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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2026-03-23 compared with 2025-03-31 · 190 added, 252 removed, 919 unchanged (32% of the section changed)

3 unchanged sentences

When oil and natural gas prices decline significantly, 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 Amended Term Loan Agreement, is to hedge approximately 85% to 50% of our anticipated oil and natural gas production, in varying percentages by year, on a rolling basis for the next four years, when derivative contracts are available at terms and prices acceptable to us.

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 2024 Amended Term Loan Agreement.

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 2024 Amended Term Loan Agreement.

We do not enter into derivative contracts for speculative trading purposes.

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Consolidated balance sheets

Consolidated statements of stockholders’ equity

Consolidated statements of stockholders’ (deficit) equity

Consolidated statements of cash flows

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Battalion Oil Corporation

To the shareholders and the Board of Directors of Battalion Oil Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Battalion Oil Corporation and subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of operations, stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”).

We have audited the accompanying consolidated balance sheets of Battalion Oil Corporation and subsidiaries (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of operations, stockholder's equity, and cash flows, for each of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

58 unchanged sentences

Depletion, depreciation and accretion

Impairment of contract asset

Asset impairment

Total operating expenses

Income from operations

Loss from operations

Other income (expenses):

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Total other income (expenses)

Loss before income taxes

Income (loss) before income taxes

Income tax benefit (provision)

Net income (loss)

Preferred dividends

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Redeemable convertible preferred stock:

138,000 shares and 98,000 shares

138,000 shares

of $ 0.0001 par value authorized, issued and outstanding as of

December 31, 2024 and 2023, respectively

Stockholders' equity:

December 31, 2025 and 2024

Stockholders' (deficit) equity:

Common stock:

3 unchanged sentences

Accumulated deficit

Total stockholders' equity

Total liabilities and stockholders' equity

Total stockholders' (deficit) equity

Total liabilities, temporary equity and stockholders' (deficit) equity

The accompanying notes are an integral part of these consolidated financial statements.

BATTALION OIL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(In thousands)

Stockholders'

(Deficit) Equity

Balances at December 31, 2023

Deemed dividends for preferred stock

Long-term incentive plan vestings

Tax withholding on vesting of restricted stock units

Stock-based compensation

1 unchanged sentence

Deemed dividends for preferred stock

Long-term incentive plan vestings

Tax withholding on vesting of restricted stock units

Stock-based compensation and other

6 unchanged sentences

Cash flows from operating activities:

Net (loss) income

Adjustments to reconcile net (loss) income to net cash provided by

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by

operating activities:

Depletion, depreciation and accretion

Impairment of contract asset

Asset impairment

Stock-based compensation, net

1 unchanged sentence

Amortization/accretion of financing related costs

Loss (gain) on extinguishment of debt

Loss on extinguishment of debt

Accrued settlements on derivative contracts

Change in fair value of embedded derivative liability

Other expense (income)

Other expense

Change in assets and liabilities:

15 unchanged sentences

Proceeds from issuance of preferred stock

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

6 unchanged sentences

Capital expenditures in accrued liabilities and accounts payable

Contract asset costs in accounts payable and accrued liabilities

Deemed dividends on Series A preferred stock

Accrued offering costs

The accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT EVENTS AND ACCOUNTING POLICIES

FINANCIAL STATEMENT PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

6 unchanged sentences

These consolidated financial statements of the Company have been presented in accordance with accounting principles generally accepted in the U.S.

Liquidity and Capital Resources

The Company has incurred significant net losses available to common stockholders in recent years driven by primarily by deemed dividends on preferred stock resulting an accumulated deficit of $ 273.0 million and total stockholders’ deficit of $ 32.8 million as of December 31, 2025.

For the years ended December 31, 2025 and 2024, the Company generated $ 39.1 million and $ 35.4 million, respectively, of cash flows from operating activities.

As of December 31, 2025, the Company had cash and cash equivalents of $ 28.0 million.

Historically, the Company has funded its operations principally through the sales of its oil, natural gas and NGLs production, issuance of preferred equity securities, debt financing and divestiture proceeds.

The Company’s financial statements have been prepared on the basis of the Company continuing as a going concern for the next 12 months.

Management believes that the Company’s cash and cash equivalents will allow the Company to continue its planned operations for at least the next 12 months from the date of the issuance of these financial statements.

Use of Estimates

8 unchanged sentences

These investments are carried at cost, which approximates fair value.

Amounts in the consolidated balance sheets included in “Cash and cash equivalents” and “Restricted cash” reconcile to the Company’s consolidated statements of cash flows as follows:

December 31, 2024

December 31, 2023

Amounts in the

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

consolidated balance sheets included in “Cash and cash equivalents” and “Restricted cash” reconcile to the Company’s consolidated statements of cash flows as follows:

Cash and cash equivalents

2 unchanged sentences

Restricted cash consists primarily of funds to collateralize company credit cards.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable and Allowance for Doubtful Accounts

18 unchanged sentences

The Company’s accounting policy on the capitalization of interest establishes thresholds for the determination of a development project for the purpose of interest capitalization.

The Company did not capitalize any interest for the years ended December 31, 2024 and 2023.

The Company did no t capitalize any interest for the years ended December 31, 2025 and 2024.

Additionally, the Company assesses all properties classified as unevaluated property on a quarterly basis for possible impairment.

2 unchanged sentences

intent to drill;

remaining lease term;

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

geological and geophysical evaluations;

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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.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Other Operating Property and Equipment

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If the oil and natural gas exploration and production industry in general was adversely affected, the ability of the Company’s joint interest partners to reimburse the Company could be adversely affected.

The Company’s exposure to credit risk under its derivative contracts is varied among major financial institutions with investment grade credit ratings, where it has master netting agreements 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.

At December 31, 2024, the Company’s derivative counterparty is a major financial institution and a lender party under the 2024 Amended Term Loan Agreement.

At December 31, 2025, 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 6, “ Debt ”) and a large multi-strategy alternative investment manager, both of which have investment

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

Risk Management Activities

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The Company records the ARO liability on the 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 consolidated statements of operations.

The additional capitalized costs are depreciated on a unit-of-production basis.

