Battalion Oil Corporation (NYSE:BATL) Q4 2021 Earnings Conference Call March 8, 2022 11:00 AM ET Company Participants Chris Lang - Manager of Finance Richard Little - Chief Executive Officer Daniel Rohling - Chief Operating Officer Kevin Andrews - Chief Financial Officer Conference Call Participants Operator Welcome to the Battalion Oil Q4 2021 Earnings Call. As a reminder, today’s conference is being recorded. I’ll now turn it over to Battalion Oil Corporation’s Finance Manager, Chris Lang, to open the cal ...

Battalion Oil Corporation (NYSE:BATL) Q3 2021 Earnings Conference Call November 9, 2021 11:00 AM ET Company Participants Chris Lang - Manager of Finance Richard Little - Chief Executive Officer Kevin Andrews - Chief Financial Officer Conference Call Participants Operator Welcome to the Battalion Oil Third Quarter 2021 Earnings Call. As a reminder, today's conference is being recorded. Now, I'll turn it over to Manager of Finance, Chris Lang. You may begin. Chris Lang Good morning. I'm joined by a few of my ...

Battalion Oil Corporation (NYSE:BATL) Q2 2021 Earnings Conference Call August 10, 2021 11:00 AM ET Company Participants Chris Lang - Manager, Finance Richard Little - Chief Executive Officer Kevin Andrews - Executive Vice President and Chief Financial Officer Daniel Rohling - Executive Vice President and Chief Operating Officer Conference Call Participants Noel Parks - Tuohy Brothers Operator Good morning. Welcome to the Battalion Oil Second Quarter 2021 Earnings Call. I'd now like to turn the conference ov ...

[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=Special%20note%20regarding%20forward-looking%20statements) This section discusses the nature and risks of forward-looking statements included in the report - The report contains forward-looking statements concerning planned capital expenditures, production, costs, cash flows, financial position, business strategy, and future operations, identifiable by terms like "may," "expect," "estimate," "project," and "plan"[4](index=4&type=chunk) - Actual results could differ materially due to various risks, including volatility in commodity prices, ability to generate sufficient cash flow, impacts of the COVID-19 pandemic, indebtedness, ability to replace reserves, drilling and operating risks, and regulatory actions[4](index=4&type=chunk)[6](index=6&type=chunk) [PART I. FINANCIAL INFORMATION](index=6&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and management's analysis [ITEM 1. Condensed Consolidated Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents Battalion Oil Corporation's unaudited condensed consolidated financial statements, including statements of operations, balance sheets, stockholders' equity, and cash flows, along with comprehensive notes detailing accounting policies, significant estimates, and specific financial instruments and obligations for the periods ended June 30, 2021 and 2020 [Condensed Consolidated Statements of Operations (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Unaudited)) This section details the company's revenues, expenses, and net income or loss for the specified periods Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total operating revenues | $64,366 | $18,494 | $119,884 | $65,893 | | Total operating expenses | $43,459 | $109,481 | $85,271 | $159,059 | | Income (loss) from operations | $20,907 | $(90,987) | $34,613 | $(93,166) | | Net gain (loss) on derivative contracts | $(53,089) | $(34,761) | $(98,800) | $83,538 | | Interest expense and other | $(1,747) | $(1,568) | $(3,117) | $(3,197) | | Net income (loss) | $(33,929) | $(127,316) | $(67,304) | $(12,825) | | Basic EPS | $(2.09) | $(7.86) | $(4.14) | $(0.79) | | Diluted EPS | $(2.09) | $(7.86) | $(4.14) | $(0.79) | | Weighted average common shares outstanding (Basic) | 16,268 | 16,204 | 16,250 | 16,204 | [Condensed Consolidated Balance Sheets (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) This section provides a snapshot of the company's assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets (Unaudited) (in thousands) | Asset/Liability/Equity | June 30, 2021 | December 31, 2020 | | :--------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $1,458 | $4,295 | | Total current assets | $42,311 | $47,836 | | Net oil and natural gas properties | $303,721 | $289,605 | | Total assets | $351,737 | $346,497 | | Total current liabilities | $139,027 | $83,176 | | Long-term debt | $163,000 | $158,489 | | Total stockholders' equity | $23,648 | $89,958 | | Total liabilities and stockholders' equity | $351,737 | $346,497 | [Condensed Consolidated Statements of Stockholders' Equity (Unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) This section outlines changes in the company's equity accounts over the reporting period Condensed Consolidated Statements of Stockholders' Equity (Unaudited) (in thousands) | Item | Balances at Dec 31, 2020 | Net Income (Loss) | Stock-based Compensation | Balances at June 30, 2021 | | :------------------------------------ | :----------------------- | :---------------- | :----------------------- | :------------------------ | | Common Shares | 16,204 | — | — | 16,268 | | Stock Amount | $2 | — | — | $2 | | Additional Paid-In Capital | $330,123 | — | $1,263 | $331,117 | | Retained Earnings (Accumulated Deficit) | $(240,167) | $(67,304) | — | $(307,471) | | Stockholders' Equity | $89,958 | $(67,304) | $1,263 | $23,648 | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) This section summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(67,304) | $(12,825) | | Net cash provided by (used in) operating activities | $29,100 | $43,104 | | Net cash provided by (used in) investing activities | $(36,669) | $(90,155) | | Net cash provided by (used in) financing activities | $4,732 | $37,177 | | Net increase (decrease) in cash and cash equivalents | $(2,837) | $(9,874) | | Cash and cash equivalents at end of period | $1,458 | $401 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, significant estimates, and specific financial instruments and obligations [1. FINANCIAL STATEMENT PRESENTATION](index=11&type=section&id=1.