Related-Party Transactions | 9. Related-Party Transactions Overview Affiliated entities of FELP principally include: (a) Murray Energy, owner of a 80% interest in our general partner (effective March 28, 2017) and owner of all of the outstanding subordinated limited partner units, (b) Entities owned and controlled by Chris Cline, the former majority owner and former chairman of our general partner and (c) through May 9, 2017, Natural Resource Partners LP (“NRP”) and its affiliates, for which Chris Cline directly and indirectly beneficially owned a 31% and 4% interest in the general and limited partner interests of NRP, respectively. On May 9, 2017, the affiliate owned by Chris Cline sold its holdings in NRP’s general partner. As a result, NRP and its affiliates were not treated as related parties after May 9, 2017. We routinely engage in transactions in the normal course of business with Murray Energy and its subsidiaries, NRP and its subsidiaries and Foresight Reserves and its affiliates. These transactions include, among others, production royalties, transportation services, administrative arrangements, coal handling and storage services, supply agreements, service agreements, land leases and sale-leaseback financing arrangements. We also acquire mining equipment from subsidiaries of Murray Energy. Murray Investments In April 2015, Foresight Reserves and Murray Energy executed a purchase and sale agreement whereby Murray Energy paid Foresight Reserves $1.37 billion to acquire a 34% voting interest in FEGP, 77.5% of FELP’s incentive distribution rights (“IDR”) and nearly 50% of the outstanding limited partner units in FELP, including all of the outstanding subordinated units. On March 27, 2017, Murray Energy contributed $60.6 million in cash (the “Murray Investment”) to us in exchange for 9,628,108 common units of FELP. On March 28, 2017, following completion of the Refinancing Transactions, Murray Energy exercised its FEGP Option to acquire an additional 46% voting interest in FEGP from Foresight Reserves and Beyer pursuant to the terms of an option agreement, dated April 16, 2015, among Murray Energy, Reserves and Beyer, as amended, thereby increasing Murray Energy’s voting interest in the General Partner to 80%. The aggregate exercise price of the FEGP Option was $15 million. FEGP has continued to govern the Partnership subsequent to this transaction. Murray Energy is also a holder of 17,556 of FELP’s outstanding warrants as of June 30, 2017. Following the exercise of the FEGP Option, pursuant to the operating agreement of the General Partner, all members of the board of directors of the General Partner (the “Board”), other than Paul Vining, are deemed appointed by Murray Energy and can be removed and replaced by Murray Energy at its sole discretion. Murray Energy is entitled to appoint a majority of the Board. On March 28, 2017, Chris Cline resigned from the Board and from his role as Principal Strategy Advisor. In connection with the departure of Mr. Cline, Robert D. Moore now serves as Chairman of the Board and Mr. Robert Edward Murray became a member of the Board. Mr. Murray currently serves as the Executive Vice President of Marketing and Sales at Murray Energy. These changes came by way of the amended general partner operating agreement that went into effect upon the exercise of the FEGP Option. Murray Energy Management Services Agreement In April 2015, a management services agreement (“MSA”) was executed between FEGP and Murray American Coal, Inc. (the ”Manager”), a wholly-owned subsidiary of Murray Energy, pursuant to which the Manager provided certain management and administration services to FELP for a quarterly fee of $3.5 million ($14.0 million on an annual basis), subject to contractual adjustments. To the extent that FELP or FEGP directly incurs costs for any services covered under the MSA, then the Manager’s quarterly fee is reduced accordingly. Also, to the extent that the Manager utilizes outside service providers to perform any of the services under the MSA, then the Manager is responsible for those outside service provider costs. The initial term of the MSA extends through December 31, 2022 and is subject to termination provisions. Upon the exercise of the FEGP Option, the General Partner entered into an amended and restated MSA pursuant to which the quarterly fee for the Manager to provide certain management and administration services to FELP was increased to $5.0 million ($20.0 million on an annual basis) and is subject to future contractual escalations and adjustments. After taking into account the contractual adjustments for direct costs incurred by FELP, the amount of net expense due to the Manager for the three months ended June 30, 2017 and 2016 was $3.7 million and $2.5 million, respectively, and was $2.5 million, $3.7 million and $4.6 million for the period from January 1, 2017 to March 31, 2017, for the period from April 1, 2017 to June 30, 2017, and for the six months ended June 30, 2016, respectively. Murray Energy Transport Lease and