NATURAL RESOURCE PARTNERS LP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 1-31465
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 Number)

610 JEFFERSON, SUITE 3600 77002
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)

(713) 751-7507
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE.

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 the
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes [ ] No [X]

The aggregate value of the Common Units held by non-affiliates of the
registrant (treating all executive officers and directors of the registrant and
holders of 10% or more of the Common Units outstanding, for this purpose, as if
they were affiliates of the registrant) was approximately $89,502,660 on
December 31, 2002(1) based on a price of $20.70 per unit, the closing price of
the Common Units as reported on the New York Stock Exchange on that date.

As of March 15, 2003, there were 11,353,658 Common Units outstanding and
11,353,658 Subordinated Units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE.
None.

(1)The registrant completed its initial public offering in October 2002.
Because the registrant has not yet completed a "second fiscal quarter" it is
stating the aggregate value of the Common Units as of December 31, 2002, the
last business day of its most recently completed fiscal quarter.
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TABLE OF CONTENTS

1

NATURAL RESOURCE PARTNERS L.P.

PART I

ITEMS 1 AND 2. BUSINESS AND PROPERTIES

Natural Resource Partners L.P. (the "Partnership" or "NRP") is a limited
partnership formed in April 2002 by the WPP Group and Arch Coal, Inc. ("Arch
Coal").

We engage 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,
2002, we controlled approximately 1.23 billion tons of proven and probable coal
reserves in eight states. We do not operate any mines. We lease coal reserves to
experienced mine operators under long-term leases that grant the operators the
right to mine our coal reserves in exchange for royalty payments. Our lessees
are generally required to make payments to us based on the higher of a
percentage of the gross sales price or a fixed price per ton of coal sold, in
addition to a minimum payment.

The WPP Group includes Western Pocahontas Properties Limited Partnership,
New Gauley Coal Corporation and Great Northern Properties Limited Partnership,
three privately held companies that are primarily engaged in owning and managing
mineral properties. Western Pocahontas Properties Limited Partnership was
established in connection with the acquisition of properties located in West
Virginia, Kentucky, Maryland, Indiana and Alabama from CSX Corporation in 1986.
As part of Western Pocahontas Properties Limited Partnership's acquisition of
the CSX properties, Western Pocahontas Properties Limited Partnership acquired
New Gauley Coal Corporation, which held additional properties in West Virginia.
Great Northern Properties Limited Partnership was established with the
acquisition in 1992 from Burlington Resources of properties primarily located in
Montana.

We completed our initial public offering of 2,598,750 common units at a
price of $20.00 per unit on October 17, 2002, from which we received net
proceeds of approximately $48.4 million. Simultaneously, Arch Coal sold
1,901,250 common units at the same price. We did not receive any proceeds from
the sale by Arch Coal of these units.

At the time of the our initial public offering, the WPP Group transferred
certain assets and liabilities to us in exchange for:

- 3,882,485 common units;

- 6,556,738 subordinated units;

- 25% of the incentive distribution rights;

- a 57.75% limited partner interest in NRP (GP) LP, the general partner of
the Partnership; and

- the assumption of $46.5 million of debt contributed by the WPP Group
which was paid from the proceeds of the initial public offering.

Simultaneously, Arch Coal transferred certain assets and liabilities to the
Partnership in exchange for:

- 4,796,920 common units (of which Arch Coal subsequently sold 1,901,250
units);

- 4,796,920 subordinated units;

- 10% of the incentive distribution rights; and

- a 42.25% limited partner interest in NRP (GP) LP, the general partner of
the Partnership.

Subsequently, we sold 75,503 common units at the initial public offering
price to Great Northern and New Gauley because the underwriters did not exercise
their over-allotment option.

Simultaneously with the initial public offering, we entered into a
$100,000,000 revolving credit facility arrangement with a group of banks led by
PNC Bank. As we are actively pursuing additional property acquisitions, we are
currently in discussions with a group of banks to increase our revolving credit
facility.

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PARTNERSHIP STRUCTURE AND MANAGEMENT

Our operations are conducted through, and our operating assets are owned
by, our subsidiaries. We own our subsidiaries through an operating company, NRP
(Operating) LLC. At March 1, 2003, our partnership structure is as follows:

- NRP (GP) LP, our general partner, owns the 2% general partner interest in
us, as well as 65% of the incentive distribution rights, which entitle
the holder to receive a higher percentage of cash distributed in excess
of $0.5625 per unit in any quarter;

- the WPP Group owns 25% of the incentive distribution rights and Arch Coal
owns the remaining 10% of the incentive distribution rights;

- we own 100% of the membership interests in the operating company; and

- the operating company owns 100% of the membership interests in its
subsidiaries: NNG LLC, WPP LLC, GNP LLC, ACIN LLC, and CSTL LLC.

Our general partner has sole responsibility for conducting our business and
for managing our operations. Because our general partner is a limited
partnership, its general partner, GP Natural Resource Partners LLC, will conduct
its business and operations and the board of directors and officers of GP
Natural Resource Partners LLC makes decisions on our behalf. Arch Coal owns a
42.25% membership interest in and is entitled to nominate three directors,
including one independent director, of GP Natural Resource Partners LLC.
Robertson Coal Management LLC, a limited liability company wholly owned by
Corbin J. Robertson, Jr., owns a 57.75% membership interest in and is entitled
to nominate five directors, including two independent directors, of GP Natural
Resource Partners LLC. Corbin J. Robertson, Jr. controls each entity comprising
the WPP Group. Mr. Robertson owns the general partner of Western Pocahontas
Properties Limited Partnership, 85% of the general partner of Great Northern
Properties Limited Partnership and is the Chairman, Chief Executive Officer and
controlling stockholder of New Gauley Coal Corporation.

The senior executives and other officers who currently manage the WPP Group
assets also manage us. They are employees of Western Pocahontas Properties
Limited Partnership and Quintana Minerals Corporation, a company controlled by
Mr. Robertson, and they allocate varying percentages of their time to managing
our operations. Neither our general partner, GP Natural Resource Partners LLC,
nor their affiliates receive any management fee or other compensation in
connection with the management of our business but are entitled to be reimbursed
for all direct and indirect expenses incurred on our behalf.

The offices of Western Pocahontas Properties Limited Partnership are
located at P.O. Box 2827, 1035 Third Avenue, Suite 300, Huntington, West
Virginia 25727 and the telephone number is (304) 522-5757. Our principal
executive offices are located at 601 Jefferson Street, Suite 3600, Houston,
Texas 77002 and our phone number is (713) 751-7507.

OUR RELATIONSHIP WITH THE WPP GROUP AND ARCH COAL

The WPP Group and Arch Coal have a significant interest in our partnership
through their combined ownership of a 78.6% limited partner interest and the 2%
general partner interest in our partnership. Both the WPP Group and Arch Coal
have a history of successfully completing and integrating acquisitions in the
coal industry. We expect to pursue acquisitions with the WPP Group and Arch
Coal, as well as with other companies. We may acquire coal reserve properties,
other mineral properties or producing coal properties, in which event we would
expect to work with a coal producing company that would acquire the mine assets
and lease the reserves from us.

RECENT ACQUISITION OF COAL PROPERTIES

On December 4, 2002, we acquired, through our subsidiary CSTL LLC, mineral
rights to approximately 120 million tons of coal reserves from subsidiaries of
El Paso Corporation for $57 million in cash. Approximately one-half of these
reserves are located in Kentucky, and the remainder are in Virginia and West
Virginia. Some of these reserves were leased to and mined by subsidiaries of El
Paso Corporation. On some of

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the properties, El Paso retained an overriding royalty interest. This
acquisition consisted of approximately 177,000 acres of mineral property
(including approximately 25,000 surface acres). Other revenue from the property
will arise from timber harvests, surface leases and oil and gas royalty. We also
acquired an overriding royalty interest in coal in North Dakota.

Subsequent to our acquisition, El Paso sold the overriding royalty it
retained to a subsidiary of Alpha Natural Resources, LLC ("Alpha"). On February
26, 2003, we acquired the override from Alpha for $11.9 million. We utilized our
revolving credit facility to finance both acquisitions.

MAJOR COAL PROPERTIES

The following is a summary of our major coal producing properties that were
contributed to NRP on October 17, 2002. Each of these properties produced more
than 1.0 million tons for the entire year during 2002. We have included in this
list two properties on which we acquired the reserves on December 4, 2002 and
leased the reserves back to either Coastal Coal Company, LLC or Coastal Coal --
WV, LLC.

APPALACHIA

Evans-Laviers. The Evans-Laviers property is located in Breathitt, Floyd,
Knott and Magoffin Counties, Kentucky. In 2002, 3.41 million tons were produced
from our property. We lease the property to CONSOL of Kentucky Inc., a
subsidiary of publicly held CONSOL Energy Inc., which operates an underground
mine and contracts the operations of other mines to third-party operators.
Additionally, a sublessee operates a surface and highwall mine on the property.
The underground mine is on our property as well as adjacent property. The coal
produced from this property is trucked to the Big Sandy River for barge
transport or is transported by truck or beltline to preparation plants located
on-site and on adjacent property. Coal is shipped from the preparation plants on
the CSX railroad to customers such as DuPont, Virginia Electric Power, Southern
Company, American Electric Power and Electric Fuels.

Lynch. The Lynch property is located in Harlan and Letcher Counties,
Kentucky. In 2002, 2.97 million tons were produced from our property. We
primarily lease the property to Resource Development, L.L.C., an independent
coal producer. Production comes from underground mines and a surface mine.
Production from the mines is transported by truck to a preparation plant on the
property and is shipped primarily on the CSX railroad to utility customers such
as Georgia Power and Orlando Utilities.

Eunice. The Eunice property is located in Raleigh and Boone Counties, West
Virginia. In 2002, 2.55 million tons were produced from our property. We lease
the property to Boone East Development Co., a subsidiary of publicly held Massey
Energy Company. Boone East Development, through affiliates, conducts two
operations on the property, including a surface operation and an underground
(longwall) mine. These operations extend onto adjacent reserves and will also
extend onto a portion of our nearby Y&O property. Production from this operation
is generally transported by beltline and processed at two preparation plants
located off the property. The preparation plants ship both metallurgical and
steam coal on the CSX railroad to customers such as American Electric Power,
CINergy, Louisville Gas & Electric, Virginia Electric Power, AK Steel and U.S.
Steel.

Lone Mountain. The Lone Mountain property is located in Harlan County,
Kentucky. In 2002, 2.53 million tons were produced from our property. We lease
the property to Ark Land Company, a subsidiary of publicly held Arch Coal, Inc.
Production comes from underground mines. Production from the mines is
transported primarily by beltline to a preparation plant on adjacent property
and shipped on the Norfolk Southern or CSX railroads to utility customers such
as Georgia Power and the Tennessee Valley Authority.

VICC. The VICC property is located in Wise, Dickenson and Russell
Counties, Virginia. In 2002, 2.5 million tons were produced from this property.
We purchased this property in December 2002 from a subsidiary of El Paso
Corporation and leased it to Coastal Coal Company, LLC, which had been operating
this mine complex prior to the acquisition. Production comes from several
underground mines. Coal is shipped on the Norfolk Southern railroad to utilities
such as Southern Company, TVA and VEPCO. Subsequent to the end of 2002, this
lease was acquired by Alpha Natural Resources or certain of its affiliates.

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Kingwood. The Kingwood property is located in Preston County, West
Virginia. In 2002, 2.45 million tons were produced from this property. We
purchased this property in December 2002 from a subsidiary of El Paso
Corporation and leased it to Coastal Coal -- WV, LLC, which had been operating
this underground mine prior to the acquisition. Coal is shipped on the CSX
railroad to utilities such as Mirant, Allegheny Power and VEPCO. Subsequent to
the end of 2002, this lease was acquired by Alpha Natural Resources or certain
of affiliates.

Pardee. The Pardee property is located in Letcher County, Kentucky and
Wise County, Virginia. In 2002, 1.5 million tons were produced from our
property. We lease the property to Ark Land. Production comes from underground
mines and a surface mine. Production from the mines is transported by truck or
beltline to a preparation plant on the property and is shipped primarily on the
Norfolk Southern railroad to utility customers such as Georgia Power and the
Tennessee Valley Authority.

Campbell's Creek. The Campbell's Creek property is located in Kanawha
County, West Virginia. In 2002, 1.09 million tons were produced from our
property. The property is leased to Ark Land. Production comes from an
underground mine and is transported by truck to an on-site preparation plant.
After preparation, the coal is trucked to various loading points for shipment by
barge, or directly to customers such as Dayton Power & Light, Ohio Edison,
Kentucky Utilities and Union Carbide.

ILLINOIS BASIN

Hocking-Wolford/Cummings. The Hocking-Wolford property and the Cummings
property are both located in Sullivan County, Indiana. In 2002, 1.07 million
tons were produced from our property. Both properties are under common lease to
Black Beauty Coal Company, an affiliate of Peabody Energy. Production is
currently from a surface mine, and a dragline is being moved onto the property.
Coal is shipped by truck and railroad to customers such as Public Service of
Indiana and Indianapolis Power and Light.

NORTHERN POWDER RIVER BASIN

Big Sky. The Big Sky property is located adjacent to and to the south of
the Western Energy property in Rosebud County, Montana. In 2002, 1.73 million
tons were produced from our property. The property is leased to Big Sky Coal
Company, a subsidiary of publicly held Peabody Energy. Big Sky Coal Company
produces coal by surface (dragline) mining. Coal is shipped on the Burlington
Northern Santa Fe railroad to utilities such as Minnesota Power and Northern
States Power.

Western Energy. The Western Energy property is located in Rosebud and
Treasure Counties, Montana. In 2002, 3.75 million tons were produced from our
property. Western Energy Company, a subsidiary of publicly-held Westmoreland
Coal Company, has two coal leases on the property with nearly identical
provisions. Western Energy produces coal by surface (dragline) mining, and the
coal is transported by either truck or beltline to the four-unit 2,200-megawatt
Colstrip generation station located at the mine mouth. A small amount of coal is
transported by truck or the Burlington Northern Santa Fe railroad to other
customers.

COAL ROYALTY BUSINESS

Coal royalty businesses are principally engaged in the business of owning
and managing coal reserves. As an owner of coal reserves, royalty businesses
typically are not responsible for operating mines, but instead enter into
long-term leases with third-party coal mine operators granting them the right to
mine coal reserves on the owner's property in exchange for a royalty payment. A
standard lease has a 5 to 10 year base term, with the lessee having an option to
extend the lease for additional terms. Leases often include the right to
renegotiate rents and royalties for the extended term.

Coal royalty revenues are affected by changes in coal prices, lessees'
supply contracts and, to a lesser extent, fluctuations in the spot market prices
for coal. The prevailing price for coal depends on a number of factors,
including the supply-demand relationship, the price and availability of
alternative fuels, overall economic conditions and governmental regulations. In
addition to their royalty obligation, lessees are often subject to
pre-established minimum monthly, quarterly or annual payments. These minimum
rentals reflect

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amounts owners are entitled to receive even if no mining activity occurred
during the period. Minimum rentals are often credited against future production
royalties that are earned when coal production commences.

Because royalty businesses do not operate any mines, they do not bear
ordinary operating costs and have limited direct exposure to environmental,
permitting and labor risks. As operators, the lessees are subject to
environmental laws, permitting requirements and other regulations adopted by
various governmental authorities. In addition, the lessees bear the labor risks,
including health care legacy costs, black lung benefits and workmen's
compensation costs, associated with operating the mines. Royalty businesses
typically pay property taxes and then are reimbursed by the lessee for the taxes
on the leased property, pursuant to the terms of the lease.

Our business is not seasonal, although at times severe winter weather can
cause a short-term decrease in coal production by our lessees, due to the
weather's negative impact on production.

We have three lessees who provided more than 10% of our revenue in 2002:
Arch Coal, Massey Energy and Peabody Coal. Each of these companies has several
different mines on our properties. While the loss of any one of these lessees
would have a material adverse effect on us, we do not believe that the loss of
any single mine would have a material adverse effect on us.

COAL RESERVES AND PRODUCTION

The following table sets forth 2002 and 2001 coal royalty revenues from the
properties that were contributed to NRP on October 17, 2002. These coal
royalties represent production from the properties, for the years ending
December 31, 2002 and 2001, respectively. Coal royalty revenue was generated
from the properties in each of the following areas: Appalachia, Illinois Basin
and Northern Powder River Basin.

COAL ROYALTY REVENUES FROM CONTRIBUTED PROPERTIES

The following table sets forth production data and reserve information for
the contributed properties in each of the following areas: Appalachia, Illinois
Basin and Northern Powder River Basin.

PRODUCTION AND RESERVES

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(1) Of the 1.23 billion tons of reserves, we control approximately 20.2 million
tons in Southern West Virginia under paid-up leases for which we have paid
royalties sufficient to allow us to mine all of the coal reserves
attributable to the properties without further payment.

We classify low sulfur coal as coal with a sulfur content of less than
1.0%, medium sulfur coal as coal with a sulfur content between 1.0% and 1.5% and
high sulfur coal as coal with a sulfur content of greater than 1.5%. Compliance
coal is that portion of low sulfur coal that, when burned, emits less than 1.2
pounds of sulfur dioxide per million Btu. As of December 31, 2002, approximately
25% of our reserves were compliance coal which met the standards for Phase II of
the Clean Air Act. Unless otherwise indicated, we present the quality of the
coal throughout this Form 10-K on an as-received basis, which assumes 6%
moisture for Appalachian reserves, 12% moisture for Illinois Basin reserves and
25% moisture for Northern Powder River Basin reserves. We own both steam and
metallurgical coal reserves in Central and Southern Appalachia, and we own steam
coal reserves in Northern Appalachia, the Illinois Basin and the Northern Powder
River Basin. In 2002, approximately 16.2% of the coal production from our
properties was metallurgical coal.

The following table sets forth our estimate of the sulfur content, the
typical quality of our coal reserves and the type of coal in each area as of
December 31, 2002.

SULFUR CONTENT, TYPICAL QUALITY AND TYPE OF COAL

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(1) Compliance coal meets the sulfur dioxide emission standards imposed by Phase
II of the Clean Air Act without blending with other coals or using sulfur
dioxide reduction technologies. Compliance coal is a subset of low sulfur
coal and is, therefore, also reported within the amounts for low sulfur
coal.

(2) For purposes of this table, we have defined metallurgical coal reserves as
reserves located in those seams that historically have been of sufficient
quality and characteristics to be able to be used in the steel making
process. Some of the reserves in the metallurgical category can also be used
as steam coal.

We prepare our reserve estimate from geologic data assembled and analyzed
by our staff of geologists and engineers. The geologic data is taken from
thousands of drill holes, adjacent mine workings, outcrop prospect openings and
other sources, including from third parties. These estimates also take into
account legal, technical and economic limitations that may keep coal from being
mined. Reserve estimates will change from time to time due to mining activities,
analysis of new engineering and geologic data, acquisition or divestment of
reserve holdings, modification of mining plans or mining methods, and other
factors. As of December 31, 2002 our reserves were estimated internally by our
geologists and engineers.

COMPETITION

Numerous producers in the coal industry make the industry intensely
competitive. Our lessees compete with coal producers in various regions of the
United States for domestic sales. The industry has undergone significant
consolidation since 1976. The top ten producers have increased their share of
total domestic coal production from 38% in 1976 to 63% in 2001. This
consolidation has led to a number of our lessees' parent companies having
significantly larger financial and operating resources than their competitors.
Our lessees compete with both large and small producers nationwide on the basis
of coal price at the mine, coal quality, transportation cost from the mine to
the customer and the reliability of supply. Continued demand for our coal

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and the prices that our lessees obtain are also affected by demand for
electricity and steel, as well as environmental and government regulations,
technological developments and the availability and price of alternative fuel
supplies, including nuclear, natural gas, oil and hydroelectric power.

REGULATION

The coal mining industry is subject to regulation by federal, state and
local authorities on matters such as:

- the discharge of materials into the environment;

- employee health and safety;

- mine permits and other licensing requirements;

- reclamation and restoration of mining properties after mining is
completed;

- management of materials generated by mining operations;

- surface subsidence from underground mining;

- water pollution;

- legislatively mandated benefits for some current and retired coal miners;

- air quality standards;

- protection of wetlands;

- endangered plant and wildlife protection;

- limitations on land use;

- storage of petroleum products and substances that are regarded as
hazardous under applicable laws; and

- management of electrical equipment containing polychlorinated biphenyls,
or PCBs.

In addition, the electricity generation industry, which is the most
significant end-user of coal, is subject to extensive regulation regarding the
environmental impact of its power generation activities, which could affect
demand for our lessees' coal. New legislation or regulations may be adopted or
enforcement of existing laws could become more stringent, either of which may
have a significant impact on the mining operations of our lessees or their
customers' ability to use coal. Potential regulation may require our lessees or
their customers to change operations significantly or incur substantial costs.

Our lessees are obligated to conduct mining operations in compliance with
all applicable federal, state and local laws and regulations. However, because
of extensive and comprehensive regulatory requirements, violations during mining
operations are not unusual in the industry and, notwithstanding compliance
efforts, we do not believe violations by our lessees can be eliminated
completely. We do not currently expect that future compliance will have a
material adverse effect on us, our unitholders or our minimum quarterly
distributions.

While it is not possible to quantify the expenditures incurred by our
lessees to maintain compliance with all applicable federal and state laws, those
costs have been and are expected to continue to be significant. Our lessees post
performance bonds pursuant to federal and state mining laws and regulations for
the estimated costs of reclamation and mine closing, including the cost of
treating mine water discharge when necessary. Compliance with these laws
substantially increases the cost of coal mining for all domestic coal producers.

SPECIFIC REGULATORY AND LITIGATION MATTERS

West Virginia Mountaintop Mining/Valley Fill Litigation. Bragg v. Robertson
was filed in federal court by the West Virginia Highlands Conservancy and
several citizens in July 1998 against the West Virginia Department of
Environmental Protection and the U.S. Army Corp of Engineers. Bragg generally
targeted

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mountaintop mining operations utilizing valley fills for mine overburden
disposal. The plaintiffs in this case alleged that the procedures used by the
West Virginia Department of Environmental Protection and the U.S. Army Corps of
Engineers for issuing permits for valley fills used in mountaintop removal
violated SMCRA, the Clean Water Act and the National Environmental Policy Act.

In its ruling on the SMCRA claims, the district court enjoined the West
Virginia Department of Environmental Protection from issuing mining permits for
the construction of valley fills over both intermittent and perennial stream
segments. The Fourth Circuit Court of Appeals vacated the district court's
injunction in April 2001, ruling that the Eleventh Amendment to the U.S.
Constitution barred suit against the state in federal court for alleged
violations of state mining law. The plaintiffs appealed the Fourth Circuit's
decision to the U.S. Supreme Court. In January 2002, the U.S. Supreme Court
refused to hear the appeal. Because virtually all mining operations in West
Virginia, including those of our lessees, utilize valley fills, all or a portion
of our lessees' mining operations could have been affected by the permanent
injunction. The plaintiffs could file a new lawsuit in state court challenging
the West Virginia Department of Environmental Protection's practice of
permitting valley fills. If a state court were to enjoin the construction of
valley fills, our lessees might not be able to continue mining those reserves in
West Virginia that are only accessible through mining techniques that use valley
fills, unless such a decision were overturned or if a legislative or other
solution were not achieved. The issuance of an injunction by a state court could
have a material adverse effect on our lessees and on our acquisition and use of
future reserves that require valley fills.

Before Bragg was filed, the federal defendants had previously reached a
settlement with the plaintiffs in December 1998 regarding the Clean Water Act
and the National Environmental Policy Act claims. Under the agreement, the U.S.
Army Corps of Engineers, in cooperation with other agencies, must prepare a
programmatic environmental impact statement regarding the effects of valley
fills on the environment. This environmental impact statement was to have been
completed by January 2001. At this time, however, the environmental impact
statement has not been completed, and it is uncertain when it will be completed.
Until the environmental impact statement is completed, an individual Clean Water
Act Section 404 dredge and fill permit is required prior to the construction of
any valley fill greater than 250 acres in size.

