Battalion Oil Q3 2026 net loss widens to $43.5M
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Battalion Oil Corporation (BATL) reported third-quarter 2026 operating revenue of $45.644 million and a net loss of $43.500 million, compared with $43.482 million in revenue and a $0.735 million loss a year earlier. For the first nine months, revenue was $132.947 million versus $133.769 million, while net results were an $84.469 million loss compared with $10.084 million in income. Derivative contracts recorded a $79.744 million net loss for the nine-month period. Operating cash flow was $12.524 million, compared with $50.909 million.
The company completed the West Quito asset sale for approximately $58.8 million in adjusted net proceeds and used $45.6 million to repay term-loan borrowings. Its June 2026 loan agreement provides a $162.5 million term-loan facility and a discretionary delayed-draw facility of up to $175.0 million, with maturity on December 31, 2029; the SOFR margin is fixed at 6.50%. Through September 30, the ATM program issued 34,491,840 shares for $58.4 million in net proceeds. Common shares outstanding were 59,481,510 at September 30, versus 16,456,563 at December 31, 2025. After quarter-end, Battalion committed 18.4 million barrels to a 10-year crude-oil transport and sales arrangement, with minimum average delivery rising to 7,600 barrels per day after two years.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Major point$45.6 million of West Quito proceeds repaid term-loan borrowings. 1.1× market cap
- Moderate pointTerm-loan SOFR margin fixed at 6.50%, replacing the 7.75%-8.50% pricing grid.
Negative
- Major pointNine-month net result: $84.469 million loss versus $10.084 million income.
- Major pointATM program issued 34,491,840 shares by September 30, 2026.
- Moderate pointOperating cash flow was $12.524 million, versus $50.909 million.
Filing Explained
At September 30, 103,041 convertible preferred shares carrying a $162.8 million liquidation preference remained outstanding, with potential conversion into common shares.
In its quarter-end records, Battalion Oil reports a
Holders are entitled to cumulative dividends at 14.5% a year on the liquidation preference; PIK dividends accrue at 16% and are added to that preference. The conversion ratio is the then-current liquidation preference divided by the conversion price; the initial conversion price was set at an 18% premium to the common stock’s 20-trading-day volume-weighted average price before the closing date.
At
Key Figures
Key Terms
full cost method financial
ceiling test financial
delayed draw term loan facility financial
at-the-market transactions financial
PIK dividends financial
asset retirement obligations financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much did BATL lose in Q3 2026?
How many shares did BATL issue through its ATM program?
What are BATL's 10-year crude-oil delivery terms?
AI-generated analysis. How Rhea-AI works. Not financial advice.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
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:
(Exact name of registrant as specified in its charter)
|
|
(Address of principal executive offices)
(
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
| | | | |
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
| |
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.
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).
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 ◻ | | |
| |
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
At November 9, 2026,
Table of Contents
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 and Nine Months Ended September 30, 2026 and 2025 | | 5 |
| | Condensed Consolidated Balance Sheets (Unaudited) at September 30, 2026 and December 31, 2025 | | 6 |
| | Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2026 and the Year Ended December 31, 2025 | | 7 |
| | Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2026 and 2025 | | 8 |
| | Notes to Unaudited Condensed Consolidated Financial Statements | | 9 |
ITEM 2. | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 31 |
ITEM 3. | | Quantitative and Qualitative Disclosures about Market Risk | | 42 |
ITEM 4. | | Controls and Procedures | | 42 |
| | | | |
PART II | | OTHER INFORMATION | | |
ITEM 1. | | Legal Proceedings | | 43 |
ITEM 1A. | | Risk Factors | | 43 |
ITEM 2. | | Unregistered Sales of Equity Securities and Use of Proceeds | | 44 |
ITEM 3. | | Defaults Upon Senior Securities | | 44 |
ITEM 4. | | Mine Safety Disclosures | | 44 |
ITEM 5. | | Other Information | | 44 |
ITEM 6. | | Exhibits | | 45 |
Signatures | | | | 46 |
| | | | |
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Special note regarding forward-looking statements
This Quarterly Report on Form 10-Q for the quarter ended September 30, 2026 (the “Quarterly Report”) contains forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, may be forward-looking statements, should be evaluated as such and may concern, among other things, planned capital expenditures, potential increases in oil and natural gas production, potential costs to be incurred, future cash flows and borrowings, our financial position, business strategy and other plans and objectives for future operations. These forward-looking statements may be identified by their use of terms and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “explore,” “forecast,” ”intend,” “may,” “objective,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would” and similar terms and phrases. Although we believe that the expectations reflected in forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements. Readers should consider carefully the risks described under the “Risk Factors” section of our previously filed Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the “Annual Report”) and as supplemented in the “Risk Factors” section of this Quarterly Report, 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 prices for oil, natural gas and natural gas liquids (“NGLs”); |
| ● | 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; |
| ● | 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; |
| ● | our indebtedness, which may increase in the future, and higher levels of indebtedness can make us more vulnerable to economic downturns and adverse developments in our business; |
| ● | sales of substantial amounts of our securities in the public markets, including sales in at-the-market transactions (the “ATM Program”), or the perception that such sales might occur, could reduce the price our common stock and may dilute the ownership interest of our common stockholders; |
| ● | 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; |
| ● | the cost and availability of goods and services, such as drilling rigs, fracture stimulation services and tubulars, which may be subject to inflation caused by labor shortages, supply shortages and increased demand, tariffs and other inflationary pressures; |
| ● | drilling and operating risks, including accidents, equipment failures, fires, and releases of toxic or hazardous materials, such as hydrogen sulfide (H2S), which can result in injury, loss of life, pollution, property damage and suspension of operations; |
| ● | 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; |
| ● | the possibility that our industry may be subject to future regulatory or legislative actions (including, but not limited to, additional taxes and changes in environmental regulations); |
| ● | 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; |
| ● | our ability to pursue and integrate strategic mergers and acquisitions; |
| ● | divestitures could negatively impact our business and our results of operations may be adversely affected if we fail to manage and complete divestitures; |
| ● | the potential for production decline rates for our wells to be greater than we expect; |
| ● | our ability to meet the continued listing standards of NYSE American; |
| ● | competition, including competition for acreage in our resource play; |
| ● | environmental risks, such as accidental spills of toxic or hazardous materials, and the potential for environmental liabilities; |
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Table of Contents
| ● | exploration and development risks; |
| ● | our ability to retain key members of senior management, the board of directors and key technical employees; |
| ● | social unrest, political instability or armed conflict in major oil and natural gas producing regions outside the United States (the “U.S.”), such as the political situation in Venezuela, the ongoing conflict between Ukraine and Russia and the war in the Middle East, and acts of terrorism or sabotage; |
| ● | impacts of climate regulations or lawsuits; |
| ● | 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 U.S. 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; |
| ● | changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs and their related impacts on the economy; |
| ● | impacts and potential risks related to actual or anticipated pandemics, including any associated impact to our operations, financial results, liquidity, contractors, customers, employees and vendors; |
| ● | integration of emerging technologies, including artificial intelligence, for improving operational efficiency; |
| ● | impacts and potential risks of extreme weather; |
| ● | 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 which 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. Any forward-looking statements speak only as of this Quarterly Report. 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.
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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 | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
| | 2026 | | 2025 | | 2026 | | 2025 | ||||
Operating revenues: | | | | | | | | | | | | |
Oil, natural gas and natural gas liquids sales: | | | | | | | | | | | | |
Oil | | $ | | | $ | | | $ | | | $ | |
Natural gas | | | | | | | | | ( | | | |
Natural gas liquids | | | | | | | | | | | | |
Total oil, natural gas and natural gas liquids sales | | | | | | | | | | | | |
Other | | | | | | | | | | | | |
Total operating revenues | | | | | | | | | | | | |
| | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | |
Production: | | | | | | | | | | | | |
Lease operating | | | | | | | | | | | | |
Workover and other | | | | | | | | | | | | |
Taxes other than income | | | | | | | | | | | | |
Gathering and other | | | | | | | | | | | | |
General and administrative | | | | | | | | | | | | |
Depletion, depreciation and accretion | | | | | | | | | | | | |
Total operating expenses | | | | | | | | | | | | |
Income from operations | | | | | | | | | | | | |
| | | | | | | | | | | | |
Other income (expenses): | | | | | | | | | | | | |
Net (loss) gain on derivative contracts | | | ( | | | | | | ( | | | |
Interest expense and other | | | ( | | | ( | | | ( | | | ( |
Loss on extinguishment of debt | | | — | | | — | | | ( | | | — |
Total other (expenses) income | | | ( | | | ( | | | ( | | | |
(Loss) income before income taxes | | | ( | | | ( | | | ( | | | |
Income tax benefit (provision) | | | | | | | | | | | | |
Net (loss) income | | $ | ( | | $ | ( | | $ | ( | | $ | |
Preferred dividends | | | ( | | | ( | | | ( | | | ( |
Deemed contribution - preferred stock repurchase | | | | | | — | | | | | | — |
Net loss available to common stockholders | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
| | | | | | | | | | | | |
Net loss per share of common stock available to common stockholders: | | | | | | | | | | | | |
Basic | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Diluted | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Weighted average common shares outstanding: | | | | | | | | | | | | |
Basic | | | | | | | | | | | | |
Diluted | | | | | | | | | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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BATTALION OIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share and per share amounts)
| | | | | | |
| | September 30, 2026 | | December 31, 2025 | ||
Current assets: | | | | | | |
Cash and cash equivalents | | $ | | | $ | |
Accounts receivable, net | | | | | | |
Assets from derivative contracts | | | | | | |
Restricted cash | | | | | | |
Prepaids and other | | | | | | |
Total current assets | | | | | | |
Oil and natural gas properties (full cost method): | | | | | | |
Evaluated | | | | | | |
Unevaluated | | | | | | |
Gross oil and natural gas properties | | | | | | |
Less: accumulated depletion | | | ( | | | ( |
Net oil and natural gas properties | | | | | | |
Other operating property and equipment: | | | | | | |
Other operating property and equipment | | | | | | |
Less: accumulated depreciation | | | ( | | | ( |
Net other operating property and equipment | | | | | | |
Other noncurrent assets: | | | | | | |
Assets from derivative contracts | | | | | | |
Operating lease right of use assets | | | | | | |
Other assets | | | | | | |
Total assets | | $ | | | $ | |
| | | | | | |