Overriding Royalty Agreements For the three months ended June 30, 2017 and 2016, we recorded other revenues of $1.8 million and $1.2 million, respectively, under the transport lease (the “Transport Lease”) with American Energy Corporation (“American Energy”), a subsidiary of Murray Energy, and for the period from January 1, 2017 to March 31, 2017, for the period from April 1, 2017 to June 30, 2017, and the six months ended June 30, 2016, we recorded other revenues of $1.6 million, $1.8 million and $3.0 million, respectively. The total remaining minimum payments under the Transport Lease was $88.3 million at June 30, 2017, with unearned income equal to $31.2 million. As of June 30, 2017, the outstanding Transport Lease financing receivable was $57.1 million, of which $2.8 million was classified as current in the condensed consolidated balance sheet. For the three months ended June 30, 2017 and 2016, we recorded other revenues of $0.6 million and $0.5 million, respectively, under the overriding royalty agreement (the “ORRA”) with Murray Energy subsidiaries’ American Energy and Consolidated Land Company, and for the period from January 1, 2017 to March 31, 2017, for the period from April 1, 2017 to June 30, 2017, and for the six months ended June 30, 2016, we recorded other revenues of $0.8 million, $0.6 million and $1.2 million, respectively. The total remaining minimum payments under the ORRA was $31.1 million at June 30, 2017, with unearned income equal to $19.5 million. As of June 30, 2017, the outstanding ORRA financing receivable was $11.6 million, of which $0.2 million was classified as current in the condensed consolidated balance sheet. Other Murray Energy Transactions During the three months ended June 30, 2017 and 2016, we purchased $3.3 million and $1.3 million, respectively, in equipment, supplies and rebuild services from affiliates of Murray Energy, and for the period from January 1, 2017 to March 31, 2017, for the period from April 1, 2017 to June 30, 2017, and for the six months ended June 30, 2016, we purchased $2.1 million, $3.3 million and $1.7 million, respectively. During the three months ended June 30, 2017 and 2016, we provided $0.1 million and $0.3 million, respectively, in equipment, supplies and rebuild services to affiliates of Murray Energy. We provided equipment, supplies and rebuild services to affiliates of Murray Energy of $0.1 million, $0.1 million and $0.5 million for the period from January 1, 2017 to March 31, 2017, for the period from April 1, 2017 to June 30, 2017, and for the six months ended June 30, 2016, respectively. From time to time, we purchase and sell coal to Murray Energy and its affiliates to, among other things, meet customer contractual obligations. We also sell coal to Javelin Global Commodities Limited (“Javelin”), an international commodities marketing and trading joint venture owned by Murray Energy, Uniper ; and management of Javelin, as our primary outlet for export sales. F During the three months ended June 30, 2017 and 2016, we also paid Javelin $0.4 million and $0 million, respectively, in sales commissions. For the period from January 1, 2017 to March 31, 2017, for the period from April 1, 2017 to June 30, 2017, and for the six months ended June 30, 2016, we paid Javelin commissions of $0.7 million, $0.4 million and $0 million, respectively. During the three months ended June 30, 2017 and 2016, we earned $0.2 million and $0.3 million, respectively, in other revenues for Murray Energy’s usage of our Sitran terminal, and for the period from January 1, 2017 to March 31, 2017, for the period from April 1, 2017 to June 30, 2017, and for the six months ended June 30, 2016, Sitran earned usage fees from Murray Energy of $0.2 million, $0.2 million and $0.8 million, respectively. Murray Energy transports coal under our transportation agreement with a third-party rail company resulting in usage fees owed to the third-party rail company. These usage fees are billed to Murray Energy, resulting in no impact to our condensed consolidated statements of operations. The usage of the railway line with this third-party rail company by Murray Energy counts toward the minimum annual throughput volume requirement with the third-party rail company, thereby reducing the Partnership’s exposure to certain contractual liquidated damage charges. From time to time, we also reimburse Murray Energy for costs paid by them on our behalf, including certain insurance premiums. Reserves Investor Group In connection with the August 2016 debt restructuring transactions, the Reserves Investor Group (as defined below) acquired $179.9 million of 2017 Exchangeable PIK Notes and $15.2 million of the Prior Second Lien Notes. The Reserves Investor Group includes Christopher Cline, the four trusts established for the benefit of Mr. Cline’s children (the “Cline Trust”), Michael J. Beyer, the former Chief Executive Officer of FEGP, and owner of 0.66% of the voting and 0.225% of the economic interests of FEGP, and certain other limited liability companies owned