NATURAL RESOURCE PARTNERS LP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

OR

[ ] 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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) 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)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]

At November 25, 2002, there were outstanding 11,353,658 Common Units and
11,353,658 Subordinated Units.

TABLE OF CONTENTS

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATURAL RESOURCE PARTNERS L.P.
PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 2002
(UNAUDITED)
(IN THOUSANDS)

3

NATURAL RESOURCE PARTNERS L.P.
PRO FORMA BALANCE SHEET -- (CONTINUED)
AS OF SEPTEMBER 30, 2002
(UNAUDITED)
(IN THOUSANDS)

See accompanying notes to pro forma financial statements.
4

NATURAL RESOURCE PARTNERS L.P.
PRO FORMA STATEMENT OF REVENUES AND DIRECT COSTS AND EXPENSES
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
(IN THOUSANDS)

See accompanying notes to pro forma financial statements.
5

NATURAL RESOURCE PARTNERS L.P.
PRO FORMA STATEMENT OF REVENUES AND DIRECT COSTS AND EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
(IN THOUSANDS)

See accompanying notes to pro forma financial statements.
6

NATURAL RESOURCE PARTNERS L.P.

NOTES TO PRO FORMA FINANCIAL STATEMENTS

BASIS OF PRESENTATION

Preceding are the unaudited pro forma financial statements of Natural
Resource Partners L.P., which is referred to throughout this Form 10-Q as
"Natural Resource Partners" or "NRP," as of September 30, 2002 and for the three
and nine months ended September 30, 2002. Natural Resource Partners is a newly
formed limited partnership, which consummated its initial public offering of
common units in October 2002. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Introduction." The pro forma
balance sheet assumes that the offering and related transactions (described in
the note below entitled "Offering and Transactions") occurred as of the balance
sheet date, and the pro forma statements of revenues and direct costs and
expenses assume that the offering and related transactions occurred as of the
beginning of the periods presented. NRP presents the transaction adjustments in
the notes to the unaudited pro forma financial statements. You should read the
unaudited pro forma financial statements and accompanying notes together with
the September 30, 2002 financial statements and related notes of the WPP Group
and the Arch Coal Contributed Properties included in this Form 10-Q.

NRP derived the pro forma balance sheet by adjusting the balance sheets of
Western Pocahontas Properties Limited Partnership ("Western Pocahontas"), Great
Northern Properties Limited Partnership ("Great Northern"), New Gauley Coal
Corporation ("New Gauley" and, together with Western Pocahontas and Great
Northern, the "WPP Group") and the Arch Coal, Inc. Contributed Properties ("Arch
Coal Contributed Properties"). NRP derived the pro forma statements of revenue
and direct costs and expenses by extracting the revenues and direct costs and
expenses from the statements of income of each of Western Pocahontas, Great
Northern and New Gauley included elsewhere in this Form 10-Q and adding them to
the Arch Coal Contributed Properties statements of revenues and direct costs and
expenses. As a result, the pro forma statements of revenues and direct costs and
expenses do not reflect general and administrative expenses and other income and
expense from the statements of income of the WPP Group included in this Form
10-Q. The pro forma statements of revenues and direct costs and expenses were
adjusted to exclude revenue and direct costs and expenses related to properties
not being contributed to NRP by the WPP Group. NRP based the pro forma
adjustments upon currently available information and certain estimates and
assumptions, and therefore the actual adjustments made to effect the
transactions may differ from the pro forma adjustments. However, management
believes that the assumptions provide a reasonable basis for presenting the
significant effects of the transactions and the pro forma adjustments give
appropriate effect to these assumptions and are properly applied in the pro
forma financial information.

NRP has no employees, and its operations are conducted by its general
partner and affiliates pursuant to contractual arrangements.

Western Pocahontas contributed nearly all of its coal royalty producing
properties to NRP in connection with its initial public offering, while
retaining surface and timber properties. Coal royalties accounted for
approximately 77% of Western Pocahontas' total revenues for the nine months
ended September 30, 2002. New Gauley contributed all of its coal royalty
producing properties. Great Northern contributed the coal royalty producing
properties related to two leases and retained two properties with either a
short-lived reserve life or insignificant royalty income as well as its surface
and non-producing coal properties. The properties contributed by the WPP Group
account for approximately 81% of WPP Group's total revenues for the nine months
ended September 30, 2002.

Corbin J. Robertson, Jr. controls the general partners of Western
Pocahontas and Great Northern and is the controlling shareholder of New Gauley.
Mr. Robertson also controls NRP (GP) LP, the general partner of Natural Resource
Partners, and NRP (GP) LP's general partner, GP Natural Resource Partners LLC
(together with NRP (GP) LP, the "General Partner"). The WPP Group accounted for
a majority of the revenues and total net book value of the assets contributed to
Natural Resource Partners. Additionally, the senior executives and other
officers who currently manage Western Pocahontas continue to manage Natural
Resource Partners. As a result, (1) the WPP Group is considered to be the
accounting acquirer, (2) the assets
7

NATURAL RESOURCE PARTNERS L.P.

NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)

of the WPP Group were contributed at cost in accordance with EITF 87-21, "Change
of Accounting Basis in Master Limited Partnership Transactions" and (3) the
assets and liabilities of the Arch Coal Contributed Properties were recorded at
their fair value.

The Arch Coal Contributed Properties were indirectly wholly owned by Arch
Coal, Inc. and comprised only a small percentage of its coal properties. Coal
royalty revenues from the Arch Coal Contributed Properties were approximately
1.2% of Arch Coal, Inc.'s revenues for the nine months ended September 30, 2002.

The financial statements of the Arch Coal Contributed Properties reflect
the revenues and direct costs and expenses of the properties contributed to
Natural Resource Partners. These properties did not comprise a legal entity.
Except for revenues earned from the properties and certain direct costs and
expenses of the properties and assets acquired and liabilities assumed, no
separate financial information was maintained. The Arch Coal Contributed
Properties did not maintain stand-alone corporate treasury, legal, tax, human
resources, general and administrative and other similar corporate support
functions. Corporate general and administrative expenses were not previously
allocated in connection with the preparation of the financial statements of the
Arch Coal Contributed Properties included with this Form 10-Q because there was
not sufficient information to develop a reasonable cost allocation. Because the
separate and distinct accounts necessary to present individual balance sheets
and income statements of the Arch Coal Contributed Properties were not
maintained as of September 30, 2002 and for the nine months ended September 30,
2002, Statements of Revenues and Direct Costs and Expenses and Statements of
Assets Purchased and Liabilities Assumed have been prepared and included in this
Form 10-Q. The Statements of Revenues and Direct Costs and Expenses and
Statement of Assets Purchased and Liabilities Assumed are not intended to be a
complete presentation of financial position and results of operations of the
Arch Coal Contributed Properties and are not indicative of the financial
condition or results of operations of the Arch Coal Contributed Properties going
forward due to the changes in the business and the omission of operating
expenses.

All properties contributed by the WPP Group and the Arch Coal Contributed
Properties were contributed to Natural Resource Partners in exchange for common
and subordinated units and the general partner interest in Natural Resource
Partners and its assumption of debt upon the closing of its initial public
offering. A table of coal reserve quantities, assuming the reserves were
contributed to NRP on December 31, 2001, is summarized below (tons in
thousands):

The unaudited pro forma financial statements do not purport to present the
financial position or the results of operations of Natural Resource Partners had
its initial public offering actually been completed as of the dates indicated.
Moreover, the statements do not project the financial position or results of
operations of Natural Resource Partners for any future date or period but are
presented here to provide a more meaningful financial presentation of Natural
Resource Partners after the closing of the offering.

On October 18, 2002, the Board of Directors of the general partner's
general partner authorized the issuance of options to purchase 10,000 common
units to each director (other than the Chairman of the Board) as compensation at
an exercise price equal to $19.50, which was the closing price of the common
units of Natural Resource Partners on that date. The options will fully vest in
three years from the grant date, with one-third vesting after the end of each
year. The options expire in ten years.

8

NATURAL RESOURCE PARTNERS L.P.

NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)

OFFERING AND TRANSACTIONS

The pro forma financial statements reflect the closing of the following
transactions:

- The transfer of certain assets and liabilities by the WPP Group to
Natural Resource Partners in exchange for the issuance by Natural
Resource Partners to the WPP Group of 3,882,485 common units, 6,556,738
subordinated units and 25% of the incentive distribution rights of
Natural Resource Partners. The WPP Group also received a 57.75%
interest in the general partner of NRP. These incentive distribution
rights represent the right to receive an increasing percentage of
certain quarterly distributions of cash by Natural Resource Partners
after the minimum quarterly distribution and certain target levels have
been achieved.

- The transfer of certain assets and liabilities by Arch Coal to Natural
Resource Partners in exchange for the issuance by Natural Resource
Partners to Arch Coal of 4,796,920 common units, 4,796,920 subordinated
units and 10% of the incentive distribution rights. Arch Coal also
received 42.25% interest in the general partner of NRP.

- The public offering by Natural Resource Partners of 2,598,750 common
units at the initial offering price of $20.00 per common unit,
resulting in gross proceeds to Natural Resource Partners of $52.0
million, and the public offering by Arch Coal of 1,901,250 common
units. Natural Resource Partners did not receive any proceeds from the
sale of the common units by Arch Coal.

- The sale by Natural Resource Partners of 75,503 common units at the
initial public offering price of $20.00 per common unit to Great
Northern and New Gauley because the underwriters did not exercise their
over-allotment option.

- The repayment of $46.5 million of debt contributed by the WPP Group
with proceeds from the offering.

- The contribution of $1.0 million by Arch Coal to Natural Resource
Partners, representing Arch Coal's share of the deferred financing
costs and initial working capital.

