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Natural Resource Partners L.P. Reports First Quarter 2007 Results

05/03/2007
    Highlights:

    - Distributable cash flow of $28.3 million, down 17%

    - Revenues of $50.2 million, up 8%

    - Net income of $21.9 million, down 23% to $0.28 per unit

    - Positive outlook for the remainder of 2007, reaffirms guidance

HOUSTON, May 3 /PRNewswire-FirstCall/ -- Natural Resource Partners L.P. (NYSE: NRP; NSP) today reported distributable cash flow of $28.3 million, down from the $34.3 million reported for the first quarter 2006. Net income decreased to $21.9 million, or $0.28 per unit, for the first quarter of 2007, compared to $28.5 million, or $0.51 per unit, for the first quarter of 2006. Net income in the first quarter 2006 included a $2.2 million gain from the sale of timber assets. Although revenues were up 8%, the issuance of equity in the first quarter of 2007 for the Cline and Dingess-Rum acquisitions accounts for a significant portion of the difference in the net income per unit.

"NRP anticipated that the first quarter would be its weakest quarter of the year due to the start-up of the Cline operations in the Illinois Basin and Northern Appalachia. However, our results for this quarter were less than expected due to slower than anticipated development at Cline, together with tough operating conditions at a longwall mine on the Dingess-Rum property," said Nick Carter, President and Chief Operating Officer. "We believe that the operations we recently acquired will be significant contributors to NRP's future and we are reaffirming our current 2007 guidance for net income of $1.42 to $1.58 per unit. We will continue to monitor our lessees' production and sales prices during the second quarter and update our annual guidance if necessary."

                                   Highlights

                                             1Q07         4Q06         1Q06
                                    (in thousands except per ton and per unit)

    Coal Production:                        13,510       11,905       14,015
    Coal Royalty Revenues:                 $40,973      $35,213      $39,110
    Average coal royalty revenue per
     ton:                                    $3.03        $2.96        $2.79
    Total revenues:                        $50,207      $41,672      $46,528
    Net income:                            $21,881      $23,248      $28,524
    Average units outstanding in
     quarter:                               63,295       50,681       50,681
    Net income per unit:                     $0.28        $0.38        $0.51
    Distributable cash flow:               $28,343      $33,749      $34,300


    First Quarter 2007 Compared to First Quarter 2006

Total revenues increased 8% to $50.2 million for the first quarter of 2007, compared to $46.5 million reported for the same period last year.

First quarter 2007 coal royalty revenues increased 5% to $41.0 million from $39.1 million last year as the partnership continued to experience increased coal royalty revenues per ton in all regions. Coal royalty revenues increased due to a 9% improvement in the average coal royalty revenue per ton to $3.03 in the first quarter 2007 from $2.79 for the same period last year. These increases in price more than offset the 4% decrease in production volumes from last year's comparable quarter. Total production for the partnership was 13.5 million tons compared to 14.0 million tons last year. Central Appalachia increased due to acquisitions, while production in all other regions was down.

In the first quarter, the properties acquired in the Cline acquisition experienced delays while ramping up to full production. Similarly, one of the longwall mines acquired in the Dingess-Rum acquisition encountered difficult operating conditions in the first quarter, which contributed to lower than expected production. NRP anticipates that this mine will return to full operation. NRP remains confident that these projects will be large positive contributors to revenues through the rest of the year.

Aggregate royalties, coal processing fees, and transportation fees, all new lines of business for NRP, generated approximately $3.1 million in the first quarter of 2007. Coal processing and transportation revenues are expected to increase over the remainder of the year as additional production is forecasted, particularly from the Cline properties. Oil and gas revenues decreased from $1.7 million in the first quarter 2006 to $1.3 million in 2007, predominantly due to lease bonus payments received in the first quarter of 2006 on several new leases. Other revenues also decreased year-over-year due to a $2.2 million gain on the sale of timber properties reported during the comparable 2006 period.

Total expenses increased 46% to $21.8 million from $14.9 million for the first quarter 2006. General and administrative expenses increased to $6.6 million from $4.1 million due predominantly to accruals on long term incentive plans and additional staff added to handle NRP's latest acquisitions. Property, franchise and other taxes increased $0.9 million mainly due to taxes on properties acquired since last year, a significant portion of which are offset by reimbursements from our lessees which are recorded in revenues. Depreciation, depletion and amortization, a non-cash item, accounted for $3.9 million of the increase in total expenses.