or controlled by individuals with limited partner interests in Foresight Reserves through indirect ownership. As part of the Refinancing Transactions, the Reserves Investor Group’s outstanding principal and accrued and unpaid interest was repaid consistent with the unaffiliated owners of those debt facilities. The Cline Trust acquired $20.0 million of 2023 Second Lien Notes and $10.0 million of the New Term Loan on consistent terms as the unaffiliated owners of these notes Mineral Reserve Leases Our mines have a series of mineral reserve leases with Colt, LLC and Ruger, LLC (“Ruger”), subsidiaries of Foresight Reserves. Each of these leases have initial terms of 10 years with six renewal periods of five years each, at the election of the lessees, and generally require the lessees to pay the greater of $3.40 per ton or 8.0% of the gross sales price, as defined in the respective agreements, of such coal. We also have overriding royalty agreements with Ruger pursuant to which we pay royalties equal to 8.0% of the gross selling prices, as defined in the agreements. Each of these mineral reserve leases generally require a minimum annual royalty payment, which is recoupable only against actual production royalties from future tons mined during the period of ten years following the date on which any such royalty is paid. We also lease mineral reserves under lease agreements with subsidiaries of NRP, including WPP LLC (“WPP”), HOD LLC (“HOD”), and Independence Energy, LLC (“Independence”). The initial terms of these agreements vary, however, each carries an option by the lessee to extend the leases until all merchantable and mineable coal has been mined and removed. Royalty payments under these arrangements are generally determined based on the greater of a minimum per ton amount (ranging from $2.50 per ton to $5.40 per ton) or a percentage of the gross sales price (generally 8.0% - 9.0%), as defined in the respective agreements. We are also subject under certain of these mineral reserve agreements to overriding royalties and/or wheelage fees. Our mineral reserve leases with NRP subsidiaries also require minimum quarterly royalties which are generally recoupable on future tons mined and sold during the preceding five-year period from the excess tonnage royalty payments on a first paid, first recouped basis. In April 2017, Williamson entered into the eighth amendment to the coal mining lease agreement with WPP which primarily served to, for the remainder of 2017 only, (a) include an overriding royalty payment provision equal to the greater of 5% of the gross selling price of the coal, as defined in the agreement, or $1.56 per ton, and (b) increase the quarterly minimum deficiency payment from $2.0 million to $2.1 million. In July 2015, we provided notice to WPP declaring a force majeure event at our Hillsboro mine due to elevated carbon monoxide levels as a result of a combustion event, which has required the stoppage of mining operations since March 2015. As a result of the force majeure event, we have not made $61.0 million in minimum deficiency payments to WPP in accordance with the force majeure provisions of the royalty agreement. WPP is asserting that the stoppage of mining operations as a result of the combustion event does not constitute an event of force majeure under the royalty agreement (see Note 12). Sale-Leaseback Financing Arrangements In 2009, Macoupin sold certain of its coal reserves and rail facility assets to WPP and leased them back. The gross proceeds from this transaction were $143.5 million. As Macoupin has continuing involvement in the assets sold, the transaction is treated as a financing arrangement. The Macoupin financing arrangement has been adjusted to fair value as part of pushdown accounting which resulted in an adjusted carrying value of $133.2 million as of June 30, 2017 and an effective interest rate of 14.1%. In 2012, Sugar Camp sold certain rail facility assets to HOD and leased them back. The gross proceeds from this transaction were $50.0 million. As Sugar Camp has continuing involvement in the assets sold, the transaction is treated as a financing arrangement. The Sugar Camp financing arrangement has been adjusted to fair value as part of pushdown accounting which resulted in an adjusted carrying value of $67.8 million as of June 30, 2017 and an effective interest rate of 8.2%. Limited Partnership Agreement The general partner manages the Partnership’s operations and activities as specified in the partnership agreement. The general partner of the Partnership is managed by its board of directors. Murray Energy and Foresight Reserves have the right to appoint the directors of the general partner. The members of the board of directors of the general partner are not elected by the unitholders and are not subject to reelection by the unitholders. The officers of the general partner manage the day-to-day affairs of the Partnership’s business. The partnership agreement provides that the Partnership will reimburse its general partner for all direct