Alliance Resource Partners (ARLP) Q4 2022 Earnings Call Transcript

Alliance Resource Partners (ARLP -0.33%)
Q4 2022 Earnings Call
Jan 30, 2023, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Alliance Resource Partners LP fourth quarter 2022 earnings conference call. [Operator instructions] It is now my pleasure to introduce your host, Mr. Brian Cantrell, senior vice president and chief financial officer. Thank you, sir.

Please go ahead.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Thank you, Donna, and welcome, everyone. Earlier this morning, Alliance Resource Partners released its fourth quarter and full year 2022 financial and operating results. And we'll now discuss those results, as well as our perspective on current market conditions and outlook for 2023. Following our prepared remarks, we'll open the call to answer your questions.

Before beginning, a reminder that some of our remarks today may include forward-looking statements subject to a variety of risks, uncertainties, and assumptions contained in our filings from time to time with the Securities and Exchange Commission, and are also reflected in this morning's press release. While these forward-looking statements are based on information currently available to us, if one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect, actual results may vary materially from those we projected or expected. And in providing these remarks, the partnership has no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law to do so. And finally, we'll also be discussing certain non-GAAP financial measures today.

Definitions and reconciliations of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures are contained at the end of ARLP's press release, which has been posted on our website and furnished to the SEC on Form 8-K. Now, with the required preliminaries out of the way, I'll begin with a review of our record results for the '22 fourth quarter and full year, and then I'll turn the call over to Joe Craft, our chairman, president, and chief executive officer, for his comments. 2022 is certainly an interesting year with supply chain difficulties, transportation challenges, and inflationary pressures driving operating costs significantly higher. While Russia's invasion of Ukraine impacting global commodity flows, post-pandemic demand increases, and global governmental policies like commodity prices to historically high levels, the Alliance team responded to this turbulent market exceptionally well, achieving record full year 2022 revenues, net income, and EBITDA.

And the end of the year, our results for the 2022 quarter were also strong as ARLP delivered record coal sales and oil and gas royalty revenues and significantly higher net income and EBITDA compared to the 2021 quarter. Looking more closely at the 2022 quarters compared to the 2021 quarter, coal sales volumes increased 2.3%, while royalty volumes for oil and gas minerals increased 42.6%, as production on ARLP's legacy properties outperformed our expectations and combined with the new volumes from the previously announced minerals acquisitions in September and October of 2022. Coal production declined 3.5% from the 2021 quarter, primarily due to an unplanned outage at our Hamilton longwall mine that I will discuss in more detail in a moment. As a result, our coal royalty funds -- tons, excuse me, fell 8.5%.

We saw higher commodity prices during the 2022 quarter with coal sales price per ton increasing 50.1%, oil and gas prices climbing 7.2% per BOE, and coal royalty revenue up 1.5% per ton, all of this compared to the 2021 quarter. For the 2022 quarter, segment adjusted EBITDA expense per ton sold was $40.71, up 20.2% versus the 2021 quarter. And on a full year basis was $36.73 per ton, up 21.5% versus 2021. Our increased operating expenses in the 2022 quarter reflected a number of factors, including higher sales-related expenses as a result of higher price realizations and coal sales volumes; inflationary pressures, particularly on wages; raw materials; petroleum-related supplies, such as resins and lubricants; higher freight cost passed on to us from our suppliers; as well as $6.5 million of noncash accruals for various long-term liabilities, such as workers compensation and asset retirement obligations at our nonoperating mines.

Also, specific to the 2022 quarter, the thermal event at our Hamilton mine resulted in an unexpected outage that lasted approximately four weeks. The responses by our mine rescue team members and our miners were exceptional. Our personnel were kept safe with no injuries occurring, no equipment was damaged, and we worked closely with federal and state regulators. Mining operations are allowed to return to normal production levels in December 2022.

However, we did incur approximately $5.8 million of third-party expenses directly related to the event, and we lost approximately 500,000 tons of production during the quarter. Absent certain noncash approvals and third-party expenses associated with the Hamilton event, the Illinois Basin segment-adjusted EBITDA expense per ton for the 2022 quarter would have been more in line with the percentage increase we experienced in the Appalachian region for the 2022 quarter. Our net income and EBITDA rose sharply in the 2022 quarter, increasing 313.8% and 125.7%, respectively, over the 2021 quarter. These increases reflect higher sales volumes and price realizations, which more than offset the inflationary pressures and other impacts on costs that are previously described.

2022 full year results were also significantly higher compared to 2021. Coal sales and production volumes increased 3.3 million tons, up 10.3% and 10.2%, respectively, driving year-over-year wholesales revenues higher by $715.3 million or 51.6%. Higher coal sales revenues, combined with a $63.4 million increase in oil and gas royalty revenue, drove ARLP's 2022 total revenues up by 53.3% to a record $2.4 billion. Net income increased 224% to $577.2 million, and EBITDA rose 96.3% to $940.2 million, both record results.

