What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-04-01 compared with 2023-03-30 · 285 added, 216 removed, 818 unchanged (38% of the section changed)

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As of December 31, 2023, we did not post collateral under any of our derivative contracts as they are secured under our Amended Term Loan Agreement.

We account for our derivative activities under the provisions of ASC 815, Derivatives and Hedging , (ASC 815).

We account for our derivative activities under the provisions of ASC Topic 815, Derivatives and Hedging , (ASC 815).

ASC 815 establishes accounting and reporting that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at fair value.

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Battalion Oil Corporation (the Company), including the Company’s Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.

Management of Battalion Oil Corporation (the Company), including the Company’s Chief Executive Officer, is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.

The Company’s internal control system was designed to provide reasonable assurance to the Company’s Management and Board of Directors regarding the preparation and fair presentation of published financial statements.

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Management’s report was not subject to attestation by its independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit smaller reporting companies to provide only Management’s report in this Annual Report on Form 10-K.

/s/ RICHARD H.

/s/ KRISTEN MCWATTERS

Kristen McWatters

/s/ MATTHEW B.

Chief Executive Officer

Executive Vice President,

Chief Financial Officer and Treasurer

(Principal Executive Officer and Principal Financial Officer)

Houston, Texas

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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, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity, and cash flows, for each of the years ended December 31, 2022 and 2021, 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, 2022 and 2021, and the results of its operations and its cash flows for the years ended December 31, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Battalion Oil Corporation and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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The Company’s proved oil and natural gas properties are depleted using the units of production method and are evaluated for impairment by the full cost ceiling impairment test utilizing the Company’s oil and natural gas reserves in accordance with accounting principles generally accepted in the United States and SEC guidelines.

The development of the Company’s oil and natural gas reserve quantities and the related net present value of future cash flows from the related proved reserves requires management to make significant estimates and assumptions related to the intent and ability to complete undeveloped proved reserves within a five-year development period, as prescribed by SEC guidelines, and the future development costs associated with these reserves.

The development of the Company’s oil and natural gas reserve quantities and the related net present value of future cash flows from the related proved reserves requires management to make significant estimates and assumptions related to the future production to be obtained from proved reserves, the intent and ability to complete proved undeveloped reserves within a five-year development period as prescribed by SEC guidelines, and the future development costs associated with proved undeveloped reserves.

The Company engages an independent reservoir engineering firm, management’s specialist, to estimate oil and natural gas quantities using these assumptions and engineering data.

Changes in these assumptions or engineering data could have a significant impact on the amount of depletion and impairment recorded for the Company’s proved oil and natural gas properties.

The gross proved oil and natural gas properties balance was $713.6 million with an accumulated depletion balance of $390.8 million as of December 31, 2022.

Depletion expense was $51.0 million for the year ended December 31, 2022.

Given the significant judgments made by management and management’s specialist, performing audit procedures to evaluate the Company’s oil and natural gas reserve quantities and the related net cash flows, including management’s estimates and assumptions related to the intent and ability to complete undeveloped proved reserves within the five-year development period and future development costs, requires a high degree of auditor judgment and an increased extent of effort.

Given the significant judgments made by management and management’s specialist, performing audit procedures to evaluate the Company’s oil and natural gas reserve quantities and the related net cash flows, including management’s estimates and assumptions related to future proved reserves production volumes, the intent and ability to complete proved undeveloped reserves within the five-year development period, and future development costs, requires a high degree of auditor judgment and an increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

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- Internal communications to management and the Board of Directors.

- Approval for expenditures.

- Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies.

- The financial capability of the Company to execute its drilling program.

- Prior year Reserve Reports to evaluate whether the forecasted date of development for each proved undeveloped location is within five years of the date of its original inclusion in proved reserves.

- The financial ability of the Company to execute its drilling program.

● We evaluated the reasonableness of management’s estimate of future development costs by comparing the estimate to:

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Total operating expenses

Income (loss) from operations

Income from operations

Other income (expenses):

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Interest expense and other

Gain (loss) on extinguishment of debt

Total other income expenses

Income (loss) before income taxes

(Loss) income before income taxes

Income tax benefit (provision)

Net income (loss)

Net income (loss) per share of common stock:

Net (loss) income

Series A preferred dividends

Net (loss) income available to common stockholders

Net (loss) income per share of common stock:

Weighted average common shares outstanding:

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Commitments and contingencies (Note 10)

Temporary equity:

Series A redeemable convertible preferred stock:

98,000 shares of $ 0.0001

par value authorized, issued and outstanding as of December 31, 2023

Stockholders' equity:

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Additional paid-in capital

Retained earnings (accumulated deficit)

Accumulated deficit

Total stockholders' equity

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Balances at December 31, 2021

Net income (loss)

Long-term incentive plan vestings

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Balances at December 31, 2022

Net income (loss)

Deemed dividends for Series A preferred stock

Long-term incentive plan vestings

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Cash flows from operating activities:

Net income (loss)

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

in) operating activities:

Net (loss) income

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

operating activities:

Depletion, depreciation and accretion

Stock-based compensation, net

Unrealized loss (gain) on derivative contracts

Unrealized gain on derivative contracts

Amortization/accretion of financing related costs

Reorganization items, net

Loss (gain) on extinguishment of debt

Accrued settlements on derivative contracts

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Accounts payable and accrued liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities:

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Other operating property and equipment capital expenditures

Net cash provided by (used in) investing activities

Contract asset

Net cash used in investing activities

Cash flows from financing activities:

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Payment of deferred financing costs

Net cash provided by (used in) financing activities

Proceeds from issuance of preferred stock

Net cash provided by financing activities

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

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Supplemental cash flow information:

Cash paid (received) for interest

Cash paid (refunded) for income taxes

Cash paid for interest

Cash paid for reorganization items

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Accrued capital expenditures

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.

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Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States 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 consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods.

The preparation of the Company’s 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 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, and fair value estimates.

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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 consolidated financial statement and the results presented in this Form 10-K are not necessarily indicative of future operating results.

Risk and Uncertainties

Supply chain issues.

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.

Commodity Prices .

