##### 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 June 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
    
    35-2164875(State or other jurisdiction of 
incorporation or organization)
    
    (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 June 30, 2007 and December 31, 2006
    
    
    4Consolidated Statements of Income For the Three and Six Months Ended June 30, 2007
and 2006
    
    
    5Consolidated Statements of Cash Flows For the Six Months Ended June 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 Chief Executive Officer Pursuant to 302Certification of Chief Financial Officer Pursuant to 302Certification of Chief Executive OfficerCertification of Chief Financial Officer
  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)
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    54,454
    
    
    $
    66,044Restricted cash
    
    
    6,314
    
    
    
    Accounts receivable, net of allowance for doubtful accounts
    
    
    25,607
    
    
    
    23,357Accounts receivable  affiliate
    
    
    570
    
    
    
    21Other
    
    
    514
    
    
    
    1,411Total current assets
    
    
    87,459
    
    
    
    90,833Land
    
    
    24,522
    
    
    
    17,781Plant and equipment, net
    
    
    55,245
    
    
    
    29,615Coal and other mineral rights, net
    
    
    1,015,616
    
    
    
    798,135Intangible assets, net
    
    
    111,511
    
    
    
    Loan financing costs, net
    
    
    3,300
    
    
    
    2,197Other assets, net
    
    
    1,032
    
    
    
    932Total assets
    
    $
    1,298,685
    
    
    $
    939,493LIABILITIES AND PARTNERS CAPITALCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    2,736
    
    
    $
    1,041Accounts payable  affiliate
    
    
    105
    
    
    
    105Current portion of long-term debt
    
    
    9,542
    
    
    
    9,542Accrued incentive plan expenses  current portion
    
    
    4,127
    
    
    
    5,418Property, franchise and other taxes payable
    
    
    4,589
    
    
    
    4,330Accrued interest
    
    
    6,443
    
    
    
    3,846Total current liabilities
    
    
    27,542
    
    
    
    24,282Deferred revenue
    
    
    28,571
    
    
    
    20,654Asset retirement obligation
    
    
    39
    
    
    
    Accrued incentive plan expenses
    
    
    5,237
    
    
    
    4,579Long-term debt
    
    
    474,149
    
    
    
    454,291Partners capital:Common units
    
    
    667,095
    
    
    
    338,912Subordinated units
    
    
    79,973
    
    
    
    83,772General partners interest
    
    
    16,412
    
    
    
    12,138Holders of incentive distribution rights
    
    
    392
    
    
    
    1,616Accumulated other comprehensive loss
    
    
    (725
    )
    
    
    (751
    )Total partners capital
    
    
    763,147
    
    
    
    435,687Total liabilities and partners capital
    
    $
    1,298,685
    
    
    $
    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
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)Revenues:Coal royalties
    
    $
    40,733
    
    
    $
    36,527
    
    
    $
    81,706
    
    
    $
    75,637Aggregate royalties
    
    
    1,944
    
    
    
    
    
    
    
    3,689
    
    
    
    Coal processing fees
    
    
    1,112
    
    
    
    
    
    
    
    2,030
    
    
    
    Transportation fees
    
    
    845
    
    
    
    
    
    
    
    1,306
    
    
    
    Oil and gas royalties
    
    
    1,278
    
    
    
    928
    
    
    
    2,536
    
    
    
    2,647Property taxes
    
    
    2,645
    
    
    
    1,546
    
    
    
    4,873
    
    
    
    3,295Minimums recognized as revenue
    
    
    331
    
    
    
    250
    
    
    
    785
    
    
    
    621Override royalties
    
    
    1,023
    
    
    
    181
    
    
    
    2,041
    
    
    
    484Other
    
    
    1,186
    
    
    
    1,550
    
    
    
    2,338
    
    
    
    4,826Total revenues
    
    
    51,097
    
    
    
    40,982
    
    
    
    101,304
    
    
    
    87,510Operating costs and expenses:Depreciation, depletion and amortization
    
    
    12,527
    
    
    
    7,236
    
    
    
    24,279
    
    
    
    15,089General and administrative
    
    
    5,559
    
    
    
    3,420
    
    
    
    12,193
    
    
    
    7,535Property, franchise and other taxes
    
    
    3,524
    
    
    
    2,099
    
    
    
    6,625
    
    
    
    4,344Transportation costs
    
    
    27
    
    
    
    
    
    
    
    70
    
    
    
    Coal royalty and override payments
    
    
    382
    
    
    
    263
    
    
    
    668
    
    
    
    954Total operating costs and expenses
    
    
    22,019
    
    
    
