Greetings, and welcome to the Alliance Resource Partners, L.P. Fourth Quarter 2022 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Brian Cantrell, Senior Vice President and Chief Financial Officer. Thank you, sir. Please go ahead.

Thank you, Donna, and welcome, everyone. Earlier this morning, Alliance Resource Partners released its fourth quarter and full year 2022 financial and operating results, and we’ll now discuss those results as well as our perspective on current market conditions and outlook for 2023. Following our prepared remarks, we’ll open the call to answer your questions. Before beginning, a reminder that some of our remarks today may include forward-looking statements, subject to a variety of risks, uncertainties and assumptions contained in our filings from time to time with the Securities and Exchange Commission and are also reflected in this morning's press release. While these forward-looking statements are based on information currently available to us, more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect, actual results may vary materially from those we projected or expected. In providing these remarks, the partnership has no obligation to publicly update or revise any forward-looking statements, unless required by law to do so. Finally, we’ll also be discussing certain non-GAAP financial measures today. Definitions and reconciliations of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures are contained at the end of ARLP's press release, which has been posted on our website and furnished to the SEC on Form 8-K. Now with the required preliminaries out of the way, I'll begin with a review of our record results for the fourth quarter and full year of 2022 and then turn the call over to Joe Craft, our Chairman, President and Chief Executive Officer, for his comments. While 2022 was certainly an interesting year with supply chain difficulties, transportation challenges and inflationary pressures driving operating costs significantly higher, while Russia's invasion of Ukraine impacted global commodity flows, post-pandemic demand increases, and global governmental policies led commodity prices to historically high levels. The Alliance team responded to this turbulent market exceptionally well, achieving record full year 2022 revenues, net income and EBITDA. Ending the year, our results for the 2022 quarter were also strong as ARLP delivered record coal sales and oil and gas royalty revenues and significantly higher net income and EBITDA compared to the 2021 quarter. Looking more closely at the 2022 quarter compared to the 2021 quarter, coal sales volumes increased 2.3%, while royalty volumes for oil and gas minerals increased 42.6% as production on ARLP's legacy properties outperformed our expectations and combined with the new volumes from the previously announced minerals acquisitions in September and October of 2022. Coal production declined 3.5% from the 2021 quarter primarily due to an unplanned outage at our Hamilton longwall mine that I will discuss in more detail in a moment. As a result, our coal royalty tons fell 8.5%. We saw higher commodity prices during the 2022 quarter with coal sales price per ton increasing 50.1%, oil and gas prices climbing 7.2% per BOE, and coal royalty revenue up 1.5% per ton, all as compared to the 2021 quarter. For the 2022 quarter, segment adjusted EBITDA expense per ton sold was $40.71, up 20.2% versus the 2021 quarter, and on a full year basis was $36.73 per ton, up 21.5% versus 2021. Our increased operating expenses in the 2022 quarter reflected a number of factors including higher sales-related expenses as a result of higher price realizations and coal sales volumes, inflationary pressures, particularly on wages, raw materials, petroleum-related supplies such as resins and lubricants, higher freight costs passed on to us from our suppliers as well as $6.5 million of noncash accruals for various long-term liabilities such as workers' compensation and asset retirement obligations at our non-operating mines. Also specific to the 2022 quarter, the thermal event at our Hamilton Mine resulted in an unexpected outage that lasted approximately four weeks. The responses by our mine rescue team members and our miners were exceptional. Our personnel were kept safe with no injuries occurring, no equipment was damaged and we worked closely with federal and state regulators. Mining operations allowed us to return to normal production levels in December 2022. However, we did incur approximately $5.8 million of third-party expenses directly related to the event and we lost approximately 500,000 tons of production during the quarter. Absent certain noncash accruals and third-party expenses associated with the Hamilton event, Illinois Basin segment adjusted EBITDA expense per ton for the 2022 quarter would have been more in line with the percentage increase we experienced in the Appalachia region for the 2022 quarter. Our net income and EBITDA rose sharply in the 2022 quarter, increasing 313.8% and 125.7% respectively, over the 2021 quarter. These increases reflect higher sales volumes and price realizations, which more than offset the inflationary pressures and other impacts on costs that I previously described. The 2022 full year results were also significantly higher compared to 2021. Coal sales and production volumes increased 3.3 million tons, up 10.3% and 10.2%, respectively, driving year-over-year coal sales revenues higher by $715.3 million or 51.6%. Higher coal sales revenues, combined with a $63.4 million increase in oil and gas royalty revenue, drove ARLP's 2022 total revenues up by 53.3% to a record $2.4 billion. Net income increased 224% to $577.2 million, and EBITDA rose 96.3% to $940.2 million, both record results. During 2022, Alliance generated $604.2 million of free cash flow before growth investments, returned $196.3 million to unitholders through quarterly cash distributions while reporting coverage of 3.45x for the year, and we