##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 001-31465
 NATURAL RESOURCE PARTNERS L.P.
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    35-2164875
(I.R.S. Employer
Identification No.)
 601 Jefferson Street, Suite 3600
Houston, Texas 77002
(Address of principal executive offices)
(Zip Code)
 (713) 751-7507
(Registrants telephone number, including area code)
 þ o
  o þ o
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONITEM 1. Financial StatementsConsolidated Balance Sheets as of September 30, 2007 and December 31, 2006
    
    
    4Consolidated Statements of Income For the Three and Nine Months Ended September 30, 2007 and 2006
    
    
    5Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsExecutive Overview
    
    
    15Results of Operations
    
    
    18Liquidity and Capital Resources
    
    
    22Related Party Transactions
    
    
    24Environmental
    
    
    25ITEM 3. Quantitative And Qualitative Disclosures About Market Risk
    
    
    25ITEM 4. Controls And Procedures
    
    
    25PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    26ITEM 1A. Risk Factors
    
    
    26ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26ITEM 3. Defaults Upon Senior Securities
    
    
    26ITEM 4. Submission Of Matters to a Vote of Security Holders
    
    
    26ITEM 5. Other Information
    
    
    26ITEM 6. Exhibits
    
    
    27Signatures
    
    
    28Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 1350Certification of CFO Pursuant to Section 1350
  2




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Forward-Looking Statements
     3




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 NATURAL RESOURCE PARTNERS L.P.
 
 CONSOLIDATED BALANCE SHEETS
(In thousands)
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    54,377
    
    
    $
    66,044Restricted cash
    
    
    6,240
    
    
    
    Accounts receivable, net of allowance for doubtful accounts
    
    
    30,003
    
    
    
    23,357Accounts receivable  affiliate
    
    
    1,009
    
    
    
    21Other
    
    
    237
    
    
    
    1,411Total current assets
    
    
    91,866
    
    
    
    90,833Land
    
    
    24,532
    
    
    
    17,781Plant and equipment, net
    
    
    61,650
    
    
    
    29,615Coal and other mineral rights, net
    
    
    1,004,081
    
    
    
    798,135Intangible assets, net
    
    
    111,179
    
    
    
    Loan financing costs, net
    
    
    3,202
    
    
    
    2,197Other assets, net
    
    
    825
    
    
    
    932Total assets
    
    $
    1,297,335
    
    
    $
    939,493LIABILITIES AND PARTNERS CAPITALCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    2,550
    
    
    $
    1,041Accounts payable  affiliate
    
    
    368
    
    
    
    105Current portion of long-term debt
    
    
    17,234
    
    
    
    9,542Accrued incentive plan expenses  current portion
    
    
    4,260
    
    
    
    5,418Property, franchise and other taxes payable
    
    
    4,634
    
    
    
    4,330Accrued interest
    
    
    3,680
    
    
    
    3,846Total current liabilities
    
    
    32,726
    
    
    
    24,282Deferred revenue
    
    
    31,461
    
    
    
    20,654Asset retirement obligation
    
    
    39
    
    
    
    Accrued incentive plan expenses
    
    
    5,599
    
    
    
    4,579Long-term debt
    
    
    473,057
    
    
    
    454,291Partners capital:Common units
    
    
    661,094
    
    
    
    338,912Subordinated units
    
    
    78,701
    
    
    
    83,772General partners interest
    
    
    15,418
    
    
    
    12,138Holders of incentive distribution rights
    
    
    (48
    )
    
    
    1,616Accumulated other comprehensive loss
    
    
    (712
    )
    
    
    (751
    )Total partners capital
    
    
    754,453
    
    
    
    435,687Total liabilities and partners capital
    
    $
    1,297,335
    
    
    $
    939,493
  4




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NATURAL RESOURCE PARTNERS L.P.
 
 CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)Revenues:Coal royalties
    
    $
    44,378
    
    
    $
    36,902
    
    
    $
    126,084
    
    
    $
    112,539Aggregate royalties
    
    
    2,096
    
    
    
    
    
    
    
    5,785
    
    
    
    Coal processing fees
    
    
    1,374
    
    
    
    203
    
    
    
    3,404
    
    
    
    203Transportation fees
    
    
    1,000
    
    
    
    
    
    
    
    2,306
    
    
    
    Oil and gas royalties
    
    
    1,388
    
    
    
    853
    
    
    
    3,924
    
    
    
    3,500Property taxes
    
    
    2,963
    
    
    
    1,532
    
    
    
    7,836
    
    
    
    4,827Minimums recognized as revenue
    
    
    913
    
    
    
    633
    
    
    
    1,698
    
    
    
    1,254Override royalties
    
    
    953
    
    
    
    283
    
    
    
    2,994
    
    
    
    767Other
    
    
    1,301
    
    
    
    1,085
    
    
    
    3,639
    
    
    
    5,911Total revenues
    
    
    56,366
    
    
    
    41,491
    
    
    
    157,670
    
    
    
    129,001Operating costs and expenses:Depreciation, depletion and amortization
    
    
    13,045
    
    
    
    7,009
    
    
    
    37,324
    
    
    
    22,098General and administrative
    
    
    3,687
    
    
    
    3,475
    
    
    
    15,880
    
    
    
    11,010Property, franchise and other taxes
    
    
    3,993
    
    
    
    2,142
    
    
    
    10,618
    
    
    
    6,486Transportation costs
    
    
    79
    
    
    
    
    
    
    
    149
    
    
    
    Coal royalty and override payments
    
    
    246
    
    
    
    296
    
    
    
    914
    
    
    
    1,250Total operating costs and expenses
    
    
    21,050
    
    
    
    12,922
    
    
    
    64,885
    
    
    
    40,844Income from operations
    
    
    35,316
    
    
    
    28,569
    
    
    
    92,785
    
    
    
    88,157Other income (expense)Interest expense
    
    
    (7,124
    )
    
    
    (3,960
    )
    
    
    (21,584
    )
    
    
    (11,253
    )Interest income
    
    
    736
    
    
    
    665
    
    
    
    2,239
    
    
    
    1,938Net income
    
    $
    28,928
    
    
    $
    25,274
    
    
    $
    73,440
    
    
    $
    78,842Net income attributable to:General partner(1)
    
    $
    4,119
    
    
    $
    2,641
    
    
    $
    10,012
    
    
    $
    6,989Other holders of incentive distribution rights(1)
    
    $
    1,907
    
    
    $
    1,150
    
    
    $
    4,602
    
    
    $
    2,914Limited partners
    
    $
    22,902
    
    
    $
    21,483
    
    
    $
    58,826
    
    
    $
    68,939Basic and diluted net income per limited partner unit:Common
    
    $
    0.35
    
    
    $
    0.42
    
    
    $
    0.91
    
    
    $
    1.36Subordinated
    
    $
    0.35
    
    
    $
    0.42
    
    
    $
    0.91
    
    
    $
    1.36Weighted average number of units outstanding:Common
    
    
    53,537
    
    
    
    33,651
    
    
    
    53,009
    
    
    
    33,651Subordinated
    
    
    11,354
    
    
    
    17,030
    
    
    
    11,354
    
    
    
    17,030
 
 (1)
    
    Other holders of the incentive distribution rights (IDRs) include
the WPP Group (25%) and NRP Investment LP (10%). The net income allocated
to the general partner includes the general partners portion of the IDRs
(65%).  5




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NATURAL RESOURCE PARTNERS L.P.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Nine Months EndedSeptember 30,2007
    
    
    2006(Unaudited)Cash flows from operating activities:Net income
    
    $
    73,440
    
    
    $
    78,842Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation, depletion and amortization
    
    
    37,324
    
    
    
    22,098Non-cash interest charge
    
    
    326
    
    
    
    288Gain on sale of timber assets
    
    
    