%20FINANCIAL%20STATEMENT%20PRESENTATION) This section describes the company's business, the impact of market conditions, and key accounting estimates - Battalion is an independent energy company focused on the acquisition, production, exploration, and development of onshore liquids-rich oil and natural gas assets in the United States, operating in a single segment[25](index=25&type=chunk) - In 2020, the COVID-19 pandemic led to an economic downturn, reduced demand for oil and natural gas, and historically low prices, resulting in lower revenue and ceiling test impairments; in 2021, demand and prices rebounded due to vaccine availability and governmental policies, but future volatility and impacts remain uncertain[26](index=26&type=chunk)[27](index=27&type=chunk) - The preparation of financial statements involves significant management estimates and assumptions, including oil and natural gas revenue/expense accruals, reserves, depletion, asset retirement obligations, and fair value estimates[30](index=30&type=chunk) - Accounts receivable primarily consist of amounts from joint interest owners and oil and natural gas purchasers, with allowances for doubtful accounts less than **$0.1 million** as of June 30, 2021, and approximately **$0.2 million** as of December 31, 2020[33](index=33&type=chunk) - The Company adopted ASU 2019-12 (Income Taxes) effective January 1, 2021, which did not have a material impact, and ASU 2020-04 (Reference Rate Reform) is currently being evaluated for its potential impact[43](index=43&type=chunk)[44](index=44&type=chunk) [2. LEASES](index=15&type=section&id=2.%20LEASES) This section details the company's lease arrangements, associated costs, and future payment obligations - The Company leases equipment and office space under operating leases and has no finance leases, with lease liabilities measured at the present value of unpaid lease payments, using the incremental borrowing rate when an implicit rate is not readily determinable[45](index=45&type=chunk)[46](index=46&type=chunk)[52](index=52&type=chunk) Total Lease Costs (in thousands) | Lease Type | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------ | :----------------------------- | :----------------------------- | | Operating lease costs | $235 | $1,797 | | Short-term lease costs | $1,889 | $16,094 | | Variable lease costs | $229 | $682 | | **Total lease costs** | **$2,353** | **$18,573** | - In May 2020, the Company exercised an early termination option for its Denver office lease, incurring a **$1.3 million** termination fee and a **$0.5 million** impairment to its operating lease right-of-use asset, recorded as "Restructuring"[39](index=39&type=chunk)[55](index=55&type=chunk) Future Minimum Lease Payments (as of June 30, 2021, in thousands) | Period | Amount | | :---------------------- | :----- | | Remaining period in 2021 | $78 | | 2022 | — | | 2023 | — | | 2024 | — | | 2025 | — | | Thereafter | — | | **Total operating lease payments** | **$78** | [3. OPERATING REVENUES](index=18&type=section&id=3.%20OPERATING%20REVENUES) This section explains the sources and recognition of the company's oil, natural gas, and NGL sales revenues - Substantially all of the Company's revenues are derived from single basin operations in the Delaware Basin, located in Pecos, Reeves, Ward, and Winkler Counties, Texas[58](index=58&type=chunk) Disaggregated Operating Revenues (in thousands) | Operating Revenues | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Oil sales | $51,935 | $15,758 | $93,205 | $57,675 | | Natural gas sales | $5,317 | $836 | $14,404 | $1,190 | | Natural gas liquids sales | $6,851 | $1,437 | $11,760 | $6,190 | | Total oil, natural gas and natural gas liquids sales | $64,103 | $18,031 | $119,369 | $65,055 | | Other | $263 | $463 | $515 | $838 | | **Total operating revenues** | **$64,366** | **$18,494** | **$119,884** | **$65,893** | - Revenues from the sale of crude oil, natural gas, and natural gas liquids are recognized at the point in time when control of the commodity is transferred to the customer[57](index=57&type=chunk) [4. DIVESTITURES](index=21&type=section&id=4.%20DIVESTITURES) This section reports on the sale of assets and the use of the proceeds - On December 18, 2020, the Company sold its North West Quito Assets in Ward County, Texas, for **$25.9 million** in cash, with proceeds used to repay amounts outstanding under the Senior Credit Agreement and for general corporate purposes[65](index=65&type=chunk) [5. OIL AND NATURAL GAS PROPERTIES](index=21&type=section&id=5.%20OIL%20AND%20NATURAL%20GAS%20PROPERTIES) This section discusses the accounting method for oil and gas properties and any impairment charges - The Company uses the full cost method of accounting, capitalizing all acquisition, exploration, and development costs of oil and natural gas reserves[66](index=66&type=chunk) - At June 30, 2020, the Company recorded a **$60.1 million** full cost ceiling impairment, primarily due to a decrease in the 12-month average crude oil spot price from **$55.96 per barrel** to **$47.37 per barrel**, with no impairment recorded at June 30, 2021[68](index=68&type=chunk)[69](index=69&type=chunk) [6. DEBT](index=22&type=section&id=6.