The Company records the accretion of its

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ARO liabilities in “Depletion, depreciation and accretion” expense in the consolidated statements of operations.

The additional capitalized costs are depreciated on a unit-of-production basis.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires an entity, even one with only one reportable segment, to disclose significant segment expenses and other segment items on an annual and interim basis, and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.

Additionally, it requires an entity to disclose the title and position of the chief operating decision maker.

ASU 2023-07 does not change how an entity identifies its operating segments, aggregates them or applies the quantitative thresholds to determine its reportable segments.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

The Company adopted ASU 2023-07 for fiscal year requirements on December 31, 2024.

The requirements of ASU 2023-07 are disclosure-related and did not have an impact on the Company’s consolidated financial position or results of operations.

See Note 2, “Segments” for the updated segment disclosures resulting from the adoption of ASU 2023-07.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

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An entity may apply the amendments in ASU 2023-09 prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods, or may apply the amendments retrospectively by providing the revised disclosures for all period presented.

We are currently evaluating the impact of adopting ASU 2023-09 but do not expect it to have a material impact on our disclosures, with no impact to our results of operations, cash flows, or financial condition.

The requirements of ASU 2023-09 are disclosure-related and did not have an impact on the Company’s consolidated financial position or results of operations.

See Note 13, “Income Taxes” for the updated income tax disclosures resulting from the adoption of ASU 2023-09.

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40):

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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 expenses, workover and other expense and gathering and other expense.

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 consolidated statement of operations.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MERGER AGREEMENT

On December 14, 2023, the Company entered into an Agreement and Plan of Merger, as amended (the “Merger Agreement”) with Fury Resources, Inc., a Delaware corporation (“Parent”) and San Jacinto Merger Sub, Inc.

(“Merger Sub”), a Delaware corporation and a direct, wholly owned subsidiary of Parent.

The Merger Agreement provided, that upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub was to merge with and into the Company (the “Merger”), with the Company surviving as a wholly owned subsidiary of Parent.

On January 24, 2024, Parent and the Company agreed to cause an amount equal to $ 10.0 million to be distributed from the escrow account to the Company.

Such was initially recorded as a deposit liability in “ Other ” long-term liabilities on the consolidated balance sheet.

Upon termination of the Merger Agreement, the $ 10.0 million was reclassified to “ Other income ” on the consolidated statement of operations for the year ended December 31, 2024.

On April 24, 2024, pursuant to an amendment to the Merger Agreement dated April 16, 2024, Parent paid to the Company $ 0.1 million to be used by the Company to pay the Company’s costs and expenses associated with printing and mailing the definitive Proxy Statement for the Merger to the Company’s stockholders .

On December 20, 2024, the Company terminated the Merger Agreement.

The Company leases equipment and office space pursuant to operating leases.

7 unchanged sentences

Variable lease payments, when applicable, are presented as “Gathering and other” or “General and administrative” in the consolidated statements of operations in the same line item as the expense arising from the fixed lease payments on the operating leases.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The table below summarizes the Company’s leases for the periods indicated (in thousands, except years and discount rate):

8 unchanged sentences

Weighted-average discount rate - operating leases

The “Operating lease right of use assets” outstanding on the consolidated balance sheet as of December 31, 2024 and 2023 resulted from operating leases entered into during the year ended December 31, 2023 with initial lease terms of 1.9 years and 2.7 years.

The “Operating lease right of use assets” outstanding on the consolidated balance sheet as of December 31, 2025 and 2024 resulted from two operating leases initially entered into during the year ended December 31, 2023 with lease terms at inception of 1.9 years and 2.7 years.

Both operating leases were extended during 2025 with one lease having an

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

extension of 18 months with an effective date of June 27, 2025 and the other extended for 12 months beyond its original expiration of July 1, 2026.

Future minimum lease payments associated with the Company’s non-cancellable operating leases for office space and equipment as of December 31, 2025, are presented in the table below (in thousands):

14 unchanged sentences

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.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Since 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 of $ 8.5 million and $ 23.5 million as of December 31, 2025 and 2024, respectively, as “Accounts receivable, net” on the consolidated balance sheets.

4 unchanged sentences

The Company recognizes revenue when control of the crude oil transfers at the delivery point at the net price received.

Generally, this occurs when the Company (i) sells its crude oil production at the wellhead where control of the crude oil transfers to the customer at an index price, averaged over the daily settlement prices for a production month, and adjusted for pricing differentials and other deduction or (ii) when delivered to the customer at a contractual delivery point at which the customer takes custody, title and risk of loss of the product.

Generally, this occurs when the Company (i) sells its crude oil production at the wellhead where control of the

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

crude oil transfers to the customer at an index price, averaged over the daily settlement prices for a production month, and adjusted for pricing differentials and other deduction or (ii) when delivered to the customer at a contractual delivery point at which the customer takes custody, title and risk of loss of the product.

The Company receives a specified index price from the customer, averaged over the daily settlement prices for a production month, and net of applicable market-related adjustments.

13 unchanged sentences

OIL AND NATURAL GAS PROPERTIES

Oil and natural gas properties as of December 31, 2024 and 2023 consisted of the following (in thousands):

December 31, 2024

December 31, 2023

Oil and natural gas properties consisted of the following (in thousands):

Subject to depletion

26 unchanged sentences

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.

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”).

As of December 31, 2025 and 2024, the Company’s debt consisted of the following (in thousands):

5 unchanged sentences

Long-Term Debt, net

(1) Amounts primarily reflect payments due of $ 12.2 million under the Company’s 2024 Amended Term Loan Agreement and $ 50.0 million under the Company’s 2021 Amended Term Loan Agreement due within one year as of December 31, 2024 and December 31, 2023, respectively.

(2) Amounts primarily reflect unamortized discount and debt issuance costs of approximately $ 4.3 million and $ 6.9 million at December 31, 2024 and December 31, 2023, respectively.

The December 31, 2023 balance also includes an unamortized debt discount associated with an embedded derivative separately presented and further described in Note 8, “Fair Value Measurements”.

For the years ended December 31, 2024 and 2023, we recorded approximately $ 6.4 million and $ 7.6 million, respectively, in interest expense reflecting the amortization/accretion of deferred financing costs and debt discount.

