Q4 2023 Hallador Energy Company Earnings Call
Unknown Attendee: www.unc.org.au Unknown Attendee, Jason Lustig, Hallador Energy Co. Unknown Attendee, Jason Lustig, Hallador Energy Co. Hello and welcome to the Hallador Energy Company's fourth quarter 2023 earnings call. My name is Harry, and I'll be your coordinator today. If you'd like to ask a question during Q&A, you may do so by pressing star one on your telephone keypad. And I would now like to turn the call over to Becky Palumbo, Investor Relations, to begin. Please go ahead.
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Rebecca Palumbo: Thank you, Harry. Good morning, and thank you for joining Hallador Energy's call for the fourth quarter and full year 2023. With us today are Brent Bilsland, our president and CEO, and Larry Martin, our CFO. Yesterday afternoon, Hallador released its fourth quarter and full year 2023 financial results in a press conference. Today, we will discuss those results, as well as our perspective on current market conditions and outlook for 2024. Following our prepared remarks, we will open the call to answer your questions. Before beginning, a reminder that some of our remarks today may include forward-looking statements subject to a variety of risks, uncertainties, and assumptions contained in our filings from time to time with the Securities and Exchange Commission and are also reflected in yesterday's press. While these forward-looking statements are based on information currently available to us, if one or more of these risks or uncertainties materialize, Mark, Hallador has no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future results, or otherwise, unless, Lastly, Hallador will file a Form 10-K sometime this week. And with that said, I will turn the call over to Larry. Becky, good afternoon, everyone.
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Hello, and welcome to the Holly energy companies announces fourth quarter 2023 earnings call. My name is Harry that'll be your coordinator today.
You'd like to ask a question during Q&A you may do so by pressing star one on your telephone keypad now I'd now like to turn the call over to Becky Palumbo Investor Relations to begin. Please go ahead.
Thank you Mary good morning.
Oh Jeez calls.
And full year 2023.
They are Brent <unk>, our president and CEO and Larry Martin our CFO.
Yesterday afternoon, Hollywood already released its fourth quarter and full year 2023 financial.
In the press release.
Today, we will discuss those results as well as our perspective on current market conditions and outlook for 2024.
Following our prepared remarks, we will open the call to answer your questions before beginning a reminder, that some of our remarks. Today may include forward looking statements subject to a variety of risks uncertainties and assumptions contained in our filings from time to time with the Securities and Exchange Commission and are also.
Reflected in yesterday's press release.
Lawrence D. Martin: Before we get started, I would like to define adjusted EBITDA as operating cash flows less the effects of certain subsidiary and equity method investment activity, plus bank interest less the effects of working capital period changes, plus cash paid on asset retirement obligation reclamations, plus other amortization. For the fourth quarter, Hallador incurred a net loss of $10.2 million, $0.31 basic earnings per share, and $0.27 for diluted earnings per share. For the year ended December 31, 2023, we had $44.8 million in net income, or $1.35 per basic earnings per share and $1.25 for diluted earnings per share. We had adjusted EBITDA of $1.7 million for the quarter and $107.3 million for the year. We increased our bank by $29.8 million for the quarter and $6.3 million for the year. Our funded bank debt as of the end of December 31st was $91.5 million.
These forward looking statements are based on information currently available to us.
One or more of these risks or uncertainties materialize or.
Or if our underlying assumptions prove incorrect actual.
Great.
From those we projected or expected.
Mark <unk> has no obligation to publicly update or revise any forward looking statement, whether as a result of new information future results or otherwise unless were.
Lastly, <unk> will file a Form 10-K sometime this week and with that said I will turn the call over to Larry.
Okay.
Thanks, Becky and good afternoon, everyone before we get started I would like to make a definition of adjusted EBITDA and operating cash flows less the effects of certain subsidiary an equity method investment activity plus bank interest less the effects of working capital period changes plus cash paid on.
Asset retirement obligation reclamation, plus other amortization.
For the fourth quarter, how a door.
Third net or a net loss of $10 2 million 31 cents.
Basic earnings per share and 27 cents for diluted earnings per share for the year ended December 20, or December 31, 23, we had $44 8 million of net income.
Or $1 35 per basic earnings per share and $1 25 for diluted earnings per share we.
Brent K. Bilsland: Our letters of credit were $18.6 million. Our net funded bank debt was $88.7 million, and our leverage ratio for that debt to adjusted EBITDA was 1.3 times at the end of the year. I will now turn the call over to Brent Bilsland, our CEO. Thank you, Larry.
We had adjusted EBITDA of $1 7 million for the quarter and $107 3 million for the year.
We.
Increased our bank by $29 8 million for the quarter and $6 3 million.
For the year.
Brent K. Bilsland: First, I'd like to thank the Hallador team for their hard work and dedication in finishing a solid year for our company. While the fourth quarter highlighted some operational challenges and the episodic nature of our power revenues, I don't want those challenges to overshadow the positive year that we had as a company. In addition to near record margins on our coal division for the full year, the continued integration of Hallador power into our portfolio was a springboard to record net income, our highest revenues ever, and a future sales book that is approaching $1.5 billion and continues to grow as demand for energy and capacity increase. We are seeing success in selling contracted contingent energy at excellent prices.
Our funded bank debt as of the end of December 31 was $91 5 million or letters of credit were $18 6 million.
Our net funded bank debt was $88 7 million.
Our leverage ratio for us.
