Battalion Oil Corporation (BATL) on Q1 2022 Results - Earnings Call Transcript
Operator: Good day ladies and gentlemen and welcome to the Battalion Oil Q1 2022 Earnings Call. As a reminder, today's conference is being recorded. Now, I'll turn it over to Battalion Oil Corporation's Finance Manager, Mr. Chris Lang to open the call. Mr. Lang you may begin. Chris Lang: Thank you and welcome to our first quarter 2022 earnings call. With me today are a few of my colleagues our Chief Executive Officer, Richard Little; our Chief Financial Officer, Kevin Andrews; and our Chief Operating Officer, Daniel Rohling. This conference call contains forward-looking statements. For a detailed description of our disclaimer see our earnings release issued yesterday and posted on our website. This call also includes references to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable measure under GAAP are contained in our earnings announcement released yesterday. We have also published an investor presentation which may be found on our website and will be referenced during this webcast. Our team will begin with a few scripted remarks followed by Q&A. Now, let me turn it over to Rich. Richard Little: Thanks Chris. I'm excited to be here this morning. I'd first like to thank everyone who's joined us on the call today. We released our earnings and our investor presentation last night after the market closed, both of which can be found on our website and may be referenced here today. We're off to a strong start in 2022 and I'm excited to share our progress to-date. Our goal for 2022 was to ramp up activity and drive significant growth in daily production, while remaining committed to capital discipline and operational efficiency. We're over four months into our long-term development program and the early results are promising. We kicked off our capital program in December with the spudding of a three-well pad and our operational performance there was exceptional. On the drilling side, we exceeded plan on footage drilled per day, reaching a total depth on each well ahead of plan, while remaining tight with our target lines throughout the lateral. We kept that operational excellence moving as we completed the wells with high pump efficiencies, in line with our aggressive plans. We assumed inflation will hit our industry this year. The question was just how much? With that question remaining largely unanswered, these operational efficiencies are critical as we continue to combat inflationary pressures due to supply chain disruption and labor shortages. When we issued guidance earlier this year, we described 2022 as a wind-up in activity. With only two new wells put online during the last 12 months, we fully expected to see a natural decline in production early in the year before the new wells came online and returned to growth. With our first three wells now flowing back, we're excited to say that moment has finally come. We're looking forward to sharing the data of those wells in Q2 and show the market how our hard work translates into results. But for now, I can say that early flowback results and other key indicators are encouraging. We also expect to wrap-up drilling on our next pad which is the Keller pad in the next week and anticipate having those wells flowing back in June. Our stated strategy has four key tenets; develop our liquid-rich acreage positions to grow production and reserves efficiently; enhance returns through continued improvement in operational and cost efficiencies; maintain financial flexibility; and attain growth through strategic business combinations. Based on our progress this year, we believe we're well on our way. With that let me pass it over to Danny to continue providing some detail on our operational results. Daniel Rohling: I couldn't agree with you more Rich. As you mentioned, our capital program is off to a strong start and that's largely a function of our relentless focus on operational excellence, drilling faster outpacing our previous wells and those of our basin peers, and exceeding our footage drilled per day target on each well this year. We're completing our wells more efficiently too meeting our pump efficiency targets despite setting lofty goals all while working with a new frac partner. The production teams worked hard on continuing to reduce downtime across all the fields in Q1. We realized a 16% reduction in well downtime versus our 2021 average. Our operations teams deserve some major recognition here. We stood up a new rig with new crews, pulled a new frac fleet from another basin to frac our initial three-well pad, and continued ongoing production and midstream operations across all our assets without a recordable incident. We often talk about our effectiveness and efficiency. But what's important is that we're doing it the right way and keeping our people safe while we do it. As we build that positive momentum in our development program we also continue to seek out ways to improve our go-forward planning. One example would be some subtle tweaks we made to our completion design on the first pad. We're testing the use of upgraded surfactants with the goal of enhancing fluid recovery and increasing EURs. This is our third such test in the area and