Battalion Oil Corporation (NYSE American: BATL, “Battalion” or the “Company”) today announced financial and operating results for the fourth quarter 2022.

Key Highlights

  • Generated full year 2022 sales volumes of 15,438 barrels of oil equivalent per day (“Boe/d”)
  • Year-end 2022 reserves of approximately 92.0 million barrels of oil equivalent (“MMBoe”) with a standardized measure of discounted future net cash flows of approximately $1.5 billion
  • Tenth well of 2022 capital program put online in January 2023 with one of the strongest IP30’s of the program
  • Strengthened hedge book – weighted average strike price on crude oil swaps of $69.17 in 2023, a 36% increase over 2022 average
  • Substantial progress on acid gas treating facility with expectation of being mechanically complete in early April – anticipate significant decrease in gas treating costs in 2023
  • Recently completed issuance of preferred shares for $24.4 million of proceeds to enhance liquidity

Management Comments

Richard Little, the Company’s CEO, commented, “2022 was a year of transformation for Battalion. We entered the year with our development program underway having recently completed a strategic refinancing. The plan was simple: drive production growth while remaining committed to capital discipline and operational efficiency. We addressed the challenges we faced including increases in service costs, scarcity in key supplies and equipment, and issues with labor and service provider continuity to close out 2022 within the guidance range on all operating metrics – a testament to the exceptional work our team has done.”

“Our drilling program has underscored the prolific nature and economic viability of our Wolfcamp and Bone Spring resource, even at current oil prices. Our hedge book is healthier, and it is driving improved realized pricing. Our acid gas treating facility is expected to be mechanically complete in early April and is anticipated to become fully operational in the second quarter of 2023; this is expected to significantly reduce gas processing and treating expenses. We intend to continue our focus on improving operational efficiencies to drive meaningful improvements in our operating margins.”

“Though we have a sizable inventory of high-performance drilling locations, the vast majority of our acreage position is held by production, giving us flexibility on how and when we develop the acreage.  As such, we are continuing to evaluate our development program and will not be providing a 2023 capital budget at this time.”

“As we move forward, we are prioritizing free cash flow generation and the strengthening of our balance sheet.”

Results of Operations

Average daily net production and total operating revenue during the fourth quarter 2022 were 15,696 Boe/d (51% oil) and $76.8 million, respectively, as compared to production and revenue of 17,283 Boe/d (50% oil) and $84.5 million, respectively, during the fourth quarter 2021. The decrease in revenues year-over-year is primarily attributable to an approximate 1,587 Boe/d decrease in average daily production. Excluding the impact of hedges, Battalion realized 100% of the average NYMEX oil price during the fourth quarter of 2022; however, realized hedge losses totaled approximately $18.2 million during the fourth quarter 2022.

Lease operating and workover expense was $9.89 per Boe in the fourth quarter of 2022 and $8.34 per Boe in the fourth quarter of 2021. The increase in lease operating and workover expense per Boe year-over-year is primarily attributable to an increase in workover expenses as well as the decrease in average daily production during the quarter.  Gathering and other expense was $11.31 per Boe in the fourth quarter 2022 as compared to $10.67 per Boe in the fourth quarter of 2021. The increase was due primarily to the decrease in average daily production during the quarter. General and administrative expense was $2.46 per Boe in the fourth quarter of 2022 and $1.99 per Boe in the fourth quarter of 2021. After adjusting for selected items, Adjusted G&A was $1.87 per Boe in the fourth quarter of 2022 compared to $2.03 per Boe in the fourth quarter of 2021. The decrease in Adjusted G&A year-over-year was primarily attributable to a decrease in employee-related costs.

The Company reported a net loss to common stockholders for the fourth quarter of 2022 of $7.7 million and a net loss per diluted share of $0.47. After adjusting for selected items, the Company reported an adjusted net loss to common stockholders for the fourth quarter of 2022 of $2.6 million, or an adjusted net loss of $0.16 per diluted share (see Reconciliation for additional information). Adjusted EBITDA during the quarter ended December 31, 2022 was $22.7 million as compared to $20.4 million during the quarter ended December 31, 2021 (see Adjusted EBITDA Reconciliation table for additional information).

