Hallador Energy Co Stock

Thank you. Good afternoon. Thank you for attending Hallandor Energy's second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. Following our prepared remarks, there will be a question and answer session, and instructions will follow at that time. As a reminder, this call is being recorded. And now I'd like to turn the call over to Sean Mansoury, the company's investor relations advisor with Elevate IR. 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 Bilslam and CFO Todd Tellez. This afternoon, we released our second quarter 2026 financial and operating results in a press release that is now on the Halador 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, actually, actual results may vary materially from those we projected or expected. In providing these remarks, Halidora 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. And with the preliminaries out of the way, I'll turn the call over to Chairman and CEO, Brent Bilslam.

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 Merrim. 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 MIRA. 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 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. 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 2nd.

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 are higher. Ours is moved the other way. As the equipment restoration and construction scopes have become better defined, we now expect total project costs to be below $800 million, or in the $1,700 per KW range. And 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 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 patients 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. And 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 Halidor in a substantially sold forward position on accredited capacity for approximately the next 14 consecutive years.

With this agreement, we are now able to continue to sell forward sales positions to our customers 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, 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. 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. and a 460 megawatt peaking asset at Turtle Creek 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. 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 Halidor 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 that's and the demand signals are increasingly visible right outside our windows. One 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. Now, turning to the second quarter, operationally the second quarter is traditionally our lightest period of the year. as we take one of Merrim'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 magnify the financial impact by requiring us to purchase power at high prices to meet our delivery obligations. Together, these factors weighed on our second quarter results, but do not, in our view, reflect the earnings power of the plan. With the scheduled outage behind us and the reliability investments in place, we We believe Merrim 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 plan 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 Meraham matters more than ever. both because MISO increasingly depends on dispatchable resources during peak demand, and because Merum 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 MIRM 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. So we are focused on sequential operational improvement and on carrying that improved availability into the balance of the year 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 Merham, 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 Merib's capacity and energy. the advancement of our Total Creek Gas Project, it's 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 Halidor 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.

Thank you, Brent, and good afternoon, everyone. Jumping into our second quarter results. Electric sales for the second quarter were $59.5 million compared to $60 million in the prior year period, while third-party coal sales increased to $40.6 million compared to $38.1 million in the prior year period. Electric sales in the second quarter benefited from higher accredited capacity revenue, which increased 70 percent year-over-year to $18.6 million. Total energy sales volume increased 17 percent compared to the prior year period, while the average price per megawatt hour for delivered energy declined to $41.69 from $52.66. The increase in third-party coal sales during the second quarter was driven primarily by improved pricing. As a 9% increase in our average third-party price per ton, more than offset a 2% decrease in tons sold to third parties.

Sunrise also sold 59,000 incremental tons to Merrim during the quarter as a plant prepared for summer demand. On a consolidated basis, total operating revenue decreased to $101.5 million for the second quarter of 2026, compared to $102.8 million in the prior year period. Net loss for Q2 2026 was $15.2 million compared to net income of $8.2 million in the prior year period. Cash flow used in operations in the second quarter of 2026 was $23.9 million, compared to cash flow provided from operations of $11.4 million in the prior year period. with the decrease primarily reflecting the outage related decline in profitability, higher purchase power costs, and working capital investment, including cash invested in inventory and parts and supplies. Adjusted EBITDA, a non-GAAP measure that is reconciled under earnings press release issued earlier today, was negative $2.9 million for Q2 2026 compared to $3.4 million in the prior year period. We invested $26.3 million in capital expenditures in the second quarter of 2026 compared to $13.1 million in the year-ago period. primarily reflecting the reliability upgrades completed during the planned outage at Merrim, as well as development spending associated with Turtle Creek. With the planned outage complete, we expect the pace of maintenance capital spending to moderate through the balance of the year with full-year 2026 capital expenditures expected to remain consistent with 2025 levels, excluding investments related to Turtle Creek.

As of June 30, 2026, our forward energy and capacity sales position was approximately $1.6 billion, compared to $571.2 million at March 31, 2026, and $619.7 million at June 30, 2025. When combined with our third party forward coal sales of $236.5 million, total contracted revenue on a consolidated basis was approximately $1.8 billion. including intercompany sales to Merrim, our total forward sales book on a segment basis was approximately $2.4 billion. These figures now include the 12-year capacity agreement signed in May 2026. During the quarter, we took additional steps to maintain flexibility under our capital structure. On May 15th, we drew the $45 million available under our delayed drop term loan and used a portion of the proceeds to repay $8 million outstanding under our revolving credit facility. However, had $45 million of total bank debt at June 30, 2026, compared to no outstanding bank debt at March 31, 2026, and $30 million at December 31, 2025. Toll liquidity at June 30, 2026 was $84.2 million compared to $97.5 million at March 31, 2026 and $42 million at June 30, 2025.

The sequential decrease reflects cash deployed during the planned outage, capital investment, and the associated working capital build. At quarter end, total equity consisted of $29 million of unrestricted cash and cash equivalents and $55.2 million of additional borrowing capacity under our revolving credit facility. We believe our credit facility, together with our current liquidity position, provides the flexibility to manage working capital and fund our ongoing operations and investments at Merrim. As we mentioned in June, our financing strategy for Turtle Creek is considering a combination of project level and structural alternatives, including equipment financing, structured debt, and similar instruments designed deliberately to preserve flexibility with low to no equity solution while retaining our focus on balance sheet integrity. We are well underway in financial planning and look forward to providing updates as we make progress in the third quarter.

With that, operator, we can now open the line for questions. Certainly. Ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. Our first question comes from the line of Julian Dumoulin-Smith from Jefferies. Your question, please.

Hey guys, it's Kutra there on for Julian. Thanks for taking my question. Congrats on the quarter. Just wanted to ask you a little bit more on the gas project. Seems like you're making a lot of progress there, costs coming in below expectations. One, can you give us some color on what's driving costs to be a little bit below expectations? Is it mostly interconnection? and costs like you guys had thought of, or are there other factors? And then separately, could you share more color on how the off-take agreements and conversations are trending? What kind of customer interest are you seeing for the gas project? Thanks.

Yes, certainly. You know, I think as we think about the gas project, Turtle Creek, what's changed to lower that budget? I think last quarter we said it would be less than $900 million. Now we're saying it's less than $800 million. And then coupled with that, we've accelerated the COD to the second half of 2028. And when we announced this in June, I mean, we had ranges for what things would cost. And now, you know, those scopes are more defined. And, you know, it's, the owner's engineer and I were over looking at the equipment. It's in excellent condition. We were happy with what we saw.

Disassembly is underway. There's a substantial Siemens workforce on site. Shipments still remains on schedule for September. So as the equipment, the restoration, the construction scopes have firmed up, the numbers have come in better than we initially assumed. And, you know, the other driver is this is not a Greenfield project. You know, we're building at Merrill. We already own the site, the water, the infrastructure. And so that's how, you know, this project gets down to, you know, roughly $1,700 a KW when we're seeing other projects, you know, price well above that and you know, coming in you know, a year or two behind us.

So I think that's just what makes this project special in our mind is that we have a cost advantage. We have a speed to market advantage in an AI. It's all about speed to market. When you talk about marketing, of course, we point to and sales table we've added more definition there as to some of the work that we've done earlier in the year so that speaks to pricing I think that will perhaps be at numbers higher than what some of the analysts in the market thought. And we just continue to see more and more interest. As we alluded to in our prepared remarks, we really think that you know, not, we will add to the contracts that we've already put in place this year before the year is out. That is our goal. And, you know, I think we, today we feel really good about that.

If you look at what we've been doing, we've been pricing a coal asset. and a list of buyers who are interested in buying output from a coal output coal assets output is smaller than that of gas. So we think the market, from what we're experiencing, there's a much greater Rolodex that you can call up to talk to about the gas plant, and we're seeing that interest level, particularly as other industries, states are putting more and more restrictions on new data center builds, we think that's funneling more of that capex spin. towards the state of Indiana. And, you know, we're seeing that in our backyard. You know, we said in our prepared remarks we've got a pretty significant project that's broken ground. Anybody who gets Google Earth Live can see photos of that. It's pretty impressive to see a thousand acre development contiguous to our property. pouring foundations and moving right along. We've had a second project developer buy property on the other side of our plant contiguous to us.

That said, we sell in front of the meter, so we can sell to any place in MISO Zone 6, which is the state of Indiana. northern third of Kentucky. So we feel really good about the demand perspective at this time. And we look forward to delivering on that before the year is out, particularly on Miro. It'll probably take a little longer to market Turtle Creek just because, you know, We've been working on MARAB a little bit longer, but we're excited about what we see. I hope that resonates. And, you know, I think this plant, we're excited about it. We think it's a big deal for our company and expect to make more announcements before the year's out.

Awesome, thank you. Thank you. And our next question comes from the line of Nick Childs from B. Reilly Securities. Your question please.

