Q3 2020 Battalion Oil Corp Earnings Call

You are currently on hold for this fatality in Q3 2020 earnings call. At this time, we are assembling today's audience and do plan to be underway. Shortly we.

We do appreciate your patience and please remain on the line.

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Once again you are currently on hold for this battalion oil Q3 2020 earnings call. At this time, we are still assembling today's audience and planned to be underway in approximately two minutes. We do appreciate your patience and please remain on the line.

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Welcome to the EBITDA Q3, 2020 earnings call as a reminder, today's conference is being recorded this.

This conference call contains forward looking statements for a detailed description see battalions earnings announcement released yesterday and posted to its 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 measures under GAAP are also contained in the earnings.

Please now.

Now I'll turn it over to battalions, Chief Executive Officer, Richard Little MRRT Little you may begin.

Thank you and thanks for joining battalions third quarter 2020 earnings call.

Kicked it off I'd like to take a minute to acknowledge the leadership change we previously disclosed.

On August 17 Battalion announced the appointment of Kevin Andrews to replace it CFO Reagan all types or decided to retire from the oil and gas industry.

Again, I want to thank Reagan first hard work in helping our team navigate financial restructuring and the transformation change that battalions come to represent.

Cited the wealthy skills and insights Kevin has to offer and look forward to our future together.

It's hard to imagine what we experienced in the third quarter is much more coverage, but as prices improve modestly from the lows in Q2 I'm pleased that we've returned to typical operation in Q3.

As a result, we saw the production increase quarter over quarter, almost 20% just over 17000 deal week or day, which will represent a 56% of that total.

Total revenue for the third quarter was $39.8 million of which 84% related to crude oil.

Unrealized gains on derivatives settlements totaled $5.3 million for the third quarter.

We remain laser focused on cost reductions and this quarter, we've demonstrated like previous quarters that we aim to do what we say.

We said, we'd lower total cost to operate this business said, we've done it again adjusted Gionee was $2 or nine cents per Boe in the third quarter to 2020 compared to $4 or 92 cents per Boe in the third quarter of 2000 and like Ti.

And lease operating and Workover expense was $7 can be are we in the third quarter of 2020 versus an eight dollar 91 cents per deal we in the third quarter of 2019 the.

The only answer to lower prices, even lower opex and our team is adept at finding ways to keep saving money I want to thank them for all their hard work.

The company reported a net loss to common shareholders for the third quarter of a $153 million, which includes the full cost ceiling test impairment of $128 million.

Which was associated almost entirely with the significant drop in the FCC trailing 12 month oil price deck.

Italian also reported a net loss per basic and diluted share of non dollars or 45 cents and adjusted trailing 12 month EBITDA of $93.9 million as compared to $61.6 million in the third quarter of 2019.

50% growth over the prior period.

This quarter, we continued to keep leverage below two times affording us a flexible position to evaluate the path forward.

Our PDP remains well hedged through the first half of 2022 between $45 and $50 per barrel and the September thirtyth mark to market value of $16 million.

We recently completed our fall Redetermination process and I'm encouraged by the results what other companies have seen their facility substantially cut we work with bema to achieve a borrowing base of $190 million, which is slightly higher than the $185 million that we had previously announced in connection with our spring Redetermination back in May.

What to think demo for their continued support and confidence in our program during such a challenging time.

We continue to improve our infrastructure to create better take away optionality, resulting in better netbacks and less flaring across the field.

I look forward to better times in our industry, but in the meantime, we continued to improve our operations and look for opportunities for responsible strategic M&A create scope and scale I'm pleased with the hard work. This team has done to continue to create value in this environment.

Again I want to thank you for your interest in battalion, well turn it over to the operator now for questions. Thank you.

And if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again. Please press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.

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Once again, ladies and gentlemen to ask a question. Please press star one on your telephone keypad.

We'll take a question from Noel parks with Coker and Palmer. Please go ahead.

Good morning.

Good morning no.

I just wanted to check I know you.

You did talk about some.

Some of the hedge monetization.

So much rather a bit.

Variability Oh, yeah.

Saudi in the in oil prices.

You know just in the last couple of weeks ago, but in and fourth quarter. So far have you or do you monetize any of the.

[laughter] hedge.

Well 60, a good third quarter.

No.

No.

Matter of fact, we were seeing the opportunity is oh.

The ability to layer on more hedges, we do plan on putting in more activity towards the end of this year, we're going to take advantage of the market, where it is right now and because of that we want to protect those volumes as well as new hedges.

Okay, Great and then I think I might have missed it you were saying about the borrowing base could you can you just go over that again.

But what happened was we termination.

Sure happy to so we were we were originally back in May at a 200 with a plan to step down to what 85.

By November and we went through a redetermination fall Redetermination and felt that the banks agreed that the value was there to not have to step down to 185 million to hold there, but 90. So we'll do that a lot through the next redetermination. So that's the $5 million to prove that from where we were some excess.

