Battalion Oil Corporation (NYSE American: BATL, “Battalion” or the “Company”) today announced financial and operating results for the third quarter of 2023.

Key Highlights

  • Generated third quarter 2023 sales volumes of 12,717 barrels of oil equivalent per day (“Boe/d”)
  • Continued robust production results from our most recent completed wells
  • Recommenced drilling operations in Monument Draw
  • Executed a $38.0 million preferred equity raise in September 2023 and obtained commitments for an additional $55.0 million preferred equity in November 2023 to support incremental activity plans
  • Continued to explore strategic alternatives

Management Comments

The Company has commenced drilling operations on a two-well pad in Monument Draw while preparing additional locations across all three asset areas. Drilling is ahead of plan from both a capital and time perspective and the wells should now be online in early 2024. The previously announced acid gas injection (“AGI”) project is still undergoing workover operations. All workover operations and improvements are expected to be completed and the facility fully online in the first quarter of 2024. With this expected timing, the facility should be operational contemporaneously with placing the two-well pad on production.

The latest Monument Draw well continues to outperform offset wells and has produced over 266,000 Boe in its first 225 days on production while flowing naturally without artificial lift. Monument Draw production showcased a lower forecast decline in the quarter, however downstream shut-ins curtailed production by over 2,500 Boe/d which the Company expects to have back online before the end of the first quarter of 2024, post third-party improvements to infrastructure.

Matt Steele, Chief Executive Officer, commented, “Drilling activity in Monument Draw is underway and ahead of plan on all metrics after the team stood up a new rig and new crews. We look forward to entering 2024 in position to benefit from producing our existing and new wells into the enhanced cost structure associated with AGI coming online.”

Results of Operations

Average daily net production and total operating revenue during the third quarter of 2023 were 12,717 Boe/d (46% oil) and $54.1 million, respectively, as compared to production and revenue of 16,228 Boe/d (50% oil) and $99.1 million, respectively, during the third quarter of 2022. The decrease in revenues in the third quarter of 2023 as compared to the third quarter of 2022 is primarily attributable to an approximate $20.44 decrease in average realized prices (excluding the impact of hedges). Excluding the impact of hedges, Battalion realized 100.3% of the average NYMEX oil price during the third quarter of 2023. Realized hedge losses totaled approximately $6.9 million during the third quarter 2023.

Lease operating and workover expense was $10.13 per Boe in the third quarter of 2023 versus $9.93 per Boe in the third quarter of 2022. The increase in lease operating and workover expense per Boe year-over-year is primarily attributable to a decrease in average daily production as a large portion of our lease operating expenses are fixed costs. Gathering and other expense was $13.26 per Boe in the third quarter of 2023 versus $11.16 per Boe in the third quarter of 2022. The increase was primarily related to midstream disruptions and plant curtailments and an increased percentage of total production requiring H2S treatment, as well as inflationary impacts on costs associated with our own hydrogen sulfide treating plant. General and administrative expense was $2.72 per Boe in the third quarter of 2023 compared to $3.02 per Boe in the third quarter of 2022. The decrease is primarily due to a benefit recognized related to stock-based compensation forfeitures from the departure of certain executives and employees. After adjusting for selected items, Adjusted G&A was $2.64 per Boe in the third quarter of 2023 compared to $2.11 per Boe in the third quarter of 2022.

For the third quarter of 2023, the Company reported a net loss available to common stockholders of $57.7 million and a net loss of $3.50 per share available to common stockholders. After adjusting for selected items, the Company reported an adjusted net loss available to common stockholders for the third quarter of 2023 of $12.0 million, or an adjusted net loss of $0.72 per common share (see Reconciliation for additional information). Adjusted EBITDA during the quarter ended September 30, 2023 was $13.6 million as compared to $24.3 million during the quarter ended September 30, 2022 (see Adjusted EBITDA Reconciliation table for additional information).

Liquidity and Balance Sheet

As of September 30, 2023, the Company had $210.2 million of indebtedness outstanding and no letters of credit outstanding. Subsequent to September 30, 2023, letters of credit outstanding totaled $0.3 million. Total liquidity on September 30, 2023, made up of cash and cash equivalents, was $42.6 million.