Thank you, operator, and good afternoon, everyone. This is Henry Hurl on for Nick. So in your prepared remarks you mentioned the turbine disassembly is underway and there's a substantial workforce on that site there. Do you guys have any contingencies if the disassembly or logistics slip and the shipment is pushed to September? Just any color there would be helpful. or pushed out from September, sorry. Yes, look, we're not.

too concerned about the timing of the shipment. We've got plenty of wiggle room there. Always like to get the asset sooner rather than later. Always like to get it online sooner sooner rather than later. So, we're pushing to get that done as quickly as possible. That said, I don't think that getting the equipment to ship is the long pole of the tent. And so, you know, we're on a pretty short timeframe, right? Or we're saying COD roughly two years, right? Last half of 2028.

We think that's a very marketable time for that project, and today as we look about about where we're at i think we're we're excited about uh the potential success of that project so.

not too concerned about the shipping date. Got it. That's helpful, thank you. And then just on financing, obviously the goal is to minimize equity dilution. You kind of went through a couple different financing structure in the prepared remarks what are you leaning most towards at this time and when do you expect to disclose that.

Thanks. Thanks, Henry. It's Todd Tellez. I think as Brent alluded to during the course of the call, Turtle Creek has three primary advantages when you're talking to financing counterparties. One is the capital cost. Two is the speed to market. And ultimately, those drive long-term affordability, which makes it a very attractive asset to contract with. Absolutely. as the former as quadratus question was really around the offtake agreements. So I think when you look at those three factors combined with what we view as a very robust financing market, in particular for equipment financings. That's extremely helpful for us. As you know, we also have the benefit of having the Merrim coal-fired asset that has substantial contracts put in place and working hard at contracting even further on the Merrim assets.

I think those are very financeable contracts. So a couple different pockets of debt capital. So those between those things, I think then when you look out into the future, you look at where we think the financial performance of the businesses in the latter part of this decade, all those should be supportive of bringing on leverage onto this project. minimizing the amount of dilution for our current shareholders.

Thank you, Todd. That's very helpful. And then just on that same point, is there any possibility for government support from the DOE and the likes in financing the Turtle Creek project? Is that something that you're exploring currently?.

Our DOE financing has really been focused on some of the things we're doing at Merham. We don't see any DOE financing for the Turkic Greek gas asset at this point in time.

Got it. All right, I'll turn it over. Thanks, guys, and continue to best of luck.

Thanks. Thank you. And our next question comes from the line of Matthew Key from Texas Capitol. Your question, please.

Hey, good afternoon, everyone, and thanks for taking my questions. In regarding the DOE, in June, you announced the $27 million in DOE funding to help modernize Miriam. I was just wondering, when would you want to complete those upgrades? I'm just trying to get a sense of timing for that. specific project? Yes, so we announced a month AGO THAT WE WERE SELECTED TO NEGOTIATE PARTICIPATION.

27.2 million of grants from the DOE that were to be use for our ELG compliance. That document is rounding third. So we anticipate some of that work will get done yet this year. So we should see some dollars matched in that probably in the fourth quarter.

and then continuing on into 27 and 28. Got it. That's helpful. And I guess you mentioned you being relatively comfortable being open in your forward energy book over the medium term, just given the expectations for rewriting and pricing. I was wondering if there are any specific price signals or increase in the curve you'd want to see before facilitating a more aggressive stance in forward energy sales?.

Well, I think we have seen some upward movement in the curve this year. And so some of the conversations are advancing along those levels. I wouldn't be surprised if you saw some energy sales from us yet this year. We'll probably take more of a layered approach, with some sales made this year and some in future years. Certainly not afraid to contract if the pricing signals are right for us, but we certainly don't feel any urgency. Capacity is more illiquid market. Energy is a very liquid market. There's a lot of ways to sell energy.

There's a few ways to sell capacity. That said, where we're really seeing the most, PINCH POINT IS IN THE CAPACITY MARKETS, WHICH IS WHY WE'VE BEEN AGGRESSIVE AT Mirum, the coal units, two-thirds of that is roughly sold through 2040. You know, our goal is to sell the balance of that out yet this year on multi multi-year contracts, um So, you know, we seem to be, the market seems to be supportive of that, which is why we're feeling confident. about the demand and the robustness of that for Turtle Creek. We think this is an asset, right? It's a peaker plant, right? It's... It primarily provides accredited capacity, and it does so at a price point and a timing that we think is just right up the fairway of what this market wants. And so that's kind of where our head's at on.

energy and capacity, Matthew. Got it. That's helpful. Thank you for the time.

Yes, thank you. Thank you. And our next question comes from the line of Jeff Graham from Northland Capital Markets. Your question, please.

That's fine, guys. I wanted to circle back on the contracting kind of process or decision tree, if you will. When we think about incremental capacity contracts on coal versus gas project, it sounds like, you know, to your comment of a deeper Rolodex on the gas side, should we think about that project being more executable, if you will, over coal over the coming months? Or is there a, I guess path of least resistance between those two that suggests one is further along versus another that we should expect.

Yes, look, I mean, I think we have shown we are executing on coal. you know, we're buyers of the gas that, you know, think of it this way. If there's probably three to four times the number we can talk to of potential buyers for a gas asset than there is of a coal asset. And we're having great success on the coal side. You know, we're just further along on the coal side because that plant exists and is running today. Whereas Turtle Creek, you know, we still have yet to make the final investment decision. And so buyers want to see that project, you know, take a couple steps forward. And quite frankly, we want it to take a couple steps forward.

We're waiting to hear what the system upgrade costs are for Turtle Creek. We, think we may learn that yet this week. You know, we have a high degree of confidence there. Um, because we use the same vendors that MISO uses to do their studies. So we've already done those studies. Now, it doesn't matter what we think. It matters what MISO thinks. So we think this is a check-the-box exercise, but we still have to hear the number before we can make that final decision. make I think good advancements on the financing side with those discussions so as we put those two things together We think we're close to moving forward with that project.

And we have great confidence in that because we think we'll have Mirum essentially sold out. And Mirum, you know, the company really doesn't have a lot of debt. So when you look at what's the value of that asset, It doesn't have a lot of debt, and now we're adding Siemens, Turbans to the mix. I think it's a very financeable project, and quite frankly, the response from the market is justifying our opinion. And again, the other thing that's different about this project is we actually have physical equipment. the other projects have queues, right? And queue positions get pushed out. you know, we've got to load something on a boat and ship it across the sea. I've been over to review that personally you know I don't want to jinx ourselves but quite frankly it's going quite well and it's a pretty simple process so We'll know more on that in a month. We expect it to be out of boat.

Sounds good. Okay. I appreciate those details. For my follow-up on the energy side of things, is it fair to think that that market is more, I guess, prone to at least relatively shorter-term contracts versus a 10- or 15-year capacity contract? Or are those opportunities still out there where we could see a lot of growth? longer-term energy contract as well. And do you guys have interest in that on your side as well?.

There is interest in buying longer-term energy, and we have interest in doing that. We'll see if we can deliver on that before the year's out. All right. We'll stay tuned. Thanks, Brian.

All right. Thank you, Joe. Thank you. And our next question comes from the line of Jake Sikelski from Alliance Global. Your question, please.

Hi, Brent and Todd. Thanks for taking my questions. So just going back to Turtle Creek, you mentioned CapEx initially came in below $900 million and now we're below $800 million. I'm just curious, are there any other levers you feel you might be able to pull that could drive this even lower as we get through FID, or do you feel you've kind of flushed all that out? Well, we certainly are dialing in more.

you know i think there's a chance that project cost could go down uh yet again but uh we want to make sure we don't have any surprises, right? So, you know, as things unfold, get loaded on the boat, get delivered to Siemens. You know, we'll know more about that front, but we think we've got enough contingencies in there. We feel we're in pretty good shape. AGAIN, WE ALREADY THINK THIS PROJECT IS MAGNITUDE'S LOWER costs than some of the other projects that we've seen that are competing against it and we have a time advantage. That's where the market seems to be paying up is the speed to market play. Talk to me about electrons today and compute today, not, know, years from now. So we think we've got something special.

I hope that resonates.

Fair enough. Okay. And then, just from a financing perspective there, I'm just curious, are there any strategic avenues that you're exploring, or are you thinking more along the traditional lines for the broader financing package?.

Yes, I think right now, Jake, I think we're very focused on more traditional financing packages. whether it be strictly equipment financing, quasi-project financing, and or even corporate financing. So I think more traditional financing. traditional efforts focused on what we can do ourselves here at Halidor.

Got it. Okay. That's all for me. Thanks again. Thank you, Jake. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Brent for any further remarks.

Yes, I want to thank everybody for taking the time to join us today and your interest in Halidor. And we're excited about our company, the work that we've put into Merrill, the work that we're putting into Turtle Creek, and we just think pound for pound. this is going to create exciting opportunities for the investor in Halifax. Thank you for your time.

Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good afternoon. Thank you for attending Hallador Energy's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call will be recorded.

I'd now like to turn the conference over to Sean Mansouri, the company's Investor Relations Adviser with Elevate IR. Please go ahead, Sean.

Thank you, and good afternoon, everyone. We appreciate you joining us to discuss our first quarter 2026 results. With me today are President and CEO, Brent Bilsland; and CFO, Todd Telesz.

This afternoon, we released our first quarter 2026 financial and operating results and 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.

And with the preliminaries out of the way, I'll turn the call over to President and CEO, Brent Bilsland.

