##### 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, 2006
 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, 2006 and December 31, 2005
    
    
    4Consolidated Statements of Income For the Three and Nine Months Ended September 30, 2006
and 2005
    
    
    5Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2006
and 2005
    
    
    6Notes to Consolidated Financial Statements
    
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsExecutive Overview
    
    
    12Results of Operations
    
    
    15Related Party Transactions
    
    
    20Liquidity and Capital Resources
    
    
    20Environmental
    
    
    22ITEM 3. Quantitative And Qualitative Disclosures About Market Risk
    
    
    23ITEM 4. Controls And Procedures
    
    
    23PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    24ITEM 1A. Risk Factors
    
    
    24ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24ITEM 3. Defaults Upon Senior Securities
    
    
    24ITEM 4. Submission Of Matters to a Vote of Security Holders
    
    
    24ITEM 5. Other Information
    
    
    24ITEM 6. Exhibits
    
    
    25Signatures
    
    
    26Certification 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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Part I. Financial Information
 
 Item 1. Financial Statements
 NATURAL RESOURCE PARTNERS L.P.
 
 CONSOLIDATED BALANCE SHEETS
(In thousands, except for unit information)
 September 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    60,784
    
    
    $
    47,691Accounts receivable
    
    
    24,332
    
    
    
    21,946Accounts receivable  affiliate
    
    
    59
    
    
    
    6Other
    
    
    307
    
    
    
    833Total current assets
    
    
    85,482
    
    
    
    70,476Land
    
    
    12,461
    
    
    
    14,123Plant and equipment, net
    
    
    25,070
    
    
    
    5,924Coal and other mineral rights, net
    
    
    655,078
    
    
    
    590,459Loan financing costs, net
    
    
    2,182
    
    
    
    2,431Other assets, net
    
    
    1,095
    
    
    
    1,583Total assets
    
    $
    781,368
    
    
    $
    684,996LIABILITIES AND PARTNERS CAPITALCurrent liabilities:Accounts payable
    
    $
    817
    
    
    $
    677Accounts payable  affiliate
    
    
    183
    
    
    
    88Current portion of long-term debt
    
    
    9,350
    
    
    
    9,350Accrued incentive plan expenses  current portion
    
    
    5,326
    
    
    
    1,105Property, franchise and other taxes payable
    
    
    3,991
    
    
    
    4,138Accrued interest
    
    
    3,771
    
    
    
    1,534Total current liabilities
    
    
    23,438
    
    
    
    16,892Deferred revenue
    
    
    15,884
    
    
    
    14,851Accrued incentive plan expenses
    
    
    3,680
    
    
    
    5,395Long-term debt
    
    
    300,600
    
    
    
    221,950Partners capital:Common units (outstanding: 16,825,307)
    
    
    298,571
    
    
    
    292,990Subordinated units (outstanding: 8,515,228)
    
    
    126,351
    
    
    
    123,114General partners interest
    
    
    12,058
    
    
    
    10,024Holders of incentive distribution rights
    
    
    1,549
    
    
    
    582Accumulated other comprehensive loss
    
    
    (763
    )
    
    
    (802
    )Total partners capital
    
    
    437,766
    
    
    
    425,908Total liabilities and partners capital
    
    $
    781,368
    
    
    $
    684,996
  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 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)Revenues:Coal royalties
    
    $
    36,902
    
    
    $
    34,267
    
    
    $
    112,539
    
    
    $
    104,754Oil and gas royalties
    
    
    853
    
    
    
    1,056
    
    
    
    3,500
    
    
    
    2,126Property taxes
    
    
    1,532
    
    
    
    1,552
    
    
    
    4,827
    
    
    
    4,533Minimums recognized as revenue
    
    
    633
    
    
    
    431
    
    
    
    1,254
    
    
    
    1,365Override royalties
    
    
    283
    
    
    
    487
    
    
    
    767
    
    
    
    1,311Other
    
    
    1,288
    
    
    
    942
    
    
    
    6,114
    
    
    
    2,590Total revenues
    
    
    41,491
    
    
    
    38,735
    
    
    
    129,001
    
    
    
    116,679Operating costs and expenses:Depreciation, depletion and amortization
    
    
    7,009
    
    
    