Liquidity and Balance Sheet

As of December 31, 2022, the Company had $235.2 million of indebtedness outstanding and approximately $1.4 million of letters of credit outstanding. Total liquidity on December 31, 2022, made up of cash and cash equivalents, was $32.7 million.

In March 2023, the Company issued 25,000 shares of redeemable convertible preferred stock to certain of its existing equity shareholders and received approximately $24.4 million in net proceeds to improve liquidity and address concerns around future covenant compliance. For further discussion on our liquidity and balance sheet, refer to Management’s Discussion and Analysis and Risk Factors in the Company’s Form 10-K.

2022 Proved Reserves

Battalion’s estimated total proved oil and natural gas reserves, as prepared by our independent reserve engineering firm, Netherland, Sewell & Associates, Inc., were 92.0 MMBoe (54% oil, 50% developed) at December 31, 2022. Our reserves had a standardized measure of discounted future cash flows of $1.5 billion based on SEC benchmark pricing of $94.14 per barrel for oil and $6.36 per MMBtu for natural gas.

Forward Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not strictly historical statements constitute forward-looking statements. Forward-looking statements include, among others, statements about anticipated production, liquidity, capital spending, drilling and completion plans, and forward guidance. Forward-looking statements may often, but not always, be identified by the use of such words such as "expects", "believes", "intends", "anticipates", "plans", "estimates", “projects,” "potential", "possible", or "probable" or statements that certain actions, events or results "may", "will", "should", or "could" be taken, occur or be achieved. Forward-looking statements are based on current beliefs and expectations and involve certain assumptions or estimates that involve various risks and uncertainties that could cause actual results to differ materially from those reflected in the statements. These risks include, but are not limited to, those set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and other filings submitted by the Company to the U.S. Securities and Exchange Commission (“SEC”), copies of which may be obtained from the SEC's website at www.sec.gov or through the Company's website at www.battalionoil.com. Readers should not place undue reliance on any such forward-looking statements, which are made only as of the date hereof. The Company has no duty, and assumes no obligation, to update forward-looking statements as a result of new information, future events or changes in the Company's expectations.

About Battalion

Battalion Oil Corporation is an independent energy company engaged in the acquisition, production, exploration and development of onshore oil and natural gas properties in the United States.

Contact

Chris LangDirector, Finance & Investor Relations(832) 538-0551

BATTALION OIL CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)(In thousands, except per share amounts)

 
  Three Months Ended   Years Ended
  December 31,   December 31,
  2022   2021   2022   2021
                       
Operating revenues:                      
Oil, natural gas and natural gas liquids sales:                      
Oil $ 60,816     $ 60,284     $ 267,690     $ 213,512  
Natural gas   6,914       11,409       46,210       35,248  
Natural gas liquids   8,267       12,588       43,501       35,394  
Total oil, natural gas and natural gas liquids sales   75,997       84,281       357,401       284,154  
Other   805       224       1,663       1,051  
Total operating revenues   76,802       84,505       359,064       285,205  
                       
Operating expenses:                      
Production:                      
Lease operating   12,397       12,362       48,095       43,977  
Workover and other   1,876       907       6,683       3,224  
Taxes other than income   2,547       3,126       18,483       12,312  
Gathering and other   16,330       16,960       64,117       60,396  
General and administrative   3,564       3,165       17,635       16,514  
Depletion, depreciation and accretion   15,479       12,679       51,915       45,408  
Total operating expenses   52,193       49,199       206,928       181,831  
Income (loss) from operations   24,609       35,306       152,136       103,374  
                       
Other income (expenses):                      
Net gain (loss) on derivative contracts   (21,872 )     (6,248 )     (110,006 )     (125,619 )
Interest expense and other   (10,389 )     (3,001 )     (23,591 )     (8,018 )
Gain (loss) on extinguishment of debt         (122 )           1,946  
Total other income (expenses)   (32,261 )     (9,371 )     (133,597 )     (131,691 )
Income (loss) before income taxes   (7,652 )     25,935       18,539       (28,317 )
Income tax benefit (provision)                      
Net income (loss) $ (7,652 )     25,935     $ 18,539     $ (28,317 )
                       