Thank you, Sean, and thank you, everyone, for joining us this afternoon. Before diving into our first quarter results, I want to begin with what we believe is an important milestone in a multiyear transformation of Hallador, one that has been in the works for a long time now and reflects the steady, deliberate execution of a strategy our long-term shareholders have been patient with.

Subsequent to quarter end, we executed a 12-year capacity agreement with a subsidiary of utility, that is expected to generate more than $1 billion of contracted revenue from 2028 through 2040 at pricing levels more than 2x our historical contracted capacity pricing. This agreement is subject to approval by the Indiana Utility Regulatory Commission, which we anticipate will occur in the second half of 2026. The agreement represents one of the most significant commercial achievements in our company's history.

It may be helpful to put today's announcement in the context of the path that brought us here. Six years ago, Hallador was originally an underground coal mining company. In 2021, we began acquiring a 1 gigawatt interconnection. In '22, we acquired the 1 gigawatt power plant that utilizes the interconnection. In 2024, we began marketing long-term output of the plant. And in '25, those discussions broadened from data center developers to utilities.

In March of this year, we executed a 3-year capacity agreement at approximately twice our historical pricing. And today, we are announcing a 12-year $1 billion-plus capacity agreement that follows directly behind it. Each of those steps was deliberate, each built on the one before. And we believe the same pattern of disciplined sequential execution will continue to define how we create shareholder value from here.

Combined with the 3-year capacity agreement we announced in March that contracted our accredited capacity for planning years '26, '27 and '28, the agreement we are announcing today contracts the back portion of planning year 2028 and each year thereafter through mid-2040. Together, these 2 capacity-only sales total approximately $1.1 billion and place Hallador in a substantially sold-forward position on accredited capacity for approximately the next 14 consecutive years. We believe this represents a meaningful structural improvement in the durability of our earnings power and our balance sheet. And importantly, it provides the capital raising foundation from which to pursue the next set of opportunities in front of us.

The agreement initially covers a smaller volume of accredited capacity in planning year 2028, increasing to approximately 2/3 of our accredited capacity beginning in planning year 2029 and continuing through 2040. This structure provides the kind of long-duration revenue visibility that is increasingly rare for dispatchable generation in MISO and validates the durable economic value of our dispatchable generation platform.

It is worth noting that this agreement is only for our capacity. We are not committing energy under this contract, which enables us to secure durable contracted revenue, while preserving full exposure to future upside in energy markets as demand for power continues to rise across MISO. Preserving that energy side optionality is intentional. As we will discuss in a moment, we believe the energy market is on a different time line than the capacity market, and we are positioning the portfolio to participate in both as they develop. To us, that is the bigger story.

While our first quarter results were generally in line with our expectations due to previously mentioned availability constraints at Merom, the underlying value of Hallador is increasingly tied to the growing scarcity of reliable, dispatchable generation. The agreement we announced today is one clear data point of that dynamic. And we believe it is one of several you should expect to see emerge from the role our assets can play in meeting this demand.

When we look at the market, we view capacity as the critical first step. For large load customers, particularly data centers, access to accredited capacity is often the gating factor. Without it, projects cannot move forward. As a result, we are seeing capacity markets tighten and reprice ahead of the physical demand that these developments will ultimately bring. Energy demand follows on a different time line. These projects require several years to build. And as they come online and begin to draw power from the grid 24/7, 365, that is when we expect to see more meaningful response in energy pricing. Our portfolio is constructed to participate in both phases.

The capacity contracts we have announced this year address the first. The merchant energy position we have intentionally retained is positioned to address the second when it arrives. This dynamic is central to how we are positioning the business. Our strategy is to monetize capacity where we can secure attractive, long-term value today, while maintaining flexibility to participate in future upside in energy markets. We are being deliberate in how we contract our portfolio, locking in value where scarcity is already evident and preserving exposure where we believe demand has yet to be fully reflected. Capacity remains a critical requirement for large load development, and we continue to see strong interest from counterparties seeking reliable supply over longer periods.

The agreement we signed is an important anchor in our forward sales book, but it is by design, not the last commercial step we expect to take. We continue to evaluate additional ways to monetize our remaining capacity and optimize our forward energy position. We will maintain a disciplined approach, and we will be deliberate about the timing and structure of any future commercial agreements. That said, the level of inbound interest we are seeing today is meaningfully higher than it was even 6 months ago across multiple counterparty types and contract structures.

The contracted high conversion cash flows from these agreements also support a broader transformation we are pushing, building in Hallador over time into a multi-fuel independent power producer with a more diversified generating fleet. We have spoken previously about the proposed 515-megawatt combustion turbine project at our Merom Generating Station site under the MISO ERAS program. Additionally, we are continuing to evaluate dual fuel initiatives for our existing generation. We will work towards making progress on these work streams in the same disciplined sequential way as the contracting strategy has unfolded into the past year.

Now turning to our first quarter 2026 results. As we discussed on our last call, we experienced availability constraints at Merom in Q4, that continued into the first quarter and reduced generation from the plant. First quarter results reflected those constraints as lower generation at Merom pressured electric sales and intercompany coal sales, which ultimately impacted our profitability for the quarter.

We also incurred outage-related replacement power costs during Q1, which created an additional headwind. While these results were generally in line with the expectations we provided in March, they are below the level of performance that we expect from our Merom power plant over time.

Maintaining high levels of reliability remains a top priority for our team, particularly as MISO increasingly depends on dispatchable resources during periods of peak demand. As such, the generating unit in question is currently in a planned maintenance outage, and we are using this period to make reliability-related investments that we believe should improve performance as we move through the balance of the year. As we have discussed previously, Hallador operates as a vertically integrated platform, and Merom sits at the center of that system. When the plant is running efficiently, it drives performance across the business, supporting electric sales, creating consistent internal demand for coal, improving mine productivity and enhancing overall operating efficiency.

When performance at Merom falls below planned levels, those impacts extend throughout the platform. Coal inventories increase, production at Sunrise becomes less efficient, and it becomes more difficult to optimize our cost structure. That is why our focus on improving reliability at Merom is so important. The outage currently underway is a key part of that effort. We are making targeted capital investments in the unit, and we believe that, that is the right decision given both the value of Merom today and the increasing importance of reliable, dispatchable generation going forward.

Historically, similar investments have led to meaningful improvement in operating performance, and we expect the work being completed now to position the plant for higher availability as we move into the summer and upcoming peak demand periods.

We are also in a much stronger financial position to support these investments. At quarter end, we had no outstanding bank debt and meaningfully improved liquidity compared to year-end. That improved capital position gives us greater financial flexibility to invest in the assets, support our ongoing operation and pursue the strategic opportunities we are seeing across the power market.

Looking ahead, our second quarter results will reflect the planned outage currently underway, which we expect will temporarily reduce generation as we complete the necessary maintenance. As we move into the second half of the year, the underlying setup begins to shift with the plant returning from outage and availability improving. We expect to be better positioned heading into the peak summer demand period. As I mentioned earlier, more consistent performance at Merom supports not only electric sales, but also internal coal demand, mine productivity and overall operating efficiency across the platform. This is important because the opportunity in front of us ultimately depends on execution.

While the agreement we discussed earlier reinforces the value of accredited capacity and dispatchable generation, realizing that value over time requires consistent performance at Merom. We're focused on improving reliability, driving efficiency across our coal operations and translating the market opportunity we see into durable cash flow.

Although the first quarter was operationally challenging, it does not change our view of the long-term earnings potential of the platform. The fundamental signals across our markets remain constructive, and we believe Hallador is well positioned to compound shareholder value over a multiyear horizon as the strategy we have been describing continues to unfold milestone by milestone.

With that, I'll turn the call over to Todd to take you through our financial results.

Thank you, Brent, and good afternoon, everyone. Jumping into our first quarter results. Electric sales for the first quarter were $65.1 million compared to $85.9 million in the prior year period, while third-party coal sales increased to $35.1 million compared to $30.2 million in the prior year period. Electric sales in the first quarter reflected the availability constraints at Merom, that Brent discussed earlier, which reduced generation during the period and resulted in lower electric sales compared to the prior year. These impacts were partially offset by stronger credit capacity revenue during the quarter.

The increase in third-party coal sales during the first quarter was driven primarily by improved pricing on shipments to customers, reflecting continued execution across our external customer book and Sunrise Coal's ability to supply both internal fuel requirements at Merom and external market demand.

On a consolidated basis, total operating revenue was $101.8 million for the first quarter compared to $117.7 million in the prior year period. Net loss for the first quarter was $9.3 million compared to net income of $10 million in the prior year period. Operating cash flow for the first quarter was $20.5 million compared to $38.4 million in the prior year period, with the decrease primarily reflecting lower generation of Merom, higher purchase power costs during the quarter and an increase in coal inventory of approximately $4.6 million. Adjusted EBITDA, a non-GAAP measure, which is reconciled in our earnings press release issued earlier today, was $5.5 million for the first quarter compared to $19.3 million in the prior year period.