On May 8, 2002, the United States 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
mining operations solely for the purpose of waste disposal. These valleys
typically contain streams that, under the Clean Water Act, are considered
navigable waters of the United States. The court held that the filling of these
waters solely for waste disposal is a violation of the Clean Water Act. The
effect of this injunction would have been to make mountaintop mining
uneconomical in those areas subject to the injunction. We would be materially
affected by this injunction because a substantial number of mountaintop mining
valley fill permits required to be obtained by our lessees are issued by the
Huntington, West Virginia office of the U.S. Army Corps of Engineers.

On December 4, 2002, the Fourth Circuit Court of Appeals heard oral
arguments in the Corps of Engineers' appeal from the District Court's decision
in Kentuckians and issued a 2-1 opinion on January 29, 2003, which vacated the
injunction issued by the District Court. The Court of Appeals also reversed the
District Court's interpretation of the meaning of "fill material" as used in
Section 404 to mean "material deposited for some beneficial primary purpose, not
waste material discharged solely to dispose of waste" and remanded the case to
the District Court for further proceedings. Based on this ruling, the Corps of
Engineers appears to have the authority under Section 404 of the Clean Water Act
to issue permits, and our lessees can apply for these permits and expect to
receive them so long as they comply with all the requirements of the
application.

The Fourth Circuit ruling is subject to further appellate review by either
the Fourth Circuit itself or the Supreme Court. Because additional appellate
review is entirely discretionary, we are unable to predict whether such review
will be allowed.

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Surface Mining Control And Reclamation Act. SMCRA establishes operational,
reclamation and closure standards for all aspects of surface mining as well as
many aspects of deep mining. SMCRA requires that comprehensive environmental
protection and reclamation standards be met during the course of and upon
completion of mining activities. In conjunction with mining the property, our
lessees are contractually obligated under the terms of their leases to comply
with all laws, including SMCRA and similar state and local laws.

SMCRA also requires our lessees to submit a bond or otherwise financially
secure the performance of their reclamation obligations. The earliest a
reclamation bond can be completely released is five years after reclamation is
complete. In addition, the Abandoned Mine Lands Act, which is part of SMCRA,
imposes a tax on all current mining operations, the proceeds of which are used
to restore mines closed before 1977. Since our lessees are responsible for these
obligations and any related liabilities, we do not accrue the estimated costs of
reclamation or mine closing, and we do not pay the tax described above.

Under SMCRA, responsibility for unabated violations, unpaid civil penalties
and unpaid reclamation fees of independent mine lessees and other third parties
could potentially be imputed to other companies that are deemed to have "owned"
or "controlled" the mine operator. Sanctions against the "owner" or "controller"
are quite severe and can include civil penalties, reclamation fees and
reclamation costs. We are not aware of any currently pending or asserted claims
against us asserting that we "own" or "control" our lessees. We believe our
lessees are generally in compliance with all operational, reclamation and
closure requirements under their SMCRA permits.

On March 29, 2002, the U.S. District Court for the District of Columbia
issued a ruling that could restrict underground mining activities conducted in
the vicinity of public roads or occupied dwellings, or within a variety of
federally protected lands or national forests. Citizens Coal Council v. Norton
was filed in February 2000 to challenge regulations issued by the Department of
Interior that provide, among other things, that subsidence and underground
activities that may lead to subsidence are not surface mining activities within
the meaning of SMCRA. SMCRA generally contains restrictions and certain
prohibitions on the locations where surface mining activities can be conducted.
The District Court entered summary judgment upon the plaintiff's claims that the
Secretary of the Interior's determination violated SMCRA. By order dated April
9, 2002, the court remanded the regulations to the Secretary of the Interior for
reconsideration.

None of the deep mining activities undertaken on our properties are within
federally protected lands or national forests where SMCRA restricts surface
mining, even though several are within proximity to occupied dwellings. However,
this case poses a potential restriction on underground mining within 100 feet of
a public road. If these SMCRA restrictions ultimately apply to underground
mining, considerable uncertainty would exist about the nature and extent of
these restrictions.

The significance of this decision for the coal mining industry remains
unclear because this ruling is subject to appellate review. The Department of
Interior and the National Mining Association, a trade group that intervened in
this action, have appealed the ruling and sought a stay of the order pending
appeal to the District of Columbia Circuit Court of Appeals, and the stay was
granted. Oral argument before the District of Columbia Circuit is scheduled for
April 7, 2003. If the District Court's decision is not overturned or if some
legislative solution is not enacted, this ruling could have a material adverse
effect on all coal mine operations that utilize underground mining techniques,
including those of our lessees. While it still may be possible to obtain permits
for underground mining operations in these areas, the time and expense of that
permitting process are likely to increase significantly.

West Virginia Cumulative Hydrologic Impact Analysis Litigation. In a
lawsuit unrelated to Bragg, two environmental groups sued the West Virginia
Department of Environmental Protection in January 2000, and later added the U.S.
Secretary of the Interior in federal court, alleging various violations of the
Clean Water Act and SMCRA. The U.S. Office of Surface Mining is a division
within the Department of Interior. Ohio Valley Environmental Coalition, Inc. v.
Castle specifically alleges that the West Virginia Department of Environmental
Protection has violated its non-discretionary duty to require all surface and
underground mining permit applications to include certain stream flow and water
quality data and an analysis of the probable hydrologic consequences of the
proposed mine, and that the West Virginia Department of

10

Environmental Protection failed to conduct SMCRA-required cumulative hydrologic
impact analysis prior to issuing mining permits. The lawsuit also alleges that
the Office of Surface Mining has a non-discretionary duty to apply the federal
SMCRA law in West Virginia due to the deficiencies in the state program. In
March 2001, the district court denied the plaintiff's motion for a preliminary
injunction on its claims against the West Virginia Department of Environmental
Protection. In September 2001, the district court denied a motion to dismiss
filed by defendant Michael Callaghan, Secretary of the West Virginia Department
of Environmental Protection. Callaghan filed an interlocutory appeal of this
decision in October 2001. The Fourth Circuit Court of Appeals dismissed this
appeal in part and has denied a motion filed by the plaintiffs to dismiss the
remaining claims. During the pendency of this appeal, on August 30, 2002, the
district court dismissed some of the plaintiffs' claims.

If the plaintiffs are eventually successful in this lawsuit, the West
Virginia Department of Environmental Protection will have to modify its
procedures and requirements for the content and review of mining permit
applications, or the federal government will be ordered to assume control over
mining permits in West Virginia. Any of these changes is likely to increase the
cost of preparing applications and the time required for their review and may
entail additional operating expenditures and, possibly, restrictions on
operating that could reduce our coal royalty revenues.

Green Valley Coal Company, one of our lessees and a subsidiary of Massey
Energy Company, intervened as a defendant in this lawsuit because a permit
issued to Green Valley is alleged to have been improperly issued, and because
several pending Green Valley permit applications are also alleged to be
deficient.

West Virginia Antidegradation Policy. In January 2002, a number of
environmental groups and individuals filed suit in the U.S. District Court for
the Southern District of West Virginia to challenge the EPA's approval of West
Virginia's antidegradation implementation policy. Under the federal Clean Water
Act, state regulatory authorities must conduct an antidegradation review before
approving permits for the discharge of pollutants to waters that have been
designated as high quality by the state. Antidegradation review involves public
and intergovernmental scrutiny of permits and requires permittees to demonstrate
that the proposed activities are justified in order to accommodate significant
economic or social development in the area where the waters are located. The
plaintiffs in Ohio Valley Environmental Coalition v. Whitman challenge
provisions in West Virginia's antidegradation implementation policy that exempt
current holders of National Pollutant Discharge Elimination System (NPDES)
permits and Section 404 permits, among other parties, from the
antidegradation-review process. Our lessees are current NPDES or Section 404
permit holders that are exempt from antidegradation review under these
provisions. Revoking this exemption and subjecting our lessees to the
antidegradation review process could delay the issuance or reissuance of Clean
Water Act permits to our lessees or cause these permits to be denied. If the
plaintiffs are successful and our lessees discharge into waters that have been
designated as high-quality by the state, the costs, time and difficulty
associated with obtaining and complying with Clean Water Act permits for surface
mining of operations could increase, which could in turn increase the costs of
coal production, potentially reducing our royalty revenues.

Massey Energy Show Cause Order. In January 2002, the West Virginia
Department of Environmental Protection entered an order finding a pattern of
violations relating to water quality by Marfork Coal Company, a subsidiary of
Massey Energy, and suspending its permit for operations adjacent to the
Dorothy-Sarita property for 14 days. Marfork Coal filed an appeal and obtained a
stay of enforcement of this order. The Surface Mining Board heard the appeal and
reduced the suspension to nine days. Marfork Coal has appealed this decision to
the circuit court, which held a hearing on November 22, 2002. On December 23,
2002, the Circuit Court reversed the order of the West Virginia Department of
Environmental Protection. The court found that the show cause hearing was not
conducted in an impartial manner and caused a violation of Marfork Coal's due
process rights. The matter was remanded to the West Virginia Department of
Environmental Protection for an impartial hearing. If this show cause order had
been upheld, the permits issued to Massey Energy and its subsidiaries could be
suspended or revoked and production could be decreased at the mines on the
Dorothy-Sarita property and at the longwall mine operated by Performance Coal at
the Eunice property, reducing our coal royalty revenues on that property.

11

Mine Health and Safety Laws. Stringent safety and health standards have
been imposed on the coal mining industry by federal legislation since the
adoption of the Mine Health and Safety Act of 1969. The Mine Health and Safety
Act of 1969 resulted in increased operating costs and reduced productivity. The
Mine Safety and Health Act of 1977, which significantly expanded the enforcement
of health and safety standards of the Mine Health and Safety Act of 1969,
imposes comprehensive safety and health standards on all mining operations. In
addition, as part of the Mine Health and Safety Acts of 1969 and 1977, the Black
Lung Act requires payments of benefits by all businesses conducting current
mining operations to coal miners with black lung and to some survivors of miners
who die from this disease. Because the regulatory requirements imposed by mine
worker health and safety laws are comprehensive and ongoing in nature,
non-compliance cannot be eliminated completely. We believe our lessees have made
all payments under the Black Lung Act and are generally in compliance with all
applicable mine health and safety laws.

Clean Air Act. The federal Clean Air Act and similar state and local laws,
which regulate emissions into the air, affect coal mining and processing
operations primarily through permitting and emissions control requirements. The
Clean Air Act also indirectly affects coal mining operations by extensively
regulating the emissions from coal-fired industrial boilers and power plants,
which are the largest end-users of our coal. These regulations can take a
variety of forms, as explained below.

The Clean Air Act imposes obligations on the Environmental Protection
Agency, or EPA, and the states to implement regulatory programs that will lead
to the attainment and maintenance of EPA-promulgated ambient air quality
standards, including standards for sulfur dioxide, particulate matter, nitrogen
oxides and ozone. Owners of coal-fired power plants and industrial boilers have
been required to expend considerable resources to comply with these ambient air
standards. Significant additional emissions control expenditures will be needed
in order to meet the current national ambient air standards.

Numerous legal and regulatory actions have been initiated over the years
under the Clean Air Act, the outcome of which could adversely affect coal mining
and coal-fired power plants. In February 2003, legislation was introduced in
Congress outlining the Bush administration's Clear Skies Initiative, which calls
for dramatic decreases in sulfur emissions from power plants. If lower emissions
standards are enacted under the act, it could result in a decrease in coal
demand.

In summary, the effect that a variety of Clean Air Act regulations and
legal actions could have on the coal industry and thus our business cannot be
predicted with certainty. We cannot assure you that future regulatory provisions
will not materially adversely affect our business, financial condition or
results of operations. Additionally, we have no ability to control, or specific
knowledge regarding, the environmental and other regulatory compliance of
purchasers of coal mined from our properties.

Clean Water Act. Section 301 of the Clean Water Act prohibits the
discharge of a pollutant from a point source into navigable waters except in
accordance with a permit issued under either Section 402 or Section 404 of the
Clean Water Act. Navigable waters are broadly defined to include streams, even
those that are not navigable in fact, and may include wetlands.

All mining operations in Appalachia generate excess material that must be
placed in fills in adjacent valleys and hollows. Likewise, coal refuse disposal
areas and coal processing slurry impoundments are located in valleys and
hollows. Almost all of these areas contain intermittent or perennial streams,
which are considered navigable waters. An operator must secure a Clean Water Act
permit before filling such streams. For approximately the past twenty-five
years, operators have secured Section 404 fill permits to authorize the filling
of navigable waters with material from various forms of coal mining. Operators
have also obtained permits under Section 404 for the construction of slurry
impoundments although the use of these impoundments, including discharges from
them, requires permits under Section 402. Our leases require our lessees to
obtain all necessary permits required under the Clean Water Act. To our
knowledge, our lessees have obtained all permits required under the Clean Water
Act and equivalent state laws.

Mining Permits and Approvals. Numerous governmental permits or approvals
are required for mining operations. We do not hold any mining permits. Under our
leases, our lessees are responsible for obtaining and maintaining all permits.
In connection with obtaining these permits and approvals, our lessees may be
required

12

to prepare and present to federal, state or local authorities data pertaining to
the effect or impact that any proposed production of coal may have upon the
environment. The requirements imposed by any of these authorities may be costly
and time consuming and may delay commencement or continuation of mining
operations. Regulations also provide that a mining permit can be refused or
revoked if an officer, director or a shareholder with a 10% or greater interest
in the entity is affiliated with another entity that has outstanding permit
violations. Thus, past or ongoing violations of federal and state mining laws
could provide a basis to revoke existing permits and to deny the issuance of
additional permits.

In order to obtain mining permits and approvals from state regulatory
authorities, mine operators, including our lessees, must submit a reclamation
plan for restoring the mined property to its prior condition, productive use or
other permitted condition upon the completion of mining operations. Typically
our lessees submit the necessary permit applications between 12 and 18 months
before they plan to begin mining a new area. In our experience, permits
generally are approved within 12 months after a completed application is
submitted. In the past, our lessees have generally obtained their mining permits
without significant delay. Our lessees have obtained or applied for permits to
mine a majority of the reserves that are currently planned to be mined by our
lessees over the next five years. Our lessees are in the planning phase for
obtaining permits for the remaining reserves planned to be mined over the next
five years. We cannot assure you, however, that they will not experience
difficulty in obtaining mining permits in the future.

As a consequence of potential future legislation and administrative
regulations that may emphasize the protection of the environment, the activities
of mine operators, including our lessees, may be more closely regulated.
Legislation and regulations, as well as future interpretations of existing laws,
may also require substantial increases in equipment expenditures and operating
costs, as well as delays, interruptions or the termination of operations. We
cannot predict the possible effect of such regulatory changes.

Under some circumstances, substantial fines and penalties, including
revocation or suspension of mining permits, may be imposed under the laws
described above. Monetary sanctions and, in severe circumstances, criminal
sanctions may be imposed for failure to comply with these laws.

Framework Convention on Global Climate Change. The United States and more
than 160 other nations are signatories to the 1992 Framework Convention on
Global Climate Change, commonly known as the Kyoto Protocol, that is intended to
limit or capture emissions of greenhouse gases such as carbon dioxide and
methane. The U.S. Senate has neither ratified the treaty commitments, which
would mandate a reduction in U.S. greenhouse gas emissions, nor enacted any law
specifically controlling greenhouse gas emissions, and the Bush Administration
has withdrawn support for this treaty. Nonetheless, future regulation of
greenhouse gases could occur either pursuant to future U.S. treaty obligations
or pursuant to statutory or regulatory changes under the Clean Air Act. Efforts
to control greenhouse gas emissions could result in reduced demand for coal if
electric power generators switch to lower carbon sources of fuel. These
restrictions or uncertainties could have a material adverse effect on our
business.

Comprehensive Environmental Response, Compensation and Liability
Act. CERCLA and similar state laws affect coal mining operations by, among
other things, imposing cleanup requirements for threatened or actual releases of
hazardous substances that may endanger public health or welfare or the
environment. Under CERCLA and similar state laws, joint and several liability
may be imposed on waste generators, site owners and lessees and others
regardless of fault or the legality of the original disposal activity. Although
the EPA excludes most wastes generated by coal mining and processing operations
from the hazardous waste laws, such wastes can, in certain circumstances,
constitute hazardous substances for the purposes of CERCLA. In addition, the
disposal, release or spilling of some products used by coal companies in
operations, such as chemicals, could implicate the liability provisions of the
statute. Thus, coal mines on lands that we currently own or have previously
owned, and sites to which our lessees sent waste materials, may be subject to
liability under CERCLA and similar state laws. In particular, we may be liable
under CERCLA or similar state laws for the cleanup of hazardous substance
contamination at sites where we own surface rights. We cannot assure you that we
or our lessees will not become involved in future proceedings, litigation or
investigations or that these liabilities will not be material.

13

Endangered Species. The federal Endangered Species Act and counterpart
state legislation protects species threatened with possible extinction.
Protection of endangered species may have the effect of prohibiting or delaying
our lessees from obtaining mining permits and may include restrictions on timber
harvesting, road building and other mining or silvicultural activities in areas
containing the affected species. A number of species indigenous to our
properties are protected under the Endangered Species Act. Based on the species
that have been identified to date and the current application of applicable laws
and regulations, however, we do not believe there are any species protected
under the Endangered Species Act that would materially and adversely affect our
lessees' ability to mine coal from our properties in accordance with current
mining plans. There can be no assurance, however, that additional species on our
properties will not receive protected status under the Endangered Species Act or
that currently protected species will not be discovered within our properties.

Other Environmental Laws Affecting Our Lessees. Our lessees are required
to comply with numerous other federal, state and local environmental laws in
addition to those previously discussed. These additional laws include the
Resource Conservation and Recovery Act, the Safe Drinking Water Act, the Toxic
Substance Control Act and the Emergency Planning and Community Right-to-Know
Act. We believe that our lessees are in substantial compliance with all
applicable environmental laws.

TITLE TO PROPERTY

Of the 1.23 billion tons of proven and probable coal reserves to which we
had rights as of December 31, 2002, we owned approximately 1.21 billion tons, or
98.4% of the reserves, in fee. We lease approximately 20.2 million tons, or 1.6%
of our reserves, from unaffiliated third parties. We believe that we have
satisfactory title to all of our mineral properties, but we have not had a
qualified title company confirm this belief. Although title to these properties
is subject to encumbrances in certain cases, such as customary easements,
rights-of-way, interests generally retained in connection with the acquisition
of real property, licenses, prior reservations, leases, liens, restrictions and
other encumbrances, we believe that none of these burdens will materially
detract from the value of our properties or from our interest in them or will
materially interfere with their use in the operations of our business.

For most of our properties, the surface, oil and gas and mineral or coal
estates are owned by different entities. Some of those entities are our
affiliates. State law and regulations in most of the states where we do business
require the oil and gas owner to coordinate the location of wells so as to
minimize the impact on the intervening coal seams. We do not anticipate that the
existence of the severed estates will materially impede coal development on our
properties.

EMPLOYEES AND LABOR RELATIONS

We do not have any employees. To carry out our operations, affiliates of
our general partner employ approximately 24 employees who directly support our
operations. None of these employees are subject to a collective bargaining
agreement. Some of the employees of our lessees and sublessees are subject to
collective bargaining agreements.

SEGMENT INFORMATION

Pursuant to SFAS No. 132, "Disclosure About Segments of an Enterprise and
Related Information," we are not required to disclose separate segment
information because the materiality of timber and oil and gas did not meet the
test for segment disclosure.

AVAILABLE INFORMATION

The Partnership's internet address is www.nrplp.com. We make available free
of charge on or through our internet website our annual report on Form 10-K,
quarterly reports on Form 10-Q and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the Securities and

14

Exchange Commission. Included on our website is our "Code of Business Conduct
and Ethics" adopted by our Board of Directors.

ITEM 3. LEGAL PROCEEDINGS

Although we may, from time to time, be involved in litigation and claims
arising out of our operations in the normal course of business, we are not
currently a party to any material legal proceedings. In addition, we are not
aware of any legal or governmental proceedings against us, or contemplated to be
brought against us, under the various environmental protection statutes to which
we are subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON UNITS AND RELATED UNITHOLDER MATTERS

Our common units are listed and traded on the New York Stock Exchange under
the symbol "NRP." As of March 1, 2003, there were an estimated 4,700 beneficial
owners of our common units, and four holders of subordinated units.

The following table sets forth the high and low sales prices per common
unit, as reported on the New York Stock Exchange, from October 11, 2002 (the day
our common units began trading) to December 31, 2002 and the quarterly cash
distribution paid per common unit and subordinated unit.

- ---------------

* The prorated cash distribution relates to the period from October 17, 2002,
the closing date of our initial public offering, to December 31, 2002. This
distribution was declared on January 21, 2003 and paid on February 14, 2003.

In addition to common units, we have also issued subordinated units for
which there is no established public trading market. The subordinated units were
issued as part of our initial public offering in October 2002 and receive a
quarterly distribution only after sufficient funds have been paid to the common
units, as described below. All of the subordinated units are held by affiliates
of our general partner.

During the subordination period, the holders of our common units are
entitled to receive a minimum quarterly distribution of $0.5125 per unit ($2.05
annualized) prior to any distribution of available cash to holders of our
subordinated units. The subordination period is defined generally as the period
that will end on the first day of any quarter beginning after September 30, 2007
if (1) we have distributed at least the minimum quarterly distribution on all
outstanding units in each of the immediately preceding three consecutive,
non-overlapping four-quarter periods and (2) our adjusted operating surplus, as
defined in our partnership agreement, during such periods equals or exceeds the
amount that would have been sufficient to enable us to distribute the minimum
quarterly distribution on all outstanding units on a fully diluted basis and the
related distribution on the 2% general partner interest during those periods. In
addition, 25% of the subordinated units may convert to common units on a
one-for-one basis after September 30, 2005, and 25% of the subordinated units
may convert to common units on a one-for-one basis after September 30. 2006, if
we meet the tests set forth in our partnership agreement. If the subordination
period ends, the rights of the holders of subordinated units will no longer be
subordinated to the rights of the holders of common units, the subordinated
units may be converted into common units and the common units will no longer be
entitled to arrearages.

15

Our general partner, the WPP Group and Arch Coal are entitled to incentive
distributions if the amount we distribute with respect to any quarter exceeds
specified target levels shown below:

PERCENTAGE ALLOCATIONS OF AVAILABLE CASH FROM OPERATING SURPLUS

We must distribute all of our cash on hand at the end of each quarter, less
reserves established by our general partner. We refer to this cash as "available
cash" as that term is defined in our partnership agreement. The amount of
available cash may be greater than or less than the minimum quarterly
distribution. We currently pay quarterly cash distributions of $0.5125 per unit.
In general, we intend to increase our cash distributions in the future assuming
we are able to increase our "available cash" from our operations and through
acquisitions, provided there is no adverse change in our operations, economic
conditions and other factors. However, we cannot guarantee that future
distributions will continue at such levels.

ITEM 6. SELECTED FINANCIAL DATA

SELECTED HISTORICAL FINANCIAL DATA

The following tables show selected historical financial data for Natural
Resource Partners L.P. and our predecessors (Western Pocahontas Properties
Limited Partnership, Great Northern Properties Limited Partnership, New Gauley
Coal Corporation and the Arch Coal Contributed Properties, collectively known as
predecessors), in each case for the periods and as of the dates indicated. We
derived the selected historical financial data for Natural Resource Partners
L.P. as of December 31, 2002 and for the period from commencement of operations
(October 17, 2002) through December 31, 2002 from the audited financial
statements of Natural Resource Partners L.P. We derived the selected historical
financial data for the WPP Group as of and for the years ended December 31,
1998, 1999, 2000, 2001 and for the period from January 1 through October 16,
2002 from the audited financial statements of the WPP Group, and we derived the
selected historical financial data for the Arch Coal Contributed Properties as
of and for the years ended December 31, 1999, 2000, 2001 and for the period from
January 1 through October 16, 2002 from the audited financial statements of the
Arch Coal Contributed Properties. We derived the selected historical financial
data for the Arch Coal Contributed Properties as of and for the years ended
December 31, 1998 from the accounting records of Arch Coal.

We derived the information in the following tables from, and the
information should be read together with and is qualified in its entirety by
reference to, the historical financial statements and the accompanying notes
included in Item 8, "Financial Statements and Supplementary Data." The tables
should be read together with Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations." While substantially all of the
producing coal-related assets and operations of the WPP Group were contributed
to us, some assets and liabilities were retained by the WPP Group.

