##### 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, 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 June 30, 2006 and December 31, 2005
    
    
    4Consolidated Statements of Income For the Three and Six Months Ended June 30, 2006
and 2005
    
    
    5Consolidated Statements of Cash Flows For the Six Months Ended June 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
    
    
    19Liquidity and Capital Resources
    
    
    20Environmental
    
    
    22ITEM 3. Quantitative And Qualitative Disclosures About Market Risk
    
    
    22ITEM 4. Controls And Procedures
    
    
    22PART 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
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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)
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    52,620
    
    
    $
    47,691Accounts receivable
    
    
    22,051
    
    
    
    21,946Accounts receivable  affiliate
    
    
    8
    
    
    
    6Other
    
    
    590
    
    
    
    833Total current assets
    
    
    75,269
    
    
    
    70,476Land
    
    
    12,436
    
    
    
    14,123Plant and equipment, net
    
    
    5,760
    
    
    
    5,924Coal and other mineral rights, net
    
    
    626,858
    
    
    
    590,459Loan financing costs, net
    
    
    2,266
    
    
    
    2,431Other assets, net
    
    
    1,257
    
    
    
    1,583Total assets
    
    $
    723,846
    
    
    $
    684,996LIABILITIES AND PARTNERS CAPITALCurrent liabilities:Accounts payable
    
    $
    659
    
    
    $
    677Accounts payable  affiliate
    
    
    86
    
    
    
    88Current portion of long-term debt
    
    
    9,350
    
    
    
    9,350Accrued incentive plan expenses  current portion
    
    
    4,763
    
    
    
    1,105Property, franchise and other taxes payable
    
    
    3,833
    
    
    
    4,138Accrued interest
    
    
    2,751
    
    
    
    1,534Total current liabilities
    
    
    21,442
    
    
    
    16,892Deferred revenue
    
    
    15,259
    
    
    
    14,851Accrued incentive plan expenses
    
    
    3,247
    
    
    
    5,395Long-term debt
    
    
    247,600
    
    
    
    221,950Partners capital:Common units (outstanding: 16,825,307)
    
    
    298,190
    
    
    
    292,990Subordinated units (outstanding: 8,515,228)
    
    
    126,029
    
    
    
    123,114General partners interest
    
    
    11,559
    
    
    
    10,024Holders of incentive distribution rights
    
    
    1,296
    
    
    
    582Accumulated other comprehensive loss
    
    
    (776
    )
    
    
    (802
    )Total partners capital
    
    
    436,298
    
    
    
    425,908Total liabilities and partners capital
    
    $
    723,846
    
    
    $
    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
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)Revenues:Coal royalties
    
    $
    36,527
    
    
    $
    37,957
    
    
    $
    75,637
    
    
    $
    70,487Oil and gas royalties
    
    
    928
    
    
    
    610
    
    
    
    2,647
    
    
    
    1,070Property taxes
    
    
    1,546
    
    
    
    1,547
    
    
    
    3,295
    
    
    
    2,981Minimums recognized as revenue
    
    
    250
    
    
    
    481
    
    
    
    621
    
    
    
    934Override royalties
    
    
    181
    
    
    
    209
    
    
    
    484
    
    
    
    824Other
    
    
    1,550
    
    
    
    893
    
    
    
    4,826
    
    
    
    1,648Total revenues
    
    
    40,982
    
    
    
    41,697
    
    
    
    87,510
    
    
    
    77,944Operating costs and expenses:Depreciation, depletion and amortization
    
    
    7,236
    
    
    
    8,625
    
    
    
    15,089
    
    
    
    16,504General and administrative
    
    
    3,420
    
    
    
    3,162
    
    
    
    7,535
    
    
    
    6,474Property, franchise and other taxes
    
    
    2,099
    
    
    
    1,954
    
    
    
    4,344
    
    
    
    3,784Coal royalty and override payments
    
    
    263
    
    
    
    745
    
    
    
    954
    
    
    
    1,298Total operating costs and expenses
    
    
    13,018
    
    
    
    14,486
    
    
    
    27,922
    
    
    
    28,060Income from operations
    
    
    27,964
    
    
    
    27,211
    
    
    
    59,588
    
    
    
    49,884Other income (expense)Interest expense
    
    
    (3,675
    )
    
    
    (2,570
    )
    
    
    (7,293
    )
    
    
    (5,027
    )Interest income
    
    
    755
    
    
    
    331
    
    
    
    1,273
    
    
    