During 2022, Alliance generated $604.2 million of free cash flow before growth investments, returned $196.3 million to unit holders through quarterly cash distributions, while reporting coverage of 3.45 times for the year, and we reduced debt and financing releases by $16.9 million. Exiting 2022, our balance remained strong. ARLP's total leverage ratio improved to 4.5 times, trailing adjusted EBITDA. And with 296 million of cash and cash equivalents, our net leverage decreased to an all-time low of 0.14 times.

Our liquidity also increased to $762.8 million at year end. As we disclosed earlier this month, we successfully closed our new revolving credit facility and term loan A financing. This transaction was very well received in the market with oversubscribed demand, reflecting the positive fundamentals of our business and the strength of our balance sheet. Our new $425 million revolving credit facility positions us well to manage ARLP's day-to-day operations, while the $75 million term loan proceeds allow us to turn out the capital associated with infrastructure projects as we expand into new reserve areas at our River View and Tunnel Ridge operations.

The capacity we obtained with this new financing enables us to use cash generated from operations to support our capital allocation plans, including increased unit holder distributions, potential repurchase of our common units and senior notes, and positioning to capitalize on growth opportunities in the future. To that point, we announced today that the board authorized an increase to our existing unit repurchase program. The program was previously established in May 2018 and had 6.5 million of remaining available capacity at year-end. The expanded program authorizes ARLP to repurchase up to $100 million of its outstanding limited partner common units, further increasing our flexibility in returning cash to unit holders.

Future unit repurchases will be subject to ongoing board review and will be based on a number of factors, including ARLP's financial and operating performance and other capital requirements, as well as future economic, business and market conditions. The unit repurchase program has no time limit, and ARLP may repurchase units from time to time in the open market or in privately negotiated transactions. The unit repurchase program authorization does not obligate ARLP to repurchase any dollar amount or number of its units, and repurchases may be commenced or suspended from time to time without prior notice. Now, turning to our initial guidance detailed in this morning's release.

2023 is shaping up to be another strong year at ARLP. We anticipate our overall coal sales volumes in 2023 to be in a range of 36 million to 38 million tons, an increase at the midpoint of 4% over 2022. Supported by our highly committed and priced coal contract book, we are currently anticipating 2023 coal price realizations in the range of $67 to $69 per ton, an increase of 13% to 17% compared to 2022. Currently, 34.7 million tons are already priced and committed for '23, and ARLP has secured commitments and pricing for another 23.7 million tons in 2024.

With these commitments, we continue to believe that they ARLP should benefit from increased coal sales volumes and pricing over the next several years. On the cost side, while we have recently begun to see some moderation in the inflationary factors we experienced in 2022, we currently anticipate labor pressures and higher sales-related expenses will continue to add to our costs in 2023. From a comparative standpoint, recall that inflation in 2022 Built dramatically during the first half of the year before peaking in the third quarter. And as a result, we expect segment-adjusted EBITDA expense per ton to be higher during the first half of '23 compared to 2022 levels before moderating in the back half of the year.

For the 2023 full year, segment-adjusted EBITDA expense is anticipated to increase by approximately 10% to 15% over 2022 full year levels to a range of $40.25 to $42.25 per tons sold. One other item I would highlight is on anticipated capital expenditures in 2023. Not surprisingly, inflationary pressures are expected to impact maintenance capital this year as we have previously discussed. And capex this year and next is expected to be higher as we move into a new reserve area at our River View mine.

Reflecting these impacts, we currently anticipate capital expenditures to be in a range of $400 million to $450 million from $286 million in 2022. This includes maintenance capital ranging between $350 million to $390 million. Additionally, as we announced earlier this morning, 2023 guidance includes the benefits of our acquisition of an additional 2,682 net oil and gas royalty acres in the Permian Delaware Basin. The cash purchase price of $72.3 million for this acquisition will be funded with available cash and is expected to close within the next 30 days with an effective date of January 1, 2023.

Since this acquisition involves an entity owned by Mr. Craft, terms of the transaction were approved by the board and its conflicts committee, which is comprised entirely of independent directors. This acquisition not only further enhances our existing high-quality Permian royalty portfolio but is expected to add approximately 250,000 total barrel of oil equivalent in 2023, weighted 67% toward oil and NGLs, and will be immediately accretive to cash flow. Before I turn the call over to Joe, let me take just a moment to comment on my upcoming retirement that we announced last March.

