Battalion Oil Corporation (BATL) on Q4 2021 Results - Earnings Call Transcript
Operator: Welcome to the Battalion Oil Q4 2021 Earnings Call. As a reminder, today’s conference is being recorded. I’ll now turn it over to Battalion Oil Corporation’s Finance Manager, Chris Lang, to open the call. Mr. 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. Thank you for joining us today for Battalion’s Fourth Quarter and Full Year 2021 Earnings Call. We released earnings and an investor presentation last night after the market closed, both of which can be found on our website. We had an active year both operationally and financially, and we’re excited to walk through those results and how they’re positioned Battalion as we move into 2022 and beyond. Since joining Battalion in 2019, our team has been focused on laying the groundwork for a strong growth story. We studied that geology extensively, using that knowledge to focus our target landing zones and optimize frac designs. Our field team has worked to methodically cut operating expenses and reduce our environmental impact without sacrificing runtime or safety, and all against a backdrop of inflationary pressure. We’ve upgraded on the midstream side, working with our third-party providers as well as committing our own capital to increase capacity, reliability, and redundancy across the field. We’ve been focused on execution, not just for today, but for the future. A key focus for Battalion in 2021 was the effort we put into improving our operational efficiency and maximizing our flow assurance. The repair, maintenance and workover of our field and facilities last year received a considerable amount of our time as well as our capital that effort was quickly rewarded as we reported in the third quarter that our total daily production had increased 14% quarter-over-quarter, our remarkable achievement given the fact that we completed our capital program in 2Q of 2021. While we’re proud of that achievement, our goal was much larger, fine tuning our operations in advance of a ramp and activity. On November 24, 2021, the final puzzle piece fell into place as we closed on a new term loan facility led by Macquarie Bank. The new term loan facility not only allowed us to repay amounts outstanding under our previous credit facility, but also provided the company with significant cash and liquidity to embark on a long-term drilling program. In December, we picked up a rig breaking ground on our 2022 capital program with the spudding of a 3 well pad. We intend to keep the rig running throughout the year spudding 12 wells in 2022 with a total estimated CapEx of $130 million to $150 million with 90% of those dollars dedicated to D&C activities. As many of these wells won’t come online until the second half of the year, the plan is aimed at keeping annualized production relatively flat over 2021, while driving meaningful growth in average daily production by the year end 2022. With many of our below market hedges rolling off as we move through the year, we expect this plan to drive significant growth in EBITDA as we approach 2023. On our very first investor calls, Battalion oil Corporation, we told the public that the strategy and focus on Battalion was to create value organically and we intend to do that. Now, I’ll turn the call over to Daniel to walk you through many of the specific accomplishments we experienced in 2021. Daniel Rohling: Thanks, Rich. It’s an exciting time for sure. The last couple of years have in many ways been a proving ground for us, as we work to tie our understanding of the subsurface to key operational and economic decisions, and it’s that hard work that has positioned us for success as we increase activity. I’ll start with capital, 2021 was a record year for Battalion, as we reduced total well cost per foot to $875 as compared to $1,306 in 2019. How do we do it? We systematically attacked 16 areas of opportunity that our teams found upon taking over operations, ranging from topside equipment and teams to engineering and procedural components, down-hole BHA design and overall fluids. Well, not all areas of opportunity yielded results, many did, and we were able to significantly reduce our drilling costs. We also reduced our completion costs utilizing a similar method of attack. The subsurface and operations teams used a variety of techniques to identify changes in frac gradient to optimize completion design, and we reengineered our pump designs to minimize costs without compromising on job sizes, sand or rates. Simply put, we reduced the cost of our completions and increased our effectiveness as stimulating the reservoir. The efficiencies like this that will serve as well, as we continue to fight for capital efficiency in the face of inflationary pressure across the industry. I would also like to call out the efforts made by our production in midstream operations teams. A critical part of our success has been the significant amount of effort put into overhauling our H2S handling field-wides since taking over operations in 2019. Monument Draw is one of the best performing assets in the basin, but that’s only the case when you have the solution for the H2S. Historically, Monument Draw has produced 3% to 4% H2S, and that was the primary reason development in the field had slowed. As Rich mentioned earlier, a key focus has been methodically increasing our H2S treating capabilities and off-take capacity to allow for increased development of the field. In that time, our team has made no exceptions, and taken no shortcuts as we’ve worked to upgrade the field, which has resulted in doubling capacity and zero incidents since 2019. H2S isn’t something we have shied away from instead our goal has been to become experts in the basin at safely handling and producing the most economic barrels possible, and doing it the right way. We spend a little more per BOE to make sure we maintain industry leading safety, proactive detection and integrity, which is something that won’t change as long as we’re operating here. Our teams have also worked hard in the field to improve runtime, reducing downtime in the field by roughly 15% in Q4, and lowering overall failure rates of our producing models by 43% year-over-year in 2021. The fact of the matter is that our wells are producing from an incredibly strong reservoir, and even though we have a few more dollars per BOE on the OpEx side, we still produce exceptional rates of return. We also continue to have discussions around a potential AGI solution, which we expect would only further enhance those returns in addition to being a tremendous milestone in our efforts to be a leader in ESG. I want to spend a few minutes discussing our go forward development strategy. With extreme volatility in the market and the recent run up in commodity prices, the industry is feeling the crunch of long lead times and inflationary pricing. As prices began moving in the fall, we anticipated this squeeze on the service side and began mitigating our risks by advanced negotiating with many of our vendors. We secured a rate contract that provides optionality on future drilling, while limiting costs increases. We also pre-purchased several of our materials including casing, locking in the lower prices and eliminating lead times. We secured frac crews through the first half of the year, ensuring availability for several of our first wells, and we put a lot of hard work into preparing for this moment. We’re confident in our ability to execute strategy as execution or moving forward with conviction. 