10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

⌧	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
◻	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 001-35467

Battalion Oil Corporation

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 1311
(Primary Standard Industrial
Classification Code Number) 20-0700684
(I.R.S. Employer
Identification Number)

1000 Louisiana Street, Suite 6600, Houston, TX 77002

(Address of principal executive offices)

(832) 538-0300

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ◻ Accelerated filer ◻ Non-accelerated filer ⌧ Smaller reporting company  ⌧ Emerging growth company ◻

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ◻ No ⌧

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.0001	BATL	NYSE American

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities made under a plan confirmed by a court. Yes ⌧ No ◻

At May 11, 2021, 16,267,597 shares of the Registrant’s Common Stock were outstanding.

TABLE OF CONTENTS

		PAGE
PART I	FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)	5
	Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2021 and 2020	5
	Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2021 and December 31, 2020	6
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2021 and the Year Ended December 31, 2020	7
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2021 and 2020	9
	Notes to Unaudited Condensed Consolidated Financial Statements	10
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	36
ITEM 4.	Controls and Procedures	37
PART II	OTHER INFORMATION
ITEM 1.	Legal Proceedings	37
ITEM 1A.	Risk Factors	38
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
ITEM 3.	Defaults Upon Senior Securities	38
ITEM 4.	Mine Safety Disclosures	38
ITEM 5.	Other Information	38
ITEM 6.	Exhibits	39
Signatures		40

2

Special note regarding forward-looking statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, are forward looking statements and may concern, among other things, planned capital expenditures, potential increases in oil and natural gas production, potential costs to be incurred, future cash flows and borrowings, our financial position, business strategy and other plans and objectives for future operations. These forward-looking statements may be identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “objective,” “believe,” “predict,” “intend,” “achievable,” “anticipate,” “will,” “continue,” “potential,” “should,” “could” and similar terms and phrases. Although we believe that the expectations reflected in forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. Actual results could differ materially from those anticipated in forward-looking statements. Readers should consider carefully the risks described under the “Risk Factors” section of our previously filed Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as well as the other disclosures contained herein and therein, which describe factors that could cause our actual results to differ from those anticipated in forward-looking statements, which include, but are not limited to, the following factors:

● volatility in commodity prices for oil, natural gas and natural gas liquids;

● impacts and potential risks related to actual or anticipated pandemics, such as the novel coronavirus (COVID-19) pandemic;

● impacts of the ongoing COVID-19 pandemic on the health and safety of our employees;

● our ability to generate sufficient cash flow from operations, borrowings or other sources to enable us to fund our operations, satisfy our obligations and develop our undeveloped acreage positions;

● our indebtedness, which may increase in the future;

● higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business;

● our ability to replace our oil and natural gas reserves and production;

● the presence or recoverability of estimated oil and natural gas reserves attributable to our properties and the actual future production rates and associated costs of producing those oil and natural gas reserves;

● our ability to successfully develop our large inventory of undeveloped acreage;

● drilling and operating risks, including accidents, equipment failures, fires, and leaks of toxic or hazardous materials which can result in injury, loss of life, pollution, property damage and suspension of operations;

● our ability to retain key members of senior management, the board of directors and key technical employees;

● senior management’s ability to execute our plans to meet our goals;

● access to and availability of water, sand and other treatment materials to carry out fracture stimulations in our completion operations;

● our ability to secure adequate sour gas treating and/or sour gas take-away capacity in our Monument Draw area sufficient to handle production volumes;

● access to adequate gathering systems, processing and treating facilities and transportation take-away capacity to move our production to marketing outlets to sell our production at market prices;

● the cost and availability of goods and services, such as drilling rigs, fracture stimulation services and tubulars;

● contractual limitations that affect our management’s discretion in managing our business, including covenants that, among other things, limit our ability to incur debt, make investments and pay cash dividends;

● the potential for production decline rates for our wells to be greater than we expect;

● competition, including competition for acreage in our resource play;

● environmental risks;

● exploration and development risks;

● the possibility that our industry may be subject to future regulatory or legislative actions (including additional taxes and changes in environmental regulations);

● general economic conditions, whether internationally, nationally or in the regional and local market areas in which we do business, may be less favorable than expected, including the possibility that economic conditions in the United States will worsen and that capital markets are disrupted, which could adversely affect demand for oil and natural gas and make it difficult to access capital;

3

● social unrest, political instability or armed conflict in major oil and natural gas producing regions outside the United States, such as the Middle East, and armed conflict or acts of terrorism or sabotage;

● other economic, competitive, governmental, regulatory, legislative, including federal and state regulations and laws, geopolitical and technological factors that may negatively impact our business, operations or oil and natural gas prices;

● our insurance coverage may not adequately cover all losses that we may sustain; and

● title to the properties in which we have an interest may be impaired by title defects.

All forward-looking statements are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this document. Other than as required under the securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.

4

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

BATTALION OIL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share amounts)

	Three Months Ended
	March 31,
	2021		2020
Operating revenues:
Oil, natural gas and natural gas liquids sales:
Oil	$	41,270	$	41,917
Natural gas		9,087		354
Natural gas liquids		4,909		4,753
Total oil, natural gas and natural gas liquids sales		55,266		47,024
Other		252		375
Total operating revenues		55,518		47,399
Operating expenses:
Production:
Lease operating		9,467		12,489
Workover and other		560		1,323
Taxes other than income		3,192		2,915
Gathering and other		13,171		10,547
Restructuring		—		418
General and administrative		4,827		3,856
Depletion, depreciation and accretion		10,595		18,030
Total operating expenses		41,812		49,578
Income (loss) from operations		13,706		(2,179)
Other income (expenses):
Net gain (loss) on derivative contracts		(45,711)		118,299
Interest expense and other		(1,370)		(1,629)
Total other income (expenses)		(47,081)		116,670
Income (loss) before income taxes		(33,375)		114,491
Income tax benefit (provision)		—		—
Net income (loss)	$	(33,375)	$	114,491
Net income (loss) per share of common stock:
Basic	$	(2.06)	$	7.07
Diluted	$	(2.06)	$	7.07
Weighted average common shares outstanding:
Basic		16,232		16,204
Diluted		16,232		16,204

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

5

BATTALION OIL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share and per share amounts)

	March 31, 2021		December 31, 2020
Current assets:
Cash and cash equivalents	$	1,671	$	4,295
Accounts receivable, net		39,534		32,242
Assets from derivative contracts		672		8,559
Prepaids and other		2,591		2,740
Total current assets		44,468		47,836
Oil and natural gas properties (full cost method):
Evaluated		530,499		509,274
Unevaluated		75,880		75,494
Gross oil and natural gas properties		606,379		584,768
Less - accumulated depletion		(305,505)		(295,163)
Net oil and natural gas properties		300,874		289,605
Other operating property and equipment:
Other operating property and equipment		3,524		3,535
Less - accumulated depreciation		(1,257)		(1,149)
Net other operating property and equipment		2,267		2,386
Other noncurrent assets:
Assets from derivative contracts		828		4,009
Operating lease right of use assets		195		310
Other assets		1,967		2,351
Total assets	$	350,599	$	346,497
Current liabilities:
Accounts payable and accrued liabilities	$	74,073	$	58,928
Liabilities from derivative contracts		42,371		22,125
Current portion of long-term debt		2,123		1,720
Operating lease liabilities		195		403
Total current liabilities		118,762		83,176
Long-term debt		155,086		158,489
Other noncurrent liabilities:
Liabilities from derivative contracts		9,029		4,291
Asset retirement obligations		10,711		10,583
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock: 100,000,000 shares of $0.0001 par value authorized;
16,267,157 and 16,203,979 shares issued and outstanding as of
March 31, 2021 and December 31, 2020, respectively		2		2
Additional paid-in capital		330,551		330,123
Retained earnings (accumulated deficit)		(273,542)		(240,167)
Total stockholders' equity		57,011		89,958
Total liabilities and stockholders' equity	$	350,599	$	346,497

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

6

BATTALION OIL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands)

						Retained
				Additional		Earnings
	Common Stock			Paid-In		(Accumulated		Stockholders'
	Shares	Amount		Capital		Deficit)		Equity
Balances at December 31, 2020	16,204	$	2	$	330,123	$	(240,167)	$	89,958
Net income (loss)	—		—		—		(33,375)		(33,375)
Long-term incentive plan vestings	87		—		—		—		—
Reduction in shares to cover
individuals' tax withholding	(24)		—		(264)		—		(264)
Stock-based compensation	—		—		692		—		692
Balances at March 31, 2021	16,267	$	2	$	330,551	$	(273,542)	$	57,011

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

7

BATTALION OIL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands)

						Retained
				Additional		Earnings
	Common Stock			Paid-In		(Accumulated		Stockholders'
	Shares	Amount		Capital		Deficit)		Equity
Balances at December 31, 2019	16,204	$	2	$	327,108	$	(10,460)	$	316,650
Net income (loss)	—		—		—		114,491		114,491
Equity issuance costs and other	—		—		(13)		—		(13)
Stock-based compensation	—		—		449		—		449
Balances at March 31, 2020	16,204		2		327,544		104,031		431,577
Net income (loss)	—		—		—		(127,316)		(127,316)
Stock-based compensation	—		—		910		—		910
Balances at June 30, 2020	16,204		2		328,454		(23,285)		305,171
Net income (loss)	—		—		—		(153,125)		(153,125)
Stock-based compensation	—		—		744		—		744
Balances at September 30, 2020	16,204		2		329,198		(176,410)		152,790
Net income (loss)	—		—		—		(63,757)		(63,757)
Stock-based compensation	—		—		925		—		925
Balances at December 31, 2020	16,204	$	2	$	330,123	$	(240,167)	$	89,958

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

8

BATTALION OIL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Three Months Ended
	March 31,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	(33,375)	$	114,491
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depletion, depreciation and accretion		10,595		18,030
Stock-based compensation, net		594		387
Unrealized loss (gain) on derivative contracts		36,052		(112,378)
Reorganization items, net		—		(4,984)
Accrued settlements on derivative contracts		4,568		(4,923)
Other income (expense)		(117)		7
Change in assets and liabilities:
Accounts receivable		(7,613)		18,919
Prepaids and other		149		1,038
Accounts payable and accrued liabilities		2,505		(18,244)
Net cash provided by (used in) operating activities		13,358		12,343
Cash flows from investing activities:
Oil and natural gas capital expenditures		(13,792)		(48,157)
Proceeds received from sale of oil and natural gas properties		1,076		—
Funds held in escrow and other		(3)		509
Net cash provided by (used in) investing activities		(12,719)		(47,648)
Cash flows from financing activities:
Proceeds from borrowings		16,000		51,000
Repayments of borrowings		(19,000)		(25,000)
Equity issuance costs and other		(263)		(32)
Net cash provided by (used in) financing activities		(3,263)		25,968
Net increase (decrease) in cash and cash equivalents		(2,624)		(9,337)
Cash and cash equivalents at beginning of period		4,295		10,275
Cash and cash equivalents at end of period	$	1,671	$	938
Supplemental cash flow information:
Cash paid for reorganization items	$	—	$	4,984
Disclosure of non-cash investing and financing activities:
Asset retirement obligations	$	—	$	105

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

9

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. FINANCIAL STATEMENT PRESENTATION

Basis of Presentation and Principles of Consolidation

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. The consolidated financial statements include the accounts of all majority-owned, controlled subsidiaries. The Company operates in one segment which focuses on oil and natural gas acquisition, production, exploration and development. Allocation of capital is made across the Company’s entire portfolio without regard to operating area. All intercompany accounts and transactions have been eliminated. These unaudited condensed consolidated financial statements reflect, in the opinion of the Company’s management, all adjustments, consisting of normal and recurring adjustments, necessary to present fairly the financial position as of, and the results of operations for, the periods presented. During interim periods, Battalion follows the accounting policies disclosed in its Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission (SEC) on March 8, 2021. Please refer to the notes in the 2020 Annual Report on Form 10-K when reviewing interim financial results.

Risk and Uncertainties

The Company is continuously monitoring the current and potential impacts of the novel coronavirus (COVID-19) pandemic on its business, including how it has and may continue to impact its operations, financial results, liquidity, contractors, customers, employees and vendors, and taking appropriate actions in response, including implementing various measures to ensure the continued operation of its business in a safe and secure manner. In 2020, COVID-19 and governmental actions to contain the pandemic contributed to an economic downturn, reduced demand for oil and natural gas and, together with a price war involving the Organization of Petroleum Exporting Countries (OPEC)/Saudi Arabia and Russia, depressed oil and natural gas prices to historically low levels. Although OPEC and Russia subsequently agreed to reduce production, downward pressure on prices continued for several months, particularly given concerns over the impacts of the economic downturn on demand. The Company is unable to predict the future affects that these events will have on its business and financial condition due to numerous uncertainties, including the continuing severity and duration of the COVID-19 outbreak and the impacts that governmental or other actions taken to limit the extent and duration of the outbreak, in conjunction with economic conditions, will have on its business, demand for oil and natural gas, and oil and natural gas prices. The health of the Company’s employees, contractors and vendors, and its ability to meet staffing needs in its operations and critical functions cannot be predicted, nor can the impact on the Company’s customers, vendors and contractors. Any material effect on these parties could adversely impact the Company. These and other factors could affect the Company’s operations, earnings and cash flows and could cause its results to not be comparable to those of the same period in previous years. For example, in 2020, the Company realized lower revenue as a result of commodity price declines, which began in March 2020. In response to low commodity prices, the Company temporarily shut-in producing wells in May and June 2020, which further contributed to lower revenues that year. Additionally, the Company incurred ceiling test impairments in 2020, which were primarily driven by a decline in the average pricing used in the valuation of the Company’s reserves. The results presented in this Form 10-Q are not necessarily indicative of future operating results. For further information regarding the actual and potential impacts of COVID-19 on the Company, see “Risk Factors” in Item 1A of the Company’s 2020 Annual Report on Form 10-K.

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Estimates and assumptions that, in the opinion of management of the Company, are significant include oil and natural gas revenue accruals, capital and operating expense accruals, oil and natural gas reserves, depletion relating to oil and natural gas properties, asset retirement obligations, and fair value estimates. The Company bases its estimates and judgments on historical experience and on various other

10

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

assumptions and information believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be predicted with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from the estimates and assumptions used in the preparation of the Company’s unaudited condensed consolidated financial statements.

Interim period results are not necessarily indicative of results of operations or cash flows for the full year and accordingly, certain information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, has been condensed or omitted. The Company has evaluated events or transactions through the date of issuance of these unaudited condensed consolidated financial statements.

Cash and Cash Equivalents

The Company considers all highly liquid short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value.

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. The Company establishes provisions for losses on accounts receivable if it determines that collection of all or part of the outstanding balance is doubtful. The Company regularly reviews collectability and establishes or adjusts the allowance for doubtful accounts as necessary using the specific identification method. As of March 31, 2021 and December 31, 2020, allowances for doubtful accounts were approximately $0.2 million for both periods.

Other Operating Property and Equipment

Other operating property and equipment additions are recorded at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives: buildings, twenty years; automobiles and computers, three years; computer software, fixtures, furniture and equipment, five years; trailers, seven years; heavy equipment, eight to ten years and leasehold improvements, lease term. Land and artwork are not depreciated. Upon disposition, the cost and accumulated depreciation are removed and any gains or losses are reflected in current operations. Maintenance and repair costs are charged to operating expense as incurred. Material expenditures which increase the life or productive capacity of an asset are capitalized and depreciated over the estimated remaining useful life of the asset.

The Company reviews its other operating property and equipment for impairment in accordance with Accounting Standards Codification (ASC) 360, Property, Plant, and Equipment (ASC 360). ASC 360 requires the Company to evaluate other operating property and equipment for impairment as events occur or circumstances change that would more likely than not reduce the fair value below the carrying amount. If the carrying amount is not recoverable from its undiscounted cash flows, then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value. Further, the Company evaluates the remaining useful lives of its other operating property and equipment at each reporting period to determine whether events and circumstances warrant a revision to the remaining depreciation periods.

Concentrations of Credit Risk

The Company’s primary concentrations of credit risk are the risks of uncollectible accounts receivable and of nonperformance by counterparties under the Company’s derivative contracts. Each reporting period, the Company assesses the recoverability of material receivables using historical data, current market conditions and reasonable and supportable forecasts of future economic conditions to determine expected collectability of its material receivables.

11

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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. Historically, the Company has not experienced any significant losses from uncollectible accounts from its oil and natural gas purchasers. The Company operates a substantial portion of its oil and natural gas properties. As the operator of a property, the Company makes full payments for costs associated with the property and seeks reimbursement from the other working interest owners in the property for their share of those costs. Joint operating agreements govern the operations of an oil or natural gas well and, in most instances, provide for offsetting of amounts payable or receivable between the Company and its joint interest owners. The Company’s joint interest partners consist primarily of independent oil and natural gas producers. If the oil and natural gas exploration and production industry in general was adversely affected, the ability of the Company’s joint interest partners to reimburse the Company could be adversely affected.

The Company’s exposure to credit risk under its derivative contracts is diversified among major financial institutions with investment grade credit ratings, where it has master netting agreements which provide for offsetting of amounts payable or receivable between the Company and the counterparty. To manage counterparty risk associated with derivative contracts, the Company selects and monitors counterparties based on an assessment of their financial strength and/or credit ratings. At March 31, 2021, the Company’s derivative counterparties include two major financial institutions, both of which are secured lenders under the Senior Credit Agreement.

Change in Estimate

In late March 2020, due to changes in market conditions and decreased commodity prices, the Company determined that previously accrued discretionary cash incentives related to 2019 would not be paid, causing a $1.6 million reduction to “General and administrative” on the unaudited condensed consolidated statement of operations for the three months ended March 31, 2020.

Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (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. ASU 2020-04 will be in effect through December 31, 2022. The Company is currently evaluating ASU 2020-04 and the impact it may have on its operating results, financial position and disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (ASU 2019-12) as part of their simplification initiative. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions and by clarifying and amending existing guidance. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020 with early adoption permitted. The Company adopted ASU 2019-12 effective January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s operating results, financial position or disclosures.

2. LEASES

The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the use of an identified asset for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset, and (2) the customer has the right to control the use of the identified asset.

12

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company leases equipment and office space pursuant to net operating leases. Operating leases where the Company is the lessee are included in “Operating lease right of use assets” and “Operating lease liabilities” on the unaudited condensed consolidated balance sheets. The lease liabilities are initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date.

Key estimates and judgments include how the Company determined (1) the discount rate used to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments. ASC 842, Leases (ASC 842) requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Additionally, the Company applies a portfolio approach to determine the discount rate (the incremental borrowing rate for leases with similar characteristics). The Company uses the implicit rate when readily determinable. The lease term includes the noncancellable period of the lease plus any additional periods covered by either a lessee option to extend (or not to terminate) the lease that the lessee is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Lease payments included in the measurement of the lease asset or liability comprise the following, when applicable: fixed payments (including in-substance fixed payments), variable payments that depend on an index or rate, and the exercise price of a lessee option to purchase the underlying asset if the lessee is reasonably certain to exercise.

The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For the Company’s operating leases, the right of use asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments, when applicable, are presented as “Gathering and other,” “Restructuring” or “General and administrative” in the unaudited condensed consolidated statements of operations in the same line item as the expense arising from the fixed lease payments on the operating leases.

The Company has lease agreements which include lease and nonlease components and the Company has elected to combine lease and nonlease components, when fixed, for all lease contracts. Nonlease components include common area maintenance charges on office leases and, when applicable, services associated with equipment leases. The Company determines whether the lease or nonlease component is the predominant component on a case-by-case basis.

The Company reviews its right of use assets for impairment in accordance with ASC 360. ASC 360 requires the Company to evaluate right of use assets for impairment as events occur or circumstances change that would more likely than not reduce the fair value below the carrying amount. If the carrying amount is not recoverable from its undiscounted cash flows, then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value.

The Company monitors for events or changes in circumstances that would require a reassessment of a lease. When a reassessment results in the remeasurement of a lease liability, an adjustment is made to the carrying amount of the corresponding right of use asset unless doing so would reduce the carrying amount of the right of use asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative right of use asset balance is recorded in the unaudited condensed consolidated statements of operations.

13

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company elected not to recognize right of use assets and lease liabilities for all short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term leases when incurred. Variable lease payments associated with these leases are recognized and presented in the same manner as for all other leases.

The Company leases equipment and office space under operating leases. The Company has no leases that meet the criteria for classification as a finance lease. The “Operating lease right of use assets” outstanding on the unaudited condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020 have an initial lease term of 5 years. Payments due under the lease contracts include fixed payments plus, in some instances, variable payments. The table below summarizes the Company’s leases for the three months ended March 31, 2021 and 2020 (in thousands, except years and discount rate):

	Three Months Ended
	March 31,
	2021			2020
Lease cost
Operating lease costs	$	118		$	260
Short-term lease costs		1,171			12,258
Variable lease costs		113			210
Total lease costs	$	1,402		$	12,728
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	211		$	254
Weighted-average remaining lease term - operating leases		0.4	years		3.3	years
Weighted-average discount rate - operating leases		3.70	%		3.70	%

Future minimum lease payments associated with the Company’s non-cancellable operating leases for office space and equipment as of March 31, 2021, are presented in the table below (in thousands):

	March 31, 2021
Remaining period in 2021	$	196
2022		—
2023		—
2024		—
2025		—
Thereafter		—
Total operating lease payments		196
Less: discount to present value		1
Total operating lease liabilities		195
Less: current operating lease liabilities		195
Noncurrent operating lease liabilities	$	—

3. OPERATING REVENUES

Revenue is measured based on consideration specified in a contract with a customer 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. 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 the commodity to the customer. Because the Company’s

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

performance obligations have been satisfied and an unconditional right to consideration exists as of the balance sheet date, the Company recognized amounts due from contracts with customers of $34.1 million and $24.5 million as of March 31, 2021 and December 31, 2020, respectively, as “Accounts receivable” and “Other assets” on the unaudited condensed consolidated balance sheets.

Substantially all of the Company’s revenues are derived from single basin operations, the Delaware Basin in Pecos, Reeves, Ward and Winkler Counties, Texas. The following table disaggregates the Company’s revenues by major product, in order to depict how the nature, timing, and uncertainty of revenue and cash flows are affected by economic factors in the Company’s single basin operations, for the periods indicated (in thousands):

	Three Months Ended
	March 31,
	2021		2020
Operating revenues:
Oil, natural gas and natural gas liquids sales:
Oil	$	41,270	$	41,917
Natural gas		9,087		354
Natural gas liquids		4,909		4,753
Total oil, natural gas and natural gas liquids sales		55,266		47,024
Other		252		375
Total operating revenues	$	55,518	$	47,399

Oil Sales

The Company generally markets its crude oil production directly to the customer using two methods. Under the first method, crude oil is sold at the wellhead at an index price, averaged over the daily settlement prices for a production month, and adjusted for pricing differentials and other deductions. Revenue is recognized at the wellhead, where control of the crude oil transfers to the customer, at the net price received. Under the second method, crude oil is delivered to the customer at a contractual delivery point at which the customer takes custody, title and risk of loss of the product. The Company receives a specified index price from the customer, averaged over the daily settlement prices for a production month, and net of applicable market-related adjustments. Revenue is recognized when control of the crude oil transfers at the delivery point at the net price received.

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. Payment under the Company’s crude oil contracts is typically due on or before the 20^th day of the month following the delivery month.

Natural Gas and Natural Gas Liquids 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. Under contracts where it is determined that control of the natural gas transfers at the wellhead, any fees incurred to gather or process the unprocessed natural gas are treated as a reduction of the sales price of unprocessed natural gas, and therefore revenues from such transactions are presented on a net basis. 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"

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

or "Natural gas liquids" and any fees incurred to gather or process the natural gas are presented separately as “Gathering and other " on the unaudited condensed 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. The Company then sells the products to a customer at contractual delivery points at prices based on an index. In these instances, revenues are presented on a gross basis and any fees incurred to gather, process or transport the commodities are presented separately as “Gathering and other " on the unaudited condensed consolidated statements of operations.

Settlement statements for the Company’s natural gas and natural gas liquids production are typically received 30 days after the date of production and therefore the Company estimates the amount of production delivered to the customer and the price that will be received for that production. The majority of the Company’s natural gas and natural gas liquids prices are based on daily average pricing for the month. Historically, differences between the Company’s estimates and the actual revenue received have not been material. Payment under the Company’s natural gas gathering and processing contracts is typically due on or before the fifth day of the second month following the delivery month.

4. DIVESTITURES

Northern West Quito Assets

On December 18, 2020, the Company sold certain oil and gas properties and related assets located in Ward County, Texas (the North West Quito Assets) to Point Energy Partners Operating, LLC for a total sales price of $26.3 million in cash, subject to customary post-closing adjustments as provided in the Purchase and Sale Agreement. The effective date of the transaction was October 1, 2020. Proceeds from the sale were recorded as a reduction to the carrying value of the Company’s full cost pool with no gain or loss recorded. The Company used the net proceeds from the sale to repay amounts outstanding under the Company’s Senior Credit Agreement and for general corporate purposes.

