Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COFinancial_Report.xls
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR4.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR7.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR8.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR1.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR6.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR9.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR2.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR3.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR5.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR13.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR30.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR28.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR27.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR11.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR21.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR17.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR23.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR29.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR10.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR15.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR18.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR19.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR22.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR14.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR20.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR26.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR24.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR25.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR16.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR31.htm
XML - IDEA: XBRL DOCUMENT - HALLADOR ENERGY COR12.htm
EX-95 - MINE SAFETY VIOLATIONS - HALLADOR ENERGY COexh95.htm
EX-32 - 906 CERTIFICATION - HALLADOR ENERGY COext906.htm
EX-31.2 - 302 CERTIFICATION - HALLADOR ENERGY COexh302wab.htm
EX-31.1 - 302 CERTIFICATION - HALLADOR ENERGY COexh302vps.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

[ x ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
For the quarterly period ended: September 30, 2012
 
or
 
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
Commission file number: 001-3473          
 
“COAL KEEPS YOUR LIGHTS ON”
 
sunrise
 
“COAL KEEPS YOUR LIGHTS ON”
 
HALLADOR ENERGY COMPANY
(www.halladorenergy.com)
Colorado
(State of incorporation)
 
84-1014610
(IRS Employer Identification No.)
 

1660 Lincoln Street, Suite 2700, Denver, Colorado
(Address of principal executive offices)
 
80264-2701
(Zip Code)
     
Issuer's telephone number: 303.839.5504
   

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes þ No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "larger accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

o Large accelerated filer
o Accelerated filer
o Non-accelerated filer (do not check if a small reporting company)
þ Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o  No þ

As of November 1, 2012 we had 28,348,000 shares outstanding.
 
1

 


  PART I - Financial Information
ITEM 1.  FINANCIAL STATEMENTS
Consolidated Balance Sheet
 
(in thousands, except per share data)
 
   
September 30,
   
December 31,
 
   
2012
   
2011
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 30,213     $ 37,542  
Accounts receivable
    7,492       6,689  
Coal inventory
    3,302       1,863  
Parts and supply inventory
    2,286       2,202  
Other
    311       580  
Total current assets
    43,604       48,876  
Coal properties, at cost:
               
Land, buildings and equipment
    145,027       137,707  
Mine development
    68,515       66,614  
      213,542       204,321  
      Less - accumulated DD&A
    (54,346 )     (42,493 )
      159,196       161,828  
Investment in Savoy
    13,190       12,133  
Investment in Sunrise Energy
    3,851       3,297  
Other assets
    8,767       6,294  
    $ 228,608     $ 232,428  
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities:
               
Bank debt
  $ 10,000     $ 17,500  
Accounts payable and accrued liabilities
    10,299       10,471  
Income taxes
    1,502       5,125  
Total current liabilities
    21,801       33,096  
Long-term liabilities:
               
Deferred income taxes
    34,812       31,128  
Asset retirement obligations
    2,383       2,276  
Other
    6,311       4,935  
Total long-term liabilities
    43,506       38,339  
Total liabilities
    65,307       71,435  
Commitments and contingencies
               
Stockholders' equity:
               
Preferred Stock, $.10 par value, 10,000 shares authorized; none issued
               
Common stock, $.01 par value, 100,000 shares authorized; 28,341 and 28,309 shares outstanding, respectively
    283       283  
      Additional paid-in capital
    88,203       85,984  
      Retained earnings
    74,765       74,685  
      Accumulated other comprehensive income
    50       41  
Total stockholders’ equity
    163,301       160,993  
    $ 228,608     $ 232,428  
See accompanying notes.