In November 2023, the Company obtained a commitment letter from its existing equity stockholders to purchase additional preferred equity securities in an amount up to $55.0 million. For further discussion on our liquidity and balance sheet, as well as recent developments, refer to Management’s Discussion and Analysis and Risk Factors in the Company’s Form 10-Q.

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

Matthew B. SteeleChief Executive Officer & Principal Financial Officer832-541-8334

 
BATTALION OIL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2023     2022     2023     2022  
Operating revenues:                        
Oil, natural gas and natural gas liquids sales:                        
Oil   $ 43,689     $ 70,406     $ 144,072     $ 206,874  
Natural gas     3,668       15,656       8,628       39,296  
Natural gas liquids     6,078       12,644       18,893       35,234  
Total oil, natural gas and natural gas liquids sales     53,435       98,706       171,593       281,404  
Other     671       443       1,927       858  
Total operating revenues     54,106       99,149       173,520       282,262  
                         
Operating expenses:                        
Production:                        
Lease operating     11,152       12,265       34,208       35,698  
Workover and other     700       2,559       4,669       4,807  
Taxes other than income     3,307       5,613       9,677       15,936  
Gathering and other     15,512       16,663       48,857       47,787  
General and administrative     3,192       4,498       13,572       14,071  
Depletion, depreciation and accretion     13,426       13,615       44,287       36,436  
Total operating expenses     47,289       55,213       155,270       154,735  
Income from operations     6,817       43,936       18,250       127,527  
                         
Other income (expenses):                        
Net (loss) gain on derivative contracts     (53,687 )     67,634       (29,741 )     (88,134 )
Interest expense and other     (6,929 )     (5,682 )     (24,245 )     (13,202 )
Total other (expenses) income     (60,616 )     61,952       (53,986 )     (101,336 )
(Loss) income before income taxes     (53,799 )     105,888       (35,736 )     26,191  
Income tax benefit (provision)                        
Net (loss) income   $ (53,799 )   $ 105,888     $ (35,736 )   $ 26,191  
Series A preferred dividends     (3,863 )           (6,352 )      
Net (loss) income available to common stockholders   $ (57,662 )   $ 105,888     $ (42,088 )   $ 26,191  
                         
Net (loss) income per share of common stock available to common stockholders:                        
Basic   $ (3.50 )   $ 6.48     $ (2.56 )   $ 1.60  
Diluted   $ (3.50 )   $ 6.42     $ (2.56 )   $ 1.59  
Weighted average common shares outstanding:                        
Basic     16,457       16,340       16,436       16,327  
Diluted     16,457       16,483       16,436       16,496  

 
BATTALION OIL CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)(In thousands, except share and per share amounts)
 
    September 30, 2023   December 31, 2022
Current assets:            
Cash and cash equivalents   $ 42,590     $ 32,726  
Accounts receivable, net     27,177       37,974  
Assets from derivative contracts     4,649       16,244  
Restricted cash     90       90  
Prepaids and other     786       1,131  
Total current assets     75,292       88,165  
Oil and natural gas properties (full cost method):            
Evaluated     736,205       713,585  
Unevaluated     62,649       62,621  
Gross oil and natural gas properties     798,854       776,206  
Less: accumulated depletion     (434,034 )     (390,796 )
Net oil and natural gas properties     364,820       385,410  
Other operating property and equipment:            
Other operating property and equipment     4,623       4,434  
Less: accumulated depreciation     (1,653 )     (1,209 )
Net other operating property and equipment     2,970       3,225  
Other noncurrent assets:            
Assets from derivative contracts     2,022       5,379  
Operating lease right of use assets     889       352  
Other assets     10,768       2,827  
Total assets   $ 456,761     $ 485,358  
             