We invested $7.7 million in capital expenditures during the first quarter of 2026 compared to $11.7 million in the year ago period. As Brent mentioned earlier, we are currently in a planned major maintenance outage at Merom and expect capital spending to remain focused on planned maintenance, reliability and operational improvements across the platform. For the full year, we continue to expect capital expenditures to increase modestly compared to 2025 levels, excluding potential ERAS-related development investments.

As of March 31, 2026, our forward energy capacity sales position was $571.2 million compared to $543.5 million at December 31, 2025, and $630.4 million at March 31, 2025. When combined with our third-party forward coal sales of $288.4 million as well as intercompany sales to Merom, our total forward sales book as of March 31, 2026, was approximately $1.2 billion. Importantly, these figures do not include the 12-year capacity agreement signed last week.

Hallador had no outstanding bank debt at March 31, 2026, compared to $29.7 million at December 31, 2025, and $21 million at March 31, 2025. Total liquidity at March 31, 2026, was $97.5 million compared to $38.8 million at December 31, 2025, and $69 million at March 31, 2025. The increase reflects both the capital raised during the quarter, capacity payments received and the addition of borrowing capacity under our new credit facility.

As Brent mentioned earlier, we took several steps during the quarter to strengthen our capital structure. In early March, we entered into a new credit agreement with Texas Capital Bank, Old National Bank and other long-term relationship lenders, replacing our prior facility. The new agreement includes a $75 million revolving credit facility and a $45 million delayed draw term loan, with maturity in March 2029 and includes an accordion feature that provides additional flexibility.

We believe this new facility, combined with our improved liquidity position and the absence of outstanding bank debt at quarter end, provides a more flexible capital structure than we had entering the year. It allows us to fund the planned outage and reliability investments at Merom, manage working capital across both segments and support the commercial strategy Brent outlined, while maintaining a disciplined approach to leverage and preserving the financial flexibility to support the disciplined multiyear transformation Brent described.

With that, operator, we can now open the line for questions.

[Operator Instructions] Your first question comes from the line of Julien Dumoulin-Smith with Jefferies.

This is [indiscernible] on for Julien. Congrats on the big contract. It's been a long time coming, so nicely done there. Just wanted to ask you, now looking forward towards the gas extension, can you talk about what would get you more confident here in pursuing that moving forward with the gas extension and what your strategy there is both with regards to securing the turbine and towards the EPC? I think you've talked about partnerships on the turbine side, but we're also hearing constraints on the EPC side. So curious if you can add more color on how you move forward with the gas reset?

Yes. Thank you. Look, I mean, certainly, selling a big block of capacity puts us in better financial footing. It increases our confidence. As far as equipment, yes, equipment is hard to get. EPCs are hard to get, but we're in conversations with those parties, and we're moving those discussions forward. When we secure equipment in an EPC, we will announce such a transaction if we decide to go forward with that. But yes, it's -- what we're seeing in the market is the value of PPAs go up, but equipment prices also go up. And so we're trying to align those economics and see if we can get a development build.

Your next question comes from the line of Nick Giles with B. Riley Securities.

Congrats on the capacity deal. That's really great to see. Brent, in your prepared remarks, you noted that capacity is the bottleneck between data center deals being finalized. And I know you've signed this deal with the utility, but should we assume that this deal is ultimately linked to a hyperscaler end user? And how should we think about how end users have shifted on the energy front?

Well, we're a little limited on what we can say just based on some of the confidentiality requirements in the agreement. That said, this is a material agreement, and so it will be filed as an exhibit in our -- with our 10-Q. So there'll be a little more information there. But I would say, overall, data centers are the big demand that we're seeing everywhere.

It's not the only demand. I mean we're seeing potential steel plant expansions in Indiana. We're seeing announcements of new aluminum smelters, I think, in Oklahoma. I mean you're seeing manufacturing show up as well, particularly as you look at energy disruption around the world, the United States truly is energy independent. We truly do have some of the cheapest energy and most secure energy in the world. And so if you're going to build anything, it's going to be built upon that foundation.

Now AI, I think it's revolutionary technology. I think people are just starting to get the first taste of some of these new products. I mean, Anthropic's new offering is amazing. And once your teams start to experience that, you see the productivity gains. And that's just -- I don't know that any of this is new information. It's just we're seeing it. And why are we seeing in Indiana? Specifically, we've talked about Indiana is welcoming data centers to the state, whereas there's something like 30 different states across the country who have some form of pause or moratorium on new data centers.

And so where can you go that has population or is near population, has a great business climate, has favorable tax policy to attract data centers, Indiana is checking that box. And that's why we're just seeing such an intensified interest level in the state. And so that's the wind behind our sails. We executed on it in March. We've executed again here in May. And we hope to announce -- hopefully, we can execute on further deals later this year.

Appreciate that perspective, Brent. Maybe just back on the energy side. In the past, you've talked about kind of where you saw pricing at any given time, and you've made references to the forward curve. And -- so I was hoping just to get an updated view on that? It's been a while. There were some other deals across the space, some on the nuclear side, that we could use as precedent, but I don't think we've seen any of that nature here more recently. So just was hoping for an updated view on kind of where you see energy pricing today?

Yes. So there's a lot of different curves out there, a lot of different companies put them out. We generally think capacity is a lead indicator for energy, right? I mean, first, if you're going to build a data center or even a factory for that matter, you really need to secure your credit capacity first. And then once you've secured that, now you can start building your factory or data center. And then once that -- let's just use data center because that is the biggest portion of the demand we're seeing.

Once you see that being built, once it gets turned on, now we're using energy, right? And so there's typically a couple of year lag between what we're seeing in the capacity markets to kind of the response we're seeing in the energy markets. And I think the curves are just starting to reflect that. We've seen a little price movement up, which is encouraging. We'll see if that holds. And -- but by and large, I mean, everything we're seeing is encouraging.

And maybe just one more, if I could. Given that some of the juice on the energy side, if you will, could come with a lag, would you be willing to kind of wait it out given you have the stability of the capacity revenue secured now? Or would you rather send something sooner?

Well, I think -- look, first of all, we're well hedged for 2026, right? And so that's -- this year's book is in great shape. These capacity deals sets a great foundation for the company through 2040. That's 14 years of forward visibility, a large portion of the book. And again, if you kind of look back to our March release, we talked about if we could continue to sell capacity at the prices we sold out in March, and we could sell everything at that price. That would be $130 million of revenue before we turn the plan on, right? We have a fixed cost of roughly $60 million. This deal was priced higher than that.

So we have -- we think we've locked in -- now we've only sold 2/3 of the forward capacity that we have to sell, but we've locked in a profit for 14 years before we even turn the plan. I think that's a great position for us to be in. It definitely -- we feel no pressure. And I think as far as selling energy goes, I think we just have to take the deals as they come. Different customers have different needs, different opportunities. And so if we see opportunities to lock in energy tomorrow at prices that we deem appropriate for the future, we will do so. But where we've seen the biggest response, again, more than doubling the price of what we were doing 2 years ago is in the capacity markets. And so that's where we've been most aggressive.

Your next question comes from the line of Jeff Grampp with Northland Capital Markets.

Congrats on the announcement. I wanted to talk on -- you're a little more vocal it seems in this release regarding the dual fuel ambitions at Merom. Is there any more detail you can share regarding potential timing, next steps? And as I recall, it was a little bit more of a potential bargaining chip, I suppose, for prospective customers. With that seemingly not really a constraint or consideration, can you talk about what the, I guess, benefits for Hallador would be should you pursue a project like that?

Yes, great question. Look, if we bring a gas line in for the gas plant, right, that has a dual use. It can be used for the gas plant, but it also could be used if we decide to dual fuel the coal-fired units. And again, it wouldn't be a replacement of coal. It would be a -- we would have the ability to burn both, right? We could burn coal, we could burn gas. And there's a lot of reasons to do that, right? Some of it is there's times the gas is cheaper than coal. It could be -- it helps our investors, bankers, insurance companies kind of protect the company. And well, if we have a different administration with a different viewpoint, then all of a sudden, Hallador is a multi-fuel company that isn't just a coal company.

We think as you progress through this, right, we're locking in the economics of the existing generation. We're trying to step towards building of a gas unit to both expand our capacity, but also add a separate fuel source. If we could then upon that dual fuel the existing plant -- now Hallador has really transitioned from a coal company to a multi-fuel company. And I think there could potentially be a multiple uplift in being able to pull all that off.

Now that doesn't mean -- I don't want to sit here today and say we're going to do that. I'm trying to say that because of the contracts we've signed, we've derisked our balance sheet. We've increased the ability to access capital, and these are the type of projects that we are reviewing and trying to work towards. So I just want to kind of give the investor a little bit of insight into how we're thinking. We'll have to see if those investments make economic sense and it's ultimately what we decide is the best use of our capital.

Understood. I appreciate that thorough answer. For my follow-up, I know in the past, you talked about M&A ambitions and some opportunities there. It's obviously a big derisking event for the Hallador story at large. Does this help further or serve M&A ambitions? Are these independent? And can you just give us a broad update on the opportunity set in that world?

Yes. Look, I think there's a lot of opportunity. If you look at -- there's a lot of people that own assets that are funds. And what is unique about Hallador is we have a public vehicle. We have a sales team that can help lock in long-term contracts to add value to those existing assets. And we have a team that is working on developing the interconnect and expanding upon that to meet market demand. So I think Hallador is unique in that -- and we can touch coal assets.