I am extremely proud to have been a part of this incredible organization that Joe started 26 years ago and of what ARLP has grown to become. As you know, our vice president of corporate finance and treasurer, Cary Marshall, will be assuming the CFO role effective April 1st. And I can't think of anyone more capable and prepared than Cary. It has been an honor and a pleasure working with my colleagues at Alliance, our investors, bankers, and analysts.

The future at ARLP is bright, and I look forward to following closely as a loyal, interested investor for many years in the future. With that, I'll turn the call over to Joe for comments on the market and his outlook for ARLP. Joe?

Joe Craft -- Chairman, President, and Chief Executive Officer

Thank you, Brian, and good morning, everyone. You know, Brian, you know, please let me express my heartfelt appreciation to you for your service and commitment to ARLP for the nearly two decades you have been with us. I appreciate everything you have done for me and our partnership and wish you continued success and happiness in the next chapter of your life. I also want to echo your observations that we have the best possible replacement for him, for you, in Cary Marshall.

Cary has been a critical contributor to ARLP's success from the beginning, having been closely by my side since 1994 when he joined the coal group as a manager of financial planning. Thank you, Brian, and congratulations, Cary.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Thanks, Joe.

Joe Craft -- Chairman, President, and Chief Executive Officer

I want to begin my comments this morning by thanking the entire Alliance organization for their hard work and dedication since the pandemic began in 2020. The challenges have been unprecedented, and their resilience and determination to not only persevere but to thrive need to be recognized. Through their efforts, ARLP delivered record financial results in 2022. I'm extremely proud of all that has been accomplished and thankful for the unwavering focus of our teams on creating long-term value for all of our stakeholders.

Now, let me share some thoughts on the state of the industry and our strategy for growth and value creation going forward. As Brian mentioned in his opening remarks, 2022 was a historic year for ARLP, but it was also a year that emphasized the importance of keeping coal-fired generation in the mix for years to come, providing a reminder for the need to value energy security and resilience for our nation and nations around the world. During the quarter, the U.S. experienced another major event with the arrival of Winter Storm Elliott that put an exclamation point on this fact, consistent with what we have talked about on all of our earnings calls this year.

Winter Storm Elliott brought severe cold across much of the continental U.S., straining the grid in a way that has become all too common in recent years. During the storm, electricity demand soared as natural gas wells froze, pipeline deliveries were constrained, and renewable sources were unable to respond with significance, resulting in severe price spikes for consumers in many states. As tragic as the storm's impact was, let me repeat, it was merely the latest highlight of the need for a diverse mix of energy sources and, in particular, the vital role coal plays. This was evidenced by the fact that the U.S.

coal-fired generation in December was at a three-year high despite the retirement of almost 28 gigawatts of coal-fired generating capacity nationwide over that same three-year period. As you heard repeated over the years, and it is still true today, coal keeps the lights on, especially at times when we need it most. Policy decisions continue to challenge our industry. But events like Winter Storm Elliott and the not-too-distant Winter Storm Uri, which devastated many lives and homes in Texas, reinforce the urgency and need for an all-of-the-above strategy, embracing energy security, reliability, and affordable electricity.

The past forced requirements of a significant portion of the country's coal-fired generation has exposed the grid, especially in the regions that comprise our primary market, where many utilities recently have reported delay in previously announced coal plant retirements for several years. As the nation continues to embark on its transition of energy and related infrastructure, we believe ARLP can play a vital role in the conversation. And any changes to the U.S. power grid will create opportunities for ARLP to leverage long-standing relationships with electric utilities, regulators, and other customers to create additional avenues for growth, while at the same time having the opportunity to rely on the coal plants we serve until we can responsibly get there.

Again, we do not view our country's future energy needs as an either/or solution, but an and solution, which we will continue to advocate and support as we continue to highlight the reality of the situation. Now, turning to the current market and commodity pricing environment. U.S. natural gas prices continue their decline heading into the new year with the Henry Hub spot price down sharply this month.

A warmer-than-usual January, builds in underground storage of natural gas, and the Freeport LNG export terminal remaining offline are all factors contributing to the weakness in near-term pricing. Following natural gas prices in the middle of winter tend to increase the risk of lower-than-expected coal burn, which could cause coal stockpiles to grow faster than anticipated. However, Eastern U.S. coal pricing has not been meaningfully impacted so far since we, along with most of our competitors, are either fully committed or have very little inventory available.

This is evidenced by higher year-end co-inventory of 500,000 tons, of which 200,000 tons were staged for export in early 2023. Our planned January shipments are on schedule, keeping our inventories at relatively low levels. Internationally, a number of factors are impacting global energy trade routes and, in our view, will continue to drive higher demand and pricing in the back half of 2023 and for several years to come, if not permanently. Our primary trading partners for thermal coal in Europe are faced with the consequences of losing roughly 40 million tons per year of Russian coal imports for power generation, which resulted in skyrocketing prices in 2022.

