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Section 1: 10-K (FORM 10-K - YEAR ENDED DECEMBER 31, 2017)

felp-10k_20171231.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-K

 

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to          

Commission File Number: 001-36503

 

Foresight Energy LP

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

80-0778894

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

211 North Broadway, Suite 2600, Saint Louis, MO

 

63102

(Address of principal executive offices)

 

(Zip code)

Registrant’s telephone number, including area code: (314) 932-6160

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange On Which Registered

Common Units representing limited partner interests

 

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

_______________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes       No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes       No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 232.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (do not check if a smaller reporting company)

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No    

The aggregate market value of units held by non-affiliates as of June 30, 2017 was $137,308,442.

As of February 28, 2018, the registrant had 79,623,907 common units and 64,954,691 subordinated units outstanding.

 

 

 

 


 

TABLE OF CONTENTS

 

PART I

 

 

 

Item 1. Business

2

 

 

Item 1A. Risk Factors

18

 

 

Item 1B. Unresolved Staff Comments

43

 

 

Item 2. Properties

44

 

 

Item 3. Legal Proceedings

45

 

 

Item 4. Mine Safety Disclosures

45

 

 

PART II

 

 

 

Item 5. Market for Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities

46

 

 

Item 6. Selected Financial Data

48

 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

50

 

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

68

 

 

Item 8. Financial Statements and Supplementary Data

70

 

 

Item 9. Changes in and Disagreements With Accountant on Accounting and Financial Disclosure

115

 

 

Item 9A. Controls and Procedures

115

 

 

Item 9B. Other Information

117

 

 

PART III

 

 

 

Item 10. Directors, Executive Officers and Corporate Governance of the Managing General Partner

118

 

 

Item 11. Executive Compensation

122

 

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters

128

 

 

Item 13. Certain Relationships and Related Transactions and Director Independence

130

 

 

Item 14. Principal Accountant Fees and Services

139

 

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

140

 

 

Item 16. Form 10-K Summary

151

 

 

Signatures

152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements and information in this Annual Report on Form 10-K, and certain oral statements made from time to time by our representatives, may constitute “forward-looking statements.” The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “outlook,” “estimate,” “potential,” “continues,” “may,” “will,” “seek,” “approximately,” “predict,” “anticipate,” “should,” “would,” “could” or other similar expressions are intended to identify forward-looking statements, which are generally not historical in nature. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that the future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Known material factors that could cause our actual results to differ from those in the forward-looking statements are described in Part I. “Item 1A. Risk Factors.”

 

Readers are cautioned not to place undue reliance on forward-looking statements, which are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

 

REFERENCES WITHIN THIS ANNUAL REPORT

 

All references to “FELP,” the “Partnership,” “we,” “us,” and “our” refer to the combined results of Foresight Energy LP and Foresight Energy LLC and its subsidiaries, unless the context otherwise requires or where otherwise indicated.

 

PART I

 

Item 1. Business

 

We mine and market coal from reserves and operations located exclusively in the Illinois Basin. We control 2.1 billion tons of proven and probable coal in the state of Illinois, which, in addition to making us one of the largest reserve holders in the United States, provides organic growth opportunities. Our reserves consist principally of three large contiguous blocks of uniform, thick, high heat content (high Btu) thermal coal which is ideal for highly productive longwall operations. Thermal coal is used by power plants and industrial steam boilers to produce electricity or process steam.

 

We own four mining complexes where we can operate four longwall mines and one continuous miner operation. We invested substantially to construct state-of-the-art, low-cost and highly productive mining operations and related transportation infrastructure. Our four mining complexes can collectively support up to nine longwalls, with a portion of the existing surface infrastructure available to be shared among most of our potential future longwalls. Mining operations at our Hillsboro complex have been idled since March 2015 due to a combustion event and we are uncertain as to when production will resume.

 

Our operations are strategically located near multiple rail and river transportation access points giving us cost-competitive transportation options. We have developed infrastructure that provides each of our four mining complexes with multiple transportation outlets including direct and indirect access to five Class I railroads. Our access to competing rail carriers as well as access to truck and barge transport provides us with operating flexibility and minimizes transportation costs. We own a 25 million ton per year barge-loading river terminal on the Ohio River and also have contractual agreements for up to 6.8 million tons per year of export terminal capacity in the Gulf of Mexico. We have long-term, fixed price transportation contracts from our mines to these terminals. These logistical arrangements provide transportation cost certainty and the flexibility to direct shipments to markets that provide the highest margin for our coal sales.

 

We market and sell our coal primarily to electric utility and industrial companies in the eastern half of the United States and the international market. We sell the majority of our domestic tonnages to electric utilities with installed pollution control devices. These devices, also known as scrubbers, are designed to eliminate substantially all emissions of sulfur dioxide.

 

Foresight Energy LP, a Delaware limited partnership formed on January 26, 2012, completed its initial public offering on June 23, 2014 and is listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “FELP.” We are managed and operated by the board of directors and executive officers of our general partner, Foresight Energy GP LLC (“FEGP”), which is owned by Murray Energy Corporation (“Murray Energy”) and Foresight Reserves LP (“Foresight Reserves”).

2

 

 


Below is a diagram of our organizational and ownership structure as of February 28, 2018:

 

 

 

(1)

See Exhibit 21.1 for a list of subsidiaries.

 

 

(2)

Includes common units held by executive officers and directors.  


3

 

 


Debt Refinancing

 

On March 28, 2017, we completed a series of transactions to refinance certain previously outstanding indebtedness. See “Item 8. Financial Statements and Supplementary Data – Note 10. Long-Term Debt and Capital Lease Obligations” and “Item 8. Financial Statements and Supplementary Data – Note 15. Related-Party Transactions” for additional discussion of the refinancing transactions.

 

Mining Operations

 

Each of our four mining complexes operates in the Illinois Basin; with two located in Southern Illinois and two located in Central Illinois. Hillsboro (when in operation), Williamson, and Sugar Camp are longwall operations, and Macoupin is currently a continuous miner operation. The geology, mine plan, equipment and infrastructure at each of our Williamson, Sugar Camp and Hillsboro mines are relatively similar. Each of our mining complexes has its own preparation plant and support facilities. The following map shows the location of our mining complexes and transportation network:

 

 

(1)“CN”: Canadian National line; “EVWR”: the Evansville Western line; “NS”: the Norfolk Southern line; “UP”: Union Pacific line; “BNSF”: BNSF Railway line; and “CSX”: CSX Corporation line.

4

 

 


The table below summarizes our operations, available mining methods, transportation access, reserves and production:

 

 

 

 

 

 

Proven and

 

 

Production (3)

 

 

 

Available Mining

 

Transportation

 

Probable

 

 

Year Ended December 31,

 

Complex

 

Methods (1)

 

Access (2)

 

Reserves

 

 

2017

 

 

2016

 

 

2015

 

 

 

 

 

 

 

(In Millions of Tons)

 

Williamson

 

LW, CM

 

Rail (CN),

Barge (OHR, MSR),

Truck

 

 

370.6

 

 

 

6.4

 

 

 

5.4

 

 

 

5.6

 

Sugar Camp

 

LW, CM

 

Rail (CN, NS, CSX, BNSF),

Barge (OHR, MSR),

Truck

 

 

1,324.6

 

 

 

12.8

 

 

 

11.4

 

 

 

10.6

 

Hillsboro

 

LW, CM

 

Rail (UP, NS, CN),

Barge (OHR, MSR),

Truck

 

 

322.1

 

 

 

-

 

 

 

-

 

 

 

1.9

 

Macoupin

 

CM, LW

 

Rail (UP, NS, CN),

Barge (OHR, MSR),

Truck

 

 

76.6

 

 

 

2.0

 

 

 

2.2

 

 

 

2.0

 

 

 

 

 

 

 

 

2,093.9

 

 

 

21.2

 

 

 

19.0

 

 

 

20.1

 

 

(1)

LW: Longwall; CM: Continuous miner. Williamson, Sugar Camp and Hillsboro use CM for development sections only. Macoupin does not currently mine with a longwall.

(2)

CN: Canadian National Railway Company; UP: Union Pacific Railroad Corporation; NS: Norfolk Southern Corporation; CSX: CSX Corporation; BNSF: BNSF Railway Company; OHR: Ohio River; MSR: Mississippi River.

(3)

As reported by the Mine Safety and Health Administration (“MSHA”), inclusive of tons produced for certain mines in development.

 

Longwall mining is a highly-automated, underground mining technique that generates high volumes of low-cost coal production and is typically supported by one or two continuous mining units. While the continuous mining units contribute to coal production, the primary function is to prepare an area of the mine for longwall operations. A longwall mining system uses a shearer to cut the coal, self-advancing roof supports to protect the miners working at the longwall face and an armored face conveyor to transport the coal. The longwall mining system is highly productive due to the continuous nature of coal production and the high volume of coal produced relative to the number of personnel required to operate the system.

 

Below is an illustrative diagram of the longwall mining process:

 

5

 

 


We have been able to sustain our high productivity and low operating costs since we started our first longwall in 2008 and the high productivity at the newer mines we have developed demonstrates the repeatability of our mine design. The high productivity translates into low costs and, in 2017, our operations had an average cash cost of $22.85 per ton sold. Our mines that operated during 2017 were among the most productive underground coal mines in the United States on a clean tons produced per man hour basis based on MSHA data, as illustrated below.

 

Source: MSHA data. Note: The chart above displays the top 25 most productive underground mines out of 164 mines with over 100,000 tons produced during 2017 on a clean tons produced per man hour basis. Darker shading denotes mines owned by Foresight Energy LP. Mining operations at our Hillsboro complex have been idled since March 2015 due to a combustion event.

 

Williamson Mining Complex

 

Our Williamson mine is wholly-owned by our subsidiary Williamson Energy, LLC (“Williamson”) and is located in southern Illinois near the town of Marion. Williamson is the first mine we developed, with longwall mining production commencing in 2008. The mine operates in the Herrin No. 6 Seam, using one longwall system and two continuous miner units to develop the mains and gate roads for its longwall panels. Coal is washed at Williamson’s 2,000 tons-per-hour (“tph”) preparation plant, stockpiled and then shipped by rail or truck to our customers or a terminal. Williamson’s coal is shipped via the CN and EVWR railroads to the Ohio and Mississippi Rivers to serve the domestic thermal market or to a terminal near New Orleans to serve the international thermal market. Williamson has access to several barge facilities on the Ohio and Mississippi Rivers and two vessel loading facilities near New Orleans. Williamson was the most productive underground coal mine in the United States in 2017 on a clean tons produced per man hour basis based on MSHA data.

 

Sugar Camp Mining Complex

 

Our Sugar Camp mine is wholly-owned by our subsidiary Sugar Camp Energy, LLC (“Sugar Camp”), and is located in southern Illinois approximately 12 miles north of Williamson. Sugar Camp’s first longwall system began production in the first quarter of 2012 and its second longwall system began production in the second quarter of 2014. Sugar Camp’s original infrastructure, including its bottom development, slope belt, material handling system and rail loadout, supports both longwalls. Sugar Camp operates in the Herrin No. 6 Seam and uses a similar mine design and equipment as Williamson. With additional equipment, infrastructure and mine development, Sugar Camp has the capacity to add two incremental longwall systems. Coal is washed at Sugar Camp’s two 2,000 tph preparation plants, stockpiled and then shipped by rail or truck to our customers or a terminal. Sugar Camp has direct access to the EVWR and CN railroads, which can deliver its coal to the Ohio and Mississippi Rivers, respectively, to serve the domestic thermal market or to two vessel loading facilities near New Orleans to serve the international thermal market. Sugar Camp also has indirect access to the NS, BNSF and CSX railroads. Sugar Camp was the fourth most productive underground coal mine in the United States in 2017 on a clean tons produced per man hour basis based on MSHA data.

 

6

 

 


Hillsboro Mining Complex

 

Our Hillsboro mine is wholly-owned by our subsidiary Hillsboro Energy LLC (“Hillsboro”), and is located in central Illinois near the town of Hillsboro. Hillsboro’s longwall mining system began production in the third quarter of 2012. The mine, when in operations, operates in the Herrin No. 6 Seam and uses similar mine design and similar equipment as Williamson and Sugar Camp. Coal is washed at Hillsboro’s 2,000 tph preparation plant, stockpiled and then shipped by rail or truck to our customers or a terminal. Hillsboro has direct access to the UP and NS railroads and indirect access to the CN railroad, which allows for the delivery of its coal directly to customers or to the Ohio and Mississippi Rivers in order to serve the domestic thermal market or the international thermal market through two terminals near New Orleans.

 

Our Hillsboro mine experienced an underground combustion event beginning in March 2015. We are uncertain as to when production will resume at this operation but we are working closely with MSHA and the Illinois Office of Mines and Minerals Mine Safety and Training Division to ensure the safety of our employees throughout the process and to explore alternatives to safely resolve this issue.  In December 2017, we submitted a re-entry plan to MSHA which contains a plan for the permanent sealing of the current longwall district of the Hillsboro mine immediately upon MSHA’s approval.  In connection with the proposed re-entry plan, certain longwall equipment and other related assets will be permanently sealed within or will not be recovered, resulting in a $42.7 million impairment loss during 2017.  

 

Macoupin Mining Complex

 

Our Macoupin mine is wholly-owned by our subsidiary Macoupin Energy LLC (“Macoupin”), and is located in central Illinois near the town of Carlinville. We acquired the Macoupin mine in 2009 and sealed the majority of the previously mined area and implemented a new mine plan and design. In addition, the surface facilities were upgraded, including the rehabilitation of the preparation plant. Coal production began in 2009 with a single continuous miner super-section utilizing battery powered coal haulers. An additional continuous miner unit was added in 2011 using a flexible conveyor train system rather than coal haulers. Coal is washed at Macoupin’s 850 tph preparation plant, stockpiled and then shipped by rail or truck to our customers or a terminal. Macoupin has direct access to both the UP and NS railroads and indirect access to the CN railroad, which allows for the delivery of its coal directly to customers or to terminals at the Ohio and Mississippi Rivers to serve the domestic thermal market or the international thermal market through two terminals near New Orleans. Macoupin was the fourteenth most productive underground coal mine in the United States in 2017 on a clean tons produced per man hour basis based on MSHA data.

 

Transportation

 

Our coal is transported to our domestic and export customers by rail, barge, truck, and vessel. Depending on the proximity of our customers to the mines and the transportation available to deliver coal to that customer, transportation costs can be a substantial part of the total delivered cost of coal. Because our reserves and mines are favorably located near multiple rail and river transportation options, we believe we can negotiate advantageous transportation rates, allowing us to keep our transportation costs relatively low while providing broad market access for our coal.

 

We have direct and indirect rail access to domestic customers via five Class I railroads, river access to domestic customers via various Ohio and Mississippi River terminals, and river and rail access to coal export terminals for shipping to international customers. We have agreements with rail carriers that vary in initial length from one to twenty years. We also have favorable access to the international market through the CN railroad and export terminals through long-term contractual arrangements. The international market provides us with an alternative to the domestic market and has historically been an important economic outlet for our coal. While transportation costs are higher for exports to the international market, we do, in certain market conditions, receive higher coal sale prices on export sales, which offset the higher transportation costs. Rates and practices of the transportation companies serving a particular mine or customer may affect our marketing efforts with respect to coal produced from the relevant mine.

 

For the year ended December 31, 2017, approximately 20% of our coal sales volume was shipped to our domestic customers by barge, 53% to our domestic customers by rail or truck and 27% was shipped to our international customers.

 

Our Sitran terminal is a high-capacity coal transloading facility on the Ohio River near Evansville, Indiana to which each of our mines has access. The facility currently has a single rail loop, a bottom discharge rail car unloader, stacking tubes to facilitate ground storage and blending, barge loading capabilities and throughput capacity of 25 million tons of coal per year. The terminal has the potential for a dual rail loop that would have capacity for two loaded and two empty unit trains.

7

 

 


Coal Marketing and Sales

 

During the years ended December 31, 2017, 2016 and 2015, we generated total revenues of $954.5 million, $875.8 million and $984.9 million, respectively. Our primary domestic customers are electric utility and industrial companies in the eastern half of the United States. Our three largest customers in 2017 were Javelin Global Commodities (an affiliate of Murray Energy), Southern Company, and Santee Cooper, representing approximately 27%, 24% and 10% of our total coal sales revenues, respectively. If these three customers or any of our largest customers were to significantly reduce their purchases of coal from us, or if we were unable to sell coal to our largest customers on terms as favorable to us as the terms under our current contracts, our results of operations may be materially adversely affected.

 

The international thermal coal market has also been a substantial part of our business with direct and indirect sales to end users in Europe, South America, Africa and Asia. During the years ended December 31, 2017, 2016, and 2015, export tons represented approximately 27%, 17% and 24% of tons sold, respectively. The charts below illustrate our sales mix, by destination, for the years ended December 31, 2017, 2016, and 2015.

 

 

 

Our management actively monitors trends in contract pricing and seeks to enter into coal sales contracts at favorable prices. Many of our contracts allow us to substitute coal from our other mining complexes. For 2018, as of February 28, 2018, we have 18.6 million tons of our projected production contractually committed.

 

The terms of our coal supply agreements result from competitive bidding and extensive negotiations with customers. Consequently, the terms of these contracts, including price adjustment features, price reopener terms, coal quality requirements, quantity adjustment mechanisms, permitted sources of supply, future regulatory changes, extension options, force majeure provisions, and termination and assignment provisions, vary significantly by customer.

 

Most of our coal supply agreements contain provisions requiring us to deliver coal within certain ranges for specific quality characteristics such as heat content, sulfur, and ash. Failure to meet these conditions could result in substantial price reductions or suspension or termination of the contract at the election of the customer. Although the minimum volume to be delivered under a long-term contract is stipulated, either party may vary the timing of delivery based on certain contractual provisions. Contracts also typically contain force majeure provisions allowing for the suspension of performance by either party for the duration of specified events beyond the control of the affected party, including labor disputes. Some contracts may terminate upon continuance of an event of force majeure for an extended period. Some of our long-term contracts provide for a predetermined adjustment to the stipulated base price at times specified in the agreement or at other periodic intervals to account for changes in prevailing market prices.

 

In addition, most of our contracts contain provisions permitting us to adjust the base price due to compliance with new statutes, ordinances or regulations that affect our costs related to performance of the agreement. Also, some of our contracts contain provisions that allow for the recovery of certain costs incurred due to modifications or changes in the interpretations or application of any applicable government statutes.

 

Price reopener provisions are present in several of our long-term contracts. These provisions may automatically set a new price based on prevailing market price or, in some instances, require the parties to agree on a new price. In a limited number of agreements, failure of the parties to agree on a price under a price reopener provision can lead to termination of the contract.

 

8

 

 


Competition

 

The United States coal industry is highly competitive, both regionally and nationally. In the Illinois Basin, we compete primarily with coal producers such as Peabody Energy Corporation, Alliance Resource Partners, L.P., Murray Energy (an affiliate), and Sunrise Coal LLC. Outside of the Illinois Basin, we compete broadly for coal sales with other United States-based producers of thermal coal, and we compete internationally with numerous global coal producers.

 

A number of factors beyond our control affect the markets in which we sell our coal. Continued demand for our coal and the prices obtained by us depend primarily on: the coal consumption patterns of the electricity industry in the United States and elsewhere around the world; the availability, location, cost of transportation and price of competing coal; and other electricity generation and fuel supply sources such as natural gas, oil, nuclear, hydroelectric and renewable energy. Coal consumption patterns are affected primarily by the demand for electricity, the amount of coal supply in the market, environmental and other governmental regulations and technological developments. The most important factors on which we compete are price, coal quality characteristics, and reliability of supply.

 

Segments

 

We operate as a single reportable segment. See Part II. “Item 8. Financial Statements and Supplementary Data” for our consolidated revenues and total assets.

