Hallador Energy Company 2026 Q2 Earnings Call

Please go ahead, Sean. Thank you, and good afternoon, everyone.

We appreciate you joining us to discuss our second quarter 2026 results. With me today are Chairman and CEO, Brent Bilsland, and CFO, Todd Telesz. This afternoon, we released our second quarter 2026 financial and operating results in a press release that is now on the Hallador investor relations website. Today, we will discuss those results, as well as our perspective on current market conditions and our outlook. Following prepared remarks, we will open the call to answer your questions. Before we begin, 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 SEC, and are also reflected in today's press release.

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, Hallador has no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law to do so. With the preliminaries out of the way, I'll turn the call over to Chairman and CEO, Brent Bilsland.

Thank you, Sean, and thank you everyone for joining us this afternoon. We are now halfway through 2026, and I would describe our year so far as two stories running side by side. The first is operational. We spent the second quarter putting money and downtime into Merom. Most of it planned, some of it not, and the results show it. The second story, and in our view, by far the more important one, is the continued transformation of the company into a multi-fuel independent power producer. I want to start there because we have made real progress on our natural gas generation project at Merom. We have now formally named that project Turtle Creek Gas, or Turtle Creek for short. Turtle Creek is a proposed 460-megawatt simple cycle natural gas-fired plant project that would meaningfully expand and diversify our dispatchable generation platform.

Let me walk you through where things stand. First, the equipment. I, along with other members of our management team, recently inspected the turbine equipment and disassembly process with the owner's engineer and personnel from Siemens. We were pleased with what we saw. The equipment is in good condition, and disassembly and packing are well underway with a substantial Siemens workforce on-site. We continue to expect shipment of the equipment in September. Second, the interconnection. Turtle Creek's interconnection application entered MISO's Expedited Resource Addition Study, known as ERAS, on June 2. We expect to receive the results of that process, including the required system upgrade costs in mid-August, and indications to date from the study have been constructive. Following our review, we are targeting a final investment decision and execution of a generator interconnection agreement in September. Third, project economics and financing.

In our experience, project budgets tend to move in one direction as scopes firm up, higher. Ours has moved the other way. As the equipment restoration and construction scopes have become better defined, we now expect total project cost to be below $800 million, or in the $1,700 per kW range. We have moved our targeted commercial operations timeframe forward to the second half of 2028. In construction, low cost and fast rarely travel together. We believe Turtle Creek offers a credible pathway to both. One of the lowest capital cost peaking plants currently being developed on a timeline years ahead of many comparable projects. In parallel, we are finalizing the construction scope and advancing financing discussions as we evaluate the appropriate capital structure with the objective of financing the project with little to no equity dilution.

Interconnection, construction, and financing are the principal remaining steps to get us there. None of this progress is an accident. It is the product of the same patient, step-by-step approach that has carried our transformation from the beginning. Six years ago, we were an underground coal mining company. We acquired a one-gigawatt interconnection, then the plant that utilizes it. We began marketing its long-term output. This year, our patience paid off in two landmark capacity agreements. First, the three-year agreement we executed in March with an investment-grade counterparty at approximately 2x our historical contracted capacity pricing. Second, the 12-year agreement behind it, that together total approximately $1.1 billion of contracted revenue. These agreements increased our forward sales position, which now sits at $2.4 billion, placing Hallador in a substantially sold forward position on accredited capacity for approximately the next 14 consecutive years, with commitments extending through 2040.

Turtle Creek is the next step in that transformation, and it is advancing on schedule. I also want to remind everyone how we think about this market because it explains how we have built our contract book. In our view, capacity and energy run on different clocks. For large load customers, particularly data centers, access to accredited capacity is the gating factor. Without it, projects cannot move forward. That is why capacity markets have tightened and repriced ahead of the physical around-the-clock energy demand these developments will ultimately bring. As these projects are built and begin drawing power from the grid, we believe energy demand will accelerate and energy pricing will follow. We have constructed our portfolio to participate in both phases. Our long-dated commitments are anchored in accredited capacity, where repricing has already arrived and where we have contracted through 2040.

Our energy commitments by design are shorter-dated beyond the next few years. Our energy position is largely open, preserved for the repricing we believe is beginning now. As it arrives, we intend to monetize that open position with the same discipline and patience we brought to capacity. A 460-megawatt peaking asset at Turtle Creek would give us even more dispatchable capacity and energy to bring to the market. At the same time, the market keeps confirming our thesis. We are seeing robust demand for accredited capacity and energy from a growing and increasingly diverse set of counterparties, and are working towards making additional forward sales before the end of the year. With $2.4 billion of revenue already contracted at the segment level and more sales on the way, we believe Hallador offers investors a degree of revenue visibility that is among the strongest in the sector.

We are speaking with meaningfully more counterparties today than we were in the past, and the demand signals are increasingly visible right outside our windows. A large data center project has broken ground adjacent to our property, and another project is in the early stages of development on the other side of the plant. You do not need a consultant's report to see where power demand in our region is headed. You can see it from the parking lot. Turning to the second quarter. Operationally, the second quarter is traditionally our lightest period of the year as we take one of Merom's two units offline each spring for an approximately 60-day scheduled maintenance outage. This year's outage at unit 1, we completed major reliability upgrades designed to address the unplanned downtime the unit had experienced in recent quarters. Unit 2 performed well over the course of the quarter.

However, the limited unplanned downtime it did experience coincided with periods of elevated market prices, which magnified the financial impact by requiring us to purchase power at high prices to meet our delivery obligation. Together, these factors weighed on our second quarter results, but do not, in our view, reflect the earnings power of the plant. With the scheduled outage behind us and the reliability investments in place, we believe Merom is positioned to run more reliably going forward, and we expect generation volumes to improve sequentially in the third quarter. I want to be clear about what the planned maintenance expenditures will bring. We invested substantially in the plant during the outage, and the condition of the plant is better for it. We expect that improved conditions to show up where it counts, in reliability, availability, and operating performance over time.

Money spent keeping a productive asset sound is not money lost. It earns us a return every hour the plant runs when the grid needs it most. Reliability at Merom matters more than ever, both because MISO increasingly depends on dispatchable resources during peak demand and because Merom sits at the center of our vertically integrated platform. When the plant runs efficiently, it supports electric sales, creates consistent internal demand for coal, improves mine productivity at Sunrise, and enhances operating efficiency across the business. When performance at Merom falls below planned levels, those effects extend throughout the platform. With the outage behind us and both units running more effectively, we expect generation volumes to improve sequentially in the third quarter. I would note that power pricing remains uncertain, and the third quarter of last year benefited from particularly favorable power market conditions, creating a more challenging year-over-year comparison.

We are focused on sequential operational improvement and on carrying that improved availability into the balance of the year and beyond. In summary, quarters like this one are the price of owning and improving a durable asset. Q2 reflected the important reliability and efficiency work we completed at Merom, along with the temporary challenges that came from it. The more important story is the progress we are making on selling out the remainder of Merom's capacity and energy, the advancement of our Turtle Creek Gas project, its improving economics, and the accelerating demand we are seeing from an expanding set of counterparties. The fundamental signals across our market remain constructive, and we believe Hallador is well positioned to compound shareholder value over a multi-year horizon. With that, I'll turn the call over to Todd to take you through our financial results.