Despite lower commodity prices in 2020, widespread availability of COVID-19 vaccines during 2021 combined with accommodative governmental monetary and fiscal policies and other factors, led to a rebound in demand for oil and natural gas and increases in oil and natural gas prices.

Further in 2022, the effects of Russian sanctions amidst the conflict with Ukraine have pushed oil and gas prices higher.

However, there remains the potential for demand for oil and natural gas to be adversely impacted by the economic effects of rising interest rates, tightening monetary policies, or other factors.

As a consequence, the Company is unable to predict whether oil and natural gas prices will remain at current levels or will be adversely impacted by these or other factors.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For further information regarding the actual and potential impacts of the supply chain issues and the potential impact of declines in commodity prices on the Company, see “Risk Factors” in Item 1A of this Annual Report on Form 10-K.

Actual results may differ from the estimates and assumptions used in the preparation of the Company’s consolidated financial statement and the results presented in this Annual Report on Form 10-K are not necessarily indicative of future operating results.

Cash, Cash Equivalents and Restricted Cash

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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 our accounts receivable is typically received within 30-60 days.

Accounts receivable are recorded at the amount due, less an allowance for doubtful accounts, when

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

Oil and Natural Gas Properties

The Company uses the full cost method of accounting for its investment in oil and natural gas properties as prescribed by the United States Securities and Exchange Commission (SEC).

The Company uses the full cost method of accounting for its investment in oil and natural gas properties as prescribed by the United States Securities and Exchange Commission (the “SEC”).

Accordingly, all costs incurred in the acquisition, exploration and development of proved and unproved oil and natural gas properties, including the costs of abandoned properties, treating equipment and gathering support facilities, dry holes, geophysical costs, and annual lease rentals are capitalized.

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Investments in unevaluated oil and natural gas properties and exploration and development projects for which depletion expense is not currently recognized, and for which exploration or development activities are in progress, qualify for interest capitalization.

The Company determines capitalized interest, when applicable, by multiplying the Company’s weighted-average borrowing cost on debt by the average amount of qualifying costs incurred that were

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

excluded from the full cost pool;

The Company determines capitalized interest, when applicable, by multiplying the Company’s weighted-average borrowing cost on debt by the average amount of qualifying costs incurred that were excluded from the full cost pool;

however, the amount of capitalized interest cannot exceed the amount of gross interest expense incurred in any given period.

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Material expenditures which increase the life or productive capacity of an asset are capitalized and depreciated over the estimated remaining useful life of the asset.

The Company reviews its other operating property and equipment for impairment in accordance with ASC 360, Property, Plant, and Equipment (ASC 360).

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company reviews its other operating property and equipment for impairment in accordance with the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment (ASC 360).

ASC 360 requires the Company to evaluate other operating property and equipment for impairment as events occur or circumstances change that would more likely than not reduce the fair value below the carrying amount.

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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.

The Company’s primary concentrations of credit risk are the risks of uncollectible accounts receivable and of nonperformance by two 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.

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Historically, the Company has not experienced any significant losses from uncollectible accounts from its oil and natural gas purchasers.

In 2023, two individual purchasers of the Company’s production, Western Refining Company L.P.

and Sunoco Inc., each accounted for more than 10 % of total sales, collectively representing 79 % of its total sales for the year.

In 2022, three individual purchasers of the Company’s production, Western Refining Company L.P., Sunoco Inc.

and Targa Resources Inc., each accounted for more than 10 % of total sales, collectively representing 82 % of its total sales for the year.

In 2021, three individual purchasers of the Company’s production, Western Refining Company L.P., Sunoco Inc.

and Salt Creek Midstream LLC, each accounted for more than 10 % of total sales, collectively representing 73 % of its total sales for the year.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company operates a substantial portion of its oil and natural gas properties.

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Risk Management Activities

The Company follows ASC 815, Derivatives and Hedging (ASC 815).

From time to time, in accordance with the Company’s policy, it may hedge a portion of its forecasted oil and natural gas production.

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Accordingly, the Company records the net change in the mark-to-market valuation of these positions, as well as payments and receipts on settled contracts, in “Net gain (loss) on derivative contracts” on the consolidated statements of operations.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company accounts for income taxes using the asset and liability method wherein deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis.

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The Company classifies all deferred tax assets and liabilities, along with any related valuation allowance, as noncurrent on the consolidated balance sheets.

The evaluation of a tax position in accordance with ASC 740 is a two-step process.

The evaluation of a tax position in accordance with ASC Topic 740, Income Taxes (“ASC 740”) is a two-step process.

The first step is a recognition process to determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position.

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Asset Retirement Obligations

The Company records asset retirement obligations to reflect the Company’s legal obligations related to future plugging and abandonment of its oil and natural gas wells, treating equipment and gathering support facilities.

The Company records asset retirement obligations (“AROs”) to reflect the Company’s legal obligations related to future plugging and abandonment of its oil and natural gas wells, treating equipment and gathering support facilities.

The Company estimates the expected cash flows associated with the obligation and discounts the amounts using a credit-adjusted, risk-free interest rate.

At least annually, the Company reassesses the obligation to determine whether a change

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

in the estimated obligation is necessary.

At least annually, the Company reassesses the obligation to determine whether a change in the estimated obligation is necessary.

The Company evaluates whether there are indicators that suggest the estimated cash flows underlying the obligation have materially changed.

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Additional retirement obligations increase the liability associated with new oil and natural gas wells, treating equipment and gathering support facilities as these obligations are incurred.

The Company records the asset retirement obligation (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 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.

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2022-06, “ Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848.

” This ASU defers the sunset date from December 31, 2022, to December 31, 2024.

As of the date of this filing, neither ASU 2020-04 nor ASU No.

2022-06 had a material impact on the Company’s operating results, financial position or disclosures.

Deferral of the Sunset Date of Topic 848 ” (“ASU 2022-06”).

ASU 2022-06 defers the sunset date from December 31, 2022, to December 31, 2024.

As of the date of this filing, neither ASU 2020-04 nor ASU 2022-06 had a material impact on the Company’s operating results, financial position or disclosures.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In the first quarter of 2023, the Company early adopted the FASB’s ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) .

The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately recognized from the primary contract.

The guidance also includes targeted improvements to the disclosures for convertible instruments and earnings per share.