 

Employees and Labor Relations

 

As of December 31, 2017, we had 16 corporate employees and 793 employees working in mining and mining-related operations. None of our operations have employees represented by a union. In 2015, we entered into a management services agreement with a subsidiary of Murray Energy pursuant to which it provides certain management and administration services to us for a quarterly fee. Please read Part II. “Item 8. Financial Statements and Supplementary Data, Note 15–Related-Party Transactions” for additional discussion.


9

 

 


Environmental and Other Regulatory Matters

 

Our operations are subject to a variety of U.S. federal, state and local laws and regulations, such as those relating to employee health and safety; water discharges; air emissions; plant and wildlife protection; the restoration of mining properties; the storage, treatment and disposal of wastes; remediation of contaminants; surface subsidence from underground mining and the effects of mining on surface water and groundwater conditions.

 

We are not aware of any notice from a governmental agency of any material non-compliance with applicable laws, regulations, or permits that the Partnership has failed to address. However, there can be no assurance that violations will not occur in the future; that we will be able to always obtain, maintain or renew required permits; or that changes in these requirements or their enforcement or the discovery of new conditions will not cause us to incur significant costs and liabilities in the future. Due to the nature of the regulatory programs that apply to our mining operations, which can impose liability even in the absence of fault and often involve subjective criteria, it is not reasonable to expect any coal mining operation to be free of citations. Certain of our current and historical mining operations use or have used or store regulated materials which, if released into the environment, may require investigation and remediation. Under certain permits, we are required to monitor groundwater quality on and adjacent to our sites and to develop and implement plans to minimize and correct land subsidence, as well as impacts on waterways and wetlands, caused by our mining operations. Major regulatory requirements are briefly discussed below.

 

Mine Safety and Health

 

In the United States, the Coal Mine Health and Safety Act of 1969, the Federal Mine Safety and Health Act of 1977 (the “1977 Act”) and the Mine Improvement and New Emergency Response Act of 2006 (“MINER Act”) impose stringent mine safety and health standards on all aspects of mining operations. In 1978, MSHA was created to carry out the mandates of the 1977 Act and was granted enforcement authority. MSHA is authorized to inspect all underground mining operations at least four times a year and issue citations with civil penalties for the violation of a mandatory health and safety standard. MSHA review and approval is required for a number of miner safety and welfare plans including ventilation, roof control/bolting, safety training and ground control, refuse disposal and impoundments and respirable dust. Also, the State of Illinois has its own programs for mine safety and health regulation and enforcement.

 

Under the 1977 Act, MSHA has the authority to issue orders or citations to mine operators regardless of the degree of culpable conduct engaged in by the operator, and it must assess a penalty for each citation or order. Factors such as degree of negligence and gravity of the violation affect the amount of penalty assessed, and sometimes permit MSHA to issue orders directing withdrawal of miners from the mine or affected areas within the mine. The 1977 Act contains provisions that can impose criminal liability on the mine operator or individuals.

 

The MINER Act added more extensive health and safety compliance standards, and increased civil and criminal penalties. Some of the MINER Act requirements included stricter criteria for sealing off abandoned areas of mines, the addition of refuge alternatives, stricter requirements for conveyor belts, and upgrades to communication with and tracking of miners underground.

 

MSHA continues to promulgate rules that affect our mining operations. In March 2013, MSHA implemented a revised Pattern of Violations (“POV”) standard. Under the revised standard, mine operators are no longer entitled to a ninety day notice of potential POV. In addition, MSHA began screening for POV by using issued citations and orders, prior to their final adjudication. If a mine is designated as having a POV, MSHA will issue an order withdrawing miners from any areas affected by violations which pose a significant and substantial (“S&S”) hazard to the health and/or safety of miners. Once a mine is in POV status, it can be removed from that status only upon (i) a complete inspection of the entire mine with no S&S enforcement actions issued by MSHA or (ii) no POV-related withdrawal orders being issued by MSHA within ninety (90) days following the mine operator being placed on POV status. However, from time to time one or more of our operations may meet the POV screening criteria, and we cannot make assurances that one or more of our operations will not be placed into POV status, which could materially and adversely affect our results of operations.

 

In April 2014, MSHA issued, among other provisions, a final rule lowering certain standards for respirable dust. Specifically, the rule reduces the overall dust standard from 2.0 to 1.5 milligrams per cubic meter of air and cuts in half the standard from 1.0 to 0.5 for certain mine entries and miners with pneumoconiosis, as well as changes sampling protocols and increases governmental oversight. On August 1, 2016, Phase III of MSHA’s respirable dust rule, imposing these new limits, went into effect. These final rules could make compliance more costly and approval for ventilation plans in underground coal mines more difficult to obtain.

 

10

 

 


In August 2016 and then again in January 2017, MSHA adjusted its existing civil penalties for inflation, which prior to these dates were last set in 2007. While these rules resulted in different relative impacts on particular penalty amounts, the net effect of these adjustments increased the amount of penalties that MSHA may impose on operators.

 

In January 2015, MSHA issued a final rule on the use of proximity detection systems on certain pieces of underground mining equipment. The rule requires, among other provisions, continuous mining machines to be equipped with electronic sensing devices that can detect the presence of miners in proximity to the machines and then cause moving or repositioning continuous mining machines to stop before contacting a miner. The final rule has a phase in period, depending upon the age of the continuous mining machine, of 8 to 36 months.

 

These requirements have, and will continue to have, a significant effect on our operating costs.

 

In June 2016, MSHA issued a request for information on approaches to control and monitor miners’ exposures to diesel exhaust. While MSHA’s existing regulations address health hazards to coal miners from exposure to diesel particulate matter (“DPM”), MSHA is requesting information on approaches that would improve control of DPM and diesel exhaust. Although no rule has been proposed, if a rule that lowered DPM emission limits is proposed and adopted, it could have a significant impact on our operating costs.

 

At this time, it is not possible to predict the full effect that various new or proposed statutes, regulations and policies will have on our operating costs, but certain will increase our costs and those of our competitors. Some, but not all, of these additional costs may be passed on to customers.

 

Black Lung

 

Under the United States Black Lung Benefits Revenue Act of 1977 and the Black Lung Benefits Reform Act of 1977, as amended in 1981, each coal mine operator must secure payment of federal black lung benefits to claimants who have been diagnosed with pneumoconiosis and are current or former employees and must also pay into a trust fund for the payment of benefits and medical expenses to claimants who last worked in the coal industry prior to July 1, 1973. The trust fund is funded by an excise tax on production sold domestically of up to $1.10 per ton for deep-mined coal and up to $0.55 per ton for surface-mined coal, neither amount to exceed 4.4% of the gross sales price, excluding transportation.

 

U.S. Environmental Laws

 

We are subject to various U.S. federal, state and local environmental laws. Some of these laws, as discussed below, impose stringent requirements on our coal mining operations. U.S. federal and state regulations require regular monitoring of our mines and other facilities to ensure compliance. U.S. federal and state inspectors are required to inspect our mining facilities on a frequent schedule. Future laws, regulations or orders, as well as future interpretations or more rigorous enforcement of existing laws, regulations or orders, may require increases in capital and operating costs, the extent of which we cannot predict.

 

The Surface Mining Control and Reclamation Act of 1977 (“SMCRA”)

 

SMCRA, which is administered by the Office of Surface Mining Reclamation and Enforcement (“OSM”), establishes mining, environmental protection and reclamation standards for all aspects of surface mining as well as many aspects of deep mining. Mine operators must obtain SMCRA permits and permit renewals from the OSM or the applicable state agency. Where state regulatory agencies have adopted federal mining programs under SMCRA, the state becomes the regulatory authority. Illinois has achieved primary control of enforcement through federal authorization.  SMCRA also stipulates compliance with many other major environmental statutes, including: the Clean Air Act; the Endangered Species Act; the Clean Water Act of 1972 (“CWA”); the Resource Conservation and Recovery Act (“RCRA”) and the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). SMCRA seeks to limit the adverse impacts of coal mining to the environment, and more restrictive requirements may be adopted from time to time.

 

SMCRA permit provisions include a complex set of requirements governing the following processes: coal prospecting; mine plan development; topsoil removal, storage and replacement; selective handling of overburden materials; mine pit backfilling and grading; protection of the hydrologic balance; subsidence control for underground mines; surface drainage control; mine drainage and mine discharge control and treatment; restoration to the approximate original contour; and re-vegetation. The disposal of coal refuse is also permitted under SMCRA. Both coarse refuse and slurry disposal areas, including the disposal of slurry underground, require permits from the Illinois Department of Natural Resources (“IDNR”).

 

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The mining permit application process is initiated by collecting baseline data to adequately characterize the pre-mine environmental condition of the permit area. This work includes surveys of culturally and historically important natural resources, soils, vegetation, and wildlife, as well as the assessment of surface and ground water hydrology, climatology and wetlands. In conducting this work, we collect geologic data to define and model the soil and rock structures and coal that we will mine. We develop mining and reclamation plans by utilizing this geologic data and incorporating elements of the environmental data. The mining and reclamation plan incorporates the provisions of SMCRA, state programs and other complementary environmental programs that regulate coal mining. Also included in the permit application are documents defining ownership and agreements pertaining to coal, minerals, oil and gas, water rights, rights of way and surface land, and documents required by the OSM’s Applicant Violator System, including the mining and compliance history of officers, directors and principal owners of the entity.

 

Once a permit application is prepared and submitted to the regulatory agency, it goes through a completeness review and technical review. Public notice of the proposed permit is given that also provides for a comment period before a permit can be issued. Some SMCRA mine permits take over a year to prepare, depending on the size and complexity of the mine and may take months or years to be reviewed and issued. Regulatory authorities have considerable discretion in the timing of the permit issuance and the public and other agencies have rights to comment on and otherwise engage in the permitting process, including through intervention in the courts. Before a SMCRA permit is issued, a mine operator must submit a bond or otherwise secure the performance of reclamation obligations.

 

The Abandoned Mine Land Fund, which is part of SMCRA, requires a fee on all coal produced. The proceeds are used to reclaim mine lands closed or abandoned prior to SMCRA’s adoption in 1977. The fee is $0.28 per ton on surface-mined coal and $0.12 per ton on deep-mined coal from October 1, 2012 to September 30, 2021.

 

Various federal and state laws, including SMCRA, require us to obtain surety bonds or other forms of financial security to secure payment of certain long-term obligations, including mine closure and reclamation costs. In August 2016, the OSM issued a Policy Advisory discouraging state regulatory authorities from approving self-bonding arrangements. The Policy Advisory indicated that the OSM would begin more closely reviewing instances in which states accept self-bonds for mining operations. In the same month, the OSM also announced that it was beginning the rulemaking process to strengthen regulations on self-bonding.  Although we do not use self-bonding, the elimination or restriction of this option may lead more parties to see third party bonding which could end up restricting supply and increasing our costs of maintaining our bonds.

 

As of December 31, 2017, we had outstanding surety bonds of $85.1 million primarily related to these matters. Changes in these laws or regulations could require us to obtain additional surety bonds or other forms of financial security.

 

Clean Air Act

 

The Clean Air Act and comparable state laws that regulate air emissions affect coal mining operations both directly and indirectly. Direct impacts on coal mining operations may occur through Clean Air Act permitting requirements or emission control requirements relating to particulate matter, such as fugitive dust, including future regulation of fine particulate matter measuring 2.5 micrometers in diameter or smaller. The Clean Air Act indirectly affects coal mining operations by extensively regulating the air emissions of sulfur dioxide, nitrogen oxides, mercury and other compounds emitted by coal-fired electricity generating plants.

 

Clean Air Act requirements that may directly or indirectly affect our operations include the following:

 

Acid Rain. Title IV of the Clean Air Act requires a two-phase reduction of sulfur dioxide emissions by electric utilities and applies to all coal-fired power plants generating greater than 25 megawatts of power. The affected electricity generators have sought to meet these requirements by, among other compliance methods, switching to lower sulfur fuels, installing pollution control devices, reducing electricity generating levels or purchasing sulfur dioxide emission allowances. We cannot accurately predict the effect of these provisions of the Clean Air Act on our customers and in turn, on our business in future years. We believe that implementation of the Act has resulted in increasing installations of pollution control devices as a control measure and thus, has created a growing market for our higher sulfur coal.

 

Fine Particulate Matter. The Clean Air Act requires the Environmental Protection Agency (“EPA”) to set standards, referred to as National Ambient Air Quality Standards (“NAAQS”), for criteria pollutants capable of adverse health effects. Areas that are not in compliance with these standards (referred to as “non-attainment areas”) must take steps to reduce emissions levels. The EPA has promulgated NAAQS for particulate matter with an aerodynamic diameter less than or equal to 10 microns, or PM10, (for which national averages are decreasing) and for fine particulate matter with an aerodynamic diameter less than or equal to 2.5 microns, or PM2.5. Meeting current or potentially more stringent new PM2.5 standards may require reductions of nitrogen oxide and sulfur dioxide emissions. Future regulation and enforcement of the new PM2.5 standard will affect many power plants and coke plants,

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especially coal-fired power plants and all plants in non-attainment areas. Continuing non-compliance could prevent issuance of permits to plants within the non-attainment areas.

 

Ozone. Significant additional emissions control expenditures will be required at coal-fired power plants and coke plants to meet the current NAAQS for ozone. Nitrogen oxides, which are a by-product of coal combustion, can lead to the creation of ozone. Accordingly, emissions control requirements for new and expanded coal-fired power plants and industrial boilers and coke plants will continue to become more stringent in the years ahead. In October 2015, the EPA updated the NAAQS for ozone to 70 parts per billion (ppb), down from 75 ppb. EPA has initiated a review of the 2015 rule, which will include the natural sources of ozone and international transport of ozone precursors. Separately, a lawsuit challenging the final rule has been held in abeyance in the D.C. Circuit with EPA required to file status reports every 90-days. The EPA has the authority to further strengthen ozone standards to protect public health, and the Clean Air Act requires periodic review of the NAAQS. If the NAAQS for ozone becomes more stringent in the future, it could increase the costs of operating coal-fired power plants.

 

Cross-State Air Pollution Rule (“CSAPR”). The CSAPR, which was intended to replace the previously developed Clean Air Interstate Rule (“CAIR”), requires states to reduce power plant emissions that contribute to ozone or fine particle pollution in other states. Under the CSAPR, emissions reductions were to have started January 1, 2012, for SO2 and annual NOx reductions, and May 1, 2012, for ozone season NOx reductions. Several states and other parties filed suits in the United States Court of Appeals for the District of Columbia Circuit in 2011 challenging the CSAPR. On August 21, 2012, the D.C. Circuit vacated the CSAPR and ordered the EPA to continue administering CAIR, pending the promulgation of a replacement rule. On April 29, 2014, the United States Supreme Court found that the EPA was complying with statutory requirements when it issued CSAPR and reversed the D.C. Circuit’s vacation of CSAPR. On October 23, 2014, the D.C. Circuit granted the EPA’s request to lift the stay on CSAPR. In July 2015 and on remand from the Supreme Court of the United States, the D.C. Circuit upheld the provisions of CSAPR against broad challenges to the rule, but granted certain limited relief to states that brought “as applied” challenges to their respective emissions budgets set by EPA. In November 2015, the EPA issued a proposed CSAPR Rule Update in part to address the D.C. Circuit's ruling regarding emissions budgets. The Rule Update required implementation of CSAPR's emission budgets in the 2017 ozone season. In September 2016, the EPA finalized the CSAPR Rule Update for the 2008 ozone NAAQS. In May 2017, the rule reduced summertime NOx emissions from power plants in 22 states in the eastern U.S. Litigation against CAIR is ongoing. It is unclear what effect, if any, CAIR will have on our operations or results. Because U.S. utilities have continued to take steps to comply with CAIR, which requires similar power plant emissions reductions, and because utilities are preparing to comply with the Mercury and Air Toxics Standards regulations which require overlapping power plant emissions reductions, the practical impact of the reinstatement of CSAPR is expected to be limited. However, the cost of compliance with CAIR and now CSAPR could add to pressure to shut down units, which may further adversely affect the demand for our coal.

 

Mercury and Air Toxic Standards (“MATS”). On December 16, 2011, the EPA issued the MATS to reduce emissions of toxic air pollutants, including mercury, other metals and acid gases, from new and existing coal and oil fired power plants. Under the final rule, existing power plants will have up to four years to comply with the MATS by installing or upgrading pollution controls, fuel switching, or using existing emissions controls as necessary to meet the compliance deadline. On June 29, 2015, the Supreme Court of the United States ruled that the EPA acted unreasonably when it determined that cost was irrelevant to the threshold finding that regulating these emissions was appropriate and necessary. This ruling did not overturn the rules in their entirety or allow previously-installed pollution controls to be removed. The EPA has acted to address the Supreme Court ruling by issuing a proposed supplemental finding that a consideration of costs would not change its threshold finding that regulation of these pollutants is appropriate and necessary. MATS has remained in place and, in April 2016, EPA issued its final supplemental finding confirming its earlier appropriate and necessary finding supporting MATS. These requirements could continue to significantly increase our customers’ costs and to cause them to reduce their demand for coal, which may materially impact our results of operations. In August 2016, the EPA denied two petitions for reconsideration of startup and shutdown provisions in MATS, leaving in place the startup and shutdown provisions finalized in November 2014. The EPA also proposed changes to the electronic reporting requirements for MATS in an effort to streamline e-reporting requirements for power plants and make data about emissions more transparent and accessible to the public. EPA’s actions pertaining to startup and shutdown provisions and e-reporting requirements will have limited impact on coal-fired power plants relative to the overall impact of MATS. On April 18, 2017, EPA filed a motion to continue oral argument "give the appropriate officials adequate time to fully review the Supplemental Finding." The motion was granted on April 27, 2017 directing EPA to file status reports every 90 days.

 

Greenhouse Gases (“GHG”). Increasing concern about GHG, including carbon dioxide, emitted from burning coal at electricity generation plants has led to efforts at all levels of government to reduce their emissions, which could require utilities to burn less or eliminate coal in the production of electricity. Congress has considered federal legislation to reduce GHG emissions which, among other things, could establish a cap and trade system for GHG, including carbon dioxide emitted by coal burning power plants, and requirements for electric utilities to increase their use of renewable energy such as solar and wind power. Also, the EPA has taken several recent actions under the Clean Air Act to regulate GHG emissions. These include the EPA’s finding of “endangerment” to public health and welfare from GHG, its issuance in 2009 of the Final Mandatory Reporting of Greenhouse Gases Rule, which

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requires large sources, including coal-fired power plants, to monitor and report GHG emissions to the EPA annually starting in 2011, and issuance of its Prevention of Significant Deterioration (“PSD”) and Title V Greenhouse Gas Tailoring Rule, which requires large industrial facilities, including coal-fired power plants, to obtain permits to emit, and to use best available control technology to curb GHG emissions. In response to recent Supreme Court and D.C. Circuit decisions, in August 2016 the EPA issued a proposed rule to revise existing PSD and Title V regulations to ensure that a source is not required to obtain a permit under the regulations solely because of GHG emissions. On September 20, 2013, the EPA proposed new source performance standards (“NSPS”), and in January 2014 issued final rules establishing NSPS, for GHG for new coal and oil-fired power plants, which likely will require partial carbon capture and sequestration to comply. On June 2, 2014, the EPA further proposed new regulations limiting carbon dioxide emissions from existing power generation facilities. The EPA issued its final rules, called the Clean Power Plan (“CPP”), in August 2015. Under the CPP, nationwide carbon dioxide emissions from existing plants would be reduced by 32% by 2030, while offering states and utilities flexibility in achieving these reductions. On February 9, 2016, the U.S. Supreme Court issued a temporary stay of the CPP regulations. On September 27, 2016, an en banc panel of the D.C. Circuit Court of Appeals held oral argument in the case challenging the CPP. The Supreme Court stay will remain in place until the D.C. Circuit Court of Appeals rules on the merits of legal challenges to those regulations, and, if following a ruling by the D.C. Circuit Court of Appeals, a writ of certiorari from the Supreme Court is sought and granted, the stay will remain in place until the Supreme Court issues its decision on the merits. On March 28, 2017, President Trump issued Executive Order 13783, which called for the review of CPP, and EPA announced its review of the CPP.   On October 16, 2017, EPA proposed a rule to repeal the CPP, with a comment period closing April 26, 2018. On April 28, 2017, the D.C. Circuit granted a motion by the EPA to hold the case in abeyance while the Agency reconsidered the rule.