    8,221
    
    
    
    22,098
    
    
    
    24,725General and administrative
    
    
    3,475
    
    
    
    3,527
    
    
    
    11,010
    
    
    
    10,001Property, franchise and other taxes
    
    
    2,142
    
    
    
    1,954
    
    
    
    6,486
    
    
    
    5,738Coal royalty and override payments
    
    
    296
    
    
    
    1,071
    
    
    
    1,250
    
    
    
    2,369Total operating costs and expenses
    
    
    12,922
    
    
    
    14,773
    
    
    
    40,844
    
    
    
    42,833Income from operations
    
    
    28,569
    
    
    
    23,962
    
    
    
    88,157
    
    
    
    73,846Other income
(expense)Interest expense
    
    
    (3,960
    )
    
    
    (2,889
    )
    
    
    (11,253
    )
    
    
    (7,916
    )Interest income
    
    
    665
    
    
    
    392
    
    
    
    1,938
    
    
    
    954Net income
    
    $
    25,274
    
    
    $
    21,465
    
    
    $
    78,842
    
    
    $
    66,884Net income attributable to:(1)General partner
    
    $
    2,641
    
    
    $
    1,103
    
    
    $
    6,989
    
    
    $
    3,088Other holders of incentive distribution rights
    
    $
    1,150
    
    
    $
    363
    
    
    $
    2,914
    
    
    $
    943Limited partners
    
    $
    21,483
    
    
    $
    19,999
    
    
    $
    68,939
    
    
    $
    62,853Basic and diluted net income per limited partner unit:Common
    
    $
    .85
    
    
    $
    .79
    
    
    $
    2.72
    
    
    $
    2.48Subordinated
    
    $
    .85
    
    
    $
    .79
    
    
    $
    2.72
    
    
    $
    2.48Weighted average number of units outstanding:Common
    
    
    16,825
    
    
    
    13,987
    
    
    
    16,825
    
    
    
    13,987Subordinated
    
    
    8,515
    
    
    
    11,354
    
    
    
    8,515
    
    
    
    11,354
 
 (1)
    
    Net Income is allocated among the limited partners, the general
partner and holders of the incentive distribution rights (IDRs) based upon
their pro rata share of distributions. The IDRs are allocated 65% to the
general partner and the remaining 35% to affiliates of the general partner.
The IDRs allocated to the general partner are included in the net income
attributable to the general partner.  5




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NATURAL RESOURCE PARTNERS L.P.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Nine months endedSeptember 30,2006
    
    
    2005(Unaudited)Cash flows from operating activities:Net income
    
    $
    78,842
    
    
    $
    66,884Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation, depletion and amortization
    
    
    22,098
    
    
    
    24,725Non-cash interest charge
    
    
    288
    
    
    
    222Gain from sale of assets
    
    
    (2,634
    )
    
    
    Change in operating assets and liabilities:Accounts receivable
    
    
    (2,439
    )
    
    
    (3,022
    )Other assets
    
    
    525
    
    
    
    285Accounts payable
    
    
    235
    
    
    
    78Accrued interest
    
    
    2,237
    
    
    
    2,554Deferred revenue
    
    
    1,033
    
    
    
    (2,016
    )Accrued incentive plan expenses
    
    
    2,506
    
    
    
    2,613Property, franchise and other taxes payable
    
    
    (147
    )
    
    
    (382
    )Net cash provided by operating activities
    
    
    102,544
    
    
    
    91,941Cash flows from investing activities:Acquisition of land, plant and equipment, coal and other mineral rights
    
    
    (105,839
    )
    
    
    (76,124
    )Proceeds from sale of assets
    
    
    4,761
    
    
    
    Net cash used in investing activities
    
    
    (101,078
    )
    
    
    (76,124
    )Cash flows from financing activities:Proceeds from loans
    
    
    103,000
    
    
    
    106,000Repayment of loans
    
    
    (24,350
    )
    
    
    (59,350
    )Distributions to partners
    
    
    (67,023
    )
    
    
    (55,113
    )Net cash provided by (used in) financing activities
    
    
    11,627
    
    
    
    (8,463
    )Net increase in cash and cash equivalents
    
    
    13,093
    
    
    
