Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the historical financial statements and notes thereto included in "Item 8. Financial Statements and Supplementary Data" where you can find more detailed information in "Note 1 – Organization and Presentation" and "Note 2 – Summary of Significant Accounting Policies" regarding the basis of presentation supporting the following financial information.
Executive Overview
Organization
We are a diversified natural resource company that generates operating and royalty income from the production and marketing of coal to major domestic utilities, industrial users and international customers, as well as royalty income from oil & gas mineral interests located in strategic producing regions across the United States. In addition, we continue to position ourselves as a reliable energy provider for the future as we pursue opportunities that support the advancement of energy and related infrastructure. We intend to pursue strategic investments that leverage our core competencies and relationships with electric utilities, industrial customers, and federal and state governments.
We are currently the largest coal producer in the eastern United States with seven operating underground mining complexes near many of the major eastern utility generating plants and on major coal hauling railroads in Illinois, Indiana, Kentucky, Maryland, Pennsylvania, and West Virginia, as well as a coal-loading terminal in Indiana. Two of our mines also have loading facilities located on the Ohio River.
In addition to our mining operations, Alliance Resource Properties owns or leases substantially all of our coal mineral resources and the majority of our coal mineral reserves in the Illinois and Appalachia Basins that are (a) leased to our internal mining complexes or (b) near our coal mining operations but not yet leased.
We currently own minerals interests in approximately 67,700 net royalty acres in premier oil & gas producing regions of the United States, primarily in the Permian (Delaware and Midland), Anadarko (SCOOP/STACK) and Williston (Bakken) basins providing us with diversified exposure to industry-leading operators consistent with our general strategy to grow our oil & gas mineral interest business.
We have invested in energy and infrastructure opportunities including our investments in Francis, Infinitum, NGP ET IV, and Ascend which are in the businesses of, respectively, electric vehicle charging stations, electric motor manufacturing, private equity investments in renewable energy, the electrification of our economy or the efficient use of energy, and the manufacturing and recycling of sustainable, engineered battery materials for electric vehicles.
Please see "Item 1. Business and Item 2. Properties" in our Annual Report on Form 10-K for the year ended December 31, 2023 for a more detailed discussion of our various businesses.
As of December 31, 2023, we had 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. Our Oil & Gas Royalties reportable segment includes our oil & gas mineral interests. Our Coal Royalties reportable segment includes coal mineral reserves and resources owned or leased by Alliance Resource Properties.
● The Illinois Basin Coal Operations reportable segment includes (a) the Gibson mining complex, (b) the Warrior mining complex, (c) the River View mining complex and (d) the Hamilton mining complex. The segment also includes our Mt. Vernon coal-loading terminal in Indiana which operates on the Ohio River, MAC and other support services, and our idled or closed mining complexes.
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● The Appalachia Coal Operations reportable segment includes (a) the Mettiki mining complex, (b) the Tunnel Ridge mining complex and (c) the MC Mining mining complex.
● The Oil & Gas Royalties reportable segment includes oil & gas mineral interests held by Alliance Minerals as well as our equity interests in AllDale III.
● The Coal Royalties reportable segment includes substantially all of our coal mineral resources and the majority of our coal mineral reserves owned or leased by Alliance Resource Properties. Approximately 60% of the coal sold by our coal operations' mines was leased from our Coal Royalties entities.
● Other, Corporate and Elimination includes marketing and administrative activities, the Matrix Group , our investments in Francis, Infinitum, NGP ET IV and Ascend, Wildcat Insurance, which assists the ARLP Partnership with its insurance requirements, AROP Funding and Alliance Resource Finance Corporation (both discussed in "Item 8. Financial Statements and Supplementary Data – 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.
Oil & Gas Acquisitions
During 2023, through the JC Resources and Skyland Acquisitions and other ground game acquisitions, we acquired approximately 6,443 oil & gas net royalty acres in the Delaware, Anadarko and Williston basins. These acquisitions enhanced our ownership position in these basins and furthered our business strategy to grow our Oil & Gas Royalties segment through accretive acquisitions. See "Item 8. Financial Statements and Supplementary Data – Note 3 – Acquisitions" for more information.
Growth Investments and Opportunities
During 2023, we invested $49.6 million in Infinitum and Ascend. This brings our total investment in Francis, Infinitum, NGP ET IV and Ascend to $119.1 million with a remaining commitment of $18.4 million to NGP ET IV. See "Item 8. Financial Statements and Supplementary Data – Note 12 – Equity Investments" for additional information on Francis, Infinitum, NGP ET IV and Ascend.
Risks and Uncertainties
We face a variety of risks and uncertainties that management considers in the operation and planning of our businesses, which could affect our financial position and results of operations. For additional information regarding our risks and uncertainties that affect our business and the industries in which we operate, see "Item 1A. Risk Factors".
Business Strategy
Our primary business strategy is to create sustainable, capital-efficient growth in available cash to maximize unitholder returns by:
● expanding our coal operations by adding and developing mines and coal mineral reserves and resources in existing, adjacent or neighboring properties;
● extending the lives of our current mining operations through the acquisition and development of coal mineral reserves and resources using our existing infrastructure;
● continuing to make productivity improvements to remain a low-cost coal producer in each region in which we operate;
● strengthening our position with existing and future customers by offering a broad range of coal qualities, transportation alternatives and customized services;
● developing strategic relationships to take advantage of opportunities within the coal and oil & gas industries and in other industries inside and outside of the Master Limited Partnership sector;
● continuing to make investments in oil & gas mineral interests in various geographic locations within producing basins in the continental United States;
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● strengthen and expand our technology company, Matrix Group, as we continue to develop and market industrial, mining and technology products and services worldwide; and
● continuing to identify and make strategic investments in the advancement of energy and related infrastructure opportunities to leverage our core competencies and build platforms for future lines of business with long-term growth and cash flow generation.