While mild weather so far this winter in Europe has resulted in API 2 prices easing from recent peaks during the last year, we expect them to rebound sometime in mid-year 2023. Meanwhile, China's ban on imports of Australian coal is slowly being relaxed, putting additional pressure on European supply. Three Chinese power generators and a steel maker were recently cleared by their regulators to buy Australian coal. It is believed easing of the ban will continue to broaden, allowing other Chinese entities to pursue Australian thermal and metallurgical coal.

East Europe continues to replace Russian supply, and Australian supply becomes more competitive as China's economy reopens. We believe coal demand will grow as European stockpiles will need to be replenished ahead of next winter and extend further into 2024. Again, we expect this increase in demand will lift oil, gas, and coal prices for this year. Turning to our own book and guidance, 94% of our coal sales are priced in committed in 2023, which includes 3.3 million tons for export markets, giving us strong visibility and certainty into our 2023 guidance.

Of our roughly 2.3 million tons of actual coal this year, assuming production of 37 million tons, which is at the midpoint of our guidance, we expect at least one-half will be sold into the export market with the balance to either go to the export or domestic market as pricing dictates. Even though we were guiding for higher cost, as Brian mentioned, we expect favorable market forces in our current coal sales commitments will drive top-line growth that should more than offset these inflationary pressures, as margins are expected to expand to record levels in 2023. Now, turning to our capital allocation priorities, our primary focus is to provide well-covered distributions and attractive returns to our unit holders over the long term. Last week, we announced that our board approved a 40% increase in our quarterly distribution, equating to an annualized rate of $2.80 per unit.

We elected to declare a quarterly distribution increase to a level that we expect to maintain throughout the year as opposed to smaller increments each quarter. This was based on our competence and high visibility in 2023 and 2024, expected cash flows, committed tons, and strong financial position. After distributions, we will continue to support our collaborations, funding appropriate maintenance capital requirements and investing in high-return efficiency projects with near-term paybacks that maintain our low-cost competitive advantage. Thereafter, Alliance's robust cash flow generation uniquely positions us to pursue attractive investments that meet the evolving energy needs of tomorrow and are consistent with our proven track record to date, including investments in oil and gas royalties as evidenced by the Permian Basin acquisition announced today.

We took the next step in our diversification strategy in early 2022, with three energy transition investments totaling $87 million in outstanding commitments. In September, we hired a dedicated team of leaders to join our new ventures group to continue these efforts of identifying, evaluating, and executing commercial opportunities beyond coal and oil and gas royalties. The team is focused on highly strategic investments that allow ARLP to leverage its core competencies and relationships with the electric utilities, industrial customers, and federal and state governments. As we embark on this new journey, we will maintain a disciplined and process-oriented approach to allocating capital.

Absent available opportunities to invest in these businesses, we will continue to maintain flexibility, evaluate other high-return uses of cash, which, as Brian noted, may include redeeming a portion of our senior notes outstanding, unit buybacks, as well as providing well-covered cash distributions. In closing, I'm very proud of ARLP's 2022 record levels of revenues, net income, and EBITDA, while, at the same time, equally excited about the opportunities in front of us. Our operations are running well, our co-contract book is heavily committed in very attractive levels, and our financial position has never been stronger. Looking forward, we believe ARLP is well positioned to deliver solid growth and attractive cash returns for our unit holders in 2023 and beyond.

That concludes our prepared comments, and I will now ask the operator to open the call for questions.

Questions & Answers:

Operator

[Operator instructions] Today's first question is coming from Mark Reichman of Noble Capital Markets. Please go ahead.

Mark Reichman -- Noble Capital Markets -- Analyst

Good morning, and thank you for taking my question.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Hi. Good morning, Mark.

Mark Reichman -- Noble Capital Markets -- Analyst

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

Joe Craft -- Chairman, President, and Chief Executive Officer

So, the other unit was for the Gibson mine. And so, we have added the unit, and it's getting a staff for one shift. We've got the second shift yet to be deployed, and that's anticipated to come online sometime in the second quarter of this year. So, back to the Illinois Basin versus the Appalachia, you know, most of our Appalachia production is targeted for the export market that we have that's unsold.

And I'd say, of the unsold position, about half is Illinois Basin, and half of it is for Appalachia. And so, we do have a flexibility in Illinois Basin to either sell that tonnage, either domestically or the export market, depending on what the market pricing will be. You know, currently, there's really not much activity in the market. We are seeing more inbound opportunities from the export market than we are domestically, you know, given the warm weather and the inventory build that the utilities did for coal in the fourth quarter.