    
    
    
    (2,634
    )Change in operating assets and liabilities:Accounts receivable
    
    
    (7,634
    )
    
    
    (2,439
    )Other assets
    
    
    883
    
    
    
    525Accounts payable and accrued liabilities
    
    
    (217
    )
    
    
    235Accrued interest
    
    
    (166
    )
    
    
    2,237Deferred revenue
    
    
    10,807
    
    
    
    1,033Accrued incentive plan expenses
    
    
    (138
    )
    
    
    2,506Property, franchise and other taxes payable
    
    
    304
    
    
    
    (147
    )Net cash provided by operating activities
    
    
    114,929
    
    
    
    102,544Cash flows from investing activities:Acquisition of land, plant and equipment, coal and other mineral rights
    
    
    (40,068
    )
    
    
    (105,839
    )Proceeds from sale of timber assets
    
    
    
    
    
    
    4,761Cash placed in restricted accounts
    
    
    (6,240
    )
    
    
    Net cash used in investing activities
    
    
    (46,308
    )
    
    
    (101,078
    )Cash flows from financing activities:Proceeds from loans
    
    
    262,400
    
    
    
    103,000Deferred financing costs
    
    
    (1,292
    )
    
    
    Repayment of loans
    
    
    (235,942
    )
    
    
    (24,350
    )Distributions to partners
    
    
    (108,099
    )
    
    
    (67,023
    )Contribution by general partner
    
    
    2,645
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (80,288
    )
    
    
    11,627Net increase (decrease) in cash and cash equivalents
    
    
    (11,667
    )
    
    
    13,093Cash and cash equivalents at beginning of period
    
    
    66,044
    
    
    
    47,691Cash and cash equivalents at end of period
    
    $
    54,377
    
    
    $
    60,784Supplemental cash flow information:Cash paid during the period for interest
    
    $
    21,379
    
    
    $
    8,702Non-cash investing activities:Units issued in business combinations
    
    $
    350,741
    
    
    $
    Liability assumed in business combination
    
    
    1,989
    
    
    
    
  6




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NATURAL RESOURCE PARTNERS L.P.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation and Organization
      2. Summary of Significant Accounting Policies
 Reclassification
  Business Combinations
  New Accounting Standard
 The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an amendment of FASB Statement No. 115
 7




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3. Significant Acquisitions
  
    
    Cheyenne Resources.On August 20, 2007, the Partnership acquired a rail load-out
facility and rail spur from Cheyenne Resources for $5.5 million. This facility is
located in Perry County, Kentucky.
    
    Mid-Vol Coal Preparation Plant. On May 21, 2007, the Partnership signed an agreement
for the construction of a coal preparation plant, coal handling infrastructure and a rail
load-out facility under its memorandum of understanding with Taggart Global USA, LLC.
Consideration for the facility, located near Eckman, WV, is estimated to be approximately
$16.2 million, of which $10.3 million has been paid for construction costs incurred to
date.
    
    Mettiki. On April 3, 2007, the Partnership acquired approximately 35 million tons of
coal reserves in Grant and Tucker Counties in Northern West Virginia for total
consideration of 500,000 common units and approximately $10.2 million in cash. The
assets were acquired from Western Pocahontas Properties Limited Partnership under the
Partnerships omnibus agreement. Western Pocahontas Properties retained an overriding
royalty interest on approximately 16 million tons of non-permitted reserves, which will
be offered to the Partnership at the time those reserves are permitted.
    
    Westmoreland.On February 27, 2007, the Partnership acquired an overriding royalty on
225 million tons of coal in the Powder River Basin from Westmoreland Coal Company for
$12.7 million in cash. The reserves are located in the Rocky Butte Reserve in Wyoming.
    
    Dingess-Rum.On January 16, 2007, the Partnership acquired 92 million tons of coal
reserves and approximately 33,700 acres of surface and timber in Logan, Clay and Nicholas
Counties in West Virginia from Dingess-Rum Properties, Inc. As consideration for the
acquisition, the Partnership issued 4,800,000 common units to Dingess-Rum.
    