- The contribution of $0.9 million by the WPP Group to Natural Resource
Partners, which represents funds required to pay transaction costs in
excess of proceeds from the offering after the repayment of $46.5
million of debt contributed by the WPP Group, and the funding of
initial working capital.

PRO FORMA ADJUSTMENTS TO BALANCE SHEET

(a) Represents the working capital of the WPP Group and the Arch Coal
Contributed Properties that was not contributed to Natural Resource
Partners.

(b) Represents the property, plant and equipment and related accumulated
depletion, depreciation and amortization of the WPP Group that was not
contributed to Natural Resource Partners. The property retained is as
follows (in thousands):

9

NATURAL RESOURCE PARTNERS L.P.

NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)

(c) Represents deferred financing costs, a note receivable and deferred
revenues of the WPP Group that were not contributed to Natural Resource
Partners. The deferred revenues not contributed relate to a coal
property that was not contributed to Natural Resource Partners.

(d) Represents debt that was not contributed to Natural Resource Partners
by the WPP Group. The total debt not contributed to Natural Resource
Partners is as follows (in thousands):

Western Pocahontas................................. $54,234
Great Northern..................................... 37,078
New Gauley......................................... --
-------
Total............................................ $91,312
=======

(e) Reflects gross proceeds to Natural Resource Partners of $53.5 million
from the issuance and sale of 2,674,253 common units at the initial
offering price of $20.00 per share, of which 2,598,750 common units
were sold to the public and, because the underwriters did not exercise
their over-allotment option, 75,503 units were sold to Great Northern
and New Gauley.

(f) Reflects payment of fees of $760,400 for the new credit facility,
underwriting discount of approximately $3,573,000 and legal and other
professional fees and expenses of approximately $2,912,000 associated
with the offering and $577,500 for working capital purposes. Also
reflects a $979,000 cash contribution by Arch Coal to provide $422,500
of working capital and $556,000 for fees for the new revolving credit
facility that will be capitalized and amortized. Also reflects an
$869,000 cash contribution by the WPP Group to Natural Resource
Partners to pay certain transaction costs in excess of those covered by
proceeds from the offering after the repayment of debt contributed by
the WPP Group and to fund working capital.

(g) Represents the repayment of $46.5 million of debt assumed from the WPP
Group from proceeds of the offering.

(h) Represents the pro rata allocation of the net assets contributed by the
WPP Group and Arch Coal of $149.8 million.

(i) Reflects the acquisition of the net assets of Arch Coal in exchange for
common and subordinated units and the general partner interest in
Natural Resource Partners. The purchase price related to the Arch Coal
Contributed Properties is calculated as follows:

10

NATURAL RESOURCE PARTNERS L.P.

NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)

Under the purchase method of accounting, the purchase price was allocated
to the Arch Coal assets based on the fair value determination indicated
above. The total purchase price in excess of the historical cost of Arch
Coal's assets was calculated as follows:

Total purchase price for Arch Coal Contributed
Properties........................................... $196,771
Less: Historical net book value of Arch Coal
Contributed Properties............................... 74,814
--------
Total purchase price in excess of historical cost
of Arch Coal Contributed Properties.................. $121,957
========
Allocation to cash................................. 423
Allocation to deferred financing costs............. 566
Allocation to mineral reserves..................... 120,978
--------
Allocation of purchase price in excess of
historical cost...................................... $121,957
========

The allocation of the purchase price of the Arch Coal Contributed
Properties based on their relative fair values resulted in an increase to
property and equipment of $120,978,000 to reflect these assets at their
estimated fair values. This allocation is based upon the consummation of
the offering and related transactions.

The excess purchase price is allocated to the WPP Group and Arch Coal
on a pro rata basis.

(j) Represents the elimination of accumulated depletion associated with the
acquisition of the Arch Coal Contributed Properties.

(k) If at any time the General Partner and its affiliates own more than 80%
of the outstanding common units, the General Partner has the right, but
not the obligation, to purchase all of the common units at a price not
less than their then market price. As of the closing of the initial
public offering, the General Partner and its affiliates owned 60.4% of
the outstanding common units. If NRP does not issue any equity
securities prior to the expiration of the subordination period, the
General Partner and its affiliates will own 80.2% of NRP's outstanding
common units upon the conversion of subordinated units into common
units at the end of the subordination period and will be able to
exercise this call right.

PRO FORMA ADJUSTMENTS TO REVENUES AND DIRECT COSTS AND EXPENSES

(l) Represents coal royalties, timber royalties, gain on sale of property,
lease and easement income and other revenue related to properties not
contributed to Natural Resource Partners by the WPP Group.

(m) Represents property tax revenue and expenses and depletion directly
related to properties not contributed to Natural Resource Partners by
the WPP Group.

(n) Represents the incremental depletion associated with the assets
contributed by Arch Coal being recorded at fair value by Natural
Resource Partners.

(o) Pro forma as adjusted excess of revenues over direct costs and expenses
does not include the historical general and administrative expenses
related to the WPP Group and Arch Coal since these are not direct costs
and expenses.

RECENT FEDERAL DISTRICT COURT RULINGS

(p) On May 8, 2002, the United Stated District Court for the Southern
District of West Virginia issued an order in Kentuckians for the
Commonwealth v. Rivenburgh enjoining the Huntington, West Virginia
office of the U.S. Army Corps of Engineers from issuing permits under
Section 404 of the Clean Water Act for the construction of valley fills
for the disposal of overburden from mountaintop

11

NATURAL RESOURCE PARTNERS L.P.

NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)

mining operations solely for the purpose of waste disposal. In
connection with this case, the plaintiffs also filed a motion to revoke
an existing permit. The court did not rule on this motion because it
did not have sufficient factual information. On June 17, 2002, the
court denied a motion from the U.S. Army Corps of Engineers requesting
a stay of the initial order and indicated that it would consider a
properly filed motion to revoke the existing permit. The Corps filed an
appeal on July 3, 2002. Oral argument in the Fourth Circuit Court of
Appeals is scheduled for December 4, 2002.

NRP is unable to predict the ultimate outcome of this decision or the
impact this decision may have on itslessees' operations and, therefore,
its results of operations. The ruling could be upheld or reversed on
appeal, settled by the parties or overturned by legislation, and this
process could take several years to complete. If the decision is
ultimately upheld in whole or in part on appeal, NRP cannot predict how
it would be interpreted or implemented by the applicable governmental
agencies or courts. Future litigation could result from ambiguities in
the current order or ambiguities contained in future orders or
decisions. In addition, although this ruling applies only to the
Huntington, West Virginia office of the U.S. Army Corps of Engineers,
future litigation, including appellate review of this case, could
ultimately broaden its applicability to other offices of the U.S. Army
Corps of Engineers, including offices that have issued and may issue in
the future permits to NRP's lessees for mining on its properties. NRP
is also uncertain as to whether this ruling would impact only its
lessees' future permits, or whether it would also apply to renewals of
permits or to existing permits.

As a result of the uncertain disposition and effect on NRP's lessees'
operations from this ruling, NRP is unable to quantify or estimate the
effect on its results of operations from this ruling. However, NRP's
properties that are subject to the Huntington district generated $17.6
million, or 50%, of its pro forma coal royalty revenues for the nine
months ended September 30, 2002 and $18.6 million, or 44%, of its pro
forma coal royalty revenues for the year ended December 31, 2001. In
addition, the properties contained 396 million tons, or 34%, of its
proven and probable coal reserves as of December 31, 2001 and
constituted $116 million, or 34%, of its pro forma net property and
equipment as of September 30, 2002.

Although it is possible that the ruling may result in a material
adverse effect upon NRP's results of operations or financial condition,
the financial information presented above is not intended to indicate
the potential impact of Kentuckians decision for the reasons discussed
above.

12

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

BALANCE SHEETS
(IN THOUSANDS)

See accompanying notes to financial statements.
13

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

STATEMENTS OF INCOME
(IN THOUSANDS)

See accompanying notes to financial statements
14

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOW
(IN THOUSANDS)

See accompanying notes to financial statements
15

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND ORGANIZATION

The accompanying unaudited condensed financial statements of Western
Pocahontas Properties Limited Partnership ("Western Pocahontas") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002.

The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

Western Pocahontas, a Delaware limited partnership, was formed in 1986 to
own and manage land and mineral rights and timber located in West Virginia,
Kentucky, Alabama, Maryland and Indiana. Western Pocahontas Corporation ("WPC"),
a Texas corporation, serves as its general partner. All items of income and loss
of the Partnership are allocated 1% to the general partner and 99% to the
limited partners.

Western Pocahontas enters into leases with various third-party operators
for the right to mine coal reserves and harvest timber on Western Pocahontas'
land in exchange for royalty payments. Generally, the coal lessees make payments
based on the greater of a percentage of the gross sales price or a fixed price
per ton of coal they sell, subject to minimum annual or quarterly payments. The
timber lessees make payments based on predetermined rates per board foot
harvested.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NEW ACCOUNTING STANDARDS

In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 eliminates
pooling-of-interests accounting and requires all business combinations initiated
after June 30, 2001 to be accounted for using the purchase method. With regard
to intangible assets, SFAS No. 141 states that intangible assets acquired in a
business combination subsequent to June 30, 2001 should be recognized separately
if the benefit of the intangible asset is obtained through contractual rights or
if the intangible asset can be sold, transferred, licensed, rented to or
exchanged, without regard to the acquirer's intent. The adoption of SFAS No. 141
did not have a material impact on the 2001 financial statements. SFAS No. 142
discontinues goodwill amortization; rather, goodwill will be subject to at least
an annual fair-value based impairment test. The adoption of SFAS No. 142 on
January 1, 2002 did not have a material impact on Western Pocahontas' financial
statements.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligation." SFAS No. 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred with the associated asset retirement cost being capitalized as a part
of the carrying amount of the long-lived asset. SFAS No. 143 also requires
disclosure that provides a description of asset retirement obligations and a
reconciliation of changes in the components of those obligations. Western
Pocahontas is evaluating the future financial effects of adopting SFAS No. 143
and expects to adopt the standard effective January 1, 2003.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses the
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" and APB Opinion No. 30, "Reporting the
Results of Operations --

16

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Reporting the Effects of the Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The
objectives of SFAS No. 144 are to establish one accounting model for long-lived
assets to be disposed of by sale and to resolve implementation issues related to
SFAS No. 121. The adoption of SFAS No. 144 on January 1, 2002 did not have a
material impact on Western Pocahontas' financial position or results of
operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 62, Amendment of FASB Statement No. 13, and Technical
Corrections." Among other things, SFAS No. 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under SFAS
No. 4. The provisions of this Statement related to the rescission of SFAS No. 4
shall be applied in fiscal years beginning after May 15, 2002. Western
Pocahontas does not expect the adoption of SFAS No. 145 on January 1, 2003 to
have a material impact on its financial position or results of operations.

