Battalion Oil Corporation Announces Fourth Quarter 2022 Financial and Operating Results

Written by Customer Service on March 30, 2023. Posted in Earnings Releases And Operating Results.

HOUSTON, March 30, 2023 (GLOBE NEWSWIRE) — 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 Lang
Director, Finance & Investor Relations
(832) 538-0551

BATTALION OIL CORPORATION
CONDENSED 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 CORPORATION
CONDENSED 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 CORPORATION
CONDENSED 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 CORPORATION
SELECTED 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 CORPORATION
RECONCILIATION (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 CORPORATION
ADJUSTED 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 CORPORATION
ADJUSTED EBITDA RECONCILIATION (Unaudited)
(In thousands)


	Three Months Ended December 31, 2022			Three Months Ended September 30, 2022			Three Months Ended June 30, 2022			Three Months Ended March 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 CORPORATION
ADJUSTED EBITDA RECONCILIATION (Unaudited)
(In thousands)


	Three Months Ended December 31, 2021			Three Months Ended September 30, 2021			Three Months Ended June 30, 2021			Three Months Ended March 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.

Battalion Oil Corporation Announces Fourth Quarter 2022 Financial and Operating Results

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