Hallador Energy Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 8 speakers on the call.

Operator

Afternoon. Thank you for attending today's Hallador Energy's First Quarter 2023 Earnings Call. My name is Hannah, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Becky Palumbo with Hallador.

Operator

You may go ahead.

Speaker 1

Thank you, Hannah, and thank you everybody for joining us today. Yesterday afternoon, we released our Q1 2023 financial and operating results on Form 10 Q, which is now posted on our website. With me today on this call is Brent Bilsland, our President and CEO and Larry Martin, our CFO. After the prepared remarks, we will open up the call to your questions. Before we begin, please note that the discussion today may contain certain forward looking statements that are statements related to future, not past events.

Speaker 1

In this context, forward looking statements often address our expected future business and financial performance. While these forward looking statements are based on information currently available to us. If 1 or more of these risks or uncertainties materialize Or if our understanding assumptions prove incorrect, actual results may vary materially from those we projected or expected. For example, our estimates of mining costs, future sales, legislation and regulations. In providing these remarks, we have no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise, that may be required by law.

Speaker 1

For a discussion of some of those risks and uncertainties that may affect our future results, You should review the risk factors described from time to time in the reports we file with the SEC. As a reminder, this call is being recorded. In addition, a live and archived webcast of the earnings call is also available on our website. We encourage you to ask questions during the Q and A. And if you are on the webcast and would like to ask a question, you will need to dial into the conference.

Speaker 1

And that toll free number is 833-470-1428 And with that, I'll turn the call over to Larry.

Speaker 2

Good afternoon, everybody. Before I get started, I would like to define our adjusted EBITDA At operating cash flows plus current income tax expense less the effects of certain subsidiaries and equity method investment activity Plus bank interest less the effects of working capital and other long term asset and liability period changes, plus cash paid on asset retirement obligation reclamation plus other amortization. For the Q1, our results We're net income of $22,100,000 which is equated to $0.67 basic earnings per share and $0.61 diluted earnings per share. Our adjusted EBITDA for the quarter was 34,000,000 We decreased our bank debt by $10,000,000 Our funded bank debt as of the end of March was $75,200,000 With our net funded bank debt being $72,800,000 we had letters of credit totaling $11,200,000 with our banks And our debt to adjusted EBITDA or leverage ratio was 1.2x

Speaker 3

at the

Speaker 2

end of the quarter. I will now turn over the call to Brent Bilsland, our CEO.

Speaker 3

Thank you, Larry. Well, we're very happy with our Q1 results and the progress we continue to make towards our goals as a company. As we have noticed in past quarters, Hallador is working diligently to deleverage our balance sheet. This quarter, we made considerable progress towards that goal, reducing our bank debt by $10,000,000 To just over $75,000,000 Higher average prices in our coal business resulted in $34,000,000 in adjusted EBITDA for the quarter. As of March 31, 2023, our debt to EBITDA ratio dropped to 1.2 times and our liquidity increased to $36,000,000 Our coal business saw production increase to 2,000,000 tons, while our cost of production decreased by $1.65 per ton.

Speaker 3

Combined with an average sale price of $55.88 per ton, for the quarter our margins improved by 6 point And $0.66 per ton as compared to the Q4 of 2022. Throughout the rest of the year, we expect average Sales prices to remain elevated. We also continue to evaluate our cost of production as we strive to maintain our higher production or our higher margin. In connection with this, subsequent to the end of Q1, we temporarily idled our higher cost Freelandville mine, while we evaluate our production mix against market needs. In doing so, we have protected our employee base by utilizing the Freelon Bill employees and other roles while we undertake this evaluation.

Speaker 3

As we look to the immediate future, We continue to be encouraged by the pricing indicators for coal, energy and capacity. As we think about the economics of Miriam based on current pricing, the capacity payments that we receive should Cover nearly all of the fixed costs of the plant, including maintenance CapEx, but excluding future environmental upgrades. Beginning next month, Marum Fuel deliveries will be almost exclusively coal produced by Sunrise Coal, our subsidiary. I say almost exclusively as an example of the flexibility that Merrim provides us. It's the most profitable way to utilize our Coal is to sell it to Merrim and then convert it to Elektron.