%20DEBT) This section provides details on the company's senior revolving credit facility and Paycheck Protection Program loan Debt Summary (in thousands) | Debt Type | June 30, 2021 | December 31, 2020 | | :--------------------------------------- | :------------ | :---------------- | | Senior revolving credit facility | $163,000 | $158,000 | | Paycheck Protection Program loan | $2,209 | $2,209 | | **Total debt** | **$165,209** | **$160,209** | | Current portion of Paycheck Protection Program loan | $2,209 | $1,720 | | **Total long-term debt** | **$163,000** | **$158,489** | - The Senior Revolving Credit Facility's borrowing base was reduced to **$185.0 million** effective June 1, 2021, and will further reduce to **$175.0 million** effective September 1, 2021, as per the Fourth Amendment[73](index=73&type=chunk)[79](index=79&type=chunk) - As of June 30, 2021, the Company had **$163.0 million** outstanding under the Senior Credit Agreement, with **$20.1 million** of borrowing capacity remaining, and the facility matures on October 8, 2024[73](index=73&type=chunk)[74](index=74&type=chunk) - The Senior Credit Agreement includes financial covenants such as a Total Net Indebtedness Leverage Ratio not greater than **3.50 to 1.00** and a Current Ratio not less than **1.00 to 1.00** (waived until December 31, 2021), with the Company in compliance as of June 30, 2021[77](index=77&type=chunk)[78](index=78&type=chunk)[161](index=161&type=chunk) - The Paycheck Protection Program (PPP) Loan, with a principal of approximately **$2.2 million** and **1.0% interest**, matures on April 16, 2022, and the Company is pursuing forgiveness, but no assurance can be provided[80](index=80&type=chunk)[82](index=82&type=chunk) [7. FAIR VALUE MEASUREMENTS](index=26&type=section&id=7.%20FAIR%20VALUE%20MEASUREMENTS) This section explains the valuation methods and fair values of the company's financial instruments - The Company classifies its derivative contracts (fixed-price swaps, collars, basis swaps, WTI NYMEX rolls) as Level 2 within the fair value hierarchy, as their valuation is based on observable market data[83](index=83&type=chunk)[88](index=88&type=chunk) Fair Value of Derivative Contracts (in thousands) | Category | June 30, 2021 (Level 2) | December 31, 2020 (Level 2) | | :-------------------------------------- | :---------------------- | :-------------------------- | | Assets from derivative contracts | $1,843 | $12,568 | | Liabilities from derivative contracts | $86,560 | $26,416 | - The estimated fair value of cash and cash equivalents, accounts receivable, accounts payable, and the Senior Credit Agreement approximates their carrying value due to their short-term nature or current market interest rates[90](index=90&type=chunk) [8. DERIVATIVE AND HEDGING ACTIVITIES](index=27&type=section&id=8.%20DERIVATIVE%20AND%20HEDGING%20ACTIVITIES) This section describes the company's use of derivative contracts to manage commodity price risk - The Company uses derivative contracts to hedge exposure to commodity price risk, not for speculative trading, and does not designate them for hedge accounting[92](index=92&type=chunk)[94](index=94&type=chunk) Net Gain (Loss) on Derivative Contracts (in thousands) | Type | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Unrealized gain (loss) | $(34,817) | $(67,221) | $(70,869) | $45,157 | | Realized gain (loss) | $(18,272) | $32,460 | $(27,931) | $38,381 | | **Total net gain (loss)** | **$(53,089)** | **$(34,761)** | **$(98,800)** | **$83,538** | - During the six months ended June 30, 2020, the Company terminated certain derivative contracts early, receiving approximately **$16.3 million** in net proceeds[99](index=99&type=chunk) Open Crude Oil and Natural Gas Derivative Contracts (as of June 30, 2021) | Period | Instrument | Commodity | Volume (Mmbtu's/Bbl's) | Weighted Average Price | | :----- | :---------------- | :---------- | :--------------------- | :--------------------- | | 2021 | Fixed-Price Swap | Crude Oil | 1,457,000 | $43.65 | | 2021 | Fixed-Price Swap | Natural Gas | 2,168,512 | $2.72 | | 2021 | Basis Swap | Crude Oil | 1,457,000 | $(0.32) | | 2021 | Basis Swap | Natural Gas | 2,168,512 | $(0.24) | | 2021 | WTI NYMEX Roll | Crude Oil | 1,209,000 | $(0.41) | | 2022 | Fixed-Price Swap | Crude Oil | 2,368,434 | $48.81 | | 2022 | Fixed-Price Swap | Natural Gas | 1,297,420 | $3.01 | | 2022 | Producer Collar (Ceiling) | Natural Gas | 2,388,624 | $2.65 | | 2022 | Producer Collar (Floor) | Natural Gas | 2,388,624 | $2.50 | | 2022 | Basis Swap | Crude Oil | 2,368,434 | $0.47 | | 2022 | Basis Swap | Natural Gas | 3,686,044 | $(0.30) | | 2022 | WTI NYMEX Roll | Crude Oil | 2,399,434 | $(0.03) | [9. ASSET RETIREMENT OBLIGATIONS](index=29&type=section&id=9.%20ASSET%20RETIREMENT%20OBLIGATIONS) This section outlines the company's liabilities for future asset retirement costs - The Company records an Asset Retirement Obligation (ARO) for site reclamation, facility dismantling, or plugging and abandonment costs when fair value can be reasonably estimated[102](index=102&type=chunk) Asset Retirement Obligation (ARO) Activity (in thousands) | Item | Amount | | :-------------------------------------------- | :----- | | Liability for ARO as of December 31, 2020 | $10,583 | | Additions | $105 | | Accretion expense | $257 | | **Liability for ARO as of June 30, 2021** | **$10,945** | [10. COMMITMENTS AND CONTINGENCIES](index=30&type=section&id=10.