and gas investments. Is the $60 million to $70 million that you guys are planning for this year – is there any discretion to that? Could you pull back if you needed to, or is that sort of a set commitment for 2016?

It's not a set commitment. I mean, obviously, we have partnered with a firm that has been in this business for 30-plus years. A lot of times when you look at mineral acquisition companies, they are primarily landmen. This group has obviously landmen that are very effective in acquiring the position. But they also have their own geologists, engineers, et cetera, that help them focus in on the sweet spots, if you will, on the various resource plays that we are pursuing. The timing of when capital occurs, the total amount that when capital occurs is wholly dependent upon being able to transact with the owner of the minerals. We think that this is a reasonable range. We are currently investing at a pace of $5 million to $6 million a month. That could change, up or down, but we think this is a reasonable expectation for 2016.

Okay.

We do have fruitful rights, so we could impact that if we needed to. But as Brian said, as we work with our partner and look at these opportunities together, continue to believe that the investments we're making are good, long-term investments. But, yes, we could modify that if we wanted to.

Okay. Got it. Great. Thanks.

Thank you.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Brian Cantrell for closing remarks.

Thank you, Shannon. We sincerely appreciate everyone's time this morning, as well as your continued support and interest in both ARLP and AHGP. We look forward to our next quarterly earnings call and release, which is scheduled for late April, and, at that time, discussing our first-quarter results with you. This concludes our call this morning. Thanks to everyone for your participation.