Speaker 3

We'll do that. Currently, we have 3,000,000 tons earmarked for 2024 for this exact scenario. However, if the markets change in such a way that it's more profitable to sell our Sunrise There are numerous rules around How we price our coal to Miram and the accounting rules make things complex. But when you strip all that out and break it down to its most Simple form, if hypothetically we were to deliver our coal to the plant at our current coal production cost, Then the variable costs of Miram not covered by capacity payments, including costs such as scrubberts, stone and Other things beyond just fuel, we expect our variable costs then to be in the range of $30 per megawatt hour. For the remaining 9 months of 2023, Beyond what we have already contracted to sell, we expect an additional 1,000,000 megawatt hours that have yet to be priced.

Speaker 3

For 2024, in addition to what we have contracted to sell to Hoosier, we expect to sell approximately 5,000,000 megawatt hours that have yet to be priced. So while we cannot share our view of market prices due to ongoing negotiations and other factors, We believe that various pricing curves for power at the Indiana Hub provide a reasonably indicative view of how meaningful Miriam will become to our company starting as early as Q3 of this year. So with that, that ends my prepared remarks. I'll open up the call to questions. Certainly.

Operator

As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question is from the line of Lucas Pipes with B. Riley. Please proceed.

Speaker 4

Thank you very much, operator. Good afternoon, everyone.

Speaker 3

Good afternoon. How are you doing?

Speaker 4

I'm doing well. I hope you're doing well as well. Thank you very much for the update. And Brent, I wanted to get a little bit more color on the contributions from Marin during Q1. And I wondered that Sorry if I missed it, but I wondered what the megawatt hour production was at Merren during Q1 and if there were like capacity payments Included in the revenue contribution from the Power side in Q1.

Speaker 4

Thank you very much for that color.

Speaker 2

We had about 1,000,000 megawatt hours that we sold for the quarter, Lucas. And yes, we had Close to $16,000,000 in capacity payments in that revenue.

Speaker 4

Very helpful. Thank you. And the capacity payments, is that How should we model that going forward? Was that kind of a lumpy one off or would that be consistent for the remaining quarters

Speaker 3

No, I think that So just to reiterate, from the closing date of the plant on October 22, 2020 2, through May 31, 2023, 100% The electrical output of the plant It's sold to Hoosier Energy and 100%

Speaker 5

of the

Speaker 3

Capacity of the plant through that time period is sold to Hoosier Energy. And so the economics of the plant will be fairly consistent from For the 1st 2 months of Q2, we think. Then starting in June, About 30% of the capacity of the plant It is contracted to them and we have sold capacity to other parties. So we'll probably see a bit of an increase In capacity payments, that's not all fully sold because part of that capacity has been offered into the MISO auction, which is ongoing. So we haven't seen the results of that yet.

Speaker 3

But so far, we're pretty pleased of the capacity for the robustness of the capacity market. And which is why we say, we feel that the capacity market is strong enough today and into the future Currently, to cover or almost We're slightly more than covered depending on the year we're talking about the fixed cost of the plant. So then When we look at energy for the balance of this year, we open up on price significantly starting in June And we anticipate selling to the market roughly 1,000,000 megawatt hours for the balance of 2023 and we anticipate selling 5,000,000 megawatt hours outside of what we've already contracted for 2024.

Speaker 4

Sorry, Brent, could you repeat those last two numbers again for the balance 2023 and then for 2024.

Speaker 3

Correct. So basically, June through December of 23, we anticipate selling 1,000,000 Megawatt Hours, Which are currently unpriced.

Speaker 2

In addition to what we have contracted with Hoosier.

