DEFA14A: Battalion Oil Corporation Announces First Quarter 2024 Financial and Operating Results

Battalion Oil Corporation reports Q1 2024 financial results, highlighting new AGI project, drilling completions, and preferred equity raises amidst a proposed merger with Fury Resources.

Summary

• Battalion Oil Corporation announced its first quarter 2024 financial and operating results on May 15, 2024.
• The company's average daily net production was 12,989 Boe/d (48% oil) with total operating revenue of $49.9 million, compared to 16,200 Boe/d and $65.1 million in Q1 2023.
• The decrease in revenue is attributed to a 3,211 Boe/d decrease in average daily production and a $2.17 decrease in average realized prices.
• The company realized 97.3% of the average NYMEX oil price during the quarter, excluding hedge impacts.
• Realized hedge losses totaled approximately $4.4 million.
• The company reported a net loss available to common stockholders of $36.8 million, or $2.24 per share.
• Adjusted EBITDA for the quarter was $9.4 million, compared to $26.1 million in the same period last year.
• The company executed a $20.0 million preferred equity raise in March 2024 and another $20.0 million preferred equity raise in May 2024.
• As of March 31, 2024, the company had $190.0 million of indebtedness outstanding and $48.9 million in liquidity.
• The company is continuing its strategic alternatives initiative and working toward closing its merger agreement with Fury Resources.

Sentiment

Score: 4

Explanation: The sentiment is cautiously negative due to decreased production, a net loss, and lower adjusted EBITDA, although cost-saving initiatives and the pending merger offer some potential upside.

Positives

• The AGI project restart is expected to save up to $2.0 million per month in gas treating costs.
• The Glacier pad wells came online below cost budget and above projected type curve.
• Two additional wells (Rio Bravo pad) were drilled to total depth and completed.
• The drilling rig has finished drilling an additional two-well pad (Vermejo pad) in Monument Draw.
• All operations have been favorable to plan from both a capital and timing perspective.

Negatives

• The company reported a net loss available to common stockholders of $36.8 million, or $2.24 per share.
• Adjusted EBITDA decreased to $9.4 million from $26.1 million in the same quarter last year.
• Average daily production decreased from 16,200 Boe/d to 12,989 Boe/d year-over-year.
• Realized hedge losses totaled approximately $4.4 million during the first quarter 2024.
• Lease operating and workover expense increased to $10.55 per Boe from $8.94 per Boe year-over-year.
• Gathering and other expense increased to $14.62 per Boe from $11.33 per Boe year-over-year.

Risks

• The company's financial performance is subject to fluctuations in commodity prices.
• Midstream disruptions and plant curtailments negatively impacted gathering and other expenses.
• The company is exposed to risks related to its debt levels.
• The company's future performance is subject to risks and uncertainties detailed in its filings with the SEC.

Future Outlook

The company is focused on closing its merger agreement with Fury Resources and continuing to increase volume sent to the AGI facility to save up to $2.0 million per month in gas treating costs.

Management Comments

• During the first quarter 2024, the previously announced two well Glacier pad came online and began producing exceptional quantities of oil and gas.
• These wells came online below cost budget, above projected type curve, with substantial pressure support and 30-day IPs over 1,950 Boe/d and 1,750 Boe/d, respectively.
• As the AGI facility continues to ramp to full capacity, the Company expects to save up to $2.0 million per month in gas treating costs.
• All operations have been favorable to plan from both a capital and timing perspective.

Industry Context

The announcement reflects the challenges faced by smaller oil and gas companies in a volatile commodity price environment, where production declines and hedging losses can significantly impact financial performance; the merger with Fury Resources is a strategic move to consolidate and potentially improve operational efficiencies.

Comparison to Industry Standards

• Comparing Battalion Oil's Q1 2024 performance to peers like Callon Petroleum or Centennial Resource Development, which also operate in the Permian Basin, reveals that Battalion's production decline is more pronounced.
• While companies like Diamondback Energy and Pioneer Natural Resources have demonstrated stronger financial resilience due to their scale and operational efficiencies, Battalion's adjusted EBITDA of $9.4 million lags behind.
• The cost-saving potential of the AGI project, estimated at $2.0 million per month, is a positive step, but its impact needs to be assessed against the backdrop of higher lease operating and gathering expenses compared to industry benchmarks.

Stakeholder Impact

• Shareholders face potential dilution from the preferred equity raises.
• Employees may experience uncertainty related to the pending merger.
• Customers and suppliers could see changes in their relationships with the company post-merger.
• Creditors are impacted by the company's debt levels and recent debt repayment.

Next Steps

• Closing the merger agreement with Fury Resources.
• Ramping up the AGI facility to full capacity.
• Filing relevant materials with the SEC, including a proxy statement and a transaction statement.
• Mailing the definitive proxy statement and a proxy card to each stockholder of the Company entitled to vote at the special meeting relating to the proposed transaction.

Key Dates

Keywords

Battalion Oil, Financial Results, Operating Results, Q1 2024, Production, EBITDA, Merger, Fury Resources, AGI Project, Preferred Equity