Debt to adjusted EBITDA was one three times at the end of the year.
I will now turn the call over to Brent <unk> our CEO.
Yeah.
Thank you Larry.
First I'd like to thank the hallowed or team for their hard work and dedication on finishing a solid year for our company.
While the fourth quarter highlighted some operational challenges and the episode nature of our power revenues I don't want those challenges to overshadow the positive year that we had as a company.
In addition to near record margins that are on our coal division for the full year. The continued integration of how it or power into our portfolio with the springboard to record net income our highest revenues ever in our future sales book that is approaching $1 5 billion.
Brent K. Bilsland: And in light of that, we are also focusing on capital expenditures to prepare the plant to support those contracts in future years. We are also very excited about a recently signed agreement and structure with Hoosier Energy and their distribution member, Wynn, REMC, that should allow us to attract industrial users of power, such as data centers, AI providers, and power-dense manufacturers to the Marin property. We believe leveraging our plant to help supply these large users of energy will allow us to operate the plant more efficiently in a volatile power environment and generate increased margins, at or above what we can achieve in the traditional wholesale market. We are already seeing increased interest and excitement around the prospect of this type of offering.
And continues to grow as demand for energy and capacity increase.
We are seeing success in selling contracted contention energy at excellent prices.
And in light of that we are also focusing on capital expenditures to prepare the plant to support those contracts in future years.
We are also very excited about our recently.
Signed agreement and.
And structure with Who's your energy and their distribution remember when our M. C that should allow us to attract industrial users of power.
Such as data centers, AI providers and power dense manufacturers to the Maryland property.
We believe leveraging our plant to help supply. These large users of energy should allow us to operate the plant more efficiently in a volatile power environment and generate increased margins.
At or above what we can achieve in the traditional wholesale market.
We are already seeing increased interest and excitement around the prospect of this type of offering.
Brent K. Bilsland: If we succeed in attracting high-powered demand customers, through this structure, it moves Hallador up the electricity value chain, providing additional margin and stability to our earnings for years to come. Combined with our increased volume of Ford power sales, we believe these types of opportunities will continue to improve the long-term outlook for the company and provide a stable platform to leverage both our power and coal assets in a responsible, sustainable, and profitable manner. We have been very deliberate in structuring these bilateral sales contracts to limit our exposure to unplanned, and for that matter, planned outages, and other unexpected challenges and what we expect to be an increasingly volatile power market. Negotiating deals in this way protects us from downside risk, but it's also an extremely bespoke process, which takes significantly more time than simply agreeing to firm power contracts and accepting that additional risk.
If we succeed in attracting high powered demand customer.
Through this structure it moves how it or up the electricity value chain, providing additional margin and stability to our earnings for years to come.
Combined with our increased volume before power sales. We believe these types of opportunities will continue to improve the long term outlook for the company and provide a stable platform to leverage both our power and coal assets.
Responsible sustainable and profitable manner.
We have been very deliberate in structuring these bilateral sales contracts.
To limit our exposure to unplanned and for that matter of planned outages.
Other unexpected challenges and what we expect to be an increasingly volatile power market.
Negotiating deals in this way protects us from downside risk.
But it's also extremely bespoke process.
Which takes significantly more time than simply agreeing to firm power contracts and accepting that additional risk.
Brent K. Bilsland: The offshoot of this is that while we methodically build our sales book, we are subject to the whims of the spot power market, and more specifically, to the weather and other factors impacting short-term electrical demand, as we saw throughout the last several months when you have 60 and 70-degree days in winter. The typical energy prices we would expect to get get thrown out the window. And you end up in a situation where the plant simply does not dispatch. The continued depression of natural gas prices exacerbated this issue, and our fourth quarter results were impacted by all of these factors. Just as an example.
The offshoot of this is that while we methodically build our sales book.
We are subject to the whims of the spot power market and.
And more specifically to the weather and other factors impacting short term electrical demand.
As we saw throughout the last several months.
When you have 60 and 70 degree days in winter.
The typical energy prices, we would expect to get get see get thrown out the window and.
And you end up in a situation where the plant simply does not dispatch.
The continued depression of natural gas prices exacerbated this issue.
And our fourth quarter results were impacted by all of these factors.
Just as an example.
Brent K. Bilsland: The average spot price for energy at Mirim was around $69 in 2022, but the mild winter and low gas prices drove the average price down to about $31 in 2023. The spot market pricing really highlights the importance of the longer-term contracts that we continue to put in place, especially as we continue to spend CapEx to ready the plant to support those sales. Since January of 2023 We have contracted nearly $500 million in future energy and capacity deals. Many of these deals extend through 2028, with the higher contracted prices occurring in 26, 27, and 28. In addition to the fourth quarter challenges at Merrim,
The average spot price for energy at Miriam was around $69 in 2022.
The mild winter and low gas pricing drove the average price down to about $31.
In 2023.
The spot market pricing really highlights the importance of the longer term contracts that we continue to put in place, especially as we continue to spend capex to run at a plant to support those sales.
Since January of 2023.
We have contracted nearly $500 million.
In future energy and capacity deals.
Many of these deals extend through 2028.
With the higher contracted prices occurring in 'twenty, six 'twenty seven and 28.
In addition to the fourth quarter challenges at marrow.