Speaker 3

That is correct. Very helpful. Sorry. Thanks for the clarification. And then same for 2024, we have something like 1,600,000 megawatt hours sold to Hoosier and then we anticipate Something like 5,000,000 megawatt hours to outside parties or just the MISO Hotel market, Which are currently on price.

Speaker 3

I think the point we're trying to make here is that current market prices are significantly higher Then what we have previously agreed to With the with who's

Speaker 4

here? And is that power prices or capacity Prices or both?

Speaker 3

Both. Well, more so on the energy side, power prices.

Speaker 4

Got it. So at today's forward curve, on price portion of your power, You said it was 5,000,000 megawatt hours, did I get that right? And at what price would you expect to sell that in today's market?

Speaker 3

Yes. So as I said in the prepared remarks, we have ongoing negotiations, so we don't really Point to what prices are, but I think there's I think it's relatively easy for The investors to look at various pricing curves out on the Indiana Hub, We sell to the Merrim Hub, but it's easily fairly closely linked to the Indiana Hub For market prices, it varies by month. Those prices change every day. But Right now, the market is pretty robust. And that doesn't necessarily mean we haven't We haven't hedged a lot of power.

Speaker 3

There's reasons for that. We are working Do you have some power? We'll see if we're successful or unsuccessful. So again, we're pointing to these are indicators of the market. Those are not Contracted deals, the market could be stronger when we get there, it could be weaker when we get there.

Speaker 3

We're just saying that it's The markets are pretty robust right now and Some people want to look at natural gas prices and say, well, the power prices shouldn't be high. And we are they are. And we think there is a premium potentially being paid because The market is concerned about reliability. I mean, if you look back 2 years ago, nobody was talking about reliability. Last year, we had a couple of people talking about reliability.

Speaker 3

And today, I think there's all sorts of public comments from NERC, FERC, PJM, MISO, everyone is talking about, oh my gosh, reserve margins have gotten so Meaning, we have so little excess generation to cover load that we're seeing more and more extreme pricing events. I think this is Putting upward pressure on the power market because nobody wants to be caught naked or unhedged When we go through these events where generation struggles to meet low, Which is happening more and more frequently, as base load generation is replaced by Generation that cannot be dispatched does not have an on switch. So all of that Kind of leads to because we have because our sales position with the plant Starts to open up next month and pricing is significantly higher today than what we Have been selling megawatt hours for in the rearview mirror. We think that at today's prices That Marin becomes a significant contributor to our company Probably starting in July. So but we certainly feel that way about 2024.

Speaker 3

So It's very meaningful. We couldn't be more excited about the position our company is in With the market conditions that are being presented in front of us. So, we want to make sure that excitement resonates On this call because last year we were talking about, hey, we're selling coal at really high prices and that's going to show up in 2023. This year, I think we're saying, hey, we have a very large unsold position for power and that is going to show up later in the year and into 2024 If prices hold, which today our thinking is they will.

Speaker 4

Very helpful. Thank you. I did something really quickly here back off the envelope and maybe I'm way off. But If I look at the electric sales in Q1, dollars 92,400,000 I took out the $16,000,000 for capacity payments. And then, Larry, you mentioned you sold about 1,000,000 megawatt hours.

Speaker 4

So I have about $76 per megawatt hour on the revenue side. Is that the right approach?

Speaker 2

Lucas, remember last quarter we talked about our GAAP accounting we had to do for the contract That we sold Hoosier at discounted prices. So there is about 30 Some $1,000,000 in that revenue that is just a credit Because of the to reverse the discounted contract prices that we sold to Hoosier, when we closed on the deal, Prices had taken off, so we had sold them a discounted contract that Now we have to reverse that to revenues. Okay.

Speaker 4

Accounting never makes it easy unless

Speaker 5

it does it.

Speaker 3

Well,

Speaker 2

so I think we have disclosed before, our contract with Hoosier is $34 a megawatt hour. But that significantly Is less of our business starting June 1. Hoosiers Gets all of our power through May 31st. And then as Brent said, from there on, it's The power grid runs on a June 1 to May 31 fiscal year. So we're selling them 1,600,000 megawatts Out of $7,000,000 that we could $6,500,000 to $7,000,000 we're going to produce after June 1.