 
2

 


Consolidated Statement of Comprehensive Income
 
(in thousands, except per share data)
 
   
   
Nine months ended
   
Three months ended
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Revenue:
                       
Coal sales
  $ 98,259     $ 100,275     $ 36,152     $ 34,174  
Gain on sale of unproved oil and gas properties
            9,084               9,084  
Equity income - Savoy
    2,999       4,071       501       948  
Equity income - Sunrise Energy
    49       774       17       230  
Other
    4,938       1,949       444       192  
      106,245       116,153       37,114       44,628  
Costs and expenses:
                               
Operating costs and expenses
    57,994       55,965       20,745       19,355  
DD&A
    11,895       10,128       4,145       3,392  
Coal exploration costs
    1,900       645       778       373  
SG&A
    5,607       5,096       1,947       1,695  
Interest
    757       1,003       229       297  
      78,153       72,837       27,844       25,112  
                                 
Income before income taxes
    28,092       43,316       9,270       19,516  
                                 
Less income taxes:
                               
Current
    5,607       5,563       1,731       2,416  
Deferred
    3,684       10,464       1,349       4,544  
      9,291       16,027       3,080       6,960  
                                 
Net income*
  $ 18,801     $ 27,289     $ 6,190     $ 12,556  
                                 
Net income per share:
                               
Basic
  $ 0.66     $ 0.97     $ 0.22     $ 0.45  
Diluted
    0.65       0.95       0.22       0.44  
                                 
Weighted average shares outstanding:
                               
Basic
    28,316       28,114       28,324       28,162  
Diluted
    28,791       28,678       28,760       28,590  
                                 
*There is no material difference between net income and comprehensive income.
 
 
See accompanying notes.
 
 
 
 
3

 
Consolidated Statement of Cash Flows
(in thousands)
 
   
Nine months ended
 
 
 
September 30,
 
             
   
2012
   
2011
 
Operating activities:
           
Cash provided by operating activities
  $ 29,552     $ 40,413  
                 
Investing activities:
               
Capital expenditures for coal properties
    (9,222 )     (17,025 )
Proceeds from sale of unproved oil and gas properties
            11,622  
Purchase of  marketable securities
    (1,291 )        
Investment in Sunrise Energy
    (506 )        
Other
    83       (1,284 )
Cash used in investing activities
    (10,936 )     (6,687 )
                 
Financing activities:
               
Payments to bank
    (7,500 )     (7,500 )
Dividends
    (18,721 )     (3,505 )
Other
    276       552  
Cash used in financing activities
    (25,945 )     (10,453 )
                 
(Decrease) increase in cash and cash equivalents
    (7,329 )     23,273  
Cash and cash equivalents, beginning of period
    37,542       10,277  
Cash and cash equivalents, end of period
  $ 30,213     $ 33,550  




See accompanying notes.





 
4

 




Consolidated Statement of Stockholders' Equity
 
(in thousands)
 
                                     
                                     
   
Shares
   
Common
 Stock
   
Additional
Paid-in Capital
   
Retained
Earnings
   
AOCI*
   
Total
 
Balance, January 1, 2012
    28,309     $ 283       85,984     $ 74,685     $ 41     $ 160,993  
                                                 
Stock-based compensation
                    1,895                       1,895  
                                                 
Other
    32               324               9       333  
                                                 
Dividends
                            (18,721 )             (18,721 )
                                                 
Net income
                            18,801               18,801  
                                                 
Balance, September 30, 2012
    28,341     $ 283     $ 88,203     $ 74,765     $ 50     $ 163,301  


*Accumulated Other Comprehensive Income




See accompanying notes.





 
 

 
5

 

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(1)    General Business

The interim financial data is unaudited; however, in our opinion, it includes all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods. The financial statements included herein have been prepared pursuant to the SEC’s rules and regulations; accordingly, certain information and footnote disclosures normally included in GAAP financial statements have been condensed or omitted.

The results of operations and cash flows for the nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2012.  To maintain consistency and comparability, certain 2011 amounts have been reclassified to conform to the 2012 presentation.
 
Our organization and business, the accounting policies we follow and other information, are contained in the notes to our consolidated financial statements filed as part of our 2011 Form 10-K. This quarterly report should be read in conjunction with such 10-K.
 
The consolidated financial statements include the accounts of Hallador Energy Company (the Company) and its wholly-owned subsidiary Sunrise Coal, LLC (Sunrise).  All significant intercompany accounts and transactions have been eliminated.  We are engaged in the production of thermal coal from an underground mine located in western Indiana.  We own a 45% equity interest in Savoy Energy L.P., a private oil and gas company which has operations in Michigan and a 50% interest in Sunrise Energy, LLC, a private entity engaged in natural gas operations in the same vicinity as our coal mine.
 