Brent K. Bilsland: We also continue to fight geology, inflationary pressure, and operational challenges in our coal division, alongside the continued retreat of the coal markets from the largely elevated pricing of the last couple years. In response to these changing events, we took steps to support liquidity and to increase the efficiency of our operation. In December, we implemented an at the market offering program under our existing shelf registration statement as a tool to fund any short-term financing needs. Under the ATM, we sold approximately 800,000 shares of Hallador stock in December 23 and raised approximately 7.3 million in equity.
We also continue to fight against geology and.
Place scenario pressure and operational challenges in our coal division.
Alongside the continued retreat of the coal markets from the largely elevated pricing over the last couple of years.
In response to these changing events.
We took steps to support liquidity.
And to increase the efficiency of our operations.
In December we implemented and at the market offering program.
Under our existing shelf registration statement.
As a tool to fund any short term financing needs.
Under the ATM, we sold approximately 800000 shares of <unk> stock in December of 'twenty, three and raised approximately seven $3 million of equity.
Brent K. Bilsland: We sold an additional 700,000 shares or so of Hallador stock in January of 2024 and raised an additional $6.6 million. In addition, in February, several members of our board further bolstered our liquidity through unsecured one-year notes totaling $5 million. We are also starting to see capacity revenue come in, which in combination with the items I just discussed, will add to the liquidity position and give us additional optionality as strategic opportunities like hedging, acquisition, or other ways to improve our balance sheet present themselves. These near-term actions to improve liquidity will be done in a prudent and strategic manner to respond to changing events or to take advantage of market opportunities, in furtherance of our long-term outlook. In February, we also restructured our coal operation, in an initiative designed to add efficiency to our operation and create higher margins in our coal segment.
We sold an additional 700000 shares or so of how it or stock.
In January of 2024, and raised an additional $6 6 million.
In addition in February several members of our board further bolstered our liquidity.
Through unsecured one year notes totaling $5 million.
We are also starting to see capacity revenue come in.
In combination with the items I just discussed.
We will add to the liquidity position and give us additional optionality.
Strategic opportunities like hedging acquisition or other ways to improve our balance sheet present themselves.
Our near term actions to improve liquidity.
We will be done in a prudent and strategic manner to respond to changing events or to take advantage of market opportunities.
In furtherance of our long term outlook.
In February we also restructured restructured our coal operations.
And an initiative designed to add efficiency to our operations.
And create higher margins at our coal segment.
Brent K. Bilsland: As part of this initiative, we idle production at our higher-cost prosperity mine and substantially idle production at the Freelandville mine, where we expect to finish reclamation late in the second quarter of 2024. These moves should reduce our capital reinvestment for coal production in 2024 by approximately $10 million, thus reducing capex for our coal division from $35 million to approximately $25 million. We are also focusing our seven units of underground equipment on four units of our lowest cost production at Oaktown. As part of this initiative, we reduced our workforce by approximately 110 employees, which we expect to start creating OPEX savings once the Warren period expires in the second quarter. While this was a difficult decision on a personal level,
As part of this initiative, we idled production.
At our higher cost prosperity mine.
And substantially idled production.
At the Freeland Bill mine.
Where are we expect to finish reclamation late in the second quarter of 2024.
These moves should reduce our capital reinvestment for coal production.
In 2024 by approximately $10 million thus.
Thus, reducing capex for our coal division from $35 million to approximately $25 million.
We are also focusing our seven units of underground equipment.
On four units of our lowest cost production at Oakdale.
As part of this initiative, we reduced our workforce by approximately 110 employees, which.
Which we expect to start creating opex savings once the warranty period expires.
In the second quarter.
While this was a difficult decision on a personal level.
Brent K. Bilsland: It was the right thing to do for the company, and we believe that it will improve our operational efficiency relatively quickly by focusing on our most efficient mining and highest-margin coal. We expect to produce about 4.5 million tons annually of higher-margin coal as compared to 6 million tons of historical production at the Oaktown Mining Complex.
It was the right thing to do for the company and.
And we believe that it will improve our operational efficiency relatively quickly.
By focusing on our most efficient mining and highest margin coal.
We expect to produce about $4 5 million tons annually of higher margin coal as compared to $6 million.
Historical tons of production at the hotel mining complex.
Brent K. Bilsland: Additionally, in 2024, we have secured supplemental coal from third-party suppliers at favorable prices. This allows us to diversify the self-production supply risk and provides us with additional flexibility in our sales portfolio. The optionality to obtain low-cost tons either internally or from third parties, while capturing upward swings in commodity markets for coal and electricity, should further maximize margins while optimizing fuel costs at Merrill. As we enter the traditionally mild spring, Seasonal electricity prices could remain weak.
Additionally, in 2024, we have secured supplemental coal from third party suppliers at favorable prices.
This allows us to diversify self production supply risk.
It provides us with additional flexibility in our sales portfolio.
The optionality to obtain low cost tons, either internally or from third parties.
While capturing upward swings in commodity markets for coal and electricity.
So further maximize margins, while optimizing fuel costs at Merrimack.
As we enter the traditionally mild spring seasonal electricity prices could remain weak.