we've seen promising results from the previous trials. We've also pumped tracer to better understand the interaction between wells in the area, so we can continue to fine-tune our forecasting of parent-child wells in future development. With that data, we hope to come away with an even greater understanding of the reservoir, so we can continue to fine-tune our completion design and well spacing in such a way to maximize recovery and most efficiently develop the field as we continue moving towards multi-bench and multi-rig scenarios. Gaining operational efficiencies are critical as we continue to fight inflation in 2022. It's no secret that the industry has been hit hard by cost increases and supply chain disruption. We faced our fair share of it as well. While we baked in approximately 15% inflation in our 2022 plan versus 2021, the continued uncertainty we're seeing in the market could further impact our capital expectations for the year. As always, we will continue to monitor the market closely and take active measures to mitigate further cost increases to the extent, we're able to do so. As we said last quarter, a lot of hard work was put in to prepare for our return to development and our early results leave us even more confident in the direction we're heading, both operationally and on the ESG front. In addition to having no recordable incidents, we continue our downward trend in flare intensity. As a practice we will not flow production, if we can't do so on pipe. Meaning, we won't flare unless there is a downstream emergency or shut in. That's a great spot to be in with all our wells across our 40000 acres. Now I'll pass it off to Kevin to walk you through some of our financial results. Kevin Andrews: Thank you, Danny and good morning everyone. Total production in the first quarter of 2022 declined as planned to 14,767 barrels of oil equivalent per day as compared to 17,283 barrels of oil equivalent per day during the fourth quarter of 2021. Having kicked off our 2022 drilling program in December with a 3-well pad, we did not anticipate new volumes to come online until the second quarter of 2022. With our Wilson pad flowing back as scheduled, we expect second quarter volumes to remain in line with the first quarter, before ramping up through the end of the year. Total revenue was $81.6 million for the first quarter of 2022 of which oil represented 77%. We realized 99% of the average NYMEX oil price during the first quarter, but realized a $32.8 million loss from our hedge program. We reported GAAP net loss to common shareholders for the first quarter of 2022 of $92.7 million or $5.69 per basic and diluted share. After adjusting for certain items including the effect of net unrealized derivative losses and I'll refer you to the press release for details of those adjustments, the company reflected a net loss of $3.5 million or a $0.22 loss per basic and diluted share. Adjusted EBITDA totaled $11.8 million for the first quarter of 2022. During the three months ended March 31, 2022 we spent $24.2 million on oil and natural gas capital expenditures of which $20.6 million related to drilling and completion costs and $2.4 million related to the development of our treating equipment and gathering support infrastructure. To follow on Danny's comments here, it's important to note that when we issued guidance for 2022, we anticipated inflationary pressure and included some amount of that in our plan. That said, a lot has changed in the macroenvironment during 2022 and it's difficult to say what the remainder of the year will bring. We continue to monitor the market closely and remain aggressive in our efforts to mitigate both inflation and supply chain disruptions. A few comments on liquidity and capitalization. At March 31 2022 the company had liquidity of $78.5 million, consisting of $43.5 million of cash and $35 million in delayed draw term loans available to be drawn under our term loan agreement. On April 29, we borrowed the $20 million available under the first delayed draw of the term loan agreement. This draw was done in anticipation of a ramp-up in capital expenditures as we continue our 2022 drilling program. Finally, a few comments on the company's hedges. As a result of the run-up in the commodity prices that occurred in the first quarter, we carry a $152.6 million net liability from derivative contracts at March 31, 2022 with $99.6 million of that booked as current as many of our '22 hedges are significantly below current market prices. It's important to note that the majority of these 2022 hedges relate to our base production. With our 2022 capital program ramping up, we anticipate significant incremental volume to come online in the back half of the year which will allow us to increasingly capture higher prices and increase cash flow. As we move through the year, we will continue to roll off these low market hedges and layer on new ones to protect the returns of our capital program. Now, I'll turn it back to Rich, to offer some concluding remarks. Richard Little: Thanks, Kevin. With the continued increase in commodity prices, the new wells flowing back and our team is operating at peak efficiency, there are many reasons for us to be optimistic. We're excited