(1) Amounts primarily reflect payments due of $ 22.5 million and $ 12.2 million under the Company’s 2024 Amended Term Loan Agreement due within one year as of December 31, 2025 and December 31, 2024, respectively.

(2) Amounts primarily reflect unamortized discount and debt issuance costs of approximately $ 4.7 million and $ 4.3 million at December 31, 2025 and 2024, respectively.

For the years ended December 31, 2025 and 2024, we recorded, on a straight-line basis, approximately $ 1.6 million and $ 6.4 million, respectively, in interest expense reflecting the amortization/accretion of deferred financing costs and debt discount.

Amended and Restated Credit Agreement

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Borrowings under the 2024 Amended Term Loan Agreement bear 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 %.

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

≤ 2.50 to 1.00

> 2.50 to 1.00 ≤ 3.00 to 1.00

> 3.00 to 1.00 ≤ 3.25 to 1.00

> 3.25 to 1.00

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

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

in the following table for the applicable quarter:

Fiscal Quarter

Total Net Leverage Ratio

Fiscal quarters ending March 31, 2025 through and including June 30, 2025

Fiscal quarter ending September 30, 2025

Fiscal quarter ending December 31, 2025

Fiscal quarter ending March 31, 2026

Fiscal quarter ending June 30, 2026

Fiscal quarter ending September 30, 2026

Fiscal quarter ending December 31, 2026

Fiscal quarter ending March 31, 2027

Fiscal quarter ending June 30, 2027

Fiscal quarter ending September 30, 2027 and each fiscal quarter thereafter

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:

Fiscal Quarter

Asset Coverage Ratio

Fiscal quarters ending March 31, 2025 through and including December 31, 2026

Each fiscal quarter thereafter

The Second Amendment was accounted for as a debt modification in accordance with applicable accounting guidance.

The Borrower may elect, at its option, to prepay any borrowing outstanding under the 2024 Amended Term Loan Agreement.

6 unchanged sentences

Months 10 - 30

The Borrower is 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 on the Initial Closing Date plus the Incremental Term Loans commencing with the fiscal quarter ending June 30, 2025.

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.

As of December 31, 2024, the Borrower is 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 on the Initial Closing Date commencing with the fiscal quarter ending June 30, 2025, and subsequent to December 31, 2024, 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 on the Initial Closing Date plus the Incremental Term Loans commencing with the fiscal quarter ending June 30, 2025.

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.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Accordingly, upon closing of the West Quito Divestiture, the Company made a mandatory prepayment of $ 40.0 million on February 24, 2026.

The 2024 Amended Term Loan agreement contains certain financial covenants (as defined in the 2024 Term Loan Agreement), including the maintenance of the following ratios.

● Asset Coverage Ratio not to fall below 1.70 x as of March 31, 2025 through and including June 30, 2025, 1.85 x as of September 30, 2025 through and including December 31, 2025 and 2.00 x for each fiscal quarter thereafter, determined as of the last day of each fiscal quarter;

● Total Net Leverage Ratio not to exceed 2.75 x as of March 31, 2025 through and including June 30, 2025 and 2.50 x for each fiscal quarter thereafter, determined as of the last day of each fiscal quarter;

● Asset Coverage Ratio not to fall below 1.85 x as of December 31, 2025 through and including December 31, 2026 and 2.00 x for each fiscal quarter thereafter (see above), determined as of the last day of each fiscal quarter;

● Total Net Leverage Ratio not to exceed 3.20 x as of December 31, 2025 and not to exceed the levels set forth in the table above for each fiscal quarter thereafter, determined as of the last day of each fiscal quarter;

● Current Ratio not to fall below 1.00 x, determined on the last day of each calendar month commencing with the calendar month ending March 31, 2025;

12 unchanged sentences

Refer to Note 7, “ Fair Value Measurements ,” for a discussion of the valuation approach used and the significant inputs to the valuation for the Exit Fee derivative.

As of December 31, 2024, the Company had $ 162.0 million of indebtedness under the 2024 Term Loan Agreement.

Upon entry into the First Amendment on January 9, 2025, the Company had $ 225.0 million of indebtedness under the 2024 Amended Term Loan Agreement.

Term Loan Credit Facility

On November 24, 2021, the Company and Borrower entered into an Amended and Restated Senior Secured Credit Agreement (the “2021 Term Loan Agreement”) with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders, having a maturity date of November 24, 2025.

The 2021 Term Loan Agreement amended and restated in its entirety the senior secured revolving credit agreement, as amended, entered into in 2019.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

On November 14, 2022, the Company paid approximately $ 2.4 million and entered into a further Amended Credit Agreement (the “2021 Amended Term Loan Agreement”) with its lenders which modified certain provisions of its original 2021 Term Loan Agreement.

The 2021 Amended Term Loan Agreement also contained certain financial covenants (as defined in the 2021 Amended Term Loan Agreement), including the maintenance of the following ratios:

● Asset Coverage Ratio of not less than 1.80 to 1.00 as of December 31, 2023 and the last day of each fiscal quarter thereafter;

● Total Net Leverage Ratio of not greater than 2.50 to 1.00 as of December 31, 2023 and each fiscal quarter thereafter, and

● Current Ratio of not less than 1.00 to 1.00, determined as of the last day of any fiscal quarter period, as of December 31, 2023 and each fiscal quarter thereafter.

On March 28, 2024, the Company entered into the Third Amendment to the 2021 Amended Term Loan Agreement (the “Third Amendment”) with its lenders.

The Third Amendment, amended the 2021 Amended Term Loan Agreement to, among other things, (a) amend the APOD for certain properties, (b) remove the PDP Production Test and APOD Economic Test (each defined in the 2021 Term Loan Agreement), (c) require the Borrower to receive cash proceeds from equity issuances and/or cash contributions in an aggregate amount of not less than $38.0 million during the period from Amendment Effective Date through March 31, 2024 (the “Specified Additional Equity Capital”), which such Specified Additional Equity Capital shall be excluded from the calculation of Consolidated Cash Balance (as defined in the 2021 Term Loan Agreement), and (d) make amendments to certain other affirmative covenants in connection with the foregoing.