(2)    Bank Debt

In December 2008, we entered into a credit agreement with a bank consortium headed by PNC Bank that provides for a $40 million term loan and a $30 million revolving credit facility.  At September 30, 2012, we owed $10 million on the term loan and nil on the revolver. The current interest rate is LIBOR-one month (0.25%) plus 2.50% or 2.75%.
 
On October 18, 2012, Sunrise Coal, our wholly-owned subsidiary, entered into a new credit agreement (the “Credit Agreement”) with PNC Bank, as administrative agent, and the lenders named therein. The Credit Agreement replaces the previous credit agreement we had with PNC. Closing costs on this new facility were about $1.5 million and initially will be deferred and amortized over five years.  Outstanding debt as of October 31, 2012 is the same as of September 30, 2012.

The Credit Agreement provides for a $165 million senior secured revolving credit facility. The facility matures in five years. The facility is collateralized by substantially all of Sunrise’s assets and we are the guarantor. We will draw on the facility as needed for development of our new projects in Illinois and Indiana.
 
All borrowings under the Credit Agreement bear interest, at LIBOR plus 2% if the leverage ratio is less than 1.5X, LIBOR plus 2.5% if the leverage ratio is over 1.5 but less than 2X and at LIBOR  plus 3% if the leverage ratio is over 2X. The maximum leverage ratio is 2.75X.  The leverage ratio is equal to funded debt/EBITDA. The annual commitment fee is 50 BPS but falls to 37.5 BPS if we borrow more than 33% of the facility.

 
6

 
The Credit Agreement also imposes certain other customary restrictions and covenants as well as certain milestones we must meet in order to draw down the full amount.

(3)           Investment in Savoy

We own a 45% interest in Savoy Energy L.P., a private company engaged in the oil and gas business primarily in the State of Michigan. Savoy uses the successful efforts method of accounting.  We account for our interest using the equity method of accounting.

Below (in thousands) to the 100% are a condensed balance sheet at September 30, 2012 and a condensed statement of operations for the nine months ended September 30, 2012 and 2011.

Condensed Balance Sheet

       
   
2012
 
       
Current assets
  $ 16,610  
Oil and gas properties, net
    21,887  
    $ 38,497  
         
Total liabilities
  $ 9,396  
Partners' capital
    29,101  
    $ 38,497  


Condensed Statement of Operations


             
   
2012
   
2011
 
             
Revenue
  $ 24,585     $ 22,802  
Expenses
    (17,931 )     (13,755 )
Net  income
  $ 6,654     $ 9,047  
                 


 
7

 


(4)            Investment in Sunrise Energy

In late December 2010, we invested $2.375 million for a 50% interest in Sunrise Energy, LLC which then purchased existing gas reserves and gathering equipment from an unrelated third party with plans to develop and operate such reserves. During January 2012 we invested an additional $506 thousand. Sunrise Energy also plans to develop and explore for coal-bed methane gas reserves on or near our underground coal reserves. They use the successful efforts method of accounting. We account for our interest using the equity method of accounting.

Below (in thousands) to the 100% are a condensed balance sheet at September 30, 2012 and a condensed statement of operations for the nine months ended September 30, 2012 and 2011.

Condensed Balance Sheet

       
   
2012
 
       
Current assets
  $ 2,390  
Oil and gas properties, net
    6,731  
    $ 9,121  
         
Total liabilities
  $ 1,430  
Members' capital
    7,691  
    $ 9,121  


Condensed Statement of Operations


             
   
2012
   
2011
 
             
Revenue
  $ 1,671     $ 3,112  
Expenses
    (1,573 )     (1,564 )
Net  income
  $ 98     $ 1,548  
                 

 
8

 
(5)      Other Assets and Other Income (in thousands)


   
September 30,
 2012
   
December 31,
2011
 
Other assets:
           
    Advance coal royalties
  $ 3,241     $ 3,205  
    Marketable equity securities available for sale at fair value (restricted)*
    3,633       2,326  
    Miscellaneous
    1,893       763  
    $ 8,767     $ 6,294  
-------------------------------------
*Held by Sunrise Indemnity, Inc., our wholly-owned captive insurance company.
 
