Natural Resource Expands Acreage - Analyst Blog

By Zacks Equity Research,

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Natural Resource Partners L.P. ( NRP ) further expanded its position in the Mississippian Lime oil play in North Central Oklahoma by acquiring 19,200 net mineral acres for $64 million. The acquisition dwarfs prior acquisitions made by the partnership in this region from December 2011 through February 2012 of 9,500 net mineral acres. The acquired acreages are leased out to oil and gas operators and the partnership will receive royalty revenue from the oil and gas produced from the acreage.

The high resource potential in the Mississippian oil play has attracted big oil and gas operators. Natural Resource too decided to jump in on the bandwagon. However, the partnership's acreage is much more modest than Devon Energy 's ( DVN ) control of 230,000 net acres and Chesapeake Energy 's ( CHK ) possession of 2 million net acres in this play.

Financial strength has enabled the partnership to make selective strategic acquisition and strengthen its operation.  In March 2012, the partnership acquired rail loadout, associated infrastructure assets and a contractual overriding royalty interest on certain tonnage at the Sugar Camp mine near Benton, Illinois for $58.85 million. The partnership will receive throughput fee in the band of $1.05 to $1.17/ton over the first 20 years of the agreement, for all coal produced from the first longwall in the Sugar Camp mine and the associated development units.

In February 2012, the partnership made a fifth acquisition of coal reserves at the Deer Run mine near Hillsboro, Illinois for $40 million from Colt LLC, an affiliate of the Cline Group. Till date the partnership has paid $215 million out of $255 million decided upon to acquire 200 million tons of coal reserves from that region.  The royalty revenue from Illinois Basin in 2011 was $41.3 million, growing from $30.2 million in 2010. We believe the addition of new acreage will enhance royalty revenue in 2012.

Our View

The first quarter results of the partnership exceeded our projections, driven by the higher production in Northern Appalachia and the Gulf Coast region. We believe the royalty revenue from these acquisitions will act as a breather, given the expected weak performance in the first half of 2012, stemming from softer demand due to mild weather conditions. The Zacks Consensus Estimates for the second quarter and fiscal 2012 are presently pegged at 43 cents and $1.79 per unit, respectively.

Natural Resource Partners currently retains a Zacks #3 Rank which translates into a short-term Hold rating.

Based in Houston, Texas, Natural Resource Partners principally engages in owning and managing of mineral reserve properties. The partnership mainly owns coal, aggregate, and oil and gas reserves across the United States.

CHESAPEAKE ENGY (CHK): Free Stock Analysis Report
DEVON ENERGY (DVN): Free Stock Analysis Report
NATURAL RSRC LP (NRP): Free Stock Analysis Report
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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: CHK , DVN , NRP

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