    7,354Cash and cash equivalents at beginning of period
    
    
    47,691
    
    
    
    42,103Cash and cash equivalents at end of period
    
    $
    60,784
    
    
    $
    49,457Supplemental cash flow information:Cash paid during the period for interest
    
    $
    8,702
    
    
    $
    5,139
  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
  Share-Based Payment
 Share-Based
Payment,
 7




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3. Plant and Equipment
  September 30,
    
    
    December 31,2006
    
    
    2005(In thousands)(Unaudited)Plant and equipment at cost
    
    $
    7,626
    
    
    $
    6,019Construction work in progress
    
    
    17,810
    
    
    
    Less accumulated depreciation
    
    
    (366
    )
    
    
    (95
    )Net book value
    
    $
    25,070
    
    
    $
    5,924
 Nine months endedSeptember 30,2006
    
    
    2005(In thousands)(Unaudited)Total depreciation expense on plant and equipment
    
    $
    272
    
    
    $
    
 4. Coal and Other Mineral Rights
  September 30,
    
    
    December 31,2006
    
    
    2005(In thousands)(Unaudited)Coal and other mineral rights
    
    $
    819,853
    
    
    $
    734,242Less accumulated depletion and amortization
    
    
    (164,775
    )
    
    
    (143,783
    )Net book value
    
    $
    655,078
    
    
    $
    590,459
 Nine months endedSeptember 30,2006
    
    
    2005(In thousands)(Unaudited)Total depletion and amortization expense on coal interests
    
    $
    21,337
    
    
    $
    22,998
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5. Long-Term Debt
  September 30,
    
    
    December 31,2006
    
    
    2005(In thousands)(Unaudited)$175 million floating rate revolving credit facility, due October 2010
    
    $
    63,000
    
    
    $
    25,0005.55% senior notes, with semi-annual interest payments in June and
December, with annual principal payments in June, maturing in June 2023
    
    
    50,100
    
    
    
    53,4004.91% senior notes, with semi-annual interest payments in June and
December, with annual principal payments in June, maturing in June 2018
    
    
    61,850
    
    
    
    67,9005.55% senior notes, with semi-annual interest payments in June and
December, maturing June 2013

    
    
    35,000
    
    
    
    35,0005.05% senior notes, with semi-annual interest payments in January and
July, with scheduled principal payments beginning July 2008,
maturing in July 2020
    
    
    100,000
    
    
    
    50,000Total debt
    
    
    309,950
    
    
    
    231,300Less  current portion of long term debt
    
    
    (9,350
    )
    
    
    (9,350
    )Long-term debt
    
    $
    300,600
    
    
    $
    221,950
   6. Net Income Per Unit Attributable to Limited Partners
  7. Related Party Transactions
   9




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8. Commitments and Contingencies
 Legal
  Environmental Compliance
  9. Major Lessees
  Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Revenues
    
    Percent
    
    Revenues
    
    Percent
    
    Revenues
    
    Percent
    
    Revenues
    
    PercentDollars in thousands
    
    
    
    
    
    
    
    
    
    Dollars in thousands(Unaudited)
    
    
    
    
    
    
    
    
    
    (Unaudited)Lessee A
    
    $
    4,002
    
    
    
    10
    %
    
    $
    4,740
    
    
    
    12
    %
    
    $
    11,427
    
    
    
    9
    %
    
    $
    13,667
    
    
    
    12
    %Lessee B
    
    
    5,886
    
    
    
    14
    %
    
    
    5,090
    
    
    
    13
    %
    
    
    17,257
    
    
    
    13
    %
    
    
    15,117
    
    
    
    13
    %Lessee C
    
    
    3,106
    
    
    
    7
    %
    
    
    4,395
    
    
    
    12
    %
    
    
    10,265
    
    
    
    8
    %
    
    
    12,602
    
    
    
    11
    %
 10. Incentive Plans
   10




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Outstanding grants at the beginning of the period
    
    
    211,931Grants during the period
    
    
    61,166Grants vested and paid during the period
    
    
    (13,947
    )Forfeitures during the period
    
    
    (1,540
    )Outstanding grants at the end of the period
    
    
    257,610
  11. Distributions
  12. Subsequent Events
   11




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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 27, 2006.
 