reduced debt and financing leases by $16.9 million. Exiting 2022, our balance sheet remained strong. ARLP's total leverage ratio improved to 4.5x trailing adjusted EBITDA, and with $296 million of cash and cash equivalents, our net leverage decreased to an all-time low of 0.14x. Our liquidity also increased to $762.8 million at year-end. As we disclosed earlier this month, we successfully closed our new revolving credit facility and term loan A financing. This transaction was very well received in the market with oversubscribed demand, reflecting the positive fundamentals of our business and the strength of our balance sheet. Our new $425 million revolving credit facility positions us well to manage ARLP's day-to-day operations, while the $75 million term loan proceeds allow us to term out the capital associated with infrastructure projects as we expand into new reserve areas at our River View and Tunnel Ridge operations. The capacity we obtained with this new financing enables us to use cash generated from operations to support our capital allocation plans, including increased unitholder distributions, potential repurchase of our common units and senior notes, and positioning to capitalize on growth opportunities in the future. To that point, we announced today that the Board authorized an increase to our existing unit repurchase program. The program was previously established in May 2018 and had $6.5 million of remaining available capacity at year-end. The expanded program authorizes ARLP to repurchase up to $100 million of its outstanding limited partner common units, further increasing our flexibility in returning cash to unitholders. Future unit repurchases will be subject to ongoing Board review and will be based on a number of factors, including ARLP's financial and operating performance and other capital requirements as well as future economic, business, and market conditions. The unit repurchase program has no time limit, and ARLP may repurchase units from time to time in the open market or in privately negotiated transactions. The unit repurchase program authorization does not obligate ARLP to repurchase any dollar amount or number of its units, and repurchases may be commenced or suspended from time to time without prior notice. Now turning to our initial guidance detailed in this morning's release. 2023 is shaping up to be another strong year at ARLP. We anticipate our overall coal sales volumes in 2023 to be in the range of 36 million tons to 38 million tons, an increase at the midpoint of 4% over 2022. Supported by our highly committed and priced coal contract book, we are currently anticipating 2023 coal price realizations in the range of $67 per ton to $69 per ton, an increase of 13% to 17% compared to 2022. Currently, 34.7 million tons are already priced and committed for '23 and ARLP has secured commitments and pricing for another 23.7 million tons in 2024. With these commitments, we continue to believe that ARLP should benefit from increased coal sales volumes and pricing over the next several years. On the cost side, while we have recently begun to see some moderation in the inflationary factors we experienced in 2022, we currently anticipate labor pressures and higher sales-related expenses will continue to add to our costs in 2023. From a comparative standpoint, recall that inflation in 2022 built dramatically during the first half of the year before peaking in the third quarter. As a result, we expect segment adjusted EBITDA expense per ton to be higher during the first half of '23 compared to 2022 levels before moderating in the back half of the year. For the 2023 full year, segment adjusted EBITDA expense is anticipated to increase by approximately 10% to 15% over 2022 full year levels to a range of $40.25 to $42.25 per ton sold. One other item I would highlight is our anticipated capital expenditures in 2023. Not surprisingly, inflationary pressures are expected to impact maintenance capital this year, as we have previously discussed, and CapEx this year and next is expected to be higher as we move into a new reserve area at our River View mine. Reflecting these impacts, we currently anticipate capital expenditures to be in a range of $400 million to $450 million from $286 million in 2022. This includes maintenance capital ranging between $350 million to $390 million. Additionally, as we announced earlier this morning, 2023 guidance includes the benefits of our acquisition of an additional 2,682 net oil and gas royalty acres in the Permian Delaware Basin. The cash purchase price of $72.3 million for this acquisition will be funded with available cash and is expected to close within the next 30 days with an effective date of January 1, 2023. Since this acquisition involves an entity owned by Mr. Craft, terms of the transaction were approved by the Board and its Conflicts Committee, which is comprised entirely of independent directors. This acquisition not only further enhances our existing high-quality Permian royalty portfolio but is expected to add approximately 250,000 total barrels of oil equivalent in 2023, weighted 67% towards oil and NGLs and will be immediately accretive to cash flow. Before I turn the call over to Joe, let me take just a moment to comment on my upcoming retirement that we announced last March. I'm extremely proud to have been a part of this incredible organization that Joe started 26 years ago and of what ARLP has grown to become. As you know, our Vice President of Corporate Finance and Treasurer, Cary Marshall, will be assuming the CFO role effective April 1, and I can’t think of anyone more capable and prepared than Cary. It has been an honor and a pleasure working with my colleagues at Alliance, our investors, bankers, and analysts. The future at ARLP is bright, and I look forward to following closely as a loyal interested investor for many years in the future. With that, I'll turn the call over to Joe for comments on the market and his outlook for ARLP.