The adoption of ASU 2020-06 did not have an impact on the Company’s financial statements.

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.

Early adoption is permitted.

Entities should apply the amendments in ASU 2023-07 retrospectively to all prior periods presented in the financial statements.

We are currently evaluating the impact of adopting ASU 2023-07 and we expect limited impact on our disclosures with no impact to our consolidated financial statements upon adoption.

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

Improvements to Income Tax Disclosures (“ASU 2023-09”), which focuses on the income tax rate reconciliation and income taxes paid.

ASU 2023-09 requires an entity to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories, with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold.

In addition, entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign, and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received.

ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

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.

MERGER AGREEMENT

Agreement and Plan of Merger

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

Subject to the terms and conditions set forth in the Merger Agreement, each of the Company’s issued and outstanding shares of Common Stock, par value $ 0.0001 per share (“Common Stock”) shall be converted into the right to receive $ 9.80 in cash, without interest, which represents a total transaction value of approximately $ 450.0 million, and such shares shall otherwise cease to be outstanding, shall automatically be canceled and retired and cease to exist;

and each outstanding share of redeemable convertible preferred stock will be contributed to Parent in exchange for new preferred shares of Parent , or sold to Parent for cash, in each case at a valuation based on the conversion or redemption value of such preferred stock.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

The obligations of the Company, Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver of certain customary closing conditions, including, among other things:

(a) the absence of any law or order of any Governmental Authority having jurisdiction over a party to the Merger Agreement prohibiting or making illegal the consummation of the Merger, and (b) the adoption of the Merger Agreement by a majority vote of the issued and outstanding shares of Company Common Stock.

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

We determine if an arrangement is or contains a lease at inception and combine lease and nonlease components, when fixed, for all lease contracts.

The Company determines if an arrangement is or contains a lease at inception and combines lease and nonlease components, when fixed, for all lease contracts.

Nonlease components include common area maintenance charges on office leases and, when applicable, services associated with equipment leases.

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Variable lease payments, if applicable, associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs.

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.

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 “Operating lease right of use assets” outstanding on the consolidated balance sheets as of December 31, 2022 and 2021 both have initial lease terms of 2.3 years.

The “Operating lease right of use assets” outstanding on the consolidated balance sheet as of December 31, 2023 have initial lease terms of 1.9 years and 2.7 years and the “Operating lease right of use assets” as of December 31, 2022 have initial lease terms of 2.3 years.

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

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Short-term lease costs

Variable lease costs

Total lease costs

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Operating cash flows from operating leases

Right-of-use assets obtained in exchange for new operating lease liabilities

Weighted-average remaining lease term - operating leases

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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.

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 $ 34.0 million and $ 35.1 million as of December 31, 2022 and 2021, respectively, as “Accounts receivable, net” on the consolidated balance sheets.

The Company utilizes the practical expedient exempting the disclosure of the transaction price of

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 $ 19.8 million and $ 34.0 million as of December 31, 2023 and 2022, respectively, as “Accounts receivable, net” on the consolidated

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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).

We record revenue in the month our production is delivered to the purchaser.

However, to the extent settlement statements and/or payments are not available, we are required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product.

We record any differences, which historically have not been significant, between the actual amounts ultimately received and the original estimates in the period they become finalized.

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).

The Company records revenue in the month its production is delivered to the purchaser.

However, to the extent settlement statements and/or payments are not available, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product.

The Company records any differences, which historically have not been significant, between the actual amounts ultimately received and the original estimates in the period they become finalized.

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

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In these instances, revenues are presented on a gross basis and any fees incurred to gather, process or transport the commodities are presented separately as “ Gathering and other ” on the consolidated statements of operations.

The majority of the Company’s natural gas and natural gas liquids prices are based on daily average pricing for the month.

Settlement statements for the Company’s natural gas and natural gas liquids production are typically received 30 days after the date of production and therefore the Company estimates the amount of production delivered to the customer and the price that will be received for that production.

The majority of the Company’s natural gas and NGLs prices are based on daily average pricing for the month.

Settlement statements for the Company’s natural gas and NGLs production are typically received 30 days after the date of production and therefore the Company estimates the amount of production delivered to the customer and the price that will be received for that production.

Historically, differences between the Company’s estimates and the actual revenue received have not been material.

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Incurred in 2022

Incurred in 2020

Incurred in 2019 (1)

Incurred in 2021 and prior (1)

Total not subject to depletion

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(1) Unweighted average of the first day of the 12-months ended spot price, adjusted by lease or field for quality, transportation fees, and regional price differentials.

The Company's net book value of oil and natural gas properties for both 2023 and 2022 did not exceed the ceiling amount.

Changes in commodity prices, production rates, levels of reserves, future development costs, transfers of

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company's net book value of oil and natural gas properties for both 2022 and 2021 did not exceed the ceiling amount.

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.

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.

As of December 31, 2023 and 2022, the Company’s debt consisted of the following (in thousands):

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Long-Term Debt, net

(1) As of December 31, 2022, amount primarily reflects amortization payments of $ 35.0 million under the Amended Term Loan Agreement due within one year.

As of December 31, 2021, amount represents the balance owed under the Paycheck Protection Program Loan.

(2) Amounts primarily reflect unamortized debt issuance costs of approximately $ 13.0 million and $ 14.2 million at December 31, 2022 and December 31, 2021, respectively, but also include amounts associated with an embedded derivative separately presented and further described in Note 6.

(1) Amounts primarily reflect payments due of $ 50.0 million and $ 35.0 million under the Amended Term Loan Agreement due within one year as of December 31, 2023 and December 31, 2022, respectively.

(2) Amounts primarily reflect unamortized debt issuance costs of approximately $ 6.9 million and $ 13.0 million at December 31, 2023 and December 31, 2022, respectively, but also include an unamortized debt discount associated with an embedded derivative separately presented and further described in Note 7.

“Fair Value Measurements”.

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

On November 14, 2022, the Company paid approximately $ 2.4 million and entered into a further Amended Credit Agreement (the “Amended Term Loan Agreement”) with its lenders which modified certain provisions of its original Term Loan Agreement including, but not limited to, the following:

● Current Ratio .