 Executive Overview
       12




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Reconciliation
of GAAP Net cash provided by operating activities  to Non-GAAP Distributable cash flow  (In thousands)
 For the three months ended
    
    
    For the nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)Cash flow from operations
    
    $
    33,384
    
    
    $
    34,493
    
    
    $
    102,544
    
    
    $
    91,941Less scheduled principal payments
    
    
    
    
    
    
    
    
    
    
    (9,350
    )
    
    
    (9,350
    )Less reserves for future principal payments
    
    
    (2,350
    )
    
    
    (2,350
    )
    
    
    (7,050
    )
    
    
    (7,050
    )Add reserves used for scheduled principal payments
    
    
    
    
    
    
    
    
    
    
    9,400
    
    
    
    9,400Distributable cash flow
    
    $
    31,034
    
    
    $
    32,143
    
    
    $
    95,544
    
    
    $
    84,941
 Acquisitions
 2006 Acquisitions
 Red Fox.
 Coal Mountain.
 13




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Williamson Development
 Allegany County, Maryland
 James River
 2005 Acquisitions
 AFG.
 Area F/Lexington
 Dolphin
 Williamson Development.
 Plum Creek.
 Disposition
 Virginia Timber Properties.
 Impact of Adoption of FAS 123R
 Share-Based Payment,
 14




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Results of Operations
 Natural Resource Partners L.P.
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands, except per ton data)(Unaudited)Revenues:Coal royalties
    
    $
    36,902
    
    
    $
    34,267
    
    
    $
    112,539
    
    
    $
    104,754Oil and gas royalties
    
    
    853
    
    
    
    1,056
    
    
    
    3,500
    
    
    
    2,126Property taxes
    
    
    1,532
    
    
    
    1,552
    
    
    
    4,827
    
    
    
    4,533Minimums recognized as revenue
    
    
    633
    
    
    
    431
    
    
    
    1,254
    
    
    
    1,365Override royalties
    
    
    283
    
    
    
    487
    
    
    
    767
    
    
    
    1,311Other
    
    
    1,288
    
    
    
    942
    
    
    
    6,114
    
    
    
    2,590Total revenues
    
    
    41,491
    
    
    
    38,735
    
    
    
    129,001
    
    
    
    116,679Operating costs and expenses:Depreciation, depletion and amortization
    
    
    7,009
    
    
    
    8,221
    
    
    
    22,098
    
    
    
    24,725General and administrative
    
    
    3,475
    
    
    
    3,527
    
    
    
    11,010
    
    
    
    10,001Property, franchise and other taxes
    
    
    2,142
    
    
    
    1,954
    
    
    
    6,486
    
    
    
    5,738Coal royalty and override payments
    
    
    296
    
    
    
    1,071
    
    
    
    1,250
    
    
    
    2,369Total expenses
    
    
    12,922
    
    
    
    14,773
    
    
    
    40,844
    
    
    
    42,833Income from operations
    
    
    28,569
    
    
    
    23,962
    
    
    
    88,157
    
    
    
    73,846Other income (expense):Interest expense
    
    
    (3,960
    )
    
    
    (2,889
    )
    
    
    (11,253
    )
    
    
    (7,916
    )Interest income
    
    
    665
    
    
    
    392
    
    
    
    1,938
    
    
    
    954Net income
    
    $
    25,274
    
    
    $
    21,465
    
    
    $
    78,842
    
    
    $
    66,884Other Data:Coal royaltiesAppalachiaNorthern
    
    $
    2,292
    
    
    $
    2,198
    
    
    $
    8,330
    
    
    $
    6,767Central
    
    
    24,568
    
    
    
    21,950
    
    
    
    74,953
    
    
    
    70,022Southern
    
    
    5,471
    
    
    
    7,098
    
    
    
    16,088
    
    
    
    18,455Total Appalachia
    
    
    32,331
    
    
    
    31,246
    
    
    
    99,371
    
    
    
    95,244Illinois Basin
    
    
    808
    
    
    
    956
    
    
    
    4,465
    
    
    
    3,356Northern Powder River Basin
    
    
    3,763
    
    
    
