Following 2020 struggles, Hallador Energy expects a much stronger coal market in 2021-22

Houston — While the coal market struggled through the fourth quarter of 2020, Hallador Energy expects a better 2021 following recovering energy markets and a decline in utility coal inventories, Brent Bilsland, CEO and chairman, said March 9.

"The global pandemic brought huge disruptions to the energy markets as people stay home and sheltered in place," Bilsland said on the company's fourth-quarter earnings call. "As our customers' inventory levels grew at record highs in 2020, we work with them to modify shipping schedules, sell additional tons and extend the terms of our contracts with multiple customers."

By the end of the year, inventories declined $2.8 million year over year, he added.

Managing the pandemic and its impacts, Hallador's output in the fourth quarter totaled over 1.2 million st, down 41.9% year on year, while full-year output was 5.6 million st, down 31.4%.

In 2020, the producer sold 5.7 million st, 3.4 million st of which came from Oaktown No. 1 and 2.1 million st of which came from Oaktown No. 2. About 200,000 st was sold from its Ace in the Hole mine.

While the average price was $40.56/st in 2020, production costs were $31.07/st, compared with an average price of $39.34/st in 2019 and cost of $30.69/st.

Fourth-quarter revenue was $64.9 million st, down 17% year on year, while full-year revenues were $242 million, down 23.7%.

Hallador had a net loss of $4.7 million in Q4, compared with a $59.8 million loss in the year-ago quarter, while full-year 2020 net loss totaled $6.2 million, down from a $59.9 million loss in 2019.

By the end of January 2021, Illinois Basin utility inventories had returned to 48 days of fill load burn versus the low-60s in May, Bilsland said. Since May 2020, inventories had been declining for the most far, and they are expected to decline further from that peak in February due to the cold weather snap.

Looking ahead

"Looking forward, energy markets are recovering as evidenced by the forward strip on natural gas price is up 44% year-over-year," Bilsland said.

While the gas market will continue to set the size of what market opportunity for coal is, he said, Hallador expects coal sales to be much larger this year and next.

The producer has 5.1 million st contracted in both 2021 and 2022 for estimated prices of $39.40/st and $39.25/st, respectively. Additionally, Bilsland said Halaldor is contracted out as far as 2027.

Right now, utilities "are playing a wait-and-see approach, but we think they have to buy coal at the end of this year," Bilsland said. "They're probably going to try to get this summer and just see how strong the summer burns are so they really come in and buy big volume with the spot purchases here and there."

He added that sales in 2022 are projected to be "considerably" stronger than in 2021.