16

NATURAL RESOURCE PARTNERS L.P.

- ---------------

(1) No financial data is presented for these periods because Natural Resource
Partners L.P. was not formed until April 9, 2002 and did not commence
operations until October 17, 2002.

17

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

- ---------------

(1) Up to the date of contribution of assets to Natural Resource Partners L.P.

18

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

- ---------------

(1) Up to the date of contribution of assets to Natural Resource Partners L.P.

19

NEW GAULEY COAL CORPORATION

- ---------------

(1) Up to the date of contribution of assets to Natural Resource Partners L.P.

20

ARCH COAL CONTRIBUTED PROPERTIES

- ---------------

(1) Up to the date of contribution of assets to Natural Resource Partners L.P.

21

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion of the financial condition and results of
operations should be read in conjunction with the historical financial
statements and notes thereto included elsewhere in this filing. For more
detailed information regarding the basis of presentation for the following
financial information, see the notes to the historical financial statements.

After the Introduction, there is a separate section for each of Natural
Resource Partners L.P., Western Pocahontas Properties Limited Partnership, Great
Northern Properties Limited Partnership, New Gauley Coal Corporation and the
Arch Coal Contributed Properties. The Arch Coal Contributed Properties include
the properties contributed to us by Ark Land Company, a subsidiary of Arch Coal,
Inc.

INTRODUCTION

Natural Resource Partners L.P. is a master limited partnership formed by
the WPP Group and Arch Coal, Inc. We engage 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, 2002, we controlled approximately 1.23 billion tons of proven
and probable coal reserves in eight states. We completed our initial public
offering in October 2002.

We lease coal reserves to experienced mine operators under long-term leases
that grant the operators the right to mine our coal reserves in exchange for
royalty payments. As of December 31, 2002, our reserves were located on 48
separate properties and were subject to 97 leases with 40 lessees. For the year
ended December 31, 2002, approximately 55% of the coal produced from the
properties contributed to us came from underground mines, and 45% came from
surface mines. As of December 31, 2002, approximately 64% of our reserves were
low sulfur coal. Included in our low sulfur reserves is compliance coal, which
meets the standards imposed by the Clean Air Act and constitutes approximately
25% of our reserves. Coal produced from our properties is burned in electric
power plants located east of the Mississippi River and in Montana and Minnesota.
In the year ended December 31, 2002, our lessees produced 30.5 million tons of
coal from the properties contributed to us and our total revenue was $56.6
million, including coal royalty revenues and minimums totaling $50.5 million.
Approximately 16% of our lessees' 2002 coal production was metallurgical coal,
which the lessees sold to steel companies in the Eastern United States, South
America, Europe and Asia.

Our revenue and profitability are almost entirely dependent on our lessees'
ability to mine and market our coal reserves. Coal royalties are paid to us on
the basis of a percentage of the sales price of the coal, subject to a minimum
royalty per ton. In addition, our 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. We do not recognize these
minimum coal 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 our coal is produced by publicly held companies with professional
and sophisticated sales departments. We estimate that 80% of our coal is sold by
our lessees under coal supply contracts that have terms of one year or more.
Coal supply contracts with terms of one year or more are becoming increasingly
rare. Thus, our 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 decline as demand for coal fell due to unusually warm weather during the
winter of 2001-2002 and the sluggish U.S. economy. The winter of 2002-2003 has
been colder than normal in many parts of the U.S. As a result of the increased
demand for electricity for heating, electric utilities have used substantial
amounts of coal to generate electricity and have reduced the size of their
stockpiles. Recently our lessees have experienced

22

a greater demand for coal, and spot prices have increased about 10%. The effect
of spot prices on our results of operations for the near future should be
limited because our lessees will receive previously contracted prices for much
of their production. Coal prices are based on supply and demand, specific coal
characteristics, economics of alternative fuel, and overall domestic and
international economic conditions.

During 2002, approximately 20% of our 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 steam coal. However,
some metallurgical coal mines on our properties may only operate profitably if
all or a portion of their production is sold as metallurgical coal. 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, we generate nominal revenue from
rentals, 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 our property.

Most lessees are required to reimburse us 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 retained 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 were
not previously allocated to the Arch Coal Contributed Properties because there
was not sufficient information to develop a reasonable cost allocation. We
reimburse the general partner and its affiliates for direct and indirect
expenses they incur on our behalf, including general and administrative
expenses.

Depletion and amortization consist primarily of depletion on the coal
properties. Depletion of coal reserves is calculated on a unit-of-production
basis and thus fluctuates from property to property with coal production for the
period.

CRITICAL ACCOUNTING POLICIES

Coal Royalties. We recognize coal royalty revenues on the basis of tons of
coal sold by our lessees and the corresponding revenue from those sales.
Generally, the lessees make payments to us 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 monthly, quarterly or annual payments. These minimum royalty payments
are generally recoupable over certain time periods. We initially record minimum
payments as deferred revenue and recognize them as coal royalty revenues either
when the lessee recoups the minimum payment through production or when the
period during which the lessee is allowed to recoup the minimum payment expires.

Timber Royalties. We sell timber on a contract basis where independent
contractors harvest and sell the timber and, from time to time, in a competitive
bid process involving sales of standing timber on individual parcels. We
recognize timber revenues when the timber has been sold or harvested by the
independent contractors. Title and risk of loss pass to the independent
contractors when they harvest the timber.

Depletion. We deplete coal properties on a units-of-production basis by
lease, based upon coal mined in relation to the net cost of the mineral
properties and estimated proved and probable tonnage in those properties. We
estimate proven and probable coal reserves with the assistance of third-party
mining consultants and involve the use of estimation techniques and
recoverability assumptions. Our estimates of coal
23

reserves are updated periodically and may result in adjustments to coal reserves
and depletion rates that are recognized prospectively. Timberlands are stated at
cost less depletion. We determine the cost of the timber harvested based on the
volume of timber harvested in relation to the amount of estimated net
merchantable volume by geographic areas. We estimate our timber inventory using
statistical information and data obtained from physical measurements and other
information gathering techniques. These estimates are updated annually and may
result in adjustments of timber volumes and depletion rates, which are
recognized prospectively. Changes in these estimates have no effect on our cash
flow.

NEW ACCOUNTING STANDARDS

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." 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
includes disclosure requirements that provide a description of asset retirement
obligations and a reconciliation of changes in the components of those
obligations. Adoption of SFAS No. 143 on January 1, 2003 did not have a material
impact on our financial position or results of operations.

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 related to SFAS No. 121. The adoption of SFAS No. 144,
effective January 1, 2002, did not have a material impact on our 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. Adoption of SFAS
No. 145 on January 1, 2003 did not have a material impact on our financial
position or results of operations.

In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities", which supercedes EITF No. 94-3, "Liability
Recognition for Certain Employment Termination Benefits and Other Costs to Exit
an Activity." SFAS No. 146 requires companies to record liabilities for costs
associated with exit or disposal activities to be recognized only when the
liability is incurred instead of at the date of commitment to an exit or
disposal activity. Adoption of this standard is effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of this
standard is not expected to have a significant impact on our financial
statements.

24

RESULTS OF OPERATIONS

NATURAL RESOURCE PARTNERS L.P.

FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(OCTOBER 17, 2002) THROUGH DECEMBER 31, 2002
(IN THOUSANDS, EXCEPT PER TON DATA)

REVENUES:
Coal royalties............................................ $11,532
Property taxes............................................ 1,047
Minimums recognized as revenue............................ 872
Override royalties........................................ 226
Other..................................................... 216
-------
Total revenues............................................ 13,893
EXPENSES:
Depletion and amortization................................ 4,526
Taxes other than income................................... 1,296
General and administrative................................ 1,059
Override payments......................................... 226
Coal Royalty Payments.................................. 171
-------
Total expenses............................................ 7,278
-------
Income from operations...................................... 6,615
Other income (expense):
Interest expense.......................................... (200)
-------
Net income.................................................. $ 6,415
=======
OTHER DATA:
Royalties
Appalachia................................................ $ 9,492
Illinois Basin............................................ 727
Northern Powder River Basin............................... 1,313
-------
Total................................................ $11,532
=======
Production
Appalachia................................................ 5,448
Illinois Basin............................................ 601
Northern Powder River Basin............................... 1,265
-------
Total................................................ 7,314
=======
Average gross royalty
Appalachia................................................ $ 1.74
Illinois Basin............................................ 1.21
Northern Powder River Basin............................... 1.04
-------
Total................................................ $ 1.58
=======

25

FROM COMMENCEMENT OF OPERATIONS (OCTOBER 17, 2002) THROUGH DECEMBER 31, 2002

Revenues. During the period from commencement of operations (October 17,
2002) through the period ending December 31, 2002, coal royalty revenues were
$11.5 million on 7.3 million tons of coal produced. Approximately 74.4% of the
coal production came from the Appalachian region, 17.3% from the Northern Powder
River Basin and 8.3% from the Illinois Basin.

Expenses. From commencement of operations (October 17, 2002) through the
period ending December 31, 2002, total expenses were $7.3 million. Total
expenses include depletion and amortization of $4.5 million, general and
administrative of $1.1 million, taxes other than income of $1.3 million and
other coal-related expense of $0.4 million.

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

The following table sets forth 2002 and 2001 coal royalty revenues from the
properties that were contributed to NRP at the consummation of its initial
public offering on October 17, 2002. These coal royalty revenues represent
production from the properties, for the years ending December 31, 2002 and 2001,
respectively. Coal royalty revenues were generated from the properties in each
of the following areas: Appalachia, Illinois Basin and Northern Powder River
Basin.

COAL ROYALTY REVENUES FROM CONTRIBUTED PROPERTIES

Coal royalty revenues, for the year ended December 31, 2002 were $49.6
million compared to $41.8 million for the year ended December 31, 2001, an
increase of $7.8 million, or 19%. In 2002, production increased by 1.5 million
tons, from 29.0 million tons to 30.5 million tons or 5.2%, compared to 2001. The
increases in production and coal royalties were primarily due to:

Appalachia. Production from our West Fork property increased from 222,000
tons to 2.1 million tons, and coal royalty revenues increased from $357,000 to
$4.7 million because a longwall mine moved onto the property from adjacent
property. On our Eunice property, production increased from 1.8 million tons to
2.6 million tons, and coal royalty revenues increased from $2.7 million to $4.6
million because a longwall mine

26

was on our property for a greater portion of the year and was subject to a
higher royalty rate. On our Welch/ Wyoming property, production increased from
222,000 tons to 609,000 tons, and coal royalty revenues increased from $361,000
to $1.3 million because a new mine, which began production during 2001, operated
on the property for the entire year. On our Dorothy property, production
increased from 652,000 tons to 1.0 million tons, and coal royalty revenues
increased from $1.1 million to $2.0 million. This increase was due to increased
production from a surface mine and the resumption of mining at a temporarily
idled mine. On our Kingston property, production increased from 740,000 tons to
1.1 million tons, and coal royalty revenues increased from $1.3 million to $1.8
million. This increase was primarily due to a new mine starting on the property
during the year.

These increases were partially offset by lower production and coal royalty
revenues from our Rockhouse and Boone-Lincoln properties. On our Rockhouse
property, production decreased from 322,000 tons to 34,000 tons, and coal
royalty revenues decreased from $791,000 to $82,000 because a mine on the
property ceased production. On our Boone-Lincoln property, production decreased
from 670,000 tons to 195,000 tons, and coal royalty revenues decreased from $1.3
million to $389,000. This decrease was due to lower production on the property
from the active surface mine and the temporary idling of the underground mine on
the property. This mine has since been restarted.

Aggregate production from our Beaver Creek, Thomas and Stony River
properties increased from 333,000 tons to 812,000 tons due to higher production
as the lessee concentrated production on our property. This resulted in coal
royalty revenues increasing from $792,000 to $1.7 million. This increase was
partially offset by a decrease in production from our New Gauley property from
441,000 tons to 282,000 tons due to a combination of market-based reductions and
adverse geologic conditions in the mine during part of the year. This resulted
in a decrease of coal royalty revenues from $985,000 to $683,000.

On our Evans-Laviers property, production decreased from 3.8 million tons
to 3.4 million tons. Coal royalty revenues decreased from $5.1 million to $4.4
million. This decrease was due to the idling a higher-royalty-rate surface mine
for part of the year.

Acquisition. In addition to the above increases, the acquisition of
properties from El Paso on December 4, 2002 resulted in additional production of
504,000 tons and coal royalty revenues of $601,000 in 2002.

Illinois Basin. On our Trico property, production increased to 486,000
tons from 253,000 tons because a mine that began operating in 2001 produced for
an entire year. This resulted in coal royalty revenues increasing to $682,000
from $343,000. This increase was offset by lower production on our Cummings/
Hocking-Wolford property. Production decreased from 1.5 million tons to 1.1
million tons, and coal royalty revenues decreased from $1.5 million to $1.1
million. This decrease was due to a larger proportion of the production from the
mine being on adjacent property.

Northern Powder River. Production from our Western Energy property
decreased from 4.9 million tons to 3.7 million tons. This resulted in a decrease
in coal royalty revenues from $5.3 million to $4.3 million. This decrease was
due to the typical variations in production resulting from the checkerboard
ownership pattern of the mine. This pattern causes variations in the proportions
of the total mine production on our property.

27

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

STATEMENTS OF INCOME

FOR THE PERIOD FROM JANUARY 1 THROUGH OCTOBER 16, 2002 COMPARED WITH YEAR ENDED
DECEMBER 31, 2001

Revenues. Total revenues for the nine and one-half month period in 2002
were $22.6 million compared to $26.0 million for the full year 2001, a decrease
of $3.4 million, or 15%, of which $3.1 million was due to a sale of assets in
2001.

For the nine and one-half month period in 2002, coal royalty revenues were
$17.3 million compared to $15.5 million for the full year 2001, an increase of
$1.8 million, or 12%. Over these same periods, production decreased by 0.7
million tons, or 7%, from 10.3 million tons to 9.6 million tons. In addition to
the differences caused by comparing twelve months in 2001 to nine and one-half
months in 2002, these changes in production and coal royalties were primarily
due to:

Appalachia. Production from our West Fork property increased from 222,000
tons to 1.5 million tons, and coal royalty revenues increased from $357,000 to
$3.3 million because a longwall mine moved onto the property from adjacent
property. On our Eunice property, production stayed constant at 1.8 million
tons, and coal royalty revenues increased from $2.7 million to $3.2 million
because a greater proportion of production was from a longwall mine that is
subject to a higher royalty rate. On our Welch/Wyoming property, production
increased from 222,000 tons to 449,000 tons, and coal royalty revenues increased
from $361,000 to $1.0 million because a new mine, which began production during
2001, operated on the property for the entire nine and one-half month period. On
our Dorothy property, production increased from 652,000 tons to 813,000

28

tons, and coal royalty revenues increased from $1.1 million to $1.6 million.
This increase was due to increased production from a surface mine and the
resumption of mining at a temporarily idled mine.

These increases were partially offset by lower production and coal royalty
revenues from our Rockhouse property. On that property, production decreased
from 322,000 tons to 34,000 tons, and coal royalty revenues decreased from
$791,000 to $82,000 because a mine on the property ceased production.

Aggregate production from our Beaver Creek, Thomas and Stony River
properties increased from 333,000 tons to 621,000 tons as the lessee
concentrated production on our properties during the nine and one-half month
period. This resulted in coal royalty revenues increasing from $792,000 to $1.4
million.

On our Evans-Laviers property, production decreased from 3.8 million tons
to 2.6 million tons, and coal royalty revenues decreased from $5.1 million to
$3.5 million. This decrease was due to the idling of a higher-royalty-rate
surface mine for part of the nine and one-half month period.

Illinois Basin. The increases in Appalachia were offset by lower
production on our Cummings/ Hocking-Wolford property. Production decreased from
1.5 million tons to 775,000 tons, and coal royalty revenues decreased from $1.5
million to $778,000. This decrease was due to a larger proportion of the
production from the mine being on adjacent property during the nine and one-half
month period.

Timber revenues decreased to $2.8 million in 2002 from $3.7 million in
2001, a decrease of $0.9 million, or 32%. This decrease was primarily due to
2002 being a short period of nine and one-half months.

Other revenues decreased from $2.5 million in 2001 to $1.2 million in 2002,
a decrease of $1.3 million, or 50%. Of the $1.3 million decrease, $0.9 million
was due to a determination that a lessee was required to pay transportation fees
for 2001 that were previously unreported by the lessee for several years. Rental
receipts for the nine and one-half month period were $0.3 million lower than for
the full year 2001.

Expenses. Aggregate expenses for 2002 were $7.3 million compared to $5.8
million for 2001, an increase of $2.0 million, or 34%, primarily due to
increased depletion associated with the purchase of the reversionary interest
described below.

Other Income (Expense). Interest expense was $4.8 million for 2002
compared to $4.0 million for 2001, an increase of $0.8 million, or 20%,
resulting from additional debt incurred from the acquisition of the reversionary
interest from CSX.

Reversionary Interest. The previous owner of Western Pocahontas Properties
Limited Partnership's coal and timber properties (CSX Corporation and certain of
its affiliates) retained a reversionary interest in those properties whereby it
received either a 25% or 28% interest in the properties and the net revenues of
the properties after July 1, 2001, and in the net proceeds of any property sale
occurring prior to July 1, 2001. Western Pocahontas purchased the reversionary
interest related to its Kentucky properties in 2001 and the remainder of the
interest in March 2002. In 2001, Western Pocahontas accrued $1.9 million related
to the reversionary interest.

Net Income. Net income was $10.1 million in 2002 compared to $14.5 million
in 2001, a decrease of $4.4 million, or 30%. This is primarily due to 2002 being
a short period of nine and one half months.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

Revenues. Total revenues in 2001 were $26.0 million compared to $22.5
million in 2000, an increase of $3.5 million, or 15%.

Coal royalty revenues in 2001 were $15.5 million compared to $11.6 million
in 2000, an increase of $3.9 million, or 33%. Over these same periods,
production increased by 2.9 million tons, or 39%, from 7.4 million tons to 10.3
million tons. The increases in production and coal royalties were primarily due
to:

Eastern Kentucky. Production from the Evans-Laviers property increased 2.6
million tons, from 1.2 million tons to 3.8 million tons, which resulted in
increased coal royalty revenues of $3.8 million. This increase was primarily due
to the opening of a new deep mine late in 2000, a large underground mine
reaching

29

full production in 2001 and the reopening of a temporarily idled surface and
highwall mine in July 2001 at a higher royalty rate. On the Chesapeake Mineral
property, production increased by 218,000 tons in 2001 due to the reopening of
the mine under new ownership. This was partially offset by the reduction of
production at another lease on this property. Overall, coal royalty revenues
increased at the Chesapeake Mineral property by $269,000.

Southern West Virginia. Production from the Eunice property decreased by
1.3 million tons, from 3.1 million tons to 1.8 million tons, resulting in a
decrease in coal royalty revenues of $1.1 million. This decrease was due
primarily to the closure of a longwall mine as a result of adverse geologic
conditions and surface mining being performed on adjacent property during the
year. This decrease in production was partially offset by an increase in
production from the Dorothy-Sarita property of 301,000 tons, from 351,000 tons
to 652,000 tons, which resulted in increased coal royalty revenues of $400,000.
This increase in production was due to the addition of a surface and highwall
mine. On the Rockhouse Fork property, production decreased by 148,000 tons, from
470,000 tons to 322,000 tons, and coal royalty revenues fell by $348,000. This
decrease in production was due to geologic conditions, a change in contractors
by the lessee, and a decision to mine a thinner part of the coal seam.

Timber revenues decreased to $3.7 million in 2001 from $4.2 million in
2000, a decrease of $0.5 million, or 13%. The decrease was due to a one-time
sale of timber in 2000 for $700,000 on a parcel in Northern Appalachia, which
contained 1.5 million board feet of timber.

Gain on sale of property was $3.1 million in 2001 and $4.0 million in 2000.
These gains were related to the sale of 1,928 and 1,391 acres of land in 2001
and 2000, respectively.

Other revenues increased to $2.5 million in 2001 from $1.3 million in 2000,
an increase of $1.2 million, or 92%. This increase was due to a determination
that a lessee was required to pay transportation fees that were previously
unreported by the lessee for several years.

Expenses. Aggregate expenses for 2001 were $5.8 million compared to $5.9
million for 2000, a decrease of $0.1 million, or 1%, primarily due to a decrease
in property taxes that was partially offset by increased depletion attributed to
higher coal production.

Other Income (Expense). Interest expense was $4.0 million for 2001
compared to $4.2 million for 2000, a decrease of $0.2 million, or 5%. This
decrease was due to scheduled principal reduction of debt.

Reversionary Interest. As described above, Western Pocahontas purchased
the reversionary interest related to its Kentucky properties in 2001 and the
remainder of the interest in March 2002. In 2001, Western Pocahontas Properties
accrued $1.9 million related to the reversionary interest.

Net Income. Net income was $14.5 million in 2001 compared to $12.8 million
in 2000, an increase of $1.7 million or 13%. This increase was primarily due to
increased coal production by our lessees and correspondingly higher royalty
payments.

30

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

STATEMENTS OF INCOME

FOR THE PERIOD FROM JANUARY 1 THROUGH OCTOBER 16, 2002 COMPARED WITH YEAR ENDED
DECEMBER 31, 2001

Revenues. Total revenues for the nine and one-half month period in 2002
were $6.5 million compared to $8.8 million for the full year 2001, a decrease of
$2.3 million, or 35%. For the nine and one-half month period in 2002, coal
royalty revenues were $5.9 million compared to $7.5 million for the full year
2001, a decrease of $1.6 million, or 27%. Over these respective periods,
production decreased by 3.5 million tons, or 41%, from 8.5 million tons to 5.0
million tons. These changes in production and coal royalties were primarily due
to:

Northern Powder River. Production from our Western Energy property
decreased from 4.9 million tons to 3.7 million tons. This resulted in a decrease
in coal royalty revenues from $5.3 million to $3.3 million. These differences
are primarily due to 2002 being a short period of nine and one-half months.

Lease and easement income in 2002 was $474,000 compared to $787,000 in
2001. This decrease is a result of a decline in surface mining activity as well
as 2002 being a short period of nine and one-half months.

Gain on sale of property was $439,000 in 2001, and there were no property
sales for the nine and one-half months in 2002.

Other Income (Expense). Interest expense was $1.9 million for 2002
compared to $3.7 million for 2001, a decrease of $1.8 million, or 95%. In
addition to the differences caused by the difference in the length of periods,
this decrease resulted from a reduction in the interest rate and a decline in
the amount of debt outstanding.

31

Net Income. Net income was $2.3 million for 2002 compared to $2.6 million
for 2001, a decrease of $0.3 million, or 13%. This decrease primarily resulted
from a reduction in interest expense that was partially offset by lower coal
royalties.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

Revenues. Total revenues in 2001 were $8.8 million compared to $9.4
million in 2000, a decrease of $0.6 million, or 6%. Coal royalty revenues in
2001 were $7.5 million compared to $8.0 million in 2000, a decrease of $0.5
million, or 6%. Over these periods, production decreased by 663,000 tons, or 7%,
from 9.2 million tons to 8.5 million tons. These decreases in production and
coal royalties were primarily due to:

Production from the Western Energy property decreased by 783,000 tons, from
5.7 million tons to 4.9 million tons, which resulted in decreased royalty
revenues of $1.1 million. This decrease in production was the result of the
typical variations which can result from the checkerboard ownership pattern in
this mine. This ownership pattern causes mining operations to periodically move
from the property to contiguous unowned property and back again.

Production from the Big Sky property increased by 0.4 million tons, from
1.4 million to 1.8 million tons, which resulted in increased royalty revenues of
$0.4 million. These increases were due to the favorable location of mining
operations relative to the checkerboard ownership pattern.

Lease and easement income in 2001 was $787,000 compared to $583,000 in
2000. This increase was primarily attributable to surface use payments relating
to increased mining on our surface property.

Gain on sale of property was $439,000 in 2001, compared to $709,000 in
2000.

Other Income (Expense). Interest expense was $3.7 million for 2001
compared to $4.7 million for 2000, a decrease of $1.0 million, or 21%. This
decrease primarily resulted from a reduction in the outstanding principal
balance of debt combined with a reduction in interest rates from an average of
9.3% in 2000 to 7.5% in 2001.