Our Current Ratio financial covenant decreased to 0.90 to 1.00 as of September 30, 2022, to 0.70 to 1.00 for the quarter ended December 31, 2022, and to 0.75 to 1.00 for the quarter ended March 31, 2023, returning to 1.00 to 1.00 for the quarter ended June 30, 2023 and for each fiscal quarter thereafter as further described below.

● Interest Rate.

We converted our benchmark interest rate from LIBOR to a Secured Overnight Financing Rate (SOFR) plus 0.15 % and increased the applicable margin on borrowings by 0.50 % , such that borrowings under

The Amended Term Loan Agreement also contains certain financial covenants (as defined in the 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.

As of December 31, 2023, the Company was in compliance with the financial covenants under the Amended Term Loan Agreement.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

the Amended Term Loan Agreement will now bear interest at a rate per annum equal to the SOFR benchmark rate plus 7.65 % .

● Prepayment Premium.

We reset the prepayment periods (for outstanding borrowings) beginning on the amendment date with the following prepayment premiums, subject to the conditions described in the table and further discussion below:

Period (after amendment date)

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

Period (after applicable borrowing date (1) )

Months 0 - 12

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Months 13 - 24

In the following scenarios, our prepayment premiums would differ from those noted in the table above:

(i) if within 6 months after the November 14, 2022 amendment date the Company raises a minimum of $ 20 million of new capital in the form of equity, equity-linked, preferred equity, or unsecured debt, in all cases bearing no cash dividend or cash interest, to bolster liquidity or repay debt, our prepayment premiums will reset to those in the original Term Loan Agreement, or (ii) if a change of control results in prepayment within the second anniversary of the amendment date, a 2 % payment premium will apply.

As of December 31, 2022, we had $ 235.0 million of indebtedness outstanding and approximately $ 1.4 million of letters of credit outstanding under the Amended Term Loan Agreement.

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 results in prepayment within the second anniversary of the amendment date, as a 2 % payment premium will apply.

As of December 31, 2023, the Company had $ 200.0 million of indebtedness outstanding and approximately $ 0.3 million of letters of credit outstanding under the Amended Term Loan Agreement.

An additional $ 4.7 million is available for the issuance of letters of credit.

We have a variable interest rate on our borrowings based on SOFR subsequent to the November 2022 amendment (LIBOR prior to the amendment) plus an applicable margin of 7.5 % .

The weighted average interest rate on our borrowings for the year ended December 31, 2022 was approximately 9.1 %.

The Company has a variable interest rate on its borrowings based on SOFR plus an applicable margin of 7.5 % .

The weighted average interest rate on the Company’s borrowings for the year ended December 31, 2023 was approximately 12.68 %.

The maturity date of the Amended Term Loan Agreement is November 24, 2025 .

The Company may be required to make mandatory prepayments of the loans under the Amended Term Loan Agreement 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 shall make mandatory prepayments when the Consolidated Cash Balance, as defined in the Amended Term Loan Agreement, exceeds $ 20.0 million.

Until December 31, 2024, the forecasted approved plan of development (APOD) capital expenditures for the succeeding fiscal quarter are excluded for purposes of determining the Consolidated Cash Balance.

The Company is required to make scheduled amortization payments in the aggregate amount of $ 120.0 million from the fiscal quarter ending March 31, 2023 through the fiscal quarter ending September 30, 2025.

Amounts outstanding under the 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 Company may be required to make mandatory prepayments under the Amended Term Loan Agreement 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 is required to make mandatory prepayments when the Consolidated Cash Balance, as defined in the Amended Term Loan Agreement, exceeds $ 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 Amended Term Loan Agreement) are excluded for purposes of determining the Consolidated Cash Balance.

As of December 31, 2023, the Consolidated Cash Balance, as defined in the Amended Term Loan Agreement, did not exceed $ 20.0 million when considering forecasted APOD capital expenditures and cash held in unrestricted subsidiaries;

therefore, no mandatory prepayment was necessary.

The Company is required to make scheduled remaining amortization payments in the aggregate amount of $ 85.0 million from the fiscal quarter ending March 31, 2024 through the fiscal quarter ending September 30, 2025 with $ 10.0 million due at the end of the first quarter of 2024, $ 12.5 million due at the end of each of the second and third quarters of 2024, $ 15.0 million due at the end of the fourth quarter of 2024 and the first quarter of 2025, and $ 10.0 million due at the end of each of the second and third quarters of 2025.

The Company will be required to make a final payment of $ 115.0 million at maturity on November 24, 2025.

Amounts outstanding under the Amended Term Loan Agreement are 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 Amended Term Loan Agreement there are certain restrictions on the transfer of assets, including cash, to Battalion from the guarantor subsidiaries.

The Amended Term Loan Agreement also contains certain financial covenants (as defined), including the maintenance of the following ratios;

● an Asset Coverage Ratio of not less than 1.80 to 1.00 as of December 31, 2022 and each fiscal quarter thereafter;

● Total Net Leverage Ratio of not greater than 3.00 to 1.00 as of December 31, 2022, 2.75 to 1.00 as of March 31, 2023 and 2.50 to 1.00 as of each fiscal quarter thereafter;

● a Current Ratio of not less than 1.00 to 1.00, each determined as of the last day of any fiscal quarter period, other than as amended in November 2022 to 0.70 to 1.00 as of December 31, 2022, and to 0.75 to 1.00 as of March 31, 2023.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022, the Company was in compliance with the financial covenants under the Amended Term Loan Agreement.

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

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otherwise, subject to any available remedies or waivers, the Company is 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.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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and voluntary and involuntary bankruptcy.

In conjunction with the 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 or the Chief Financial Officer positions do not remain held by the same persons as before the change of control event (Change of Control Call Option).

In conjunction with entering into the original Term Loan Agreement in November 2021, 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 is reduced over time through the payment of interest and certain fees.

The Company determined that the Change of Control Call Option was an embedded derivative, concluded the embedded derivative was not clearly and closely related to the host debt instrument, and recorded the fair value separately on the consolidated balance sheet within “Other noncurrent liabilities.” The Change of Control Call Option will be subsequently remeasured at fair value each reporting period with fair value changes recorded in “Interest expense and other” on the consolidated statements of operations.

