What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2025-03-31 compared with 2024-04-01 · 282 added, 214 removed, 889 unchanged (36% of the section changed)

3 unchanged sentences

When oil and natural gas prices decline significantly, our ability to finance our capital budget and operations may be adversely impacted.

We expect energy prices to remain volatile and unpredictable, therefore we have designed a risk management policy which provides for the use of derivative instruments to provide partial protection against declines in oil and natural gas prices by reducing the risk of price volatility and the affect it could have on our operations.

by reducing the risk of price volatility and the affect it could have on our operations.

The types of derivative instruments that we typically utilize include fixed-price swaps, costless collars, basis swaps and WTI NYMEX rolls.

15 unchanged sentences

We are also exposed to market risk related to adverse changes in interest rates.

Our interest rate risk exposure results primarily from fluctuations in short-term rates, which are SOFR (and previously, LIBOR) based and may result in reductions of earnings or cash flows due to increases in the interest rates we pay on these obligations.

Our interest rate risk exposure results primarily from fluctuations in short-term rates, which are SOFR-based and may result in reductions of earnings or cash flows due to increases in the interest rates we pay on these obligations.

At December 31, 2024, the principal amount of our debt was $162.00 million, of which substantially all bears interest at floating and variable interest rates that are tied to SOFR.

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures of management’s significant judgments and assumptions related to oil and natural gas reserves quantities and estimates of the future net cash flows included the following, among others:

Our audit procedures to evaluate management’s significant judgments and assumptions related to oil and natural gas reserves quantities and estimates of the future net cash flows included the following, among others:

● We evaluated the reasonableness of management’s five-year development plan by comparing the forecasts to:

30 unchanged sentences

Depletion, depreciation and accretion

Impairment of contract asset

Total operating expenses

1 unchanged sentence

Other income (expenses):

Net gain (loss) on derivative contracts

Net gain on derivative contracts

Interest expense and other

Loss on extinguishment of debt

Total other income expenses

(Loss) income before income taxes

Loss before income taxes

Income tax benefit (provision)

Net (loss) income

Series A preferred dividends

Net (loss) income available to common stockholders

Net (loss) income per share of common stock:

Preferred dividends

Net loss available to common stockholders

Net loss per share of common stock:

Weighted average common shares outstanding:

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Operating lease liabilities

Asset retirement obligations

Total current liabilities

6 unchanged sentences

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

Redeemable convertible preferred stock:

138,000 shares and 98,000 shares

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

December 31, 2024 and 2023, respectively

Stockholders' equity:

1 unchanged sentence

100,000,000 shares of $ 0.0001 par value authorized;

16,456,563 and 16,344,815 shares issued and outstanding as of

December 31, 2023 and 2022 , respectively

16,456,563 shares issued and outstanding as of December 31, 2024 and 2023

Additional paid-in capital

8 unchanged sentences

Balances at December 31, 2022

Deemed dividends for preferred stock

Long-term incentive plan vestings

2 unchanged sentences

Balances at December 31, 2023

Deemed dividends for Series A preferred stock

Deemed dividends for preferred stock

Long-term incentive plan vestings

12 unchanged sentences

Depletion, depreciation and accretion

Impairment of contract asset

Stock-based compensation, net

1 unchanged sentence

Amortization/accretion of financing related costs

Reorganization items, net

Loss (gain) on extinguishment of debt

Accrued settlements on derivative contracts

9 unchanged sentences

Proceeds received from sales of oil and natural gas assets

Acquisition of oil and natural gas properties

Other operating property and equipment capital expenditures

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Proceeds from issuance of preferred stock

Net cash provided by financing activities

Net cash (used in) provided by financing activities

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

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Cash paid for interest

Cash paid for reorganization items

Disclosure of non-cash investing and financing activities:

Asset retirement obligations

Accrued capital expenditures

Capital expenditures in accrued liabilities and accounts payable

Contract asset costs in accounts payable and accrued liabilities

8 unchanged sentences

On January 21, 2020, Battalion filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation with the Delaware Secretary of State to effect a change of the Company’s corporate name from Halcón Resources Corporation to Battalion Oil Corporation.

