UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from ________________to________________
Commission File No.:
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As of November 8, 2023,
TABLE OF CONTENTS
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ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES | ||
Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 | 1 | |
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Management's Discussion and Analysis of Financial Condition and Results of Operations | 25 | |
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i
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
(Unaudited)
September 30, | December 31, | ||||||
2023 |
| 2022* | |||||
ASSETS |
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CURRENT ASSETS: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Trade receivables |
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Other receivables |
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Inventories, net |
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Advance royalties |
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Prepaid expenses and other assets |
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Total current assets |
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PROPERTY, PLANT AND EQUIPMENT: | |||||||
Property, plant and equipment, at cost |
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Less accumulated depreciation, depletion and amortization |
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Total property, plant and equipment, net |
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OTHER ASSETS: | |||||||
Advance royalties |
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Equity method investments |
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Equity securities | |
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Operating lease right-of-use assets | | | |||||
Other long-term assets |
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Total other assets |
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TOTAL ASSETS | $ | | $ | | |||
LIABILITIES AND PARTNERS' CAPITAL | |||||||
CURRENT LIABILITIES: | |||||||
Accounts payable | $ | | $ | | |||
Accrued taxes other than income taxes |
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Accrued payroll and related expenses |
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Accrued interest |
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Workers' compensation and pneumoconiosis benefits |
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Other current liabilities |
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Current maturities, long-term debt, net |
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Total current liabilities |
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LONG-TERM LIABILITIES: | |||||||
Long-term debt, excluding current maturities, net |
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Pneumoconiosis benefits |
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Accrued pension benefit |
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Workers' compensation |
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Asset retirement obligations |
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Long-term operating lease obligations |
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Deferred income tax liabilities |
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Other liabilities |
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Total long-term liabilities |
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Total liabilities |
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COMMITMENTS AND CONTINGENCIES - (NOTE 3) | |||||||
PARTNERS' CAPITAL: | |||||||
ARLP Partners' Capital: | |||||||
Limited Partners - Common Unitholders |
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General Partner's interest |
| — |
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Accumulated other comprehensive loss |
| ( |
| ( | |||
Total ARLP Partners' Capital |
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Noncontrolling interest | | | |||||
Total Partners' Capital | | | |||||
TOTAL LIABILITIES AND PARTNERS' CAPITAL | $ | | $ | |
*Recast as discussed in Note 1 – Organization and Presentation.
See notes to condensed consolidated financial statements.
1
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except unit and per unit data)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2023 |
| 2022* |
| 2023 |
| 2022* |
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SALES AND OPERATING REVENUES: | |||||||||||||
Coal sales | $ | | $ | | $ | | $ | | |||||
Oil & gas royalties | | | | | |||||||||
Transportation revenues |
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Other revenues |
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Total revenues |
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EXPENSES: | |||||||||||||
Operating expenses (excluding depreciation, depletion and amortization) |
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Transportation expenses |
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Outside coal purchases |
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| — |
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General and administrative |
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Depreciation, depletion and amortization |
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Total operating expenses |
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INCOME FROM OPERATIONS |
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Interest expense (net of interest capitalized for the three and nine months ended September 30, 2023 and 2022 of $ |
| ( |
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Interest income |
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Equity method investment income (loss) |
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Other income (expense) |
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INCOME BEFORE INCOME TAXES |
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INCOME TAX EXPENSE |
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NET INCOME | | | | | |||||||||
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST | ( |
| ( |
| ( |
| ( | ||||||
NET INCOME ATTRIBUTABLE TO ARLP | $ | | $ | | $ | | $ | | |||||
NET INCOME ATTRIBUTABLE TO ARLP | |||||||||||||
GENERAL PARTNER | $ | — | $ | | $ | | $ | | |||||
LIMITED PARTNERS | $ | | $ | | $ | | $ | | |||||
EARNINGS PER LIMITED PARTNER UNIT - BASIC AND DILUTED | $ | | $ | | $ | | $ | | |||||
WEIGHTED-AVERAGE NUMBER OF UNITS OUTSTANDING – BASIC AND DILUTED |
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* Recast as discussed in Note 1 – Organization and Presentation.
