Battalion Oil(BATL) - 2023 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Unaudited Q3 2023 financial statements show a net loss, decreased equity, and lower operating cash flow, primarily due to commodity price declines and derivative losses Condensed Consolidated Statements of Operations Q3 2023 saw a $53.8 million net loss, reversing prior year's income, due to lower commodity prices and significant derivative losses Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $54,106 | $99,149 | $173,520 | $282,262 | | Income from operations | $6,817 | $43,936 | $18,250 | $127,527 | | Net (loss) gain on derivative contracts | ($53,687) | $67,634 | ($29,741) | ($88,134) | | Net (loss) income | ($53,799) | $105,888 | ($35,736) | $26,191 | | Net (loss) income per share (Basic) | ($3.50) | $6.48 | ($2.56) | $1.60 | Condensed Consolidated Balance Sheets As of September 30, 2023, total assets and liabilities decreased, with stockholders' equity declining and new temporary preferred stock equity appearing Condensed Consolidated Balance Sheets (in thousands) | Metric | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $75,292 | $88,165 | | Total assets | $456,761 | $485,358 | | Total current liabilities | $141,399 | $165,025 | | Total liabilities | $384,121 | $399,729 | | Temporary equity (Preferred Stock) | $66,834 | $0 | | Total stockholders' equity | $40,832 | $84,628 | Condensed Consolidated Statements of Cash Flows Nine-month operating cash flow significantly decreased to $11.1 million, while financing activities provided $35.9 million from preferred stock issuance Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,065 | $53,814 | | Net cash used in investing activities | ($37,106) | ($87,780) | | Net cash provided by financing activities | $35,905 | $19,166 | | Net increase (decrease) in cash | $9,864 | ($14,800) | Notes to Unaudited Condensed Consolidated Financial Statements Notes reveal critical liquidity needs, addressed by a $55.0 million stockholder support letter, alongside details on term loan, derivatives, and preferred stock - The company's forecasts indicate it will require additional liquidity to continue operations and meet debt covenants for the next 12 months[30] - To address liquidity needs, the company obtained a support letter from its three largest stockholders to purchase up to an additional $55.0 million in preferred equity securities over the next 12 months[30] - As of September 30, 2023, the company had $210.2 million of indebtedness outstanding under its Amended Term Loan Agreement, which matures in November 2025[62][66] - In March and September 2023, the company issued a total of 63,000 shares of Series A Redeemable Convertible Preferred Stock, receiving net proceeds of approximately $61.5 million[101] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses deteriorating financial results due to lower commodity prices, critical liquidity needs, and plans for capital injection and cost reductions Capital Resources and Liquidity The company faces significant liquidity constraints, requiring additional capital, and is pursuing cost reductions, $55.0 million in preferred equity, and potential delisting - Management states that based on current forecasts, the company will require additional liquidity to continue operations and meet debt covenant requirements for the next 12 months[140] - The company has obtained a support letter from its largest investors to purchase up to an additional $55.0 million of preferred equity securities to meet its obligations[140] - The company is considering delisting its common stock from the NYSE American and ceasing to be a reporting company to achieve significant cost savings[141] - As of September 30, 2023, the company was in compliance with all financial covenants under its Term Loan Agreement[154] Results of Operations Operating results shifted to a net loss due to decreased revenues from lower commodity prices and reduced production volumes, alongside increased operating costs per Boe Key Operational Metrics Comparison | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Production (MBoe) | 1,170 | 1,493 | 3,925 | 4,191 | | Average Daily Production (Boe/d) | 12,717 | 16,228 | 14,377 | 15,352 | | Average Realized Price per Boe | $45.67 | $66.11 | $43.72 | $67.14 | | Lease Operating Expense per Boe | $9.53 | $8.22 | $8.72 | $8.52 | | Gathering and Other Expense per Boe | $13.26 | $11.16 | $12.45 | $11.40 | - The decrease in revenues was primarily due to a ~$20.44 per Boe decrease in average realized prices for Q3 2023 and a ~$23.42 per Boe decrease for the nine-month period compared to 2022[168] - Production was lower in 2023 periods due to midstream disruptions, plant curtailments, and natural production declines, partially offset by new wells brought online in late 2022[169] - Interest expense increased due to higher interest rates and a larger average debt balance in 2023, with the weighted average interest rate for Q3 2023 approximately 12.89%[182] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company manages commodity price risk through hedging 50-85% of production and faces interest rate risk on its $210.2 million variable-rate term loan - The company's term loan agreement requires it to hedge approximately 50% to 85% of its anticipated oil and natural gas production on a rolling four-year basis[185] - The company's $210.2 million term loan debt bears variable interest rates tied to SOFR, where a 10% change in market interest rates would impact cash flows by approximately $2.8 million per year[188] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal controls - Management concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[189][190] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[192] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in legal proceedings, including environmental claims in Louisiana, which management believes will not materially impact financials - The company is party to lawsuits from surface owners in Louisiana related to environmental damages from former operations, which it intends to vigorously oppose[100] Item 1A. Risk Factors No material changes were reported to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - No changes were reported to the risk factors from the company's 2022 Form 10-K[194] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On September 6, 2023, the company completed a private placement of 38,000 shares of Series A Convertible Preferred Stock - The company completed a private placement of 38,000 shares of Series A Convertible Preferred Stock on September 6, 2023[195] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including governance documents, credit agreements, and certifications