Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Significant relationships referenced in this management's discussion and analysis of financial condition and results of operations include the following:
● References to "we," "us," "our" or "ARLP Partnership" mean the business and operations of Alliance Resource Partners, L.P., the parent company, as well as its consolidated subsidiaries.
● References to "ARLP" mean Alliance Resource Partners, L.P., individually as the parent company, and not on a consolidated basis.
● References to "MGP" mean Alliance Resource Management GP, LLC, ARLP's general partner.
● References to "Mr. Craft" mean Joseph W. Craft III, the Chairman, President and Chief Executive Officer of MGP.
● References to "Intermediate Partnership" mean Alliance Resource Operating Partners, L.P., the intermediate partnership of Alliance Resource Partners, L.P.
● References to "Alliance Coal" mean Alliance Coal, LLC, the holding company for our coal mining operations.
● References to "Alliance Minerals" mean Alliance Minerals, LLC, the holding company for our oil and gas mineral interests.
● References to "Alliance Resource Properties" mean Alliance Resource Properties, LLC, the land holding company for certain of our coal mineral interests, including the subsidiaries of Alliance Resource Properties, LLC.
Summary
We are a diversified natural resource company operating in the United States that generates operating and royalty income from the production and marketing of coal to major domestic and international utilities and industrial users as well as royalty income from oil & gas mineral interests located in strategic producing regions across the United States. We began coal mining operations in 1971 and, since then, have grown through acquisitions and internal development in strategic producing regions to become the second-largest coal producer in the eastern United States. Our mining operations are located near many of the major eastern utility generating plants and on major coal hauling railroads in the eastern United States. Two of our mines have loading facilities located on the banks of the Ohio River. As is customary in the coal industry, we have entered into long-term coal supply agreements with many of our customers. In addition to our mining operations, in 2007, Alliance Resource Properties began acquiring control of coal mineral interests and leasing the coal mineral reserves and resources to our mining operations. In 2014, we began acquiring oil & gas mineral interests in premier oil & gas producing regions across the United States.
We have four reportable segments, Illinois Basin Coal Operations, Appalachia Coal Operations, Oil & Gas Royalties and Coal Royalties. We also have an "all other" category referred to as Other, Corporate and Elimination. Our two coal operations reportable segments correspond to major coal producing regions in the eastern United States with similar economic characteristics including coal quality, geology, coal marketing opportunities, mining and transportation methods and regulatory issues. The two coal operations reportable segments include seven mining complexes operating in Illinois, Indiana, Kentucky, Maryland, Pennsylvania and West Virginia and a coal-loading terminal in Indiana on the Ohio River. Our Oil & Gas Royalties reportable segment includes our oil & gas mineral interests which are located primarily in the Permian (Delaware and Midland), Anadarko (SCOOP/STACK), and Williston (Bakken) basins. Our ownership in these basins includes approximately 57,000 net royalty acres, which provides us with diversified exposure to industry leading operators consistent with our general strategy to grow our oil & gas mineral interest business. We market our oil & gas mineral interests for lease to operators in those regions and generate royalty income from the leasing and development of those mineral interests. Our Coal Royalties reportable segment includes coal mineral reserves and resources owned or leased by Alliance Resource Properties, which are either a) leased to our mining complexes or (b) near our coal mining operations but not yet leased.
● Illinois Basin Coal Operations reportable segment includes operating mining complexes (a) the Gibson County Coal, LLC ("Gibson") mining complex, which includes the Gibson South mine, (b) the Warrior Coal, LLC ("Warrior") mining complex, (c) the River View Coal, LLC ("River View") mining complex and (d) the Hamilton County Coal, LLC ("Hamilton") mining complex. The segment also includes our Mt. Vernon Transfer Terminal,
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LLC ("Mt. Vernon") coal-loading terminal in Indiana which operates on the Ohio River, Mid-America Carbonates, LLC ("MAC") and other support services, and our non-operating Illinois Basin mining complexes.
● Appalachia Coal Operations reportable segment includes operating mining complexes (a) the Mettiki mining complex, (b) the Tunnel Ridge, LLC ("Tunnel Ridge") mining complex and (c) the MC Mining, LLC ("MC Mining") mining complex. The Mettiki mining complex includes Mettiki Coal (WV), LLC's Mountain View mine and Mettiki Coal, LLC's preparation plant.
