Battalion Oil(BATL) - 2024 Q3 - Quarterly Report

Merger and Acquisition - The company entered into a merger agreement with Fury Resources, with a total transaction value of approximately $450.0 million, converting each share of common stock into $9.80 in cash[112][113] - As of September 19, 2024, the merger consideration was amended to $7.00 per share of common stock, reflecting a significant reduction[117] - The company has incurred approximately $4.6 million in costs related to the merger as of November 8, 2024, with ongoing expenses expected[122] Financing Activities - The company raised $19.5 million from the sale of 20,000 shares of Series A-3 Convertible Preferred Stock in March 2024, net of $0.5 million in original issue discount[123] - An additional $19.5 million was raised from the sale of 20,000 shares of Series A-4 Redeemable Convertible Preferred Stock in May 2024, also net of $0.5 million in original issue discount[124] - The company issued $95.6 million in preferred equity funding during 2023 and an additional $19.5 million in Q1 2024 from its three largest existing stockholders[137] - The company received $38.8 million from preferred stock equity issuances during the nine months ended September 30, 2024[167] Operational Performance - The AGI Facility has processed over 3.7 Bcf of gas since its operation began on March 9, 2024, despite facing delays and higher costs[132] - The company advanced approximately $18.5 million for workover operations at the AGI Facility, with multiple remedies available for recovery[131] - The company generated a net loss of $33.2 million for the nine months ended September 30, 2024, with negative working capital of $64.5 million[134] - Operating revenues for the nine months ended September 30, 2024 were $143.7 million, down from $171.6 million in 2023, primarily due to lower average realized prices and production volumes[173] - Production averaged 12,639 Boe/d for the nine months ended September 30, 2024, down from 14,377 Boe/d in 2023, attributed to capital expenditure timing and natural production declines[174] Cash Flow and Liquidity - As of September 30, 2024, the company had $29.8 million in cash and cash equivalents and $50.0 million in debt repayments due through September 2025[134] - The company’s liquidity is susceptible to commodity price declines, despite using derivative instruments for partial protection[111] - Net cash flows provided by operating activities for the nine months ended September 30, 2024 were $28.7 million, an increase from $11.1 million for the same period in 2023[161] - Net cash flows used in investing activities for the nine months ended September 30, 2024 were approximately $52.6 million, compared to $37.1 million in 2023, primarily for drilling and completion activities[162] - Net cash flows used in financing activities for the nine months ended September 30, 2024 were $3.8 million, a decrease from $35.9 million provided in 2023[167] Debt and Interest - As of September 30, 2024, the company had $147.7 million in outstanding indebtedness under the Amended Term Loan Agreement, with a maturity date of November 24, 2025[151] - The weighted average interest rate on borrowings for the quarter ended September 30, 2024, was approximately 12.98%[151] - The company is required to make a final payment of $97.7 million at maturity on November 24, 2025[134] - The principal amount of term loan debt was $147.7 million as of September 30, 2024, with a weighted average interest rate of 12.79%[192] Cost Management - The company plans to reduce operating and capital costs to improve cash flow, having issued preferred stock totaling $134.6 million as of September 30, 2024[139] - Lease operating expenses for the nine months ended September 30, 2024 were $34.2 million, consistent with the same period in 2023, but per unit costs increased due to inflationary pressures[175] Compliance and Covenants - The Amended Term Loan Agreement includes financial covenants such as a Current Ratio of not less than 0.90 to 1.00 for the fiscal quarter ending September 30, 2024[155] - The company is not in compliance with the Total Net Leverage Ratio covenant as of March 31, 2024, but cured this noncompliance with a prepayment of $17.3 million[138] Strategic Initiatives - The company is exploring strategic transactions and alternative liquidity sources, including potential asset sales and refinancing options[141] - The company has a joint venture with Caracara Services, LLC to develop an acid gas treatment and carbon sequestration facility in Texas[128] Market Sensitivity - The company’s financial results are significantly influenced by oil and natural gas production volumes and commodity prices, which are subject to market fluctuations[110] - A 10% change in market interest rates would impact cash flows by approximately $2.5 million per year based on the current variable interest rate debt[192] - The company expects to hedge approximately 50% to 85% of anticipated oil and natural gas production over the next four years[188] Expense Management - Workover and other expenses decreased to $1.2 million for Q3 2024 from $0.7 million in Q3 2023, and for the nine months, they decreased to $3.1 million from $4.7 million[176] - Taxes other than income decreased to $2.5 million for Q3 2024 from $3.3 million in Q3 2023, and for the nine months, they decreased to $8.9 million from $9.7 million[177] - Gathering and other expenses decreased to $12.4 million for Q3 2024 from $15.5 million in Q3 2023, and for the nine months, they decreased to $41.9 million from $48.9 million[178] - General and administrative expenses decreased to $3.8 million for Q3 2024 from $3.9 million in Q3 2023, and for the nine months, they decreased to $11.1 million from $14.8 million[180] - Depletion expense decreased to $12.1 million for Q3 2024 from $13.1 million in Q3 2023, and for the nine months, it decreased to $37.6 million from $43.2 million[182] Derivative Gains and Interest Expense - The company recorded a net derivative gain of $26.9 million for Q3 2024 compared to a net derivative loss of $53.7 million in Q3 2023[184] - Interest expense decreased to $6.3 million for Q3 2024 from $6.9 million in Q3 2023, and for the nine months, it decreased to $19.8 million from $24.2 million[185]