Current liabilities: | | | | | | |
Accounts payable and accrued liabilities | | $ | | | $ | |
Liabilities from derivative contracts | | | | | | |
Current portion of long-term debt | | | | | | |
Operating lease liabilities | | | | | | |
Total current liabilities | | | | | | |
Long-term debt, net | | | | | | |
Other noncurrent liabilities: | | | | | | |
Liabilities from derivative contracts | | | | | | |
Asset retirement obligations | | | | | | |
Operating lease liabilities | | | | | | |
Commitments and contingencies (Note 9) | | | | | | |
Temporary equity: | | | | | | |
Redeemable convertible preferred stock: | | | | | | |
of $ | | | | | | |
$ | | | — | | | |
Stockholders' equity (deficit): | | | | | | |
Redeemable convertible preferred stock: | | | | | | |
of $ | | | | | | |
$ | | | | | | — |
Common stock: | | | | | | |
| | | | | | |
September 30, 2026 and December 31, 2025, respectively | | | | | | |
Additional paid-in capital | | | | | | |
Accumulated deficit | | | ( | | | ( |
Total stockholders' equity (deficit) | | | | | | ( |
Total liabilities, temporary equity and stockholders' equity | | $ | | | $ | |
| | | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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BATTALION OIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Retained | | | | |
| | | | | | | | | | | | | | Additional | | Earnings | | | | ||
| | Preferred Stock | | | Common Stock | | | Paid-In | | (Accumulated | | Stockholders' | |||||||||
| | Shares | | Amount | | | Shares | | Amount | | | Capital | | Deficit) | | Equity | |||||
Balances at December 31, 2024 | | — | | $ | — | | | | | $ | | | | $ | | | $ | ( | | $ | |
Net income | | — | | | — | | | — | | | — | | | | — | | | | | | |
Deemed dividends for preferred stock | | — | | | — | | | — | | | — | | | | ( | | | — | | | ( |
Stock-based compensation and other | | — | | | — | | | — | | | — | | | | ( | | | — | | | ( |
Balances at March 31, 2025 | | — | | | — | | | | | | | | | | | | | ( | | | ( |
Net income | | — | | | — | | | — | | | — | | | | — | | | | | | |
Deemed dividends for preferred stock | | — | | | — | | | — | | | — | | | | ( | | | — | | | ( |
Balances at June 30, 2025 | | — | | | — | | | | | | | | | | | | | ( | | | ( |
Net loss | | — | | | — | | | — | | | — | | | | — | | | ( | | | ( |
Deemed dividends for preferred stock | | — | | | — | | | — | | | — | | | | ( | | | — | | | ( |
Balances at September 30, 2025 | | — | | | — | | | | | | | | | | | | | ( | | | ( |
Net income | | — | | | — | | | — | | | — | | | | — | | | | | | |
Deemed dividends for preferred stock | | — | | | — | | | — | | | — | | | | ( | | | — | | | ( |
Balances at December 31, 2025 | | — | | | — | | | | | | | | | | | | | ( | | | ( |
Net loss | | — | | | — | | | — | | | — | | | | — | | | ( | | | ( |
Deemed dividends for preferred stock | | — | | | — | | | — | | | — | | | | ( | | | — | | | ( |
Reclassification of preferred stock to permanent equity | | | | | | | | — | | | — | | | | — | | | — | | | |
Private placement offering, net of issuance costs | | — | | | — | | | | | | — | | | | | | | — | | | |
Common stock issuance for acquisition | | — | | | — | | | | | | — | | | | | | | — | | | |
Preferred stock conversion to common stock | | ( | | | ( | | | | | | — | | | | | | | — | | | — |
Balances at March 31, 2026 | | | | | | | | | | | | | | | | | | ( | | | |
Net income | | — | | | — | | | — | | | — | | | | — | | | | | | |
Common stock issuance under ATM Program, net of issuance costs | | — | | | — | | | | | | | | | | | | | — | | | |
Common stock issuance upon exercise of warrants | | — | | | — | | | | | | — | | | | — | | | — | | | — |
Common stock issuance - RSU vesting, net of forfeitures | | — | | | — | | | | | | — | | | | | | | — | | | |
Balances at June 30, 2026 | | | | | | | | | | | | | | | | | | ( | | | |
Net loss | | — | | | — | | | — | | | — | | | | — | | | ( | | | ( |
Deemed dividends for preferred stock | | — | | | | | | — | | | — | | | | ( | | | — | | | — |
Common stock issuance under ATM Program, net of issuance costs | | — | | | — | | | | | | | | | | | | | — | | | |
Preferred stock conversion to common stock and repurchase | | ( | | | ( | | | | | | — | | | | | | | — | | | ( |
Tax withholding on vesting of restricted stock units | | — | | | — | | | — | | | — | | | | ( | | | — | | | ( |
Stock-based compensation and other | | — | | | — | | | — | | | — | | | | | | | — | | | |
Balances at September 30, 2026 | | | | $ | | | | | | $ | | | | $ | | | $ | ( | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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BATTALION OIL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
| | | | | | |
| Nine Months Ended | |||||
| September 30, | |||||
| 2026 | | 2025 | |||
Cash flows from operating activities: | | | | | | |
Net (loss) income | | $ | ( | | $ | |
Adjustments to reconcile net (loss) income to net cash | | | | | | |
provided by operating activities: | | | | | | |
Depletion, depreciation and accretion | | | | | | |
Stock-based compensation, net | | | | | | ( |
Unrealized loss (gain) on derivative contracts | | | | | | ( |
Amortization of deferred financing costs | | | | | | |
Loss on extinguishment of debt | | | | | | — |
Accrued settlements on derivative contracts | | | | | | |
Other | | | | | | |
Change in assets and liabilities: | | | | | | |
Accounts receivable | | | ( | | | |
Prepaids and other | | | | | | |
Accounts payable and accrued liabilities | | | | | | |
Net cash provided by operating activities | | | | | | |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Oil and natural gas capital expenditures | | | ( | | | ( |
Proceeds received from sale of oil and natural gas assets | | | | | | — |
Other operating property and equipment capital expenditures | | | — | | | ( |
Other | | | ( | | | ( |
Net cash provided by (used in) investing activities | | | | | | ( |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Proceeds from borrowings | | | — | | | |
Repayments of borrowings | | | ( | | | ( |
Debt issuance costs | | | ( | | | ( |
Proceeds from issuance of common stock | | | | | | — |
Preferred stock repurchase | | | ( | | | — |
Net cash provided by financing activities | | | | | | |
| | | | | | |
Net increase in cash, cash equivalents and restricted cash | | | | | | |
| | | | | | |
Cash, cash equivalents and restricted cash at beginning of period | | | | | | |
Cash, cash equivalents and restricted cash at end of period | | $ | | | $ | |
| | | | | | |
| | | | | | |
Supplemental cash flow information: | | | | | | |
Cash paid for interest | | $ | | | $ | |
| | | | | | |
| | | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENT PRESENTATION
Basis of Presentation and Principles of Consolidation
Battalion Oil Corporation (“Battalion” or the “Company”) is an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States (“U.S.”). The consolidated financial statements include the accounts of all majority-owned, controlled subsidiaries. The Company operates in
These unaudited condensed consolidated financial statements reflect, in the opinion of the Company’s management, all adjustments, consisting of normal and recurring adjustments, necessary to present fairly the financial position as of, and the results of operations for, the periods presented. Interim period results are not necessarily indicative of results of operations or cash flows for the full year and accordingly, certain information normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”), has been condensed or omitted. During interim periods, Battalion follows the accounting policies disclosed in its Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 23, 2026. Please refer to the notes in the Annual Report on Form 10-K for the year ended December 31, 2025 (the “Annual Report”) when reviewing interim financial results. The Company has evaluated events or transactions through the date of issuance of these unaudited condensed consolidated financial statements.
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Estimates and assumptions that, in the opinion of management of the Company, are significant include oil and natural gas revenue accruals, capital and operating expense accruals, oil and natural gas reserves, depletion relating to oil and natural gas properties, asset retirement obligations (“AROs”), and fair value estimates. The Company bases its estimates and judgments on historical experience and on various other assumptions and information believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be predicted with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from the estimates and assumptions used in the preparation of the Company’s unaudited condensed consolidated financial statements.
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value.
| | | | | | |
| | September 30, 2026 | | December 31, 2025 | ||
| | | | | | |
Cash and cash equivalents | | $ | | | $ | |
Restricted cash | | | | | | |
Total cash, cash equivalents and restricted cash | | $ | | | $ | |
Restricted cash at September 30, 2026 and December 31, 2025 consists of funds to collateralize company credit cards.
Accounts Receivable and Allowance for Credit Losses
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 credit losses, when applicable. Payment of the Company’s accounts receivable is typically received within
Concentrations of Credit Risk
The Company’s primary concentrations of credit risk are the risks of uncollectible accounts receivable and of nonperformance by counterparties under the Company’s derivative contracts. Each reporting period, the Company assesses the recoverability of material receivables using historical data, current market conditions and reasonable and supportable forecasts of future economic conditions to determine expected collectability of its material receivables.
At September 30, 2026, the Company’s exposure to credit risk under its derivative contracts is currently limited to
Recently Issued Accounting Pronouncements and Legislation
In April 2026, the FASB issued ASU 2026-01, Equity (Topic 505): Initial Measurement of Paid-in-Kind Dividends on Equity-Classified Preferred Stock (“ASU 2026-01”), which requires that paid-in-kind (“PIK”) dividends on equity-classified preferred stock, including preferred stock that is classified as temporary equity, be initially measured on the basis of the PIK dividend rate stated in the preferred stock agreement. The guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted and may be applied using a prospective or modified retrospective approach. The Company elected to early adopt ASU 2026-01 using a prospective approach on January 1, 2026. There was no impact to beginning balances as of January 1, 2026 as a result of the adoption. Pursuant to ASU 2026-01, the Company recognizes dividends at the contractual rate of
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) (“ASU 2024-03”), which requires public entities to disclose additional information about specific cost and expense categories, such as purchases of inventory, employee compensation and costs related to depreciation, depletion and amortization, in the notes to the financial statements on an interim and annual basis. In January 2025, the FASB issued ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures: Clarifying the Effective Date (“ASU 2025-01”). ASU 2024-03, as clarified by ASU 2025-01, will become effective for fiscal years beginning after December 15, 2026 and interim periods within the fiscal year beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03.
2. SEGMENTS
The Company has determined that it operates as
3. OPERATING REVENUES
Substantially all of the Company’s oil, natural gas and natural gas liquids (“NGLs”) revenues are derived from the Delaware Basin in Pecos, Reeves, Ward and Winkler Counties, Texas. Revenue is presented disaggregated in the unaudited condensed consolidated statements of operations by major product, and depicts how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors in the Company’s single basin operations.
Revenue is recognized when the following five steps are completed: (1) identify the contract with the customer, (2) identify the performance obligation (promise) in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when the performance obligation is satisfied. Revenues from the sale of crude oil, natural gas and NGLs are recognized at a point in time when a performance obligation is satisfied by the transfer of control of each unit (e.g. barrel of oil, Mcf of gas) of commodity to the customer. Revenue is measured based on contract consideration allocated to each unit of commodity and excludes amounts collected on behalf of third parties. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue.
Because the Company’s performance obligations have been satisfied and an unconditional right to consideration exists as of the balance sheet date, the Company recognized amounts due from contracts with customers for sales of oil, natural gas and NGLs of $
For additional information regarding the Company’s operating revenues, refer to its Annual Report.