So those 4 attributes, I think, really set us apart and make us a more interesting vehicle for potential M&A possibilities down the road. We'll see if those come to pass. We're only going to do deals that we think are smart, and we're going to do the deals that we think bring the most value to the shareholder at the time that they're in front of us. So hopefully, we can have some success on that.

Your next question comes from the line of Matthew Key with Texas Capital.

Congrats on the new agreement. I was wondering if you could help quantify the pricing a little more on the new capacity agreement? I think you mentioned that it was done above the previous 3-year deal that was announced. Could you provide a rough ballpark on that improvement on pricing?

Yes, Matt, I apologize, we're somewhat limited on what we can say just due to the confidentiality that is in the agreements. But I think that if you look at the tenor and the volume that we've talked about, and we've given roughly the total dollar amount, I think everybody can kind of get in the ZIP Code. There were a lot of reports out on what our last deal was at. And some of that will show up now. So what we announced in March, some of that does show up in our forward sales book in this 10-Q. So if you compare the previous 10-Q to this 10-Q, I think you can get a feel for what that pricing is.

On this particular $1 billion deal, once it's approved by the IURC, that -- then that deal is firmly bound, right? That's the last approval that we're waiting for. I mean we're bound, the counterparty is bound. We just have to have IURC approval. Once that happens in our -- whatever Q follows that time period, then we'll start to report what the volumes and the pricing is on the deal we just announced.

Got it. No, that's helpful color. And for my follow-up, I wanted to talk a little bit about the natural gas expansion. I believe in the previous earnings call, you mentioned that you would expect MISO to complete kind of the ERAS application in 3Q '26. Have there been any changes to that time line? And have they picked up the application as we stand today?

They've not picked up the application yet, but we still anticipate them doing that in June, and then that will require us to make the decision sometime in September.

Got it. Yes. So about 90 days, right, after they pick it up to kind of work through the details of that?

Yes, that's how the ERAS program is supposed to work. Once they pick it up [indiscernible] the 90-day on.

Got it.

We do not control when they pick it up.

I'll now turn the call back over to Brent Bilsland for closing remarks.

Yes. I want to thank everybody for their patience in us getting this capacity deal done. We're very excited about the future of the company, and we think we've got just great things in store. So thank you for your time today.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good afternoon, and thank you for attending Hallador Energy's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I'd now like to turn the conference over to Sean Mansouri, the company's Investor Relations Adviser for Elevate IR. Please go ahead, Sean.

Thank you, and good afternoon, everyone. We appreciate you joining us to discuss our fourth quarter and full year 2025 results.

With me today are President and CEO, Brent Bilsland; and CFO, Todd Telesz. This afternoon, we released our fourth quarter and full year 2025 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.

And with the preliminaries out of the way, I'll turn the call over to President and CEO, Brent Bilsland.

Thank you, Sean, and thank you, everyone, for joining us this afternoon. Hallador delivered strong financial performance in 2025 as we continued advancing our transformation into a vertically integrated independent power producer.

For the full year, total revenue increased 16% year-over-year to $469.5 million. Net income improved materially to $41.9 million. Adjusted EBITDA increased approximately threefold to $56 million, and operating cash flow increased 23% to $81.1 million. These results reflect both improving power market conditions and the operating leverage embedded in our business model.

Electric sales were the primary driver of revenue growth during the year, increasing approximately 19% to $310.7 million compared to 2024. Coal sales also increased 8% year-over-year to $148.7 million as Sunrise Coal continued to support both internal fuel needs at Merom and third-party customers. Together, these segments highlight the advantages of our integrated platform, where our coal operations provide a secure price-certain fuel supply for our generation assets while also allowing us to participate opportunistically in third-party coal markets.

Operationally, our Merom Power Plant performed well through most of the year. In the fourth quarter, however, we experienced operational challenges, which continued into Q1 and reduced availability of the units. Due to this availability issue, we now expect consolidated first quarter of 2026 results to be similar to fourth quarter of 2025.

Maintaining high levels of reliability remains a top priority for our team, particularly as MISO increasingly depends on dispatchable resources during periods of peak demand, which is highest in the summer. As such, the generating units in question will receive a major maintenance outage beginning in May, which once complete, should significantly improve performance.

Sunrise Coal also delivered consistent performance throughout the year. Production optimization initiatives and disciplined cost management helped improve the operating performance across the mining complex. As part of our vertically integrated platform, Sunrise Coal provides a reliable fuel foundation for our generation assets while helping optimize our overall cost structure.

Across the broader marketing environment, we continue to see strong demand for reliable dispatchable generation across the MISO region. Electricity demand growth, combined with the prior retirement of dispatchable assets is tightening supply conditions across the system, increasing the value of accredited capacity as utilities and load-serving entities attempt to secure reliable resources throughout the Midwest. Against that backdrop, we have made progress towards selling energy and capacity at elevated prices.

We have also recently received additional competitive offers to acquire our accredited capacity for over a decade in length. We are excited by what we are seeing in the market. The company is in a strong, long accredited capacity position, which appears to be getting better with time. We hope to make more announcements on this topic very soon.

These robust market conditions led us to file an application in MISO's Expedited Resource Adequacy Study, or ERAS program. During the month of December, we were awarded one of the coveted 50 ERAS slots. In conjunction with our application's acceptance, we funded approximately $14 million of required refundable deposits to support the potential addition of up to 515 megawatts of natural gas generation. The ERAS program was designed to accelerate the development of new generation resources that can help address reliability needs across the MISO system.

Currently, we expect MISO to complete the study of our application in the third quarter of this year. Additionally, we are in negotiations with multiple counterparties for equipment for the project. As the project develops, we plan to share more details around the cost and potential economics of the project.

If successful in our development plans, we would target the plant coming online around third quarter of 2029. This expansion would significantly increase our accredited generating capacity of the company, leveraging infrastructure that is already in place at our Merom site. Compared with greenfield developments, the Merom interconnection offers both speed-to-market and certain cost advantages.

Turning briefly to capital allocation. We maintained a disciplined approach throughout 2025. Capital expenditures were focused primarily on planned maintenance at the Merom facility and operational improvements across our mining operations along with early-stage work supporting potential generation expansion at the Merom site under the ERAS program. We currently expect capital expenditures in 2026 to increase modestly compared to 2025 levels, excluding potential ERAS development.

Looking ahead, we will continue to focus on maintaining operational reliability at Merom, executing efficiently across our coal operations and advancing the strategic initiatives that we believe can drive long-term growth for Hallador. At the same time, we remain disciplined in how we approach new opportunities, and we'll continue to focus on projects and commercial arrangements that we believe will most meaningfully enhance shareholder value for the long term.

Before handing it over to Todd, I'd like to briefly highlight 2 recent additions to our Board that strengthen our leadership during the next phase of Hallador's growth.

In January, we welcomed Barbara Sugg to our Board of Directors following the retirement of long-time Director, David Hardie, whose more than 3 decades of service and support to Hallador, we sincerely appreciate. Barbara previously served as President and CEO of Southwest Power Pool, where she led regional reliability and wholesale market operations across a 14-state footprint. Her industry leadership across grid operations, transmission development and resource integration will be valuable as we continue positioning our Merom facility to support growing demand for reliable capacity.

Further, last week, we appointed Daniel Hudson to the Board, expanding the Board to 7 members. Daniel brings deep expertise in natural gas generation, capital markets and power asset transactions, having led or advised on more than $35 billion in strategic energy investments.

As we pursue opportunities to expand generation at Merom and evaluate additional assets that can scale our power platform, we believe Daniel's background in gas-fired power development and energy infrastructure optimization will provide meaningful strategic guidance for our team.

With that, I will now pass the call over to our Chief Financial Officer, Todd Telesz, to take you through our financial results. Todd?

Great. Thank you, Brent, and good afternoon, everyone. I'll add my thanks for joining us today. Jumping right into our fourth quarter results. Electric sales for the fourth quarter increased 3% to $71.6 million compared to $69.7 million in the prior year period, while coal sales increased 24% to $29.1 million for the fourth quarter compared to $23.4 million in the prior year period.

Electric sales in the fourth quarter reflected continued electricity demand across the MISO market and stable realized pricing, partially offset by lower generation during the period due to the previously mentioned operational challenges and unit availability impacts in Q4 2025 and Q1 2026.

While the unit outages reduced dispatch for part of the fourth quarter, the plant continued to operate and serve market demand as conditions allowed.

The increase in coal sales during the fourth quarter was driven primarily by higher third-party shipments to customers, reflecting continued production optimization at Sunrise Coal and our ability to supply both internal fuel requirements at Merom and external market demand.

On a consolidated basis, total operating revenue increased 8% to $102.4 million for the fourth quarter compared to $94.7 million in the prior year period.

Net loss for the fourth quarter was $0.2 million compared to a net loss of $215.8 million in the prior year period. It's worth noting that the year ago period loss includes an approximate $215 million noncash write-down associated with the value of our mining operations.

Operating cash flow for the fourth quarter was $8.1 million compared to $32.5 million in the prior year period, with the decrease primarily reflecting the cash receipt from a large prepaid energy forward sales contract that was received in Q4 2024.