    562Net income
    
    $
    25,044
    
    
    $
    24,972
    
    
    $
    53,568
    
    
    $
    45,419Net income attributable to:(1)General partner
    
    $
    2,253
    
    
    $
    1,155
    
    
    $
    4,348
    
    
    $
    1,985Other holders of incentive distribution rights
    
    $
    943
    
    
    $
    353
    
    
    $
    1,764
    
    
    $
    580Limited partners
    
    $
    21,848
    
    
    $
    23,464
    
    
    $
    47,456
    
    
    $
    42,854Basic and diluted net income per limited partner unit:Common
    
    $
    .86
    
    
    $
    .92
    
    
    $
    1.87
    
    
    $
    1.69Subordinated
    
    $
    .86
    
    
    $
    .92
    
    
    $
    1.87
    
    
    $
    1.69Weighted 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)
 Six months endedJune 30,2006
    
    
    2005(Unaudited)Cash flows from operating activities:Net income
    
    $
    53,568
    
    
    $
    45,419Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation, depletion and amortization
    
    
    15,089
    
    
    
    16,504Non-cash interest charge
    
    
    191
    
    
    
    125Gain from sale of assets
    
    
    (2,634
    )
    
    
    Change in operating assets and liabilities:Accounts receivable
    
    
    (107
    )
    
    
    (3,369
    )Other assets
    
    
    243
    
    
    
    601Accounts payable
    
    
    (20
    )
    
    
    (124
    )Accrued interest
    
    
    1,217
    
    
    
    169Deferred revenue
    
    
    408
    
    
    
    (2,331
    )Accrued incentive plan expenses
    
    
    1,510
    
    
    
    1,224Property, franchise and other taxes payable
    
    
    (305
    )
    
    
    (770
    )Net cash provided by operating activities
    
    
    69,160
    
    
    
    57,448Cash flows from investing activities:Acquisition of land, plant and equipment, coal and other mineral rights
    
    
    (51,438
    )
    
    
    (21,544
    )Proceeds from sale of assets
    
    
    4,761
    
    
    
    Net cash used in investing activities
    
    
    (46,677
    )
    
    
    (21,544
    )Cash flows from financing activities:Proceeds from loans
    
    
    50,000
    
    
    
    18,000Repayment of loans
    
    
    (24,350
    )
    
    
    (9,350
    )Distributions to partners
    
    
    (43,204
    )
    
    
    (35,897
    )Net cash used in financing activities
    
    
    (17,554
    )
    
    
    (27,247
    )Net increase in cash and cash equivalents
    
    
    4,929
    
    
    
    8,657Cash and cash equivalents at beginning of period
    
    
    47,691
    
    
    
    42,103Cash and cash equivalents at end of period
    
    $
    52,620
    
    
    $
    50,760Supplemental cash flow information:Cash paid during the period for interest
    
    $
    5,861
    
    
    $
    4,712
  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,
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3. Plant and Equipment
  June 30,
    
    
    December 31,2006
    
    
    2005(In thousands)(Unaudited)Plant and equipment at cost
    
    $
    6,019
    
    
    $
    6,019Accumulated depreciation
    
    
    259
    
    
    
    95Net book value
    
    $
    5,760
    
    
    $
    5,924
 Six months endedJune 30,2006
    
    
    2005(In thousands)(Unaudited)Total depreciation expense on plant and equipment
    
    $
    164
    
    
    $
    
 4. Coal and Other Mineral Rights
  June 30,
    
    
    December 31,2006
    
    
    2005(In thousands)(Unaudited)Coal and other mineral rights
    
    $
    784,896
    
    
    $
    734,242Less accumulated depletion and amortization
    
    
    (158,038
    )
    
    
    (143,783
    )Net book value
    
    $
    626,858
    
    
    $
    590,459
 Six months endedJune 30,2006
    
    
    2005(In thousands)(Unaudited)Total depletion and amortization expense on coal interests
    
    $
    14,599
    
    
    $
    16,020
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5. Long-Term Debt
  June 30,
    
    
    December 31,2006
    
    
    2005(In thousands)(Unaudited)$175 million floating rate revolving credit facility, due October 2010
    
    $
    10,000
    
    
    $
    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
    
    
    256,950
    
    
    
    231,300Less  current portion of long term debt
    
    
    (9,350
    )
    
    
    (9,350
    )Long-term debt
    
    $
    247,600
    
    
    $
    221,950
   6. Net Income Per Unit Attributable to Limited Partners
  7. Related Party Transactions
   8. Commitments and Contingencies
 Legal
  9




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Environmental Compliance
  9. Major Lessees
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Revenues
    
    Percent
    
    Revenues
    
    Percent
    
    Revenues
    
    Percent
    
    Revenues
    
    PercentDollars in thousands
    
    Dollars in thousands(Unaudited)
    