● Oil & Gas Royalties reportable segment includes oil & gas mineral interests held by AR Midland, LP ("AR Midland") and AllDale I & II and includes Alliance Minerals' equity interests in both AllDale III (Note 9 – Investment) and Cavalier Minerals. Please read "Item 1. Financial Statements (Unaudited) — Note 9 – Investment" of this Quarterly Report on Form 10-Q for more information on AllDale III.
● Coal Royalties reportable segment includes coal mineral reserves and resources owned or leased by Alliance Resource Properties that are (a) leased to certain of our mining complexes in both the Illinois Basin Coal Operations and Appalachia Coal Operations reportable segments or (b) located near our operations and external mining operations. Approximately two thirds of the coal sold by our Coal Operations' mines is leased from our Coal Royalties entities.
● Other, Corporate and Elimination includes marketing and administrative activities, Matrix Design Group, LLC and its subsidiaries ("Matrix Design"), Alliance Design Group, LLC ("Alliance Design") (collectively, Matrix Design and Alliance Design referred to as the "Matrix Group"), Pontiki Coal, LLC's workers' compensation and pneumoconiosis liabilities, Wildcat Insurance, LLC ("Wildcat Insurance"), which assists the ARLP Partnership with its insurance requirements, AROP Funding, LLC ("AROP Funding") and Alliance Resource Finance Corporation ("Alliance Finance") (both discussed in Note 6 – Long-Term Debt) and other miscellaneous activities. The eliminations included in Other, Corporate and Elimination primarily represent the intercompany coal royalty transactions described above between our Coal Royalties reportable segment and our coal operations' mines. Please read "Item 1. Financial Statements (Unaudited) — Note 6 – Long-Term Debt" of this Quarterly Report on Form 10-Q for more information on AROP Funding and Alliance Finance.
Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
Total revenues for the three months ended March 31, 2022 ("2022 Quarter") increased 44.6% to $460.9 million compared to $318.6 million for the three months ended March 31, 2021 (the "2021 Quarter") as a result of higher coal sales volumes and prices, which rose 19.5% and 13.0%, respectively, and higher oil & gas royalty volumes and prices, which increased by 26.3% and 74.9%, respectively. Total operating expenses increased to $373.0 million in the 2022 Quarter, compared to $282.3 million in the 2021 Quarter, due primarily to increased coal sales volumes and inflationary cost pressures. Income before income taxes increased 221.0% to $79.7 million in the 2022 Quarter as compared to $24.8 million in the 2021 Quarter. During the 2022 Quarter, we recognized a one-time non-cash income tax charge of $37.3 million and current income tax expense of $4.8 million associated with our election to have Alliance Minerals treated as a taxable entity for federal and state income tax purposes. Reflecting higher revenues, partially offset by increased total operating and income tax expenses, net income attributable to ARLP for the 2022 Quarter increased to $36.7 million, or $0.28 per basic and diluted limited partner unit, compared to $24.7 million, or $0.19 per basic and diluted limited partner unit, for the 2021 Quarter.
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Three Months Ended March 31,
2022
2021
2022
2021
(in thousands)
(per ton / per BOE sold)
Coal - Tons sold
8,162
6,828
N/A
N/A
Coal - Tons produced
9,178
8,001
N/A
N/A
Coal - Coal sales
$
388,360
$
287,487
$
47.58
$
42.10
Coal - Segment Adjusted EBITDA Expense (1) (2)
$
268,527
$
202,932
$
32.90
$
29.72
Oil & Gas Royalties - BOE sold
505
400
N/A
N/A
Oil & Gas Royalties - Royalties (3)
$
30,927
$
13,999
$
61.26
$
35.02
Coal Royalties - Tons sold
5,553
4,521
N/A
N/A
Coal Royalties - Intercompany royalties
$
15,167
$
11,301
$
2.73
$
2.50
(1) For a definition of Segment Adjusted EBITDA Expense and related reconciliation to comparable generally accepted accounting principles ("GAAP") financial measures, please see below under "—Reconciliation of non-GAAP "Segment Adjusted EBITDA Expense" to GAAP "Operating Expenses."