3. REVERSIONARY INTEREST

The previous owner of the Western Pocahontas' coal and timber properties
(CSX Corporation and certain of its affiliates, "CSX") retained a reversionary
interest in those properties whereby it receives either a 25% or 28% interest in
the properties and the net revenues from the properties after July 1, 2001, and
in the net proceeds from any sale of property occurring prior to July 1, 2001.

In December 2001, Western Pocahontas purchased from CSX its reversionary
interest in Western Pocahontas' Kentucky properties for $2.0 million in cash and
a note payable of $7.9 million (see note 5). The Partnership allocated $8.8
million to coal and timber properties and $1.1 million to a reduction in the
reversionary interest payable for the six months ended December 31, 2001.

In March 2002, Western Pocahontas purchased from CSX its reversionary
interest in the remaining assets subject to the reversionary interest. Western
Pocahontas allocated $35 million to coal and timber properties and $1.4 million
to a reduction in the reversionary interest payable for the nine months ended
September 30, 2002. The purchase was financed with a $45.0 million loan and a
portion of the proceeds were used to retire the $7.9 million note that Western
Pocahontas issued in December 2001 as part of the consideration for the purchase
of the reversionary interest in Kentucky (see note 4).

4. LONG-TERM DEBT

Long-term debt consisted of the following:

The notes are collateralized by a mortgage on Western Pocahontas'
properties, a security interest in accounts receivable, other assets, the
partnership interests in Western Pocahontas and the common stock of WPC. Western
Pocahontas is required to maintain an aggregate minimum balance of $3.0 million
in cash and cash equivalents, which is pledged to its lenders. Western
Pocahontas is allowed to make cash distribution to
17

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

its partners, provided that no event of default exists and the aggregate cash
balance is not reduced below $4.0 million ($6.0 million beginning in March 2002)
by any distribution.

Western Pocahontas is required to contribute cash or cash equivalents to a
debt service account when it receives coal or timber royalties greater than a
predetermined amount or when it sells certain properties. Pursuant to these
provisions, Western Pocahontas contributed $2.4 million to the debt service
account for the year ending December 31, 2001, and $45,000 for the nine months
ended September 30, 2002.

On December 10, 2001, Western Pocahontas issued a $7.9 million non-interest
bearing note payable to CSX in conjunction with the purchase of CSX's
reversionary interest in properties located in Kentucky (see note 3). The note
was due and paid off in March 2002. A discount of $152,000 was imputed for the
period ended December 31, 2001 (see note 3).

5. RELATED PARTY TRANSACTIONS

Quintana Minerals Corporation, a company controlled by Corbin J. Robertson,
Jr., provided certain administrative services to Western Pocahontas and charged
it for direct costs related to the administrative services. The total expenses
charged to Western Pocahontas under this arrangement were $290,000 and $202,000
for the nine month periods ended September 30, 2002 and 2001, respectively.
These costs are reflected in the general and administrative expenses in the
accompanying statements of income.

Western Pocahontas has a management contract to provide certain management,
engineering and accounting services to Great Northern. The contract provides for
a $250,000 annual fee, and Great Northern paid a $187,500 fee in each of the
nine months ended September 30, 2002 and 2001, which is intended to reimburse
Western Pocahontas for its expenses. This fee is presented as other revenue in
the accompanying statement of income. The contract may be canceled upon 90 days
advance notice by Great Northern.

6. COMMITMENTS AND CONTINGENCIES

LEGAL

Western Pocahontas is involved, from time to time, in various legal
proceedings arising in the ordinary course of business. While the ultimate
results of these proceedings cannot be predicted with certainty, management
believes these claims will not have a material effect on Western Pocahontas'
financial position, liquidity or operations.

ENVIRONMENTAL COMPLIANCE

The operations conducted on Western Pocahontas properties by its lessees
are subject to environmental laws and regulations adopted by various
governmental authorities in the jurisdictions in which these operations are
conducted. As owner of surface interests in some properties, Western Pocahontas
may be liable for certain environmental conditions occurring at the surface
properties. The terms of substantially all of Western Pocahontas' coal leases
require the lessee to comply with all applicable laws and regulations, including
environmental laws and regulations. Lessees post reclamation bonds assuring that
reclamation will be completed as required by the relevant permit, and
substantially all of the leases require the lessee to indemnify Western
Pocahontas against, among other things, environmental liabilities. Some of these
indemnifications survive the termination of the lease. Employees of Western
Pocahontas regularly visit the mines to ensure compliance with lease terms, but
the duty to comply with all regulations rests with the lessees. Management
believes that Western Pocahontas' lessees will be able to comply with existing
regulations and does not expect any lessee's failure to comply with
environmental laws and regulations to have a material impact on its financial
condition or results of operations. Western Pocahontas neither has incurred, nor
is aware of, any material environmental charges imposed on it related to its
properties for the nine months ended September 30, 2002. Western Pocahontas is
not associated with any environmental contamination that may require

18

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

remediation costs. However, lessees do, from time to time, conduct reclamation
work on the properties under lease to them. Because Western Pocahontas is not
the permittee of the mines being reclaimed, it is not responsible for the costs
associated with these reclamation operations. However, in the event any of
Western Pocahontas' lessees are unable to complete its reclamation obligations
and their bonding company likewise fails to meet the obligations or provide
money to the state to perform the reclamation, Western Pocahontas could be held
liable for these costs.

GUARANTEES

Western Pocahontas guaranteed a $2.0 million note payable of New Gauley, an
entity that was formerly wholly owned by Western Pocahontas. At September 30,
2002, the outstanding balance on the note was approximately $1.6 million. As a
result of the initial public offering of Natural Resource Partners, New Gauley
retired the note (see note 8).

7. SEGMENT INFORMATION

Segment information has been provided in accordance with SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." Western
Pocahontas' reportable segments are as follows:

Coal Royalty. The coal royalty segment is engaged in managing Western
Pocahontas' coal properties.

Timber Royalty. The timber royalty segment is engaged in the selling of
standing timber on Western Pocahontas' properties.

The following is a summary of certain financial information relating to the
Partnership's segments:

19

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. SUBSEQUENT EVENT

On October 17, 2002, in connection with Natural Resource Partners'
completion of its initial public offering of limited partnership units, Western
Pocahontas transferred to NRP at historical cost certain coal royalty producing
properties that are currently under lease to coal mine operators in exchange for
common and subordinated units in NRP and a limited partnership interest in the
general partner of NRP. Western Pocahontas also transferred a portion of its
deferred revenue and $36 million of its long-term debt to NRP. The Partnership
retained a coal reserve property that is leased to a third party that is
experiencing permitting problems, as well as unleased coal reserve properties,
surface and timberlands. In connection with the initial public offering New
Gauley Coal Corporation retired the note payable that was guaranteed by the
Partnership.

9. PRIOR PERIOD ADJUSTMENT

In order to correct an error in depletion expense for the three months
ended June 30, 2002 due to a depletion rate for one lease being erroneously
applied to several leases, depletion expense for the three months ended June 30,
2002 has been adjusted. The adjusted quarterly income statements as of June 30,
2002 and March 31, 2002 are as follows:

20

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

21

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

BALANCE SHEETS
(IN THOUSANDS)

See accompanying notes to financial statements
22

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

STATEMENTS OF INCOME
(IN THOUSANDS)

See accompanying notes to financial statements
23

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOW
(IN THOUSANDS)

See accompanying notes to financial statements
24

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND ORGANIZATION

The accompanying unaudited condensed financial statements of Great Northern
Properties Limited Partnership ("Great Northern") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended September
30, 2002 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2002.

The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements

Great Northern, a Delaware limited partnership, was formed in 1992 to own
and manage land and mineral rights located in Montana, North Dakota, Wyoming,
Illinois and Washington. GNP Management Corporation ("GNP"), a Delaware
corporation, serves as its general partner. All items of income and loss of
Great Northern are allocated 1% to the general partner and 99% to the limited
partners.