and indirect expenses incurred or payments made by the general partner on behalf of the Partnership. The following table summarizes certain affiliate amounts included in our condensed consolidated balance sheets: (Successor) (Predecessor) Affiliated Company Balance Sheet Location June 30, 2017 December 31, 2016 (In Thousands) (In Thousands) Murray Energy and affiliated entities (1) Due from affiliates - current $ 22,631 $ 16,784 NRP and affiliated entities Due from affiliates - current n/a (4) 107 Total $ 22,631 $ 16,891 Murray Energy and affiliated entities Financing receivables - affiliate - current $ 3,019 $ 2,904 Total $ 3,019 $ 2,904 Murray Energy and affiliated entities Due from affiliates - noncurrent $ 947 $ 1,843 Total $ 947 $ 1,843 Murray Energy and affiliated entities Financing receivables - affiliate - noncurrent $ 65,696 $ 67,235 Total $ 65,696 $ 67,235 Foresight Reserves and affiliated entities (2) Prepaid royalties - current and noncurrent $ 1,977 $ 7,599 NRP and affiliated entities (2) Prepaid royalties - current and noncurrent n/a (4) 1,246 Total $ 1,977 $ 8,845 NRP and affiliated entities Sales-leaseback financing arrangements - current and noncurrent n/a (4) $ 191,869 NRP and affiliated entities Accrued interest n/a (4) $ 2,930 Murray Energy and affiliated entities (1) Due to affiliates - current $ 8,000 $ 17,021 Foresight Reserves and affiliated entities (3) Due to affiliates - current 387 1,373 NRP and affiliated entities Due to affiliates - current n/a (4) 2,510 Total $ 8,387 $ 20,904 (1) – Includes amounts due to/from from Javelin, a joint venture partially owned by Murray Energy. (2) – Prepaid royalties with Foresight Reserves and affiliated entities and NRP and affiliated entities is presented net of a reserve of $74,575 and $33,965, respectively, as of December 31, 2016. (3) – As of December 31, 2016, includes amounts due to/from a joint venture partially owned by an affiliate of The Cline Group. On March 31, 2017, The Cline Group sold its interest in the joint venture to the unaffiliated member therefore this joint venture will not be an affiliated party prospectively. (4) – As a result of Chris Cline’s affiliate selling its interest in NRP’s general partner on May 8, 2017, NRP is no longer considered to be an affiliate of FELP. A summary of certain expenditures and expenses (revenues) incurred with affiliated entities is as follows for the three months ended June 30, 2017 and 2016, the period from January 1, 2017 to March 31, 2017, the period from April 1, 2017 to June 30, 2017 and the six months ended June 30, 2016 (in thousands): (Successor) (Predecessor) (Successor) (Predecessor) (Predecessor) Three Months Ended June 30, 2017 Three Months Ended June 30, 2016 Period from April 1, 2017 to June 30, 2017 Period from January 1, 2017 to March 31, 2017 Six Months Ended June 30, 2016 Coal sales – Murray Energy and affiliated entities (including Javelin) (1) $ (40,310 ) $ — $ (40,310 ) $ (60,749 ) $ 30 Overriding royalty and lease revenues – Murray Energy and affiliated entities (2) $ (2,412 ) $ (1,645 ) $ (2,412 ) $ (2,355 ) $ (4,115 ) Terminal revenues - Murray Energy and affiliated entities (2) $ (166 ) $ (262 ) $ (166 ) $ (226 ) $ (780 ) Royalty expense – (3) $ 710 $ 4,442 $ 710 $ 3,669 $ 7,286 Royalty expense – Foresight Reserves and affiliated entities (3) $ 6,735 $ 3,710 $ 6,735 $ 1,521 $ 7,157 Loadout services – NRP and affiliated entities (3) $ 746 $ 1,937 $ 746 $ 2,134 $ 3,660 Purchased goods and services – Murray Energy and affiliated entities (4) $ 3,274 $ 1,308 $ 3,274 $ 2,061 $ 1,700 Purchased coal - Murray Energy and affiliated entities (5) $ — $ — $ — $ 7,973 $ 551 Sales commissions - Murray Energy and affiliated entities (including Javelin) (6) $ 367 $ — $ 367 $ 692 $ — Management services, net – Murray Energy and affiliated entities (6) $ 3,713 $ 2,491 $ 3,713 $ 2,547 $ 4,570 Sales-leaseback interest expense - NRP and affiliated entities (7) $ 2,012 $ 6,540 $ 2,012 $ 6,244 $ 12,403 Principal location in the condensed consolidated financial statements: (1) – Coal sales (2) – Other revenues (3) – Cost of coal produced (excluding depreciation, depletion and amortization) (4) – Cost of coal produced (excluding depreciation, depletion and amortization) and property, plant and equipment and development, net, as applicable (5) – Cost of coal purchased (6) – Selling, general and administrative (7) – Interest expense, net For the three months ended June 30, 2017, transactions with NRP and affiliated are only included in the table above through April 30, 2017 as a result of NRP no longer being an affiliate subsequent to Chris Cline’s affiliate selling its interest in NRP’s general partner on May 8, 2017. We also purchased $3.0 million in mining supplies from an affiliated joint venture under a supply agreement during the period from January 1, 2017 to March 31, 2017 and $1.0 million and $3.2 million during the three and six months ended June 30, 2016, respectively. This joint venture was no longer an affiliate subsequent to March 31, 2017. |