Battalion Oil Corporation (BATL) on Q2 2021 Results - Earnings Call Transcript
Operator: Good morning. Welcome to the Battalion Oil Second Quarter 2021 Earnings Call. I'd now like to turn the conference over to Chris Lang. Chris Lang: Good morning. I'm joined by a few of my colleagues today that I'd like to introduce. Battalion's 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 conference 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 release announcement released yesterday. We have also published an investor presentation, which may be found on our website and will be referenced during this webcast. Now our team will present a few scripted remarks, followed by Q&A. And with that, I'd like to turn it over to Rich to start things off. Rich? Richard Little: Good morning, everyone. First, I'd like to thank you for joining us this morning for Battalion second quarter earnings call. The second quarter mark the conclusion of our 2021 capital program as we finished completing two wells on our pad, bringing our total to six wells put online in 2021. There's a lot to be proud of here. Our focus on capital discipline this year allowed us to achieve an average DNC cost of $878 per foot per Well, during this program. That's an exceptional result given the inflationary pressure on service costs as we've seen commodity prices continue to trend up. We're also very pleased with the early performance from those wells. Our four DUCS completed in Q1 are all meeting or exceeding their tight curves, and the early results from our two Tabor wells are showing real promise. With the 2021 program largely complete, our focus shifts to improving our operating margins. Our team has made considerable strides in improving our lease operating and workover expenses year-over-year reducing LOE and WOE per barrel of equivalent by 6% year-to-date. We also continue to focus heavily on improving our gathering and transportation costs, with a key priority being our AGI project, where we've made significant strides in identifying a path forward. In addition to reducing operating costs, we've paid a lot of attention to improve in price realizations. By increasing our access to sweet markets and carefully evaluating our purchasers. We also put significant effort this quarter in the high grading our central processing facilities at Monument Draw to allow for improved flow assurance and reduce downtime across the field. With the improvements we've made to our facilities as well as improvements made by our midstream partners, we're well positioned to have a stronger second half of the year, despite the completion of our 2021 development capital program. Now I'll pass it off to Kevin to walk through our financial results. Kevin Andrews: Thank you, Richard, and good morning, everyone. Let me walk you through a few financial highlights from the second quarter. Total production in Q2 averaged 15,571 barrels of oil equivalent per day, compared to 14,333 barrels of oil equivalent per day for Q1, 2021, or 9% increase quarter-over-quarter. This increase can primarily be attributed to new production as a result of our 2021 capital program, as well as production from wells brought back online that were shut in during inclement weather in February, partially offset by third party processing curtailments facility upgrades and repairs in the second quarter. Total revenue was $64.4 million for the second quarter of 2021 of which oil represented 81%. We realized 97% of the average NYMEX oil price during the quarter and recognizing $18.3 million loss from our hedge program. We reported a GAAP net loss to common shareholders for the second quarter of 2021 of $33.9 million, or $2.09 loss per share. After adjusting for certain items including the effect of net unrealized derivative losses, I refer you to the press release for details of those adjustments. The company reflected net income of $0.6 million, or $0.04 per share, adjusted EBITDA totaled $14.1 million for the second quarter of 2021. During the six months ended June 30, 2021, we incurred $35.5 million in capital expenditures, of which $31.7 million related to drilling and completion cost and $2.6 million related to the development of our treating equipment and gathering support infrastructure. As we discussed in the first quarter earnings call, we expect the amount spent to date to reflect the majority of our 2021 capital budget. And now some final comments on our liquidity and capitalization. At June 30, 2021, the company had liquidity of $21.5 million consisting of $1.4 million of cash and $20.1 million of availability under our revolving credit facility. Also, as previously disclosed, the company's borrowing base will be reduced from $185 million to $175 million effective September 1, 2021. With the majority of our 2021 capital program largely complete and our remaining 2021 production substantially hedge, we expect to use our cash flow in the second half of 2021 to reduce outstanding borrowings under our revolving credit facility. Now, let me turn it back to Rich to offer some concluding remarks. Richard Little: Thanks Kevin. We're excited about the early results from our 2021 capital program. And we're eager to get back to growth. As we evaluate our options to accelerate through the drill bit or M&A, we'll remain focused on improving our margins and enhancing free cash flow. 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: We'll take our first question from Noel Parks with Tuohy Brothers. NoelParks: Good morning. A couple questions, I have been thinking about the borrowing base, rig termination. I was just curious did you get much in the way of upside from the price - the bank is using either for this year or last year, the personal reach since now prices is much better now than six months ago or the eight months ago? KevinAndrews: No, I think the answer is that the bank decks seem to trail pricing significantly. And there's that lag we didn't get much benefit at all, from the price back in the spring. We haven't seen the new price decks for the fall, but I expect that will be higher. But typically not anywhere really close to market as it ramps up and we've seen a pretty fast acceleration of the price changes. NoelParks: Right, thanks, oh, sorry. And then I also just wanted to check in, as you know, I heard a variety of different updates from companies in the Permian, around the February webinar event and the third party infrastructure, as best you can tell, are - it's pretty much everything that was negatively impacted back then. Is that the Battalion is pretty much everything up and running, or do you still have some facilities or some marketing that's still is offline at this point? RichardLittle: Yes, no, good question. This is Rich. The February events did cause some issues with valves and seals. Those repairs are behind us now. We've got all that fixed. I'd say another challenge that we've had when you're looking at third party midstream companies is with the improving commodity price. You are seeing more production coming online and they're improving and hydrating their own facilities as well. So anything impacted on the winter storm, I think for the most part behind us. This just is now just trying to get ready for the future and in an improving commodity market. NoelParks: Great. Then I just wanted to ask you about facility upgrades that you may, I just wondering if you could just talk a little bit more about what you did out there. I'm just curious whether it was more sort of catching up on periodic maintenance or expansions. Just anything that you can say about that would be great. RichardLittle: Sure. I'll let Danny answer that. DanielRohling: Yes. Hi, Noel. So really two different avenues there. We've got third party like you like Rich kind of touched on, we took the same advantage of a downtime in Q2 and upgrades from compression to aiming plants to like Rich touched on to the valving and just mechanical processes to upgrade. And it really gives us more flow assurance across our current asset in Monument Draw. But they also expanded and so to your point there we're able to flow close to 20% more to one of our downstream markets because of the upgrades that they made in Q2. And that's going to come online here in the next few days. So we're really excited about working with them. And using Q2 is kind of a springboard for the back half of the year and into 2022. And in our own right we took advantage of some of the downtime that was necessary due to maintenance from coming out for the back of the freeze and into Q2, to upgrade our compression and expand. We added compression and added takeaway and throughput on the facility, as well as expanding our liquid redox and allowing for upgrades to happen there as well. So a lot went on in the quarter, all of it really focusing on flow assurance number one coming out of Monument Draw for current capacities, but then also expansion to allow us to, like I said springboard into the second half of 2021 and then to 2022. Operator: That concludes today's question-and-answer session. Speakers at this time, I will turn the conference back over to you for any additional or closing remarks. Richard Little: Great. Thank you. Again, I want to thank you everybody's attention and your interest in Battalion. We did have an active second quarter, position in the company for future growth as the market continues to recover. So we are definitely looking forward to the future and the opportunities ahead. And thanks again for your interest. Bye. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
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.