5. OIL AND NATURAL GAS PROPERTIES

The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas reserves (including such costs as leasehold acquisition costs, geological expenditures, treating equipment and gathering support facilities costs, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred. To the extent capitalized costs of evaluated oil and natural gas properties, net of accumulated depletion, exceed the discounted future net revenues of proved oil and natural gas reserves, net of deferred taxes, such excess capitalized costs are charged to expense.

Additionally, the Company assesses all properties classified as unevaluated property on a quarterly basis for possible impairment or reduction in value. The Company assesses properties on an individual basis or as a group, if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and the full cost ceiling test limitation.

At March 31, 2021, the ceiling test value of the Company’s reserves was calculated based on the first-day-of-the-month average for the 12-months ended March 31, 2021 of the West Texas Intermediate (WTI) crude oil spot price of $39.95 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first-day-of-the-month average for the 12-months ended March 31, 2021 of the Henry Hub natural gas price of $2.16 per

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

MMBtu, adjusted by lease or field for energy content, transportation fees, and regional price differentials. Using these prices, the Company’s net book value of oil and natural gas properties at March 31, 2021 did not exceed the ceiling amount.

At March 31, 2020, the ceiling test value of the Company’s reserves was calculated based on the first-day-of-the-month average for the 12-months ended March 31, 2020 of the WTI crude oil spot price of $55.96 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first-day-of-the-month average for the 12-months ended March 31, 2020 of the Henry Hub natural gas price of $2.30 per MMBtu, adjusted by lease or field for energy content, transportation fees, and regional price differentials. Using these prices, the Company’s net book value of oil and natural gas properties at March 31, 2020 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.

6. DEBT

As of March 31, 2021 and December 31, 2020, the Company’s debt consisted of the following (in thousands):

	March 31, 2021		December 31, 2020
Senior revolving credit facility	$	155,000	$	158,000
Paycheck Protection Program loan		2,209		2,209
Total debt		157,209		160,209
Current portion of Paycheck Protection Program loan		2,123		1,720
Total long-term debt	$	155,086	$	158,489

Senior Revolving Credit Facility

On October 8, 2019, the Company entered into a senior secured revolving credit agreement, as amended, (the Senior Credit Agreement) with Bank of Montreal, as administrative agent, and certain other financial institutions party thereto, as lenders. The Senior Credit Agreement provides for a $750.0 million senior secured reserve-based revolving credit facility with a current borrowing base of $190.0 million. At March 31, 2021, the Company had $155.0 million indebtedness outstanding and approximately $2.5 million letters of credit outstanding under the Senior Credit Agreement, resulting in $32.5 million of borrowing capacity under the current borrowing base of $190.0 million. Pursuant to the Fourth Amendment to the Senior Credit Agreement, the borrowing base is subject to certain reductions beginning June 1, 2021, which are discussed further below.

A portion of the Senior Credit Agreement, in the amount of $25.0 million, is available for the issuance of letters of credit. The maturity date of the Senior Credit Agreement is October 8, 2024. Redeterminations of the borrowing base occur semi-annually on May 1 and November 1, with the lenders and the Company each having the right to one interim unscheduled redetermination between any two consecutive semi-annual redeterminations. The borrowing base takes into account the estimated value of the Company’s oil and natural gas properties, proved reserves, total indebtedness, and other relevant factors consistent with customary oil and natural gas lending criteria. Amounts outstanding under the Senior Credit Agreement bear interest at specified margins over the base rate of 2.00% to 3.00% for ABR-based loans or at specified margins over LIBOR of 3.00% to 4.00% for Eurodollar-based loans, which margins may be increased one-time by not more than 50 basis points per annum if necessary in order to successfully syndicate the Senior Credit Agreement. These margins fluctuate based on the Company’s utilization of the facility.

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company may elect, at its option, to prepay any borrowings outstanding under the Senior Credit Agreement without premium or penalty, except with respect to any break funding payments which may be payable pursuant to the terms of the Senior Credit Agreement. The Company may be required to make mandatory prepayments of the outstanding borrowings under the Senior Credit Agreement in connection with certain borrowing base deficiencies, including deficiencies which may arise in connection with a borrowing base redetermination, an asset disposition or swap terminations. Amounts outstanding under the Senior Credit Agreement are guaranteed by the Company’s direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of the Company and its subsidiaries.

The Senior Credit Agreement contains certain events of default, including non-payment; breaches of representation and warranties; non-compliance with covenants; cross-defaults to material indebtedness; voluntary or involuntary bankruptcy; judgments and change in control. The Senior Credit Agreement also contains certain financial covenants, including maintenance of (i) a Total Net Indebtedness Leverage Ratio (as defined in the Senior Credit Agreement) of not greater than 3.50 to 1.00 and (ii) a Current Ratio (as defined in the Senior Credit Agreement) of not less than 1.00 to 1.00. As of March 31, 2021, after giving effect to the Third Amendment, discussed below, the Company was in compliance with the financial covenants under the Senior Credit Agreement.

On October 29, 2020, the Company entered into the Third Amendment to Senior Secured Revolving Credit Agreement and Limited Waiver (the Third Amendment). The Third Amendment, among other things, set the borrowing base to $190.0 million as of November 1, 2020. The Third Amendment also reduced the amount available for issuance of letters of credit to $25.0 million and amended certain covenants including, but not limited to, covenants relating to increasing the minimum mortgaged total value of proved borrowing base properties from 85% to 90%. Additionally, the Third Amendment provided for new covenants that, among other things, require the Company to enter into swap agreements representing not less than 65% of the Company’s reasonably anticipated projected production from proved reserves classified as developed producing reserves for a period from the Third Amendment effective date through at least December 31, 2022 and prohibit no more than $3.0 million of the Company’s uncontested accounts payable or accrued expenses, liabilities or other obligations from remaining outstanding for longer than 90 days. Pursuant to the Third Amendment, the administrative agent and the lenders consented to a waiver of the Current Ratio (as defined in the Senior Credit Agreement) for the fiscal quarter ended September 30, 2020 and suspended testing of the Current Ratio until the fiscal quarter ending December 31, 2021.

On May 10, 2021, the Company entered into the Fourth Amendment to Senior Secured Revolving Credit Agreement (the Fourth Amendment) which reduces the borrowing base to $185.0 million effective June 1, 2021 and further reduces the borrowing base to $175.0 million effective September 1, 2021. The Fourth Amendment also, among other things, (i) increased interest margins to 2.00% to 3.00% for ABR-based loans and 3.00% to 4.00% for Eurodollar-based loans, (ii) amended the covenant relating to the minimum mortgaged total value of proved borrowing base properties to increase the value from 90% to 95%, (iii) provides for direct reductions in the borrowing base in the event of asset dispositions in excess of $1.0 million per fiscal year or swap terminations and (iv) revised certain covenants and covenant-related baskets including, but not limited to, adding covenants prohibiting the designation of unrestricted subsidiaries and requiring prior consent from the lenders regarding asset dispositions or swap terminations in excess of the greater of $7.5 million or 3.5% of the then effective borrowing base.

Paycheck Protection Program Loan

On April 16, 2020, the Company entered into a promissory note (the PPP Loan) for a principal amount of approximately $2.2 million from Bank of Montreal under the Paycheck Protection Program of the CARES Act, which is administered by the U.S. Small Business Administration (SBA). Pursuant to the terms of the CARES Act, the proceeds of the PPP Loan may be used for payroll costs, mortgage interest, rent or utility costs. The PPP Loan bears interest at a rate of 1.0% per annum and, if not forgiven, has a maturity date of April 16, 2022. As long as the Company makes a

18

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

timely application of forgiveness to the SBA, the Company is not required to make any payments under the PPP Loan until the forgiveness amount is communicated to the Company by the SBA.

The Company may elect, at its option, to prepay 20% or less of the borrowings outstanding under the PPP Loan without premium or penalty, and without notice. Prepayments of more than 20% of the outstanding borrowings require written advanced notice and payment of accrued interest. The PPP Loan contains certain events of default including non-payment, breach of representations and warranties, cross-defaults to other loans with the lender or to material indebtedness, voluntary or involuntary bankruptcy, judgments and change in control.

Under the terms of the CARES Act, the Company can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds in accordance with the terms of the CARES Act during the covered period after loan origination and the maintenance or achievement of certain employee levels. The Company believes it is eligible for, and intends to pursue, forgiveness of the PPP Loan in accordance with the requirements and limitations under the CARES Act; however, no assurance can be provided that forgiveness of any portion of the PPP Loan will be obtained.

7. FAIR VALUE MEASUREMENTS

Pursuant to ASC 820, Fair Value Measurement (ASC 820), the Company’s determination of fair value incorporates not only the credit standing of the counterparties involved in transactions with the Company resulting in receivables on the Company’s unaudited condensed consolidated balance sheets, but also the impact of the Company’s nonperformance risk on its own liabilities. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs.

As required by ASC 820, a financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There were no transfers between fair value hierarchy levels for any period presented. The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of March 31, 2021 and December 31, 2020 (in thousands):

	March 31, 2021
	Level 1		Level 2		Level 3		Total
Assets
Assets from derivative contracts	$	—		1,500	$	—		1,500
Liabilities
Liabilities from derivative contracts	$	—		51,400	$	—		51,400

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets
Assets from derivative contracts	$	—	$	12,568	$	—	$	12,568
Liabilities
Liabilities from derivative contracts	$	—	$	26,416	$	—	$	26,416

Derivative contracts listed above as Level 2 include fixed-price swaps, collars, basis swaps and WTI NYMEX rolls that are carried at fair value. The Company records the net change in the fair value of these positions in “Net gain (loss) on derivative contracts” in the Company’s unaudited condensed consolidated statements of operations. The Company is able to value the assets and liabilities based on observable market data for similar instruments, which resulted in the Company reporting its derivatives as Level 2. This observable data includes the forward curves for commodity prices based on quoted market prices and implied volatility factors related to changes in the forward curves. See Note 8, “Derivative and Hedging Activities,” for additional discussion of derivatives.

The Company’s derivative contracts are with major financial institutions with investment grade credit ratings which are believed to have minimal credit risk. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties in the derivative contracts; however, the Company does not anticipate such nonperformance.

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of ASC 825, Financial Instruments. The estimated fair value amounts have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash and cash equivalents, accounts receivable, and accounts payable approximates their carrying value due to their short-term nature. The estimated fair value of the Company’s Senior Credit Agreement approximates carrying value because the interest rates approximate current market rates.

The Company follows the provisions of ASC 820, for nonfinancial assets and liabilities measured at fair value on a non-recurring basis. These provisions apply to the Company’s initial recognition of asset retirement obligations for which fair value is used. The asset retirement obligation estimates are derived from historical costs and management’s expectation of future cost environments; and therefore, the Company has designated these liabilities as Level 3. See Note 9, “Asset Retirement Obligations,” for a reconciliation of the beginning and ending balances of the liability for the Company’s asset retirement obligations.

8. DERIVATIVE AND HEDGING ACTIVITIES

The Company is exposed to certain risks relating to its ongoing business operations, such as commodity price risk and interest rate risk. In accordance with the Company’s policy, it generally hedges a substantial, but varying, portion of anticipated oil, natural gas and natural gas liquids production for future periods. Derivatives are carried at fair value on the unaudited condensed consolidated balance sheets as assets or liabilities, with the changes in the fair value included in the unaudited condensed consolidated statements of operations for the period in which the change occurs. The Company’s hedge policies and objectives may change significantly as its operational profile changes. The Company does not enter into derivative contracts for speculative trading purposes.

It is the Company’s policy to enter into derivative contracts only with counterparties that are creditworthy financial or commodity hedging institutions deemed by management as competent and competitive market makers. As of March 31, 2021, the Company did not post collateral under any of its derivative contracts as they are secured under the Company’s Senior Credit Agreement.

20

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company’s crude oil, natural gas and natural gas liquids derivative positions at any point in time may consist of fixed-price swaps, costless put/call collars, basis swaps and WTI NYMEX rolls. Fixed-price swaps are designed so that the Company receives or makes payments based on a differential between fixed and variable prices for crude oil and natural gas. A costless collar consists of a sold call, which establishes a maximum price the Company will receive for the volumes under contract and a purchased put that establishes a minimum price. Basis swaps effectively lock in a price differential between regional prices (i.e. Midland) where the product is sold and the relevant pricing index under which the oil production is hedged (i.e. Cushing). WTI NYMEX roll agreements account for pricing adjustments to the trade month versus the delivery month for contract pricing. The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, the Company records the net change in the mark-to-market valuation of these derivative contracts, as well as all payments and receipts on settled derivative contracts, in “Net gain (loss) on derivative contracts” on the unaudited condensed consolidated statements of operations.

All derivative contracts are recorded at fair market value in accordance with ASC 815 and ASC 820 and included in the unaudited condensed consolidated balance sheets as assets or liabilities. The following table summarizes the location and fair value amounts of all derivative contracts in the unaudited condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020 (in thousands):

Derivatives not designated as		Asset derivative contracts					Liability derivative contracts
hedging contracts under ASC 815	Balance sheet location	March 31, 2021		December 31, 2020		Balance sheet location	March 31, 2021		December 31, 2020
Commodity contracts	Current assets - assets from derivative contracts	$	672	$	8,559	Current liabilities - liabilities from derivative contracts	$	(42,371)	$	(22,125)
Commodity contracts	Other noncurrent assets - assets from derivative contracts		828		4,009	Other noncurrent liabilities - liabilities from derivative contracts		(9,029)		(4,291)
Total derivatives not designated as hedging contracts under ASC 815		$	1,500	$	12,568		$	(51,400)	$	(26,416)

The following table summarizes the location and amounts of the Company’s realized and unrealized gains and losses on derivative contracts in the Company’s unaudited condensed consolidated statements of operations (in thousands):

		Amount of gain or (loss)
		recognized in income on
		derivative contracts for the
Derivatives not designated	Location of gain or	Three Months Ended
as hedging contracts	(loss) recognized in income	March 31,
under ASC 815	on derivative contracts	2021		2020
Commodity contracts:
Unrealized gain (loss) on commodity contracts	Other income (expenses) - net gain (loss) on derivative contracts	$	(36,052)	$	112,378
Realized gain (loss) on commodity contracts	Other income (expenses) - net gain (loss) on derivative contracts		(9,659)		5,921
Total net gain (loss) on derivative contracts		$	(45,711)	$	118,299

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

At March 31, 2021, the Company had the following open crude oil and natural gas derivative contracts:

			Volume in	Weighted
			Mmbtu's/	Average
Period	Instrument	Commodity	Bbl's	Price
2021	Fixed-Price Swap	Crude Oil	2,306,000	$	44.29
2021	Fixed-Price Swap	Natural Gas	3,363,030		2.73
2021	Basis Swap	Crude Oil	2,306,000		(0.19)
2021	Basis Swap	Natural Gas	3,363,030		(0.24)
2021	WTI NYMEX Roll	Crude Oil	2,006,000		(0.37)
2022	Fixed-Price Swap	Crude Oil	2,296,800		48.48
2022	Fixed-Price Swap	Natural Gas	1,297,420		3.01
2022	Producer Collar (Ceiling)	Natural Gas	2,388,624		2.65
2022	Producer Collar (Floor)	Natural Gas	2,388,624		2.50
2022	Basis Swap	Crude Oil	2,296,800		0.48
2022	Basis Swap	Natural Gas	3,686,044		(0.30)
2022	WTI NYMEX Roll	Crude Oil	2,327,800		(0.04)

The Company presents the fair value of its derivative contracts at the gross amounts in the unaudited condensed consolidated balance sheets. The following table shows the potential effects of master netting arrangements on the fair value of the Company’s derivative contracts at March 31, 2021 and December 31, 2020 (in thousands):

	Derivative Assets				Derivative Liabilities
Offsetting of Derivative Assets and Liabilities	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
Gross Amounts Presented in the Consolidated Balance Sheet	$	1,500	$	12,568	$	(51,400)	$	(26,416)
Amounts Not Offset in the Consolidated Balance Sheet		(1,500)		(8,968)		1,500		8,968
Net Amount	$	—	$	3,600	$	(49,900)	$	(17,448)

The Company enters into an International Swap Dealers Association Master Agreement (ISDA) with each counterparty prior to a derivative contract with such counterparty. The ISDA is a standard contract that governs all derivative contracts entered into between the Company and the respective counterparty. The ISDA allows for offsetting of amounts payable or receivable between the Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.

9. ASSET RETIREMENT OBLIGATIONS

The Company records an asset retirement obligation (ARO) on oil and natural gas properties when it can reasonably estimate the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon costs. The Company records the ARO liability on the unaudited condensed consolidated balance sheets and capitalizes the cost in “Oil and natural gas properties” during the period in which the obligation is incurred. The Company records the accretion of its ARO liabilities in “Depletion, depreciation and accretion” expense in the unaudited condensed consolidated statements of operations. The additional capitalized costs are depreciated on a unit-of-production basis.

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Liability for asset retirement obligations as of December 31, 2020	$	10,583
Accretion expense		128
Liability for asset retirement obligations as of March 31, 2021	$	10,711

10. COMMITMENTS AND CONTINGENCIES

Commitments

As of March 31, 2021, the Company has a minimum volume commitment with a third party for the treating of sour gas production through June 30, 2022. The future payments associated with the minimum volume commitment are approximately $7.3 million and $4.8 million for the remainder of 2021 and for 2022, respectively.

The Company has entered into various long-term gathering, transportation and sales contracts with respect to its oil and natural gas production from the Delaware Basin in West Texas. As of March 31, 2021, the Company had in place two long-term crude oil contracts and 12 long-term natural gas contracts in this area and the sales prices under these contracts are based on posted market rates. Under the terms of these contracts, the Company has committed a substantial portion of its production from this area for periods ranging from one to twenty years from the date of first production.

Contingencies

From time to time, the Company may be a plaintiff or defendant in a pending or threatened legal proceeding arising in the normal course of our business. While the outcome and impact of currently pending legal proceedings cannot be determined, the Company’s management and legal counsel believe that the resolution of these proceedings through settlement or adverse judgment will not have a material effect on the Company’s unaudited condensed consolidated operating results, financial position or cash flows.

11. STOCKHOLDERS’ EQUITY

Warrants

On October 8, 2019, the Company entered into a warrant agreement (the Warrant Agreement) with Broadridge Corporate Issuer Solutions, Inc. as the warrant agent, pursuant to which the Company issued three series of warrants (the Series A Warrants, the Series B Warrants and the Series C Warrants and together, the Warrants, on a pro rata basis to pre-emergence holders of the predecessor Company’s common stock pursuant to the Company’s plan of reorganization.

Each Warrant represents the right to purchase one share of common stock at the applicable exercise price, subject to adjustment as provided in the Warrant Agreement and as summarized below. On October 8, 2019, the Company issued (i) Series A Warrants to purchase an aggregate of 1,798,322 shares of common stock, with an initial exercise price of $40.17 per share, (ii) Series B Warrants to purchase an aggregate of 2,247,985 shares of common stock, with an initial exercise price of $48.28 per share and (iii) Series C Warrants to purchase an aggregate of 2,890,271 shares of common stock, with an initial exercise price of $60.45 per share. Each series of Warrants issued under the Warrant Agreement has a three-year term, expiring on October 8, 2022. The strike price of each series of Warrants issued under the Warrant Agreement increases monthly at an annualized rate of 6.75%, compounding monthly, as provided in the Warrant Agreement. As of March 31, 2021, the Company had 1.8 million Series A, 2.2 million Series B and 2.9 million Series C warrants outstanding with corresponding exercise prices of $43.21, $52.13 and $65.52 per share, respectively.

23

BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Warrants do not grant any voting or control rights or dividend rights, or contain any negative covenants restricting the operation of the Company’s business.

Incentive Plans

On January 29, 2020, the Company’s board of directors adopted the 2020 Long-Term Incentive Plan (the Plan) with an effective date of January 1, 2020. An aggregate of approximately 1.5 million shares of the Company’s common stock were available for grant pursuant to awards under the Plan. As of March 31, 2021 and December 31, 2020, a maximum of 0.2 million for both periods, of the Company’s common stock remained reserved for issuance under the Plan.

The Company accounts for stock-based payment accruals under authoritative guidance on stock compensation. The guidance requires all stock-based payments to employees and directors, including grants of stock options and restricted stock, to be recognized in the financial statements based on their fair values. The Company has elected not to apply a forfeiture estimate and will recognize a credit in compensation expense to the extent awards are forfeited.

For the three months ended March 31, 2021 and 2020, the Company recognized expense of $0.6 million and $0.4 million, respectively, related to stock-based compensation. Stock-based compensation expense is recorded as a component of "General and administrative" on the unaudited condensed consolidated statements of operations.

Stock Options

From time to time, the Company grants stock options under the Plan covering shares of common stock to employees of the Company. Stock options, when 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.

No stock options were granted during the three months ended March 31, 2021. At March 31, 2021, the Company had $0.8 million of unrecognized compensation expense related to non-vested stock options to be recognized over a weighted-average period of 1.9 years.

During the three months ended March 31, 2020, the Company granted stock options under the Plan covering 0.5 million shares of common stock to employees of the Company. These stock options have exercise prices ranging from $18.91 to $37.83 with a weighted average exercise price of $28.32 per share. At March 31, 2020, the Company had $1.5 million of unrecognized compensation expense related to non-vested stock options to be recognized over a weighted-average period of 2.4 years.

Restricted Stock

From time to time, the Company grants shares of restricted stock units (RSUs) under the Plan to employees of the Company. Under the Plan, employee RSUs will vest and convert to shares typically over a four year period at a rate of one-fourth on the annual anniversary date of the grant or when the performance or market conditions described below occur.

During the three months ended March 31, 2021, the Company granted less than 0.1 million shares of RSUs which will vest over four years at a rate of one-fourth on the annual anniversary date of the grant. These RSUs were granted at a fair value price of $8.00 per share. At March 31, 2021, the Company had $3.6 million of unrecognized compensation expense related to non-vested RSU awards to be recognized over a weighted average period of 2.5 years.

During the three months ended March 31, 2020, the Company granted 0.9 million shares of RSUs with the vesting conditions and fair values described below under the Plan to employees of the Company. At March 31, 2020, the

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Company had $6.4 million of unrecognized compensation expense related to non-vested RSU awards to be recognized over a weighted average period of 3.2 years.

● 0.4 million RSUs granted will vest over four years at a rate one-fourth on the annual anniversary date of the grant. These RSUs were granted at a fair value of $11.89 per share.

● 0.2 million RSUs granted will vest in full only upon achievement of certain business combination goals, as defined in the award agreements. These RSUs were granted at a fair value of $11.89 per share. As of March 31, 2021, a business combination, as defined in the awards agreements, had not been consummated and was not considered probable. As such, no expense has been recognized for the RSUs with business combination vesting conditions.

● 0.3 million RSUs granted will vest in full or in part or may terminate based on the Company’s total shareholder return relative to the total shareholder return of certain of its peer companies as defined in the award agreements over the performance period ending on February 20, 2024. These RSUs were granted at a fair value of $6.48 per share.

12. EARNINGS PER SHARE

The following represents the calculation of earnings (loss) per share (in thousands, except per share amounts):

	Three Months Ended
	March 31,
	2021		2020
Basic:
Net income (loss)	$	(33,375)	$	114,491
Weighted average basic number of common shares outstanding		16,232		16,204
Basic net income (loss) per share of common stock	$	(2.06)	$	7.07
Diluted:
Net income (loss)		(33,375)		114,491
Weighted average basic number of common shares outstanding		16,232		16,204
Common stock equivalent shares representing shares issuable upon:
Exercise of Series A Warrants		Anti-dilutive		Anti-dilutive
Exercise of Series B Warrants		Anti-dilutive		Anti-dilutive
Exercise of Series C Warrants		Anti-dilutive		Anti-dilutive
Exercise of stock options		Anti-dilutive		Anti-dilutive
Vesting of restricted stock units		Anti-dilutive		Anti-dilutive
Weighted average diluted number of common shares outstanding		16,232		16,204
Diluted net income (loss) per share of common stock	$	(2.06)	$	7.07

Common stock equivalents, including warrants, options and restricted stock units, totaling 7.8 million for the three months ended March 31, 2021 were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive due to the net loss.

Common stock equivalents, including warrants, options and restricted stock units, totaling 7.3 million for the three months ended March 31, 2020 were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive.

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BATTALION OIL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13. ADDITIONAL FINANCIAL STATEMENT INFORMATION

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

	March 31, 2021		December 31, 2020
Accounts receivable, net:
Oil, natural gas and natural gas liquids revenues	$	32,787	$	22,781
Joint interest accounts		6,508		8,543
Other		239		918
	$	39,534	$	32,242
Prepaids and other:
Prepaids	$	743	$	892
Funds in escrow		1,740		1,740
Other		108		108
	$	2,591	$	2,740
Other assets:
Oil, natural gas and natural gas liquids revenues	$	1,335	$	1,720
Funds in escrow		581		581
Other		51		50
	$	1,967	$	2,351
Accounts payable and accrued liabilities:
Trade payables	$	27,922	$	22,740
Accrued oil and natural gas capital costs		16,810		8,344
Revenues and royalties payable		21,049		16,412
Accrued interest expense		1,219		482
Accrued employee compensation		967		3,223
Accrued lease operating expenses		6,002		7,622
Other		104		105
	$	74,073	$	58,928

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist in understanding our results of operations for the three months ended March 31, 2021 and 2020 and should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and with the consolidated financial statements, notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Statements in this discussion may be forward-looking. These forward-looking statements involve risks and uncertainties, including those discussed below, which could cause actual results to differ from those expressed. For more information, see “Special note regarding forward-looking statements.”