All right.

Great and as far as the pricing were there any changes on the the pricing grid for.

I mentioned.

No not at all.

Okay great.

Yeah, I guess just in general we've seen.

<unk> a popular question goals, but I can tell you that.

We've seen.

A bit more and that activity.

I also seen some some bolt on that activity as well so any any thoughts you have about that either as far as some of the valuations we've seen.

Also and he and he talks about you know what you see going on.

In fact here in fact your David.

Yeah No. Good question I still think as I think others do as well that it makes a lot of sense for the micro caps to to consolidate so we continue to stay active in that space.

And we'll we'll we'll try to be involved in and whatever happens in the in that space. Obviously, we are always going to try to do responsible M&A, we're not willing to overpay for anything, but we do think that there's a lot of synergies and just putting a lot of these companies together, we still stay focused on.

And that in our in our playground I have been surprised with some of the larger independents on their mergers glad to see it it still make sense that a lot of different levels to create those synergies. So no I think what's happening in our space should be expected and should we expect it to continue.

[noise] right they generally whenever we.

You hear about the deals and just what people are thinking I'm current valuation standpoint, a lot of times, it's pretty clear that people are going to be willing to.

Paper.

The <unk>.

At most.

And so I was wondering about sort of your thoughts about that considering you know over the years with more drilling there is some variation as far as how well developed various areas of the Delaware are so I guess I'd like your thoughts on you know I'm wondering if he had the acquisition as opposed to maybe one that had we're running.

And also.

If there's anything that could entice you over to the Midland side of the basin that you couldn't vision.

No. It's a set of question again about the Midland Basin, you cut out.

Oh, sorry, I just wondered if there was anything you could envision the enticing here to to look in the Midland basin as well.

Okay, Yeah. Thank you so oh.

Right now I don't think you can expect to get a lot of value or other than just PDP, but what are you starting to see is that people recognizing those that have the running room.

We've got a lot of undeveloped acreage we're excited about what our inventory looks like but I think what that does is makes us a more attractive merger partner because people can see the growth in that.

When you think about when we think about Delaware versus Midland, We're really thinking about just the Permian Basin. You know this team has extensive experience we've talked about on previous calls with experience in the Midland basin as well. So we don't shy away from that either so we do see opportunities and synergies that can be created in the Permian basin, including.

Well aware and medlar.

Great and just the last one for me.

Got it so the service cost environment.

I had heard earlier in the year.

For many operators I a lot of confidence that.

We were going to can service costs. This low.

For the foreseeable future, but I haven't heard a cable operators as they look to 2021 plan starting to pick out a little bit of inflation. That's what are the what you were you came down on.

On that question.

Yes, or no I don't disagree with that I think what we're going to see is operators trying to be as efficient with their capital at any one given calendar year, so you're going to see a lot of activity in the first part of the year that that quickly dies off.

Which is also why we're looking at increasing our or speeding up our activity before the first of the year. We if you notice in our 10-Q, we guided to a slightly higher capital than what we've guided to for the last three quarters and the reason for that is that we want to take advantage.

Of of the pricing at the end of the year before we get before the service companies get busy in 2021, it does that make sense.

Sure.

Great. Thanks, that's all.

We had a question come in.

I I got to know are you still there.

Okay. Okay.

No it's back on the line.

No Thats my my questions at all or have all been answered. So much no. You asked the question that I want to make sure we're answering it accurately so.

Hey, Andy are my Finance director Watts to clear up one of the answers to go ahead, JD or I know the morning, how are you hi, great. Thanks.

Are you asking about hedging it it sounded like you were asking about opportunities in the market that we're seeing right now in Q4, and that's how rich answered just mentioning that you know we do see opportunities and there is room to add on more hedge volume or are you asking about Q4 kind of current operations current activity or were you talking about.

Hedges, we unwound or monetized in Q3.

No I was wondering.

During Q4, you've got look that the hedge book and you know since we saw.

Oh go a little bit.

Laura I'd be volatile I, just wondered if maybe you had had any law basically during the month of October or November so far I'm, sorry, you monetize any of your hedges during.

October November.

Gotcha, Okay understood. Yeah, just wanted to make sure we were answering your question correctly that and it sounds like we did so sorry for bringing it back on but just want to make sure. We have that right. Yeah. Thanks norm before you go I just want to thank you also for your write up and continuing to follow us well. Thanks a lot.

You bet.

No I just think story are excited to see what comes next.

Yep. Thank you.

And I'll now turn the call back over to Richard Little for any additional or closing remarks.

Okay. Thank you and again I want to thank people listening for their interest in battalion oil. These no doubt continue to be very challenging and uncertain times, but we remain laser focused on reducing costs and finally strategic ways to increase scope and scale, while returning value to our shareholders. So we look forward to speaking again. Thank you.

And this does conclude today's call. We thank you for your participation you may now disconnect.

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