Battalion is an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States.

Battalion is an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States (“U.S.”).

The consolidated financial statements include the accounts of all majority-owned, controlled subsidiaries.

The Company operates in one reportable segment which focuses on oil and natural gas acquisition, production, exploration and development.

Allocation of capital is made across the Company’s entire portfolio without regard to operating area.

All intercompany accounts and transactions have been eliminated.

The Company has evaluated events and transactions through the date of issuance of this report in conjunction with the preparation of these consolidated financial statements.

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

Use of Estimates

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.

The preparation of the Company’s consolidated financial statements in conformity with U.S.

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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Total cash, cash equivalents and restricted cash

Restricted cash consists primarily of funds to collateralize letters of credit outstanding.

Accounts Receivable and Allowance for Doubtful Accounts

The Company’s accounts receivable are primarily receivables from joint interest owners and oil and natural gas purchasers.

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

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

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable and Allowance for Doubtful Accounts

The Company’s accounts receivable are primarily receivables from joint interest owners and oil and natural gas purchasers.

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

Payment of the Company’s accounts receivable is typically received within 30-60 days.

1 unchanged sentence

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 (the “SEC”).

The Company uses the full cost method of accounting for its investment in oil and natural gas properties as prescribed by the U.S.

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.

10 unchanged sentences

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

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

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

8 unchanged sentences

During any period in which these factors indicate impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and the full cost ceiling test limitation.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Other Operating Property and Equipment

10 unchanged sentences

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.

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”).

6 unchanged sentences

The Company’s accounts receivable are primarily receivables from joint interest owners and oil and natural gas purchasers.

The purchasers of the Company’s oil and natural gas production consist primarily of independent marketers, major oil and natural gas companies and gas pipeline companies.

The purchasers of the Company’s oil and natural gas production consist primarily of independent marketers, major oil and natural gas companies and natural gas pipeline companies.

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 2024 and 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 for the year, collectively representing 86 % and 79 % of its total sales, respectively.

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

5 unchanged sentences

To manage counterparty risk associated with derivative contracts, the Company selects and monitors counterparties based on an assessment of their financial strength and/or credit ratings.

At December 31, 2023, the Company’s derivative counterparties include two major financial institutions, both of which are secured lenders under the Amended Term Loan Agreement.

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

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Risk Management Activities

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

The Company recognized all derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value.

The Company recognizes all derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value.

The Company has elected to not designate any of its positions for hedge accounting.

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.

17 unchanged sentences

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

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued Accounting Standards Update (“ASU”) No.

2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”), in response to the risk of cessation of the London Interbank Offered Rate (“LIBOR”).

This amendment provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging arrangements, and other transactions that reference LIBOR.

On December 21, 2022, the FASB issued ASU No.

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

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.

Recently Issued Accounting Pronouncements

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

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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.

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

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

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

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

5 unchanged sentences

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.

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

Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis.

ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within the fiscal year beginning after December 15, 2027, with early adoption permitted.

The Company is currently evaluating the impact of adopting ASU 2024-03.

The Company has determined that it operates as one reportable segment which focuses on oil and natural gas acquisition, production, exploration and development.

The Company evaluates performance based on consolidated income or loss from operations.

The Company’s chief executive officer and chief operating officer together function as the Company’s chief operating decision maker (the “CODM”).

The CODM evaluates and manages performance and resource allocation based on consolidated production and operating expenses.

Significant expenses provided to the CODM for review consist of lease operating expenses, workover and other expense and gathering and other expense.

The Company’s significant segment expenses are derived from and can be found within the consolidated statement of operations.

The measure of segment assets for the Company’s single reportable segment is “Total assets” as reported on the consolidated balance sheet.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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.

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

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

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

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

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

9 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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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Weighted-average discount rate - operating leases

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

Future minimum lease payments associated with the Company’s non-cancellable operating leases for office space and equipment as of December 31, 2024, are presented in the table below (in thousands):

6 unchanged sentences

OPERATING REVENUES

Substantially all of the Company’s oil, natural gas, and NGL revenues are derived from the Delaware Basin in Pecos, Reeves, Ward and Winkler Counties, Texas.