    (Unaudited)Lessee A
    
    $
    3,612
    
    
    
    9
    %
    
    $
    4,869
    
    
    
    11
    %
    
    $
    7,425
    
    
    
    8
    %
    
    $
    8,927
    
    
    
    11
    %Lessee B
    
    
    5,530
    
    
    
    13
    %
    
    
    5,241
    
    
    
    13
    %
    
    
    11,371
    
    
    
    13
    %
    
    
    10,027
    
    
    
    13
    %Lessee C
    
    
    2,766
    
    
    
    7
    %
    
    
    4,046
    
    
    
    13
    %
    
    
    5,512
    
    
    
    6
    %
    
    
    8,859
    
    
    
    11
    %Lessee D
    
    
    3,101
    
    
    
    8
    %
    
    
    4,881
    
    
    
    13
    %
    
    
    7,160
    
    
    
    8
    %
    
    
    8,207
    
    
    
    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 during the period
    
    
    (13,947
    )Forfeitures during the period
    
    
    Outstanding grants at the end of the period
    
    
    259,150
  11. Distributions
  12. Subsequent Events
 Distributions
  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 six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)Cash flow from operations
    
    $
    32,510
    
    
    $
    31,378
    
    
    $
    69,160
    
    
    $
    57,448Less scheduled principal payments
    
    
    (9,350
    )
    
    
    (9,350
    )
    
    
    (9,350
    )
    
    
    (9,350
    )Less reserves for future principal payments
    
    
    (2,350
    )
    
    
    (2,350
    )
    
    
    (4,700
    )
    
    
    (4,700
    )Add reserves used for scheduled principal payments
    
    
    9,400
    
    
    
    9,400
    
    
    
    9,400
    
    
    
    9,400Distributable cash flow
    
    $
    30,210
    
    
    $
    29,078
    
    
    $
    64,510
    
    
    $
    52,798
 Acquisitions
 2006 Acquisitions
 Williamson Development
 James River
 Allegany County, Maryland
 2005 Acquisitions
 Plum Creek.
 Williamson Development.
 Dolphin
 13




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Area F/Lexington
 AFG.
 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
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands, except per ton data)(Unaudited)Revenues:Coal royalties
    
    $
    36,527
    
    
    $
    37,957
    
    
    $
    75,637
    
    
    $
    70,487Oil and gas royalties
    
    
    928
    
    
    
    610
    
    
    
    2,647
    
    
    
    1,070Property taxes
    
    
    1,546
    
    
    
    1,547
    
    
    
    3,295
    
    
    
    2,981Minimums recognized as revenue
    
    
    250
    
    
    
    481
    
    
    
    621
    
    
    
    934Override royalties
    
    
    181
    
    
    
    209
    
    
    
    484
    
    
    
    824Other
    
    
    1,550
    
    
    
    893
    
    
    
    4,826
    
    
    
    1,648Total revenues
    
    
    40,982
    
    
    
    41,697
    
    
    
    87,510
    
    
    
    77,944Operating costs and expenses:Depreciation, depletion and amortization
    
    
    7,236
    
    
    
    8,625
    
    
    
    15,089
    
    
    
    16,504General and administrative
    
    
    3,420
    
    
    
    3,162
    
    
    
    7,535
    
    
    
    6,474Property, franchise and other taxes
    
    
    2,099
    
    
    
    1,954
    
    
    
    4,344
    
    
    
    3,784Coal royalty and override payments
    
    
    263
    
    
    
    745
    
    
    
    954
    
    
    
    1,298Total expenses
    
    
    13,018
    
    
    
    14,486
    
    
    
    27,922
    
    
    
    28,060Income from operations
    
    
    27,964
    
    
    
    27,211
    
    
    
    59,588
    
    
    
    49,884Other income (expense):Interest expense
    
    
    (3,675
    )
    
    
    (2,570
    )
    
    
    (7,293
    )
    
    
    (5,027
    )Interest income
    
    
    755
    
    
    
    331
    
    
    
    1,273
    
    
    
    562Net income
    
    $
    25,044
    
    
    $
    24,972
    
    
    $
    53,568
    
    
    $
    45,419Other Data:Coal royaltiesAppalachiaNorthern
    
    $
    2,730
    
    
    $
    2,105
    
    
    $
    6,038
    
    
    $
    4,569Central
    
    
    24,543
    
    
    
    25,894
    
    
    
    50,385
    
    
    
    48,072Southern
    
    
    5,133
    
    
    
    6,346
    
    
    
    10,617
    
    
    
    11,357Total Appalachia
    
    
    32,406
    
    
    