to return to growth and look forward to generating substantial increases, in production and cash flow, as we move through the year. Once again, I thank you for your interest in Battalion. That concludes our scripted remarks, and I'll turn it back to the operator to facilitate Q&A. Operator: Thanks very much, sir. Today's first question is coming from Mr. Jeff Robertson calling from Water Tower Research. Please go ahead, sir. Your line is open. Jeff Robertson: Thanks. Good morning. On the Keller pad can you talk about how many wells that is? And then as a subsequent, can you talk about the drilling schedule in terms of pad development for the remainder of 2022? Richard Little: Yes sure. The Keller pad is a two-well pad. So the first pad was the Wilson pad, that we'll be talking about in the second quarter. The next pad is the Keller pad, which will be a two-well pad. I think the next pad to that we're looking at doing another three-well pad and that we're still discussing whether or not the pad, after that power pad would be two or three wells. But I think you could expect call it two- to three-well pad-type process after the Keller . Starting with the three after Keller, -- then maybe two to three after that and two to three after that. So we'll look and see what the program looks like and where we drill. Jeff Robertson: Okay. Do you have any delays in terms of field infrastructure tying these wells in, or are they -- is the infrastructure already available? Richard Little: Yes. The infrastructure is already available. We put in a major trunk line going north to south, and then we have these rigs coming off of it that we produced down, or thought it was produced through to get back to the main trunk line. So it's a fairly efficient system, that all goes back to our central production facility. So yes, we've got the majority infrastructure already in place. Daniel Rohling: Yes, this is Daniel. The H2S handling is all in place as well. So we get that question a lot, also and it's good to note that we've got the ability to handle this one well, pardon me, one -rig program even ramping up to more. So we have that in place as well. Jeff Robertson: So as your production grows, will your gathering and transportation costs on a Boe basis, decline by putting more volume through the facilities? Daniel Rohling: Yes. Yes. It's, a good observation. And yes, I mean as we, put these high-volume wells into the system with capacity in place we do anticipate that we'll see a decline in that dollar per Boe metric. Jeff Robertson: And then lastly, I think Kevin you talked about hedging. Are you under your bank agreement or your credit agreements are you required to lay in hedges for the incremental volumes, you're bringing on? Kevin Andrews: Yes, we are. We hedge 65% before the wells are brought on when we start spending the capital. And when they become PDP wells, for the first two years we'll hedge 85% of the oil on the natural gas. Jeff Robertson: Okay. Thank you. Operator: Thanks so much Jeff. As we do not appear to have any questions at this time, I'd like to turn the call back over to Mr. Richard Little, for any additional or closing remarks. Thank you. Richard Little: Okay. Great. Thanks. And thanks again, for your interest in Battalion Oil. We've had a fairly busy first quarter, for -- from an activity standpoint and we look forward to reporting on some of those results at our next quarter earnings call. So, thanks again. Bye. Operator: Ladies and gentlemen that will conclude today's conference. We thank you for your participation. You may now disconnect. Have a good day.
Battalion Oil Corporation's Capital Efficiency in the Energy Sector
- Battalion Oil Corporation (AMEX:BATL) has a negative ROIC to WACC ratio, indicating inefficiencies in capital use.
- Epsilon Energy Ltd. (EPSN) and Amplify Energy Corp. (AMPY) show better capital efficiency compared to BATL, but still face challenges.
- Perma-Pipe International Holdings, Inc. (PPIH) demonstrates strong capital utilization, making it an attractive option for investors.
Battalion Oil Corporation (AMEX:BATL) is an energy company engaged in the exploration and production of oil and natural gas. The company operates primarily in the United States, focusing on maximizing the value of its assets. In the competitive energy sector, companies like Epsilon Energy Ltd. and Amplify Energy Corp. are among its peers, each striving to optimize their capital utilization.
In evaluating Battalion Oil Corporation's financial performance, the Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) are crucial metrics. BATL's ROIC is -6.63%, while its WACC is 8.82%, resulting in a ROIC to WACC ratio of -0.75. This negative ratio indicates that BATL is not generating enough returns to cover its cost of capital, highlighting inefficiencies in its capital use.
Comparatively, Epsilon Energy Ltd. (EPSN) has a ROIC of 4.56% and a WACC of 4.78%, yielding a ROIC to WACC ratio of 0.95. This suggests that EPSN is nearly covering its cost of capital, indicating better capital efficiency than BATL. Similarly, Amplify Energy Corp. (AMPY) shows a ROIC of 3.99% against a WACC of 8.26%, with a ratio of 0.48, which, while not ideal, is still more favorable than BATL's.