Speaker 4

That's helpful. Thank you. Thank you for that additional color. Second topic really quickly. Last summer you disclosed that you sold 2,200,000 tons at $125 per ton Over several years, and I wondered how much of that is for 2024.

Speaker 4

Thank you very much.

Speaker 3

Well,

Speaker 5

I I'm not exactly

Speaker 3

I don't know that Yes. I don't know that we're prepared today to give you exactly what that number is off top of our head. But I mean, I think we've basically shown in the table that we expect our average price for the year to be $57 And I think we're in a scenario where We feel pretty good about that because in the event that First of all, customers are doing a decent job of picking up their coal on time. That's always subject to change. But what's changed for us is particularly in 2023, We can currently take that coal over to the Miramar plant and turn it into electrons at prices that are Comfortable or better to those prices.

Speaker 3

So from that standpoint, we feel really good. So I don't know if that fully answers your question. I think we did show in

Speaker 5

the tables that we have.

Speaker 2

Let me add here Brent. Also Lucas, those were incremental tons. We actually ended up blending and extending some of those tons with lower price contracts To blend up our price for 23. So, and the majority of those higher priced tons are in 20 Going to be delivered in 23. We have some carried over, but as we stated in the table, our average contacted price for is it 2,800,000 tons Next year is about $51 And then as Brent said, we plan on taking 3,000,000 tons to the plant, The HOOPP to the Marion Power Plant and converting those to megawatts at a higher price than the equivalent of 50 $7

Speaker 4

Got it. So if I assume kind of a production capacity of 7,500,000 tons on the coal side. You have 2,700,000 tons contracted at Q1 and then you expect to sell 3,000,000 to Marin. So it leaves little less than 2,000,000 tons to be sold in the open market For 2024, is that kind of the right way to think about it?

Speaker 2

And we do have $1,000,000 committed that we are now negotiating prices on. So

Speaker 4

Got it. So, dollars 1,000,000

Speaker 2

is committed on price and then we have about a little $1,000,000 or a little less to sell.

Speaker 4

Very helpful. Where would you put the market today for Illinois Basin Coal for 2024?

Speaker 3

Yes. So again, we're in the middle of negotiations on that. So we'll decline to answer that.

Speaker 4

Understood. Fair enough. Well, I look forward to the update on the pricing front. And Brent, to you and the team, continue best of luck. Really appreciate all the color.

Speaker 3

Thank you for your questions, Lucas.

Operator

Thank you, Mr. Pipes. Our next question is from Kevin Tracey with Oberon. You may proceed.

Speaker 5

Great. So I suppose we'll be hearing the results from the MISO capacity auction relatively soon, But it sounds like you probably sold the majority of your capacity in bilateral transactions. Can you give us a sense of where the pricing Shook out for that and maybe if you're not willing to give a precise number, can you just tell us directionally Where the capacity payments for these bilateral deals came relative to where you're contracted with Hoosier?

Speaker 3

So, they were at higher prices than where we previously contracted. I would say this going into the MISO auction, we felt we had 88 The auction was delayed by 3 weeks. So I think we expect to see the results of that come May 19 ish somewhere in there give or take a day. So we'll be curious to see how those comes out, but really that's a 1 year auction. And What we're seeing is indications that pricing for multiple years Is that, like I said before, prices that we feel will let's just say it will cover our fixed Cost of the plant, give or take $5,000,000 right?

Speaker 3

That kind of depends on the year. They've gone to a seasonal construct this year. So That's a new twist on the capacity markets. But we feel that we feel happy from the standpoint of The capacity payments are to some degree, well, it just kind of ensures The market signals are saying, look, coal plants are needed and reliability is Being talked about more and more and more and becoming more of a concern, which is basically just another way of saying The grid needs baseload generation that has on-site fuel and we that's become an this year is that some of the gas plants and some of the markets haven't been able to give fuel to the plant when they need it. So now all of a sudden, there's a lot of conversation in the industry about, well, gosh, on-site fuel, Which coal and nuclear plants have is an attribute that is becoming More valuable as other generating sources struggle with that, right?

