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

Battalion Oil Corporation reported its second quarter 2024 financial results, highlighting the AGI facility's impact, production updates, and a proposed merger agreement amendment.

Summary

• Battalion Oil Corporation announced its second quarter 2024 financial and operating results.
• The AGI facility is online and treated 1.82 Bcf for the second quarter 2024, reducing operating expenses by $4.26/Boe compared to the first quarter 2024.
• On August 12, 2024, the AGI facility processed 26.6 MMcf/d which allowed the Company to return wells to production and realize approximately 7,500 Bbls of oil per day (approximately 13,500 Boe/d) net production.
• Two additional wells were brought on production in Monument Draw in the second quarter 2024, with the next two-well pad to be completed in late third quarter or early fourth quarter 2024.
• Second quarter 2024 sales volumes were 12,857 Boe/d.
• A $20.0 million preferred equity raise was executed in May 2024 to support the drilling program and debt reduction.
• The company is continuing its strategic alternatives initiative and reviewing a requested amendment to the previously announced Merger Agreement with Fury that would reduce the purchase price to $7.00 per share and require all of the existing preferred equity holders to roll over 100% of their preferred equity.
• Average daily net production for the second quarter of 2024 was 12,857 Boe/d (49% oil), and total operating revenue was $49.1 million, compared to 14,253 Boe/d and $54.3 million in the second quarter of 2023.
• The company reported a net loss available to common stockholders of $8.7 million, or $0.53 per share, for the second quarter of 2024.
• Adjusted EBITDA for the quarter was $15.6 million, compared to $16.8 million in the same quarter of the previous year.
• As of June 30, 2024, the company had $160.2 million of indebtedness outstanding and $54.4 million in total liquidity.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While the company highlights cost-saving measures and operational improvements, the financial results show a net loss and decreased revenue and production compared to the previous year. The proposed merger amendment also introduces uncertainty.

Positives

• The AGI facility is reducing operating expenses.
• Capital costs are trending lower in the field.
• The company successfully executed a preferred equity raise.
• The Vermejo two-well pad in Monument Draw is currently a drilled but uncompleted well and is currently scheduled to be fracked in the third quarter of 2024.
• New pad locations and permits are being prepared in all asset areas to support additional activity in Ward, Winkler and Pecos Counties.
• The previously announced Glacier and Rio pads saw strong performance with IPs reaching over 2,000 Boe/d and sustained production above the company's type curve.
• Lease operating and workover expense was $10.22 per Boe in the second quarter of 2024 versus $10.79 per Boe in the second quarter of 2023.
• General and administrative expenses were $2.85 per Boe in the second quarter of 2024 compared to $4.04 per Boe in the second quarter of 2023.

Negatives

• Average daily net production decreased to 12,857 Boe/d from 14,253 Boe/d in the second quarter of 2023.
• The company reported a net loss available to common stockholders of $8.7 million for the second quarter of 2024.
• Adjusted EBITDA decreased to $15.6 million from $16.8 million in the same quarter of the previous year.
• Fury Resources has requested an amendment to the merger agreement, reducing the purchase price to $7.00 per share.

Risks

• The proposed merger with Fury Resources is subject to amendment, potentially reducing the value to Battalion's stockholders.
• The company's future performance is subject to risks outlined in its Annual Report on Form 10-K and other SEC filings.
• Realized hedge losses totaled approximately $3.2 million during the second quarter of 2024.

Future Outlook

The company is focused on completing the Vermejo two-well pad in the third quarter of 2024 and preparing new pad locations to support additional activity. The company expects savings up to $2.0 million per month in gas treating costs.

Management Comments

• The Company concluded its current six-well campaign ahead of planned timing and under budget on each well.
• Capital costs continue to trend lower in the field with latest Monument Draw wells estimated below $950/lateral foot for drilling, completion and wellsite facilities while maintaining completions over 2,000 lbs/ft proppant.
• The previously announced Glacier and Rio pads saw strong performance with IPs reaching over 2,000 Boe/d and sustained production above the company's type curve.

Industry Context

The announcement reflects the ongoing challenges and strategic shifts within the oil and gas industry, including cost optimization through infrastructure investments (AGI facility) and potential consolidation activities (merger with Fury Resources).

Comparison to Industry Standards

• It is difficult to compare Battalion Oil's results to industry standards without more specific information on its peer group.
• However, the company's focus on cost reduction and operational efficiency aligns with broader industry trends.
• Companies like Diamondback Energy and Pioneer Natural Resources are known for their low-cost operations in the Permian Basin, which could serve as benchmarks for Battalion Oil's performance.
• The proposed merger with Fury Resources is similar to other consolidation efforts in the industry, such as Chevron's acquisition of Hess Corporation, aimed at achieving economies of scale and enhancing asset portfolios.

Stakeholder Impact

• Shareholders face uncertainty due to the proposed merger amendment and reduced purchase price.
• Employees may be affected by potential changes resulting from the merger.
• Customers and suppliers may experience changes in business relationships depending on the outcome of the merger.

Next Steps

• Complete the Vermejo two-well pad in the third quarter of 2024.
• Prepare new pad locations and permits to support additional activity.
• Continue reviewing Fury Resources' proposal to amend the merger agreement.
• File relevant materials with the SEC regarding the proposed transaction.

Key Dates

Keywords

Battalion Oil, Financial Results, Operating Results, AGI Facility, Production, Merger Agreement, Fury Resources, Equity Raise, Debt Reduction, EBITDA