Great Northern enters into leases with various coal mine operators for the
right to mine coal reserves on Great Northern's land in exchange for royalty
payments. Generally, the lessees make payments to Great Northern based on the
greater of a percentage of the gross sales price or a fixed price per ton of
coal they sell, subject to minimum annual payments.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NEW ACCOUNTING STANDARDS

In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 eliminates
pooling-of-interests accounting and requires all business combinations initiated
after June 30, 2001 to be accounted for using the purchase method. With regard
to intangible assets, SFAS No. 141 states that intangible assets acquired in a
business combination subsequent to June 30, 2001 should be recognized separately
if the benefit of the intangible asset is obtained through contractual rights or
if the intangible asset can be sold, transferred, licensed, rented to or
exchanged, without regard to the acquirer's intent. The adoption of SFAS No. 141
did not have a material impact on the 2001 financial statements. SFAS No. 142
discontinues goodwill amortization; rather, goodwill will be subject to at least
an annual fair-value based impairment test. The adoption of SFAS No. 142 on
January 1, 2002 did not have a material impact on the Partnership's financial
statements.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligation." SFAS No. 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred with the associated asset retirement cost being capitalized as a part
of the carrying amount of the long-lived asset. SFAS No. 143 also requires
disclosure that provides a description of asset retirement obligations and a
reconciliation of changes in the components of those obligations. Management is
evaluating the future financial effects of adopting SFAS No. 143 and expects to
adopt the standard effective January 1, 2003.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses the
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" and APB Opinion No. 30, "Reporting the
Results of Operations --

25

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Reporting the Effects of the Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The
objectives of SFAS No. 144 are to establish one accounting model for long-lived
assets to be disposed of by sale and to resolve implementation issues related to
SFAS No. 121. The adoption of SFAS No. 144 on January 1, 2002 did not have a
material impact on Great Northern's financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 62, Amendment of FASB Statement No. 13, and Technical
Corrections." Among other things, SFAS No. 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under SFAS
No. 4. The provisions of this Statement related to the rescission of SFAS No. 4
shall be applied in fiscal years beginning after May 15, 2002. Management does
not expect the adoption of SFAS No. 145 on January 1, 2003 to have a material
impact on Great Northern's financial position or results of operations.

3. NONPARTICIPATING ROYALTY INTEREST

The previous owner of Great Northern's coal properties, Meridian Minerals
Company ("Meridian"), a subsidiary of Burlington Resources, Inc., retained a
nonparticipating royalty interest in certain properties that were not leased at
the time of acquisition at a royalty rate ranging from 2% to 5%. Such properties
are presently not leased. In the event any of the properties subject to the
nonparticipating royalty interest are sold to a third party, Meridian will
receive a certain percentage of the selling price.

4. LONG-TERM DEBT

Long-term debt consisted of the following:

The notes are collateralized by a mortgage on Great Northern's properties,
a security interest in accounts receivable, other assets, the partnership
interests in Great Northern and the debt service account established by Great
Northern. The debt service account is funded quarterly with 100% of Great
Northern's cash flows, defined as all cash revenue received by Great Northern,
net of any operating expenses and management fees and up to a maximum of 20% of
positive operating income to be used to pay the portion of the partners' income
tax liabilities attributable to Great Northern, less $250,000 in cash to be
retained for general operating purposes.

The debt reserve account will be used to collateralize the notes until the
balance of the account reaches a minimum of $10.0 million, after which the
amount in excess of $10.0 million may be applied directly to the outstanding
balance of the notes. Great Northern contributed $1.9 million and $2.3 million
to the debt service account for the nine-month periods ended September 30, 2001
and 2002, respectively (see note 7).

5. RELATED PARTY TRANSACTIONS

Great Northern has a management contract to receive management, engineering
and accounting services from Western Pocahontas. The contract provides for an
annual fee of $250,000 of which $187,500 is for the
26

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

nine month period ended September 30, 2002. Such amounts are reflected in
general and administrative expenses in the accompanying statements of income.
The contract may be canceled upon 90 days advance notice to the Partnership.

6. COMMITMENTS AND CONTINGENCIES

LEGAL

Great Northern is involved, from time to time, in various legal proceedings
arising in the ordinary course of business. While the ultimate results of these
proceedings cannot be predicted with certainty, management believes these claims
will not have a material effect on Great Northern's financial position,
liquidity or operations.

ENVIRONMENTAL COMPLIANCE

The operations conducted on Great Northern properties by its lessees are
subject to environmental laws and regulations adopted by various governmental
authorities in the jurisdictions in which these operations are conducted. As
owner of surface interests in some properties, Great Northern may be liable for
certain environmental conditions occurring at the surface properties. The terms
of substantially all of Great Northern's coal leases require the lessee to
comply with all applicable laws and regulations, including environmental laws
and regulations. Lessees post reclamation bonds assuring that reclamation will
be completed as required by the relevant permit, and substantially all of the
leases require the lessee to indemnify Great Northern against, among other
things, environmental liabilities. Some of these indemnifications survive the
termination of the lease. Great Northern causes visits to the mines to ensure
compliance with lease terms, but the duty to comply with all regulations rests
with the lessees. Management believes that Great Northern's lessees will be able
to comply with existing regulations and does not expect any lessee's failure to
comply with environmental laws and regulations to have a material impact on its
financial condition or results of operations. Great Northern neither has
incurred, nor is aware of, any material environmental charges imposed on it
related to its properties for the nine months ended September 30, 2002. Great
Northern is not associated with any environmental contamination that may require
remediation costs. However, lessees do, from time to time, conduct reclamation
work on the properties under lease to them. Because Great Northern is not the
permittee of the mines being reclaimed, it is not responsible for the costs
associated with these reclamation operations. However, in the event any lessee
is unable to complete its reclamation obligations and their bonding company
likewise fails to meet the obligations or provide money to the state to perform
the reclamation, Great Northern could be held liable for these costs.

7. SUBSEQUENT EVENT

On October 17, 2002 in connection with Natural Resource Partners'
completion of its initial public offering of limited partnership units, Great
Northern transferred to NRP at historical cost certain coal royalty producing
properties that are currently under lease to coal mine operators in exchange for
common and subordinated units of NRP and a limited partnership interest in the
general partner of NRP. Great Northern also transferred a portion of its
deferred revenue and $8.9 million of its long-term debt to NRP. Great Northern
retained unleased coal reserve properties and surface land. Because the
underwriters of the initial public offering of NRP units did not exercise their
option to purchase additional units of NRP, Great Northern purchased 66,353
common units on November 18, 2002 for $1.3 million.

Simultaneously with NRP's initial public offering of units, Great Northern
restructured its remaining long-term debt. In connection with the restructuring,
Great Northern used approximately $10.5 million of funds in its debt reserve
account to pay down debt and executed two new promissory notes for $14.9 million

27

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

per note. The notes are payable to a bank and to the majority owner of the
general partner of the Partnership. The terms of the notes are as follows:

28

NEW GAULEY COAL CORPORATION

BALANCE SHEETS
(IN THOUSANDS)

See accompanying notes to financial statements
29

NEW GAULEY COAL CORPORATION

STATEMENTS OF INCOME
(IN THOUSANDS)

See accompanying notes to financial statements
30

NEW GAULEY COAL CORPORATION

STATEMENTS OF CASH FLOW
(IN THOUSANDS)

See accompanying notes to financial statements
31

NEW GAULEY COAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND ORGANIZATION

The accompanying unaudited condensed financial statements of New Gauley
Coal Corporation ("New Gauley") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 2002 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2002.

The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements

New Gauley, a West Virginia subchapter S corporation, was incorporated in
1918 to own and manage land and mineral rights. New Gauley owns property located
in Alabama and West Virginia.

New Gauley enters into leases with various coal mine operators for the
right to mine coal reserves on New Gauley's land in exchange for royalty
payments. Generally, the lessees make payments to New Gauley based on the
greater of a percentage of the gross sales price or a fixed price per ton of
coal they sell, subject to minimum annual or quarterly payments.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NEW ACCOUNTING STANDARDS

In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 eliminates
pooling-of-interests accounting and requires all business combinations initiated
after June 30, 2001 to be accounted for using the purchase method. With regard
to intangible assets, SFAS No. 141 states that intangible assets acquired in a
business combination subsequent to June 30, 2001 should be recognized separately
if the benefit of the intangible asset is obtained through contractual rights or
if the intangible asset can be sold, transferred, licensed, rented to or
exchanged, without regard to the acquirer's intent. The adoption of SFAS No. 141
did not have a material impact on New Gauley's 2001 financial statements. SFAS
No. 142 discontinues goodwill amortization; rather, goodwill will be subject to
at least an annual fair-value based impairment test. The adoption of SFAS No.
142 on January 1, 2002 did not have a material impact on New Gauley's financial
statements.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligation." SFAS No. 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred with the associated asset retirement cost being capitalized as a part
of the carrying amount of the long-lived asset. SFAS No. 143 also requires
disclosure that provides a description of asset retirement obligations and a
reconciliation of changes in the components of those obligations. Management is
evaluating the future financial effects of adopting SFAS No. 143 and expects to
adopt the standard effective January 1, 2003.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses the
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" and APB Opinion No. 30, "Reporting the
Results of Operations -- Reporting the Effects of the Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." The objective of SFAS No. 144 is to establish one accounting
model for long-lived assets to be disposed of by sale as well as resolve
implementation issues

32

NEW GAULEY COAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

related to SFAS No. 121. The adoption of SFAS No. 144 on January 1, 2002 did not
have a material impact on New Gauley's financial position or results of
operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 62, Amendment of FASB Statement No. 13, and Technical
Corrections." Among other things, SFAS No. 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under SFAS
No. 4. The provisions of this Statement related to the rescission of SFAS No. 4
shall be applied in fiscal years beginning after May 15, 2002. Management does
not expect the adoption of SFAS No. 145 on January 1, 2003 to have a material
impact on its financial position or results of operations.

3. REVERSIONARY INTEREST

The previous owner of some of New Gauley's coal properties (CSX Corporation
and certain of its affiliates, "CSX") retained a reversionary interest in
certain of those properties whereby it receives a 25% interest in the properties
and the net revenues from the properties after July 1, 2001, and in the net
proceeds of any property sale occurring prior to July 1, 2001. The reversionary
interest only applies to New Gauley's Alabama property. In March 2002, Western
Pocahontas, which formerly owned New Gauley, purchased the reversionary interest
from CSX. As a result of this transaction, the Alabama property is now owned 25%
by Western Pocahontas and 75% by New Gauley.