    13,018
    
    
    
    43,835
    
    
    
    27,922Income from operations
    
    
    29,078
    
    
    
    27,964
    
    
    
    57,469
    
    
    
    59,588Other income (expense)Interest expense
    
    
    (7,133
    )
    
    
    (3,675
    )
    
    
    (14,460
    )
    
    
    (7,293
    )Interest income
    
    
    686
    
    
    
    755
    
    
    
    1,503
    
    
    
    1,273Net income
    
    $
    22,631
    
    
    $
    25,044
    
    
    $
    44,512
    
    
    $
    53,568Net income attributable to:General partner(1)
    
    $
    3,074
    
    
    $
    2,253
    
    
    $
    5,893
    
    
    $
    4,348Other holders of incentive distribution rights(1)
    
    $
    1,412
    
    
    $
    943
    
    
    $
    2,695
    
    
    $
    1,764Limited partners
    
    $
    18,145
    
    
    $
    21,848
    
    
    $
    35,924
    
    
    $
    47,456Basic and diluted net income per limited partner unit:Common
    
    $
    0.28
    
    
    $
    0.43
    
    
    $
    0.56
    
    
    $
    0.94Subordinated
    
    $
    0.28
    
    
    $
    0.43
    
    
    $
    0.56
    
    
    $
    0.94Class B
    
    $
    0.28
    
    
    $
    
    
    
    $
    0.56
    
    
    $
    Weighted average number of units outstanding:Common
    
    
    52,925
    
    
    
    33,651
    
    
    
    51,914
    
    
    
    33,651Subordinated
    
    
    11,354
    
    
    
    17,030
    
    
    
    11,354
    
    
    
    17,030Class B
    
    
    607
    
    
    
    
    
    
    
    826
    
    
    
    
 
 (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)
 Six months endedJune 30,2007
    
    
    2006(Unaudited)Cash flows from operating activities:Net income
    
    $
    44,512
    
    
    $
    53,568Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation, depletion and amortization
    
    
    24,279
    
    
    
    15,089Non-cash interest charge
    
    
    209
    
    
    
    191Gain on sale of timber assets
    
    
    
    
    
    
    (2,634
    )Change in operating assets and liabilities:Accounts receivable
    
    
    (2,799
    )
    
    
    (107
    )Other assets
    
    
    557
    
    
    
    243Accounts payable and accrued liabilities
    
    
    (294
    )
    
    
    (20
    )Accrued interest
    
    
    2,597
    
    
    
    1,217Deferred revenue
    
    
    7,917
    
    
    
    408Accrued incentive plan expenses
    
    
    (633
    )
    
    
    1,510Property, franchise and other taxes payable
    
    
    259
    
    
    
    (305
    )Net cash provided by operating activities
    
    
    76,604
    
    
    
    69,160Cash flows from investing activities:Acquisition of land, plant and equipment, coal and other mineral rights
    
    
    (32,633
    )
    
    
    (51,438
    )Proceeds from sale of timber assets
    
    
    
    
    
    
    4,761Cash placed in restricted accounts
    
    
    (6,314
    )
    
    
    Net cash used in investing activities
    
    
    (38,947
    )
    
    
    (46,677
    )Cash flows from financing activities:Proceeds from loans
    
    
    255,400
    
    
    
    50,000Deferred financing costs
    
    
    (1,286
    )
    
    
    Repayment of loans
    
    
    (235,542
    )
    
    
    (24,350
    )Distributions to partners
    
    
    (70,464
    )
    
    
    (43,204
    )Contribution by general partner
    
    
    2,645
    
    
    
    Net cash used in financing activities
    
    
    (49,247
    )
    
    
    (17,554
    )Net increase (decrease) in cash and cash equivalents
    
    
    (11,590
    )
    
    
    4,929Cash and cash equivalents at beginning of period
    
    
    66,044
    
    
    
    47,691Cash and cash equivalents at end of period
    
    $
    54,454
    
    
    $
    52,620Supplemental cash flow information:Cash paid during the period for interest
    
    $
    11,627
    
    
    $
    5,861Non-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
  
    
    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 $8.4 million was paid at closing 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 has 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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Dingess-Rum
    
    Cline(In thousands)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
  June 30,
    
    
    December 31,2007
    
    
    2006(In thousands)(Unaudited)Plant and equipment at cost
    
    $
    57,703
    
    
    $
    30,266Accumulated depreciation
    
    
    (2,458
    )
    