Substantially all of the Company’s oil, natural gas, and NGLs revenues are derived from the Delaware Basin in Pecos, Reeves, Ward and Winkler Counties, Texas.

Revenue is presented disaggregated in the statement of operations by major product, and depicts how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors in the Company’s single basin operations.

Revenue is recognized when the following five steps are completed:

(1) identify the contract with the customer, (2) identify the performance obligation (promise) in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, (5) recognize revenue when the reporting organization satisfies a performance obligation.

Revenues from the sale of crude oil, natural gas and natural gas liquids are recognized, at a point in time, when a performance obligation is satisfied by the transfer of control of each unit (e.g.

barrel of oil, Mcf of gas) of commodity to the customer.

barrel of oil, Mcf of natural gas) of commodity to the customer.

Revenue is measured based on contract consideration allocated to each unit of commodity and excludes amounts collected on behalf of third parties.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue.

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

balance sheets.

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 $ 23.5 million and $ 19.8 million as of December 31, 2024 and 2023, respectively, as “Accounts receivable, net” on the consolidated balance sheets.

The Company utilizes the practical expedient exempting the disclosure of the transaction price of unsatisfied performance obligations for (i) contracts with an original expected duration of one year or less and (ii) contracts where variable consideration is allocated entirely to a wholly unsatisfied performance obligation (each unit of product typically represents a separate performance obligation, and therefore, future volumes under the Company’s long-term contracts are wholly unsatisfied).

6 unchanged sentences

Settlement statements for the Company’s crude oil production are typically received within the month following the date of production and therefore the amount of production delivered to the customer and the price that will be received for that production are known at the time the revenue is recorded.

Natural Gas and NGL Sales

Natural Gas and NGLs Sales

The Company evaluates its natural gas gathering and processing arrangements in place with midstream companies to determine when control of the natural gas is transferred.

1 unchanged sentence

Under contracts where it is determined that control of the natural gas transfers at the tailgate of the midstream entity’s processing plant, revenues are presented on a gross basis for amounts expected to be received from the midstream company or third party purchasers through the gathering and treating process and presented as “Natural gas” or “Natural gas liquids” and any fees incurred to gather or process the natural gas are presented separately as “Gathering and other” on the consolidated statements of operations.

Under certain contracts, the Company may elect to take its residue gas and/or natural gas liquids in-kind at the tailgate of the midstream entity’s processing plant.

Under certain contracts, the Company may elect to take its residue gas and/or NGLs in-kind at the tailgate of the midstream entity’s processing plant.

The Company then sells the products to a customer at contractual delivery points at prices based on an index.

23 unchanged sentences

Depletion for oil and natural gas properties is calculated using the unit of production method, which depletes the capitalized costs of evaluated properties plus future development costs based on the ratio of production for the current period to total reserve volumes of evaluated properties as of the beginning of the period.

Depletion expense was $ 55.2 million and $ 51.0 million for the year ended December 31, 2023 and 2022, respectively.

Depletion expense was $ 51.3 million and $ 55.2 million for the years ended December 31, 2024 and 2023, respectively.

Depletion expense is recorded in “Depletion, depreciation and accretion” in the Company’s consolidated statements of operations.

7 unchanged sentences

(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

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.

The Company's net book value of oil and natural gas properties for both 2024 and 2023 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.

As of December 31, 2024 and 2023, the Company’s debt consisted of the following (in thousands):

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Long-Term Debt, net

(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”.

For the years ended December 31, 2023 and 2022, we recorded approximately $ 7.6 million and $ 5.4 million, respectively, in interest expense reflecting the amortization/accretion of these amounts.

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

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

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

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

Amended and Restated Credit Agreement

On December 26, 2024 (the “Initial Closing Date”), Halcón Holdings, LLC (the “Borrower”), a wholly-owned subsidiary of the Company, entered into a Second Amended and Restated Senior Secured Credit Agreement (the “2024 Term Loan Agreement”) with Fortress Credit Corp., as administrative agent, and certain other financial institutions party thereto, as lenders.