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. OIL AND NATURAL GAS PROPERTIES
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas reserves (including such costs as leasehold acquisition costs, geological expenditures, treating equipment and gathering support facilities costs, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred. To the extent capitalized costs of evaluated oil and natural gas properties, net of accumulated depletion, exceed the discounted future net revenues of proved oil and natural gas reserves, net of deferred taxes, such excess capitalized costs are charged to expense.
Additionally, the Company assesses all properties classified as unevaluated property on a quarterly basis for possible impairment. The Company assesses properties on an individual basis or as a group, if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and the full cost ceiling test limitation.
At September 30, 2026 and 2025, using first-day-of-the-month average West Texas Intermediate (“WTI”) crude oil spot prices and Henry Hub natural gas prices for the respective prior 12-month periods, the Company’s net book value of oil and natural gas properties at September 30, 2026 and 2025, did not exceed the ceiling test value of the Company’s reserves. Oil and natural gas prices utilized for the ceiling test calculations at September 30, 2026 and 2025 were $
Changes in commodity prices, production rates, levels of reserves, future development costs, transfers of unevaluated properties to the full cost pool, capital spending, and other factors will determine the Company’s ceiling test calculation and impairment analyses in future periods. Additionally, because oil and natural gas prices are inherently volatile, sustained lower commodity prices would reduce the calculated first-day-of-the-month average prices which could result in non-cash impairment charges of the Company’s oil and natural gas properties under its full cost ceiling test calculation, negatively impacting earnings and financial position.
West Quito Divestiture
On December 18, 2025, the Company entered into an agreement of sale and purchase with MCM Delaware Resources, LLC (“MCM”) (the “West Quito Divestiture Agreement”) to sell substantially all of its oil and natural gas properties and related assets in the West Quito Draw area located in the Southern Delaware Basin in Ward County, Texas for a total sales price of approximately $
Pursuant to the West Quito Divestiture Agreement, on February 24, 2026, the Company completed the closing of the West Quito Divestiture and MCM acquired from the Company approximately
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Sundown Acquisition
On March 10, 2026, the Company entered into a purchase and sale agreement to acquire certain oil and natural gas assets, comprising
Joint Exploration and Development Agreement
On May 27, 2026, the Company entered into a joint exploration and development agreement (“JEDA”) with an energy investment firm, pursuant to which the investment firm will earn assigned working interests in certain wells and leasehold acreage in Monument Draw by funding its proportionate share of well costs, subject to a carried interest. Under the JEDA, the Company serves as operator and the investment firm as a non-operating working interest owner. The JEDA contemplates a primary tranche of
5. DEBT
The Company’s debt consisted of the following for the periods presented (in thousands):
| | | | | | | |
| | September 30, 2026 | | | December 31, 2025 | ||
Term loan credit facility | | $ | | | | $ | |
Other | | | — | | | | |
Total debt (Face Value) | | | | | | | |
Less: | | | | | | | |
Current portion of long-term debt(1) | | | ( | | | | ( |
Other(2) | | | ( | | | | ( |
Long-Term Debt, net | | $ | | | | $ | |
| (1) | Amounts primarily reflect amortization payments of $ |
| (2) | Amounts reflect unamortized debt discount and issuance costs of approximately $ |
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
| approximately $ |
Amended and Restated Credit Agreement
2024 Amended Term Loan Agreement
On December 26, 2024 (the “Initial Closing Date”), Halcón Holdings, LLC (the “Borrower”), a wholly-owned subsidiary of the Company, entered into a Second Amended and Restated Senior Secured Credit Agreement (the “2024 Term Loan Agreement”) with Fortress Credit Corp. (“Fortress”), as administrative agent, and certain other financial institutions party thereto, as lenders. The 2024 Term Loan Agreement amended and restated in its entirety the Company’s Amended and Restated Senior Secured Credit Agreement, dated November 24, 2021, with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders. Pursuant to the 2024 Term Loan Agreement, the lenders party thereto agreed to provide the Borrower with (i) an initial term loan facility in the aggregate principal amount of $
The Company deferred $
The 2024 Amended Term Loan Agreement was scheduled to mature on
Borrowings under the 2024 Amended Term Loan Agreement initially bore interest at a rate per annum equal to a forward-looking term rate based on the Secured Overnight Financing Rate (“SOFR”) for a tenor of three months (with a credit spread adjustment of
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
On November 12, 2025, the Company entered into the Second Amendment to the Second Amended and Restated Senior Secured Credit Agreement (the “Second Amendment”), effective November 12, 2025, which amended the Applicable Margin (as defined in the 2024 Amended Term Loan Agreement) to be the rate per annum set forth below under the caption “SOFR Loans Spread” or “ABR Loans Spread”, as the case may be, based on the Total Net Leverage Ratio; provided that (a) until the Adjustment Date (the date of delivery of financial statements pursuant to the 2024 Amended Term Loan Agreement) following the Second Amendment effective date, the Applicable Margin shall be the applicable rate per annum set forth below in Category 1 and (b) the Applicable Margin shall be the applicable rate per annum set forth in Category 4 below at any time that an Event of Default (as defined in the 2024 Amended Term Loan Agreement) exists:
| | |
Total Net Leverage Ratio | SOFR Loans Spread | ABR Loans Spread |
Category 1 | ||
Category 2 | ||
Category 3 | ||
Category 4 |
The Applicable Margin was to be adjusted quarterly on a prospective basis on each Adjustment Date based upon the Total Net Leverage Ratio in accordance with the table above.
The Second Amendment provided that the Borrower should not permit the Total Net Leverage Ratio, as of the last day of each fiscal quarter (commencing with the fiscal quarter ending March 31, 2025), to be greater than the levels set forth in the following table for the applicable quarter:
| |
Fiscal Quarter | Total Net Leverage Ratio |
Fiscal quarters ending March 31, 2025 through and including June 30, 2025 | |
Fiscal quarter ending September 30, 2025 | |
Fiscal quarter ending December 31, 2025 | |
Fiscal quarter ending March 31, 2026 | |
Fiscal quarter ending June 30, 2026 | |
Fiscal quarter ending September 30, 2026 | |
Fiscal quarter ending December 31, 2026 | |
Fiscal quarter ending March 31, 2027 | |
Fiscal quarter ending June 30, 2027 | |
Fiscal quarter ending September 30, 2027 and each fiscal quarter thereafter |
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Additionally, the Second Amendment provided that the Borrower should not permit the Asset Coverage Ratio, as of the last day of any fiscal quarter (commencing with the fiscal quarter ending March 31, 2025) to be less than the applicable level set forth in the following table for the applicable fiscal quarter:
| |
Fiscal Quarter | Asset Coverage Ratio |
Fiscal quarters ending March 31, 2025 through and including December 31, 2026 | |
Each fiscal quarter thereafter |
On February 24, 2026, the Company entered into the Limited Consent, Third Amendment to Second Amended and Restated Senior Secured Credit Agreement and First Amendment to Fee Letter (the “Third Amendment”) to the 2024 Amended Term Loan Agreement. Pursuant to the Third Amendment, among other changes specified therein, (a) the lenders consented to the transactions contemplated by the West Quito Divestiture sale agreement; and (b) the Company was required, upon receipt of the net cash proceeds from the West Quito Divestiture, to prepay the outstanding principal amount of the 2024 Amended Term Loan Agreement borrowings in an aggregate amount equal to $
The Third Amendment was accounted for as a partial extinguishment and as such, the Company recorded a loss on extinguishment of debt in the amount of $
The Borrower could elect, at its option, to prepay any borrowing outstanding under the 2024 Amended Term Loan Agreement. Such voluntary prepayments, certain mandatory prepayments and change of control prepayments were subject to the following prepayment premium, as applicable:
| | | |
Period | | | Premium |
Months | | | Make-whole amount equal to 12 months of interest plus |
Months | | | |
Thereafter | | |
In the event the Borrower shall receive a disapproval notice (as defined in the 2024 Term Loan Agreement) from the required lenders under the 2024 Amended Term Loan Agreement rejecting or otherwise disqualifying a proposed buyer in connection with a permitted change in control thereunder to be consummated within 12 months following the Initial Closing Date, such voluntary prepayments, certain mandatory prepayments and change of control prepayments are subject to the following prepayment premium, as applicable:
| | | |
Period | | | Premium |
Months | | | Make-whole amount equal to 9 months of interest plus |
Months | | | |
Thereafter | | |
The Borrower was required to make scheduled quarterly amortization payments in an aggregate principal amount equal to
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Under the 2024 Amended Term Loan Agreement, the Borrower could have been required to make mandatory prepayments of the loans in connection with the incurrence of non-permitted debt, certain asset sales and with excess cash on hand in excess of certain maximum levels. Accordingly, upon closing the West Quito Divestiture, the Company used $
In conjunction with entering into the 2024 Term Loan Agreement, the Company agreed to pay an exit fee equal to the amount resulting from multiplying
2026 Term Loan Agreement
On June 30, 2026 (the “Closing Date”), Halcón Holdings, LLC (the “Borrower”), a wholly-owned subsidiary of the Company, entered into a Third Amended and Restated Senior Secured Credit Agreement (the “2026 Term Loan Agreement”), by and among the Company, the Borrower, the subsidiary guarantors party thereto, Fortress, as administrative agent, and certain other financial institutions party thereto, as lenders. The 2026 Term Loan Agreement amends and restates in its entirety the 2024 Amended Term Loan Agreement (defined above). All secured obligations under the 2024 Amended Term Loan Agreement were deemed continued and re-evidenced under the 2026 Term Loan Agreement.
Pursuant to the 2026 Term Loan Agreement, the lenders party thereto agreed to provide the Borrower with (i) a term loan facility in the aggregate principal amount of $
The maturity date of the 2026 Term Loan Agreement was extended to December 31, 2029. Until such maturity date, borrowings under the 2026 Term Loan Agreement shall bear interest at a rate per annum equal to a forward-looking term rate based on the Secured Overnight Financing Rate (“SOFR”) for a tenor of three months (with a credit spread adjustment of
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amended Term Loan Agreement, under which the applicable SOFR margin ranged from
Entry into the 2026 Term Loan Agreement was accounted for as a modification and as such, the Company deferred an additional $
The Borrower may elect, at its option, to prepay any borrowing outstanding under the 2026 Term Loan Agreement. Such voluntary prepayments, certain mandatory prepayments and change of control prepayments are subject to the following prepayment premium, as applicable:
| | | |
Period | | | Premium |
Months | | | Make-whole amount equal to 12 months of interest; provided that in the event of (a) a Change of Control Prepayment (as defined in the 2026 Term Loan Agreement) or (b) the sale of all or substantially all of the loan parties' assets, |
Months | | | |
Thereafter | | |
The Borrower may be required to make mandatory prepayments of the loans under the 2026 Term Loan Agreement in connection with the incurrence of non-permitted debt, certain asset sales and with excess cash on hand in excess of certain maximum levels.