   
Nine months ended
September 30,
   
2012
   
2011
 
Other income:
           
MSHA reimbursements
 
$
4,236
   
$
1,900
 
Other
   
702
      49  
   
$
4,938
   
$
1,949
 
                 
 

See “MSHA Reimbursements” below for a discussion of the $4.2 and $1.9 million.

(6)   Self Insurance

We continue to self-insure on about $100 million (historical cost) of our underground mining equipment.  We feel comfortable with this decision as such equipment is allocated among four mining units spread over fifteen miles.
 
(7)  Bill and Hold
 
Earlier in 2012 two of our customers advised us that their coal stockpiles were increasing and asked us to consider storing their coal on our property. In April 2012 we entered into a storage agreement with one customer to store 250,000 tons for a minimum of one year and up to a maximum of two years. In June 2012 we entered into a similar storage agreement with the second customer. We continue to sell the coal as contracted to these customers.  The risks and rewards of ownership pass from us to them as coal is placed into segregated storage. We are paid a nominal storage fee in addition to our contracted price at the time the coal is placed in storage. As of September 30, 2012, we have stored 250,000 tons for the first customer and 70,000 tons for the second. We have recognized about $14.5 million in revenue from these “bill and hold” arrangements.  There were no change in payment terms with our customers and, as of October 31, 2012, all receivables outstanding at September 30 have been collected.

(8)  Subsequent Event

In early October 2012 we sold some land that we bought several years ago and recognized a gain of about $2.75 million.
 
9

 
 
ITEM 2.    MD&A

THE FOLLOWING DISCUSSION UPDATES THE MD&A SECTION OF OUR 2011 FORM 10-K AND SHOULD BE READ IN CONJUNCTION THEREWITH.

Our consolidated financial statements should be read in conjunction with this discussion. 
 
Overview
 
The largest portion of our business is devoted to underground coal mining in the state of Indiana through Sunrise Coal, LLC (a wholly-owned subsidiary) serving the electric power generation industry.  We also own a 45% equity interest in Savoy Energy L.P., a private oil and gas company with operations in Michigan. In late December 2010 we invested $2.4 million for a 50% interest in Sunrise Energy, LLC which then purchased existing gas reserves and gathering equipment from an unrelated third party with plans to develop and operate such reserves. During January 2012 we made an additional investment of $506 thousand. Sunrise Energy also plans to develop and explore for coal-bed methane gas reserves on or near our underground coal reserves. Development is pending an increase in nat gas prices. The primary reason we consummated this purchase was to protect our coal reserves from unwanted fracking by unrelated third parties. We account for our investments in Savoy and Sunrise Energy using the equity method. Historically, through our Denver operations, we also lease oil and gas mineral rights with the intent to sell the prospects to third parties and retain an overriding royalty interest (ORRI) or carried interest. In mid July 2012 we decided to substantially curtail these activities and our geologist who developed these prospects now works for us on a part-time basis.  Occasionally, we participate in the drilling of oil and gas wells.  Further below is a discussion of Savoy’s operations.
 
The table below illustrates the status of our current coal contracts:
 
Year
 
Contracted Tons
 
Average Price
 
           
4th Qtr, 2012
 
   760,000
 
$43.60
 
2013
 
2,900,000
 
  40.01
 
2014
 
1,100,000
 
  46.64
 
 
Nat gas prices have nearly doubled from their yearly lows to more than $3.50 per MCF. We believe our coal is competitive at these gas prices. Fortunately we are fully contracted for the remainder of 2012 and 90% for 2013. These higher gas prices should work to our advantage in future negotiations with our customers. As mentioned below we are storing coal for two of our customers. With these higher gas prices and cooling weather we are hopeful these customers’ stockpiles will decrease.
 