    34,345
    
    
    
    67,040
    
    
    
    63,998Illinois Basin
    
    
    1,704
    
    
    
    1,093
    
    
    
    3,656
    
    
    
    2,400Northern Powder River Basin
    
    
    2,417
    
    
    
    2,519
    
    
    
    4,941
    
    
    
    4,089Total
    
    $
    36,527
    
    
    $
    37,957
    
    
    $
    75,637
    
    
    $
    70,487Production (tons)AppalachiaNorthern
    
    
    1,482
    
    
    
    1,108
    
    
    
    3,214
    
    
    
    2,416Central
    
    
    7,982
    
    
    
    8,958
    
    
    
    16,176
    
    
    
    17,197Southern
    
    
    1,436
    
    
    
    1,675
    
    
    
    2,862
    
    
    
    2,999Total Appalachia
    
    
    10,900
    
    
    
    11,741
    
    
    
    22,252
    
    
    
    22,612Illinois Basin
    
    
    977
    
    
    
    707
    
    
    
    2,140
    
    
    
    1,574Northern Powder River Basin
    
    
    1,497
    
    
    
    1,665
    
    
    
    2,998
    
    
    
    2,697Total
    
    
    13,374
    
    
    
    14,113
    
    
    
    27,390
    
    
    
    26,883Average gross royalty per tonAppalachiaNorthern
    
    $
    1.84
    
    
    $
    1.90
    
    
    $
    1.88
    
    
    $
    1.89Central
    
    
    3.07
    
    
    
    2.89
    
    
    
    3.11
    
    
    
    2.80Southern
    
    
    3.58
    
    
    
    3.79
    
    
    
    3.71
    
    
    
    3.79Total Appalachia
    
    
    2.97
    
    
    
    2.93
    
    
    
    3.01
    
    
    
    2.83Illinois Basin
    
    
    1.74
    
    
    
    1.55
    
    
    
    1.71
    
    
    
    1.52Northern Powder River Basin
    
    
    1.61
    
    
    
    1.51
    
    
    
    1.65
    
    
    
    1.52Total
    
    $
    2.73
    
    
    $
    2.69
    
    
    $
    2.76
    
    
    $
    2.62
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Three months ended June 30, 2006 compared with three months ended June 30, 2005
 Revenues
  Appalachia.
  
    
    Sincell  production decreased from 661,000 tons to 85,000 tons and coal royalty
revenues decreased from $1.1 million to $158,000. The decreased tonnage was due to a
greater proportion of production from the longwall unit being on adjacent property.
  
    
    VICC/Kentucky Land  production increased from 758,000 tons to 899,000 tons and
coal royalty revenues increased from $2.5 million to $3.3 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.
    
    Plum Creek properties  production increased from 174,000 tons to 452,000 tons and
coal royalty revenues increased from $541,000 to $1.2 million. The increased production
was due primarily to new mines in West Virginia increasing production on the
properties.
    
    Pinnacle  production decreased from 788,000 tons to 533,000 tons and coal royalty
revenues decreased from $3.3 million to $1.8 million. The decreased tonnage was due to
a greater proportion of production from the mines being on adjacent property.
    
    Eunice  production decreased from 781,000 tons to 222,000 tons and coal royalty
revenues decreased from $1.9 million to $789,000 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 224,000 tons to zero tons and
coal royalty revenues decreased from $742,000 to zero. 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.
  16




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
    
    Twin Pines/Drummond  production increased from 136,000 tons to 152,000 tons but coal
royalty revenues decreased from $1.2 million to $744,000. The decreased royalty revenue
was due to a temporary royalty reduction to partially offset the acquisition of surface
property by the operator that allowed our coal to be mined.
    
    BLC Properties  production decreased from 1.1 million tons to 929,000 tons and coal
royalty revenues decreased from $3.5 to $3.0 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 457,000 tons to 354,000 tons and coal royalty
revenues decreased from $1.5 million to $1.3 million. The decreases were due to
slightly lower production from the mine, which was partially offset by higher sales
prices received by our lessee.
 Illinois Basin
 
    
    Hocking Wolford/Cummings  production increased from 360,000 tons to 588,000 tons
and coal royalty revenues increased from $498,000 to $897,000. The increases were due
to a greater proportion of the production from the mine being on our property.
    
    Sato  production increased from 267,000 tons to 312,000 tons and coal royalty
revenues increased from $458,000 to $676,000. The increases were due to slight increase
in production from the mine and higher sales price received by our lessee.
 Northern Powder River Basin
 Other revenues.
 Operating costs and expenses.
 