The Change of Control Call Option is 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 records 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 7, “ 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.

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The Company classifies fair value balances based on the observability of those inputs.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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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 as of December 31, 2022 and 2021 (in thousands):

The following tables set forth by level within the fair value hierarchy the Company’s financial assets and

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

liabilities associated with commodity-based derivative contracts that were accounted for at fair value as of December 31, 2023 and 2022 (in thousands):

December 31, 2023

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Balance at December 31, 2023

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

1 unchanged sentence

The estimated fair value of borrowings under the Company’s Amended Term Loan Agreement approximate carrying value because the interest rates approximate current market rates.

The Company follows the provisions of 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 asset retirement obligations for which fair value is used.

The asset retirement obligation estimates are derived from historical costs and management’s expectation of future cost environments;

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company follows the provisions of the FASB’s ASC Topic 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 asset retirement obligations.

See Note 8, “Asset Retirement Obligations,” for a reconciliation of the beginning and ending balances of the liability for the Company’s AROs.

DERIVATIVE AND HEDGING ACTIVITIES

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ASSET RETIREMENT OBLIGATIONS

The Company records an asset retirement obligation (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 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 AROs to reflect the Company’s legal obligations related to future plugging and abandonment of its oil and natural gas wells, treating equipment and gathering support facilities.

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

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Termination of the active drilling rig commitment would require an early termination penalty of $ 1.3 million, which would be in lieu of paying the active drilling rig commitment of $ 1.5 million.

In May 2022, we also entered into a joint venture agreement to develop a strategic acid gas treatment and carbon sequestration facility and entered into a gas treating agreement.

Once the facility is in service, we have 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, we will pay a treating rate that begins at $ 1.65 /Mcf and varies based on volumes delivered to the facility.

At an initial treated volume of 12,000 Mcf/d, our commitment would be approximately $ 7.3 million for the first 12 months of the agreement.

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.

Once the facility is in service, 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 will pay a treating rate that begins at $ 1.65 /Mcf and varies based on volumes delivered to the facility.

At an initial treated volume of 12,000 Mcf/d, the commitment would be approximately $ 7.3 million for the first 12 months of the agreement.

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

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 December 31, 2022, the Company had in place two long-term crude oil contracts and 12 long-term natural gas contracts in this area and the sales prices under these contracts are based on posted market rates.

As of December 31, 2023, 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 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.

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The Company intends to vigorously oppose these claims.

REDEEMABLE CONVERTIBLE PREFERRED STOCK

On March 28, 2023, the Company sold, in a private placement, an aggregate of 25,000 shares of Series A Redeemable Convertible Preferred Stock (the “Series A Preferred Stock”) to certain funds managed by Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC, the Company’s largest three existing stockholders (collectively, the “Investors”) that represent 50 percent of its board of directors.

The Company received $ 24.4 million in proceeds, net of $ 0.6 million in original issue discount.

The issuance of Series A 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 Preferred Stock.

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

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

Currently, the Company’s Amended Term Loan Agreement prohibits the payment of cash dividends.

Paid-in-kind (“PIK”) dividends will be cumulative, compound and accrue quarterly in arrears and will be added to the Liquidation Preference.

The Series A Preferred Stock Dividend Payment Date commenced on June 30, 2023, and the Conversion Price equaled $ 9.03 , which may be adjusted from time to time.

On September 6, 2023, the Company sold, in a private placement, an aggregate of 38,000 shares of Series A-1 Redeemable Convertible Preferred Stock (the “Series A-1 Preferred Stock”) to the Investors.

The Company received $ 37.1 million in proceeds, net of $ 0.9 million in original issue discount.

The issuance of Series A-1 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-1 Preferred Stock.

Holders of Series A-1 Preferred Stock will have no voting rights with respect to the shares of Series A-1 Preferred Stock.

The Series A-1 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, the Company’s Amended Term Loan Agreement prohibits 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-1 Preferred Stock Dividend Payment Date commenced on September 30, 2023, and the Conversion Price equaled $ 7.63 , which may be adjusted from time to time.

On December 15, 2023, the Company sold, in a private placement, an aggregate of 35,000 shares of Series A-2 Redeemable Convertible Preferred Stock (the “Series A-2 Preferred Stock”) to the Investors.

The Company received $ 34.1 million in proceeds, net of $ 0.9 million in original issue discount.

The issuance of Series A-2 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-2 Preferred Stock.

Holders of Series A-2 Preferred Stock will have no voting rights with respect to the shares of Series A-2 Preferred Stock.

The Series A-2 Preferred Stock

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, the Company’s Amended Term Loan Agreement prohibits 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-2 Preferred Stock Dividend Payment Date commenced on December 31, 2023, and the Conversion Price equaled $ 6.21 , which may be adjusted from time to time.

For accounting purposes, upon issuance of the preferred stock on March 28, 2023, September 6, 2023 and December 15, 2023 (collectively, the “Redeemable Convertible Preferred Stock”), the Company recorded $ 23.5 million ($ 25.0 million net of original issue discount and accrued offering costs), $ 36.9 million ($ 38.0 million net of original issue discount and accrued offering costs) and $ 34.0 million ($ 35.0 million net of original issue discount and accrued offering costs), respectively, as mezzanine equity (temporary equity) on the 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.

Due to the redeemable nature of the preferred stock, as further discussed below, at March 31, 2023, September 30, 2023 and December 31, 2023, the Company recorded non-cash deemed dividends of approximately $ 1.5 million, $ 1.1 million and $ 1.0 million, respectively, to increase the carrying value of the preferred stock to its redemption amounts of approximately $ 25.0 million, $ 38.0 million and $ 35.0 million, respectively.

For year ended December 31, 2023, the Company paid-in-kind its dividend on the preferred stock of $ 8.5 million.

As of December 31, 2023, the carrying value of the preferred stock, inclusive of PIK dividends, is approximately $ 106.5 million.

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.

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, or $ 98.0 million, increased for any PIK accruals), compounding and accruing quarterly in arrears.

Dividends may be paid in cash or, if not declared and paid in cash, the amount of any such dividend 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”).

