Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2026
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35467
Battalion Oil Corporation
(Exact name of registrant as specified in its charter)
Delaware(State or other jurisdiction ofincorporation or organization)
1311(Primary Standard IndustrialClassification Code Number)
20-0700684(I.R.S. EmployerIdentification Number)
820 Gessner Road, Suite 1100, Houston, TX 77024
(Address of principal executive offices)
(832) 538-0300
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.0001
BATL
NYSE American
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻
Accelerated filer ◻
Non-accelerated filer ☒
Smaller reporting company ☒
Emerging growth company ◻
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ⌧
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities made under a plan confirmed by a court. Yes ⌧ No ◻
At May 8, 2026, 22,018,849 shares of the Registrant’s Common Stock were outstanding.
TABLE OF CONTENTS
PAGE
PART I
FINANCIAL INFORMATION
ITEM 1.
Condensed Consolidated Financial Statements (Unaudited)
5
Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2026 and 2025
Condensed Consolidated Balance Sheets (Unaudited) at March 31, 2026 and December 31, 2025
6
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2026 and the Year Ended December 31, 2025
7
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2026 and 2025
8
Notes to Unaudited Condensed Consolidated Financial Statements
9
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
25
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
32
ITEM 4.
Controls and Procedures
33
PART II
OTHER INFORMATION
Legal Proceedings
ITEM 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
34
ITEM 5.
Other Information
ITEM 6.
Exhibits
35
Signatures
37
2
Special note regarding forward-looking statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, may be forward-looking statements, should be evaluated as such and may concern, among other things, planned capital expenditures, potential increases in oil and natural gas production, potential costs to be incurred, future cash flows and borrowings, our financial position, business strategy and other plans and objectives for future operations. These forward-looking statements may be identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “objective,” “believe,” “predict,” “intend,” “achievable,” “anticipate,” “will,” “continue,” “potential,” “should,” “could” and similar terms and phrases. Although we believe that the expectations reflected in forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements. Readers should consider carefully the risks described under the “Risk Factors” section of our previously filed Annual Report on Form 10-K for the fiscal year ended December 31, 2025, as well as the other disclosures contained herein and therein, which describe factors that could cause our actual results to differ from those anticipated in forward-looking statements, which include, but are not limited to, the following factors:
3
All forward-looking statements are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this document. Any forward-looking statements speak only as of this Quarterly Report on Form 10-Q. Other than as required under the securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.
4
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
BATTALION OIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
Three Months Ended
March 31,
2026
2025
Operating revenues:
Oil, natural gas and natural gas liquids sales:
Oil
$
36,282
39,700
Natural gas
(1,493)
2,823
Natural gas liquids
4,273
4,862
Total oil, natural gas and natural gas liquids sales
39,062
47,385
Other
112
90
Total operating revenues
39,174
47,475
Operating expenses:
Production:
Lease operating
10,094
10,358
Workover and other
1,018
1,433
Taxes other than income
2,324
2,800
Gathering and other
11,250
12,000
General and administrative
4,260
4,413
Depletion, depreciation and accretion
12,362
13,080
Total operating expenses
41,308
44,084
(Loss) income from operations
(2,134)
3,391
Other (expenses) income:
Net (loss) gain on derivative contracts
(47,964)
9,302
Interest expense and other
(5,517)
(6,670)
Loss on extinguishment of debt
(862)
—
Total other (expenses) income
(54,343)
2,632
(Loss) income before income taxes
(56,477)
6,023
Income tax benefit (provision)
Net (loss) income
Preferred dividends
(8,331)
(11,820)
Net (loss) income available to common stockholders
(64,808)
(5,797)
Net (loss) income per share of common stock available to common stockholders:
Basic
(3.72)
(0.35)
Diluted
Weighted average common shares outstanding:
17,415
16,457
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share and per share amounts)
March 31, 2026
December 31, 2025
Current assets:
Cash and cash equivalents
46,373
27,965
Accounts receivable, net
19,597
12,071
Assets from derivative contracts
7,434
16,145
Restricted cash
7,958
91
Prepaids and other
742
892
Total current assets
82,104
57,164
Oil and natural gas properties (full cost method):
Evaluated
827,996
890,050
Unevaluated
54,334
48,025
Gross oil and natural gas properties
882,330
938,075
Less: accumulated depletion
(560,069)
(547,982)
Net oil and natural gas properties
322,261
390,093
Other operating property and equipment:
Other operating property and equipment
4,678
Less: accumulated depreciation
(2,831)
(2,807)
Net other operating property and equipment
1,847
1,871
Other noncurrent assets:
2,008
7,350
Operating lease right of use assets
660
840
Other assets
3,488
3,360
Total assets
412,368
460,678
Current liabilities:
Accounts payable and accrued liabilities
43,453
39,734
Liabilities from derivative contracts
24,612
633
Current portion of long-term debt
22,500
22,510
Operating lease liabilities
638
764
Total current liabilities
91,203
63,641
Long-term debt, net
135,882
180,955
Other noncurrent liabilities:
10,597
1,692
Asset retirement obligations
17,514
20,837
53
104
Commitments and contingencies (Note 9)
Temporary equity:
Redeemable convertible preferred stock: 138,000 shares
of $0.0001 par value authorized, issued and outstanding
at December 31, 2025
226,241
Stockholders' equity (deficit):
Redeemable convertible preferred stock: 130,197 shares
at March 31, 2026
221,185
Common stock: 100,000,000 shares of $0.0001 par value authorized;
20,541,563 and 16,456,563 shares issued and outstanding at
March 31, 2026 and December 31, 2025, respectively
Additional paid-in capital
265,405
240,202
Accumulated deficit
(329,473)
(272,996)
Total stockholders' equity (deficit)
157,119
(32,792)
Total liabilities, temporary equity and stockholders' equity
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands)
Retained
Additional
Earnings
Preferred Stock
Common Stock
Paid-In
(Accumulated
Stockholders'
Shares
Amount
Capital
Deficit)
Equity
Balances at December 31, 2024
288,993
(284,875)
4,120
Net income
Deemed dividends for preferred stock
Stock-based compensation and other
(85)
Balances at March 31, 2025
277,088
(278,852)
(1,762)
4,796
(8,270)
Balances at June 30, 2025
268,818
(274,056)
(5,236)
Net loss
(735)
(14,279)
Balances at September 30, 2025
254,539
(274,791)
(20,250)
1,795
(14,337)
Balances at December 31, 2025
Reclassification of preferred stock to permanent equity
138
234,572
Private placement offering, net of issuance costs
1,800
13,837
Common stock issuance for acquisition
485
6,310
Preferred stock Series A-2 conversion to common stock
(8)
(13,387)
13,387
Balances at March 31, 2026
130
20,542
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Cash flows from operating activities:
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Stock-based compensation, net
(109)
Unrealized loss (gain) on derivative contracts
46,937
(11,828)
Amortization/accretion of financing related costs
348
395
862
Accrued settlements on derivative contracts
2,425
(560)
Change in assets and liabilities:
Accounts receivable
(6,419)
6,436
148
(419)
1,917
(340)
Net cash provided by operating activities
2,105
12,731
Cash flows from investing activities:
Oil and natural gas capital expenditures
(3,613)
(19,800)
Proceeds received from sale of oil and natural gas assets
60,055
Other operating property and equipment capital expenditures
(6)
(5)
(306)
Net cash provided by (used in) investing activities
56,437
(20,112)
Cash flows from financing activities:
Proceeds from borrowings
63,000
Repayments of borrowings
(45,635)
(26)
Debt issuance costs
(657)
(1,737)
Proceeds from issuance of common stock
14,025
Net cash (used in) provided by financing activities
(32,267)
61,237
Net increase in cash, cash equivalents and restricted cash
26,275
53,856
Cash, cash equivalents and restricted cash at beginning of period
28,056
19,803
Cash, cash equivalents and restricted cash at end of period
54,331
73,659
Supplemental cash flow information:
Cash paid for interest
5,508
6,953
Disclosure of non-cash investing and financing activities:
Unpaid issuance costs recorded in accounts payable and accrued liabilities
(188)
Issuance of common stock for acquisition of oil and natural gas properties
Conversion of preferred stock to common stock
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENT PRESENTATION
Basis of Presentation and Principles of Consolidation
Battalion Oil Corporation (“Battalion” or the “Company”) is an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States (“U.S.”). The consolidated financial statements include the accounts of all majority-owned, controlled subsidiaries. The Company operates in one segment which focuses on oil and natural gas acquisition, production, exploration and development. Allocation of capital is made across the Company’s entire portfolio without regard to operating area. All intercompany accounts and transactions have been eliminated.
These unaudited condensed consolidated financial statements reflect, in the opinion of the Company’s management, all adjustments, consisting of normal and recurring adjustments, necessary to present fairly the financial position as of, and the results of operations for, the periods presented. Interim period results are not necessarily indicative of results of operations or cash flows for the full year and accordingly, certain information normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”), has been condensed or omitted. During interim periods, Battalion follows the accounting policies disclosed in its Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 23, 2026. Please refer to the notes in the Annual Report on Form 10-K for the year ended December 31, 2025 when reviewing interim financial results. The Company has evaluated events or transactions through the date of issuance of these unaudited condensed consolidated financial statements.
