Bilsland said gas prices are destined to increase because, essentially, gas producers are not making any money with the current cheap prices. “We don’t think there are any gas producers in the country that make money below $2.50/MMBtu,” he said. “Even the lowest-cost producers need at least $2.75/MMBtu for a return on investment.”

If Bilsland is correct, gas prices should start an upward climb during the next year or so. “I think at $3/MMBtu gas, Indiana coal is in pretty good shape,” said Bilsland. “At $2.50 [gas] starts to steal market share” from coal.

Hallador’s Sunrise Coal subsidiary operates exclusively in southern Indiana. Almost all of Sunrise’s committed 2016 production, about 6 million tons, is expected to come from its two Oaktown underground mines in Knox County and its small Ace in the Hole surface mine in neighboring Clay County. Ace’s lower-sulfur coal is blended with Oaktown’s higher-sulfur product to meet the requirements of certain electric utility customers, particularly in Florida.

Late last year, Sunrise significantly curtailed production at its once-flagship Carlisle underground mine in Sullivan County and the workforce was cut back to a skeleton crew. Carlisle, which once turned out more than 3 million tons of high-sulfur coal annually, is expected to produce a mere 5,000 tons or so a month this year. But Hallador envisions a recovery for Carlisle as electric utility coal stockpiles are burned down and demand picks up for steam coal. A forecast hot summer across much of the U.S. would come in handy in that regard. The mine’s production is expected to increase in 2018-2019, and sometime in 2020, Carlisle is predicted to resume its normal production capacity of about 3.3 million tons a year.

Bilsland said, “I think the majority of coal customers have high inventory levels,” he observed. “That being said, we did make an additional sale during the [first] quarter, so there are customers out there that are buying. We also have modified agreements to help get customers in better inventory levels. People are working on pushing coal out to next year and beyond and trying to get themselves in a more comfortable spot.”

During the January-March period, Hallador/Sunrise produced about 1.5 million tons and sold 1.62 million tons of coal at an average price of $46.53/ton. That compared with sales of 2.1 million tons at an average price of $45.23/ton a year ago and sales of 1.43 million tons at an average price of $45.92/ton in the fourth quarter of 2015. For the remainder of 2016, Hallador projects an average sale price of about $43/ton. The company still has about 4.4 million tons of committed sales to ship. At this point, the company expects to sell between 4.17 million and 6.56 million tons in 2017 at an estimated average price of $42.87/ton. The company said it expects to continue selling a significant portion of its coal under supply agreements with terms of one year or longer.

On March 22, Hallador purchased the Freelandville underground steam coal reserve totaling 14.2 million tons from Blackhawk Mining’s Triad Mining subsidiary in southern Indiana for $18 million. A coal sales agreement that runs until late 2017 was included in the deal. Sunrise expects to mine the coal from its Oaktown No. 1 mine portal. The purchase also allows Sunrise to access another 1.6 million tons of its owned leased reserves that previously were inaccessible.