The 2024 Term Loan Agreement amends and restates in its entirety the Company’s 2021 Amended Term Loan Agreement (as defined below).

Pursuant to the 2024 Term Loan Agreement, the lenders party thereto agreed to provide the Borrower with (i) an initial term loan facility in the aggregate principal amount of $ 162.0 million, funded on December 26, 2024 and (ii) an incremental term loan facility in the aggregate principal amount of up to $ 63.0 million to be made available to the Borrower from January 3, 2025 until the date that is the earliest to occur of (x) the date on which such incremental term facility is fully drawn, (y) the date on which such incremental term facility is terminated and (z) January 11, 2025, subject to the satisfaction of certain conditions.

On January 9, 2025, the Borrower entered into a first amendment (the “First Amendment”) to its 2024 Term Loan Agreement (as amended, the “2024 Amended Term Loan Agreement”).

Pursuant to the First Amendment, the Borrower incurred incremental term loans in the aggregate principal amount of $ 63.0 million (the “Incremental Term Loans”).

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The net proceeds of the 2024 Term Loan Agreement were used to repay all outstanding indebtedness under the 2021 Amended Term Loan Agreement, including accrued and unpaid interest, in an aggregate amount of approximately $ 152.1 million and to pay related fees and expenses.

Upon extinguishment of the 2021 Amended Term Loan Agreement, the difference between the repayment amount of the extinguished debt and its respective carrying amount is recorded as a gain or loss on extinguishment of debt in the consolidated statement of operations.

For the year ended December 31, 2024, the Company recognized a loss on extinguishment of debt in the amount of $ 7.5 million resulting from the credit agreement refinancing on December 26, 2024 which includes a $ 3.6 million non-cash write-off of deferred financing costs, original issue discounts and embedded derivatives associated with the extinguished debt and $ 3.9 million in fees and debt issuance costs paid for the new debt.

Additionally, the Company deferred $ 4.3 million of original issue discount and financing costs on the consolidated balance sheet at December 31, 2024.

The maturity date of the 2024 Amended Term Loan Agreement is December 26, 2028.

Borrowings under the 2024 Amended Term Loan Agreement bear interest at a rate per annum equal to a forward-looking term rate based on the Secured Overnight Financing Rate (“SOFR”) for a tenor of three months (with a credit spread adjustment of 0.15 % per annum) (or another applicable reference rate, as determined pursuant to the terms of the 2024 Amended Term Loan Agreement) plus an applicable margin of 7.75 %.

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

Such voluntary prepayments, certain mandatory prepayments and change of control prepayments are subject to the following prepayment premium, as applicable:

Months 0 - 12

Make-whole amount equal to 12 months of interest plus 4.00 %

Months 13 - 30

In the event the Borrower shall receive a disapproval notice (as defined in the 2024 Term Loan Agreement) from the required lenders under the 2024 Amended Term Loan Agreement rejecting or otherwise disqualifying a proposed buyer in connection with a permitted change in control thereunder to be consummated within 12 months following the Initial Closing Date, such voluntary prepayments, certain mandatory prepayments and change of control prepayments are subject to the following prepayment premium, as applicable:

Make-whole amount equal to 9 months of interest plus 2.00 %

Months 10 - 30

The Borrower may be required to make mandatory prepayments of the loans under the 2024 Amended Term Loan Agreement in connection with the incurrence of non-permitted debt, certain asset sales and with excess cash on hand in excess of certain maximum levels.

As of December 31, 2024, the Borrower is required to make scheduled quarterly amortization payments in an aggregate principal amount equal to 2.50 % of the aggregate principal amount of the loans outstanding on the Initial Closing Date commencing with the fiscal quarter ending June 30, 2025, and subsequent to December 31, 2024, is required to make scheduled quarterly amortization payments in an aggregate principal amount equal to 2.50 % of the total aggregate principal amount of the loans outstanding on the Initial Closing Date plus the Incremental Term Loans commencing with the fiscal quarter ending June 30, 2025.