Net Income. Net income was $2.6 million for 2001 compared to $2.3 million
for 2000, an increase of $0.3 million, or 14%. This increase primarily resulted
from a reduction in interest expense that was partially offset by lower coal
royalties.

32

NEW GAULEY COAL CORPORATION

STATEMENTS OF INCOME

FOR THE PERIOD FROM JANUARY 1 THROUGH OCTOBER 16, 2002 COMPARED WITH YEAR ENDED
DECEMBER 31, 2001

Revenues. Total revenues for the nine and one-half month period in 2002
were $1.5 million compared to $1.7 million for the full year 2001, a decrease of
$0.2 million, or 13%. Coal royalty revenues in 2002 were $1.4 million compared
to $1.6 million in 2001, a decrease of $0.2 million, or 14%. Over these same
periods, production decreased by 239,000 tons, or 50%, from 718,000 tons to
479,000 tons. In addition to the differences caused by comparing twelve months
in 2001 to nine and one-half months in 2002, these changes in production and
coal royalties were primarily due to:

A decrease in production from our West Virginia property from 441,000 tons
to 230,000 tons. Coal royalty revenues decreased from $985,000 to $561,000 due
to a combination of market-based reductions and adverse geologic conditions in
the mine during part of the nine and one-half month period of 2002. This
decrease was partially offset by increased coal royalty revenues on our Alabama
properties.

Expenses. Aggregate expenses for the nine and one-half month period in
2002 were $232,000 compared to $298,000 for 2001, a decrease of $66,000, or 28%.
This decrease was due primarily to a decrease in depletion expense.

Net Income. Net income was $1.1 million for 2002 compared to $1.2 million
for 2001, a decrease of $0.1 million, or 9%. This decrease was primarily due to
2002 being a short period of nine and one-half months.

33

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

Revenues. Total revenues in 2001 were $1.7 million compared to $1.0
million in 2000, an increase of $0.7 million, or 70%. Coal royalty revenues in
2001 were $1.6 million compared to $1.0 million in 2000, an increase of $0.6
million, or 60%. Over these same periods, production increased by 362,000 tons,
or 102%, from 356,000 tons to 718,000 tons. This increase in production and coal
royalties was primarily due to:

Appalachia. Production from the West Virginia property increased by
292,000 tons, from 149,000 tons to 441,000 tons, which resulted in increased
royalty revenues of $687,000. This increase resulted from the lessee's mining
operations moving onto New Gauley Coal Corporation's property from adjacent
reserves and an increase in the royalty rate.

Expenses. Aggregate expenses for 2001 were $298,000 compared to $212,000
for 2000, an increase of $86,000, or 41%. This increase was due primarily to
increased depletion associated with the increased production during the period.

Net Income. Net income was $1.2 million for 2001 compared to $0.7 million
for 2000, an increase of $0.5 million, or 71%. This increase was primarily due
to increased coal royalty revenues.

ARCH COAL CONTRIBUTED PROPERTIES

STATEMENT OF REVENUES AND DIRECT COSTS AND EXPENSES

FOR THE PERIOD FROM JANUARY 1 THROUGH OCTOBER 16, 2002 COMPARED WITH YEAR ENDED
DECEMBER 31, 2001

Revenues. Revenues for the nine and one-half month period in 2002 were
$17.3 million, a decrease of $3.5 million as compared to twelve months in 2001.
In addition to the differences caused by comparing twelve months in 2001 to nine
and one-half months in 2002, these changes in production and coal royalties were
primarily due to:

Appalachia. On our Kingston property, production increased from 740,000
tons to 894,000, and coal royalty revenues increased from $1.3 million to $1.5
million. This increase was primarily due to a new mine starting on the property
during the year. On our Boone-Lincoln property, production decreased from
670,000 tons to 158,000 tons, and coal royalty revenues decreased from $1.3
million to $322,000. This decrease was

34

due to lower production on the property from the active surface mine and the
temporary idling of the underground mine on the property. This mine has since
been restarted.

Illinois basin. On our Trico property, production increased to 376,000
tons from 253,000 tons due to a mine that began operating in 2001 producing for
nine and one-half months. This resulted in coal royalty revenues increasing to
$528,000 from $343,000.

Direct costs and expenses. Direct costs and expenses in 2002 were $6.6
million compared to $7.6 million in 2001, an decrease of $1.0 million, or 13%.
This decrease was largely due to depletion resulting from the nine and one-half
month period being compared to a full year. Depletion expense decreased $1.5
million to $4.8 million in 2002 from $6.3 million in 2001.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

Revenues. Revenues in 2001 were $20.8 million compared with $18.3 million
in 2000, an increase of $2.5 million, or 14%.

Coal royalty revenues in 2001 were $18.4 million compared to $16.2 million
in 2000, an increase of $2.2 million, or 14%. Production increased by 1.4
million tons, or 14%, from 9.9 million tons to 11.3 million tons. The increases
in production and coal royalties were primarily attributable to the following:

Eastern Kentucky. Production from the Central Appalachia properties
increased 1.2 million tons, from 6.2 million tons to 7.4 million tons, which
resulted in increased coal royalty revenues of $2.0 million. This increase was
due primarily to increased production at various surface and underground mines
at the Lynch property of 1.1 million tons, from 2.0 million tons in 2000 to 3.1
million tons in 2001. Production at the Lone Mountain property also increased
from 2.2 million tons in 2000 to 2.8 million tons in 2001 due to the
installation of additional equipment at the lessee's mine.

Other royalty revenues for 2001 were $1.4 million compared to $0.9 million
in 2000, an increase of $0.5 million. Other royalty revenues are primarily
attributable to override royalties associated with coal mined by lessees.
Override royalties were $1.2 million in 2001 compared to $0.8 million in 2000.

Direct costs and expenses. Direct costs and expenses in 2001 were $7.7
million compared to $6.6 million in 2000, an increase of $1.1 million, or 16%.
This increase was largely due to increased depletion resulting from the
increased production during the period. Depletion expense increased $1.0 million
to $6.4 million in 2001 from $5.4 million in 2000.

RELATED PARTY TRANSACTIONS

PARTNERSHIP AGREEMENT

Our general partner will not receive any management fee or other
compensation for its management of Natural Resource Partners. However, in
accordance with the partnership agreement, our general partner and its
affiliates will be reimbursed for expenses incurred on our behalf. All direct
general and administrative expenses will be charged to us as incurred. Indirect
general and administrative costs, including certain legal, accounting, treasury,
information technology, insurance, administration of employee benefits and other
corporate services incurred by our general partner and its affiliates will also
be reimbursed. Cost reimbursements due our general partner may be substantial
and will reduce our cash available for distribution to unitholders. In 2002, the
reimbursements to our general partner for services performed by WPP totaled
$256,000. For additional information, please read "Certain Relationships and
Related Transactions -- Omnibus Agreement."

35

AGREEMENTS WITH ARK LAND COMPANY

Concurrently with our initial public offering in October 2002, we entered
into four coal mining leases with Ark Land Company, a subsidiary of Arch Coal,
Inc. The Ark Land leases grant them the right to mine our coal on the following
properties:

- Lone Mountain located in Kentucky, which contains 47.1 million tons of
proven and probable reserves as of December 31, 2002;

- Pardee located in Kentucky and Virginia, which contains 20.4 million tons
of proven and probable reserves as of December 31, 2002;

- Boone/Lincoln located in West Virginia, which contains 18.5 million tons
of proven and probable reserves as of December 31, 2002; and

- Campbell's Creek located in West Virginia, which contains 9.8 million
tons of proven and probable reserves as of December 31, 2002.

Coal royalty revenues payable under these leases based on 2002 actual
production were $9.5 million, representing 19.2% of our total coal royalty
revenues for the year ended December 31, 2002. If no production had taken place
in 2002, minimum royalties of $5.75 million would have been payable under the
leases.

The Ark Land leases have an initial term of either eight or ten years, each
with an automatic year-to-year extension until the earlier to occur of (1)
delivery of notice by Ark Land that it will not renew the lease or (2) all
mineable and merchantable coal has been mined. The leases provide for payments
to us based on the higher of a percentage of the gross sales price or a fixed
minimum per ton of coal sold from our properties, with minimum annual royalty
payments. Under the Ark Land leases, minimum royalty payments are credited
against future production royalties.

The leases are intended to retain some of the legal rights Ark Land
possessed when it owned the properties. For this reason, the leases contain some
terms and provisions that are different from our third-party coal leases
negotiated at arm's length. Some of the more significant differences include:

- Ark Land has the ability to sublease the leased property without our
prior approval, although it remains responsible for sublessee
performance;

- minimum royalty payments from Ark Land continue to be payable during the
initial lease term even if all mineable and merchantable coal has been
mined from the property;

- royalties for coal sold to any affiliates may be based on a gross selling
price below the market value of the coal;

- the indemnities provided by Ark Land to us do not survive the termination
of the leases;

- we only have a limited ability to terminate the leases;

- Ark Land has royalty-free wheelage rights on the leased properties; and

- the leases do not impose a legal duty to diligently mine the maximum
amount of coal possible from the leased property.

We believe that the production and minimum royalty rates contained in the
Ark Land leases are consistent with current market royalty rates.

Ark Land owns an overriding royalty interest in leased coal reserves mined
by Black Beauty Coal Company ("Black Beauty"), an affiliate of Peabody Energy,
from property located in Knox County, Indiana. Ark Land has retained the
overriding royalty interest following the consummation of the initial public
offering. However, Ark Land and Arch Coal, Inc. entered into a Royalty
Pass-Through Agreement and Guaranty with one of our subsidiaries at closing to
pass through to us any royalties paid to Ark Land by Black Beauty under the
overriding royalty interest, and Arch Coal, Inc. will guarantee that to the
extent of the royalties paid to Ark Land. Annual advance overriding royalty
payments, against which production royalties under the leases are

36

credited, are received by Ark Land in June of each year. In 2001, Ark Land
received less than $1 million from the overriding royalty interest, or less than
2% of our partnership's 2001 revenues. This term of this pass-through agreement
expires upon the termination of the overriding royalty interest.

In May 2002, Ark Land received a notice from Black Beauty asserting that
Black Beauty is no longer obligated to pay the $400,000 advance overriding
royalty payments to Ark Land associated with a portion of the underlying leased
property beginning when the next payment would be due on June 29, 2003. In
response, Ark Land has notified Black Beauty that Ark Land disagrees with Black
Beauty's right to terminate these payments and intends to assert its right to
receive these payments. We cannot assure you as to whether Ark Land will
ultimately be successful in this dispute, or whether or when we will receive any
or all of the amounts in dispute from Ark Land under our royalty pass-through
agreement.

On November 20, 2002, after the closing of our initial public offering, we
agreed with Arch to terminate this royalty pass-through agreement and guaranty
and to substitute in its place an amendment to the lease covering these
reserves. The amendment requires Ark Land to pay us a non-recoupable quarterly
rental payment equal to the quarterly minimums that were due under the royalty
pass-through agreement. This amendment is at least as favorable to us as the
pass-through agreement.

For more information about our related party transactions, please read Item
13, "Certain Relationships and Related Transactions."

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS AND CAPITAL EXPENDITURES

Historically, each of the WPP Group and the Arch Coal Contributed
Properties satisfied their working capital requirements and funded capital
expenditures, other than property acquisitions, with cash generated from
operations. Funds for property acquisitions have generally been obtained through
borrowings.

We believe that cash generated from operations and our borrowing capacity
under our new facility will be sufficient to meet our working capital
requirements and anticipated capital expenditures for the next several years. We
are actively pursuing additional property acquisitions; accordingly, we are
currently in discussions with our banks to increase our revolving credit
facility to provide for additional acquisitions. We intend to fund any
acquisitions with borrowings under our revolving credit facility and proceeds
from the issuance of additional common units. A minimal portion of our capital
expenditures will be maintenance capital expenditures, which will be deducted
from our operating surplus for the period. Our ability to satisfy any debt
service obligations, to fund planned capital expenditures, to make acquisitions
and to pay distributions to our unitholders will depend upon our future
operating performance, which will be affected by prevailing economic conditions
in the coal industry, changes in capital markets, and financial, business and
other factors, some of which are beyond our control. For a more complete
discussion of factors that will affect cash flow we generate from our
operations, please read "Risks Related to Our Business." Our capital
expenditures have historically been minimal.

Maintenance capital expenditures are capital expenditures made to replace
partially or fully depreciated assets in order to maintain the existing
operating capacity of our assets and to extend their useful lives. Expansion
capital expenditures are capital expenditures made to expand the existing
operating capacity of our assets, whether through construction or acquisition.
We treat maintenance capital expenditures that do not extend the useful life of
existing assets as operating expenses as we incur them.

Net cash provided by operations during the period following our initial
public offering, from October 17, 2002 through December 31, 2002, was $6.7
million, substantially all of which was coal royalty revenues, partially offset
by an increase in accounts receivable and changes in other operating assets and
liabilities.

Net cash used in investing activities during the period from October 17,
2002 through December 31, 2002 was $57.4 million for the acquisition of the El
Paso coal properties. In December 2002, we acquired mineral rights to
approximately 120 million tons of coal reserves from subsidiaries of El Paso
Corporation for $57 million in cash that we borrowed under our revolving credit
facility. Approximately one-half of the

37

reserves are located in Kentucky, and the remainder are in Virginia and West
Virginia. Some of these reserves were leased to and mined by a subsidiary of El
Paso Corporation, and some are subject to an overriding royalty interest. The
acquisition consisted of approximately 177,000 acres of mineral property
(including approximately 25,000 surface acres). Other revenue from the property
will arise from timber harvests, surface leases and oil and gas royalty. We also
acquired an overriding royalty interest in coal in North Dakota.

Subsequent to year-end, Coastal Coal sold their mining operations to Alpha
Natural Resources.

Cash provided by financing activities in the period from October 17, 2002
through December 31, 2002 was $58.5 million. This was primarily attributable to
the borrowings under our revolving credit facility used to finance the
acquisition of properties from El Paso.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

DESCRIPTION OF CREDIT FACILITY

In connection with our initial public offering of common units, our
operating company entered into a three-year, $100 million revolving credit
facility. The revolving credit facility includes a $12.0 million distribution
loan sub-limit that can be used for funding quarterly distributions. The
remainder of the revolving credit facility is available for general limited
partnership and limited liability company purposes, including future
acquisitions, but may not be used to fund quarterly distributions.

Our obligations under the revolving credit facility are unsecured but will
be guaranteed by us and our operating subsidiaries.

We may prepay all loans at any time without penalty. We must reduce all
borrowings under the distribution loan sub-facility to zero for a period of at
least 15 consecutive days once during each twelve-month period.

Indebtedness under the revolving credit facility bears interest, at our
option, at either:

- the higher of the federal funds rate plus 0.50% or the prime rate as
announced by the agent bank; or

- at a rate equal to LIBOR plus an applicable margin ranging from 1.25% to
1.75%.

We incur a commitment fee on the unused portion of the revolving credit
facility at a rate of 0.50% per annum.

The revolving credit facility prohibits us from making distributions to
unitholders and distributions in excess of available cash if any potential
default or event of default, as defined in the credit agreement, occurs or would
result from the distribution. In addition, the revolving credit facility
contains various covenants limiting our operating company's and its
subsidiaries' ability to:

- incur indebtedness;

- grant liens;

- engage in mergers and acquisitions or change the nature of our business;

- amend our organizational documents or the omnibus agreement;

- make loans and investments;

- sell assets; or

- enter into transactions with affiliates.

The credit agreement also contains covenants requiring us to maintain:

- a ratio of consolidated indebtedness to consolidated EBITDA (as defined
in the credit agreement) that does not exceed 2.5 to 1.0 for the four
most recent quarters; and

38

- a ratio of consolidated EBITDA to consolidated interest expense of at
least 4.0 to 1.0 for the four most recent quarters.

If an event of default exists under the credit agreement, the lenders may
accelerate the maturity of any indebtedness outstanding under the credit
agreement and exercise other rights and remedies. Each of the following will
constitute an event of default:

- failure to pay any principal, interest, fees or other amount when due;

- failure to pay any indebtedness, other than indebtedness under the
revolving credit facility, in excess of $1 million when due or the
occurrence and continuance of any other default beyond the applicable
grace period, if any, if the default permits or causes the acceleration
of the indebtedness or termination of any commitment to lend;

- bankruptcy or insolvency events;

- termination of existence;

- failure to comply with the loan documents, subject to certain grace
periods;

- any representation, warranty or document provided is determined to have
been materially untrue when made or provided;

- entry and the failure to pay, bond, stay or contest adverse judgments or
similar processes in excess of $1 million more than any applicable
insurance coverage; and

- any of the following changes in control:

- we cease to own all of the member interests of the operating company;

- our general partner ceases to own directly all of our general partner
interests; or

- Corbin J. Robertson, Jr., the WPP Group and one or more of their direct
or indirect subsidiaries cease to own more than 50% of the partnership
interests of our general partner.

On December 4, 2002, we borrowed $57.5 million under our revolving credit
facility for the acquisition of coal assets from El Paso Corporation. We
recorded interest expense of $200,000 in the fourth quarter, consisting of
actual interest expense of $117,000 accruing at a rate of 2.72% for 27 days, as
well as commitment and other fees associated with the revolving credit facility.

CONTRACTUAL OBLIGATIONS

The following table reflects our long-term non-cancelable contractual
obligations as of December 31, 2002 (in millions):

INFLATION

Inflation in the United States has been relatively low in recent years and
did not have a material impact on operations for the years ended December 31,
2000, 2001 and 2002.

ENVIRONMENTAL

The operations of our lessees are subject to environmental laws and
regulations adopted by various governmental authorities in the jurisdictions in
which these operations are conducted. The terms of substantially all of our
leases impose liability on the relevant lessees for all environmental and
reclamation liabilities arising under those laws and regulations on the relevant
lessees. However, if a particular lessee is not

39

financially capable of fulfilling those obligations, there is a possibility that
regulatory authorities could attempt to assign the liabilities to us as the
landowner. We would contest such an assignment.

FORWARD-LOOKING STATEMENTS

Statements included in this Form 10-K are forward-looking statements. In
addition, we and our representatives may from time to time make other oral or
written statements which are also forward-looking statements.

Such forward-looking statements include, among other things, statements
regarding capital expenditures, acquisitions and dispositions, expected
commencement dates of coal mining, projected quantities of future coal
production by our lessees producing coal from our reserves leased, projected
demand or supply for coal that will affect sales levels, prices and royalties
realized by us.

These forward-looking statements are made based upon management's current
plans, expectations, estimates, assumptions and beliefs concerning future events
impacting us and therefore involve a number or risks and uncertainties. We
caution that forward-looking statements are not guarantees and that actual
results could differ materially from those expressed or implied in the
forward-looking statements.

You should not put undue reliance on any forward-looking statements. Please
read "Risks Related to Our Business" for important factors that could cause our
actual results of operations or our actual financial condition to differ.

RISKS RELATED TO OUR BUSINESS

- We may not have sufficient cash from operations to pay the minimum
quarterly distribution following establishment of cash reserves and
payment of fees and expenses, including payments to our general partner.

- A substantial or extended decline in coal prices could reduce our coal
royalty revenues and the value of our coal reserves.

- Our lessees' coal mining operations are subject to operating risks that
could result in lower coal royalty revenues to us.

- We depend on a limited number of primary operators for a significant
portion of our coal royalty revenues, and the loss of or reduction in
production from any of our major operators could reduce our coal royalty
revenues.

- We may not be able to terminate our leases if any of our lessees declare
bankruptcy, and we may experience delays and be unable to replace lessees
that do not make royalty payments.

- If our lessees do not manage their operations well, their production
volumes and our coal royalty revenues could decrease.

- Due to our lack of asset diversification, adverse developments in the
coal industry could reduce our coal royalty revenues.

- Any decrease in the demand for metallurgical coal could result in lower
coal production by our lessees, which would thereby reduce our coal
royalty revenues.

- We may not be able to expand and our business will be adversely affected
if we are unable to replace or increase our reserves or obtain other
mineral reserves through acquisitions.

- Any change in fuel consumption patterns by electric power generators
resulting in a decrease in the use of coal could result in lower coal
production by our lessees, which would reduce our coal royalty revenues.

40

- Current conditions in the coal industry may make it difficult for our
lessees to extend existing contracts or enter into supply contracts with
terms of one year or more, which could adversely affect the stability and
profitability of their operations and adversely affect our coal royalty
revenues.

- Competition within the coal industry may adversely affect the ability of
our lessees to sell coal, and excess production capacity in the industry
could put downward pressure on coal prices.

- Lessees could satisfy obligations to their customers with coal from
properties other than ours, depriving us of the ability to receive
amounts in excess of minimum royalty payments.

- Fluctuations in transportation costs and the availability or reliability
of transportation could reduce the production of coal mined from our
properties.

- Our reserve estimates depend on many assumptions that may be inaccurate,
which could materially adversely affect the quantities and value of our
reserves.

- Our lessees' work forces could become increasingly unionized in the
future.

- We may be exposed to changes in interest rates because our current
borrowings under our revolving credit facility may be subject to variable
interest rates based upon LIBOR.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, which includes adverse changes in commodity
prices and interest rates as discussed below:

COMMODITY PRICE RISK

We are dependent upon the efficient marketing of the coal mined by our
lessees. Our lessees sell the coal under various long-term and short-term
contracts as well as on the spot market. In previous years, a large portion of
these sales were under long term contracts. Current conditions in the coal
industry may make it difficult for our lessees to extend existing contracts or
enter into supply contracts with terms of one year or more. Our lessees' failure
to negotiate long-term contracts could adversely affect the stability and
profitability of our lessees' operations and adversely affect our coal royalty
revenues. As more coal is sold on the spot market, coal royalty revenues may
become more volatile due to fluctuations in spot coal prices.

INTEREST RATE RISK

Our exposure to changes in interest rates results from our current
borrowings under our revolving credit facility, which may be subject to variable
interest rates based upon LIBOR. To date, we have not deemed it necessary to
enter into any financial instruments to hedge our interest rate risk because
interest rates have remained at historically low levels. Management intends to
monitor interest rates and may enter into interest rate instruments to protect
against increased borrowing costs. At December 31, 2002, the Partnership had
outstanding $57.5 million in variable interest rate debt. If LIBOR rates were to
increase by 100 basis points, annual interest expense would increase by
$575,000, assuming the same principal amount remained outstanding during the
year.

41

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

42

NATURAL RESOURCE PARTNERS L. P.

CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT AUDITORS

The Partners of Natural Resource Partners L. P.

We have audited the accompanying consolidated balance sheet of Natural
Resource Partners L. P. as of December 31, 2002, and the related consolidated
statements of income, partners' capital and cash flows for the period from
commencement of operations (October 17, 2002) through December 31, 2002. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Natural Resource Partners L. P. at December 31, 2002 and the consolidated
results of its operations and its cash flows for the period from commencement of
operations (October 17, 2002) through December 31, 2002, in conformity with
accounting principles generally accepted in the United States.

ERNST & YOUNG LLP

February 11, 2003
Houston, Texas

43

NATURAL RESOURCE PARTNERS L. P.

CONSOLIDATED BALANCE SHEET

The accompanying notes are an integral part of these financial statements.

44

NATURAL RESOURCE PARTNERS L. P.

CONSOLIDATED STATEMENT OF INCOME
FROM COMMENCEMENT OF OPERATIONS (OCTOBER 17, 2002) THROUGH DECEMBER 31, 2002
(IN THOUSANDS, EXCEPT PER UNIT DATA)

REVENUES:
Coal royalties............................................ $11,532
Property tax.............................................. 1,047
Minimums recognized as revenue............................ 872
Override royalties........................................ 226
Other..................................................... 216
-------
Total revenues......................................... 13,893
OPERATING COSTS AND EXPENSES:
Depletion and amortization................................ 4,526
Taxes other than income................................... 1,296
General and administrative................................ 1,059
Override payments......................................... 226
Coal royalty payments..................................... 171
-------
Total operating costs and expenses..................... 7,278
-------
INCOME FROM OPERATIONS:..................................... 6,615
Interest expense..................................... (200)
-------
NET INCOME.................................................. $ 6,415
=======
General partners' net income.............................. $ 128
=======
Limited partners' net income.............................. $ 6,287
=======
BASIC AND DILUTED NET INCOME PER LIMITED PARTNER UNIT:
Common.................................................... $ 0.28
=======
Subordinated.............................................. $ 0.28
=======
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING:
Common.................................................... 11,354
=======
Subordinated.............................................. 11,354
=======

The accompanying notes are an integral part of these financial statements.