How We Evaluate Our Performance
Our management uses a variety of financial and operational measurements to analyze our performance. Primary measurements include the following: (1) coal sales price per ton; (2) BOE sold; (3) price per BOE; (4) coal royalty tons sold; (5) coal royalty revenue per ton; (6) Segment Adjusted EBITDA Expense per ton; (7) EBITDA; and (8) Segment Adjusted EBITDA.
Coal Sales Price per Ton
We define coal sales price per ton as total coal sales divided by tons sold. We review coal sales price per ton to evaluate marketing efforts and for market demand and trend analysis.
Oil & gas BOE sold
We monitor and analyze our BOE sales volumes from the various basins that comprise our portfolio of mineral interests. We also regularly compare projected volumes to actual volumes reported and investigate unexpected variances.
Price per BOE
We define price per BOE as total oil & gas royalties divided by BOE produced. We review price per BOE to evaluate performance against budget and for trend analysis.
Coal Royalty Tons sold
We monitor and analyze our coal royalty sales volumes from our various mining subsidiaries for coal leased by Alliance Resource Properties for consistency with our coal operations segments and for trend analysis.
Coal Royalty Revenue per Ton
We define coal royalty revenue per ton as total coal royalties divided by royalty tons sold. We review coal royalty revenue per ton to evaluate consistency with our coal operations segments and for trend analysis.
Segment Adjusted EBITDA Expense per Ton
We define Segment Adjusted EBITDA Expense per ton (a non-GAAP financial measure) as the sum of operating expenses, coal purchases and other expense divided by total tons sold. We review Segment Adjusted EBITDA Expense per ton for cost trends.
EBITDA
We define EBITDA (a non-GAAP financial measure) as net income attributable to ARLP before net interest expense, income taxes and depreciation, depletion and amortization. EBITDA is used as a supplemental financial measure by our 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.
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Segment Adjusted EBITDA
We define Segment Adjusted EBITDA (a non-GAAP financial measure) as net income attributable to ARLP before net interest expense, income taxes, depreciation, depletion and amortization and general and administrative expense. Management therefore is able 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.
Analysis of Historical Results of Operations – 2023 Compared with 2022
Consolidated Information
Total Revenues
Total revenues increased 6.1% to a record $2.57 billion in 2023 compared to $2.42 billion in 2022 primarily due to higher coal sales revenues.
Total operating expenses
Total operating expenses increased to $1.89 billion in 2023 compared to $1.72 billion in 2022 due primarily to the sale of higher cost purchased coal and increased per ton costs on certain expense items discussed in more detail below.
Net income attributable to ARLP
Increased revenues and lower income tax expense more than offset higher total operating expenses in 2023, resulting in record net income attributable to ARLP of $630.1 million, or $4.81 per basic and diluted limited partner unit for 2023, compared to $586.2 million, or $4.39 per basic and diluted limited partner unit, for 2022.
Coal sales
Coal sales increased $108.0 million or 5.1% to $2.21 billion for 2023 from $2.10 billion for 2022. The increase reflects the benefit of higher average coal sales prices, which contributed $175.7 million in additional coal sales, partially offset by lower tons sold, which reduced coal sales by $67.7 million. Higher price realizations in domestic markets drove coal sales prices higher by 8.6% in 2023 to $64.17 per ton sold, compared to $59.07 per ton sold during 2022.
Coal - Segment Adjusted EBITDA Expense
Beginning in 2023, we redefined Coal - Segment Adjusted EBITDA Expense to reflect the activity of Alliance Coal, which is the holding company for our coal mining operations. We have retrospectively adjusted Coal - Segment Adjusted EBITDA Expense in prior periods to be on the same basis.
Segment Adjusted EBITDA Expense for our coal operations increased 8.8% to $1.39 billion, as a result of higher per ton costs. On a per ton basis, Segment Adjusted EBITDA Expense for our coal operations increased 12.4% to $40.38 per ton sold in 2023 compared to $35.91 per ton in 2022, primarily due to certain cost increases, which are discussed below by category:
● Labor and benefit expenses per ton produced, excluding workers' compensation, increased 14.6% to $12.20 per ton in 2023 from $10.65 per ton in 2022. The increase of $1.55 per ton was primarily due to higher incentive benefits and direct labor costs at several mines.
● Material and supplies expenses per ton produced increased 2.6% to $14.02 per ton in 2023 from $13.67 per ton in 2022. The increase of $0.35 per ton produced primarily reflects increases of $0.13 per ton for safety related materials and supplies, $0.11 per ton for various preparation plant expenses and $0.09 per ton for ventilation related expenses , partially offset by a decrease of $0.12 per ton for environmental and reclamation expenses other than longwall subsidence.
● Maintenance expenses per ton produced increased 27.6% to $4.62 per ton in 2023 from $3.62 per ton in 2022. The increase of $1.00 per ton produced was primarily as a result of inflationary cost pressures.
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● Production taxes and royalty expenses per ton incurred as a percentage of coal sales prices and volumes increased $0.64 per produced ton sold in 2023 compared to 2022 primarily as a result of higher price realizations and higher federal black lung excise tax as a result of the tax rate increasing effective October 1, 2022, partially offset by a favorable mix of tons sold mined in states without severance taxes.
● Outside coal purchases increased $36.0 million in 2023 as a result of increased sales from purchased coal to meet contractual commitments at our Mettiki longwall operation which experienced challenging geological conditions that delayed development of a new district. Purchased coal generally costs more on a per ton basis than our produced coal.
For a definition of Segment Adjusted EBITDA Expense and related reconciliation to its comparable GAAP financial measure, please see below under "—Reconciliation of Non-GAAP Financial Measures."
Oil & gas royalties
Oil & gas royalty revenues decreased to $137.8 million in 2023 compared to $151.1 million for 2022. The decrease of $13.3 million was primarily due to lower average sales price per BOE, which decreased by 29.4%, partially offset by higher BOE volumes.
