Hallador Energy Company · NASDAQ:HNRG
Hallador Energy — Shareholder Meeting (May 2016)
40 slides from Hallador Energy's shareholder meeting presentation, May 9, 2016
Slide 1: Hallador Energy Company Annual Shareholder Meeting
HALLADOR ENERGY COMPANY ANNUAL SHAREHOLDER MEETING May 9, 2016 Terre Haute, Indiana
Slide 2: Forward-looking statements
This presentation contains “forward-looking statements” — thatis, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as anticipates,” “intends, “expects,” “proj
Slide 3: Obama says coal is dead
Obama says coal is dead. - His EPA created the Clean Power Plan (CPP). Our media says coal is dead. - The headlines have focused on bankruptcies and plant closures. Over half of U.S. coal production is in bankruptcy. - Isn’t this proof that coal is dead? HALLADOR ENERGY COMPANY ey
Slide 4: Coal Will Survive, Hallador Will Thrive
Coal Will Survive Hallador Will Thrive ADGR ENERGY COMPANY Fy
Slide 5: State of the Industry
State of the Industry
Slide 6: State of the Industry
State of the Industry Obama’s signature environmental rule has issues. - In February, the US Supreme Court granted 27 states and other business organizations applications to stay CPP until the court decides the ultimate fate of the GRP - In Congress, the majority oppose the CPP, most recently in vot
Slide 7: State of the Industry
State of the Industry Headline News! Everyone has read a headline concerning a coal plant closure, but few realize that Indiana has already made or announced more capital investment in coal plants than any other state in the US ($12 billion)?* It’s true over 50% of US coal production is in bankruptc
Slide 8: State of the Industry
State of the Industry In 2008-2009, the price of metallurgical coal “met coal” (coal used in the production of steel) increased from $50/ton to $350/ton. US coal producers took on massive amounts of debt and dramatical production. y increased their investment in met coal » The majority of these inve
Slide 9: State of the Industry
State of the Industry As producers entered 2015/2016 overloaded with debt they were greeted with: » Record breaking levels of natural gas production » The warmest winter recorded in 130 years of record-keeping by NOAA, 4.6 degrees Fahrenheit warmer than average, and 6 degrees warmer than last winter
Slide 10: State of the Industry
State of the Industry » During the three months of December-February, an average of 10 billion cubic feet per day (Bcfd) less gas was burned to heat homes than normal, or ~900 Bcf.> - Asa result, gas storage in the US is currently 2,500 Bcf, up 1 trillion cubic feet over the normal amount at this ti
Slide 11: Natural gas consumption by sector
State of the Industry NATURAL GAS CONSUMPTION BY SECTOR (BCF/D) 12,000 30,000 ‘The only market which ys Res/Comm a ncdustrial Mmmm Power Total can absorb the excess 10,000 25,000 gas in the near-term is the power market. As a 8,000 20,000 result, gas prices must price down to levels 6,000 | 15,000 n
Slide 12: U.S. Gas Rig Counts 1987 - Current
st/tt/L0 t/Lt/Lo €1/L1/t0 ea/t/Lo T1/tt/Lo or/tt/Lo 60/1/20 80/21/20 40/t1/to 90/1/20 s0/tt/20 vo/tt/40 £0/t1/L0 20/1/20 To/ét/Lo 00/L1/L0 66/t1/L0 86/L1/L0 46/1/10 96/1/20 56/L1/t0 6/41/40 €6/£1/L0 26/t1/L0 16/L1/L0 06/t1/L0 68/L1/t0 98/L1/L0 £8/t1/L0 4/15/2016, 89 U.S. Gas Rig Counts | 1987 - Curr
Slide 13: Quarterly Indiana Coal Production Annualized
State of the Industry Quarterly Indiana Coal Production Annualized (Million Tons/Year) 7 40 38 = Bo 35 fs # |] | 22 _ mae i | 7 | 7 S345 99998 adagcqqgaag g288989 38 Indiana coal production has declined in response to lower demand. Some reduction is due to reduced operations or idling; other is due
Slide 14: How are the Gas Producers Doing?
State of the Industry How are the Gas Producers Doing? There has been a significant deterioration in the health of the oil and gas industry. Summary statistics as of end of Q3 2015 are as follows: Q3 Negative Asset Bankruptcies Income Write-Offs S&P Downgrades 42 Firms 47 Firms 61 Firms - Q1 2015 Q3
Slide 15: State of the Industry
State of the Industry » More than half of US coal production is in bankruptcy. - Large amounts of production needs to be recapitalized. » Producers will be forced to focus their capital on only the lowest cost production and close their higher cost production. HALLADOR ENERGY COMPANY ey
Slide 16: State of the Industry
State of the Industry The successful fracking of shale rock brought us the Marcellus gas field, which has added 20Bcfd of low cost gas production into a North American market producing about 80 Bcfd.!! The US’s highest cost coal production, Central Appalachia (CAPP), has the misfortune of being loca
Slide 17: At what price is natural gas production sustainable?
“At what price is natural gas production sustainable?”
