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.