Other revenues
Other revenues principally comprised Matrix Design sales, Mt. Vernon transloading revenues, oil & gas lease bonus revenues, and other miscellaneous sales and revenue activities. Other revenues increased to $76.5 million in 2023 from $52.8 million in 2022. The increase of $23.7 million was primarily due to increased sales of mining technology products by our Matrix Design subsidiary.
Income tax expense
Income tax expense decreased to $8.3 million for 2023 compared to $54.0 million for 2022 primarily as a result of our recognition of a one-time non-cash income tax charge of $37.3 million during 2022 in connection with the Tax Election.
Transportation revenues and expenses
Transportation revenues and expenses were $142.3 million and $113.9 million for 2023 and 2022, respectively. The increase of $28.4 million was primarily attributable to increased average third-party transportation rates in 2023 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.
Segment Adjusted EBITDA
Our 2023 Segment Adjusted EBITDA decreased $20.4 million, or 2.0%, to $1.01 billion from 2022 Segment Adjusted EBITDA of $1.03 billion primarily as a result of higher operating expenses and outside coal purchases, partially offset by increased revenues.
For a definition of Segment Adjusted EBITDA and related reconciliation to its comparable GAAP financial measure, please see below under "—Reconciliation of Non-GAAP Financial Measures."
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Segment Information
Year Ended December 31,
2023
2022 (1)
Increase (Decrease)
(in thousands)
Segment Adjusted EBITDA
Illinois Basin Coal Operations
$
514,118
$
420,684
$
93,434
22.2
%
Appalachia Coal Operations
330,723
426,402
(95,679)
(22.4)
%
Oil & Gas Royalties
121,508
143,179
(21,671)
(15.1)
%
Coal Royalties
41,163
38,809
2,354
6.1
%
Other, Corporate and Elimination (2)
4,661
3,495
1,166
33.4
%
Total Segment Adjusted EBITDA (3)
$
1,012,173
$
1,032,569
$
(20,396)
(2.0)
%
Coal - Tons sold
Illinois Basin Coal Operations
24,724
24,110
614
2.5
%
Appalachia Coal Operations
9,718
11,479
(1,761)
(15.3)
%
Total tons sold
34,442
35,589
(1,147)
(3.2)
%
Coal sales
Illinois Basin Coal Operations
$
1,364,901
$
1,219,943
$
144,958
11.9
%
Appalachia Coal Operations
845,309
882,286
(36,977)
(4.2)
%
Total coal sales
$
2,210,210
$
2,102,229
$
107,981
5.1
%
Other revenues
Illinois Basin Coal Operations
$
10,505
$
6,822
$
3,683
54.0
%
Appalachia Coal Operations
1,885
1,481
404
27.3
%
Oil & Gas Royalties
3,774
3,837
(63)
(1.6)
%
Coal Royalties
42
56
(14)
(25.0)
%
Other, Corporate and Elimination
60,244
40,622
19,622
48.3
%
Total other revenues
$
76,450
$
52,818
$
23,632
44.7
%
Segment Adjusted EBITDA Expense
Illinois Basin Coal Operations
$
861,288
$
806,080
$
55,208
6.8
%
Appalachia Coal Operations
516,471
464,029
52,442
11.3
%
Oil & Gas Royalties
16,532
15,395
1,137
7.4
%
Coal Royalties
24,451
21,871
2,580
11.8
%
Other, Corporate and Elimination (2)
(14,024)
(23,497)
9,473
40.3
%
Total Segment Adjusted EBITDA Expense (3)
$
1,404,718
$
1,283,878
$
120,840
9.4
%
Oil & Gas Royalties
Volume - BOE (4)
3,105
2,405
700
29.1
%
Oil & gas royalties
$
137,751
$
151,060
$
(13,309)
(8.8)
%
Coal Royalties
Volume - Tons sold (5)
$
20,186
21,780
$
(1,594)
(7.3)
%
Intercompany coal royalties
65,572
$
60,624
4,948
8.2
%
(1) Recast for the JC Resources Acquisition. For more information, please read "Item 8. Financial Statements and Supplementary Data— Note 1 – Organization and Presentation."
(2) 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.
(3) For definitions of Segment Adjusted EBITDA and Segment Adjusted EBITDA Expense and related reconciliations to their respective comparable GAAP financial measures, please see below under "— Reconciliation of Non-GAAP Financial Measures."
(4) BOE for natural gas is calculated on a 6:1 basis (6,000 cubic feet of natural gas to one barrel).
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(5) 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 22.2% to $514.1 million in 2023 from $420.7 million in 2022. The increase of $93.4 million was primarily attributable to higher coal sales, which increased 11.9% to $1.36 billion in 2023 from $1.22 billion in 2022, partially offset by increased operating expenses. The increase in coal sales reflects higher coal sales price per ton, which increased by 9.1% compared to 2022 reflecting increased domestic prices, and increased tons sold, which rose 2.5% in 2023 as a result of increased sales volumes at the Warrior, Hamilton and Gibson South mines. Segment Adjusted EBITDA Expense increased 6.8% to $861.3 million in 2023 from $806.1 million in 2022 primarily as a result of increased sales volumes and higher operating expenses per ton. Segment Adjusted EBITDA Expense per ton increased 4.2% or $1.41 per ton sold to $34.84 from $33.43 per ton sold in 2022 primarily as a result of inflationary pressures on numerous expense items, including labor-related expenses and maintenance costs, and increased sales-related expenses due to higher price realizations, partially offset by lower expenses at our Hamilton mine, that experienced an unexpected outage during 2022.