Brent K. Bilsland: However, we remain excited about the transformation of Hallador from a commodity-focused producer of coal to a vertically integrated, Independent Power Producer. We believe that this transition provides a significant opportunity to capture the increased margins of the energy market, to take advantage of the soaring demand for electricity, and to step up the value chain in a more sustainable and future-proofed industry than we have traditionally been that of which we have traditionally operated in. As evidenced by the ongoing bills of our long-term sales book. This deliberate movement into the electricity sector should materially strengthen our company and the products that we sell. As I said at the start of my comments, despite a challenging quarter, I'm very pleased with our annual results and the continued evolution of Hallador as a company. That concludes our prepared remarks. I'll now open the line up for questions. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, I would like to withdraw from the queue. Please press the star followed by two.
However, we remain excited about the transformation of how old or from a commodity focused producer of coal to a vertically integrated.
Independent power producer.
We believe that this transition provides significant opportunity to.
To capture the increased margins of the energy markets.
To take advantage of the soaring demand for.
Electricity and to step up the value chain.
In a more sustainable in future proofed industry.
That which we have traditionally been that of which we have traditionally operated in.
As evidenced by the ongoing build of our long term sales book.
This deliberate movement into the electricity sector should materially strengthen our company and the products that we sell.
As I said at the start of my comments, despite a challenging quarter I'm very pleased with our annual results and the continued evolution of how it or.
As a company.
That concludes our prepared remarks I'll now open.
The lineup for questions.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad now.
If you change your mind I would like to withdraw from the queue. Please press star followed by two and when preparing to ask your questions. Please ensure that your phone is on mute it locally.
Lucas Nathaniel Pipes: And when preparing to ask your question, please ensure that your phone is unmuted. And our first question today is from the line of Lucas Pipes from B Reilly. Lucas, your line is now open. Please go ahead. Thank you very much, operator. Good afternoon, everyone.
And our first question states from the line of Lucas pipes with B Riley Lucas. Your line is now way from please go ahead.
Thank you very much operator, good afternoon, everyone.
Good afternoon.
I first wanted to.
Brent K. Bilsland: Good afternoon, Lucas. I first wanted to touch on liquidity and how you think about it. So, I used the ATM a little bit late last year. Earlier this year, there were these unsecured notes. Do you manage to keep a minimum cash balance, a minimum liquidity balance? I would appreciate your thoughts on that. Well, I think Look, we are, you know, and this is until we finish filling out our sales book, which we think we have enormous opportunities in front of us to add to that position. This year, there are a lot of RFPs out, a lot of interest. But in the meantime, we're very subject to spot prices of power, which are very much influenced by the weather or lack thereof. So when we think about liquidity, you can never have too much, right?
Touch on.
The liquidity and how you think about it so.
The ATM a little bit late last year earlier. This year. They were the unsecured notes did you manage to a minimum cash balance of minimum liquidity balance would appreciate your thoughts on that thank you.
Okay.
Well I think.
Look we are.
And this is until we finish filling out our sales book.
Which we think we have enormous opportunities in front of us.
To add to that position.
This year, there's a lot of rfps out a lot of interest.
But in the meantime, we're very subject.
Two spot prices of power.
Which is very much influenced by the weather or lack thereof.
Okay.
So when we think about liquidity.
You can never have too much right.
Brent K. Bilsland: But that being said, I mean, our board of directors owns 31% of the company, and so our interests are very much in line with the shareholders because we are substantial shareholders, including myself. And so it's a balance we have to look at, you know, what do we think power prices will be for the year? and how much liquidity do we need. to fulfill our obligations, of you know, improving the plant and keeping the coal mines in tip-top shape. You know, we probably had about as much as could go wrong in a fourth quarter that went wrong, right?
But that being said.
I mean, we are our board of directors owns.
Roughly.
31% of the.
Shares.
So our interests are.
We are very much in line with the shareholders because we are.
Substantial shareholders, including myself.
And so it's a balance we have to look at.
What do we think power prices will be for the year.
And how much liquidity do we need.
To fulfill our obligations.
<unk>.
Improving the plant.
Keeping the coal mines up in tip top shape.
We probably had about as much because could go wrong in a fourth quarter that went wrong right we had half the plant.
Brent K. Bilsland: We had half the plant offline. Part of that was planned, part of that was unplanned. We moved a lot of equipment around at the coal mines, trying to get all seven units in better production, and finally, in February, we decided we were gonna focus on our four best units of production, and we were going to buy some coal from third parties. And so there's just a lot that goes into that question. I don't think we have an exact target number.
Off line part of that was planned part of that was off unplanned.
We had moved a lot of equipment around the coal mines.
Trying to get all seven units and.
Trying to get all seven units and.
And better production and finally in February decided.
We were going to.
Focus on our four best seen as the production and we were going to buy some coal.
From third parties.
So there's just a lot that goes into that question I don't think we have any.
An exact target number I think it's more we're looking at our sales book and what the opportunities are and where we can get.
Brent K. Bilsland: I think it's more, you know, we're looking at our sales book and what the opportunities are and where we can get comfortable with margins locked in contractually in managing the liquidity until we reach that point in the road. Got it. I really appreciate, really appreciate that and, Please.
Comfortable with margins locked in contractually.
In managing liquidity until we reach that point in the road.
Got it.
Really appreciate it really appreciate that.
Okay.
Brent K. Bilsland: Turning a bit to kind of the Q1 outlook, you already mentioned the weather hasn't been supportive. Um, what insights would you be able to provide here at this point as it relates to Q1? How much of those issues kind of continued into the quarter? It sounds like they did, at least on the cold side.
Turning a bit too.
The Q1 outlook you already mentioned the weather hasnt been supportive.
Hum.
What.