    2,065
    
    
    
    8,703
    
    
    
    6,154Total
    
    $
    36,902
    
    
    $
    34,267
    
    
    $
    112,539
    
    
    $
    104,754Production (tons)AppalachiaNorthern
    
    
    1,177
    
    
    
    1,161
    
    
    
    4,391
    
    
    
    3,577Central
    
    
    7,873
    
    
    
    7,792
    
    
    
    24,050
    
    
    
    24,989Southern
    
    
    1,395
    
    
    
    1,667
    
    
    
    4,256
    
    
    
    4,665Total Appalachia
    
    
    10,445
    
    
    
    10,620
    
    
    
    32,697
    
    
    
    33,231Illinois Basin
    
    
    368
    
    
    
    624
    
    
    
    2,507
    
    
    
    2,198Northern Powder River Basin
    
    
    1,985
    
    
    
    1,447
    
    
    
    4,983
    
    
    
    4,144Total
    
    
    12,798
    
    
    
    12,691
    
    
    
    40,187
    
    
    
    39,573Average gross royalty per tonAppalachiaNorthern
    
    $
    1.95
    
    
    $
    1.89
    
    
    $
    1.90
    
    
    $
    1.89Central
    
    
    3.12
    
    
    
    2.82
    
    
    
    3.12
    
    
    
    2.80Southern
    
    
    3.92
    
    
    
    4.26
    
    
    
    3.78
    
    
    
    3.96Total Appalachia
    
    
    3.10
    
    
    
    2.94
    
    
    
    3.04
    
    
    
    2.87Illinois Basin
    
    
    2.20
    
    
    
    1.53
    
    
    
    1.78
    
    
    
    1.53Northern Powder River Basin
    
    
    1.90
    
    
    
    1.43
    
    
    
    1.75
    
    
    
    1.49Total
    
    $
    2.88
    
    
    $
    2.70
    
    
    $
    2.80
    
    
    $
    2.65
 15




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Three months ended September 30, 2006 compared with three months ended September 30, 2005
 Revenues
  Appalachia.
  
    
    Sincell  production decreased from 615,000 tons to 101,000 tons and coal royalty
revenues decreased from $937,000 to $178,000. The decreased tonnage was due to a
greater proportion of production from the longwall unit being on adjacent property.
    
    Stony River  production decreased from 118,000 tons to zero tons and coal royalty
revenues decreased from $313,000 to zero due to the lessee idling production during
bankruptcy proceedings.
  
    
    VICC/Kentucky Land  production increased from 530,000 tons to 860,000 tons and coal
royalty revenues increased from $1.7 million to $2.9 million. The increased production
was due to an increase in tonnage from mines moving onto the property that more than
offset mines moving off the property
    
    Alpha/VICC  production increased from 1.6 million tons to 1.8 million tons and coal
royalty revenues increased from $4.3 million to $5.3 million. The increased revenue
was due to improved production from mines on the property and higher sales prices being
realized by our lessees.
    
    Plum Creek properties  production increased from 165,000 tons to 421,000 tons and
coal royalty revenues increased from $462,000 to $1.5 million. The increased production
was due primarily to mines in West Virginia increasing production from their start up
levels in the previous year on the properties.
    
    Pinnacle  production decreased from 807,000 tons to 582,000 tons and coal royalty
revenues decreased from $2.8 million to $1.7 million. The decreased tonnage was due to
a greater proportion of production from the mines being on adjacent property.
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##### Table of Contents




    
    Twin Pines/Drummond  production decreased from 233,000 tons to 159,000 tons and coal
royalty revenues decreased from $2.1 million to $992,000. This decrease was partially
due to one mine being temporarily idled during the quarter and lower per ton royalty
being paid by the lessee under the terms of the lease on another mine.
    
    BLC Properties  production decreased from 1.0 million tons to 875,000 tons and coal
royalty revenues decreased from $3.4 to $3.1 million. The decrease was due to slightly
reduced production and some temporary royalty reduction to one lessee to encourage
mining in some areas of difficult geology and another lessee having more of its
production on adjacent property.
    