Appalachia Coal Operations – Segment Adjusted EBITDA decreased 22.4% to $330.7 million for 2023 from $426.2 million in 2022. The decrease of $95.5 million was primarily attributable to increased operating expenses and lower coal sales volumes. Coal sales volumes decreased 15.3% compared to 2022 as a result of lower production across the region due to lock outages, customer plant maintenance, reduced operating units at MC Mining, challenging geologic conditions that delayed development of a new district at our Mettiki longwall operation and increased longwall move days at our Tunnel Ridge mine. Coal sales prices increased by 13.2% compared to 2022 primarily due to increased domestic price realizations in the region. Segment Adjusted EBITDA Expense increased 11.3% to $516.5 million in 2023 from $464.0 million in 2022 due to higher per ton operating expenses, partially offset by lower volumes. Segment Adjusted EBITDA Expense per ton increased 31.5% to $53.15 compared to $40.42 per ton sold in 2022, as a result of lower volumes previously discussed, purchased coal and inflationary pressures on certain expense items, most notably labor-related expenses and materials and maintenance costs, and increased sales-related expenses due to higher price realizations.
Oil & Gas Royalties – Segment Adjusted EBITDA decreased to $121.5 million for 2023 from $143.2 million in 2022. The decrease of $21.7 million was primarily due to lower average sales price per BOE, which decreased 29.4% to $44.37 per BOE, partially offset by increased volumes in 2023, which increased by 29.1%. Higher BOE volumes during 2023 resulted from increased drilling and completion activities on our properties and additional volumes from oil & gas mineral interest acquisitions.
Coal Royalties – Segment Adjusted EBITDA increased 6.1% to $41.2 million for 2023 from $38.8 million in 2022. The $2.4 million increase was a result of higher average royalty rates per ton, partially offset by reduced royalty tons sold.
Analysis of Historical Results of Operations – 2022 Compared with 2021
Consolidated Information
Total Revenues
Total revenues increased 53.2% to a record $2.42 billion in 2022 compared to $1.58 billion in 2021 primarily due to substantial increases in prices and volumes from coal operations and royalties and oil & gas royalties.
Total operating expenses
Total operating expenses increased to $1.75 billion in 2022 compared to $1.36 billion in 2021 due primarily to increased coal sales volumes and ongoing inflationary cost pressures.
Net income attributable to ARLP
Higher revenues, partially offset by increased total operating expenses and income tax expense, led to significantly higher net income attributable to ARLP, which rose 220.7% to a record $586.2 million for 2022, or $4.39 per basic and diluted limited partner unit, compared to $182.8 million, or $1.36 per basic and diluted limited partner unit, for 2021.
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Coal sales
Coal sales increased $715.3 million or 51.6% to $2.10 billion for 2022 from $1.39 billion for 2021. The increase was attributable to a price variance of $572.6 million due to higher average coal sales prices and a volume variance of $142.7 million resulting from increased tons sold. Coal sales price realizations increased by 37.4% in 2022 to $59.07 per ton sold, compared to $42.98 per ton sold during 2021, due to favorable market conditions. Improved coal demand in both the domestic and export markets during 2022 drove coal sales volumes higher by 10.3% to 35.6 million tons sold compared to 32.3 million tons sold in 2021.
Coal - Segment Adjusted EBITDA Expense
Segment Adjusted EBITDA Expense for our coal operations increased 33.2% to $1.28 billion, 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 20.8% to $35.91 per ton sold in 2022 compared to $29.73 per ton in 2021, primarily due to certain cost increases, which are discussed below by category:
● Labor and benefit expenses per ton produced, excluding workers' compensation, increased 14.6% to $10.65 per ton in 2022 from $9.29 per ton in 2021. The increase of $1.36 per ton was primarily due to higher labor costs at several mines.
● Material and supplies expenses per ton produced increased 32.8% to $13.67 per ton in 2022 from $10.29 per ton in 2021. The increase of $3.38 per ton produced primarily reflects inflationary cost pressures including increases of $1.11 per ton for roof support, $0.47 per ton for ventilation related expenses, $0.43 per ton for power and fuel, $0.39 per ton for contract labor used in the mining process, $0.37 per ton for various preparation plant expenses and $0.26 per ton for environmental and reclamation expenses other than longwall subsidence.
● Maintenance expenses per ton produced increased 30.7% to $3.62 per ton in 2022 from $2.77 per ton in 2021. The increase of $0.85 per ton produced was primarily as a result of inflationary cost pressures.
● Production taxes and royalty expenses per ton incurred as a percentage of coal sales prices and volumes increased $0.68 per produced ton sold in 2022 compared to 2021 primarily as a result of higher price realizations, partially offset by a temporary decrease in the federal black lung excise tax, from January 1, 2022 to September 30, 2022, a favorable mix of tons sold mined in states with severance taxes and decreased excise taxes per ton resulting from a greater mix of export shipments .
Oil & gas royalties
Oil & gas royalty revenues increased to $151.1 million in 2022 compared to $84.2 million for 2021. The increase of $66.9 million was primarily due to significantly higher sales price realizations per BOE and volumes in 2022.
Other revenues
Other revenues principally comprised Matrix Design sales, Mt. Vernon transloading revenues and other miscellaneous sales and revenue activities. Other revenues increased to $52.8 million in 2022 from $38.5 million in 2021. The increase of $14.3 million was primarily due to increased sales of mining technology products by our Matrix Design subsidiary.
Income tax expense
Income tax expense increased to $54.0 million for 2022 compared to $0.4 million for 2021 as a result of Alliance Minerals' election during 2022 to be treated as 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 income tax expense of $17.5 million during 2022 related to Alliance Minerals. Please read "Item 8. Financial Statements and Supplementary Data—Note 7 – Income Taxes."
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Transportation revenues and expenses
Transportation revenues and expenses were $113.9 million and $69.6 million for 2022 and 2021, respectively. The increase of $44.3 million was primarily attributable to increased average third-party transportation rates in 2022 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.
Segment Adjusted EBITDA
Our 2022 Segment Adjusted EBITDA increased $475.2 million, or 85.2%, to $1.03 billion from 2021 Segment Adjusted EBITDA of $557.4 million primarily as a result of increased revenues, partially offset by higher operating expenses.