See notes to condensed consolidated financial statements.
2
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | |||||||||||
2023 |
| 2022* |
| 2023 |
| 2022* |
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NET INCOME | $ | | $ | | $ | | $ | | |||||
OTHER COMPREHENSIVE INCOME: | |||||||||||||
Defined benefit pension plan | |||||||||||||
Amortization of prior service cost (1) | | | | | |||||||||
Amortization of net actuarial loss (1) |
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Total defined benefit pension plan adjustments |
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Pneumoconiosis benefits | |||||||||||||
Amortization of net actuarial loss (1) |
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Total pneumoconiosis benefits adjustments |
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OTHER COMPREHENSIVE INCOME |
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COMPREHENSIVE INCOME | | | | | |||||||||
Less: Comprehensive income attributable to noncontrolling interest | ( | ( | ( | ( | |||||||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO ARLP | $ | | $ | | $ | | $ | |
(1) | Amortization of prior service cost and net actuarial loss is included in the computation of net periodic benefit cost (credit) (see Notes 13 and 15 for additional details). |
* Recast as discussed in Note 1 – Organization and Presentation.
See notes to condensed consolidated financial statements.
3
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended | |||||||
September 30, | |||||||
| 2023 |
| 2022* |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES | $ | | $ | | |||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Property, plant and equipment: | |||||||
Capital expenditures |
| ( |
| ( | |||
Change in accounts payable and accrued liabilities |
| ( |
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Proceeds from sale of property, plant and equipment |
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Contributions to equity method investments |
| ( |
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Purchase of equity securities |
| ( |
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JC Resources acquisition | ( |
| — | ||||
Payments for acquisitions of businesses |
| — |
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Escrow deposit for oil & gas reserve acquisition | — |
| ( | ||||
Oil & gas reserve acquisition | ( | — | |||||
Other |
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Net cash used in investing activities |
| ( |
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CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Borrowings under securitization facility | — |
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Payments under securitization facility | — |
| ( | ||||
Payments on equipment financings | ( |
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Borrowing under long-term debt | |
| — | ||||
Payments on long-term debt |
| ( |
| — | |||
Payments on finance lease obligations |
| ( |
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Payment of debt issuance costs |
| ( |
| — | |||
Payments for purchases of units under unit repurchase program | ( |
| — | ||||
Payments for tax withholdings related to settlements under deferred compensation plans |
| ( |
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Excess purchase price over the contributed basis from JC Resources acquisition | ( |
| — | ||||
Cash retained by JC Resources in acquisition | ( |
| ( | ||||
Distributions paid to Partners | ( |
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Other |
| ( |
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Net cash used in financing activities |
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NET CHANGE IN CASH AND CASH EQUIVALENTS |
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | | $ | | |||
SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||
Cash paid for interest | $ | | $ | | |||
Cash paid for income taxes | $ | | $ | | |||
SUPPLEMENTAL NON-CASH ACTIVITY: | |||||||
Accounts payable for purchase of property, plant and equipment | $ | | $ | | |||
Right-of-use assets acquired by operating lease | $ | | $ | | |||
Market value of common units issued under deferred compensation plans before tax withholding requirements | $ | | $ | — |
* Recast as discussed in Note 1 – Organization and Presentation.
See notes to condensed consolidated financial statements.