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Estimates and assumptions that, in the opinion of management of the Company, are significant include oil and natural gas revenue accruals, capital and operating expense accruals, oil and natural gas reserves, depletion relating to oil and natural gas properties, asset retirement obligations (“AROs”), and fair value estimates. The Company bases its estimates and judgments on historical experience and on various other assumptions and information believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be predicted with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from the estimates and assumptions used in the preparation of the Company’s unaudited condensed consolidated financial statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value. Amounts in the unaudited condensed consolidated balance sheets included in “Cash and cash equivalents” and “Restricted cash” reconcile to the Company’s unaudited condensed statements of cash flows as follows (in thousands):
Total cash, cash equivalents and restricted cash
Restricted cash consists of $7.9 million of Reinvestment Proceeds (as defined below in Note 5, “Debt”) and funds to collateralize company credit cards.
Accounts Receivable and Allowance for Doubtful Accounts
The Company’s accounts receivable are primarily receivables from joint interest owners and oil and natural gas purchasers. Accounts receivable are recorded at the amount due, less an allowance for doubtful accounts, when applicable. Payment of the Company’s accounts receivable is typically received within 30-60 days. The Company’s historical credit losses have been de minimis and are expected to remain so in the future assuming no substantial changes to the business or creditworthiness of the Company’s counterparties.
Concentrations of Credit Risk
The Company’s primary concentrations of credit risk are the risks of uncollectible accounts receivable and of nonperformance by counterparties under the Company’s derivative contracts. Each reporting period, the Company assesses the recoverability of material receivables using historical data, current market conditions and reasonable and supportable forecasts of future economic conditions to determine expected collectability of its material receivables.
At March 31, 2026, the Company’s exposure to credit risk under its derivative contracts is currently limited to two counterparties – a major financial institution that is a lender under the 2024 Amended Term Loan Agreement (as defined in Note 5, “Debt”) and a large multi-strategy alternative investment manager, both of which have investment grade credit ratings. The Company has master netting agreements with both counterparties which provide for offsetting of amounts payable or receivable between the Company and the counterparty. To manage counterparty risk associated with derivative contracts, the Company selects and monitors counterparties based on an assessment of their financial strength and/or credit ratings.
Recently Issued Accounting Pronouncements and Legislation
In April 2026, the FASB issued ASU 2026-01, Equity (Topic 505): Initial Measurement of Paid-in-Kind Dividends on Equity-Classified Preferred Stock (“ASU 2026-01”), which requires that paid-in-kind (“PIK”) dividends on equity-classified preferred stock, including preferred stock that is classified as temporary equity, be initially measured on the basis of the PIK dividend rate stated in the preferred stock agreement. The guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted and may be applied using a prospective or modified retrospective approach. The Company elected to early adopt ASU 2026-01 using a prospective approach on January 1, 2026. There was no impact to beginning balances as of January 1, 2026 as a result of the adoption. On a go-forward basis, pursuant to ASU 2026-01, the
10
Company will recognize dividends at the contractual rate of 16% of liquidation preference with no remeasurement for changes in fair value.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) (“ASU 2024-03”), which requires public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 and interim periods within the fiscal year beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03.
2. SEGMENTS
The Company has determined that it operates as one reportable segment which focuses on oil and natural gas acquisition, production, exploration and development. The Company evaluates performance based on consolidated income or loss from operations. The Company’s chief executive officer and chief operating officer together function as the Company’s chief operating decision maker (the “CODM”). The CODM evaluates and manages performance and resource allocation based on consolidated production and operating expenses. Significant expenses provided to the CODM for review consist of lease operating, workover and other, and gathering and other expenses. The Company’s significant segment expenses are derived from and can be found within the unaudited condensed consolidated statement of operations. The measure of segment assets for the Company’s single reportable segment is “Total assets” as reported on the unaudited condensed consolidated balance sheets.
3. OPERATING REVENUES
Substantially all of the Company’s oil, natural gas and natural gas liquids (“NGLs”) revenues are derived from the Delaware Basin in Pecos, Reeves, Ward and Winkler Counties, Texas. Revenue is presented disaggregated in the unaudited condensed consolidated statements of operations by major product, and depicts how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors in the Company’s single basin operations.
Revenue is recognized when the following five steps are completed: (1) identify the contract with the customer, (2) identify the performance obligation (promise) in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when the performance obligation is satisfied. Revenues from the sale of crude oil, natural gas and NGLs are recognized at a point in time when a performance obligation is satisfied by the transfer of control of each unit (e.g. barrel of oil, Mcf of gas) of commodity to the customer. Revenue is measured based on contract consideration allocated to each unit of commodity and excludes amounts collected on behalf of third parties. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue.
Because the Company’s performance obligations have been satisfied and an unconditional right to consideration exists as of the balance sheet date, the Company recognized amounts due from contracts with customers for sales of oil, natural gas and NGLs of $17.3 million and $8.5 million at March 31, 2026 and December 31, 2025, respectively, as “Accounts receivable, net” on the unaudited condensed consolidated balance sheets. The Company utilizes the practical expedient exempting the disclosure of the transaction price of unsatisfied performance obligations for (i) contracts with an original expected duration of one year or less and (ii) contracts where variable consideration is allocated entirely to a wholly unsatisfied performance obligation (each unit of product typically represents a separate performance obligation, and therefore, future volumes under the Company’s long-term contracts are wholly unsatisfied).
For additional information regarding the Company’s operating revenues, refer to its Annual Report on Form 10-K for the year ended December 31, 2025.
11
4. OIL AND NATURAL GAS PROPERTIES
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas reserves (including such costs as leasehold acquisition costs, geological expenditures, treating equipment and gathering support facilities costs, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred. To the extent capitalized costs of evaluated oil and natural gas properties, net of accumulated depletion, exceed the discounted future net revenues of proved oil and natural gas reserves, net of deferred taxes, such excess capitalized costs are charged to expense.
Additionally, the Company assesses all properties classified as unevaluated property on a quarterly basis for possible impairment. The Company assesses properties on an individual basis or as a group, if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and the full cost ceiling test limitation.
At March 31, 2026 and 2025, using first-day-of-the-month average West Texas Intermediate (“WTI”) crude oil spot prices and Henry Hub natural gas prices for the respective prior 12-month periods, the Company’s net book value of oil and natural gas properties at March 31, 2026 and 2025, did not exceed the ceiling test value of the Company’s reserves. Oil and natural gas prices utilized for the ceiling test calculations at March 31, 2026 and 2025 were $63.80 per barrel and $75.33 per barrel of oil, respectively, and $3.72 per MMBtu and $2.44 per MMBtu for natural gas, respectively.
Changes in commodity prices, production rates, levels of reserves, future development costs, transfers of unevaluated properties to the full cost pool, capital spending, and other factors will determine the Company’s ceiling test calculation and impairment analyses in future periods. Additionally, because oil and natural gas prices are inherently volatile, sustained lower commodity prices would reduce the calculated first-day-of-the-month average prices which could result in non-cash impairment charges of the Company’s oil and natural gas properties under its full cost ceiling test calculation, negatively impacting earnings and financial position.
West Quito Divestiture
On December 18, 2025, the Company entered into an agreement of sale and purchase with MCM Delaware Resources, LLC (“MCM”) (the “West Quito Divestiture Agreement”) to sell substantially all of its oil and natural gas properties and related assets in the West Quito Draw area located in the Southern Delaware Basin in Ward County, Texas for a total sales price of approximately $62.6 million, subject to adjustment for accounting between the effective date of December 1, 2025 and the closing date and other customary adjustments (the “West Quito Divestiture”).
Pursuant to the West Quito Divestiture Agreement, on February 24, 2026, the Company completed the closing of the West Quito Divestiture and MCM acquired from the Company approximately 7,600 gross (6,100 net) acres of leasehold interests in the West Quito Draw area, including production from interests in producing wells, for net proceeds of approximately $60.1 million, reflecting adjustment for accounting effective date of December 1, 2025 and other customary adjustments. The Company did not record a gain or loss related to the divestiture as it was not significant to the full cost pool. Subsequent to closing, the Company used $45.6 million of the net proceeds from closing to repay amounts outstanding under the 2024 Amended Term Loan Agreement on February 24, 2026 including $40.0 million pursuant to the Third Amendment and prepayment of $5.6 million for the scheduled quarterly amortization payment for the quarterly period ending March 31, 2026.
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Sundown Acquisition
On March 10, 2026, the Company entered into a purchase and sale agreement to acquire certain oil and natural gas assets, comprising 7,090 net acres located in Ward County, Texas, from RoadRunner Resource Holding LLC (formerly, Sundown Energy LP) (“RoadRunner”), effective March 1, 2026, in an all-stock transaction (the “Sundown Acquisition”). Under the terms of the agreement, and upon closing on March 19, 2026, the Company issued 485,000 shares of its common stock to RoadRunner in exchange for the assets. The acquired acreage is directly adjacent to the Company’s existing Monument Draw acreage. The transaction is subject to customary post-closing adjustments and is accounted for as an asset acquisition.