Interest expense increased $3.7 million over last year to $7.3 million due to additional borrowings associated with acquisitions completed during the last year.

Acquisitions and Capital Structure

During the first quarter of 2007, NRP issued an additional 13,710,072 units and paid $12.7 million for property acquisitions. This increase in the number of units has had a dilutive effect on the first quarter 2007 results, but will become accretive as those properties increase production. NRP anticipates that these acquisitions will provide significant long-term growth potential.

Also during the quarter, NRP completed a private placement of $225 million of senior unsecured notes with a 10-year average life that fixed interest rates at 5.82% until 2024. Proceeds from the private placement were used to repay the revolving credit facility. With the issuance of new units in the first quarter, NRP has lowered its debt to total capitalization to 38% from 51% at December 31, 2006, rebalancing its debt to equity and strengthening its balance sheet.

Market Outlook

Coal royalty revenues from our Appalachian properties represented 90% of NRP's total coal royalty revenues for the quarter ended March 31, 2007, and thus a significant portion of NRP's total revenue is correlated with Appalachian coal prices. While Appalachian spot coal prices declined during 2006 with a relatively mild summer and higher utility stockpiles, NRP has not seen any negative impact on the royalty per ton that it received from its Appalachian properties in the first quarter due to the longer term sales contract structures of NRP's lessees.

"We have seen signs that the price environment in Appalachia has firmed up and will continue to move in a positive direction over the remainder of 2007. While year over year production was down, we saw a 13% increase in production this quarter from the fourth quarter 2006 and a $0.07 per ton increase in the average royalty revenue per ton," said Nick Carter. "There has been some curtailment in production in Central Appalachia and some planned moves of production from our properties to adjacent property owned by other parties, but this has more than been offset by our recent acquisitions. Over the course of the year, we do anticipate production increases on the Cline properties. "

A recent federal court decision in West Virginia has created some regulatory uncertainty in the coal industry in that state. Although one of the revoked permits related to an operation mining on reserves that NRP acquired in the Dingess-Rum acquisition, the federal court has ruled that NRP's lessee can continue to operate under its existing permits pending the reconsideration of these permits by the Corps of Engineers.

Distributions

On April 19, the partnership announced its fifteenth consecutive increase in its quarterly distribution to $0.455 per unit or $1.82 on an annualized basis, a 15% increase over the first quarter distribution last year. The distribution will be paid on May 14, 2007 to unitholders of record on May 1, 2007. Corbin J. Robertson, Jr., Chairman and Chief Executive Officer said, "This distribution reflects our positive forward view of the underlying fundamentals of our revenue base and our expectations for continued growth across our portfolio."

Natural Resource Partners L.P. is headquartered in Houston, TX, with its operations headquarters in Huntington, WV. NRP is a master limited partnership that is principally engaged in the business of owning and managing coal properties, and coal handling and transportation infrastructure in the three major coal producing regions of the United States: Appalachia, the Illinois Basin and the Powder River Basin. In addition, the partnership also manages aggregate reserves, oil and gas properties and timber assets across the United States. The common units are traded on the New York Stock Exchange (NYSE) under the symbol NRP and the subordinated units are traded on the NYSE under the symbol NSP.

For additional information, please contact Kathy Hager at 713-751-7555 or khager@nrplp.com. Further information about NRP is available on the partnership's website at http://www.nrplp.com.

Disclosure of Non-GAAP Financial Measures

Distributable cash flow represents cash flow from operations less actual principal payments and cash reserves set aside for scheduled principal payments on the senior notes. Distributable cash flow is a "non-GAAP financial measure" that is presented because management believes it is a useful adjunct to net cash provided by operating activities under GAAP. Distributable cash flow is a significant liquidity metric that is an indicator of NRP's ability to generate cash flows at a level that can sustain or support an increase in quarterly cash distributions paid to its partners. Distributable cash flow is also the quantitative standard used throughout the investment community with respect to publicly traded partnerships. Distributable cash flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities. A reconciliation of distributable cash flow to net cash provided by operating activities is included in the tables attached to this release. Distributable cash flow may not be calculated the same for NRP as other companies.