(2) Coal - Segment Adjusted EBITDA Expense is defined as consolidated Segment Adjusted EBITDA Expense excluding expenses of our Oil & Gas Royalties segment and is adjusted for intercompany transactions with our Coal Royalties segment.
(3) Average sales price per BOE is defined as oil & gas royalty revenues excluding lease bonus revenue divided by total BOE sold.
Coal sales . Coal sales increased $100.9 million or 35.1% to $388.4 million for the 2022 Quarter from $287.5 million for the 2021 Quarter. The increase was attributable to a volume variance of $56.2 million resulting from increased tons sold and a price variance of $44.7 million due to higher average coal sales prices. Improved coal demand in both the domestic and export markets during the 2022 Quarter drove coal sales volumes higher by 19.5% to 8.2 million tons sold compared to 6.8 million tons sold in the 2021 Quarter. Coal sales price realizations increased by 13.0% in the 2022 Quarter to $47.58 per ton sold, compared to $42.10 per ton sold during the 2021 Quarter, due to favorable market conditions.
Coal - Segment Adjusted EBITDA Expense . Segment Adjusted EBITDA Expense for our coal operations increased 32.3% to $268.5 million, as a result of higher coal sales volumes and inflationary cost pressures. On a per ton basis, Segment Adjusted EBITDA Expense for our coal operations increased 10.7% to $32.90 per ton sold in the 2022 Quarter compared to $29.72 per ton in the 2021 Quarter, primarily due to certain cost increases, which are discussed below by category:
● Labor and benefit expenses per ton produced, excluding workers' compensation, increased 2.3% to $9.65 per ton in the 2022 Quarter from $9.43 per ton in the 2021 Quarter. The increase of $0.22 per ton was primarily due to increased labor costs at several mines.
● Material and supplies expenses per ton produced increased 28.5% to $12.79 per ton in the 2022 Quarter from $9.95 per ton in the 2021 Quarter. The increase of $2.84 per ton produced primarily reflects increases of $1.74 per ton for roof support, $0.53 per ton for contract labor used in the mining process, $0.34 per ton for power and fuel used in the mining process, $0.26 per ton for certain ventilation expenses and $0.25 per ton for various preparation plant expenses, partially offset by a decrease of $0.76 per ton in longwall subsidence expense.
● Maintenance expenses per ton produced increased 25.8% to $3.22 per ton in the 2022 Quarter from $2.56 per ton in the 2021 Quarter. The increase of $0.66 per ton produced was primarily as a result of inflationary cost pressures.
Segment Adjusted EBITDA Expense increases per ton were partially offset by the following decrease:
● Production taxes and royalty expenses per ton incurred as a percentage of coal sales prices and volumes decreased $0.39 per produced ton sold in the 2022 Quarter compared to the 2021 Quarter primarily as a result of a $0.60 per ton decrease in the federal black lung excise tax, effective January 1, 2022, a favorable state tons sold mix decreasing severance taxes per ton, in addition to decreased excise taxes per ton resulting from a greater mix of export shipments.
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Oil & gas royalties. Oil & gas royalty revenues increased to $30.9 million in the 2022 Quarter compared to $14.0 million for the 2021 Quarter. The increase of $16.9 million was primarily due to significantly higher sales price realizations per BOE and increased volumes in the 2022 Quarter.
Other revenues . Other revenues were principally comprised of Matrix Design sales and other miscellaneous sales and revenue activities. Other revenues increased to $12.2 million in the 2022 Quarter from $6.1 million in the 2021 Quarter. The increase of $6.1 million was primarily due to increased sales of mining technology products by our Matrix Design subsidiary and other smaller variances in the 2022 Quarter.
Depreciation, depletion and amortization. Depreciation, depletion and amortization expense increased to $63.3 million for the 2022 Quarter compared to $59.2 million for the 2021 Quarter primarily as a result of increased coal sales and oil & gas volumes.
Income tax expense (benefit). Income tax expense increased to $42.7 million for the 2022 Quarter compared to an income tax benefit of $0.01 million for the 2021 Quarter as a result of our election during the 2022 Quarter to convert Alliance Minerals from a partnership pass-through entity to a taxable entity for federal and state income tax purposes. We recognized a one-time non-cash income tax charge of $37.3 million and a current income tax expense of $4.8 million during the 2022 Quarter associated with this election. Please read "Item 1. Financial Statements (Unaudited)—Note 7 – Income Taxes" of this Quarterly Report on Form 10-Q.