On August 23, 2024, the Company entered into the Fourth Amendment to the 2021 Amended Term Loan Agreement (the “Fourth Amendment”) with its lenders.

The Fourth Amendment amended the 2021 Amended Term Loan Agreement to allow for a Current Ratio (as defined in the 2021 Amended Term Loan Agreement) of 0.90 to 1.00 for the fiscal quarter ending September 30, 2024.

All obligations under the 2021 Amended Term Loan Agreement were refunded, refinanced and repaid in full by the loans under the 2024 Term Loan Agreement on December 26, 2024.

Under the 2021 Amended Term Loan Agreement, the Company could elect, at its option, to prepay any borrowings outstanding under the 2021 Amended Term Loan Agreement subject to the following prepayment premiums:

Period (after applicable borrowing date (1) )

Months 0 - 12

Make-whole amount equal to 12 months of interest plus 2.00 %

Months 13 - 24

Months 25 - 36

Months 37 - 48

(1) Applicable borrowing dates are November 2021 for the original $ 200.0 million borrowed and April and November 2022 for the $ 20.0 million and $ 15.0 million in delayed borrowings, respectively.

The Company’s prepayment premiums would differ from those noted in the table above if a change of control resulted in prepayment within the second anniversary of the amendment date, as a 2 % payment premium would apply.

Borrowings under the 2021 Amended Term Loan Agreement bore interest at a variable interest rate based on SOFR plus an applicable margin of 7.5 % .

The weighted average interest rate on the Company’s term loan borrowings for the year ended December 31, 2024 was approximately 12.88 %.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Under the 2021 Amended Term Loan Agreement, the Company may have been required to make mandatory prepayments in connection with the incurrence of non-permitted debt, certain asset sales, or with excess cash on hand in excess of certain maximum levels beginning in 2023.

For each fiscal quarter after January 1, 2023, the Company was required to make mandatory prepayments when the Consolidated Cash Balance, as defined in the 2021 Amended Term Loan Agreement, exceeded $ 20.0 million.

Until December 31, 2024, the forecasted capital expenditures for the succeeding fiscal quarter on the approved plan of development (“APOD”) wells (i.e.

oil and natural gas wells located within a specified boundary as set by the 2021 Amended Term Loan Agreement) were excluded for purposes of determining the Consolidated Cash Balance.

The Company was required to make scheduled amortization payments in the aggregate amount of $ 35.0 million during 2024 with $ 10.0 million due at the end of the first quarter of 2024 and $ 12.5 million due at the end of each of the second and third quarters of 2024.

Amounts outstanding under the 2021 Amended Term Loan Agreement were guaranteed by certain of the Borrower’s direct and indirect subsidiaries and secured by substantially all of the assets of the Borrower and such direct and indirect subsidiaries, and by the equity interests of the Borrower held by the Company.

As part of the 2021 Amended Term Loan Agreement there were certain restrictions on the transfer of assets, including cash, to Battalion from the guarantor subsidiaries.

The 2021 Amended Term Loan Agreement also contained an APOD for the Company’s Monument Draw acreage through the drilling and completion of certain wells.

The 2021 Amended Term Loan Agreement contained a proved developed producing production test and an APOD economic test which the Company must maintain compliance with;

otherwise, subject to any available remedies or waivers, the Company was required to immediately cease making expenditures in respect of the APOD other than any expenditures deemed necessary by the Company in respect of no more than six additional APOD wells.

The 2021 Amended Term Loan Agreement also contained certain events of default, including non-payment;

breaches of representations and warranties;

non-compliance with covenants or other agreements;

cross-default to material indebtedness;

change of control;

and voluntary and involuntary bankruptcy.

In conjunction with entering into the 2021 Term Loan Agreement, the Company agreed to pay a premium to the lenders upon a future change of control event in which a majority of the board of directors or the Chief Executive Officer (the “CEO”) or the Principal Chief Financial Officer positions do not remain held by the same persons as before the change of control event (“Change of Control Call Option”).

The premium was reduced over time through the payment of interest and certain fees.

The Change of Control Call Option was accounted for as an embedded derivative not clearly and closely related to the host debt instrument.

Accordingly, the Company recorded the initial fair value separately on the consolidated balance sheet within “Other noncurrent liabilities” and recorded changes in the fair value of the embedded derivative each reporting period in “Interest expense and other” on the consolidated statements of operations.

Refer to Note 8, “ Fair Value Measurements ,” for a discussion of the valuation approach used, the significant inputs to the valuation, and for a reconciliation of the change in fair value of the Change of Control Call Option.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Debt Maturities

Aggregate debt maturities due in future years as of December 31, 2024 are as follows (in thousands):

Aggregate debt maturities under the 2024 Amended Term Loan Agreement due in future years as of December 31, 2025 are as follows (in thousands):

Term Loan Credit Facility (1)

(1) On January 9, 2025, resulting from the First Amendment to the 2024 Term Loan Agreement, the Company incurred incremental term loans in the aggregate principal amount of $ 63.0 million resulting in required quarterly debt maturities payments in the aggregate principal amount of $ 16.9 million in 2025, $ 22.5 million in each of 2026 and 2027 , $ 16.9 million in 2028 and a final payment at maturity on December 26, 2028 of $ 146.3 million .

(1) Required quarterly debt maturities payments in the aggregate principal amount are $ 22.5 million in each of 2026 and 2027, $ 16.9 million in 2028 and a final payment at maturity on December 26, 2028 of $ 146.2 million.

The final payment at maturity on December 26, 2028 decreased to $ 106.2 million subsequent to the $ 40.0 million prepayment of debt upon closing of the West Quito Divestiture on February 24, 2026.

FAIR VALUE MEASUREMENTS

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Derivative contracts listed above as Level 2 include fixed-price swaps, collars, puts, calls, 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 gain (loss) on derivative contracts” in the Company’s consolidated statements of operations.

The Company records the net change in the fair value of these positions in “Net gain on derivative contracts” in the Company’s 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 8, “Derivative and Hedging Activities,” for additional discussion of derivatives.

The Company’s derivative contracts are with major financial institutions with investment grade credit ratings which are believed to have minimal credit risk.