Overview

We are an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States. During 2017, we acquired certain properties in the Delaware Basin and divested our assets located in the Williston Basin in North Dakota and in the El Halcón area of East Texas. As a result, our properties and drilling activities are currently focused in the Delaware Basin, where we have an extensive drilling inventory that we believe offers attractive long-term economics.

Our total operating revenues for the first three months of 2021 and 2020 were $55.5 million and $47.4 million, respectively. The increase in revenues in the most recent period is primarily attributable to an approximate $15.34 per Boe increase in average realized prices in the most recent period. During the first three months of 2021, production averaged 14,333 Boe/d compared to average production of 18,791 Boe/d during the first three months of 2020. Our average daily oil and natural gas production decreased in the first three months of 2021 when compared to the same period in the prior year primarily due to production declines in our non-core areas, which were partially offset by increased production from our Monument Draw area, where new production came online as a result of our capital spending program. Also contributing to decreased total production in the current year period is a temporary shut-in of production in February 2021 as a result of inclement weather. The estimated production decrease associated with this temporary shut-in was approximately 1,300 Boe/d for the first three months of 2021. In addition, in December 2020, we divested properties that produced approximately 800 Boe/d during the three months ended March 31, 2020. For the three months ended March 31, 2021, we drilled and cased 2.0 gross (2.0 net) operated wells, completed 4.0 gross (4.0 net) operated wells, and put online 4.0 gross (4.0 net) operated wells.

Our financial results depend upon many factors, but are largely driven by the volume of our oil and natural gas production and the price that we receive for that production. Our production volumes will decline as reserves are depleted unless we expend capital in successful development and exploration activities or acquire properties with existing production. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, weather, transportation take-away capacity constraints, inventory storage levels, basis differentials and other factors. Accordingly, finding, developing and producing oil and natural gas reserves at economical costs are critical to our long-term success.

Oil and natural gas prices are inherently volatile and sustained lower commodity prices could result in impairment charges under our full cost ceiling test calculation. The ceiling test calculation dictates that we use the unweighted arithmetic average price of crude oil and natural gas as of the first day of each month for the 12-month period ending at the balance sheet date. Using the crude oil price for April 2021 of $61.35 per barrel, and holding it constant for two months to create a trailing 12-month period of average prices that is more reflective of recent price trends, our ceiling test calculation would not have generated an impairment, holding all other inputs and factors constant. In addition to commodity prices, our production rates, levels of proved reserves, future development costs, transfers of unevaluated properties to our full cost pool, capital spending and other factors will determine our actual ceiling test calculation and impairment analyses in future periods.

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Recent Developments

Risk and Uncertainties

We are continuously monitoring the current and potential impacts of the novel coronavirus (COVID-19) pandemic on our business, including how it has and may continue to impact our operations, financial results, liquidity, contractors, customers, employees and vendors, and taking appropriate actions in response, including implementing various measures to ensure the continued operation of our business in a safe and secure manner. In 2020, COVID-19 and governmental actions to contain the pandemic contributed to an economic downturn, reduced demand for oil and natural gas and, together with a price war involving the Organization of Petroleum Exporting Countries (OPEC)/Saudi Arabia and Russia, depressed oil and natural gas prices to historically low levels. Although OPEC and Russia subsequently agreed to reduce production, downward pressure on prices continued for several months, particularly given concerns over the impacts of the economic downturn on demand. We are unable to predict the future affects that these events will have on our business and financial condition due to numerous uncertainties, including the continuing severity and duration of the COVID-19 outbreak and the impacts that governmental or other actions taken to limit the extent and duration of the outbreak, in conjunction with economic conditions, will have on our business, demand for oil and natural gas, and oil and natural gas prices. The health of our employees, contractors and vendors, and our ability to meet staffing needs in our operations and critical functions cannot be predicted, nor can the impact on our customers, vendors and contractors. Any material effect on these parties could adversely impact us. These and other factors could affect our operations, earnings and cash flows and could cause our results to not be comparable to those of the same period in previous years. For example, in 2020, we realized lower revenue as a result of commodity price declines, which began in March 2020. In response to low commodity prices, we temporarily shut-in producing wells in May and June 2020, which further contributed to lower revenues that year. Additionally, we incurred ceiling test impairments in 2020, which were primarily driven by a decline in the average pricing required to be used in the valuation of our reserves for ceiling test purposes. The results presented in this Form 10-Q are not necessarily indicative of future operating results. For further information regarding the actual and potential impacts of COVID-19 on us, see “Risk Factors” in Item 1A of our 2020 Annual Report on Form 10-K.

Senior Revolving Credit Facility

On May 10, 2021, we entered into the Fourth Amendment to Senior Secured Revolving Credit Agreement (the Fourth Amendment) which reduces the borrowing base to $185.0 million effective June 1, 2021 and further reduces the borrowing base to $175.0 million effective September 1, 2021. The Fourth Amendment also, among other things, (i) increased interest margins to 2.00% to 3.00% for ABR-based loans and 3.00% to 4.00% for Eurodollar-based loans, (ii) amended the covenant relating to the minimum mortgaged total value of proved borrowing base properties to increase the value from 90% to 95%, (iii) provides for direct reductions in the borrowing base in the event of asset dispositions in excess of $1.0 million per fiscal year or swap terminations and (iv) revised certain covenants and covenant-related baskets including, but not limited to, adding covenants prohibiting the designation of unrestricted subsidiaries and requiring prior consent from the lenders regarding asset dispositions or swap terminations in excess of the greater of $7.5 million or 3.5% of the then effective borrowing base.

Capital Resources and Liquidity

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. In 2020, the COVID-19 outbreak and associated government restrictions significantly impacted economic activity and markets and dramatically reduced demand for oil and natural gas at the same time that supply was maintained at high levels due to a price and market share war involving the OPEC/Saudi Arabia and Russia, all of which adversely impacted the prices we received for our production. Thus, in 2020, we realized lower revenue as a result of these commodity price declines, which began in March 2020. In response to low commodity prices, we temporarily shut-in producing wells in May and June 2020, which further contributed to lower revenues that year. Additionally, we incurred ceiling test impairments during 2020, which were primarily driven by a decline in the average pricing required to be used in the valuation of our reserves for ceiling test purposes.

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Continued actual or anticipated declines in domestic or foreign economic activity or growth rates, regional or worldwide increases in tariffs or other trade restrictions, turmoil affecting the U.S. or global financial system and markets and an economic contraction either regionally or worldwide, resulting from current efforts to contain the COVID-19 coronavirus or other factors, could materially affect our business and financial condition and impact our ability to finance operations by worsening the actual or anticipated future drop in worldwide oil demand, negatively impacting the price received for oil and natural gas production, adversely impacting our ability to comply with covenants in our Senior Credit Agreement or causing our lenders to further reduce the borrowing base under our Senior Credit Agreement. Negative economic conditions could also adversely affect the collectability of our trade receivables or performance by our vendors and suppliers or cause our commodity hedging arrangements to be ineffective if our counterparties are unable to perform their obligations. All of the foregoing may adversely affect our business, financial condition, results of operations, cash flows and, potentially, compliance with the covenants contained in, and borrowing capacity under, our Senior Credit Agreement.

We expect to spend approximately $40.0 million to $50.0 million on drilling, completion, support infrastructure and other capital costs during 2021. These near-term capital spending requirements are expected to be funded with cash and cash equivalents on hand, cash flows from operations and, if needed, borrowings under our Senior Credit Agreement, which has a current borrowing base of $190.0 million, which is scheduled to be reduced to $185.0 million on June 1, 2021 and to $175.0 million on September 1, 2021 pursuant to the Fourth Amendment to our Senior Credit Agreement, as discussed in greater detail above. Amounts borrowed under our Senior Credit Agreement will mature on October 8, 2024. At March 31, 2021, we had $155.0 million of indebtedness outstanding and approximately $2.5 million letters of credit outstanding under our Senior Credit Agreement, resulting in $32.5 million of borrowing capacity under the current $190.0 million borrowing base. The next redetermination is scheduled for the fall of 2021. If our borrowing base is further reduced upon a redetermination, our resulting liquidity could be insufficient to fund our business, operations and planned capital expenditures and the reduction could result in a borrowing base deficiency, which would require us to repay any amount outstanding in excess of the borrowing base.

As part of our ongoing efforts to manage our business and liquidity, we are in regular contact with our lenders regarding matters relating to the Senior Credit Agreement, and we closely monitor our compliance with the various covenants under our Senior Credit Agreement, which include certain financial covenants, such as maintenance of (i) a Total Net Indebtedness Leverage Ratio (as defined in the Senior Credit Agreement) of not greater than 3.50 to 1.00 and (ii) a Current Ratio (as defined in the Senior Credit Agreement) of not less than 1.00:1.00. As of March 31, 2021, after giving effect to the Third Amendment to Senior Secured Revolving Credit Agreement and Limited Waiver (the Third Amendment), we were in compliance with the financial covenants under the Senior Credit Agreement.

We have periodically, including as recently as October 2020, obtained waivers or amendments to the financial covenants under our revolving credit agreements in circumstances where we anticipated that it might be challenging for us to comply with them for a particular period of time. Changes in the level and timing of our production, drilling and completion costs, the cost and availability of transportation for our production and other factors varying from our expectations can affect our ability to comply with the covenants under our Senior Credit Agreement. As a consequence, we endeavor to anticipate potential covenant compliance issues and work with the lenders under our Senior Credit Agreement to address any such issues ahead of time. For instance, depressed oil and natural gas prices during 2020 and our decision to temporarily shut-in a portion of our production in response to market conditions adversely impacted our cash flows, which, combined with cash requirements associated with capital-intensive oil and gas development projects undertaken in late 2019 and early 2020, led to challenges in our compliance with the Current Ratio under the Senior Credit Agreement for the fiscal quarter ended June 30, 2020. Thus, on July 31, 2020, we secured a waiver in which the lenders consented to waive maintenance of the Current Ratio (as defined in the Senior Credit Agreement) of not less than 1.00 to 1.00 for the fiscal quarter ended June 30, 2020. In conjunction with the fall 2020 borrowing base redetermination process, and due to a decline in the value associated with our derivative contracts, we pursued additional relief from our lenders in regards to the Current Ratio. On October 29, 2020, in the Third Amendment, the lenders waived maintenance with the Current Ratio for the fiscal quarter ending September 30, 2020 and suspended testing of the Current Ratio until the fiscal quarter ending December 31, 2021.

Similarly, in prior years, we have also obtained waivers and amendments for other financial covenant violations. For instance, our strategic decision to transform into a pure-play, single basin company focused on the Delaware Basin in

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West Texas resulted in us divesting our producing properties located in other areas and acquiring primarily undeveloped acreage in the Delaware Basin. Our drilling activities once we acquired these assets required significant capital expenditure outlays to replenish production and related EBITDA from the divested producing properties. These and other factors adversely impacted our ability to comply with our debt covenants under the predecessor credit agreement by reducing our production, reserves and EBITDA on a current and a pro forma historical basis, while making us more susceptible to fluctuations in performance and compliance more challenging. In addition, we encountered certain operational difficulties that impacted our ability to comply at the time, including elevated levels of hydrogen sulfide in the natural gas produced from our Monument Draw wells and limited and expensive treatment and transportation options. Severance payments to executives in 2019 also impacted our ability to comply with our financial covenants.

In short, historically, our lenders have provided us with the covenant relief we have sought to the extent it was necessary to manage through near-term business and operational challenges as we pursued our longer-term business objectives; however, there is no assurance that they will be amenable to providing any such relief in the future, should it become necessary. Further, there is some evidence that credit is becoming more challenging for oil and gas companies generally, and for us in particular, to secure. As noted previously, late last year, Bank of Montreal, the primary lender under our Senior Credit Agreement, announced that it was exiting its U.S. energy investment banking business, a service line that is generally complementary to commercial banking service offerings. Bank of Montreal’s election to exit that line of business may be an indication of sentiment overall with regards to the business and investment banking environment affecting the U.S. oil and gas industry in the near term.

More specifically as it regards us, in our recent redetermination, the lenders under our Senior Credit Agreement have reduced our borrowing base to $185.0 million effective on June 1, 2021 and $175.0 million effective on September 1, 2021, and we agreed to some other modifications of the terms and covenants contained in our Senior Credit Agreement at the request of our lenders in the Fourth Amendment, as discussed in greater detail above. While we anticipate that we will be able to operate our business and maintain adequate liquidity within the limitations imposed by our Senior Credit Agreement, as amended, the loss of additional liquidity may prevent us from accelerating our drilling plans in an effort to manage our liquidity more closely. Additionally, reduced access to bank borrowings limits our flexibility in responding to unforeseen adverse events as well as our ability to pursue opportunities that might prove beneficial in the future. As noted elsewhere herein and our other filings with the Securities and Exchange Commission, many factors, including many that are beyond our control, affect our business and operations and may adversely impact our cash flows, liquidity and our ability to comply with the covenants under our Senior Credit Agreement. Consequently, there is no assurance that our expectations with regard to our capital needs or compliance with the covenants in the Senior Credit Agreement will prove accurate. In the event we are unable to maintain compliance, the lenders under our Senior Credit Agreement may be unwilling to provide us with the covenant relief we need. In the event we are not successful in obtaining covenant modifications, if needed, there is no assurance that we will be successful in securing alternative means of financing our business upon favorable terms or at all. If we are able to secure alternative financing, it may be more costly, provide less liquidity, or impose more restrictive covenants than our Senior Credit Agreement.

When commodity prices decline significantly, as they did in 2020, our ability to finance our capital budget and operations may be adversely impacted. We employ derivative instruments to provide partial protection against declines in oil, natural gas and natural gas liquids prices, however, the total volumes we typically hedge are less than our expected production, vary from period to period based on our view of current and future market conditions and generally extend up to only approximately 30 months. These limitations result in our liquidity being susceptible to commodity price declines in the near term and, in particular, if such prices decline for a sustained period of time. Additionally, while intended to reduce the effects of volatile commodity prices, derivative transactions may limit our potential gains and increase our potential losses if commodity prices were to rise substantially over the price established under our hedges. Our Senior Credit Agreement contains minimum hedging requirements. Pursuant to the Third Amendment, we are required to hedge at least 65% of anticipated production from proved developed producing reserves through December 31, 2022. Our hedge policies and objectives may change significantly as our operational profile changes and/or commodities prices change. We do not enter into derivative contracts for speculative trading purposes.

Our future capital resources and liquidity depend on our success in developing our leasehold interests, growing our reserves and production and finding additional reserves. Cash is required to fund capital expenditures necessary to offset inherent declines in our production and proven reserves, which is typical in the capital-intensive oil and natural gas

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industry. We strive to maintain financial flexibility while pursuing our drilling plans and may access capital markets, pursue joint ventures, sell assets and engage in other transactions as necessary to, among other things, maintain borrowing capacity, facilitate drilling on our undeveloped acreage position and permit us to selectively expand our acreage. Our ability to complete such transactions and maintain or increase our borrowing base is subject to a number of variables, including our level of oil and natural gas production, proved reserves and commodity prices, the amount and cost of our indebtedness, as well as various economic and market conditions that have historically affected the oil and natural gas industry. Even if we are otherwise successful in growing our proved reserves and production, if oil and natural gas prices decline for a sustained period of time, our ability to fund our capital expenditures, complete acquisitions, reduce debt, meet our financial obligations and become profitable may be materially impacted.

Cash Flow

During the three months ended March 31, 2021, operating cash flows and proceeds from divested properties funded our capital expenditures program and net repayments of borrowings under our Senior Credit Agreement. See “Results of Operations” for a review of the impact of prices and volumes on operating revenues.

Net increase (decrease) in cash and cash equivalents is summarized as follows (in thousands):

	Three Months Ended
	March 31,
	2021		2020
Cash flows provided by (used in) operating activities	$	13,358	$	12,343
Cash flows provided by (used in) investing activities		(12,719)		(47,648)
Cash flows provided by (used in) financing activities		(3,263)		25,968
Net increase (decrease) in cash and cash equivalents	$	(2,624)	$	(9,337)

Operating Activities. Net cash flows provided by operating activities for the three months ended March 31, 2021 and 2020 were $13.4 million and $12.3 million, respectively.

Operating cash flows for the three months ended March 31, 2021 increased slightly between the first three months of 2021 and 2020. Our average realized price increase of approximately $15.34 per Boe contributed to higher total operating revenues in 2021 which were partially offset by payments on derivative settlements in 2021.

Operating cash flows for the three months ended March 31, 2020 increased from the comparable prior year due to decreases in our operating expenses associated with our focus on efficiencies and cost savings and a decrease in interest expense associated with lower outstanding debt due to our chapter 11 bankruptcy. These decreases in expenditures were partially offset by decreased oil and natural gas revenues as a result of lower realized commodity prices.

Investing Activities. Net cash flows used in investing activities for the three months ended March 31, 2021 and 2020 were approximately $12.7 million and $47.6 million, respectively.

During the three months ended March 31, 2021, we spent $13.8 million on oil and natural gas capital expenditures, of which $10.8 million related to drilling and completion costs and $2.2 million related to the development of our treating equipment and gathering support infrastructure. We received $1.1 million in proceeds from the sale of oil and natural gas properties.

During the three months ended March 31, 2020, we spent $48.2 million on oil and natural gas capital expenditures, of which $26.0 million related to drilling and completion costs and $21.8 million related to the development of our treating equipment and our gathering support infrastructure. In addition, we received $0.5 million in insurance proceeds associated with a casualty loss on our support infrastructure.

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Financing Activities. Net cash flows used in financing activities for the three months ended March 31, 2021 was $3.3 million. Net cash flow provided by financing activities for the three months ended March 31, 2020 was $26.0 million.

During the three months ended March 31, 2021, we used cash flows from operations to make net repayments of $3.0 million on our Senior Credit Agreement.

During the three months ended March 31, 2020, net borrowings of $26.0 million under our Senior Credit Agreement were used to fund our drilling and completions program and the development of our treating equipment and gathering support facilities.

Senior Revolving Credit Facility

On October 8, 2019, we entered into the Senior Credit Agreement with Bank of Montreal, as administrative agent, and certain other financial institutions party thereto, as lenders. The Senior Credit Agreement, as amended, provides for a $750.0 million senior secured reserve-based revolving credit facility with a current borrowing base of $190.0 million. A portion of the Senior Credit Agreement, in the amount of $25.0 million, is available for the issuance of letters of credit. The maturity date of the Senior Credit Agreement is October 8, 2024. Redeterminations of the borrowing base occur semi-annually on May 1 and November 1, with the lenders and us each having the right to one interim unscheduled redetermination between any two consecutive semi-annual redeterminations. The borrowing base takes into account the estimated value of our oil and natural gas properties, proved reserves, total indebtedness, and other relevant factors consistent with customary oil and natural gas lending criteria. Amounts outstanding under the Senior Credit Agreement bear interest at specified margins over the base rate of 2.00% to 3.00% for ABR-based loans or at specified margins over LIBOR of 3.00% to 4.00% for Eurodollar-based loans, which margins may be increased one-time by not more than 50 basis points per annum if necessary in order to successfully syndicate the Senior Credit Agreement. These margins fluctuate based on our utilization of the facility.

We may elect, at our option, to prepay any borrowings outstanding under the Senior Credit Agreement without premium or penalty, except with respect to any break funding payments that may be payable pursuant to the terms of the Senior Credit Agreement. We may be required to make mandatory prepayments of the outstanding borrowings under the Senior Credit Agreement in connection with certain borrowing base deficiencies, including deficiencies which may arise in connection with a borrowing base redetermination, an asset disposition or swap terminations. Amounts outstanding under the Senior Credit Agreement are guaranteed by our direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of us and our subsidiaries.

The Senior Credit Agreement contains certain events of default, including non-payment; breaches of representation and warranties; non-compliance with covenants; cross-defaults to material indebtedness; voluntary or involuntary bankruptcy; judgments and change in control. The Senior Credit Agreement also contains certain financial covenants, including maintenance of (i) a Total Net Indebtedness Leverage Ratio (as defined in the Senior Credit Agreement) of not greater than 3.50 to 1.00 and (ii) a Current Ratio (as defined in the Senior Credit Agreement) of not less than 1.00:1.00.

On October 29, 2020, we entered into the Third Amendment. The Third Amendment, among other things, set the borrowing base to $190.0 million as of November 1, 2020. The Third Amendment also reduced the amount available for the issuance of letters of credit to $25.0 million and amended certain covenants including, but not limited to, covenants relating to increasing the minimum mortgaged total value of proved borrowing base properties from 85% to 90%. Additionally, the Third Amendment provided for new covenants that, among other things, require us to enter into swap agreements representing not less than 65% of our reasonably anticipated projected production from proved reserves classified as developed producing reserves for a period from the Third Amendment effective date through at least December 31, 2022 and prohibit no more than $3.0 million of our uncontested accounts payable or accrued expenses, liabilities or other obligations from remaining outstanding for longer than 90 days. Pursuant to the Third Amendment, the administrative agent and the lenders consented to a waiver of the Current Ratio (as defined in the Senior Credit Agreement) for the fiscal quarter ended September 30, 2020 and suspended testing of the Current Ratio until the fiscal quarter ending December 31, 2021.

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On May 10, 2021, we entered into the Fourth Amendment which reduces the borrowing base to $185.0 million effective June 1, 2021 and further reduces the borrowing base to $175.0 million effective September 1, 2021. The Fourth Amendment also, among other things, (i) increased interest margins to 2.00% to 3.00% for ABR-based loans and 3.00% to 4.00% for Eurodollar-based loans, (ii) amended the covenant relating to the minimum mortgaged total value of proved borrowing base properties to increase the value from 90% to 95%, (iii) provides for direct reductions in the borrowing base in the event of asset dispositions in excess of $1.0 million per fiscal year or swap terminations and (iv) revised certain covenants and covenant-related baskets including, but not limited to, adding covenants prohibiting the designation of unrestricted subsidiaries and requiring prior consent from the lenders regarding asset dispositions or swap terminations in excess of the greater of $7.5 million or 3.5% of the then effective borrowing base.

As of March 31, 2021, after giving effect to the Third Amendment, we were in compliance with the financial covenants under the Senior Credit Agreement.

Paycheck Protection Program Loan

On April 16, 2020, we entered into a promissory note (the PPP Loan) for a principal amount of approximately $2.2 million from Bank of Montreal under the Paycheck Protection Program of the CARES Act, which is administered by the U.S. Small Business Administration (SBA). Pursuant to the terms of the CARES Act, the proceeds of the PPP Loan may be used for payroll costs, mortgage interest, rent or utility costs. The PPP Loan bears interest at a rate of 1.0% per annum and, if not forgiven, has a maturity date of April 16, 2022. As long as we make a timely application of forgiveness to the SBA, we are not required to make any payments under the PPP Loan until the forgiveness amount is communicated to us by the SBA.

We may elect, at our option, to prepay 20% or less of the borrowings outstanding under the PPP Loan without premium or penalty, and without notice. Prepayments of more than 20% of the outstanding borrowings require written advanced notice and payment of accrued interest. The PPP Loan contains certain events of default including non-payment, breach of representations and warranties, cross-defaults to other loans with the lender or to material indebtedness, voluntary or involuntary bankruptcy, judgments and change in control.

Under the terms of the CARES Act, we can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds in accordance with the terms of the CARES Act during the covered period after loan origination and the maintenance or achievement of certain employee levels. We believe we are eligible for, and intend to pursue, forgiveness of the PPP Loan in accordance with the requirements and limitations under the CARES Act; however, no assurance can be provided that forgiveness of any portion of the PPP Loan will be obtained.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon the unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. There have been no material changes to our critical accounting policies from those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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Results of Operations

Three Months Ended March 31, 2021 and 2020

We reported a net loss of $33.4 million and net income of $114.5 million for the three months ended March 31, 2021 and 2020, respectively. The table included below sets forth financial information for the periods presented.