Speaker 3

And these are attributes that have been there all along, but when you start Decreasing the fleet, you start seeing the cracks of, oh gosh, the market didn't pay for on-site dual. It didn't pay for spending generation and these are attributes that always kind of showed up for free. And now you see the grid operator saying, well, hey, Are we going to start compensating the industry for this because these are attributes that we absolutely need? So as you have this transition, There's new challenges that are created for that, created by that or revealed. And so all of that makes us excited about the asset that we have, Excited about the economics that we're seeing the market signals show us and seeing how meaningful that is going to become to our company.

Speaker 3

And so and seeing what we feel, it isn't this isn't just a 1 or 2 year Economic case, we're seeing the market kind of show us signals that look longer dated. We'll see if they're real, Right. We'll see if we can contract there. But early indications are we're seeing Indicators that are 5, 6, 7 years out that show, hey, this asset is going to be, We think pretty profitable for quite some time and that's why you heard us in our last call say that we our Board had approved To extend the capital to invest in the LGs because we feel this plant is going to be needed beyond 2025 and 2028 beyond. So that could change.

Speaker 3

Market conditions change, but The direction we're seeing so far is this plan is more needed, not less needed, at least by the economic indicators. So for all those reasons, Very excited.

Speaker 5

Okay. And can you put a number on what the total Fixed costs of the plant are in a given year?

Speaker 3

No, that's not something We've disclosed yet. I mean, at the end, we've only owned this asset since October 22. So we want to make sure That what we project and estimate is accurate, but I think we feel comfortable that capacity today looks to be Very, very close to cover all or maybe exceed in some cases depending on the year of our fixed cost needs. So As time goes on, we may elaborate more on that, but today we haven't disclosed that.

Speaker 5

Okay. And just to Make sure I heard you right at the beginning of the answer to the first question. You did in the bilateral capacity contracts Sell the capacity for a higher price than you're selling it for to Hoosier. Did I hear that right?

Speaker 3

Yes, you heard me correctly.

Speaker 5

Okay. And going in those contracts, So the auction is just for a single year, but am I right in thinking that often these bilateral contracts Can go be negotiated for multiple years. Is that what you're doing now or are you kind of doing it on a year to year basis?

Speaker 3

Well, we don't we can't we have the negotiations ongoing and it's always Hard to say because sometimes negotiations start out one way and finish completely different ways. So I would say that we have enough market indicators that we feel that capacity values Our robust for multiple years. The MISO auction is kind of a market Where

Speaker 2

it's meant

Speaker 3

to be kind of where everybody sells an incremental amount of capacity. And I think They even want to encourage everyone to either generate their own capacity or You'll acquire that and buy a lateral agreement. Of course, MISO sees all of these transactions, so they very much know what's going on. What comes out of the MISO auction, it's kind of indicative and it kind of isn't. It's the 1st year that we've seen Yes, it's the 1st year that MISO has had a seasonal construct for capacity.

Speaker 3

This is the first time the auction has Kind of dealt with this new animal. I've seen a whole range of predictions of what's going to come out of this auction, which just tells me nobody really knows, right? So at the end of the day, we know this, the reserve margin in MISO, and I think We'll soon be followed by PJM. These numbers have gotten much thinner. And As we no longer have great excesses of Capacity is showing up in the MISO auction, which has caused prices to go materially higher.

Speaker 3

So for all those reasons, We feel good about the pricing today and we will see how successful we will be about Contracting capacity in the future.

Speaker 5

Okay. And then just another clarification. The $30 per megawatt cost figure or megawatt hour cost figure you mentioned in the call, is that just the variable Costs, so kind of the fuel and O and M costs, but doesn't include the CapEx or the other fixed costs, is that right?