The Company’s derivative contracts are with a major financial institution and a large multi-strategy alternative investment manager, both of which have investment grade credit ratings and 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.

As discussed in Note 16, “Additional Financial Statement Information,” the Company had recorded a contract asset in the amount of $ 18.5 million for capital contributions advanced to its joint venture partner.

The Company assessed the fair value of the contract on a quarterly basis for possible impairment.

During the fourth quarter of 2024, the Company identified indicators that the carrying value of the contract asset may not be recoverable and as a result, recognized $ 18.5 million of impairment charges to reduce the carrying value of the contract asset to zero at December 31, 2024.

On January 14, 2025, the Company and its joint venture partner exchanged demand letters related to disputes around contract terms.

Subsequently, both parties agreed to extend the tolling agreement that continues to allow the parties to retain rights as outlined in the joint venture agreement while the parties seek a mutual resolution to the ongoing disputes.

As discussed in Note 6, “Debt,” the Company evaluated the 2024 Amended Term Loan Agreement and identified the Exit Fee to be an embedded derivative not clearly and closely related to the host debt instrument.

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The fair value of the Exit Fee derivative will be subsequently remeasured each reporting period with fair value changes recorded in “ Interest expense and other” on the consolidated statement of operations.

The valuation of the Exit Fee derivative included significant inputs such as the timing of potential exit scenarios, forward NYMEX strip pricing,

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

forecasted capital and other expenditures and discount rates.

The valuation of the Exit Fee derivative included 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.

As discussed in Note 7, “Debt,” the Company recorded the fair value of the Change of Control Call Option related to the 2021 Term Loan Agreement separately on the consolidated balance sheets in “Other noncurrent liabilities.” The fair value of the Change of Control Call Option was subsequently remeasured each reporting period with fair value changes recorded in “ Interest expense and other” on the consolidated statement of operations.

The valuation of the Change of Control Call Option included significant inputs such as the timing and probability of discrete potential exit scenarios, forward interest rate curves, and discount rates based on implied and market yields.

The fair value of the Change of Control Call Option was reduced to $ 0 upon repayment of the 2021 Amended Term Loan Agreement on December 26, 2024.

The following table sets forth a reconciliation of the changes in fair value of the Change of Control Call Option classified as Level 3 in the fair value hierarchy (in thousands):

Change of Control

Balance at December 31, 2023

Change in fair value

Balance at December 31, 2024

Estimated fair value amounts have been determined at discrete points in time based on relevant market information.

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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;

The ARO estimates are derived from historical costs and

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

management’s expectation of future cost environments;

and therefore, the Company has designated these liabilities as Level 3.

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The Company is exposed to certain risks relating to its ongoing business operations, such as commodity price risk and interest rate risk.

In accordance with the Company’s policy and the requirements under the Term Loan Agreement, it generally hedges a substantial, but varying, portion of anticipated oil and natural gas production for future periods.

In accordance with the Company’s policy and the requirements under the 2024 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 consolidated balance sheets as assets or liabilities, with the changes in the fair value included in the 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 gain (loss) on derivative contracts” on the consolidated statements of operations.

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 gain on derivative contracts” on the 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.

The Company’s purchaser, gathering and/or processing, or transportation contracts have no net settlement provisions and no market mechanism to facilitate net settlement.

As such, those contracts qualify for the normal purchase and normal sale exception under ASC 815.

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.

As of December 31, 2025, the Company did not post collateral under any of its derivative contracts as they are secured under the Company’s 2024 Amended Term Loan Agreement.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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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● WTI NYMEX roll agreements account for pricing adjustments to the trade month versus the delivery month for contract pricing.

The following table summarizes the location and fair value amounts of all derivative contracts in the consolidated balance sheets as of December 31, 2024 and 2023 (in thousands):

The following table summarizes the location and fair value amounts of all derivative contracts in the consolidated balance sheets (in thousands):

Years Ended December 31,

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Other noncurrent liabilities

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 consolidated statements of operations (in thousands):

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Total net gain (loss)

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2025, the Company had the following open crude oil and natural gas derivative contracts:

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Weighted average price

Two-way collar:

Total volumes (Bbls)

Weighted average price (call)

Weighted average price (put)

Total volumes (Bbls)

Weighted average price

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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.

The ISDA allows for offsetting

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

ASSET RETIREMENT OBLIGATIONS

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The Company recorded the following activity related to its ARO liability (inclusive of the current portion) (in thousands):

For the Year Ended December 31,

For the Years Ended December 31,

Asset retirement obligations at beginning of the period

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Liabilities incurred

Liabilities settled/divested

Revisions to estimate

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COMMITMENTS AND CONTINGENCIES

As of December 31, 2024, the Company has an active drilling rig commitment of approximately $ 1.9 million that will be incurred in 2025.

Termination of the active drilling rig commitment would require an early termination penalty of $ 1.7 million, which would be in lieu of paying the active drilling rig commitment of $ 1.9 million.

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 has 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 p ays a treating rate that begins at $ 1.75 /Mcf and varies based on volumes delivered to the facility.

At the minimum treated volume commitment of 20,000 Mcf/d, the commitment would be approximately $ 12.8 million per year.

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.

For additional information on this joint venture, see Note 15, “Additional Financial Information.”

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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.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Contingencies

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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 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 gas companies claiming that operators and working interest owners are liable for environmental damages arising from operations conducted on the leased properties.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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REDEEMABLE CONVERTIBLE PREFERRED STOCK

The table below summarizes the Company’s Redeemable Convertible Preferred Stock issuances:

The table below summarizes the Company’s Redeemable Convertible Preferred Stock issuances as of December 31, 2025:

Preferred Stock (1)

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(2) The preferred stock is originally recorded net of original issue discount and accrued offering costs as mezzanine equity (temporary equity) and subsequently PIK dividends and non-cash deemed dividends are recorded to increase the carrying value of the preferred stock to its redemption amount.

On March 27, 2024, the Company sold, in a private placement, an aggregate of 20,000 shares of Series A-3 Redeemable Convertible Preferred Stock (the “Series A-3 Preferred Stock”) in a private placement to certain funds managed by Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC, the Company’s largest three existing stockholders (the “Investors”).