Amounts outstanding under the 2024 Amended Term Loan Agreement are guaranteed by certain of the Borrower’s direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of the Borrower and such direct and indirect subsidiaries, and of the equity interests of the Borrower held by the Company.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

● Liquidity not to fall below the greater of (x) $ 10,000,000 and (y) the amount equal to the scheduled principal and interest payments for the immediately succeeding three-month period, determined as of the last day of any fiscal quarter .

Under the 2024 Amended Term Loan Agreement, the Company is required to hedge approximately 85 % to 50 % of its anticipated oil and natural gas production, in varying percentages by year, on a rolling basis for the next four years.

Entry into the 2024 Term Loan Agreement did not result in any material changes to the Company’s hedges.

The 2024 Amended Term Loan Agreement also contains certain events of default, including non-payment;

breaches of representations and warranties;

non-compliance with covenants or other agreements;

cross-default to material indebtedness;

change of control;

and voluntary and involuntary bankruptcy.

In conjunction with entering into the 2024 Term Loan Agreement, the Company agreed to pay an exit fee equal to the amount resulting from multiplying 3.50 % by the difference, if any, of (x) Total proved developed producing (“PDP”) PV-10 (the “PDP PV-10”) as of the date that is the earlier of (i) Payment in Full, (ii) the Maturity Date, or (iii) the loans and other obligations otherwise becoming immediately due and payable pursuant to Section 10.02 of the 2024 Term Loan Agreement (including whether, in the case of clauses (i) or (iii), such Payment in Full or acceleration, respectively, may be made in connection with a refinancing transaction or a disposition of all or substantially all of the assets of the Company) (such earlier date, the “Exit Fee Determination Date”), less (y) the Total PDP PV-10 reflected in the Initial Reserve Report (as defined in the 2024 Term Loan Agreement) (the “Exit Fee”).

Upon evaluation of the payoff profiles associated with the Exit Fee, the Company concluded that such embedded features resulting from the application of this fee were not clearly and closely related to the host debt instrument.

The fair value analysis for such derivative was performed and the fair value was deemed to be zero at commencement and at December 31, 2024.

Refer to Note 8, “ Fair Value Measurements ,” for a discussion of the valuation approach used and the significant inputs to the valuation for the Exit Fee derivative.

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

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

Term Loan Credit Facility

On November 24, 2021, the Company and its wholly owned subsidiary, Halcón Holdings, LLC (Borrower) entered into an Amended and Restated Senior Secured Credit Agreement (Term Loan Agreement) with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders.

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

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

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

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

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

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

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

Period (after applicable borrowing date (1) )

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(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.

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 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 an APOD for the Company’s Monument Draw acreage through the drilling and completion of certain wells.

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

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

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

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

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

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

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

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

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

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

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

breaches of representations and warranties;

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and voluntary and involuntary bankruptcy.

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 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.

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

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

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

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

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

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Debt Maturities

Aggregate maturities required on debt at December 31, 2023 due in future years are as follows (in thousands):

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

Term Loan Credit Facility (1)

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

FAIR VALUE MEASUREMENTS

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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

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):

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, 2024 and 2023 (in thousands):

December 31, 2024

Assets from commodity-based derivative contracts

Liabilities from commodity-based derivative contracts

Assets from derivative contracts

Liabilities from derivative contracts

December 31, 2023

Assets from commodity-based derivative contracts

Liabilities from commodity-based derivative contracts

Assets from derivative contracts

Liabilities from derivative contracts

Derivative contracts listed above as Level 2 include fixed-price swaps, collars, puts, calls, basis swaps and WTI NYMEX rolls that are carried at fair value.

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however, the Company does not anticipate such nonperformance.

As discussed in Note 6, “Debt,” the Company recorded the fair value of the Change of Control Call Option separately on the consolidated balance sheets in “Other noncurrent liabilities.” The fair value of the Change of Control Call Option is subsequently remeasured each reporting period with fair values changes recorded in “ Interest expense and other” on the consolidated statement of operations.

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

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

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

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

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

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

As discussed in Note 7, “Debt,” the Company evaluated the 2024 Amended Term Loan Agreement and identified the Exit Fee to be an embedded derivative not clearly and closely related to the host debt instrument.