45

NATURAL RESOURCE PARTNERS L. P.

STATEMENT OF PARTNERS' CAPITAL
(IN THOUSANDS, EXCEPT UNIT DATA)

The accompanying notes are an integral part of these financial statements.

46

NATURAL RESOURCE PARTNERS L. P.

CONSOLIDATED STATEMENTS OF CASH FLOWS
COMMENCEMENT OF OPERATIONS (OCTOBER 17, 2002) THROUGH DECEMBER 31, 2002
(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 6,415
Adjustments to reconcile net income to net cash provided
by operating activities:
Depletion and amortization............................. 4,526
Change in operating assets and liabilities, net of effects
of assets acquired:
Accounts receivable.................................... (9,043)
Other assets........................................... (511)
Trade payables......................................... 1,402
Deferred revenue....................................... 2,018
Accrued liabilities.................................... 200
Property taxes payable................................. 1,731
--------
Net cash provided by operating activities......... 6,738
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property................................... (57,449)
--------
Net cash used in investing activities............. (57,449)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans....................................... 57,500
Deferred financing costs.................................. (1,316)
Repayment of debt......................................... (46,531)
Contributions by sponsors................................. 1,847
Proceeds from initial sale of common units net of
transaction costs...................................... 45,453
Proceeds from sale of common units to GNP and NGCC........ 1,510
--------
Net cash provided by financing activities......... 58,463
--------
NET INCREASE IN CASH........................................ 7,752
CASH AT BEGINNING OF PERIOD................................. 1
--------
CASH AT END OF YEAR......................................... $ 7,753
========
SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash investing activities
Net Assets Contributed by sponsors........................ 153,091
Excess of cost over net book value of Arch properties..... 110,315
Deferred revenue assumed on acquisition of property....... (2,152)

The accompanying notes are an integral part of these financial statements.

47

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND ORGANIZATION

Natural Resource Partners L.P. (the "Partnership"), a Delaware limited
partnership, was formed in April 2002 to own and manage certain coal royalty
producing properties contributed to the Partnership by Western Pocahontas
Properties Limited Partnership, ("WPP"), Great Northern Properties Limited
Partnership, ("GNP"), New Gauley Coal Corporation, ("NGCC") and Arch Coal, Inc.
(collectively "predecessors" or "predecessor companies"). The predecessor
companies contributed assets to the Partnership on October 17, 2002. There were
no operations in the Partnership prior to the contribution if the assets from
the predecessor companies. Therefore, the statements of income, partners'
capital and cash flows are presented from the date of commencement of operations
(October 17, 2002) through December 31, 2002.

The chief executive officer of the Partnership's managing general partner
controls the general partners of WPP and GNP and is the controlling shareholder
of NGCC. He also controls the general partner of the Partnership. In accordance
with EITF 87-19, "Change of Accounting Basis in Master Limited Partnership
Transactions," the assets of WPP, GNP and NGCC were contributed to the
Partnership at historical costs. The assets contributed by Arch Coal, Inc.,
which consisted solely of land and coal reserves were recorded at their fair
values.

The Partnership 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,
2002, the Partnership controlled approximately 1.23 billion tons of proven and
probable coal reserves in eight states. The Partnership does not operate any
mines. The Partnership leases coal reserves, through its wholly owned
subsidiary, NRP (Operating) LLC, to experienced mine operators under long-term
leases that grant the operators the right to mine the Partnership's coal
reserves in exchange for royalty payments. The Partnership's lessees are
generally required to make payments to the Partnership based on the higher of a
percentage of the gross sales price or a fixed price per ton of coal sold, in
addition to a minimum payment.

The Partnership completed its initial public offering of 2,598,750 common
units at a price of $20.00 per unit on October 17, 2002 and received aggregate
gross proceeds of $52.0 million. Since the underwriters did not exercise their
over-allotment option, GNP and NGCC 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, WPP, GNP,
NGCC and Arch contributed $0.9 million to cover transaction costs and expenses
in excess of those covered by proceeds of the public offering.

Underwriting fees in connection with the offering were $3.6 million. The
Partnership's net proceeds from the offering, the purchase of common units by
GNP and NGCC and the contribution by WPP, GNP, NGCC and Arch Coal totaled $51.8
million. The Partnership used approximately $46.5 million of the proceeds to
repay debt that was assumed from WPP, GNP and NGCC, $1.3 million to cover fees
related to its revolving credit facility and $3.0 million to cover expenses
related to its initial public offering, which consisted primarily of legal,
accounting and other professional service costs. The remaining $1.0 million of
proceeds was used to establish working capital necessary for the operation of
the Partnership's business.

Concurrent with the sale of common units to the public, Arch Coal, Inc.
sold 1,901,250 common units to the public at a price of $20.00 per unit
resulting in aggregate gross proceeds of $38 million and net proceeds of $35.4
million. In addition, Arch Coal Inc. contributed $0.4 million and $0.6 million
to the Partnership to establish working capital and cover fees related to the
Partnership's revolving credit facility.

The general partner of the Partnership is NRP (GP) LP, a Delaware limited
partnership, whose general partner is GP Natural Resource Partners LLC, a
Delaware limited liability company.

48

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The financial statements include the accounts of Natural Resource Partners
L.P. and its wholly owned subsidiaries. Intercompany transactions and balances
have been eliminated.

USE OF ESTIMATES

Preparation of the accompanying financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities in the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

PROPERTY AND EQUIPMENT

Land and coal property are carried at historical cost for properties
contributed to the Partnership by WPP, GNP and NGCC. The coal properties
contributed by Arch Coal Inc. have been accounted for using purchase accounting
based on their estimated fair value. Coal properties are depleted on a
unit-of-production basis by lease, based upon coal mined in relation to the net
cost of the mineral properties and estimated proven and probable tonnage
therein.

ASSET IMPAIRMENT

If facts and circumstances suggest that a long-lived asset may be impaired,
the carrying value is reviewed. If this review indicates that the value of the
asset will not be recoverable, as determined based on projected undiscounted
cash flows related to the asset over its remaining life, then the carrying value
of the asset is reduced to its estimated fair value.

CONCENTRATION OF CREDIT RISK

Substantially all of the Partnership's accounts receivable result from
amounts due from third-party companies in the coal industry. This concentration
of customers may affect the Partnership's overall credit risk, either positively
or negatively, in that these entities may be similarly affected by changes in
economic or other conditions. Receivables are generally not collateralized.
Historical credit losses incurred by the Partnership on receivables have not
been significant.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Partnership's financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable and long-term debt. The
carrying value of these financial instruments approximate fair value, due to
their short-term nature or variable interest rates that reflect market rates.

DEFERRED FINANCING COSTS

Deferred financing costs consists of legal and other costs related to the
issuance of the Partnership's revolving credit facility. These costs are
amortized over the term of the facility.

REVENUES

Coal Royalties. Coal royalty revenues are recognized on the basis of tons
of coal sold by the Partnership's lessees and the corresponding revenue from
those sales. Generally, the coal lessees make payments to the Partnership 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.

49

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Minimum Royalties. Most of the Partnership's lessees must make minimum
annual or quarterly payments which are generally recoupable over certain time
periods. These minimum payments are recorded as deferred revenue. The deferred
revenue attributable to the minimum payment is recognized as coal royalty
revenues either when the lessee recoups the minimum payment through production
or when the period during which the lessee is allowed to recoup the minimum
payment expires.

PROPERTY TAXES

The Partnership is responsible for paying property taxes on the properties
it owns. The lessees are typically responsible for reimbursing the Partnership
for property taxes on the leased properties. The reimbursement of property taxes
is included in revenues in the statement of income as property tax.

INCOME TAXES

The Partnership is not a taxpaying entity, as the individual partners are
responsible for reporting their pro rata share of the Partnership's taxable
income or loss. In the event of an examination of the Partnership's tax return,
the tax liability of the partners could be changed if an adjustment in the
Partnership's income is ultimately sustained by the taxing authorities.

NEW ACCOUNTING STANDARDS

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." 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
includes disclosure requirements that provide a description of asset retirement
obligations and a reconciliation of changes in the components of those
obligations. Adoption of SFAS No. 143 on January 1, 2003 did not have a material
impact on the Partnership's financial position or results of operations.

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 related to SFAS No. 121. The adoption of SFAS No. 144,
effective January 1, 2002, did not have a material impact on the Partnership'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. Adoption of SFAS
No. 145 on January 1, 2003 did not have a material impact on the Partnership's
financial position or results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which supersedes EITF No. 94-3,
"Liability Recognition for Certain Employment Termination Benefits and Other
Costs to Exit an Activity." SFAS No. 146 requires companies to record
liabilities for costs associated with exit or disposal activities to be
recognized only when the liability is incurred instead of at the date of
commitment to an exit or disposal activity. Adoption of this standard is
effective for exit or disposal

50

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

activities that are initiated after December 31, 2002. The adoption of this
standard is not expected to have a significant impact on the Partnership's
financial statements.

3. ACQUISITION

On December 4, 2002, the Partnership purchased, through a wholly owned
subsidiary, the land and mineral rights to approximately 120 million tons of
coal and 25,000 acres of surface land for $57.5 million, including transaction
costs, from certain subsidiaries of El Paso Corporation. El Paso Corporation
retained an overriding royalty interest in certain assets. The acquisition was
funded with the Partnership's revolving credit facility.

The factors used in determining the fair market value of the assets
included, but were not limited to, discounted future net cash flows, the quality
of the reserves, the probability of continued coal mining on the property, and
marketability of the coal.

The results of operations of this transaction were included in the
Partnership's consolidated financial statements since December 4, 2002.

4. PROPERTY AND EQUIPMENT

Property and equipment includes:

5. REVOLVING CREDIT FACILITY

At December 31, 2002, the Partnership had borrowed $57.5 million on its
$100 million revolving credit facility. The Partnership has a $100 million
unsecured revolving credit facility, which matures in October 2005, when all
principal payments are due in full. The revolving credit facility allows the
Partnership to elect the interest rate at (i) LIBOR plus an applicable margin
ranging from 1.25% to 1.75%, based on certain financial data or (ii) the higher
of the federal funds rate plus 0.50% or the prime rate as announced by the agent
bank. The revolving credit facility bore interest at a rate of 2.72% at December
31, 2002. The revolving credit facility includes a $12 million distribution loan
sublimit that can be used for quarterly distributions. The financial covenants
require the Partnership to maintain a ratio of consolidated total indebtedness
to consolidated EBITDA (as defined in the credit agreement) that does not exceed
2.5 to 1.0 and a ratio of consolidated EBITDA to consolidated interest expense
of at least 4.0 to 1.0. The Partnership is currently in compliance with all of
the covenants of the revolving credit facility.

6. RELATED PARTY TRANSACTIONS

Quintana Minerals Corporation, a company controlled by Corbin J. Robertson,
Jr., Chairman and CEO of the Partnership's managing general partner, provided
certain administrative services to the Partnership and charged it for direct
costs related to the administrative services. The total expenses charged to the
Partnership under this arrangement were $135,000 for the period from
commencement of operations on October 17 to

51

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 2002. These costs are reflected in the general and administrative
expenses in the accompanying statements of income.

Western Pocahontas Properties Limited Partnership provides certain
administrative services for the Partnership and allocated a portion of its
overhead in 2002. The total expenses charged to the Partnership under this
arrangement were $256,000 for the period from commencement of operations on
October 17 to December 31, 2002. These costs are reflected in the general and
administrative expenses in the accompanying statements of income.

At December 31, 2002, the Partnership had accounts receivable from
affiliates of $1.4 million due from Arch Coal, Inc. which is primarily made up
of $436,000 in minimum royalty payments received by Arch Coal, Inc. that were
due to the Partnership and a $839,000 advance rental payment from the Pardee
lease. The Partnership also had accounts payable to affiliates of $667,000,
which includes overhead reimbursements to Quintana Minerals Corporation and
Western Pocahontas Properties of $135,000 and $256,000, respectively, as well as
$276,000 for coal royalties received by Natural Resource Partners from lessees
that was due to Western Pocahontas Properties.

7. COMMITMENTS AND CONTINGENCIES

LEGAL

The Partnership 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, Partnership
management believes these claims will not have a material effect on the
Partnership's financial position, liquidity or operations.

Environmental Compliance

The operations conducted on the Partnership's 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, we may be liable for certain
environmental conditions occurring at the surface properties. The terms of
substantially all of the Partnership'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 the Partnership against, among other
things, environmental liabilities. Some of these indemnifications survive the
termination of the lease. Because Natural Resource Partners L. P. has no
employees, Western Pocahontas employees make regular 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 the Partnership'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. The Partnership has
neither incurred, nor is aware of, any material environmental charges imposed on
it related to its properties for the period ended December 31, 2002. The
Partnership 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 the Partnership
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
the Partnership's 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, the Partnership could be held liable for
these costs. The Partnership is also indemnified by WPP, GNP, NGCC and Arch Coal
Inc., jointly and severally, for three years after the closing of the initial
public offering against environmental and tax liabilities attributable to the
ownership and operation of the assets contributed to the Partnership prior to
the closing. The environmental indemnity is limited to a maximum of $10.0
million.

52

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. MAJOR LESSEES

The Partnership depends on a few lessees for a significant portion of its
revenues. Revenues from major lessees that exceed ten percent of total revenues
are as follows:

9. INCENTIVE PLAN

Prior to the Partnership's initial public offering, GP Natural Resource
Partners LLC, the general partner of NRP (GP) LP, the Partnership's general
partner, adopted the Natural Resource Partners Long-Term Incentive Plan (the
"Plan") for employees and directors of GP Natural Resource Partners LLC and its
affiliates who perform services for the Partnership. The Plan provides for the
granting of restricted units and unit options. The Plan permits the granting of
awards covering a number of common units equal to three percent of the number of
common units outstanding immediately following the Partnership's initial public
offering of common units. The Plan is administered by the compensation committee
of GP Natural Resource Partners LLC's board of directors. Subject to the rules
of the exchange upon which the common units are listed at the time, GP Natural
Resource Partners LLC's board of directors or the compensation committee also
has the right to alter or amend the Plan or any part of the Plan from time to
time, including increasing the number of units that may be granted. Except upon
the occurrence of unusual or nonrecurring events, no change in any outstanding
grant may be made that would materially reduce the benefit intended to be made
available to a participant without the consent of the participant.

A restricted unit is a "phantom" unit that entitles the grantee to receive
a common unit upon the vesting of the phantom unit or, in the discretion of the
compensation committee, its fair market value in cash. The compensation
committee may make grants under the Plan to employees and directors containing
such terms as the compensation committee shall determine. The compensation
committee will determine the period over which the restricted units granted to
employees and directors will vest. The committee may provide for an acceleration
of vesting based upon the achievement of specified financial objectives. In
addition, the restricted units will vest upon a change in control of the
Partnership, the general partner, or GP Natural Resource Partners LLC.

If a grantee's employment or membership on the board of directors
terminates for any reason, the grantee's restricted units will be automatically
forfeited unless, and to the extent, the compensation committee provides
otherwise. Common units to be delivered upon the vesting of restricted units may
be common units acquired by GP Natural Resource Partners LLC in the open market,
common units already owned by GP Natural Resource Partners LLC, common units
acquired by GP Natural Resource Partners LLC directly from the Partnership, from
another affiliate or any other person or entity or any combination thereof. GP
Natural Resource Partners LLC will be entitled to reimbursement by the
Partnership for the cost incurred in acquiring common units.

Unit options under the Plan will have an exercise price that may not be
less than the fair market value of the units on the date of grant. In general,
units will become exercisable over a period determined by the compensation
committee. The compensation committee may provide for an acceleration of vesting
based upon

53

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the achievement of specified financial objectives. In addition, the units will
become exercisable upon a change in control as described for restricted units
above. If a grantee's employment or membership on the board of directors
terminates for any reason, the grantee's options will be automatically forfeited
unless, and to the extent, the compensation committee provides otherwise. Upon
exercise of a unit option, GP Natural Resource Partners LLC will acquire common
units as describe above for restricted units.

The general partner adopted the Natural Resource Partners Annual Incentive
Compensation Plan (the "Compensation Plan") in October 2002. The Compensation
Plan is designed to enhance the performance of GP Natural Resource Partners
LLC's and its affiliates' key employees by rewarding them with cash awards for
achieving annual financial and operational performance objectives. The
compensation committee in its discretion may determine individual participants
and payments, if any, for each year. The board of directors of GP Natural
Resource Partners LLC may amend or change the Compensation Plan at any time. The
Partnership will reimburse GP Natural Resource Partners LLC for payments and
costs incurred under the Compensation Plan.

10. SUBSEQUENT EVENT

CASH DISTRIBUTIONS

On January 21, 2003, the Partnership declared a cash distribution of
$0.4234 per unit. Total distributions of $9.8 million were paid on February 14,
2003.

54

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

FINANCIAL STATEMENTS

REPORT OF INDEPENDENT AUDITORS

The Partners of Western Pocahontas Properties Limited Partnership

We have audited the accompanying balance sheet of Western Pocahontas
Properties Limited Partnership as of December 31, 2001, and the related
statements of income, changes in partners' capital and cash flows for each of
the two years in the period ended December 31, 2001 and the period from January
1, 2002 through October 16, 2002. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Western Pocahontas
Properties Limited Partnership at December 31, 2001, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2001 and the period from January 1, 2002 through October 16, 2002,
in conformity with accounting principles generally accepted in the United
States.

ERNST & YOUNG LLP

February 7, 2003
Houston, Texas

55

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

BALANCE SHEET

The accompanying notes are an integral part of these financial statements.

56

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

STATEMENTS OF INCOME

The accompanying notes are an integral part of these financial statements.

57

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

The accompanying notes are an integral part of these financial statements.

58

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements.

59

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND ORGANIZATION

Western Pocahontas Properties Limited Partnership ("the Partnership"), 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 the general partner. All items of income and loss of the Partnership are
allocated 1% to the general partner and 99% to the limited partners.

The Partnership enters into leases with various third-party operators for
the right to mine coal reserves and harvest timber on the Partnership's land in
exchange for royalty payments. Generally, the coal lessees make payments to the
Partnership 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 to the Partnership based on
pre-determined rates per board foot harvested.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

Preparation of the accompanying financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities in the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

CASH AND CASH EQUIVALENTS

The Partnership considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Restricted
cash represents cash and cash equivalents placed in a defeasance trust and are
pledged to the Partnership's lender for debt service requirements.

PROPERTY AND EQUIPMENT

Land, coal property and timberlands are carried at cost and include
expenditures for additions and improvements, such as roads and land
improvements, which substantially increase the productive lives of the existing
assets. Maintenance and repair costs are expensed as incurred. Coal properties
are depleted on a unit-of-production basis by lease, based upon coal mined in
relation to the net cost of the mineral properties and estimated proven and
probable tonnage therein. Timberlands are depleted based on the volume of timber
harvested in relation to the amount of estimated merchantable timber volume.

ASSET IMPAIRMENT

If facts and circumstances suggest that a long-lived asset may be impaired,
the carrying value is reviewed. If this review indicates that the value of the
asset will not be recoverable, as determined based on projected undiscounted
cash flows related to the asset over its remaining life, then the carrying value
of the asset is reduced to its estimated fair value.

CONCENTRATION OF CREDIT RISK

Substantially all of the Partnership's accounts receivable result from
amounts due from third-party companies in the coal industry. This concentration
of customers may impact the Partnership's overall credit risk, either positively
or negatively, in that these entities may be similarly affected by changes in
economic or other conditions. Receivables are generally not collateralized.
Historical credit losses incurred by the Partnership on receivables have not
been significant.

60

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Partnership's financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable and long-term debt. The
carrying value of these financial instruments approximate fair value. Fair
values of debt instruments were determined using discounted cash flow
techniques.

DEFERRED FINANCING COSTS

Deferred financing costs consists of legal and other costs related to the
issuance of the Partnership's long-term note payable. These costs are amortized
over the term of the note payable.

REVENUES

Coal Royalties. Coal royalty revenues are recognized on the basis of tons
of coal sold by the Partnership's lessees and the corresponding revenue from
those sales. Generally, the coal lessees make payments to the Partnership 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.

Timber Royalties. Timber is sold on a contract basis where independent
contractors harvest and sell the timber. Timber revenues are recognized when the
timber has been harvested by the independent contractors.

Minimum Royalties. Most of the Partnership's lessees must make minimum
annual or quarterly payments which are generally recoupable over certain time
periods. These minimum payments are recorded as deferred revenue. The deferred
revenue attributable to the minimum payment is recognized as coal royalty
revenues either when the lessee recoups the minimum payment through production
or when the period during which the lessee is allowed to recoup the minimum
payment expires.

PROPERTY TAXES

The Partnership is responsible for paying property taxes on the properties
it owns. The lessees are responsible for reimbursing the Partnership for
property taxes on the leased properties. The reimbursement of property taxes is
included in revenues in the statement of income as property tax.

INCOME TAXES

The Partnership is not a taxpaying entity, as the individual partners are
responsible for reporting their pro-rata share of the Partnership's taxable
income or loss. In the event of an examination of the Partnership's tax return,
the tax liability of the partners could be changed if an adjustment in the
Partnership's income is ultimately sustained by the taxing authorities.

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 or 2002 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 our financial
statements.

61

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." 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
includes disclosure requirements that provide a description of asset retirement
obligations and a reconciliation of changes in the components of those
obligations. The adoption of SFAS No. 143 on January 1, 2003 did not have a
material impact on our financial statements.

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 related to SFAS No. 121. The adoption of SFAS No. 144
effective January 1, 2002 did not have a material impact on our 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. Adoption of SFAS
No. 145 on January 1, 2003 did not have a material impact on our financial
position or results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which supersedes EITF No. 94-3,
"Liability Recognition for Certain Employment Termination Benefits and Other
Costs to Exit an Activity." SFAS No. 146 requires companies to record
liabilities for costs associated with exit or disposal activities to be
recognized only when the liability is incurred instead of at the date of
commitment to an exit or disposal activity. Adoption of this standard is
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of this standard did not have a significant impact on our
financial statements.

3. REVERSIONARY INTEREST

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

In 2000, the Partnership sold 1,391 acres of surface land to a third party
and paid $1.3 million to CSX related to its reversionary interest in the
property. In 2001, the Partnership sold 1,928 acres of surface land to various
third parties and paid $936,000 to CSX related to its reversionary interest in
these properties (see Note 4).

In December 2001, the Partnership purchased from CSX its reversionary
interest in the Partnership's 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, the Partnership purchased from CSX its reversionary interest
in the remaining assets subject to the reversionary interest. The Partnership
allocated $35 million to coal and timber properties and $1.4 million to a
reduction in the reversionary interest payable for the period ended October 16,
2002. The

62

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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 the Partnership issued in
December 2001 as part of the consideration for the purchase of the reversionary
interest in Kentucky (see Note 5).

4. PROPERTY AND EQUIPMENT

Property and equipment includes:

In 2000, the Partnership sold 1,391 acres of surface land and recognized a
gain of $4.0 million after considering CSX's reversionary interest (see Note 3).
In connection with the sale, the Partnership was required to place $1.9 million
in its debt service account (see Note 5).

In 2001, the Partnership sold 1,928 acres of surface land and recognized a
gain of $3.1 million after considering CSX's reversionary interest (see Note 3).
In connection with the sale, the Partnership was required to place $2.1 million
in its debt service account (see Note 5).

As explained in Note 3, the Partnership completed the acquisition of the
reversionary interest from CSX in March 2002.

5. LONG-TERM DEBT

Long-term debt consisted of the following:

The notes are collateralized by a mortgage on the Partnership's properties,
a security interest in accounts receivable, other assets and the partners'
interest in the Partnership and the common stock of WPC. The Partnership is
required to maintain an aggregate minimum balance of $3.0 million in cash and
cash equivalents, which is pledged to its lenders. The Partnership is allowed to
make cash distributions to its partners provided no event of default exists, as
defined, and the aggregate cash balance is not reduced below $4.0 million by any
distribution.