4. NOTE RECEIVABLE

In June 2001, New Gauley loaned $200,000 to a third party. The agreement
requires the third party to use the proceeds to develop certain coal properties
it owned. In exchange for the loan, New Gauley will receive a royalty on coal
produced from the developed properties. The total royalty received by New Gauley
is limited to the greater of $200,000 plus 15% interest per year or $240,000. If
no royalties are received by June 2005, the third party is required to repay the
note with interest. New Gauley has accrued $37,500 of interest income related to
this note. This agreement may be terminated at any time by the third party by
repayment of the note.

5. LONG-TERM DEBT

Long-term debt consisted of the following:

The note is collateralized by a mortgage on New Gauley's properties, a
security interest in accounts receivable, other assets, the stockholders'
interest in New Gauley and the debt service account established by New Gauley.
The note is guaranteed by Western Pocahontas.

New Gauley is required to contribute cash or cash equivalents to a debt
service account when New Gauley receives royalties greater than a predetermined
amount or sells qualified properties. New Gauley was not required to contribute
to the debt service account for the nine months ended September 30, 2002 and
2001, respectively (see note 7).

33

NEW GAULEY COAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. COMMITMENTS AND CONTINGENCIES

LEGAL

New Gauley is involved, from time to time, in various legal proceedings
arising in the ordinary course of business. While the ultimate results of these
proceedings cannot be predicted with certainty, management believes these claims
will not have a material effect on New Gauley's financial position, liquidity or
operations.

ENVIRONMENTAL COMPLIANCE

The operations conducted on New Gauley properties by its lessees are
subject to environmental laws and regulations adopted by various governmental
authorities in the jurisdictions in which these operations are conducted. As
owner of surface interests in some properties, New Gauley may be liable for
certain environmental conditions occurring at the surface properties. The terms
of substantially all of New Gauley's coal leases require the lessee to comply
with all applicable laws and regulations, including environmental laws and
regulations. Lessees post reclamation bonds assuring that reclamation will be
completed as required by the relevant permit, and substantially all of the
leases require the lessee to indemnify New Gauley against, among other things,
environmental liabilities. Some of these indemnifications survive the
termination of the lease. New Gauley causes visits to regularly visit the mines
to ensure compliance with lease terms, but the duty to comply with all
regulations rests with the lessees. Management believes that New Gauley's
lessees will be able to comply with existing regulations and does not expect any
lessee's failure to comply with environmental laws and regulations to have a
material impact on its financial condition or results of operations. New Gauley
neither has incurred, nor is aware of, any material environmental charges
imposed on it related to its properties for the nine months ended September 30,
2002. New Gauley is not associated with any environmental contamination that may
require remediation costs. However, lessees do, from time to time, conduct
reclamation work on our properties under lease to them. Because New Gauley is
not the permittee of the mines being reclaimed, it is not responsible for the
costs associated with these reclamation operations. However, in the event any
lessee are unable to complete its reclamation obligations and their bonding
company likewise fails to meet the obligations or provide money to the state to
perform the reclamation, New Gauley could be held liable for these costs.

7. SUBSEQUENT EVENTS

On October 17, 2002 in connection with Natural Resource Partners'
completion of its initial public offering of limited partnership units, New
Gauley transferred certain coal royalty producing properties that are currently
under lease to coal mine operators in an exchange for common and subordinated
units and a limited partnership interest in the general partner of NRP. New
Gauley also transferred a portion of its deferred revenue as well as its
long-term debt to NRP, but it retained unleased coal reserve properties. Because
the underwriters of the initial public offering of NRP did not elect to exercise
their option to purchase additional units of NRP, New Gauley purchased an
additional 9,150 common units on November 18, 2002 for $183,000.

34

ARCH COAL CONTRIBUTED PROPERTIES

STATEMENTS OF ASSETS PURCHASED AND LIABILITIES ASSUMED
(IN THOUSANDS)

See accompanying notes to financial statements
35

ARCH COAL CONTRIBUTED PROPERTIES

STATEMENTS OF REVENUES AND DIRECT COSTS AND EXPENSES
(IN THOUSANDS)

See accompanying notes to financial statements
36

ARCH COAL CONTRIBUTED PROPERTIES

NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited financial statements Arch Coal Contributed
Properties have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and Securities and Exchange
Commission regulations, but are subject to any year-end adjustments that may be
necessary. In management's opinion, the unaudited financial statements included
herein contain all adjustments necessary to present fairly the assets purchased
and liabilities assumed of the properties acquired from Arch Coal, Inc. and the
revenues and direct costs and expenses of the acquired properties for the
periods indicated. Such adjustments are of a normal, recurring nature.

Ark Land Company ("Ark Land") is a wholly owned subsidiary of Arch Coal,
Inc. ("Arch Coal"). Ark Land owns and manages land and mineral rights primarily
located in the Western, Central Appalachian and the Illinois Basins. In
conjunction with the initial public offering of Natural Resource Partners, Ark
Land contributed certain owned land and coal interests on which coal leasing
activity occurs to Natural Resource Partners. Ark Land retained owned land and
mineral reserves with no leasing activity as well as other land and mineral
reserves controlled through leasing arrangements. The accompanying statements
have been prepared on Ark Land's historical cost basis in the Arch Coal
Contributed Properties.

The Arch Coal Contributed Properties were not a legal entity and, except
for revenues earned from the properties and certain direct costs and expenses of
the properties and assets acquired and liabilities assumed, no separate
financial information was maintained. The Arch Coal Contributed Properties did
not maintain stand-alone corporate treasury, legal, tax, human resources,
general administration and other similar corporate support functions. Corporate
general and administrative expenses were not previously allocated to the Arch
Coal Contributed Properties, nor were they allocated in connection with the
preparation of the accompanying statements because there was not sufficient
information to develop a reasonable cost allocation. Because the separate and
distinct accounts necessary to present individual balance sheets and income
statements of the Arch Coal Contributed Properties had not been maintained as of
and for the three and nine month periods ending September 30, 2002 and 2001,
Statements of Revenues and Direct Costs and Expenses and Assets Purchased and
Liabilities Assumed have been prepared.

The accompanying Statements of Revenues and Direct Costs and Expenses and
Statements of Assets Purchased and Liabilities Assumed are not intended to be a
complete presentation of the financial position and results of operations of the
Arch Coal Contributed Properties. The accompanying financial statements were
prepared to comply with the requirements of the Securities and Exchange
Commission for inclusion in this Form 10-Q, and to provide information regarding
the Arch Coal Contributed Properties to investors in Natural Resource Partners.

With respect to cash flows, the Arch Coal Contributed Properties do not
maintain cash accounts. Cash receipts and expenditures are maintained by Ark
Land. However, the following information is provided to identify direct cash
flows generated from the Arch Coal Contributed Properties:

38

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

INTRODUCTION

Natural Resource Partners is a master limited partnership recently formed
by the WPP Group, the largest owner of coal reserves in the United States other
than the U.S. government, and Arch Coal, Inc. the second largest U.S. coal
producer. NRP engages principally in the business of owning and managing coal
properties in the three major coal-producing regions of the United States:
Appalachia, the Illinois basin and the Western United States. As of December 31,
2001 NRP controlled approximately 1.15 billion tons of proven and probable coal
reserves in eight states. An initial public offering of NRP's units was
completed on October 17, 2002, subsequent to the end of the period covered by
this filing.

The WPP Group and Ark Land Company, an affiliate of Arch Coal, Inc.
contributed properties to NRP that were under lease to coal mine operators. The
WPP Group has retained other unleased coal reserve properties, surface lands and
timberlands. The financial statements and related discussions for the members of
the WPP Group include results of operations related to these retained
properties. The financial statements for the WPP Group do not reflect the
results that would have been obtained if only the contributed properties had
been presented. The Arch Coal Contributed Properties financial statements
include only properties that were contributed to NRP. The Arch Coal Contributed
Properties is not a legal entity and, except for revenues earned from the
properties and certain direct costs and expenses of the properties, no separate
financial information was maintained or is presented.

NRP leases coal reserves to experienced mine operators under long-term
leases that grant the operators the right to mine NRP's coal reserves in
exchange for royalty payments. NRP's royalty payments are based on the higher of
a percentage of the gross sales price or a fixed price per ton of coal sold,
subject to a minimum annual or quarterly payment. As of September 30, 2002,
NRP's reserves were located on 45 separate properties and are subject to 62
leases with 31 lessees. In 2001, approximately 57% of the coal produced from
NRP's properties came from underground mines and 43% came from surface mines. As
of December 31, 2001, approximately 65% of NRP's reserves were low sulfur coal.
Included in NRP's low sulfur reserves is compliance coal, which meets the
standards imposed by the Clean Air Act and constitutes approximately 25% of
NRP's reserves. Coal produced from NRP's properties is burned in electric power
plants located east of the Mississippi River and in Montana and Minnesota. In
2001, NRP's lessees produced 29 million tons of coal from NRP's properties and
NRP's total revenues were $47.2 million on a pro forma basis, including coal
royalty revenues of $42.4 million. Approximately 12% of NRP's lessees' 2001 coal
production was metallurgical coal, which NRP's lessees sold to steel companies
in the Eastern United States, South America, Europe and Asia.

NRP's revenue and profitability are almost entirely dependent on its
lessees' ability to mine and market its coal reserves. Coal royalties are paid
to NRP on the basis of a percentage of the sales price of the coal, subject to a
minimum royalty per ton. In addition, NRP's leases specify minimum monthly,
quarterly or annual royalties. These minimum royalties are generally recoupable
over a specified period of time (usually three to five years) if sufficient
royalties are generated from coal production in future periods. NRP does not
recognize these minimum royalties as revenue until the applicable recoupment
period has expired or they are recouped through production. Until recognized as
revenue, these minimum royalties are carried as deferred revenue, a liability on
the balance sheet.