Thank you, Brian, and good morning, everyone. Now, Brian, please let me express my heartfelt appreciation to you for your service and commitment to ARLP for the nearly two decades you have been with us. I appreciate everything you've done for me and our partnership and wish you continued success and happiness in the next chapter of your life. I also want to echo your observations that we have the best possible replacement for you in Cary Marshall. Cary has been a critical contributor to ARLP's success from the beginning, having been closely by my side since 1994, when he joined the coal group as a Manager of Financial Planning. Thank you, Brian, and congratulations, Cary. I want to begin my comments this morning by thanking the entire Alliance organization for their hard work and dedication since the pandemic began in 2020. The challenges have been unprecedented, and their resilience and determination to not only persevere, but to thrive need to be recognized. Through their efforts, ARLP delivered record financial results in 2022. I'm extremely proud of all that has been accomplished and thankful for the unwavering focus of our teams on creating long-term value for all of our stakeholders. Now let me share some thoughts on the state of the industry and our strategy for growth and value creation going forward. As Brian mentioned in his opening remarks, 2022 was a historic year for ARLP, but it was also a year that emphasized the importance of keeping coal-fired generation in the mix for years to come, providing a reminder for the need to value energy security and resilience for our nation and nations around the world. During the quarter, the U.S. experienced another major event with the arrival of Winter Storm Elliott that put an exclamation point on this fact, consistent with what we have talked about on all of our earnings calls this year. Winter Storm Elliott brought severe cold across much of the continental U.S., straining the grid in a way that has become all too common in recent years. During the storm, electricity demand soared as natural gas wells froze, pipeline deliveries were constrained, and renewable sources were unable to respond meaningfully, resulting in severe price spikes for consumers in many states. As tragic as the storm's impact was, let me repeat, it was merely the latest highlight of the need for a diverse mix of energy sources and, in particular, the vital role coal plays. This was evidenced by the fact that U.S. coal-fired generation in December was at a three-year high despite the retirement of almost 28 gigawatts of coal-fired generating capacity nationwide over that same three-year period. As you have heard repeated over the years, it is still true today: coal keeps the lights on, especially at times when we need it most. Policy decisions continue to challenge our industry. But events like Winter Storm Elliott and the not-too-distant Winter Storm Uri, which devastated many lives and homes in Texas, reinforce the urgency and need for an all-of-the-above strategy, embracing energy security, reliability, and affordable electricity. The past forced retirements of a significant portion of the country's coal-fired generation have exposed the grid, especially in the regions that comprise our primary market, where many utilities recently have reported delaying previously announced coal plant retirements for several years. As the nation continues to embark on its transition of energy and related infrastructure, we believe ARLP can play a vital role in the conversation and any changes to the U.S. power grid will create opportunities for ARLP to leverage long-standing relationships with the electric utilities, regulators, and other customers to create additional avenues for growth while at the same time relying on the coal plants we serve until we can responsibly get there. Again, we do not view our country's future energy needs as an either-or solution, but as an and solution, which we will continue to advocate and support as we continue to highlight the reality of the situation. Now turning to the current market and commodity pricing environment. U.S. natural gas prices continued their decline heading into the new year with the Henry Hub spot price down sharply this month. A warmer-than-usual January builds in underground storage of natural gas and the Freeport LNG export terminal remaining offline are all factors contributing to the weakness in near-term pricing. Falling natural gas prices in the middle of winter tend to increase the risk of lower-than-expected coal burn, which could cause coal stockpiles to grow faster than anticipated. However, Eastern U.S. coal pricing has not been meaningfully impacted so far since we, along with most of our competitors, are either fully committed or have very little inventory available. This is evidenced by our year-end coal inventory of 500,000 tons, of which 200,000 tons were staged for export in early 2023. Our