Speaker 3

So we include our maintenance CapEx in that number. We do not include any Future environmental investments that we need to make, right? So we have come out and said, hey, we're going to invest And technology to meet the effluent limitation guideline standard? Yes. We think that Gets us in compliance with all of the laws that exist today.

Speaker 3

We know that there'll be additional laws in the future. We just don't know What those are and what the compliance costs may or may not be. So, but from a variable cost point of view, If we were to sell at cost fuel to the plant, again, this is kind of for hypothetical, because there are market rules around How we have to price coal to ourselves, right? So That can get a little confusing for anyone trying to follow that. So what we're saying is, hey, hypothetically, if we took our coal at cost, took it to the plant, Where would our variable cost plus scrubberstone, plus maintenance CapEx, all that kind of stuff kind of wash out?

Speaker 3

And that number It's roughly $30 per megawatt hour.

Speaker 5

Okay. So that $30 is kind of everything but the environmental CapEx you're going to have to do for the next couple of years?

Speaker 3

Correct. Fuel and so on.

Speaker 5

Fuel, O and M and maintenance CapEx. Got

Speaker 4

it. Okay. Yes.

Speaker 5

And I have missed the question. Okay. And last question.

Speaker 3

Maintenance CapEx would be in our fixed cost. Our variable costs, we look at that, that is fuel, that is scrubberstone, that is NOx compliance, things like that.

Speaker 5

Okay. Okay. And last question, so your comment that you expect to sell 1,000,000 megawatt hours Non Hoosier parties this year, that would seem to imply the plant's inventory constraint in the I guess I'm wondering if there's potential upside to that 1,000,000 megawatt hours if you're successful in sourcing More coal elsewhere.

Speaker 3

Well, I think we've looked at this. You can always source more coal elsewhere. It's just a matter of price. I think what we're looking at is when we look at the power curve for 2023, we look at the obligations that we have to other parties. We estimate based on those prices today that we will sell an additional 1,000,000 Megawatt Hours That Are Unpriced.

Speaker 5

Okay, great. Thank you very much.

Speaker 3

Thank you.

Operator

Thank you, Mr. The next question comes from Kenneth Pounds with Castleberry Advisory. You may proceed.

Speaker 6

Hello. Good morning, Hannah. Great job, gentlemen. Two questions and maybe you kind of covered it a little bit earlier. So, 2024, you said 6,500,000 to 7,000,000 megawatt hours is what you think you can produce Thanks, Stuir.

Speaker 3

Yes, you're a little choppy on the voice connection, but I think you said

Speaker 6

I I think

Speaker 3

what I heard you say is we plan to produce somewhere around 6,500,000 megawatt hours in 2024 and that is correct.

Speaker 6

Now, what is the name plant capacity for the plant?

Speaker 3

Well, nameplate capacity for the plant is 10 70 megawatts.

Speaker 6

Okay. That translates into You know what, but then how does that translate to the number you just gave us, 6.5?

Speaker 2

Well, dollars 10.70 a day, I mean, it translates to about 8.15.

Speaker 6

Perfect. Thank you. Sorry. 8.1. Okay.

Speaker 6

And And is it possible that you have this call back to produce for this

Speaker 3

I'm sorry, sir. The connection is bad. We're just not hearing you. Okay. Thank you.

Speaker 3

Thank you.

Operator

Thank you, Mr. Bounds. The next question is from the line of Mike Ryback with Butler Hall. You may proceed.

Speaker 7

Hey, how are you doing? Thanks for taking my questions.

Speaker 3

Just to

Speaker 5

follow-up On

Speaker 7

the last question, right. So it's an impressive number if you guys can do kind of 6.5 megawatt hours, 100 megawatt hours. What drives, I mean, looking at historically, right, the plants never really done more than, I don't know, 5.5, something like that. And Obviously, I respect that you guys are coming in and are looking to run it better. But is there something structurally that's changing that gives you guys confidence that You can increase output by 1,000,000 megawatt hours?