 

Twenty-five states and other parties filed lawsuits challenging EPA’s final NSPS rules for carbon dioxide emissions from new, modified, and reconstructed power plants under the Clean Air Act. One of the primary issues in these lawsuits is EPA’s establishment of standards of performance based on technologies including carbon capture and sequestration (“CCS”). New coal plants cannot meet the new standards unless they implement CCS, which reportedly is not yet commercially available or technically feasible.  Should EPA’s regulations be upheld by the court, they could materially impact the ability of customers to build new, or modify or reconstruct existing, coal-fired power plants, and thus reduce the demand for coal.

 

In addition to the above developments, 195 nations (including the United States) signed the Paris Agreement, a long-term, international framework convention designed to address climate change over the next several decades. This agreement entered into force in November 2016 after more than 70 countries, including the United States, ratified or otherwise agreed to be bound by the agreement. The United States was among the countries that submitted its declaration of intended greenhouse gas reductions in early 2015, stating its intention to reduce U.S. greenhouse gas emissions by 26-28% by 2025 compared to 2005 levels. On June 1, 2017, President Trump announced the United States has withdrawn from the Paris Agreement.  Certain state and local officials have stated that they will, nevertheless, voluntarily participate in the Paris Agreement. Over the long term, international participation in the Paris Agreement framework could reduce overall demand for coal which could have a material adverse impact on us. These effects could be more adverse to the extent regions of United States ultimately participate in these reductions (whether via the Paris Agreement or otherwise).  

 

Regional Emissions Trading. Nine northeast and mid-Atlantic states have cooperatively developed a regional cap and trade program, the Regional Greenhouse Gas Initiative (“RGGI”), intended to reduce carbon dioxide emissions from power plants in the region. There can be no assurance at this time that this, or similar state or regional carbon dioxide cap and trade programs (including the Western Climate Initiative, the Midwestern Greenhouse Gas Reduction Accord and the California Global Warming Solutions Act), in the states where our customers operate, will not adversely affect the future market for coal in the region.

 

Regional Haze. The EPA has initiated a regional haze program designed to protect and to improve visibility at and around national parks, national wilderness areas and international parks. This program restricts the construction of new coal-fired power plants whose operation may impair visibility at and around federally protected areas. Moreover, this program may require certain existing coal-fired power plants to install additional control measures designed to limit haze-causing emissions, such as sulfur dioxide, nitrogen oxides, volatile organic chemicals and particulate matter. These limitations could adversely affect the future market for coal. In January 2017, EPA revised its regional haze rules for the second long-term strategy period and, in July 2017, EPA proposed guidance in connection with the rule.  On Jan. 17, 2018, EPA announced it will revisit aspects of the 2017 regional haze rule.

 

Resource Conservation and Recovery Act (“RCRA”)

 

The RCRA affects coal mining operations by establishing requirements for the treatment, storage, and disposal of hazardous wastes. Certain coal mine wastes, such as overburden and coal cleaning wastes, are exempted from hazardous waste management.

 

Coal Ash Rule. Subtitle C of the RCRA exempted fossil fuel combustion wastes from hazardous waste regulation until the EPA completed a report to Congress and made a determination on whether the wastes should be regulated as hazardous. In 2000, the EPA concluded that coal combustion wastes do not warrant regulation as hazardous under the RCRA. Following a large spill of coal ash

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waste at a coal burning power plant in Tennessee in 2008, the EPA, in 2010, proposed two alternative sets of regulations governing the management and storage of coal ash: one would regulate coal ash and related ash impoundments at coal-fired power plants under federal regulations governing hazardous solid waste under Subtitle C of the RCRA and the other would regulate coal ash as a non-hazardous solid waste under Subtitle D. In December 2014, the EPA announced that it would regulate coal combustion wastes as a nonhazardous substance under Subtitle D of the RCRA rather than as hazard waste pursuant to the provisions of Subtitle C. On April 17, 2015, the EPA finalized regulations under the solid waste provisions (“Subtitle D”) of RCRA and the finalized regulations became effective on October 19, 2015. While classifying coal combustion waste as a hazardous waste under Subtitle C would have led to more stringent requirements, the new rule could still increase customers’ operating costs and may make coal less attractive for electric utilities. Under the new rule, entities storing coal combustion wastes are susceptible to litigation from citizen groups or other stakeholders. The Coal Ash Rule is currently being challenged in the D.C. Circuit by both environmental and industry groups. The ongoing efforts by environmental groups to expand energy companies’ liability under RCRA could have potential adverse legal and business outcomes for coal-fired power plants. On Dec. 20, 2017, EPA submitted a draft proposed “remand” rule to the Office of Management and Budget for interagency review.  On March 1, 2018, EPA proposed changes to the regulation of coal ash.  EPA's regulatory agenda indicates a final rule will be issued by June 2019.

 

Most state hazardous waste laws exempt coal combustion waste and instead treat it as either a solid waste or a special waste. These laws may also be revised, and the EPA and the U.S. Department of Interior (“DOI”) have indicated that they intend to address placement of coal combustion waste on mine sites in a separate rulemaking. Additionally, in December 2016, Congress passed the Water Infrastructure Improvements for the Nation Act, which provides for the establishment of state and EPA permit programs for the control of coal combustion residuals and authorizes states to incorporate EPA’s final rule for coal combustion residuals or develop other criteria that are at least as protective as the final rule. Any costs associated with handling or disposal of coal ash as hazardous waste would increase our customers’ operating costs and potentially reduce their ability to purchase coal. In addition, potential liability for contamination caused by the past or future use, storage or disposal of ash could substantially increase.

 

Clean Water Act of 1972 (“CWA”)

 

The CWA established in-stream water quality standards and treatment standards for wastewater discharge through the National Pollutant Discharge Elimination System (“NPDES”). Regular monitoring, reporting requirements and performance standards are requirements of NPDES permits that govern the discharge of pollutants into water.

 

Total Maximum Daily Load. Total Maximum Daily Load (“TMDL”) regulations establish a process by which states may designate stream segments as “impaired” (not meeting present water quality standards). Additionally, states periodically review water quality standards and related effluent limits and consider adopting more stringent limits. Industrial dischargers, including coal mines and plants, will be required to meet new TMDL effluent standards or more stringent water quality standards for these stream segments. The adoption of new TMDL regulations or more stringent water quality standards in receiving streams could hamper or delay the issuance of discharge and Section 404 permits, and if issued, could require new effluent limitations for our coal mines and could require more costly water treatment, which could adversely affect our coal production or results of operations. States are also adopting anti-degradation regulations in which a state designates certain water bodies or streams as “high quality.” These regulations would prohibit the degradation of water quality in these streams. Water discharged from coal mines to high quality streams will be required to meet or exceed new “high quality” standards. The designation of high quality streams at or in the vicinity of our coal mines could require more costly water treatment and could adversely affect our coal production or results of operations.

 

Waters of the United States. In June 2015, the EPA published its final "Waters of the United States" rule, specifying the waterways that are subject to the jurisdiction of the EPA and the U.S. Army Corps of Engineers. The rule expands the scope of a navigable body of water to include tributaries that contain flowing water for some portion of a year. Although the rule is final, the U.S. Court of Appeals for the Sixth Circuit issued a nationwide stay of the rule in October 2015. On January 22, 2018, the Supreme Court unanimously held that initial challenges to this rule belong in district courts rather than appeals courts. The EPA then, on January 31, 2018, delayed applicability of the 2015 rule.  The EPA and the U.S. Army Corps of Engineers have proposed, but not yet finalized, a repeal action, and they plan to propose a replacement rule in mid-2018. These agencies also recently revised the 2015 WOTUS Rule by postponing its application until February 6, 2020.

 

National Enforcement Initiative. In February 2016, the EPA announced its National Enforcement Initiatives for fiscal years 2017-2019, including an initiative called “Keeping Industrial Pollutants Out of the Nation’s Waters,” which focuses the EPA enforcement resources on certain industrial sectors including mining. Under the initiative, the EPA will use water pollution data to target potential violations of discharge permits and increase the scrutiny of compliance issues. The initiative raises the possibility of

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stricter permit standards and increased enforcement attention for companies and facilities that discharge wastewater to waters of the U.S.

 

Steam Electric Power Generating Effluent Guidelines. In addition, environmental groups filed a notice of intent to sue the EPA for failing to update effluent limitation guidelines (“ELG”) under the Clean Water Act for coal-fired power plants to limit discharges of toxic metals from handling of coal combustion waste. In April 2013, the EPA released its proposed revised ELG to address toxic pollutants discharged from power plants, including discharges from coal ash ponds. On November 3, 2015, the EPA issued final revised ELG for the Steam Electric Power Generating category, effective January 4, 2016. These regulations, for the first time, set federal limits on certain metals in wastewater discharges from power plants. Individually and collectively, these regulations could make coal burning more expensive or less attractive for electric utilities and, in turn, impact the market for our products. Several industry groups have filed lawsuits challenging the rule in the U.S. Court of Appeals for the Fifth Circuit. The EPA issued an immediate administrative stay, followed by a longer-term postponement of the rule's standards until 2020. This lawsuit is being held in abeyance pending reconsideration by the EPA. If the revised Steam Electric Power Generating Effluent Guidelines and the Coal Ash Rule survive legal challenges, they could increase coal plant retirements and costs to the power industry, adversely affecting the future market for coal.

 

Cooling Water Intake Structures. On May 19, 2014, the EPA finalized standards under Section 316(b) of the CWA that require the use of Best Technology Available (“BTA”) for minimizing the injury and death of fish and other aquatic life from cooling-water intake structures at existing power plants.  Because many coal-fired power plants utilize once-through cooling systems that are subject to this rule, implementation of the 316(b) regulations could, in addition to other regulatory burdens, result in further coal plant retirements and adversely affect the future market for coal.  

 

CERCLA and Similar State Superfund Statutes

 

CERCLA and similar state laws affect coal mining by creating liability for the investigation and remediation of releases of regulated materials into the environment and for damages to natural resources. Under these laws, joint and several liability may be imposed on waste generators, current and former site owners or operators and others regardless of fault, for all related site investigation and remediation costs.

 

Permits

 

Mining companies must obtain numerous permits that impose strict regulations on various environmental and safety matters. These provisions include requirements for building dams; coal prospecting; mine plan development; topsoil removal, storage and replacement; protection of the hydrologic balance; subsidence control for underground mines; subsidence and surface drainage control; mine drainage and mine discharge control and treatment; and re-vegetation.

 

 

Required permits include mining and reclamation permits under the SMCRA (see “U.S. Environmental - The Surface Mining Control and Reclamation Act”), issued by the IDNR, and wastewater discharge, or NPDES, permits under the CWA, issued by the Illinois Environmental Protection Agency (“IEPA”).  In addition to the required permits, for surface operations, the mining companies also need to obtain air quality permits from IEPA, fill and dredge permits from the United States Army Corps of Engineers and flood plain permits from the IDNR. For refuse disposal operations, the mining companies may need to obtain impounding permits or underground slurry disposal permits from the IDNR. In addition, MSHA approval for ventilation, roof control and numerous specific surface and underground operations must be obtained and maintained. The authorization and permitting requirements imposed by these and other governmental agencies are costly and may delay development or continuation of mining operations. In December 2014 the Council on Environmental Quality ("CEQ") released updated draft guidance discussing how federal agencies should consider the effects of GHG emissions and climate change in their National Environmental Policy Act (“NEPA”) evaluations.  On March 28, 2017, President Trump issued Executive Order 13783 which, among other things, directed CEQ to rescind its final guidance. While the guidance has been officially withdrawn CEQ has advised agencies that they can still utilize the guidance while it considers how to proceed on future guidance. This type of analyses may increase the likelihood of future challenges to the NEPA documents prepared for actions requiring federal approval. The application review process may take years to complete, and agencies may ask for submission of additional studies, evaluations or other information.  Regulatory authorities have considerable discretion in the timing of permit issuance.  Additionally, many environmental laws and regulations provide the public with the opportunity to comment on draft permits, and otherwise engage in the permitting process.   Permit applications are increasingly being challenged by environmental and other advocacy groups.  Accordingly, we may experience difficulty or delays in obtaining mining permits or other necessary approvals, or even face denials of permits altogether.

 

Currently, we have the necessary permits for mining operations at each of the four complexes. Continued and expanded operations will require additional or renewed permits. These additional permits may include significant permit revisions to the

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SMCRA mining permit and fill and dredge permits; new NPDES, new SMCRA, new impounding, and possible CWA permits for additional refuse areas; and revisions to the SMCRA permit and a NPDES construction permit for additional bleeder shafts. Due to various and, sometimes, interrelated requirements from different agencies, it is not possible to predict an average or approximate time frame required to obtain all permits and approvals to operate new or expanded mines. In addition, expanded permitting activity in Illinois coupled with challenges from environmental groups will likely increase the various agencies’ permit and approval review time in the future.

 

Appeals of permits issued by the IEPA, including some CWA permits, are made to the Illinois Pollution Control Board (“IPCB”). The IPCB is an independent agency with five board members appointed by the Governor of the State of Illinois that both establishes environmental regulations under the Illinois Environmental Protection Act and decides contested environmental cases. Appeals before the IPCB are based on alleged violations of environmental laws as found in the permit and the accompanying permit record without additional testimony or evidence being taken. Appeals from the IPCB decisions are made to an Illinois appellate court.

Requests for an administrative review of permits issued by the IDNR, such as the SMCRA permits, are made to an IDNR hearing officer. Although the basis of the request for the administrative review is the alleged violations in the permit and the permit record, the administrative code rules allow for additional discovery and an evidentiary hearing. Appeals from the IDNR hearing officer’s decisions are made to an Illinois Circuit Court.


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Item 1A. Risk Factors

 

An investment in our common units involves risks. Limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in a similar business. You should carefully consider the risks described below, together with the other information in this Annual Report on Form 10-K, before investing in our common units. Our business, financial condition, results of operation and cash available for distribution could be materially and adversely affected by future events. In such case, we might not be able to make distributions on our common units, the trading price of our common units could decline, and you could lose all or part of your investment in, and expected return on, our common units.

 

Risks Related to Our Business

 

We may not have sufficient cash from operations to enable us to pay distributions.

 

Even though we are currently restricted under our debt documents from paying certain distributions, the amount of cash we will be able to distribute on our common and subordinated units in the future primarily depends upon the amount of cash we generate from our operations, which fluctuates from quarter to quarter based on, among other things:

 

the amount of coal we are able to produce and ship from our properties, which could be adversely affected by, among other things, operating difficulties, unfavorable geologic conditions, and the capabilities of third party transportation and transloading service providers;

 

the market price of coal, which is affected by the supply of and demand for domestic and foreign coal;

 

the level of our operating costs, including expenses to Murray Energy Corporation pursuant to the Management Services Agreement;

 

the demand for electricity;

 

the pricing terms contained in our long-term contracts;

 

the price and availability of other fuels, including natural gas and other energy sources;

 

cancellation or renegotiation of contracts;

 

prevailing economic and market conditions;

 

the impact of delays in the receipt of, failure to maintain, or revocation of, necessary governmental permits;

 

the impact of existing and future environmental and climate change regulations, including those impacting coal-fired power plants;

 

the loss of, or significant reduction in, purchases by our largest customers;

 

the cost of compliance with new environmental laws;

 

the effects of new or expanded health and safety regulations;

 

air emission, wastewater discharge and other environmental standards for coal-fired power plants or coal mines;

 

domestic and foreign governmental regulation, including changes in governmental regulation of the mining industry or the electric utility industry and changes to free trade agreements, including the imposition of additional customs duties or tariffs;

 

the proximity to and capacity of transportation facilities;

 

transportation costs; and

 

force majeure events.

 

In addition, the actual amount of cash we have available for distribution depends on several other factors, including:

 

restrictions in the agreements governing our indebtedness;

 

our debt service requirements and other liabilities;

 

the level and timing of capital expenditures we make;

 

fluctuations in our working capital needs;

 

our ability to borrow funds and access capital markets;

 

the amount of cash reserves established by our general partner; and

 

the cost of acquisitions.

 

We have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our business.

 

At December 31, 2017, our indebtedness (excluding our sale-leaseback arrangements) was approximately $1.3 billion. Our substantial indebtedness could adversely affect our results of operations, business and financial condition, and our ability to meet our debt obligations and continue payment of distributions to our unitholders:

 

making it more difficult for us to satisfy our debt obligations;

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requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures, future business opportunities and pay distributions;

 

limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;

 

 

limiting our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate, placing us at a competitive disadvantage compared to our competitors who have less leverage and who therefore may be able to take advantage of opportunities that our leverage prevents us from exploiting; and

 

increasing our vulnerability to adverse economic, industry or competitive developments.

 

An extended decline in coal prices within the industry or increase in the costs of mining could continue to adversely affect our operating results and the value of our coal reserves.

 

Our operating results largely depend on the margins that we earn on our coal sales. A significant amount of our coal sales contracts are forward sales contracts under which customers agree to pay a specified price under their contracts for coal to be delivered in future years. The profitability of these contracts depends on our ability to adequately control the costs of the coal production underlying the contracts. Our margins reflect the price we receive for our coal less our cost of producing and transporting our coal and are impacted by many factors, including:

 

the market price for coal;

 

the supply of, and demand for, domestic and foreign coal;

 

the supply of, and demand for, electricity;

 

competition from other coal suppliers;

 

the cost of using, and the availability of, other fuels, including the effects of technological developments;

 

advances in power technologies;

 

the efficiency of our mines;

 

the amount of coal we are able to produce from our properties, which could be adversely affected by, among other things, mine fires, roof collapses, operating difficulties and unfavorable geologic conditions;

 

the pricing terms contained in our long-term contracts;

 

cancellation or renegotiation of contracts;

 

legislative, regulatory and judicial developments, including those related to the release of GHGs;

 

the value of the U.S. dollar;

 

 

air emission, wastewater discharge and other environmental standards for coal-fired power plants or coal mines;

 

delays in the receipt of, failure to receive, or revocation of necessary government permits;

 

inclement or hazardous weather conditions and natural disasters;

 

availability and cost or interruption of fuel, equipment and other supplies;

 

transportation costs;

 

availability of transportation infrastructure, including flooding and railroad derailments;

 

technological developments, including those related to alternative energy sources;

 

availability of skilled employees; and

 

work stoppages or other labor difficulties.

 

An extended decline in the price that we receive for our coal or increases in the costs of mining our coal could have a material adverse effect on our operating results and our ability to generate the cash flows we require to invest in our operations, satisfy our obligations and resume the payment of distributions to unitholders. To the extent our costs increase but pricing under these coal sales contracts remains fixed or declines, we will be unable to pass increasing costs on to our customers. If we are unable to control our costs, our profitability under our forward sales contracts may be impaired and our results of operations, business and financial condition, and our ability to make distributions to our unitholders could be materially and adversely affected.

 

Our future costs of production may be substantially higher than our historical costs due to a number of factors, including increased regulatory requirements applicable to coal mining, and the status of mining operations at our Hillsboro mine.

 

A decrease in the use of coal by electric utilities or in the demand for electricity could affect our ability to sell the coal we produce.

 

The amount of coal consumed by the electricity generation industry is affected primarily by the overall demand for electricity and by environmental and other governmental regulations as well as by the price and availability of renewable energy sources, including biomass, hydroelectric, wind and solar power and other non-renewable fuel sources, including natural gas and nuclear power. The low price of natural gas has resulted, in some instances, in domestic generators increasing natural gas consumption while decreasing coal consumption. Future environmental regulation of GHG emissions could accelerate the use by utilities of fuels other than coal.