The upcoming presidential election, varying winter forecasts and vacillating views of future nat gas prices makes it difficult to plan for the future with certainty. In addition, regulatory uncertainties, particularly surrounding the recently delayed Cross-state Air Pollution Rule (CSAPR) and Maximum Achievable Control Technology (MACT), are causing utilities to defer coal purchasing decisions and in some cases to retire coal-fired generating facilities.
 
10

Earlier in 2012 two of our customers advised us that their coal stockpiles were increasing and asked us to consider storing their coal on our property. In April 2012 we entered into a storage agreement with one customer to store 250,000 tons for a minimum of one year and up to a maximum of two years. In June 2012 we entered into a similar storage agreement with the second customer. We continue to sell the coal as contracted to these customers.  The risks and rewards of ownership pass from us to them as coal is placed into segregated storage. We are paid a nominal storage fee in addition to our contracted price at the time the coal is placed in storage. As of September 30, 2012, we have stored 250,000 tons for the first customer and 70,000 tons for the second. We have recognized about $14.5 million in revenue from these “bill and hold” arrangements.  There were no change in payment terms with our customers and, as of October 31, 2012, all receivables outstanding at September 30 have been collected.
 
Project Update
 
New Reserve (unassigned) – Allerton/Bulldog
 
The paragraph below comes primarily from our 2011 Form 10-K.  We have no additional substantive comments regarding the Allerton reserve at this time.
 
We have leased roughly 19,500 acres in Vermillion County, Illinois near the village of Allerton. Based on our reserve estimates we currently control 32.3 million tons of recoverable coal reserves; 16.3 million which are proven and 16 million which are probable. A considerable amount of our 19,500 acres of leases has yet to receive any exploratory drilling, thus we anticipate our controlled reserves to grow as we continue drilling in 2012. The permitting process was started in the summer of 2011 and we filed the formal permit with the state of Illinois and the appropriate Federal regulators during June 2012. We are calling the new reserve the Bulldog mine. If the process proceeds smoothly, we could receive a mining permit as early as the last half of 2013.  Unassigned reserves represent coal reserves that would require new mineshafts, mining equipment and plant facilities before operations could begin on the property. The primary reason for this distinction is to inform investors which coal reserves will require substantial capital expenditures before production can begin. Sunrise personnel have opened coal mines in this area in the past.
 
Full-scale mine development will not commence until there is proven market demand.
 
MSHA Reimbursements
 
Two of our contracts allow us to pass on certain costs incurred resulting from changes in costs to comply with mandates issued by MSHA or other government agencies.  In late December 2010, we submitted an analysis of such costs which was reviewed by an outside consulting firm engaged by our customers.  In January 2011 the two customers agreed to reimburse us about $1.9 million for costs incurred by us during 2008 and 2009.  During those years we were not able to accurately estimate what the ultimate outcome of these reimbursable costs would be so we did not record them until we were certain of the amounts and certain of collection.  Such amounts were recorded during the first quarter of 2011.
 
We submitted our incurred costs for 2010 in September of 2011 for $4.2 million.  One of the customers agreed with our analysis and paid $2.3 million in February 2012 and the other agreed with our analysis during the second quarter. Accordingly, $2.3 million was recorded in the first quarter and the other $1.9 million was recorded in the second quarter of 2012.
 
We submitted our incurred costs for 2011 in October of 2012 for $4.2 million, coincidentally the same amount for last year. We will not recognize any revenue until the customers have notified us that they accept the charges.  We don’t expect to receive such notification until January or February of 2013; accordingly the revenue will not be recorded in the fourth quarter of 2012.
11

Gain on Sale
 
In early October 2012 we sold some land that we bought several years ago and recognized a gain of about $2.75 million.
 
45% Ownership in Savoy
 
Savoy operates almost exclusively in Michigan.  They have an interest in the Trenton-Black River Play in southern Michigan.  They hold 200,000 gross acres (about 100,000 net) in Hillsdale and Lenawee counties.   Drilling locations in this play are identified based on the evaluation of extensive 3-D seismic shoots. Savoy operates their own wells and their working interest averages between 40 and 50% and their net revenue interest averages between 34 and 42%. Savoy’s net daily oil production currently averages about 756 barrels of oil. Oil and liquids make up about 99% of their oil and gas revenue.
 