Adjusted EBITDA, a non-GAAP measure, which is reconciled in our earnings press release issued earlier today, increased 35% to $8.4 million for the fourth quarter compared to $6.2 million in the prior year period.

We invested $24.9 million in capital expenditures during the fourth quarter of 2025 compared to $13.8 million in the year ago period, bringing our full year 2025 CapEx to a total of $69.2 million. This includes the approximately $14 million of refundable deposits made in support of the ERAS gas generation project. As Brent mentioned earlier, we expect our 2026 capital expenditures to modestly increase compared to 2025, excluding any impacts of the ERAS project.

As of December 31, 2025, our forward energy and capacity sales position was $540 million compared to $571.7 million at the end of Q3 and $685.7 million at December 31, 2024. When combined with our third-party forward coal sales of $323.5 million as well as intercompany sales to Merom, our total forward sales book as of December 31, 2025, was approximately $1.3 billion.

Now turning to the balance sheet. We had several material updates. In Q4 of 2025, we completed a $25 million prepaid energy forward sales contract with a long-standing counterparty and raised approximately $14 million through our ATM via the issuance of just over 697,000 shares.

In January of 2026, we further strengthened our capital position through a public offering of approximately 3.2 million shares of common stock priced at approximately $18 per share, generating roughly $57.5 million of gross proceeds. These proceeds are expected to support general corporate purposes, including potential deposits required for preserving key equipment necessary for our proposed natural gas generation expansion at Merom.

Additionally, late last week, we closed on a new credit facility led by Texas Capital Bank, who is a new relationship for us, and Old National Bank and First Financial Bank, who have been long-standing financial partners of Hallador. The $120 million 3-year senior secured credit facilities include a $75 million revolving credit facility and a $45 million delayed draw term loan. The credit facilities also include a $25 million accordion feature.

Overall, our results reflect continued progress across the business as we strengthen our financial profile while investing in the long-term growth opportunities Brent discussed earlier.

With a solidified liquidity position, a meaningful forward sales book and a disciplined capital allocation approach, we believe Hallador remains well positioned to support the continued development of our power platform and the strategic initiatives underway at Merom.

With that, operator, we can now open the line for questions.

[Operator Instructions]One moment for our first question that comes from the line of Jeff Grampp with Northland Capital Markets.

With respect to this longer-term PPA opportunity, Brent, what are the main kind of gating items to getting a deal done at this point? I know you can only say so much, but are we kind of in the phase where we're deciding kind of what the best offer is for the company? Is it negotiating with final parties? Or what's kind of dictating timing at this point?

Yes. Look, I don't think it's going to be just one party. And we have exchanged draft contracts with multiple parties. And I think what's encouraging for us is we continue to see pricing pressure move things higher. And quite frankly, the interest level that we're seeing has dramatically increased in the last 4 weeks, multiple utilities, multiple industrial users. We kind of view it as we're playing a game of musical chairs, and we own the last seat. And we just keep seeing more and more people enter into the room.

And so I know everybody is in a hurry to get something done, including me. But at the same breath, this keeps getting better. And so we're really encouraged by what we're seeing and the level of competition that we are able to engage the counterparties in. So we're happy. We think we're getting much closer and certainly encouraged by what we're seeing. I hope that excitement resonates.

That's super helpful. I appreciate it. That's good to hear. For my follow-up, the -- I wanted to get a bit more details on the issues at Merom that you guys talked about. Can you just shed a little more light on what these operational issues are? And is the -- should we be expecting this to impact performance until this planned outage in May? It sounded like there was going to be a more significant kind of turnaround at that point to maybe address some of these issues.

Yes. No, I think we had some equipment failures in Q4. We had some equipment failures in Q1 that took the plant offline at different times for weeks at a time. And unfortunately, it was some -- particularly in January, it was during some of the better priced weeks. So we hate to see that.

The plant is running now. It has a few limitations. So it's not running at 100%, but it's running. And then we're going to roll right into an outage. And so we -- this was a planned outage. It was what we call a major. So it's -- the plant will be -- half the plant will be down for 6 months (sic) [ 60 days ]. We do that every year. And there's just a lot on the list for this particular unit that's going to get replaced and upgraded. And so a whole lot of new parts are going on. And we think that, that will help the reliability of the plant and just in time for the summer season, which I would point out is the peaking season in MISO now. Summer peaks are higher than winter peaks.

Our next question comes from the line of Matthew Key with Texas Capital.

I wanted to talk about the target date of completion for the nat gas expansion. What are the big determining factors that dictates you hitting or missing that target date? Does this just kind of come down to getting the necessary long lead time equipment in time? Or are there a little bit more complications than that?

No. So right now, we're negotiating with multiple counterparties on can we secure equipment in the right time frame, which we are finding equipment that the timing does work. And can we get that equipment at a price point that makes the project economic. And that's -- and then at the same breath, we've got limited PPAs to support the project. We're obviously in the market attempting to sign long-term PPAs. We like where that pricing has gone. And so you've just got to line all that up.

And then there's other players out there who are opposite of us. They have equipment and no place to go with it. And so we're also talking to those counterparties to say, hey, does it make sense you bring your equipment, we'll bring the interconnect, PPAs, water rights, gas rights, all of that. But the thing that we're excited about is we know -- we feel that our site, our interconnect has a speed-to-market advantage because of the ERAS program. And because of the ERAS program, it has a -- we think, a significant cost advantage over some of the other projects that we're hearing, right? We're hearing other projects that have to have $300 million of system upgrade costs. And we just don't think our project is going to experience that. And so we think there's a significant advantage there.

That said, the downside to the ERAS program is it's a very quick process. And so you kind of got to get all the elements of the deal lined up. And so we're working on that.

Got it. No, that's helpful. A quick macro one for me. Made recent news that the EPA announced the decision to ease the MATS requirements for power plants. Could you maybe just help me quantify the impact that those changes would have on your business, if any, or maybe the industry more broadly?

Yes. So a lot of plants, including ours are already MATS compliant. That being said, there's still some ongoing costs associated with that reporting requirements and so on. So I think the Trump administration in general is trying to unwind a lot of these environmental rules one at a time. And they're just kind of making their way down through the list.

And so what is the impact of that? Overall, it makes operating a plant easier. What are the economic impacts of that? I think it probably has more to do with longevity and less to do with are we going to see our costs materially drop in the next quarter.

Our next question comes from the line of Nick Giles with B. Riley Securities.

My first question, I think you've previously talked about the majority of capacity being taken down in any long-term deal. But you mentioned, Brent, that economics are only getting better. So given that you're talking to multiple parties, is there a scenario where you might announce the long-term PPAs in several tranches? Or should we still be expecting one kind of grand slam?

No, I think you'll see announcements in several tranches. That's our thinking today. I mean certainly, we could see a customer step up and take a bigger block. But today, that's where our head is at that you'll see multiple bites at the apple.

Got it. Got it. Okay. Very helpful. And then just in terms of pricing, you said upward pressure. I think in the past, you've kind of used the forward curve as an anchor and noted that pricing could come in above that. I mean any rough guardrails that you could point us to from a price perspective? I mean should we be still thinking of something above the forward curve? And if so, where do you see the forward curve today?

Yes. So the forward curve is typically energy. Where we're really seeing the price improvement is for accredited capacity. And that's the revenue stream that is going, in our opinion, dramatically higher. That really is the pinch point in the industry. And the reason for that is you can get energy from renewables. It's challenging to get accredited capacity from renewables, right? Solar panels are only rated 5% of nameplate. Windmills are only rated at 15% of nameplate, whereas coal, gas and nukes are all rated 75% to 90% of nameplate is typically what accreditation they're awarded.

So what's changed, the MISO auction is, I think, roughly 2 weeks from today, it's going to be on the 26th. And some of the pricing outlooks that we're seeing in that are dramatically higher. And so we'll see what that auction brings. And we think that we'll probably have some sales that might happen before then as well.

So as we get those deals across the finish line and inked, we'll report it. So you'll see -- you'll get a good look at what that price is.

Also I want to correct something somebody just said I said incorrectly. So our unit is going to go on outage for 60 days, not 6 months, like I said. So just wanted to correct my statement.

Got it. Maybe just one more, if I could. I think you mentioned that CapEx could be modestly higher, excluding ERAS developments. I just wanted to clarify, are you saying that CapEx will be modestly above the kind of $70 million level, I think, which included the $14 million? Or should we exclude the $14 million and kind of start at a base of $55 million. I think you see what I'm getting at. I'm just trying to make sure it's apples-to-apples here.

Yes, Nick, it's Todd. So I think we are looking at modestly higher than what we incurred in 2025, driven by some CapEx that was pushed out of '25 into '26 as well as continued investment in the ELG project. So those are probably the key drivers. And those obviously would be excluding any incremental investments in the ERAS project.

Got it. Got it. And what would those -- I mean so I think last quarter, the emphasis was really around the application. And now that's been accepted, deposit has been paid. Like what are the next -- what are some of those developments that we should be looking out for in the context of ERAS?