Transportation revenues and expenses . Transportation revenues and expenses were $29.4 million and $11.1 million for the 2022 and 2021 Quarters, respectively. The increase of $18.3 million was primarily attributable to increased average third-party transportation rates in the 2022 Quarter and increased coal shipments for which we arrange third-party transportation. Transportation revenues are recognized when title to the coal passes to the customer and recognized in an amount equal to the corresponding transportation expenses.
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Segment Adjusted EBITDA. Our 2022 Quarter Segment Adjusted EBITDA increased $61.1 million to $170.9 million from the 2021 Quarter Segment Adjusted EBITDA of $109.8 million. Segment Adjusted EBITDA, tons sold, coal sales, other revenues, Segment Adjusted EBITDA Expense, oil & gas royalties, BOE volume, coal royalties and coal royalties tons sold by segment are as follows:
Three Months Ended
March 31,
2022
2021
Increase (Decrease)
(in thousands)
Segment Adjusted EBITDA
Illinois Basin Coal Operations
$
78,215
$
57,673
$
20,542
35.6
%
Appalachia Coal Operations
51,103
31,506
19,597
62.2
%
Oil & Gas Royalties
28,552
11,946
16,606
139.0
%
Coal Royalties
10,348
7,273
3,075
42.3
%
Other, Corporate and Elimination (1)
2,686
1,423
1,263
88.8
%
Total Segment Adjusted EBITDA (2)
$
170,904
$
109,821
$
61,083
55.6
%
Coal - Tons sold
Illinois Basin Coal Operations
5,882
4,760
1,122
23.6
%
Appalachia Coal Operations
2,280
2,068
212
10.3
%
Total tons sold
8,162
6,828
1,334
19.5
%
Coal sales
Illinois Basin Coal Operations
$
253,905
$
182,641
$
71,264
39.0
%
Appalachia Coal Operations
134,455
104,846
29,609
28.2
%
Total coal sales
$
388,360
$
287,487
$
100,873
35.1
%
Other revenues
Illinois Basin Coal Operations
$
1,900
$
613
$
1,287
210.0
%
Appalachia Coal Operations
363
385
(22)
(5.7)
%
Oil & Gas Royalties
34
21
13
61.9
%
Other, Corporate and Elimination
9,907
5,049
4,858
96.2
%
Total other revenues
$
12,204
$
6,068
$
6,136
101.1
%
Segment Adjusted EBITDA Expense
Illinois Basin Coal Operations
$
177,589
$
125,581
$
52,008
41.4
%
Appalachia Coal Operations
83,715
73,726
9,989
13.5
%
Oil & Gas Royalties
3,001
2,058
943
45.8
%
Coal Royalties
4,819
4,028
791
19.6
%
Other, Corporate and Elimination (1)
(7,944)
(7,676)
(268)
(3.5)
%
Total Segment Adjusted EBITDA Expense
$
261,180
$
197,717
$
63,463
32.1
%
Oil & Gas Royalties
Volume - BOE (3)
505
400
105
26.3
%
Oil & gas royalties
$
30,927
$
13,999
$
16,928
120.9
%
Coal Royalties
Volume - Tons sold (4)
5,553
4,521
1,032
22.8
%
Intercompany coal royalties
$
15,167
$
11,301
$
3,866
34.2
%
(1) Other, Corporate and Elimination includes the elimination of intercompany coal royalty revenues and expenses between our Coal Royalties Segment and our Coal Operations Segments in addition to the expenses for the other miscellaneous activities included in this category.
(2) For a definition of Segment Adjusted EBITDA and related reconciliation to comparable GAAP financial measures, please see below under "—Reconciliation of non-GAAP "Segment Adjusted EBITDA" to GAAP "net income."
(3) Barrels of oil equivalent ("BOE") is calculated on a 6:1 basis (6,000 cubic feet of natural gas to one barrel).
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(4) Represents tons sold by our Coal Operations Segments associated with coal reserves leased from our Coal Royalties Segment.