The Company received $ 19.5 million in proceeds, net of $ 0.5 million in original issue discount.

Each of the Investors has an employee that has been elected to and serves on the Company’s board of directors, comprised of six members.

The issuance of Series A-3 Preferred Stock was approved by the Company’s board of directors upon recommendation by a special committee of disinterested directors that was established to evaluate the proposed terms of the Series A-3 Preferred Stock.

Holders of Series A-3 Preferred Stock will have no voting rights with respect to the shares of Series A-3 Preferred Stock.

The Series A-3 Preferred Stock will receive annual dividends, paid either in cash at a fixed rate of 14.5 % annually or accrued at a fixed paid-in-kind (“PIK”) accrual rate of 16.0 % annually at the option of the Company.

Currently and historically, the Company’s 2024 Amended Term Loan Agreement and 2021 Amended Term Loan Agreement prohibit the payment of cash dividends.

PIK dividends will be cumulative, compound and accrue quarterly in arrears and will be added to the Liquidation Preference.

The Series A-3 Preferred Stock Dividend Payment Date will commence on March 31, 2024, and the Conversion Price equaled $ 6.83 , which may be adjusted from time to time.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

On May 13, 2024, the Company sold, in a private placement, an aggregate of 20,000 shares of Series A-4 Redeemable Convertible Preferred Stock (the “Series A-4 Preferred Stock”) to the Investors.

The Company received $ 19.5 million in proceeds, net of $ 0.5 million in original issue discount.

The issuance of Series A-4 Preferred Stock was approved by the Company’s board of directors upon recommendation by a special committee of disinterested directors that was established to evaluate the proposed terms of the Series A-4 Preferred Stock.

Holders of Series A-4 Preferred Stock will have no voting rights with respect to the shares of Series A-4 Preferred Stock.

The Series A-4 Preferred Stock will receive annual dividends, paid either in cash at a fixed rate of 14.5 % annually or accrued at a fixed PIK accrual rate of 16.0 % annually at the option of the Company.

Currently and historically, the Company’s 2024 Amended Term Loan Agreement and 2021 Amended Term Loan Agreement prohibit the payment of cash dividends.

PIK dividends will be cumulative, compound and accrue quarterly in arrears and will be added to the Liquidation Preference.

The Series A-4 Preferred Stock Dividend Payment Date will commence on June 30, 2024, and the Conversion Price equaled $ 6.42 , which may be adjusted from time to time.

For accounting purposes, upon issuance of the preferred stock (collectively, 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 is not mandatorily redeemable but does contain a redemption feature at the option of the preferred holders that is considered not solely within the Company’s control.

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Additionally, while the Company has not declared or paid dividends on its common stock since its inception, holders of preferred stock will be entitled to participate in any dividends or permitted distributions to holders of common stock on an as-converted basis should they occur.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Conversion Features.

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The Company has the option to redeem the preferred stock in cash for an amount per share of Preferred Stock equal to (the “Redemption Price”):

● at any time prior to 120 days following the closing date, 100 % of the Liquidation Preference at such time;

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

● at any time on or after 120 days following the closing date but prior to the 180 days following the closing date, 102 % of the Liquidation Preference at such time;

● at any time on or after 180 days following the closing date but on or prior to the first anniversary of the closing date, 105 % of the Liquidation Preference at such time;

● at any time after the first anniversary of the closing date but on or prior to the second anniversary of the closing date, 108 % of the Liquidation Preference at such time;

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In the event of a change of control, holders have the right to receive:

● at any time on or prior to 150 days following the issuance date, and at the election of the Company, a cash payment equal to the Liquidation Preference or equity consideration equal to the 107.5 % of the Liquidation Preference, or

● at any time after the one hundred fiftieth ( 150 th) day following the issuance date, the Company shall offer each Holder a cash payment equal to the Redemption Price.

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Until (i) a termination of or certain amendments to the Amended Term Loan Agreement or (ii) one year past the maturity date of the Amended Term Loan Agreement, an election of the cash payment option by holders in a change of control scenario is not permitted.

STOCKHOLDERS’ EQUITY

STOCKHOLDERS’ (DEFICIT) EQUITY

Pursuant to the Company’s amended and restated certificate of incorporation with the Delaware Secretary of State, , among other things, (i) the total number of shares of all classes of capital stock that Battalion has the authority to issue is 101,000,000 of which 100,000,000 shares are common stock, par value $ 0.0001 per share and 1,000,000 shares are preferred stock, par value $ 0.0001 per share and (ii) Battalion is restricted from issuing any non-voting equity securities in violation of Section 1123(a)(6) of chapter 11 of title 11 of the United States Code.

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As of December 31, 2025, a maximum of 1.3 million shares of the Company’s common stock remained reserved for issuance under the Plan.

For the years ended December 31, 2024 and 2023, the Company recognized an expense of approximately $ 0.2 million and a benefit of $ 1.1 million, respectively, related to stock-based compensation awards granted to employees and directors, primarily related to restricted stock unit grants.

The benefit recognized in the twelve months ended December 31, 2023 is due to forfeitures of stock options and restricted stock related to the departure of certain executives and employees.

For the years ended December 31, 2025 and 2024, the Company recognized an expense of less than $ 0.1 million and approximately $ 0.2 million, respectively, related to stock-based compensation awards granted to employees and directors, primarily related to restricted stock unit grants.

Stock-based compensation is recorded as a component of “General and administrative” on the consolidated statements of operations.

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From time to time, the Company grants shares of restricted stock units (“RSUs”) under the Plan to employees of the Company.

Under the Plan, employee RSUs will vest and convert to shares typically in equal amounts over a three or four year vesting period from the date of the grant, depending on award, or when the performance or market conditions described below occur.

At December 31, 2024 and 2023, the Company had less than $ 0.1 million and $ 0.3 million, respectively of unrecognized compensation expense related to non-vested RSU awards to be recognized over a weighted average period of 0.1 years and 0.3 years, respectively.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

described below occur.

At December 31, 2025, the Company had no unrecognized compensation expense of unrecognized compensation expense related to non-vested RSU awards.

At December 31, 2024, the Company had less than $ 0.1 million of unrecognized compensation expense related to non-vested RSU awards to be recognized over a weighted average period of 0.1 years.