%20COMMITMENTS%20AND%20CONTINGENCIES) This section details the company's contractual obligations and potential legal liabilities - As of June 30, 2021, the Company has a minimum volume commitment for sour gas treating of approximately **$4.9 million** for the remainder of 2021 and **$4.8 million** for 2022[105](index=105&type=chunk) - The Company has long-term gathering, transportation, and sales contracts for a substantial portion of its Delaware Basin production, ranging from one to twenty years[105](index=105&type=chunk) - Management believes that the resolution of pending or threatened legal proceedings will not have a material effect on the Company's operating results, financial position, or cash flows[106](index=106&type=chunk) [11. STOCKHOLDERS' EQUITY](index=30&type=section&id=11.%20STOCKHOLDERS'%20EQUITY) This section provides information on outstanding warrants, stock-based compensation, and equity plan details - The Company has three series of warrants (A, B, C) outstanding, expiring October 8, 2022, with exercise prices increasing monthly; as of June 30, 2021, there were **1.8 million** Series A warrants (**$43.78/share**), **2.2 million** Series B warrants (**$52.86/share**), and **2.9 million** Series C warrants (**$66.47/share**)[108](index=108&type=chunk) - The 2020 Long-Term Incentive Plan's maximum shares available for grant were increased by **0.3 million** to approximately **1.8 million**, with **0.5 million** shares remaining reserved for issuance as of June 30, 2021[110](index=110&type=chunk) - Stock-based compensation expense was **$0.5 million** for the three months and **$1.1 million** for the six months ended June 30, 2021[111](index=111&type=chunk) - Unrecognized compensation expense as of June 30, 2021, included **$0.7 million** for non-vested stock options (weighted-average period of **1.6 years**) and **$3.1 million** for non-vested RSU awards (weighted-average period of **2.3 years**)[112](index=112&type=chunk)[115](index=115&type=chunk) [12. EARNINGS PER SHARE](index=34&type=section&id=12.%20EARNINGS%20PER%20SHARE) This section presents the calculation of basic and diluted earnings per share for the reporting periods Basic and Diluted Earnings (Loss) Per Share (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(33,929) | $(127,316) | $(67,304) | $(12,825) | | Weighted average basic shares outstanding | 16,268 | 16,204 | 16,250 | 16,204 | | Basic net income (loss) per share | $(2.09) | $(7.86) | $(4.14) | $(0.79) | | Diluted net income (loss) per share | $(2.09) | $(7.86) | $(4.14) | $(0.79) | - Common stock equivalents, including warrants, options, and restricted stock units (totaling **7.7 million** for the three and six months ended June 30, 2021), were excluded from diluted EPS calculations because their effect would have been anti-dilutive due to net losses[118](index=118&type=chunk)[119](index=119&type=chunk) [13. ADDITIONAL FINANCIAL STATEMENT INFORMATION](index=36&type=section&id=13.%20ADDITIONAL%20FINANCIAL%20STATEMENT%20INFORMATION) This section offers supplementary details on accounts receivable, accounts payable, and accrued liabilities Accounts Receivable, Net (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :-------------------------------------- | :------------ | :---------------- | | Oil, natural gas and natural gas liquids revenues | $32,370 | $22,781 | | Joint interest accounts | $4,539 | $8,543 | | Other | $189 | $918 | | **Total** | **$37,098** | **$32,242** | Accounts Payable and Accrued Liabilities (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :-------------------------------------- | :------------ | :---------------- | | Trade payables | $28,091 | $22,740 | | Accrued oil and natural gas capital costs | $6,769 | $8,344 | | Revenues and royalties payable | $20,877 | $16,412 | | Accrued interest expense | $1,554 | $482 | | Accrued employee compensation | $2,082 | $3,223 | | Accrued lease operating expenses | $5,830 | $7,622 | | Other | $94 | $105 | | **Total** | **$65,297** | **$58,928** | [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an in-depth analysis of Battalion Oil Corporation's financial condition and results of operations for the three and six months ended June 30, 2021 and 2020, focusing on key drivers such as commodity prices, production volumes, capital expenditures, liquidity, and the impact of the COVID-19 pandemic [Overview](index=37&type=section&id=Overview) This section provides a high-level summary of the company's business, financial performance, and operational highlights - Battalion Oil Corporation is an independent energy company focused on the acquisition, production, exploration, and development of onshore liquids-rich oil and natural gas assets in the Delaware Basin, Texas[123](index=123&type=chunk) - Total operating revenues for the first six months of 2021 increased to **$119.9 million** from **$65.9 million** in 2020, primarily due to a **$22.47 per Boe** increase in average realized prices[124](index=124&type=chunk) - Average daily production decreased to **14,956 Boe/d** in H1 2021 from **16,527 Boe/d** in H1 2020, impacted by temporary shut-ins (due to inclement weather in 2021 and historically low commodity prices in 2020) and third-party processing curtailments[124](index=124&type=chunk) - In the first six months of 2021, the Company drilled and cased **2.0 gross (2.0 net)** operated wells, completed **6.0 gross (6.0 net)** operated wells, and put online **6.0 gross (6.0 net)** operated wells[124](index=124&type=chunk) [Recent Developments](index=38&type=section&id=Recent%20Developments) This section discusses significant events and their impact, including the COVID-19 pandemic and credit agreement amendments - The COVID-19 pandemic significantly impacted the business in 2020, leading to reduced demand, low commodity prices, temporary well shut-ins, and ceiling test impairments; in 