The fair value analysis for such derivative was performed and the fair value was deemed to be zero at commencement and at December 31, 2024.

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

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

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

forecasted capital and other expenditures and discount rates.

The fair value of the Exit Fee derivative is classified as Level 3 in the fair value hierarchy.

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

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

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

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

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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.

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.

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

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company’s crude oil and natural gas derivative positions at any point in time may consist of fixed-price swaps, costless put/call collars, basis swaps and WTI NYMEX rolls further described as follows:

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

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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Total net gain (loss)

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2024, the Company had the following open crude oil and natural gas derivative contracts:

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The following table shows the potential effects of master netting arrangements on the fair value of the Company’s derivative contracts at December 31, 2024 and 2023 (in thousands):

Derivative Assets

Derivative Liabilities

Assets from Derivative Contracts

Liabilities from Derivative Contracts

Years Ended December 31,

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Offsetting of Derivative Assets and Liabilities

Gross Amounts - Consolidated Balance Sheet

Amounts Not Offset - Consolidated Balance Sheet

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Gross amounts recognized in the Consolidated Balance Sheet

Amounts not offset in the Consolidated Balance Sheet

The Company enters into an International Swap Dealers Association Master Agreement (“ISDA”) with each counterparty prior to a derivative contract with such counterparty.

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The ISDA allows for offsetting of amounts payable or receivable between the Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ASSET RETIREMENT OBLIGATIONS

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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.

The Company has a minimum volume commitment of 20,000 Mcf per day under the gas treating agreement, with certain rollover rights and start-up flexibility, for an initial term of five years from the in-service date of the facility.

Under the gas treating agreement, the Company p ays a treating rate that begins at $ 1.75 /Mcf and varies based on volumes delivered to the facility.

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

For additional information on this joint venture, see Note 16, “Additional Financial Information.”

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

Preferred Stock (1)

Issuance Date

Conversion Price

Net Equity Recorded (2)

(in thousands)

Non-cash Deemed Dividends (2)

(in thousands)

Total Net Equity & Cumulative Deemed Dividends

(in thousands)

Initial Deemed Dividend Date

March 28, 2023

March 31, 2023

September 6, 2023

September 30, 2023

December 15, 2023

December 31, 2023

March 27, 2024

March 31, 2024

June 30, 2024

(1) At the option of the Company, Series A through A-4 receive either annual dividends paid in cash at a fixed rate of 14.5 % or accrued annually at a fixed PIK rate of 16.0 % .

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

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

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

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

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

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

The Series A-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.

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

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

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

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

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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

1 unchanged sentence

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

The Series A-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.

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

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

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

The Series A-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.

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

For accounting purposes, upon issuance of the preferred stock (collectively, the “Redeemable Convertible Preferred Stock”), the Company recorded the net proceeds as mezzanine equity (temporary equity) on the unaudited condensed consolidated balance sheets because it is not mandatorily redeemable but does contain a redemption feature at the option of the preferred holders that is considered not solely within the Company’s control.

The Company paid-in-kind its dividend on the preferred stock of $ 31.0 million and $ 8.5 million for the years ended December 31, 2024 and 2023, respectively.

The carrying value of the preferred stock, inclusive of PIK dividends, is approximately $ 177.5 and $ 106.5 million for the years ended December 31, 2024 and 2023, respectively.

PIK dividends are recognized first using the dividend date fair value and then adjusted to redemption value as long as the redemption value exceeds the initial dividend date fair value.

Voting Rights.

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

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

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

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STOCKHOLDERS’ EQUITY

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.

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

Incentive Plans

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As of December 31, 2024, a maximum of 1.2 million shares of the Company’s common stock remained reserved for issuance under the Plan.

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.

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

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

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

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

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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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Unvested outstanding shares at December 31, 2022

Unvested outstanding shares at December 31, 2023

Unvested outstanding shares at December 31, 2024

(1) The intrinsic value of restricted stock was calculated as the closing market price on December 31, 2024 and 2023 of the underlying stock multiplied by the number of restricted shares that would be issuable.