    
    (651
    )Net book value
    
    $
    55,245
    
    
    $
    29,615
 Six months endedJune 30,2007
    
    
    2006(In thousands)(Unaudited)Total depreciation expense on plant and equipment
    
    $
    1,807
    
    
    $
    164
 5. Coal and Other Mineral Rights
  June 30,
    
    
    December 31,2007
    
    
    2006(In thousands)(Unaudited)Coal and other mineral rights
    
    $
    1,209,531
    
    
    $
    970,342Less accumulated depletion and amortization
    
    
    (193,915
    )
    
    
    (172,207
    )Net book value
    
    $
    1,015,616
    
    
    $
    798,135
 Six months endedJune 30,2007
    
    
    2006(In thousands)(Unaudited)Total depletion and amortization expense on coal and other mineral interests
    
    $
    21,708
    
    
    $
    14,599
 9




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##### Table of Contents



6. Intangible Assets
  As of June 30, 2007As Originally
    
    
    Gross Carrying
    
    
    AccumulatedRecorded
    
    
    Amount
    
    
    Amortization(In thousands)(Unaudited)Finite-lived intangible assetsAbove market transportation contracts
    
    $
    68,236
    
    
    $
    80,525
    
    
    $
    345Above market coal leases
    
    
    23,108
    
    
    
    25,132
    
    
    
    104Contractual rights to an area of mutual interest
    
    
    
    
    
    
    6,303
    
    
    
    $
    91,344
    
    
    $
    111,960
    
    
    $
    449Indefinite-lived intangible assetsGoodwill
    
    $
    15,817
    
    
    $
    
  Estimated amortization expense (In thousands)For remainder of year ended December 31, 2007
    
    $
    1,930For 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
  June 30,
    
    
    December 31,2007
    
    
    2006(In thousands)(Unaudited)$300 million floating rate revolving credit facility, due March 2012
    
    $
    18,400
    
    
    $
    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
    
    
    483,691
    
    
    
    463,833Less  current portion of long term debt
    
    
    (9,542
    )
    
    
    (9,542
    )Long-term debt
    
    $
    474,149
    
    
    $
    454,291
     9. Net Income Per Unit Attributable to Limited Partners
  11




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10. Related Party Transactions
 Reimbursements to Affiliates of our General Partner
   Transactions with Cline Affiliates
   Quintana Energy Partners, L.P.
   11. Commitments and Contingencies
 Legal
  12




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Environmental Compliance
  12. Major Customers
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Revenues
    
    Percent
    
    Revenues
    
    Percent
    
    Revenues
    
    Percent
    
    Revenues
    
    PercentDollars in thousands
    
    
    
    
    
    
    
    
    
    Dollars in thousands(Unaudited)
    
    
    
    
    
    
    
    
    
    (Unaudited)Lessee A
    
    
    7,860
    
    
    
    15.4
    %
    
    
    897
    
    
    
    2.2
    %
    
    
    14,544
    
    
    
    14.4
    %
    
    
    2,172
    
    
    
    2.5
    %Lessee B
    
    
    4,931
    
    
    
    9.7
    %
    
    
    5,530
    
    
    
    13.5
    %
    
    
    10,670
    
    
    
    10.5
    %
    
    
    11,371
    
    
    
    13.0
    %
 13. Incentive Plans
    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
 13




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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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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 six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)Cash flow from operations
    
    $
    45,861
    
    
    $
    32,510
    
    
    $
    76,604
    
    
    $
    69,160Less scheduled principal payments
    
    
    (9,350
    )
    
    
    (9,350
    )
    
    
    (9,350
    )
    
    
    (9,350
    )Less reserves for future principal payments
    
    
    (2,400
    )
    
    
    (2,350
    )
    
    
    (4,800
    )
    
    
    (4,700
    )Add reserves used for scheduled principal payments
    
    
    9,400
    
    
    
    9,400
    
    
    
    9,400
    
    
    
    9,400Distributable cash flow
    
    $
    43,511
    
    
    $
    30,210
    
    
    $
    71,854
    
    
    $
    64,510
 16




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Acquisitions
  Mid-Vol Coal Preparation Plant
 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 EndedJune 30,
    
    
    Increase
    
    
    Percentage2007
    
    
    2006
    
    
    (Decrease)
    
    
    Change(In thousands, except per ton data)(Unaudited)Coal royaltiesAppalachiaNorthern
    
    $
    4,353
    
    
    $
    2,730
    
    
    $
    1,623
    
    
    
    59
    %Central
    
    
    28,339
    
    
    
    24,543
    
    
    
    3,796
    
    
    
    15
    %Southern
    
    
    4,989
    
    
    