	Three Months Ended
	March 31,
In thousands (except per unit and per Boe amounts)	2021		2020		Change
Net income (loss)	$	(33,375)	$	114,491	$	(147,866)
Operating revenues:
Oil		41,270		41,917		(647)
Natural gas		9,087		354		8,733
Natural gas liquids		4,909		4,753		156
Other		252		375		(123)
Operating expenses:
Production:
Lease operating		9,467		12,489		(3,022)
Workover and other		560		1,323		(763)
Taxes other than income		3,192		2,915		277
Gathering and other		13,171		10,547		2,624
Restructuring		—		418		(418)
General and administrative:
General and administrative		4,233		3,469		764
Stock-based compensation		594		387		207
Depletion, depreciation and accretion:
Depletion – Full cost		10,341		17,600		(7,259)
Depreciation – Other		126		281		(155)
Accretion expense		128		149		(21)
Other income (expenses):
Net gain (loss) on derivative contracts		(45,711)		118,299		(164,010)
Interest expense and other		(1,370)		(1,629)		259
Production:
Oil – MBbls		719		937		(218)
Natural Gas - MMcf		2,133		2,539		(406)
Natural gas liquids – MBbls		215		350		(135)
Total MBoe(1)		1,290		1,710		(420)
Average daily production – Boe(1)		14,333		18,791		(4,458)
Average price per unit (2):
Oil price - Bbl	$	57.40	$	44.74	$	12.66
Natural gas price - Mcf		4.26		0.14		4.12
Natural gas liquids price - Bbl		22.83		13.58		9.25
Total per Boe(1)		42.84		27.50		15.34
Average cost per Boe:
Production:
Lease operating	$	7.34	$	7.30	$	0.04
Workover and other		0.43		0.77		(0.34)
Taxes other than income		2.47		1.70		0.77
Gathering and other		10.21		6.17		4.04
Restructuring		—		0.24		(0.24)
General and administrative:
General and administrative		3.28		2.03		1.25
Stock-based compensation		0.46		0.23		0.23
Depletion		8.02		10.29		(2.27)

(1) Natural gas reserves are converted to oil reserves using a ratio of six Mcf to one Bbl of oil. This ratio is based on energy equivalency, not price equivalency. The price for a barrel of oil equivalent for natural gas is substantially lower than the price for a barrel of oil.

(2) Amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge accounting.

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Oil, natural gas and natural gas liquids revenues were $55.3 million and $47.0 million for the three months ended March 31, 2021 and 2020, respectively. For the three months ended March 31 2021 and 2020, production averaged 14,333 Boe/d and 18,791 Boe/d, respectively. Our average daily oil, natural gas and natural gas liquids production decreased in the first three months ended March 31, 2021 when compared to the same period in the prior year primarily due to production declines in our non-core areas, which were partially offset by increased production from our Monument Draw area, where new production came online as a result of our capital spending program. Also contributing to decreased total production in the current year period is a temporary shut-in of production in February 2021 as a result of inclement weather. The estimated production decrease associated with this temporary shut-in was approximately 1,300 Boe/d for the first three months of 2021. In addition, in December 2020, we divested properties that produced approximately 800 Boe/d during the three months ended March 31, 2020. Average realized prices (excluding the effects of hedging arrangements) were $42.84 per Boe and $27.50 per Boe for the three months ended March 31, 2021 and 2020, respectively. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, weather, transportation take-away capacity constraints, inventory storage levels, quality of production, basis differentials and other factors.

Lease operating expenses were $9.5 million and $12.5 million for the three months ended March 31, 2021 and 2020, respectively. The decrease in lease operating expenses in 2021 results from decreased salt water disposal costs due to lower production volumes and less produced water. On a per unit basis, lease operating expenses were $7.34 per Boe and $7.30 per Boe for the three months ended March 31, 2021 and 2020, respectively.

Workover and other expenses were $0.6 million and $1.3 million for the three months ended March 31, 2021 and 2020, respectively. On a per unit basis, workover and other expenses were $0.43 per Boe and $0.77 per Boe for the three months ended March 31, 2021 and 2020, respectively. The decreased workover and other expenses in 2021 relate to preventive operational measures previously undertaken to mitigate potential future failures in producing wells, continued improvements in well and completion designs, and cost reductions for materials and services.

Taxes other than income were $3.2 million and $2.9 million for the three months ended March 31, 2021 and 2020, respectively. Most production taxes are based on realized prices at the wellhead. As revenues or volumes from oil and natural gas sales increase or decrease, production taxes on these sales also increase or decrease. On a per unit basis, taxes other than income were $2.47 per Boe and $1.70 per Boe for the three months ended March 31, 2021 and 2020, respectively.

Gathering and other expenses were $13.2 million and $10.5 million for the three months ended March 31, 2021 and 2020, respectively. Gathering and other expenses include gathering fees paid to third parties on our oil and natural gas production and operating expenses of our gathering support infrastructure. Approximately $4.0 million and $2.9 million for the three months ended March 31, 2021 and 2020, respectively, relate to gathering and marketing fees paid to third parties on our oil and natural gas production. Gathering and marketing fees increased in 2021 as we marketed higher quantities of sour gas production to third parties in the current year period. Approximately $9.2 million and $7.6 million for the three months ended March 31, 2021 and 2020, respectively, relate to operating expenses on our treating equipment and gathering support facilities. The increase in treating equipment and gathering support facilities expenses in 2021 results from higher electricity and buy back fuel costs incurred as a result of inclement weather in February 2021 and higher chemical costs to improve the quality of treated oil, which were partially offset by lower operating expenses associated with our treating equipment, as fewer sour gas production volumes were processed through our hydrogen sulfide treating plant in the current year period.

Restructuring expense was approximately $0.4 million for the three months ended March 31, 2020. During the three months ended March 31, 2020, we incurred restructuring charges related to the consolidation into one corporate office and had reductions in our workforce due to efforts to improve efficiencies and go forward costs.

General and administrative expense was $4.2 million and $3.5 million for the three months ended March 31, 2021 and 2020, respectively. In late March 2020, due to changes in market conditions and decreased commodity prices, we determined that previously accrued discretionary cash incentives related to 2019 would not be paid, causing a $1.6 million reduction to general and administrative expense for the period. On a per unit basis, general and administrative expenses were $3.28 per Boe and $2.03 per Boe for the three months ended March 31, 2021 and 2020, respectively.

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Stock-based compensation expense was $0.6 million and $0.4 million for the three months ended March 31, 2021 and 2020, respectively. Stock based compensation expense increased in the current period related to awards granted during the first three months of 2020.

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 $10.3 million and $17.6 million for the three months ended March 31, 2021 and 2020, respectively. On a per unit basis, depletion expense was $8.02 per Boe and $10.29 per Boe for the three months ended March 31, 2021 and 2020, respectively. The lower depletion rate in the 2021 is attributable to the change in our depletable base as a result of full cost ceiling test impairments incurred in 2020.

We enter into derivative commodity instruments to hedge our exposure to price fluctuations on our anticipated oil, natural gas and natural gas liquids production. Consistent with prior years, we have elected not to designate any positions as cash flow hedges for accounting purposes, and accordingly, we recorded the net change in the mark-to-market value of these derivative contracts in the unaudited condensed consolidated statements of operations. At March 31, 2021, we had a $1.5 million derivative asset, $0.7 million of which was classified as current, and we had a $51.4 million derivative liability, $42.4 million of which was classified as current. We recorded a net derivative loss of $45.7 million ($36.0 million net unrealized loss and $9.7 million net realized loss on settled and early terminated contracts) for the three months ended March 31, 2021. For the three months ended March 31, 2020, we recorded a net derivative gain of $118.3 million ($112.4 million net unrealized gain and $5.9 million net realized gain on settled and early terminated contracts).

Interest expense and other was $1.4 million and $1.6 million for the three months ended March 31, 2021 and 2020, respectively. Interest expense decreased during the three months ended March 31, 2021 as compared to the prior year period due to lower interest rates incurred on outstanding borrowings under our Senior Credit Agreement.

Recently Issued Accounting Pronouncements

We discuss recently adopted and issued accounting standards in Item 1. Condensed Consolidated Financial Statements (Unaudited)—Note 1, “Financial Statement Presentation.”

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative Instruments and Hedging Activity

We are exposed to various risks, including energy commodity price risk, such as price differentials between the NYMEX commodity price and the index price at the location where our production is sold. When oil, natural gas, and natural gas liquids 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, natural gas and natural gas liquids prices by reducing the risk of price volatility and the affect it could have on our operations. The types of derivative instruments that we typically utilize include fixed-price swaps, costless collars, basis swaps and WTI NYMEX rolls. The total volumes that we hedge through the use of our derivative instruments varies from period to period, however, generally our objective is to hedge approximately 65% to 85% of our anticipated production for up to the next 30 months, when derivative contracts are available upon terms and prices acceptable to us and in a manner consistent with at least the minimum requirements that may be in effect from time to time under our Senior Credit Agreement. Our hedge policies and objectives may change significantly as our operational profile and contractual obligations changes. We do not enter into derivative contracts for speculative trading purposes.

We are exposed to market risk on our open derivative contracts related to potential non-performance by our counterparties. It is our policy to enter into derivative contracts only with counterparties that are creditworthy institutions deemed by management as competitive market makers. As of March 31, 2021, we did not post collateral under any of our derivative contracts as they are secured under our Senior Credit Agreement. We account for our derivative activities under the provisions of ASC 815, Derivatives and Hedging, (ASC 815). ASC 815 establishes accounting and reporting

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that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at fair value. See Item 1. Condensed Consolidated Financial Statements (Unaudited)—Note 8, “Derivative and Hedging Activities,” for more details.

Fair Market Value of Financial Instruments

The estimated fair values for financial instruments under ASC 825, Financial Instruments, (ASC 825) are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash and cash equivalents, accounts receivable and accounts payable approximates their carrying value due to their short-term nature. See Item 1. Condensed Consolidated Financial Statements (Unaudited)—Note 7, “Fair Value Measurements,” for additional information.

Interest Rate Sensitivity

We are also exposed to market risk related to adverse changes in interest rates. Our interest rate risk exposure results primarily from fluctuations in short-term rates, which are LIBOR and ABR based and may result in reductions of earnings or cash flows due to increases in the interest rates we pay on these obligations.

At March 31, 2021, the principal amount of our debt was $157.2 million, of which approximately 1.4% bears interest at a weighted average fixed interest rate of 1.0% per year. The remaining 98.6% of our total debt at March 31, 2021 bears interest at floating and variable interest rates that, at our option, are tied to the prime rate or LIBOR. Fluctuations in market interest rates will cause our annual interest costs to fluctuate. At March 31, 2021, the weighted average interest rate on our variable rate debt was 3.5% per year. If the balance of our variable interest rate at March 31, 2021 were to remain constant, a 10% change in market interest rates would impact our cash flows by approximately $0.5 million per year.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the design and operation of our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act) as of March 31, 2021. On the basis of this review, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

We did not have any change in our internal controls over financial reporting during the three months ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information regarding legal proceedings to which we are a party is set forth in Item 1. Condensed Consolidated Financial Statements (Unaudited)—Note 10, “Commitments and Contingencies,” which is incorporated herein by reference.

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ITEM 1A. RISK FACTORS

There have been no changes to the risk factors described in our 2020 Annual Report on Form 10-K, for the fiscal year ended December 31, 2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information regarding our acquisition of shares of common stock for the periods presented.

	Total Number of Shares Purchased(1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
January 2021	—	$	—	—	—
February 2021	23,680		11.16	—	—
March 2021	—		—	—	—

(1) All of the shares were surrendered by employees in exchange for the payment of tax withholding upon the vesting of restricted stock units. The acquisition of the surrendered shares was not part of a publicly announced program to repurchase shares of our common stock.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

On May 10, 2021, the Company entered into the Fourth Amendment to Senior Secured Revolving Credit Agreement (the Fourth Amendment) which reduces the borrowing base to $185.0 million effective June 1, 2021 and further reduces the borrowing base to $175.0 million effective September 1, 2021. The Fourth Amendment also, among other things, (i) increased interest margins to 2.00% to 3.00% for ABR-based loans and 3.00% to 4.00% for Eurodollar-based loans, (ii) amended the covenant relating to the minimum mortgaged total value of proved borrowing base properties to increase the value from 90% to 95%, (iii) provides for direct reductions in the borrowing base in the event of asset dispositions in excess of $1.0 million per fiscal year or swap terminations and (iv) revised certain covenants and covenant-related baskets including, but not limited to, adding covenants prohibiting the designation of unrestricted subsidiaries and requiring prior consent from the lenders regarding asset dispositions or swap terminations in excess of the greater of $7.5 million or 3.5% of the then effective borrowing base.

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ITEM 6. EXHIBITS

The following documents are included as exhibits to this Quarterly Report on Form 10-Q. Those exhibits incorporated by reference are so indicated by the information supplied with respect thereto. Those exhibits which are not incorporated by reference are attached hereto.

3.1	Amended and Restated Certificate of Incorporation of Battalion Oil Corporation (formerly Halcón Resources Corporation) dated October 8, 2019, as amended by the Certificate of Amendment, dated January 21, 2020 (Incorporated by reference to Exhibit 3.1 of our Annual Report on Form 10-K filed March 25, 2020).
3.2	Seventh Amended and Restated Bylaws of Battalion Oil Corporation (Incorporated by reference to Exhibit 3.2 of our Current Report on Form 8-K filed January 27, 2020).
10.1	Senior Secured Revolving Credit Agreement, dated as of October 8, 2019, by and among Battalion Oil Corporation (formerly Halcón Resources Corporation), as borrower, Bank of Montreal, as administrative agent, and certain other financial institutions party thereto, as lenders (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed October 8, 2019).
10.1.1	First Amendment to the Senior Secured Revolving Credit Agreement, dated as of November 21, 2019, by and among Battalion Oil Corporation (formerly Halcón Resources Corporation), as borrower, Bank of Montreal, as administrative agent, and the lenders party thereto. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed November 27, 2019).
10.1.2	Second Amendment to the Senior Secured Revolving Credit Agreement and Limited Consent, dated as of April 30, 2020, by and among Battalion Oil Corporation, as borrower, Bank of Montreal, as administrative agent, and the lenders party thereto. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed May 6, 2020).
10.1.3	Third Amendment to the Senior Secured Revolving Credit Agreement and Limited Waiver, dated as of October 29, 2020, by and among Battalion Oil Corporation, as borrower, Bank of Montreal, as administrative agent, and the lenders party thereto. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed November 2, 2020).
10.1.4*	Fourth Amendment to the Senior Secured Revolving Credit Agreement dated as of May 10, 2021, by and among Battalion Oil Corporation, as borrower, Bank of Montreal, as administrative agent, and the lenders party thereto.
31.1*	Sarbanes-Oxley Section 302 certification of Principal Executive Officer
31.2*	Sarbanes-Oxley Section 302 certification of Principal Financial Officer
32*	Sarbanes-Oxley Section 906 certification of Principal Executive Officer and Principal Financial Officer
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

^* Attached hereto.

^† Indicates management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BATTALION OIL CORPORATION
May 14, 2021	By:	/s/ RICHARD H. LITTLE
		Name:	Richard H. Little
		Title:	Chief Executive Officer
May 14, 2021	By:	/s/ R. KEVIN ANDREWS
		Name:	R. Kevin Andrews
		Title:	Executive Vice President, Chief Financial Officer and Treasurer

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EX-10.1.4

Exhibit 10.1.4

FOURTH AMENDMENT to Senior SECURED Revolving Credit Agreement

This FOURTH AMENDMENT to Senior SECURED Revolving Credit Agreement, dated as of May 10, 2021 (this “Agreement”), is made by and among BATTALION OIL CORPORATION, a corporation duly formed and existing under the laws of the State of Delaware (the “Borrower”), each of the undersigned guarantors (the “Guarantors”, and together with the Borrower, the “Loan Parties”), each of the undersigned Lenders and Issuing Banks party to the Credit Agreement referenced below, and BANK OF MONTREAL, as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the “Administrative Agent”).Capitalized terms used herein but not defined herein shall have the meanings ascribed to them in the Credit Agreement. Unless otherwise indicated, all section references in this Agreement refer to the applicable section of the Credit Agreement.

PRELIMINARY STATEMENTS

A.Reference is made to that certain Senior Secured Revolving Credit Agreement dated as of October 8, 2019 (as amended, restated, amended and restated, supplemented or otherwise modified prior to the date hereof, the “Credit Agreement”) by and among the Borrower, each of the Lenders party thereto and the Administrative Agent.

B.The Borrower, the Administrative Agent and the Lenders party hereto have agreed to modify certain provisions of the Credit Agreement, including to redetermine the Borrowing Base, as set forth herein.

C.In consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto hereby agree as follows:

Section 1.Amendments to the Credit Agreement.

(a)Amendments to Section 1.02. Section 1.02 is hereby amended by:

(i)Amending and restating the following defined terms to read in their entirety as follows:

“Applicable Margin” means, for any day, with respect to any ABR Loan or Eurodollar Loan or the Commitment Fee Rate, as the case may be, the rate per annum set forth in the Borrowing Base Utilization Percentage grid below based upon the Borrowing Base Utilization Percentage then in effect:

Level	Borrowing Base Utilization Percentage	Eurodollar Loans	ABR Loans	Commitment Fee Rate
1	> 90%	4.00 %	3.00%	0.50%
2	> 75% < 90%	3.75%	2.75%	0.50%
3	> 50% < 75%	3.50%	2.50%	0.50%

4	> 25% < 50%	3.25%	2.25%	0.50%
5	< 25%	3.00%	2.00%	0.50%

Each change in the Applicable Margin or Commitment Fee Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change; provided, however, that if at any time the Borrower fails to deliver a Reserve Report pursuant to Section 8.12(a), then the “Applicable Margin” and “Commitment Fee Rate” mean the rate per annum set forth on the grid when the Borrowing Base Utilization Percentage is at its highest level.

“Bank Products” means commercial credit cards, merchant card services, purchase or debit cards, including non-card e-payables services, and treasury management services (including, without limitation, controlled disbursement, automated clearinghouse transactions, return items, overdrafts and interstate depository network services).

(ii)Adding the following defined term in appropriate alphabetical order to read in its entirety as follows:

“Fourth Amendment Effective Date” means May 10, 2021.

(b)Amendment to Section 2.08(a). Section 2.08(a) is hereby amended and restated to read in its entirety as follows:

(a)Reduction of Borrowing Base Upon Asset Dispositions and Termination of Swap Positions.  If the Borrower or a Restricted Subsidiary (i) Disposes of (or any Casualty Event occurs in respect of) Oil and Gas Properties in excess of $1,000,000 per fiscal year (or, solely with respect to the fiscal year ending December 31, 2021, for the period commencing on the Fourth Amendment Effective Date and ending on December 31, 2021) (but excluding any Disposition to a Loan Party or from a non-Loan Party to a non-Loan Party, in each case, subject to prior written notice to the extent required by Section 8.01(k)) or any Equity Interests in any Person owning Oil and Gas Properties (but excluding any Disposition to a Loan Party or from a non-Loan Party to a non-Loan Party, in each case, subject to prior written notice to the extent required by Section 8.01(k)), or (ii) Unwinds Swap Agreements which, in each case are attributed any Borrowing Base Value, then the Borrowing Base shall be automatically reduced by an amount equal to (A) in the case of an Unwound Swap Agreement, the Borrowing Base Value attributable to such Unwound Swap Agreement in the current Borrowing Base or (B) in the case of any such Disposition, the Net Cash Proceeds received in respect of such Disposition. For the purposes of this Section 2.08(a), a Disposition of Oil and Gas Properties shall be deemed to include the designation of a Restricted Subsidiary owning Oil and Gas Properties as an Unrestricted Subsidiary and the Disposition of Oil and Gas Properties, or Equity Interests in any Person owning Oil and Gas Properties, to an Unrestricted Subsidiary.

(c)Amendments to Section 3.04. Section 3.04 is hereby amended as follows:

(i)Section 3.04(c)(vi) is relettered to Section 3.04(c)(vii).

(ii)Section 3.04(c)(vii) is relettered to Section 3.04(c)(viii).

(iii)A new Section 3.04(c)(vi) is added to read in its entirety as follows:

2

(vi)Dispositions and Unwinds. In addition to the foregoing mandatory prepayments set forth in this Section 3.04(c), from and after the Fourth Amendment Effective Date, upon any (A) Disposition of (or any Casualty Event in respect of) Oil and Gas Properties in excess of $1,000,000 per fiscal year (or, solely with respect to the fiscal year ending December 31, 2021, for the period commencing on the Fourth Amendment Effective Date and ending on December 31, 2021)  (but excluding any Disposition to a Loan Party or from a non-Loan Party to a non-Loan Party, in each case, subject to prior written notice to the extent required by Section 8.01(k)) or any Equity Interests in any Person owning Oil and Gas Properties (but excluding any Disposition to a Loan Party or from a non-Loan Party to a non-Loan Party, in each case, subject to prior written notice to the extent required by Section 8.01(k)), or (B) Unwind of Swap Agreements, which, in each case are attributed any Borrowing Base Value, the Borrower shall prepay the Loans in an aggregate amount equal to one hundred percent (100%) of the Net Cash Proceeds of such Disposition or Unwind.

(d)Amendments to Section 8.01. Section 8.01 is hereby amended as follows:

(i)Section 8.01(k) is amended by deleting the phrase “at least the greater of $5,000,000 or 2% of the then effective Borrowing Base” and substituting such phrase with “at least $200,000”.

(ii)Section 8.01(s) is relettered to Section 8.01(t).

(iii)A new Section 8.01(s) is added to read in its entirety as follows:

(s)Strategic Alternatives. The Borrower shall, and shall make its representatives available for, conference calls to be conducted on a periodic basis, but no less frequently than once a calendar month (beginning in June, 2021), for the purpose of providing the Administrative Agent with an update on the status and progress of any material transactions affecting the Loan Parties or their assets and liabilities, including any refinancing and/or sale transactions, accompanied, in each case and subject to the Administrative Agent’s reasonable request, by a written summary of such update. The Borrower shall provide the Administrative Agent of no less than three (3) Business Days’ advance notice of such conference calls.

(e)Amendments to Section 8.13.  Section 8.13 is hereby amended by replacing the phrase “ninety percent (90%)” with the phrase “ninety-five percent (95%)” in each instance it appears.

(f)Amendments to Section 8.14(a).  Section 8.14(a) is hereby amended by replacing the phrase “ninety percent (90%)” with the phrase “ninety-five percent (95%)” in each instance it appears.

(g)Amendment to Section 8.14(b). Section 8.14(b) is hereby amended by inserting the following sentence immediately after the first sentence in such section:

From and after the Fourth Amendment Effective Date, in the event that any Subsidiary is formed or acquired by the Borrower or any of its Subsidiaries, the Borrower shall promptly cause such Subsidiary to guarantee and secure the Secured Obligations pursuant to the Guaranty Agreement.

(h)Amendment to Section 9.02(d).  Section 9.02(d) is hereby amended by amending and restating the proviso at the end therein to read in its entirety as follows:

3

provided that the aggregate amount of such Indebtedness and Indebtedness incurred pursuant to Section 9.02(i), Section 9.02(j) and Section 9.02(k) does not exceed the greater of $10,000,000 or 5% of the then effective Borrowing Base at any one time outstanding;

(i)Amendment to Section 9.02(i).  Section 9.02(i) is hereby amended by amending and restating clause (ii) of the proviso at the end therein to read as follows:

(ii) the aggregate amount of such Indebtedness and Indebtedness incurred pursuant to Section 9.02(d), Section 9.02(j) and Section 9.02(k) does not exceed the greater of $10,000,000 or 5% of the then effective Borrowing Base at any one time outstanding;

(j)Amendment to Section 9.02(j).  Section 9.02(j) is hereby amended by replacing the phrase “; and” at the end thereof with the following phrase:

; provided further that, the aggregate amount of such Specified Additional Indebtedness and Indebtedness incurred pursuant to Section 9.02(d), Section 9.02(i) and Section 9.02(k) does not exceed the greater of $10,000,000 or 5% of the then effective Borrowing Base at any one time outstanding; and

(k)Section 9.02(k) is hereby amended by amending and restating the proviso at the end therein to read in its entirety as follows:

; provided that the aggregate amount of such Indebtedness and other Indebtedness incurred pursuant to Section 9.02(d), Section 9.02(i) and Section 9.02(j) does not exceed the greater of $10,000,000 or 5% of the then effective Borrowing Base at any one time outstanding.

(l)Amendment to Section 9.03. Section 9.03(e) is hereby amended and restated to read in its entirety as follows:

[reserved].

(m)Amendment to Section 9.04. Section 9.04(a)(vi) is hereby amended and restated to read in its entirety as follows:

[reserved].

(n)Amendments to Section 9.05. Section 9.05 is hereby amended as follows:

(i)Section 9.05(h) is amended and restated to read in its entirety as follows;

[reserved];

(ii)Section 9.05(l) is amended and restated to read in its entirety as follows:

[reserved]; and

(iii)Section 9.05(m) is amended and restated to read in its entirety as follows:

[reserved].

(o)Amendment to Section 9.06. Section 9.06 is hereby amended and restated to read in its entirety as follows:

4

Section 9.06Designation and Conversion of Restricted and Unrestricted Subsidiaries. On and after the Fourth Amendment Effective Date, the Borrower will not, and will not permit any Subsidiary to, at any time be designated or classified as an Unrestricted Subsidiary. The Borrower shall not, and shall not permit any other Restricted Subsidiary to have any Unrestricted Subsidiaries.

(p)Amendments to Section 9.13. Section 9.13 is hereby amended as follows:

(i)Section 9.13(e)(i) is amended and restated in its entirety to read as follows:

(i)at least 100% of the consideration received in respect of any such sale or other Disposition or Unwind shall be cash and if a Borrowing Base Deficiency exists at such time then 100% of such cash consideration received in respect of any such sale or other Disposition or Unwind shall be applied as a prepayment to reduce the Borrowing Base Deficiency,

(ii)The following sentence is added at the end thereto:

Notwithstanding anything herein to the contrary, any Disposition or Unwind that is permitted by this Section 9.13 and which has a fair market value in excess of the greater of $7,500,000 or 3.5% of the then effective Borrowing Base shall not be permitted without the prior written consent of the Lenders and the Administrative Agent.