Net income (loss) per share of common stock:                      
Basic $ (0.47 )   $ 1.59     $ 1.14     $ (1.74 )
Diluted $ (0.47 )   $ 1.58     $ 1.12     $ (1.74 )
Weighted average common shares outstanding:                      
Basic   16,345       16,274       16,331       16,261  
Diluted   16,345       16,448       16,510       16,261  

BATTALION OIL CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)(In thousands, except share and per share amounts)

 
  December 31, 2022   December 31, 2021
Current assets:          
Cash and cash equivalents $ 32,726     $ 46,864  
Accounts receivable, net   37,974       36,806  
Assets from derivative contracts   16,244       1,383  
Restricted cash   90       1,495  
Prepaids and other   1,131       1,366  
Total current assets   88,165       87,914  
Oil and natural gas properties (full cost method):          
Evaluated   713,585       569,886  
Unevaluated   62,621       64,305  
Gross oil and natural gas properties   776,206       634,191  
Less - accumulated depletion   (390,796 )     (339,776 )
Net oil and natural gas properties   385,410       294,415  
Other operating property and equipment:          
Other operating property and equipment   4,434       3,467  
Less - accumulated depreciation   (1,209 )     (1,035 )
Net other operating property and equipment   3,225       2,432  
Other noncurrent assets:          
Assets from derivative contracts   5,379       2,515  
Operating lease right of use assets   352       721  
Other assets   2,827       2,270  
Total assets $ 485,358     $ 390,267  
           
Current liabilities:          
Accounts payable and accrued liabilities $ 100,095     $ 62,826  
Liabilities from derivative contracts   29,286       58,322  
Current portion of long-term debt   35,067       85  
Operating lease liabilities   352       369  
Asset retirement obligations   225        
Total current liabilities   165,025       121,602  
Long-term debt, net   182,676       181,565  
Other noncurrent liabilities:          
Liabilities from derivative contracts   33,649       7,144  
Asset retirement obligations   15,244       11,896  
Operating lease liabilities         352  
Other   4,136       4,003  
Commitments and contingencies          
Stockholders' equity:          
Common stock: 100,000,000 shares of $0.0001 par value authorized;          
16,344,815 and 16,273,913 shares issued and outstanding as of          
December 31, 2022 and 2021, respectively   2       2  
Additional paid-in capital   334,571       332,187  
Retained earnings (accumulated deficit)   (249,945 )     (268,484 )
Total stockholders' equity   84,628       63,705  
Total liabilities and stockholders' equity $ 485,358     $ 390,267  

BATTALION OIL CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)(In thousands)

              
  Three Months Ended   Years Ended
  December 31,   December 31,
  2022    2021   2022    2021
Cash flows from operating activities:                      
Net income (loss) $ (7,652 )   $ 25,935     $ 18,539     $ (28,317 )
Adjustments to reconcile net income (loss) to net cash provided by (used                      
in) operating activities:                      
Depletion, depreciation and accretion   15,479       12,679       51,915       45,408  
Stock-based compensation, net   670       450       2,210       2,010  
Unrealized loss (gain) on derivative contracts   3,655       (21,332 )     (20,256 )     47,721  
Amortization/accretion of financing related costs   2,722       379       5,448       379  
Reorganization items, net               (744 )      
Loss (gain) on extinguishment of debt         122             (1,946 )
Accrued settlements on derivative contracts   (3,191 )     261       4,302       7,030  
Change in fair value of embedded derivative liability   1,224             (1,819 )      
Other expense (income)   51       (338 )     (77 )     (567 )
Cash flow from operations before changes in working capital   12,958       18,156       59,518       71,718  
Changes in working capital   12,029       3,284       19,283       (3,146 )
Net cash provided by (used in) operating activities   24,987       21,440       78,801       68,572  
                       
Cash flows from investing activities:                      
Oil and natural gas capital expenditures   (38,467 )     (5,353 )     (125,465 )     (52,557 )
Proceeds received from sales of oil and natural gas assets   331             332       947  
Other operating property and equipment capital expenditures   (211 )     (364 )     (1,160 )     (371 )
Other   (3 )     52       163       68  
Net cash provided by (used in) investing activities   (38,350 )     (5,665 )     (126,130 )     (51,913 )
                       