2021, demand and prices rebounded, but potential future impacts from variants or economic factors remain a concern[127](index=127&type=chunk)[128](index=128&type=chunk) - The Fourth Amendment to the Senior Secured Revolving Credit Agreement, effective May 10, 2021, reduced the borrowing base to **$185.0 million** (June 1, 2021) and further to **$175.0 million** (September 1, 2021), increased interest margins, and revised certain covenants[129](index=129&type=chunk) [Capital Resources and Liquidity](index=38&type=section&id=Capital%20Resources%20and%20Liquidity) This section analyzes the company's financial capacity, funding sources, and ability to meet obligations - The COVID-19 pandemic and associated market conditions in 2020 adversely impacted the Company's revenue and led to ceiling test impairments; while prices rebounded in 2021, future economic conditions and commodity price volatility could affect the business, financial condition, and compliance with debt covenants[130](index=130&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) - The Company expects to spend **$40.0 million** to **$50.0 million** on capital expenditures in 2021, funded by cash on hand, operating cash flows, and borrowings under the Senior Credit Agreement[134](index=134&type=chunk) - As of June 30, 2021, the Company had **$20.1 million** of borrowing capacity under its **$185.0 million** borrowing base, which is scheduled to be reduced to **$175.0 million** on September 1, 2021[134](index=134&type=chunk) - The Company was in compliance with the financial covenants under the Senior Credit Agreement as of June 30, 2021, with the Current Ratio testing suspended until Q4 2021[135](index=135&type=chunk)[139](index=139&type=chunk) - The Company employs derivative instruments to hedge **65% to 85%** of anticipated production for up to 30 months, with a minimum requirement of **65%** of proved developed producing reserves hedged through December 31, 2022, as per the Third Amendment[143](index=143&type=chunk)[146](index=146&type=chunk) [Cash Flow](index=44&type=section&id=Cash%20Flow) This section examines the company's cash generation and usage across operating, investing, and financing activities Net Increase (Decrease) in Cash and Cash Equivalents (in thousands) | Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Operating activities | $29,100 | $43,104 | | Investing activities | $(36,669) | $(90,155) | | Financing activities | $4,732 | $37,177 | | **Net increase (decrease) in cash** | **$(2,837)** | **$(9,874)** | - Operating cash flows decreased in H1 2021 compared to H1 2020, primarily due to realized losses from derivative contracts (driven by increased commodity prices), partially offset by higher oil and natural gas revenues; H1 2020 included **$16.3 million** from early termination of derivative contracts[150](index=150&type=chunk)[153](index=153&type=chunk) - Net cash used in investing activities was **$36.7 million** in H1 2021, primarily for oil and natural gas capital expenditures (**$37.6 million**), a decrease from **$90.2 million** in H1 2020[153](index=153&type=chunk)[154](index=154&type=chunk) - Net cash provided by financing activities was **$4.7 million** in H1 2021, mainly from **$5.0 million** in net borrowings under the Senior Credit Agreement; in H1 2020, financing activities provided **$37.2 million**, including **$35.0 million** in net borrowings and a **$2.2 million** PPP Loan[155](index=155&type=chunk) [Senior Revolving Credit Facility](index=46&type=section&id=Senior%20Revolving%20Credit%20Facility) This section details the terms, borrowing capacity, and covenants of the company's primary debt facility - The Senior Credit Agreement provides for a **$750.0 million** senior secured reserve-based revolving credit facility, with a current borrowing base of **$185.0 million**, set to reduce to **$175.0 million** on September 1, 2021[156](index=156&type=chunk)[160](index=160&type=chunk) - As of June 30, 2021, **$163.0 million** was outstanding, with **$1.9 million** in letters of credit, and the facility matures on October 8, 2024[156](index=156&type=chunk) - Interest rates fluctuate based on facility utilization, with specified margins over ABR (**2.00% to 3.00%**) or LIBOR (**3.00% to 4.00%**)[156](index=156&type=chunk) - The agreement contains financial covenants, including a Total Net Indebtedness Leverage Ratio (not > **3.50:1.00**) and a Current Ratio (not < **1.00:1.00**, waived until December 31, 2021), with the Company in compliance as of June 30, 2021[158](index=158&type=chunk)[159](index=159&type=chunk)[161](index=161&type=chunk) [Paycheck Protection Program Loan](index=48&type=section&id=Paycheck%20Protection%20Program%20Loan) This section describes the terms and forgiveness status of the company's PPP loan - The Company obtained a **$2.2 million** PPP Loan on April 16, 2020, bearing **1.0% interest** and maturing on April 16, 2022, with proceeds used for payroll, mortgage interest, rent, or utilities[162](index=162&type=chunk) - The Company is pursuing forgiveness for the PPP Loan based on CARES Act requirements, but there is no assurance that forgiveness will be obtained[165](index=165&type=chunk) [Critical Accounting Policies and Estimates](index=50&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms the consistency of accounting policies with previous annual reports - There have been no material changes to the Company's critical accounting policies from those described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020[166](index=166&type=chunk) [Results of Operations](index=51&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance for the three