(q)Amendment to Section 9.16. Section 9.16 is hereby amended and restated in its entirety to read as follows:

Section 9.16Subsidiaries. The Borrower will not, and will not permit any Restricted Subsidiary to, create or acquire any additional Restricted Subsidiary unless the Borrower gives written notice to the Administrative Agent of such creation or acquisition and complies with Section 8.14(b) and Section 8.14(c).  All Restricted Subsidiaries will be Wholly-Owned Subsidiaries.  The Borrower shall not, and shall not permit any other Restricted Subsidiary to, have any Foreign Subsidiaries or Unrestricted Subsidiaries. As of the Fourth Amendment Effective Date, any new Subsidiary shall become a Guarantor and comply with Section 8.14(b).

Section 2.Borrowing Base Redetermination.  The Borrower and the Required Lenders agree that, as of June 1, 2021, the amount of the Borrowing Base shall be $185,000,000 and such amount shall thereafter reduce on September 1, 2021 to $175,000,000.  Notwithstanding the foregoing, the Borrowing Base may be subject to adjustments pursuant to the Credit Agreement from time to time, including pursuant to the Borrowing Base Adjustment Provisions.  The Borrower, the Administrative Agent and the Required Lenders agree if a Borrowing Base Deficiency exists for any Borrowing Base amount set forth in this Section 2, Section 3.04(c)(ii) shall not apply and the Borrower shall on the next Business Day make a mandatory prepayment equal to the amount of the Borrowing Base Deficiency. Each of the parties hereto agree that the redetermination of the Borrowing Base set forth in this Section 2 is the May 1, 2021 Scheduled Redetermination.  For the avoidance of doubt, (a) the reduction of the Borrowing Base on September 1, 2021 contained in this Section 2 shall not constitute a Scheduled Redetermination or Interim Redetermination and (b) the November 1, 2021 Scheduled Redetermination shall occur pursuant to the terms of the Credit Agreement. This Agreement constitutes the New Borrowing Base Notice.

Section 3.Conditions to Effective Date. This Agreement shall not become effective until the date of satisfaction or waiver of the following conditions (the “Effective Date”):  

5

(a)The Administrative Agent shall have received from the Loan Parties, the Administrative Agent, the Issuing Bank and Lenders constituting the Required Lenders duly executed counterparts (in such number as may be reasonably requested by the Administrative Agent) of this Agreement.

(b)All reasonable out-of-pocket costs and expenses (including but not limited to the reasonable fees and disbursements incurred by counsel to the Administrative Agent ) required to be paid to the Administrative Agent and the Lenders on or before the Effective Date shall have been paid.

(c)On and as of the Effective Date, after giving effect to this Agreement, (i) no Borrowing Base Deficiency, Default or Event of Default shall have occurred and be continuing and (ii) the representations and warranties contained in Section 6 of this Agreement shall be true and correct.

The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding.

Section 4.Post-Effective Date Covenants. The Borrower will, within ten (10) Business Days of the Effective Date (or such later date as the Administrative Agent may agree in its sole discretion) deliver to the Administrative Agent:

(a)title information in form and substance reasonably acceptable to the Administrative Agent covering enough of the Oil and Gas Properties evaluated by the most recently delivered Reserve Report to satisfy Section 8.13(a) (as amended hereby); and

(b)Security Instruments that will, when properly recorded ensure that the Administrative Agent, for the benefit of the Secured Parties, shall have a first priority Lien on at least ninety-five percent (95%) of the PV-9 of the Borrowing Base Properties.

Failure to comply with this Section 4 will result in an Event of Default.

Section 5.Loan Document. This Agreement is a Loan Document.

Section 6.Representations and Warranties; No Borrowing Base Deficiency, Default or Event of Default. Each Loan Party represents and warrants to the Lenders that on and as of the Effective Date, after giving effect to this Agreement, (a) all representations and warranties of the Loan Parties contained herein and in the other Loan Documents shall be true and correct in all material respects on and as of the Effective Date with the same effect as though made on and as of such date, except in the case of any representation and warranty which (i) expressly relates to a given date, such representation and warranty shall be true and correct in all material respects as of the respective date and (ii) is qualified by a materiality or Material Adverse Effect standard in which case such representation and warranty shall be true and correct in all respects and (b) no Borrowing Base Deficiency, Default or Event of Default has occurred and is continuing.

Section 7.Reaffirmation. Each Loan Party confirms and agrees that each Loan Document to which such Loan Party is a party is, and the obligations of such Loan Party contained in the Credit Agreement, this Agreement or in any other Loan Document to which it is a party are, and shall continue to be, in full force and effect and are hereby ratified and confirmed in all respects, in each case as modified by this Agreement. For greater certainty and without limiting the foregoing, each Loan Party hereby confirms that the existing security interests granted by it in favor of the Administrative Agent for the benefit of the Lenders, the Issuing Bank and the other secured parties pursuant to the Loan Documents in the collateral described therein shall continue to secure the Secured Obligations as and to the extent provided in the Loan Documents.

6

Section 8.Entire Agreement. This Agreement, the Credit Agreement, and the other Loan Documents represent the final agreement among the parties hereto and thereto and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties.  There are no unwritten oral agreements between the parties. This Agreement shall not by implication or otherwise limit, impair, constitute a consent or waiver of, or otherwise affect the rights and remedies of any party under, the Credit Agreement or the other Loan Documents nor alter, modify, amend, or, except as expressly set forth herein, in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or the other Loan Documents all of which are ratified and affirmed in all respects and shall continue in full force and effect.

Section 9.GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS; WAIVER OF JURY TRIAL. SECTION 12.09 IS HEREBY INCORPORATED BY REFERENCE INTO THIS AGREEMENT MUTATIS MUTANDIS AND SHALL APPLY HERETO.

Section 10.Severability. Any provision of this Agreement, the Credit Agreement or any other Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof or thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

Section 11.Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  Delivery of an executed counterpart of a signature page of this Agreement by telecopy, emailed pdf. or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement.  The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Agreement and the transactions contemplated hereby shall be deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act; provided that nothing herein shall require the Administrative Agent to accept electronic signatures in any form or format without its prior written consent.

Section 12.GENERAL RELEASE. AS PART OF THE CONSIDERATION FOR THE LENDERS’ AND THE ADMINISTRATIVE AGENT’S EXECUTION OF THIS AGREEMENT, EACH LOAN PARTY, ON BEHALF OF ITSELF AND ITS SUCCESSORS, ASSIGNS, EQUITYHOLDERS, SUBSIDIARIES, AFFILIATES, OFFICERS, PARTNERS, DIRECTORS, EMPLOYEES, AGENTS AND ATTORNEYS (COLLECTIVELY, THE “RELEASING PARTIES”) HEREBY FOREVER, FULLY, UNCONDITIONALLY, AND IRREVOCABLY RELEASES, WAIVES, AND FOREVER DISCHARGES THE LENDERS, THE ADMINISTRATIVE AGENT, THE ISSUING BANKS AND EACH OF THEIR SUCCESSORS, ASSIGNS, EQUITYHOLDERS, SUBSIDIARIES, AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, AND ATTORNEYS AND OTHER PROFESSIONALS (COLLECTIVELY, THE “RELEASEES”) FROM ANY AND ALL CLAIMS, LIABILITIES, OBLIGATIONS, DEBTS, DEMANDS, CAUSES OF ACTION (WHETHER AT LAW OR IN EQUITY OR OTHERWISE), DAMAGES, COSTS, ATTORNEYS’ FEES, SUITS, CONTROVERSIES, ACTS AND OMISSIONS, DEFENSES, COUNTERCLAIMS, SETOFFS, AND OTHER CLAIMS OF EVERY KIND OR NATURE WHATSOEVER, WHETHER KNOWN OR UNKNOWN, WHETHER LIQUIDATED OR UNLIQUIDATED, MATURED OR UNMATURED,

7

FIXED OR CONTINGENT, DIRECTLY OR INDIRECTLY ARISING OUT OF, CONNECTED WITH, RESULTING FROM OR RELATED TO ANY ACT OR OMISSION UNDER ANY LOAN DOCUMENT BY ANY LENDER OR THE ADMINISTRATIVE AGENT OR ANY OTHER RELEASEE PRIOR TO THE DATE HEREOF (COLLECTIVELY, THE “CLAIMS”); PROVIDED THAT THE FOREGOING RELEASE OF CLAIMS DOES NOT APPLY TO ANY CLAIM THAT HAS BEEN DETERMINED IN A FINAL, NON-APPEALABLE JUDGMENT OF A COURT OF COMPETENT JURISDICTION TO HAVE ARISEN BY VIRTUE OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY RELEASEE. EACH LOAN PARTY FURTHER AGREES THAT IT SHALL NOT COMMENCE, INSTITUTE, OR PROSECUTE ANY LAWSUIT, ACTION OR OTHER PROCEEDING, WHETHER JUDICIAL, ADMINISTRATIVE OR OTHERWISE, TO COLLECT OR ENFORCE ANY CLAIM. FURTHERMORE, EACH OF THE RELEASING PARTIES HEREBY ABSOLUTELY, UNCONDITIONALLY AND IRREVOCABLY COVENANTS AND AGREES WITH AND IN FAVOR OF EACH RELEASEE THAT IT WILL NOT SUE (AT LAW, IN EQUITY, IN ANY REGULATORY PROCEEDING OR OTHERWISE) ANY RELEASEE ON THE BASIS OF ANY CLAIM RELEASED AND/OR DISCHARGED BY THE RELEASING PARTIES PURSUANT TO THIS SECTION 12. IN ENTERING INTO THIS AGREEMENT, EACH OF THE RELEASING PARTIES HAS CONSULTED WITH, AND HAS BEEN REPRESENTED BY, LEGAL COUNSEL AND EXPRESSLY DISCLAIMS ANY RELIANCE ON ANY REPRESENTATIONS, ACTS OR OMISSIONS BY ANY OF THE RELEASEES AND HEREBY AGREES AND ACKNOWLEDGES THAT THE VALIDITY AND EFFECTIVENESS OF THE RELEASES SET FORTH ABOVE DO NOT DEPEND IN ANY WAY ON ANY SUCH REPRESENTATIONS, ACTS AND/OR OMISSIONS OR THE ACCURACY, COMPLETENESS OR VALIDITY THEREOF. THE PROVISIONS OF THIS SECTION 12 SHALL SURVIVE AND REMAIN IN FULL FORCE AND EFFECT REGARDLESS OF THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY, THE REPAYMENT OR PREPAYMENT OF ANY OF THE LOANS, OR THE TERMINATION OF THE CREDIT AGREEMENT, THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY PROVISION HEREOF OR THEREOF. EACH RELEASING PARTY UNDERSTANDS, ACKNOWLEDGES AND AGREES THAT THE RELEASE SET FORTH ABOVE MAY BE PLEADED AS A FULL AND COMPLETE DEFENSE AND MAY BE USED AS A BASIS FOR AN INJUNCTION AGAINST ANY ACTION, SUIT OR OTHER PROCEEDING WHICH MAY BE INSTITUTED, PROSECUTED OR ATTEMPTED IN BREACH OF THE PROVISIONS OF SUCH RELEASE.

[SIGNATURES BEGIN NEXT PAGE]

8

IN WITNESS WHEREOF, each of the undersigned has caused its duly authorized officer to execute and deliver this Agreement as of the date first written above.

BORROWER:	BATTALION OIL CORPORATION (F/K/A HALCÓN RESOURCES CORPORATION)
	By: /s/ R. Kevin Andrews ______ Name:R. Kevin Andrews Title: EVP, CFO & Treasurer
GUARANTORS:	HALCÓN HOLdings, LLC
	BATTALION OIL MANAGEMENT, INC. (F/K/A HALCÓN RESOURCES OPERATING, INC.)
	HALCÓN Energy PROPERTIES, Inc.
	HALCÓN Permian, LLC
	HALCÓN Operating CO., Inc.
	HALCÓN field services, llc
	By: /s/ R. Kevin Andrews ______ Name:R. Kevin Andrews Title: EVP, CFO & Treasurer

[Signature Page to Fourth Amendment to Senior Secured Revolving Credit Agreement]

ADMINISTRATIVE AGENT AND LENDER:	BANK OF MONTREAL
	By: /s/ Marc Maslanka _______ Name: Marc Maslanka Title: Director

[Signature Page to Fourth Amendment to Senior Secured Revolving Credit Agreement]

Marc
LENDER:	BMO HARRIS FINANCING, INC.
	By: /s/ Marc Maslanka _______ Name:Marc Maslanka Title: Director

[Signature Page to Fourth Amendment to Senior Secured Revolving Credit Agreement]

LENDER:	GOLDMAN SACHS LENDING PARTNERS LLC
	By: /s/ Dan Martis _______ Name: Dan Martis Title: Authorized Signatory

[Signature Page to Fourth Amendment to Senior Secured Revolving Credit Agreement]

EX-31.1

Exhibit 31.1

CERTIFICATIONS FOR FORM 10-Q

I, Richard H. Little, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Battalion Oil Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

on
	BATTALION OIL CORPORATION
May 14, 2021	By:	/s/ Richard H. Little
		Name:	Richard H. Little
		Title:	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS FOR FORM 10-Q

I, R. Kevin Andrews, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Battalion Oil Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	BATTALION OIL CORPORATION
May 14, 2021	By:	/s/ R. Kevin Andrews
		Name:	R. Kevin Andrews
		Title:	Executive Vice President, Chief Financial Officer and Treasurer

EX-32

Exhibit 32

Certification Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), Richard H. Little, Chief Executive Officer, and R. Kevin Andrews, Executive Vice President, Chief Financial Officer and Treasurer, of Battalion Oil Corporation (the “Company”), each hereby certifies that, to the best of his knowledge:

(1) The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Richard H. Little
May 14, 2021	Richard H. Little Chief Executive Officer
	/s/ R. Kevin Andrews
May 14, 2021	R. Kevin Andrews Executive Vice President, Chief Financial Officer and Treasurer

This certification accompanies this Form 10-Q and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section.

A signed original of this written statement required by Section 906 has been provided to, and will be retained by, the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2021	May 11, 2021
Cover [Abstract]
Entity Registrant Name	Battalion Oil Corp
Entity Central Index Key	0001282648
Document Type	10-Q
Document Period End Date	Mar. 31, 2021
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		16,267,597
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Oil, natural gas and natural gas liquids sales:
Total oil, natural gas and natural gas liquids sales	$ 55,266	$ 47,024
Other	252	375
Total operating revenues	55,518	47,399
Production:
Lease operating	9,467	12,489
Workover and other	560	1,323
Taxes other than income	3,192	2,915
Gathering and other	13,171	10,547
Restructuring		418
General and administrative	4,827	3,856
Depletion, depreciation and accretion	10,595	18,030
Total operating expenses	41,812	49,578
Income (loss) from operations	13,706	(2,179)
Other income (expenses):
Net gain (loss) on derivative contracts	(45,711)	118,299
Interest expense and other	(1,370)	(1,629)
Total other income (expenses)	(47,081)	116,670
Income (loss) before income taxes	(33,375)	114,491
Net income (loss)	$ (33,375)	$ 114,491
Net income (loss) per share of common stock:
Basic (in dollars per share)	$ (2.06)	$ 7.07
Diluted (in dollars per share)	$ (2.06)	$ 7.07
Weighted average common shares outstanding:
Basic (in shares)	16,232	16,204
Diluted (in shares)	16,232	16,204
Total oil, natural gas and natural gas liquids sales
Oil, natural gas and natural gas liquids sales:
Total oil, natural gas and natural gas liquids sales	$ 55,266	$ 47,024
Oil
Oil, natural gas and natural gas liquids sales:
Total oil, natural gas and natural gas liquids sales	41,270	41,917
Natural gas
Oil, natural gas and natural gas liquids sales:
Total oil, natural gas and natural gas liquids sales	9,087	354
NGLs
Oil, natural gas and natural gas liquids sales:
Total oil, natural gas and natural gas liquids sales	$ 4,909	$ 4,753

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CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 1,671	$ 4,295
Accounts receivable, net	39,534	32,242
Assets from derivative contracts	672	8,559
Prepaids and other	2,591	2,740
Total current assets	44,468	47,836
Oil and natural gas properties (full cost method):
Evaluated	530,499	509,274
Unevaluated	75,880	75,494
Gross oil and natural gas properties	606,379	584,768
Less - accumulated depletion	(305,505)	(295,163)
Net oil and natural gas properties	300,874	289,605
Other operating property and equipment:
Other operating property and equipment	3,524	3,535
Less - accumulated depreciation	(1,257)	(1,149)
Net other operating property and equipment	2,267	2,386
Other noncurrent assets:
Assets from derivative contracts	828	4,009
Operating lease right of use assets	195	310
Other assets	1,967	2,351
Total assets	350,599	346,497
Current liabilities:
Accounts payable and accrued liabilities	74,073	58,928
Liabilities from derivative contracts	42,371	22,125
Current portion of long-term debt	2,123	1,720
Operating lease liabilities	195	403
Total current liabilities	118,762	83,176
Long-term debt	155,086	158,489
Other noncurrent liabilities:
Liabilities from derivative contracts	9,029	4,291
Asset retirement obligations	10,711	10,583
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock: 100,000,000 shares of $0.0001 par value authorized;16,267,157 and 16,203,979 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	2	2
Additional paid-in capital	330,551	330,123
Retained earnings (accumulated deficit)	(273,542)	(240,167)
Total stockholders' equity	57,011	89,958
Total liabilities and stockholders' equity	$ 350,599	$ 346,497

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Mar. 31, 2021	Dec. 31, 2020
Stockholders' equity:
Common stock, shares authorized	100,000,000	100,000,000
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares issued	16,267,157	16,203,979
Common stock, shares outstanding	16,267,157	16,203,979

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total
Balances at Dec. 31, 2019	$ 2	$ 327,108	$ (10,460)	$ 316,650
Balances (in shares) at Dec. 31, 2019	16,204
Increase (Decrease) in Stockholders' Equity
Net income (loss)			114,491	114,491
Equity issuance costs and other		(13)		(13)
Stock-based compensation		449		449
Balances at Mar. 31, 2020	$ 2	327,544	104,031	431,577
Balances (in shares) at Mar. 31, 2020	16,204
Increase (Decrease) in Stockholders' Equity
Net income (loss)			(127,316)	(127,316)
Stock-based compensation		910		910
Balances at Jun. 30, 2020	$ 2	328,454	(23,285)	305,171
Balances (in shares) at Jun. 30, 2020	16,204
Increase (Decrease) in Stockholders' Equity
Net income (loss)			(153,125)	(153,125)
Stock-based compensation		744		744
Balances at Sep. 30, 2020	$ 2	329,198	(176,410)	152,790
Balances (in shares) at Sep. 30, 2020	16,204
Increase (Decrease) in Stockholders' Equity
Net income (loss)			(63,757)	(63,757)
Stock-based compensation		925		925
Balances at Dec. 31, 2020	$ 2	330,123	(240,167)	89,958
Balances (in shares) at Dec. 31, 2020	16,204
Increase (Decrease) in Stockholders' Equity
Net income (loss)			(33,375)	(33,375)
Long-term incentive plan vestings (in shares)	87
Reduction in shares to cover individuals' tax withholding		(264)		(264)
Reduction in shares to cover individuals' tax withholding (in shares)	(24)
Stock-based compensation		692		692
Balances at Mar. 31, 2021	$ 2	$ 330,551	$ (273,542)	$ 57,011
Balances (in shares) at Mar. 31, 2021	16,267

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020	Jun. 30, 2020	Mar. 31, 2020
Cash flows from operating activities:
Net income (loss)	$ (33,375)	$ (63,757)	$ (127,316)	$ 114,491
Adjustments to reconcile net income (loss) to net cash
Depletion, depreciation and accretion	10,595			18,030
Stock-based compensation, net	594			387
Unrealized loss (gain) on derivative contracts	36,052			(112,378)
Reorganization items, net				(4,984)
Accrued settlements on derivative contracts	4,568			(4,923)
Other income (expense)	(117)			7
Change in assets and liabilities:
Accounts receivable	(7,613)			18,919
Prepaids and other	149			1,038
Accounts payable and accrued liabilities	2,505			(18,244)
Net cash provided by (used in) operating activities	13,358			12,343
Cash flows from investing activities:
Oil and natural gas capital expenditures	(13,792)			(48,157)
Proceeds received from sale of oil and natural gas properties	1,076
Funds held in escrow and other	(3)			509
Net cash provided by (used in) investing activities	(12,719)			(47,648)
Cash flows from financing activities:
Proceeds from borrowings	16,000			51,000
Repayments of borrowings	(19,000)			(25,000)
Equity issuance costs and other	(263)			(32)
Net cash provided by (used in) financing activities	(3,263)			25,968
Net increase (decrease) in cash and cash equivalents	(2,624)			(9,337)
Cash and cash equivalents at beginning of period	4,295		$ 938	10,275
Cash and cash equivalents at end of period	$ 1,671	$ 4,295		938
Supplemental cash flow information:
Cash paid for reorganization items				4,984
Disclosure of non-cash investing and financing activities:
Asset retirement obligations				$ 105

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FINANCIAL STATEMENT PRESENTATION

3 Months Ended

Mar. 31, 2021

FINANCIAL STATEMENT PRESENTATION

FINANCIAL STATEMENT PRESENTATION

1. FINANCIAL STATEMENT PRESENTATION

Basis of Presentation and Principles of Consolidation

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. The consolidated financial statements include the accounts of all majority‑owned, controlled subsidiaries. The Company operates in one segment which focuses on oil and natural gas acquisition, production, exploration and development. Allocation of capital is made across the Company’s entire portfolio without regard to operating area. All intercompany accounts and transactions have been eliminated. These unaudited condensed consolidated financial statements reflect, in the opinion of the Company’s management, all adjustments, consisting of normal and recurring adjustments, necessary to present fairly the financial position as of, and the results of operations for, the periods presented. During interim periods, Battalion follows the accounting policies disclosed in its Annual Report on Form 10‑K, as filed with the United States Securities and Exchange Commission (SEC) on March 8, 2021. Please refer to the notes in the 2020 Annual Report on Form 10‑K when reviewing interim financial results.

Risk and Uncertainties

The Company is continuously monitoring the current and potential impacts of the novel coronavirus (COVID-19) pandemic on its business, including how it has and may continue to impact its operations, financial results, liquidity, contractors, customers, employees and vendors, and taking appropriate actions in response, including implementing various measures to ensure the continued operation of its business in a safe and secure manner. In 2020, COVID-19 and governmental actions to contain the pandemic contributed to an economic downturn, reduced demand for oil and natural gas and, together with a price war involving the Organization of Petroleum Exporting Countries (OPEC)/Saudi Arabia and Russia, depressed oil and natural gas prices to historically low levels. Although OPEC and Russia subsequently agreed to reduce production, downward pressure on prices continued for several months, particularly given concerns over the impacts of the economic downturn on demand. The Company is unable to predict the future affects that these events will have on its business and financial condition due to numerous uncertainties, including the continuing severity and duration of the COVID-19 outbreak and the impacts that governmental or other actions taken to limit the extent and duration of the outbreak, in conjunction with economic conditions, will have on its business, demand for oil and natural gas, and oil and natural gas prices. The health of the Company’s employees, contractors and vendors, and its ability to meet staffing needs in its operations and critical functions cannot be predicted, nor can the impact on the Company’s customers, vendors and contractors. Any material effect on these parties could adversely impact the Company. These and other factors could affect the Company’s operations, earnings and cash flows and could cause its results to not be comparable to those of the same period in previous years. For example, in 2020, the Company realized lower revenue as a result of commodity price declines, which began in March 2020. In response to low commodity prices, the Company temporarily shut-in producing wells in May and June 2020, which further contributed to lower revenues that year. Additionally, the Company incurred ceiling test impairments in 2020, which were primarily driven by a decline in the average pricing used in the valuation of the Company’s reserves. The results presented in this Form 10-Q are not necessarily indicative of future operating results. For further information regarding the actual and potential impacts of COVID-19 on the Company, see “Risk Factors” in Item 1A of the Company’s 2020 Annual Report on Form 10-K.     

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Estimates and assumptions that, in the opinion of management of the Company, are significant include oil and natural gas revenue accruals, capital and operating expense accruals, oil and natural gas reserves, depletion relating to oil and natural gas properties, asset retirement obligations, and fair value estimates. The Company bases its estimates and judgments on historical experience and on various other assumptions and information believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be predicted with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from the estimates and assumptions used in the preparation of the Company’s unaudited condensed consolidated financial statements.

Interim period results are not necessarily indicative of results of operations or cash flows for the full year and accordingly, certain information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, has been condensed or omitted. The Company has evaluated events or transactions through the date of issuance of these unaudited condensed consolidated financial statements.

Cash and Cash Equivalents

The Company considers all highly liquid short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value.