5. DEBT
The Company’s debt consisted of the following for the periods presented (in thousands):
Term loan credit facility
162,500
208,125
Total debt (Face Value)
208,135
Less:
Current portion of long-term debt(1)
(22,500)
(22,510)
Other(2)
(4,118)
(4,670)
Long-Term Debt, net
Amended and Restated Credit Agreement
On December 26, 2024 (the “Initial Closing Date”), Halcón Holdings, LLC (the “Borrower”), a wholly-owned subsidiary of the Company, entered into a Second Amended and Restated Senior Secured Credit Agreement (the “2024 Term Loan Agreement”) with Fortress Credit Corp., as administrative agent, and certain other financial institutions party thereto, as lenders. The 2024 Term Loan Agreement amends and restates in its entirety the Company’s 2021 Amended Term Loan Agreement (as defined below). Pursuant to the 2024 Term Loan Agreement, the lenders party thereto agreed to provide the Borrower with (i) an initial term loan facility in the aggregate principal amount of $162.0 million, funded on December 26, 2024 and (ii) an incremental term loan facility in the aggregate principal amount of up to $63.0 million to be made available to the Borrower from January 3, 2025 until the date that was the earliest to occur of (x) the date on which such incremental term facility is fully drawn, (y) the date on which such incremental term facility is terminated and (z) January 11, 2025, subject to the satisfaction of certain conditions. On January 9, 2025, the Borrower entered into a first amendment (the “First Amendment”) to its 2024 Term Loan Agreement (as amended, the “2024 Amended Term Loan Agreement”). Pursuant to the First Amendment, the Borrower incurred incremental term loans in the aggregate principal amount of $63.0 million (the “Incremental Term Loans”).
The Company deferred $4.3 million of original issue discount and financing costs on the unaudited condensed consolidated balance sheet at December 31, 2024 in conjunction with entry into the 2024 Term Loan Agreement and deferred an additional $1.8 million of original issue discount and financing costs on the unaudited condensed consolidated balance sheet in conjunction with the issuance of the Incremental Term Loans in January 2025.
The 2024 Amended Term Loan Agreement matures on December 26, 2028.
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Borrowings under the 2024 Amended Term Loan Agreement initially bore interest at a rate per annum equal to a forward-looking term rate based on the Secured Overnight Financing Rate (“SOFR”) for a tenor of three months (with a credit spread adjustment of 0.15% per annum) (or another applicable reference rate, as determined pursuant to the terms of the 2024 Amended Term Loan Agreement) plus an applicable margin of 7.75%. The weighted average interest rate on the Company’s borrowings under the 2024 Amended Term Loan Agreement for the quarter ended March 31, 2026 was 11.57%.
On November 12, 2025, the Company entered into the Second Amendment to the Second Amended and Restated Senior Secured Credit Agreement (the “Second Amendment”), effective November 12, 2025, which amended the Applicable Margin (as defined in the 2024 Amended Term Loan Agreement) to be the rate per annum set forth below under the caption “SOFR Loans Spread” or “ABR Loans Spread”, as the case may be, based on the Total Net Leverage Ratio; provided that (a) until the Adjustment Date (the date of delivery of financial statements pursuant to the 2024 Amended Term Loan Agreement) following the Second Amendment effective date, the Applicable Margin shall be the applicable rate per annum set forth below in Category 1 and (b) the Applicable Margin shall be the applicable rate per annum set forth in Category 4 below at any time that an Event of Default (as defined in the 2024 Amended Term Loan Agreement) exists:
Total Net Leverage Ratio
SOFR Loans Spread
ABR Loans Spread
Category 1≤ 2.50 to 1.00
7.75%
6.75%
Category 2> 2.50 to 1.00 ≤ 3.00 to 1.00
8.00%
7.00%
Category 3> 3.00 to 1.00 ≤ 3.25 to 1.00
8.25%
7.25%
Category 4 > 3.25 to 1.00
8.50%
7.50%
The Applicable Margin shall be adjusted quarterly on a prospective basis on each Adjustment Date based upon the Total Net Leverage Ratio in accordance with the table above.
The Second Amendment provides that the Borrower shall not permit the Total Net Leverage Ratio, as of the last day of each fiscal quarter (commencing with the fiscal quarter ending March 31, 2025), to be greater than the levels set forth in the following table for the applicable quarter:
Fiscal Quarter
Fiscal quarters ending March 31, 2025 through and including June 30, 2025
2.75 to 1.00
Fiscal quarter ending September 30, 2025
2.50 to 1.00
Fiscal quarter ending December 31, 2025
3.20 to 1.00
Fiscal quarter ending March 31, 2026
3.25 to 1.00
Fiscal quarter ending June 30, 2026
3.40 to 1.00
Fiscal quarter ending September 30, 2026
3.50 to 1.00
Fiscal quarter ending December 31, 2026
Fiscal quarter ending March 31, 2027
Fiscal quarter ending June 30, 2027
3.00 to 1.00
Fiscal quarter ending September 30, 2027 and each fiscal quarter thereafter
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Additionally, the Second Amendment provides that the Borrower shall not permit the Asset Coverage Ratio, as of the last day of any fiscal quarter (commencing with the fiscal quarter ending March 31, 2025) to be less than the applicable level set forth in the following table for the applicable fiscal quarter:
Asset Coverage Ratio
Fiscal quarters ending March 31, 2025 through and including December 31, 2026
1.85 to 1.00
Each fiscal quarter thereafter
2.00 to 1.00
On February 24, 2026, the Company entered into the Limited Consent, Third Amendment to Second Amended and Restated Senior Secured Credit Agreement and First Amendment to Fee Letter (the “Third Amendment”) to the 2024 Amended Term Loan Agreement. Pursuant to the Third Amendment, among other changes specified therein, (a) the lenders consented to the transactions contemplated by the West Quito Divestiture sale agreement; and (b) the Company was required, upon receipt of the net cash proceeds from the West Quito Divestiture, to prepay the outstanding principal amount of the 2024 Amended Term Loan Agreement borrowings in an aggregate amount equal to $40.0 million. The Company may retain the remaining net cash proceeds received from the West Quito Divestiture, subject to certain reinvestment requirements, set forth in the Third Amendment (the “Reinvestment Proceeds”). Pursuant to the Third Amendment, on February 24, 2026, $12.9 million of the proceeds from the sale were initially retained and held in a reinvestment account and recorded as restricted cash. At March 31, 2026, $7.9 million of Reinvestment Proceeds remained as restricted cash in a reinvestment account.
The Third Amendment was accounted for as a partial extinguishment and as such, the Company recorded a loss on extinguishment of debt in the amount of $0.9 million to write-off the proportionate amount of deferred financing costs and debt discount associated with the February 24, 2026 principal prepayment. The Company deferred an additional $0.6 million of deferred financing costs at March 31, 2026 in conjunction with entry into the Third Amendment.
The Borrower may elect, at its option, to prepay any borrowing outstanding under the 2024 Amended Term Loan Agreement. Such voluntary prepayments, certain mandatory prepayments and change of control prepayments are subject to the following prepayment premium, as applicable:
Period
Premium
Months 0 - 12
Make-whole amount equal to 12 months of interest plus 4.00%
Months 13 - 30
2.00%
Thereafter
0.00%
In the event the Borrower shall receive a disapproval notice (as defined in the 2024 Term Loan Agreement) from the required lenders under the 2024 Amended Term Loan Agreement rejecting or otherwise disqualifying a proposed buyer in connection with a permitted change in control thereunder to be consummated within 12 months following the Initial Closing Date, such voluntary prepayments, certain mandatory prepayments and change of control prepayments are subject to the following prepayment premium, as applicable:
Months 0 - 9
Make-whole amount equal to 9 months of interest plus 2.00%
Months 10 - 30
The Borrower is required to make scheduled quarterly amortization payments in an aggregate principal amount equal to 2.50% of the total aggregate principal amount of the loans outstanding and such payments commenced the fiscal quarter ending June 30, 2025.
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The Borrower may be required to make mandatory prepayments of the loans under the 2024 Amended Term Loan Agreement in connection with the incurrence of non-permitted debt, certain asset sales and with excess cash on hand in excess of certain maximum levels. Accordingly, upon closing the West Quito Divestiture, the Company used $45.6 million of the net proceeds from closing to repay amounts outstanding under the 2024 Amended Term Loan Agreement on February 24, 2026 including $40.0 million pursuant to the Third Amendment and prepayment of $5.6 million for the scheduled quarterly amortization payment for the quarterly period ending March 31, 2026.
Amounts outstanding under the 2024 Amended Term Loan Agreement are guaranteed by certain of the Borrower’s direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of the Borrower and such direct and indirect subsidiaries, and of the equity interests of the Borrower held by the Company.
The 2024 Amended Term Loan agreement contains certain financial covenants (as defined in the 2024 Term Loan Agreement and as amended in the Second Amendment), including the maintenance of the following ratios:
At March 31, 2026, the Company was in compliance with all financial covenants under the 2024 Amended Term Loan Agreement.
Under the 2024 Amended Term Loan Agreement, the Company is required to hedge approximately 85% to 50% of its anticipated oil and natural gas production, in varying percentages by year, on a rolling basis for the next four years. Entry into the 2024 Term Loan Agreement did not result in any material changes to the Company’s hedges. The 2024 Amended Term Loan Agreement also contains certain events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; and voluntary and involuntary bankruptcy.
In conjunction with entering into the 2024 Term Loan Agreement, the Company agreed to pay an exit fee equal to the amount resulting from multiplying 3.50% by the difference, if any, of (x) Total proved developed producing (“PDP”) PV-10 (the “PDP PV-10”) as of the date that is the earlier of (i) Payment in Full, (ii) the Maturity Date, or (iii) the loans and other obligations otherwise becoming immediately due and payable pursuant to Section 10.02 of the 2024 Term Loan Agreement (including whether, in the case of clauses (i) or (iii), such Payment in Full or acceleration, respectively, may be made in connection with a refinancing transaction or a disposition of all or substantially all of the assets of the Company) (such earlier date, the “Exit Fee Determination Date”), less (y) the Total PDP PV-10 reflected in the Initial Reserve Report after pro forma adjustment(s) for the West Quito Divestiture and any other disposition permitted by the credit agreement of otherwise consented to by the lenders (as defined in the 2024 Term Loan Agreement and as amended by the Third Amendment) (the “Exit Fee”). Upon evaluation of the payoff profiles associated with the Exit Fee, the Company concluded that such embedded features resulting from the application of this fee were not clearly and closely related to the host debt instrument. The fair value analysis for such derivative was performed and the fair value was deemed to be zero at commencement, at December 31, 2025 and at March 31, 2026. Refer to Note 6, “Fair Value Measurements,” for a discussion of the valuation approach used and the significant inputs to the valuation for the Exit Fee derivative.