and six months ended June 30, 2021 and 2020, highlighting changes in revenues, operating expenses, and net income/loss, primarily driven by commodity prices and production volumes [Three Months Ended June 30, 2021 and 2020](index=51&type=section&id=Three%20Months%20Ended%20June%2030%2C%202021%20and%202020) This section analyzes the company's financial and operational performance for the second quarter Key Financial and Operational Data (Three Months Ended June 30, in thousands, except per unit amounts) | Metric | 2021 | 2020 | Change | | :----------------------------------- | :---------- | :------------ | :------------ | | Net income (loss) | $(33,929) | $(127,316) | $93,387 | | Oil, natural gas and NGL sales | $64,103 | $18,031 | $46,072 | | Total operating revenues | $64,366 | $18,494 | $45,872 | | Average daily production (Boe/d) | 15,571 | 14,264 | 1,307 | | Average price per Boe | $45.24 | $13.89 | $31.35 | | Lease operating expenses (per Boe) | $7.18 | $7.94 | $(0.76) | | Workover and other expenses (per Boe) | $0.54 | $0.42 | $0.12 | | Taxes other than income (per Boe) | $2.06 | $1.15 | $0.91 | | Gathering and other expenses (per Boe) | $10.11 | $11.73 | $(1.62) | | Restructuring expense | $0 | $2,162 | $(2,162) | | General and administrative (per Boe) | $2.50 | $3.45 | $(0.95) | | Depletion (per Boe) | $7.77 | $10.79 | $(3.02) | | Full cost ceiling impairment | $0 | $60,107 | $(60,107) | | Net gain (loss) on derivative contracts | $(53,089) | $(34,761) | $(18,328) | - Operating revenues increased significantly due to a **$31.35 per Boe** increase in average realized prices and higher average daily production (**15,571 Boe/d** in Q2 2021 vs. **14,264 Boe/d** in Q2 2020)[170](index=170&type=chunk) - Lease operating expenses decreased on a per-unit basis due to operational efficiencies, while gathering and other expenses decreased due to lower rig stacking charges, partially offset by higher gathering and marketing fees[171](index=171&type=chunk)[173](index=173&type=chunk) - A **$60.1 million** full cost ceiling impairment was recorded in Q2 2020, primarily driven by a decrease in crude oil prices, with no such impairment occurring in Q2 2021[178](index=178&type=chunk) [Six Months Ended June 30, 2021 and 2020](index=55&type=section&id=Six%20Months%20Ended%20June%2030%2C%202021%20and%202020) This section analyzes the company's financial and operational performance for the first half of the year Key Financial and Operational Data (Six Months Ended June 30, in thousands, except per unit amounts) | Metric | 2021 | 2020 | Change | | :----------------------------------- | :---------- | :------------ | :------------ | | Net income (loss) | $(67,304) | $(12,825) | $(54,479) | | Oil, natural gas and NGL sales | $119,369 | $65,055 | $54,314 | | Total operating revenues | $119,884 | $65,893 | $53,991 | | Average daily production (Boe/d) | 14,956 | 16,527 | $(1,571) | | Average price per Boe | $44.10 | $21.63 | $22.47 | | Lease operating expenses (per Boe) | $7.25 | $7.58 | $(0.33) | | Workover and other expenses (per Boe) | $0.49 | $0.62 | $(0.13) |\ | Taxes other than income (per Boe) | $2.25 | $1.47 | $0.78 | | Gathering and other expenses (per Boe) | $10.16 | $8.57 | $1.59 | | Restructuring expense | $0 | $2,580 | $(2,580) | | General and administrative (per Boe) | $2.87 | $2.64 | $0.23 | | Depletion (per Boe) | $7.89 | $10.51 | $(2.62) | | Full cost ceiling impairment | $0 | $60,107 | $(60,107) | | Net gain (loss) on derivative contracts | $(98,800) | $83,538 | $(182,338) | - Operating revenues increased due to a **$22.47 per Boe** increase in average realized prices, despite a decrease in average daily production to **14,956 Boe/d** in H1 2021 from **16,527 Boe/d** in H1 2020[183](index=183&type=chunk) - Lease operating expenses decreased due to lower salt water disposal costs, while gathering and other expenses increased due to higher electricity, buy-back fuel costs (inclement weather in Feb 2021), and chemical costs, partially offset by lower operating expenses for treating equipment[184](index=184&type=chunk)[187](index=187&type=chunk) - General and administrative expenses on a per-unit basis increased due to reduced production volumes, despite a decrease in total G&A expenses from lower professional fees and IT costs[189](index=189&type=chunk)[191](index=191&type=chunk) - The Company recorded a net derivative loss of **$98.8 million** in H1 2021, a significant change from a net gain of **$83.5 million** in H1 2020[194](index=194&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures about Market Risk](index=58&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section outlines Battalion Oil Corporation's exposure to market risks, primarily commodity price risk and interest rate risk, and details the strategies employed to manage these risks, including the use of derivative instruments and monitoring of financial instrument fair values [Derivative Instruments and Hedging Activity](index=58&type=section&id=Derivative%20Instruments%20and%20Hedging%20Activity) This section explains the company's use of derivatives to manage commodity price risk and counterparty exposure - The Company uses derivative instruments (fixed-price swaps, costless collars, basis swaps, WTI NYMEX rolls) to provide partial protection against declines in oil, natural gas, and natural gas liquids prices, typically hedging **65% to 85%** of anticipated production for up to 30 months[196](index=196&type=chunk) - The Company is exposed to counterparty non-performance risk on its derivative contracts but mitigates this by engaging with creditworthy financial institutions and having master netting