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. Full year 2021 production averaged 16,241 BOE per day, compared to 16,858 BOE per day for 2020, a 4% decrease. Average daily production in 2020 includes approximately 600 BOE per day of production associated with divested properties, which were sold in December 2020. Excluding the impact of the divested properties, average daily production in 2021 is in line with 2020. Additionally, average daily production in 2021 was impacted by temporary shut-in of production amounting to approximately 300 BOE per day, while 2020 average daily production was impacted by temporary shut-in of wells amounting to approximately 1,300 BOE per day. Much of the 2021 production impact is tied to 2 root causes. In February 2021, we temporarily shut-in production due to inclement weather associated with the winter storms. Additionally, throughout the year, production was impacted by third-party processing curtailments and downtime resulting from facility upgrades and repairs. Our total operating revenues for the year ended December 31, 2021 were approximately $285.2 million compared to operating revenues for the year ended December 31, 2020 of approximately $148.3 million. The increase in revenues is primarily attributable to an approximate $24.14 per barrel of oil equivalent increase in average realized prices, excluding the effects of hedging arrangements. On the year, we realized 98% of the average NYMEX oil price and realized a $77.9 million loss on commodity contracts. We reported a GAAP net loss to common shareholders for the year-end 2021 of $28.3 million or $1.74 loss per share. Adjusted EBITDA totaled $20.4 million for the fourth quarter of 2021 and $72.7 million for the full year. Capital expenditures for the full year 2021 totaled $49.5 million compared to $89.2 million in 2020. Of that $49.5 million spent in 2021, $40.2 million related to the drilling and completion costs and $5.7 million related to the development of our treating equipment and gathering support infrastructure. The decrease in capital expenditures from 2020 to 2021 was the result of a decrease in drilling activity year-over-year. In early 2020, the company was running 1 rig in the Delaware Basin, but began to scale back activity as a result of changes in market conditions and commodity prices, eventually released in the rig. During that year, the company drilled and cased 4 gross wells completed 5 gross wells, and put online 7 gross wells during the year. By comparison, in 2021, we drilled and cased 2 gross wells completed 6 gross wells, and put online 6 gross wells. As Rich mentioned earlier on the call, we expect to spend approximately $130 million to $150 million in capital expenditures during 2022 with 90% of those dollars expected to be used in the drilling and completion activities. This capital program should allow us to keep a rig running throughout the calendar year, with many of those wells coming online during the second half of the year. The large increase in capital expenditures and planned activity in 2022 is due in large part to the successful refinancing of our senior credit facility during the fourth quarter. In November, the company entered into a Term Loan Agreement with Macquarie Bank Limited and certain other financial institutions. Pursuant to the Term Loan Agreement, the lenders agreed to loan $200 million, which is funded in November, with an additional $35 million available subject to the satisfaction of certain conditions. The term loan allowed us to refinance all amounts owed under our previous Senior Credit Agreement and to pay certain fees incurred in connection with the refinancing as well as commenced drilling under a long-term capital program. The term loan has a maturity date of November 24, 2025, and bears interest at LIBOR plus 7%. As of December 31, 2021, we have $153 million of total net indebtedness, including outstanding letters of credit of $300,000 and amounts owed under our PPP loan of about $100,000. Finally, I’d like to make a few comments on the company’s hedge position. In connection with the term loan, we agreed to hedge approximately 50% to 85% of our anticipated oil and natural gas production, in varying percentages by year, on a rolling basis for the next 4 years. We believe this increased focus on hedging will pay dividends in the future as we limit our downside risk and protect cash flows on our future development. Additionally, we carried $65.5 million liability from derivative contracts at December 31, 2021, with $58.3 million of that booked as current, as our 2022 hedges are significantly below market prices. While these hedges are expected to limit our cash flow in the first half of the year, we expect to see a significant ramp in cash flow as we move through 2022 as we roll off these below market hedges and layer on new wins at higher prices, as new volumes come online. Now, I’ll turn it over to Rich to offer some concluding remarks. Richard Little: Thanks, Kevin. Despite the challenges faced by Battalion and our industry in 2021, I’m proud of what our team was able to accomplish. This year was transformational for Battalion and we truly believe the fourth quarter was a pivot point in our story. We’ve done the work to prepare for the growth and we have the capital to commence a long-term capital program. All this left now is execution and I have full confidence in our ability to do that. Once again, thank you for your interest in Battalion. That concludes our scripted remarks and I’ll turn it back over to the operator to facilitate Q&A. Operator: Thank you. It appears there are no questions at this time. Mr. Little, I’ll turn the call back to you for any additional or closing remarks. : : Richard Little: Okay, thank you. So there’s no doubt strange times as a country, we have some important decisions to make and where we want to be as an energy power. But I’d like to see us get back to being energy independent. And while we’re only a small part of that equation, we do plan to do our part to ramp up the U.S. production. We have approximately 30 years of good parent well inventory focusing only on our primary targets and assuming a current pace of development. But obviously, the market continues to see this increased pricing, we’ll look for ways to not only accelerate our program, but to begin testing additional zones of our acreage position. Again, I want to thank you for your time today and your interest in Battalion, and we look forward to updating you on a progress in 2022. Good bye. Operator: That 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.