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6. FAIR VALUE MEASUREMENTS
The Company’s determination of fair value incorporates not only the credit standing of the counterparties involved in transactions with the Company resulting in receivables on the Company’s unaudited condensed consolidated balance sheets, but also the impact of the Company’s nonperformance risk on its own liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company separates the fair value of its financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There were no transfers between fair value hierarchy levels for any period presented. The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities associated with commodity-based derivative contracts that were accounted for at fair value at March 31, 2026 and December 31, 2025 (in thousands):
Level 1
Level 2
Level 3
Total
Assets
9,442
Liabilities
35,209
23,495
2,325
Derivative contracts listed above as Level 2 include fixed-price swaps, collars, basis swaps and WTI NYMEX rolls that are carried at fair value. The Company records the net change in the fair value of these positions in “Net (loss) gain on derivative contracts” in the Company’s unaudited condensed consolidated statements of operations. The Level 2 observable data includes the forward curves for commodity prices based on quoted market prices and implied volatility factors related to changes in the forward curves. See Note 7, “Derivative and Hedging Activities,” for additional discussion of derivatives.
The Company’s derivative contracts are with major financial institutions and large multi-strategy alternative investment managers with investment grade credit ratings which are believed to have minimal credit risk. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties in the derivative contracts; however, the Company does not anticipate such nonperformance.
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As discussed in Note 5, “Debt,” the Company evaluated the 2024 Term Loan Agreement and identified the Exit Fee to be an embedded derivative not clearly and closely related to the host debt instrument. The fair value analysis for such derivative was performed and the fair value was deemed to be zero at commencement, at December 31, 2025 and at March 31, 2026. The fair value of the Exit Fee derivative is remeasured each reporting period with fair value changes recorded in “Interest Expense and other” on the unaudited condensed consolidated statement of operations. The valuation of the Exit Fee derivative includes significant inputs such as the timing of potential exit scenarios, forward NYMEX strip pricing, forecasted capital and other expenditures and discount rates. The fair value of the Exit Fee derivative is classified as Level 3 in the fair value hierarchy.
Estimated fair value amounts have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, cash equivalents and restricted cash, accounts receivable, and accounts payable approximates their carrying value due to their short-term nature. The estimated fair value of borrowings under the Company’s Amended Term Loan Agreement approximates carrying value because the variable interest rates approximate current market rates.
The Company follows the provisions of the FASB’s Accounting Standards Codification (“ASC”) 820, Fair Value Measurement for nonfinancial assets and liabilities measured at fair value on a non-recurring basis. These provisions apply to the Company’s initial recognition of AROs for which fair value is used. The ARO estimates are derived from historical costs and management’s expectation of future cost environments; and therefore, the Company has designated these liabilities as Level 3. See Note 8, “Asset Retirement Obligations,” for a reconciliation of the beginning and ending balances of the liability for the Company’s AROs.
7. DERIVATIVE AND HEDGING ACTIVITIES
The Company is exposed to commodity price risks relating to its ongoing business operations. In accordance with the Company’s policy and the requirements under the Amended Term Loan Agreement, it generally hedges a substantial, but varying, portion of anticipated oil and natural gas production for future periods. Derivatives are carried at fair value on the unaudited condensed consolidated balance sheets as assets or liabilities, with the changes in the fair value included in the unaudited condensed consolidated statements of operations for the period in which the change occurs. The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, the Company records the net change in the mark-to-market valuation of these derivative contracts, as well as all payments and receipts on settled derivative contracts, in “Net loss gain on derivative contracts” on the unaudited condensed consolidated statements of operations. The Company’s hedge policies and objectives may change significantly as its operational profile changes. The Company does not enter into derivative contracts for speculative trading purposes.
It is the Company’s policy to enter into derivative contracts only with counterparties that are creditworthy financial or commodity hedging institutions deemed by management as competent and competitive market makers. At March 31, 2026, the Company did not post collateral under any of its derivative contracts as they are secured under the Company’s Term Loan Agreement.
The Company’s crude oil and natural gas derivative positions at any point in time may consist of fixed-price swaps, costless put/call collars, basis swaps and WTI NYMEX rolls further described as follows:
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The following table summarizes the location and fair value amounts of all commodity derivative contracts in the unaudited condensed consolidated balance sheets at March 31, 2026 and December 31, 2025 (in thousands):
Balance sheet location
Current assets
Current liabilities
(24,612)
(633)
Other noncurrent assets
Other noncurrent liabilities
(10,597)
(1,692)
(35,209)
(2,325)
The following table summarizes the location and amounts of the Company’s realized and unrealized gains and losses on derivative contracts in the Company’s unaudited condensed consolidated statements of operations (in thousands):
Location of gain (loss)
on derivative contracts on
Type
Statement of Operations
Commodity contracts:
Unrealized (loss) gain
Other income (expenses)
(46,937)
11,828
Realized loss
(1,027)
(2,526)
Total net gain (loss)
At March 31, 2026, the Company had the following open crude oil and natural gas derivative contracts:
Instrument
2027
2028
2029
Crude oil:
Fixed-price swap:
Total volumes (Bbls)
1,128,764
1,063,065
751,084
299,544
Weighted average price
65.55
62.33
62.37
61.40
Two-way collar:
38,958
41,678
243,329
Weighted average price (call)
80.82
0.00
62.35
63.63
Weighted average price (put)
69.86
59.00
57.16
Basis swap:
1,054,043
980,339
692,020
140,544
0.50
0.55
0.66
0.68
WTI NYMEX roll:
(0.04)
(0.23)
(0.29)
Natural gas:
Total volumes (MMBtu)
1,037,539
1,124,485
2,010,469
527,049
3.90
3.74
3.36
3.84
2,065,365
2,100,055
1,083,731
1,378,205
4.53
4.64
4.10
4.01
3.18
3.12
3.34
2.95
2,040,263
2,159,284
2,550,400
(0.81)
(0.84)
(0.86)
(0.89)
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The Company presents the fair value of its derivative contracts at the gross amounts in the unaudited condensed consolidated balance sheets. The following table shows the potential effects of master netting arrangements on the fair value of the Company’s derivative contracts at March 31, 2026 and December 31, 2025 (in thousands):
Assets from Derivative Contracts
Liabilities from Derivative Contracts
Offsetting of Derivative Assets and Liabilities
Gross amounts recognized in the Unaudited Condensed Consolidated Balance Sheet
Amounts not offset in the Unaudited Condensed Consolidated Balance Sheet
(9,442)
Net amount
21,170
(25,767)
The Company enters into an International Swap Dealers Association Master Agreement (“ISDA”) with each counterparty prior to a derivative contract with such counterparty. The ISDA is a standard contract that governs all derivative contracts entered into between the Company and the respective counterparty. The ISDA allows for offsetting of amounts payable or receivable between the Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.
8. ASSET RETIREMENT OBLIGATIONS
The Company records an ARO on oil and natural gas properties when it can reasonably estimate the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon costs. The Company records the ARO liability on the unaudited condensed consolidated balance sheets and capitalizes the cost in “Oil and natural gas properties” during the period in which the obligation is incurred. The Company records the accretion of its ARO liabilities in “Depletion, depreciation and accretion” expense in the unaudited condensed consolidated statements of operations. The additional capitalized costs are depreciated on a unit-of-production basis.
The Company recorded the following activity related to its ARO liability (in thousands):
Liability for asset retirement obligations at December 31, 2025
Accretion expense
250
Liabilities divested
(3,573)
Liability for asset retirement obligations at March 31, 2026
9. COMMITMENTS AND CONTINGENCIES
Commitments
In May 2022, the Company entered into a joint venture agreement to develop a strategic acid gas treatment and carbon sequestration facility and entered into a gas treating agreement. The Company had a minimum volume commitment of 20,000 Mcf per day under the gas treating agreement, with certain rollover rights and start-up flexibility, for an initial term of five years from the in-service date of the facility. Under the gas treating agreement, the Company paid a treating rate that varied based on volumes delivered to the facility. The gas treating agreement was terminated on January 19, 2026.
The Company has entered into various long-term gathering, transportation and sales contracts with respect to its oil and natural gas production from the Delaware Basin in West Texas. As of March 31, 2026, the Company had in place multiple long-term crude oil and natural gas contracts in this area and the sales prices under these contracts are based on
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posted market rates. Under the terms of these contracts, the Company has committed a substantial portion of its production from this area for periods ranging from one to twenty years from the date of first production.
Contingencies
In addition to the matters described below, from time to time, the Company may be a plaintiff or defendant in a pending or threatened legal proceeding arising in the normal course of its business. While the outcome and impact of currently pending legal proceedings cannot be determined, the Company’s management and legal counsel believe that the resolution of these proceedings through settlement or adverse judgment will not have a material effect on the Company’s unaudited condensed consolidated operating results, financial position or cash flows.
Surface owners of properties in Louisiana, where the Company formerly operated, often file lawsuits or assert claims against oil and natural gas companies claiming that operators and working interest owners are liable for environmental damages arising from operations conducted on the leased properties. These damages are frequently measured by the cost to restore the leased properties to their original condition. Currently and in the past, the Company has been party to such matters in Louisiana. With regard to pending matters, the overall exposure is not currently determinable. The Company intends to vigorously oppose these claims.
10. STOCKHOLDERS’ EQUITY (DEFICIT)
Redeemable Convertible Preferred Stock
During 2023 and 2024, the Company issued, in private placements, an aggregate of 138,000 shares of preferred stock (collectively, the “Redeemable Convertible Preferred Stock”) to certain funds managed by Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC, the Company’s largest three stockholders at the time of issuance. For accounting purposes, upon issuance of the Redeemable Convertible Preferred Stock, the Company recorded the net proceeds as mezzanine equity (temporary equity) on the unaudited condensed consolidated balance sheets because it was not mandatorily redeemable but did contain a redemption feature at the option of the preferred holders that was considered not solely within the Company’s control. The Redeemable Convertible Preferred Stock was originally recorded net of original issue discount and accrued offering costs as mezzanine equity (temporary equity) and subsequently a non-cash deemed dividend was recorded to increase the carrying value of the preferred stock to its redemption amount. At March 25, 2026, the holders of the Redeemable Convertible Preferred Stock (neither individually nor collectively) no longer controlled the Company’s board of directors. Thus, the Company recorded a deemed dividend in the amount of $8.3 million to increase the carrying value of the Redeemable Convertible Preferred Stock to its redemption amount on that date and such was reclassified from temporary equity to permanent equity at the total remeasured carrying amount of $234.6 million on the unaudited condensed consolidated balance sheet as of March 31, 2026 because previously identified redemption features that were not solely within the control of the Company no longer existed.
Voting Rights. Holders of shares of the Redeemable Convertible Preferred Stock have no voting rights with respect to the shares of Redeemable Convertible Preferred stock.
Dividends. Holders of Redeemable Convertible Preferred Stock are entitled to receive cumulative dividends at a fixed rate of 14.5% per annum on the Liquidation Preference ($1,000 per share increased for any PIK accruals), compounding and accruing quarterly in arrears. PIK dividends shall automatically accrue at a fixed rate of 16.0% per annum on the Liquidation Preference and be added to the Liquidation Preference (a “PIK Accrual”).
Conversion Features. In addition to the conversion rights noted in “Redemption Features (Change of Control)” below, Holders of Redeemable Convertible Preferred Stock may convert their shares into common stock at a conversion ratio (the “Conversion Ratio”) equal to the then applicable Liquidation Preference at the time of conversion divided by
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the then applicable Conversion Price (initially equal to an 18% premium to the volume weighted average price of common stock for the 20 trading days immediately preceding the closing date). Additionally, the Company has the right, at its option, to convert outstanding shares of Redeemable Convertible Preferred Stock into common stock at the Conversion Ratio should the Company meet certain calculated valuation metrics which when divided by the number of outstanding shares of common stock equals or exceeds 130% of the Conversion Price.
Redemption Features (Issuer). The Company has the option to redeem the Redeemable Convertible Preferred Stock in cash for an amount per share of Preferred Stock equal to (the “Redemption Price”):
Redemption Features (Change of Control). In the event of a change of control, holders have the right to receive:
On March 30, 2026, the Company issued 1,800,000 shares of its common stock to Luminus Energy Partners Master Fund, Ltd. upon the conversion of 7,803 shares of the Company’s Series A-2 Redeemable Convertible Preferred Stock (the “Series A-2 Preferred Stock”) (the “Series A-2 Conversion”). The conversion was calculated in accordance with the terms of the Series A-2 Preferred Stock, including adjustments provided in respect of any Unpaid Dividend Accrual (as defined in the Company’s Certificate of Incorporation, as amended) and using a conversion price of $6.21 per share.
At March 31, 2026, there were 130,197 shares of Redeemable Convertible Preferred Stock outstanding with total liquidation preference of $201.4 million.
On March 3, 2026, the Company entered into a definitive agreement to sell in a private placement to an institutional investor 1,800,000 shares of its common stock and 927,273 prefunded warrants for the purchase of common stock at $5.50 per share for total proceeds of $15.0 million. The offering closed on March 4, 2026, on satisfaction of customary closing conditions. On April 7, 2026, the warrants were exercised and the Company issued 927,273 shares of common stock.
On March 19, 2026, the Company issued 485,000 shares of its common stock to RoadRunner in exchange for the certain assets to be acquired under the purchase and sale agreement. See Note 4, “Oil and Natural Gas Properties – Sundown Acquisition” for additional information.
On March 30, 2026, the Company issued 1,800,000 shares of its common stock pursuant to the conversion of 7,803 shares of Series A-2 Preferred Stock in the Series A-2 Conversion discussed above.
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11. EARNINGS PER SHARE
The following represents the calculation of earnings (loss) per share (in thousands, except per share amounts):
Basic:
Less: Preferred stock dividend
Weighted average basic number of common shares outstanding basic
Basic net (loss) income per share of common stock
Diluted:
Net (loss) income available to common stockholders basic
Net (loss) income available to common stockholders diluted
Common stock equivalent shares representing shares issuable upon:
Exercise of stock options and vesting of restricted stock units(1)
Weighted average diluted number of common shares outstanding diluted
Diluted net (loss) income per share of common stock
The Company computes earnings per share in accordance with ASC Topic 260, Earnings per Share (“ASC 260”), which requires earnings per share for each class of stock (common stock and participating preferred stock) to be calculated using the two-class method which allocates earnings for the reporting period between common shareholders and other security holders based on their respective participation rights in undistributed earnings. Diluted earnings per share was calculated using the two-class method, as this computation was more dilutive than the calculation using the if-converted method. For additional information on the Company’s preferred stock, which is considered a participating security, see Note 10, “Stockholders’ Equity (Deficit)”.
For the three months ended March 31, 2026, common stock equivalents, including options and restricted stock units (“RSUs”), totaling 0.1 million were anti-dilutive and not included in the computation of diluted earnings per share of common stock. For the three months ended March 31, 2025, common stock equivalents, including options and RSUs, totaling 0.2 million were anti-dilutive and not included in the computation of diluted earnings per share of common stock.
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12. ADDITIONAL FINANCIAL STATEMENT INFORMATION
Certain balance sheet amounts are comprised of the following (in thousands):
Accounts receivable, net:
Oil, natural gas and natural gas liquids revenues
17,272
8,468
Joint interest accounts
1,038
1,383
1,287
2,220
Prepaids and other:
Prepaids
475
621
Funds in escrow
171
96
100
Other assets (Non-current):
604
599
2,884
2,761
Accounts payable and accrued liabilities:
Trade payables
15,179
12,629
Accrued oil and natural gas capital costs
5,034
5,685
Revenues and royalties payable
13,689
10,901
Accrued interest expense
52
67
Accrued employee compensation
1,189
385
Accrued lease operating expenses
6,216
8,000
2,094
2,067
Certain income statement amounts are comprised of the following (in thousands) for the periods presents:
Three Months EndedMarch 31,
Interest expense
5,841
7,189
Interest income
(324)
(579)
60
5,517
6,670
13. SUBSEQUENT EVENTS
On April 7, 2026, the prefunded warrants sold to an institutional investor on March 3, 2026 were exercised and the Company issued 927,273 shares of common stock.
On May 5, 2026, the Company entered into a sales agreement with Roth Capital Partners, LLC (the “Agent”) (the “Sales Agreement”) pursuant to which the Company may issue and sell, from time to time, up to $150.0 million of shares of its common stock, through or to the Agent, acting as agent or principal, under the Sales Agreement in at-the-market transactions (the “ATM Agreement”). For the period May 6, 2026 to May 8, 2026, the Company sold and issued 550,013 shares of its common stock under the ATM Agreement for net proceeds of $1.6 million.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding our results of operations for the three months ended March 31, 2026 and 2025 and should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and with the consolidated financial statements, notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. The results presented in this Form 10-Q are not necessarily indicative of future operating results.
Statements in this discussion may be forward-looking. These forward-looking statements involve risks and uncertainties, including those discussed below, which could cause actual results to differ from those expressed. For more information, see “Special note regarding forward-looking statements.”
Overview
We are an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States. Our properties and drilling activities are currently focused in the Delaware Basin, where we have an extensive drilling inventory that we believe offers attractive long-term economics.
Our financial results depend upon many factors, but are largely driven by the volume of our oil and natural gas production and the price that we receive for that production. Our production volumes will decline as reserves are depleted unless we expend capital in successful development and exploration activities or acquire properties with existing production. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, attempts by foreign oil and natural gas producers to control the global supply, weather, transportation take-away capacity constraints, inventory storage levels, basis differentials and other factors. Accordingly, finding, developing and producing oil and natural gas reserves at economical costs are critical to our long-term success.
When commodity prices decline significantly our ability to finance our capital budget and operations may be adversely impacted. While we use derivative instruments to provide partial protection against declines in oil and natural gas prices, the total volumes we hedge are less than our expected production, vary from period to period based on our view of current and future market conditions, remain consistent with the requirements in effect under our Amended Term Loan Agreement and extend, on a rolling basis, for a limited period of time (generally, four years). These limitations result in our liquidity being susceptible to commodity price declines. Additionally, while intended to reduce the effects of volatile commodity prices, derivative transactions may limit our potential gains and increase our potential losses if commodity prices were to rise substantially over the price established by the hedge. Our hedge policies and objectives may change significantly as our operational profile changes and/or commodities prices change. We do not enter into derivative contracts for speculative trading purposes.
Recent Developments
At the Market Sales Offering
On May 5, 2026, we entered into a sales agreement with Roth Capital Partners, LLC (the “Agent”) (the “Sales Agreement”) pursuant to which we may issue and sell, from time to time, up to $150.0 million of shares of our common stock, through or to the Agent, acting as agent or principal, under the Sales Agreement in at-the-market transactions (the “ATM Agreement”). For the period May 6, 2026 to May 8, 2026, we sold and issued 550,013 shares of our common stock under the ATM Agreement for net proceeds of $1.6 million.
Preferred Stock Conversion
On March 30, 2026, we issued 1,800,000 shares of our common stock to Luminus Energy Partners Master Fund, Ltd. (“Luminus”) upon the conversion of 7,803 shares of our Series A-2 Redeemable Convertible Preferred Stock (the
“Series A-2 Preferred Stock”). The conversion was calculated in accordance with the terms of the Series A-2 Preferred Stock, including adjustments provided in respect of any Unpaid Dividend Accrual (as defined in the Company’s Certificate of Incorporation, as amended) and using a conversion price of $6.21 per share.
Monument Draw Acquisition
On March 10, 2026, we entered into a purchase and sale agreement to acquire certain oil and natural gas assets, comprising 7,090 net acres located in Ward County, Texas, from RoadRunner Resource Holding LLC (formerly, Sundown Energy LP) (“RoadRunner”), effective March 1, 2026, in an all-stock transaction. Under the terms of the agreement, upon closing on March 19, 2026, we issued 485,000 shares of our common stock to RoadRunner in exchange for the assets. The acquired acreage is directly adjacent to our existing Monument Draw acreage. The transaction is subject to customary post-closing adjustments.
Private Placement Equity Offering
On March 3, 2026, we entered into a definitive agreement to sell in a private placement to an institutional investor 1,800,000 shares of our common stock and 927,273 prefunded warrants for the purchase of common stock at $5.50 per share for total proceeds of $15.0 million. The offering closed on March 4, 2026, on satisfaction of customary closing conditions. We used the net proceeds received from the offering for working capital and general corporate purposes. The warrants were exercised on April 7, 2026 and accordingly, upon exercise, we issued 927,273 shares of common stock.
On December 18, 2025, we entered into an agreement of sale and purchase with MCM Delaware Resources, LLC (“MCM”) to sell substantially all of our oil and natural gas properties and related assets in the West Quito Draw area located in the Southern Delaware Basin in Ward County, Texas (the “West Quito Assets”) for a total sales price of approximately $62.6 million, subject to adjustment for accounting between the effective date of December 1, 2025 and the closing date and other customary adjustments (the “West Quito Divestiture”). The West Quito Divestiture closed on February 24, 2026 for an adjusted sales price of $60.1 million, reflecting adjustment for accounting effective date of December 1, 2025 and other customary adjustments. The West Quito Assets include approximately 6,100 net acres in Ward County, Texas and proved reserves for these properties accounted for approximately 6.0 MMboe, or approximately 10%, of our proved reserves at December 31, 2025. We used $45.6 million of the net proceeds from closing to repay amounts outstanding under the 2024 Amended Term Loan Agreement on February 24, 2026 - $40.0 million pursuant to the Third Amendment and prepayment of $5.6 million for the scheduled quarterly amortization payment for the quarterly period ending March 31, 2026. Pursuant to the Third Amendment, on February 24, 2026, $12.9 million of Reinvestment Proceeds were held in a reinvestment account to be used to acquire additional contiguous non-operated oil and natural gas properties consisting of proved developed reserves in Ward and Winkler Counties, Texas, to fund permitted capital expenditures in the Monument Draw area and/or to fund the drilling and completion of two Monument Draw wells within 180 days after receipt. Should such funds have not been spent within the 180-day period, the Reinvestment Proceeds shall be used to prepay borrowings outstanding under the 2024 Amended Term Loan Agreement. At March 31, 2026, $7.9 million of Reinvestment Proceeds remained and was recorded as restricted cash.
Term Loan Credit Facility
On February 24, 2026, we entered into the Third Amendment to our 2024 Amended Term Loan Agreement. Pursuant to the Third Amendment, among other changes specified therein, (a) the lenders consented to the transactions contemplated by the West Quito Divestiture sale agreement; and (b) we were required, upon receipt of the net cash proceeds from the West Quito Divestiture, to prepay the outstanding principal amount of the 2024 Amended Term Loan Agreement borrowings in an aggregate amount equal to $40.0 million. We may retain the remaining net cash proceeds received from the West Quito Divestiture, subject to certain reinvestment requirements, set forth in the Third Amendment.
We recorded a loss on extinguishment of debt in the amount of $0.9 million to write-off the proportionate amount of deferred financing costs and debt discount associated with the February 24, 2026 principal prepayment and deferred an
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additional $0.6 million of deferred financing costs at March 31, 2026 in conjunction with entry into the Third Amendment.
Capital Resources and Liquidity
Overview. Our ability to execute our operating strategy is dependent on our ability to maintain adequate liquidity and access additional capital, as needed. Our future capital resources and liquidity depend, in part, on our success in developing our leasehold interests, growing our reserves and production and finding additional reserves. Sufficient levels of available cash are required to fund capital expenditures necessary to offset inherent declines in our production and proven reserves. We generated a net loss of $56.5 million for the three months ended March 31, 2026 and had negative working capital of $9.1 million as of March 31, 2026. As of March 31, 2026, we had $46.4 million of cash and cash equivalents, no additional borrowing capacity under the 2024 Amended Term Loan Agreement (as defined in Note 5, “Debt” to the unaudited condensed consolidated financial statements) and a total of $22.5 million in debt repayments due through March 2027 under our 2024 Amended Term Loan Agreement. As of March 31, 2026, $30.0 million remained available for issuance on or before August 31, 2026 under a support letter from our investors. We closed on the sale of our West Quito Assets on February 24, 2026 for net proceeds of $60.1 million, of which $45.6 million was used to repay a portion of outstanding borrowings under our 2024 Amended Term Loan Agreement including $40.0 million pursuant to the Third Amendment and prepayment of $5.6 million for the scheduled quarterly amortization payment for the quarterly period ending March 31, 2026. Pursuant to the Third Amendment, remaining proceeds from the sale after related expenses (the “Reinvestment Proceeds”) are to be used to acquire additional contiguous non-operated oil and natural gas properties consisting of proved developed reserves in Ward and Winkler Counties, Texas, to fund permitted capital expenditures in the Monument Draw area and/or to fund the drilling and completion of two Monument Draw wells within 180 days after receipt. Should such funds have not been spent within the 180-day period, the Reinvestment Proceeds shall be used to prepay borrowings outstanding under the 2024 Amended Term Loan Agreement. At March 31, 2026, $7.9 million of Reinvestment Proceeds remained and was recorded as restricted cash. On March 3, 2026, we entered into a definitive agreement to sell in a private placement to an institutional investor 1,800,000 shares of our common stock and 927,273 prefunded warrants for the purchase of common stock at $5.50 per share for total proceeds of $15.0 million. The offering closed on March 4, 2026, on satisfaction of customary closing conditions. We intend to use the net proceeds received from the offering for working capital and general corporate purposes.
We continue to execute on a plan to reduce operating and capital costs to improve cash flow. We believe that, based upon our operational forecasts, cash and cash equivalents on hand, proceeds from the sale of our West Quito Assets and from the private placement equity offering, and cost reduction measures, it is probable that we will have sufficient liquidity to fund our operations, meet our debt requirements and maintain compliance with our future debt covenants as described in Note 5, “Debt,” for the next 12 months from the issuance of these unaudited condensed consolidated financial statements. We will, however, continue to consider alternative liquidity sources which could include entering into other financing arrangements (e.g. future equity raises), a sale of a portion of our assets, seeking capital partners for our drilling program, pursuing strategic merger opportunities or joint ventures, the sale of the Company, or pursuing additional general and administrative or other cost reduction opportunities. Our estimates and forecasts are based upon assumptions that may prove to be incorrect due to many factors that are currently unknown, such as prevailing economic conditions, many of which are beyond our control.
In the event the assumptions underlying our estimates and forecasts prove to be incorrect, our operating plans, capital requirements, and covenant compliance may be adversely impacted. In the event our cash flows are materially less than anticipated or our costs are materially greater than anticipated and other sources of capital we historically have utilized are not available on acceptable terms, we may be required to curtail drilling, development, land acquisitions and other activities to reduce our capital spending. However, significant or prolonged reductions in capital spending will adversely impact our production and may negatively affect our future cash flows.
We continuously monitor changes in market conditions and will continue to adapt our operational plans as necessary to strive to maintain sufficient liquidity, facilitate drilling on our undeveloped acreage position and permit us to selectively expand our acreage, as well as meet our debt obligations and restrictive covenants. We have been exploring, and continue to explore, strategic transactions to address these concerns, while also looking at opportunities to significantly reduce expenses in the near term. However, there can be no assurance that, absent additional capital,
27
reducing costs or other material favorable developments, the Company will not experience liquidity and covenant compliance issues in the future.