4
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.ORGANIZATION AND PRESENTATION
Significant Relationships Referenced in Notes to Condensed Consolidated Financial Statements
● | References to "we," "us," "our" or "ARLP Partnership" mean the business and operations of Alliance Resource Partners, L.P., the parent company, as well as its consolidated subsidiaries. |
● | References to "ARLP" mean Alliance Resource Partners, L.P., individually as the parent company, and not on a consolidated basis. |
● | References to "MGP" mean Alliance Resource Management GP, LLC, ARLP's general partner. |
● | References to "Mr. Craft" mean Joseph W. Craft III, the Chairman, President and Chief Executive Officer of MGP. |
● | References to "Intermediate Partnership" mean Alliance Resource Operating Partners, L.P., the intermediate partnership of Alliance Resource Partners, L.P. |
● | References to "Alliance Coal" mean Alliance Coal, LLC, an indirect wholly owned subsidiary of ARLP. |
● | References to "Alliance Minerals" mean Alliance Minerals, LLC, an indirect wholly owned subsidiary of ARLP. |
● | References to "Alliance Resource Properties" mean Alliance Resource Properties, LLC, an indirect wholly owned subsidiary of ARLP. |
Organization
ARLP is a Delaware limited partnership listed on the NASDAQ Global Select Market under the ticker symbol "ARLP." ARLP was formed in May 1999 and completed its initial public offering on August 19, 1999 when it acquired substantially all of the coal production and marketing assets of Alliance Resource Holdings, Inc., a Delaware corporation, and its subsidiaries. We are managed by our general partner, MGP, a Delaware limited liability company which holds a non-economic general partner interest in ARLP.
JC Resources Acquisition
On February 22, 2023, we acquired approximately
Ascend Investment
On August 22, 2023, we purchased $
5
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts and operations of the ARLP Partnership and present our financial position as of September 30, 2023 and December 31, 2022, the results of our operations and comprehensive income for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. All intercompany transactions and accounts have been eliminated.
These condensed consolidated financial statements and notes are prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and do not include all the information normally included with financial statements prepared in accordance with generally accepted accounting principles ("GAAP") of the United States. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.
These condensed consolidated financial statements and notes are unaudited. However, in the opinion of management, these condensed consolidated financial statements reflect all normal recurring adjustments necessary for a fair presentation of the results for the periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year ending December 31, 2023.
Use of Estimates
The preparation of the ARLP Partnership's condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in our condensed consolidated financial statements. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit, including highly liquid investments with maturities of three months or less. At times the ARLP Partnership maintains deposits in federally insured financial institutions in excess of stated federally insured limits. Management monitors the credit ratings and concentration of risk with these financial institutions on a continuing basis to safeguard cash deposits. Based on this monitoring and other diligence, including discussions with representatives of the financial institutions, we have no reason to believe that any of the financial institutions in which we have deposits in excess of stated federally insured limits are facing financial difficulties, defaults or limited liquidity situations that would cause us to be unable to access to our deposits.
2.ACQUISITIONS
JC Resources
As discussed in Note 1 – Organization and Presentation, on February 22, 2023, we completed the JC Resources Acquisition, which gives us increased exposure to a prolific area of the Delaware Basin that is within close proximity to reserves that we currently own. This acquisition was approved by the conflicts committee of MGP's board of directors, which is comprised entirely of independent directors. Because JC Resources is under common control with us, we recorded the acquisition at JC Resources' carrying value for each period presented. The carrying value of the mineral interests as well as related receivables and payables at February 22, 2023 was $
Acquisition Agreement
On January 27, 2023, we entered into a one-year collaborative agreement with a third party, effective January 1, 2023, committing up to $
6
oil & gas mineral interests in proved and unproved properties, respectively, pursuant to this agreement. Management fees paid under this agreement have been immaterial.
Miscellaneous Acquisitions
In addition to the acquisitions under the collaborative agreement discussed above, we purchased $
3.CONTINGENCIES
Certain of our subsidiaries are party to litigation in which the plaintiffs allege violations of the Fair Labor Standards Act and state law due to alleged failure to compensate for time "donning" and "doffing" equipment and to account for certain bonuses in the calculation of overtime rates and pay. The plaintiffs seek class and collective action certification, which we oppose, and the courts have not yet made definitive final rulings on those issues. We believe our ultimate exposure, if any, will not be material to our results of operations or financial position; however, if our current belief as to the merit of the claims is not upheld, it is reasonably possible that the ultimate resolution of these matters could result in a potential loss that may be material to our results of operations.