Most of NRP's coal is produced by publicly held companies with professional
and sophisticated sales departments. NRP estimates that 75% of its coal is sold
by its lessees under coal supply contracts that extend for one year or more.
Coal supply contracts with terms of one year or more are becoming increasingly
rare. Thus, NRP's coal royalty revenue stream is increasingly affected by
changes in market price of coal.

During the last few years, steam coal prices have varied greatly. At the
beginning of 2000, demand for steam coal was depressed due to excessive
stockpiling of coal by utilities in anticipation of "Y2K" problems. By late
summer of 2000, these stockpiles returned to normal levels, utilities reentered
the market to buy coal and sufficient supply was not available to meet demand.
These events contributed to a rapid increase in coal prices during late 2000.
These higher spot prices prevailed for most of 2001. In late 2001, prices began
to

39

decline as demand for coal fell due to unusually warm weather during the winter
of 2001-2002 and the sluggish U.S. economy. The effect of these lower spot
prices on NRP's results of operations for the near future should be limited
because its lessees will receive previously contracted prices for much of their
production. The prices have stabilized at recent historical levels during 2002.
Coal prices are the result of the interaction of a number of factors, including
supply and demand, specific coal characteristics, economics of alternative fuel,
and overall domestic and international economic conditions.

During 2001, approximately 14% of NRP's coal royalty revenues were from
metallurgical coal. Prices of metallurgical coal have remained relatively stable
in the past two years. Metallurgical coal, because of its unique chemical
characteristics, is usually priced higher than steam coal. Metallurgical coal
production has gradually decreased during the past few years due to a decline in
exports as a result of the strength of the U.S. dollar and increasing use of
electric arc furnaces and pulverized coal, rather than metallurgical coal, for
steel production. Metallurgical coal can also be used as a steam coal. However,
some metallurgical coal mines on NRP's properties may only operate profitably if
all or a portion of their production is sold as metallurgical coal due to its
higher price. If the operators of these mines are unable to sell metallurgical
coal, these mines may not be economically viable and may close.

In addition to coal royalty revenue, NRP will generate nominal revenue from
royalties on oil and gas and coalbed methane leases, an overriding royalty
arrangement and wheelage payments, which are toll payments for the right to
transport third-party coal over or through its property. NRP will not have any
timber revenues in the future because the WPP Group has retained all of the
timber on its properties, and the Arch Coal Contributed Properties do not
include any timber assets.

Most lessees are required to reimburse NRP for property taxes paid on the
leased property. These property tax reimbursements are shown as revenue in the
financial statements. The corresponding property tax expenses are included as
"taxes other than income." The WPP Group's property tax expenses are higher than
its property tax revenue because the WPP Group is retaining certain properties
and because some of the properties contributed by the WPP Group are unleased
and, therefore, no reimbursements are received.

General and administrative expenses include salary and benefits, rent,
expenses and other costs related to managing the properties. An affiliate
charges the WPP Group for certain finance, tax, treasury and insurance expenses.
The Arch Coal Contributed Properties did not maintain stand-alone corporate
treasury, legal, tax, human resources, general administration or other similar
corporate support functions. Corporate general and administrative expenses have
not been previously allocated to the Arch Coal Contributed Properties because
there was not sufficient information to develop a reasonable cost allocation. In
the future, NRP will reimburse the General Partner and its affiliates for direct
and indirect expenses they incur on NRP's behalf, including general and
administrative expenses.

Depreciation, depletion and amortization consists primarily of depletion on
the coal properties. Depletion of coal reserves is calculated on a
unit-of-production basis and thus fluctuates with coal production for the
period.

40

RESULTS OF OPERATIONS

NATURAL RESOURCE PARTNERS L.P. (PRO FORMA)

The following tables set forth certain financial and operating data for the
periods presented:

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 2001

Revenues: Combined revenues for the three months ended September 30, 2002
were $7.8 million compared to $8.3 million for the three months ended September
30, 2001, a decrease of $0.5 million, or 6.0%. Coal and timber royalty income
increased $1.7 million and $0.8 million, respectively, but were offset by a $3.1
million decrease in gain on sales of property.

Coal royalty revenues for the three months ended September 30, 2002 were
$5.9 million compared to $4.2 million for the three months ended September 30,
2001, an increase of $1.7 million, or 40.5%. Over these same periods, production
increased by 0.6 million tons, or 22%, from 2.7 million tons to 3.3 million
tons. The increases in production and coal royalties were primarily due to:

- In Eastern Kentucky, royalty revenue decreased $0.6 million due to
lower production at one of the mines on Western Pocahontas'
Evans-Laviers property.

- In Southern West Virginia, the West Fork property had increased
royalties of $1.2 million due to a longwall mine moving onto the
property, while the Dorothy property had increased royalties of $0.5
million due to a new surface mining operation. On the Welch/Wyoming
property, royalties increased $0.2 million due to a new mine increasing
production.

- In Northern West Virginia, there was an increase in royalties of $0.3
million from the Thomas property as production shifted onto Western
Pocahontas' property from adjacent property.

41

Timber revenues for the three months ended September 30, 2002 were $1.0
million and for the three months ended September 30, 2001 were $0.2 million, an
increase of $0.8 million, or 400%. The increase is due to Western Pocahontas
deferring the harvest of timber during the second half of 2001 due to poor
markets, lower prices and decline in demand.

Gain on sale of property was $3.1 million in the three months ended
September 30, 2001 related to the sale of 1,928 acres of surface land.

Expenses: Western Pocahontas' aggregate expenses for the three months
ended September 30, 2002 were $2.6 million compared to $1.8 million for the
three months ended September 30, 2001, an increase of $0.8 million, or 44.4%,
due primarily to an increase in depletion rates attributable to the purchase of
the reversionary interest (described below) along with an increase in coal
production and timber harvest.

Other Income (Expense): Interest expense was $1.6 million for the three
months ended September 30, 2002 compared to $1.0 million for three months ended
September 30, 2001, an increase of $0.6 million, or 60%. This increase is due to
additional interest expense on the debt arising from the acquisition of the
reversionary interest in March 2002.

Reversionary Interest: The previous owner of Western Pocahontas' coal and
timber properties (CSX Corporation and certain of its affiliates "CSX") retained
a reversionary interest in those properties whereby it received either a 25% or
28% interest in the net revenues derived from the properties after July 1, 2001
and in the net proceeds of any property sale occurring prior to July 1, 2001.

In December 2001, Western Pocahontas issued an $8.0 million non-interest
bearing note ($7.9 million net of imputed interest) payable to CSX in
conjunction with the purchase of CSX's reversionary interest in the properties
located in Kentucky. In March 2002, Western Pocahontas purchased the
reversionary interest in the remaining properties.

Net Income: Net income was $3.7 million for the three months ended
September 30, 2002 compared to $4.6 million for the three months ended September
30, 2001, a decrease of $0.9 million, or 19.6%. This decrease is primarily due
to a decrease in property sales offset by the extinguishment of the reversionary
interest in March 2002, the increase in depletion and in interest expense,
partially offset by an increase in coal and timber royalties.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 2001

Revenues: Combined revenues for the nine months ended September 30, 2002
were $21.2 million compared to $20.2 million for the nine months ended September
30, 2001, an increase of $1.0 million, or 5.0%. Coal royalties increased $5.0
million, which were offset by a $1.0 million decrease in timber royalties and a
$3.0 million decrease in gain on sales of properties.

Coal royalty revenues for the nine months ended September 30, 2002 were
$16.2 million compared to $11.2 million for the nine months ended September 30,
2001, an increase of $5.0 million, or 44.6%. Over these same periods, production
increased by 1.3 million tons, or 16.9%, from 7.7 million tons to 9.0 million
tons. The increase in production and coal royalties were primarily due to:

- In Southern West Virginia, royalties increased on the West Fork and
Eunice properties by $2.8 and $1.0 million, respectively, due to
longwall mines moving onto both properties. On the Welch/ Wyoming
property, royalties increased by $0.9 million due to a new mine opening
on the property. On the Dorothy property royalties increased by $0.8
million due to increased surface mine production, while royalties
declined on the Rockhouse property by $0.6 million due to geologic
related production problems.

- In Indiana, royalties decreased $0.6 million due to a higher proportion
of the mines' production being on adjacent property.

42

- In Northern West Virginia, royalties increased $0.7 million due to a
new mine being opened on the Thomas property, adding $1.1 million that
was partially offset by two mines phasing down their production.

Timber revenues decreased to $2.6 million for the nine months ended
September 30, 2002 from $3.6 million for the nine months ended September 30,
2001, a decrease of $1.0 million, or 27.8%. This decrease resulted from
decreased harvest in Southern West Virginia. This was partially offset by higher
royalty rates due to a renegotiated contract.

Gain on sale of property and equipment was only $0.1 million for the nine
months ended September 30, 2002 compared to $3.1 million for the nine months
ended September 30, 2001, a decrease of $3.0 million. The gain in 2001
represents the sale of 1,928 acres of surface property.

Expenses: Expenses were $6.9 million for the nine months ended September
30, 2002 compared to $4.9 million for the nine months ended September 30, 2001,
an increase of $2.0 million, or 40.8%, primarily because of an increase in coal
depletion due to the increase in depletion rates associated with the purchase of
the reversionary interest. In order to correct an error in calculating depletion
expense for the three months ended June 30, 2002, Western Pocahontas has
adjusted its income statement for that quarter by adding $0.5 million to
depreciation, depletion and amortization, resulting in a decrease in net income
by a like amount.