Current liabilities:            
Accounts payable and accrued liabilities   $ 59,417     $ 100,095  
Liabilities from derivative contracts     36,363       29,286  
Current portion of long-term debt     45,106       35,067  
Operating lease liabilities     513       352  
Asset retirement obligations           225  
Total current liabilities     141,399       165,025  
Long-term debt, net     153,476       182,676  
Other noncurrent liabilities:            
Liabilities from derivative contracts     35,089       33,649  
Asset retirement obligations     17,202       15,244  
Operating lease liabilities     375        
Deferred income taxes            
Other     1,554       4,136  
Commitments and contingencies            
Temporary equity:            
Series A redeemable convertible preferred stock: 63,000 shares of $0.0001     66,834        
par value authorized, issued and outstanding as of September 30, 2023            
Stockholders' equity:            
Common stock: 100,000,000 shares of $0.0001 par value authorized;            
16,456,563 and 16,344,815 shares issued and outstanding as of            
September 30, 2023 and December 31, 2022, respectively     2       2  
Additional paid-in capital     326,511       334,571  
Retained earnings (accumulated deficit)     (285,681 )     (249,945 )
Total stockholders' equity     40,832       84,628  
Total liabilities, temporary equity and stockholders' equity   $ 456,761     $ 485,358  

 
BATTALION OIL CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)(In thousands)
 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2023     2022     2023     2022  
Cash flows from operating activities:                        
Net (loss) income   $ (53,799 )   $ 105,888     $ (35,736 )   $ 26,191  
Adjustments to reconcile net (loss) income to net cash                        
provided by operating activities:                        
Depletion, depreciation and accretion     13,426       13,615       44,287       36,436  
Stock-based compensation, net     (686 )     683       (1,231 )     1,540  
Unrealized loss (gain) on derivative contracts     46,805       (102,112 )     23,469       (23,911 )
Amortization/accretion of financing related costs     1,946       919       5,789       2,726  
Reorganization items                       (744 )
Accrued settlements on derivative contracts     3,775       (7,159 )     2,846       7,493  
Change in fair value of embedded derivative liability     (1,878 )     (448 )     (2,582 )     (3,043 )
Other     91       (32 )     144       (128 )
Cash flows from operations before changes in working capital     9,680       11,354       36,986       46,560  
Changes in working capital     (7,264 )     14,127       (25,921 )     7,254  
Net cash provided by operating activities     2,416       25,481       11,065       53,814  
                         
Cash flows from investing activities:                        
Oil and natural gas capital expenditures     (4,062 )     (35,621 )     (36,695 )     (86,998 )
Proceeds received from sale of oil and natural gas assets           1       1,189       1  
Other operating property and equipment capital expenditures     148       (244 )     (136 )     (949 )
Other     (1,453 )     70       (1,464 )     166  
Net cash used in operating activities     (5,367 )     (35,794 )     (37,106 )     (87,780 )
                         
Cash flows from financing activities:                        
Proceeds from borrowings           122             20,122  
Repayments of borrowings     (10,023 )           (25,066 )     (85 )
Payment of deferred debt financing costs                       (379 )
Proceeds from issuance of preferred stock     37,050             61,425        
Other           (25 )     (454 )     (492 )
Net cash provided by financing activities     27,027       97       35,905       19,166  
                         
Net increase (decrease) in cash, cash equivalents and restricted cash     24,076       (10,216 )     9,864       (14,800 )
                         
Cash, cash equivalents and restricted cash at beginning of period     18,604       43,775       32,816       48,359  
Cash, cash equivalents and restricted cash at end of period   $ 42,680     $ 33,559     $ 42,680     $ 33,559  

 
BATTALION OIL CORPORATION SELECTED OPERATING DATA (Unaudited)
 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2023     2022     2023     2022  
Production volumes:                        
Crude oil (MBbls)     539       753       1,905       2,097  
Natural gas (MMcf)     2,054       2,352       6,616       7,022  
Natural gas liquids (MBbls)     288       348       917       924  
Total (MBoe)     1,170       1,493       3,925       4,191  
Average daily production (Boe/d)     12,717       16,228       14,377       15,352  
                         
Average prices:                        
Crude oil (per Bbl)   $ 81.06     $ 93.50     $ 75.63     $ 98.65  
Natural gas (per Mcf)     1.79       6.66       1.30       5.60  
Natural gas liquids (per Bbl)     21.10       36.33       20.60       38.13  
Total per Boe     45.67       66.11       43.72       67.14  
                         