planned January shipments are on schedule, keeping our inventories at relatively low levels. Internationally, a number of factors are impacting global energy trade routes and, in our view, will continue to drive higher demand and pricing in the back half of 2023 and for several years to come, if not permanently. Our primary trading partners for thermal coal in Europe are faced with the consequences of losing roughly 40 million tons per year of Russian coal imports for power generation, which resulted in skyrocketing prices in 2022. And while mild weather so far this winter in Europe has resulted in API2 prices easing from recent peaks during the last year, we expect them to rebound sometime in midyear 2023. Meanwhile, China's ban on imports of Australian coal is slowly being relaxed, putting additional pressure on European supply. Chinese power generators and steelmakers were recently cleared by their regulators to buy Australian coal, and it is believed easing of the ban will continue to broaden, allowing other Chinese entities to pursue Australian thermal and metallurgical coal. As Europe continues to replace Russian supply and Australian supply becomes more competitive as China's economy reopens, we believe coal demand will grow as European stockpiles will need to be replenished ahead of next winter and extend further into 2024. Again, we expect this increase in demand will lift oil, gas, and coal prices during this year. Turning to our own book and guidance. 94% of our coal sales are priced and committed in 2023, which includes 3.3 million tons for export markets, giving us strong visibility and certainty into our 2023 guidance. Of our roughly 2.3 million tons of unsold coal this year, assuming production of 37 million tons, which is at the midpoint of our guidance, we expect at least half will be sold into the export market with the balance to either go to the export or domestic market as pricing dictates. Even though we are guiding for higher costs, as Brian mentioned, we expect favorable market forces and our current coal sales commitments will drive top-line growth that should more than offset these inflationary pressures as margins are expected to expand to record levels in 2023. Now turning to our capital allocation priorities. Our primary focus is to provide well-covered distributions and attractive returns to our unitholders over the long term. Last week, we announced that our Board approved a 40% increase in our quarterly distribution, equating to an annualized rate of $2.80 per unit. We elected to declare a quarterly distribution increase to a level that we expect to maintain throughout the year as opposed to smaller increments each quarter. This was based on our confidence and high visibility in 2023 and 2024, expected cash flows, committed tons, and strong financial position. After distributions, we will continue to support our operations, funding appropriate maintenance capital requirements and investing in high-return efficiency projects with near-term paybacks that maintain our low-cost competitive advantage. Thereafter, Alliance's robust cash flow generation uniquely positions us to pursue attractive investments that meet the evolving energy needs of tomorrow and are consistent with our proven track record to date, including investments in oil and gas royalties, as evidenced by the Permian Basin acquisition announced today. We took the next step in our diversification strategy in early 2022 with three energy transition investments totaling $87 million in outstanding commitments. In September, we hired a dedicated team of leaders to join our new ventures group to continue these efforts of identifying, evaluating, and executing commercial opportunities beyond coal and oil and gas royalties. The team is focused on highly strategic investments that allow ARLP to leverage its core competencies and relationships with the electric utilities, industrial customers, and federal and state governments. As we embark on this new journey, we will maintain a disciplined and process-oriented approach to allocating capital. Absent available opportunities to invest in these businesses, we will continue to maintain flexibility evaluating other high-return uses of cash, which, as Brian noted, may include redeeming a portion of our senior notes, buying back units as well as providing well-covered cash distributions. In closing, I am very proud of ARLP's 2022 record levels of revenues, net income, and EBITDA; at the same time, equally excited about the opportunities in front of us. Our operations are running well. Our coal contract book is heavily committed at very attractive levels, and our financial position has never been stronger. Looking forward, we believe ARLP is well positioned to deliver solid growth and attractive cash returns to our unitholders in 2023 and beyond. That concludes our prepared comments, and I will now ask the operator to open the call for questions.