Illinois Basin Coal Operations – Segment Adjusted EBITDA increased to $78.2 million in the 2022 Quarter from $57.7 million in the 2021 Quarter. The increase of $20.5 million was primarily attributable to higher coal sales, which increased 39.0% to $253.9 million in the 2022 Quarter from $182.6 million in the 2021 Quarter, partially offset by increased operating expenses. The increase in coal sales reflects higher tons sold, which rose 23.6% in the 2022 Quarter as a result of increased sales volumes across all mines in the region, and higher coal sales price realizations. Coal sales price per ton sold in the 2022 Quarter increased by 12.5% compared to the 2021 Quarter reflecting increased domestic prices and significantly higher export prices due to favorable market conditions. Segment Adjusted EBITDA Expense increased 41.4% to $177.6 million in the 2022 Quarter from $125.6 million in the 2021 Quarter primarily as a result of increased sales volumes and higher expenses per ton. Segment Adjusted EBITDA Expense per ton increased $3.81 per ton sold to $30.19 from $26.38 per ton sold in the 2021 Quarter primarily as a result of inflationary cost pressures on numerous expense items, including roof support, power and labor-related expenses, lower recoveries across the region and a longwall move at our Hamilton mine in the 2022 Quarter, partially offset by reduced selling expense.
Appalachia Coal Operations – Segment Adjusted EBITDA increased 62.2% to $51.1 million for the 2022 Quarter from $31.5 million in the 2021 Quarter. The increase of $19.6 million was primarily attributable to higher coal sales, which increased 28.2% to $134.5 million in the 2022 Quarter from $104.8 million in the 2021 Quarter, due to increased prices and volumes. Coal sales prices increased by 16.3% compared to the 2021 Quarter primarily due to significantly higher export price realizations at our Mettiki and MC Mining operations. Coal sales volumes increased 10.3% compared to the 2021 Quarter as a result of higher export volumes. Segment Adjusted EBITDA Expense increased 13.5% to $83.7 million in the 2022 Quarter from $73.7 million in the 2021 Quarter due to increased sales volumes and per ton expenses. Segment Adjusted EBITDA Expense per ton increased $1.07 per ton sold to $36.72 compared to $35.65 per ton sold in the 2021 Quarter, as a result of inflationary cost pressures on numerous expense items, including labor-related expenses and supply and maintenance costs, and a longwall move at our Tunnel Ridge and Mettiki mines in the 2022 Quarter, partially offset by lower subsidence expense and reduced selling expenses.
Oil & Gas Royalties – Segment Adjusted EBITDA increased to $28.6 million for the 2022 Quarter from $11.9 million in the 2021 Quarter. The increase of $16.7 million was primarily due to significantly higher sales price realizations, which increased 74.9% to a record $61.26 per BOE, and increased volumes in the 2022 Quarter.
Coal Royalties – Segment Adjusted EBITDA increased 42.3% to $10.3 million for the 2022 Quarter from $7.3 million in the 2021 Quarter. The increase of $3.0 million was a result of increased royalty tons sold and higher average royalty rates per ton.
Reconciliation of non-GAAP "Segment Adjusted EBITDA" to GAAP "net income" and reconciliation of non-GAAP "Segment Adjusted EBITDA Expense" to GAAP "Operating Expenses"
Segment Adjusted EBITDA (a non-GAAP financial measure) is defined as net income attributable to ARLP before net interest expense, income taxes, depreciation, depletion and amortization and general and administrative expenses. Segment Adjusted EBITDA is a key component of consolidated EBITDA, which is used as a supplemental financial measure by management and by external users of our financial statements such as investors, commercial banks, research analysts and others. We believe that the presentation of EBITDA provides useful information to investors regarding our performance and results of operations because EBITDA, when used in conjunction with related GAAP financial measures, (i) provides additional information about our core operating performance and ability to generate and distribute cash flow, (ii) provides investors with the financial analytical framework upon which we base financial, operational, compensation and planning decisions and (iii) presents a measurement that investors, rating agencies and debt holders have indicated is useful in assessing us and our results of operations.
Segment Adjusted EBITDA is also used as a supplemental financial measure by our management for reasons similar to those stated in the previous explanation of EBITDA. In addition, the exclusion of corporate general and administrative expenses from consolidated Segment Adjusted EBITDA allows management to focus solely on the evaluation of segment operating profitability as it relates to our revenues and operating expenses, which are primarily controlled by our segments.