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Segment Information
Year Ended December 31,
2022 (1)
2021 (1)
Increase (Decrease)
(in thousands)
Segment Adjusted EBITDA
Illinois Basin Coal Operations
$
420,684
$
265,292
$
155,392
58.6
%
Appalachia Coal Operations
426,402
172,601
253,801
147.0
%
Oil & Gas Royalties
143,179
76,920
66,259
86.1
%
Coal Royalties
38,809
33,202
5,607
16.9
%
Other, Corporate and Elimination (2)
3,495
9,383
(5,888)
(62.8)
%
Total Segment Adjusted EBITDA (3)
$
1,032,569
$
557,398
$
475,171
85.2
%
Coal - Tons sold
Illinois Basin Coal Operations
24,110
22,264
1,846
8.3
%
Appalachia Coal Operations
11,479
10,004
1,475
14.7
%
Total tons sold
35,589
32,268
3,321
10.3
%
Coal sales
Illinois Basin Coal Operations
$
1,219,943
$
873,930
$
346,013
39.6
%
Appalachia Coal Operations
882,286
512,993
369,293
72.0
%
Total coal sales
$
2,102,229
$
1,386,923
$
715,306
51.6
%
Other revenues
Illinois Basin Coal Operations
$
6,822
$
4,666
$
2,156
46.2
%
Appalachia Coal Operations
1,481
3,940
(2,459)
(62.4)
%
Oil & Gas Royalties
3,837
2,256
1,581
70.1
%
Coal Royalties
56
69
(13)
(18.8)
%
Other, Corporate and Elimination
40,622
27,586
13,036
47.3
%
Total other revenues
$
52,818
$
38,517
$
14,301
37.1
%
Segment Adjusted EBITDA Expense
Illinois Basin Coal Operations
$
806,080
$
613,303
$
192,777
31.4
%
Appalachia Coal Operations
464,029
344,332
119,697
34.8
%
Oil & Gas Royalties
15,395
11,051
4,344
39.3
%
Coal Royalties
21,871
18,269
3,602
19.7
%
Other, Corporate and Elimination (2)
(23,497)
(33,198)
9,701
29.2
%
Total Segment Adjusted EBITDA Expense (3)
$
1,283,878
$
953,757
$
330,121
34.6
%
Oil & Gas Royalties
Volume - BOE (4)
2,405
1,877
528
28.1
%
Oil & gas royalties
$
151,060
$
84,183
$
66,877
79.4
%
Coal Royalties
Volume - Tons sold (5)
21,780
20,247
1,533
7.6
%
Intercompany coal royalties
$
60,624
$
51,402
$
9,222
17.9
%
(1) Recast for the JC Resources Acquisition. For more information, please read "Item 8. Financial Statements and Supplementary Data— Note 1 – Organization and Presentation."
(2) 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.
(3) For definitions of Segment Adjusted EBITDA and Segment Adjusted EBITDA Expense and related reconciliations to their respective comparable GAAP financial measures, please see below under "—Reconciliation of Non-GAAP Financial Measures.'"
(4) BOE for natural gas is calculated on a 6:1 basis (6,000 cubic feet of natural gas to one barrel).
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(5) 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 58.6% to $420.7 million in 2022 from $265.3 million in 2021. The increase of $155.4 million was primarily attributable to higher coal sales, which increased 39.6% to $1.22 billion in 2022 from $873.9 million in 2021, partially offset by increased operating expenses. The increase in coal sales reflects higher coal sales price per ton, which increased by 28.9% compared to 2021 due to increased domestic prices and significantly higher export prices and increased tons sold, which rose 8.3% in 2022 as a result of increased sales volumes primarily at our Gibson South mine. Segment Adjusted EBITDA Expense increased 31.4% to $806.1 million in 2022 from $613.3 million in 2021 primarily as a result of increased sales volumes and higher expenses per ton. Segment Adjusted EBITDA Expense per ton increased 21.3% or $5.88 per ton sold to $33.43 from $27.55 per ton sold in 2021 primarily as a result of inflationary pressures on numerous expense items, including labor-related expenses and supply and maintenance costs, increased sales-related expenses due to higher price realizations, reduced recoveries across the region and lost production due to an unexpected outage caused by a thermal event which lasted approximately four weeks in addition to increased longwall move days at our Hamilton mine during 2022. There were no injuries and no damages to equipment as a result of the thermal event at Hamilton, and mining operations returned to normal production levels in December 2022.
Appalachia Coal Operations – Segment Adjusted EBITDA increased 147.0% to $426.4 million for 2022 from $172.6 million in 2021. The increase of $253.8 million was primarily attributable to higher coal sales, which increased 72.0% to $882.3 million in 2022 from $513.0 million in 2021, due to increased prices and volumes. Coal sales prices increased by 49.9% compared to 2021 primarily due to substantially higher export price realizations and increased domestic pricing in the region. Coal sales volumes increased 14.7% compared to 2021 as a result of higher sales volumes from our Tunnel Ridge and MC Mining operations. Segment Adjusted EBITDA Expense increased 34.8% to $464.0 million in 2022 from $344.3 million in 2021 due to increased sales volumes and per ton expenses. Segment Adjusted EBITDA Expense per ton increased 17.4% to $40.42 compared to $34.42 per ton sold in 2021, as a result of inflationary pressures on numerous expense items, including labor-related expenses and supply and maintenance costs, increased sales-related expenses due to higher price realizations, reduced recoveries at our Mettiki and MC Mining operations and increased longwall move days at our Tunnel Ridge and Mettiki mines during 2022.
Oil & Gas Royalties – Segment Adjusted EBITDA increased to $143.2 million for 2022 from $76.9 million in 2021. The increase of $66.3 million was primarily due to higher sales price realizations, which increased 40.1% to $62.83 per BOE, and increased volumes in 2022. Volumes increased by 28.1% to 2.4 million BOE sold in 2022 compared to 1.9 million BOE sold in 2021 as a result of increased drilling and completion activities and additional volumes from oil & gas mineral interest acquisitions completed during 2022.