The first nine months 2012 may not be indicative for all of 2012 due to (i) the uncertainty of the outcome of Savoy’s drilling activity; (ii) the extent of their seismic activity (G&G costs) and (iii) the sustainability of these high oil prices.  Current oil prices are about $80/barrel. Savoy does not have any oil price hedges in place.
 
The table below illustrates the revenue growth in Savoy (to the 100%) comparing the first nine months of 2012 to 2011 (financial statement data in thousands):
   
2012
   
2011
 
Revenue:
           
   Oil
  $ 19,730     $ 18,816  
   NGLs (natural gas liquids)
    679       490  
   Nat gas
    267       437  
   Contract drilling
    3,552       2,573  
   Other
    357       486  
     Total revenue
    24,585       22,802  
Expenses:
               
   LOE (lease operating expenses)
    3,451       2,920  
   Contract drilling costs
    2,578       1,985  
   DD&A (depreciation, depletion & amortization)
    2,843       2,692  
   G&G (geological and geophysical) costs
    2,689       1,326  
   Dry hole costs
    2,527       1,358  
   Impairment of unproved properties
    2,950       2,507  
   Other exploration costs
    195       255  
   G&A (general & administrative)
    698       712  
      Total expenses
    17,931       13,755  
Net income
  $ 6,654     $ 9,047  
                 
The information below is not in thousands:
               
                 
Oil production - barrels
    218,350       206,875  
NGLs production – barrels
    13,995       8,045  
Nat gas production - Mcf
    97,240       98,600  
Average oil prices/barrel for the period
  $ 90.36     $ 90.95  
Average NGL prices/barrel for the period
  $ 48.52     $ 60.91  
Average nat gas prices/Mcf for the period
  $ 2.75     $ 4.43  
 
12

 
Liquidity and Capital Resources
 
For the first nine months 2012, we generated about $30 million in cash from operations.  This amount was less than the 2011 period due primarily to the reduction in coal sales, payment of income taxes, increases in accounts receivable and increases in our coal inventory.  We do not anticipate any liquidity issues in the foreseeable future. We plan to fund future capital expenditures through a combination of draws from our new credit facility and cash from operations.  Our capital expenditures budget for the remainder of 2012 is less than $3 million.
 
We have no material off-balance sheet arrangements.
 
Second Special Dividend
 
During July 2012 our Board of Directors declared a second special cash dividend of $0.50 per share which was paid in August. The cash payment was about $14.6 million. The 2012 first special cash dividend of $0.14 per share was paid in April 2012 and totaled about $4.1 million. We also paid special dividends in 2011 and 2010 of $0.12 and $0.10 per share, respectively. All these special dividends also applied to our outstanding restricted stock units and options.
 
Results of Operations 
 
Nine Months Ended September 30, 2012 vs. 2011
 
For the first nine months of 2012, we sold 2,255,000 tons at an average price of $43.57/ton. For the comparable 2011 period, we sold 2,386,000 tons at an average price of $42.02/ton. The higher average price for 2012 is due to the mix of our various contracts. We expect our coal sales for the remainder of 2012 to be in the 760 thousand ton range with an average price of $43.60/ton.
 
Operating costs and expenses averaged $25.72/ton in 2012 compared to $23.46 in 2011. The increase was due primarily to poor mining conditions in the month of March. These poor conditions persisted into part of April, but conditions have since improved. We are also operating the mine on reduced hours due to lower customer demand, which has a negative effect on productivity which translates to higher costs.  Our Indiana employees totaled 327 at September 30, 2012 compared to 320 at September 30, 2011. We expect such costs to average $25-27/ton for the remainder of 2012.
 
The increase in coal exploration costs relates to the new Bulldog mine near Allerton, Illinois.
 
Savoy’s activity is discussed above. The reduction in the equity earnings is due primarily to higher dry hole and G&G costs.
 