    Cline. On January 4, 2007, the Partnership acquired 49 million tons of coal reserves
in Williamson County, Illinois and Mason County, West Virginia that are leased to
affiliates of The Cline Group. In addition, it acquired transportation assets and related
infrastructure at those mines. As consideration for the transaction the Partnership
issued 7,826,160 common units and 1,083,912 Class B units representing limited partner
interests in NRP. The Class B units were converted to common units during the second
quarter.
 Business Combinations
   8




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##### Table of Contents



Dingess-Rum
    
    Cline(In thousands)(Unaudited)Land, plant and equipment
    
    $
    7,935
    
    
    $
    17,783Coal and other mineral rights
    
    
    105,573
    
    
    
    94,463Other assets
    
    
    
    
    
    
    72Intangible assets
    
    
    
    
    
    
    111,960Equity consideration
    
    
    113,396
    
    
    
    221,089Transaction costs and liabilities assumed
    
    
    112
    
    
    
    3,189
 4. Plant and Equipment
  September 30,
    
    
    December 31,2007
    
    
    2006(In thousands)(Unaudited)Plant and equipment at cost
    
    $
    65,128
    
    
    $
    30,266Accumulated depreciation
    
    
    (3,478
    )
    
    
    (651
    )Net book value
    
    $
    61,650
    
    
    $
    29,615
 Nine months endedSeptember 30,2007
    
    
    2006(In thousands)(Unaudited)Total depreciation expense on plant and equipment
    
    $
    2,827
    
    
    $
    272
 5. Coal and Other Mineral Rights
  September 30,
    
    
    December 31,2007
    
    
    2006(In thousands)(Unaudited)Coal and other mineral rights
    
    $
    1,209,531
    
    
    $
    970,342Less accumulated depletion and amortization
    
    
    (205,450
    )
    
    
    (172,207
    )Net book value
    
    $
    1,004,081
    
    
    $
    798,135
 Nine months endedSeptember 30,2007
    
    
    2006(In thousands)(Unaudited)Total depletion and amortization expense on coal and other mineral interests
    
    $
    33,243
    
    
    $
    21,337
 9




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6. Intangible Assets
  As of September 30, 2007Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization(In thousands)(Unaudited)Finite-lived intangible assetsAbove market transportation contracts
    
    $
    80,525
    
    
    $
    604Above market coal leases
    
    
    25,132
    
    
    
    177Contractual rights to an area of mutual interest
    
    
    6,303
    
    
    
    $
    111,960
    
    
    $
    781
  Estimated amortization expense (In thousands)For remainder of year ended December 31, 2007
    
    $
    332For year ended December 31, 2008
    
    
    7,095For year ended December 31, 2009
    
    
    7,076For year ended December 31, 2010
    
    
    7,418For year ended December 31, 2011
    
    
    7,577For year ended December 31, 2012
    
    
    7,855
 7. Two-For-One Limited Partner Unit Split
  10




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8. Long-Term Debt
  September 30,
    
    
    December 31,2007
    
    
    2006(In thousands)(Unaudited)$300 million floating rate revolving credit facility, due March 2012
    
    $
    25,000
    
    
    $
    214,0005.55% senior notes, with semi-annual interest payments in June and
December, maturing June 2013
    
    
    35,000
    
    
    
    35,0004.91% senior notes, with semi-annual interest payments in June and
December, with annual principal payments in June, maturing in June
2018
    
    
    55,800
    
    
    
    61,8505.05% senior notes, with semi-annual interest payments in January
and July, with scheduled principal payments beginning July 2008,
maturing in July 2020
    
    
    100,000
    
    
    
    100,0005.31% utility local improvement obligation, with annual principal
and interest payments, maturing in March 2021
    
    
    2,691
    
    
    
    2,8835.55% senior notes, with semi-annual interest payments in June and
December, with annual principal payments in June, maturing in June
2023
    