The following table sets forth the restricted stock unit transactions for the periods indicated:

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Unvested outstanding shares at December 31, 2025

Unvested outstanding shares at December 31, 2022

Unvested outstanding shares at December 31, 2023

Unvested outstanding shares at December 31, 2024

(1) The intrinsic value of restricted stock was calculated as the closing market price on December 31, 2025 and 2024 of the underlying stock multiplied by the number of restricted shares that would be issuable.

There were no shares vested during the year ended December 31, 2025.

The discussion below outlines the vesting conditions and fair values for each type of the Company’s approximately 0.1 million unvested outstanding RSUs under the Plan issued to employees of the Company as of December 31, 2024.

● Time-Based RSUs .

0.1 million Time-Based RSUs will vest over a three or four year vesting period from the date of the grant, depending on award .

The aggregate grant date fair value of these RSUs was $ 1.5 million.

● Performance-Based RSUs .

Less than 0.1 million Performance-Based RSUs will vest in full only upon achievement of certain business combination goals, as defined in the awards agreements.

(2) Unvested outstanding shares at December 31, 2025 are performance-based RSUs that will vest in full only upon achievement of certain business combination goals, as defined in the awards agreements.

The aggregate grant date fair value of these RSUs was $ 0.4 million.

As of December 31, 2025, no expense had been recognized for these awards as a business combination, as defined in the award agreements, had not been consummated.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The assumptions used in calculating the Monte Carlo valuation model fair value of the Company’s RSUs with market-based vesting conditions granted in 2020 are set forth in the following table:

December 31, 2020

Weighted average value per performance based RSUs granted during the period

Stock price volatility (1)

Risk free rate of return

Expected term

(1) Due to the Company’s limited historical data, expected volatility was estimated using volatilities of peer entities as defined in the award agreements whose share prices and assumptions were publicly available.

Equity Grant Units

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Stock option awards granted under the Plan vest over a four-year period at a rate of one -fourth on the annual anniversary date of the grant and expire seven years from the date of grant.

At December 31, 2024, the Company had 106,257 options outstanding ( three equal tranches of 35,419 options at exercise prices of $ 18.91 , $ 28.23 , and $ 37.83 per share) with a weighted average exercise price of $ 28.32 /share.

As of December 31, 2024 and 2023, no options were either exercisable nor had intrinsic value due to service performance conditions and/or based on the exercise price of the option exceeding the closing market price.

At December 31, 2025, the Company had 106,257 options outstanding ( three equal tranches of 35,419 options at exercise prices of $ 18.91 , $ 28.23 , and $ 37.83 per share) with a weighted average exercise price of $ 28.32 per share and an expiration date of February 20, 2027.

As of December 31, 2025, no options were either exercisable nor had intrinsic value due to service performance conditions and/or based on the exercise price of the option exceeding the closing market price.

The weighted average remaining contractual life at December 31, 2025 was approximately 1.1 years.

There is no unrecognized compensation expense remaining as the stock options have been fully expensed as of December 31, 2024.

The assumptions used in calculating the Black-Scholes-Merton valuation model fair value of the Company’s stock options granted in 2020 are set forth in the following table:

December 31, 2020

Weighted average value per option granted during the period

Stock price volatility (1)

Risk free rate of return

Expected term

(1) Due to the Company’s limited historical data, expected volatility was estimated using volatilities of similar entities whose share or option prices and assumptions were publicly available.

There is no unrecognized compensation expense remaining as the stock options were fully expensed as of December 31, 2025.

BATTALION OIL CORPORATION

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Total income tax benefit (provision)

The actual income tax benefit (provision) differs from the expected income tax benefit (provision) as computed by applying the United States federal corporate income tax rate of 21 % for the periods indicated below, as follows (in thousands):

(in thousands)

Federal Statutory Rate

State & Local Income Taxes, Net of Federal Income Tax Effect

State income taxes - Other, Net

State Change in Valuation Allowance

State income taxes - 2024 Return to Provision

Changes in Valuation Allowances

Nontaxable or Nonductible Items

Percentage Depletion in Excess of Basis

Federal RTP - Capital Loss Utilized

Effective Tax Rate

The following table presents the required disclosures prior to the adoption of ASU 2023-09 and reconciles the actual income tax benefit (provision) to the expected income tax benefit (provision) as computed by applying the U.S.

federal corporate income tax rate of 21 % for the period presented (in thousands):

Years Ended December 31, 2024

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Change in valuation allowance and related items

Attribute reduction

Permanent adjustments

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Total income tax benefit (provision)

For the year ended December 31, 2023, the Company incurred non-deductible transaction costs related to the Merger.

Due to the termination of the Merger Agreement, the previously non-deductible transaction costs are deductible in the current year and have been included in the income tax benefit (provision).

BATTALION OIL CORPORATION

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Amortization of debt issuance costs

Embedded derivative liability

Unrealized hedging transactions

Lease right of use

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The open years for state purposes can vary from the normal three-year statue expiration period for federal purposes.

On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was enacted in the U.S.

The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cust and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions.

The legislation has multiple effective dates, with certain provisions effective in 2025 and other implemented through 2027.

These provisions had no impact on the Company’s consolidated financial statements for the year ended December 31, 2025.

The Company is evaluating the impact of provisions required at future dates but does not expect such to have a material impact on its results of operations, cash flows or financial condition.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

EARNINGS PER SHARE

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Years Ended December 31,

Net income (loss)

Preferred stock dividend

Undistributed earnings allocable to preferred stockholders

Net (loss) income available to common stockholders

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Net (loss) income available to common stockholders basic

Reallocation of undistributed earnings

Net (loss) income available to common stockholders diluted

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Diluted net income (loss) per share of common stock

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2025, common stock equivalents, including stock options and certain restricted stock units, totaling 0.1 million weighted-average shares were anti-dilutive and not included in the computation of diluted earnings per share of common stock.

1 unchanged sentence

Additionally, the Company also has less than 0.1 million restricted stock units that vest only upon achievement of certain business combination goals as further described in Note 12, “ Stockholder’s Equity” .