We also have various other lawsuits, claims and regulatory proceedings incidental to our business that are pending against the ARLP Partnership. We record an accrual for a potential loss related to these matters when, in management's opinion, such loss is probable and reasonably estimable. Based on known facts and circumstances, we believe the ultimate outcome of these outstanding lawsuits, claims and regulatory proceedings will not have a material adverse effect on our financial condition, results of operations or liquidity. However, if the results of these matters are different from management's current expectations and in amounts greater than our accruals, such matters could have a material adverse effect on our business and operations.
4.INVENTORIES
Inventories consist of the following:
| September 30, | December 31, | |||||
2023 |
| 2022 |
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(in thousands) | |||||||
Coal | $ | | $ | | |||
Supplies (net of reserve for obsolescence of $ |
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Total inventories, net | $ | | $ | |
During the nine months ended September 30, 2023, we recorded lower of cost or net realizable value adjustments of $
5.FAIR VALUE MEASUREMENTS
The following table summarizes our fair value measurements within the hierarchy not included elsewhere in these notes:
September 30, 2023 | December 31, 2022 | ||||||||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Level 1 |
| Level 2 |
| Level 3 |
| |||||||
(in thousands) | |||||||||||||||||||
Long-term debt | $ | — | $ | | $ | — | $ | — | $ | | $ | — | |||||||
Total | $ | — | $ | | $ | — | $ | — | $ | | $ | — |
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The carrying amounts for cash equivalents, accounts receivable, accounts payable, accrued and other liabilities approximate fair value due to the short maturity of those instruments.
The estimated fair value of our long-term debt, including current maturities, is based on interest rates that we believe are currently available to us in active markets for issuance of debt with similar terms and remaining maturities (See Note 6 – Long-Term Debt). The fair value of debt, which is based upon these interest rates, is classified as a Level 2 measurement under the fair value hierarchy.
6.LONG-TERM DEBT
Long-term debt consists of the following:
Unamortized Discount and | |||||||||||||
Principal | Debt Issuance Costs | ||||||||||||
September 30, | December 31, | September 30, | December 31, | ||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 |
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(in thousands) | |||||||||||||
Revolving credit facility | $ | — | $ | — | $ | ( | $ | ( | |||||
Term loan |
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| — |
| ( |
| — | |||||
Senior notes |
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| ( |
| ( | |||||
Securitization facility | — | — | — | — | |||||||||
November 2019 equipment financing | | | — | — | |||||||||
June 2020 equipment financing | | | — | — | |||||||||
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| ( |
| ( | ||||||
Less current maturities |
| ( |
| ( |
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| — | |||||
Total long-term debt | $ | | $ | | $ | ( | $ | ( |
Credit Facility
On January 13, 2023, Alliance Coal, as borrower, entered into a Credit Agreement (the "Credit Agreement") with various financial institutions. The Credit Agreement provides for a $
The Revolving Credit Facility is underwritten by a syndicate of eighteen financial institutions and the obligations of the lenders are individual obligations, which means the failure of one or more lenders to be able to fund its obligation does not relieve the remaining lenders from funding their obligations. Based on our diligence, including discussions with representatives of certain of these financial institutions, as of September 30, 2023 we have no reason to believe that the banks within our syndicate are facing financial difficulties, defaults or limited liquidity situations that would cause them to be unable to fund their obligations under the Credit Agreement. However, should any of the banks in our syndicate experience conditions in the future that limit their ability to fund their obligations, the amount available under the Revolving Credit Facility could be reduced.