Cash flows from financing activities:                      
Proceeds from borrowings   15,078       229,000       35,200       374,000  
Repayments of borrowings   (10 )     (184,064 )     (95 )     (332,085 )
Payment of deferred financing costs   (2,508 )     (14,220 )     (2,887 )     (14,220 )
Other   60             (432 )     (290 )
Net cash provided by (used in) financing activities   12,620       30,716       31,786       27,405  
                       
Net increase (decrease) in cash, cash equivalents and restricted cash   (743 )     46,491       (15,543 )     44,064  
                       
Cash, cash equivalents and restricted cash at beginning of period   33,559       1,868       48,359       4,295  
Cash, cash equivalents and restricted cash at end of period $ 32,816     $ 48,359     $ 32,816     $ 48,359  

BATTALION OIL CORPORATIONSELECTED OPERATING DATA (Unaudited)

  Three Months Ended December 31,   Years Ended December 31,
  2022   2021   2022   2021
                       
Production volumes:                      
Crude oil (MBbls)   740       800       2,837       3,196  
Natural gas (MMcf)   2,315       2,670       9,337       9,447  
Natural gas liquids (MBbls)   318       345       1,242       1,157  
Total (MBoe)   1,444       1,590       5,635       5,928  
Average daily production (Boe/d)   15,696       17,283       15,438       16,241  
                       
Average prices:                      
Crude oil (per Bbl) $ 82.18     $ 75.36     $ 94.36     $ 66.81  
Natural gas (per Mcf)   2.99       4.27       4.95       3.73  
Natural gas liquids (per Bbl)   26.00       36.49       35.02       30.59  
Total per Boe   52.63       53.01       63.43       47.93  
                       
Cash effect of derivative contracts:                      
Crude oil (per Bbl) $ (24.73 )   $ (31.06 )   $ (40.82 )   $ (23.02 )
Natural gas (per Mcf)   0.04       (1.02 )     (1.55 )     (0.46 )
Natural gas liquids (per Bbl)                      
Total per Boe   (12.62 )     (17.35 )     (23.12 )     (13.14 )
                       
Average prices computed after cash effect of settlement of derivative contracts:                      
Crude oil (per Bbl) $ 57.45     $ 44.30     $ 53.54     $ 43.79  
Natural gas (per Mcf)   3.03       3.25       3.40       3.27  
Natural gas liquids (per Bbl)   26.00       36.49       35.02       30.59  
Total per Boe   40.01       35.66       40.31       34.79  
                       
Average cost per Boe:                      
Production:                      
Lease operating $ 8.59     $ 7.77     $ 8.54     $ 7.42  
Workover and other   1.30       0.57       1.19       0.54  
Taxes other than income   1.76       1.97       3.28       2.08  
Gathering and other   11.31       10.67       11.38       10.19  
General and administrative, as adjusted(1)   1.87       2.03       2.52       2.48  
Depletion   10.49       7.89       9.05       7.53  
                       
(1) Represents gathering and other and general and administrative costs per Boe, adjusted for items noted in the reconciliation below:
                       
General and administrative:                      
General and administrative, as reported $ 2.46     $ 1.99     $ 3.13     $ 2.79  
Stock-based compensation:                      
Non-cash   (0.46 )     (0.28 )     (0.39 )     (0.34 )
Non-recurring (charges) credits and other:                      
Cash   (0.13 )     0.32       (0.22 )     0.03  
General and administrative, as adjusted(2) $ 1.87     $ 2.03     $ 2.52     $ 2.48  
Total operating costs, as reported $ 25.42     $ 22.97     $ 27.52     $ 23.02  
Total adjusting items   (0.59 )     0.04       (0.61 )     (0.31 )
Total operating costs, as adjusted(3) $ 24.83     $ 23.01     $ 26.91     $ 22.71  
     
(2) General and administrative, as adjusted, is a non-GAAP measure that excludes non-cash stock-based compensation charges relating to equity awards under our incentive stock plan, as well as other cash charges associated with non-recurring charges and other. The Company believes that it is useful to understand the effects that these charges have on general and administrative expenses and total operating costs and that exclusion of such charges is useful for comparison to prior periods.
(3) Represents lease operating expense, workover and other expense, taxes other than income, gathering and other expense and general and administrative costs per Boe, adjusted for items noted in the reconciliation above.

