DEFA14A: Battalion Oil Announces Q4 2023 Financial Results, Highlights Drilling Success and AGI Project Restart

Battalion Oil Corporation reports Q4 2023 financial results, highlighting successful drilling operations and the restart of its Acid Gas Injection (AGI) project.

Summary

• Battalion Oil Corporation announced its fourth quarter 2023 financial and operating results.
• The company re-commenced drilling operations in Monument Draw in Q4 2023, completing two wells that were brought online in Q1 2024 under budget with strong initial results.
• Two additional wells were drilled in Q1 2024 and are currently being completed, with drilling commenced on two more wells in the same period.
• Full year 2023 sales volumes reached 13,784 barrels of oil equivalent per day (Boe/d), with 48% being oil.
• Year-end 2023 reserves are estimated at approximately 68.1 million barrels of oil equivalent (MMBoe) with a standardized measure of discounted future net cash flows of approximately $598.5 million.
• The company executed a $35.0 million preferred equity raise in December 2023 and an additional $20.0 million preferred equity raise in March 2024 to support the drilling program.
• The company is continuing its strategic alternatives initiative and working toward closing its previously announced merger agreement with Fury Resources.
• Average daily net production in Q4 2023 was 12,022 Boe/d (46% oil), with total operating revenue of $47.2 million, compared to 15,696 Boe/d and $76.8 million in Q4 2022.
• The company reported a net income available to common stockholders of $27.0 million, or $1.63 per diluted share, for Q4 2023.
• Adjusted EBITDA for Q4 2023 was $10.0 million, compared to $22.7 million in Q4 2022.
• As of December 31, 2023, the company had $200.2 million of indebtedness outstanding and $57.5 million in total liquidity.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to successful drilling results and the AGI project restart, but tempered by lower production and revenue compared to the previous year.

Positives

• The company successfully re-commenced drilling operations in Monument Draw.
• The Glacier pad wells came online below budget and above projected type curve.
• The AGI facility has restarted operations, which is expected to save up to $2.0 million per month in gas treating costs.
• The company completed preferred equity raises totaling $55.0 million to support the drilling program.
• The company has substantial remaining location inventory across Ward, Winkler and Pecos Counties.

Negatives

• Average daily net production decreased to 12,022 Boe/d in Q4 2023 from 15,696 Boe/d in Q4 2022.
• Total operating revenue decreased to $47.2 million in Q4 2023 from $76.8 million in Q4 2022.
• Adjusted EBITDA decreased to $10.0 million in Q4 2023 from $22.7 million in Q4 2022.
• Lease operating and workover expense increased to $11.87 per Boe in Q4 2023 from $9.89 per Boe in Q4 2022.
• General and administrative expense increased to $4.93 per Boe in Q4 2023 from $2.46 per Boe in Q4 2022, primarily due to merger-related costs.

Risks

• The company's future performance is subject to risks outlined in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
• The decrease in revenues in the fourth quarter of 2023 as compared to the fourth quarter of 2022 is attributable to an approximate 3,674 Boe/d decrease in average daily production and a $10.21 decrease in average realized prices (excluding the impact of hedges).
• The company has $200.2 million of indebtedness outstanding.

Future Outlook

The company is focused on continuing its drilling program, optimizing production, and closing its merger with Fury Resources.

Management Comments

• Matt Steele, Chief Executive Officer, commented 'The operations team has performed exceptionally well on our Monument Draw drilling campaign.'
• Matt Steele, Chief Executive Officer, commented 'The most recent Glacier pad wells represent some of the best the Company has ever drilled from both a cost and performance basis.'
• Matt Steele, Chief Executive Officer, commented 'Bringing the AGI back online to treat our gas represents a new era at Battalion.'
• Matt Steele, Chief Executive Officer, commented 'The difficult steps we took last year to right size the Company and focus on operational excellence are beginning to pay dividends.'

Industry Context

The announcement reflects the ongoing challenges and opportunities in the oil and gas industry, including fluctuating commodity prices, operational efficiencies, and strategic consolidation efforts.

Comparison to Industry Standards

• The company's production decline is in line with other companies that have reduced capital expenditures.
• The company's cost-cutting measures are similar to those implemented by other companies in the industry.
• The company's merger with Fury Resources is part of a broader trend of consolidation in the oil and gas industry.

Stakeholder Impact

• Shareholders are urged to read the proxy statement, the Schedule 13e-3 and the other relevant materials as they become available before making any voting or investment decision with respect to the proposed transaction.
• Employees may be affected by the merger with Fury Resources.
• The company's performance impacts its relationships with suppliers and midstream partners.

Next Steps

• Continue drilling program in Monument Draw.
• Optimize production from existing wells.
• Close the merger agreement with Fury Resources.
• File relevant materials with the SEC, including a proxy statement on Schedule 14A and a transaction statement on Schedule 13e-3.

Key Dates

Keywords

Battalion Oil, Financial Results, Q4 2023, Drilling Operations, AGI Project, Production, Reserves, Preferred Equity, Fury Resources, Merger