The total fair value of shares vested was $ 1.5 million for the year ended December 31, 2023.

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.

There were no shares vested during the year ended December 31, 2024.

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

● Time-Based RSUs .

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As of December 31, 2024, 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.

0.1 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.

The assumptions used in calculating the Monte Carlo valuation model fair value of the Company’s RSUs with market based (e.g.

TSR) vesting conditions granted in 2020 are set forth in the following table:

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

December 31, 2020

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Risk free rate of return

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Expected term

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

Equity Grant Units

During September and November 2024, the Company issued in aggregate 229,023 equity grant units (“EGUs”) to Company executives and certain eligible employees.

Each EGU represented the right to receive a cash payment equivalent to the value of a share of the Company’s common stock upon the closing of a change of control event.

In March 2025, all outstanding EGU awards were rescinded and cancelled.

The Company did no t record any expense related to the EGUs during the year ended December 31, 2024.

Stock Options

From time to time, the Company has granted stock options under the Plan covering shares of common stock to employees of the Company.

The Company has not granted stock options since 2020.

Prior to 2020, the Company granted stock options under the Plan covering shares of common stock to employees of the Company.

Stock options, if exercised, are settled through the payment of the exercise price in exchange for new shares of stock underlying the option.

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.

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

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

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The weighted average remaining contractual life at December 31, 2024 was approximately 2.1 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.

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

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

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

On October 8, 2019, pursuant to the Company’s plan of reorganization, approximately 6.9 million Series A, Series B and Series C warrants were issued to pre-emergence holders of the predecessor Company’s common stock with corresponding initial exercise prices ranging from $ 40.17 to $ 60.45 per share, on a pro rata basis.

Each series of Warrants issued under the Warrant Agreement had a three-year term, which expired on October 8, 2022 .

BATTALION OIL CORPORATION

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Permanent adjustments

Employee retention credit

Net operating loss write-off Section 382

Non-deductible compensation

Preferred equity transaction costs

Capital loss carryover expiration

Merger transaction costs

Total income tax benefit (provision)

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

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

BATTALION OIL CORPORATION

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Operating lease liability

GAAP amortization - discount on MOIC derivative

Amortization of debt issuance costs

Loss on extinguishment of debt

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, 2024, 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, 2023 of $ 425.0 million, a decrease of less than $ 0.1 million from December 31, 2022.

The Company recorded a valuation allowance as of December 31, 2024 of $ 317.4 million, a decrease of $ 107.6 million from December 31, 2023.

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.

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return.

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The Company has no unrecognized tax benefits for the year ended December 31, 2024 and 2023.

Accordingly, there is

BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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 consolidated balance sheets as of December 31, 2024 and 2023.

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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Years Ended December 31,

Net (loss) income

Preferred stock dividend

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Common stock equivalent shares representing shares issuable upon:

Exercise of warrants and stock options

Exercise of stock options

Anti-dilutive

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Anti-dilutive

Weighted average diluted number of common shares outstanding diluted

Diluted net income (loss) per share of common stock

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

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.

For the year ended December 31, 2024, common stock equivalents, including stock options and certain restricted stock units, totaling 0.2 million weighted-average shares were anti-dilutive and not included in the computation of diluted earnings per share of common stock.

Additionally, the Company also has less than 0.1 million restricted stock units that vest only upon achievement of certain business combination goals as further described in Note 13, “ Stockholder’s Equity” .

ADDITIONAL FINANCIAL STATEMENT INFORMATION

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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.

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

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

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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.

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

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

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

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

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

December 31, 2024

December 31, 2023

Interest expense and other

Interest expense

Interest income

Mark-to-market of derivatives - change of control call option

Merger Termination Payment

SUBSEQUENT EVENTS

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

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.

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.

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

SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)

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Extensions and discoveries

Sale of minerals in place

Revision of previous estimates (1)

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Extensions and discoveries

Sale of minerals in place

Revision of previous estimates (1)

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December 31, 2023

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

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

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

Year Ended December 31, 2024

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

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

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

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

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Year Ended December 31, 2023

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 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.

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.

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

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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