Coal Royalties – Segment Adjusted EBITDA increased 16.9% to $38.8 million for 2022 from $33.2 million in 2021. The increase of $5.6 million was a result of increased royalty tons sold and higher average royalty rates per ton.
Reconciliation of Non-GAAP Financial Measures
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 net income, the most comparable GAAP financial measure, to consolidated Segment Adjusted EBITDA:
Year Ended December 31,
2023
2022
2021
(in thousands)
Net income
$
636,170
$
588,158
$
183,369
Noncontrolling interest
(6,052)
(1,958)
(598)
Net income attributable to ARLP
$
630,118
$
586,200
$
182,771
General and administrative
79,096
80,425
70,275
Depreciation, depletion and amortization
267,982
276,670
264,794
Interest expense, net
26,697
35,296
39,141
Income tax expense
8,280
53,978
417
Consolidated Segment Adjusted EBITDA
$
1,012,173
$
1,032,569
$
557,398
Segment Adjusted EBITDA Expense (a non-GAAP financial measure) includes operating expenses, coal purchases and other expense (income). 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 operating expenses, the most comparable GAAP financial measure, to consolidated Segment Adjusted EBITDA Expense:
Year Ended December 31,
2023
2022
2021
(in thousands)
Operating expenses (excluding depreciation, depletion and amortization)
$
1,368,787
$
1,288,082
$
944,419
Outside coal purchases
36,149
151
6,372
Other expense (income)
(218)
(4,355)
2,966
Segment Adjusted EBITDA Expense
$
1,404,718
$
1,283,878
$
953,757
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Ongoing Acquisition Activities
Consistent with our business strategy, from time to time we engage in discussions with potential sellers regarding our possible acquisitions of certain assets and/or companies of the sellers. For more information on acquisitions, please read "Item 8. Financial Statements and Supplementary Data—Note 1 – Organization and Presentation" and "—Note 3 – Acquisitions" of this Annual Report on Form 10-K.
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 credit and securitization facilities 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 distribution payments. Nevertheless, our ability to satisfy our working capital requirements and additional investments, 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. 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 being 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 see "Item 1A. Risk Factors."
Oil & Gas Acquisitions
During 2023, through the JC Resources and Skyland Acquisitions and other ground game acquisitions we acquired approximately 6,443 oil & gas net royalty acres in the Anadarko, Williston and Delaware Basins for an aggregate purchase price of $110.9 million. We funded these acquisitions with cash on hand. For additional information about our acquisitions of oil & gas assets, please see "Business — Oil & Gas Acquisitions."
Growth Investments and Opportunities
During 2023, we invested $49.6 million in Infinitum and Ascend with cash on hand. These investments are aligned with our strategy of furthering the development of energy and related infrastructure and investing in attractive opportunities that leverage our core competencies and build platforms for future lines of business with long-term growth and cash flow generation. Also, as of December 31, 2023, we have funded $6.6 million of a $25 million commitment in NGP ET IV with cash on hand. For additional information about our energy and infrastructure investments, please see "Business — Growth Investments and Opportunities."
Unit Repurchase Program
In January 2023, the Board of Directors authorized a $93.5 million increase to the unit repurchase program. As a result, we were authorized to repurchase up to a total of $100.0 million of ARLP's limited partner common units. During the year ended December 31, 2023, we repurchased and retired 929,842 units at an average price of $20.90 for an aggregate purchase price of $19.4 million, leaving $80.6 million authorized. Please read "Item 5. Market for Registrant's Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities" for more information on the unit repurchase program.
Revolving Credit Facility
On January 13, 2023, Alliance Coal entered into the Credit Agreement with various financial institutions. The Credit Agreement provides for a $425 million revolving credit facility, which includes a sublimit of $15.0 million for swingline
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borrowings and permits the issuance of letters of credit of up to the full amount of $425 million, and for a term loan in an aggregate principal amount of $75 million. The Credit Agreement matures on March 9, 2027, at which time the aggregate outstanding principal amount of all Revolving Credit Facility advances and all Term Loan advances are required to be repaid in full. The Credit Agreement will instead mature on January 30, 2025, if on that date our Senior Notes are still outstanding and Alliance Coal does not have liquidity of at least $200 million. Interest is payable quarterly, with principal of the Term Loan due in quarterly installments equal to 6.25% of the original principal amount beginning with the quarter ending June 30, 2023 and the balance payable at maturity. The Credit Agreement is guaranteed by ARLP and certain of its subsidiaries, including the Intermediate Partnership and most of the direct and indirect subsidiaries of Alliance Coal. The Credit Agreement also is secured by substantially all of the assets of the Subsidiary Guarantors and Alliance Coal. For additional information on the Credit Agreement, please see "Item 8. Financial Statements and Supplementary Data—Note 6 – Long-Term Debt".
Securitization Facility
In January 2024, we extended the term of our Securitization Facility to January 2025 and increased the borrowing availability under the facility to $90.0 million. For additional information on the Securitization Facility please read "Item 8. Financial Statements and Supplementary Data—Note 6 – Long-Term Debt".
Mine Development Project
In 2022, we began development of the Henderson County mine which continued through 2023 and into 2024. We have deployed capital of $69.3 million through 2023 and currently anticipate deploying capital of approximately $36.5 million in 2024 to complete the project. We have funded our capital expenditures and expect to fund our remaining capital expenditures for the project with cash from operations or borrowings under our credit facilities. We anticipate the new mine will enable us to access an additional 109.5 million clean recoverable tons of coal.
Cash Flows
Cash provided by operating activities was $830.6 million for 2023 compared to $802.3 million for 2022. The increase in cash provided by operating activities was primarily due to increases in net income adjusted for non-cash items and favorable working capital changes primarily related to trade receivables. These increases were partially offset by unfavorable working capital changes primarily related to inventories, as well as miscellaneous other changes.