Speaker 3

Yes. Power prices are considerably higher than in the past. So when you looked at The ratio of fuel cost, we're vertically integrated, Hoosier was not. And so when you look at the ratio of fuel cost to power prices, We're in a better market today than they were historically. And even if you look at last year, they had pretty strong power prices last year, but they had already kind of began backing down their maintenance CapEx So those sorts of things because they were going to close the plant, right?

Speaker 3

That was the game plan. And then we were able to acquire the plant. And so we've began a process of reinvesting and maintenance of the plant to get it It wasn't in a bad condition, but to get it in a better condition, so that we can achieve these Higher numbers. So we think that that is doable. The market Signals today are calling for that to happen.

Speaker 3

Again, We haven't contracted a lot of this stuff, right? And so all we're really trying to say is, Hey, here's what we think today based on the market signals today. So market signals change quickly for the better, for the worse. But I think the general trend that has been revealed, We've talked about this in the past. If you look at MISO prior to and I'm going from memory here, so don't quote me exactly, but you'll get the idea.

Speaker 3

Prior to 2016, I don't think they had had any max generation events, meaning where the grid operator comes out and says, everybody turn on We're struggling to meet load. And in the trailing 12 months, it's been something like 11 times they've made that phone call. So what we're saying is because there's been such a rapid closing Retirement of base load generation and a large percentage of that base load generation has been replaced with generation That cannot be turned off. There isn't an on switch located anywhere on a solar panel or a windmill, right? These assets kind of come on when the wind blows and the sun shines.

Speaker 3

Solar goes home every night. There's not hardly any battery capacity in the MISO system today. So because of that, The smaller fleet that remains has to work harder, right? And so that is what we're seeing In the pricing of the market, and that's what we're trying to communicate. So we think the opportunity Is bigger than it was in the past.

Speaker 7

Right. No, that makes sense. What

Speaker 3

just what power price

Speaker 7

I guess where would power pricing have or how far down would they have to go for you guys To say, 6.5 is not the right number. I mean, it seems like relative to the curve today, you can still see power pricing, I don't know, they go down to $40 per megawatt hour. It still seems like that would be achievable.

Speaker 3

Yes. So, I mean, we're vertically integrated. So there comes a point where we would make 0 profit at the plant or make $0.50 of profit at the plant and $0.50 of profit at the coal mine, right? So arguably, theoretically, in that scenario, We would still run. Where exactly that number is, That's not something we're going to get into today and that analysis, but I think our point is that We're at the opposite end of that scale.

Speaker 3

The markets are pretty robust. They do change quickly. We saw A lot of change in energy markets last year. Last year was probably the most dramatic up and down of the I don't care what energy market it was, whether it was oil, whether it was coal, whether it was natural gas, whether LNG power markets, I mean, it's been very volatile, but and the opportunities there, We're excited about what we're seeing. We're cautious To say these are the exact numbers when we don't have all of that contracted.

Speaker 3

It's kind of this double edged sword for us of trying to indicate how good we think it can be without overstating our So what we're saying today is capacity signals look good, coal pricing signals look good, power pricing Looks excellent as well. So that's the condition we're in. We think because our power plant is going from being 100% sold out This month to or significantly sold out this month to we open up into a pretty large unsold position starting next month. Yes, we'll see what the power prices bring. If the entire year is 65 degrees in the Midwest, power prices will be terrible, Right.

Speaker 3

And it's just that there won't be that much load to meet. If we see 110 degree heat indexes, Look out, it's going to be crazy, right, because the grid is really starting to struggle. You've had the grid operator Of MISO say publicly that MISO is being backed up by PJM And PJM is backing up MISO. But if it's hot or cold in either of those two markets at the same time, There's not going to be any spare electrons from one market to share to the other, right? This is where we see these extreme events where power prices go A couple of $1,000 an hour, a megawatt hour.