    Oak Grove  production decreased from 420,000 tons to 361,000 tons and coal royalty
revenues decreased from $1.6 million to $1.4 million. The decreases were due to
slightly lower production from the mine.
 Illinois Basin
 
    
    Hocking Wolford/Cummings  production decreased from 295,000 tons to 5,000 tons and
coal royalty revenues decreased from $388,000 to $7,000. The decreases were due to
production moving to adjacent property.
    
    Sato/Trico  production increased from 329,000 tons to 363,000 tons and coal royalty
revenues increased from $568,000 to $801,000. The increases were due to a slight
increase in production from the mine and higher sales price received by our lessee.
 Northern Powder River Basin
 Operating costs and expenses.
 
    
    Depletion and amortization of $7.0 million for the quarter ended September 30, 2006
compared to $8.2 million for the same period in 2005. Fluctuations in depletion are
dependent on the depletion rates where coal is mined which can cause total depletion to be
lower in periods where production is actually up;
    
    General and administrative expenses for the third quarter of 2006 were approximately the
same when compared to the same period for 2005; and
    
    Property, franchise and other taxes were $2.1 million for the third quarter of 2006,
compared to $2.0 million for the third quarter of 2005, an increase of $0.1 million, or 5%,
due to an increase in franchise taxes for 2006, as well as taxes on additional properties
acquired since last year.
 Interest Expense.
 17




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Nine months ended September 30, 2006 compared with nine months ended September 30, 2005
 Revenues
  Appalachia.
  
    
    Sincell  production decreased from 2.1 million tons to 594,000 tons and coal
royalty revenues decreased from $3.6 million to $992,000. The decreased tonnage was
due to a greater proportion of production from the longwall unit being on adjacent
property.
    
    Stony River  production decreased from 326,000 tons to 17,000 tons and coal royalty
revenues decreased from $777,000 to $55,000 due to the lessee idling production during
bankruptcy proceedings.
  
    
    VICC/Kentucky Land  production increased from 1.8 million tons to 2.7 million tons
and coal royalty revenues increased from $5.9 million to $9.4 million. The increased
production was due to an increase in tonnage from mines moving onto the property that
more than offset mines moving off the property.
    
    Lynch  production increased from 3.8 million tons to 3.9 million tons and coal
royalty revenues increased from $8.5 million to $10.1 million.
    
    VICC/Alpha  production increased from 4.9 million tons to 5.0 million tons and coal
royalty revenues increased from $12.8 million to $15.0 million.
    
    Kingston  production increased from 1.2 million tons to 1.4 million tons and coal
royalty revenues increased from $3.3 million to $4.3 million. The increased tonnage
was due to additional producing units being on our property and a new surface mine
increasing production.
    
    Plum Creek properties  production increased from 418,000 tons to 1.1 million tons
and coal royalty revenues increased from $1.2 million to $3.4 million. The increased
production and coal royalty revenues were due primarily to new mines in West Virginia
increasing production on the properties over their earlier startup levels.
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##### Table of Contents




    
    Pinnacle  production decreased from 2.2 million tons to 1.8 million tons and coal
royalty revenues decreased from $8.1 million to $6.0 million. The decreases were
primarily due to a greater proportion of production from the mines being on adjacent
property and slightly lower prices being received by our lessee.
    
    Eunice  production decreased from 2.2 million tons to 633,000 tons and coal royalty
revenues decreased from $5.4 million to $2.2 million due to a greater proportion of
production from both the longwall mine and the surface mine coming from adjacent
property.
    
    Eastern Kentucky Property production decreased from 493,000 tons to 42,000 tons and
coal royalty revenues decreased from $1.7 million to $186,000. The decreased production
was due to the lessee temporarily idling the operation. We are currently working with
the lessee and a possible replacement operator to resume production.
  
    
    Twin Pines/Drummond  production increased from 475,000 tons to 480,000 tons and
coal royalty revenues decreased from $4.1 million to $2.8 million. The decrease in
coal royalty revenues was partially due to a temporary royalty reduction in the first
half of the year and a lower per ton royalty being paid under the terms of the lease at
one mine, as well as a temporary idling of another mine.
    
    BLC Properties  production decreased from 2.9 million tons to 2.7 million tons and
coal royalty revenues decreased from $9.9 million to $9.1 million. The decrease was
due to slightly reduced production and some temporary royalty reduction to one lessee
to encourage mining in some areas of difficult geology.
    