    
    46,800
    
    
    
    50,1005.82% senior notes, with semi-annual interest payments in March and
September, with scheduled principal payments beginning March 2010,
maturing in March 2024
    
    
    225,000
    
    
    
    Total debt
    
    
    490,291
    
    
    
    463,833Less  current portion of long term debt
    
    
    (17,234
    )
    
    
    (9,542
    )Long-term debt
    
    $
    473,057
    
    
    $
    454,291
     9. Net Income Per Unit Attributable to Limited Partners
   11




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##### Table of Contents



10. Related Party Transactions
 Reimbursements to Affiliates of its General Partner
   Transactions with Cline Affiliates
   Quintana Energy Partners, L.P.
    12




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##### Table of Contents



11. Commitments and Contingencies
 Gatling Ohio Commitment
  Legal
  Environmental Compliance
  12. Major Lessees
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Revenues
    
    Percent
    
    Revenues
    
    Percent
    
    Revenues
    
    Percent
    
    Revenues
    
    PercentDollars in thousands
    
    Dollars in thousands(Unaudited)
    
    (Unaudited)Lessee A
    
    $
    9,044
    
    
    
    16
    %
    
    $
    117
    
    
    
    <1
    %
    
    $
    23,588
    
    
    
    15
    %
    
    $
    2,289
    
    
    
    2
    %Lessee B
    
    
    5,246
    
    
    
    9
    %
    
    
    5,886
    
    
    
    14
    %
    
    
    15,916
    
    
    
    10
    %
    
    
    17,257
    
    
    
    13
    %Lessee C
    
    
    3,587
    
    
    
    6
    %
    
    
    4,002
    
    
    
    10
    %
    
    
    11,040
    
    
    
    7
    %
    
    
    11,427
    
    
    
    9
    %
 13. Incentive Plans
   13




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Outstanding grants at the beginning of the period
    
    
    515,220Grants during the period
    
    
    174,002Grants vested and paid during the period
    
    
    (181,356
    )Forfeitures during the period
    
    
    (400
    )Outstanding grants at the end of the period
    
    
    507,466
  14. Distributions
  15. Subsequent Events
  14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion of the financial condition and results of operations should be read
in conjunction with the historical financial statements and notes thereto included elsewhere in
this filing and the financial statements and footnotes included in the Natural Resource Partners
L.P. Form 10-K , as filed on February 28, 2007.
 
 Executive Overview
 Our Business
     Current Results
    15




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Massachusetts v. Environmental Protection Agency
 Distributable Cash Flow
   Reconciliation of GAAP Net cash provided by operating activities  to Non-GAAP Distributable cash flow  (In thousands)
 For the Quarter Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)Cash flow from operations
    
    $
    38,325
    
    
    $
    33,384
    
    
    $
    114,929
    
    
    $
    102,544Less scheduled principal payments
    
    
    
    
    
    
    
    
    
    
    (9,350
    )
    
    
    (9,350
    )Less reserves for future principal payments
    
    
    (4,280
    )
    
    
    (2,350
    )
    
    
    (9,080
    )
    
    
    (7,050
    )Add reserves used for scheduled principal payments
    
    
    
    
    
    
    
    
    
    
    9,400
    
    
    
    9,400Distributable cash flow
    
    $
    34,045
    
    
    $
    31,034
    
    
    $
    105,899
    
    
    $
    95,544
 Acquisitions
  Cheyenne Resources.
 Mid-Vol Coal Preparation Plant
 16




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##### Table of Contents



Mettiki
 Westmoreland.
 Dingess-Rum
 Cline
 New Accounting Standard
 The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an amendment of FASB Statement No. 115
 17




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Results of Operations
 Three Months Ended
    
    
    Increase
    
    
    PercentageSeptember 30,
    
    
    (Decrease)
    
    
    Change2007
    
    
    2006(In thousands, except percent and per ton data)(Unaudited)Coal royaltiesAppalachiaNorthern
    