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Domestically, state and federal mandates for increased use of electricity derived from renewable energy sources could affect demand for our coal. A number of states have enacted mandates that require electricity suppliers to rely on renewable energy sources to generate a certain percentage of their power. Such mandates, combined with other incentives to use renewable energy sources, such as tax credits, could make alternative fuel sources more competitive with coal. Certain customers have foregone or delayed capital investments necessary to keep their existing coal plants operating in an efficient and competitive manner, which may lead to the reduced utilization or earlier closure of these plants. A decrease in coal consumption by the electricity generation industry could adversely affect the price of coal, which could negatively affect our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

A substantial amount of our coal is shipped through contractual arrangements with minimum volume requirements that are due regardless of whether coal is actually shipped or mined.

 

A substantial amount of the coal that we ship is through contractual arrangements that have minimum volume requirements. Failure to meet the minimum annual volume requirements can result in higher transportation costs to us on a per ton basis. The primary reason for making our minimum annual volume commitments was to secure long-term access to international markets (transportation to and through export terminals). To the extent coal pricing to export markets decline, we expect our sales volume to the export markets to also continue to decline thereby resulting in higher charges for shortfalls on minimum contractual throughput volume requirements. If our operations do not meet the minimum volume requirements then we could suffer from a shortage of cash due to the ongoing requirement to pay minimum payments despite a lack of shipping and the associated sales revenue.  As a result, our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders may be materially adversely affected.

 

The loss of, or significant reduction in, purchases by our largest customers could adversely affect our results of operations.

 

For the year ended December 31, 2017, we derived approximately 61% of our total coal sales revenues from our three largest customers, including 27% of our coal sales revenues from our largest customer. Negotiations to extend existing agreements or enter into long-term agreements with these and other customers may not be successful, and such customers may not continue to purchase coal from us. If these three customers or any of our top customers were to significantly reduce their purchases of coal from us, or if we were unable to sell coal to our top customers on terms as favorable to us as the terms under our current contracts, our results of operations, business and financial condition, as well as our ability to meet our debt obligations and pay distributions to our unitholders may be materially adversely affected.

 

We may not be able to incur debt or access the debt and equity capital markets because of the state of the coal industry and the deterioration of the financial markets.

 

The cost of raising money in the debt and equity capital markets has increased substantially, particularly for the U.S. coal industry, while the availability of funds from those markets generally has diminished. The cost of obtaining money from the credit markets has increased as many lenders and institutional investors have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at maturity at all or on terms similar to those of our current debt and have reduced and, in some cases, ceased to provide funding to borrowers or determined to stop providing credit to the coal industry. We may be unable to incur indebtedness under credit facilities or term loans on reasonable terms or at all.

 

Our current capital structure restricts our ability to raise further debt, subject to exceptions that can be significant.  Even if we were to need additional funding, due to these factors, we cannot be certain that funding will be available if needed and to the extent required, on acceptable terms. If funding is not available when needed, or is available only on unfavorable terms, we may be unable to refinance our existing indebtedness, take advantage of business opportunities or respond to competitive pressures, which could negatively affect our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 


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An increase in interest rates may cause the market price of our common units to decline.

 

Like all equity investments, an investment in our common units is subject to certain risks. In exchange for accepting these risks, investors may expect to receive a higher rate of return than would otherwise be obtainable from lower-risk investments. Accordingly, as interest rates rise, the ability of investors to obtain higher risk-adjusted rates of return by purchasing government-backed debt securities may cause a corresponding decline in demand for riskier investments generally, including yield-based equity investments such as publicly traded limited partnership interests. Reduced demand for our common units resulting from investors seeking other more favorable investment opportunities may cause the trading price of our common units to decline.

 

Our general partner has limited its liability regarding our obligations and under certain circumstances unitholders may have liability to repay distributions.

 

Our general partner has limited its liability under contractual arrangements between us and third parties so that the counterparties to such arrangements have recourse only against our assets, and not against our general partner or its assets. Our general partner may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our general partner. Our partnership agreement provides that any action taken by our general partner to limit its liability is not a breach of our general partner’s duties, even if we could have obtained more favorable terms without the limitation on liability. In addition, we are obligated to reimburse or indemnify our general partner to the extent that it incurs obligations on our behalf. Any such reimbursement or indemnification payments would reduce the amount of cash otherwise available for distribution to our unitholders.

 

Unitholders may have to repay amounts wrongfully returned or distributed to them.

 

Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, or the Delaware Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law are liable to the limited partnership for the distribution amount. Liabilities to partners on account of their partnership interests and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.

 

Failure to meet certain provisions in our coal supply agreements could result in economic penalties.

 

Most of our coal supply agreements contain provisions requiring us to deliver coal meeting quality thresholds for certain characteristics such as heat value, sulfur content, ash content, hardness and ash fusion temperature. Failure to meet these specifications could result in economic penalties, including price adjustments, purchasing replacement coal in a higher-priced open market, rejection of deliveries or termination of the contracts. In some of the contract price adjustment provisions, failure of the parties to agree on price adjustments may allow either party to terminate the contract.

 

Many agreements also contain provisions that permit the parties to adjust the contract price upward or downward for specific events, including changes in the laws regulating the timing, production, sale or use of coal. Moreover, a limited number of these agreements permit the customer to terminate the agreement if transportation costs increase substantially or, in the event of changes in regulations affecting the coal industry, such changes increase the price of coal beyond specified amounts. Additionally, a number of agreements provide that customers may terminate the agreement in the event a new or amended environmental law or regulation prevents or restricts the customer from utilizing coal supplied by us and/or requires material additional capital or operating expenditures to utilize such coal.

 

Certain of our customers may seek to defer contracted shipments of coal, which could affect our results of operations and liquidity.

 

From time to time, certain customers have sought and others may seek to delay shipments or request deferrals under existing agreements. There is no assurance that we will be able to resolve existing and potential deferrals on favorable terms, or at all. Any such deferrals may have an adverse effect on our business, results of operations and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

We sell a portion of our uncommitted tons in the spot market which is subject to volatility.

 

We derive a portion of our revenue from coal sales in the spot market, typically defined as contracts with terms of less than one year. The pricing in spot contracts is significantly more volatile than pricing through long-term coal supply agreements because it is subject to short-term demand swings. If spot market pricing for coal is unfavorable, this volatility could materially adversely affect our

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results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

Some of our customers blend our coal with coal from other sources, making our sales dependent upon our customers locating additional sources of coal.

 

Our coal’s characteristics, particularly the sulfur or chlorine content, are such that many of our customers blend our coal with other purchased supplies of coal before burning it in their boilers. Some of our current or future coal sales may therefore be dependent in part on those customers’ ability to locate additional sources of coal with offsetting characteristics which may not be available in the future on terms that render the customers’ overall cost of blended coal economic. A loss of business from such customers may materially adversely affect our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

Global economic conditions, or economic conditions in any of the industries in which our customers operate, and continued uncertainty in financial markets may have material adverse impacts on our business and financial condition that we cannot predict.

 

If economic conditions or factors that negatively affect the economic health of the U.S., Europe, Africa, South America, Central America, or Asia worsen, our revenues could be reduced and thus adversely affect our results of operations. Markets have historically experienced disruptions relating to volatility in security prices, diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others, failure and potential failures of major financial institutions, high unemployment rates and volatility in interest rates. Such conditions may adversely affect the ability of our customers and suppliers to obtain financing to perform their obligations to us. Also, if the economic impact of a downturn impacts foreign markets disproportionately, global currencies may weaken against the U.S. dollar. A weaker U.S. dollar would unfavorably impact our ability to export our coal by making it more expensive for foreign buyers. We believe that deterioration or a prolonged period of economic weakness will have an adverse impact on our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume the payment of distributions to our unitholders.

 

Ongoing efforts to restore Hillsboro Energy’s Deer Run Mine to production may ultimately not succeed.

 

Since March 26, 2015, underground mining at Hillsboro Energy’s Deer Run Mine has been prevented by spontaneous combustion occurring within the mine. Hillsboro cannot restore the mine to production until such time as it can establish that the spontaneous combustion is extinguished, determine that future spontaneous combustion events are not likely, and would no longer expose the workforce to a health and safety risk upon resumption of underground mining. On March 1, 2016, we asked MSHA for permission to take the next step of temporarily sealing the entire mine to reduce or eliminate oxygen flow paths into the mine and, since that time, have been undertaking steps to re-enter the mine upon satisfaction of certain conditions. In December 2017, we submitted a re-entry plan to MSHA which contains a plan for the permanent sealing of the current longwall district of the Hillsboro mine immediately upon MSHA’s approval.  In connection with the proposed re-entry plan, certain longwall equipment and other related assets will be permanently sealed within or will not be recovered, resulting in a $42.7 million impairment loss during 2017. We are uncertain as to when production will resume at this operation but we will continue to work closely with MSHA and the Illinois Office of Mines and Minerals Mine Safety and Training Division to ensure the safety of our employees throughout the process and to explore alternatives to safely resolving this issue.

 

Additionally, the Deer Run Mine requires certain approvals from the MSHA to recommence mining.  We can make no assurances that we will be able to resume production at the Deer Run Mine, and therefore, it may be permanently closed which would likely result in a material impairment of Hillsboro Energy’s assets. If we are unable to regain access to the Deer Run Mine and we terminate the force majeure event, we may be obligated to pay the minimum royalty payment without the corresponding production and sales. As a result, our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders may be materially adversely affected.

 

A substantial amount of our coal reserves are leased or subleased and are subject to minimum royalty payments that are due regardless of whether coal is actually mined.

 

A substantial amount of the reserves that our operating companies lease are subject to minimum royalty payments, including those leases with affiliates. Failure to meet minimum production requirements could result in losses of prepaid royalties and, in some rare cases, could result in a loss of the lease itself. If certain operations do not meet production goals then we could suffer from a shortage of cash due to the ongoing requirement to pay minimum royalty payments without any corresponding production and coal

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sales. As a result, our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders may be materially adversely affected.

 

The availability or reliability of current transportation facilities could affect the demand for our coal or temporarily impair our ability to supply coal to our customers. In addition, our inability to expand our transportation capabilities and options could further impair our ability to deliver coal efficiently to our customers.

 

We depend upon rail, barge, ocean-going vessels and port facilities to deliver coal to customers. Disruption of these transportation services because of weather-related problems, infrastructure damage, strikes, lock-outs, lack of fuel or maintenance items, transportation delays, lack of rail or port capacity or other events could temporarily impair our ability to supply coal to customers and thus could adversely affect our results of operations, cash flows and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

Additionally, if there are disruptions of the transportation services provided by the railroad and we are unable to find alternative transportation providers to ship our coal, our business and profitability could be adversely affected. While we currently have contracts in place for transportation of coal from our facilities and have continued to develop alternative transportation options, there is no assurance that we will be able to renew these contracts or to develop these alternative transportation options on terms that remain favorable to us. Any failure to do so could have a material adverse impact on our financial position and results of operations as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

Significant increases in transportation costs could make our coal less competitive when compared to other fuels or coal produced from other regions.

 

Transportation costs represent a significant portion of the total cost of coal for our customers and the cost of transportation is an important factor in a customer’s purchasing decision. Increases in transportation costs, including increases resulting from emission control requirements and fluctuations in the price of diesel fuel, could make coal a less competitive source of energy when compared to other fuels, such as natural gas, or could make our coal less competitive than coal produced in other regions of the U.S. or abroad.

 

 

Significant decreases in transportation costs could result in increased competition from coal producers in other parts of the country and from abroad, including coal imported into the U.S. Coordination of the many eastern loading facilities, the large number of small shipments, terrain and labor issues all combine to make shipments originating in the eastern U.S. inherently more expensive on a per ton-mile basis than shipments originating in the western U.S. Historically, high coal transportation rates and transportation constraints from the western coal producing areas into eastern U.S. markets limited the use of western coal in those markets. However, a decrease in rail rates or an increase in rail capacity from the western coal producing areas to markets served by eastern U.S. producers could create major competitive challenges for eastern producers. Increased competition due to changing transportation costs could have an adverse effect on our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

Our ability to mine and ship coal may be affected by adverse weather conditions, which could have an adverse effect on our revenues.

 

Adverse weather conditions can impact our ability to mine and ship our coal and our customers’ ability to take delivery of our coal. Lower than expected shipments by us during any period could have an adverse effect on our revenues. In addition, severe weather may affect our ability to conduct our mining operations and severe rain, ice or snowfall may affect our ability to load and transport coal. If we are unable to conduct our operations due to severe weather, it could have an adverse effect on our results of operations or business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

Our mining operations are extensively regulated which imposes significant costs on us, and changes to existing and potential future regulations or violations of regulations could increase those costs or limit our ability to produce coal.

 

The coal mining industry is subject to increasingly strict regulations by federal, state and local authorities on matters such as:

 

permits and other licensing requirements;

 

water quality standards;

 

miner and worker health and safety;

 

remediation of contaminated soil, surface water and groundwater;

 

air emissions;

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the discharge of materials into the environment, including wastewater;

 

surface subsidence from underground mining;

 

storage, treatment and disposal of petroleum products and substances which are regarded as hazardous under applicable laws or which, if spilled, could reach waterways or wetlands;

 

storage and disposal of coal wastes including coal slurry under applicable laws;

 

protection of human health, plant life and wildlife, including endangered and threatened species;

 

reclamation and restoration of mining properties after mining is completed;

 

wetlands protection;

 

dam permitting; and

 

the effects, if any, that mining has on groundwater quality and availability.

 

Because we engage in longwall mining, subsidence issues are particularly important to our operations. Failure to timely secure subsidence rights or any associated mitigation agreements could materially affect our results by causing delays or changes in our mining plan through stoppages or increased costs because of the necessity of obtaining such rights.

 

Because of the extensive and detailed nature of these regulatory requirements, it is extremely difficult for us and other underground coal mining companies in particular, as well as the coal industry in general, to comply with all requirements at all times. We have been cited for violations of regulatory requirements in the past, and we expect to be cited for violations in the future. None of our violations to date has had a material impact on our operations or financial condition, but future violations may have a material adverse impact on our business, result of operations or financial condition. While it is not possible to quantify all of the costs of compliance with applicable federal and state laws and associated regulations, those costs have been and are expected to continue to be significant. Compliance with these laws and regulations, and delays in the receipt of or failure to receive or revocation of necessary government permits, could substantially increase the cost of coal mining or have a material adverse effect on our results of operations, cash flows and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

Extensive environmental regulations, including existing and potential future regulatory requirements relating to air emissions, affect our customers and could reduce the demand for coal as a fuel source and cause coal prices and sales of our coal to materially decline.

 

The utility industry is subject to extensive regulation regarding the environmental impact of its power generation activities, particularly with respect to air emissions, which could affect demand for our coal. For example, the federal Clean Air Act and similar state and local laws extensively regulate the amount of sulfur dioxide, particulate matter, nitrogen oxides, mercury, and other compounds emitted into the air from electric power plants, which are the largest end-users of our coal. A series of more stringent requirements relating to particulate matter, ozone, haze, mercury, sulfur dioxide, nitrogen oxide and other air pollutants will, or are expected to become effective in coming years. In addition, concerted conservation efforts that result in reduced electricity consumption could cause coal prices and sales of our coal to materially decline.

 

More stringent air emissions limitations may require significant emissions control expenditures for many coal-fired power plants and could have the effect of making coal-fired plants less profitable. As a result, some power plants may continue to switch to other fuels that generate less of these emissions or they may close. Any switching of fuel sources away from coal, closure of existing coal-fired plants, or reduced construction of new plants could have a material adverse effect on demand for and prices received for our coal.

 

It is possible that new environmental legislation or regulations may be adopted, or that existing laws or regulations may be differently interpreted or more stringently enforced, any of which could have a significant impact on our mining operations or our customers’ ability to use coal.

 

Recent developments in the regulation of GHG emissions and coal ash could materially adversely affect our customers’ demand for coal and our results of operations, cash flows and financial condition.

 

Coal-fired power plants produce carbon dioxide and other GHGs as a by-product of their operations. GHG emissions have received increased scrutiny from local, state, federal and international government bodies. Future regulation of GHGs could occur pursuant to U.S. treaty obligations or statutory or regulatory change. The EPA and other regulators are using existing laws, including the federal Clean Air Act, to limit emissions of carbon dioxide and other GHGs from major sources, including coal-fired power plants that may require the use of “best available control technology.” For example, in 2011, the EPA issued regulations, including permitting requirements, restricting GHG emissions from any new U.S. power plants, and from any existing U.S. power plants that undergo major modifications that increase their GHG emissions. In response to recent decisions by the Supreme Court and the D.C. Circuit Court of Appeals, in August 2016, the EPA issued a proposed rule to revise its existing GHG permitting program to ensure that

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a source is not required to obtain a permit solely because of its GHG emissions. In addition, in June 2013, President Obama announced additional initiatives intended to reduce greenhouse gas emissions globally, including curtailing U.S. government support for public financing of new coal-fired power plants overseas and promoting fuel switching from coal to natural gas or renewable energy sources. Global treaties have been adopted that place restrictions on carbon dioxide and other GHG emissions. In October 2015, the EPA formally published final new source performance standards (“NSPS”) for carbon dioxide emissions from new power plants.  To meet the NSPS, new coal plants are likely to be required to install carbon capture and storage technology.

 

On August 3, 2015, President Obama and the EPA announced the final Clean Power Plan (“CPP”), which includes final emission guidelines for states to follow in developing plans to reduce GHG emissions from existing fossil fuel-fired electric generating units (“EGU”s) as well as limits on GHG emission rates for new, modified and reconstructed EGUs. Under the CPP, nationwide carbon dioxide emissions would be reduced by 32% by 2030, while offering states and utilities flexibility in achieving these reductions. On February 9, 2016, the U.S. Supreme Court issued a temporary stay of the CPP regulations. The stay will be in place until the D.C. Circuit Court of Appeals rules on the merits of legal challenges to those regulations, and, if following a ruling by the D.C. Circuit Court of Appeals, a writ of certiorari from the Supreme Court is sought and granted, the stay will remain in place until the Supreme Court issues its decision on the merits. An en banc panel of the D.C. Circuit Court of Appeals held oral argument in the case challenging the CPP on September 27, 2016. Lawsuits have also been filed in the D.C. Circuit challenging EPA’s final NSPS rule for CO2 from new, modified, and reconstructed power plants under the CAA Section 111(b), which challenges EPA’s establishment of standards of performance based on technologies including CCS.  The finalization of the NSPS for new air pollutant sources under Section 111(b) is a prerequisite for the use of authority under Section 111(d) to regulate existing sources, which is the authoritative basis for the Clean Power Plan.  On March 28, 2017, President Trump issued Executive Order 13783, which called for the review of CPP, and EPA announced its review of the CPP.   On October 16, 2017, EPA proposed a rule to repeal the CPP, with a comment period closing April 26, 2018. Even without the legal challenges, demand for coal will likely be further decreased as a result of the CPP, potentially significantly, and could adversely impact our business.

 

In addition, state and regional climate change initiatives to regulate GHG emissions, such as the RGGI of certain northeastern and Mid-Atlantic states, the Western Climate Initiative, the Midwestern Greenhouse Gas Reduction Accord and the California Global Warming Solutions Act, either have already taken effect or may take effect before federal action. Further, governmental agencies have been providing grants or other financial incentives to entities developing or selling alternative energy sources with lower levels of GHG emissions, which may lead to more competition from those entities. There have also been several public nuisance lawsuits brought against power, coal, oil and gas companies alleging that their operations are contributing to climate change. The plaintiffs are seeking various remedies, including punitive and compensatory damages and injunctive relief. While the U.S. Supreme Court recently determined that such claims cannot be pursued under federal law, plaintiffs may seek to proceed under state common law.