Speaker 3

And that's so the market is saying, well, hey, more of those types of events are out in the future because there's a lack of generation. We're going to pay a premium above the price of A gas generator or a coal generator because we don't want to be caught, right? When the tide goes out, you find out who's naked. That's the old saying. The market is saying we don't want to be caught in that scenario.

Speaker 3

So what we think we see is the market saying we'll pay a premium To stay out of that event. Again, if power demand stays low, that premium will dissipate and go away. If we see Extreme temperatures, that power premium will increase. Okay. This transition is Everyone wants to look at the past and say, well, this is what it should be because this is what it was 3 years ago.

Speaker 3

We're in completely different energy markets than we were in 3 years ago, right? We have forced A lot of variable generation into the grid and that creates new challenges. And the power markets Are now forced to pay to try to solve those challenges.

Speaker 7

Okay. Just two questions, 1 on Miriam, 1 on the core. But so in Q1, I want to share this. So If we just look at your electrical revenue was $93,000,000 or so you had that $33,000,000 that was a kind of a contract liability amortization. So net of that it was about $59,000,000 and then $60,000,000 was about the energy capacity revenue.

Speaker 7

So the remaining Kind of generation revenue is about $43 I think you noted that you generate about 1,000 megawatt hours. And if you're getting paid $34 per megawatt hour, shouldn't it be $34,000,000 I was having troubles reconciling why The generation revenue was $43,000,000

Speaker 3

Because there's capacity damage in that number as well.

Speaker 2

Well, he took those out. I think I mean, I know it's not $9 a megawatt, but we do get some true ups and true downs and Excess payments, Mike, based on if we over generate for the day and prices went up. So I can look at that and send you an email of where we're at exactly. Okay. Okay.

Speaker 2

Your theory is correct. I mean it's $34 but we don't net exactly $34 When we have some excess power that we look for instance, if we bid in 900 megawatts for the day and we produce 9.10 for the day, Then we do get that excess power that doesn't go to Hoosier. So that could be that will be most of the difference.

Speaker 7

Okay. And then to the question, the first question on the carryover tonnage, you guys signed like 2,200,000 tons And at $125 I think like the majority of it is in $23 And obviously, you guys haven't specified how much in $24 But I was playing around, if I just say, okay, let's just say, 400,000 tons is in 24, right, at $125 You guys noted that for next year, right, for 2024, you have about 2,700,000 tons at $51 which includes these tonnage of 125. So in my kind of quick back of the envelope, if it's 0.4000000 tons, That implies the rest of the tonnage, the 2.3 in this example is like contracted out at a $38 price.

Speaker 3

I'm just trying to figure out why it's so low. Well, I mean, I guess we can't really speak to what all our other contracts are or there aren't. I would say this, I mean we went from A period of time we have multi year contracts, right? And We have prices that were low. We have prices that were high.

Speaker 3

Some of those lower prices came from coal that we priced 2, 3 years ago, right? And so, I don't What the market to get hung up on, well, exactly how many of these 100 like we're showing you in our table what our average prices are. So, I think if you're trying to create your model and look at what cash flow is in the future or whatnot, look at the average price, look, here's how many tons we have, Here's what our cost production has been. Here's the volumes that we think we're going to move. I think you'll get there.

Speaker 3

I think you'll get to where you're trying to be. Okay. Well, thank you so much. Best of luck. Yes.

Speaker 3

Appreciate the questions. Thank you.

Operator

Thank you, Mr. Rybak. There are no additional questions waiting at this time. So I will turn the call back over to Brent Beisland for any further remarks.

Speaker 3

Yes. Once again, I think we are very excited about the quarter. We're very excited about The future that Merrim brings to our company, the pricing signals that we're seeing from the market and we appreciate all the interest from the participants of the call today. So with that, I'll end the call and get to work for next quarter. Thank you.

Speaker 3

Bye bye.

Operator

That concludes today's Hallador Energy First Quarter 2023 Earnings Call. Thank you for your participation. You may now disconnect your line.

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Earnings Conference Call
Hallador Energy Q1 2023
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