Master limited partnership Penn Virginia Resource Partners
Isn't it great when you get a nice, easy-to-follow sequence like that?
Since PVR's status as an MLP makes it sort of an odd duck, I'm not going to spend a lot of time with the first-quarter income statement. Revenue was up strongly and operating income climbed over 55% from the year-ago level.
But the number that really matters -- the number that determines the distributions -- is "distributable cash flow." For the first quarter, distributable cash flow increased 26% to $16.3 million. As a result, the company's board authorized a 10% sequential increase in per-unit distribution to $0.62.
Remember, this is a "distribution" and not a dividend. MLPs are legally different from corporations and they are taxed differently. As a result, some investors will see certain tax advantages to receiving these partnership distributions vs. what they'd see with ordinary stock dividends.
Not surprisingly, the MLP's coal business did well in the quarter. Operating income increased 34% and the MLP saw a 27% higher average royalty per ton of coal. While coal production dropped more than 16% as a result of some issues with a long-wall mine, the partnership was successful in adding more assets and replaced roughly 160% of 2004 production with two acquisitions.
The partnership's new midstream gas business also did well for itself in the quarter. Producing $2 million of operating income, the business handled about 3.9 billion cubic feet of gas and achieved a $1.14 per Mcfe (1,000 cubic feet) gross-processing margin. While acknowledging the possibility of further related acquisitions in the future, management did confirm that its goal was to get this business "normalized" before looking to expand further.
Forward guidance seems pretty solid. Coal pricing is still quite strong, and management expects to produce more tons of royalty-bearing coal as the year wears on, while making additional selective acquisitions in the coal business.
Of course these good times won't last forever. Sooner or later coal prices will reach a peak, and PVR will no longer be in a position to continue to raise its distributions. Nevertheless, it's a solid business with a sound operating philosophy and, even if the future holds lower coal prices, patient investors should continue to reap good tax-advantaged income from this partnership.
Coal is the real black gold. Learn more with these Foolish takes:
- Coal Stays Green
- Working the Black Seam Profitably
- Happy Days for Joy Global
- Turning Coal Into Cash Flow
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).