The Credit Agreement is guaranteed by ARLP and certain of its subsidiaries, including the Intermediate Partnership and most of the direct and indirect subsidiaries of Alliance Coal (the "Subsidiary Guarantors"). The Credit
8
Agreement also is secured by substantially all of the assets of the Subsidiary Guarantors and Alliance Coal. Borrowings under the Credit Agreement bear interest, at our option, at either (i) an adjusted one-month, three-month or six-month term rate based on the secured overnight financing rate published by the Federal Reserve Bank of New York, plus the applicable margin or (ii) the base rate plus the applicable margin. The base rate is the highest of (i) the Overnight Bank Funding Rate plus
The Credit Agreement contains various restrictions affecting Alliance Coal and its subsidiaries, including, among other things, restrictions on incurrence of additional indebtedness and liens, sale of assets, investments, mergers and consolidations and transactions with affiliates. In each case, these restrictions are subject to various exceptions. In addition, restrictions apply to cash distributions by Alliance Coal to the Intermediate Partnership if such distribution would result in exceeding a minimum fixed charge coverage ratio (as determined in the Credit Agreement) or in Alliance Coal having liquidity of less than $
Senior Notes
On April 24, 2017, the Intermediate Partnership and Alliance Resource Finance Corporation (as co-issuer), a wholly owned subsidiary of the Intermediate Partnership ("Alliance Finance"), issued an aggregate principal amount of $
Accounts Receivable Securitization
Certain direct and indirect wholly owned subsidiaries of our Intermediate Partnership are party to a $
November 2019 Equipment Financing
On November 6, 2019, the Intermediate Partnership entered into an equipment financing arrangement accounted for as debt, wherein the Intermediate Partnership received $
9
equipment owned indirectly by the Intermediate Partnership and entering into a master lease agreement for that equipment (the "November 2019 Equipment Financing"). The November 2019 Equipment Financing contains customary terms and events of default and an implicit interest rate of
June 2020 Equipment Financing
On June 5, 2020, the Intermediate Partnership entered into an equipment financing arrangement accounted for as debt, wherein the Intermediate Partnership received $
7.INCOME TAXES
Components of income tax expense are as follows:
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2023 |
| 2022 |
| 2023 |
| 2022 |
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(in thousands) | |||||||||||||
Current: | |||||||||||||
Federal | $ | | $ | | $ | | $ | | |||||
State |
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Deferred: | |||||||||||||
Federal |
| ( |
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| ( |
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State |
| ( |
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| ( |
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| ( |
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| ( |
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Income tax expense | $ | | $ | | $ | | $ | |
On March 15, 2022, Alliance Minerals changed its U.S. federal income tax status from a pass-through entity to a taxable entity via a "check the box" election (the "Tax Election"), which became effective January 1, 2022. The Tax Election resulted in the recognition of an initial deferred tax liability of $
The effective income tax rate for our income tax expense for the three and nine months ended September 30, 2023 is less than the federal statutory rate, primarily due to the portion of income not subject to income taxes. The effective income tax rate for our income tax expense for the three and nine months ended September 30, 2022 is less than the federal statutory rate, primarily due to the portion of income not subject to income taxes, partially offset by the effect of the Tax Election.
Our 2020 through 2022 tax years remain open to examination by tax authorities, and lower-tier partnership income tax returns for the tax years ended December 31, 2020 and 2021 are being audited by the Internal Revenue Service.
10
8.VARIABLE INTEREST ENTITIES
Cavalier Minerals
On November 10, 2014, our subsidiary, Alliance Minerals, and Bluegrass Minerals Management, LLC ("Bluegrass Minerals") entered into a limited liability company agreement (the "Cavalier Agreement") to create Cavalier Minerals JV, LLC ("Cavalier Minerals"), which was formed to indirectly acquire oil & gas mineral interests through its ownership in AllDale I & II. Alliance Minerals owns a
We have concluded that Cavalier Minerals is a variable interest entity ("VIE") which we consolidate as the primary beneficiary because we are the managing member and a substantial equity owner in Cavalier Minerals. Bluegrass Minerals' equity ownership of Cavalier Minerals is accounted for as noncontrolling ownership interest in our condensed consolidated balance sheets. In addition, earnings attributable to Bluegrass Minerals are recognized as noncontrolling interest in our condensed consolidated statements of income.
AllDale III
In February 2017, Alliance Minerals committed to directly invest $