    5,133
    
    
    
    (144
    )
    
    
    (3
    %)Total Appalachia
    
    
    37,681
    
    
    
    32,406
    
    
    
    5,275
    
    
    
    16
    %Illinois Basin
    
    
    1,365
    
    
    
    1,704
    
    
    
    (339
    )
    
    
    (20
    %)Northern Powder River Basin
    
    
    1,687
    
    
    
    2,417
    
    
    
    (730
    )
    
    
    (30
    %)Total
    
    $
    40,733
    
    
    $
    36,527
    
    
    $
    4,206
    
    
    
    12
    %Production (tons)AppalachiaNorthern
    
    
    1,901
    
    
    
    1,482
    
    
    
    419
    
    
    
    28
    %Central
    
    
    8,855
    
    
    
    7,982
    
    
    
    873
    
    
    
    11
    %Southern
    
    
    1,297
    
    
    
    1,436
    
    
    
    (139
    )
    
    
    (10
    %)Total Appalachia
    
    
    12,053
    
    
    
    10,900
    
    
    
    1,153
    
    
    
    11
    %Illinois Basin
    
    
    659
    
    
    
    977
    
    
    
    (318
    )
    
    
    (33
    %)Northern Powder River Basin
    
    
    861
    
    
    
    1,497
    
    
    
    (636
    )
    
    
    (42
    %)Total
    
    
    13,573
    
    
    
    13,374
    
    
    
    199
    
    
    
    1
    %Average gross royalty per tonAppalachiaNorthern
    
    $
    2.29
    
    
    $
    1.84
    
    
    $
    0.45
    
    
    
    24
    %Central
    
    
    3.20
    
    
    
    3.07
    
    
    
    0.13
    
    
    
    4
    %Southern
    
    
    3.85
    
    
    
    3.58
    
    
    
    0.27
    
    
    
    7
    %Total Appalachia
    
    
    3.13
    
    
    
    2.97
    
    
    
    0.16
    
    
    
    5
    %Illinois Basin
    
    
    2.07
    
    
    
    1.74
    
    
    
    0.33
    
    
    
    19
    %Northern Powder River Basin
    
    
    1.96
    
    
    
    1.61
    
    
    
    0.34
    
    
    
    21
    %Combined average gross
royalty per ton
    
    
    3.00
    
    
    
    2.73
    
    
    
    0.27
    
    
    
    10
    %Aggregates:Revenue
    
    $
    1,944
    
    
    
    
    
    
    $
    1,944
    
    
    
    100
    %Production
    
    
    1,531
    
    
    
    
    
    
    
    1,531
    
    
    
    100
    %Average gross royalty
    
    $
    1.27
    
    
    
    
    
    
    $
    1.27
    
    
    
    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
 Coal Transportation and Processing Revenues
  Other revenues.
 Operating costs and expenses.
 
    
    Depletion and amortization of $12.5 million, or $5.3 million over second quarter last
year due to acquisitions made during the fourth quarter of 2006 and first half of 2007.
    
    General and administrative expenses of $5.6 million for the second quarter of 2007,
compared to $3.4 million for the second quarter of 2006, an increase of $2.2 million, or 65%
due predominately to accruals on long-term incentive plans and additional staff added to
manage our acquisitions made in the first quarter of 2007.
    
    Property, franchise and other taxes of $3.5 million for the first quarter of 2007,
compared to $2.1 million for the first quarter of 2006, an increase of $1.4 million, or 67%,
due to taxes on additional properties we have acquired.
 Interest Expense.
 19




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##### Table of Contents



Six Months EndedJune 30,
    
    
    Increase
    
    
    Percentage2007
    
    
    2006
    
    
    (Decrease)
    
    
    Change(In thousands, except per ton data)(Unaudited)Coal royaltiesAppalachiaNorthern
    
    $
    7,123
    
    
    $
    6,038
    
    
    $
    1,623
    
    
    
    59
    %Central
    
    
    58,586
    
    
    
    50,385
    
    
    
    3,795
    
    
    
    15
    %Southern
    
    
    9,028
    
    
    
    10,617
    
    
    
    (1,589
    )
    
    
    (15
    %)Total Appalachia
    
    
    74,737
    
    
    
    67,040
    
    
    
    7,697
    
    
    
    11
    %Illinois Basin
    
    
    2,479
    
    
    
    3,656
    
    
    
    (1,177
    )
    
    
    (32
    %)Northern Powder River Basin
    
    
    4,490
    
    
    
    4,941
    
    
    
    (451
    )
    