Perma-Pipe International Holdings, Inc. (PPIH) stands out with a ROIC of 13.83% and a WACC of 5.00%, resulting in a ROIC to WACC ratio of 2.76. This indicates that PPIH is generating returns well above its cost of capital, suggesting efficient capital utilization and potential for higher shareholder value. This performance makes PPIH an attractive option for investors seeking efficient capital use.
In contrast, Citizens Community Bancorp, Inc. (CZWI) and Ashford Inc. (AINC) have ROIC to WACC ratios of 0.24 and 0.25, respectively. These figures, while better than BATL's, still indicate challenges in covering their cost of capital. Overall, while Battalion Oil Corporation struggles with capital efficiency, Perma-Pipe International Holdings, Inc. demonstrates strong performance in this area.
Battalion Oil Corporation's Financial Performance and Capital Utilization
Battalion Oil Corporation (AMEX:BATL) is an oil and gas company engaged in the exploration, development, and production of oil and natural gas properties. The company operates primarily in the United States, focusing on maximizing the value of its assets. In the competitive landscape, Battalion Oil faces peers like Epsilon Energy Ltd., Citizens Community Bancorp, Inc., Perma-Pipe International Holdings, Inc., Ashford Inc., and Amplify Energy Corp.
In evaluating Battalion Oil's financial performance, the Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) are crucial metrics. Battalion Oil's ROIC is -6.63%, while its WACC is 8.82%, resulting in a ROIC to WACC ratio of -0.75. This negative ratio indicates that the company is not generating enough returns to cover its cost of capital, highlighting inefficiencies in capital utilization.
Comparatively, Epsilon Energy Ltd. shows a more favorable financial position with a ROIC of 4.56% and a WACC of 4.97%, leading to a ROIC to WACC ratio of 0.92. This suggests that Epsilon Energy is effectively generating returns that are close to its cost of capital, making it the most efficient among its peers in terms of capital utilization.
Perma-Pipe International Holdings, Inc. has a ROIC of -26.62% and a WACC of 5.25%, leading to a ROIC to WACC ratio of -5.07, indicating significant inefficiencies. Ashford Inc. and Amplify Energy Corp. have ROIC to WACC ratios of 0.25 and 0.48, respectively. While these ratios are positive, they still suggest room for improvement in capital efficiency. Overall, Battalion Oil Corporation needs to enhance its capital utilization to improve its financial performance and shareholder value.
Battalion Oil Corporation's Growth and Market Position
- Battalion Oil Corporation (NYSEAMERICAN:BATL) showcases a remarkable growth potential of 110.23%, indicating a bullish outlook despite its negative EPS of -$4.56 and a P/E ratio of -51.84.
- Compared to its peers, Battalion Oil's financial metrics and growth potential present a unique investment opportunity, especially when considering its strategic interests in the Delaware Basin.
- Investors must weigh Battalion Oil's high growth potential against its current financial metrics and the inherent volatility of the energy sector.
Battalion Oil Corporation (NYSEAMERICAN:BATL) is an independent energy company that plays a significant role in the United States' oil and natural gas sector. Focused on the acquisition, production, exploration, and development of onshore assets, Battalion Oil's strategic interests in the Delaware Basin position it as a noteworthy competitor in the energy market. The company's transition from Halcón Resources Corporation to Battalion Oil Corporation marks a new chapter in its pursuit of growth and operational efficiency.
With a current stock price of $6.57 and a target stock price of $13.812, Battalion Oil showcases a remarkable growth potential of 110.23%. This indicates a bullish outlook for the company, despite its negative earnings per share (EPS) of -$4.56 and a price-to-earnings (P/E) ratio of -51.84. The company's market capitalization stands at $108.12M, reflecting its size and the market's valuation of its worth. Additionally, Battalion Oil offers a dividend yield of 0.076%, which, although modest, signals its commitment to returning value to shareholders.