BATTALION OIL CORPORATIONRECONCILIATION (Unaudited)(In thousands, except per share amounts)

             
  Three Months Ended   Years Ended
  December 31,   December 31,
  2022   2021   2022   2021
As Reported:                      
Net income (loss), as reported $ (7,652 )   $ 25,935     $ 18,539     $ (28,317 )
                       
Impact of Selected Items:                      
Unrealized loss (gain) on derivatives contracts:                      
Crude oil $ 18,156     $ (13,525 )   $ (10,730 )   $ 45,461  
Natural gas   (14,501 )     (7,807 )     (9,526 )     2,260  
Total mark-to-market non-cash charge   3,655       (21,332 )     (20,256 )     47,721  
Loss (gain) on extinguishment of debt         122             (1,946 )
Change in fair value of embedded derivative liability   1,224       (213 )     (1,819 )     (213 )
Non-recurring charges (credits)   194       (502 )     1,230       (155 )
Selected items, before income taxes   5,073       (21,925 )     (20,845 )     45,407  
Income tax effect of selected items                      
Selected items, net of tax $ 5,073     $ (21,925 )   $ (20,845 )   $ 45,407  
                       
As Adjusted:                      
Net income (loss), as adjusted (1) $ (2,579 )   $ 4,010     $ (2,306 )   $ 17,090  
                       
                       
Diluted net income (loss) per common share, as reported $ (0.47 )   $ 1.58     $ 1.12     $ (1.74 )
Impact of selected items   0.31       (1.34 )     (1.26 )     2.78  
Diluted net income (loss) per common share, excluding selected items (1)(2) $ (0.16 )   $ 0.24     $ (0.14 )   $ 1.04  
                       
                       
Net cash provided by (used in) operating activities $ 24,987     $ 21,440     $ 78,801     $ 68,572  
Changes in working capital   (12,029 )     (3,284 )     (19,283 )     3,146  
Cash flow from operations before changes in working capital   12,958       18,156       59,518       71,718  
Cash components of selected items   11,989       (1,213 )     6,276       (7,635 )
Income tax effect of selected items                      
Cash flows from operations before changes in working capital, adjusted for selected items (1)(2) $ 24,947     $ 16,943     $ 65,794     $ 64,083  
     
(1) Net income (loss) earnings per share excluding selected items and cash flows from operations before changes in working capital adjusted for selected items are non-GAAP measures presented based on management's belief that they will enable a user of the financial information to understand the impact of these items on reported results. These financial measures are not measures of financial performance under GAAP and should not be considered as an alternative to net income, earnings per share and cash flows from operations, as defined by GAAP. These financial measures may not be comparable to similarly named non-GAAP financial measures that other companies may use and may not be useful in comparing the performance of those companies to Battalion's performance.
(2) The impact of selected items for the three months ended December 31, 2022 and 2021 were calculated based upon weighted average diluted shares of 16.3 million and 16.4 million shares, respectively, due to the net income (loss) available to common stockholders, excluding selected items. The impact of selected items for the years ended December 31, 2022 and 2021 were calculated based upon weighted average diluted shares of 16.3 and 16.4 million shares, respectively, due to the net income (loss) available to common stockholders, excluding selected items.