 

In December 2014, the EPA announced that it had determined to regulate coal combustion wastes, sometimes referred to as coal ash or coal combustion by-products (“CCB”), as a nonhazardous substance under Subtitle D of the RCRA rather than as a hazardous waste product under Subtitle C of the RCRA. On April 17, 2015, the EPA finalized regulations under the solid waste provisions (“Subtitle D”) of RCRA which became effective on October 19, 2015. While classification of CCB as a hazardous waste would have led to more stringent restrictions and higher costs, regulation under Subtitle D imposes certain requirements on management of CCBs and may still increase our customers’ operating costs and potentially reduce their ability to purchase coal.

 

 On November 3, 2015, the EPA revised effluent limit guidelines (“ELG”) regulations for the Steam Electric Power Generating category, effective January 4, 2016. ELG regulations, for the first time, set federal limits on certain metals in wastewater discharges from power plants. The combined effect of the CCB and ELG rules has resulted in closures of some coal ash ponds at coal-fired power plants, and it could lead to closure of older coal-fired generating units that cannot comply with new standards. Individually and collectively, these regulations could impact the market for our products.

 

The enactment of these and other laws or regulations regarding emissions from the combustion of coal or other actions to limit such emissions, could result in electricity generators switching from coal to other fuel sources thereby reducing demand for our coal. Significant public opposition has also been raised with respect to the proposed construction of certain new coal-fueled electricity generating plants and certain new export transloading facilities due to the potential for increased air emissions. Such opposition, as well as any corporate or investor policies against coal-fired generation plants could also reduce the demand for our coal. Further, policies limiting available financing for the development of new coal-fueled power plants could adversely impact the global demand for coal in the future. The potential impact on us of future laws, regulations or other policies or circumstances will depend upon the degree to which any such laws, regulations or other policies or circumstances force electricity generators to diminish their reliance on coal as a fuel source. In view of the significant uncertainty surrounding each of these factors, it is not possible for us to reasonably predict the impact that any such laws, regulations or other policies may have on our results of operations, cash flows and financial condition as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders. However, such impacts could have a material adverse effect on our results of operations, cash flows and financial condition as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

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Extensive governmental regulation pertaining to safety and health imposes significant costs on our mining operations and could materially and adversely affect our results of operations.

 

Federal and state safety and health regulations in the coal mining industry are among the most comprehensive and extensive systems for protection of employee safety and health affecting any U.S. industry. Compliance with these requirements imposes significant costs on us and can result in reduced productivity. New health and safety legislation, regulations and orders may be adopted that may materially and adversely affect our mining operations.

 

Federal and state health and safety authorities inspect our operations, and there may be a continued increase in the frequency and scope of these inspections. In recent years, federal authorities have also conducted special inspections of coal mines for, among other safety concerns, the accumulation of coal dust and the proper ventilation of gases such as methane. In addition, the federal government has announced that it is considering changes to mine safety rules and regulations, which could potentially result in or require additional safety training and planning, enhanced safety equipment, more frequent mine inspections, stricter enforcement practices and enhanced reporting requirements.

 

In addition, in March 2013, MSHA implemented a revised POV standard. Under the revised standard, mine operators are no longer entitled to a ninety day notice of potential POV. In addition, MSHA began screening for POV by using issued citations and orders, prior to their final adjudication. If a mine is designated as having a POV, MSHA will issue an order withdrawing miners from any areas affected by violations which pose a significant and substantial hazard to the health and/or safety of miners. Once a mine is in POV status, it can be removed from that status only upon (i) a complete inspection of the entire mine with no S&S enforcement actions issued by MSHA or (ii) no POV-related withdrawal orders being issued by MSHA within ninety (90) days following the mine operator being placed on POV status. Litigation testing the validity of the standard and its application by MSHA is ongoing. However, from time to time one or more of our operations may meet the POV screening criteria, and we cannot make assurances that one or more of our operations will not be placed into POV status, which could materially and adversely affect our results of operations.

 

In 2014, MSHA began implementation of a finalized new regulation titled “Lowering Miner’s Exposure to Respirable Coal Mine Dust, Including Continuous Personal Dust Monitors.” In addition to lowering the allowable respirable dust in certain areas of underground coal mines, the final rule changes dust sampling requirements, increases MSHA oversight, and could make ventilation plans more difficult to obtain, all of which is expected to increase mining costs. The final rule became effective in August 2016.

 

In June 2016, MSHA issued a request for information on approaches to control and monitor miners’ exposures to diesel exhaust. While MSHA’s existing regulations address health hazards to coal miners from exposure to DPM, MSHA is requesting information on approaches that would further improve control of DPM and diesel exhaust. Although no rule has been proposed, if a rule that lowered DPM emission limits is proposed and adopted, it would likely make compliance more costly.

 

We must compensate employees for work-related injuries. If adequate provisions for workers’ compensation liabilities are not made, our future operating results could be harmed. Also, federal law requires we contribute to a trust fund for the payment of benefits and medical expenses to certain claimants. Currently, the trust fund is funded by an excise tax on coal production of $1.10 per ton for underground coal sold domestically, not to exceed 4.4% of the gross sales price, excluding transportation. If this tax increases, or if we could no longer pass it on to the purchasers of our coal under our coal sales agreements, our operating costs could be increased and our results could be materially and adversely affected. If new laws or regulations increase the number and award size of claims, it could materially and adversely harm our business. In addition, the erosion through tort liability of the protections we are currently provided by workers’ compensation laws could increase our liability for work-related injuries and have a material adverse effect on our results of operations, cash flows and financial condition as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

Extensive environmental regulations, including existing and potential future regulatory requirements, pertaining to discharge of materials into the environment, including wastewater, impose significant costs on our mining operations and could materially and adversely affect our production, cash flow and profitability.

 

Our mining operations are subject to numerous complex regulatory, compliance, and enforcement programs. While we believe we are in compliance with all environmental regulatory requirements, our operations have, from time to time, been issued violation notices from various agencies, including the IEPA. In July 2014, following issuance of a violation notice, we entered into a plan which resolves all outstanding violations regarding pumped mine discharges at our Sugar Camp operation and provides long-term water treatment and disposal capacity for that operation. We believe we are currently in compliance with the plan. However, we can make no assurances that Sugar Camp will not receive future violations notwithstanding the implementation of the plan, and these violations may result in the assessment of fines or penalties, or, a temporary or permanent suspension of the affected mining operations.

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Additionally, we cannot make assurances that one or more of our operations will not receive future violation notices that result in fines, penalties, mandatory corrective action plans, or suspension of mining activities. Such corrective action plans or suspensions could have a material adverse effect on our results of operations, cash flows and financial condition, as well as our ability to make distributions to our unitholders.

 

Additionally, regulatory agencies may, from time to time, add more stringent compliance requirements to our environmental permits either by rule, or regulation or during the permit renewal process. More stringent requirements could lead to increases in costs and could materially and adversely affect our production, cash flow and profitability. For example, on April 30, 2013, citing lack of resources and the priority of other matters, the EPA denied a petition brought by environmental groups seeking to add coal mines to the Clean Air Act section 111 list of stationary source categories, which would have had the effect of regulating methane emissions from coal mines in some manner. Following the environmental groups’ challenge to EPA’s denial, the United States Court of Appeals for the District of Columbia upheld the EPA’s action in May 2014. However, the EPA could, in the future, determine to add coal mines to the list of regulated sources and impose emission limits on coal mines, which could have a significant impact on our mining operations.

 

We may be unable to obtain, maintain or renew permits necessary for our operations and to mine all of our coal reserves, which would materially and adversely affect our production, cash flow and profitability.

 

In order to develop our economically recoverable coal reserves, we must regularly obtain, maintain or renew a number of permits that impose strict requirements on various environmental and operational matters in connection with coal mining. These include permits issued by various federal, state and local agencies and regulatory bodies. Permitting rules, and the interpretations of these rules, are complex, change frequently, and are often subject to discretionary interpretations by regulators, all of which may make compliance more difficult or impractical and could result in the discontinuance of mine development or the development of future mining operations. The public, including non-governmental organizations, anti-mining groups and individuals, have certain statutory rights to comment upon and submit objections to requested permits and environmental impact statements prepared in connection with applicable regulatory processes, and otherwise engage in the permitting process, including bringing citizens’ claims to challenge the issuance or renewal of permits, the validity of environmental impact statements or performance of mining activities. Our mining operations are currently, and may become in the future, subject to legal challenges before administrative or judicial bodies contesting the validity of our environmental permits under SMCRA and the CWA, among other statutory provisions. Accordingly, required permits may not be issued in a timely fashion or renewed at all, or permits issued or renewed may not be maintained, may be challenged or may be conditioned in a manner that may restrict our ability to efficiently and economically conduct our mining activities, any of which would materially reduce our production, cash flow, and profitability as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

We make no assurances that we will be able to obtain, maintain or renew any of the governmental permits that we need to continue developing our proven and probable coal reserves. Further, new legislation or administrative regulations or new judicial interpretations or administrative enforcement of existing laws and regulations, including proposals related to the protection of the environment and to human health and safety that would further regulate and tax the coal industry may also require us to change operations significantly or incur increased costs.

 

On June 29, 2015, the EPA and the U.S. Army Corps of Engineers published their final rule expanding the definition of “Waters of the United States” (“WOTUS Rule”) that expands the jurisdiction of the EPA and the United States Army Corps of Engineers to regulate waters not previously regulated. The WOTUS Rule became effective on August 28, 2015 and, if fully implemented, will likely add an additional layer of permitting to activities involving previously non-jurisdictional waters and likely cause states that have jurisdiction over their own waters to enhance their already robust regulatory programs, adding delays to the permitting process and extending review times even further for regulatory agencies. On October 9, 2015, the United States Court of Appeals for the Sixth Circuit issued a temporary nationwide stay of the effectiveness of the WOTUS Rule while litigation regarding its legality progresses. The temporary stay could be lifted at any time. The WOTUS Rule has been challenged in several jurisdictions, both at the district and appellate court levels. In addition to issuing a nationwide stay, the Sixth Circuit ruled that district courts do not have jurisdiction to consider the matter. Industry groups opposed this decision and asked the Supreme Court to overturn the Sixth Circuit and send the cases back to the district courts. On January 13, 2017, the Supreme Court agreed to review the Sixth Circuit’s finding that it has jurisdiction to hear challenges to the rule. This rule, if it becomes final, could impact our ability to timely obtain necessary permits. Such changes could have a material adverse effect on our financial condition and results of operations as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders. On January 22, 2018, the Supreme Court unanimously held that initial challenges to this rule belong in district courts rather than appeals courts. The EPA then, on January 31, 2018, delayed applicability of the 2015 rule.  

 

In March 2014, the Illinois State Attorney General, the Illinois Department of Natural Resources and others entered into an order which has potentially far-reaching effects on the permitting process for mines in Illinois. While the final rules have yet to be

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promulgated, and thus the impact on the permitting process cannot yet be determined, the order could have the effect of extending the permit review and approval process. The inability to conduct mining operations or obtain, maintain or renew permits may have a material adverse effect on our results of operations, business and financial position, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

Competition within the coal industry may adversely affect our ability to sell coal and excess production capacity in the industry could put downward pressure on coal prices.

 

We compete with other producers primarily on the basis of price, coal quality, transportation cost and reliability of delivery. We cannot assure you that competition from other producers will not adversely affect us in the future. The coal industry has experienced consolidation in recent years, including consolidation among some of our major competitors. We cannot assure you that the result of current or further consolidation in the industry will not adversely affect us. In addition, potential changes to international trade agreements, trade concessions or other political and economic arrangements may benefit coal producers operating in countries other than the U.S., where our mining operations are currently located. We cannot assure you that we will be able to compete on the basis of price or other factors with companies that in the future may benefit from favorable trading or other arrangements. We compete directly for domestic and international coal sales with numerous other coal producers located in the U.S. and internationally, in countries such as Australia, China, India, South Africa, Indonesia, Russia and Colombia. The price of coal in the markets into which we sell our coal is also influenced by the price of coal in the markets in which we do not sell our coal because significant oversupply of coal from other markets could materially reduce the prices we receive for our coal. Increases in coal prices could encourage the development of expanded capacity by new or existing coal producers, which could result in lower coal prices. As a result, our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders may be materially adversely affected.

 

The benefits of reduced costs associated with the management services agreement and joint management with Murray Energy may not be realized.

 

We may not realize the reduction in selling, general and administrative costs which we expect under the management services agreement with Murray Energy or the expected procurement synergies resulting from increased purchasing power with third party vendors and lower pricing on equipment acquired from Murray Energy’s manufacturing facilities.

 

Cost reimbursements due to our general partner and its affiliates for services provided to us or on our behalf reduce cash available for distribution to our unitholders. Our general partner determines the amount and timing of such reimbursements.

 

We are obligated under our partnership agreement to reimburse our general partner and its affiliates for all expenses they incur and payments they make on our behalf and have entered into a management services agreement with Murray Energy to provide operational services to us. Our partnership agreement does not limit the amount of expenses for which our general partner and its affiliates may be reimbursed. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our general partner by its affiliates. Our partnership agreement provides that our general partner determines the expenses that are allocable to us. Under the management services agreement, we are obligated to pay Murray Energy $5.0 million per quarter for services provided to us, but we may agree to revise the management services agreement to provide for a different reimbursement amount. The reimbursement of expenses and payment of fees, if any, to our general partner and its affiliates reduces the amount of cash available for distributions to our unitholders.

 

Murray Energy and Foresight Reserves own our general partner which has sole responsibility for conducting our business and managing our operations. Our general partner and its affiliates, including Murray Energy and Foresight Reserves, have conflicts of interest with us and limited duties, and they may favor their own interests to our detriment and that of our unitholders.

 

Murray Energy and Foresight Reserves own and control our general partner and appoint all of the directors of our general partner. Although our general partner has a duty to manage us in a manner that it believes is not adverse to our interest, the executive officers and directors of our general partner have a fiduciary duty to manage our general partner in a manner beneficial to Foresight Reserves and Murray Energy. Therefore, conflicts of interest may arise between Foresight Reserves, Murray Energy or their respective affiliates, including our general partner, on the one hand, and us and any of our unitholders, on the other hand. In resolving these conflicts of interest, our general partner may favor its own interests and the interests of its affiliates over the interests of our common unitholders.

 

These conflicts include the following situations, among others:

•      our general partner is allowed to take into account the interests of parties other than us, such as Foresight Reserves and Murray Energy, in exercising certain rights under our partnership agreement;

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•      neither our partnership agreement nor any other agreement requires Murray Energy or Foresight Reserves to pursue a business strategy that favors us;

•      our partnership agreement replaces the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing its duties, limits our general partner’s liabilities and restricts the remedies available to unitholders for actions that, without such limitations, might constitute breaches of fiduciary duty;

•      Foresight Reserves, Murray Energy and their respective affiliates are not limited in their ability to compete with us and may offer business opportunities or sell assets to third parties without first offering us the right to bid for them;

•      except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval;

•      our general partner determines the amount and timing of asset purchases and sales, borrowings, issuances of additional partnership securities and the level of reserves, each of which can affect the amount of cash that is distributed to our unitholders;

•      our general partner determines the amount and timing of any cash expenditure and whether an expenditure is classified as a maintenance capital expenditure, which reduces operating surplus, or an expansion capital expenditure, which does not reduce operating surplus. This determination can affect the amount of cash from operating surplus that is distributed to our unitholders, which, in turn, may affect the ability of the subordinated units to convert.

•      when permitted pursuant to the terms of our debt agreements, our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units, to make incentive distributions or to accelerate the expiration of the subordination period;

•      our partnership agreement permits us to distribute up to $125 million as operating surplus, even if it is generated from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions on our subordinated units or the incentive distribution rights;

•      our general partner determines which costs incurred by it and its affiliates are reimbursable by us;

•      our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates, including Murray Energy, for any services rendered to us or entering into additional contractual arrangements with its affiliates on our behalf;

•      our general partner intends to limit its liability regarding our contractual and other obligations;

•      our general partner may exercise its right to call and purchase common units if it and its affiliates own more than 80% of the common units;

•      our general partner controls the enforcement of obligations that it and its affiliates owe to us;

•      our general partner decides whether to retain separate counsel, accountants or others to perform services for us; and

•      our general partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our general partner’s incentive distribution rights without the approval of the conflicts committee of the board of directors of our general partner or the unitholders. This election may result in lower distributions to the common unitholders in certain situations.

 

We share key personnel with Murray Energy, including our chief executive officer, our chief accounting officer, and all of our sales and purchasing personnel, so there may be a conflict of interest in the duties of such personnel as they relate to Murray Energy and us. Such personnel have fiduciary duties to Murray Energy which may cause them to pursue business strategies that disproportionately benefit Murray Energy or which otherwise are not in the best interest of our unitholders. As a result, there may be instances where a conflict of interest arises between Murray Energy and us that could have an adverse effect on our business.

 

In addition, Murray Energy is one of our principal competitors and Murray Energy, Foresight Reserves, and their affiliates currently hold substantial interests in other companies in the energy and natural resource sectors. We may compete directly with Murray Energy or entities in which Murray Energy, Foresight Reserves, or their affiliates have an interest for customers or acquisition opportunities and potentially will compete with these entities for new business or extensions of the existing services provided by us.

 

Our ability to collect payments from Murray Energy could be impaired if Murray Energy’s creditworthiness deteriorates further or if production at the Murray Energy mine ceases.

 

We have two long-term financing arrangements with affiliates of Murray Energy for which we have $67.2 million in aggregate financing receivables recorded on our consolidated balance sheet as of December 31, 2017. Our ability to receive payments under these arrangements depends on the continued creditworthiness of the Murray Energy affiliates under which these financing arrangements are with as well as the continued operation of the Murray Energy mine under which these financing arrangements are based. If the operation of this Murray Energy mine was to cease or if Murray Energy’s creditworthiness was to deteriorate further, then we would bear the risk for their payment default. The failure to collect payment under these financing arrangements may

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materially adversely affect our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

Our business requires substantial capital expenditures and we may not have access to the capital required to reach full development of our mines.

 

Maintaining and expanding mines and infrastructure is capital intensive. Specifically, the exploration, permitting and development of coal reserves, mining costs, the maintenance of machinery and equipment and compliance with applicable laws and regulations require substantial capital expenditures. While a significant amount of capital expenditures required to build-out our mines has been spent, we must continue to invest capital to maintain or to increase our production. Decisions to increase our production levels could also affect our capital needs. We cannot assure you that we will be able to maintain our production levels or generate sufficient cash flow, or that we will have access to sufficient financing to continue our production, exploration, permitting and development activities at or above our present levels and we may be required to defer all or a portion of our capital expenditures. Our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders may be materially adversely affected if we cannot make such capital expenditures.

 

Major equipment and plant failures could reduce our ability to produce and ship coal and materially and adversely affect our results of operations.

 

We depend on several major pieces of mining equipment and preparation plants to produce and ship our coal, including, but not limited to, longwall mining systems, preparation plants, and transloading facilities. If any of these pieces of equipment or facilities suffered major damage or were destroyed by fire, abnormal wear, flooding, incorrect operation, or otherwise, we may be unable to replace or repair them in a timely manner or at a reasonable cost which would impact our ability to produce and ship coal and materially and adversely affect our results of operations, business and financial condition as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

We may not be able to obtain equipment, parts and raw materials in a timely manner, in sufficient quantities or at reasonable costs to support our coal mining and transportation operations.