    Oak Grove  production decreased from 1.2 million tons to 1.0 million tons and coal
royalty revenues decreased from $4.5 million to $4.2 million. The decreases were due
to slightly lower production from the mine.
 Illinois Basin
 
    
    Hocking Wolford/Cummings  production increased from 1.1 million tons to 1.4 million
tons and coal royalty revenues increased from $1.5 million to $2.2 million. The
increased tonnage was due to a greater proportion of the production being on our
property and higher sales prices received by our lessee.
    
    Sato/Trico  production remained nearly constant at 1.1 million tons and coal
royalty revenues increased from $1.8 million to $2.3 million. The increase in coal
royalty revenues was due to higher sales prices received by our lessee.
 Northern Powder River Basin
 Other revenues.
 Operating costs and expenses.
 
    
    Depletion and amortization of $22.1 million for the nine months ended September 30, 2006
compared to $24.7 million for the same period in 2005, representing a decrease of $2.6
million. Fluctuations in depletion are dependent on the depletion rates where coal is mined
which can cause total depletion to be lower in periods where production is actually up;
 19




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
    
    General and administrative expenses of $11.0 million for the first three quarters of
2006, compared to $10.0 million for the nine months ended September 30, 2005, an increase of
$1.0 million, or 10%. The increase in general and administrative expenses is attributable
to additional expenses required to manage a larger portfolio of properties as well as an
increase in incentive compensation accrual partially attributable to the adoption of FAS
123R; and
    
    Property, franchise and other taxes of $6.5 million for the first nine months of 2006,
compared to $5.7 million for the same period of 2005, an increase of $0.8 million, or 14%,
due to an increase in franchise taxes for 2006, as well as taxes on additional properties
acquired since last year.
 Interest Expense.
 
 Related Party Transactions
 Partnership Agreement
  
 Liquidity and Capital Resources
 Cash Flows and Capital Expenditures
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##### Table of Contents



Contractual Obligations and Commercial Commitments
  
    
    $63 million outstanding under our $175 million revolving credit facility that matures in October 2010;
    
    $50.1 million of 5.55% senior notes due 2023;
    
    $61.85 million of 4.91% senior notes due 2018;
    
    $35 million of 5.55% senior notes due 2013; and
    
    $100 million of 5.05% senior notes due 2020.
 Credit Facility.
 
    
    the higher of the federal funds rate plus an applicable margin ranging from 0% to 1.00%
or the prime rate as announced by the agent bank; or
 
    
    at a rate equal to LIBOR plus an applicable margin ranging from .75% to 2.00%.
   
    
    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.
 21




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##### Table of Contents



Payments due by period(1)Contractual Obligations
    
    Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterLong-term debt
(including current
maturities)
    
    $
    343.10
    
    
    $
    3.90
    
    
    $
    21.92
    
    
    $
    29.13
    
    
    $
    28.26
    
    
    $
    27.39
    
    
    $
    232.50
 
 (1)
    
    The amounts indicated in the table include principal and interest due on our senior notes. Shelf Registration Statement
   Off-Balance Sheet Transactions
  Inflation
  
 Environmental
  22




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Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Commodity Price Risk
  Interest Rate Risk
  
 Item 4. Controls and Procedures
   23




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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
  24




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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. 25




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##### Table of Contents



SIGNATURES
  NATURAL RESOURCE PARTNERS L.P.By:
    
    NRP (GP) LP, its general partnerBy:
    
    GP NATURAL RESOURCEPARTNERS LLC, its general partnerDate: November 2, 2006By:
    
    /s/ Corbin J. Robertson, Jr.Corbin J. Robertson, Jr.,Chairman of the Board andChief Executive Officer(Principal Executive Officer)Date: November 2, 2006By:
    
    /s/ Dwight L. DunlapDwight L. Dunlap,Chief Financial Officer andTreasurer(Principal Financial Officer)Date: November 2, 2006By:
    
    /s/ Kenneth HudsonKenneth HudsonController(Principal Accounting Officer)
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##### Table of Contents



EXHIBIT INDEX
 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.
 27