BATTALION OIL CORPORATIONADJUSTED EBITDA RECONCILIATION (Unaudited)(In thousands)

             
  Three Months Ended December 31,   Years Ended December 31,
  2022   2021   2022   2021
                       
Net income (loss), as reported $ (7,652 )   $ 25,935     $ 18,539     $ (28,317 )
Impact of adjusting items:                      
Interest expense   9,378       3,215       25,725       8,453  
Depletion, depreciation and accretion   15,479       12,679       51,915       45,408  
Stock-based compensation   670       450       2,210       2,010  
Interest income   (227 )     (1 )     (369 )     (213 )
Loss (gain) on extinguishment of debt         122             (1,946 )
Unrealized loss (gain) on derivatives contracts   3,655       (21,332 )     (20,256 )     47,721  
Change in fair value of embedded derivative liability   1,224       (213 )     (1,819 )     (213 )
Non-recurring charges (credits) and other   194       (505 )     1,061       (173 )
Adjusted EBITDA(1) $ 22,721     $ 20,350     $ 77,006     $ 72,730  
     
(1) Adjusted EBITDA is a non-GAAP measure, which is presented based on management's belief that it will enable a user of the financial information to understand the impact of these items on reported results. This financial measure is not a measure of financial performance under GAAP and should not be considered as an alternative to GAAP measures, including net income (loss). This financial measure may not be comparable to similarly named non-GAAP financial measures that other companies may use and may not be useful in comparing the performance of those companies to Battalion's performance.

BATTALION OIL CORPORATIONADJUSTED EBITDA RECONCILIATION (Unaudited)(In thousands)

            
  Three MonthsEndedDecember 31, 2022   Three MonthsEndedSeptember 30, 2022   Three MonthsEndedJune 30, 2022   Three MonthsEndedMarch 31, 2022
                       
Net income (loss), as reported $ (7,652 )   $ 105,888     $ 13,047     $ (92,744 )
Impact of adjusting items:                      
Interest expense   9,378       6,232       5,394       4,721  
Depletion, depreciation and accretion   15,479       13,615       12,601       10,220  
Stock-based compensation   670       683       473       384  
Interest income   (227 )     (141 )     (1 )      
Unrealized loss (gain) on derivatives contracts   3,655       (102,112 )     (12,837 )     91,038  
Change in fair value of embedded derivative liability   1,224       (449 )     (562 )     (2,032 )
Non-recurring charges (credits) and other   194       597       53       217  
Adjusted EBITDA(1) $ 22,721     $ 24,313     $ 18,168     $ 11,804  
                       
Adjusted LTM EBITDA(1) $ 77,006                    
     
(1)  Adjusted EBITDA is a non-GAAP measure, which is presented based on management's belief that it will enable a user of the financial information to understand the impact of these items on reported results. This financial measure is not a measure of financial performance under GAAP and should not be considered as an alternative to GAAP measures, including net income (loss). This financial measure may not be comparable to similarly named non-GAAP financial measures that other companies may use and may not be useful in comparing the performance of those companies to Battalion's performance.

BATTALION OIL CORPORATIONADJUSTED EBITDA RECONCILIATION (Unaudited)(In thousands)

 
  Three MonthsEndedDecember 31, 2021   Three MonthsEndedSeptember 30, 2021   Three MonthsEndedJune 30, 2021   Three MonthsEndedMarch 31, 2021
                       
Net income (loss), as reported $ 25,935     $ 13,052     $ (33,929 )   $ (33,375 )
Impact of adjusting items:                      
Interest expense   3,215       1,904       1,838       1,496  
Depletion, depreciation and accretion   12,679       10,885       11,249       10,595  
Stock-based compensation   450       481       485       594  
Interest income   (1 )     (3 )     (84 )     (125 )
Loss (gain) on extinguishment of debt   122       (2,068 )            
Unrealized loss (gain) on derivatives contracts   (21,332 )     (1,816 )     34,817       36,052  
Change in fair value of embedded derivative liability   (213 )                  
Non-recurring charges (credits) and other   (505 )     559       (275 )     48  
Adjusted EBITDA(1) $ 20,350     $ 22,994     $ 14,101     $ 15,285  
                       
Adjusted LTM EBITDA(1) $ 72,730                    
     
(1) Adjusted EBITDA is a non-GAAP measure, which is presented based on management's belief that it will enable a user of the financial information to understand the impact of these items on reported results. This financial measure is not a measure of financial performance under GAAP and should not be considered as an alternative to GAAP measures, including net income (loss). This financial measure may not be comparable to similarly named non-GAAP financial measures that other companies may use and may not be useful in comparing the performance of those companies to Battalion's performance.
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