In comparison to its peers, such as Citizens Community Bancorp, Inc. (NASDAQ:CZWI) and Amplify Energy Corp. (NYSE:AMPY), Battalion Oil's financial metrics and growth potential present a unique investment opportunity. While CZWI operates in a different sector, offering community banking services with a stock price of $13.91 and a P/E ratio of 9.39, AMPY is more directly comparable. Amplify Energy, with a stock price of $6.65 and a P/E ratio of 0.59, also focuses on oil and natural gas production in the United States. However, Battalion Oil's projected growth outpaces that of its peers, highlighting its potential for significant returns.
Amplify Energy Corp. (NYSE:AMPY) stands out with the highest growth potential among Battalion Oil's peers, with a price difference of 31.56%. This suggests that, while Battalion Oil has a strong growth outlook, Amplify Energy also presents a compelling case for investors interested in the energy sector. Both companies, despite their differences in financial health and market positioning, offer valuable insights into the sector's dynamics and investment opportunities.
Investors considering Battalion Oil Corporation must weigh the company's high growth potential against its current financial metrics, such as the negative EPS and P/E ratio. The energy sector's inherent volatility and the risks associated with oil and natural gas production necessitate thorough research and a careful investment strategy. Battalion Oil's significant growth potential, coupled with its strategic focus on the Delaware Basin, positions it as an attractive option for those willing to navigate the complexities of the energy market.
Battalion Oil Corporation's Growth and Market Position
- Battalion Oil Corporation (NYSEAMERICAN:BATL) showcases a remarkable growth potential of 110.23%, indicating a bullish outlook despite its negative EPS of -$4.56 and a P/E ratio of -51.84.
- Compared to its peers, Battalion Oil's financial metrics and growth potential present a unique investment opportunity, especially when considering its strategic interests in the Delaware Basin.
- Investors must weigh Battalion Oil's high growth potential against its current financial metrics and the inherent volatility of the energy sector.
Battalion Oil Corporation (NYSEAMERICAN:BATL) is an independent energy company that plays a significant role in the United States' oil and natural gas sector. Focused on the acquisition, production, exploration, and development of onshore assets, Battalion Oil's strategic interests in the Delaware Basin position it as a noteworthy competitor in the energy market. The company's transition from Halcón Resources Corporation to Battalion Oil Corporation marks a new chapter in its pursuit of growth and operational efficiency.
With a current stock price of $6.57 and a target stock price of $13.812, Battalion Oil showcases a remarkable growth potential of 110.23%. This indicates a bullish outlook for the company, despite its negative earnings per share (EPS) of -$4.56 and a price-to-earnings (P/E) ratio of -51.84. The company's market capitalization stands at $108.12M, reflecting its size and the market's valuation of its worth. Additionally, Battalion Oil offers a dividend yield of 0.076%, which, although modest, signals its commitment to returning value to shareholders.
In comparison to its peers, such as Citizens Community Bancorp, Inc. (NASDAQ:CZWI) and Amplify Energy Corp. (NYSE:AMPY), Battalion Oil's financial metrics and growth potential present a unique investment opportunity. While CZWI operates in a different sector, offering community banking services with a stock price of $13.91 and a P/E ratio of 9.39, AMPY is more directly comparable. Amplify Energy, with a stock price of $6.65 and a P/E ratio of 0.59, also focuses on oil and natural gas production in the United States. However, Battalion Oil's projected growth outpaces that of its peers, highlighting its potential for significant returns.
Amplify Energy Corp. (NYSE:AMPY) stands out with the highest growth potential among Battalion Oil's peers, with a price difference of 31.56%. This suggests that, while Battalion Oil has a strong growth outlook, Amplify Energy also presents a compelling case for investors interested in the energy sector. Both companies, despite their differences in financial health and market positioning, offer valuable insights into the sector's dynamics and investment opportunities.
Investors considering Battalion Oil Corporation must weigh the company's high growth potential against its current financial metrics, such as the negative EPS and P/E ratio. The energy sector's inherent volatility and the risks associated with oil and natural gas production necessitate thorough research and a careful investment strategy. Battalion Oil's significant growth potential, coupled with its strategic focus on the Delaware Basin, positions it as an attractive option for those willing to navigate the complexities of the energy market.