The Borrower is required to make scheduled amortization payments (i) commencing with the fiscal quarter ending June 30, 2027 through and including the fiscal quarter ending March 31, 2029, in an aggregate principal amount equal to
Amounts outstanding under the 2026 Term Loan Agreement are guaranteed by certain of the Borrower’s direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of the Borrower and such direct and indirect subsidiaries, and of the equity interests of the Borrower held by the Company.
The 2026 Term Loan agreement contains certain financial covenants (as defined in the 2026 Term Loan Agreement), including the maintenance of the following ratios:
| ● | Asset Coverage Ratio not to fall below |
| ● | Total Net Leverage Ratio not to exceed |
| ● | Current Ratio not to fall below |
| ● | Liquidity not to fall below the greater of (x) $ |
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
At September 30, 2026, the Company was in compliance with all financial covenants under the 2026 Term Loan Agreement.
Under the 2026 Term Loan Agreement, the Company continues to be required to hedge approximately
6. FAIR VALUE MEASUREMENTS
The Company’s determination of fair value incorporates not only the credit standing of the counterparties involved in transactions with the Company resulting in receivables on the Company’s unaudited condensed consolidated balance sheets, but also the impact of the Company’s nonperformance risk on its own liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company separates the fair value of its financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There were
| | | | | | | | | | | | |
| | September 30, 2026 | ||||||||||
| | Level 1 | | Level 2 | | Level 3 | | Total | ||||
Assets | | | | | | | | | | | | |
Assets from derivative contracts | | $ | — | | $ | | | $ | — | | $ | |
| | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | |
Liabilities from derivative contracts | | $ | — | | $ | | | $ | — | | $ | |
| | | | | | | | | | | | |
| | December 31, 2025 | ||||||||||
| | Level 1 | | Level 2 | | Level 3 | | Total | ||||
Assets | | | | | | | | | | | | |
Assets from derivative contracts | | $ | — | | $ | | | $ | — | | $ | |
| | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | |
Liabilities from derivative contracts | | $ | — | | $ | | | $ | — | | $ | |
Derivative contracts listed above as Level 2 include fixed-price swaps, collars, basis swaps and WTI NYMEX rolls that are carried at fair value. The Company records the net change in the fair value of these positions in “Net (loss) gain
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
on derivative contracts” in the Company’s unaudited condensed consolidated statements of operations. The Level 2 observable data includes the forward curves for commodity prices based on quoted market prices and implied volatility factors related to changes in the forward curves. See Note 7, “Derivative and Hedging Activities,” for additional discussion of derivatives.
The Company’s derivative contracts are with major financial institutions and large multi-strategy alternative investment managers with investment grade credit ratings which are believed to have minimal credit risk. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties in the derivative contracts; however, the Company does not anticipate such nonperformance.
As discussed in Note 5, “Debt,” the Company evaluated the 2024 Term Loan Agreement and identified the Exit Fee to be an embedded derivative not clearly and closely related to the host debt instrument. The fair value analysis for such derivative was performed and the fair value was deemed to be
Estimated fair value amounts have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, cash equivalents and restricted cash, accounts receivable, and accounts payable approximates their carrying value due to their short-term nature. The estimated fair value of borrowings under the Company’s 2026 Term Loan Agreement approximates carrying value because the variable interest rates approximate current market rates.
The Company follows the provisions of the FASB’s Accounting Standards Codification (“ASC”) 820, Fair Value Measurement for nonfinancial assets and liabilities measured at fair value on a non-recurring basis. These provisions apply to the Company’s initial recognition of AROs for which fair value is used. The ARO estimates are derived from historical costs and management’s expectation of future cost environments; and therefore, the Company has designated these liabilities as Level 3. See Note 8, “Asset Retirement Obligations,” for a reconciliation of the beginning and ending balances of the liability for the Company’s AROs.
7. DERIVATIVE AND HEDGING ACTIVITIES
The Company is exposed to commodity price risks relating to its ongoing business operations. In accordance with the Company’s policy and the requirements under the 2026 Term Loan Agreement, it generally hedges a substantial, but varying, portion of anticipated oil and natural gas production for future periods. Derivatives are carried at fair value on the unaudited condensed consolidated balance sheets as assets or liabilities, with the changes in the fair value included in the unaudited condensed consolidated statements of operations for the period in which the change occurs. The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, the Company records the net change in the mark-to-market valuation of these derivative contracts, as well as all payments and receipts on settled derivative contracts, in “Net (loss) gain on derivative contracts” on the unaudited condensed consolidated statements of operations. The Company’s hedge policies and objectives may change significantly as its operational profile changes. The Company does not enter into derivative contracts for speculative trading purposes.
It is the Company’s policy to enter into derivative contracts only with counterparties that are creditworthy financial or commodity hedging institutions deemed by management as competent and competitive market makers. At September 30, 2026, the Company did not post collateral under any of its derivative contracts as they are secured under the Company’s 2026 Term Loan Agreement.
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company’s crude oil and natural gas derivative positions at any point in time may consist of fixed-price swaps, costless put/call collars, basis swaps and WTI NYMEX rolls further described as follows:
| ● | 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. |
| ● | Costless collars consist 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 and are generally utilized less frequently by the Company than fixed-price swaps. |
| ● | 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 following table summarizes the location and fair value amounts of all commodity derivative contracts in the unaudited condensed consolidated balance sheets at September 30, 2026 and December 31, 2025 (in thousands):
| | | | | | | | | | | | | | |
Balance sheet location | | September 30, 2026 | | December 31, 2025 | | Balance sheet location | | September 30, 2026 | | December 31, 2025 | ||||
Current assets | | $ | | | $ | | | Current liabilities | | $ | ( | | $ | ( |
Other noncurrent assets | | | | | | | | Other noncurrent liabilities | | | ( | | | ( |
| | $ | | | $ | | | | | $ | ( | | $ | ( |
The following table summarizes the location and amounts of the Company’s realized and unrealized gains and losses on derivative contracts in the Company’s unaudited condensed consolidated statements of operations (in thousands):
| | | | | | | | | | | | | | |
| | Location of gain (loss) | | Three Months Ended | | Nine Months Ended | ||||||||
| | on derivative contracts on | | September 30, | | September 30, | ||||||||
Type | | Statement of Operations | | 2026 | | 2025 | | 2026 | | 2025 | ||||
Commodity contracts: | | | | | | | | | | | | | | |
Unrealized (loss) gain | | Other income (expenses) | | $ | ( | | $ | | | $ | ( | | $ | |
Realized (loss) gain | | Other income (expenses) | | | ( | | | | | | ( | | | |
Total net (loss) gain | | | | $ | ( | | $ | | | $ | ( | | $ | |
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
At September 30, 2026, the Company had the following open crude oil and natural gas derivative contracts:
| | | | | | | | | | | | | | | | |
Instrument | | | 2026 | | | 2027 | | | 2028 | | | 2029 | | | 2030 | |
Crude oil: | | | | | | | | | | | | | | | | |
Fixed-price swap: | | | | | | | | | | | | | | | | |
Total volumes (Bbls) | | | | | | | | | | | | | | | | |
Weighted average price | | $ | | | $ | | | $ | | | $ | | | $ | | |
Two-way collar: | | | | | | | | | | | | | | | | |
Total volumes (Bbls) | | | | | | | | | | | | | | | — | |
Weighted average price (call) | | $ | | $ | | $ | | $ | | | $ | — | | |||
Weighted average price (put) | | $ | | $ | | $ | | $ | | | $ | — | | |||
Three-way collar: | | | | | | | | | | | | | | | | |
Total volumes (Bbls) | | | — | | | | | | — | | | — | | | — | |
Weighted average price (call) | | $ | — | | $ | | $ | — | | $ | — | | $ | — | | |
Weighted average price (put) | | $ | — | | $ | | $ | — | | $ | — | | $ | — | | |
Weighted average price (put) | | $ | — | | $ | | $ | — | | $ | — | | $ | — | | |
Basis swap: | | | | | | | | | | | | | | | | |
Total volumes (Bbls) | | | | | | | | | | | | | | | — | |
Weighted average price | | $ | ( | | $ | | | $ | | | $ | | | $ | — | |
WTI NYMEX roll: | | | | | | | | | | | | | | | | |
Total volumes (Bbls) | | | | | | | | | | | | | | | — | |
Weighted average price | | $ | ( | | $ | ( | | $ | ( | | $ | ( | | $ | — | |
Natural gas: | | | | | | | | | | | | | | | | |
Fixed-price swap: | | | | | | | | | | | | | | | | |
Total volumes (MMBtu) | | | | | | | | | | | | | | | — | |
Weighted average price | | $ | | | $ | | | $ | | | $ | | | $ | — | |
Two-way collar: | | | | | | | | | | | | | | | | |
Total volumes (MMBtu) | | | | | | | | | | | | | | | | |
Weighted average price (call) | | $ | | $ | | $ | | $ | | | $ | | | |||
Weighted average price (put) | | $ | | $ | | $ | | $ | | | $ | | | |||
Basis swap: | | | | | | | | | | | | | | | | |
Total volumes (MMBtu) | | | | | | | | | | | | | | | — | |
Weighted average price | | $ | ( | | $ | ( | | $ | ( | | $ | ( | | $ | — | |
Normal Butane: | | | | | | | | | | | | | | | | |
Fixed-price swap: | | | | | | | | | | | | | | | | |
Total volumes (gallons) | | | | | | | | | | | | | | | — | |
Weighted average price | | $ | | | $ | | | $ | | | $ | | | $ | — | |
Propane: | | | | | | | | | | | | | | | | |
Fixed-price swap: | | | | | | | | | | | | | | | | |
Total volumes (gallons) | | | | | | | | | | | | | | | — | |
Weighted average price | | $ | | | $ | | | $ | | | $ | | | $ | — | |
Natural Gasoline: | | | | | | | | | | | | | | | | |
Fixed-price swap: | | | | | | | | | | | | | | | | |
Total volumes (gallons) | | | | | | | | | | | | | | | — | |
Weighted average price | | $ | | | $ | | | $ | | | $ | | | $ | — | |
IsoButane: | | | | | | | | | | | | | | | | |
Fixed-price swap: | | | | | | | | | | | | | | | | |
Total volumes (gallons) | | | | | | | | | | | | | | | — | |
Weighted average price | | $ | | | $ | | | $ | | | $ | | | $ | — | |
The Company presents the fair value of its derivative contracts at the gross amounts in the unaudited condensed consolidated balance sheets.
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | | | | | | | | | | | |
| | Assets from Derivative Contracts | | Liabilities from Derivative Contracts | ||||||||
Offsetting of Derivative Assets and Liabilities | | September 30, 2026 | | December 31, 2025 | | September 30, 2026 | | December 31, 2025 | ||||
| | | | | | | | | | | | |
Gross amounts recognized in the Unaudited Condensed Consolidated Balance Sheet | | $ | | | $ | | | $ | ( | | $ | ( |
Amounts not offset in the Unaudited Condensed Consolidated Balance Sheet | | | ( | | | ( | | | | | | |
Net amount | | $ | | | $ | | | $ | ( | | $ | |
The Company enters into an International Swap Dealers Association Master Agreement (“ISDA”) with each counterparty prior to a derivative contract with such counterparty. The ISDA is a standard contract that governs all derivative contracts entered into between the Company and the respective counterparty. The ISDA allows for offsetting of amounts payable or receivable between the Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.