agreements; no collateral was posted as of June 30, 2021, as contracts are secured under the Senior Credit Agreement[199](index=199&type=chunk) [Fair Market Value of Financial Instruments](index=60&type=section&id=Fair%20Market%20Value%20of%20Financial%20Instruments) This section discusses the valuation of the company's financial assets and liabilities - The estimated fair values of cash and cash equivalents, accounts receivable, and accounts payable approximate their carrying values due to their short-term nature, and the Senior Credit Agreement's fair value also approximates its carrying value due to market interest rates[200](index=200&type=chunk) [Interest Rate Sensitivity](index=60&type=section&id=Interest%20Rate%20Sensitivity) This section assesses the impact of interest rate fluctuations on the company's debt and cash flows - As of June 30, 2021, **98.7%** of the Company's **$165.2 million** total debt bears floating and variable interest rates (tied to prime or LIBOR), with a weighted average interest rate of **4.04% per year** on variable rate debt[202](index=202&type=chunk) - A **10%** change in market interest rates would impact the Company's cash flows by approximately **$0.7 million per year**, assuming the balance of variable interest rate debt remains constant[202](index=202&type=chunk) [ITEM 4. Controls and Procedures](index=60&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2021, providing reasonable assurance for timely and accurate financial reporting; no material changes to internal controls over financial reporting occurred during the quarter - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2021, providing reasonable assurance for timely and accurate reporting[203](index=203&type=chunk) - There were no material changes in the Company's internal controls over financial reporting during the three months ended June 30, 2021[203](index=203&type=chunk) [PART II. OTHER INFORMATION](index=61&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part contains additional disclosures not covered in the financial statements [ITEM 1. Legal Proceedings](index=61&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference information regarding legal proceedings from Note 10, "Commitments and Contingencies," where management believes the outcomes will not materially affect the Company's financial results - Information regarding legal proceedings is incorporated by reference from Note 10, "Commitments and Contingencies," where management believes the resolution of these proceedings will not have a material effect on the Company's financial position or results[204](index=204&type=chunk) [ITEM 1A. Risk Factors](index=61&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no changes to the risk factors previously described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - There have been no changes to the risk factors described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020[205](index=205&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=61&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's acquisition of common stock during the period, which primarily involved shares surrendered by employees for tax withholding upon the vesting of restricted stock units Acquisition of Common Stock (April-June 2021) | Period | Total Number of Shares Purchased | Average Paid Price Per Share | | :-------- | :------------------------------- | :--------------------------- | | April 2021 | 185 | $11.93 | | May 2021 | — | — | | June 2021 | 185 | $12.70 | - All shares acquired were surrendered by employees in exchange for the payment of tax withholding upon the vesting of restricted stock units and were not part of a publicly announced share repurchase program[206](index=206&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=61&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[209](index=209&type=chunk) [ITEM 4. Mine Safety Disclosures](index=61&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[209](index=209&type=chunk) [ITEM 5. Other Information](index=61&type=section&id=Item%205.%20Other%20Information) This section reports on the extension of the Chief Financial Officer's employment agreement - R. Kevin Andrews, Chief Financial Officer, had his employment agreement extended to January 28, 2022, to align with the terms of the Chief Executive Officer and Chief Operating Officer[207](index=207&type=chunk) [ITEM 6. Exhibits](index=62&type=section&id=Item%206.%20Exhibits) This section lists all documents filed as exhibits to the Quarterly Report on Form 10-Q, including corporate governance documents, credit agreements, employment contracts, and certifications - The report includes various exhibits such as the Amended and Restated Certificate of Incorporation, Bylaws, Senior Secured Revolving Credit Agreement and its amendments, employment agreements, and Sarbanes-Oxley certifications[211](index=211&type=chunk) [SIGNATURES](index=64&type=section&id=SIGNATURES) This section confirms the official signing and certification of the report by company executives - The report was signed on August 9, 2021, by Richard H. Little, Chief Executive Officer, and R. Kevin Andrews, Executive Vice President, Chief Financial Officer and Treasurer, on behalf of Battalion Oil Corporation[213](index=213&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) Battalion Oil reported a Q1 2021 net loss of $33.4 million, reversing prior year's net income, primarily due to derivative losses [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q1 2021 net loss of $33.4 million, reversing prior year's net income, primarily due to significant derivative contract losses | Financial Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | | :--- | :--- | :--- | | **Total operating revenues** | **$55,518** | **$47,399** | | Income (loss) from operations | $13,706 | $(2,179) | | Net gain (loss) on derivative contracts | $(45,711) | $118,299 | | **Net income (loss)** | **$(33,375)** | **$114,491** | | Basic net income (loss) per share | $(2.06) | $7.07 | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased slightly to $350.6 million, while liabilities rose, decreasing stockholders' equity to $57.0 million | Balance Sheet Item | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | | :--- | :--- | :--- | | Total current assets | $44,468 | $47,836 | | Net oil and natural gas properties | $300,874 | $289,605 | | **Total assets** | **$350,599** | **$346,497** | | Total current liabilities | $118,762 | $83,176 | | Long-term debt | $155,086 | $158,489 | | **Total liabilities** | **$293,588** | **$256,539** | | **Total stockholders' equity** | **$57,011** | **$89,958** | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations was $13.4 million, used for investing and debt repayment, leading to a $2.6 million net cash decrease | Cash Flow Activity | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $13,358 | $12,343 | | Net cash used in investing activities | $(12,719) | $(47,648) | | Net cash provided by (used in) financing activities | $(3,263) | $25,968 | | **Net decrease in cash** | **$(2,624)** | **$(9,337)** | [Notes to the Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, COVID-19 impacts, debt, significant derivative losses, and sour gas treating commitments - The company monitors COVID-19 impacts, which depressed commodity prices and revenues, with future uncertainties remaining[28](index=28&type=chunk) Debt Instrument | Debt Instrument | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | | :--- | :--- | :--- | | Senior revolving credit facility | $155,000 | $158,000 | | Paycheck Protection Program loan | $2,209 | $2,209 | | **Total debt** | **$157,209** | **$160,209** | - Q1 2021 saw a **$45.7 million net loss** on derivatives, a sharp reversal from Q1 2020's **$118.3 million net gain**[91](index=91&type=chunk) - Minimum volume commitment for sour gas treating through June 2022 totals **$7.3 million** for 2021 and **$4.8 million** for 2022[100](index=100&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2021 revenue growth from higher prices, production decline, 2021 capital plans, and liquidity management Key Operating Metrics | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Average Daily Production (Boe/d) | 14,333 | 18,791 | | Average Realized Price ($/Boe) | $42.84 | $27.50 | | Total Operating Revenues (in millions) | $55.5 | $47.4 | - The 2021 capital expenditure budget is projected to be between **$40.0 million** and **$50.0 million** for drilling and infrastructure[129](index=129&type=chunk) - Post-quarter, the Senior Credit Agreement was amended, reducing the borrowing base to **$185.0 million** by June 2021 and **$175.0 million** by September 2021[126](index=126&type=chunk)[129](index=129&type=chunk)[148](index=148&type=chunk) - A waiver for the Current Ratio covenant was obtained for Q3 2020, with suspension until Q4 2021, aiding liquidity management[131](index=131&type=chunk)[147](index=147&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages commodity price and interest rate risks, hedging 65-85% of production and noting interest rate sensitivity - Risk management policy aims to hedge **65% to 85%** of anticipated production for up to 30 months using derivatives[168](index=168&type=chunk) - Exposed to interest rate risk, with **98.6%** of debt at floating rates; a 10% rate change impacts cash flow by **$0.5 million** annually[173](index=173&type=chunk) [Item 4. Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes - Management concluded that disclosure controls and procedures were **effective** as of March 31, 2021[174](index=174&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) Legal proceedings are not expected to materially affect the company's financial condition or results of operations - Resolution of pending legal proceedings is not expected to materially affect operating results or financial position[101](index=101&type=chunk)[175](index=175&type=chunk) [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the 2020 Annual Report on Form 10-K were reported - No changes to the risk factors described in the 2020 Annual Report on Form 10-K were reported[176](index=176&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company acquired **23,680 shares** from employees for tax withholding on vested restricted stock units - In February 2021, **23,680 shares** were surrendered by employees at **$11.16 per share** for tax withholding on vested RSUs[177](index=177&type=chunk)[179](index=179&type=chunk) [Item 3. Defaults Upon Senior Securities](index=46&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported during the period [Item 4. Mine Safety Disclosures](index=46&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company's operations [Item 5. Other Information](index=46&type=section&id=Item%205.%20Other%20Information) Post-quarter, the Senior Secured Revolving Credit Agreement was amended, reducing the borrowing base and revising covenants - The Fourth Amendment reduces the borrowing base to **$185.0 million** by June 2021 and **$175.0 million** by September 2021, increasing interest margins and revising covenants[178](index=178&type=chunk) [Item 6. Exhibits](index=47&type=section&id=Item%206.%20Exhibits) This section lists documents filed as exhibits with the Form 10-Q, including credit agreement amendments