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ADDITIONAL FINANCIAL STATEMENT INFORMATION

Certain balance sheet amounts are comprised of the following (in thousands) for the periods presents:

December 31, 2024

December 31, 2023

Accounts receivable, net:

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Investment in unconsolidated affiliate

Contract asset

Funds in escrow

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Caracara provided the initial capital for the construction of the treatment facility.

The Company contributed certain full cost pool assets to the related party joint venture in a non-cash exchange for a retained 5 % equity interest in Wink Amine Treater, LLC (“WAT”) (previously Brazos Amine Treater, LLC (“BAT”)), an unconsolidated subsidiary.

For accounting purposes, since the Company does not control the key activities (e.g.

operating and maintaining the facility) which most significantly impact economic performance , the Company is not the primary beneficiary of WAT.

Accordingly, the Company accounts for its investment in WAT (a related party) using the equity method of accounting based on its ability to exercise significant influence , but not control, over the key activities of the joint venture.

Accordingly, the Company accounted for its investment in WAT (a related party) using the equity method of accounting based on its ability to exercise significant influence , but not control, over the key activities of the joint venture.

During the fourth quarter of 2025, as a result of the AGI Facility’s continued shut-down, the Company concluded that the fair value of its equity method investment in WAT was less than the carrying value of the investment in unconsolidated affiliate asset recorded on the consolidated balance sheet and recorded an impairment of $ 1.1 million to reduce the carrying value of the investment in unconsolidated affiliate asset to zero as of December 31, 2025.

For more information related to this joint venture, see Note 10, “ Commitments and Contingencies ”.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Contract Asset.

The Company has advanced total capital contributions of approximately $ 18.5 million on behalf of its joint venture partner in WAT to fund a workover operation on the AGI Facility.

Pursuant to the terms of the agreement governing the joint venture, the Company has multiple remedies to recover such advance, including (1) declaring such payment a loan, which pursuant to the agreement would have an interest rate of the lesser of 15 % or the maximum rate permitted by law, (2) recoupment from distributions from the joint venture and (3) reallocation of equity of the joint venture based on the relative level of total capital contributions by the parties after taking into account the advances, none of which would occur until the expiration of the current tolling agreement between the parties.

The Company assesses the fair value of the contract asset on a quarterly basis for possible impairment.

During the fourth quarter of 2024, the Company identified indicators that the carrying value of the contract asset may not be recoverable and as a result, recognized $ 18.5 million of impairment of charges to reduce the carrying value of the contract asset to zero at December 31, 2024.

Certain income statement amounts are comprised of the following (in thousands) for the periods presents:

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SUBSEQUENT EVENTS

On January 9, 2025, the Borrower entered into the First Amendment to its 2024 Term Loan Agreement and pursuant to the First Amendment, the Borrower incurred incremental term loans in the aggregate principal amount of $ 63.0 million.

Subsequent events have been evaluated through the date of issuance of these financial statements and there have been no events subsequent to December 31, 2025, other than those items disclosed below, that would require additional adjustments to or disclosure in our financial statements during the period.

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 will 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 - $ 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.

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 .

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 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.

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 will be accounted for as an asset acquisition for the quarterly period ending March 31, 2026, allocating the relative amounts of the purchase price to proved and unproved oil and natural gas properties.

SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)

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December 31, 2024

(1) Includes downward revisions of 13.0 MMBoe for the removal of PUDs during 2023 due to decreased activity associated with managing cash flow, servicing debt and financial covenants and ongoing work to recapitalize the business.

(2) Downward revisions for 2024 of 2.6 MMBoe were primarily due to decreased pricing and changes in differentials, deducts and marketing expenses.

(1) Downward revisions for 2025 and 2024 of 2.9 MMBoe and 2.6 MMBoe, respectively, were primarily due to decreased pricing and changes in differentials, deducts and marketing expenses.

Year Ended December 31, 2025

At December 31, 2025, the Company’s proved developed reserves of 35.7 MMBoe decreased approximately 0.7 MMBoe from December 31, 2024 primarily as a result of negative revisions of 1.8 MMBoe and production of 4.4 MMBoe offset by PUD reserve development of 5.5 MMBoe.

At December 31, 2024, the Company’s estimated proved undeveloped (PUD) reserves of 28.6 MMBoe increased approximately 0.7 MMBoe from December 31, 2023 as a result of extensions of 4.0 MMBoe primarily associated with infill drilling activity offset by the transfer of 2.9 MMBoe to proved developed producing reserves and downward revisions of 0.4 MMBoe due to decreased SEC prices.

At December 31, 2025, the Company’s estimated proved undeveloped (PUD) reserves of 24.1 MMBoe decreased approximately 4.6 MMBoe from December 31, 2024 as a result of extensions of 2.1 MMBoe primarily associated with infill drilling activity offset by the transfer of 5.5 MMBoe to proved developed producing reserves and downward revisions of 1.2 MMBoe due to decreased SEC prices.

All of the Company’s PUD reserves are planned to be developed within five years from the date they were initially recorded.

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At December 31, 2024, the Company’s proved developed reserves of 36.3 MMBoe decreased approximately 3.8 MMBoe from December 31, 2023 primarily as a result of negative revisions of 2.1 MMBoe and production of 4.6 MMBoe offset by PUD reserve development of 2.9 MMBoe.

At December 31, 2023, the Company’s estimated proved undeveloped (PUD) reserves of 27.9 MMBoe decreased approximately 17.7 MMBoe from December 31, 2022 as a result of the transfer of 2.4 MMBoe to proved developed producing reserves and downward revisions of 15.3 MMBoe due primarily to the removal of 13.0 MMBoe of PUDs due to decreased activity associated with managing cash flow, servicing debt and financial covenants, and ongoing work to recapitalize the business coupled with a downward revision of 2.3 MMBoe due to decreased SEC prices.

All of the Company’s PUD reserves are planned to be developed within five years from the date they were initially recorded.

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No other alternative methods or technologies were used to estimate proved reserves.

Out of total proved undeveloped reserves of 28.6 MMBoe at December 31, 2024, 7.5 MMBoe were associated with 10 gross PUD locations that were more than one offset location from a producing well.

Capitalized Costs Relating to Oil and Natural Gas Producing Activities

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk