Q2 2021 Battalion Oil Corp Earnings Call

Excuse me, ladies and gentlemen, thank you for your patience in holding your conference will begin in a few minutes.

Again, thank you for your patience in holding your conference will begin in a few minutes.

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Good morning, welcome to the Battalion oil second quarter 2021 earnings call I would now like to turn the conference over to Chris Lang.

Good morning, I'm joined by a few of my colleagues today that I'd like to introduce battalions, Chief Executive Officer, Richard Little our Chief Financial Officer, Kevin Andrews, 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.

Good morning, everyone.

First I'd like to thank you for joining us this morning from Italian second quarter earnings call.

The second quarter marked the conclusion of our 2021 capital program as we finished completing 2 wells on our taber pad, bringing our total to 6 wells put online in 2021.

There's a lot to be proud of here.

Focus on capital discipline. This year allowed us to achieve an average D&C 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 are 4 ducks completed in Q1 are all meeting or exceeding their type curves and the early results from our 2 taper 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 L. O N W E 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 <unk> 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 improving price realizations by increasing our access to suite markets and carefully evaluating our purchasers.

We also put significant effort this quarter and 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 the improvements made by our midstream partners, we're well positioned to have a stronger second half of the year. Despite the completion of our 2021development capital program.

Now I'll pass it off to Kevin to walk through our financial results.

Thank you rich and good morning, everyone. Let me walk you through a few financial highlights from the second quarter.

Total production in Q2 average 15571 barrels on the oil equivalent per day.

Compared to 14333 barrels of oil equivalent per day from 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 from the second quarter of 2021.

Which all represented 81%.

We realized 97 per cent of the average Nymex oil price during the quarter, but recognizing the $18.3 million dollar loss from our hedge program, we reported a GAAP net loss to common shareholders from 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 on point 6 million or 4 cents per share.

Adjusted EBITDA totaled $14.1 million for the second quarter of 2021.

During the 6 months ended June 32021, we incurred $35.5 million and 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 on 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 32021, 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.

But the majority of our 2021 capital program, largely complete and our remaining 2021 production substantially hedged we expect to use our cash flow on 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.

Thanks, Kevin.

We're excited about the early results from our 2021 capital program and we're eager to get back to growth as.

As we evaluate our options to accelerate through the drill bit or M&A will 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.

Thank you if you would like to ask a question. Please signal by pressing star 1 on your telephone keypad.

If youre using a speaker phone. Please make sure your mute function is turned off.

Signal to reach our equipment.

Press Star 1 to ask.

Good question.

Just a few moments.

An opportunity to signal for questions.

We'll take our first question from Noel Parks with Tuohy brothers.

Good morning.

Good morning.

A couple of questions.

Yeah Bob.

Following day.

Listen I just.

True.

Did you get.

Much of the way of upside.

Upside from the price.

The bank is using.

Okay for this year last year of course.

My price is much better now than 6 months about coffee 8 months ago.

Let me pass.

No I think the answer is that the bank decks, you know you seem to.

Trail pricing significantly in there so that lag we didn't get I didn't get much benefit at all from the price deck in the spring.

We haven't seen the new price decks for the fall, but I expect it will be higher.

But do you have.

Typically not.

We're really close to the market as it as it ramps up and as you know we've seen a pretty fast acceleration of the price changes you know.

Right. Thanks.

Oh, sorry.

Okay.

And.

And then I also just wanted to check in but you know I I heard a.

Variety of.

Updates from companies.

In the Permian around.

February whether that and third party infrastructure.

As a as best you can tell are it's pretty much everything that was negatively impacted back then.

Debt.

It's pretty much everything up and running or do you still have some some facilities are some.

The marketing that that's still is on top line at this point.

Yeah No. Good question this is rich.

During events did cause some issues with valves and seals.

Those are peers are behind US now we've got on that thanks, I'd say another another challenge that we've had when Youre looking at third party midstream companies with the improving commodity price you are seeing more production coming on line and they're improving and high grading their own facilities as well so on.

Anything impacted on the winter storm I think for the most parts behind us.

This is just is it now just trying to get ready for the future.

In an improving commodity market.

Great.

I just wanted to ask you about debt facility upgrades debt.

Debt you May I just was wondering if you can just talk a little bit more about.

You did out there I'm just curious whether it was more sort of.

Catching up on periodic maintenance or or expansions.

Just anything that you can say about that would be great.

Sure I'll, let Dan answer that.

Yeah I know.

So really 2 different avenues there we've got third party like you like rich kind of touched on it took the same advantage of the downtime in Q2 and in upgrades.

You know from a.

Rushing to aiming plant like rich touched on to developing and just mechanical processes to upgrade and it really give us more flow assurance across our current asset in monument draw them, but they also expanded and so to your point, there, where we're able to you know flow close to <unk>.

20% more to 1 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 as kind of a springboard for the back half of the year on into 2022.

And in our own right. You know we took advantage of some of the downtime that was necessary due to maintenance from coming out from the back of the freeze and into Q2.

Great our compression and expand we added compression and added takeaway and throughput on that facility as well as expanding our liquid redox and allowing for for upgrades to happen there as well. So a lot went on in the quarter on all of it you know really focusing on flow assurance number.

1 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 into 2022.

Great. Thanks, a lot.

Okay. Thanks Neil.

And again, if you would like to ask a question. Please press star 1.

Again that is star 1 if you would like to ask a question, we'll pause for just a few more moments to allow everyone an opportunity to signal for questions.

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.

Great. Thank you again and I want to thank everybody's attention and your interest in Italian we do have an active second quarter position the company for future growth as the market continues to recover so we're definitely looking forward to the future and the opportunities ahead. Thanks again for your interest.

Yeah.

Yeah.

This concludes today's call. Thank you for your participation you may now disconnect.

Okay.

Okay.

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