 

We use equipment in our coal mining and transportation operations such as continuous miners, conveyors, shuttle cars, rail cars, locomotives, roof bolters, shearers and shields. We procure this equipment from a concentrated group of suppliers, and obtaining this equipment often involves long lead times. Occasionally, demand for such equipment by mining companies can be high and some types of equipment may be in short supply. Delays in receiving or shortages of this equipment, as well as the raw materials used in the manufacturing of supplies and mining equipment, which, in some cases, do not have ready substitutes, or the cancellation of our supply contracts under which we obtain equipment and other consumables, could limit our ability to obtain these supplies or equipment. In addition, if any of our suppliers experiences an adverse event, or decides to no longer do business with us, we may be unable to obtain sufficient equipment and raw materials in a timely manner or at a reasonable price to allow us to meet our production goals and our revenues may be adversely impacted. We use considerable quantities of steel in the mining process. If the price of steel or other materials increases substantially or if the value of the U.S. dollar declines relative to foreign currencies with respect to certain imported supplies or other products, our operating expenses could increase. Any of the foregoing events could materially and adversely impact our results of operations, business and financial condition as well as our profitability as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

The development of a longwall mining system is a challenging process that may take longer and cost more than estimated, or not be completed at all.

 

The full development of our reserve base may not be achieved. We may encounter adverse geological conditions or delays in obtaining, maintaining or renewing required construction, environmental or operating or mine design permits. Construction delays cause reduced production and cash flow while certain fixed costs, such as minimum royalties and debt payments, must still be paid on a predetermined schedule.

 

Defects in title or loss of any leasehold interests in our properties could limit our ability to conduct mining operations on these properties or result in significant unanticipated costs.

 

A substantial amount of our coal reserves are leased or subleased from affiliates. A title defect or the loss of any lease upon expiration of its term, upon a default or otherwise, could adversely affect our ability to mine the associated reserves or process the coal that we mine. Title to most of our owned or leased properties and mineral rights is not usually verified until we make a commitment to mine a property, which may not occur until after we have obtained necessary permits and completed exploration of the property. In

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some cases, we rely on title information or representations and warranties provided by our lessors or grantors. Our right to mine certain of our reserves has in the past been, and may again in the future be, adversely affected if defects in title, boundaries or other rights necessary for mining exist or if a lease expires. Any challenge to our title or leasehold interests could delay the mining of the property and could ultimately result in the loss of some or all of our interest in the property. From time to time we also may be in default with respect to leases for properties on which we have mining operations. In such events, we may have to close down or significantly alter the sequence of such mining operations which may adversely affect our future coal production and future revenues. If we mine on property that we do not own or lease, we could incur liability for such mining and be subject to regulatory sanction and penalties.

 

In order to obtain, maintain or renew leases or mining contracts to conduct our mining operations on property where these defects exist, we may in the future have to incur unanticipated costs. In addition, we may not be able to successfully negotiate new leases or mining contracts for properties containing additional reserves, or maintain our leasehold interests in properties where we have not commenced mining operations during the term of the lease. Some leases have minimum production requirements. As a result, our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders may be materially adversely affected.

 

Numerous political and regulatory authorities and governmental bodies, as well as environmental activist groups, are devoting substantial resources to anti-coal activities to minimize or eliminate the use of coal as a source of electricity generation, domestically and internationally, thereby further reducing the demand and pricing for coal and potentially materially and adversely impacting our future financial results, liquidity and growth prospects.

 

Concerns about the environmental impacts of coal combustion, including perceived impacts on global climate issues, are resulting in increased regulation of coal combustion in many jurisdictions, unfavorable lending policies by lending institutions and divestment efforts affecting the investment community, which could significantly affect demand for our products or our securities. Global climate issues continue to attract public and scientific attention. Some scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts and floods and other climatic events. Numerous reports, such as the Fourth and Fifth Assessment Report of the Intergovernmental Panel on Climate Change, have also engendered concern about the impacts of human activity, especially fossil fuel combustion, on global climate issues. In turn, increasing government attention is being paid to global climate issues and to emissions of GHGs, including emissions of carbon dioxide from coal combustion by power plants.

 

Federal, state and local governments may pass laws mandating the use of alternative energy sources, such as wind power and solar energy, which may decrease demand for our coal products. The Clean Power Plan is one of a number of recent developments aimed at limiting GHG emissions which could limit the market for some of our products by encouraging electric generation from sources that do not generate the same amount of GHG emissions. Enactment of laws or passage of regulations regarding emissions from the combustion of coal by the U.S., states, or other countries, could also result in electricity generators further switching from coal to other fuel sources or additional coal-fueled power plant closures. For example, the Paris Agreement resulting from the 2015 United Nations Framework Convention on Climate Change contains commitments by numerous countries to reduce their GHG emissions. The Paris Agreement entered into force in November 2016. Currently, 132 of the 197 Parties to the Convention have ratified the Paris Agreement, and additional Parties may ratify, increasing the firm commitments by various nations with respect to future GHG emissions. These commitments could further disfavor coal-fired generation, particularly in the medium- to long-term. On June 1, 2017, President Trump announced the United States has withdrawn from the Paris Agreement.  Certain state and local officials have stated that they will, nevertheless, voluntarily participate in the Paris Agreement.

 

Congress has extended certain tax credits for renewable sources of electric generation, which will increase the ability of these sources to compete with our coal products in the market. In addition, in January 2016, the U.S. Department of Interior announced a moratorium on issuing certain new coal leases on federal land while the Bureau of Land Management undertakes a programmatic review of the federal coal program. While none of our operations are located on federal lands impacted by this moratorium, these governmental actions do signal increased attention at the federal level to coal mining practices and the GHG emissions resulting from coal combustion.

 

There have also been efforts in recent years affecting the investment community, including investment advisors, sovereign wealth funds, public pension funds, universities and other groups, promoting the divestment of fossil fuel equities and also pressuring lenders to limit funding to companies engaged in the extraction of fossil fuel reserves. In California, for example, legislation was enacted in October 2015 requiring California’s state pension funds to divest investments in companies that generate 50% or more of their revenue from coal mining by July 2017. Other activist campaigns have urged banks to cease financing coal-driven businesses. As a result, at least ten major banks enacted such policies in 2015, joined by at least 5 major banks in 2016. The impact of such efforts may adversely affect the demand for and price of securities issued by us, and impact our access to the capital and financial markets.

 

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In addition, several well-funded non-governmental organizations have explicitly undertaken campaigns to minimize or eliminate the use of coal as a source of electricity generation. Collectively, these actions and campaigns could adversely impact our future financial results, liquidity and growth prospects.

 

Our operations may impact the environment or cause exposure to hazardous substances, and our properties may have environmental contamination, which could result in material liabilities to us.

 

Certain of our coal mining operations use or have used hazardous and other regulated materials and have generated hazardous wastes. In addition, one of our locations was used for coal mining involving hazardous materials prior to our involvement with, or operation of, such location. We may be subject to claims under federal and state statutes or common law doctrines for penalties, toxic torts and other damages, as well as for natural resource damages and for the investigation and remediation of soil, surface water, groundwater, and other media under laws such as the CERCLA, commonly known as Superfund, or the Clean Water Act. Such claims may arise, for example, out of current, former or threatened conditions at sites that we currently own or operate as well as at sites that we and companies we acquired owned or operated in the past, or sent waste to for treatment or disposal, and at contaminated sites that have always been owned or operated by third parties.

 

We have used coal ash for reclamation at our Macoupin mine. On December 19, 2014, the EPA issued a final rule concerning disposal and beneficial use of coal ash. In the final rule, the EPA determined that it would regulate coal ash as a nonhazardous material under Subtitle D of the RCRA.  The EPA also clarified the definition of beneficial use of coal ash. Additionally, in the preamble to its final rule, the EPA affirmed “this rule does not apply to CCR placed in active or abandoned underground or surface mines.” Instead, “the U.S. Department of Interior (“DOI”) and the EPA will address the management of CCR in mine fills in a separate regulatory action(s).”  While these requirements are less stringent than the proposed rule treating coal ash as a hazardous material under Subtitle C of the RCRA, we can make no assurances that the new rule, or the potential DOI and EPA rulemaking mentioned in the rule’s preamble, will not increase our costs for the use of coal ash at Macoupin or expose us to additional liability through citizen suits brought under RCRA.

 

We are involved in legal proceedings that if determined adversely to us, could significantly impact our profitability, financial position or liquidity.

 

We are, and from time to time may become, involved in various legal proceedings that arise in the ordinary course of business. Some lawsuits seek fines or penalties and damages in very large amounts, or seek to restrict our business activities. In particular, we are subject to legal proceedings relating to our receipt of and compliance with permits under the SMCRA and the CWA and to other legal proceedings relating to environmental matters involving current and historical operations, ownership of land or permitting. It is currently unknown what the ultimate resolution of these proceedings will be, but these proceedings could have a material adverse effect on our results of operations, cash flows and financial condition as well as our ability to make distributions to our unitholders.

 

 

Federal or state regulatory agencies have the authority to order certain of our mines to be temporarily or permanently closed under certain circumstances, which could materially and adversely affect our ability to meet our customers’ demands.

 

Federal or state regulatory agencies, including MSHA, IDNR and IEPA, have the authority under certain circumstances following significant health, safety or environmental incidents or pursuant to permitting authority to temporarily or permanently close one or more of our mines. If this occurred, we may be required to incur capital expenditures and/or additional expenses to re-open the mine. In the event that these agencies cause us to close one or more of our mines, our coal sales contracts generally permit us to issue force majeure notices which suspend our obligations to deliver coal under such contracts. However, our customers may challenge our issuances of force majeure notices in connection with these closures. If these challenges are successful, we may have to purchase coal from third-party sources, if available, to fulfill these obligations, incur capital expenditures to re-open the mine or negotiate settlements with the customers, which may include price reductions, the reduction of commitments or the extension of time for delivery or termination of such customers’ contracts. Any of these actions could have a material adverse effect on our results of operations, cash flows and financial condition as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

We face numerous uncertainties in estimating our economically recoverable coal reserves.

 

Coal is economically recoverable when the price at which coal can be sold exceeds the costs and expenses of mining and selling the coal. Forecasts of our future performance are based on, among other things, estimates of our recoverable coal reserves. We base our reserve information on engineering, economic and geological data assembled and analyzed by third parties and our staff, which includes various engineers. The reserve estimates as to both quantity and quality are updated from time to time to reflect production of coal from the reserves and new drilling or other data received. There are numerous uncertainties inherent in estimating quantities and

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qualities of coal and costs to mine recoverable reserves, including many factors beyond our control. Estimates of economically recoverable coal reserves necessarily depend upon a number of factors and assumptions, any one of which may, if inaccurate, result in an estimate that varies considerably from actual results. These factors and assumptions include:

 

the percentage of coal ultimately recoverable;

 

the quality of coal;

 

geologic and mining conditions, which may not be fully identified by available exploration data and may differ from our experience in areas we currently mine;

 

future coal prices, operating costs and capital expenditures;

 

excise taxes, royalties and development and reclamation costs;

 

future mining technology improvements;

 

the effects of regulation by governmental agencies;

 

ability to obtain, maintain and renew all required permits;

 

health and safety needs; and

 

historical production from the area compared with production from other producing areas.

 

As a result, actual coal tonnage recovered from identified reserve areas or properties and revenues and expenditures with respect to our production from reserves may vary materially from estimates. These estimates thus may not accurately reflect our actual reserves. Any material inaccuracy in our estimates related to our reserves could result in lower than expected revenues, higher than expected costs or decreased profitability which could materially adversely affect our results of operations, business and financial condition as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

 

Our operations are subject to risks, some of which are not insurable, and we cannot assure you that our existing insurance would be adequate in the event of a loss.

 

We maintain insurance to protect against risk of loss but our coverage is subject to deductibles and specific terms and conditions. We cannot assure you that we will have adequate coverage or that we will be able to obtain insurance against certain risks, including certain liabilities for environmental pollution or hazards. We cannot assure you that insurance coverage will be available in the future at commercially reasonable costs, or at all, or that the amounts for which we are insured or that we may receive, or the timing of any such receipt, will be adequate to cover all of our losses. Uninsured events may adversely affect our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

We have future mine closure and reclamation obligations, the timing and amount of which are uncertain. In addition, our failure to maintain required financial assurances could affect our ability to secure reclamation and coal lease obligations, which could adversely affect our ability to mine or lease the coal.

 

In view of the uncertainties concerning future mine closure and reclamation costs on our properties, the ultimate timing and future costs of these obligations could differ materially from our current estimates. We estimate our asset retirement obligations for final reclamation and mine closure based upon detailed engineering calculations of the amount and timing of the future cash for a third party to perform the required work. Spending estimates are escalated for inflation and market risk premium, and then discounted at the credit-adjusted, risk-free rate. Our estimates for this future liability are subject to change based on new or amendments to existing applicable laws and regulations, the nature of ongoing operations and technological innovations. Although we accrue for future costs in our consolidated balance sheets, we do not reserve cash in respect of these obligations or otherwise fund these obligations in advance. As a result, we will have significant cash outlays when we are required to close and restore mine sites that may, among other things, affect our ability to satisfy our obligations under our indebtedness and other contractual commitments and resume payment of distributions to unitholders. We cannot assure you that we will be able to obtain financing on satisfactory terms to fund these costs, or at all.

 

In addition, regulatory authorities require us to provide financial assurance to secure, in whole or in part, our future reclamation projects. The amount and nature of the financial assurances are dependent upon a number of factors, including our financial condition and reclamation cost estimates. Changes to these amounts, as well as the nature of the collateral to be provided, could significantly increase our costs, making the maintenance and development of existing and new mines less economically feasible. Currently, the security we provide consists of surety bonds. The premium rates and terms of the surety bonds are subject to annual renewals. Our failure to maintain, or inability to acquire, surety bonds or other forms of financial assurance that are required by applicable law, contract or permit could adversely affect our ability to operate. That failure could result from a variety of factors including the lack of availability, higher expense or unfavorable market terms of new surety bonds or other forms of financial assurance. There can be no guarantee that we will be able to maintain or add to our current level of financial assurance. Additionally, any capital resources that we do utilize for this purpose will reduce our resources available for our operations and commitments as well as our ability to resume

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payment of distributions to our unitholders. As of December 31, 2017, we have outstanding surety bonds with third parties of $85.1 million, which are partially secured by $4.5 million of our outstanding letters of credit.

 

Significant increases in, or the imposition of new, taxes we pay on the coal we produce could materially and adversely affect our results of operations.

 

All of our mining operations are in Illinois. If Illinois was to impose a state severance tax or any other tax applicable solely to our Illinois operations, we may be significantly impacted and our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders could be materially and adversely affected. Any imposition of Illinois state severance tax or any county tax could disproportionately impact us relative to our competitors that are more geographically diverse.

 

Our general partner has a call right that may require unitholders to sell their common units at an undesirable time or price.

 

If at any time our general partner and its affiliates own more than 80% of the common units, our general partner has the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. As a result, unitholders may be required to sell their common units at an undesirable time or price and may not receive any return or a negative return on their investment. Unitholders may also incur a tax liability upon a sale of their units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from causing us to issue additional common units and exercising its call right. If our general partner exercised its limited call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Securities Exchange Act of 1934. As of February 28, 2018, Murray Energy owns 100.0% of our subordinated units and 12% of our common units. At the end of the subordination period, assuming no additional issuances of units (other than upon the conversion of the subordinated units), Murray Energy would own an aggregate of 52% of our common units.

 

Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.

 

Our partnership agreement restricts unitholders’ voting rights by providing that any units held by a person or group that owns 20% or more of any class of units then outstanding, other than our general partner and its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter.

 

Our ability to collect payments from our customers could be impaired if their creditworthiness deteriorates.

 

Our ability to receive payment for coal sold and delivered depends on the continued creditworthiness of our customers. Many utilities have sold their power plants to non-regulated affiliates or third parties that may be less creditworthy, thereby increasing the risk we bear on payment default. These new power plant owners may have credit ratings that are below investment grade. In addition, some of our customers have been adversely affected by the current economic downturn, which may impact their ability to fulfill their contractual obligations. Competition with other coal suppliers could force us to extend credit to customers and on terms that could increase the risk we bear on payment default. We also have contracts to supply coal to energy trading and brokering customers under which those customers sell coal to end users. If the creditworthiness of any of our energy trading and brokering customers declines, we may not be able to collect payment for all coal sold and delivered to or on behalf of these customers. An inability to collect payment from these counterparties may materially adversely affect our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

All of our coal and controlled reserves are in Illinois making us vulnerable to risks associated with operating in a single geographic area.

 

Because we operate exclusively in Illinois, any disruptions to our operations due to adverse geographical conditions or changes to the Illinois regulatory environment could significantly impact our operations, reduce our sales of coal and adversely affect our results of operation and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

Our ability to operate our business effectively could be impaired if we fail to attract and retain key personnel.

 

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Our ability to operate our business and implement our strategies depends, in part, on the continued contributions of our executive officers and other key employees. The loss of any of our key senior executives could have a material adverse effect on our business unless and until we find a replacement. A limited number of persons exist with the requisite experience and skills to serve in our senior management positions. We may not be able to locate or employ qualified executives on acceptable terms. In addition, we believe that our future success will depend on our continued ability to attract and retain highly skilled personnel with coal industry experience. Competition for these persons in the coal industry is intense and we may not be able to successfully recruit, train or retain qualified managerial personnel. We may not be able to continue to employ key personnel or attract and retain qualified personnel in the future. Our failure to retain or attract key personnel could have a material adverse effect on our ability to effectively operate our business.

 

Our ability to operate our mines efficiently and profitably is dependent upon skilled mining labor. A shortage of skilled mining labor in the U.S. could decrease our labor productivity and increase our labor costs, which would adversely affect our profitability.

 

Efficient coal mining using complex and sophisticated techniques and equipment requires skilled laborers proficient in multiple mining tasks, including mining equipment maintenance. Any shortage of skilled mining labor reduces the productivity of experienced employees who must assist in training unskilled employees. If a shortage of experienced labor occurs, it could have an adverse impact on our labor productivity and costs and our ability to expand production in the event there is an increase in the demand for our coal, which could adversely affect our results of operations, business and financial condition, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

Terrorist attacks and threats, escalation of military activity in response to such attacks or acts of war may negatively affect our business, financial condition and results of operations.

 

Terrorist attacks and threats, escalation of military activity in response to such attacks or acts of war may negatively affect our business, financial condition and results of operations. Our business is affected by general economic conditions, fluctuations in consumer confidence and spending, and market liquidity, which can decline as a result of numerous factors outside of our control, such as terrorist attacks and acts of war. Future terrorist attacks against U.S. targets, rumors or threats of war, actual conflicts involving the U.S. or its allies, or military or trade disruptions affecting our customers could cause delays or losses in transportation and deliveries of coal to our customers, decreased sales of our coal and extension of time for payment of accounts receivable from our customers. Strategic targets such as energy-related assets may be at greater risk of future terrorist attacks than other targets in the U.S. It is possible that any, or a combination, of these occurrences could have a material adverse effect on our business, financial condition and results of operations, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

A cyber incident could result in information theft, data corruption, operational disruption and/or financial loss.

 

We have become increasingly dependent upon digital technologies, including information systems, infrastructure and cloud applications and services, to operate our businesses, process and record financial and operating data, communicate with our employees, analyze mining information, and estimate quantities of coal reserves, as well as other activities related to our businesses. We have implemented cyber security protocols and systems with the intent of maintaining the security of our operations and protecting our and our counterparties' confidential information against unauthorized access. Despite such efforts, we may be subject to cyber security breaches which could result in unauthorized access to our information systems or infrastructure.

 

Strategic targets, such as energy-related assets, may be at greater risk of future cyber-attacks than other targets in the United States. Deliberate cyber-attacks on, or security breaches in, our digital systems or information technology infrastructure, or that of third parties, could lead to corruption or loss of our proprietary data and potentially sensitive data, delays in production or delivery, difficulty in completing and settling transactions, challenges in maintaining our books and records, environmental damage, communication interruptions, other operational disruptions and third party liability. Our insurance may not protect us against such occurrences. Consequently, it is possible that any of these occurrences, or a combination of them, could have a material adverse effect on our business, financial condition and results of operations. Further, as cyber incidents continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate any vulnerability to cyber incidents.

 

The holder or holders of our incentive distribution rights may elect to cause us to issue common units to them in connection with a resetting of the target distribution levels related to the incentive distribution rights, without the approval of the conflicts committee of our general partner’s board of directors or the holders of our common units. This could result in lower distributions to holders of our common units.