The Partnership is required to contribute cash or cash equivalents to a
debt service account when the Partnership receives royalties related to coal
tonnage or timber harvested greater than a predetermined amount or sells certain
properties. Pursuant to these provisions, the Partnership contributed $2.1
million and $2.4 million to the debt service account for the years ended
December 31, 2000 and 2001, respectively.

On December 10, 2001, the Partnership issued a $7.9 million non-interest
bearing note payable to an affiliate of CSX in conjunction with the purchase of
CSX's reversionary interest in properties located in

63

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Kentucky (see Note 3), and is subject to a Purchase and Sale Agreement between
the CSX affiliate and the Partnership. 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).

6. RELATED PARTY TRANSACTIONS

A company controlled by the owner of WPC provides certain administrative
services to the Partnership and charges the Partnership for the direct costs
related to the administrative services. The total expenses charged to the
Partnership under this arrangement were approximately $500,000 for each of the
years ended December 31, 2000 and 2001, and $330,000 for the period from January
1, 2002 through October 16, 2002. These costs are reflected in the general and
administrative expenses in the accompanying statements of income.

The Partnership has a management contract to provide certain management,
engineering and accounting services to Great Northern Properties Limited
Partnership ("GNP"), a limited partnership which has certain common ownership
with the Partnership. The contract provides for a $250,000 annual fee, which is
intended to reimburse the Partnership for its expense. This fee is presented as
other revenue in the accompanying statement of income. The contract may be
canceled upon 90 days advance notice by GNP.

7. EMPLOYEE BENEFIT PLANS

Substantially all employees of the Partnership are covered by a
noncontributory retirement plan and a defined contribution thrift plan. Under
the retirement plan, the Partnership contributes annually an amount equal to
one-twelfth of each participant's base compensation. Participants vest in the
retirement plan based on the following:

A participant is fully vested upon termination of employment as a result of
death, disability, reduction of labor force or retirement on or after age 55.
For each of the years ended December 31, 2000 and 2001, the Partnership
contributed approximately $90,000 to the retirement plan. No contribution was
required during the period from January 1, 2002 through October 16, 2002.

Under the thrift plan, participants may contribute up to 12% of their base
compensation, subject to a maximum set by IRS regulations, on a tax-deferred
basis. The Partnership makes matching contributions equal to 100% of each
participant's contributions to the extent of 3% of base compensation and 50% of
each participant's contributions between 3% and 6% of base compensation. The
Partnership's contribution is 40% vested after two years of service with the
vested interest increasing by 20% for each additional year of service. A
participant is fully vested as to his own contributions and is fully vested as
to the Partnership's contributions upon termination of employment as a result of
death, reduction of labor force, disability or retirement on or after age 55.
For each of the years ended December 31, 2000 and 2001, the Partnership made
matching contributions in an amount of approximately $50,000, and $28,277 during
the period from January 1, 2002 through October 16, 2002.

64

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES

LEGAL

The Partnership 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, Partnership
management believes these claims will not have a material effect on the
Partnership's financial position, liquidity or operations.

ENVIRONMENTAL COMPLIANCE

The operations conducted on Partnership 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, the Partnership may be liable for
certain environmental conditions occurring at the surface properties. The terms
of substantially all of the Partnership's coal leases require the lessee to
comply with all applicable laws and regulations, including environmental. The
lessees obtain reclamation bonds and substantially all of the leases require the
lessee to indemnify the Partnership against, among other things, environmental
liabilities. Some of these indemnifications survive the termination of the
lease. Employees of the Partnership 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 the Partnership's lessees will be
able to comply with existing regulations and does not expect any material impact
on its financial condition or results of operations. The Partnership has neither
incurred, nor is aware of, any material environmental charges imposed on it
related to its properties for the years ended December 31, 2001, 2002 or the
period ended October 16, 2002. The Partnership is not associated with any
environmental contamination that may require remediation costs. However, our
lessees do, from time to time, conduct reclamation work on our properties under
lease to them. Because the Partnership is not the permittee of the mines being
reclaimed, it is not responsible for the costs associated with these reclamation
operations. Each of our lessees is required to post a bond assuring that the
reclamation will be completed as required by the permit. However, in the event
any of our lessees is unable to complete the reclamation obligations and their
bonding company likewise fails to meet the obligations or provide money to the
state to perform the reclamation, the Partnership could be held liable for these
costs.

LEASE COMMITMENTS AND GUARANTEES

The total rental and lease expenses for each of the years ended December
31, 2000 and 2001 were approximately $167,000 and $142,000, respectively, and
$114,000 for the period from January 1, 2002 through October 16, 2002. The
minimum rental payments for the next five years are as follows in thousands:

2003........................................................ $110
2004........................................................ 110
2005........................................................ 115
2006........................................................ 115
2007........................................................ --

The Partnership guaranteed a $2.0 million note payable of New Gauley Coal
Corporation, the outstanding balance of which totaled approximately $1.7 million
and $1.6 million at December 31, 2001 and October 16, 2002, respectively. New
Gauley Coal Corporation was formerly wholly owned by the Partnership.

65

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9. MAJOR LESSEES

The Partnership depends on a few lessees for a significant portion of its
revenues. Revenues from major lessees that exceed ten percent of total revenues
are as follows:

10. SEGMENT INFORMATION

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

Coal Royalty. The coal royalty segment is engaged in managing the
Partnership's coal properties.

Timber Royalty. The Partnership's timber segment is engaged in the selling
of standing timber on the Partnership's properties.

66

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

11. SUBSEQUENT EVENT

In connection with the formation of Natural Resource Partners L.P. and its
public offering of limited partnership units, the Partnership transferred
certain coal royalty producing properties that are currently under

67

WESTERN POCAHONTAS PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

lease to coal mine operators to Natural Resource Partners L.P. on October 17,
2002, at historical cost. The Partnership also transferred a portion of its
deferred revenue and long-term debt to Natural Resource Partners L.P. The
Partnership retained a coal reserve property that is leased to a third party
that is experiencing permitting problems. Additionally, the Partnership retained
unleased coal reserve properties, surface land and timberlands.

68

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

FINANCIAL STATEMENTS

REPORT OF INDEPENDENT AUDITORS

The Partners of Great Northern Properties Limited Partnership

We have audited the accompanying balance sheet of Great Northern Properties
Limited Partnership as of December 31, 2001, and the related statements of
income, changes in partners' capital and cash flows for each of the two years in
the period ended December 31, 2001, and the period from January 1, 2002 through
October 16, 2002. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Great Northern Properties
Limited Partnership at December 31, 2001, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 2001,
and the period from January 1, 2002 through October 16, 2002, in conformity with
accounting principles generally accepted in the United States.

ERNST & YOUNG LLP

February 7, 2003
Houston, Texas

69

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

BALANCE SHEET

The accompanying notes are an integral part of these financial statements.

70

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

STATEMENTS OF INCOME

The accompanying notes are an integral part of these financial statements.
71

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

The accompanying notes are an integral part of these financial statements.

72

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements.

73

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND ORGANIZATION

Great Northern Properties Limited Partnership ("the Partnership"), 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 the Partnership are
allocated 1% to the general partner and 99% to the limited partners. In 1999, a
limited partner's interest in the Partnership was redeemed by the partners for
$1,000.

The Partnership enters into leases with various coal mine operators for the
right to mine coal reserves on the Partnership's land in exchange for royalty
payments. Generally, the lessees make payments to the Partnership 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

USE OF ESTIMATES

Preparation of the accompanying financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities in the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

CASH AND CASH EQUIVALENTS

The Partnership considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Restricted
cash represents cash and cash equivalents placed in a debt service account and
is pledged to the Partnership's lender for debt service requirements.

PROPERTY AND EQUIPMENT

Land and coal property are carried at cost and include expenditures for
additions and improvements, such as roads and land improvements, which
substantially increase the productive lives of the existing assets. Maintenance
and repair costs are expensed as incurred. Coal properties are depleted on a
unit-of-production basis by lease, based upon coal mined in relation to the net
cost of the mineral properties and estimated proven and probable tonnage
therein.

ASSET IMPAIRMENT

If facts and circumstances suggest that a long-lived asset may be impaired,
the carrying value is reviewed. If this review indicates that the value of the
asset will not be recoverable, as determined based on projected undiscounted
cash flows related to the asset over its remaining life, then the carrying value
of the asset is reduced to its estimated fair value.

CONCENTRATION OF CREDIT RISK

Substantially all of the Partnership's accounts receivable result from
amounts due from third-party companies in the coal industry. Coal royalties are
principally received from two lessees (see Note 8). This concentration of
customers may impact the Partnership's overall credit risk, either positively or
negatively, in that these entities may be similarly affected by changes in
economic or other conditions. Receivables are generally not collateralized.
Historical credit losses incurred by the Partnership on receivables have not
been significant.

74

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Partnership's financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable and long-term debt. The
carrying value of these financial instruments approximate fair value, due to
their short-term nature or variable interest rates that reflect current market
rates.

DEFERRED FINANCING COSTS

Deferred financing costs consist of legal and other costs related to the
issuance of the Partnership's long-term debt. These costs are amortized over the
term of the debt.

REVENUES

Coal Royalties. Coal royalty revenues are recognized on the basis of tons
of coal sold by the Partnership's lessees and the corresponding revenue from
those sales. Generally, the lessees make payments to the Partnership 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.

Lease and Easement Income. Lease and easement income is generated through
contracts with third parties for use of the Partnership's land for
transportation of coal mined on adjacent properties, agricultural grazing and
recreational uses.

Minimum Royalties. Most of the Partnership's lessees must make minimum
annual or quarterly payments which are generally recoupable over certain time
periods. These minimum payments are recorded as deferred revenue. The deferred
revenue attributable to the minimum payment is recognized as coal royalty
revenues either when the lessee recoups the minimum payment through production
or when the period during which the lessee is allowed to recoup the minimum
payment expires.

PROPERTY TAXES

The Partnership is responsible for paying property taxes on the properties
it owns. The lessees are responsible for reimbursing the Partnership for
property taxes on the leased properties. The reimbursement of property taxes is
included in revenues in the statement of income as property tax.

INCOME TAXES

The Partnership is not a taxpaying entity, as the individual partners are
responsible for reporting their pro rata share of the Partnership's taxable
income or loss. In the event of an examination of the Partnership's tax return,
the tax liability of the partners could be changed if an adjustment in the
Partnership's income is ultimately sustained by the taxing authorities.

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 or 2002 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 our financial
statements.

75

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." 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
includes disclosure requirements that provide a description of asset retirement
obligations and a reconciliation of changes in the components of those
obligations. The adoption of SFAS No. 143 on January 1, 2003 did not have a
material impact on our financial statements.

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 related to SFAS No. 121. The adoption of SFAS No. 144
effective January 1, 2002 did not have a material impact on our 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. Adoption of SFAS
No. 145 on January 1, 2003 did not have a material impact on our financial
position or results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which supersedes EITF No. 94-3,
"Liability Recognition for Certain Employment Termination Benefits and Other
Costs to Exit an Activity." SFAS No. 146 requires companies to record
liabilities for costs associated with exit or disposal activities to be
recognized only when the liability is incurred instead of at the date of
commitment to an exit or disposal activity. Adoption of this standard is
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of this standard did not have a significant impact on our
financial statements.

3. NONPARTICIPATING ROYALTY INTEREST

The previous owner of the Partnership's coal properties, Meridian Minerals
Company ("Meridian"), a subsidiary of Burlington Resources, Inc., retained a
nonparticipating royalty interest in certain properties, which 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 as defined in the asset
purchase agreement.

76

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT

Property and equipment includes:

In 2001, the Partnership sold 3,194 acres of surface land in Montana and
recognized a gain of $439,000.

5. LONG-TERM DEBT

Long-term debt consisted of the following:

The notes are collateralized by a mortgage on the Partnership's properties,
a security interest in accounts receivable, other assets, the partners' interest
in the Partnership and the debt service account established by the Partnership.
The debt service account is funded quarterly with 100% of the Partnership's cash
flows, defined as all cash revenue received by the Partnership, net of any
operating expenses, management fees and up to a maximum of 20% of positive
operating income to be used to pay the income tax liabilities of the partners as
they relate to the Partnership properties, except that the Partnership may
maintain $250,000 in cash for general operating purposes. The debt service
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. The
Partnership contributed $4.7 million and $2.2 million to the debt service
account for the years ended December 31, 2000 and 2001, respectively, and $2.3
million for the period from January 1, 2002 through October 16, 2002.

6. RELATED PARTY TRANSACTIONS

The Partnership has a management contract to receive management,
engineering and accounting services from Western Pocahontas Properties Limited
Partnership ("WPP"), a limited partnership which has some common ownership with
the Partnership. The contract provides for a $250,000 fee to be paid annually.
Such amounts are reflected in general and administrative expenses in the
statements of income. The contract may be canceled upon 90 days advance notice
to the Partnership.

7. COMMITMENTS AND CONTINGENCIES

LEGAL

The Partnership 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, Partnership

77

GREAT NORTHERN PROPERTIES LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

management believes these claims will not have a material effect on the
Partnership's financial position, liquidity or operations.

ENVIRONMENTAL COMPLIANCE

The operations conducted on Partnership 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, the Partnership may be liable for
certain environmental conditions occurring at the surface properties. The terms
of substantially all of the Partnership's coal leases require the lessee to
comply with all applicable laws and regulations, including environmental. The
lessees obtain reclamation bonds and substantially all of the leases require the
lessee to indemnify the Partnership against, among other things, environmental
liabilities. Some of these indemnifications survive the termination of the
lease. Employees 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 the Partnership's lessees will be able to comply with
existing regulations and does not expect any material impact on its financial
condition or results of operations. The Partnership has neither incurred, nor is
aware of, any material environmental charges imposed on it related to its
properties for the years ended December 31, 2000 and 2001 and for the period
ended October 16, 2002. The Partnership is not associated with any environmental
contamination that may require remediation costs. However, our lessees do, from
time to time, conduct reclamation work on our properties under lease to them.
Because the Partnership is not the permittee of the mines being reclaimed, it is
not responsible for the costs associated with these reclamation operations. Each
of our lessees is required to post a bond assuring that the reclamation will be
completed as required by the permit. However, in the event any of our lessees is
unable to complete the reclamation obligations and their bonding company
likewise fails to meet the obligations or provide money to the state to perform
the reclamation, the Partnership could be held liable for these costs.

8. MAJOR LESSEES

The Partnership depends on a few lessees for a significant portion of its
revenues. Revenues from major lessees that exceed ten percent of total revenues
are as follows:

9. SUBSEQUENT EVENT

In connection with the formation of Natural Resource Partners L.P. and its
public offering of limited partnership units, the Partnership transferred
certain coal royalty producing properties that are currently under lease to coal
mine operators to Natural Resource Partners L.P. on October 17, 2002, at
historical cost. The Partnership also transferred a portion of its deferred
revenue and long-term debt to Natural Resource Partners L.P. The Partnership
retained unleased coal reserve properties and surface land.

78

NEW GAULEY COAL CORPORATION FINANCIAL STATEMENTS

REPORT OF INDEPENDENT AUDITORS

The Stockholders of New Gauley Coal Corporation

We have audited the accompanying balance sheet of New Gauley Coal
Corporation as of December 31, 2001, and the related statements of income,
changes in stockholders' equity (deficit) and cash flows for each of the two
years in the period ended December 31, 2001, and the period from January 1, 2002
through October 16, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of New Gauley Coal Corporation
at December 31, 2001, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 2001, and the period from
January 1, 2002 through October 16, 2002, in conformity with accounting
principles generally accepted in the United States.

ERNST & YOUNG LLP

February 7, 2003
Houston, Texas

79

NEW GAULEY COAL CORPORATION

BALANCE SHEET

The accompanying notes are an integral part of these financial statements.

80

NEW GAULEY COAL CORPORATION

STATEMENTS OF INCOME

The accompanying notes are an integral part of these financial statements.

81

NEW GAULEY COAL CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

The accompanying notes are an integral part of these financial statements.

82

NEW GAULEY COAL CORPORATION

STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements.

83

NEW GAULEY COAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND ORGANIZATION

New Gauley Coal Corporation ("the Company"), a West Virginia subchapter S
corporation, was incorporated in 1918 to own and manage land and mineral rights.
The Company owns property in Alabama and West Virginia.

The Company enters into leases with various coal mine operators for the
right to mine coal reserves on the Company's land in exchange for royalty
payments. Generally, the lessees make payments to the Company 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

USE OF ESTIMATES

Preparation of the accompanying financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities in the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

PROPERTY AND EQUIPMENT

Land and coal property are carried at cost and include expenditures for
additions and improvements, such as roads and land improvements, which
substantially increase the productive lives of the existing assets. Maintenance
and repair costs are expensed as incurred. Coal properties are depleted on a
unit-of-production basis by lease, based upon coal mined in relation to the net
cost of the mineral properties and estimated proven and probable tonnage
therein.

ASSET IMPAIRMENT

If facts and circumstances suggest that a long-lived asset may be impaired,
the carrying value is reviewed. If this review indicates that the value of the
asset will not be recoverable, as determined based on projected undiscounted
cash flows related to the asset over its remaining life, then the carrying value
of the asset is reduced to its estimated fair value.

CONCENTRATION OF CREDIT RISK

Substantially all of the Company's accounts receivable result from amounts
due from third-party companies in the coal industry. Coal royalties are
principally received from two lessees (see Note 8). This concentration of
customers may impact the Company's overall credit risk, either positively or
negatively, in that these entities may be similarly affected by changes in the
economic or other conditions. Receivables are generally not collateralized.
Historical credit losses incurred by the Company on receivables have not been
significant.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and long-term debt. The carrying value of
these financial instruments approximate fair value. Fair values of debt
instruments were determined using discounted cash flow techniques.

84

NEW GAULEY COAL CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

DEFERRED FINANCING COSTS

Deferred financing costs consist of legal and other costs related to the
issuance of the Company's long-term note payable. These costs are amortized over
the term of the note payable.

REVENUES

Coal Royalties. Coal royalty revenues are recognized on the basis of tons
of coal sold by the Company's lessees and the corresponding revenue from those
sales. Generally, the lessees make payments to the Company 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.

Minimum Royalties. Most of the Company's lessees must make minimum annual
or quarterly payments which are generally recoupable over certain time periods.
These minimum payments are recorded as deferred revenue. The deferred revenue
attributable to the minimum payment is recognized as coal royalty revenues
either when the lessee recoups the minimum payment through production or when
the period during which the lessee is allowed to recoup the minimum payment
expires.

PROPERTY TAXES

The Company is responsible for paying property taxes on the properties it
owns. One of the lessees is not responsible for reimbursing the Company for
property taxes on the leased properties. The reimbursement of property taxes is
included in revenues in the statement of income as property tax.

INCOME TAXES

The Company is not a taxpaying entity, as the individual stockholders are
responsible for reporting their pro rata share of the Company's taxable income
or loss. In the event of an examination of the shareholders' tax return, the tax
liability of the shareholders could be changed if an adjustment in the
shareholders' income is ultimately sustained by the taxing authorities.

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 or 2002 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 our financial
statements.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." 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
includes disclosure requirements that provide a description of asset retirement
obligations and a reconciliation of changes in the components of those
obligations. The adoption of SFAS No. 143 on January 1, 2003 did not have a
material impact on our financial statements.

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-

85

NEW GAULEY COAL CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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 related to SFAS No. 121. The adoption
of SFAS No. 144 effective January 1, 2002 did not have a material impact on our
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. Adoption of SFAS
No. 145 on January 1, 2003 did not have a material impact on our financial
position or results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which supersedes EITF No. 94-3,
"Liability Recognition for Certain Employment Termination Benefits and Other
Costs to Exit an Activity." SFAS No. 146 requires companies to record
liabilities for costs associated with exit or disposal activities to be
recognized only when the liability is incurred instead of at the date of
commitment to an exit or disposal activity. Adoption of this standard is
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of this standard did not have a significant impact on our
financial statements.

3. REVERSIONARY INTEREST

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

4. NOTE RECEIVABLE

In June 2001, the Company 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, the Company will receive a royalty on coal
produced from the developed properties. The total royalty received by the
Company 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. Through the period ended October 16, 2002, the
Company has accrued approximately $39,000 of interest income related to this
note. This agreement may be terminated at any time by the third party by
repaying the note under the terms described above.

86

NEW GAULEY COAL CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. PROPERTY AND EQUIPMENT

Property and equipment includes:

In January 2001, the Company sold property to a lessee and recognized a
gain of $25,000.

6. LONG-TERM DEBT

Long-term debt consisted of the following:

The note is collateralized by a mortgage on the Company's properties, a
security interest in accounts receivable, other assets, the stockholders'
interest in the Company and the debt service account established by the Company.
The notes are guaranteed by the Partnership.

The Company is required to contribute cash or cash equivalents to a debt
service account when the Company receives royalties greater than a predetermined
amount or sells qualified properties. The Company was not required to contribute
to the debt service account for the years ended December 31, 2001, or the period
ended October 16, 2002.

7. COMMITMENTS AND CONTINGENCIES

LEGAL

The Company 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, Company management believes
these claims will not have a material effect on the Company's financial
position, liquidity or operations.

ENVIRONMENTAL COMPLIANCE

The operations conducted on Company 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, the Company may be liable for
certain environmental conditions occurring at the surface properties. The terms
of substantially all of the Company's coal leases require the lessee to comply
with all applicable laws and regulations, including environmental. The lessees
obtain reclamation bonds and substantially all of the leases require the lessee
to indemnify the Company against, among other things, environmental liabilities.
Some of these indemnifications survive the termination of the lease. Employees
of the Company 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 the

87

NEW GAULEY COAL CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Company's lessees will be able to comply with existing regulations and does not
expect any material impact on its financial condition or results of operations.
The Company has neither incurred, nor is aware of, any material environmental
charges imposed on it related to its properties for the years ended December 31,
2001, and period ended October 16, 2002. The Company is not associated with any
environmental contamination that may require remediation costs. However, our
lessees do, from time to time, conduct reclamation work on our properties under
lease to them. Because the Company is not the permittee of the mines being
reclaimed, it is not responsible for the costs associated with these reclamation
operations. Each of our lessees is required to post a bond assuring that the
reclamation will be completed as required by the permit. However, in the event
any of our lessees is unable to complete the reclamation obligations and their
bonding company likewise fails to meet the obligations or provide money to the
state to perform the reclamation, the Company could be held liable for these
costs.

8. MAJOR LESSEES

The Company depends on a few lessees for a significant portion of its
revenues. Revenues from major lessees that exceed ten percent of total revenues
are as follows:

9. SUBSEQUENT EVENT

In connection with the formation of Natural Resource Partners L.P. and its
public offering of limited partnership units, the Company transferred certain
coal royalty producing properties that are currently under lease to coal mine
operators to Natural Resource Partners L.P. on October 17, 2002 at historical
cost The Company transferred a portion of its deferred revenue and all its
long-term debt to Natural Resource Partners L.P. The Company retained unleased
coal reserve properties.

88

ARCH COAL CONTRIBUTED PROPERTIES FINANCIAL STATEMENTS

REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors Arch Coal, Inc.

We have audited the accompanying statements of assets purchased and
liabilities assumed as of December 31, 2001, and the related statements of
revenues and direct costs and expenses for the period January 1, 2002 through
October 16, 2002 and the years ended December 31, 2001 and 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

As described in Note 1, the accompanying financial statements have been
prepared solely to present the assets purchased and liabilities assumed of the
properties acquired by Natural Resource Partners, L.P. from Arch Coal, Inc. as
of December 31, 2001 and the revenue and direct costs and expenses of the
acquired properties for the period January 1, 2002 through October 16, 2002 and
the years ended December 31, 2001 and 2000, for the purpose of complying with
the requirements of the Securities and Exchange Commission and are not intended
to be a complete presentation of the financial position and results of
operations of the acquired properties on a stand-alone basis.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets purchased and liabilities assumed of the
properties acquired from Arch Coal, Inc. as of December 31, 2001, and the
revenues and direct costs and expenses of the acquired properties for the period
January 1, 2002 through October 16, 2002 and the years ended December 31, 2001
and 2000, in conformity with accounting principles generally accepted in the
United States.