8. ASSET RETIREMENT OBLIGATIONS
The Company records an ARO on oil and natural gas properties when it can reasonably estimate the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon costs. The Company records the ARO liability on the unaudited condensed consolidated balance sheets and capitalizes the cost in “Oil and natural gas properties” during the period in which the obligation is incurred. The Company records the accretion of its ARO liabilities in “Depletion, depreciation and accretion” expense in the unaudited condensed consolidated statements of operations. The additional capitalized costs are depreciated on a unit-of-production basis.
The Company recorded the following activity related to its ARO liability (in thousands):
| | | |
Liability for asset retirement obligations at December 31, 2025 | | $ | |
Accretion expense | | | |
Liabilities divested | | | ( |
Revisions to estimate | | | |
Liability for asset retirement obligations at September 30, 2026 | | $ | |
9. COMMITMENTS AND CONTINGENCIES
Commitments
On September 3, 2026, the Company entered into a subscription agreement with Collide Industrial Technologies, Inc. (“Collide”) (the “subscription agreement”) for access to the third-party technology provider’s cloud-based data management and artificial intelligence (“AI”) platform, including related implementation and support services, for an initial term of
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
subscription agreement. As of September 30, 2026,
In April 2026, the Company entered into a gas compression agreement with Cadre Energy Solutions, LLC (“Cadre”) for a compressor unit to provide gas compression services at the Company’s Everest location in Winkler County, Texas. Cadre owns, operates and maintains the equipment. The agreement has a primary term of
Future minimum lease payments associated with the gas compression agreement operating lease as of September 30, 2026, are presented in the table below (in thousands):
| | | |
| | September 30, 2026 | |
Remaining period in 2026 | | $ | |
2027 | | | |
2028 | | | |
2029 | | | |
2030 | | | |
Thereafter | | | |
Total operating lease payments | | | |
Less: discount to present value | | | ( |
Total operating lease liability | | | |
Less: current operating lease liability | | | ( |
Noncurrent operating lease liability | | $ | |
On May 27, 2026, the Company entered into a JEDA with an energy investment firm, pursuant to which the investment firm will earn assigned working interests in certain wells and leasehold acreage in Monument Draw by funding its proportionate share of well costs, subject to a carried interest. Under the JEDA, the Company serves as operator and the investment firm as a non-operating working interest owner. See Note 4, “Oil and Natural Gas Properties – Joint Exploration and Development Agreement” for additional information.
On May 27, 2026, the Company entered into a drilling rig commitment for
The Company was previously a party to a gas treating agreement entered into during 2022 pursuant to which the Company had a minimum volume commitment of
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
service date of the facility. Under this gas treating agreement, the Company paid a treating rate that varied based on volumes delivered to the facility. The gas treating agreement was terminated on January 19, 2026.
The Company has entered into various long-term gathering, transportation and sales contracts with respect to its oil and natural gas production from the Delaware Basin in West Texas. As of September 30, 2026, the Company had in place multiple long-term crude oil and natural gas contracts in this area and the sales prices under these contracts are based on 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
Contingencies
In addition to the matters described below, from time to time, the Company may be a plaintiff or defendant in a pending or threatened legal proceeding arising in the normal course of its business. While the outcome and impact of currently pending legal proceedings cannot be determined, the Company’s management and legal counsel believe that the resolution of these proceedings through settlement or adverse judgment will not have a material effect on the Company’s unaudited condensed consolidated operating results, financial position or cash flows.
Surface owners of properties in Louisiana, where the Company formerly operated, often file lawsuits or assert claims against oil and natural gas companies claiming that operators and working interest owners are liable for environmental damages arising from operations conducted on the leased properties. These damages are frequently measured by the cost to restore the leased properties to their original condition. Currently and in the past, the Company has been party to such matters in Louisiana. With regard to pending matters, the overall exposure is not currently determinable. The Company intends to vigorously oppose these claims.
10. STOCKHOLDERS’ EQUITY (DEFICIT)
Redeemable Convertible Preferred Stock
During 2023 and 2024, the Company issued, in private placements, an aggregate of
Voting Rights. Holders of shares of the Redeemable Convertible Preferred Stock have no voting rights with respect to the shares of Redeemable Convertible Preferred stock.
Dividends. Holders of Redeemable Convertible Preferred Stock are entitled to receive cumulative dividends at a fixed rate of
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
compounding and accruing quarterly in arrears. PIK dividends shall automatically accrue at a fixed rate of
Conversion Features. In addition to the conversion rights noted in “Redemption Features (Change of Control)” below, Holders of Redeemable Convertible Preferred Stock may convert their shares into common stock at a conversion ratio (the “Conversion Ratio”) equal to the then applicable Liquidation Preference at the time of conversion divided by the then applicable Conversion Price (initially equal to an
Redemption Features (Issuer). The Company has the option to redeem the Redeemable Convertible Preferred Stock in cash for an amount per share of Preferred Stock equal to (the “Redemption Price”):
| ● | at any time after the first anniversary of the closing date but on or prior to the second anniversary of the closing date, |
| ● | at any time after the second anniversary of the closing date, |
Redemption Features (Change of Control). In the event of a change of control, holders have the right to receive:
| ● | at any time after the one hundred fiftieth ( |
On March 30, 2026, the Company issued
On August 7, 2026, the Company entered into a Preferred Stock Repurchase and Conversion Agreement (the “Repurchase Agreement”) with Gen IV, pursuant to which (i) the Company agreed to repurchase from Gen IV
Following the closing of the transactions contemplated by the Repurchase Agreement, Gen IV no longer holds any shares of preferred stock of the Company. The shares of preferred stock repurchased by the Company were retired and cancelled.
As a result of the Repurchase, the Company recorded a reduction of $
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
contribution of $
At September 30, 2026, there were
Common Stock
On March 3, 2026, the Company entered into a definitive agreement to sell in a private placement to an institutional investor
On March 19, 2026, the Company issued
On March 30, 2026, the Company issued
On August 7, 2026, the Company issued
At-the-Market Program
On May 5, 2026, the Company entered into a sales agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Agent”) pursuant to which the Company may issue and sell, from time to time, up to $
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. EARNINGS PER SHARE
The following represents the calculation of earnings (loss) per share (in thousands, except per share amounts):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
| | 2026 | | 2025 | | 2026 | | 2025 | ||||
Basic: | | | | | | | | | | | | |
Net (loss) income | | $ | ( | | $ | ( | | $ | ( | | $ | |
Less: Preferred stock dividend | | | ( | | | ( | | | ( | | | ( |
Add: Deemed contribution - preferred stock repurchase | | | | | | — | | | | | | — |
Net income (loss) available to common stockholders | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Weighted average basic number of common shares outstanding basic | | | | | | | | | | | | |
Basic net income (loss) per share of common stock | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
| | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | |
Net income (loss) available to common stockholders basic | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Net income (loss) available to common stockholders diluted | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
| | | | | | | | | | | | |
Weighted average basic number of common shares outstanding basic | | | | | | | | | | | | |
Common stock equivalent shares representing shares issuable upon: | | | | | | | | | | | | |
Exercise of stock options and vesting of restricted stock units(1) | | | — | | | — | | | — | | | — |
Weighted average diluted number of common shares outstanding diluted | | | | | | | | | | | | |
Diluted net income (loss) per share of common stock | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
| (1) | No impact to diluted earnings per share because antidilutive. |
The Company computes earnings per share in accordance with ASC Topic 260, Earnings per Share (“ASC 260”), which requires earnings per share for each class of stock (common stock and participating preferred stock) to be calculated using the two-class method which allocates earnings for the reporting period between common shareholders and other security holders based on their respective participation rights in undistributed earnings. Diluted earnings per share resulted in the same dilution calculated using the two-class method as using the if-converted method. For additional information on the Company’s preferred stock, which is considered a participating security, see Note 10, “Stockholders’ Equity (Deficit)”.
For the three and nine months ended September 30, 2026, common stock equivalents, including options and restricted stock units (“RSUs”), totaling
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. ADDITIONAL FINANCIAL STATEMENT INFORMATION
Certain balance sheet amounts are comprised of the following (in thousands):
| | | | | | |
| | September 30, 2026 | | December 31, 2025 | ||
Accounts receivable, net: | | | | | | |
Oil, natural gas and natural gas liquids revenues | | $ | | | $ | |
Joint interest accounts | | | | | | |
Other | | | | | | |
Total Accounts receivable, net | | $ | | | $ | |
| | | | | | |
Prepaids and other: | | | | | | |
Prepaids | | $ | | | $ | |
Funds in escrow | | | — | | | |
Other | | | | | | |
Total Prepaids and other | | $ | | | $ | |
| | | | | | |
Other assets (Non-current): | | | | | | |
Funds in escrow | | $ | | | $ | |
Other | | | | | | |
Total Other assets (Non-current) | | $ | | | $ | |
| | | | | | |
Accounts payable and accrued liabilities | | | | | | |
Trade payables | | $ | | | $ | |
Accrued oil and natural gas capital costs | | | | | | |
Revenues and royalties payable | | | | | | |
Accrued interest expense | | | | | | |
Accrued employee compensation | | | | | | |
Accrued lease operating expenses | | | | | | |
Other | | | | | | |
Total Accounts payable and accrued liabilities | | $ | | | $ | |
Certain income statement amounts are comprised of the following (in thousands) for the periods presented:
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | 2026 | | 2025 | | 2026 | | 2025 | ||||
Interest expense and other: | | | | | | | | | | | | |
Interest expense | | $ | | | $ | | | $ | | | $ | |
Interest income | | | ( | | | ( | | | ( | | | ( |
Other | | | ( | | | ( | | | ( | | | |
Total Interest expense and other | | $ | | | $ | | | $ | | | $ | |
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BATTALION OIL CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. SUBSEQUENT EVENTS
On November 11, 2026, the Company entered into a series of agreements to transport and sell crude oil produced from its Monument Draw acreage in Ward and Winkler Counties, Texas. Per the connection and dedication agreements, the Company dedicated crude oil produced from its acreage for transportation by pipeline for a primary term of
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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 and nine months ended September 30, 2026 and 2025 and should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report 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 for the fiscal year ended December 31, 2025. The results presented in this Quarterly Report are not necessarily indicative of future operating results.
Statements in this discussion may be forward-looking. As a result of many factors, including those factors set forth in the “Risk Factors” section of our Annual Report, and as supplemented by this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. These forward-looking statements involve risks and uncertainties, including those discussed below, which could cause actual results to differ from those expressed. For more information, see “Special note regarding forward-looking statements.”
Overview
We are an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States. Our properties and drilling activities are currently focused in the Delaware Basin, where we have an extensive drilling inventory that we believe offers attractive long-term economics.