Other Income (Expense): Interest expense was $4.5 million for the nine
months ended September 30, 2002 compared to $3.0 million for nine months ended
September 30, 2001, an increase of $1.5 million, or 50%, resulting from the
additional debt incurred from the acquisition of the reversionary interest from
CSX.

Net Income: Net income was $9.3 million for the nine months ended
September 30, 2002 compared to $11.4 million for the nine months ended September
30, 2001, a decrease of $2.1 million, or 18.4%. The decrease is attributable to
decreases in gain on sales of property and timber royalty revenue as well as an
increase in interest and depletion expense partially offset by an increase in
coal royalty revenue.

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 2001

Revenues: Combined revenues for the three months ended September 30, 2002
were $2.1 million compared to $2.0 million for the three months ended September
30, 2001, an increase of $0.1 million, or 5.0%. Coal royalty revenues for the
three months ended September 30, 2002 were $1.9 million compared to $1.8 million
for the three months ended September 30, 2001 an increase of $0.1 million. Over
these periods, production increased by 0.4 million tons, or 28.6%, from 1.4
million tons to 1.8 million tons. These increases in production and coal
royalties were primarily due to:

- In Montana, coal royalty revenues decreased by $0.3 million due to a
larger proportion of production from one mine moving to property
adjacent to Great Northern's property.

- In Washington, coal royalty revenues increased by $0.4 million due to
production moving onto Great Northern's property from adjacent
property.

Expenses: The aggregate expenses for the three months September 30, 2002
were $0.8 million compared to $0.6 million for the three months ended September
30, 2001, an increase of $0.2 million, or 33%. The $0.2 million increase is the
result of an increase in depletion caused by an increase in tons produced during
the quarter.

Other Income (Expense): Interest expense was $0.6 million for the three
months ended September 30, 2002 compared to $0.9 million for the three months
ended September 30, 2001, a decrease of $0.3 million, or 33.3%. This decrease
results both from a reduction in outstanding principal balance as well as a
decline in interest rates.

43

Net Income: Net income was $0.7 million for the three months ended
September 30, 2002 compared to $0.6 million for the three months ended September
30, 2001, an increase of $0.1 million, or 16.7%. This increase is primarily due
to the increase in coal royalty revenues.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 2001

Revenues: Combined revenues for the nine months ended September 30, 2002
and 2001 were $6.0 million. Coal royalty revenues for the nine months ended
September 30, 2002 were $5.4 million compared to $5.1 million for the nine
months ended September 30, 2001, an increase of $0.3 million, or 5.9%. Over
these same periods, production decreased by .06 million tons, or 10.0%, from 6.0
million tons to 5.4 million tons. The changes in production and coal royalties
were primarily due to:

- In Montana, coal royalty revenues decreased by $0.7 million due to a
larger proportion of production from both of the leases on Great
Northern's property moving onto adjacent property.

- In Washington, coal royalty revenues increased by $1.1 million due to
production at the mine moving onto Great Northern's property from
adjacent property.

Gain on sale of property was $0.4 million in the nine months ended
September 30, 2001. This gain was related to the sale of 3,193 acres of surface
land in Montana.

Expenses: Aggregate expenses for the nine months ended September 30, 2002
were $2.4 million compared to $2.0 million for the nine months ended September
30, 2001, an increase of $0.4 million, or 20.0%, due to the increase in
depletion associated with a write-down of the reserve base at one mine, causing
an increase in the depletion rate at that mine.

Other Income (expense): Interest expense was $1.7 million for the nine
months ended September 30, 2002 compared to $3.0 million for nine months ended
September 30, 2001, a decrease of $1.3 million, or 43.3%. This decrease is due
to the reduction in interest rates and a decline in the amount of debt
outstanding.

Interest income for the nine months ended September 30, 2002 was $0.1
million compared to $0.3 million for the nine months ended September 30, 2001, a
decrease of $0.2 million due to lower interest rates.

Net Income: Net income was $2.0 million for the year ended September 30,
2002 compared to $1.3 million for the nine months ended September 30, 2001, an
increase of $0.7 million, or 53.8%. This increase is primarily due to the
reduction in interest expense related to lower interest rates partially offset
by an increase in depletion expense.

NEW GAULEY COAL CORPORATION

THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 2001

Revenues: Combined revenues for the three months ended September 30, 2002
and 2001 were $0.4 million. Coal royalty revenues were unchanged for the three
months ended September 31, 2002 and 2001. During the three months ended
September 30, 2002, production was 134,000 tons compared to 180,000 tons for the
three months ended September 30, 2001,a decrease of 46,000 tons or 25.5%

Net Income: Net income was essentially unchanged for the three months
ended September 30, 2002 and 2001.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 2001

Revenues: Combined revenues for the nine months ended September 30, 2002
were $1.4 million compared to $1.3 million for the nine months ended September
30, 2001, an increase of $0.1 million, or 7.7%. Coal royalty revenues for the
nine months ended September 30, 2002 were $1.3 million compared to $1.2 million
for the nine months ended September 30, 2001, an increase of $0.1 million, or
8.3%. Over these same periods, production decreased by 107,000 tons, or 19.4%,
from 552,000 tons to 445,000 tons. This change in production and coal royalties
was primarily due to West Virginia coal royalties increasing by $0.1 million

44

due to higher production on the property, and the Alabama coal royalty revenue
increasing $0.1 million due to increased recoupment of previously paid minimum
royalties.

Net Income: Net income was $1.0 million for the nine months September 30,
2002 compared to $0.9 million for the nine months September 30, 2001, an
increase of $0.1 million, or 11.0%, primarily due to an increase in coal royalty
revenues.

ARCH COAL CONTRIBUTED PROPERTIES

THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 2001

Revenues: Revenues in the three months ended September 30, 2002 were $5.6
million compared with $5.0 million in the three months ended September 30, 2001,
an increase of $0.6 million, or 12%.

Coal royalty revenues in the three months ended September 30, 2002 were
$5.0 million compared to $4.5 million in the three months ended September 30,
2001, an increase of $0.5 million, or 11.1%. Production increased by 0.3 million
tons, or 11%, from 2.7 million tons in the three months ended September 30, 2001
to 3.0 million tons in the three months ended September 30, 2002. The increase
in production and coal royalties were primarily attributable to the following:

- Production from the Central Appalachia properties increased 0.1 million
tons to 0.7 million tons for the three months ended September 30, 2002
from 0.6 million tons for the three months ended September 30, 2001,
which resulted in increased coal royalty revenues of $240,000. The
increase was primarily due to increased production at the Kingston
properties.

- Production from the Illinois Basin properties increased 58,000 tons to
0.4 million tons for the three months ended September 30, 2002 from 0.3
million for the three months ended September 30, 2001, which resulted
in increased coal royalty revenues of $0.1 million .

Direct costs and expenses: Direct costs and expenses in the three months
ended September 30, 2002 were $2.0 million compared to $1.9 million in the three
months ended September 30, 2001, an increase of $0.1 million, or 5.3%. Depletion
increased $0.1 million to $1.6 million in the three months ended September 30,
2002 primarily as a result of the increased production during the period.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 2001

Revenues: Revenues in the nine months ended September 30, 2002 were $16.0
million compared with $15.6 million in the nine months ended September 30, 2001,
an increase of $0.4 million, or 2.6%.

Coal royalty revenues in the nine months ended September 30, 2002 were
$13.9 million compared to $13.8 million in the nine months ended September 30,
2001, an increase of $0.1 million. Production decreased by 0.2 million tons, or
2.4%, from 8.5 million tons in the nine months ended September 30, 2001 to 8.3
million tons in the nine months ended September 30, 2002.

Direct costs and expenses: Direct costs and expenses in the nine months
ended September 30, 2002 were $5.9 million compared to $5.8 million in the nine
months ended September 30, 2001, an increase of $0.1 million, or 1.7%. Depletion
decreased $0.2 million to $4.6 million in the nine months ended September 30,
2002 primarily as a result of the reduced production during the period. This was
offset by increased override royalties due to a third party. Those royalties
increased $0.3 million to $0.5 million in the nine months ended September 30,
2002 as a result of increased production on the override property.

LIQUIDITY AND CAPITAL RESOURCES:

The WPP Group and the Arch Coal Contributed Properties have generally
satisfied their working capital requirements and funded capital expenditures
with cash generated from operations and associated borrowings. Upon completion
of NRP's initial public offering in October 2002, NRP used its net proceeds from
the offering to retire $46.5 million in debt it assumed from the WPP Group.
Subsequent to NRP retiring its assumed debt, the WPP Group and Arch Coal, Inc.
contributed $869,000 and $979,000, respectively, to NRP

45

to cover transaction costs and expenses and to fund initial working capital.
Since NRP has no remaining outstanding debt, it believes that cash generated
from operations and its borrowing capacity will be sufficient to meet working
capital requirements, capital expenditures and scheduled debt payments for at
least the next several years. NRP's ability to satisfy its debt service
obligations, to fund necessary capital expenditures, make acquisitions and to
pay distributions to its unitholders will depend upon its future operating
performance, which will be affected by prevailing economic conditions in the
coal industry and financial, business and other factors, some of which are
beyond its control.

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

Net cash provided by operations was $9.8 million for the nine months ended
September 30, 2002 compared to $11.2 million for the nine months ended September
30, 2001. This decrease resulted primarily from a decrease in gain on sale of
assets offset by increased accounts receivable.

Net cash used in investing activities was $42.9 million for the nine months
ended September 30, 2002 compared to $3.6 million net cash provided by investing
activities for the nine months ended September 30, 2001. During 2002, Western
Pocahontas repaid a note payable of $7.9 million along with $35.1 million in
capital expenditures, both of which were associated with the purchase of the CSX
reversionary interest completed in March 2002.