What insights would you be able to provide here at this point as it relates to Q1.
How much of those issues.
Continued into the quarter it sounds like it.
They did at least on the coal side.
Brent K. Bilsland: Um, and for the full year, what sort of volume should we anticipate at this point? And then on the power side, is that part of the discussion around kind of filling out the sales book, or was that really more in regards to coal? Thank you very much.
And for the full year.
What sort of volume should we should we anticipate at this point.
Hmm.
And then on the on the <unk>.
Power side.
Is that part of the discussion around kind of filling out the sales book or was that really relates more boring because to cool. Thank you very much.
Brent K. Bilsland: All right, so I'm not sure I got all your questions, Lucas, on the sales book where we see opportunities, look, the market is short capacity. Right, we've seen this with power generation, supply has been relatively flat for about 20 years, and then we've been in this transition period of maybe a decade of closing baseload and replacing it with non-dispatchable resources. And that has the accredited capacity.
Alright, so I'm not sure I got all your questions Lucas.
<unk>.
On the sales book, where we see opportunities.
Is look the market is short capacity.
Right we've seen these.
Yes.
Power generation.
Supply has been relatively flat for about 20 years.
And then we've been in this transition period of maybe a decade of.
Closing baseload and replacing it with non dispatch able resources and that has shrunk.
The accredited capacity.
Brent K. Bilsland: And I mean, MISO says, you know, they've got some reports out that say in the next couple of years, if people retire assets as announced, the reserve margins go negative. So, you know, that won't happen. But it just kind of shows how tight it is.
And I mean MISO says.
They've got some reports out that say in the next couple of years, if people retire assets as announced the reserve margins go negative so that you know that.
That won't happen so.
But it just kind of shows how tight.
Brent K. Bilsland: The situation has become, from a generation point of view, particularly in MISO, and now you add this explosion of AI, right? I mean, the growth in that industry is just kind of unprecedented, right? And there's all sorts of reports. You know, if I don't, I don't really know which numbers people leave, but essentially, you know, these these companies that are trying to, you know, race to develop AI. They can't find places to plug in.
The situation has become from a generation point of view, particularly in MISO and now you add in this explosion of AI right.
The growth in that.
Industry.
Is just kind of unprecedented right and theres all sorts of reports.
So I don't I don't really know which numbers to believe but.
Essentially.
These these companies.
That are trying to race to develop AI.
They can't find places to plug in.
Brent K. Bilsland: And so their short capacity, we happen to be long capacity. And this is, this is kind of happening everywhere, right? We've talked to a lot of different utilities about, you know, where they have an interest in selling their other plants to us, and there's always some interest out there. But what's also been surprising is how many have said, yeah, we know we have a retirement date and we're going to push that out, because we're seeing all of this new demand suddenly show up from manufacturing from Europe, from AI, from EVs. Unknown Attendee.
And so theyre short capacity, we happen to be long capacity and this is this is kind of happening everywhere right, we've talked to a lot of different.
Utilities about where they have interest in selling.
There are other plants to us.
And and Theres always some interest out there, but what's also been surprising is how many have said yeah. We know we show a retirement date and we're going to push that out.
Because we're seeing all of this new demand.
Suddenly show up.
From manufacturing from Europe from AI from Evs.
Brent K. Bilsland: So it's, it's, you know, the long-term trend from us; we're extremely bullish. In the short term, we're depending on weather in the spot market until we fill this book out. But there are major RFPs out right now for power and capacity, and we feel we have a high probability of success in obtaining some of that. We are extremely excited about this new structure we were able to get Hoosier and Win REMC to work with us on to try to attract, you know, high-demand users of power to our site because we feel that look either that's going to offer us better terms that we can get in the wholesale market But we feel just from the early indications and, you know, please keep in mind, we just signed this agreement like a week ago. Unknown Attendee, Jason Lustig, Hallador Energy Co. We're early in this process. But we will be running an RFP to see, you know, who's interested in locating on our site and if we can get terms.
So it's it's.
The long term trend from us we're extremely bullish.
The short term, we're depending on weather.
In the spot market until we feel that is booked out.
But there are major rfps out right now for for power and capacity and we feel we have a high probability of success.
And obtaining some of that we are extremely excited about.
About this new structure.
We were able to get Hoosier.
And when our AMC.
To work with us on.
To try to attract.
Hi.
Hi demand users of power to our site because we feel that look either thats going to offer us.
<unk> terms, then we can get in the wholesale market, we're not going to do it.
But we feel just from the early indications.
Please keep in mind, we just signed this agreement like a week ago.
So we're early in this process, but we will be running an RFP to see who's interested in locating our site and can we get terms.
Brent K. Bilsland: that, you know, are better than what we see in the long-term wholesale market. Certainly, you're going to see us add to both positions, and I hope this year, in a very meaningful way, on the coal side of the business. You know, Merrim is a significant customer of our Sunrise Coal division. And if you look, you'll see in the 10K when we release that.
That.
Our better than what we see in the long term wholesale market, certainly youre going to see us add to both positions and I hope this year in a very meaningful way.
On the coal side of the business.
Maryland is a significant customer of our Sunrise coal division.
And if you look.
You'll see in the 10-K, when we release them.
Brent K. Bilsland: You know, we went ahead and contracted that business to ourselves just to try to add more clarity and set that price out for the next handful of years. And when we do that, it really kind of shows that materially for the next four years, we're extremely well hedged, are sold contracted on the coal side of the business. So, I think that answered two of your questions. I can't remember what the third was.