So, it's hard to answer specifically your question at the moment. I mean, we believe that, in the back half of the year, most of our customers still have an open position. And there will be requests for additional tons, you know, weather-dependent -- more likely for the rest of the winter, as well as the summer. So, again, most of our book is pretty much so for the first half.

And our open position is really opening up in the second half when we do see favorable markets compared to what we're seeing at the current moment in time.

Mark Reichman -- Noble Capital Markets -- Analyst

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

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Hey, Mark. I'll give you some aggregate statistics. At the end of 2022, we had 12,833 producing wells on our acreage, which was an increase from the year-end 2021 level of 2,661 wells. We currently have 67 wells -- or at the end of the year, we have 67 wells running on our acreage, an increase of 35 over year-end 2021 levels.

And permitted locations, we currently have -- or at the end of the year, we have 779 total permitted locations on our acreage with 923 wells being drilled and 8,130 being completed.

Mark Reichman -- Noble Capital Markets -- Analyst

OK, great. Well, thank you very much.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

You bet.

Operator

Thank you. The next question is coming from Nathan Martin of the Benchmark Company. Please go ahead.

Nate Martin -- The Benchmark Company -- Analyst

Hey, good morning, Joe, Brian. Thanks for taking the questions. Great to see a significant court increase in the distribution. Heard those comments about how you just, you know, just knock it out on one big chunk, and you can kind of see that flattish throughout the year.

I had a question related to the target. I think in the past, you guys have mentioned around a 30% target payout. Is that still the case? Any conversations going on with the board about adjusting that level? And then, any thoughts on the target distribution coverage ratio as we look ahead? Or should we still just think about this more as a target payout that would fluctuate depending on cash generation?

Joe Craft -- Chairman, President, and Chief Executive Officer

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

Nate Martin -- The Benchmark Company -- Analyst

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

Joe Craft -- Chairman, President, and Chief Executive Officer

So, the committed tons are all fixed price. I mean, they're all prices committed, so we know what the price is. They have been factored in to our guidance. Our UI production, you know, the tons we have opened to the market, you know, again, we projected what we believe the market is.

We think that, again, based on our view of where the market's going to be in 2023, that we can definitely achieve those levels. And right now, they're sort of priced at the midpoint of the guidance we gave you when you factor in both the committed and our UI price situation. I think the volume is depending on, you know, the economy. I believe and most people believe that China's reopening has not been factored into the market.

I believe it's going to happen. And I think that gives us confidence that the second half of the year is going to be very supportive of the export market that will, I mean, sort of set the standard of where the pricing is going to be when we start making decisions for sale around sold coal.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

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

Nate Martin -- The Benchmark Company -- Analyst

So, Brian, by firm-up in the back half the year, you're thinking pricing increases kind of, you know, move throughout the year from the first half and the second half. That's what you're saying, or I'm misunderstanding that?

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Yes. Yes.

Nate Martin -- The Benchmark Company -- Analyst

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

Brian Cantrell -- Senior Vice President, Chief Financial Officer

On shipping, we obviously have the normal seasonal impacts of miners, vacation holidays, etc. We do have more longwall moves scheduled for 2023. Last year, we had a total of six. This year, we have a total of eight.

I believe we have a longwall move scheduled in the first quarter at both Hamilton and Tunnel Ridge -- oh, I'm sorry, two at Tunnel Ridge in the first half -- the first quarter of this year. So, after that, it will be spread out over the balance of the year. You know, I would believe that our deliveries are going to be fairly consistent in the first and second quarters. And then, as we look up the rest of our open position, the back half of the year should remain strong as well.

Joe Craft -- Chairman, President, and Chief Executive Officer

Yeah. So, as Gibson -- as the second unit comes on in the second quarter, you'll see that bump up for the third and fourth quarters.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Right.

Joe Craft -- Chairman, President, and Chief Executive Officer

And you see that when you look at the sequential quarter fourth quarter, you can -- you know we had the impact at Hamilton of about 0.5 million tons. So, as you think about the first couple of quarters, it should be similar to the sequential quarter in the first half -- you know, the first half of the year, and then the second half slightly higher for that second unit at Gibson.

Nate Martin -- The Benchmark Company -- Analyst

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

Joe Craft -- Chairman, President, and Chief Executive Officer

Yeah. There may -- you may not get the full amount back into the second quarter due to the number of longwall moves we got in the first quarter, but it's pretty close.

Nate Martin -- The Benchmark Company -- Analyst

Got it. Really appreciate that color. And then, just finally on capex guide, and I'll get back in the queue. A little bit higher than expected.

It looks like '22 capex came in a little lower than your updated guidance, many items that kind of carry forward, incorporated within '23 full year guidance. And then, it looks like growth in maintenance grew about 100 million -- excuse me, maintenance grew roughly 100 million year over year. Assuming again, that's the main driver of the year over year guidance increase. But could you give a little bit more color, maybe, what's included in the growth piece as well? Thanks.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

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

And 2023, we have an occurrence of more rebuilds during this particular point in time than we've seen recently.