Cash flows provided by financing activities in the nine months ended
September 30, 2002 was $35.7 million compared to $13.7 million of cash used in
financing activities in the nine months ended September 30, 2001, a change of
$49.4 million. This was primarily attributable to $45.0 million in borrowings
and $1.3 million in financing costs incurred to purchase the reversionary
interest from CSX.

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

Net cash provided by operations was $3.7 million in the nine months ended
September 30, 2002 compared to $2.9 million in the nine months ended September
30, 2001, an increase of $0.8 million. This increase is primarily due to a $1.2
million decrease in interest expense associated with a decline in interest rates
from an average of 8.0% to 4.7% during the nine month periods ended September
30, 2001 and 2002 respectively. The reduction in interest expense was partially
offset by a $0.3 million increase in depletion due to an increase in coal
production.

Net cash provided by investing activities decreased by $0.5 million in the
nine months ended September 30, 2002 compared to the nine months ended September
30, 2001. During the nine month period ending in 2001, Great Northern sold some
surface land for $0.5 million.

Cash flows used in financing activities was $4.1 million in the nine months
ended September 30, 2002 compared to $3.9 million in the nine months ended
September 30, 2001, a change of $0.2 million. This change reflects additional
cash placed in restricted accounts as required by a loan agreement offset by a
reduction in partnership distributions.

NEW GAULEY COAL CORPORATION

Net cash provided by operations, investing and financing activities in the
nine months ended September 30, 2002 and 2001 were essentially the same.

ARCH COAL CONTRIBUTED PROPERTIES

The Arch Coal Contributed Properties did not maintain cash accounts. Cash
receipts and expenditures were maintained by Ark Land. Direct cash flows from
the Arch Coal Contributed Properties were $14.8 million in the each of the nine
month periods ended September 30, 2002 and 2001.

46

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The WPP Group and Arch Coal, Inc., collectively, own 6,853,658 common units
and 11,353,658 subordinated units, representing a 78.6% limited partner interest
in NRP. In addition, they own the General Partner which owns the 2.0% general
partner interest in NRP.

Quintana Minerals Corporation, a company controlled by Corbin J. Robertson,
Jr., provided certain administrative services to Western Pocahontas and charged
it for direct costs related to the administrative services. The total expenses
charged to Western Pocahontas under this arrangement were $0.5 million, $0.3
million and $0.2 million for the year ended December 31, 2001 and the nine month
periods ending September 30, 2002 and 2001, respectively. These costs are
reflected in the general and administrative expenses in the accompanying
statements of income.

Western Pocahontas has a management contract to provide certain management,
engineering and accounting services to Great Northern. The contract provides for
a $250,000 annual fee, and Great Northern paid a $187,500 fee in each of the
nine months ended September 30, 2002 and 2001, which is intended to reimburse
Western Pocahontas for its expenses. This fee is presented as other revenue in
the accompanying statement of income. The contract may be canceled upon 90 days
advance notice by Great Northern.

Some of the Arch Coal Contributed Properties are leased to affiliates of
Arch Coal that mine on the properties. Contracted royalty rates from these
affiliates for the three years ended December 31, 2001 were 6.5% of the gross
sales price of coal sold from the property using underground mining methods and
7.5% of the gross sales price of coal sold from the property using surface
mining methods. Affiliate royalties amounted to $7.3 million, and $8.0 million
for the nine month periods ending September 30, 2002 and 2001, respectively.

In connection with the initial public offering of Natural Resource
Partners, NRP entered into an omnibus agreement with the General Partner, the
WPP Group, Arch Coal, Ark Land and Corbin J. Robertson, Jr. that places certain
restrictions on the ability of the WPP Group, any entity controlled by Corbin J.
Robertson, Jr., Arch Coal and their affiliates to compete with NRP.

NRP believes that the terms for each of the above transactions are at least
as favorable to it as NRP would have obtained in transactions negotiated with
unaffiliated third parties.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

NRP is exposed to market risks related to coal prices and interest rates.
NRP's royalty income is determined as a percent of the market price of coal.
Thus, subject to minimum levels contained in most leases, NRP's royalty income
will rise or fall with coal price fluctuations. Since NRP has not yet drawn
against its line of credit and has no other debt, it has limited interest rate
exposure.

Since NRP's royalty income is entirely derived from its lessees, NRP is
exposed to market risks, indirectly, through them. If coal prices decline,
production declines, interest rates increase, or NRP's lessees do not properly
manage their businesses, they may be unable to continue to mine coal and pay
royalties or they may be unable to pay their debts, including NRP's royalty
payments, as they come due. From time to time, various lessees file for
bankruptcy. Natural Resource Partners cannot assure the holders of its common
units that these filings will not have an adverse impact on its results of
operations.

ITEM 4. CONTROLS AND PROCEDURES

NRP carried out an evaluation of the effectiveness of the design and
operation of its disclosure controls and procedures (as defined in Rule
13a-14(c) of the Securities Exchange Act) within the 90 days prior to the filing
date of this report. This evaluation was performed under the supervision and
with the participation of NRP management, including the Chief Executive Officer
and Chief Financial Officer of the general partner of the general partner of
NRP. Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that these disclosure controls and procedures are effective in
producing the timely recording processing summary and reporting of information
and in accumulation and communication of information to management to allow for
timely decisions with regard to required disclosure.

47

In addition, there have been no significant changes in NRP's internal
controls or in other factors that could significantly affect these internal
controls subsequent to the last date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On October 10, 2002, Natural Resource Partners' Registration Statement on
Form S-1 (Registration No. 333-86582), filed with the Securities and Exchange
Commission, became effective. Pursuant to the Registration Statement, on October
11, 2002, Natural Resource Partners sold 2,598,750 common units to the public at
a price of $20.00 per unit for aggregate gross proceeds of $52.0 million.
Because the underwriters did not exercise their over-allotment option, Great
Northern and New Gauley purchased an additional 75,503 common units at a price
of $20.00 per unit for aggregate gross proceeds of $1.5 million, resulting in
aggregate gross proceeds of $53.5 million. In addition, the WPP Group
contributed $0.9 million to NRP in order to cover certain transaction costs in
excess of those covered by the proceeds of the public offering. Underwriting
fees paid in connection with the initial public offering were $3.6 million. On
October 17, 2002, the closing date of NRP's initial public offering, NRP
received net proceeds of $50.8 million. NRP used approximately $46.5 million of
the net proceeds to repay debt that was assumed from the WPP Group in connection
with the public offering, used approximately $0.9 million to cover fees related
to its credit facility and used approximately $2.9 million to cover expenses
associated with the initial public offering, which consisted primarily of legal,
accounting and other professional services costs. The remaining $0.6 million of
net proceeds was used to increase working capital to the level necessary for the
operation of NRP's business. The underwriters of Natural Resource Partners'
initial public offering were Salomon Smith Barney, Lehman Brothers, CIBC World
Markets, Friedman Billings Ramsey and RBC Capital Markets.

Concurrent with NRP's sale of common units to the public, Arch Coal sold
1,901,250 common units to the public at a price of $20.00 per unit, resulting in
aggregate gross proceeds of $38.0 million and net proceeds of $35.4 million. The
proceeds received by Arch Coal were used to retire debt. In addition, Arch
contributed $0.4 million and $0.6 million to Natural Resource Partners to fund
working capital and to cover fees related to NRP's credit facility,
respectively.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS FOR A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

ACQUISITION OF ASSETS

On November 6, 2002, Natural Resource Partners signed a definitive
agreement to purchase, through a wholly owned subsidiary, mineral rights to
approximately 120 million tons of coal reserves from subsidiaries of El Paso
Corporation for $69 million in cash. The transaction is subject to the
satisfaction of certain pre-closing conditions. NRP's credit line will be
utilized to finance the acquisition.

Over half of the 120 million tons of reserves are located in Kentucky with
reserves also located in Virginia and West Virginia. Additionally, the
transaction includes 177,000 mineral acres (including approximately 25,000 acres
of surface) that generate minor timber, lease and oil and gas income. An
overriding royalty interest in coal in North Dakota is also being acquired.

48

SECTION 906 CERTIFICATIONS

Accompanying the filing of this Form 10-Q for the quarterly period ended
September 30, 2002, we have provided to the Securities and Exchange Commission
the certifications of the chief executive officer and chief financial officer of
the General Partner, required pursuant to 18 U.S.C. sec. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

None.

49

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned and thereunto duly authorized.

NATURAL RESOURCE PARTNERS L.P.
By: NRP (GP) LP, its general partner
By: GP NATURAL RESOURCE
PARTNERS LLC, its general partner

Date: November 25, 2002

By: /s/ CORBIN J. ROBERTSON, JR.

------------------------------------
Corbin J. Robertson, Jr.,
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)

Date: November 25, 2002

By: /s/ DWIGHT L. DUNLAP

------------------------------------
Dwight L. Dunlap,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)

Date: November 25, 2002

By: /s/ KENNETH HUDSON

------------------------------------
Kenneth Hudson
Controller
(Principal Accounting Officer)

50

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Dwight L. Dunlap, certify that:

1) I have reviewed this quarterly report on Form 10-Q of Natural Resource
Partners L.P.

2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;

3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and

c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function);

a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

By: /s/ DWIGHT L. DUNLAP
------------------------------------
Dwight L. Dunlap
Chief Financial Officer and
Treasurer

Date: November 25, 2002

51

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Corbin J. Robertson, Jr., certify that:

1) I have reviewed this quarterly report on Form 10-Q of Natural Resource
Partners L.P.

2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;

3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function);

a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

By: /s/ CORBIN J. ROBERTSON, JR.
------------------------------------
Corbin J. Robertson, Jr.
Chief Executive Officer and
Chairman of the Board

Date: November 25, 2002

52