Yes. So MISO will pick up our application and begin reviewing that soon. They haven't done that just yet. And then once they pick it up, I believe they'll do a public notification saying that they've picked that up. And then they've got 90 days to complete that study. At the end of that study, they come to us and say, okay, this is what we think it's going to cost. And then we have a certain period of time to negotiate a couple of items on that list. And then ultimately, it comes down to, hey, are you signing a GIA, a generator interconnect agreement with MISO and committing to your project? We think that happens sometime later in Q3. Or are you saying, no, I'm going to pass because the project -- we're just not going to go forward with the project. And then your options, we would probably step into the traditional queue at that point. going forward. So that's -- those are kind of the options on the table on what we think that timing looks like.

And we have a question from the line of Jake Sekelsky with Alliance Global Partners.

So with the gas expansion coming into focus, I'm just wondering how you're thinking about Sunrise Coal and that operations position in sort of the broader portfolio going forward?

Yes. So Sunrise, our results there have been good. They got their cost structure down last year. It performed really well. So far so good this year as well. So we're happy with the Sunrise Coal division.

Again, we're looking to contract a meaningful amount of output at the Merom Power Plant here in the near future. And so that's going to require fuel. So I don't really see any material changes at Sunrise in the near future. We still plan to take coal at the plant. The gas plant -- I mean, if you look at Merom, why is it such a good site for an expansion? Merom was originally designed to be 3 500-megawatt coal-fired units, but they only built 2. But a lot of the power infrastructure that's necessary already exists at the site. The line takeaway capacity from that substation is like 1.2 -- 1.6 gigawatts. We're only using 1,000 or 1 gigawatt, excuse me, 1,000 megawatts.

And so all we're really proposing to do is instead of building a third coal-fired unit, the third unit will be gas units, right? And right now, we're proposing CTs.

And so that's what it is in a nutshell is, hey, there's space on the line. We have property control. We have the easements in place for the gas pipeline that's only 5 miles away. We have water rights. There's good gas availability we're told at that location. So we think we've got really one of the better sites in the country to do such a development. That said, we still have to line up equipment, more PPAs and such to make that project viable, and that's something we're negotiating every day to see if we can make all those numbers line up.

Got it. Okay. That's helpful. And then just building off that a bit, if I may. Are you still evaluating things on the M&A front? Or do you sort of feel your plate is full with the ERAS project coming into focus here over the next few quarters?

Look, we always look at things. We've bid on an asset here recently. I don't think we're going to be selective for that asset. So -- but we are active. And so we'll just have to take the opportunities as they come.

Thank you. And this concludes our Q&A session. I will pass it back to Brent Bilsland for closing comments.

I just want to thank everybody for their continued interest in Hallador, and stay tuned. I think hopefully, we've got exciting things to announce in the future. Thank you again.

This concludes our conference. Thank you for participating. You may now disconnect.

Good afternoon. Thank you for attending Hallador Energy's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call will be recorded. I would now like to turn the conference over to Sean Mansouri, the company's IR. Please go ahead, Sean.

Thank you, and good afternoon, everyone. We appreciate you joining us to discuss our third quarter 2025 results. With me today are President and CEO, Brent Bilsland; and CFO, Todd Telesz. This afternoon, we released our third quarter 2025 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. And with the preliminaries out of the way, I'll turn the call over to President and CEO, Brent Bilsland.

Thanks, Sean, and thank you, everyone, for joining us this afternoon. We are very pleased with our strong third quarter results, which reflect the continued momentum of our strategy and the operational resilience of our vertically integrated platform. During the quarter, we delivered significant third quarter year-over-year gains across key financial metrics, including revenue, which increased 40%, net income increased 14x and adjusted EBITDA, a non-GAAP measure, increased 1.6x. The current market signals for our product offerings are strong, and we believe that the robust interest in the types of long-term arrangements that we are currently evaluating justifies attempting to increase generation at our Merom site.

In connection with these strong signals, on November 3, we took a meaningful step in our strategy to grow our generation portfolio by submitting an application to the MISO Expedited Resource Addition Study, or ERAS program, seeking to add an additional 525 megawatts of gas generation at our Merom site. While the application is only a first step in our growth process and does not guarantee that we will be able to add the full load or any additional generation as part of ERAS, we are excited to participate in the opportunity and for what it could mean to the future of Hallador.

Favorable summer weather patterns, coupled with higher energy demand and elevated natural gas prices created a supportive energy pricing environment that drove strong revenue more than 29% year-over-year increase for our Hallador Power subsidiary. Following the completion of unit 2s annual maintenance outage in early July, both units operated very well through the quarter, resulting in higher dispatch levels and improved reliability across the system. These conditions also provided a tailwind for our coal operations, where solid production up 18%, increased shipments and consistent operating costs contributed to our strong results, which demonstrated the operating leverage inherent in our coal operations.

The favorable power markets led to higher dispatch at both Merom and our customer plants, which boosted coal shipments and helped reduce fuel inventories at both our power plant and coal mine. During the quarter, we also executed a $20 million prepaid forward power sales contract with deliveries scheduled through the first half of 2027. As we have stated in the past, these types of sales are a key component of our commercial strategy, providing immediate liquidity while monetizing forward pricing. The prepaid proceeds are being used to support ongoing operations and capital investment across the business.

As the quarter progressed, we saw accelerating interest in our capacity and energy offerings from both data center developers and load-serving entities seeking access to the limited inventory of large-scale dispatchable energy available in the coming decade. We are in advanced discussions on multiple fronts and remain encouraged about achieving positive progress towards an agreement by early 2026. Each potential counterparty brings unique value creation opportunities and challenges, but all share a recognition of the importance of securing reliable accredited capacity.

Many of the opportunities that we are evaluating are long duration, meaning a decade or more in length and would likely consume the majority of the plant's energy output and accredited capacity at favorable prices. The evolving energy landscape driven by rapid data center growth, rising demand from load-serving entities and a more supportive regulatory environment is creating opportunities that simply did not exist when we began our RFP process last year.

We recognize that these opportunities are time sensitive and our team remains focused on securing an agreement that maximizes value for Hallador and our shareholders. While we continue to view an agreement with a load-serving entity as the more straightforward and faster path to execution, we're also seeing meaningful process on the data center side, particularly with developers that have proactively secured critical infrastructure such as step-down transformers, switchgear and other site-level equipment.

From a broader market perspective, we continue to see the structural imbalance created by the ongoing retirement of dispatchable generators like coal in favor of intermittent renewables such as wind and solar. This shift has increased the scarcity and value of reliable baseload generation. We believe this environment enhances the long-term value of our Merom power plant, its leverageable infrastructure and the critical role that the site plays in supporting grid stability.

As a result, in addition to our efforts to participate in the ERAS program, we continue to evaluate strategic opportunities to acquire additional dispatchable generation assets and infrastructure that could help diversify our portfolio, add scale and enhance our growth trajectory. We also continue to assess the potential to add natural gas co-firing capabilities at our existing generation facilities at Merom. A dual fuel configuration could enhance resiliency during periods of limited gas availability while allowing us to continue leveraging the competitive advantage of our own fuel supply through Sunrise Coal. We are proceeding thoughtfully given the regulatory and consumer considerations that will determine the ultimate structure and timing of this type of opportunity.

Operationally, Hallador Power delivered 1.6 million megawatt hours during the third quarter of 2025 at an average sales price of $49.29 per megawatt hour compared to 1.2 million megawatt hours at $47.55 per megawatt hour during the same period in 2024. As indicated in our forward sales position, we are transitioning into a period of higher energy and capacity pricing above our historical rates as demand for reliable baseload power continues to grow.

On the coal side of our business, operational consistency and increased shipments helped reduce inventories while maintaining adequate fuel supply to support higher potential dispatch levels during the upcoming winter season. As of now, we expect to produce approximately 3.8 million tons of coal in 2025, having produced 3.1 million tons through the first 9 months from our Oaktown mining complex.

We also continue to strategically supplement our internal coal production with low-cost third-party purchases, providing flexibility to respond quickly to shifts in demand and pricing. This balanced approach enables us to optimize fuel costs at Merom while maintaining optionality to capture upside in coal markets. The transformation of Hallador from a commodity-focused coal producer to a vertically integrated independent power producer is evident in our results. We are leveraging the energy transition to capture the expanding margins of the power markets and the growing demand for reliable electricity. If we are able to successfully navigate the associated challenges with building new generation, we believe that the ERAS program provides an opportunity for meaningful organic growth in a relatively accelerated time frame as compared with traditional builds.

With the potential to add roughly 50% of additional generation capacity to the Hallador fleet, we are excited by the unique opportunity this presents. The continued influx of interest from data centers and load-serving entities underscores the value of our platform, and we believe Hallador is well positioned to take advantage of these opportunities for step function growth and cash flow generation in the years to come.

I will now pass the call over to our Chief Financial Officer, Todd Telesz, to take you through our financial results. Todd?

Thank you, Brent, and good afternoon, everyone. Jumping right into our third quarter results. On a segment basis, electric sales for the third quarter increased 29% to $93.2 million compared to $72.1 million in the prior year period, while coal sales increased 42% to $68.8 million for the third quarter compared to $48.3 million in the prior year period. Electric sales in Q3 benefited from traditional summer weather patterns, increased energy demand and higher natural gas prices, which together create a supportive energy pricing environment. The increase in coal sales during the third quarter was driven by increased shipments to customers, supported by favorable power markets that led to higher dispatch levels at both Merom and our customers' power plants.