Currently, the Company’s Amended Term Loan Agreement prohibits the payment of cash dividends.

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.

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 the Conversion Ratio equal to the then applicable Liquidation Preference at the time of conversion divided by 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 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;

● 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;

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

● 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;

● at any time after the second anniversary of the closing date, 120 % of the Liquidation Preference at such time.

Redemption Features (Change of Control) .

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.

Holders shall also have the ability to elect conversion into common stock at the Conversion Ratio.

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

On October 8, 2019, upon emergence from chapter 11 bankruptcy, Battalion Oil Corporation filed an amended and restated certificate of incorporation with the Delaware Secretary of State to provide for, among other things, (i) the total number of shares of all classes of capital stock that Battalion Oil Corporation 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) a restriction on Battalion Oil Corporation 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.

On October 8, 2019, upon emergence from chapter 11 bankruptcy, Battalion filed an amended and restated certificate of incorporation with the Delaware Secretary of State to provide for, 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) a restriction on Battalion 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.

In addition, pursuant to the Company’s certificate of incorporation, effective at the 2021 annual meeting of stockholders, the board ceased to be divided into two classes, and the provision for the right of removal of any directors designated as a Group II director by an increased voting threshold from a majority to 85 % of the shares then entitled to vote at an election of directors shares expired.

2 unchanged sentences

As of December 31, 2023, a maximum of 1.1 million shares of the Company’s common stock remained reserved for issuance under the Plan.

For the years ended December 31, 2022 and 2021, the Company recognized $ 2.2 million and $ 2.0 million, respectively, related to stock-based compensation awards granted to employees and directors, primarily related to restricted stock unit grants.

For the years ended December 31, 2023 and 2022, the Company recognized a benefit of $ 1.1 million and expense of $ 2.2 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.

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

2 unchanged sentences

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, 2022 and 2021, the Company had $ 2.6 million and $ 2.2 million, respectively of unrecognized compensation expense related to non-vested RSU awards to be recognized over a weighted average period of 1 year and 1.8 years, respectively.

At December 31, 2023 and 2022, the Company had $ 0.3 million and $ 2.6 million, respectively of

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

unrecognized compensation expense related to non-vested RSU awards to be recognized over a weighted average period of 0.3 years and 1 year, respectively.

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

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The discussion below outlines the vesting conditions and fair values for each type of the Company’s approximately 0.3 million unvested outstanding RSU under the Plan issued to employees of the Company as of December 31, 2023.

● Time-Based RSU .

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

● 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 $ 1.6 million.

● Performance-Based RSU .

0.2 million RSUs will vest in full only upon achievement of certain business combination goals, as defined in the awards agreements.

● 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.

The aggregate grant date fair value of these RSUs was $ 0.5 million.

As of December 31, 2022, no expense had been recognized for these awards as a business combination, as defined in the award agreements, had neither been consummated nor was considered probable.

As of December 31, 2023, no expense had been recognized for these awards as a business combination, as defined in the award agreements, had not been consummated.

● Market-Based (e.g.

0.3 million RSUs will vest in full or in part or may terminate based on the Company’s total shareholder return (TSR) relative to the total shareholder return of certain of its peer companies as defined in the awards agreements over the performance period ending on February 20, 2024.

0.1 million Market-Based RSUs will vest in full or in part or may terminate based on the Company’s total shareholder return (“TSR”) relative to the total shareholder return of certain of its peer companies as defined in the awards agreements over the performance period ending on February 20, 2024.

The aggregate grant date fair value of these RSUs was $ 0.6 million.

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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.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Expected term

Stock Options

3 unchanged sentences

Awards granted under the Plan typically 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, 2022, the Company had 478,152 options outstanding ( 3 equal tranches of 159,384 options at exercise prices of $ 18.91 , $ 28.23 , and $ 37.83 per share) with a weighted average exercise price of $ 28.32 /share.

At December 31, 2023, the Company had 132,822 options outstanding ( three equal tranches of 44,274 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, 2023 and 2022, 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, 2023 was approximately 3.1 years.

Approximately $ 0.2 million of unrecognized compensation expense remains related to non-vested stock-options to be recognized over a weighted-average period of 0.7 years.

Approximately less than $ 0.1 million of unrecognized compensation expense remains related to non-vested stock-options to be recognized over a weighted-average period of 0.1 years.

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:

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Non-deductible compensation

Preferred equity transaction costs

Merger transaction costs

Total income tax benefit (provision)

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Operating lease liability

GAAP amortization - discount on MOIC derivative

Amortization of debt issuance costs

Gross deferred noncurrent income tax assets

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As a result of the Company’s analysis, it was concluded that as of December 31, 2023, a valuation allowance should continue to be applied against the Company’s net deferred tax asset.

The Company recorded a valuation allowance as of December 31, 2022 of $ 425.0 million, a decrease of $ 6.7 million from December 31, 2021.

The Company recorded a valuation allowance as of December 31, 2023 of $ 425.0 million, a decrease of less than $ 0.1 million from December 31, 2022.

The Company will continue to monitor facts and circumstances in the reassessment of the likelihood that operating loss carryforwards, credits and other deferred tax assets will be utilized.

2 unchanged sentences

The Company has no unrecognized tax benefits for the year ended December 31, 2023 and 2022.

Accordingly, there is no amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate and there is no amount of interest or penalties currently recognized in the consolidated statements of operations in “Interest expense and other” or

Accordingly, there is

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

consolidated balance sheets as of December 31, 2022 and 2021.

no amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate and there is no amount of interest or penalties currently recognized in the consolidated statements of operations in “Interest expense and other” or consolidated balance sheets as of December 31, 2023 and 2022.

In addition, the Company does not believe that there are any positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

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

On August 16, 2022, the Inflation Reduction Act of 2022 (IRA) was enacted into law.

The IRA contains significant U.S.

federal income tax law changes, including the addition of a corporate alternative minimum tax imposed at a rate of fifteen percent (15%) on our global adjusted financial statement income effective as of January 1, 2023.

Based on current guidance, we do not expect the IRA to have a material adverse impact on our business, results of operations or financial position.

During 2020, the CARES Act and the Consolidated Appropriations Act of 2021 (the CAA) were signed into law.