    $
    3,941
    
    
    $
    2,292
    
    
    $
    1,649
    
    
    
    72
    %Central
    
    
    29,662
    
    
    
    24,568
    
    
    
    5,094
    
    
    
    21
    %Southern
    
    
    4,649
    
    
    
    5,471
    
    
    
    (822
    )
    
    
    (15
    %)Total Appalachia
    
    
    38,252
    
    
    
    32,331
    
    
    
    5,921
    
    
    
    18
    %Illinois Basin
    
    
    2,462
    
    
    
    808
    
    
    
    1,654
    
    
    
    205
    %Northern Powder River Basin
    
    
    3,664
    
    
    
    3,763
    
    
    
    (99
    )
    
    
    (3
    %)Total
    
    $
    44,378
    
    
    $
    36,902
    
    
    $
    7,476
    
    
    
    20
    %Production (tons)AppalachiaNorthern
    
    
    1,640
    
    
    
    1,177
    
    
    
    463
    
    
    
    39
    %Central
    
    
    8,927
    
    
    
    7,873
    
    
    
    1,054
    
    
    
    13
    %Southern
    
    
    1,184
    
    
    
    1,395
    
    
    
    (211
    )
    
    
    (15
    %)Total Appalachia
    
    
    11,751
    
    
    
    10,445
    
    
    
    1,306
    
    
    
    13
    %Illinois Basin
    
    
    1,147
    
    
    
    368
    
    
    
    779
    
    
    
    212
    %Northern Powder River Basin
    
    
    1,810
    
    
    
    1,985
    
    
    
    (175
    )
    
    
    (9
    %)Total
    
    
    14,708
    
    
    
    12,798
    
    
    
    1,910
    
    
    
    15
    %Average gross royalty per tonAppalachiaNorthern
    
    $
    2.40
    
    
    $
    1.95
    
    
    $
    0.46
    
    
    
    23
    %Central
    
    
    3.32
    
    
    
    3.12
    
    
    
    0.20
    
    
    
    6
    %Southern
    
    
    3.93
    
    
    
    3.92
    
    
    
    0.01
    
    
    
    <1
    %Total Appalachia
    
    
    3.26
    
    
    
    3.10
    
    
    
    0.16
    
    
    
    5
    %Illinois Basin
    
    
    2.15
    
    
    
    2.20
    
    
    
    (0.05
    )
    
    
    (2
    %)Northern Powder River Basin
    
    
    2.02
    
    
    
    1.90
    
    
    
    0.13
    
    
    
    7
    %Combined average gross royalty per ton
    
    
    3.02
    
    
    
    2.88
    
    
    
    0.13
    
    
    
    5
    %Aggregates:Revenue
    
    $
    2,096
    
    
    
    
    
    
    $
    2,096
    
    
    
    100
    %Production
    
    
    1,583
    
    
    
    
    
    
    
    1,583
    
    
    
    100
    %Average gross royalty
    
    $
    1.32
    
    
    
    
    
    
    $
    1.32
    
    
    
    100
    %
 Coal Royalty Revenues and Production
 Appalachia.
   18




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##### Table of Contents



Illinois Basin
 Northern Powder River Basin
 Aggregates Royalty Revenues, Reserves and Production
 19




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##### Table of Contents



Nine Months Ended
    
    
    Increase
    
    
    PercentageSeptember 30,
    
    
    (Decrease)
    
    
    Change2007
    
    
    2006(In thousands, except percent and per ton data)(Unaudited)Coal royaltiesAppalachiaNorthern
    
    $
    11,064
    
    
    $
    8,330
    
    
    $
    2,734
    
    
    
    33
    %Central
    
    
    88,248
    
    
    
    74,953
    
    
    
    13,295
    
    
    
    18
    %Southern
    
    
    13,677
    
    
    
    16,088
    
    
    
    (2,411
    )
    
    
    (15
    %)Total Appalachia
    
    
    112,989
    
    
    
