DEFA14A: Battalion Oil Corporation Announces Third Quarter 2024 Financial and Operating Results; Merger Agreement Amended

Battalion Oil Corporation reports its third quarter 2024 financial results, highlighting the AGI facility going online, completion of the Vermejo pad, and an amendment to the merger agreement with Fury Resources.

Summary

• Battalion Oil Corporation announced its third quarter 2024 financial and operating results.
• Key highlights include the AGI facility going online and treating 1.7 Bcf, completion of the Vermejo pad, and plans to spud the next Monument Draw pad wells before year-end.
• Third quarter 2024 sales volumes were 12,076 Boe/d.
• The merger agreement with Fury Resources was amended, reducing the purchase price to $7.00 per share and requiring preferred equity holders to roll over 100% of their preferred equity.
• Average daily net production was 12,076 Boe/d (52% oil), and total operating revenue was $45.3 million, compared to 12,717 Boe/d (46% oil) and $54.1 million in Q3 2023.
• The company reported net income available to common stockholders of $5.6 million, or $0.34 per share, but an adjusted diluted net loss of $21.5 million, or $1.31 per share after adjusting for selected items.
• Adjusted EBITDA was $13.5 million compared to $13.6 million in the same quarter last year.
• As of September 30, 2024, the company had $147.8 million of indebtedness outstanding and $29.8 million in liquidity.
• A special meeting of stockholders is scheduled for November 19, 2024, to vote on the merger agreement.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While there are positive operational updates, the financial results show a decrease in revenue and an adjusted net loss. The merger agreement provides some stability, but the overall outlook is mixed.

Positives

• The AGI facility is operational and generating cost savings.
• The Vermejo pad has been completed and is flowing back with initial rates in line with expectations.
• Capital costs are trending lower in the field.
• Glacier and Rio Bravo pads are performing above the company's type curve.
• The company reported net income available to common stockholders of $5.6 million, or $0.34 per share.

Negatives

• Revenues decreased in Q3 2024 compared to Q3 2023 due to lower realized prices and decreased production.
• Lease operating and workover expense increased to $11.56 per Boe from $10.13 per Boe year-over-year.
• General and administrative expenses increased to $3.46 per Boe from $2.72 per Boe year-over-year.
• The company reported an adjusted diluted net loss of $21.5 million, or $1.31 per share after adjusting for selected items.

Risks

• The company's forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially.
• The company has $147.8 million of indebtedness outstanding.

Future Outlook

The company plans to spud the next Monument Draw pad wells prior to year-end and expects savings of up to $2.0 million per month in gas treating costs from the AGI facility.

Management Comments

• The Company concluded its current six-well campaign ahead of planned timing and under budget on each well.
• The Vermejo two-well pad in Monument Draw has been completed and is currently flowing back with initial rates in line with Company expectations.
• 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 continue to perform above the Company's type curve with cumulative production averaging 370 Mboe (64% oil) in the first 280 days on Glacier and 132 Mboe (86% oil) in the first 150 days on Rio Bravo.

Industry Context

The announcement reflects the ongoing challenges and opportunities in the oil and gas industry, including fluctuating commodity prices, cost management pressures, and strategic consolidation efforts through mergers and acquisitions.

Comparison to Industry Standards

• It is difficult to compare Battalion Oil's results directly to industry standards without knowing the specific basins they operate in and the size/scope of comparable companies.
• However, the reported capital costs of below $950/lateral foot for drilling, completion, and wellsite facilities on the latest Monument Draw wells are competitive, as leading operators in shale plays like the Permian Basin often target similar or slightly lower costs.
• Companies like EOG Resources and Pioneer Natural Resources are known for their efficient drilling and completion techniques, and Battalion's efforts to reduce costs align with industry best practices.
• The production performance of the Glacier and Rio Bravo pads exceeding the company's type curve is a positive sign, but further analysis would be needed to compare these results to the average well performance in their specific operating areas.

Stakeholder Impact

• Shareholders will vote on the proposed merger with Fury Resources.
• Employees may be affected by the merger.
• The merger could impact the company's relationships with its suppliers and midstream partners.

Next Steps

• Stockholders will vote on the merger agreement at a special meeting on November 19, 2024.
• The company plans to spud the next Monument Draw pad wells prior to year-end.

Key Dates

Keywords

Battalion Oil Corporation, financial results, operating results, merger agreement, Fury Resources, AGI facility, production, EBITDA, liquidity, oil and gas