We went ahead and contracted that business.
To ourselves just to try to add more clarity.
And set that price out for the next handful of years.
When we do that it really kind of shows that materially for the next four years.
We're extremely well hedged or sold contracted on the.
On the coal side of the business so.
So I think that answer two of your questions I can't remember what the third was [laughter].
Brent K. Bilsland: This was very helpful. The third one was on the outlook for Q1 of the full year. I do have another question on the MOUs. Maybe since you've mentioned it, I'll raise this one first. Um, is this an MOU for behind-the-meter power, essentially? And then how quickly do you think you could see something materialize?
This was very helpful, but the third one.
Okay.
Whereas on the outlook for Q1 at the full year I do have.
Another question on the Mou is maybe.
Since you've mentioned it.
This one first.
Is this.
An mou for behind the meter power essentially and then how quickly do you think you could see something materialize.
Brent K. Bilsland: And I'd assume you'd have Some construction that would need to take place to build out a data center would have you. So, so kind of best case. When could you supply power to a customer?
I would assume you'd have.
Some construction that would need to take place to build out of a data center or what have you.
So kind of best case.
When when could you supply power.
Brent K. Bilsland: Thank you. Yeah, so we will go out for RFP this spring. Hopefully, next month, we're trying to get that in order to see what the demands of the markets are. We have a fair amount of flexibility on what we can offer customers, and quite frankly, I don't know what the build times will be. We've had some customers, you know, without an RFP, knock on our door and say they'd like to begin construction in three months. I think that's probably too aggressive.
A customer thank you.
Yes, So we will go out for RFP This spring.
Hopefully next month, we're trying to get that in order to see what the demands of the market or we have.
I think a fair amount of flexibility on what we can offer customers.
And quite frankly, I don't know what the build times will be we've had some customers.
Without an RFP knock on our door.
Say they'd like to bank begins construction and three months I think that's probably too aggressive.
Brent K. Bilsland: You know, could we see something as early as next year? Possibly. But we're not really far enough along in those conversations to give any guidance around. You know what the timing is. I think what we're excited about is just what we've seen other companies do both in Indiana and throughout the Midwest. You know, we've seen some really big developments. And, you know, those prices don't get published, but they do get whispered, and if that holds true, we're excited about what that could potentially be. Again, until we see an RFP result. It's really hard to say; we're just excited about the opportunity and then as far as our first quarter.
Could we see something as early as next year, possibly.
But we're not really far enough along in those conversations to give any guidance around.
What the timing is I think what we're excited about is just what we've seen other companies do both in Indiana and throughout the Midwest.
We've seen some really large.
Developments.
Those prices don't get published but they do get whispered in.
If that holds true we're excited about what that could potentially be again until we see an RFP results.
It's really hard to say, we're just excited about.
The opportunity.
And then as far as our first carrier.
Yes.
Brent K. Bilsland: Yes, you know, we saw one week of really cold, extreme weather. So the power plants performed well through that period, and that was a profitable time. And the rest of winter so far has been extremely mild.
We saw one week of really cold extreme weather. So the power plants performed well through that period and that was a profitable time.
And the rest of winter so far has been extremely mild.
<unk>.
Brent K. Bilsland: You know, it's we've had some 60 and 70-degree days in both February and March in Indiana. So we don't know what that means. We're heading into the shoulder season here next month, which traditionally is low power demand, but winner is traditionally high power demand, and that hasn't proved to be the case.
Uh huh.
It's it's a we've had some $60 70 degree days.
In both February and March.
In Indiana.
So we don't know what that means we are heading into the shoulder season here.
Next month.
Traditionally is low power demand, but winter.
Winter is traditionally high power demand and that hasn't proved to be the case, so we will see.
Brent K. Bilsland: So we'll see if this turns out to be a hot summer. We're encouraged by, You know, we've got extremely cheap gas today. And then when you start to get out in October, November.
If this turns out to be a hot summer.
We're encouraged by.
We've got extremely cheap gas today.
And then when you start to get out to October November we have we have reasonable gas prices again up in the threes.
Brent K. Bilsland: We have reasonable gas prices again, up in the threes and 350 range, you know, every month thereafter. So. You know, the power curve is seeing that, and it has remained robust so far. Unknown Attendee, Jason Lustig, Lawrence Martin, Brent Bilsland, Lucas Pipes, Unknown Attendee, Jason Lustig, Hallador Energy Co. However, short-term prices have been cheap. And so, you know, we'll just manage through that. And that's why we are going to keep a very close eye on liquidity to make sure that we are successful, and there could be some opportunities again here with the MOU that we just signed. Yeah. Um, directionally, would you expect Q1 to be worse than Q4?
350 range every month thereafter so.
The power curve is seeing that and it has remained robust so far.
But short term prices have been cheap.
And so we'll just manage through that and that's why we're going to.
We will we will.
Keep a very close eye on liquidity.
To make sure that we are successful and.
There could be some opportunities again here with the Mou that we just signed.
Yeah.
Direction really would you expect Q1 to be worse than Q4.
Brent K. Bilsland: Well, I'm not prepared to give guidance on Q1 at a 10k earnings call. So, we'll wait and see what those results are. The quarter's not over.
Well I'm not prepared to give guidance on Q1.
10-K earnings call. So, we'll wait and see what those results are quarters not over.