The decrease in net income was due primarily to the $9 million non-recurring gain on sale of undeveloped oil and gas properties during the 3rd quarter of 2011.
 
Three Months Ended September 30, 2012 vs. 2011
 
For the third quarter of 2012, we sold 810,000 tons of coal at an average price of $44.63/ton. For the comparable 2011 period, we sold 805,000 tons at an average price of $42.45/ton.
 
Cost of coal sales averaged $25.61/ton for the third quarter of 2012 compared to $24.04 in 2011. As stated for the year to date results, the increase was due primarily to lower productivity.
 
The increase in DD&A was due primarily to additions to our coal properties.

The decrease in net income is discussed above.
 
13

Income Taxes
 
Our 2012 effective tax rate was about 33% and we expect such rate to be in the 33-35% range for the remainder of the year. We estimate that about 60% of such rate will be for taxes currently due.
 
New Accounting Pronouncements
 
None of the recent FASB pronouncements will have any material effect on us.
 
Political Contributions
 
During the nine months of 2012 we donated $75,000 to the NMA (National Mining Association) Coal Values program which is to help elect pro-coal mining candidates in 2012 and to promote the use of coal. In April we made a $100,000 contribution to the Super PAC, Restore our Future (ROF) and in September we made another $50,000 contribution to ROF.
 
In the upcoming elections, we encourage all of our shareholders and employees to support those candidates who unequivocally promote legislation and regulations that are favorable to the coal industry.
 
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Smaller reporting companies are not required to provide the information required by this item.

ITEM 4T.  CONTROLS AND PROCEDURES
 
Disclosure Controls

We maintain a system of disclosure controls and procedures that are designed for the purposes of ensuring that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our CEO and CFO as appropriate to allow timely decisions regarding required disclosure.
 
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective for the purposes discussed above.

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - Other Information

ITEM 4.  MINE SAFETY DISCLOSURE

See Exhibit 95 to this Form 10-Q for a listing of our mine safety violations.
 

 
14

 

ITEM 5.  OTHER INFORMATION

2013 Annual Meeting
 
Our annual shareholders’ meeting is scheduled for Thursday, April 18, 2013 in New York City at a yet to be determined location in upper Manhattan.
 
Yorktown Distribution
 
As previously disclosed, each time after we filed our 2011 Form 10-Qs for the first, second and third quarters and for the 2011 annual report on Form 10-K, we were advised by Yorktown Energy Partners VI, L.P., an investor for the last six years, that it had distributed 750,000 shares (3,000,000 in total) of Hallador common stock to its limited and general partners.
 
Yorktown did not make a distribution after we filed the first quarter Form 10-Q for 2012 but did make a 750,000 share distribution on August 21, 2012. After such distribution, Yorktown Energy Partners VI, L.P. along with Yorktown Energy Partners VII, L.P. and Yorktown Energy Partners VIII, L.P. collectively hold about 12 million shares of Hallador common stock representing about 42% of total shares outstanding. 
 
Since May 2011, Yorktown has distributed a total of 3,750,000 shares.  While we do not know Yorktown’s ultimate strategy to realize the value of their Hallador investment for their partners, we expect that over time distributions such as these will improve our liquidity and float.  
 
If and when we are advised of another Yorktown distribution after this Form 10-Q is filed, we will timely report such on a Form 8-K.
 
   
31
SOX 302 Certifications (1)
32
SOX 906 Certification (1)
10.1
Credit agreement IBR to Form 8K dated October 18, 2012
95
Mine Safety Disclosure (1)
101.INS
XBRL Instance Document (1)
101.SCH
XBRL Schema Document (1)
101.CAL
XBRL Calculation Linkbase Document (1)
101.DEF
XBRL Definition Linkbase Document (1)
101.LAB
XBRL Label Linkbase Document (1)
101.PRE
XBRL Presentation Linkbase Document (1)
 
(1) Filed herewith.
 
 
15

 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
   
HALLADOR ENERGY COMPANY
     
     
     
Date: November 1 , 2012
 
/s/W. Anderson Bishop
   
    W. Anderson Bishop, CFO and CAO

 
 
16