Our financial results depend upon many factors, but are largely driven by the volume of our oil and natural gas production and the price that we receive for that production. Our production volumes will decline as reserves are depleted unless we expend capital in successful development and exploration activities or acquire properties with existing production. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, attempts by foreign oil and natural gas producers to control the global supply, weather, transportation take-away capacity constraints, inventory storage levels, basis differentials and other factors. Accordingly, finding, developing and producing oil and natural gas reserves at economical costs are critical to our long-term success.
When commodity prices decline significantly our ability to finance our capital budget and operations may be adversely impacted. While we use derivative instruments to provide partial protection against declines in oil and natural gas prices, the total volumes we hedge are less than our expected production, vary from period to period based on our view of current and future market conditions, remain consistent with the requirements in effect under our 2026 Term Loan Agreement and extend, on a rolling basis, for a limited period of time (generally, four years). These limitations result in our liquidity being susceptible to commodity price declines. Additionally, while intended to reduce the effects of volatile commodity prices, derivative transactions may limit our potential gains and increase our potential losses if commodity prices were to rise substantially over the price established by the hedge. Our hedge policies and objectives may change significantly as our operational profile changes and/or commodities prices change. We do not enter into derivative contracts for speculative trading purposes.
Recent Developments
Investment in Collide
On September 3, 2026, we entered into a subscription agreement with Collide (the “Subscription Agreement”) for access to the third-party technology provider’s cloud-based data management and artificial intelligence (“AI”) platform designed specifically for oil and gas companies to automate engineering and operational workflows across upstream, midstream and oilfield services sectors, including related implementation and support services, for an initial term of 12 months. The platform is designed to reduce operating costs, compress cycle times and unlock critical data trapped in legacy systems. The Subscription Agreement provides for fixed fees over the initial term, payable in installments tied to
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the achievement of defined delivery milestones. The fixed fee is all-inclusive and does not provide for separate usage-based charges during the initial term. We may terminate the agreement for convenience at any time on or after December 3, 2026. Should we terminate at such time, the second installment payment of approximately $0.1 million remains payable upon invoicing on December 3, 2026. The remaining installments are payable only if we approve in writing proceeding to the related delivery phase. We may renew for a second 12-month term at an agreed upon fixed fee. For the three and nine months ended September 30, 2026, we recognized less than $0.1 million of general and administrative expense related to the subscription agreement. As of September 30, 2026, no liability has been recorded for any installments we have not yet approved.
Preferred Stock Repurchase and Conversion
On August 7, 2026, we entered into a Preferred Stock Repurchase and Conversion Agreement with Gen IV Investment Opportunities, LLC (“Gen IV”), pursuant to which (i) we agreed to repurchase from Gen IV 5,138 shares of our Series A Redeemable Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”) and 6,578.11 shares of our Series A-1 Redeemable Convertible Preferred Stock, par value $0.0001 per share (the “Series A-1 Preferred Stock”) for an aggregate purchase price of $19.0 million (the “Repurchase”) and (ii) Gen IV elected to convert 1,231.89 shares of Series A-1 Preferred Stock, 6,630 shares of Series A-2 Redeemable Convertible Preferred Stock (the “Series A-2 Preferred Stock”), 3,789 shares of the Company’s Series A-3 Redeemable Convertible Preferred Stock, par value $0.0001 per share (the “Series A-3 Preferred Stock”) and 3,789 shares of the Company’s Series A-4 Redeemable Convertible Preferred Stock, par value $0.0001 per share (the “Series A-4 Preferred Stock”) into an aggregate of 3,494,259 shares of the Company’s common stock (the “Conversion”).
Following the closing of the transactions contemplated by the Repurchase Agreement, Gen IV no longer holds any shares of preferred stock of the Company. The shares of preferred stock repurchased by us were retired and cancelled.
As a result of the Repurchase, we recorded a reduction of $21.6 million to the carrying value of the preferred stock on our unaudited condensed consolidated balance sheet at September 30, 2026 and a deemed contribution of $2.6 million for the quarter ended September 30, 2026. Pursuant to the Conversion, we recorded a reduction of $24.7 million to the carrying value of the preferred stock on our unaudited condensed consolidated balance sheet at September 30, 2026. The Repurchase and Conversion resulted in a $41.7 million reduction in liquidation preference at the date of the transaction.
2026 Term Loan Agreement
On June 30, 2026, we entered into a Third Amended and Restated Senior Secured Credit Agreement (the “2026 Term Loan Agreement”) which amended and restated in its entirety the Second Amended and Restated Senior Secured Credit Agreement (the “2024 Amended Term Loan Agreement”) dated as of December 26, 2024. Pursuant to the 2026 Term Loan Agreement, the lenders agreed to provide us with (i) a term loan facility in the aggregate principal amount of $162.5 million, deemed funded on June 30, 2026 and (ii) on an uncommitted and absolutely discretionary basis, a delayed draw term loan facility in a maximum aggregate amount of up to $175.0 million, to be made available from and including June 30, 2026 through and including the earliest to occur of (a) the date on which the delayed draw term loans have been fully drawn or (b) the date on which the discretionary delayed draw term loan commitments are terminated, subject to the satisfaction of certain conditions as outlined in the 2026 Term Loan Agreement. The 2026 Term Loan Agreement matures on December 31, 2029 and bears interest at a rate per annum equal to a forward-looking term rate based on SOFR for a tenor of three months (with a credit spread adjustment of 0.15% per annum) (or another applicable reference rate, as determined pursuant to the terms of the 2026 Term Loan Agreement) plus an applicable margin of 6.50% (or, for ABR Loans, a base rate plus an applicable margin of 5.50%). The applicable margin is fixed at 6.50% and replaces the leverage-based pricing grid contained in the 2024 Amended Term Loan Agreement, under which the applicable SOFR margin ranged from 7.75% to 8.50% depending on the Total Net Leverage Ratio. We are required under the 2026 Term Loan Agreement to make scheduled amortization payments (i) commencing with the fiscal quarter ending June 30, 2027 through and including the fiscal quarter ending March 31, 2029, in an aggregate principal amount equal to 1.25% of the loans outstanding on June 30, 2026, (ii) for the fiscal quarter ending June 30, 2029, an aggregate principal amount equal to 7.50% of the loans outstanding on June 30, 2026, and (iii) for the fiscal quarter ending September 30, 2029, an aggregate principal amount equal to 10.00% of the loans outstanding on June 30, 2026.
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The 2026 Term Loan Agreement also contains certain financial covenants (as defined in the 2026 Term Loan Agreement), including the maintenance of (i) a Total Net Leverage Ratio not to exceed 2.75x as of each fiscal quarter ending September 30, 2026 through and including December 31, 2026, and 2.50x for each fiscal quarter thereafter, determined as of the last day of each fiscal quarter, (ii) a Current Ratio not to fall below 1.00x, determined as of the last day of any fiscal quarter commencing with the fiscal quarter ending September 30, 2026, (iii) an Asset Coverage Ratio not to fall below 1.75x as of each fiscal quarter ending September 30, 2026 through and including December 31, 2026, 2.00x as of each fiscal quarter ending March 31, 2027 through and including December 31, 2027, and 2.50x for each fiscal quarter thereafter, determined as of the last day of each fiscal quarter, and (iv) Liquidity not to fall below the greater of (x) $10,000,000 and (y) the amount equal to the scheduled principal and interest payments for the immediately succeeding three-month period, determined as of the last day of any fiscal quarter.
We recorded an additional $0.4 million of deferred financing costs at June 30, 2026 in conjunction with entry into the 2026 Term Loan Agreement.
Joint Exploration and Development Agreement
On May 27, 2026, we entered into a joint exploration and development agreement (“JEDA”) with an energy investment firm, pursuant to which the investment firm will earn assigned working interests in certain wells and leasehold acreage in Monument Draw by funding its proportionate share of well costs, subject to a carried interest. Under the JEDA, we serve as operator and the investment firm as a non-operating working interest owner. The JEDA contemplates a primary tranche of four identified wells, in which both we and the investment firm have committed to participate, and following completion of that tranche, we may propose one or more subsequent tranches, each subject to the investment firm’s election to participate. Pursuant to the JEDA, we were required to spud an initial well prior to August 1, 2026, however, both parties agreed to delay the spud date of the initial well until mid-August 2026 due to delayed arrival of the contracted rig. Well costs and revenues for the initial tranche are allocated 50% to us and 50% to the investment firm on an 8/8ths cost basis, with post-completion net revenue interest and operating cost allocations of approximately 55% to us and 45% to the investment firm, subject to adjustment for the investment firm’s earned working interest share. We bear a carried interest equal to 10% of our participating interest with respect to well costs chargeable to wells in the primary tranche and any subsequent tranche, such that the investment firm funds a portion of costs attributable to our retained interest in exchange for the assignment of working interest. The investment firm’s allocated percentage of certain net revenue interest (up to an additional 2.5%) varies based on the trading price of 2027 WTI crude oil (as measured by the applicable futures index) on the last trading day of 2026, with a threshold of $70.00 per barrel determining whether a 25% or 45% allocated percentage applies. All four wells of the initial tranche were spud in mid-August 2026 and as of September 30, 2026, we had finished drilling one of the four wells. We expect to finish drilling operations on the remaining three wells on the pad by December 2026, with completions happening immediately after. We plan to have the wells online in early first quarter 2027. As of September 30, 2026, we had incurred approximately $10.0 million of well costs under the JEDA, of which 50% will be billed to and paid by the investment firm in accordance with the cost-sharing provisions of the JEDA.
At the Market Sales Offering
On May 5, 2026, we entered into a sales agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Agent”) pursuant to which we may issue and sell, from time to time, up to $150.0 million of shares of our common stock, through or to the Agent, acting as agent or principal, under the Sales Agreement in at-the-market transactions (the “ATM Program”). For the period May 6, 2026 through September 30, 2026, we sold and issued 34,491,840 shares under the ATM Program for net proceeds of $58.4 million, after deducting sales commissions and other offering costs. As of September 30, 2026, we had $89.8 million of aggregate gross sales remaining under the Sales Agreement. Subsequent to September 30, 2026, we sold an additional 25,000 shares under the ATM Program for net proceeds of less than $0.1 million, after deducting sales commissions and other offering costs.
Preferred Stock Conversion
On March 30, 2026, we issued 1,800,000 shares of our common stock to Luminus Energy Partners Master Fund, Ltd. (“Luminus”) upon the conversion of 7,803 shares of our Series A-2 Preferred Stock. The conversion was calculated
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in accordance with the terms of the Series A-2 Preferred Stock, including adjustments provided in respect of any Unpaid Dividend Accrual (as defined in the Company’s Certificate of Incorporation, as amended) and using a conversion price of $6.21 per share.