Net cash used in investing activities was $559.7 million for 2023 compared to $403.3 million for 2022. The increase in cash used in investing activities was primarily attributable to increases in capital expenditures, acquisitions of oil & gas reserves including the JC Resources and Skyland Acquisitions, and changes in accounts payable and accrued liabilities. These increases were partially offset by payments for the Belvedere and Jase Acquisitions, and contributions to equity method investments in 2022. See "Item 8. Financial Statements and Supplementary Data—Note 3 – Acquisitions" for more information on the Belvedere, Jase, JC Resources and Skyland Acquisitions.
Net cash used in financing activities was $507.1 million for 2023 compared to $225.4 million for 2022. The increase in cash used in financing activities was primarily attributable to increased cash distributions paid to unitholders, increased net payments on long-term debt, purchases of units under our unit repurchase program, debt issuance costs, and payments for purchase of units and tax withholdings related to settlements under deferred compensation plans.
Cash Requirements
We currently estimate our 2024 annual cash requirements, including capital expenditures, scheduled payments on long-term debt, lease obligations, asset retirement obligation costs and workers' compensation and pneumoconiosis, to be in a range of $728.0 million to $778.0 million. Management anticipates having sufficient cash flow to meet 2024 cash requirements with our December 31, 2023 cash and cash equivalents of $59.8 million and cash flows from operations, or borrowings under revolving credit and securitization facilities or other sources of financing that we expect to have available if necessary. We currently project average estimated annual maintenance capital expenditures over the next five years of approximately $7.76 per ton produced. For additional information on our future cash requirements other than capital expenditures, please see "Item 8. Financial Statements and Supplementary Data—Note 6 – Long-Term Debt," "—Note 8 – Leases," "—Note 15 – Employee Benefit Plans," "—Note 18 – Asset Retirement Obligations," "—Note 19 – Accrued Workers' Compensation and Pneumoconiosis Benefits" and "—Note 21 – Commitments and Contingencies." We will
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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.
We use a combination of surety bonds and letters of credit to secure our financial obligations for reclamation, workers' compensation and other obligations as follows as of December 31, 2023:
Workers'
Reclamation
Compensation
Obligation
Obligation
Other
Total
(in millions)
Surety bonds
$
173.5
$
58.4
$
15.0
$
246.9
Letters of credit
—
41.0
16.8
57.8
Insurance
Effective October 1, 2023, we renewed our property and casualty insurance program through September 30, 2024. 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 $25.0 million overall aggregate deductible. We retained a 7.25% participating interest in our current 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.
Debt Obligations
See "Item 8. Financial Statements and Supplementary Data—Note 6 – Long-Term Debt" for a discussion of our debt obligations.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We discuss these estimates and judgments with the Audit Committee periodically. Actual results may differ from these estimates. We have provided a description of all significant accounting policies in the notes to our consolidated financial statements. The following critical accounting policies are materially impacted by judgments, assumptions and estimates used in the preparation of our consolidated financial statements:
Business Combinations
We account for business acquisitions using the purchase method of accounting. See "Item 8. Financial Statements and Supplementary Data—Note 3 – Acquisitions" for more information on the Belvedere, Jase and Skyland Acquisitions. Assets acquired and liabilities assumed are recorded at their estimated fair values at the acquisition date. The excess of purchase price over fair value of net assets acquired, if any, is recorded as goodwill. Given the time it takes to obtain pertinent information to finalize the acquired business' balance sheet, it may be several quarters before we are able to finalize those initial fair value estimates. Accordingly, it is not uncommon for the initial estimates to be subsequently revised. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.
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For the Belvedere, Jase and Skyland Acquisitions, we determined a fair value for the acquired mineral interests using an income approach consisting of discounted cash flow models. The assumptions used in the discounted cash flow models included estimated production, projected cash flows, forward oil & gas prices and risk adjusted discount rates.
Oil & Gas Reserve Values
Estimated oil & gas reserves and estimated market prices for oil & gas are a significant part of our depletion calculations, impairment analyses, and other estimates. Following are examples of how these estimates affect financial results:
● an increase (decrease) in estimated proved oil & gas reserves can reduce (increase) our units of production depreciation, depletion and amortization rates; and
● changes in oil & gas reserves and estimated market prices both impact projected future cash flows from our mineral interests. This in turn can impact our periodic impairment analysis.
The process of estimating oil & gas reserves is very complex, requiring significant judgment in the evaluation of all available geological, geophysical, engineering and economic data. After being estimated internally, our proved reserves estimates are compared to proved reserves that are audited by independent experts in connection with our required year-end reporting. The data may change substantially over time as a result of numerous factors, including the historical 12 month average price, additional development cost and activity, evolving production history and a continual reassessment of the viability of production under changing economic conditions. As a result, material revisions to existing reserve estimates could occur from time to time. Such changes could trigger an impairment of our oil & gas mineral interests and have an impact on our depreciation, depletion and amortization expense prospectively.
Estimates of future commodity prices utilized in our impairment analyses consider market information including published forward oil & gas prices. The forecasted price information used in our impairment analyses is consistent with that generally used in evaluating third-party operator drilling decisions and our expected acquisition plans, if any. Prices for future periods will impact the production economics underlying oil & gas reserve estimates. In addition, changes in the price of oil & gas also impact certain costs associated with our expected underlying production and future capital costs. The prices of oil & gas are volatile and change from period to period, thus are expected to impact our estimates. Significant unfavorable changes in the estimated future commodity prices could result in an impairment of our oil & gas mineral interests.