Nate Martin -- The Benchmark Company -- Analyst

Got it. Appreciate that, Brian. Thank you, guys, both, for your thoughts and time. And, Brian, again, congratulations on the upcoming retirement.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Appreciate that, Nate. Thank you.

Operator

Thank you. The next question is coming from Dave Storms of Stonegate. Please go ahead.

Dave Storms -- Stonegate Capital Partners -- Analyst

Good morning. Thank you for taking my question. Just wondering if you could give a little more color as to what you're seeing on transportation expenses as inflation starts to turn a corner and specifically just outside of any seasonal moves?

Joe Craft -- Chairman, President, and Chief Executive Officer

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

I'm not sure I understood your second part of your question.

Dave Storms -- Stonegate Capital Partners -- Analyst

I think that covered it already. I appreciate it.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

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

Joe Craft -- Chairman, President, and Chief Executive Officer

Except for export.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

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

Dave Storms -- Stonegate Capital Partners -- Analyst

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

Joe Craft -- Chairman, President, and Chief Executive Officer

We believe that that will continue to be there. You know, there's a lot depends on several decisions that they make. We do think that as you move toward the end of '24, end to '25, there may be opportunity for them to get more LNG. But then, into their country, you know, they're trying to move to renewables, but they've opened up their own coal facilities.

They've opened up coal plants. So, if you look at in addition to the Russian supply, we think there's like 8 million to 10 million tons of added demand in 2023 for coal plants that they've opened to meet their energy needs. How long those stay online? It is hard to know. But based on our 4.4 million tons or so that we're going to sell in the export market, we believe that there is more than plenty of opportunities for that to sustain itself, if not grow.

You know, if you go back before the pandemic, we were shipping at a 12 million-ton rate. So, I think not sure we'll get back to that level, but there is opportunity for us to grow just with the demand that we've seen over the last six years or so. And so, we don't need a lot of growth. We just need stability, and we believe that with our low-cost operations, we can compete in that global economy in the 4.5 million to, say, 7.5 million, 8 million tons over the next three to four years if there's not alternatives in the domestic market.

Dave Storms -- Stonegate Capital Partners -- Analyst

Perfect. Thanks, guys.

Operator

Thank you. The next question is coming from David Marsh of Singular Research. Please go ahead.

David Marsh -- Singular Research -- Analyst

Good morning. Thank you, guys. Congratulations on the quarter. Also, Brian, congrats on the retirement.

And, Cary, congrats on the promotion.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Thank you. Appreciate that.

David Marsh -- Singular Research -- Analyst

So, just quickly one housekeeping question. Brian, are you going to be staying on through the 10-K filing. And do you have kind of a targeted date in mind when you'll get the K filed?

Brian Cantrell -- Senior Vice President, Chief Financial Officer

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

David Marsh -- Singular Research -- Analyst

Got it. Got it. And then, just -- I was intrigued by the acquisition activity and the comments regarding another one. I was wondering if you guys could, perhaps, kind of highlight some of your high-level criteria.

I'm very encouraged by the fact that it sounds like you're going to be cash flow accretive immediately on this one that you just closed. And I just wanted to know if you could give us a little bit more color on your criteria when evaluating acquisitions.

Joe Craft -- Chairman, President, and Chief Executive Officer

We have certain underwriting standards not only for oil and gas, but then, we are very focused on having results that will give us risk-adjusted returns that will be more longer term in nature for our unit holders. So, our return thresholds for this particular acquisition, probably, you know, obviously, have been consistent with the past. We've committed to the oil and gas group royalty segment that we will allow them to reinvest whatever cash flow they generate on an EBITDA basis the prior year. So, they have capacity for another 50 million or so beyond the investment we made that we announced today.

I'm hoping that some people will want to sell their gas at what current prices are. So, that could give us some opportunities there. I don't know if people will. So, I think that, you know, we're very focused on those products or services and solutions that are needed for the long term.

And that's what we're looking for and then are -- right now, a challenging part of acquisition is just where it is the cost of capital. Interest rates are moving and all kinds of mixed signals as to whether the Fed is going to be right or the market is going to be right on where interest rates are going to be or where they are. So, I think that, obviously, in order to have those attractive long-term investments, you have to have a significant level of return above your cost of capital. And our cost of capital is probably moving right now that could make 2023 evaluations maybe a little bit more conservative than what they would have otherwise been had we not been in a higher cost environment.

In other words, we're going to make damn sure that we get a nice return above our cost of capital, and we may hedge a little bit on a higher cost of capital in '23 than what possibly it will turn out to be. I think those --

David Marsh -- Singular Research -- Analyst

That makes a lot of sense.