Both the CARES Act and CAA did not have a material impact to the Company’s consolidated financial statements and related disclosures .

EARNINGS PER SHARE

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Years Ended December 31,

Net income (loss)

Weighted average basic number of common shares outstanding

Basic net income (loss) per share of common share

Net income (loss)

Net (loss) income

Preferred stock dividend

Undistributed earnings allocable to preferred stockholders

Net (loss) income available to common stockholders

Weighted average basic number of common shares outstanding basic

Basic net (loss) income per share of common stock

Net (loss) income available to common stockholders basic

Reallocation of undistributed earnings

Net (loss) income available to common stockholders diluted

Weighted average basic number of common shares outstanding

Common stock equivalent shares representing shares issuable upon:

Exercise of Warrants & Stock Options

Exercise of warrants and stock options

Anti-dilutive

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Anti-dilutive

Weighted average diluted number of common shares outstanding

Weighted average diluted number of common shares outstanding diluted

Diluted net income (loss) per share of common stock

For the year ended December 31, 2022, common stock equivalents, including warrants, stock options and certain restricted stock units, totaling 5.8 million weighted-average shares were anti-dilutive and not included in the computation of diluted earnings per share of common stock.

For the year ended December 31, 2021, common stock equivalents, including warrants, stock options and restricted stock units, totaling 7.7 million shares were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive due to

For the year ended December 31, 2023, common stock equivalents, including stock options and certain restricted stock units, totaling 0.5 million weighted-average shares were anti-dilutive and not included in the computation of diluted earnings per share of common stock.

For the year ended December 31, 2022, common stock equivalents, including warrants, stock options and restricted stock units, totaling 5.8 million shares were not included in the

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

the Company’s net loss in the period.

Additionally, we also have approximately 0.5 million restricted stock units that vest only upon achievement of certain business combination goals or based on the Company’s total shareholder return (TSR) as further described in Note 10, Stockholder’s Equity .

computation of diluted earnings per share of common stock because the effect would have been anti-dilutive due to the Company’s net loss in the period.

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

On October 8, 2022 approximately 6.9 million warrants expired which previously gave the holder the right to purchase one share of common stock for each warrant.

ADDITIONAL FINANCIAL STATEMENT INFORMATION

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

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

December 31, 2023

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Investment in unconsolidated affiliate

Oil, natural gas and natural gas liquids revenues

Contract asset

Funds in escrow

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Accrued lease operating expenses

(1) In May 2022, we entered into a joint venture with Caracara Services, LLC (“Caracara”) to develop an acid gas treatment facility to remove hydrogen sulfide and carbon dioxide from our produced natural gas.

Caracara will provide all necessary capital for the construction of the treatment facility.

We contributed certain full cost pool assets to this related party joint venture in a non-cash exchange for a retained 5 % equity interest in BAT, an unconsolidated subsidiary.

For accounting purposes, since we do not control the key activities (e.g.

operating and maintaining the facility) which most significantly impact economic performance nor do we have the obligation to absorb losses or the right to receive benefits that could potentially be significant, we are not the primary beneficiary of BAT.

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

Investment in Unconsolidated Affiliate .

In May 2022, the Company entered into a joint venture with Caracara Services, LLC (“Caracara”) to develop an acid gas treatment facility to remove hydrogen sulfide and carbon dioxide from its produced natural gas.

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 nor does the Company have the obligation to absorb losses or the right to receive benefits that could potentially be significant, 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.

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.

During 2023, the Company advanced a capital contribution of approximately $ 15.1 million on behalf of its joint venture partner in WAT to fund a workover operation on the AGI well.

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 lessor 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 advance.

The Company advanced additional capital contributions on behalf of its joint venture partner during the first quarter of 2024 of approximately $ 3.0 million to fund WAT with the necessary capital required to complete the sidetrack of the AGI well.

SUBSEQUENT EVENTS

Preferred Stock Equity Issuance.

On March 28, 2023, we sold, in a private placement, an aggregate of 25,000 shares of Series A Convertible Preferred Stock (the “preferred stock”) to certain funds managed by Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC, our largest three existing shareholders that represent 50 percent of our board of directors.

We received $ 24,375,000 in proceeds, net of $ 625,000 in original issue discount.

The issuance of preferred stock was approved by our board of directors upon recommendation by a special committee of disinterested directors that was established to evaluate the proposed terms of the preferred stock.

Holders will have no voting rights with respect to the shares of preferred stock.

The preferred stock will receive annual dividends, paid either in cash at a fixed rate of 14.5 % annually or accrued (“PIK accrual”) at a fixed rate of 16.0 % annually at the option of the Company.

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”) 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-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 PIK accrual rate of 16.0 % annually at the option of the Company.

Currently, the Company’s Amended Term Loan Agreement prohibits the payment of cash dividends.

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

Shares of preferred stock will be convertible, subject to conversion ratios and prices stipulated in the agreement, at any time by the holders and by Battalion after meeting certain other agreement requirements.

Battalion will also have the right to redeem the preferred stock in cash at an amount equal to between 100 - 120 % of the Liquidation Preference ($ 1,000 per share, or $ 25.0 million, increased for any PIK accruals) determined according to the redemption date.

Additionally, in the event of a change of control, holders have the right to receive, (i) at any time on or prior to 150 days following the closing 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 (ii) at any time after 150 days following the closing date, a cash payment equal to between 100 - 120 % of the Liquidation Preference determined by the redemption date or conversion into common stock.

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.

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

The Third Amendment, amended the 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 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 Term Loan Agreement), and (d) make amendments to certain other affirmative covenants in connection with the foregoing.

SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)

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Proved developed reserves are proved reserves expected to be recovered through wells and equipment in place and under operating methods used when the estimates were made.

The proved reserves estimates reported herein for the years ended December 31, 2022, 2021 and 2020 have been independently evaluated by Netherland, Sewell, our independent reserve engineering firm.

The proved reserves estimates reported herein for the years ended December 31, 2023 and 2022 have been independently evaluated by Netherland, Sewell & Associates, Inc.

(“NSAI”), our independent reserve engineering firm.

For additional information regarding estimates of proved reserves and other information about our oil and gas reserves, see Item 1.