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. The Company establishes provisions for losses on accounts receivable if it determines that collection of all or part of the outstanding balance is doubtful. The Company regularly reviews collectability and establishes or adjusts the allowance for doubtful accounts as necessary using the specific identification method. As of March 31, 2021 and December 31, 2020, allowances for doubtful accounts were approximately $0.2 million for both periods.

Other Operating Property and Equipment

Other operating property and equipment additions are recorded at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives: buildings, twenty years; automobiles and computers,  three years; computer software, fixtures, furniture and equipment,  five years; trailers, seven years; heavy equipment, eight to ten years and leasehold improvements, lease term. Land and artwork are not depreciated. Upon disposition, the cost and accumulated depreciation are removed and any gains or losses are reflected in current operations. Maintenance and repair costs are charged to operating expense as incurred. Material expenditures which increase the life or productive capacity of an asset are capitalized and depreciated over the estimated remaining useful life of the asset.

The Company reviews its other operating property and equipment for impairment in accordance with Accounting Standards Codification (ASC) 360, Property, Plant, and Equipment (ASC 360). ASC 360 requires the Company to evaluate other operating property and equipment for impairment as events occur or circumstances change that would more likely than not reduce the fair value below the carrying amount. If the carrying amount is not recoverable from its undiscounted cash flows, then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value. Further, the Company evaluates the remaining useful lives of its other operating property and equipment at each reporting period to determine whether events and circumstances warrant a revision to the remaining depreciation periods.

Concentrations of Credit Risk

The Company’s primary concentrations of credit risk are the risks of uncollectible accounts receivable and of nonperformance by counterparties under the Company’s derivative contracts. Each reporting period, the Company assesses the recoverability of material receivables using historical data, current market conditions and reasonable and supportable forecasts of future economic conditions to determine expected collectability of its material receivables.

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. Historically, the Company has not experienced any significant losses from uncollectible accounts from its oil and natural gas purchasers. The Company operates a substantial portion of its oil and natural gas properties. As the operator of a property, the Company makes full payments for costs associated with the property and seeks reimbursement from the other working interest owners in the property for their share of those costs. Joint operating agreements govern the operations of an oil or natural gas well and, in most instances, provide for offsetting of amounts payable or receivable between the Company and its joint interest owners. The Company’s joint interest partners consist primarily of independent oil and natural gas producers. If the oil and natural gas exploration and production industry in general was adversely affected, the ability of the Company’s joint interest partners to reimburse the Company could be adversely affected.

The Company’s exposure to credit risk under its derivative contracts is diversified among major financial institutions with investment grade credit ratings, where it has master netting agreements which provide for offsetting of amounts payable or receivable between the Company and the counterparty. To manage counterparty risk associated with derivative contracts, the Company selects and monitors counterparties based on an assessment of their financial strength and/or credit ratings. At March 31, 2021, the Company’s derivative counterparties include two major financial institutions, both of which are secured lenders under the Senior Credit Agreement.

Change in Estimate

     In late March 2020, due to changes in market conditions and decreased commodity prices, the Company determined that previously accrued discretionary cash incentives related to 2019 would not be paid, causing a $1.6 million reduction to “General and administrative” on the unaudited condensed consolidated statement of operations for the three months ended March 31, 2020.

Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (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. ASU 2020-04 will be in effect through December 31, 2022. The Company is currently evaluating ASU 2020-04 and the impact it may have on its operating results, financial position and disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (ASU 2019-12) as part of their simplification initiative. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions and by clarifying and amending existing guidance. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020 with early adoption permitted. The Company adopted ASU 2019-12 effective January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s operating results, financial position or disclosures.

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LEASES

3 Months Ended

Mar. 31, 2021

LEASES

LEASES

2. LEASES

The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the use of an identified asset for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset, and (2) the customer has the right to control the use of the identified asset.

The Company leases equipment and office space pursuant to net operating leases. Operating leases where the Company is the lessee are included in “Operating lease right of use assets” and “Operating lease liabilities” on the unaudited condensed consolidated balance sheets. The lease liabilities are initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date.

Key estimates and judgments include how the Company determined (1) the discount rate used to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments. ASC 842, Leases (ASC 842) requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Additionally, the Company applies a portfolio approach to determine the discount rate (the incremental borrowing rate for leases with similar characteristics). The Company uses the implicit rate when readily determinable. The lease term includes the noncancellable period of the lease plus any additional periods covered by either a lessee option to extend (or not to terminate) the lease that the lessee is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Lease payments included in the measurement of the lease asset or liability comprise the following, when applicable: fixed payments (including in‑substance fixed payments), variable payments that depend on an index or rate, and the exercise price of a lessee option to purchase the underlying asset if the lessee is reasonably certain to exercise.

The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For the Company’s operating leases, the right of use asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight‑line basis over the lease term.

Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments, when applicable, are presented as “Gathering and other,”  “Restructuring” or “General and administrative” in the unaudited condensed consolidated statements of operations in the same line item as the expense arising from the fixed lease payments on the operating leases.

The Company has lease agreements which include lease and nonlease components and the Company has elected to combine lease and nonlease components, when fixed, for all lease contracts. Nonlease components include common area maintenance charges on office leases and, when applicable, services associated with equipment leases. The Company determines whether the lease or nonlease component is the predominant component on a case‑by‑case basis.

The Company reviews its right of use assets for impairment in accordance with ASC 360. ASC 360 requires the Company to evaluate right of use assets for impairment as events occur or circumstances change that would more likely than not reduce the fair value below the carrying amount. If the carrying amount is not recoverable from its undiscounted cash flows, then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value.

The Company monitors for events or changes in circumstances that would require a reassessment of a lease. When a reassessment results in the remeasurement of a lease liability, an adjustment is made to the carrying amount of the corresponding right of use asset unless doing so would reduce the carrying amount of the right of use asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative right of use asset balance is recorded in the unaudited condensed consolidated statements of operations.

The Company elected not to recognize right of use assets and lease liabilities for all short‑term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short‑term leases when incurred. Variable lease payments associated with these leases are recognized and presented in the same manner as for all other leases.

The Company leases equipment and office space under operating leases. The Company has no leases that meet the criteria for classification as a finance lease. The “Operating lease right of use assets” outstanding on the unaudited condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020 have an initial lease term of 5 years. Payments due under the lease contracts include fixed payments plus, in some instances, variable payments. The table below summarizes the Company’s leases for the three months ended March 31, 2021 and 2020 (in thousands, except years and discount rate):

	Three Months Ended
	March 31,
	2021			2020
Lease cost
Operating lease costs	$	118		$	260
Short-term lease costs		1,171			12,258
Variable lease costs		113			210
Total lease costs	$	1,402		$	12,728
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	211		$	254
Weighted-average remaining lease term - operating leases		0.4	years		3.3	years
Weighted-average discount rate - operating leases		3.70	%		3.70	%

Future minimum lease payments associated with the Company’s non-cancellable operating leases for office space and equipment as of March 31, 2021, are presented in the table below (in thousands):

	March 31, 2021
Remaining period in 2021	$	196
2022		—
2023		—
2024		—
2025		—
Thereafter		—
Total operating lease payments		196
Less: discount to present value		1
Total operating lease liabilities		195
Less: current operating lease liabilities		195
Noncurrent operating lease liabilities	$	—

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OPERATING REVENUES

3 Months Ended

Mar. 31, 2021

OPERATING REVENUES

OPERATING REVENUES

3. OPERATING REVENUES

Revenue is measured based on consideration specified in a contract with a customer 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. 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 the commodity to the customer. Because the Company’s performance obligations have been satisfied and an unconditional right to consideration exists as of the balance sheet date, the Company recognized amounts due from contracts with customers of $34.1 million and $24.5 million as of March 31, 2021 and December 31, 2020, respectively, as “Accounts receivable” and “Other assets” on the unaudited condensed consolidated balance sheets.

Substantially all of the Company’s revenues are derived from single basin operations, the Delaware Basin in Pecos, Reeves, Ward and Winkler Counties, Texas. The following table disaggregates the Company’s revenues by major product, in order to depict how the nature, timing, and uncertainty of revenue and cash flows are affected by economic factors in the Company’s single basin operations, for the periods indicated (in thousands):

	Three Months Ended
	March 31,
	2021		2020
Operating revenues:
Oil, natural gas and natural gas liquids sales:
Oil	$	41,270	$	41,917
Natural gas		9,087		354
Natural gas liquids		4,909		4,753
Total oil, natural gas and natural gas liquids sales		55,266		47,024
Other		252		375
Total operating revenues	$	55,518	$	47,399

Oil Sales

The Company generally markets its crude oil production directly to the customer using two methods. Under the first method, crude oil is sold at the wellhead at an index price, averaged over the daily settlement prices for a production month, and adjusted for pricing differentials and other deductions. Revenue is recognized at the wellhead, where control of the crude oil transfers to the customer, at the net price received. Under the second method, crude oil is delivered to the customer at a contractual delivery point at which the customer takes custody, title and risk of loss of the product. The Company receives a specified index price from the customer, averaged over the daily settlement prices for a production month, and net of applicable market-related adjustments. Revenue is recognized when control of the crude oil transfers at the delivery point at the net price received.

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. Payment under the Company’s crude oil contracts is typically due on or before the 20th day of the month following the delivery month.

Natural Gas and Natural Gas Liquids 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. Under contracts where it is determined that control of the natural gas transfers at the wellhead, any fees incurred to gather or process the unprocessed natural gas are treated as a reduction of the sales price of unprocessed natural gas, and therefore revenues from such transactions are presented on a net basis. 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 unaudited condensed 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. The Company then sells the products to a customer at contractual delivery points at prices based on an index. In these instances, revenues are presented on a gross basis and any fees incurred to gather, process or transport the commodities are presented separately as “Gathering and other"  on the unaudited condensed consolidated statements of operations.

Settlement statements for the Company’s natural gas and natural gas liquids production are typically received 30 days after the date of production and therefore the Company estimates the amount of production delivered to the customer and the price that will be received for that production. The majority of the Company’s natural gas and natural gas liquids prices are based on daily average pricing for the month. Historically, differences between the Company’s estimates and the actual revenue received have not been material. Payment under the Company’s natural gas gathering and processing contracts is typically due on or before the fifth day of the second month following the delivery month.

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DIVESTITURES

3 Months Ended

Mar. 31, 2021

DIVESTITURES

DIVESTITURES

4. DIVESTITURES

Northern West Quito Assets

On December 18, 2020, the Company sold certain oil and gas properties and related assets located in Ward County, Texas (the North West Quito Assets) to Point Energy Partners Operating, LLC for a total sales price of $26.3 million in cash, subject to customary post-closing adjustments as provided in the Purchase and Sale Agreement. The effective date of the transaction was October 1, 2020. Proceeds from the sale were recorded as a reduction to the carrying value of the Company’s full cost pool with no gain or loss recorded. The Company used the net proceeds from the sale to repay amounts outstanding under the Company’s Senior Credit Agreement and for general corporate purposes.

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OIL AND NATURAL GAS PROPERTIES

3 Months Ended

Mar. 31, 2021

OIL AND NATURAL GAS PROPERTIES

OIL AND NATURAL GAS PROPERTIES

5. OIL AND NATURAL GAS PROPERTIES

The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas reserves (including such costs as leasehold acquisition costs, geological expenditures, treating equipment and gathering support facilities costs, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred. To the extent capitalized costs of evaluated oil and natural gas properties, net of accumulated depletion, exceed the discounted future net revenues of proved oil and natural gas reserves, net of deferred taxes, such excess capitalized costs are charged to expense.

Additionally, the Company assesses all properties classified as unevaluated property on a quarterly basis for possible impairment or reduction in value. The Company assesses properties on an individual basis or as a group, if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and the full cost ceiling test limitation. 

At March 31, 2021, the ceiling test value of the Company’s reserves was calculated based on the first-day-of-the-month average for the 12-months ended March 31, 2021 of the West Texas Intermediate (WTI) crude oil spot price of $39.95 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first-day-of-the-month average for the 12-months ended March 31, 2021 of the Henry Hub natural gas price of $2.16 per MMBtu, adjusted by lease or field for energy content, transportation fees, and regional price differentials. Using these prices, the Company’s net book value of oil and natural gas properties at March 31, 2021 did not exceed the ceiling amount.

At March 31, 2020, the ceiling test value of the Company’s reserves was calculated based on the first‑day‑of‑the‑month average for the 12‑months ended March 31, 2020 of the WTI crude oil spot price of $55.96 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first‑day‑of‑the‑month average for the 12‑months ended March 31, 2020 of the Henry Hub natural gas price of $2.30 per MMBtu, adjusted by lease or field for energy content, transportation fees, and regional price differentials. Using these prices, the Company’s net book value of oil and natural gas properties at March 31, 2020 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.

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DEBT

3 Months Ended

Mar. 31, 2021

DEBT

DEBT

6. DEBT

As of March 31, 2021 and December 31, 2020, the Company’s debt consisted of the following (in thousands):

	March 31, 2021		December 31, 2020
Senior revolving credit facility	$	155,000	$	158,000
Paycheck Protection Program loan		2,209		2,209
Total debt		157,209		160,209
Current portion of Paycheck Protection Program loan		2,123		1,720
Total long-term debt	$	155,086	$	158,489

Senior Revolving Credit Facility

On October 8, 2019, the Company entered into a senior secured revolving credit agreement, as amended, (the Senior Credit Agreement) with Bank of Montreal, as administrative agent, and certain other financial institutions party thereto, as lenders. The Senior Credit Agreement provides for a $750.0 million senior secured reserve‑based revolving credit facility with a current borrowing base of $190.0 million. At March 31, 2021, the Company had $155.0 million indebtedness outstanding and approximately $2.5 million letters of credit outstanding under the Senior Credit Agreement, resulting in $32.5 million of borrowing capacity under the current borrowing base of $190.0 million. Pursuant to the Fourth Amendment to the Senior Credit Agreement, the borrowing base is subject to certain reductions beginning June 1, 2021, which are discussed further below.

A portion of the Senior Credit Agreement, in the amount of $25.0 million, is available for the issuance of letters of credit. The maturity date of the Senior Credit Agreement is October 8, 2024. Redeterminations of the borrowing base occur semi-annually on May 1 and November 1, with the lenders and the Company each having the right to one interim unscheduled redetermination between any two consecutive semi-annual redeterminations. The borrowing base takes into account the estimated value of the Company’s oil and natural gas properties, proved reserves, total indebtedness, and other relevant factors consistent with customary oil and natural gas lending criteria. Amounts outstanding under the Senior Credit Agreement bear interest at specified margins over the base rate of 2.00% to 3.00% for ABR-based loans or at specified margins over LIBOR of 3.00% to 4.00% for Eurodollar-based loans, which margins may be increased one-time by not more than 50 basis points per annum if necessary in order to successfully syndicate the Senior Credit Agreement. These margins fluctuate based on the Company’s utilization of the facility.

The Company may elect, at its option, to prepay any borrowings outstanding under the Senior Credit Agreement without premium or penalty, except with respect to any break funding payments which may be payable pursuant to the terms of the Senior Credit Agreement. The Company may be required to make mandatory prepayments of the outstanding borrowings under the Senior Credit Agreement in connection with certain borrowing base deficiencies, including deficiencies which may arise in connection with a borrowing base redetermination, an asset disposition or swap terminations. Amounts outstanding under the Senior Credit Agreement are guaranteed by the Company’s direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of the Company and its subsidiaries.

The Senior Credit Agreement contains certain events of default, including non-payment; breaches of representation and warranties; non-compliance with covenants; cross-defaults to material indebtedness; voluntary or involuntary bankruptcy; judgments and change in control. The Senior Credit Agreement also contains certain financial covenants, including maintenance of (i) a Total Net Indebtedness Leverage Ratio (as defined in the Senior Credit Agreement) of not greater than 3.50 to 1.00 and (ii) a Current Ratio (as defined in the Senior Credit Agreement) of not less than 1.00 to 1.00.  As of March 31, 2021, after giving effect to the Third Amendment, discussed below, the Company was in compliance with the financial covenants under the Senior Credit Agreement.

On October 29, 2020, the Company entered into the Third Amendment to Senior Secured Revolving Credit Agreement and Limited Waiver (the Third Amendment). The Third Amendment, among other things, set the borrowing base to $190.0 million as of November 1, 2020. The Third Amendment also reduced the amount available for issuance of letters of credit to $25.0 million and amended certain covenants including, but not limited to, covenants relating to increasing the minimum mortgaged total value of proved borrowing base properties from 85% to 90%. Additionally, the Third Amendment provided for new covenants that, among other things, require the Company to enter into swap agreements representing not less than 65% of the Company’s reasonably anticipated projected production from proved reserves classified as developed producing reserves for a period from the Third Amendment effective date through at least December 31, 2022 and prohibit no more than $3.0 million of the Company’s uncontested accounts payable or accrued expenses, liabilities or other obligations from remaining outstanding for longer than 90 days. Pursuant to the Third Amendment, the administrative agent and the lenders consented to a waiver of the Current Ratio (as defined in the Senior Credit Agreement) for the fiscal quarter ended September 30, 2020 and suspended testing of the Current Ratio until the fiscal quarter ending December 31, 2021.

On May 10, 2021, the Company entered into the Fourth Amendment to Senior Secured Revolving Credit Agreement (the Fourth Amendment) which reduces the borrowing base to $185.0 million effective June 1, 2021 and further reduces the borrowing base to $175.0 million effective September 1, 2021. The Fourth Amendment also, among other things, (i) increased interest margins to 2.00% to 3.00% for ABR-based loans and 3.00% to 4.00% for Eurodollar-based loans, (ii) amended the covenant relating to the minimum mortgaged total value of proved borrowing base properties to increase the value from 90% to 95%, (iii) provides for direct reductions in the borrowing base in the event of asset dispositions in excess of $1.0 million per fiscal year or swap terminations and (iv) revised certain covenants and covenant-related baskets including, but not limited to, adding covenants prohibiting the designation of unrestricted subsidiaries and requiring prior consent from the lenders regarding asset dispositions or swap terminations in excess of the greater of $7.5 million or 3.5% of the then effective borrowing base.

Paycheck Protection Program Loan

On April 16, 2020, the Company entered into a promissory note (the PPP Loan) for a principal amount of approximately $2.2 million from Bank of Montreal under the Paycheck Protection Program of the CARES Act, which is administered by the U.S. Small Business Administration (SBA). Pursuant to the terms of the CARES Act, the proceeds of the PPP Loan may be used for payroll costs, mortgage interest, rent or utility costs. The PPP Loan bears interest at a rate of 1.0% per annum and, if not forgiven, has a maturity date of April 16, 2022. As long as the Company makes a timely application of forgiveness to the SBA, the Company is not required to make any payments under the PPP Loan until the forgiveness amount is communicated to the Company by the SBA.

The Company may elect, at its option, to prepay 20% or less of the borrowings outstanding under the PPP Loan without premium or penalty, and without notice. Prepayments of more than 20% of the outstanding borrowings require written advanced notice and payment of accrued interest. The PPP Loan contains certain events of default including non-payment, breach of representations and warranties, cross-defaults to other loans with the lender or to material indebtedness, voluntary or involuntary bankruptcy, judgments and change in control.

Under the terms of the CARES Act, the Company can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds in accordance with the terms of the CARES Act during the covered period after loan origination and the maintenance or achievement of certain employee levels. The Company believes it is eligible for, and intends to pursue, forgiveness of the PPP Loan in accordance with the requirements and limitations under the CARES Act; however, no assurance can be provided that forgiveness of any portion of the PPP Loan will be obtained.

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FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2021

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

7. FAIR VALUE MEASUREMENTS

Pursuant to ASC 820, Fair Value Measurement (ASC 820), the Company’s determination of fair value incorporates not only the credit standing of the counterparties involved in transactions with the Company resulting in receivables on the Company’s unaudited condensed consolidated balance sheets, but also the impact of the Company’s nonperformance risk on its own liabilities. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs.

As required by ASC 820, a financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There were no transfers between fair value hierarchy levels for any period presented. The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of March 31, 2021 and December 31, 2020 (in thousands):

	March 31, 2021
	Level 1		Level 2		Level 3		Total
Assets
Assets from derivative contracts	$	—		1,500	$	—		1,500
Liabilities
Liabilities from derivative contracts	$	—		51,400	$	—		51,400

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets
Assets from derivative contracts	$	—	$	12,568	$	—	$	12,568
Liabilities
Liabilities from derivative contracts	$	—	$	26,416	$	—	$	26,416

Derivative contracts listed above as Level 2 include fixed-price swaps, collars, basis swaps and WTI NYMEX rolls that are carried at fair value. The Company records the net change in the fair value of these positions in “Net gain (loss) on derivative contracts” in the Company’s unaudited condensed consolidated statements of operations. The Company is able to value the assets and liabilities based on observable market data for similar instruments, which resulted in the Company reporting its derivatives as Level 2. This observable data includes the forward curves for commodity prices based on quoted market prices and implied volatility factors related to changes in the forward curves. See Note 8, “Derivative and Hedging Activities,” for additional discussion of derivatives.

The Company’s derivative contracts are with major financial institutions with investment grade credit ratings which are believed to have minimal credit risk. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties in the derivative contracts; however, the Company does not anticipate such nonperformance.

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of ASC 825, Financial Instruments. The estimated fair value amounts have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash and cash equivalents, accounts receivable, and accounts payable approximates their carrying value due to their short‑term nature. The estimated fair value of the Company’s Senior Credit Agreement approximates carrying value because the interest rates approximate current market rates.  

The Company follows the provisions of ASC 820, for nonfinancial assets and liabilities measured at fair value on a non‑recurring basis. These provisions apply to the Company’s initial recognition of asset retirement obligations for which fair value is used. The asset retirement obligation estimates are derived from historical costs and management’s expectation of future cost environments; and therefore, the Company has designated these liabilities as Level 3. See Note 9, “Asset Retirement Obligations,” for a reconciliation of the beginning and ending balances of the liability for the Company’s asset retirement obligations.

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DERIVATIVE AND HEDGING ACTIVITIES

3 Months Ended

Mar. 31, 2021

DERIVATIVE AND HEDGING ACTIVITIES

DERIVATIVE AND HEDGING ACTIVITIES

8. DERIVATIVE AND HEDGING ACTIVITIES

The Company is exposed to certain risks relating to its ongoing business operations, such as commodity price risk and interest rate risk. In accordance with the Company’s policy, it generally hedges a substantial, but varying, portion of anticipated oil, natural gas and natural gas liquids production for future periods. Derivatives are carried at fair value on the unaudited condensed consolidated balance sheets as assets or liabilities, with the changes in the fair value included in the unaudited condensed consolidated statements of operations for the period in which the change occurs. The Company’s hedge policies and objectives may change significantly as its operational profile changes. The Company does not enter into derivative contracts for speculative trading purposes.

It is the Company’s policy to enter into derivative contracts only with counterparties that are creditworthy financial or commodity hedging institutions deemed by management as competent and competitive market makers. As of March 31, 2021, the Company did not post collateral under any of its derivative contracts as they are secured under the Company’s Senior Credit Agreement.

The Company’s crude oil, natural gas and natural gas liquids derivative positions at any point in time may consist of fixed-price swaps, costless put/call collars, basis swaps and WTI NYMEX rolls. Fixed-price swaps are designed so that the Company receives or makes payments based on a differential between fixed and variable prices for crude oil and natural gas. A costless collar consists of a sold call, which establishes a maximum price the Company will receive for the volumes under contract and a purchased put that establishes a minimum price. Basis swaps effectively lock in a price differential between regional prices (i.e. Midland) where the product is sold and the relevant pricing index under which the oil production is hedged (i.e. Cushing). WTI NYMEX roll agreements account for pricing adjustments to the trade month versus the delivery month for contract pricing. The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, the Company records the net change in the mark-to-market valuation of these derivative contracts, as well as all payments and receipts on settled derivative contracts, in “Net gain (loss) on derivative contracts” on the unaudited condensed consolidated statements of operations.