Forward Looking Statements

This press release may include "forward-looking statements" as defined by the Securities and Exchange Commission. Such statements include the 2007 outlook. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the partnership expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made by the partnership based on its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the partnership. These risks include, but are not limited to, decreases in demand for coal; changes in operating conditions and costs; production cuts by our lessees; commodity prices; unanticipated geologic problems; changes in the legislative or regulatory environment and other factors detailed in Natural Resource Partners' Securities and Exchange Commission filings. Natural Resource Partners L.P. has no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

                        -Financial statements follow-



                        NATURAL RESOURCE PARTNERS L.P.

                             OPERATING STATISTICS
                     (In thousands, except per ton data)

                                                    For the three months ended
                                                             March 31,
                                                        2007           2006
                                                            (Unaudited)

    Coal:
    Coal royalty revenues:
      Appalachia
       Northern                                        $2,588         $3,307
       Central                                         30,429         25,842
       Southern                                         4,039          5,484
          Total Appalachia                            $37,056        $34,633
      Illinois Basin                                    1,114          1,953
      Northern Powder River Basin                       2,803          2,524
           Total                                      $40,973        $39,110
    Sales volumes (tons):
      Appalachia
       Northern                                         1,283          1,732
       Central                                          9,291          8,195
       Southern                                         1,033          1,426
         Total Appalachia                              11,607         11,353
      Illinois Basin                                      502          1,162
      Northern Powder River Basin                       1,401          1,500
           Total                                       13,510         14,015
    Average royalty revenue per ton:
      Appalachia
       Northern                                         $2.02          $1.91
       Central                                           3.28           3.15
       Southern                                          3.91           3.85
          Total Appalachia                              $3.19          $3.05
      Illinois Basin                                     2.22           1.68
      Northern Powder River Basin                        2.00           1.68
           Total                                        $3.03          $2.79

    Aggregates:
    Production:                                         1,341             --
    Average base royalty per ton:                       $1.18             --




                        NATURAL RESOURCE PARTNERS L.P.

                      CONSOLIDATED STATEMENTS OF INCOME
                     (In thousands, except per unit data)

                                                         For the three months
                                                                ended
                                                               March 31,
                                                            2007        2006
                                                              (Unaudited)
    Revenues:
      Coal royalties                                     $40,973     $39,110
      Aggregate royalties                                  1,745          --
      Coal processing fees                                   918          --
      Transportation fees                                    461          --
      Oil and gas royalties                                1,258       1,719
      Property taxes                                       2,228       1,749
      Minimums recognized as revenue                         454         371
      Override royalties                                   1,018         303
      Other                                                1,152       3,276
            Total revenues                                50,207      46,528
    Operating costs and expenses:
      Depreciation, depletion and amortization            11,752       7,853
      General and administrative                           6,634       4,115
      Property, franchise and other taxes                  3,101       2,245
      Transportation costs                                    43          --
      Coal royalty  and override payments                    286         691
            Total operating costs and expenses            21,816      14,904
    Income from operations                                28,391      31,624
    Other income (expense)
      Interest expense                                    (7,327)     (3,618)
      Interest income                                        817         518
    Net income                                           $21,881     $28,524
    Net income attributable to:
      General partner(1)                                  $2,819      $2,095
      Other holders of incentive distribution
       rights(1)                                          $1,283        $821
      Limited partners                                   $17,779     $25,608
    Basic and diluted net income per limited partner
     unit:
      Common                                               $0.28       $0.51
      Subordinated                                         $0.28       $0.51
      Class B                                              $0.28        $ --
    Weighted average number of units outstanding:
      Common                                              50,893      33,651
      Subordinated                                        11,354      17,030
      Class B                                              1,048          --

    (1) Other holders of the incentive distribution rights (IDRs) include the
        WPP Group at 25% and NRP Investment LP at (10%).  The net income
        allocated to the general partner includes the general partner's
        portion of the IDRs (65%).



                        NATURAL RESOURCE PARTNERS L.P.