Cash effect of derivative contracts:                        
Crude oil (per Bbl)   $ (14.96 )   $ (36.07 )   $ (7.04 )   $ (46.50 )
Natural gas (per Mcf)     0.57       (3.11 )     1.08       (2.07 )
Natural gas liquids (per Bbl)                        
Total per Boe     (5.88 )     (23.09 )     (1.60 )     (26.73 )
                         
Average prices computed after cash effect of settlement of derivative contracts:                        
Crude oil (per Bbl)   $ 66.10     $ 57.43     $ 68.59     $ 52.15  
Natural gas (per Mcf)     2.36       3.55       2.38       3.53  
Natural gas liquids (per Bbl)     21.10       36.33       20.60       38.13  
Total per Boe     39.79       43.02       42.12       40.41  
                         
Average cost per Boe:                        
Production:                        
Lease operating   $ 9.53     $ 8.22     $ 8.72     $ 8.52  
Workover and other     0.60       1.71       1.19       1.15  
Taxes other than income     2.83       3.76       2.47       3.80  
Gathering and other     13.26       11.16       12.45       11.40  
General and administrative, as adjusted (1)     2.64       2.11       3.32       2.74  
Depletion     11.17       8.97       11.02       8.56  
                         
(1) Represents general and administrative costs per Boe, adjusted for items noted in the reconciliation below:
                         
General and administrative:                        
General and administrative, as reported   $ 2.72     $ 3.02     $ 3.46     $ 3.36  
Stock-based compensation:                        
Non-cash     0.59       (0.46 )     0.31       (0.37 )
Non-recurring charges and other:                        
Cash     (0.67 )     (0.45 )     (0.45 )     (0.25 )
General and administrative, as adjusted(2)   $ 2.64     $ 2.11     $ 3.32     $ 2.74  
                         
Total operating costs, as reported   $ 28.94     $ 27.87     $ 28.29     $ 28.23  
Total adjusting items     (0.08 )     (0.91 )     (0.14 )     (0.62 )
Total operating costs, as adjusted(3)   $ 28.86     $ 26.96     $ 28.15     $ 27.61  
___________________
(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 CORPORATION RECONCILIATION (Unaudited) (In thousands, except per share amounts)
 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2023     2022     2023     2022  
As Reported:                        
Net (loss) income available to common stockholders - diluted (1)   $ (57,662 )   $ 105,888     $ (42,088 )   $ 26,191  
                         
Impact of Selected Items:                        
Unrealized loss (gain) on derivatives contracts:                        
Crude oil   $ 46,133     $ (99,848 )   $ 16,003     $ (28,886 )
Natural gas     672       (2,264 )     7,466       4,975  
Total mark-to-market non-cash charge     46,805       (102,112 )     23,469       (23,911 )
Change in fair value of embedded derivative liability     (1,878 )     (449 )     (2,582 )     (3,043 )
Non-recurring charges     780       670       1,774       1,036  
Selected items, before income taxes     45,707       (101,891 )     22,661       (25,918 )
Income tax effect of selected items                        
Selected items, net of tax     45,707       (101,891 )     22,661       (25,918 )
                         
Net (loss) income available to common stockholders, as adjusted (2)   $ (11,955 )   $ 3,997     $ (19,427 )   $ 273  
                         
Diluted net (loss) income per common share, as reported   $ (3.50 )   $ 6.42     $ (2.56 )   $ 1.59  
Impact of selected items     2.77       (6.18 )     1.38       (1.57 )
Diluted net (loss) income per common share, excluding selected items (2)(3)   $ (0.73 )   $ 0.24     $ (1.18 )   $ 0.02  
                         