    99,371
    
    
    
    13,618
    
    
    
    14
    %Illinois Basin
    
    
    4,941
    
    
    
    4,465
    
    
    
    476
    
    
    
    11
    %Northern Powder River Basin
    
    
    8,154
    
    
    
    8,703
    
    
    
    (549
    )
    
    
    (6
    %)Total
    
    $
    126,084
    
    
    $
    112,539
    
    
    $
    13,545
    
    
    
    12
    %Production (tons)AppalachiaNorthern
    
    
    4,875
    
    
    
    4,391
    
    
    
    484
    
    
    
    11
    %Central
    
    
    27,022
    
    
    
    24,050
    
    
    
    2,972
    
    
    
    12
    %Southern
    
    
    3,514
    
    
    
    4,256
    
    
    
    (742
    )
    
    
    (17
    %)Total Appalachia
    
    
    35,411
    
    
    
    32,697
    
    
    
    2,714
    
    
    
    8
    %Illinois Basin
    
    
    2,307
    
    
    
    2,507
    
    
    
    (200
    )
    
    
    (8
    %)Northern Powder River Basin
    
    
    4,072
    
    
    
    4,983
    
    
    
    (911
    )
    
    
    (18
    %)Total
    
    
    41,790
    
    
    
    40,187
    
    
    
    1,603
    
    
    
    4
    %Average gross royalty per tonAppalachiaNorthern
    
    $
    2.27
    
    
    $
    1.90
    
    
    $
    0.37
    
    
    
    20
    %Central
    
    
    3.27
    
    
    
    3.12
    
    
    
    0.15
    
    
    
    5
    %Southern
    
    
    3.89
    
    
    
    3.78
    
    
    
    0.11
    
    
    
    3
    %Total Appalachia
    
    
    3.19
    
    
    
    3.04
    
    
    
    0.15
    
    
    
    5
    %Illinois Basin
    
    
    2.14
    
    
    
    1.78
    
    
    
    0.36
    
    
    
    20
    %Northern Powder River Basin
    
    
    2.00
    
    
    
    1.75
    
    
    
    0.26
    
    
    
    15
    %Combined average gross royalty per ton
    
    
    3.02
    
    
    
    2.80
    
    
    
    0.22
    
    
    
    8
    %Aggregates:Revenues
    
    $
    5,785
    
    
    
    
    
    
    $
    5,785
    
    
    
    100
    %Production
    
    
    4,455
    
    
    
    
    
    
    
    4,455
    
    
    
    100
    %Average gross royalty
    
    $
    1.30
    
    
    
    
    
    
    $
    1.30
    
    
    
    100
    %
 Coal Royalty Revenues and Production
 Appalachia.
   20




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##### Table of Contents



Illinois Basin
 Northern Powder River Basin
 Aggregates Royalty Revenues, Reserves and Production
 Other Operating Results
 Coal Transportation and Processing Revenues
  Other revenues.
 Operating costs and expenses.
 
    
    Depreciation, depletion and amortization was $13.0 million for the third quarter of 2007
and $37.3 million for the nine months ended September 30, 2007, an increase over last year
of $6.0 million and $15.2 million for quarter and year to date, respectively. These
increases are due to acquisitions made during the fourth quarter of 2006 and during 2007,
which have a higher depletion rate per ton than our older properties.
    
    General and administrative expenses were $3.7 million for the third quarter of 2007 and
$15.9 million for the first nine months of 2007, compared to $3.5 million and $11.0 million
for the third quarter and first nine months of 2006. The year to year comparison reflects an
increase of $4.9 million, or 45%, due to increases in personnel, salaries, and incentive
compensation accruals; increased costs associated with reporting partners tax information;
and increases in the allowance for doubtful accounts.
    