Sundown Acquisition
On March 10, 2026, we entered into a purchase and sale agreement to acquire certain oil and natural gas assets, comprising 7,090 net acres located in Ward County, Texas, from RoadRunner Resource Holding LLC (formerly, Sundown Energy LP) (“RoadRunner”), effective March 1, 2026, in an all-stock transaction. Under the terms of the agreement, upon closing on March 19, 2026, we issued 485,000 shares of our common stock to RoadRunner in exchange for the assets. The acquired acreage is directly adjacent to our existing Monument Draw acreage. The transaction is subject to customary post-closing adjustments.
Private Placement Equity Offering
On March 3, 2026, we entered into a definitive agreement to sell in a private placement to an institutional investor 1,800,000 shares of our common stock and 927,273 prefunded warrants for the purchase of common stock at $5.50 per share for total proceeds of $15.0 million. The offering closed on March 4, 2026, on satisfaction of customary closing conditions. We used the net proceeds received from the offering for working capital and general corporate purposes. The warrants were exercised on April 7, 2026 and accordingly, upon exercise, we issued 927,273 shares of common stock.
West Quito Divestiture
On December 18, 2025, we entered into an agreement of sale and purchase with MCM Delaware Resources, LLC (“MCM”) to sell substantially all of our oil and natural gas properties and related assets in the West Quito Draw area located in the Southern Delaware Basin in Ward County, Texas (the “West Quito Assets”) for a total sales price of approximately $62.6 million, subject to adjustment for accounting between the effective date of December 1, 2025 and the closing date and other customary adjustments (the “West Quito Divestiture”). The West Quito Divestiture closed on February 24, 2026 for a final post-closing adjusted sales price of $58.8 million, reflecting adjustment for accounting effective date of December 1, 2025 and other customary adjustments. The West Quito Assets include approximately 6,100 net acres in Ward County, Texas and proved reserves for these properties accounted for approximately 6.0 MMboe, or approximately 10%, of our proved reserves at December 31, 2025. We used $45.6 million of the net proceeds from closing to repay amounts outstanding under the 2024 Amended Term Loan Agreement on February 24, 2026 - $40.0 million pursuant to the Third Amendment and prepayment of $5.6 million for the scheduled quarterly amortization payment for the quarterly period ending March 31, 2026. Pursuant to the Third Amendment, on February 24, 2026, $12.9 million of Reinvestment Proceeds were held in a reinvestment account to be used to acquire additional contiguous non-operated oil and natural gas properties consisting of proved developed reserves in Ward and Winkler Counties, Texas, to fund permitted capital expenditures in the Monument Draw area and/or to fund the drilling and completion of two Monument Draw wells within 180 days after receipt. Should such funds have not been spent within the 180-day period, the Reinvestment Proceeds were to be used to prepay borrowings outstanding under the 2024 Amended Term Loan Agreement. At September 30, 2026, all Reinvestment Proceeds had been used to fund permitted capital expenditures and no Reinvestment Proceeds remained recorded as restricted cash.
Term Loan Credit Facility
On February 24, 2026, we entered into the Third Amendment to our 2024 Amended Term Loan Agreement. Pursuant to the Third Amendment, among other changes specified therein, (a) the lenders consented to the transactions contemplated by the West Quito Divestiture sale agreement; and (b) we were required, upon receipt of the net cash proceeds from the West Quito Divestiture, to prepay the outstanding principal amount of the 2024 Amended Term Loan Agreement borrowings in an aggregate amount equal to $40.0 million. We may retain the remaining net cash proceeds received from the West Quito Divestiture, subject to certain reinvestment requirements, set forth in the Third Amendment.
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We recorded a loss on extinguishment of debt in the amount of $0.9 million to write-off the proportionate amount of deferred financing costs and debt discount associated with the February 24, 2026 principal prepayment and deferred an additional $0.6 million of deferred financing costs at March 31, 2026 in conjunction with entry into the Third Amendment.
Liquidity and Capital Resources
Overview. Our ability to execute our operating strategy is dependent on our ability to maintain adequate liquidity and access additional capital, as needed. Our future capital resources and liquidity depend, in part, on our success in developing our leasehold interests, growing our reserves and production and finding additional reserves. Sufficient levels of available cash are required to fund capital expenditures necessary to offset inherent declines in our production and proven reserves. We generated a net loss of $84.5 million for the nine months ended September 30, 2026 and had working capital of $37.5 million as of September 30, 2026. As of September 30, 2026, we had $92.1 million of cash and cash equivalents, $162.5 million of borrowings outstanding and secured access to up to $175.0 million of additional discretionary delayed draw capacity to fund future growth, available on an uncommitted basis under the 2026 Term Loan Agreement and no required debt repayments due until June 30, 2027 under our 2026 Term Loan Agreement. We closed on the sale of our West Quito Assets on February 24, 2026 for adjusted net proceeds of $58.8 million, of which $45.6 million was used to repay a portion of outstanding borrowings under our 2024 Amended Term Loan Agreement including $40.0 million pursuant to the Third Amendment and prepayment of $5.6 million for the scheduled quarterly amortization payment for the quarterly period ending March 31, 2026. Pursuant to the Third Amendment and continuing requirements under the 2026 Term Loan Agreement, remaining proceeds from the sale after related expenses (the “Reinvestment Proceeds”) were to be used to acquire additional contiguous non-operated oil and natural gas properties consisting of proved developed reserves in Ward and Winkler Counties, Texas, to fund permitted capital expenditures in the Monument Draw area and/or to fund the drilling and completion of two Monument Draw wells within 180 days after receipt. Should such funds have not been spent within the 180-day period, the Reinvestment Proceeds were to be used to prepay borrowings outstanding under the 2026 Term Loan Agreement. At September 30, 2026, all Reinvestment Proceeds had been used to fund permitted capital expenditures and no Reinvestment Proceeds remained recorded as restricted cash.
On March 3, 2026, we entered into a definitive agreement to sell in a private placement to an institutional investor, 1,800,000 shares of our common stock and 927,273 prefunded warrants for the purchase of common stock at $5.50 per share for total proceeds of $15.0 million. The offering closed on March 4, 2026, on satisfaction of customary closing conditions. On May 5, 2026, we established our ATM Program, pursuant to which we may issue and sell, from time to time, up to $150.0 million of shares of our common stock, through or to our Agent, acting as agent or principal, under the Sales Agreement in at-the-market transactions. For the period May 6, 2026 through September 30, 2026, we sold 34,491,840 shares under the ATM Program for net proceeds of $58.4 million, after deducting sales commissions and other offering costs. Subsequent to September 30, 2026, we sold an additional 25,000 shares under the ATM Program for net proceeds of less than $0.1 million, after deducting sales commissions and other offering costs. We intend to use the remaining net proceeds received from the private placement and ATM Program offerings for working capital and general corporate purposes.
We continue to execute on a plan to reduce operating and capital costs to improve cash flow. We believe that, based upon our operational forecasts, cash and cash equivalents on hand, proceeds from the sale of our West Quito Assets and from the private placement equity offering and sales under our ATM Program, and cost reduction measures, it is probable that we will have sufficient liquidity to fund our operations, meet our debt requirements and maintain compliance with our future debt covenants as described in Note 5, “Debt,” for the next 12 months from the issuance of these unaudited condensed consolidated financial statements. Our ability to raise additional capital, including through sales under our ATM Program may be affected by market conditions, including the trading price of our common stock. See Part II, Item 1A, “Risk Factors.” We will, however, continue to consider alternative liquidity sources which could include entering into other financing arrangements (e.g. future equity raises), a sale of a portion of our assets, seeking capital partners for our drilling program, pursuing strategic merger opportunities or joint ventures, the sale of the Company, or pursuing additional general and administrative or other cost reduction opportunities. Our estimates and forecasts are based upon assumptions that may prove to be incorrect due to many factors that are currently unknown, such as prevailing economic conditions, many of which are beyond our control.
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In the event the assumptions underlying our estimates and forecasts prove to be incorrect, our operating plans, capital requirements, and covenant compliance may be adversely impacted. In the event our cash flows are materially less than anticipated or our costs are materially greater than anticipated and other sources of capital we historically have utilized are not available on acceptable terms, we may be required to curtail drilling, development, land acquisitions and other activities to reduce our capital spending. However, significant or prolonged reductions in capital spending will adversely impact our production and may negatively affect our future cash flows.
We continuously monitor changes in market conditions and will continue to adapt our operational plans as necessary to strive to maintain sufficient liquidity, facilitate drilling on our undeveloped acreage position and permit us to selectively expand our acreage, as well as meet our debt obligations and restrictive covenants. We have been exploring, and continue to explore, strategic transactions to address these concerns, while also looking at opportunities to significantly reduce expenses in the near term. However, there can be no assurance that, absent additional capital, reducing costs or other material favorable developments, the Company will not experience liquidity and covenant compliance issues in the future.
On May 30, 2025, we received written notice (the “Notice”) on behalf of the NYSE American indicating that we were no longer in compliance with NYSE American’s continued listing standards. Specifically, the letter stated that we were not in compliance with the continued listing standards set forth in Sections 1003(a)(i) and 1003(a)(ii) of the NYSE American Company Guide (the “Company Guide”). Section 1003(a)(i) requires a listed company to have stockholders’ equity of $2 million or more if the listed company has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years. Section 1003(a)(ii) requires a listed company to have stockholders’ equity of $4 million or more if the listed company has reported losses from continuing operations and/or net losses in three of its four most recent fiscal years. Our noncompliance resulted from our reporting stockholders’ deficit of $1.8 million as of March 31, 2025, and losses from continuing operations and/or net losses in three of our four most recent fiscal years ended December 31, 2024. We reported stockholders’ equity of $157.1 million at March 31, 2026 resulting from the reclassification of our preferred stock from temporary to permanent equity and additional losses from operations and continued to report stockholders’ equity of $203.1 million at June 30, 2026. The Notice further provided that we were to submit a plan of compliance (the “Plan”) by June 30, 2025 addressing how we intended to regain compliance with the continued listing standards by November 30, 2026. Such Plan was submitted by the required deadline and our Plan was accepted by the NYSE American. On September 16, 2026, we received notice from the NYSE American notifying us that we were back in compliance with all of the continued listing standards set forth in Part 10 of the Company Guide.
Other Risks and Uncertainties. Our ability to complete transactions and maintain or increase our liquidity is subject to a number of variables, including our level of oil and natural gas production, proved reserves and commodity prices, the amount and cost of our indebtedness, as well as various economic and market conditions that have historically affected the oil and natural gas industry. Even if we are otherwise successful in growing our proved reserves and production, if oil and natural gas prices decline for a sustained period of time, our ability to fund our capital expenditures, complete acquisitions, reduce debt, meet our financial obligations and become profitable may be materially impacted.
Additionally, in periods of increasing commodity prices, we continue to be at risk to supply chain issues, including, but not limited to, labor shortages, pipe restrictions and potential delays in obtaining frac and/or drilling related equipment that could impact our business. During these periods, the costs and delivery times of rigs, equipment and supplies may also be substantially greater. The unavailability or high cost of drilling rigs and/or frac crews, pressure pumping equipment, tubulars and other supplies, and of qualified personnel can materially and adversely affect our operations and profitability.