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)

                                                        For the three months
                                                               ended
                                                              March 31,
                                                          2007         2006
                                                             (Unaudited)
    Cash flows from operating activities:
      Net income                                        $21,881      $28,524
      Adjustments to reconcile net income to net
       cash provided by operating activities:
         Depreciation, depletion and amortization        11,752        7,853
         Non-cash interest charge                            94          100
         Gain from sale of timber assets                     --       (2,176)
      Change in operating assets and liabilities:
         Accounts receivable                             (4,072)          (4)
         Other assets                                       221          268
         Accounts payable and accrued liabilities           198           37
         Accrued interest                                  (434)       1,906
         Deferred revenue                                 3,901         (632)
         Accrued incentive plan expenses                 (3,195)         371
         Property, franchise  and taxes payable             397          403
              Net cash provided by operating
               activities                                30,743       36,650
    Cash flows from investing activities:
      Acquisition of land, plant and equipment, coal
       and other mineral rights                         (13,972)     (35,000)
      Current payable assumed in business
       combination                                        1,154           --
      Proceeds from sale of timber assets                    --        3,932
      Cash placed in restricted accounts                 (6,242)          --
              Net cash used in investing activities     (19,060)     (31,068)
    Cash flows from financing activities:
      Proceeds from loans                               237,000       50,000
      Deferred financing costs                           (1,107)          --
      Repayment of loans                               (226,192)     (15,000)
      Distributions to partners                         (34,126)     (20,905)
      Contribution by general partner                     2,315           --
              Net cash provided by (used in)
               financing activities                     (22,110)      14,095
    Net increase (decrease) in cash and cash
     equivalents                                        (10,427)      19,677
    Cash and cash equivalents at beginning of period     66,044       47,691
    Cash and cash equivalents at end of period          $55,617      $67,368

    Supplemental cash flow information:
      Cash paid during the period for interest           $7,648       $1,600
    Non-cash investing activities:
      Units issued in business combinations            $343,622         $ --
      Liability assumed in business combination           1,950




                        NATURAL RESOURCE PARTNERS L.P.

                         CONSOLIDATED BALANCE SHEETS
                                (In thousands)

                                    ASSETS

                                                        March 31, December 31,
                                                             2007      2006
                                                              (Unaudited)
    Current assets:
     Cash and cash equivalents                             $55,617   $66,044
     Restricted cash                                         6,242        --
     Accounts receivable, net of allowance for doubtful
      accounts                                              27,113    23,357
     Accounts receivable -- affiliate                          337        21
     Other                                                     791     1,411
       Total current assets                                 90,100    90,833
    Land                                                    24,522    17,781
    Plant and equipment, net                                49,069    29,615
    Coal and other mineral rights, net                   1,012,948   798,135
    Intangible assets, net                                 107,027        --
    Loan financing costs, net                                3,223     2,197
    Other assets, net                                        1,207       932
       Total assets                                     $1,288,096  $939,493

                       LIABILITIES AND PARTNERS' CAPITAL

    Current liabilities:
      Accounts payable and accrued liabilities              $3,837    $1,041
      Accounts payable -- affiliate                            691       105
      Current portion of long-term debt                      9,542     9,542
      Accrued incentive plan expenses -- current portion     3,224     5,418
      Property, franchise and other taxes payable            4,727     4,330
      Accrued interest                                       3,412     3,846
              Total current liabilities                     25,433    24,282
    Deferred revenue                                        24,555    20,654
    Asset retirement obligation                                 39        --
    Accrued incentive plan expenses                          3,578     4,579
    Long-term debt                                         465,099   454,291
    Partners' capital:
      Common units                                         641,357   338,912
      Subordinated units                                    81,965    83,772
      Class B units                                         27,825        --
      General partner's interest                            17,873    12,138
      Holders of incentive distribution rights               1,110     1,616
      Accumulated other comprehensive loss                    (738)     (751)
              Total partners' capital                      769,392   435,687
              Total liabilities and partners' capital   $1,288,096  $939,493



                        NATURAL RESOURCE PARTNERS L.P.

             RECONCILIATION OF UNAUDITED GAAP FINANCIAL MEASURES
                        TO NON-GAAP FINANCIAL MEASURES
                                (In thousands)

                                                    For the three months ended
                                                               March 31,
                                                          2007          2006
                                                             (Unaudited)


    Cash flow from operations                          $30,743       $36,650
    Less reserves for future principal payments         (2,400)       (2,350)
    Distributable cash flow                            $28,343       $34,300

SOURCE Natural Resource Partners L.P.

CONTACT: Kathy Hager of Natural Resource Partners L.P., +1-713-751-7555, khager@nrplp.com

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