 

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Our general partner, the holder of our incentive distribution rights, has the right, at any time when there are no subordinated units outstanding and we have made cash distributions in excess of the then-applicable third target distribution for each of the prior four consecutive fiscal quarters, to reset the initial target distribution levels at higher levels based on our cash distribution levels at the time of the exercise of the reset election. Following a reset election by our general partner, the minimum quarterly distribution will be calculated as an amount equal to the prior cash distribution per common unit for the fiscal quarter immediately preceding the reset election (such amount is referred to as the “reset minimum quarterly distribution”) and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution. If our general partner elects to reset the target distribution levels, it will be entitled to receive a number of common units. The number of common units to be issued to our general partner will equal the number of common units that would have entitled the holder to an aggregate quarterly cash distribution for the quarter prior to the reset election equal to the distribution on the incentive distribution rights for the quarter prior to the reset election.

 

We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per unit without such conversion. However, our general partner may transfer the incentive distribution rights at any time. It is possible that our general partner or a transferee could exercise this reset election at a time when we are experiencing declines in our aggregate cash distributions or at a time when the holders of the incentive distribution rights expect that we will experience declines in our aggregate cash distributions in the foreseeable future. In such situations, the holders of the incentive distribution rights may be experiencing, or may expect to experience, declines in the cash distributions it receives related to the incentive distribution rights and may therefore desire to be issued our common units rather than retain the right to receive incentive distributions based on the initial target distribution levels. As a result, a reset election may cause our common unitholders to experience a reduction in the amount of cash distributions that they would have otherwise received had we not issued new common units to the holders of the incentive distribution rights in connection with resetting the target distribution levels.

 

It is our policy to distribute a significant portion of our available cash to our unitholders, which could limit our ability to grow or make acquisitions.

 

Pursuant to our cash distribution policy, we intend to distribute a significant portion of our available cash to our unitholders and rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund potential acquisitions and expansion capital expenditures. As a result, to the extent we are unable to finance growth externally, our cash distribution policy may impair our ability to grow.

 

As we intend to regularly distribute a portion of our available cash, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations. To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement on our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional commercial borrowings or other debt to finance our growth strategy would result in increased interest expense, which, in turn, may impact the available cash that we have to distribute to our unitholders.

 

We may issue additional units without unitholder approval which would dilute existing unitholder ownership interests.

 

In accordance with Delaware law and the provisions of our partnership agreement, we may issue additional partnership interests that are senior to the common units in right of distribution, liquidation and voting. Additionally, we are not limited in the number of additional limited partner interests that we may issue at any time without the approval of our unitholders. The issuance of additional common units would have the following effects:

 

our existing unitholders’ proportionate ownership interest in us would decrease;

 

the amount of cash available for distribution on each unit may decrease;

 

because a lower percentage of total outstanding units would be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution would be borne by our common unitholders will increase;

 

 

the ratio of taxable income to distributions may increase;

 

the relative voting strength of each previously outstanding unit may be diminished; and

 

the market price of the common units may decline.

 

In addition, to the extent that we are unable to generate a sufficiently large return from investment of the proceeds of the issuance of additional units, such issuances would be dilutive to the existing unitholders.

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Our partnership agreement replaces our general partner’s fiduciary duties to holders of our units.

 

Our partnership agreement contains provisions that eliminate and replace the fiduciary standards to which our general partner would otherwise be held by state fiduciary duty law with several different contractual standards. For example, our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner, or otherwise free of fiduciary duties to us and our unitholders. This entitles our general partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. Examples of decisions that our general partner may make in its individual capacity include:

 

how to allocate business opportunities among us and its affiliates;

 

whether to exercise its call right;

 

how to exercise its voting rights with respect to the units it owns;

 

whether to exercise its registration rights;

 

whether to elect to reset target distribution levels; and

 

whether or not to consent to any merger or consolidation of the partnership or amendment to the partnership agreement.

 

By purchasing a common unit, a unitholder is treated as having consented to the provisions in the partnership agreement, including the provisions discussed above.

 

Our partnership agreement restricts the remedies available to holders of our units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

 

Our partnership agreement provides that our general partner is restricted from engaging in any business activities other than acting as our general partner and those activities incidental to its ownership interest in us. However, Murray Energy and Foresight Reserves, as owners of our general partner, are not prohibited from engaging in other businesses or activities, including those that might be in direct competition with us. Our partnership agreement contains provisions that restrict the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty under state fiduciary duty law. For example, our partnership agreement provides that:

 

whenever our general partner makes a determination or takes, or declines to take, any other action in its capacity as our general partner, our general partner is generally required to make such determination, or take or decline to take such other action, in good faith, and is not subject to any higher standard imposed by our partnership agreement, Delaware law, or any other law, rule or regulation, or at equity;

 

 

our general partner and its officers and directors are not liable for monetary damages or otherwise to us or our limited partners resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that such losses or liabilities were the result of conduct in which our general partner or its officers or directors engaged in bad faith, meaning that they believed that the decision was adverse to the interest of the partnership or, with respect to any criminal conduct, with knowledge that such conduct was unlawful; and

 

our general partner will not be in breach of its obligations under the partnership agreement or its duties to us or our limited partners if a transaction with an affiliate or the resolution of a conflict of interest is:

 

(1)

approved by the conflicts committee of the board of directors of our general partner, although our general partner is not obligated to seek such approval; or

 

(2)

approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner and its affiliates.

 

In connection with a situation involving a transaction with an affiliate or a conflict of interest, other than one where our general partner is permitted to act in its sole discretion, any determination by our general partner must be made in good faith. If an affiliate transaction or the resolution of a conflict of interest is not approved by our common unitholders or the conflicts committee then it will be presumed that, in making its decision, taking any action or failing to act, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.

 

Our partnership agreement provides that the conflicts committee of the board of directors of our general partner may be comprised of one or more independent directors. If our general partner establishes a conflicts committee with only one independent director, your interests may not be as well served as if the conflicts committee were comprised of at least two independent directors. A single-member conflicts committee would not have the benefit of discussion with, and input from, other independent directors.

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Murray Energy Corporation and The Cline Group each currently hold substantial interests in other companies in the coal mining business, including other coal reserves in Illinois. The Cline Group and Murray Energy Corporation each makes investments and purchases entities that acquire, own and operate coal mining businesses and transportation. These investments and acquisitions may include entities or assets that we would have been interested in acquiring. Therefore, Murray Energy Corporation, The Cline Group, and certain other affiliates of our general partner may compete with us for investment opportunities and affiliates of our general partner may own an interest in entities that compete with us.

 

Pursuant to the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, does not apply to our general partner or any of its affiliates, including its executive officers, directors and Foresight Reserves. Any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. This may create actual and potential conflicts of interest between us and affiliates of our general partner and result in less than favorable treatment for us and our unitholders.

 

Holders of our common units have limited voting rights and are not entitled to elect or remove our general partner or its directors, which could reduce the price at which the common units would trade.

 

Compared to the holders of common stock in a corporation, unitholders have limited voting rights and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders have no right on an annual or ongoing basis to elect our general partner or its board of directors. The board of directors of our general partner, including the independent directors, is chosen entirely by the owners of our general partner, and not by our unitholders. Unlike publicly traded corporations, we do not conduct annual meetings of our unitholders to elect directors or conduct other matters routinely conducted at annual meetings of stockholders of corporations. As a result of these limitations, the price at which the common units trade could be diminished because of the absence or reduction of a takeover premium in the trading price.

 

 If our unitholders are dissatisfied with the performance of our general partner, they have limited ability to remove our general partner. Unitholders are unable to remove our general partner without its consent because our general partner and its affiliates own sufficient units to be able to prevent its removal. In addition, any vote to remove our general partner during the subordination period must provide for the election of a successor general partner by the holders of a majority of the common units and a majority of the subordinated units, voting as separate classes. The owners of our general partner have the ability to prevent the removal of our general partner.

 

Our general partner interest or the control of our general partner may be transferred to a third party without unitholder consent.

 

Our general partner may transfer its general partner interest to a third party without the consent of our unitholders. Furthermore, our partnership agreement does not restrict the ability of the owners of our general partner to transfer their membership interests in our general partner to a third party. The new owners of our general partner would then be in a position to replace the board of directors and executive officers of our general partner with their own designees and thereby exert significant control over the decisions taken by the board of directors and executive officers of our general partner. This effectively permits a “change of control” without the vote or consent of the unitholders.

 

The incentive distribution rights may be transferred to a third party without unitholder consent.

 

Our general partner or our sponsors may transfer their respective incentive distribution rights to a third party at any time without the consent of our unitholders. If our sponsors transfer their incentive distribution rights to a third party but retain their respective ownership interests in our general partner, our general partner may not have the same incentive to grow our partnership and increase quarterly distributions to unitholders over time as it would if our sponsors had retained their ownership of the incentive distribution rights. For example, a transfer of incentive distribution rights by our sponsors could reduce the likelihood of our sponsors accepting offers made by us relating to assets owned by them, as they would have less of an economic incentive to grow our business, which in turn would impact our ability to grow our asset base.

 

Cost reimbursements due to our general partner and its affiliates for services provided to us or on our behalf reduce cash available for distribution to our unitholders. Our general partner determines the amount and timing of such reimbursements.

 

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We are obligated under our partnership agreement to reimburse our general partner and its affiliates for all expenses they incur and payments they make on our behalf. Our partnership agreement does not limit the amount of expenses for which our general partner and its affiliates may be reimbursed. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our general partner by its affiliates. Our partnership agreement provides that our general partner determines the expenses that are allocable to us. The reimbursement of expenses and payment of fees, if any, to our general partner and its affiliates reduces the amount of cash available for distributions to our unitholders.

 

The NYSE does not require a publicly traded partnership like us to comply with certain of its corporate governance requirements.

 

Our common units are listed on the NYSE. Because we are a publicly traded partnership, the NYSE does not require us to have a majority of independent directors on our general partner’s board of directors or to establish a compensation committee or a nominating and corporate governance committee. Accordingly, unitholders do not have the same protections afforded to certain corporations that are subject to all of the NYSE corporate governance requirements.

 

Our revenues and operating profits could be negatively impacted if we are unable to extend existing agreements at comparable pricing or enter into new agreements due to competition, environmental regulations affecting our customers’ changing coal purchasing patterns or other variables.

 

We compete with other coal suppliers when renewing expiring agreements or entering into new agreements. If we cannot renew these coal supply agreements or find alternate customers willing to purchase our coal, our revenue and operating profits could suffer. Our customers may decide not to extend existing agreements or enter into new long-term contracts or, in the absence of long-term contracts, may decide to purchase fewer tons of coal than in the past or on different terms, including under different pricing terms or may decide not to purchase at all. Any decrease in demand may cause our customers to delay negotiations for new contracts or request lower pricing terms or seek coal from other sources. Furthermore, uncertainty caused by laws and regulations affecting electric utilities could deter our customers from entering into long-term coal supply agreements. Some long-term contracts contain provisions for termination due to environmental regulatory changes if such changes prohibit utilities from burning the contracted coal. In addition, a number of our long-term contracts are subject to price re-openers. If market prices are lower than the existing contract price, pricing for these contracts could reset to lower levels.

 

Coal mining operations are subject to inherent risks and are dependent on many factors and conditions beyond our control, any of which may adversely affect our productivity and our financial condition.

 

Our mining operations, including our transportation infrastructure, are influenced by changing conditions that can affect the safety of our workforce, production levels, delivery of our coal and costs for varying lengths of time and, as a result, can diminish our revenues and profitability. In particular, underground mining and related processing activities present inherent risks of injury to persons and damage to property and equipment. A shutdown of any of our mines or prolonged disruption of production at any of our mines or transportation of our coal to customers would result in a decrease in our revenues and profitability, which could be material. Certain factors affecting the production and sale of our coal that could result in decreases in our revenues and profitability include:

 

adverse geologic conditions including floor and roof conditions, variations in seam height, washouts and faults;

 

fire or explosions from methane, coal or coal dust or explosive materials;

 

industrial accidents;

 

seismic activities, ground failures, rock bursts, or structural cave-ins or slides;

 

delays in the receipt of, or failure to receive, or revocation of necessary government permits;

 

changes in the manner of enforcement of existing laws and regulations;

 

changes in laws or regulations, including permitting requirements and the imposition of additional regulations, taxes or fees;

 

accidental or unexpected mine water inflows;

 

delays in moving our longwall equipment;

 

railroad derailments;

 

inclement or hazardous weather conditions and natural disasters, such as heavy rain, high winds and flooding;

 

environmental hazards;

 

interruption or loss of power, fuel, or parts;

 

increased or unexpected reclamation costs;

 

equipment availability, replacement or repair costs; and

 

mining and processing equipment failures and unexpected maintenance problems.

 

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These risks, conditions and events could (1) result in: (a) damage to, or destruction of value of, our coal properties, our coal production or transportation facilities, (b) personal injury or death, (c) environmental damage to our properties or the properties of others, (d) delays or prohibitions on mining our coal or in the transportation of coal, (e) monetary losses and (f) potential legal liability; and (2) could have a material adverse effect on our operating results and our ability to generate the cash flows we require to invest in our operations and satisfy our debt obligations. Our insurance policies only provide limited coverage for some of these risks and will not fully cover these risks. A significant mine accident could potentially cause a mine shutdown, and could have a substantial adverse impact on our results of operations, financial condition or cash flows, as well as our ability to meet our debt obligations and resume payment of distributions to our unitholders.

 

Tax Risks to Common Unitholders

 

Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service (“IRS”) were to treat us as a corporation for federal income tax purposes or we were to become subject to material additional amounts of entity-level taxation for state tax purposes, then our cash available for distribution to you would be substantially reduced.

 

The anticipated after-tax economic benefit of an investment in our common units depends largely on our being treated as a partnership for federal income tax purposes. Despite the fact that we are organized as a limited partnership under Delaware law, we would be treated as a corporation for federal income tax purposes unless we satisfy a “qualifying income” requirement. Based upon our current operations, we believe we satisfy the qualifying income requirement. However, no ruling has been or will be requested regarding our treatment as a partnership for federal income tax purposes. Failing to meet the qualifying income requirement or a change in current law could cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to taxation as an entity.

 

If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our taxable income at the corporate tax rate. Distributions to you would generally be taxed again as corporate distributions, and no income, gains, losses, deductions or credits would flow through to you. Because a tax would be imposed upon us as a corporation, our cash available for distribution to you would be substantially reduced. Therefore, treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to you, likely causing a substantial reduction in the value of our common units.

 

Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law or interpretation on us. Several states have been evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise or other forms of taxation. If any state were to impose a tax upon us as an entity, the cash available for distribution to you would be reduced and the value of our common units could be negatively impacted.

 

The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.

 

The present federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. From time to time, members of Congress propose and consider substantive changes to the existing federal income tax laws that affect publicly traded partnerships. Although there is no current legislative proposal, a prior legislative proposal would have eliminated the qualifying income exception to the treatment of all publicly-traded partnerships as corporations upon which we rely for our treatment as a partnership for U.S. federal income tax purposes.

 

In addition, on January 24, 2017, final regulations regarding which activities give rise to qualifying income within the meaning of Section 7704 of the Internal Revenue Code (the “Final Regulations”) were published in the Federal Register. The Final Regulations are effective as of January 19, 2017, and apply to taxable years beginning on or after January 19, 2017. We do not believe the Final Regulations affect our ability to be treated as a partnership for federal income tax purposes.

 

However, any modification to the federal income tax laws may be applied retroactively and could make it more difficult or impossible for us to meet the exception for certain publicly traded partnerships to be treated as partnerships for federal income tax purposes. We are unable to predict whether any of these changes or other proposals will ultimately be enacted. Any similar or future legislative changes could negatively impact the value of an investment in our common units.

 

You will be required to pay taxes on your share of our income even if you do not receive any cash distributions from us.

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You will be required to pay federal income taxes and, in some cases, state and local income taxes on your share of our taxable income regardless of whether you receive cash distributions from us. You may not receive cash distributions from us equal to your share of our taxable income or even equal to the actual tax liability resulting from that income.

 

The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes.

 

We will be considered to have terminated our partnership for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. Murray Energy and Chris Cline collectively own, directly and indirectly, more than 50% of the total interests in our capital and profits. Therefore, a transfer by these parties of all or a portion of its interests in us, in conjunction with the trading of common units held by the public, could result in a termination of us as a partnership for federal income tax purposes. For purposes of determining whether the 50% threshold has been met, multiple sales of the same interest will be counted only once.

 

Our termination would, among other things, result in the closing of our taxable year for all unitholders, which would result in us filing two tax returns for one calendar year and could result in a significant deferral of depreciation deductions allowable in computing our taxable income. If you report on a taxable year other than the calendar year, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in your taxable income for the year of termination. Our termination would not affect our classification as a partnership for federal income tax purposes, but instead, after our termination we would be treated as a new partnership for federal income tax purposes. If treated as a new partnership, we must make new tax elections and could be subject to penalties if we are unable to determine that a termination occurred. The IRS has announced a relief procedure whereby if a publicly traded partnership that has technically terminated requests and the IRS grants special relief, among other things, the partnership may be permitted to provide only a single Schedule K-1 to unitholders for the two short tax periods included in the year in which the termination occurs.

 

Tax gain or loss on the disposition of our common units could be more or less than expected.

 

If you sell your common units, you will recognize a gain or loss equal to the difference between the amount realized and your tax basis in those common units. Because distributions in excess of your allocable share of our net taxable income result in a decrease in your tax basis in your common units, the amount, if any, of such prior excess distributions with respect to the units you sell will, in effect, become taxable income to you if you sell such units at a price greater than your tax basis in those units, even if the price you receive is less than your original cost. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if you sell your units, you may incur a tax liability in excess of the amount of cash you receive from the sale.

 

A substantial portion of the amount realized from the sale of your units, whether or not representing gain, may be taxed as ordinary income to you due to potential recapture items, including depreciation recapture. Thus, you may recognize both ordinary income and capital loss from the sale of your units if the amount realized on a sale of your units is less than your adjusted basis in the units. Net capital loss may only offset capital gains and, in the case of individuals, up to $3,000 of ordinary income per year. In the taxable period in which you sell your units, you may recognize ordinary income from our allocations of income and gain to you prior to the sale and from recapture items that generally cannot be offset by any capital loss recognized upon the sale of units.

 

Tax-exempt entities and non-U.S. persons face unique tax issues from owning common units that may result in adverse tax consequences to them.

 

Investments in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (“IRAs”), and non-U.S. persons raise issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons are subject to withholding taxes imposed at the highest effective tax rate applicable to such non-U.S. persons, and each non-U.S. person will be required to file U.S. federal income tax returns and pay tax on its share of our taxable income. The Tax Cuts and Jobs Act of 2017 imposes a withholding obligation of 10% of the amount realized upon a Non-U.S. unitholder's sale or exchange of an interest in a partnership that is engaged in a U.S. trade or business. However, due to challenges of administering a withholding obligation applicable to open market trading and other complications, the IRS has temporarily suspended the application of this withholding rule to open market transfers of interests in publicly traded partnerships pending promulgation of regulations or other guidance that resolves the challenges.  It is not clear if or when such regulations or other guidance will be issued. If you are a tax-exempt entity or a non-U.S. person, you should consult your tax advisor before investing in our common units.

 

41

 

 


If the IRS contests the federal income tax positions we take, the market for our common units may be adversely impacted and the cost of any IRS contest may reduce our cash available for distribution to you.

 

We have not requested a ruling from the IRS regarding our treatment as a partnership for federal income tax purposes. The IRS could adopt positions that differ from the positions we take in the future. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with some or all of the positions we take. Any contest by the IRS, and the outcome of such contest, may materially and adversely impact the market for our common units and the price at which they trade. The costs of any such contest would result in a reduction in cash available for distribution to our unitholders and would indirectly be borne by our unitholders.