Workers ' Compensation and Pneumoconiosis (Black Lung) Benefits
We provide income replacement and medical treatment for work-related traumatic injury claims as required by applicable state laws. We generally provide for these claims through self-insurance programs. Workers' compensation laws also compensate survivors of workers who suffer employment related deaths. Our liability for traumatic injury claims is the estimated present value of current workers' compensation benefits, based on our actuary estimates. Our actuarial calculations are based on a blend of actuarial projection methods and numerous assumptions including claim development patterns, mortality, medical costs and interest rates. See "Item 8. Financial Statements and Supplementary Data—Note 19 – Accrued Workers' Compensation and Pneumoconiosis Benefits" for additional discussion. We had accrued liabilities for workers' compensation of $48.0 million and $49.5 million for these costs at December 31, 2023 and 2022, respectively. A one-percentage-point reduction in the discount rate would have increased operating expense by approximately $2.4 million at December 31, 2023. We limit our exposure to traumatic injury claims by purchasing a high deductible insurance policy that starts paying benefits after deductibles for a particular claim year have been met. Our receivables for traumatic injury claims under this policy as of December 31, 2023 and 2022 were $4.1 million.
Coal mining companies are subject to FMSHA and various state statutes for the payment of medical and disability benefits to eligible recipients related to coal worker's pneumoconiosis, or black lung. We provide for these claims through self-insurance programs. Our pneumoconiosis benefits liability is calculated using the service cost method based on the actuarial present value of the estimated pneumoconiosis benefits obligation. Our actuarial calculations are based on numerous assumptions including disability incidence, medical costs, mortality, death benefits, dependents and discount rates. We had accrued liabilities of $132.4 million and $104.3 million for the pneumoconiosis benefits at December 31, 2023 and 2022, respectively. A one-percentage-point reduction in the discount rate would have increased the expense recognized for the year ended December 31, 2023 by approximately $1.4 million. Under the service cost method used to
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estimate our pneumoconiosis benefits liability, actuarial gains or losses attributable to changes in actuarial assumptions, such as the discount rate, are amortized over the remaining service period of active miners.
The discount rate for workers' compensation and pneumoconiosis is derived by applying the Financial Times Stock Exchange Pension Discount Curve to the projected liability payout. Other assumptions, such as claim development patterns, mortality, disability incidence and medical costs, are based on standard actuarial tables adjusted for our actual historical experiences whenever possible. We review all actuarial assumptions periodically for reasonableness and consistency and update such factors when underlying assumptions, such as discount rates, change or when sustained changes in our historical experiences indicate a shift in our trend assumptions are warranted.
Asset Retirement Obligations
SMCRA and similar state statutes require that mined property be restored in accordance with specified standards and an approved reclamation plan. A liability is recorded for the estimated cost of future mine asset retirement and closing procedures on a present value basis when incurred or acquired and a corresponding amount is capitalized by increasing the carrying amount of the related long-lived asset. Those costs relate to permanently sealing portals at underground mines and to reclaiming the final pits and support surface acreage for both our underground mines and past surface mines. Examples of these types of costs, common to both types of mining, include, but are not limited to, removing or covering refuse piles and settling ponds, water treatment obligations, and dismantling preparation plants, other facilities and roadway infrastructure. Accrued liabilities of $150.4 million and $149.8 million for these costs are recorded at December 31, 2023 and 2022, respectively. See "Item 8. Financial Statements and Supplementary Data—Note 18 – Asset Retirement Obligations" for additional information. The liability for asset retirement and closing procedures is sensitive to changes in cost estimates, estimated mine lives and timing of post-mine reclamation activities. As changes in estimates occur (such as mine plan revisions, changes in estimated costs or changes in timing of the performance of reclamation activities), the revisions to the obligation and asset are recognized at the appropriate credit-adjusted, risk-free interest rate.
Accounting for asset retirement obligations also requires depreciation of the capitalized asset retirement cost and accretion of the asset retirement obligation over time. Depreciation is generally determined on a units-of-production basis and accretion is generally recognized over the life of the producing assets.
On at least an annual basis, we review our entire asset retirement obligation liability and make necessary adjustments for permit changes approved by state authorities, changes in the timing of reclamation activities, and revisions to cost estimates and productivity assumptions, to reflect current experience. Adjustments to the liability associated with these assumptions resulted in a decrease of $1.5 million for the year ended December 31, 2023. Adjustments to the liability associated with these assumptions resulted in an increase of $17.4 million for the year ended December 31, 2022.
While the precise amount of these future costs cannot be determined with certainty, we have estimated the costs and timing of future asset retirement obligations escalated for inflation, then discounted and recorded at the present value of those estimates. Discounting resulted in reducing the accrual for asset retirement obligations by $116.2 million and $110.4 million at December 31, 2023 and 2022. We estimate that the aggregate undiscounted cost of final mine closure is approximately $266.6 million and $260.2 million at December 31, 2023 and 2022, respectively. If our assumptions differ from actual experiences, or if changes in the regulatory environment occur, our actual cash expenditures and costs that we incur could be materially different than currently estimated.
Shelf Registration Statement
In February 2022, we filed with the SEC a universal shelf registration statement which allows us to issue from time to time an indeterminate amount of debt or equity securities. As of February 23, 2024, we had not issued any debt or equity under the 2022 Registration Statement.
Related – Party Transactions
See "Item 8. Financial Statements and Supplementary Data—Note 20 – Related-Party Transactions" for a discussion of our related-party transactions.
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Accruals of Other Liabilities
We had accruals for other liabilities, including current obligations, totaling $398.4 million and $395.3 million at December 31, 2023 and 2022, respectively. These accruals were chiefly comprised of workers' compensation benefits, pneumoconiosis benefits, and costs associated with asset retirement obligations. These obligations are self-insured except for certain excess insurance coverage for workers' compensation. The accruals of these items were based on estimates of future expenditures based on current legislation, related regulations and other developments. Thus, from time to time, our results of operations may be significantly affected by changes to these liabilities. Please see "Item 8. Financial Statements and Supplementary Data—Note 18 – Asset Retirement Obligations" and "—Note 19 – Accrued Workers' Compensation and Pneumoconiosis Benefits."
New Accounting Standards
See "Item 8. Financial Statements and Supplementary Data—Note 2 – Summary of Significant Accounting Policies" for a discussion of new accounting standards.