    
    (9
    %)Total
    
    $
    81,706
    
    
    $
    75,637
    
    
    $
    6,069
    
    
    
    8
    %Production (tons)AppalachiaNorthern
    
    
    3,235
    
    
    
    3,214
    
    
    
    21
    
    
    
    1
    %Central
    
    
    18,095
    
    
    
    16,176
    
    
    
    1,919
    
    
    
    12
    %Southern
    
    
    2,330
    
    
    
    2,862
    
    
    
    (532
    )
    
    
    (19
    %)Total Appalachia
    
    
    23,660
    
    
    
    22,252
    
    
    
    1,408
    
    
    
    6
    %Illinois Basin
    
    
    1,161
    
    
    
    2,140
    
    
    
    (979
    )
    
    
    (46
    %)Northern Powder River Basin
    
    
    2,261
    
    
    
    2,998
    
    
    
    (737
    )
    
    
    (25
    %)Total
    
    
    27,082
    
    
    
    27,390
    
    
    
    (308
    )
    
    
    (1
    %)Average gross royalty per tonAppalachiaNorthern
    
    $
    2.20
    
    
    $
    1.88
    
    
    $
    0.32
    
    
    
    17
    %Central
    
    
    3.24
    
    
    
    3.11
    
    
    
    0.12
    
    
    
    4
    %Southern
    
    
    3.87
    
    
    
    3.71
    
    
    
    0.17
    
    
    
    4
    %Total Appalachia
    
    
    3.16
    
    
    
    3.01
    
    
    
    0.15
    
    
    
    5
    %Illinois Basin
    
    
    2.14
    
    
    
    1.71
    
    
    
    0.43
    
    
    
    25
    %Northern Powder River Basin
    
    
    1.99
    
    
    
    1.65
    
    
    
    0.34
    
    
    
    20
    %Combined average gross royalty per ton
    
    
    3.02
    
    
    
    2.76
    
    
    
    0.26
    
    
    
    9
    %Aggregates:Revenues
    
    $
    3,689
    
    
    
    
    
    
    $
    3,689
    
    
    
    100
    %Production
    
    
    2,872
    
    
    
    
    
    
    
    2,872
    
    
    
    100
    %Average gross royalty
    
    $
    1.28
    
    
    
    
    
    
    $
    1.28
    
    
    
    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
 Coal Transportation and Processing Revenues
  Other revenues.
 Operating costs and expenses.
 
    
    Depletion and amortization of $24.3 million, or $9.2 million over first half last year
due to acquisitions made during the fourth quarter of 2006 and first half of 2007.
    
    General and administrative expenses of $12.2 million for the first half of 2007, compared
to $7.5 million for the first half of 2006, an increase of $4.7 million, or 63% due
predominately to accruals on long-term incentive plans and additional staff added to manage
our acquisitions made in the first quarter of 2007.
    
    Property, franchise and other taxes of $6.6 million for the first half of 2007, compared
to $4.3 million for the first half of 2006, an increase of $2.3 million, or 53%, due to
taxes on additional properties we have acquired.
 Interest Expense.
 21




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##### Table of Contents



Liquidity and Capital Resources
 Cash Flows and Capital Expenditures
     Long-Term Debt
  
    
    $18.4 million of our $300 million floating rate revolving credit facility, due March 2012;
    
    $35 million of 5.55% senior notes due 2013, with a 9-year average life;
    
    $55.8 million of 4.91% senior notes due 2018, with a 7.5-year average life;
    
    $100 million of 5.05% senior notes due 2020, with a 9-year average life;
    
    $2.7 million of 5.31% utility local improvement obligation due 2021;
    
    $46.8 million of 5.55% senior notes due 2023, with a 10-year average life; and
    
    $225 million of 5.82% senior notes due 2024, with a 10-year average life.
 Credit Facility.
  22




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##### Table of Contents




    
    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
   Shelf Registration Statement
  23




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##### Table of Contents



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
 Mettiki Transaction
  
 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 RESOURCEPARTNERS LLC, its general partnerDate:  August 6, 2007
    By:
    /s/ Corbin J. Robertson, Jr.Corbin J. Robertson, Jr.,Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)Date:  August 6, 2007
    By:
    /s/ Dwight L. DunlapDwight L. Dunlap,Chief Financial Officer and Treasurer
(Principal Financial Officer)Date:  August 6, 2007
    By:
    /s/ Kenneth HudsonKenneth HudsonController
(Principal Accounting Officer) 28




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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.
 
 *
    
    Filed herewith.**
    
    Furnished herewith.