    Property, franchise and other taxes were $4.0 million for the quarter and $10.6 million
for the nine months ended September 30, 2007, compared to $2.1 million and $6.5 million for
the third quarter and first nine months of 2006, an increase of $1.9 million for the quarter
and $4.1 million for the nine month period ending September 30, 2006. This increase in
expense for property
 21




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##### Table of Contents



taxes during 2007 is as a result of significant acquisitions made since the third quarter of
2006.
 Interest Expense.
 
 Liquidity and Capital Resources
 Cash Flows and Capital Expenditures
     Long-Term Debt
  
    
    $25.0 million of our $300 million floating rate revolving credit facility, due March
2012;
    
    $35 million of 5.55% senior notes due 2013;
    
    $55.8 million of 4.91% senior notes due 2018;
    
    $100 million of 5.05% senior notes due 2020;
    
    $2.7 million of 5.31% utility local improvement obligation due 2021;
    
    $46.8 million of 5.55% senior notes due 2023; and
    
    $225 million of 5.82% senior notes due 2024.
 22




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##### Table of Contents



Credit Facility.
  
    
    the higher of the federal funds rate plus an applicable margin ranging from 0% to 0.50%
or the prime rate as announced by the agent bank; or
    
    at a rate equal to LIBOR plus an applicable margin ranging from 0.45% to 1.50%.
   
    
    a ratio of consolidated indebtedness to consolidated EBITDDA (as defined in the credit
agreement) of 3.75 to 1.0 for the four most recent quarters; provided however, if during one
of those quarters we have made an acquisition, then the ratio shall not exceed 4.0 to 1.0
for the quarter in which the acquisition occurred and (1) if the acquisition is in the first
half of the quarter, the next two quarters or (2) if the acquisition is in the second half
of the quarter, the next three quarters; and
    
    a ratio of consolidated EBITDDA to consolidated fixed charges (consisting of consolidated
interest expense and consolidated lease operating expense) of 4.0 to 1.0 for the four most
recent quarters.
 Senior Notes.
  
    
    not permit debt secured by certain liens and debt of subsidiaries to exceed 10% of
consolidated net tangible assets (as defined in the note purchase agreement); and
    
    maintain the ratio of consolidated EBITDA to consolidated fixed charges (consisting of
consolidated interest expense and consolidated operating lease expense) at not less than 3.5
to 1.0.
 Two-for-One Limited Partner Unit Split
  Conversion of Class B Units
  23




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##### Table of Contents



Shelf Registration Statement
  Off-Balance Sheet Transactions
  
 Related Party Transactions
 Reimbursements to Affiliates of our General Partner
   Transactions with Cline Affiliates
   Quintana Energy Partners, L.P.
   24




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##### Table of Contents



Environmental
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Commodity Price Risk
  Interest Rate Risk
  
 Item 4. Controls and Procedures
  25




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##### Table of Contents



Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  26




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##### Table of Contents



Item 6. Exhibits
 31.1*
    
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of
Sarbanes-Oxley.31.2*
    
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of
Sarbanes-Oxley.32.1**
    
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350.32.2**
    
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350.
 
 *
    
    Filed herewith.**
    
    Furnished herewith. 27




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##### Table of Contents



SIGNATURES
  NATURAL RESOURCE PARTNERS L.P.By:
    
    NRP (GP) LP, its general partnerBy:
    
    GP NATURAL RESOURCE
PARTNERS LLC, its general partnerDate: November 2, 2007By:
    
    /s/ Corbin J. Robertson, Jr.

Corbin J. Robertson, Jr.,Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)Date: November 2, 2007By:
    
    /s/ Dwight L. Dunlap

Dwight L. Dunlap,Chief Financial Officer and
Treasurer
(Principal Financial Officer)Date: November 2, 2007By:
    
    /s/ Kenneth Hudson

Kenneth HudsonController(Principal Accounting Officer)
 28




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##### Table of Contents



31.1*
    
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of
Sarbanes-Oxley.31.2*
    
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of
Sarbanes-Oxley.32.1**
    
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350.32.2**
    
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350.
 
 *
    
    Filed herewith.**
    
    Furnished herewith.