Slide 18: Cabot lowest cost gas operator
Cabot is perhaps the lowest cost gas operator in the country. Cabot adds gas with the drill bit at 40 cents/mcf. With cash operating costs of $1.15/mcf, that means that it can recover molecules of gas for $1.55/mcf.!2 However, Cabot receives a ~80 cent negative basis differential in the Marcellus ar
Slide 19: Financing a new long-haul pipeline
To finance a new long-haul pipeline to the Gulf Coast, a market large enough to turn the Marcellus gas into end-products or liquefied natural gas (LNG) exports, requires operators to commit to firm transportation contracts for 10-20 years at 80- 100 cents/mcf. So the true cost of Cabot’s gas appears
Slide 20: Will Growth in Non-Power Markets Consume the Gas Surplus?
Will Growth in Non-Power Markets Consume the Gas Surplus? There are three large areas of market growth: LNG exports which began in 2016 from the 0.6 Bcfd train at Sabine Pass. The second train is expected to start later this year. Total capacity under construction is 8.1 Befd. Bulk of capacity is no
Slide 21: Renewable Capacity/Ave Demand
Renewable Capacity/Ave Demand Renewable Capacity Utilization (Wind 31% / Solar 18%) Retail Power Cost Industrial Power Cost Emission Reduction Since 2005 HALLADOR ENERGY COMPANY US 35% 36% $.13 $.07 15% Germany 149% 20% $.40 $.27 4%
Slide 22: Cost impacts of higher power prices
- Costs of all goods would increase — e.g., steel costs would rise 50%. » Household electric bills would increase by $3,000/year. 17 » People vote with their checkbooks. HALLADOR ENERGY COMPANY ey
Slide 23: A multitude of forces have created a glut of BTUs
- Amultitude of forces have created a glut of BTUs. » The market will consume the glut in 2016/2017. » When gas prices rise to ~$3, coal demand will return, but capacity of coal supply will be less. - Hallador is in a unique position to meet this demand with 5MM tons of available capacity. » Hallado
Slide 24: Average Futures Prices As of 5/5/2016
Average Futures Prices As of 5/5/2016 '® Balance of 2016 $2.45 2017 $3.01 2018 $3.05 2019 $3.1 HALLADOR ENERGY COMPANY ey
Slide 25: Glut of Retirements Behind Us
Glut of Retirements Behind Us'2 IN-Coal Burning Retirements 2014 2015 4% 9% 2016 5% 2018 x: No Retirement Date 87% HALLADOR ENERGY COMPANY <>
Slide 26: Desirability of Indiana coal has increased
» The desirability of Indiana coal has increased with Mercury and Air Toxics Standards (MATS) due to its low mercury and chlorine content relative to other coal from the Illinois Basin. » If the utilities which purchased Indiana coal in the last 3 years increased their purchases to all Indiana coal,
Slide 27: Company Financials
COMPANY FINANCIALS HALLADOR ENERGY COMPANY Fe
Slide 28: Annual per-share metrics
Stock Price (5/3/16) $4.54 EPS $ .68 Adjusted EBITDA/Share* $3.02 Free Cash Flow/Share** $1.52 Dividends/Share $ .16 Dividend Yield 3.5% Book Value / Share $8.72 conn dividends) Average Book Value Growth (7yrs) 12.7% (with piisends) HALLADOR ENERGY COMPANY ey
Slide 29: Quarterly per-share metrics
ERS $ .21 Adjusted EBITDA/Share* $ .80 Free Cash Flow/Share** $ 40 Dividends/Share $ .04 “We define Adjusted EBITD Aas EBITDA plus amortization of stock compensation. “We define free cash flow as pre-tax income plus DDA plus amortization of stock compensation less cap-ex. HALLADOR ENERGY COMPANY ey
Slide 30: Credit Facility Amendment
Credit Facility Amendment - Allowed for the purchase of Freelandville. - Loosened our covenants to ensure compliance and allow for additional asset purchases. HALLADOR ENERGY COMPANY ey
Slide 31: Mine safety and training
t) S&S Citation Rate 5 0 % B ett Injury Severity Measure a Violations Per Inspection Day Based on menthly mine safety Training is a top priority at Sunrise Coal. Over 20,000 hours of training were accumulated in 2015 including: 6,000 hours on fire fighting and emergency evacuations 7,000 hours on sa
Slide 32: Hallador Energy Projects
HALLADOR ENERGY PROJECTS
Slide 33: Sunrise Coal Assets
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Slide 34: Sunrise Coal Assets
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Slide 35: Sunrise Coal Assets
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Slide 36: Sunrise Coal Assets
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Slide 37: Sunrise Coal Assets
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Slide 38: Sunrise Coal Assets
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Slide 39: Source references
1. NMA- October 2015 Board of Director’s Policy Update 2. NMA- October 2015 Board of Director’s Policy Update 3. Data provided by Energy Ventures Analysis 4 Oakcliff Capital 5. Oakcliff Capital 6. Oakcliff Capital 7 Oakcliff Capital 8. Energy Ventures Analysis 9. Energy Ventures Analysis 10. Energy
Slide 40: Hallador Energy Company
JOR ENERGY COMPANY