                         
Net cash (used in) provided by operating activities   $ 2,416     $ 25,481     $ 11,065     $ 53,814  
Changes in working capital     7,264       (14,127 )     25,921       (7,254 )
Cash flows from operations before changes in working capital     9,680       11,354       36,986       46,560  
Cash components of selected items     (2,995 )     7,829       (1,406 )     (5,713 )
Income tax effect of selected items                        
Cash flows from operations before changes in working capital, adjusted for selected items (1)   $ 6,685     $ 19,183     $ 35,580     $ 40,847  
___________________
(1) Amount reflects net (loss) income available to common stockholders on a diluted basis for earnings per share purposes as calculated using the two-class method of computing earnings per share which is further described in Note 12, Earnings Per Share in our Form 10-Q for the quarter ended September 30, 2023.
(2) Net (loss) income 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.
(3) The impact of selected items for the three and nine months ended September 30, 2023 were calculated based upon weighted average diluted shares of 16.5 million and 16.4 million shares, respectively, due to the net (loss) income available to common stockholders, excluding selected items. The impact of selected items for the three and nine months ended September 30, 2022 were calculated based upon weighted average diluted shares of 16.5 million shares, respectively, due to the net (loss) income available to common stockholders, excluding selected items.

 
BATTALION OIL CORPORATION ADJUSTED EBITDA RECONCILIATION (Unaudited) (In thousands)
 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2023     2022     2023     2022  
                         
Net (loss) income, as reported   $ (53,799 )   $ 105,888     $ (35,736 )   $ 26,191  
Impact of adjusting items:                        
Interest expense     9,219       6,232       27,594       16,347  
Depletion, depreciation and accretion     13,426       13,615       44,287       36,436  
Stock-based compensation     (686 )     683       (1,231 )     1,540  
Interest income     (293 )     (141 )     (718 )     (142 )
Unrealized loss (gain) on derivatives contracts     46,805       (102,112 )     23,469       (23,911 )
Change in fair value of embedded derivative liability     (1,878 )     (449 )     (2,582 )     (3,043 )
Non-recurring charges and other     831       597       1,460       867  
Adjusted EBITDA(1)   $ 13,625     $ 24,313     $ 56,543     $ 54,285  
___________________
(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 CORPORATION ADJUSTED EBITDA RECONCILIATION (Unaudited) (In thousands)
 
    Three Months   Three Months   Three Months   Three Months
    Ended   Ended   Ended   Ended
    September 30, 2023   June 30, 2023   March 31, 2023   December 31, 2022
                         
Net (loss) income, as reported   $ (53,799 )   $ (4,748 )     22,811       (7,652 )
Impact of adjusting items:                        
Interest expense     9,219       9,366       9,009       9,378  
Depletion, depreciation and accretion     13,426       14,713       16,148       15,479  
Stock-based compensation     (686 )     (772 )     227       670  
Interest income     (293 )     (234 )     (191 )     (227 )
Unrealized loss (gain) on derivatives contracts     46,805       (2,332 )     (21,004 )     3,655  
Change in fair value of embedded derivative liability     (1,878 )     358       (1,062 )     1,224  
Non-recurring charges (credits) and other     831       477       152       194  
Adjusted EBITDA(1)   $ 13,625     $ 16,828     $ 26,090     $ 22,721  
                         
Adjusted LTM EBITDA(1)   $ 79,264                    
___________________
(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 CORPORATION ADJUSTED EBITDA RECONCILIATION (Unaudited) (In thousands)
 
    Three Months   Three Months   Three Months   Three Months
    Ended   Ended   Ended   Ended
    September 30, 2022   June 30, 2022   March 31, 2022   December 31, 2021
                         
Net income (loss), as reported   $ 105,888       13,047       (92,744 )     25,935  
Impact of adjusting items:                        
Interest expense     6,232       5,394       4,721       3,215  
Depletion, depreciation and accretion     13,615       12,601       10,220       12,679  
Stock-based compensation     683       473       384       450  
Interest income     (141 )     (1 )     -       (1 )
Loss (gain) on extinguishment of debt                       122  
Unrealized loss (gain) on derivatives contracts     (102,112 )     (12,837 )     91,038       (21,332 )
Change in fair value of embedded derivative liability     (449 )     (562 )     (2,032 )      
Non-recurring charges (credits) and other     597       53       217       (718 )
Adjusted EBITDA(1)   $ 24,313     $ 18,168     $ 11,804     $ 20,350  
                         
Adjusted LTM EBITDA(1)   $ 74,635                    
___________________
(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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