 

If the IRS makes audit adjustments to our income tax returns for tax years beginning after December 31, 2017, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us, in which case our cash available for distribution to our unitholders might be substantially reduced.

 

Pursuant to the Bipartisan Budget Act of 2015, for tax years beginning after December 31, 2017, if the IRS makes audit adjustments to our income tax returns, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us. To the extent possible under the new rules, our general partner may elect to either pay the taxes (including any applicable penalties and interest) directly to the IRS or, if we are eligible, issue a revised Schedule K-1 to each unitholder with respect to an audited and adjusted return. Although our general partner may elect to have our unitholders take such audit adjustment into account in accordance with their interests in us during the tax year under audit, there can be no assurance that such election will be practical, permissible or effective in all circumstances. As a result, our current unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if such unitholders did not own units in us during the tax year under audit. If, as a result of any such audit adjustment, we are required to make payments of taxes, penalties and interest, our cash available for distribution to our unitholders might be substantially reduced. These rules are not applicable for tax years beginning on or prior to December 31, 2017.

 

We treat each purchaser of our common units as having the same tax benefits without regard to the common units actually purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.

 

Because we cannot match transferors and transferees of common units, we have adopted depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. It also could affect the timing of these tax benefits or the amount of gain from your sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to your tax returns.

 

We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.

 

We generally prorate items of income, gain, loss and deduction between transferors and transferees of our common units each month based upon the ownership of our common units on the first day of each month (the “Allocation Date”), instead of on the basis of the date a particular common unit is transferred. Similarly, we generally allocate certain deductions for depreciation of capital additions, gain or loss realized on a sale or other disposition of our assets and, in the discretion of the general partner, any other extraordinary item of income, gain, loss or deduction based upon ownership on the Allocation Date. Treasury Regulations allow a similar monthly simplifying convention, but such regulations do not specifically authorize all aspects of our proration method. If the IRS were to challenge our proration method, we may be required to change the allocation of items of income, gain, loss, and deduction among our unitholders.

 

We have adopted certain valuation methodologies in determining unitholder’s allocations of income, gain, loss and deduction. The IRS may challenge these methods or the resulting allocations, and such a challenge could adversely affect the value of our common units.

 

In determining the items of income, gain, loss and deduction allocable to our unitholders, we must routinely determine the fair market value of our assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we make many fair market value estimates using a methodology based on the market value of our common units as a means to measure the fair market value of our assets. The IRS may challenge these valuation methods and the resulting allocations of income, gain, loss and deduction.

42

 

 


 

A successful IRS challenge to these methods or allocations could adversely affect the timing or amount of taxable income or loss being allocated to you. It also could affect the amount of gain from your sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to your tax return without the benefit of additional deductions.

 

If your common units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of common units), you may be considered as having disposed of those common units. If so, you would no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.

 

Because there are no specific rules governing the federal income tax consequence of loaning a partnership interest, if your common units are the subject of a securities loan you may be considered as having disposed of the loaned units. In that case, you may no longer be treated for federal income tax purposes as a partner with respect to those common units during the period of the loan to the short seller and you may recognize gain or loss from such disposition. Moreover, during the period of the loan, any of our income, gain, loss or deduction with respect to those common units may not be reportable by you and any cash distributions received by you as to those common units could be fully taxable as ordinary income. If you desire to assure your status as partner and avoid the risk of gain recognition from a securities loan, you are urged to modify any applicable brokerage account agreements to prohibit your broker from borrowing your common units.

 

You will likely be subject to state and local taxes and income tax return filing requirements in jurisdictions where you do not live as a result of investing in our common units.

 

In addition to federal income taxes, you will likely be subject to other taxes, including foreign, state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or own property now or in the future, even if you do not live in any of those jurisdictions. We own assets and conduct business in several states (including Illinois, Indiana and Missouri), each of which currently imposes a personal income tax and also imposes income taxes on corporations and other entities. You will likely be required to file state and local income tax returns and pay state and local income taxes in these states. Further, you may be subject to penalties for failure to comply with these requirements.

 

As we make acquisitions or expand our business, we may own assets or conduct business in additional states or foreign jurisdictions that impose a personal income tax. It is your responsibility to file all U.S. federal, foreign, state and local tax returns.

 

 

Item 1B. Unresolved Staff Comments

 

None.

 

 


43

 

 


Item 2. Properties

Coal Reserves

 

We believe that we have sufficient reserves to replace capacity from depleting mines for the foreseeable future and that our current reserve base is one of our strengths. We estimate that we controlled 2.1 billion tons, almost entirely through lease, of proven and probable recoverable reserves at December 31, 2017. Our coal reserve estimate is based on a study prepared by a third-party mining and geological consultant using data obtained from our drilling activities and other available geologic data. Our coal reserve estimates are periodically updated to reflect past coal production and other geologic and mining data. Acquisitions or sales of coal properties will also change these estimates. Changes in mining methods or the utilization of new technologies may increase or decrease the recovery basis for a coal seam.

 

Our coal reserve estimates include reserves that can be economically and legally extracted or produced at the time of their determination. In determining whether our reserves meet this standard, we take into account, among other things, the possible necessity of revising a mining plan, changes in estimated future costs, changes in future cash flows caused by changes in costs required to be incurred to meet regulatory requirements and obtaining mining permits, variations in quantity and quality of coal, and varying levels of demand and their effects on selling prices. Further, the economics of our reserves are based on market conditions including contracted pricing, market pricing and overall demand for our coal. Thus, the actual value at which we no longer consider our reserves to be economic varies depending on the length of time in which the specific market conditions are expected to last. We consider our reserves to be economic at a price in excess of our cash costs to mine the coal and our ongoing replacement capital. See Part I. “Item 1A. Risk Factors—Risks Related to Our Business—We face numerous uncertainties in estimating our economically recoverable coal reserves.”

 

Our mines are subject to private coal leases. Private coal leases normally have a stated term and usually give us the right to renew the lease for a stated period or to maintain the lease in force until the exhaustion of mineable and merchantable coal contained on the relevant site. These private leases provide for royalties to be paid to the lessor either as a fixed amount per ton or as a percentage of the sales price. Many leases also require payment of a minimum royalty, payable either at the time of execution of the lease or in periodic installments.

 

All of our recoverable coal reserves are assigned reserves as of December 31, 2017. All of our reserves are considered high sulfur coal, with average sulfur content ranging between 1.71% and 3.45% and high Btu coal, with Btu content ranging between 10,799 and 11,893 Btu per pound. The table below presents our estimated recoverable coal reserves at December 31, 2017.

 

 

 

 

 

Average Seam

 

 

 

 

 

 

In-Place

 

 

Clean Recoverable Tons (2)

 

 

Theoretical Coal Quality

 

 

 

 

 

Thickness

 

 

Area

 

 

Tons (1)

 

 

(in 000's)

 

 

(As Received Basis)

 

Property Control

 

Seam

 

(Feet)

 

 

(Acres)

 

 

(in 000's)

 

 

Proven

 

 

Probable

 

 

Total

 

 

Sulfur %

 

 

Btu/lb

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Williamson Energy, LLC

 

6

 

5.81

 

 

 

27,549

 

 

 

295,079

 

 

 

118,926

 

 

 

54,537

 

 

 

173,463

 

 

 

2.20

 

 

 

11,893

 

Williamson Energy, LLC

 

5

 

4.24

 

 

 

39,070

 

 

 

308,553

 

 

 

111,743

 

 

 

85,437

 

 

 

197,180

 

 

1.71

 

 

 

11,799

 

Sugar Camp Energy, LLC

 

6

 

 

6.40

 

 

 

100,401

 

 

 

1,191,701

 

 

 

329,829

 

 

 

394,231

 

 

 

724,060

 

 

2.46

 

 

 

11,820

 

Sugar Camp Energy, LLC

 

5

 

4.75

 

 

 

104,312

 

 

 

925,724

 

 

 

238,407

 

 

 

362,134

 

 

 

600,541

 

 

2.44

 

 

 

11,712

 

Hillsboro Energy LLC

 

6

 

7.68

 

 

 

28,606

 

 

 

433,743

 

 

 

94,342

 

 

 

227,768

 

 

 

322,110

 

 

3.45

 

 

 

10,940

 

Macoupin Energy LLC

 

6

 

6.44

 

 

 

14,047

 

 

 

163,420

 

 

 

32,890

 

 

 

43,703

 

 

 

76,593

 

 

3.33

 

 

 

10,799

 

Total Foresight Energy LP

 

 

 

 

 

 

 

 

 

 

 

 

3,318,220

 

 

 

926,137

 

 

 

1,167,810

 

 

 

2,093,947

 

 

 

 

 

 

 

 

 

 

(1)

In-Place Tons are on a dry basis.

(2)

Clean Recoverable Tons are based on mining recovery, average theoretical preparation plant yield, 94% preparation plant efficiency and product moisture.

 

Each of the mining companies leases the reserves they mine pursuant to a series of leases with related entities and other independent third parties in the normal course of business. The mineral reserve leases can generally be renewed as long as the mineral reserves are being developed and mined until all economically recoverable reserves are depleted or until mining operations cease. The leases require a production royalty at the greater amount of a base amount per ton or a percent of the gross selling price of the coal. Generally, the leases contain provisions that require the payment of minimum royalties regardless of the volume of coal produced or the level of mining activity. The minimum royalties are generally recoupable against production royalties over a contractually defined period of time (generally five to ten years). Some of these agreements also require overriding royalty and/or wheelage payments. Under the terms of some mineral reserve mining leases, we are to use commercially reasonable efforts to acquire additional mineral reserves in certain properties as defined in the agreements and are responsible for the acquisition costs and the assets are to be titled to the lessor.

44

 

 


 

See Part I. “Item 1. Business” for additional discussion and a map of our major mining facilities and Part III. “Item 13.Certain Relationships and Related Transactions and Director Independence” for a summary of key terms of mineral reserve leases with affiliated parties.

 

Item 3. Legal Proceedings

 

See Part II. “Item 8. Financial Statements and Supplementary Data, Note 22—Contingencies” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for a description of certain of our pending legal proceedings, which are incorporated herein by reference. We are also party to various other litigation matters, in most cases involving ordinary and routine claims incidental to our business. We cannot reasonably estimate the ultimate legal and financial liability with respect to all pending litigation matters. However, we believe, based on our examination of such matters, that the ultimate liability will not have a material adverse effect on our financial position, results of operation or cash flows. As of December 31, 2017, we have $0.7 million accrued, in the aggregate, for various litigation matters.

 

Item 4. Mine Safety Disclosures

 

Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1 to this Annual Report on Form 10-K for the year ended December 31, 2017.

 

 

 


45

 

 


PART II.

 

Item 5. Market for Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities

 

The common units representing limited partnership’ interests are listed on the New York Stock Exchange (“NYSE”) under the symbol “FELP”. On February 28, 2018, the closing market price for FELP common units was $3.90 per unit and there were 79,623,907 common units outstanding and 64,954,691 subordinated units outstanding. There were 2,700 record holders of our common units as of December 31, 2017.

 

The following table sets forth the range of high and low sales prices per common unit and the amount of cash distributions declared and paid with respect to each unit from January 1, 2016 to December 31, 2017.

 

Period

 

High

 

 

Low

 

 

Distribution per Limited Partner Unit

1st Quarter 2016

 

$

3.55

 

 

$

1.07

 

 

None.

2nd Quarter 2016

 

$

2.82

 

 

$

1.07

 

 

None.

3rd Quarter 2016

 

$

4.84

 

 

$

1.50

 

 

None.

4th Quarter 2016

 

$

8.33

 

 

$

3.84

 

 

None.

1st Quarter 2017

 

$

7.64

 

 

$

5.94

 

 

None.

2nd Quarter 2017

 

$

6.55

 

 

$

3.81

 

 

None.

3rd Quarter 2017

 

$

4.95

 

 

$

3.53

 

 

$0.0647 (declared August 11, 2017; paid August 31, 2017)

4th Quarter 2017

 

$

4.73

 

 

$

3.66

 

 

$0.0605 (declared November 9, 2017; paid November 30, 2017)

 

All subordinated units are currently held by Murray Energy. The principal difference between our common units and subordinated units is that subordinated unitholders are not entitled to receive a distribution from operating surplus until the holders of common units have received the minimum quarterly distribution (“MQD”) from operating surplus. The MQD is $0.3375 per unit for such quarter plus any cumulative arrearages of previously unpaid MQDs from previous quarters. Subordinated unitholders are not entitled to receive arrearages. The subordination period will end, and the subordinated units will convert to common units, on a one-for-one basis, on the first business day after the Partnership has paid the MQD for each of three consecutive, non-overlapping four-quarter periods ending on or after March 31, 2017, and there are no outstanding arrearages on the common units. Notwithstanding the foregoing, the subordination period will end on the first business day after the Partnership has paid an aggregate amount of at least $2.025 per unit (150.0% of the MQD on an annualized basis) on the outstanding common and subordinated units and the Partnership has paid the related distribution on the incentive distribution rights, for any four-quarter period and there are no outstanding arrearages on the common units.

 

Cash Distribution Policy

 

Our partnership agreement provides that our general partner will make a determination as to whether a distribution will be made, but our partnership agreement does not require us to pay distributions at any time or at any amount. To the extent the quarterly distribution is below the MQD, then common unitholders would accrue an arrearage equal to the shortfall amount to the MQD that would carry forward to future quarters and must be paid to common unitholders before any distributions from operating surplus to the subordinated unitholder is made. Given that quarterly distributions have been below the MQD beginning with the quarter ended December 31, 2015, arrearages have accrued to the benefit of common unitholders which shall be payable should future distributions be paid. However, there is no assurance as to the future cash distributions since they are dependent upon compliance with and restrictions within our various debt agreements, future earnings, cash flows, capital requirements, financial condition and other factors.

 

Our indebtedness resulting from the March 28, 2017 refinancing transactions have certain prepayment provisions that could require us to utilize a substantial amount of our annual excess cash flow to prepay outstanding borrowings based on satisfaction of specified net secured leverage ratios as defined under our debt agreements.  This excess cash flow prepayment requirement is therefore currently restrictive to our ability to pay distributions.  

 

Incentive Distribution Rights

 

Our incentive distribution rights (“IDRs”) are held by Murray Energy and Foresight Reserves. IDRs represent the right to receive an increasing percentage of quarterly distributions from operating surplus after the MQD and the target distribution levels (described below) have been achieved. Our IDRs may be transferred separately from any general partner interest, subject to restrictions in our partnership agreement. The IDR holders will have the right, subsequent to the subordination period and subject to distributions exceeding the MQD by at least 150% for four consecutive quarters, to reset the target distribution levels and receive common units

 

46

 

 


Percentage Allocation of Distributions from Operating Surplus

 

The following table illustrates the percentage allocation of available cash from operating surplus between the unitholders and the holder of our IDRs based on the specified target distribution levels. The amounts set forth under the column heading “Marginal Percentage Interest in Distributions” are the percentage interests of the IDR holders and the unitholders of any distributions from operating surplus we distribute up to and including the corresponding amount in the column “Total Quarterly Distribution Per Common Unit”. The percentage interests shown for our unitholders and the holders of the IDRs for the MQD are also applicable to quarterly distribution amounts that are less than the MQD.

 

The percentage interests set forth below assumes no application of arrearages on common units.

 

 

Total Quarterly Distribution
Per Common Unit

 

 

Marginal Percentage
Interest in Distributions

 

 

 

 

 

Unitholders

 

 

IDR Holders

 

Minimum quarterly distribution

$0.3375

 

 

 

100.0

%

 

 

 

First target distribution

Above $0.3375 up to $0.3881

 

 

 

100.0

%

 

 

 

Second target distribution

Above $0.3881 up to $0.4219

 

 

 

85.0

%

 

 

15.0

%

Third target distribution

Above $0.4219 up to $0.5063

 

 

 

75.0

%

 

 

25.0

%

Thereafter

Above $0.5063

 

 

 

50.0

%

 

 

50.0

%

 

Equity Compensation Plans

 

The information relating to our equity compensation plans required by Part II. “Item 5. Market for Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities” is incorporated by reference to such information as set forth in Part III. “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters” contained herein.

 

Unregistered Sales of Equity Securities

 

None.

 

Use of Proceeds from Registered Securities

 

None.

 

Issuer Purchases of Equity Securities

 

None.

 

47

 

 


Item 6. Selected Financial Data

 

The following tables set forth the selected historical consolidated financial data of the Partnership for each of the last five years and should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. Please read Part II. “Item 8. Financial Statements and Supplementary Data, Note 1–Organization and Basis of Presentation” for a discussion on the basis of presentation for the consolidated financial statements of the Partnership.

 

Period from April 1, 2017 through December 31, 2017

 

 

Period from January 1, 2017 through March 31, 2017  

 

 

For the Year Ended December 31,

 

 

 

 

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

(Successor)

 

 

(Predecessor)

 

 

(Predecessor)

 

 

(Predecessor)

 

 

(Predecessor)

 

 

(Predecessor)

 

 

 

 

 

(In Thousands, Except per Unit Data)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal sales

$

716,617

 

 

$

227,813

 

 

$

866,628

 

 

$

979,179

 

 

$

1,109,404

 

 

$

957,412

 

Other revenues

 

7,527

 

 

 

2,581

 

 

 

9,204

 

 

 

5,674

 

 

 

 

 

 

 

Total revenues

 

724,144

 

 

 

230,394

 

 

 

875,832

 

 

 

984,853

 

 

 

1,109,404

 

 

 

957,412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of coal produced (excluding depreciation, depletion and amortization)

 

367,844

 

 

 

117,762

 

 

 

423,995

 

 

 

509,170

 

 

 

449,905

 

 

 

360,861

 

Cost of coal purchased

 

 

 

 

7,973

 

 

 

13,541

 

 

 

17,444

 

 

 

18,232

 

 

 

2,163

 

Transportation

 

125,772

 

 

 

37,726

 

 

 

139,659

 

 

 

171,733

 

 

 

221,178

 

 

 

196,638

 

Depreciation, depletion and amortization

 

167,794

 

 

 

39,298

 

 

 

164,212

 

 

 

195,415

 

 

 

169,767

 

 

 

162,177

 

Contract amortization

 

1,408

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accretion on asset retirement obligations

 

2,179

 

 

 

710

 

 

 

3,376

 

 

 

2,267

 

 

 

1,621

 

 

 

1,527

 

Selling, general and administrative

 

23,555

 

 

 

6,554

 

 

 

25,265

 

 

 

31,357

 

 

 

33,683

 

 

 

32,295

 

Long-lived asset impairments

 

42,667

 

 

 

 

 

 

74,575

 

 

 

12,592

 

 

 

34,700

 

 

 

 

Transition and reorganization costs

 

 

 

 

 

 

 

6,889

 

 

 

21,433

 

 

 

 

 

 

 

Loss (gain) on commodity derivative contracts

 

2,607

 

 

 

1,492

 

 

 

23,752

 

 

 

(45,691

)

 

 

(76,330

)

 

 

(2,392

)

Other operating (income) loss, net (1)

 

(13,537

)

 

 

451

 

 

 

(22,161

)

 

 

(13,424

)

 

 

(2,837

)

 

 

(300

)

Operating income

 

3,855

 

 

 

18,428

 

 

 

22,729

 

 

 

82,557

 

 

 

259,485

 

 

 

204,443

 

Other expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

107,904

 

 

 

43,380

 

 

 

149,201

 

 

 

117,311

 

 

 

113,030

 

 

 

115,897

 

Debt restructuring costs

 

 

 

 

 

 

 

21,821

 

 

 

3,930

 

 

 

 

 

 

 

Change in fair value of warrants

 

 

 

 

(9,278

)

 

 

17,124

 

 

 

 

 

 

 

 

 

 

Loss on early extinguishment of debt

 

 

 

 

95,510

 

 

 

13,203

 

 

 

 

 

 

4,979