    
    Depletion and amortization of $7.2 million for the quarter ended June 30, 2006 compared
to $8.6 million for the same period in 2005. This was primarily attributed to a reduction
in overall production;
    
    General and administrative expenses of $3.4 million for the second quarter of 2006,
compared to $3.2 million for the second quarter of 2005, an increase of $0.2 million, or 6%.
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; and
    
    Property, franchise and other taxes of $2.1 million for the second quarter of 2006,
compared to $2.0 million for the second 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 the first quarter last year.
 Interest Expense.
 17




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Six months ended June 30, 2006 compared with six months ended June 30, 2005
 Revenues
  Appalachia.
  
    
    Sincell  production decreased from 1.5 million tons to 493,000 tons and coal
royalty revenues decreased from $2.7 million to $814,000. The decreased tonnage was
due to a greater proportion of production from the longwall unit being on adjacent
property.
  
    
    VICC/Kentucky Land  production increased from 1.3 million tons to 1.8 million tons
and coal royalty revenues increased from $4.3 million to $6.5 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 2.6 million tons to 2.7 million tons and coal
royalty revenues increased from $5.6 million to $6.9 million. The increased tonnage
was due to a new mine starting on our property.
    
    VICC/Alpha  production decreased slightly from 3.3 million tons to 3.2 million
tons and coal royalty revenues increased from $8.4 million to $9.7 million. The
increased coal royalty revenues were due to higher sales prices being realized by our
lessees.
    
    Kingston  production increased from 804,000 tons to 976,000 tons and coal royalty
revenues increased from $2.2 million to $3.0 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 253,000 tons to 723,000 tons and
coal royalty revenues increased from $723,000 to $1.8 million. The increased production
was due primarily to new mines in West Virginia increasing production on the
properties.
    
    Pinnacle  production decreased from 1.4 million tons to 1.2 million tons and coal
royalty revenues decreased from $5.3 million to $4.3 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.
 18




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
    
    Eunice  production decreased from 1.7 million tons to 500,000 tons and coal royalty
revenues decreased from $4.3 million to $1.8 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 353,000 tons to 42,000 tons
and coal royalty revenues decreased from $1.1 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.
  
    
    BLC Properties  production decreased from 1.9 million tons to 1.8 million tons and
coal royalty revenues decreased from $6.5 to $6.0 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.
 Illinois Basin
 Northern Powder River Basin
 Other revenues.
 Operating costs and expenses.
 
    
    Depletion and amortization of $15.1 million for the six months ended June 30, 2006
compared to $16.5 million for the same period in 2005, representing a decrease of $1.4
million. Fluctuations in depletion are dependent on the depletion rates where coal is mined
and can cause total depletion to be lower in periods where production is actually up;
    
    General and administrative expenses of $7.5 million for the first half of 2006, compared
to $6.5 million for the six months ended June 30, 2005, an increase of $1.0 million, or 15%.
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 $4.3 million for the first half of 2006, compared
to $3.8 million for the first half of 2005, an increase of $0.5 million, or 13%, due to an
increase in franchise taxes for 2006, as well as taxes on additional properties acquired
since the first quarter last year.
 Interest Expense.
 
 Related Party Transactions
 Partnership Agreement
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Liquidity and Capital Resources
 Cash Flows and Capital Expenditures
     Contractual Obligations and Commercial Commitments
  
    
    $10 million outstanding under our $175 million revolving credit facility that matures in October 2010;
    
    $50.1 million of 5.55% senior notes due 2023, with a 10-year average life;
    
    $61.85 million of 4.91% senior notes due 2018, with a 7.5-year average life;
    
    $35 million of 5.55% senior notes due 2013, with a 9-year average life; and
    
    $100 million of 5.05% senior notes due 2020, with a 9-year average life.
 Credit Facility.
  20




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##### Table of Contents




    
    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.
  Payments due by period(1)Contractual Obligations
    
    Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterLong-term debt
(including current
maturities)
    
    $
    345.60
    
    
    $
    6.40
    
    
    $
    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
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Off-Balance Sheet Transactions
  Inflation
  
 Environmental
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Commodity Price Risk
  Interest Rate Risk
  
 Item 4. Controls and Procedures
  22




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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:  By:
    NRP (GP) LP, its general partnerGP NATURAL RESOURCE
PARTNERS LLC, its general partner  By:
    /s/ Corbin J. Robertson, Jr.Corbin J. Robertson, Jr.,Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)  By:
    /s/ Dwight L. DunlapDwight L. Dunlap,Chief Financial Officer and
Treasurer
(Principal Financial Officer)  By:
    /s/ Kenneth HudsonKenneth HudsonController
(Principal Accounting Officer) 26




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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. 27