Business and the report of Netherland, Sewell which is included as an Exhibit to this Annual Report on Form 10-K.

Business and the report of NSAI which is included as an Exhibit to this Annual Report on Form 10-K.

The following tables illustrate changes in the Company’s estimated net proved developed and proved undeveloped reserves for the periods indicated.

The oil and natural gas liquids prices as of December 31, 2022, 2021 and 2020 are based on the respective 12-month unweighted average of the first of the month prices of the West Texas Intermediate spot price which equates to $94.14 per barrel, $66.55 per barrel and $39.54 per barrel, respectively.

The natural gas prices as of December 31, 2022, 2021 and 2020 are based on the respective 12-month unweighted average of the first of the month prices of the Henry Hub spot price which equates to $6.36 per MMBtu, $3.60 per MMBtu and $1.99 per MMBtu, respectively.

All prices are adjusted by lease or field for energy content, transportation fees, and market

differentials.

The oil and natural gas liquids prices as of December 31, 2023 and 2022 are based on the respective 12-month unweighted average of the first of the month prices of the West Texas Intermediate spot price which equates to $78.21 per barrel and $94.14 per barrel, respectively.

The natural gas prices as of December 31, 2023 and 2022 are based on the respective 12-month unweighted average of the first of the month prices of the Henry Hub spot price which equates to $2.64 per MMBtu and $6.36 per MMBtu, respectively.

All prices are adjusted by lease or

field for energy content, transportation fees, and market differentials.

All prices are held constant in accordance with SEC guidelines.

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Proved reserves, December 31, 2023

Extensions and discoveries

Sale of minerals in place

Revision of previous estimates

Proved reserves, December 31, 2022

Equivalent (Mboe)

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Proved reserves, December 31, 2023

Extensions and discoveries

Sale of minerals in place

Revision of previous estimates

Proved reserves, December 31, 2022

Proved Developed Reserves

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December 31, 2022

December 31, 2020

Proved Undeveloped Reserves

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December 31, 2022

December 31, 2020

(1) Downward revisions for 2022 of 6.4 MMBoe were primarily due to increased capital and operating costs.

(2) 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.

Year Ended December 31, 2023

At December 31, 2023, the Company’s proved developed reserves of 40.1 MMBoe decreased approximately 6.2 MMBoe from December 31, 2022 primarily as a result of negative revisions of 3.6 MMBoe and production of 5.0 MMBoe offset by PUD reserve development of 2.4 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.

During 2023, approximately $33.0 million in capital expenditures went toward the development of proved undeveloped reserves, which includes drilling, completion and other facility costs.

Year Ended December 31, 2022

At December 31, 2022, the Company’s proved developed reserves of 46.3 MMBoe increased approximately 3.9 MMBoe from December 31, 2021 as a result of PUD reserve development of 8.3 MMBoe and positive revisions of 1.2 MMBoe, offset by production of 5.6 MMBoe.

At December 31, 2022, the Company’s estimated proved undeveloped (PUD) reserves of 45.7 MMBoe decreased approximately 7.8 MMBoe from December 31, 2021.

At December 31, 2022, the Company’s estimated PUD reserves of 45.7 MMBoe decreased approximately 7.8 MMBoe from December 31, 2021.

The transfer of 8.3 MMBoe to proved developed producing reserves and downward revisions of 6.4 MMBoe due primarily to increased capital and operating costs were offset by additions and extensions of 7.0 MMBoe in the Delaware Basin primarily associated with infill drilling activity.

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During 2022, approximately $119.8 million in capital expenditures went toward the development of proved undeveloped reserves, which includes drilling, completion and other facility costs.

Year Ended December 31, 2021

At December 31, 2021, the Company’s proved developed reserves of approximately 42.4 MMBoe increased approximately 6.2 MMBoe from 2021 as a result of positive revisions of 10.0 MMBoe due to increases in SEC pricing and the development of 2.1 MMBoe of PUD reserves, partially offset by production of 5.9 MMBoe.

At December 31, 2021, the Company’s estimated PUD reserves were approximately 53.5 MMBoe, a 26.4 MMBoe net increase from December 31, 2020 as a result of drilling extensions in the Delaware Basin of 26.5 MMBoe and positive revisions of 1.9 MMBoe due to increases in SEC pricing, partially offset by development of 2.1 MMBoe.

None of the extensions and discoveries in PUD reserves in 2021 were associated with infill drilling activity.

Year Ended December 31, 2020

At December 31, 2020, the Company’s proved developed reserves of approximately 36.2 MMBoe decreased approximately 1.7 MMBoe from December 31, 2019 as a result of production of 6.2 MMBoe and sales of 2.0 MMBoe, partially offset by PUD reserve development of 6.5 MMBoe.

At December 31, 2020, the Company’s estimated PUD reserves of approximately 27.1 MMBoe, increased by approximately 3.0 MMBoe from December 31, 2021 as a result of result of drilling extensions in the Delaware Basin of 12.4 MMBoe, partially offset by PUD reserve development of 6.5 MMBoe and negative revisions of 2.8 MMBoe due primarily to decreases in SEC pricing.

None of the extensions and discoveries in PUD reserves in 2020 were associated with infill drilling activity.

For wells classified as proved developed producing where sufficient production history existed, reserves were based on individual well performance evaluation and production decline curve extrapolation techniques.

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December 31, 2022

December 31, 2020

Evaluated oil and natural gas properties

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Development costs (1)

(1) Excludes $15.0 million, $5.7 million and $31.5 million for the years ended December 31, 2022, 2021 and 2020, respectively, of development costs related to the Company’s treating equipment and gathering support facilities.

(1) Excludes $3.5 million and $15.0 million for the years ended December 31, 2023 and 2022, respectively, of development costs related to the Company’s treating equipment and gathering support facilities.

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Natural Gas Reserves

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Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Natural Gas Reserves

The following is a summary of the changes in the Standardized Measure for the Company’s proved oil and natural gas reserves during each of the years in the three year period ended December 31, 2022:

The following is a summary of the changes in the Standardized Measure for the Company’s proved oil and natural gas reserves during each of the years in the two year period ended December 31, 2023:

Years Ended December 31,

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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