Today's first question is coming from Mark Reichman of Noble Capital Markets.

I was just wondering if you could contrast the overall market and pricing dynamics for your coal produced in the Illinois Basin versus Appalachia and whether you think the outlook for Illinois Basin looks a little stronger moving forward? And then also, did you get the other unit at the Hamilton Mine added?

So the other unit was for the Gibson mine. And so we have added the unit and it is staffed for one shift. We've got the second shift yet to be deployed, and that's anticipated to come online sometime in the second quarter of this year. So back to the Illinois Basin versus the Appalachia, most of our Appalachia production is targeted for the export market, and I’d say of the unsold position, about half is the Illinois Basin and half of it is for Appalachia. We do have the flexibility in the Illinois Basin to either sell that tonnage either domestically or to the export market depending on what the market pricing will be. Currently, there's really not much activity in the market; we are seeing more inbound opportunities from the export market than we are domestically given the warm weather and the inventory build that the utilities did for coal in the fourth quarter. So it's hard to answer your question specifically at the moment. We believe that in the back half of the year, most of our customers still have an open position, and there will be requests for additional tons, weather dependent, more likely for the rest of the winter as well as the summer. So again, most of our book is pretty much sold for the first half, and our open position is really opening up in the second half when we do see favorable markets compared to what we're seeing at the current moment in time.

Okay. I just had one more question, and then I'll get back in the queue. With respect to the acquisition, Brian talked about the barrels of oil equivalent, but like the last acquisition, can you provide some additional information in terms of like the number of producing wells to be completed and the number of permitted locations?

At the end of 2022, we had a total of 12,833 producing wells on our acreage, which is an increase from the 2021 year-end total of about 2,661 wells. By the end of the year, we were operating 67 wells on our acreage, up by 35 from the end of 2021. We had 779 permitted locations on our acreage, with 923 wells being drilled and 8,130 completed.

The next question is coming from Nathan Martin of The Benchmark Company.

It’s great to observe a substantial increase in distribution from the previous quarter. I heard your comments about achieving that in one significant step, but it seems like it may remain steady throughout the year. I have a question regarding the target payout. In the past, you mentioned a target payout of around 30%. Is that still accurate? Are there any discussions with the Board about altering that level? Additionally, what are your thoughts on the target distribution coverage ratio moving forward? Or should we still view this as a targeted payout that may change depending on cash flow?

I'd say that we have moderated that view from that cash generation point to more of a coverage ratio perspective, given the strong growth in cash flows that we have seen over the year and what we've locked in with contracts going forward. So we believe at the levels we are today that we can pay out a distribution at this coverage ratio that will be anywhere from 2.2x to 2.5x coverage and still have sufficient cash flow to be able to participate in trying to grow the company.

Great. Appreciate that update, Joe. As you guys talked about some notable weakness in the gas and thermal coal markets to start the year, again, 94% committed and priced for '23 to the midpoint of guidance. I mean what portion of those tons are susceptible to price fluctuations in either the domestic or export market? Is that variability largely incorporated into your realized price per ton guidance?

So the committed tons are all fixed price; I mean they're all prices committed, so we know what the price is. They have been factored into our guidance. Our UI production, the tons we have open to the market. Again, we projected what we believe the market is. We think that based on our view of where the market is going to be in 2023, that we can definitely achieve those levels. Right now, they're sort of priced at the midpoint of the guidance we gave you when you factor in both the committed and our UI price situation. I think the volume is dependent on the economy. I believe, and most people believe, that China's reopening has not been factored into the market. I believe it's going to happen, and I think that gives us the confidence that the second half of the year is going to be supportive of the export market that will set the standard of where the pricing is going to be when we start making decisions to sell our own coal.

Yes. And Nate, as Joe mentioned during his opening comments, we’re anticipating pricing to firm up in the back half of the year. As you look at our commitments for 2023, most of our open times are in the back half of this year. So as Joe has just articulated, we feel pretty confident about the price levels that we're projecting for this year.

So Brian, by firm up in the back half of the year? Are you thinking pricing increases kind of as we move throughout the year from the first half and the second half, what you’re saying or am I misunderstanding that?

Yes.

Okay. Perfect. And then, I mean, also just kind of thinking about the cadence throughout the year, any way to think about it from a shipment standpoint, any longwall moves to keep in mind? And I think, Brian, you also said just to confirm that first half expenses likely higher than second half expenses.

On shipping, we have the usual seasonal effects from miners' vacations and holidays. This year, we have more longwall moves planned, with a total of eight compared to last year's six. We expect a longwall move in the first quarter at both Hamilton and two at Tunnel Ridge in the first half of the year. After that, the moves will be spread throughout the remainder of the year. I anticipate our deliveries will be consistent in the first and second quarters, and as we review the rest of our open position, the latter half of the year should also be strong.

Yes. With the second unit coming online at Gibson in the second quarter, you can expect to see an increase in production during the third and fourth quarters. If you compare sequentially to the fourth quarter, we experienced an impact of about 0.5 million tons at Hamilton. For the first couple of quarters, production should be similar to the sequential figures from the first half of the year, with a slight increase in the second half due to the additional unit at Gibson.

Okay, Joe. So basically, you get that 0.5 million tons back, it sounds like in 1Q versus 4Q with Hamilton seemingly behind the event that occurred. And then first quarter, second quarter flattish and then Gibson second shift comes on, we should see a bump up?

Yes. You may not recover the full amount in the second quarter due to the number of longwall moves scheduled in the first quarter, but it's quite close.

I appreciate that information. Regarding the CapEx guidance, it seems to be a bit higher than what we expected, and the CapEx for 2022 was slightly below your updated forecast. Are there several items that will carry over into the full-year guidance for 2023? Additionally, it appears that maintenance expenses increased by approximately $100 million year-over-year. Assuming that this is the primary factor behind the year-over-year guidance increase, could you provide more details on what contributes to that growth?

On the growth piece, as we mentioned last quarter and in our opening remarks, we are moving into new reserve areas at River View and the main portion of the capital expenditures related to that will be incurred in this year and next. Other factors impacting maintenance capital, we’re obviously projecting increased volumes, which by definition, you’ll have higher maintenance capital costs associated with that; the inflationary impacts on our supplies, maintenance, equipment, etc. is also reflective. And then, Nate, as you know, maintenance capital year-over-year can be pretty heavily influenced by just the timing of rebuild schedules, etc. And 2023, we have an occurrence of more rebuilds during this particular point in time than we’ve seen recently.

The next question is coming from David Storms of Stonegate.

Just wondering if you could give a little more color as to what you’re seeing on transportation expenses as inflation starts to turn a corner and specifically just outside of any seasonal moves?

On the transportation expenses, we are seeing better performance. Expenses are still elevated as we run into going into the year. Some of that does tie to pricing in the export market. So there could be some softening of that. Again, there's not been much activity because of our sold-out position. So we'll have to wait and see how that goes for the back half of the year. So I'm not sure I understood your second part of your question.

Maybe just a reminder as well that for us, transportation expenses are pass-through.

Except for export.

Except for export, that's correct. So it really has an influence on decisions we make around where we can achieve the highest netback at our operations. Is that in the domestic market or the export market?

That's perfect. Thank you. And then on those export constative movements, how sticky do you view that just going into 2024 with the 40 million ton gap that Russia laps?

We believe that, that will continue to be there. There's a lot depends on several decisions that they make. We do think that as you move towards the end of '24, end of '25, there may be opportunities for them to get more LNG. But then into their country, they’re trying to move to renewables, but they’ve opened up their own coal facilities. They’ve opened up coal plants. So if you look at in addition to the Russian supply, we think there’s like 8 million to 10 million tons of added demand in 2023 for coal plants that they’ve opened to meet their energy needs. How long those stay online? It is hard to know. But based on our 4.4 million tons or so that we’re going to sell in the export market, we believe that there are more than plenty of opportunities for that to sustain itself, if not grow. If you go back before the pandemic, we were shipping at a 12 million-ton rate. So I think not sure we’ll get back to that level, but there is opportunity for us to grow just with the demand that we’ve seen over the last six years or so. We don’t need a lot of growth; we just need stability, and we believe that with our low-cost operations, we can compete in that global economy in the 4.5 million to say 7.5 million to 8 million tons over the next three to four years if there's not alternatives in the domestic market.

The next question is coming from David Marsh of Singular Research.

Congratulations on the quarter. Also, Brian, congrats on the retirement and Cary, congrats on the promotion. So just a quick housekeeping question. Brian, are you going to be staying on through the 10-K filing? And do you have kind of a targeted date in mind when you’ll get the K filed?

We should be filing the K toward the end of February. And yes, I will be here through that. My targeted date is March 31, and Cary steps in on April 1.

I was intrigued by the acquisition activity and the comments regarding another one. I was wondering if you could highlight some of your high-level criteria. I’m very encouraged that it sounds like you’re going to be cash flow accretive immediately on the one you just closed. Could you provide a bit more detail on your criteria when evaluating acquisitions?

We have specific underwriting standards for oil and gas, and we are focused on achieving results that provide risk-adjusted returns for our unitholders over the long term. Our return thresholds for this acquisition are consistent with our past practices. We have committed to our oil and gas group, specifically the royalty segment, that they can reinvest any cash flow generated on an EBITDA basis from the previous year. This means they have room for an additional approximately $50 million on top of the investment we announced today. I am hopeful that some sellers will take advantage of current gas prices, which could present opportunities for us. We are concentrating on long-term products, services, and solutions. Currently, one of the challenges in acquisitions is the cost of capital, as interest rates are fluctuating and there are mixed signals regarding the future of these rates. To secure attractive long-term investments, it's essential to attain a return that significantly exceeds the cost of capital, which is currently shifting. This may lead us to adopt a more conservative approach to evaluations in 2023 compared to what they might have been under a lower cost environment. We aim to ensure our returns surpass the cost of capital, and we may take precautions regarding a higher cost of capital this year than what it might ultimately be. Higher interest rates will undoubtedly influence the seller’s perspective.

That makes a lot of sense. I guess the acquisitions announced so far really are more oil and gas. So is there anything on the coal side where things could potentially become compelling?

There haven't been many opportunities in the coal space. From a strategic standpoint, the only potential opportunity might be met coal, which we’ve identified from our Mettiki operation. That’s an area I could see as possible, but it’s not very likely. Most of our focus is on acquisitions outside the coal sector. In other words, there’s nothing happening right now.

The next question is coming from Abe Landa of Bank of America.

Just a couple of questions on the balance sheet. So, I'm sure you're aware fixed income markets are beginning to fall a little. We have seen some other coal companies take up some notes early. And then in your capital allocation discussion, you did mention you could potentially redeem a portion of your bonds which, I'm sure you know, your bonds, the call price kind of steps down to par this May 1. Maybe kind of more holistically, what are you thinking about your capital structure and even more specifically about your bonds?

Yes. Regarding the bonds, we needed to wait until we finished our bank financing to ensure we had the flexibility we wanted if we decided to start repurchasing the bonds. We have achieved that flexibility, and with the strong cash flow we are generating, we have the chance to potentially buy back in the open market if the conditions are favorable. Additionally, you are correct that our bond call price will reach par in May of this year. We will assess market conditions and determine the right timing to possibly repurchase those bonds before they mature in May of 2025. We have ample time to manage this, and we will closely monitor the markets to identify opportunities to acquire some of those positions at favorable levels.

Yes, it will depend obviously on our other alternatives.