On May 30, 2025, we received written notice (the “Notice”) on behalf of the NYSE American indicating that we are no longer in compliance with NYSE American’s continued listing standards. Specifically, the letter stated that we are not in compliance with the continued listing standards set forth in Sections 1003(a)(i) and 1003(a)(ii) of the NYSE American Company Guide (the “Company Guide”). Section 1003(a)(i) requires a listed company to have stockholders’ equity of $2 million or more if the listed company has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years. Section 1003(a)(ii) requires a listed company to have stockholders’ equity of $4 million or more if the listed company has reported losses from continuing operations and/or net losses in three of its four most recent fiscal years. Our noncompliance resulted from our reporting stockholders’ equity of $(1.8) million as of March 31, 2025, and losses from continuing operations and/or net losses in three of our four most recent fiscal years ended December 31, 2024. We reported stockholders’ equity of $157.1 million at March 31, 2026 resulting from the reclassification of our preferred stock from temporary to permanent equity and additional losses from continuing operations. The Notice further provided that we must submit a plan of compliance (the “Plan”) by June 30, 2025 addressing how we intend to regain compliance with the continued listing standards by November 30, 2026. Such Plan was submitted by the required deadline and our Plan was accepted by the NYSE. The Notice has no immediate impact on the listing of our shares of common stock, which will continue to be listed and traded under the symbol “BATL” on the NYSE American during this period, subject to our compliance with the other listing requirements of the NYSE American. The notice does not affect our ongoing business operations or our reporting requirements with the Securities and Exchange Commission.
Other Risks and Uncertainties. Our ability to complete transactions and maintain or increase our liquidity is subject to a number of variables, including our level of oil and natural gas production, proved reserves and commodity prices, the amount and cost of our indebtedness, as well as various economic and market conditions that have historically affected the oil and natural gas industry. Even if we are otherwise successful in growing our proved reserves and production, if oil and natural gas prices decline for a sustained period of time, our ability to fund our capital expenditures, complete acquisitions, reduce debt, meet our financial obligations and become profitable may be materially impacted.
Additionally, in periods of increasing commodity prices, we continue to be at risk to supply chain issues, including, but not limited to, labor shortages, pipe restrictions and potential delays in obtaining frac and/or drilling related equipment that could impact our business. During these periods, the costs and delivery times of rigs, equipment and supplies may also be substantially greater. The unavailability or high cost of drilling rigs and/or frac crews, pressure pumping equipment, tubulars and other supplies, and of qualified personnel can materially and adversely affect our operations and profitability.
Lastly, actual or anticipated declines in domestic or foreign economic activity or growth rates, regional or worldwide increases in tariffs or other trade restrictions, turmoil affecting the United States or global financial system and markets and a severe economic contraction either regionally or worldwide, resulting from international conflicts, efforts to contain pandemics or other factors, could materially affect our business and financial condition and impact our ability to finance operations by worsening the actual or anticipated future drop in worldwide oil demand, negatively impacting the price received for oil and natural gas production or adversely impacting our ability to comply with covenants in our 2024 Amended Term Loan Agreement. Negative economic conditions could also adversely affect the collectability of our trade receivables or performance by our vendors and suppliers or cause our commodity hedging arrangements to be ineffective if our counterparties are unable to perform their obligations. All of the foregoing may adversely affect our business, financial condition, results of operations, cash flows and, potentially, compliance with the covenants contained in our Amended Term Loan Agreement.
Debt Obligations. Under our 2024 Amended Term Loan, we are required to make scheduled quarterly amortization payments in an aggregate principal amount equal to 2.50% of the aggregate principal amount of the loans outstanding commencing with the fiscal quarter ending June 30, 2025. We must make a total of $22.5 million in debt repayments through March 2027 under our 2024 Amended Term Loan Agreement.
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Changes in the level and timing of our production, drilling and completion costs, the cost and availability of transportation for our production and other factors varying from our expectations can affect our ability to comply with the covenants under our 2024 Amended Term Loan Agreement. As a consequence, we endeavor to anticipate potential covenant compliance issues and work with our lenders to address any such issues ahead of time.
While we have largely been successful in obtaining modifications of our covenants as needed, there can be no assurance that we will be successful in the future. In the event we are not successful in obtaining covenant modifications, if needed, there is no assurance that we will be successful in implementing alternatives that allow us to maintain compliance with our covenants or that we will be successful in obtaining alternative financing that provides us with the liquidity that we need to operate our business. Even if successful, alternative sources of financing could prove more expensive than borrowings under our 2024 Amended Term Loan Agreement.
Cash Flows
Net increase in cash and cash equivalents is summarized as follows (in thousands):
Cash flows provided by operating activities
Cash flows provided by (used in) investing activities
Cash flows (used in) provided by financing activities
Operating Activities. Net cash flows provided by operating activities for the three months ended March 31, 2026 and 2025, were $2.1 million and $12.7 million, respectively. Items impacting the decrease in operating cash flows were primarily driven by changes in working capital for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.
Investing Activities. Net cash flows provided by investing activities for the three months ended March 31, 2026 were approximately $56.4 million primarily from proceeds received from sales of oil and natural gas assets compared to net cash flows used in investing activities for the three months ended March 31, 2025 of $20.1 million primarily for drilling and completion activities.
During the three months ended March 31, 2026, we spent $3.6 million on oil and natural gas capital expenditures, of which $2.6 million related to drilling and completion costs and $0.8 million related to the development of our treating equipment and gathering support infrastructure.
During the three months ended March 31, 2025, we spent $19.8 million on oil and natural gas capital expenditures, of which $17.4 million related to drilling and completion costs and $2.1 million related to the development of our treating equipment and gathering support infrastructure. In the first three months of 2025, we ran one operated rig in the Delaware Basin, drilled and cased four gross (4.0 net) operated wells, and did not complete and put online any operated wells.
Financing Activities. Net cash flows used in financing activities for the three months ended March 31, 2026 were $32.3 million compared to net cash flows provided by financing activities for the three months ended March 31, 2025 of $61.2 million. During the three months ended March 31, 2026, we repaid $45.6 million under our 2024 Amended Term Loan Agreement and issued $14.0 million in common stock. During the three months ended March 31, 2025, we received net proceeds of $61.3 million from the incurrence of the Incremental Term Loans on January 9, 2025.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon the unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles
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generally accepted in the United States. Preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. There have been no material changes to our critical accounting policies from those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
Results of Operations
The table below sets forth financial information for the periods presented.
In thousands (except per unit and per Boe amounts)
General and administrative:
4,365
Stock-based compensation
48
Depletion, depreciation and accretion:
Depletion – Full cost
12,088
12,674
Depreciation – Other
134
272
Other income (expenses):
Oil – MBbls
527
569
Natural Gas - MMcf
2,054
1,799
Natural gas liquids – MBbls
263
202
Total MBoe(1)
1,132
1,071
Average daily production – Boe(1)
12,578
11,900
Average price per unit (2):
Oil price - Bbl
68.85
69.77
Natural gas price - Mcf
(0.73)
1.57
Natural gas liquids price - Bbl
16.25
24.07
Total per Boe(1)
34.51
44.24
Average cost per Boe:
8.92
9.67
0.90
1.34
2.05
2.61
9.94
11.20
3.76
4.08
0.04
Depletion
10.68
11.83
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Operating Revenues. Oil, natural gas and NGLs revenues were $39.1 million and $47.4 million for the three months ended March 31, 2026 and 2025, respectively. The decrease in revenues is primarily attributable to a decrease in average realized prices for oil, natural gas and NGLs. We realized negative natural gas pricing for the quarter ended March 31, 2026 whereby costs and differentials exceeded the sales price for natural gas and resulted in us as seller paying the purchaser to take the natural gas. Average realized prices (excluding the effects of hedging arrangements) decreased approximately $9.73 per Boe for three months ended March 31, 2026 when compared with the same period in 2025. Production averaged 12,578 Boe per day for the three months ended March 31, 2026 compared to 11,900 Boe per day for the three months ended March 31, 2025 due to more consistent and reliable processing during the first quarter of 2026 compared to the first quarter of 2025. West Quito area production averaged approximately 1,045 Boe per day of the Company’s total production for the quarter ended March 31, 2026 compared to 1,751 Boe per day for the quarter ended March 31, 2025. We completed the West Quito Divestiture on February 24, 2026.
Lease Operating Expenses. Lease operating expenses were $10.1 million and $10.4 million for the three months ended March 31, 2026 and 2025, respectively. On a per unit basis, lease operating expenses were $8.92 per Boe and $9.67 per Boe for the three months ended March 31, 2026 and 2025, respectively. The decrease in lease operating expenses per Boe for the three months ended March 31, 2026 compared to the same period of 2025 is primarily a result of increased average daily production volumes.
Workover and Other Expenses. Workover and other expenses were $1.0 million and $1.4 million for the three months ended March 31, 2026 and 2025, respectively. On a per unit basis, workover and other expenses were $0.90 per Boe and $1.34 per Boe for the three months ended March 31, 2026 and 2025, respectively. The decrease in workover and other expenses for the three months ended March 31, 2026 compared to the same period in 2025 is the result of less workover activity during the first quarter of 2026.
Taxes Other than Income. Taxes other than income were $2.3 million and $2.8 million for the three months ended March 31, 2026 and 2025, respectively. Severance taxes are based on realized prices and volumes at the wellhead, while ad valorem taxes are tied to the annual valuation of our properties. As revenues or volumes from oil and natural gas sales increase or decrease, severance taxes on these sales also increase or decrease. On a per unit basis, taxes other than income were $2.05 per Boe and $2.61 per Boe for the three months ended March 31, 2026 and 2025, respectively.