Joe Craft -- Chairman, President, and Chief Executive Officer

Yeah. Those higher interest rates will obviously be impacting the seller's perspective. And so, that just depends on, you know, what will be in the market from an acquisition standpoint as they look at their needs for cash and/or their strategic options that they're looking at.

David Marsh -- Singular Research -- Analyst

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

Joe Craft -- Chairman, President, and Chief Executive Officer

There's -- you know, as far as opportunities, there haven't been many in the coal space. I think from a strategic standpoint, the only thing that could potentially be an opportunity is met coal, potentially, that we've had on our list, which we've been able to get from our Mettiki operation. And so, that's an area that I could see is possible, but it's not highly probable. It's probably the best way I'd put it.

So, most of our focus is outside the coal sector on the acquisitions front. In other words, there's nothing going on right now.

David Marsh -- Singular Research -- Analyst

Got it. Thank you. Again, guys, congrats on the quarter.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Thanks, David.

Operator

Thank you. The next question is coming from Abe Landa of Bank of America. Please go ahead.

Abe Landa -- Bank of America Merrill Lynch -- Analyst

Good morning. Thanks for taking my questions. Just a couple of questions on the balance sheet. So, I'm sure you're aware fixed income markets are beginning to fall a little.

We have seen some other coal companies take up some notes early. And then, in your capital allocation discussion, you did mention you could potentially redeem a portion of your bonds, which I'm sure you know your bonds, the call price kind of steps down to par this May 1st. Maybe, kind of more holistically, what are you thinking about your capital structure and even more specifically about your bonds?

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Yeah. With respect to the bonds, we needed to wait until we completed our bank financing to make sure that we have the flexibility that we wanted to see should we choose to go out and begin taking the bonds down. We did achieve that flexibility. And with the strong cash flow that we're generating, we do have the opportunity to potentially opportunistically repurchase in the open market if conditions warrant.

And then, beyond that, you're correct, our bond call goes to par in May of this year. We'll evaluate, you know, market conditions and, you know, whether it's right -- when the right time is to completely potentially take those bonds down before they mature in May of '25. Clearly, we've got plenty of time to manage that, and we'll be watching markets very, very closely to try to pick up some of those positions at attractive levels.

Abe Landa -- Bank of America Merrill Lynch -- Analyst

And then, just two quick --

Joe Craft -- Chairman, President, and Chief Executive Officer

Yeah, it will depend obviously on our other alternatives.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Yes.

Abe Landa -- Bank of America Merrill Lynch -- Analyst

Meaning like other capital allocation alternatives?

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Yes.

Joe Craft -- Chairman, President, and Chief Executive Officer

Yeah. If there's opportunity -- acquisition-type opportunities that pop up.

Abe Landa -- Bank of America Merrill Lynch -- Analyst

OK.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Yeah. I mean, obviously, managing our balance sheet is one of our core capital allocation priorities, returning cash to unit holders is as well. You know, the distribution we announced today -- or on Friday, I'm sorry, as Joe mentioned, we intend to -- currently intend to maintain that level through the year. So, that's fairly well defined.

And with the flexibility we've been given with our bank refinancing, should conditions warrant, you know, we could return additional cash to unit holders through a repurchase program that the board elected to top off last week.

Abe Landa -- Bank of America Merrill Lynch -- Analyst

And then, just two quick housekeeping. It was good to see your credit agreement was extended. I think it also -- within that note, it included a $75 million term loan. Just maybe uses and, also, is that currently undrawn?

Brian Cantrell -- Senior Vice President, Chief Financial Officer

No. The term loan was drawn at closing. So, that cash is now on our balance sheet. In our prepared comments, we noted that we do have these activities going on at the River View, and we acquired some additional coal reserves at Tunnel Ridge.

So, we're using that 75 million to effectively turn those activities out for a, you know, more extended period of time primarily.

Abe Landa -- Bank of America Merrill Lynch -- Analyst

OK. Thank you so much. Appreciate it.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

You bet.

Operator

Thank you. The next question is coming from Mark Reichman of Noble Capital Markets. Please proceed with your follow-up.

Mark Reichman -- Noble Capital Markets -- Analyst

Just on the guidance, when you talk about the stronger second half -- and I'd agree with those observations. But -- so coal prices in Illinois Basin in the fourth quarter was 57.47 a ton. And in Appalachia, that's $89 a ton. I was just wondering how much of a leap did you have to make in terms of on those open or unpriced tonnage to meet your guidance?

Joe Craft -- Chairman, President, and Chief Executive Officer

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

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Sixty-seven to 69.