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The following is a reconciliation of consolidated Segment Adjusted EBITDA to net income, the most comparable GAAP financial measure:
Three Months Ended
March 31,
2022
2021
(in thousands)
Consolidated Segment Adjusted EBITDA
$
170,904
$
109,821
General and administrative
(18,596)
(15,504)
Depreciation, depletion and amortization
(63,314)
(59,202)
Interest expense, net
(9,627)
(10,379)
Income tax (expense) benefit
(42,715)
12
Net income attributable to ARLP
$
36,652
$
24,748
Noncontrolling interest
290
78
Net income
$
36,942
$
24,826
Segment Adjusted EBITDA Expense (a non-GAAP financial measure) includes operating expenses and other income (expense). Transportation expenses are excluded as these expenses are passed through to our customers and, consequently, we do not realize any gain or loss on transportation revenues. Segment Adjusted EBITDA Expense is used as a supplemental financial measure by our management to assess the operating performance of our segments. Segment Adjusted EBITDA Expense is a key component of Segment Adjusted EBITDA in addition to coal sales, royalty revenues and other revenues. The exclusion of corporate general and administrative expenses from Segment Adjusted EBITDA Expense allows management to focus solely on the evaluation of segment operating performance as it primarily relates to our operating expenses.
The following is a reconciliation of consolidated Segment Adjusted EBITDA Expense to operating expense, the most comparable GAAP financial measure:
Three Months Ended
March 31,
2022
2021
(in thousands)
Segment Adjusted EBITDA Expense
$
261,180
$
197,717
Other income (expense)
566
(1,197)
Operating expenses (excluding depreciation, depletion and amortization)
$
261,746
$
196,520
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Liquidity and Capital Resources
Liquidity
We have historically satisfied our working capital requirements and funded our capital expenditures, investments, contractual obligations and debt service obligations with cash generated from operations, cash provided by the issuance of debt or equity, borrowings under the Revolving Credit Facility and Securitization Facility and other financing transactions. We believe that existing cash balances, future cash flows from operations and investments, borrowings under credit facilities and cash provided from the issuance of debt or equity will be sufficient to meet our working capital requirements, capital expenditures and additional investments, debt payments, contractual obligations, commitments and any distribution payments. Nevertheless, our ability to satisfy our working capital requirements, to satisfy our contractual obligations, to fund planned capital expenditures, to service our debt obligations or to pay distributions will depend upon our future operating performance and access to and cost of financing sources, which will be affected by prevailing economic conditions generally, and in both the coal and oil & gas industries specifically, as well as other financial and business factors, some of which are beyond our control, including the COVID-19 pandemic. Based on our recent operating cash flow results, current cash position, anticipated future cash flows and sources of financing that we expect to have available, we anticipate remaining in compliance with the covenants of the Credit Agreement and expect to have sufficient liquidity to fund our operations and growth strategies. However, to the extent operating cash flow or access to and cost of financing sources are materially different than expected, future covenant compliance or liquidity may be adversely affected. Please read "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021.
In May 2018, the Board approved the establishment of a unit repurchase program authorizing us to repurchase up to $100 million of ARLP common units. The program has no time limit and we may repurchase units from time to time in the open market or in other privately negotiated transactions. The unit repurchase program authorization does not obligate us to repurchase any dollar amount or number of units. Since inception through March 31, 2022, we have purchased units for a total of $93.5 million under the program. During the three months ended March 31, 2022, we did not repurchase and retire any units. The timing of any future unit repurchases and the ultimate number of units to be purchased will depend on a number of factors, including business and market conditions, our future financial performance, and other capital priorities. Please read "Part II - Item 2. Unregistered Sales of Equity Securities and Use of Proceeds" of this Quarterly Report on Form 10-Q for more information on unit repurchase program.
We currently have an effective universal shelf Registration Statement on Form S-3 that provides for the registration and sale of an unspecified amount of our equity or debt securities. We may over time, and subject to market conditions, in one or more offerings, offer and sell any of the securities described in the prospectus.
Cash Flows
Cash provided by operating activities was $89.0 million for the 2022 Quarter compared to $54.6 million for the 2021 Quarter. The increase in cash provided by operating activities was primarily due to an increase in net income adjusted for non-cash items and a favorable working capital change related to other assets and liabilities, partially offset by unfavorable working capital changes related to trade receivables, inventories and accrued payroll and related benefits compared to the 2021 Quarter.