Meaning like other capital allocation alternatives.

If there are acquisition-type opportunities that arise.

Yes, managing our balance sheet is one of our key priorities for capital allocation, along with returning cash to unitholders. The distribution we announced on Friday is something we plan to maintain throughout the year. That is clearly defined. With the flexibility from our bank refinancing, we could return additional cash to unitholders through a repurchase program that the Board decided to initiate last week, should conditions be favorable.

I just have two quick housekeeping points. It was good to see that your credit agreement was extended. I also noticed that it included a $75 million term loan, could you share what that will be used for? Is that amount currently undrawn?

No. The term loan is drawn at closing. So that cash is now on our balance sheet. In our prepared comments, we noted that we do have these activities going on at the River View, and we acquired some additional coal reserves at Tunnel Ridge. So we're using that $75 million to effectively turn those activities out for a more extended period of time primarily.

The next question is coming from Mark Reichman of Noble Capital Markets.

Regarding guidance, I agree with your observations about a stronger second half. In the fourth quarter, coal prices were $57.47 a ton in the Illinois Basin and about $89 a ton in Appalachia. I'm curious about the extent to which you need to adjust your unpriced tonnage to achieve your guidance.

Not much. I mean I think if you look at fourth quarter and then you look at our guidance, I mean like you said, our fourth quarter averaged $67.84. And so our guidance is what?

$67 to $69.

We are right on track with our commitments. Any open opportunities will contribute positively to those numbers, which is how we can reach the midpoint or the higher end of our range. I believe we have some flexibility within that range. Additionally, the pricing included in our guidance for the year is conservative.

I was just curious about the progress of the new ventures team. Have they come up with some strong ideas, and what are your expectations in that regard?

Primarily, they have established a process and internal as well as external resources to assist us as we navigate the numerous opportunities available. We are working to refine these opportunities into preferred areas to ensure efficiency with our time and resources, particularly our personnel. Significant progress has been made in a short time frame, and we have a clear vision for how to approach the inbound opportunities we receive. Additionally, we have a proactive strategy in place, leveraging external sources to target specific areas that align with our core competencies and provide long-term risk-adjusted returns. Most of the opportunities we are considering are in the mid to late stages of their growth, particularly in the transition space, but we are also looking at other more mature options that generate cash flow and can be financed. Our progress has been strong, though there are many options to consider, necessitating prioritization, which will require some time.

One thing I've always appreciated is the strength and the longevity of Alliance's management team. So congratulations to both Brian and Cary and to the whole team for the excellent results.

The next question is coming from Tom Coleman of Kensico Capital.

I wanted to revisit your point about the royalty team having around $50 million or so, which they can use to further grow their business. So when they approach you with a deal, does it feel like...

You are cutting out…

Okay. When the royalty guys come here with the deal and you compare the packaging in the common stock repurchase. Is there a critical mass in royalty that’s important to achieve and you’re willing to reach a little bit relative to the comment to get to a certain level? How do you think about the size of that business standalone?

We believe our Minerals segment has a proven track record due to our successful underwriting approach. We are confident that oil and gas will remain relevant for many decades. This segment can generate sustainable cash flow and aligns with our strategic objectives, providing guidance to ensure certainty in their deal flow development. We have given them the flexibility to understand how much capital is available to them. This is not a capped amount; we are open to evaluating other opportunities that may arise. However, we do not plan to reassess our capital allocation to this segment on a quarterly basis. We see it as essential for growth, and if we can invest between $100 million and $120 million annually for their growth, we can achieve significant results. This has been validated since we entered the business in late 2014. We are committed to this segment, believe it is an attractive opportunity, and have a solid understanding of how to assess its value. As a long-term investment, we remain confident that it is a worthwhile allocation of capital.

At this time, I would like to turn the floor back over to Mr. Cantrell for closing comments.

Thank you, Donna, and to everyone on the call. We sincerely appreciate your time this morning as well as your continued support and interest in Alliance. Our next call to discuss our first quarter 2023 financial and operating results is currently expected to occur in late April, and we hope everyone will join us again at that time. This concludes our call for the day. Thank you very much.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.