Joe Craft -- Chairman, President, and Chief Executive Officer

Sixty-nine. So, you can see, we're right on with what we have committed. And so, anything that we have open, it's going to be helpful to those numbers. So, I think that that's where you get to the midpoint or the higher end of the range.

But if -- so I think we've got flexibility there within that range that, you know, we're in. I would say that --

Mark Reichman -- Noble Capital Markets -- Analyst

The second question was --

Joe Craft -- Chairman, President, and Chief Executive Officer

Yeah, the pricing is conservative that's in our guidance for the year --

Mark Reichman -- Noble Capital Markets -- Analyst

OK. And then, I was just curious on -- has the new ventures team -- you know, what kind of progress have you seen there in terms of have they come up with some pretty good ideas? Or what are your expectations there?

Joe Craft -- Chairman, President, and Chief Executive Officer

Primarily, we -- they have established a process, and we established internal resources, as well as external resources to help us, as we go through the many, many, many opportunities that are out there. We're trying to take those multitude of opportunities and trying to narrow those into preferred areas, so that we can be efficient with our time and our resources, our people resources, so that we're focused on the right targets. So, they made significant progress in a short period of time. I think we've got a clear vision on how we want to approach inbound opportunities that come to us.

We also have an approach that's very much proactive that we are, again, using some outside sources to help us go target certain areas that will fit with what we believe to be our core competencies and give us those long-term risk-adjusted returns. Most of the things that we're looking at are more in the mid to late stage of the growth process. And a lot of these would have been in the transition world. We're trying to not limit ourselves on just a transition-type investments.

So, we're looking at other type things that are a little bit more mature that have cash flow that can be financed. But I would say, our progress has been good. At the same time, there's just a lot of things we can look at that we're having to prioritize, and it's going to take a little time.

Mark Reichman -- Noble Capital Markets -- Analyst

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

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Appreciate that, Mark.

Operator

Thank you. The next question is coming from Tom Coleman of Kensico Capital. Please go ahead.

Tom Coleman -- Kensico Capital Management -- Analyst

Hey. Good morning. Thanks.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Good morning.

Tom Coleman -- Kensico Capital Management -- Analyst

Just wanted to go back to your comment about the royalty team having like 50 million or whatever. They can use their free cash to keep expanding their business. So, when they come to you with a deal, does it feel [Technical Difficulty]

Joe Craft -- Chairman, President, and Chief Executive Officer

You're cutting out. Sorry.

Tom Coleman -- Kensico Capital Management -- Analyst

Hello. Can you hear me now?

Joe Craft -- Chairman, President, and Chief Executive Officer

Yeah.

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Better.

Tom Coleman -- Kensico Capital Management -- Analyst

OK. When the royalty guys come to you with a deal, and you compare the packaging in the common stock repurchase, is there a critical mass in royalty that's important to achieve and you're willing to reach a little bit relative to the comment to get to a certain level? How do you think about the size of that business this quarter?

Joe Craft -- Chairman, President, and Chief Executive Officer

Again, you were cutting out a little bit. But the way we think about our minerals segment is we do believe it has -- we have a proven track record now that we have been successful in our underwriting approach. We believe that oil and gas is going to be here for decades and decades. And so, I think that it can compete with sustainable cash flow and it meets our strategic objectives, again, to try to give them some guidance so they have certainty in developing deal flow.

We've given them the latitude to know how much capital that they know they have available to them. It's not a cap. I think if they bring other opportunities that come to us that we can evaluate those and look at those, but we do not look at thinking in terms of reexamining on a quarterly basis, whether or not we want to allocate that capital to that segment. We believe that it needs to grow.

And so, if we can put 100 to 120 to whatever their growth is on an annual basis, you know, we will get to a meaningful number. That has proven to be the case so far since we've been in the business since 2014, late 2014. So, we're committed to that business. We believe that it's an attractive business.

We believe we have a proven track record of understanding how to value those opportunities. And as a long-term investment, you know, we continue to have confidence and faith that it's a good place for us to allocate capital.

Tom Coleman -- Kensico Capital Management -- Analyst

Great. Thanks. Sorry for the [Technical Difficulty]

Joe Craft -- Chairman, President, and Chief Executive Officer

Yeah.

Operator

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

Brian Cantrell -- Senior Vice President, Chief Financial Officer

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

Thank you very much.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Brian Cantrell -- Senior Vice President, Chief Financial Officer

Joe Craft -- Chairman, President, and Chief Executive Officer

Mark Reichman -- Noble Capital Markets -- Analyst

Nate Martin -- The Benchmark Company -- Analyst

Dave Storms -- Stonegate Capital Partners -- Analyst

David Marsh -- Singular Research -- Analyst

Abe Landa -- Bank of America Merrill Lynch -- Analyst

Tom Coleman -- Kensico Capital Management -- Analyst

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