Okay.
Helpful. Thank you I'll do one last one.
Brent K. Bilsland: Helpful. Thank you. I'll do one last one.
Why why why wasn't necessary for user to be part of the Mou.
Brent K. Bilsland: Why was it necessary for Hoosier to be part of the MOU? So we as Hallador are only allowed to sell wholesale power. And when you start attracting customers, know, for data centers and whatnot. That is industrial power.
So we as Howard or are only allowed to sell wholesale power.
And when you start attracting customers.
<unk>.
For data centers and whatnot that is industrial power.
Brent K. Bilsland: And so that technically has to be sold through a structure that involves Hoosier and their distribution cooperative, WINRMC. And so we do. Basically, I negotiated with them for a period of time to say, hey, there's an opportunity here for everybody. Let's work together and see if we can have success. And, you know, those guys have just been terrific partners every step of the way and continue to do so. And as such, I think we have a real opportunity to not only create value for Hallador but create value for Hoosier when it when REMC and their, I really appreciate all the color.
And so that technically has to be sold through a structure.
That involves.
<unk> and they're distributed they're distributive cooperative.
When our M C.
And so we.
Yes, basically negotiated with them for a period of time to say Hey, there is an opportunity here for everybody, let's work together and see if we can have success in.
Those guys have just been terrific partners every step of the way.
And continue continue to do so and as such I think we have a real opportunity to not only create.
Create value for Howard or but create.
Value for Hoosier.
When when our AMC and their customers.
Lucas Nathaniel Pipes: Brent, to you and the team, all the best of luck. Thank you. Thank you, Lucas.
Got it.
Really appreciate all the color.
Brent to you at the team all the best of luck. Thank you.
Thank you Lucas.
Operator: As a reminder, if you would like to ask a question, please dial star 1 on your telephone keypad now. Okay, it seems we have no further questions in the queue for today. So I would like to hand back to Brent Bilsland for any concluding remarks. Oh, my apologies, we do have, we have just had a question. And we have a question on the line here from Robert Ziegler. Robert Ziegler, your line is now open. Please go ahead. Hi, it's Roger Ziegler, your individual investor.
As a reminder, if you would like to ask a question. Please dial star one on your telephone keypad now.
Yeah.
Okay. It seems we have no further questions in the queue for today, So I would like to hand back to <unk> for any concluding remarks of my apologies. We do have we have just had a question registered.
And we have a question on the line here from Robert CECO.
From Stifel Your line or somebody from please go ahead.
Hi, it's Roger Ziegler.
Individual investor Thanks, again for your time guys.
Roger Ziegler: Thanks again for your time, guys. The, So in recapping, the one question and a comment. Is there anybody else in the coal industry who is making or has made this transition and, you know, into integrated vertically integrated independent coal producer and our power producer as you are? That's my first question, I guess. Unknown AttendeeWell, that's a good question.
The.
So in recapping.
The one question and a comment.
Is there anybody else in the coal industry, who is making her has made this transition into integrated vertically integrated independent gold producer.
Our power producer as you are.
That's my first question I guess.
Well someone oh, that's a good question and one I think.
Brent K. Bilsland: I think, I think, To my knowledge, Hallador is the only company that has acquired and has an interest in acquiring more Fire Power Plants and a public structure. And so, you know, we're happy and excited about what we were able to do at Merrimack; we think there are other possible opportunities out there to replicate it. And so we will. But as far as other people in the industry doing this, I know of some others that are buying plants in a private structure, but I'm unaware of anyone doing it in a public structure. That's not to say it doesn't exist; it's just to say I'm unaware of it.
To my knowledge.
How old are the only company that has acquired or.
As interest to acquire more.
Coal fired power plants in a public structure.
And so.
We're happy.
And excited about what we were able to do it mirror.
We think there are.
Other possible opportunities out there to replicate.
And so we will.
But as far as other people in the industry doing this I know of some others that are buying plants in a private structure.
But I'm unaware of any one doing it in a public structure, that's not to say it doesn't exist just to say I'm unaware of it.
Roger Ziegler: Okay, and I think you've pretty much answered this, but just for how we should think about, you know, the, say, 2024 outlook, there are some tremendous opportunities. It sounds like you're really building for like a three, three, four year build out, but, Then, is it as simple as if you get Indiana and maybe the surrounding power areas finally get a hot summer following the second warm winter in a row? Is that going to just be like it's going to springboard net gas coal into your, your power? Your power market's considerably correct. I mean, is it that simple?
Okay.
Thank you.
Pretty much answered this but just for how we should think about.
The 2024 outlook, there's some tremendous opportunities it sounds like you're really building for icon of three.
Three or four year build out but.
Is it as simple as if you get in Indiana, and maybe the surrounding areas get it finally get a hot summer.
Following the second warm winter in a row.
Is that going to just be like it's going to springboard Nat gas coal and your your powered.
Your power markets considerably correct.
Is it that simple.
Brent K. Bilsland: Yeah, I mean, the power market can move so quick. I mean, we can see spot prices one day be $20 a megawatt hour, and, you know, three days later, they're 250.
Yes, I mean power markets can move so quick I mean, we can see spot prices one day be $20 a megawatt hour.
Three days later, there are 250, but those are where.