ERNST & YOUNG LLP

February 11, 2003
St. Louis, Missouri

89

ARCH COAL, INC. CONTRIBUTED PROPERTIES

STATEMENTS OF ASSETS PURCHASED AND LIABILITIES ASSUMED

The accompanying notes are an integral part of these financial statements

90

ARCH COAL CONTRIBUTED PROPERTIES

STATEMENT OF REVENUES AND DIRECT COSTS AND EXPENSES

The accompanying notes are an integral part of these financial statements

91

ARCH COAL CONTRIBUTED PROPERTIES

NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

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 formation of Natural Resource Partners L. P. ("NRP"), Ark
Land contributed a number of owned land and coal interests on which coal leasing
activity occurs ("Contributed Properties") to NRP. 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 Contributed
Properties.

The Contributed Properties was 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 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 have not been allocated to the 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 a balance sheet and income statements of the Contributed
Properties were not maintained for the period from January 1 through October 16,
2002 and for the two years ended December 31, 2001. Statements of Revenues and
Direct Costs and Expenses were prepared.

The accompanying 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 the results of operations of the
Contributed Properties. The accompanying financial statements have been prepared
to comply with the requirements of the Securities and Exchange Commission for
inclusion in the annual report on Form 10-K of NRP.

With respect to cash flows, the Contributed Properties did not maintain
cash accounts. Cash receipts and expenditures are maintained by Ark Land. A
description of cash flows directly attributable to the Contributed Properties is
included in Note 6.

2. ACCOUNTING POLICIES

ACCOUNTING ESTIMATES

Preparation of the accompanying financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities in the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

COAL PROPERTIES

Coal properties are carried at cost. Coal properties are depleted on a
unit-of-production basis by lease, based upon coal mined in relation to the net
cost of the mineral properties and estimated proven tonnage therein. Depletion
occurs either as Arch Coal mines on the property, or as others mine on the
property through leasing transactions.

ASSET IMPAIRMENT

If facts and circumstances suggest that a long-lived asset may be impaired,
the carrying value is reviewed. If this review indicates that the value of the
asset will not be recoverable, as determined based on projected undiscounted
cash flows related to the asset over its remaining life, then the carrying value
of the asset is reduced to its estimated fair value.

92

ARCH COAL CONTRIBUTED PROPERTIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

REVENUES

Coal Royalties. Coal royalty revenues are recognized on the basis of tons
of coal sold by the Contributed Properties' lessees and the corresponding
revenue from those sales. Generally, the coal lessees make payments to the
Contributed Properties 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.

Minimum Royalties. Most of the Contributed Properties' lessees must make
minimum annual or quarterly payments which are generally recoupable over certain
time periods. These minimum payments are recorded as deferred revenue. The
deferred revenue attributable to the minimum payment is recognized as coal
royalty revenues either when the lessee recoups the minimum payment through
production or when the period during which the lessee is allowed to recoup the
minimum payment expires.

PROPERTY TAXES

Ark Land is responsible for paying property taxes on the properties it
owns. The lessees are responsible for reimbursing Ark Land for property taxes on
the leased properties. The reimbursement of property taxes is included in
revenues in the statement of revenues and direct costs and expenses as property
tax.

NEW ACCOUNTING STANDARDS

While these financial statements are not intended to be a complete
presentation of financial statements prepared in conformity with accounting
principles generally accepted in the United States, the following recent
accounting pronouncements are included in consideration of potential impacts
associated with the accounts included in these financial statements.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." 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
includes disclosure requirements that provide a description of asset retirement
obligations and a reconciliation of changes in the components of those
obligations. The Contributed Properties have adopted SFAS No. 143 effective
January 1, 2003 and it did not have a material affect.

3. RELATED PARTY TRANSACTIONS

Certain of the Contributed Properties were leased to affiliates of Arch
Coal that mine on the properties. Contracted royalty rates from these affiliates
("affiliate royalties") for the period from January 1, 2002 through October 16,
2002 and the two 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, which are similar to those that are received from third parties.
Affiliate royalties amounted to $7.7 million, $10.5 million and $10.2 million
during the period from January 1, 2002 through October 16, 2002 and the two
years ended December 31, 2001.

93

ARCH COAL CONTRIBUTED PROPERTIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. MAJOR LESSEES

The Contributed Properties depended on a few lessees for a significant
portion of its revenues. Revenues from major lessees that exceed 10% of total
revenues, are as follows:

5. ENVIRONMENTAL COMPLIANCE

The operations conducted on our property by our 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, Ark Land may be liable for certain
environmental conditions occurring at the surface properties. The terms of
substantially all of Ark Land's coal leases require the lessee to comply with
all applicable laws and regulations, including environmental. The lessees obtain
reclamation bonds and substantially all of the leases require the lessee to
indemnify the Contributed Properties against, among other things, environmental
liabilities. Some of these indemnifications survive the termination of the
lease. Employees of Ark Land regularly visit the mines to ensure compliance with
lease terms, but the duty to comply with all regulations rests with the lessees.
Management of Ark Land believes that Ark Land's lessees will be able to comply
with existing regulations and does not expect any material impact on its
financial condition or results of operations of the Contributed Properties. Ark
Land has neither incurred, nor is aware of, any material environmental charges
imposed on it related to the Contributed Properties for the period from January
1, 2002 to October 16, 2002 and the two years ended December 31, 2001.

6. CASH FLOW

The 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 Contributed
properties:

94

ARCH COAL CONTRIBUTED PROPERTIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. SUBSEQUENT EVENT

In connection with the formation of Natural Resource Partners, L.P. and the
consummation of its initial public offering of limited partnership units, Arch
Coal transferred certain coal royalty producing properties that are currently
under lease to coal mine operators to Natural Resource Partners L.P. on October
17, 2002 at fair market value.

95

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On April 26, 2002, each of Western Pocahontas Properties Limited
Partnership, Great Northern Properties Limited Partnership and New Gauley Coal
Corporation dismissed Arthur Andersen LLP as their independent public
accountants due to the adverse publicity being experienced by Arthur Andersen
LLP and concerns regarding the acceptance of its audits. Ernst & Young LLP was
engaged on May 3, 2002 by each of Western Pocahontas Properties Limited
Partnership, Great Northern Properties Limited Partnership and New Gauley Coal
Corporation to serve as their independent auditors for the three years ended
December 31, 1999, December 31, 2000 and December 31, 2001.

Arthur Andersen LLP's reports on the financial statements of each of
Western Pocahontas Properties Limited Partnership, Great Northern Properties
Limited Partnership and New Gauley Coal Corporation for the past two years did
not contain an adverse opinion or disclaimer of opinion, nor were they qualified
or modified as to uncertainty, audit scope or accounting principles. During the
most recent two fiscal years and through April 26, 2002:

- there were no disagreements with Arthur Andersen LLP on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved to Arthur Andersen
LLP's satisfaction, would have caused them to make reference to the
subject matter in connection with their reports on the financial
statements of any of Western Pocahontas Properties Limited Partnership,
Great Northern Properties Limited Partnership or New Gauley Coal
Corporation for such years;

- there were no reportable events, as listed in Item 304(a)(1)(v) of
Regulation S-K; and

- none of Western Pocahontas Properties Limited Partnership, Great Northern
Properties Limited Partnership and New Gauley Coal Corporation consulted
Ernst & Young LLP with respect to the application of accounting
principles to a specified transaction either completed or proposed, or
the type of audit opinion that might be rendered on the financial
statements of any of Western Pocahontas Properties Limited Partnership,
Great Northern Properties Limited Partnership or New Gauley Coal
Corporation, or any other matters or reportable events listed in Items
304(a)(2)(i) and (ii) of Regulation S-K.

96

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE MANAGING GENERAL PARTNER

As a master limited partnership we do not employ any of the people
responsible for the management of our properties. Instead, we reimburse our
managing general partner, GP Natural Resource Partners LLC, for its services.
All directors and officers are elected by our managing general partner. The
following table sets forth information concerning the directors and officers of
GP Natural Resource Partners LLC. Each officer and director is elected for their
respective office or directorship on an semi-annual basis.

- ---------------

(1) First elected an officer or director during the formation of the Partnership
in April 2002.

(2) Elected as an officer or director at the first board meeting of the
Partnership's general partner in October 2002.

(3) Elected as a director in January 2003.

Corbin J. Robertson, Jr. is the Chief Executive Officer and the Chairman of
the Board of Directors of GP Natural Resource Partners LLC. Mr. Robertson has
served as the Chief Executive Officer and Chairman of the Board of the general
partners of Western Pocahontas Properties Limited Partnership since 1986, Great
Northern Properties Limited Partnership since 1992 and Quintana Minerals
Corporation since 1978 and as Chairman of the Board of Directors of New Gauley
Coal Corporation since 1986. Western Pocahontas Properties Limited Partnership,
Great Northern Properties Limited Partnership and New Gauley Coal Corporation
are all affiliates of Natural Resource Partners L.P. He also serves as Chairman
of the Board of the Baylor College of Medicine and of the Cullen Trust for
Higher Education and on the boards of the American Petroleum Institute, the
National Petroleum Council, the Texas Medical Center and the World Health and
Golf Association.

Nick Carter is the President and Chief Operating Officer of GP Natural
Resource Partners LLC. He has also served as President of the general partner of
Western Pocahontas Properties Limited Partnership and New Gauley Coal
Corporation since 1990 and as President of the general partner of Great Northern
Properties Limited Partnership from 1992 to 1998. Western Pocahontas Properties
Limited Partnership, Great Northern Properties Limited Partnership and New
Gauley Coal Corporation are all affiliates of Natural Resource Partners L.P.
Prior to 1990, Mr. Carter held various positions with MAPCO Coal Corporation and
was engaged in the private practice of law. He is President of the National
Council of Coal Lessors, the

97

immediate past Chair of the West Virginia Chamber of Commerce and a board member
of the Kentucky Coal Association.

Dwight L. Dunlap is the Chief Financial Officer and Treasurer of GP Natural
Resource Partners LLC. Mr. Dunlap has served as Vice President-Treasurer of
Quintana Minerals Corporation and as Chief Financial Officer, Treasurer and
Secretary of the general partner of Western Pocahontas Properties Limited
Partnership and Great Northern Properties Limited Partnership since 2000. Mr.
Dunlap has worked for Quintana Minerals since 1982 and has served as Vice
President and Treasurer since 1987. Mr. Dunlap is a Certified Public Accountant
with over 25 years of experience in financial management, accounting and
reporting including six years of audit experience with a Big Four international
public accounting firm.

Kevin F. Wall is a Vice President and Chief Engineer of GP Natural Resource
Partners LLC. Mr. Wall has served as Vice President -- Engineering for the
general partner of Western Pocahontas Properties Limited Partnership since 1998
and the general partner of Great Northern Properties Limited Partnership since
1992. He has also served as the Vice President -- Engineering of New Gauley Coal
Corporation since 1998. He has performed duties in the land management,
planning, project evaluation, acquisition and engineering areas since 1981. He
is a Registered Professional Engineer in West Virginia and is a member of the
American Institute of Mining, Metallurgical, and Petroleum Engineers and of the
National Society of Professional Engineers. Mr. Wall also serves on the Board of
Directors of Leadership Tri-State and is a past president of the West Virginia
Society of Professional Engineers.

Kathy E. Hager is the Vice President, Investor Relations for GP Natural
Resource Partners LLC. Ms. Hager joined the partnership in July 2002. She was
the Principal of IR Consulting Associates from 2001 to July 2002 and from 1980
through 2000 held various financial and investor relations positions with Santa
Fe Energy Resources, most recently as Vice President -- Public Affairs. She is a
Certified Public Accountant. Ms. Hager has served on the local board of
directors of the National Investor Relations Institute and has maintained
professional affiliations with various energy industry organizations. She has
also served on the Executive Committee and as a National Vice President of the
Institute of Management Accountants.

Charles H. Kerr is the Secretary of GP Natural Resource Partners LLC. Mr.
Kerr has worked for Quintana Minerals Corporation, an affiliate of the
Partnership, where he is currently Vice-President of Land/Legal, since 1983. His
responsibilities have included acquisitions and divestitures, land/legal
management and administration, strategic planning and contract and agreement
negotiation and administration. Prior to joining Quintana, he worked for two
independent oil and gas companies.

Kenneth Hudson is the Controller of GP Natural Resource Partners LLC. He
has served as Controller of the general partner of Western Pocahontas Properties
Limited Partnership and of New Gauley Coal Corporation since 1988 and of the
general partner of Great Northern Properties Limited Partnership since 1992. He
was also Controller of Blackhawk Mining Co., Quintana Coal Co. and other related
operations from 1985 to 1988. Prior to that time, Mr. Hudson worked in public
accounting.

Robert T. Blakely is a member of the Board of Directors of GP Natural
Resource Partners LLC. He currently serves as President of Performance
Enhancement Group, a company involved in the acquisition of companies
manufacturing high performance and racing automotive engine components. He
previously served as Executive Vice President and Chief Financial Officer of
Lyondell Chemical from 1999 through 2002, Executive Vice President and Chief
Financial Officer of Tenneco, Inc. from 1981 until 1999 as well as a Managing
Director at Morgan Stanley. He recently completed a four-year term on the
Financial Accounting Standards Advisory Council and currently serves as a
trustee of Cornell University, where he serves as Chairman of Cornell's Finance
Committee and a member of the Executive Committee of the Board. Mr. Blakely was
recently named to the Board of Directors of Lufkin Industries.

David M. Carmichael is a member of the Board of Directors of GP Natural
Resource Partners LLC. He currently is a private investor. Mr. Carmichael is the
former Vice Chairman of KN Energy and the former Chairman and Chief Executive
Officer of American Oil and Gas Corporation, CARCON Corporation and WellTech,
Inc. He has served on the Board of Directors of Tom Brown, Inc. since 1997 and
ENSCO International since 2001. He also currently serves as a trustee of the
Texas Heart Institute.

98

Robert B. Karn III is a member of the Board of Directors of GP Natural
Resource Partners LLC. He currently is a consultant and serves on the Board of
Directors of various entities. He was the partner in charge of the coal mining
practice worldwide for Arthur Andersen from 1981 until his retirement in 1998.
He retired as Managing Partner of the St. Louis office's Financial and Economic
Consulting Practice. Mr. Karn is a Certified Public Accountant, Certified Fraud
Examiner and has served as President of numerous organizations. He also
currently serves on the Board of Directors of Peabody Energy.

Steven F. Leer is a member of the Board of Directors of GP Natural Resource
Partners LLC. Mr. Leer has also served as President, Chief Executive Officer and
a director of Arch Coal, Inc. since 1992. He is also a Director of the Norfolk
Southern Corporation, a past Chairman of the Center for Energy and Economic
Development and a past Chairman of the National Coal Council.

S. Reed Morian is a member of the Board of Directors of GP Natural Resource
Partners LLC. Mr. Morian has served as a member of the Board of Directors of the
general partner of Western Pocahontas Properties Limited Partnership since 1986,
New Gauley Coal Corporation since 1992 and the general partner of Great Northern
Properties Limited Partnership since 1992. Mr. Morian has worked for Dixie
Chemical Company since 1971 and has served as its Chairman and Chief Executive
Officer since 1981. He has also served as Chairman, Chief Executive Officer and
President of DX Holding Company since 1989.

David B. Peugh is a member of the Board of Directors of GP Natural Resource
Partners LLC. Mr. Peugh has also served as Vice President -- Business
Development of Arch Coal, Inc. since 1995. He is also a director of ZECA
Corporation, a company developing an emission-free process of producing
electricity from coal.

W. W. Scott, Jr. is a member of the Board of Directors of GP Natural
Resource Partners LLC. Mr. Scott was Executive Vice President and Chief
Financial Officer of Quintana Minerals Corporation from 1985 to 1999. He served
as Executive Vice President and Chief Financial Officer of the general partner
of Western Pocahontas Properties Limited Partnership and New Gauley Coal
Corporation from 1986 to 1999. He served as Executive Vice President and Chief
Financial Officer of the general partner of Great Northern Properties Limited
Partnership from 1992 to 1999. Since 1999, he has continued to serve as a
director of the general partner of Western Pocahontas Properties Limited
Partnership and Quintana Minerals Corporation.

The Board of Directors of GP Natural Resource Partners LLC has formed three
committees, staffed solely by independent directors, to assist it in its duties
as follows:

Audit Committee:
*Robert B. Karn, III -- Chairman
*Robert T. Blakely -- Member
David M. Carmichael -- Member
- ---------------

* Determined to be Audit Committee Financial Experts pursuant to Item 401 of
Regulation S-K.

Compensation, Nominating and Governance Committee:
David M. Carmichael -- Chairman
Robert T. Blakely -- Member
Robert B. Karn, III -- Member

Conflicts Committee:
Robert T. Blakely -- Chairman
Robert B. Karn, III -- Member
David M. Carmichael -- Member

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities and Exchange Act of 1934 requires
directors, officers and persons who beneficially own more than ten percent of a
registered class of our equity securities to file with the SEC and the New York
Stock Exchange initial reports of ownership and reports of changes in ownership
of their equity securities. These people are also required to furnish us with
copies of all Section 16(a) forms that they file.

99

Based solely upon a review of the copies of Forms 3, 4 and 5 furnished to us, or
written representations from certain reporting persons that no Forms 5 were
required, we believe that our officers and directors complied with all filing
requirements with respect to transactions in our equity securities during 2002,
except that each of Messrs. Carmichael, Leer, Morian, Peugh, Robertson and Scott
filed a late Form 4, and Arch Coal filed two late Form 4's.

ITEM 11. EXECUTIVE COMPENSATION

We have no executive officers, but we reimburse the general partner for
compensation paid to the general partners' executive officers in connection with
managing NRP. NRP and its general partner were formed in April 2002, but did
conduct any operations until the completion of the initial public offering of
common units on October 17, 2002.

SUMMARY COMPENSATION TABLE

Corbin J. Robertson Jr., Chairman of the Board and CEO, did not receive any
salary, bonus or other compensation during 2002 that was reimbursed by us to the
general partner. We did not reimburse the general partner for any amount in
excess of $100,000 for services rendered by any other of our executive officers
during 2002.

COMPENSATION OF DIRECTORS

Each non-employee director of the general partner receives 10,000 unit
options upon election to the board. Additionally, each director receives an
annual retainer of $20,000, payable quarterly, plus additional fees of $2,000
annually for being a Committee Chairman and $500 per committee meeting. Each
non-employee director also receives $1,000 for attending board meetings in
person or $500 for participation in telephonic meetings. Both Stephen F. Leer
and David B. Peugh have assigned any compensation they receive as directors of
the general partner to Arch Coal, Inc., their employer.

LONG-TERM INCENTIVE PLAN

GP Natural Resource Partners LLC has adopted the Natural Resource Partners
Long-Term Incentive Plan for employees and directors of GP Natural Resource
Partners LLC and its affiliates who perform services for us. The long-term
incentive plan consists of two components: restricted units and unit options.
The long-term incentive plan currently permits the grant of awards covering a
number of common units equal to three percent of the number of common units
outstanding immediately following the initial public offering of common units.
The plan is administered by the compensation committee of GP Natural Resource
Partners LLC's board of directors. Subject to the rules of the exchange upon
which the common units are listed at the time, GP Natural Resource Partners
LLC's board of directors or the compensation committee may terminate or amend
the long-term incentive plan at any time with respect to any units for which a
grant has not yet been made. GP Natural Resource Partners LLC's board of
directors or the compensation committee also has the right to alter or amend the
long-term incentive plan or any part of the plan from time to time, including
increasing the number of units that may be granted, subject to the rules of the
exchange upon which the common units are listed at that time. Except upon the
occurrence of unusual or nonrecurring events, no change in any outstanding grant
may be made that would materially reduce the benefit intended to be made
available to a participant without the consent of the participant.

Restricted Units. A restricted unit is a "phantom" unit that entitles the
grantee to receive a common unit upon the vesting of the phantom unit or, in the
discretion of the compensation committee, its fair market

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value in cash. The compensation committee may make grants under the plan to
employees and directors containing such terms as the compensation committee
shall determine. The compensation committee will determine the period over which
restricted units granted to employees and directors will vest. The committee may
base its determination upon the achievement of specified financial objectives.
In addition, the restricted units will vest upon a change of control of Natural
Resource Partners, our general partner, or GP Natural Resource Partners LLC.

If a grantee's employment or membership on the board of directors
terminates for any reason, the grantee's restricted units will be automatically
forfeited unless, and to the extent, the compensation committee provides
otherwise. Common units to be delivered upon the vesting of restricted units may
be common units acquired by GP Natural Resource Partners LLC in the open market,
common units already owned by GP Natural Resource Partners LLC, common units
acquired by GP Natural Resource Partners LLC directly from us, from another
affiliate or any other person or entity or any combination of the foregoing. GP
Natural Resource Partners LLC will be entitled to reimbursement by us for the
cost incurred in acquiring common units. If we issue new common units upon
vesting of the restricted units, the total number of common units outstanding
will increase. We intend the issuance of the common units upon vesting of the
restricted units under the plan to serve as a means of incentive compensation
for performance and not primarily as an opportunity to participate in the equity
appreciation of the common units. Therefore, plan participants will not pay any
consideration for the common units they receive, and we will receive no
remuneration for the units.

Unit Options. The long-term incentive plan currently permits the grant of
options covering common units. The compensation committee may determine to make
grants under the plan to employees and directors containing such terms as the
committee shall determine consistent with the plan. Unit options will have an
exercise price that may not be less than the fair market value of the units on
the date of grant. In general, unit options granted will become exercisable over
a period determined by the compensation committee. The compensation committee
may base its determination upon the achievement of specified financial
objectives. In addition, the unit options will become exercisable upon a change
in control as described above. If a grantee's employment or membership on the
board of directors terminates for any reason, the grantee's options will be
automatically forfeited unless, and to the extent, the compensation committee
provides otherwise. Upon exercise of a unit option, GP Natural Resource Partners
LLC will acquire common units in the open market, directly from us, from another
affiliate or any other person or entity, or use common units already owned by GP
Natural Resource Partners LLC, or any combination of the foregoing. GP Natural
Resource Partners LLC will be entitled to reimbursement by us for the difference
between the cost incurred in acquiring these common units and the proceeds
received from an optionee at the time of exercise. Thus, the cost of the unit
options will be borne by us. If we issue new common units upon exercise of the
unit options, the total number of common units outstanding will increase, and GP
Natural Resource Partners LLC will pay us the proceeds it received from the
optionee upon exercise of the unit option. The unit option plan has been
designed to furnish additional compensation to employees and directors and to
align their economic interests with those of common unitholders.

ANNUAL INCENTIVE PLAN

The general partner also adopted the Natural Resource Partners Annual
Incentive Compensation Plan in October 2002. The annual incentive plan is
designed to enhance the performance of GP Natural Resource Partners LLC and its
affiliates' key employees by rewarding them with cash awards for achieving
annual financial and operational performance objectives. The compensation
committee in its discretion may determine individual participants and payments,
if any, for each fiscal year. The board of directors of GP Natural Resource
Partners LLC may amend or change the annual incentive plan at any time. We will
reimburse GP Natural Resource Partners LLC for payments and costs incurred under
the plan.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 1, 2003, the amount and
percentage of the Partnership units beneficially held by (1) each person known
to us to beneficially own 5% or more of the stock, (2) by each of the directors
and executive officers and (3) by all directors and executive officers as a
group. Unless otherwise noted, each of the named persons and members of the
group has sole voting and investment power with respect to the units shown.

- ---------------

* Less than one percent.

(1) Based upon 11,353,658 common units issued and outstanding on March 1, 2003
and 11,353,658 subordinated units issued and outstanding on March 1, 2003.
Unless otherwise noted, beneficial ownership is less than 1% of the
Partnership's common units and subordinated units.

(2) Mr. Robertson may be deemed to beneficially own the 3,158,166 common units
and 5,231,766 subordinated units owned by Western Pocahontas Properties
Limited Partnership, and 126,107 common units and 208,907 subordinated units
owned by New Gauley Coal Corporation. Also included are 66,300 common units
held by William K. Robertson 1992 Management Trust and 66,400 units held by
Frances C. Robertson 1992 Management Trust, both of which Mr. Robertson is
the trustee, and has voting control, but not direct ownership. Also included
are 16,400 common units held by Barbara Robertson, Mr. Robertson's spouse.

