Alliance Resource Partners Balances Royalty Strength, Coal Strain

Alliance Resource Partners ((ARLP)) has held its Q1 earnings call. Read on for the main highlights of the call.

Alliance Resource Partners’ latest earnings call painted a nuanced picture, balancing record royalty performance and operational gains against weaker coal pricing, production interruptions, and a sharp decline in net income driven by a major impairment. Management stressed balance-sheet strength, disciplined capital allocation, and growing royalties as key offsets to coal market headwinds.

Adjusted EBITDA Beat Internal Targets Despite Decline

Alliance posted adjusted EBITDA of $155.0 million for Q1 2026, topping its own expectations thanks largely to stronger oil and gas royalties and firmer commodity prices. Even so, adjusted EBITDA fell 3.1% year over year and nearly 19% sequentially, underscoring how weaker coal fundamentals and one-off disruptions weighed on results.

Record Oil & Gas Royalty Quarter Lifts Earnings Mix

Oil and gas royalty revenue reached $41.3 million, up 14.6% from a year ago, on record volumes of 1.0 million BOE, up 16.1% year over year and 3.3% sequentially. Segment adjusted EBITDA climbed to $34.6 million, rising more than 15% versus both the prior year and prior quarter, and management responded by raising 2026 volume guidance by about 5%.

Royalty Segment Delivers Double-Digit Growth

Total royalty revenues, combining coal and oil and gas, rose to $61.2 million, an increase of 16.1% year over year and 7.7% sequentially. Coal royalty adjusted EBITDA jumped 30.6% to $12.3 million, largely on higher royalty tons sold, with Tunnel Ridge a standout contributor to the segment’s robust performance.

Productivity Gains From Key Mines Offset Disruptions

Tunnel Ridge returned to steady longwall operation, with output roughly 28% higher than both Q1 2025 and Q4 2025, helping to support volumes. Improved productivity at Riverview and Gibson South further offset reduced production at Hamilton during an extended longwall move, while the Riverview-to-Henderson County transition finished with Henderson now at planned six super-section capacity.

Stronger Contract Book Supports Coal Sales Visibility

Alliance added 2.6 million net tons of coal contracts for 2026–2027, further locking in future sales. Management said more than 95% of expected 2026 coal volumes are now committed and priced at the midpoint of guidance, with the remaining open position mainly in the second half and tied to summer demand and customer needs.

Solid Balance Sheet and Ample Liquidity

Total debt and finance leases stood at $507.7 million, translating to total and net leverage of 0.73 times and 0.69 times trailing twelve-month adjusted EBITDA. Liquidity remained strong at $431.2 million, including $28.9 million in cash and $402.3 million of available borrowing capacity, giving the partnership flexibility despite earnings volatility.

Heavy Investment and Tight Distribution Coverage

The partnership deployed $95.7 million on capital expenditures and $16.2 million on oil and gas minerals acquisitions during the quarter, reflecting ongoing portfolio build-out. Distributable cash flow totaled $77.8 million, essentially matching the $0.60 per unit distribution, leaving coverage at 1.0 times and prompting management to prioritize rebuilding coverage before raising payouts or pursuing buybacks.

Health and Safety Performance Supports Low-Cost Operations

Management highlighted one of the strongest health and safety quarters in the past five years, which they said underpins reliable, low-cost operations. This operational discipline is key to sustaining productivity gains across the portfolio and maintaining competitiveness as coal pricing softens.

Net Income Plunges on Impairment and Market Headwinds

Net income attributable to the partnership dropped to $9.1 million, or $0.07 per unit, from $74.0 million, or $0.57 per unit, a year earlier. The decline reflected lower coal revenue, higher depreciation, an $11.6 million drop in digital asset fair value, and a $37.8 million noncash impairment tied to the Metiki operation.

Metiki Longwall Exit Raises Operational Uncertainty

Alliance’s decision to cease longwall production at its Metiki mine triggered the $37.8 million impairment and introduced significant uncertainty around that asset’s future. Management cautioned that investors should not expect meaningful clarity on Metiki’s long-term plan until later in the year, leaving a notable question mark in the coal portfolio.

Revenue Pressure From Softer Coal Pricing

Total revenues slipped 4.5% year over year and 3.6% sequentially to $516 million, as coal pricing moved lower. The average coal sales price per ton fell to $56.40, down 6.5% versus the same quarter last year and 2.0% from Q4, as older, higher-priced contracts rolled off and were replaced at lower market rates.

Coal Volumes Mixed Amid Longwall Moves

Total coal production declined to 8.0 million tons from 8.5 million a year ago, while coal sales volumes edged up to 7.9 million tons from 7.8 million but slipped from 8.1 million sequentially. Illinois Basin volumes were particularly pressured, falling 5.9% from the prior quarter due to the extended longwall relocation at Hamilton.

Illinois Basin Costs Creep Higher

Illinois Basin segment adjusted EBITDA expense per ton rose to $35.20, up 1.3% year over year and 3.4% sequentially, largely because of the prolonged longwall move at Hamilton. These higher unit costs partially offset the productivity gains seen at other mines and highlight the near-term cost risk around major moves.

Weather Delays and Digital Assets Add Earnings Noise

Around 200,000 tons of scheduled coal shipments were pushed back by river disruptions and winter storms, though management expects to make up the volumes over the rest of 2026. Separately, the $11.6 million decline in the fair value of digital assets further weighed on net income, adding another layer of volatility to reported results.

Guidance: Stable Coal Outlook, Higher Royalty Volumes

Management reiterated 2026 guidance ranges for coal sales volumes, pricing, and unit costs, noting that planned longwall moves should finish next quarter with none scheduled again until 2027, improving operational visibility. They also lifted oil and gas royalty volume guidance by roughly 5%, expecting higher realized BOE prices than last year to support stronger segment EBITDA if current market conditions persist.

Alliance Resource Partners’ call showcased a portfolio in transition, with growing royalties and strong contracting helping offset coal price weakness, higher costs, and a major impairment. Investors will be watching how quickly the partnership rebuilds distribution coverage, resolves the uncertainty at Metiki, and converts its record royalty momentum into steadier, more resilient earnings growth.