Brent K. Bilsland: I mean, but those are, you know, weather-driven events. You know, we're trying to get to a contracted sales book, and we're having a lot of success with that, and doing that, and doing so, and we have a huge amount of business out for bid as we speak. But we'll see how successful we are in securing those contracts. But I think we have multiple customers, multiple avenues, particularly with the MOU now, to add to that. And what excites us is, you know, we see Hallador and its traditional margins that it made in coal, and then we see what... If you look at our sales table in the 10K when it gets published in the next day or so.
Weather driven events.
We're trying to get to a contracted sales book and we're having a lot of success to do that and doing that in doing so.
And we have a huge amount of business out for bid as we speak.
But we'll see how successful we are.
And security in those contracts, but.
But I think we have multiple customers multiple avenues, particularly with the Mou now to add to that and what excites us is.
We see how it or in a traditional margins that it made in coal and then we see what if you look at our sales table.
In the 10-K when it gets published in the next day or so.
Brent K. Bilsland: Look at the pricing for power, particularly when you get out in the 26, 27, 28 range. Our margins are dramatically higher, and we think we can continue to have success, contracting for power and capacity at higher margins. We haven't gotten our sales book filled out as fast as I would have liked, but I think our team's done a terrific job. And, you know, the way we're going about it, you have to find willing dance partners, and they're showing up. It just takes more time because it's a very bespoke process, and filling that out.
Look at the pricing for power, particularly when you get out in the 26 27 28 range our margins are dramatically higher.
And we think we can continue to have success.
Contracting for power and capacity at higher margins, we haven't gotten our sales book filled out as fast as I would have.
Liked but I think our team's done a terrific job and the way we're going about it and you have to do.
Yes, it's a fine willing dance partners.
And they're showing up.
It takes more time, because it's a very bespoke process.
And filling that out and so.
Brent K. Bilsland: And so, you know, our earnings are going to be a little episodic, depending on the weather here for the next handful of quarters. We were, we were, you know, the market changed so dramatically from our earnings call in November. You know, what we saw on the power curve there for December, January, February versus what it actually ended up being was completely a different number, just based on the fact that we had what some people are calling the warmest winter in history, right? We don't know what that means for the spring and the summer. If it's hot, you know, one thing about it, the wind turbines. MISO has a very high percentage of windmills. It has very few solar panels that have been built.
Our earnings are going to be a little episodic depending on weather here for the next handful of quarters.
We were we were.
The market changed so dramatically.
From our earnings call in November.
What we saw the power curve there for December January February versus what it actually ended up being.
It was completely a different number just based on the fact that we had with some people are calling the warmest winter in history right.
We don't know what that means for the spring and the summer.
If it's hot.
One thing about it the wins windmills MISO has a very high percentage of windmills.
Has very little solar panels that have been built very little.
Brent K. Bilsland: Very little. Mike, half a percent of their generation. But the wind tends not to blow on hot days.
Right.
Half a percent of their generation.
But the wind tends not to blow on hot days, So we're actually seeing.
Brent K. Bilsland: So we're actually seeing, you know, theoretically, we think we'll see a peak in the summertime versus where we used to see it in the wintertime. You know, that's what we're looking at. We're in contract discussions with customers to see, you know, how soon we can start pulling some of these higher prices forward. And so that's what our team will be working on this summer, and we'll just have to see how it plays out. Hopefully, we'll see some, some warm weather; that would certainly be helpful.
Theoretically we think we will see a peak in the summer time versus where we used to see it in the wintertime.
So.
You know that.
That's what we're looking at we're in contract discussions with customers to see.
How soon we can start pulling some of these higher prices forward.
And so that's what our team will be working on this summer.
And we'll just have to see how it plays out hopefully we see some.
Some warm weather that would certainly be helpful.
Brent K. Bilsland: But long term, we're just extremely excited because we think the earnings potential of the company has dramatically improved, and we feel that our future sales book is starting to demonstrate that to the public. So what I don't know from a shareholder perspective, will investors be focused on, you know, this quarter and next?
But long term.
This extremely excited because we think the earnings potential of the company.
It has dramatically improved and we feel that our future sales book is starting to demonstrate that to.
To the public so, but I don't know from a shareholder perspective will investors be focus on.
This quarter or next or will it be focus on.
Brent K. Bilsland: Or will they be focused on what we're building, you know, later this year and early in the next year and beyond? So, stay tuned. Yeah, to say you're basically spring loaded is seeming to be an understatement with the things you have in place here.
What we're building.
<unk>.
That's later this year and early into next year and beyond so.
They tuned.
Yes, just say your.
Basically spring loaded.
Seem to be an understatement with the things you have in place here. So good luck on that.
Roger Ziegler: So good luck on that. Appreciate it; appreciate it. All right, thank you for your question. Thank you. We have no further questions in the queue. So I'd now like to hand it back to Brent Bilsland for some closing remarks. I want to thank everyone for taking the time today to tune into our call and for your interest in Hallador Energy. We greatly appreciate it. Thank you. This concludes today's call. Thank you all for joining. You may now disconnect your lines. www.unc.org.au We greatly appreciate it. Thank you.
Appreciate it appreciate all right and thank you for your question.
Thank you and we have no further questions in the queue. So I'd like to hand back to <unk> for some closing remarks.
I want to thank everyone for taking the time today to tune into our call and your interest in how it or.
Energy we greatly appreciate it thank you.
This concludes today's call. Thank you all for joining you may now disconnect your lines.
[music].
We greatly appreciate it thank you.