All derivative contracts are recorded at fair market value in accordance with ASC 815 and ASC 820 and included in the unaudited condensed consolidated balance sheets as assets or liabilities. The following table summarizes the location and fair value amounts of all derivative contracts in the unaudited condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020 (in thousands):

Derivatives not designated as		Asset derivativecontracts					Liability derivativecontracts
hedging contracts under ASC815	Balance sheet location	March 31, 2021		December 31, 2020		Balance sheet location	March 31, 2021		December 31, 2020
Commodity contracts	Current assets - assets from derivative contracts	$	672	$	8,559	Current liabilities - liabilities from derivative contracts	$	(42,371)	$	(22,125)
Commodity contracts	Other noncurrent assets - assets from derivative contracts		828		4,009	Other noncurrent liabilities - liabilities from derivative contracts		(9,029)		(4,291)
Total derivatives not designated as hedging contracts under ASC 815		$	1,500	$	12,568		$	(51,400)	$	(26,416)

The following table summarizes the location and amounts of the Company’s realized and unrealized gains and losses on derivative contracts in the Company’s unaudited condensed consolidated statements of operations (in thousands):

		Amount of gain or (loss)
		recognized in income on
		derivative contracts for the
Derivatives not designated	Location of gain or	Three Months Ended
as hedging contracts	(loss) recognized in income	March 31,
under ASC 815	on derivative contracts	2021		2020
Commodity contracts:
Unrealized gain (loss) on commodity contracts	Other income (expenses) - net gain (loss) on derivative contracts	$	(36,052)	$	112,378
Realized gain (loss) on commodity contracts	Other income (expenses) - net gain (loss) on derivative contracts		(9,659)		5,921
Total net gain (loss) on derivative contracts		$	(45,711)	$	118,299

At March 31, 2021, the Company had the following open crude oil and natural gas derivative contracts:

			Volume in	Weighted
			Mmbtu's/	Average
Period	Instrument	Commodity	Bbl's	Price
2021	Fixed-Price Swap	Crude Oil	2,306,000	$	44.29
2021	Fixed-Price Swap	Natural Gas	3,363,030		2.73
2021	Basis Swap	Crude Oil	2,306,000		(0.19)
2021	Basis Swap	Natural Gas	3,363,030		(0.24)
2021	WTI NYMEX Roll	Crude Oil	2,006,000		(0.37)
2022	Fixed-Price Swap	Crude Oil	2,296,800		48.48
2022	Fixed-Price Swap	Natural Gas	1,297,420		3.01
2022	Producer Collar (Ceiling)	Natural Gas	2,388,624		2.65
2022	Producer Collar (Floor)	Natural Gas	2,388,624		2.50
2022	Basis Swap	Crude Oil	2,296,800		0.48
2022	Basis Swap	Natural Gas	3,686,044		(0.30)
2022	WTI NYMEX Roll	Crude Oil	2,327,800		(0.04)

The Company presents the fair value of its derivative contracts at the gross amounts in the unaudited condensed consolidated balance sheets. The following table shows the potential effects of master netting arrangements on the fair value of the Company’s derivative contracts at March 31, 2021 and December 31, 2020 (in thousands):

	Derivative Assets				DerivativeLiabilities
Offsetting of Derivative Assets and Liabilities	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
Gross Amounts Presented in the Consolidated Balance Sheet	$	1,500	$	12,568	$	(51,400)	$	(26,416)
Amounts Not Offset in the Consolidated Balance Sheet		(1,500)		(8,968)		1,500		8,968
Net Amount	$	—	$	3,600	$	(49,900)	$	(17,448)

The Company enters into an International Swap Dealers Association Master Agreement (ISDA) with each counterparty prior to a derivative contract with such counterparty. The ISDA is a standard contract that governs all derivative contracts entered into between the Company and the respective counterparty. The ISDA allows for offsetting of amounts payable or receivable between the Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.

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ASSET RETIREMENT OBLIGATIONS

3 Months Ended

Mar. 31, 2021

ASSET RETIREMENT OBLIGATIONS

ASSET RETIREMENT OBLIGATIONS

9. ASSET RETIREMENT OBLIGATIONS

The Company records an asset retirement obligation (ARO) on oil and natural gas properties when it can reasonably estimate the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon costs. The Company records the ARO liability on the unaudited condensed consolidated balance sheets and capitalizes the cost in “Oil and natural gas properties” during the period in which the obligation is incurred. The Company records the accretion of its ARO liabilities in “Depletion, depreciation and accretion” expense in the unaudited condensed consolidated statements of operations. The additional capitalized costs are depreciated on a unit-of-production basis.

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

Liability for asset retirement obligations as of December 31, 2020	$	10,583
Accretion expense		128
Liability for asset retirement obligations as of March 31, 2021	$	10,711

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2021

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

10. COMMITMENTS AND CONTINGENCIES

Commitments

As of March 31, 2021, the Company has a minimum volume commitment with a third party for the treating of sour gas production through June 30, 2022. The future payments associated with the minimum volume commitment are approximately $7.3 million and $4.8 million for the remainder of 2021 and for 2022, respectively.

The Company has entered into various long-term gathering, transportation and sales contracts with respect to its oil and natural gas production from the Delaware Basin in West Texas. As of March 31, 2021, the Company had in place two long-term crude oil contracts and 12 long-term natural gas contracts in this area and the sales prices under these contracts are based on posted market rates. Under the terms of these contracts, the Company has committed a substantial portion of its production from this area for periods ranging from one to twenty years from the date of first production.

Contingencies

From time to time, the Company may be a plaintiff or defendant in a pending or threatened legal proceeding arising in the normal course of our business. While the outcome and impact of currently pending legal proceedings cannot be determined, the Company’s management and legal counsel believe that the resolution of these proceedings through settlement or adverse judgment will not have a material effect on the Company’s unaudited condensed consolidated operating results, financial position or cash flows.

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STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2021

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

11. STOCKHOLDERS’ EQUITY

Warrants

On October 8, 2019, the Company entered into a warrant agreement (the Warrant Agreement) with Broadridge Corporate Issuer Solutions, Inc. as the warrant agent, pursuant to which the Company issued three series of warrants (the Series A Warrants, the Series B Warrants and the Series C Warrants and together, the Warrants, on a pro rata basis to pre-emergence holders of the predecessor Company’s common stock pursuant to the Company’s plan of reorganization.

Each Warrant represents the right to purchase one share of common stock at the applicable exercise price, subject to adjustment as provided in the Warrant Agreement and as summarized below. On October 8, 2019, the Company issued (i) Series A Warrants to purchase an aggregate of 1,798,322 shares of common stock, with an initial exercise price of $40.17 per share, (ii) Series B Warrants to purchase an aggregate of 2,247,985 shares of common stock, with an initial exercise price of $48.28 per share and (iii) Series C Warrants to purchase an aggregate of 2,890,271 shares of common stock, with an initial exercise price of $60.45 per share. Each series of Warrants issued under the Warrant Agreement has a three-year term, expiring on October 8, 2022. The strike price of each series of Warrants issued under the Warrant Agreement increases monthly at an annualized rate of 6.75%, compounding monthly, as provided in the Warrant Agreement. As of March 31, 2021, the Company had 1.8 million Series A, 2.2 million Series B and 2.9 million Series C warrants outstanding with corresponding exercise prices of $43.21,  $52.13 and $65.52 per share, respectively.

The Warrants do not grant any voting or control rights or dividend rights, or contain any negative covenants restricting the operation of the Company’s business.

Incentive Plans

On January 29, 2020, the Company’s board of directors adopted the 2020 Long-Term Incentive Plan (the Plan) with an effective date of January 1, 2020. An aggregate of approximately 1.5 million shares of the Company’s common stock were available for grant pursuant to awards under the Plan. As of March 31, 2021 and December 31, 2020, a maximum of 0.2 million for both periods, of the Company’s common stock remained reserved for issuance under the Plan.

The Company accounts for stock-based payment accruals under authoritative guidance on stock compensation. The guidance requires all stock-based payments to employees and directors, including grants of stock options and restricted stock, to be recognized in the financial statements based on their fair values. The Company has elected not to apply a forfeiture estimate and will recognize a credit in compensation expense to the extent awards are forfeited.

For the three months ended March 31, 2021 and 2020, the Company recognized expense of $0.6 million and $0.4 million, respectively, related to stock-based compensation. Stock-based compensation expense is recorded as a component of "General and administrative" on the unaudited condensed consolidated statements of operations.

Stock Options

From time to time, the Company grants stock options under the Plan covering shares of common stock to employees of the Company. Stock options, when 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.

No stock options were granted during the three months ended March 31, 2021. At March 31, 2021, the Company had $0.8 million of unrecognized compensation expense related to non-vested stock options to be recognized over a weighted-average period of 1.9 years.

During the three months ended March 31, 2020, the Company granted stock options under the Plan covering 0.5 million shares of common stock to employees of the Company. These stock options have exercise prices ranging from $18.91 to $37.83 with a weighted average exercise price of $28.32 per share. At March 31, 2020, the Company had $1.5 million of unrecognized compensation expense related to non-vested stock options to be recognized over a weighted-average period of 2.4 years.

Restricted Stock

From time to time, the Company grants shares of restricted stock units (RSUs) under the Plan to employees of the Company. Under the Plan, employee RSUs will vest and convert to shares typically over a four year period at a rate of one-fourth on the annual anniversary date of the grant or when the performance or market conditions described below occur. 

During the three months ended March 31, 2021, the Company granted less than 0.1 million shares of RSUs which will vest over four years at a rate of one-fourth on the annual anniversary date of the grant. These RSUs were granted at a fair value price of $8.00 per share. At March 31, 2021, the Company had $3.6 million of unrecognized compensation expense related to non-vested RSU awards to be recognized over a weighted average period of 2.5 years.

During the three months ended March 31, 2020, the Company granted 0.9 million shares of RSUs with the vesting conditions and fair values described below under the Plan to employees of the Company. At March 31, 2020, the Company had $6.4 million of unrecognized compensation expense related to non-vested RSU awards to be recognized over a weighted average period of 3.2 years.    

· 0.4 million RSUs granted will vest over four years at a rate one-fourth on the annual anniversary date of the grant. These RSUs were granted at a fair value of $11.89 per share.

· 0.2 million RSUs granted will vest in full only upon achievement of certain business combination goals, as defined in the award agreements. These RSUs were granted at a fair value of $11.89 per share. As of March 31, 2021, a business combination, as defined in the awards agreements, had not been consummated and was not considered probable. As such, no expense has been recognized for the RSUs with business combination vesting conditions.

· 0.3 million RSUs granted will vest in full or in part or may terminate based on the Company’s total shareholder return relative to the total shareholder return of certain of its peer companies as defined in the award agreements over the performance period ending on February 20, 2024. These RSUs were granted at a fair value of $6.48 per share.

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EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2021

EARNINGS PER SHARE

EARNINGS PER SHARE

12. EARNINGS PER SHARE

The following represents the calculation of earnings (loss) per share (in thousands, except per share amounts):

	Three Months Ended
	March 31,
	2021		2020
Basic:
Net income (loss)	$	(33,375)	$	114,491
Weighted average basic number of common shares outstanding		16,232		16,204
Basic net income (loss) per share of common stock	$	(2.06)	$	7.07
Diluted:
Net income (loss)		(33,375)		114,491
Weighted average basic number of common shares outstanding		16,232		16,204
Common stock equivalent shares representing shares issuable upon:
Exercise of Series A Warrants		Anti-dilutive		Anti-dilutive
Exercise of Series B Warrants		Anti-dilutive		Anti-dilutive
Exercise of Series C Warrants		Anti-dilutive		Anti-dilutive
Exercise of stock options		Anti-dilutive		Anti-dilutive
Vesting of restricted stock units		Anti-dilutive		Anti-dilutive
Weighted average diluted number of common shares outstanding		16,232		16,204
Diluted net income (loss) per share of common stock	$	(2.06)	$	7.07

Common stock equivalents, including warrants, options and restricted stock units, totaling 7.8 million for the three months ended March 31, 2021 were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive due to the net loss. 

Common stock equivalents, including warrants, options and restricted stock units, totaling 7.3 million for the three months ended March 31, 2020 were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive.

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ADDITIONAL FINANCIAL STATEMENT INFORMATION

3 Months Ended

Mar. 31, 2021

ADDITIONAL FINANCIAL STATEMENT INFORMATION

ADDITIONAL FINANCIAL STATEMENT INFORMATION

13. ADDITIONAL FINANCIAL STATEMENT INFORMATION

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

	March 31, 2021		December 31, 2020
Accounts receivable, net:
Oil, natural gas and natural gas liquids revenues	$	32,787	$	22,781
Joint interest accounts		6,508		8,543
Other		239		918
	$	39,534	$	32,242
Prepaids and other:
Prepaids	$	743	$	892
Funds in escrow		1,740		1,740
Other		108		108
	$	2,591	$	2,740
Other assets:
Oil, natural gas and natural gas liquids revenues	$	1,335	$	1,720
Funds in escrow		581		581
Other		51		50
	$	1,967	$	2,351
Accounts payable and accrued liabilities:
Trade payables	$	27,922	$	22,740
Accrued oil and natural gas capital costs		16,810		8,344
Revenues and royalties payable		21,049		16,412
Accrued interest expense		1,219		482
Accrued employee compensation		967		3,223
Accrued lease operating expenses		6,002		7,622
Other		104		105
	$	74,073	$	58,928

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FINANCIAL STATEMENT PRESENTATION (Policies)

3 Months Ended

Mar. 31, 2021

FINANCIAL STATEMENT PRESENTATION

Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation

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. The consolidated financial statements include the accounts of all majority‑owned, controlled subsidiaries. The Company operates in one segment which focuses on oil and natural gas acquisition, production, exploration and development. Allocation of capital is made across the Company’s entire portfolio without regard to operating area. All intercompany accounts and transactions have been eliminated. These unaudited condensed consolidated financial statements reflect, in the opinion of the Company’s management, all adjustments, consisting of normal and recurring adjustments, necessary to present fairly the financial position as of, and the results of operations for, the periods presented. During interim periods, Battalion follows the accounting policies disclosed in its Annual Report on Form 10‑K, as filed with the United States Securities and Exchange Commission (SEC) on March 8, 2021. Please refer to the notes in the 2020 Annual Report on Form 10‑K when reviewing interim financial results.

Risk and Uncertainties

Risk and Uncertainties

The Company is continuously monitoring the current and potential impacts of the novel coronavirus (COVID-19) pandemic on its business, including how it has and may continue to impact its operations, financial results, liquidity, contractors, customers, employees and vendors, and taking appropriate actions in response, including implementing various measures to ensure the continued operation of its business in a safe and secure manner. In 2020, COVID-19 and governmental actions to contain the pandemic contributed to an economic downturn, reduced demand for oil and natural gas and, together with a price war involving the Organization of Petroleum Exporting Countries (OPEC)/Saudi Arabia and Russia, depressed oil and natural gas prices to historically low levels. Although OPEC and Russia subsequently agreed to reduce production, downward pressure on prices continued for several months, particularly given concerns over the impacts of the economic downturn on demand. The Company is unable to predict the future affects that these events will have on its business and financial condition due to numerous uncertainties, including the continuing severity and duration of the COVID-19 outbreak and the impacts that governmental or other actions taken to limit the extent and duration of the outbreak, in conjunction with economic conditions, will have on its business, demand for oil and natural gas, and oil and natural gas prices. The health of the Company’s employees, contractors and vendors, and its ability to meet staffing needs in its operations and critical functions cannot be predicted, nor can the impact on the Company’s customers, vendors and contractors. Any material effect on these parties could adversely impact the Company. These and other factors could affect the Company’s operations, earnings and cash flows and could cause its results to not be comparable to those of the same period in previous years. For example, in 2020, the Company realized lower revenue as a result of commodity price declines, which began in March 2020. In response to low commodity prices, the Company temporarily shut-in producing wells in May and June 2020, which further contributed to lower revenues that year. Additionally, the Company incurred ceiling test impairments in 2020, which were primarily driven by a decline in the average pricing used in the valuation of the Company’s reserves. The results presented in this Form 10-Q are not necessarily indicative of future operating results. For further information regarding the actual and potential impacts of COVID-19 on the Company, see “Risk Factors” in Item 1A of the Company’s 2020 Annual Report on Form 10-K.

Use of Estimates

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Estimates and assumptions that, in the opinion of management of the Company, are significant include oil and natural gas revenue accruals, capital and operating expense accruals, oil and natural gas reserves, depletion relating to oil and natural gas properties, asset retirement obligations, and fair value estimates. The Company bases its estimates and judgments on historical experience and on various other assumptions and information believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be predicted with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from the estimates and assumptions used in the preparation of the Company’s unaudited condensed consolidated financial statements.

Interim period results are not necessarily indicative of results of operations or cash flows for the full year and accordingly, certain information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, has been condensed or omitted. The Company has evaluated events or transactions through the date of issuance of these unaudited condensed consolidated financial statements.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value.

Accounts Receivable and Allowance for Doubtful Accounts

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. The Company establishes provisions for losses on accounts receivable if it determines that collection of all or part of the outstanding balance is doubtful. The Company regularly reviews collectability and establishes or adjusts the allowance for doubtful accounts as necessary using the specific identification method. As of March 31, 2021 and December 31, 2020, allowances for doubtful accounts were approximately $0.2 million for both periods.

Other Operating Property and Equipment

Other Operating Property and Equipment

Other operating property and equipment additions are recorded at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives: buildings, twenty years; automobiles and computers,  three years; computer software, fixtures, furniture and equipment,  five years; trailers, seven years; heavy equipment, eight to ten years and leasehold improvements, lease term. Land and artwork are not depreciated. Upon disposition, the cost and accumulated depreciation are removed and any gains or losses are reflected in current operations. Maintenance and repair costs are charged to operating expense as incurred. Material expenditures which increase the life or productive capacity of an asset are capitalized and depreciated over the estimated remaining useful life of the asset.

The Company reviews its other operating property and equipment for impairment in accordance with Accounting Standards Codification (ASC) 360, Property, Plant, and Equipment (ASC 360). ASC 360 requires the Company to evaluate other operating property and equipment for impairment as events occur or circumstances change that would more likely than not reduce the fair value below the carrying amount. If the carrying amount is not recoverable from its undiscounted cash flows, then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value. Further, the Company evaluates the remaining useful lives of its other operating property and equipment at each reporting period to determine whether events and circumstances warrant a revision to the remaining depreciation periods.

Concentrations of Credit Risk

Concentrations of Credit Risk

The Company’s primary concentrations of credit risk are the risks of uncollectible accounts receivable and of nonperformance by counterparties under the Company’s derivative contracts. Each reporting period, the Company assesses the recoverability of material receivables using historical data, current market conditions and reasonable and supportable forecasts of future economic conditions to determine expected collectability of its material receivables.

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. Historically, the Company has not experienced any significant losses from uncollectible accounts from its oil and natural gas purchasers. The Company operates a substantial portion of its oil and natural gas properties. As the operator of a property, the Company makes full payments for costs associated with the property and seeks reimbursement from the other working interest owners in the property for their share of those costs. Joint operating agreements govern the operations of an oil or natural gas well and, in most instances, provide for offsetting of amounts payable or receivable between the Company and its joint interest owners. The Company’s joint interest partners consist primarily of independent oil and natural gas producers. If the oil and natural gas exploration and production industry in general was adversely affected, the ability of the Company’s joint interest partners to reimburse the Company could be adversely affected.

The Company’s exposure to credit risk under its derivative contracts is diversified among major financial institutions with investment grade credit ratings, where it has master netting agreements which provide for offsetting of amounts payable or receivable between the Company and the counterparty. To manage counterparty risk associated with derivative contracts, the Company selects and monitors counterparties based on an assessment of their financial strength and/or credit ratings. At March 31, 2021, the Company’s derivative counterparties include two major financial institutions, both of which are secured lenders under the Senior Credit Agreement.

Change in Estimate

Change in Estimate

     In late March 2020, due to changes in market conditions and decreased commodity prices, the Company determined that previously accrued discretionary cash incentives related to 2019 would not be paid, causing a $1.6 million reduction to “General and administrative” on the unaudited condensed consolidated statement of operations for the three months ended March 31, 2020.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (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. ASU 2020-04 will be in effect through December 31, 2022. The Company is currently evaluating ASU 2020-04 and the impact it may have on its operating results, financial position and disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (ASU 2019-12) as part of their simplification initiative. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions and by clarifying and amending existing guidance. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020 with early adoption permitted. The Company adopted ASU 2019-12 effective January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s operating results, financial position or disclosures.

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LEASES (Tables)

3 Months Ended

Mar. 31, 2021

LEASES

Schedule of Company's leases

The table below summarizes the Company’s leases for the three months ended March 31, 2021 and 2020 (in thousands, except years and discount rate):

	Three Months Ended
	March 31,
	2021			2020
Lease cost
Operating lease costs	$	118		$	260
Short-term lease costs		1,171			12,258
Variable lease costs		113			210
Total lease costs	$	1,402		$	12,728
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	211		$	254
Weighted-average remaining lease term - operating leases		0.4	years		3.3	years
Weighted-average discount rate - operating leases		3.70	%		3.70	%

Schedule of future minimum lease payments associated with the Company’s non-cancellable operating leases for office space and equipment

Future minimum lease payments associated with the Company’s non-cancellable operating leases for office space and equipment as of March 31, 2021, are presented in the table below (in thousands):

	March 31, 2021
Remaining period in 2021	$	196
2022		—
2023		—
2024		—
2025		—
Thereafter		—
Total operating lease payments		196
Less: discount to present value		1
Total operating lease liabilities		195
Less: current operating lease liabilities		195
Noncurrent operating lease liabilities	$	—

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OPERATING REVENUES (Tables)

3 Months Ended

Mar. 31, 2021

OPERATING REVENUES

Schedule of disaggregation of revenues by major product

The following table disaggregates the Company’s revenues by major product, in order to depict how the nature, timing, and uncertainty of revenue and cash flows are affected by economic factors in the Company’s single basin operations, for the periods indicated (in thousands):

	Three Months Ended
	March 31,
	2021		2020
Operating revenues:
Oil, natural gas and natural gas liquids sales:
Oil	$	41,270	$	41,917
Natural gas		9,087		354
Natural gas liquids		4,909		4,753
Total oil, natural gas and natural gas liquids sales		55,266		47,024
Other		252		375
Total operating revenues	$	55,518	$	47,399

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DEBT (Tables)

3 Months Ended

Mar. 31, 2021

DEBT

Schedule of debt

As of March 31, 2021 and December 31, 2020, the Company’s debt consisted of the following (in thousands):

	March 31, 2021		December 31, 2020
Senior revolving credit facility	$	155,000	$	158,000
Paycheck Protection Program loan		2,209		2,209
Total debt		157,209		160,209
Current portion of Paycheck Protection Program loan		2,123		1,720
Total long-term debt	$	155,086	$	158,489

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FAIR VALUE MEASUREMENTS (Tables)

3 Months Ended

Mar. 31, 2021

FAIR VALUE MEASUREMENTS

Schedule of fair value of the Company's financial assets and liabilities

The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of March 31, 2021 and December 31, 2020 (in thousands):

	March 31, 2021
	Level 1		Level 2		Level 3		Total
Assets
Assets from derivative contracts	$	—		1,500	$	—		1,500
Liabilities
Liabilities from derivative contracts	$	—		51,400	$	—		51,400

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets
Assets from derivative contracts	$	—	$	12,568	$	—	$	12,568
Liabilities
Liabilities from derivative contracts	$	—	$	26,416	$	—	$	26,416

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DERIVATIVE AND HEDGING ACTIVITIES (Tables)

3 Months Ended

Mar. 31, 2021

DERIVATIVE AND HEDGING ACTIVITIES

Summary of location and fair value of derivative contracts

The following table summarizes the location and fair value amounts of all derivative contracts in the unaudited condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020 (in thousands):

Derivatives not designated as		Asset derivativecontracts					Liability derivativecontracts
hedging contracts under ASC815	Balance sheet location	March 31, 2021		December 31, 2020		Balance sheet location	March 31, 2021		December 31, 2020
Commodity contracts	Current assets - assets from derivative contracts	$	672	$	8,559	Current liabilities - liabilities from derivative contracts	$	(42,371)	$	(22,125)
Commodity contracts	Other noncurrent assets - assets from derivative contracts		828		4,009	Other noncurrent liabilities - liabilities from derivative contracts		(9,029)		(4,291)
Total derivatives not designated as hedging contracts under ASC 815		$	1,500	$	12,568		$	(51,400)	$	(26,416)

Summary of the location and amounts of the Company's realized and unrealized gains and losses on derivative contracts

The following table summarizes the location and amounts of the Company’s realized and unrealized gains and losses on derivative contracts in the Company’s unaudited condensed consolidated statements of operations (in thousands):

		Amount of gain or (loss)
		recognized in income on
		derivative contracts for the
Derivatives not designated	Location of gain or	Three Months Ended
as hedging contracts	(loss) recognized in income	March 31,
under ASC 815	on derivative contracts	2021		2020
Commodity contracts:
Unrealized gain (loss) on commodity contracts	Other income (expenses) - net gain (loss) on derivative contracts	$	(36,052)	$	112,378
Realized gain (loss) on commodity contracts	Other income (expenses) - net gain (loss) on derivative contracts		(9,659)		5,921
Total net gain (loss) on derivative contracts		$	(45,711)	$	118,299

Schedule of open derivative contracts

At March 31, 2021, the Company had the following open crude oil and natural gas derivative contracts:

			Volume in	Weighted
			Mmbtu's/	Average
Period	Instrument	Commodity	Bbl's	Price
2021	Fixed-Price Swap	Crude Oil	2,306,000	$	44.29
2021	Fixed-Price Swap	Natural Gas	3,363,030		2.73
2021	Basis Swap	Crude Oil	2,306,000		(0.19)
2021	Basis Swap	Natural Gas	3,363,030		(0.24)
2021	WTI NYMEX Roll	Crude Oil	2,006,000		(0.37)
2022	Fixed-Price Swap	Crude Oil	2,296,800		48.48
2022	Fixed-Price Swap	Natural Gas	1,297,420		3.01
2022	Producer Collar (Ceiling)	Natural Gas	2,388,624		2.65
2022	Producer Collar (Floor)	Natural Gas	2,388,624		2.50
2022	Basis Swap	Crude Oil	2,296,800		0.48
2022	Basis Swap	Natural Gas	3,686,044		(0.30)
2022	WTI NYMEX Roll	Crude Oil	2,327,800		(0.04)