(3) These units may be deemed to be beneficially owned by Mr. Robertson.

(4) Arch Coal, Inc. is the parent company of Ark Land Company and may be deemed
to beneficially own the units held by Ark Land Company.

(5) The address of Western Pocahontas Properties Limited Partnership and Great
Northern Properties Limited Partnership is 601 Jefferson Street, Suite 3600,
Houston, Texas 77002. The address of Arch Coal, Inc. and Ark Land Company is
One City Place Drive Suite 300, St. Louis, Missouri 63141.

For information relating to the securities authorized for issuance under
equity compensation plans, please see Item 5, "Market for Registrant's Common
Units and Related Unitholder Matters."

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EQUITY COMPENSATION PLAN INFORMATION

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

DISTRIBUTIONS AND PAYMENTS TO THE GENERAL PARTNER AND ITS AFFILIATES

The following table summarizes the distributions and payments to be made by
us to our general partner and its affiliates in connection with the formation,
ongoing operation and any liquidation of Natural Resource Partners. These
distributions and payments were determined by and among affiliated entities and,
consequently, are not the result of arm's-length negotiations.

FORMATION STAGE
The consideration received by
our general partner and its
affiliates for the
contribution of the assets and
liabilities to us............. - 6,853,658 common units;

- 11,353,658 subordinated units;

- 2% general partner interest in Natural
Resource Partners;

- the incentive distribution rights; and

- the assumption of $46.5 million of
indebtedness of the WPP Group.

OPERATIONAL STAGE

Distributions of available
cash to our general partner
and its affiliates............ We will generally make cash distributions 98%
to the unitholders, including affiliates of our
general partner, as holders of all of the
subordinated units, and 2% to the general
partner. In addition, if distributions exceed
the target distribution levels, the holders of
the incentive distribution rights, including
our general partner, will be entitled to
increasing percentages of the distributions, up
to an aggregate of 48% of the distributions
above the highest target level.

Assuming we have sufficient available cash to
pay the full minimum quarterly distribution on
all of our outstanding units for four quarters,
our general partner would receive distributions
of approximately $1.0 million on its 2% general
partner interest and our affiliates would
receive distributions of approximately $15.0
million on their common units and $24.0 million
on their subordinated units.

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Payments to our general
partner and its affiliates.... Our general partner and its affiliates will not
receive any management fee or other
compensation for the management of our
partnership. Our general partner and its
affiliates will be reimbursed, however, for all
direct and indirect expenses incurred on our
behalf. Our general partner has the sole
discretion in determining the amount of these
expenses.

Withdrawal or removal of our
general partner............... If our general partner withdraws or is removed,
its general partner interest and its incentive
distribution rights will either be sold to the
new general partner for cash or converted into
common units, in each case for an amount equal
to the fair market value of those interests.
See "The Partnership Agreement -- Withdrawal or
Removal of the General Partner."

LIQUIDATION STAGE

Liquidation................... Upon our liquidation, the partners, including
our general partner, will be entitled to
receive liquidating distributions according to
their particular capital account balances.

AGREEMENTS GOVERNING THE TRANSACTIONS

We and other related parties have entered into the various documents and
agreements that will effect the transactions, including the vesting of assets
in, and the assumption of liabilities by, our subsidiaries, and the application
of the proceeds of this offering. These agreements will not be the result of
arm's-length negotiations, and we cannot assure you that they, or that any of
the transactions which they provide for, will be effected on terms at least as
favorable to the parties to these agreements as they could have been obtained
from unaffiliated third parties. All of the transaction expenses incurred in
connection with these transactions, including the expenses associated with
transferring assets into our subsidiaries, will be paid from the proceeds of
this offering.

OMNIBUS AGREEMENT

NON-COMPETITION PROVISIONS

As part of the omnibus agreement entered into among the Partnership, our
general partner, the WPP Group, Arch Coal, Ark Land Company and Robertson Coal
Management LLC concurrently with the closing of the offering, the WPP Group, any
entity controlled by Corbin J. Robertson, Jr. and Arch Coal, which we refer to
in this section as the GP affiliates, each agreed that neither they nor their
affiliates will, directly or indirectly, engage or invest in entities that
engage in the following activities (each, a "restricted business") in the
specific circumstances described below:

- the entering into or holding of leases with a party other than an
affiliate of the GP affiliate for any GP affiliate-owned fee coal
reserves within the United States; and

- the entering into or holding of subleases with a party other than an
affiliate of the GP affiliate for coal reserves within the United States
controlled by a paid-up lease owned by any GP affiliate or its affiliate.

"Affiliate" means, with respect to any GP affiliate or, any other entity in
which such GP affiliate owns, through one or more intermediaries, 50% or more of
the then outstanding voting securities or other ownership interests of such
entity. Except as described below, the WPP Group, Arch Coal and their respective
controlled affiliates will not be prohibited from engaging in activities in
which they compete directly with us. Please see "Risk Factors -- The WPP Group
and Arch Coal may engage in substantial competition with us."

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A GP affiliate may, directly or indirectly, engage in a restricted business
if:

- the GP affiliate was engaged in the restricted business at the closing of
the offering; provided that if the fair market value of the asset or
group of related assets of the restricted business subsequently exceeds
$10 million, the GP affiliate must offer the restricted business to
Natural Resource Partners under the offer procedures described below.

- the asset or group of related assets of the restricted business have a
fair market value of $10 million or less; provided that if the fair
market value of the assets of the restricted business subsequently
exceeds $10 million, the GP affiliate must offer the restricted business
to Natural Resource Partners under the offer procedures described below.

- the asset or group of related assets of the restricted business have a
fair market value of more than $10 million and the general partner (with
the approval of the conflicts committee) has elected not to cause Natural
Resource Partners to purchase these assets under the procedures described
below.

- its ownership in the restricted business consists solely of a
noncontrolling equity interest.

For purposes of this paragraph, "fair market value" means the fair market
value as determined in good faith by the relevant GP affiliate.

The total fair market value in the good faith opinion of the WPP Group of
all restricted businesses engaged in by the WPP Group, other than those engaged
in by the WPP Group at closing of the offering, may not exceed $75 million. For
purposes of this restriction, the fair market value of any entity engaging in a
restricted business purchased by the WPP Group will be determined based on the
fair market value of the entity as a whole, without regard for any lesser
ownership interest to be acquired. Arch Coal is not subject to a similar
restriction on the total fair market value of restricted businesses it may own.

If the WPP Group desires to acquire a restricted business or an entity that
engages in a restricted business with a fair market value in excess of $10
million and the restricted business constitutes greater than 50% of the value of
the business to be acquired, then the WPP Group must first offer Natural
Resource Partners the opportunity to purchase the restricted business. If (1)
Arch Coal desires to acquire a restricted business or an entity that engages in
a restricted business with a fair market value in excess of $10 million or (2)
the WPP Group desires to acquire a restricted business or an entity that engages
in a restricted business with a value in excess of $10 million and the
restricted business constitutes 50% or less of the value of the business to be
acquired, then the GP affiliate may purchase the restricted business first and
then offer Natural Resource Partners the opportunity to purchase the restricted
business within six months of acquisition. For purposes of this paragraph,
"restricted business" excludes a general partner interest or managing member
interest, which is addressed in a separate restriction summarized below. For
purposes of this paragraph only, "fair market value" means the fair market value
as determined in good faith by the relevant GP affiliate.

If Natural Resource Partners wants to purchase the restricted business and
the GP affiliate and the general partner, with the approval of the conflicts
committee, agree on the fair market value and other terms of the offer within 60
days after the general partner receives the offer from the GP affiliate, Natural
Resource Partners will purchase the restricted business as soon as commercially
practicable. If the GP affiliate and the general partner, with the approval of
the conflicts committee, are unable to agree in good faith on the fair market
value and other terms of the offer within 60 days after the general partner
receives the offer, then the GP affiliate may sell the restricted business to a
third party within two years for no less than the purchase price and on terms no
less favorable to the GP affiliate than last offered by Natural Resource
Partners. During this two-year period, the GP affiliate may operate the
restricted business in competition with Natural Resource Partners, subject to
the restriction on total fair market value of restricted businesses owned in the
case of the WPP Group.

If, at the end of the two year period, the restricted business has not been
sold to a third party and the restricted business retains a value, in the good
faith opinion of the relevant GP affiliate, in excess of $10 million, then the
GP affiliate must reoffer the restricted business to the general partner. If the
GP affiliate and the general partner, with the approval of the conflicts
committee, agree on the fair market value and other

105

terms of the offer within 60 days after the general partner receives the second
offer from the GP affiliate, Natural Resource Partners will purchase the
restricted business as soon as commercially practicable. If the GP Affiliate and
the general partner, with the concurrence of the conflicts committee, again fail
to agree after negotiation in good faith on the fair market value of the
restricted business, then the GP affiliate will be under no further obligation
to Natural Resource Partners with respect to the restricted business, subject to
the restriction on total fair market value of restricted businesses owned in the
case of the WPP Group.

In addition, if during the two year period described above, a change occurs
in the restricted business that, in the good faith opinion of the GP affiliate,
affects the fair market value of the restricted business by more than 10 percent
and the fair market value of the restricted business remains, in the good faith
opinion of the relevant GP affiliate, in excess of $10 million, the GP affiliate
will be obligated to reoffer the restricted business to the general partner at
the new fair market value, and the offer procedures described above will
recommence.

If the restricted business to be acquired is in the form of a general
partner interest in a publicly-held partnership or a managing member interest in
a publicly-held limited liability company, the WPP Group may not acquire such
restricted business even if we decline to purchase the restricted business. If
the restricted business to be acquired is in the form of a general partner
interest in a non publicly-held partnership or a managing member of a
non-publicly-held limited liability company, the WPP Group may acquire such
restricted business subject to the restriction on total fair market value of
restricted businesses owned and the offer procedures described above. If the
restricted business to be acquired is in the form of a general partner interest
in a partnership or a managing member interest in a limited liability company,
Arch Coal may acquire such restricted business as part of a larger transaction
so long as (1) it sells the interest to us or a third party within six months of
the acquisition or (2) the general partner, with the approval of the conflicts
committee, agrees that the restricted business will be subject to the offer
procedures described in the preceding paragraphs without reference again to this
paragraph. If, following the six month period, Arch Coal has made a good faith,
reasonable attempt to divest the interest, but is unable to do so and Arch has
not received an extension from our conflicts committee or has not offered us the
opportunity to buy its competing interest, Arch Coal may opt to either (1) have
its designated directors immediately resign from the board of directors of our
general partner, in which case Arch Coal may continue to own and operate the
competing business but will continue to relinquish its rights to designate
directors of our general partner until such time as it divests the competing
business, or (2) hire an independent investment banking firm to determine the
fair market value of the competing business. If Arch Coal elects to obtain an
independent valuation of its competing business, then:

- if Arch Coal and our general partner (with the concurrence of the
conflicts committee) agree upon the price of the competing business, our
partnership will purchase the competing business;

- if Arch Coal seeks to sell the competing business to our partnership at
the price determined by the investment banking firm and our general
partner (with the concurrence of the conflicts committee) declines to
purchase the competing business, Arch Coal will be free to continue to
own and operate the competing business;

- if Arch Coal does not wish to sell the competing business to our
partnership at the price determined by the investment banking firm and
our general partner (with the concurrence of the conflicts committee)
seeks to purchase the competing business at such price, then Arch Coal's
designated directors must immediately resign from the board of directors
of our general partner, in which case Arch Coal may continue to own and
operate the competing business. Arch Coal will continue to relinquish its
rights to designate directors of our general partner until it divests the
competing business.

INDEMNIFICATION

Under the omnibus agreement, the WPP Group and Arch Coal, jointly and
severally, will indemnify us for (1) three years after the closing of the
initial public offering against environmental liabilities associated with the
properties contributed to us and occurring before the closing date of the
initial public offering and (2) all tax liabilities attributable to the
ownership or operation of the partnership assets prior to the closing of the
initial public offering. The environmental indemnity will be limited to a
maximum amount of $10.0 mil-

106

lion. Liabilities resulting from a change in law after the closing of the
offering are excluded from the environmental indemnity.

The omnibus agreement may be amended at any time by the general partner,
with the concurrence of the conflicts committee. The respective obligations of
the WPP Group and Arch Coal under the omnibus agreement terminate when the WPP
Group and its affiliates, or Arch Coal and its affiliates, as the case may be,
cease to participate in the control of the general partner.

For information relating to our leases with Ark Land Company, please see
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Related Party Transactions."

CONFLICTS OF INTEREST

Conflicts of interest exist and may arise in the future as a result of the
relationships between our general partner and its affiliates (including the WPP
Group and Arch Coal) on the one hand, and our partnership and our limited
partners, on the other hand. The directors and officers of GP Natural Resource
Partners LLC have fiduciary duties to manage GP Natural Resource Partners LLC
and our general partner in a manner beneficial to its owners. At the same time,
our general partner has a fiduciary duty to manage our partnership in a manner
beneficial to us and our unitholders.

Whenever a conflict arises between our general partner or its affiliates,
on the one hand, and our partnership or any other partner, on the other, our
general partner will resolve that conflict. Our general partner may, but is not
required to, seek the approval of the conflicts committee of the board of
directors of our general partner of such resolution. The partnership agreement
contains provisions that allow our general partner to take into account the
interests of other parties in addition to our interests when resolving conflicts
of interest. In effect, these provisions limit our general partner's fiduciary
duties to our unitholders. The partnership agreement also restricts the remedies
available to unitholders for actions taken by our general partner that might,
without those limitations, constitute breaches of fiduciary duty.

Our general partner will not be in breach of its obligations under the
partnership agreement or its duties to us or our unitholders if the resolution
of the conflict is considered to be fair and reasonable to us. Any resolution is
considered to be fair and reasonable to us if that resolution is:

- approved by the conflicts committee, although our general partner is not
obligated to seek such approval and our general partner may adopt a
resolution or course of action that has not received approval;

- on terms no less favorable to us than those generally being provided to
or available from unrelated third parties; or

- fair to us, taking into account the totality of the relationships between
the parties involved, including other transactions that may be
particularly favorable or advantageous to us.

In resolving a conflict, our general partner, including its conflicts
committee, may, unless the resolution is specifically provided for in the
partnership agreement, consider:

- the relative interests of any party to such conflict and the benefits and
burdens relating to such interest;

- any customary or accepted industry practices or historical dealings with
a particular person or entity;

- generally accepted accounting practices or principles; and

- such additional factors it determines in its sole discretion to be
relevant, reasonable or appropriate under the circumstances.

Conflicts of interest could arise in the situations described below, among
others.

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ACTIONS TAKEN BY OUR GENERAL PARTNER MAY AFFECT THE AMOUNT OF CASH AVAILABLE
FOR DISTRIBUTION TO UNITHOLDERS OR ACCELERATE THE RIGHT TO CONVERT SUBORDINATED
UNITS.

The amount of cash that is available for distribution to unitholders is
affected by decisions of our general partner regarding such matters as:

- amount and timing of asset purchases and sales;

- cash expenditures;

- borrowings;

- the issuance of additional units; and

- the creation, reduction or increase of reserves in any quarter.

In addition, borrowings by us and our affiliates do not constitute a breach
of any duty owed by our general partner to the unitholders, including borrowings
that have the purpose or effect of:

- enabling our general partner to receive distributions on any subordinated
units held by our general partner or the incentive distribution rights;
or

- hastening the expiration of the subordination period.

For example, in the event we have not generated sufficient cash from our
operations to pay the minimum quarterly distribution on our common units and
subordinated units, our partnership agreement permits us to borrow funds which
may enable us to make this distribution on all outstanding units.

The partnership agreement provides that we and our subsidiaries may borrow
funds from our general partner and its affiliates. Our general partner and its
affiliates may not borrow funds from us or our subsidiaries.

WE DO NOT HAVE ANY OFFICERS OR EMPLOYEES AND RELY SOLELY ON OFFICERS AND
EMPLOYEES OF GP NATURAL RESOURCE PARTNERS LLC AND ITS AFFILIATES.

We do not have any officers or employees and rely solely on officers and
employees of GP Natural Resource Partners LLC, its affiliates and the employees
of our subsidiaries. Affiliates of GP Natural Resource Partners LLC conduct
businesses and activities of their own in which we have no economic interest. If
these separate activities are significantly greater than our activities, there
could be material competition for the time and effort of the officers and
employees who provide services to our general partner. The officers of GP
Natural Resource Partners LLC are not required to work full time on our affairs.
These officers devote significant time to the affairs of the WPP Group or its
affiliates and are compensated by these affiliates for the services rendered to
them.

WE REIMBURSE OUR GENERAL PARTNER AND ITS AFFILIATES FOR EXPENSES.

We reimburse our general partner and its affiliates for costs incurred in
managing and operating us, including costs incurred in rendering corporate staff
and support services to us. The partnership agreement provides that our general
partner determines the expenses that are allocable to us in any reasonable
manner determined by our general partner in its sole discretion.

OUR GENERAL PARTNER INTENDS TO LIMIT ITS LIABILITY REGARDING OUR OBLIGATIONS.

Our general partner intends to limit its liability under contractual
arrangements so that the other party has recourse only to our assets, and not
against our general partner or its assets. The partnership agreement provides
that any action taken by our general partner to limit its liability or our
liability is not a breach of our general partner's fiduciary duties, even if we
could have obtained more favorable terms without the limitation on liability.

108

COMMON UNITHOLDERS HAVE NO RIGHT TO ENFORCE OBLIGATIONS OF OUR GENERAL PARTNER
AND ITS AFFILIATES UNDER AGREEMENTS WITH US.

Any agreements between us on the one hand, and our general partner and its
affiliates, on the other, do not grant to the unitholders, separate and apart
from us, the right to enforce the obligations of our general partner and its
affiliates in our favor.

CONTRACTS BETWEEN US, ON THE ONE HAND, AND OUR GENERAL PARTNER AND ITS
AFFILIATES, ON THE OTHER, ARE NOT BE THE RESULT OF ARM'S-LENGTH NEGOTIATIONS.

The partnership agreement allows our general partner to pay itself or its
affiliates for any services rendered to us, provided these services are rendered
on terms that are fair and reasonable. Our general partner may also enter into
additional contractual arrangements with any of its affiliates on our behalf.
Neither the partnership agreement nor any of the other agreements, contracts and
arrangements between us, on the one hand, and our general partner and its
affiliates, on the other, are the result of arm's-length negotiations.

All of these transactions entered into after our initial public offering
are on terms that are fair and reasonable to us.

Our general partner and its affiliates have no obligation to permit us to
use any facilities or assets of our general partner and its affiliates, except
as may be provided in contracts entered into specifically dealing with that use.
There is no obligation of our general partner or its affiliates to enter into
any contracts of this kind.

COMMON UNITS ARE SUBJECT TO OUR GENERAL PARTNER'S LIMITED CALL RIGHT.

Our general partner may exercise its right to call and purchase common
units as provided in the partnership agreement or assign this right to one of
its affiliates or to us. Our general partner may use its own discretion, free of
fiduciary duty restrictions, in determining whether to exercise this right. As a
result, a common unitholder may have his common units purchased from him at an
undesirable time or price. If we do not issue any equity securities prior to the
expiration of the subordination period, upon the conversion of subordinated
units into common units at the end of the subordination period, our general
partner and its affiliates will own 80.2% of our outstanding common units and
will be able to exercise this call right.

WE MAY NOT CHOOSE TO RETAIN SEPARATE COUNSEL FOR OURSELVES OR FOR THE HOLDERS
OF COMMON UNITS.

The attorneys, independent auditors and others who have performed services
for us in the past were retained by our general partner, its affiliates and us
and have continued to be retained by our general partner, its affiliates and us.
Attorneys, independent auditors and others who perform services for us are
selected by our general partner or the conflicts committee and may also perform
services for our general partner and its affiliates. We may retain separate
counsel for ourselves or the holders of common units in the event of a conflict
of interest arising between our general partner and its affiliates, on the one
hand, and us or the holders of common units, on the other, depending on the
nature of the conflict. We do not intend to do so in most cases. Delaware case
law has not definitively established the limits on the ability of a partnership
agreement to restrict such fiduciary duties.

OUR GENERAL PARTNER'S AFFILIATES MAY COMPETE WITH US.

The partnership agreement provides that our general partner is restricted
from engaging in any business activities other than those incidental to its
ownership of interests in us. Except as provided in our partnership agreement
and in the omnibus agreement, affiliates of our general partner will not be
prohibited from engaging in activities in which they compete directly with us.
Please read "Omnibus Agreement."

MISCELLANEOUS

Corbin J. Robertson III, the son of our managing general partner's Chief
Executive Officer, Corbin J. Robertson, Jr., is an employee of Quintana Minerals
Corporation, which performs services for us from time to

109

time. Subsequent to year-end, Quintana Minerals Corporation was reimbursed in
the amount of $5,000 as a bonus for services performed by Corbin J. Robertson
III during 2002.

ITEM 14. CONTROLS AND PROCEDURES

We carried out an evaluation of the effectiveness of the design and
operation of our 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 our management, including the Chief Executive Office
and Chief Financial Officer of GP Natural Resource Partners LLC, our managing
general partner. 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.

In addition, there have been no significant changes in our 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 IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A)(1) AND (2) FINANCIAL STATEMENTS AND SCHEDULES

Please See Item 8, "Financial Statements and Supplementary Data"

(A)(3) EXHIBITS

EXHIBIT INDEX

110

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* Filed herewith

(B) REPORTS ON FORM 8-K

1. A Current Report on Form 8-K (Items 5 and 7) was filed on October 22,
2002, in connection with NRP's appointment of two independent directors.

2. A Current Report on Form 8-K (Items 5 and 7) was filed on November 7,
2002, in connection with NRP's agreement to buy coal reserves from
subsidiaries of El Paso Corporation.

3. A Current Report on Form 8-K (Item 9) was filed on November 27, 2002,
relating to NRP's third quarter pro forma earnings and fourth quarter
guidance.

4. A Current Report on Form 8-K (Items 5 and 7) was filed on December 5,
2002, in connection with the completion of NRP's acquisition of coal
reserves from subsidiaries of El Paso Corporation.

111

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

By: /s/ NICK CARTER
------------------------------------
Nick Carter
President and Chief Operating
Officer
Date: March 28, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on or behalf and in the
capacities and on the dates indicated.

Date: March 28, 2003

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

Date: March 28, 2003

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

Date: March 28, 2003

By: /s/ KENNETH HUDSON
------------------------------------
Kenneth Hudson
Controller
(Principal Accounting Officer)

Date: March 28, 2003

By: /s/ ROBERT T. BLAKELY
------------------------------------
Robert T. Blakely
Director

Date: March 28, 2003

By: /s/ DAVID M. CARMICHAEL
------------------------------------
David M. Carmichael
Director

112

Date: March 28, 2003

By: /s/ ROBERT B. KARN III
----------------------------------
Robert B. Karn III
Director

Date: March 28, 2003

By: /s/ STEVEN F. LEER
------------------------------------
Steven F. Leer
Director

Date: March 28, 2003

By: /s/ S. REED MORIAN
------------------------------------
S. Reed Morian
Director

Date: March 28, 2003

By: /s/ DAVID B. PEUGH
------------------------------------
David B. Peugh
Director

Date: March 28, 2003

By: /s/ W. W. SCOTT, JR.
------------------------------------
W. W. Scott, Jr.
Director

113

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

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

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

2) Based on my knowledge, this annual 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 annual report;

3) Based on my knowledge, the financial statements, and other
financial information included in this annual 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
annual 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 annual 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 annual report (the "Evaluation Date"); and

c. Presented in this annual 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 annual 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
------------------------------------
Corbin J. Robertson, Jr.
Chief Executive Officer and
Chairman of the Board

Date: March 28, 2003

114

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Dwight L. Dunlap, certify that:

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

2) Based on my knowledge, this annual 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 annual report;

3) Based on my knowledge, the financial statements, and other
financial information included in this annual 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
annual 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 annual 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 annual report (the "Evaluation Date"); and

c. Presented in this annual 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 annual 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: March 28, 2003

115

EXHIBIT INDEX

- ---------------

* Filed herewith