Gathering and Other Expenses. Gathering and other expenses were $11.3 million and $12.0 million for the three months ended March 31, 2026 and 2025, respectively. Gathering and other expenses include gathering fees paid to third parties on our oil and natural gas production and operating expenses of our gathering support infrastructure. Our gathering and other expenses are primarily driven by the amount and location of natural gas production, the concentration of H2S in our sour gas produced, and the amounts paid to treat our sour gas volumes. On a per unit basis, gathering and other expenses were $9.94 per Boe and $11.20 per Boe for the three months ended March 31, 2026 and 2025, respectively. The decrease in gathering and other expenses per Boe for the three months ended March 31, 2026 compared to the same period of 2025 is primarily related to realized savings from capital project returns and more reliable throughput resulting from entry into a long-term processing agreement with a publicly traded large-cap midstream provider in January 2026.
General and Administrative Expense. General and administrative expense was $4.3 million and $4.4 million for the three months ended March 31, 2026 and 2025, respectively. On a per unit basis, general and administrative expenses were $3.76 per Boe and $4.08 per Boe for the three months ended March 31, 2026 and 2025, respectively. The decrease in general and administrative expense per Boe for the three months ended March 31, 2026 compared with the same prior year periods is primarily due to increased average daily production.
Depletion, Depreciation, and Amortization Expense. Depletion for oil and natural gas properties is calculated using the unit of production method, which depletes the capitalized costs of evaluated properties plus future development costs based on the ratio of production for the current period to total reserve volumes of evaluated properties as of the beginning of the period.
Depletion expense was $12.1 million and $12.7 million for the three months ended March 31, 2026 and 2025, respectively. On a per unit basis, depletion expense was $10.68 per Boe and $11.83 per Boe for the three months ended
31
March 31, 2026 and 2025, respectively. The decrease in our depletion rate per Boe is primarily due to a period over period decrease in net oil and natural gas properties resulting from the sale of our West Quito Assets combined with the associated period over period decrease in proved reserves.
Net (loss) gain on derivative contracts. We enter into derivative commodity instruments to hedge our exposure to price fluctuations on our anticipated oil, natural gas and NGLs production. Consistent with prior years, we have elected not to designate any positions as cash flow hedges for accounting purposes, and accordingly, we recorded the net change in the mark-to-market value of these derivative contracts in the unaudited condensed consolidated statements of operations.
For the three months ended March 31, 2026, we recorded a net derivative loss of $48.0 million ($47.0 million net unrealized loss on unsettled contracts and a $1.0 million net realized loss on settled contracts). For the three months ended March 31, 2025, we recorded a net derivative gain of $9.3 million ($11.8 million net gain on unsettled contracts and a $2.5 million net realized loss on settled contracts). At March 31, 2026, we had a $9.4 million derivative asset ($7.4 million current) and a $35.2 million derivative liability ($24.6 million current).
Interest Expense and Other. Interest expense and other totaled $5.5 million and $6.7 million for the three months ended March 31, 2026 and 2025, respectively. Our weighted average interest rate was approximately 11.57% and 12.21% for the three months ended March 31, 2026 and 2025, respectively. For the second quarter of 2026, our interest rate will be approximately 11.60% on outstanding borrowings.
Loss on extinguishment of debt. We recorded a loss on extinguishment of debt in the amount of $0.9 million for the quarter ended March 31, 2026 to write-off the proportionate amount of deferred financing costs and debt discount associated with the February 24, 2026 principal prepayment.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Instruments and Hedging Activity
We are exposed to various risks, including energy commodity price risk, such as price differentials between the NYMEX commodity price and the index price at the location where our production is sold. When oil and natural gas prices decline, our ability to finance our capital budget and operations may be adversely impacted. We expect energy prices to remain volatile and unpredictable, therefore we have designed a risk management policy which provides for the use of derivative instruments to provide partial protection against declines in oil and natural gas prices by reducing the risk of price volatility and the affect it could have on our operations. The types of derivative instruments that we typically utilize include fixed-price swaps, costless collars, basis swaps and WTI NYMEX rolls. The total volumes that we hedge through the use of our derivative instruments varies from period to period; however, our requirement under our Term Loan Agreement, as amended, is 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 four years. Our hedge policies and objectives may change significantly as our operational profile and contractual obligations change but remain consistent with the requirements in effect under our Term Loan Agreement, as amended. We do not enter into derivative contracts for speculative trading purposes.
We are exposed to market risk on our open derivative contracts related to potential non-performance by our counterparties. It is our policy to enter into derivative contracts only with counterparties that are creditworthy institutions deemed by management as competitive market makers. At March 31, 2026, we did not post collateral under any of our derivative contracts as they are secured under our Term Loan Agreement, as amended. We account for our derivative activities on the balance sheet as either an asset or liability measured at fair value. See Item 1. Condensed Consolidated Financial Statements (Unaudited)—Note 7, “Derivative and Hedging Activities,” for more details.
Fair Market Value of Financial Instruments
The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information, involve uncertainties, and cannot be determined with precision. The estimated fair value of cash,
cash equivalents and restricted cash, accounts receivable and accounts payable approximates their carrying value due to their short-term nature. See Item 1. Condensed Consolidated Financial Statements (Unaudited)—Note 6, “Fair Value Measurements,” for additional information.
Interest Rate Sensitivity
We are also exposed to market risk related to adverse changes in interest rates. Our interest rate risk exposure results primarily from fluctuations in short-term rates, which are SOFR (and previously, the London Interbank Offered Rate or “LIBOR”) based and may result in reductions of earnings or cash flows due to increases in the interest rates we pay on these obligations.
At March 31, 2026, the principal amount of our term loan debt was $162.5 million, which bears interest at floating and variable interest rates that are tied to SOFR. Fluctuations in market interest rates will cause our annual interest costs to fluctuate. At March 31, 2026, the weighted average interest rate on our variable rate debt was 11.57% per year. If the balance of our variable interest rate debt at March 31, 2026 were to remain constant, a 10% change in market interest rates would impact our cash flows by approximately $1.9 million per year.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Principal Financial Officer, we evaluated the design and operation of our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act) as of March 31, 2026. On the basis of this review, our management, including our Chief Executive Officer and Principal Financial Officer, concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, in a manner that allows timely decisions regarding required disclosure.
We did not have any change in our internal controls over financial reporting during the three months ended March 31, 2026 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information regarding legal proceedings to which we are a party is set forth in Item 1. Condensed Consolidated Financial Statements (Unaudited)—Note 9, “Commitments and Contingencies,” which is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
The following documents are included as exhibits to this Quarterly Report on Form 10-Q. Those exhibits incorporated by reference are so indicated by the information supplied with respect thereto. Those exhibits which are not incorporated by reference are attached hereto.
1.1
Sales Agreement, dated as of May 5, 2026, by and among the Company and Roth Capital Partners, LLC (Incorporated by reference to Exhibit 1.1 of our Current Report on Form 8-K filed May 5, 2026).
3.1
Ninth Amended and Restated Certificate of Incorporation of Battalion Oil Corporation, dated June 12, 2025 (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed June 18, 2025).
3.2
Seventh Amended and Restated Bylaws of Battalion Oil Corporation (Incorporated by reference to Exhibit 3.2 of our Current Report on Form 8-K filed January 27, 2020).
4.2
Form of Pre-Funded Warrant (Incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K filed March 9, 2026).
10.1
Second Amended and Restated Senior Secured Credit Agreement dated as of December 26, 2024, by and among Battalion Oil Corporation, as holdings, Halcón Holdings LLC, as borrower, the subsidiary guarantors party thereto, Fortress Credit Corp., as administrative agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed December 27, 2024).
10.1.1
First Amendment to Second Amended and Restated Senior Secured Credit Agreement dated as of January 9, 2025, by and among Battalion Oil Corporation, as holdings, Halcón Holdings LLC, as borrower, the subsidiary guarantors party thereto, Fortress Credit Corp., as administrative agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed January 10, 2025).
10.1.2
Second Amendment to Second Amended and Restated Senior Secured Credit Agreement dated as of November 12, 2025, by and among Battalion Oil Corporation, as holdings, Halcón Holdings LLC, as borrower, the subsidiary guarantors party thereto, Fortress Credit Corp., as administrative agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1.2 of our Quarterly Report on Form 10-Q filed November 13, 2025).
10.1.3
Limited Consent and Third Amendment to Second Amended and Restated Senior Secured Credit Agreement dated as of February 24, 2026, by and among Battalion Oil Corporation, as holdings, Halcón Holdings LLC, as borrower, the subsidiary guarantors party thereto, Fortress Credit Corp., as administrative agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed February 25, 2026).
10.2
Agreement of Sale and Purchase, dated effective as of December 1, 2025, by and among certain subsidiaries of Battalion Oil Corporation and MCM Delaware Resources, LLC (Incorporated by reference to Exhibit 10.17 of our Annual Report on Form 10-K filed March 23, 2026).
10.3
Securities Purchase Agreement, dated March 3, 2026 (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed March 9, 2026).
10.4
Registration Rights Agreement, dated March 3, 2026 (Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed March 9, 2026).
10.5
Purchase and Sale Agreement, dated March 10, 2026, by and among Battalion Oil Corporation, Halcón Energy Properties, Inc. and RoadRunner Resource Holding LLC (Incorporated by reference to Exhibit 10.20 of our Annual Report on Form 10-K filed March 23, 2026).
*
Sarbanes-Oxley Section 302 certification of Principal Executive Officer and Principal Financial Officer
Sarbanes-Oxley Section 906 certification of Principal Executive Officer and Principal Financial Officer
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (embedded within the Inline XBRL document)
Attached hereto.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
May 13, 2026
By:
/s/ MATTHEW B. STEELE
Name:
Matthew B. Steele
Title:
Chief Executive Officer
(Principal Executive Officer and Principal Financial Officer)