Hallador Energy Company

Good day and welcome to the Halidor Energy Company fourth quarter and full year 2020 earnings conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Becky Palumbo. Please go ahead.

Thank you, Tom. Good afternoon, everyone. Thanks for joining us today. Early this morning, Palo Duro Energy released its fourth quarter 2020 financial and operating results on Form 10-K and issued a press release containing certain financial metrics. Both documents are posted on our website. Today, we will discuss these results as well as our perspective on market conditions and outlook. Following our prepared remarks, we will open up the call to your questions. But before beginning, a reminder that some of our remarks today may include forward-looking statements that are subject to a variety of risks, uncertainties, and assumptions contained in our filings from time to time with the Securities and Exchange Commission. While these forward-looking statements are based on information currently available to us, if one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect, actual results may vary materially from those we projected or expected. In providing these remarks, we have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, forward, future information, or other or otherwise unless required by law to do so. With us today on the call is Brent Bilsen, our President and CEO, Larry Martin, our CFO. And with the required preliminaries out of the way, I'll now turn the call over to Larry Martin.

Larry Martin Good afternoon, everyone. Before I get started with our review of our operating results, I would like to go over a couple of definitions. We define free cash flow as net income plus deferred income taxes. depreciation, depletion, and amortization, ARO accretion, change in fair value of hedges and stock compensation, less maintenance capex, and the effects of our equity method investments. We define adjusted EBITDA as earnings before interest, taxes, depreciation, and amortization, plus stock compensation, ARO accretion, and changes in fair value of hedges, less the effects of our equity method investments, and iron glass sands. How do our energy incur a net loss of 4.7 million for the quarter or 15 cents a share, a loss of 6.2 million for the year, which equates to 20 cents a share. Our free cash flow for the quarter was 2.9 million for the year, 27.6 million. Our adjusted EBITDA was 9.4 million for the quarter and 53.5 million for the year. We had a decrease of our bank debt of $9.2 million for the quarter and $42.4 million for the year. We paid dividends of zero in the quarter and $1.2 million or $0.04 a share for the year 2020. Our bank debt at $1,231 million. 2020 was $137.7 million of borrowed funds and $5.7 million of letters of credit. Our net debt as of 12-31-20 was $129.7 million, and our debt to EBITDA leverage ratio was 2.68 times. I'll now turn the call over to our CEO, Brent Doslin, for his summary of the quarter and the year. Hello, thank you for joining. The global pandemic brought huge disruptions to the energy market as people stayed home and sheltered in place. Oil prices went negative for the first time. Natural gas prices dropped to multi-decade lows, and coal plants struggled to dispatch for at least two months in early 2020. Despite these challenges, Halador displayed great resiliency as evidenced by generating strong operating cash flow. of $52.6 million. Alder has continued its focus on debt reduction as we paid down $42.4 million of bank debt, representing 24% of our outstanding bank debt. We maintained $51.8 million in liquidity, even as our debt-to-EVA ratio rose slightly to 2.68 times. On April 16th, you may remember, 2020, Halidor received a $10 million loan under the Paycheck Protection Program. And we expect the loan to be forgiven by April 8th of this year. As our customers' inventory levels grew to record highs in 2020, we worked with them to modify shipping schedules, sell additional tons, and extend the terms of our contracts with multiple customers. Shipments for the quarter were 1.6 million tons. Coal inventories were reduced year over year by $2.8 million. Our operations teams also rose to the challenge, implementing new safety protocols and training to protect the health and safety of our employees. Out of an abundance of caution, at times up to 25% of our workforce was quarantined due to possible exposure issues. These operational hurdles, coupled with some temporary poor recovery, in the fourth quarter led to slight cost increases of $3,107 in 2020 versus $3,069 in 2019. At Oaktown, costs were $2,984 versus the year before at $2,835. As our recovery has now returned to normal and as increasingly more of the population receives vaccines, lessening our disruptions from COVID-related workforce issues, we anticipate our costs returning to the lower end of $29 to $30 in 2021. Looking forward, energy markets are recovering, as evidenced by the forward strip on natural gas prices. It's up 44% year over year. As of the end of January of 21, Illinois Basin utility inventory levels had returned to 48 days of full load burn versus being in the low 60s in May of 2020. Inventory levels are expected to drop further in February as a result of the cold snap that affected most of the nation. This return to normal was further displayed by Duke Energy and Southern Company Services, two of the largest utilities in the nation, coming out with requestful proposals to buy coal in the last few weeks. Though Texas received the majority of the nation's attention over its four-day rolling blackout, MISO, which operates the grid in the Midwest, experienced the same cold weather but fared much better as coal represented nearly 60% of its power supply during the cold snap. The Texas event has caused many decision-makers to question our nation's pace of transition to carbon-free electricity. One poll I saw last week of roughly 2,000 voters conducted by Morning Consult found that 7% and 10% registered voters support maintaining baseload on-demand power plants such as coal plants to support the reliable supply of electricity. In the last seven months, California and Texas, the two states with the highest concentrations of renewable generation at 30%, have both experienced multiple rolling blackouts. We acknowledge the greening of the grid, but believe that coal will play an important role in supporting the grid for many decades to come. With that, I will open up the microphone to Oh, I'm sorry, 7 out of 10. I misread my document here. 7 out of 10 support maintaining base load on the mass power plant. Sorry, misspoke. With that, I'll open up the microphone to questions.