On a consolidated basis, total operating revenue increased 40% to $146.8 million for the third quarter compared to $105.2 million in the prior year period. Net income for the third quarter increased substantially to $23.9 million compared to $1.6 million in the prior year period. Operating cash flow for the third quarter increased to $23.2 million compared to cash used of $12.9 million in the prior year period, with the increase primarily driven by the aforementioned favorable energy pricing environment, improved coal production efficiencies and the $20 million prepaid forward power sales contract executed in Q3 2025.

Adjusted EBITDA, a non-GAAP measure, which is reconciled in our earnings press release issued earlier today, increased 1.6x to $24.9 million for the third quarter compared to $9.6 million in the prior year period. We invested $19.6 (sic) [ $19.5 ] million in capital expenditures during the third quarter of 2025 compared to $11.6 million in the year ago period, bringing our total 2025 year-to-date CapEx to $44.3 million.

As of September 30, 2025, our forward energy and capacity sales position was $571.7 million compared to $619.7 million at the end of Q2 and $685.7 million at December 31, 2024. When combined with our third-party forward coal sales of $350 million as well as intercompany sales to Merom, our total forward sales book as of September 30, 2025, was approximately $1.3 billion. Our total bank debt remains relatively unchanged and was $44 million at September 30, 2025, compared to $45 million at June 30, 2025, and $44 million at December 31, 2024. Total liquidity at September 30, 2025, was $46.4 million compared to $42 million at June 30, 2025, and $37.8 million at December 31, 2024.

We are currently in discussions with members of our existing bank group and other potential lenders to refinance our credit agreement. Our revolving credit facility matures in August 2026 and our term loan matures in March 2026, with the remaining balances scheduled for repayment in the first quarter of that year using restricted cash. While we have not yet finalized terms, we are making progress towards refinancing on market-based terms and conditions consistent with our existing facility. Of course, as with any financing, there can be no assurance of timing or final terms and conditions, but we remain confident in our ability to secure an arrangement that supports our ongoing liquidity and growth initiatives. This concludes our prepared remarks. We will now open up for questions from those participating on the call. Operator, back to you.

[Operator Instructions] Our first question comes from the line of Jeff Grampp of Northland Capital Markets.

On the potential capacity expansion you guys are looking at now, what are the main milestones or key long lead items we should think about to track over the next, I don't know, couple of quarters, 6 to 12 months to kind of assess the progression there, the potential?

Yes. So MISO created this expedited process to help generation that meets the requirements, which basically has the potential or likelihood to actually be built, get through the queue process in a timely fashion versus the traditional process. And so we filed an application that we feel complies with those time lines. They will come back later this month and tell us if our application is complete in their eyes and give us the time to cure anything that needs further clarification.

Then, they are at various times of the year, announcing which applications they're picking up to review. The ERAS program only allowed for 50 total applications. And I think back in August, they came out and said they were reviewing like 9 of those applications. I think here in November, they've come out and said they're doing another 15 or so. And so it could be 6 months or so before they actually pick ours up. So that's something that we'll keep an eye on and certainly update the market at our quarterly filings. And then in the meantime, we're working on securing the equipment that we filed to build. And so that's what we're working on for now.

Perfect. That's really helpful. And for my follow-up, you guys obviously had a super strong quarter in Q3. Can you touch on what you've seen in the first 40-ish days of Q4? Just trying to get a sense of if some of these dynamics have continued or how we should think about Q4 expectations as we look to wrap up the year.

Yes. No, Q3 was an exceptional quarter for us. A lot of things went right. We had units coming out of outage. We had really warm weather providing strong cooling demand in September. And coal shipments were just, quite frankly, exceptional. We do not expect that here in Q4. We expect Q4 to look very much like Q4 of 2024, unless we just see some extreme cold weather show up in December or something like that. We don't see much of a catalyst to really drive a performance like Q3.

Our next question comes from the line of Matthew Key of Texas Capital.

I was wondering if you could provide any initial color on the economics of the 525-megawatt expansion. Just like an initial read on CapEx and any potential impact it could have on operating costs long-term.

Yes. So we are still negotiating the equipment for that. And so until we have those economics secured, we're not really releasing any information as far as the overall economics. But we are encouraged by what we see through our long-term negotiations on PPAs about the robustness of volume and pricing and number of bidders, the market is just sending strong signals that it needs more capacity.

And so that's ultimately what led us to the decision to file. And so as we progress through this process over the next 3 years, we'll continue to update all of our investors on, what that project is going to look like. But we're excited about, the opportunity as we've told investors, when you're a smaller company like ourselves as far as being able to grow your production relatively quickly, and we think this project potentially does that with the potential to increase our generation by 50%.

Got it. That's helpful. And just a quick macro question for me. In late September, the Trump administration announced, I think it was $625 million in funding directed at coal-fired power generation in the U.S. What impact, if any, do you think that will have on the industry? And could Hallador potentially be a recipient of any of that funding?

Yes. I mean, look, I think any time the government is handing out money that's helpful to the industry. And I think that Hallador could have some projects that qualify for grants out of that basket of money. So we'll just have to see. They made an announcement and then we figure the rules out as we go. So we're still trying to navigate that process and see how much of that we can secure for Hallador.

Our next question comes from the line of Jacob Sekelsky of AGP.

Just on the M&A front, you mentioned you're always looking. I'm just curious if you're seeing plug-and-play type capacity additions out there? Are you more so looking at assets that have been starved with capital in need of investment? And I guess any color if you have a preference between the 2?

Well, I think typically, you're probably going to find us play in the coal space. That seems to be our niche, our expertise. And traditionally, there's been less competition there. So that's typically where we like to focus our attention. That said, those types of transactions are very bespoke. And so they take more time. And I come back to the Merom purchase. I mean that took us NDA to closing, signing the NDA to closing was 33 months. So it wasn't it wasn't a small amount of work. But that said, it ended up being a tremendous value to the company.

So those are the type circumstances that we're looking for. I don't think we'll find a purchase price that low again, but the revenue to offset that has increased. And so we just have to take the opportunities as they come. And -- but we are encouraged by some of the conversations that we're having, and we'll see if they develop.

Our next question comes from the line of Nick Giles of B. Riley Securities.

Congrats on a really nice quarter here. Brent, in your prepared remarks, you noted advanced discussions with multiple parties. Would you look to reenter into exclusivity? Would you really be focused on just announcing a definitive agreement at this point? And then last quarter, you spoke to utilities entering the mix. So curious for any updated commentary around that if a utility might be your preference or if you're still kind of in the mix with hyperscalers as well?

Well, we're talking to both parties. I agree what's changed is the utility interest has increased. Quite frankly, everybody's interest has increased. And I think that's due in large part, particularly on the developer side, as their projects start to get through permitting, once they can get their land permitted and project zoned for data center build-outs, then they start focusing their attention on the next step, which is energy.

And -- so we're seeing several of those projects kind of make it through those stages and now turn their attentions on Hallador because, again, as we've said before, we think we're one of the few places to get accredited capacity in the state of Indiana or MISO Zone 6 said another way. So that's what's transpired. And so it's definitely piqued the interest here in the last several months and far more than interest. I mean, we are negotiating with several parties, and we're trying to get to a definitive agreement with all of those. And they're on probably more of a time constraint than we are. So they're trying to get to a project to the point where it can be developed as quickly as possible. So I think we're in a good spot. We're very encouraged by the process and how it's going and what we see so much so that, that led us ultimately the decision to try to grow our generation by 50% through the year as process.

That's helpful. Maybe switching gears. You executed a 5-month prepaid forward for $20 million in the quarter. How much more room do you have in your forward book until you feel like you need to preserve the remaining capacity for a long-term agreement? Just curious on that in the quarters ahead.

Well, that was energy, right? Primarily what the market is really sending the strongest signals for the credit capacity. you see a lot of articles about the world is running out of energy, I disagree with that. The world has run out of accredited capacity. So -- and the sale we really made was for the 2027 time frame, which we hadn't done much out there, and it was really for a relatively small volume.

Got it. Maybe just one more, if I could. Is it fair to assume that this 525-megawatt expansion could be a part of any long-term agreement? Or maybe if not initially, could you see that potential customer having a ROFR on the capacity? Or where does this ultimately fit in, if at all?

Well, it would be interesting to see. I mean, we just went public about the project an hour ago. So it's not something we've discussed with other parties. I mean we just made the filing a week ago. So this is all relatively new. And we want to -- that's part of the reason we wanted to publicly announce, when you make a filing like that, you're never really quite sure when that will become public. So we wanted to tell the market at the same time. And then -- so I think it will be part of our conversations going forward. And we'll see where that leads.

I would now like to turn the conference back to Brent Bilsland for closing remarks. Sir?

Yes. I want to thank everybody for joining us today and your continued interest in Hallador and just hope that we've been able to articulate and express our high level of excitement as we've had a great quarter, and we're excited about the opportunities that are in front of us. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.