Schedule of potential effects of master netting arrangements on the fair value of derivative contracts

The following table shows the potential effects of master netting arrangements on the fair value of the Company’s derivative contracts at March 31, 2021 and December 31, 2020 (in thousands):

	Derivative Assets				DerivativeLiabilities
Offsetting of Derivative Assets and Liabilities	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
Gross Amounts Presented in the Consolidated Balance Sheet	$	1,500	$	12,568	$	(51,400)	$	(26,416)
Amounts Not Offset in the Consolidated Balance Sheet		(1,500)		(8,968)		1,500		8,968
Net Amount	$	—	$	3,600	$	(49,900)	$	(17,448)

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ASSET RETIREMENT OBLIGATIONS (Tables)

3 Months Ended

Mar. 31, 2021

ASSET RETIREMENT OBLIGATIONS

Schedule of activity related to ARO liability

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

Liability for asset retirement obligations as of December 31, 2020	$	10,583
Accretion expense		128
Liability for asset retirement obligations as of March 31, 2021	$	10,711

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EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2021

EARNINGS PER SHARE

Schedule of calculation of earnings (loss) per share

The following represents the calculation of earnings (loss) per share (in thousands, except per share amounts):

	Three Months Ended
	March 31,
	2021		2020
Basic:
Net income (loss)	$	(33,375)	$	114,491
Weighted average basic number of common shares outstanding		16,232		16,204
Basic net income (loss) per share of common stock	$	(2.06)	$	7.07
Diluted:
Net income (loss)		(33,375)		114,491
Weighted average basic number of common shares outstanding		16,232		16,204
Common stock equivalent shares representing shares issuable upon:
Exercise of Series A Warrants		Anti-dilutive		Anti-dilutive
Exercise of Series B Warrants		Anti-dilutive		Anti-dilutive
Exercise of Series C Warrants		Anti-dilutive		Anti-dilutive
Exercise of stock options		Anti-dilutive		Anti-dilutive
Vesting of restricted stock units		Anti-dilutive		Anti-dilutive
Weighted average diluted number of common shares outstanding		16,232		16,204
Diluted net income (loss) per share of common stock	$	(2.06)	$	7.07

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ADDITIONAL FINANCIAL STATEMENT INFORMATION (Tables)

3 Months Ended

Mar. 31, 2021

ADDITIONAL FINANCIAL STATEMENT INFORMATION

Schedule of additional financial statement information, balance sheet

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

	March 31, 2021		December 31, 2020
Accounts receivable, net:
Oil, natural gas and natural gas liquids revenues	$	32,787	$	22,781
Joint interest accounts		6,508		8,543
Other		239		918
	$	39,534	$	32,242
Prepaids and other:
Prepaids	$	743	$	892
Funds in escrow		1,740		1,740
Other		108		108
	$	2,591	$	2,740
Other assets:
Oil, natural gas and natural gas liquids revenues	$	1,335	$	1,720
Funds in escrow		581		581
Other		51		50
	$	1,967	$	2,351
Accounts payable and accrued liabilities:
Trade payables	$	27,922	$	22,740
Accrued oil and natural gas capital costs		16,810		8,344
Revenues and royalties payable		21,049		16,412
Accrued interest expense		1,219		482
Accrued employee compensation		967		3,223
Accrued lease operating expenses		6,002		7,622
Other		104		105
	$	74,073	$	58,928

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FINANCIAL STATEMENT PRESENTATION (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($) segment	Mar. 31, 2020 USD ($)	Dec. 31, 2020 USD ($)
Basis of Presentation and Principles of Consolidation
Number of operating segments | segment	1
Allowance for doubtful accounts	$ 200		$ 200
Restructuring
Restructuring		$ 418
Reduction of discretionary cash incentives		$ 1,600

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FINANCIAL STATEMENT PRESENTATION - Other Operating Property and Equipment (Details)	3 Months Ended
	Mar. 31, 2021
Buildings
Other operating property and equipment
Estimated useful lives	20 years
Automobiles
Other operating property and equipment
Estimated useful lives	3 years
Computers
Other operating property and equipment
Estimated useful lives	3 years
Computer software
Other operating property and equipment
Estimated useful lives	5 years
Fixtures, furniture and equipment
Other operating property and equipment
Estimated useful lives	5 years
Trailers
Other operating property and equipment
Estimated useful lives	7 years
Heavy equipment | Minimum
Other operating property and equipment
Estimated useful lives	8 years
Heavy equipment | Maximum
Other operating property and equipment
Estimated useful lives	10 years

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LEASES (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Lease cost
Operating lease costs	$ 118	$ 260
Short-term lease costs	1,171	12,258
Variable lease costs	113	210
Total lease costs	1,402	12,728
Other information
Operating cash flows from operating leases	$ 211	$ 254
Weighted-average remaining lease term - operating leases	4 months 24 days	3 years 3 months 18 days
Weighted-average discount rate - operating leases	3.70%	3.70%
Maximum
LEASES
Initial lease term	5 years		5 years

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LEASES - Reported under ASC 842 and ASC 840 (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Future minimum lease payments for non-cancellable operating leases
Remaining period in 2021	$ 196
Total operating lease payment	196
Less: discount to present value	1
Total operating lease liabilities	195
Less: current operating lease liabilities	$ 195	$ 403

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OPERATING REVENUES - Revenue Recognition (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Disaggregation of operating revenue
Total oil, natural gas and natural gas liquids sales	$ 55,266	$ 47,024
Other	252	375
Total operating revenues	55,518	47,399
Total oil, natural gas and natural gas liquids sales
Disaggregation of operating revenue
Total oil, natural gas and natural gas liquids sales	55,266	47,024
Oil
Disaggregation of operating revenue
Total oil, natural gas and natural gas liquids sales	41,270	41,917
Natural gas
Disaggregation of operating revenue
Total oil, natural gas and natural gas liquids sales	9,087	354
NGLs
Disaggregation of operating revenue
Total oil, natural gas and natural gas liquids sales	4,909	$ 4,753
Accounts receivable
Disaggregation of operating revenue
Due from contracts with customers	$ 34,100		$ 24,500

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DIVESTITURES - North West Quito Assets Acquisition (Details) $ in Millions	Dec. 18, 2020 USD ($)
North West Quito Assets [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Total sales price	$ 26.3

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OIL AND NATURAL GAS PROPERTIES (Details) $ in Thousands	Mar. 31, 2021 USD ($) $ / MMBTU $ / bbl	Dec. 31, 2020 USD ($)	Mar. 31, 2020 $ / MMBTU $ / bbl
OIL AND NATURAL GAS PROPERTIES
Subject to depletion	$ 530,499	$ 509,274
Not subject to depletion:
Total not subject to depletion	75,880	75,494
Gross oil and natural gas properties	606,379	584,768
Less accumulated depletion	(305,505)	(295,163)
Net oil and natural gas properties	$ 300,874	$ 289,605
Ceiling Limitation Disclosures
First-day-of-month 12-month average price for natural gas (in $/MMBtu) | $ / MMBTU	2.16		2.30
First-day-of-month 12-month average price for crude oil used in ceiling test impairment (in dollars per barrel) | $ / bbl	39.95		55.96

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DEBT (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Current and long-term debt
Debt	$ 157,209	$ 160,209
Current portion of long-term debt	2,123	1,720
Total long-term debt	155,086	158,489
Paycheck Protection Program Loan
Current and long-term debt
Debt	2,209	2,209
Senior revolving credit facility
Current and long-term debt
Debt	$ 155,000	$ 158,000

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DEBT - Senior Facility (Details) $ in Thousands				1 Months Ended	3 Months Ended
	May 10, 2021 USD ($)	Oct. 29, 2020 USD ($)	Oct. 18, 2019	Dec. 31, 2019 item	Mar. 31, 2021 USD ($)	Sep. 01, 2021 USD ($)	Jun. 01, 2021 USD ($)	Dec. 31, 2020 USD ($)	Nov. 01, 2020 USD ($)	Oct. 08, 2019 USD ($)
Current and long-term debt
Debt					$ 157,209			$ 160,209
Covenant compliance					As of March 31, 2021, after giving effect to the Third Amendment, discussed below, the Company was in compliance with the financial covenants under the Senior Credit Agreement.
Cash and cash equivalents					$ 1,671			4,295
Senior revolving credit facility
Current and long-term debt
Debt					$ 155,000			$ 158,000
Maximum borrowing capacity										$ 750,000,000
Current borrowing capacity									$ 190,000
Amount available for issuance of letters of credit		$ 25,000
Number of interim unscheduled redeterminations of borrowing base to which the company and lender each have the right | item				1
Number of consecutive semi-annual redeterminations between which the company and the lenders each have the right to one interim unscheduled redetermination of borrowing base | item				2
Minimum mortgaged total value of proved Borrowing Base Properties		90.00%			85.00%
Threshold of Total Net Indebtedness Leverage Ratio					3.50
Amount outstanding					$ 155,000
Letters of credit outstanding					2,500
Borrowing capacity available					$ 32,500
Senior revolving credit facility | LIBOR | Maximum
Current and long-term debt
Variable rate percentage			0.50%
Successor Senior revolving credit facility | Minimum
Current and long-term debt
Current ratio					1.00
Fourth Amendment to the Senior Credit Agreement
Current and long-term debt
Current borrowing capacity					$ 190,000
Third Amendment to the Senior Credit Agreement
Current and long-term debt
Current borrowing capacity									$ 190,000
Amount available for issuance of letters of credit		$ 25,000
Minimum mortgaged total value of proved Borrowing Base Properties					90.00%
Maximum uncontested accounts payable or accrued expenses, liabilities or other obligations from remaining outstanding for longer than 90 days		$ 3,000
Third Amendment to the Senior Credit Agreement | Minimum
Current and long-term debt
Debt covenant, commodity hedging agreements, volume percentage		65.00%
Subsequent event | Senior revolving credit facility | ABR-based | Minimum
Current and long-term debt
Applicable margin (as a percent)	2.00%
Subsequent event | Senior revolving credit facility | ABR-based | Maximum
Current and long-term debt
Applicable margin (as a percent)	3.00%
Subsequent event | Senior revolving credit facility | LIBOR | Minimum
Current and long-term debt
Applicable margin (as a percent)	3.00%
Subsequent event | Senior revolving credit facility | LIBOR | Maximum
Current and long-term debt
Applicable margin (as a percent)	4.00%
Subsequent event | Fourth Amendment to the Senior Credit Agreement
Current and long-term debt
Minimum mortgaged total value of proved Borrowing Base Properties	95.00%
Maximum asset dispositions or swap terminations in fiscal year before direct reduction in the borrowing base	$ 1,000
Threshold of asset dispositions or swap terminations which need prior consent from lenders	$ 7,500
Threshold percentage of the borrowing base of asset dispositions or swap terminations which require prior consent from lenders	3.50%
Subsequent event | Fourth Amendment to the Senior Credit Agreement | ABR-based | Minimum
Current and long-term debt
Applicable margin (as a percent)	2.00%
Subsequent event | Fourth Amendment to the Senior Credit Agreement | ABR-based | Maximum
Current and long-term debt
Applicable margin (as a percent)	3.00%
Subsequent event | Fourth Amendment to the Senior Credit Agreement | Euro-dollar based | Minimum
Current and long-term debt
Applicable margin (as a percent)	3.00%
Subsequent event | Fourth Amendment to the Senior Credit Agreement | Euro-dollar based | Maximum
Current and long-term debt
Applicable margin (as a percent)	4.00%
Plan | Fourth Amendment to the Senior Credit Agreement
Current and long-term debt
Current borrowing capacity						$ 175,000	$ 185,000

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DEBT - Paycheck Protection Program Loan (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended
	Apr. 16, 2020	Mar. 31, 2021	Mar. 31, 2020
Current and long-term debt
Proceeds from issuance of debt		$ 16,000	$ 51,000
Paycheck Protection Program Loan
Current and long-term debt
Proceeds from issuance of debt	$ 2,200
Interest rate (as a percent)	1.00%
Maximum percentage allowed to be prepaid without written advance notice		20.00%

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FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Assets
Asset transfers between levels	$ 0	$ 0
Liabilities
Liability transfers between levels	0	0
Recurring | Total
Assets
Assets from derivative contracts	1,500	12,568
Liabilities
Liabilities from derivative contracts	51,400	26,416
Recurring | Level 2
Assets
Assets from derivative contracts	1,500	12,568
Liabilities
Liabilities from derivative contracts	$ 51,400	$ 26,416

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DERIVATIVE AND HEDGING ACTIVITIES - (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Derivative and hedging activities
Asset derivative contracts	$ 1,500	$ 12,568
Liability derivative contracts	(51,400)	(26,416)
Derivatives not designated as hedging contracts
Derivative and hedging activities
Asset derivative contracts	1,500	12,568
Liability derivative contracts	(51,400)	(26,416)
Derivatives not designated as hedging contracts | Commodity contracts | Current assets - receivables from derivative contracts
Derivative and hedging activities
Asset derivative contracts	672	8,559
Derivatives not designated as hedging contracts | Commodity contracts | Other noncurrent assets - receivables from derivative contracts
Derivative and hedging activities
Asset derivative contracts	828	4,009
Derivatives not designated as hedging contracts | Commodity contracts | Current liabilities - liabilities from derivative contracts
Derivative and hedging activities
Liability derivative contracts	(42,371)	(22,125)
Derivatives not designated as hedging contracts | Commodity contracts | Other noncurrent liabilities - liabilities from derivative contracts
Derivative and hedging activities
Liability derivative contracts	$ (9,029)	$ (4,291)

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DERIVATIVE AND HEDGING ACTIVITIES - Realized Unrealized (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Derivative and hedging activities
Total net gain (loss) on derivative contracts	$ (45,711)	$ 118,299
Derivatives not designated as hedging contracts | Commodity contracts
Derivative and hedging activities
Total net gain (loss) on derivative contracts	(45,711)	118,299
Derivatives not designated as hedging contracts | Commodity contracts | Other Income Expense
Derivative and hedging activities
Unrealized gain (loss) on commodity contracts	(36,052)	112,378
Realized gain (loss) on commodity contracts	$ (9,659)	$ 5,921

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DERIVATIVE AND HEDGING ACTIVITIES - Open Contracts (Details)	Mar. 31, 2021 MMBTU $ / MMBTU $ / bbl bbl
January 2021 - December 2021 | Fixed Swap | Crude oil
Derivative and hedging activities
Volume in Mmbtu's | MMBTU	2,306,000
January 2021 - December 2021 | Fixed Swap | Crude oil | Weighted Average
Derivative and hedging activities
Derivative average fixed price | $ / MMBTU	44.29
January 2021 - December 2021 | Fixed Swap | Natural gas
Derivative and hedging activities
Volume in Mmbtu's | MMBTU	3,363,030
January 2021 - December 2021 | Fixed Swap | Natural gas | Weighted Average
Derivative and hedging activities
Derivative average fixed price	2.73
January 2021 - December 2021 | Basis Swap | Crude oil
Derivative and hedging activities
Volume in Bbl's | bbl	2,306,000
January 2021 - December 2021 | Basis Swap | Crude oil | Weighted Average
Derivative and hedging activities
Derivatives Swap Type Weight Average Price	(0.19)
January 2021 - December 2021 | Basis Swap | Natural gas
Derivative and hedging activities
Volume in Mmbtu's | MMBTU	3,363,030
January 2021 - December 2021 | Basis Swap | Natural gas | Weighted Average
Derivative and hedging activities
Derivatives Swap Type Weight Average Price	(0.24)
January 2021 - December 2021 | WTI NYMEX Roll | Crude oil
Derivative and hedging activities
Volume in Bbl's | bbl	2,006,000
January 2021 - December 2021 | WTI NYMEX Roll | Crude oil | Weighted Average
Derivative and hedging activities
Derivatives Swap Type Weight Average Price	(0.37)
January 2022 - December 2022 | Fixed Swap | Crude oil
Derivative and hedging activities
Volume in Bbl's | bbl	2,296,800
January 2022 - December 2022 | Fixed Swap | Crude oil | Weighted Average
Derivative and hedging activities
Derivative average fixed price	48.48
January 2022 - December 2022 | Fixed Swap | Natural gas
Derivative and hedging activities
Volume in Mmbtu's | MMBTU	1,297,420
January 2022 - December 2022 | Fixed Swap | Natural gas | Weighted Average
Derivative and hedging activities
Derivative average fixed price	3.01
January 2022 - December 2022 | Basis Swap | Crude oil
Derivative and hedging activities
Volume in Bbl's | bbl	2,296,800
January 2022 - December 2022 | Basis Swap | Crude oil | Weighted Average
Derivative and hedging activities
Derivative average fixed price	0.48
January 2022 - December 2022 | Basis Swap | Natural gas
Derivative and hedging activities
Volume in Mmbtu's | MMBTU	3,686,044
January 2022 - December 2022 | Basis Swap | Natural gas | Weighted Average
Derivative and hedging activities
Derivatives Swap Type Weight Average Price	(0.30)
January 2022 - December 2022 | WTI NYMEX Roll | Crude oil
Derivative and hedging activities
Volume in Bbl's | bbl	2,327,800
January 2022 - December 2022 | WTI NYMEX Roll | Crude oil | Weighted Average
Derivative and hedging activities
Derivatives Swap Type Weight Average Price	(0.04)
January 2022 - December 2022 | Collars | Natural gas | Minimum
Derivative and hedging activities
Volume in Mmbtu's | MMBTU	2,388,624
Derivative floor price	2.50
January 2022 - December 2022 | Collars | Natural gas | Maximum
Derivative and hedging activities
Volume in Mmbtu's | MMBTU	2,388,624
Derivative average cap price | $ / MMBTU	2.65

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DERIVATIVE AND HEDGING ACTIVITIES - Netting Arrangements (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Derivative Assets
Gross Amounts Presented in the Consolidated Balance Sheet	$ 1,500	$ 12,568
Amounts Not Offset in the Consolidated Balance Sheet	(1,500)	(8,968)
Net Amount		3,600
Derivative Liabilities
Gross Amounts Presented in the Consolidated Balance Sheet	(51,400)	(26,416)
Amounts Not Offset in the Consolidated Balance Sheet	1,500	8,968
Net Amount	$ (49,900)	$ (17,448)

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ASSET RETIREMENT OBLIGATIONS (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($)
Activity related to ARO liability
Liability for asset retirement obligations at the beginning of the period	$ 10,583
Accretion expense	128
Liability for asset retirement obligations at the end of the period	$ 10,711

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COMMITMENTS AND CONTINGENCIES (Details) $ in Millions	3 Months Ended
	Mar. 31, 2021 USD ($) contract
Purchase commitments related to equipment
Remaining period in 2021 | $	$ 7.3
2022 | $	$ 4.8
Gathering, transportation and sales | West Texas
Purchase commitments related to equipment
Number of long-term crude oil sales contracts to which the entity is committed | contract	2
Number of long-term natural gas sales contracts to which the entity is committed | contract	12
Gathering, transportation and sales | West Texas | Minimum
Purchase commitments related to equipment
Period of commitment for production from the date of first production	1 year
Gathering, transportation and sales | West Texas | Maximum
Purchase commitments related to equipment
Period of commitment for production from the date of first production	20 years

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STOCKHOLDERS' EQUITY-Common stock and warrants (Details)	Oct. 08, 2019 series $ / shares shares	Mar. 31, 2021 $ / shares shares	Dec. 31, 2020 $ / shares shares
Stockholders' equity
Common stock, par value (in dollars per share) | $ / shares		$ 0.0001	$ 0.0001
Annualized Rate Of Increase To The Strike Price Of Warrants Issued	6.75
Warrant term (in years)	3 years
Authorized shares of common stock, after amendment of certificate of incorporation		100,000,000	100,000,000
Number of series of warrants | series	3
Number of shares of common stock that can be purchased from warrants	1
Series A Warrants
Stockholders' equity
Number of warrants issued		1,800,000
Warrants issued	1,798,322
Exercise price (in dollars per share) | $ / shares	$ 40.17	$ 43.21
Series B Warrants
Stockholders' equity
Number of warrants issued		2,200,000
Warrants issued	2,247,985
Exercise price (in dollars per share) | $ / shares	$ 48.28	$ 52.13
Series C Warrants
Stockholders' equity
Number of warrants issued		2,900,000
Warrants issued	2,890,271
Exercise price (in dollars per share) | $ / shares	$ 60.45	$ 65.52

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STOCKHOLDERS' EQUITY - Incentive Plans (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020	Jan. 29, 2020
Number of Shares
Granted (in shares)	0
Restricted stock
Unrecognized compensation expense stock option	$ 800,000
General and administrative
Stock-based compensation
Compensation expense recorded	$ 600,000	$ 400,000
Stock options
Stock-based compensation
Percentage of awards vesting on the annual anniversary date of the grant	25.00%
Vesting period	4 years
Expiration term	7 years
Weighted average remaining vesting period	1 year 10 months 24 days
2020 Incentive Plan | Common Stock
Stock-based compensation
Aggregate number of shares available				1,500,000
2020 Incentive Plan | Common Stock | Maximum
Stock-based compensation
Maximum number of shares that remained reserved for issuance under the Plan	200,000		200,000
2020 Incentive Plan | Stock options
Stock-based compensation
Weighted average remaining vesting period		2 years 4 months 24 days
Number of Shares
Granted (in shares)		500,000
Restricted stock
Weighted average grant date fair value of the shares granted		$ 28.32
Unrecognized compensation expense stock option		$ 1,500,000
2020 Incentive Plan | Stock options | Minimum
Weighted Average Exercise Price Per Share
Exercised (in dollars per share)		$ 18.91
2020 Incentive Plan | Stock options | Maximum
Weighted Average Exercise Price Per Share
Exercised (in dollars per share)		$ 37.83

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STOCKHOLDERS' EQUITY - Stock Options (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Stock-based compensation
Unrecognized compensation expense stock option	$ 0.8
Stock options
Stock-based compensation
Vesting period	4 years
Percentage of awards vesting on the annual anniversary date of the grant	25.00%
Expiration term	7 years
Weighted average remaining vesting period	1 year 10 months 24 days
2020 Incentive Plan | Stock options
Stock-based compensation
Unrecognized compensation expense stock option		$ 1.5
Weighted average remaining vesting period		2 years 4 months 24 days

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STOCKHOLDERS' EQUITY - Restricted Stock (Details) - 2020 Incentive Plan - RSU - USD ($) $ / shares in Units, $ in Thousands, shares in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Stock-based compensation
Vesting period	4 years
Percentage of awards other than options vesting on the annual anniversary date of the grant	25.00%
Number of shares granted	0.1
Fair value of grant (in dollars per share)	$ 8.00
Employee
Stock-based compensation
Number of shares granted		0.9
Unrecognized compensation expense other than options	$ 3,600	$ 6,400
Weighted average remaining vesting period	2 years 6 months
Employee | Tranche One
Stock-based compensation
Vesting period	4 years
Number of shares granted	0.4
Fair value of grant (in dollars per share)	$ 11.89
Employee | Tranche Two
Stock-based compensation
Number of shares granted	0.2
Compensation expense recorded	$ 0
Fair value of grant (in dollars per share)	$ 11.89
Employee | Tranche Three
Stock-based compensation
Number of shares granted	0.3
Fair value of grant (in dollars per share)	$ 6.48
Non-employee director
Stock-based compensation
Weighted average remaining vesting period		3 years 2 months 12 days

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Basic:
Net income (loss) available to common stockholders	$ (33,375)	$ 114,491
Weighted average basic number of common shares outstanding	16,232	16,204
Basic net income (loss) per share of common share (in dollars per share)	$ (2.06)	$ 7.07
Diluted:
Net Income (Loss) Available to Common Stockholders, Diluted	$ (33,375)	$ 114,491
Net income (loss) available to common stockholders	(33,375)	114,491
Net income (loss) diluted	$ (33,375)	$ 114,491
Weighted average basic number of common shares outstanding	16,232	16,204
Weighted average diluted number of common shares outstanding	16,232	16,204
Diluted net income (loss) per share of common stock (in dollars per share)	$ (2.06)	$ 7.07
Common stock equivalents excluded from computation of diluted earnings per share of common stock because of anti-dilutive effect	7,800	7,300

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ADDITIONAL FINANCIAL STATEMENT INFORMATION (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Accounts receivable:
Oil, natural gas and natural gas liquids revenues	$ 32,787	$ 22,781
Joint interest accounts	6,508	8,543
Other	239	918
Total	39,534	32,242
Prepaids and other:
Prepaids	743	892
Funds in escrow	1,740	1,740
Other	108	108
Total	2,591	2,740
Other assets:
Oil, natural gas and natural gas liquids revenues	1,335	1,720
Funds in escrow	581	581
Other	51	50
Total other assets	1,967	2,351
Accounts payable and accrued liabilities:
Trade payables	27,922	22,740
Accrued oil and natural gas capital costs	16,810	8,344
Revenues and royalties payable	21,049	16,412
Accrued interest expense	1,219	482
Accrued employee compensation	967	3,223
Accrued lease operating expenses	6,002	7,622
Other	104	105
Total	74,073	58,928
Other noncurrent assets:
Other	$ 51	$ 50