Alliance Resource Partners closed the second quarter of 2026 with a distribution coverage ratio of 1.39x, the strongest reading in a year, on the back of a record Oil & Gas Royalties print and a sharp Appalachia turnaround. Net income attributable to ARLP for the quarter rose 33.9% year-over-year to $79.6 million, or $0.61 per basic and diluted limited partner unit, while the partnership simultaneously closed a $206.2 million oil & gas mineral acquisition on the first day of the third quarter that materially expands the segment that is doing the work. The single load-bearing observation is that the Oil & Gas Royalties segment is no longer a rounding error: at a record $38.0 million of Segment Adjusted EBITDA in a single quarter, the segment is on pace to generate more cash flow than Appalachia Coal Operations and to fund the partnership's diversification without pulling the consolidated leverage covenant. ARLP trades at roughly $25 per unit on the August 12, 2026 reference close, against a $2.40 annualized cash distribution, for a forward yield of approximately 9.6%, with reported leverage of 0.82x trailing twelve months Adjusted EBITDA before the new subsidiary term loan even lands on the balance sheet. The market is pricing ARLP as a melting-icecube coal MLP, with the royalty segment treated as a free option. We see the print as evidence that the option is being exercised.
The mechanism that makes the print matter, and not just a flattering quarter, is the longwall calendar. Hamilton's planned extended longwall move compressed Illinois Basin coal volumes by 4.5% in the second quarter and cost approximately $10 million of Segment Adjusted EBITDA at the ILB level, and management has stated that no further longwall moves are scheduled at any of the three operating longwall complexes (Hamilton, River View, Tunnel Ridge) until 2027. With Hamilton back on longwall in the third quarter and Tunnel Ridge running at the higher productivity and recovery levels it just demonstrated, third-quarter coal volumes are positioned to be the highest of the year, and the per-ton cost structure that already fell 6.3% year-over-year to $38.68 per ton at the consolidated coal level has another leg of operating leverage to give. The royalty segment adds its own tailwind: the AllDale III & IV acquisition closed July 1, 2026 and is described as immediately accretive to free cash flow per unit, adding 48,500 net royalty acres across the Permian, Anadarko, Bakken and Haynesville. Oil & Gas Royalties guidance was raised to 1.95-2.05 million barrels of oil and 10.0-10.5 billion cubic feet of natural gas for the full year, and average sales price per BOE jumped 22.7% year-over-year to $49.43 in the second quarter alone. The market is mispricing the speed at which the cash distribution profile is improving.
The single load-bearing risk is the roll-off of the higher-priced legacy coal contract book. Coal revenue from long-term contracts is $963 million in 2026, $1.39 billion in 2027, $839 million in 2028 and $443 million in 2029 and thereafter, a step-down that is the structural shadow over the entire MLP and that explains why the yield sits at 9.6% rather than the 1-4% range of C-corp coal producers. The 2027 contract book is roughly 65% of 2026; the 2028 book is roughly 41% of 2026. Management added 21.2 million committed and priced tons during the second quarter covering 2026-2031, including 29.4 million tons already locked in for 2027 delivery, but the realized pricing of the new contracts versus the legacy book is the load-bearing question. The falsifiable clock for the next 90 days is the third-quarter print in late October or early November, when the partnership reports whether the longwall recovery and the AllDale integration delivered the $108 million-plus Distributable Cash Flow base case that the 1.39x coverage ratio in the second quarter depends on holding in the back half of the year.