Net cash used in investing activities was $45.5 million for the 2022 Quarter compared to $22.7 million for the 2021 Quarter. The increase in cash used in investing activities was primarily attributable to an increase in capital expenditures during the 2022 Quarter.
Net cash used in financing activities was $37.7 million for the 2022 Quarter compared to $53.0 million for the 2021 Quarter. The decrease in cash used in financing activities was primarily attributable to reduced borrowings and payments on the Revolving Credit Facility and the Securitization Facility, partially offset by increased cash distributions paid to unitholders compared to the 2021 Quarter.
Cash Requirements
Management anticipates having sufficient cash flow to meet 2022 cash requirements, including capital expenditures, scheduled payments on long-term debt, lease obligations, asset retirement obligation costs and workers' compensation and pneumoconiosis costs, with our March 31, 2022 cash and cash equivalents of $128.2 million and cash
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flows from operations, or borrowings under our Revolving Credit Facility and Securitization Facility if necessary. We currently project average estimated annual maintenance capital expenditures over the next five years of approximately $5.66 per ton produced. Our anticipated total capital expenditures, including maintenance capital expenditures, for 2022 are estimated in a range of $230.0 million to $240.0 million. We will continue to have significant cash requirements over the long term, which may require us to incur debt or seek additional equity capital. The availability and cost of additional capital will depend upon prevailing market conditions, the market price of our common units and several other factors over which we have limited control, as well as our financial condition and results of operations.
Debt Obligations
See "Item 1. Financial Statements (Unaudited)—Note 6 – Long-Term Debt" of this Quarterly Report on Form 10-Q for a discussion of our long-term debt obligations.
We also have an agreement with a bank to provide additional letters of credit in an amount of $5.0 million to maintain surety bonds to secure certain asset retirement obligations and our obligations for workers' compensation benefits. On March 31, 2022, we had $5.0 million in letters of credit outstanding under this agreement.
Related-Party Transactions
We have related-party transactions and activities with Mr. Craft, MGP and their respective affiliates. These related-party transactions and activities relate principally to 1) coal mineral leases with The Joseph W. Craft III Foundation and The Kathleen S. Craft Foundation, 2) the use of aircraft, and 3) providing administrative services with respect to certain oil & gas mineral interests Mr. Craft acquired in 2019. We also have related-party transactions with (a) WKY CoalPlay, LLC ("WKY CoalPlay") regarding four mineral leases, (b) Bluegrass Minerals Management, LLC ("Bluegrass Minerals") through its noncontrolling ownership interest in our consolidated subsidiary, Cavalier Minerals and (c) with our equity interest in AllDale III. For more information regarding Bluegrass Minerals and AllDale III, please read "Item 1. Financial Statements (Unaudited) — Note 8 – Variable Interest Entities" and " — Note 9 – Investment" of this Quarterly Report on Form 10-Q. Please read our Annual Report on Form 10-K for the year ended December 31, 2021, "Item 8. Financial Statements and Supplementary Data — Note 21 – Related-Party Transactions" for additional information concerning related-party transactions.
New Accounting Standards
See "Item 1. Financial Statements (Unaudited)—Note 2 – New Accounting Standards" of this Quarterly Report on Form 10-Q for a discussion of new accounting standards.
Other Information
Insurance
Effective December 1, 2021, we renewed our annual property and casualty insurance program. Our property insurance was procured from our wholly owned captive insurance company, Wildcat Insurance. Wildcat Insurance charged certain of our subsidiaries for the premiums on this program and in return purchased reinsurance for the program in the standard market. The maximum limit in the commercial property program is $100.0 million per occurrence, excluding a $1.5 million deductible for property damage, a 75- or 90-day waiting period for underground business interruption depending on the mining complex and an additional $10.0 million overall aggregate deductible. We have elected to retain a 10% participating interest in our commercial property insurance program. We can make no assurances that we will not experience significant insurance claims in the future that could have a material adverse effect on our business, financial condition, results of operations and ability to purchase property insurance in the future. Also, exposures exist for which no insurance may be available and for which we have not reserved. In addition, the insurance industry has been subject to efforts by environmental activists to restrict coverages available for fossil-fuel companies.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.