In a May regulatory filing, NRP disclosed it sued Foresight on April 1 in Macoupin County, Illinois, Circuit Court because Foresight’s Macoupin Energy LLC subsidiary “failed to comply with the terms of its coal mining, rail loadout and rail loop leases by incorrectly recouping previously paid minimum royalties.” Macoupin Energy operates the Shay No. 1 continuous miner operation in Macoupin County. The mine south of Carlinville previously was known as Monterey No. 1 and owned by Exxon Coal USA. It was sold to Macoupin Energy in 2009.
According to the suit, Foresight’s failure to properly calculate its recoupable balance and to make payments in accordance with the lease agreements in the third and fourth quarters of 2015 and the first quarter of 2016 resulted in a $4.7 million negative cash impact to NRP. While NRP said it intends to pursue the legal claim, it added that “a valuation allowance for the receivable amount has been recorded given the early stage of this ongoing litigation. It is possible that the partnership’s current estimate of the valuation allowance related to this matter could change, perhaps materially, in the future.”
Various companies controlled by Chris Cline, including Foresight, lease coal reserves from NRP, and NRP also leases coal transportation assets to them for a fee. Cline, individually and through another affiliate, Adena Minerals LLC, owned a 31% interest in NRP’s general partner, as well as approximately 500,000 of NRP’s common units as of March 16.
In the pending November suit, NRP claimed Foresight breached their contract through a “wrongful declaration of force majeure” at Deer Run, which has produced coal for only a few weeks since March 26, 2015, when elevated levels of carbon monoxide were detected hundreds of feet below ground. After receiving approval from the federal Mine Safety and Health Administration, Foresight temporarily sealed the mine earlier this year in an attempt to shut off oxygen to a combustion event apparently occurring in the mine.
NRP said revenue from Foresight totaled $10.1 million, or 9.8%, of its total revenue in the first quarter of 2016. The Foresight revenue is spread out over a number of different mining operations and leases. NRP reported net income of $23 million, or $1.88/unit, in the January-March period, up from net income of $17.1 million, or $1.40/unit, a year earlier.