Battalion Oil Corporation (BATL) on Q3 2021 Results - Earnings Call Transcript
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 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 and thank you for joining us this morning. We are excited to share with you the results from our third quarter, which has been our best quarter this year. During the first half of 2021, we put significant effort into high grading our central processing facility at Monument Draw. That was to allow for improved flow assurance and reduced downtime across the field. Our results this quarter put that on display. Despite completing our capital program in the second quarter, our total daily production increased 14% quarter-over-quarter, due in large part to our facility upgrades at Monument Draw and reduced well downtime. Our operations team has been relentlessly focused on efficiently and cost-effectively repairing, maintaining and working over our field and facilities this year and we're hopeful this success serves as a springboard for us, as we move through the fourth quarter and into 2022. The robust production was well timed, as it allowed us to really take advantage of an improving commodity price environment. The increased production, together with an increased gas and NGL price in the second half of this year, provided a boost to our bottom line, as we recorded adjusted EBITDA of approximately $23 million in the third quarter. That's a 63% increase over the second quarter. This increase in cash flow allowed us to accelerate our deleveraging, pulling our net leverage ratio down to 2.5 times at quarter end. With a strong third quarter behind us, we pivot to the fourth quarter with a clear focus, continue optimizing our operations, as we prepare to return to development on our Monument Draw asset. On the production front, we remain diligent in our efforts to improve flow assurance and manage operating expenses, despite a rising service cost environment. On the development side, as we work to finalize our 2022 capital program, we're taking important steps to mitigate cost increases by advanced purchasing materials and protecting our cash flows through increased hedging activity. One final note, as we touch on 2022. We recently entered into a rig contract and expect to spud our next well in December of this year, as we aim to get a jump on our 2022 program. As such, we are increasing our 2021 CapEx guidance range to $45 million to $55 million. Now, I'll pass it off to Kevin to walk through our financial results. Kevin Andrews: Thank you, Rich, and good morning, everyone. Let me walk you through a few financial highlights from the third quarter. Total production in the third quarter averaged 17,728 barrels of oil equivalent per day, compared to 15,571 barrels of oil equivalent per day during the second quarter this year, a 14% increase quarter-over-quarter, which can primarily be attributed to facility upgrades at Monument Draw and reduced well downtime. Total revenue was $80.8 million for the third quarter of 2021, which all represented 74%. We realized 98% of the average NYMEX oil price during the quarter and realized a $22.4 million loss from our hedge program. We reported GAAP net income to common shareholders for the third quarter of 2021 of $13.1 million, or $0.80 per basic share and $0.79 per diluted share. After adjusting for certain items, including the effect of net unrealized derivative losses and gain on extinguishment of debt, and I refer you to the press release for details of those adjustments, the company reflected net income of $9.7 million, or $0.60 per basic share and $0.59 per diluted share. Adjusted EBITDA totaled $23.0 million for the third quarter of 2021. During the nine months ended September 30, 2021, we incurred $41.9 million in the oil and natural gas capital expenditures, of which $34.2 million related to drilling and completion costs and $5 million related to the development of our treating equipment and gathering support infrastructure. These amounts represent the majority of our previously announced 2021 capital budget. As Rich mentioned, we have since increased guidance of our 2021 capital budget by $5 million to reflect our decision to accelerate development of our 2022 capital program by spudding a well in December. A few comments on liquidity and capitalization. At September 30, 2021, the company had liquidity of $19.9 million consisting of $1.9 million of cash on hand and $18 million of availability under our revolving credit facility. Something we're particularly proud to report this quarter is that as a result of the robust cash flow we generated this quarter, the company was able to reduce its net indebtedness by $10.4 million between June 30 and September 30, 2021. A portion of the debt reduction in the quarter relates to our PPP loan. This quarter, we reported that effective August 13, 2021, the principal amount of the company's PPP loan was reduced to approximately $200,000 by the SBA and the company recorded a gain on the extinguishment of the forgiven portion of the PPP loan and related accrued interest of $2.1 million. Regarding our credit facility, in September the company entered into its 5th amendment to its senior secured revolving credit agreement, which among other things modifies the limits on swap agreements. Additionally, while redeterminations of the borrowing base occur semiannually on May 1 and November 1, the lenders agreed to postpone the fall determination until December 2021. One final comment on the company's hedge position. While we did not enter into any new derivative contracts in the third quarter 2021, subsequent to the quarter end, we have increased our hedging activity and have added on a substantial amount of crude oil and natural gas hedges at attractive prices, details of which can be found in our quarterly report on Form 10-Q. As we return to development, we expect to continue opportunistically layering in hedges to protect our future cash flows. Now let me turn it back to Rich to offer some concluding remarks. Richard Little: Thanks, Kevin. We're very proud of the results we put up this quarter and we're excited about how that sets us up for the future. We believe we operate one of the premier assets in the Southern Delaware and we're eager to get back to work developing it. Once again, thank you for your interest in Battalion. That concludes our scripted remarks. I'll turn it back to the operator to facilitate Q&A. Operator: Chris Lang: Great. Thanks. I do want to thank everybody on the call for your interest in Battalion. We had a strong third quarter and feel like we're well positioned going into fourth quarter in 2022. Because we have the time, before I hang up, I would like to take this opportunity to recognize and congratulate one of our latest honorees on Forty Under 40 from Hart Energy. So Daniel Rohling, our Chief Operating Officer was recently recognized. So the latest addition came out today. So congratulations Danny and thanks for your service. We've had a lot going on and we are really looking forward to getting back to developing what we believe to be a premier asset in the Delaware. So with that I'll conclude the call. Thank you very much. End of Q&A: 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.