Lastly, actual or anticipated declines in domestic or foreign economic activity or growth rates, regional or worldwide increases in tariffs or other trade restrictions, turmoil affecting the United States or global financial system and markets and a severe economic contraction either regionally or worldwide, resulting from international conflicts, efforts to contain pandemics or other factors, could materially affect our business and financial condition and impact our ability to finance operations by worsening the actual or anticipated future drop in worldwide oil demand, negatively impacting the price received for oil and natural gas production or adversely impacting our ability to comply with
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covenants in our 2026 Term Loan Agreement. Negative economic conditions could also adversely affect the collectability of our trade receivables or performance by our vendors and suppliers or cause our commodity hedging arrangements to be ineffective if our counterparties are unable to perform their obligations. All of the foregoing may adversely affect our business, financial condition, results of operations, cash flows and, potentially, compliance with the covenants contained in our 2026 Term Loan Agreement.
Debt Obligations. Under our 2026 Term Loan Agreement, we are required to make scheduled quarterly amortization payments (i) commencing with the fiscal quarter ending June 30, 2027 through and including the fiscal quarter ending March 31, 2029, in an aggregate principal amount equal to 1.25% of the loans outstanding on June 30, 2026, (ii) for the fiscal quarter ending June 30, 2029, an aggregate principal amount equal to 7.50% of the loans outstanding on June 30, 2026, and (iii) for the fiscal quarter ending September 30, 2029, an aggregate principal amount equal to 10.00% of the loans outstanding on June 30, 2026. We must make a total of $2.0 million in debt repayments through June 2027 under our 2026 Term Loan Agreement.
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 2026 Term Loan Agreement. As a consequence, we endeavor to anticipate potential covenant compliance issues and work with our lenders to address any such issues ahead of time.
While we have largely been successful in obtaining modifications of our covenants as needed, there can be no assurance that we will be successful in the future. In the event we are not successful in obtaining covenant modifications, if needed, there is no assurance that we will be successful in implementing alternatives that allow us to maintain compliance with our covenants or that we will be successful in obtaining alternative financing that provides us with the liquidity that we need to operate our business. Even if successful, alternative sources of financing could prove more expensive than borrowings under our 2026 Term Loan Agreement.
Cash Flows
Net increase in cash and cash equivalents is summarized as follows (in thousands):
| | | | | | |
| | Nine Months Ended | ||||
| | September 30, | ||||
| | 2026 | | 2025 | ||
| | | | | | |
Cash flows provided by operating activities | | $ | 12,524 | | $ | 50,909 |
Cash flows provided by (used in) investing activities | | | 45,387 | | | (69,962) |
Cash flows provided by financing activities | | | 6,215 | | | 49,796 |
Net increase in cash, cash equivalents and restricted cash | | $ | 64,126 | | $ | 30,743 |
Operating Activities. Net cash flows provided by operating activities for the nine months ended September 30, 2026 and 2025, were $12.5 million and $50.9 million, respectively. Items impacting the decrease in operating cash flows were driven by changes in working capital primarily related to increased accounts receivable and decreased accounts payable and accrued liabilities for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025.
Investing Activities. Net cash flows provided by investing activities for the nine months ended September 30, 2026 were approximately $45.4 million primarily from proceeds received from sales of oil and natural gas assets compared to net cash flows used in investing activities for the nine months ended September 30, 2025 of $70.0 million primarily for drilling and completion activities.
During the nine months ended September 30, 2026, we spent $13.1 million on oil and natural gas capital expenditures, of which $7.2 million related to drilling and completion costs and $5.0 million related to the development of our treating equipment and gathering support infrastructure.
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During the nine months ended September 30, 2025, we spent $69.6 million on oil and natural gas capital expenditures, of which $59.9 million related to drilling and completion costs and $8.5 million related to the development of our treating equipment and gathering support infrastructure. In the first nine months of 2025, we ran one operated rig in the Delaware Basin, drilled, cased, completed and put online six gross (5.5 net) operated wells.
Financing Activities. Net cash flows provided by financing activities for the nine months ended September 30, 2026 and 2025 were $6.2 million and $49.8 million, respectively. During the nine months ended September 30, 2026, we received proceeds, net of issuance costs, totaling $72.2 million for the issuance of common stock, and repaid $45.6 million under our 2024 Amended Term Loan Agreement and repurchased $19.1 million of preferred stock inclusive of costs incurred. During the nine months ended September 30, 2025, we received net proceeds of $61.1 million from the incurrence of the Incremental Term Loans and repaid $11.3 million under our 2024 Amended Term Loan Agreement.
Off-Balance Sheet Arrangements
At September 30, 2026, there are no off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our financial condition, results of operations or liquidity.
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 and estimates from those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
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Results of Operations
The table below sets forth financial information for the periods presented.
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
In thousands (except per unit and per Boe amounts) | | 2026 | | 2025 | | 2026 | | 2025 | ||||
Operating revenues: | | | | | | | | | | | | |
Oil | | $ | 37,987 | | $ | 38,325 | | $ | 123,421 | | $ | 114,316 |
Natural gas | | | 2,380 | | | 853 | | | (6,017) | | | 4,611 |
Natural gas liquids | | | 5,080 | | | 4,208 | | | 15,083 | | | 14,420 |
Other | | | 197 | | | 96 | | | 460 | | | 422 |
Operating expenses: | | | | | | | | | | | | |
Production: | | | | | | | | | | | | |
Lease operating | | | 10,026 | | | 12,389 | | | 29,309 | | | 33,417 |
Workover and other | | | 849 | | | 839 | | | 2,489 | | | 4,581 |
Taxes other than income | | | 1,723 | | | 2,622 | | | 7,028 | | | 7,944 |
Gathering and other | | | 13,139 | | | 10,199 | | | 36,657 | | | 33,157 |
General and administrative: | | | | | | | | | | | | |
General and administrative | | | 3,753 | | | 3,085 | | | 11,658 | | | 10,017 |
Stock-based compensation | | | 126 | | | — | | | 547 | | | 48 |
Depletion, depreciation and accretion: | | | | | | | | | | | | |
Depletion – Full cost | | | 10,823 | | | 13,165 | | | 34,899 | | | 39,393 |
Depreciation – Other | | | 13 | | | 69 | | | 50 | | | 310 |
Accretion expense | | | 224 | | | 288 | | | 695 | | | 838 |
Other income (expenses): | | | | | | | | | | | | |
Net (loss) gain on derivative contracts | | | (44,831) | | | 5,180 | | | (79,744) | | | 26,030 |
Interest expense and other | | | (3,637) | | | (6,741) | | | (13,478) | | | (20,010) |
Loss on extinguishment of debt | | | — | | | — | | | (862) | | | — |
Net (loss) income | | $ | (43,500) | | $ | (735) | | $ | (84,469) | | $ | 10,084 |
| | | | | | | | | | | | |
Production: | | | | | | | | | | | | |
Oil – MBbls | | | 452 | | | 599 | | | 1,490 | | | 1,752 |
Natural Gas - MMcf | | | 1,969 | | | 1,778 | | | 6,035 | | | 5,713 |
Natural gas liquids – MBbls | | | 265 | | | 236 | | | 811 | | | 680 |
Total MBoe(1) | | | 1,045 | | | 1,131 | | | 3,307 | | | 3,384 |
Average daily production – Boe(1) | | | 11,359 | | | 12,293 | | | 12,114 | | | 12,396 |
| | | | | | | | | | | | |
Average price per unit (2): | | | | | | | | | | | | |
Oil price - Bbl | | $ | 84.04 | | $ | 63.98 | | $ | 82.83 | | $ | 65.25 |
Natural gas price - Mcf | | | 1.21 | | | 0.48 | | | (1.00) | | | 0.81 |
Natural gas liquids price - Bbl | | | 19.17 | | | 17.83 | | | 18.60 | | | 21.21 |
Total per Boe(1) | | | 43.49 | | | 38.36 | | | 40.06 | | | 39.41 |
| | | | | | | | | | | | |
Average cost per Boe: | | | | | | | | | | | | |
Production: | | | | | | | | | | | | |
Lease operating | | $ | 9.59 | | $ | 10.95 | | $ | 8.86 | | $ | 9.88 |
Workover and other | | | 0.81 | | | 0.74 | | | 0.75 | | | 1.35 |
Taxes other than income | | | 1.65 | | | 2.32 | | | 2.13 | | | 2.35 |
Gathering and other | | | 12.57 | | | 9.02 | | | 11.08 | | | 9.80 |
General and administrative: | | | | | | | | | | | | |
General and administrative | | | 3.59 | | | 2.73 | | | 3.53 | | | 2.96 |
Stock-based compensation | | | 0.12 | | | — | | | 0.17 | | | 0.01 |
Depletion | | | 10.36 | | | 11.64 | | | 10.55 | | | 11.64 |
| (1) | Determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or natural gas liquids (“NGLs”) based on approximate energy equivalency. This is an energy content correlation and does not reflect the value or price relationship between the commodities. |
| (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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Operating Revenues. Oil, natural gas and NGLs revenues were $45.4 million and $43.4 million for the three months ended September 30, 2026 and 2025, respectively. The increase in revenues is primarily attributable to an increase in average realized prices for oil, natural gas and NGLs partially offset by lower production volumes for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. Average realized prices (excluding the effects of hedging arrangements) increased approximately $5.13 per Boe for three months ended September 30, 2026 when compared with the same period in 2025. Production averaged 11,359 Boe per day for the three months ended September 30, 2026 compared to 12,293 Boe per day for the three months ended September 30, 2025.
Oil, natural gas and NGLs revenues were $132.5 million and $133.3 million for the nine months ended September 30, 2026 and 2025, respectively. The decrease in revenues is primarily attributable to a decrease in production volumes partially offset by a slight increase in our average realized prices in the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. Average realized prices (excluding the effects of hedging arrangements) increased approximately $0.65 per Boe for the nine months ended September 30, 2026 when compared to the nine months ended September 30, 2025. Production averaged 12,114 Boe per day for the nine months ended September 30, 2026 compared to 12,396 Boe per day for the nine months ended September 30, 2025. 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. Lease operating expenses were $10.0 million and $12.4 million for the three months ended September 30, 2026 and 2025, respectively, and $29.3 million and $33.4 million for the nine months ended September 30, 2026 and 2025, respectively. On a per unit basis, lease operating expenses were $9.59 per Boe and $10.95 per Boe for the three months ended September 30, 2026 and 2025, respectively, and $8.86 per Boe and $9.88 per Boe for the nine months ended September 30, 2026 and 2025, respectively. The decrease in lease operating expenses on a per unit basis for the three and nine months ended September 30, 2026 compared to the three and nine months ended September 30, 2025 is primarily a result of lower maintenance, power, and chemical costs combined with decreased saltwater disposal in Hackberry Draw.
Workover and Other Expenses. Workover and other expenses were $0.8 million for both the three months ended September 30, 2026 and 2025, and $2.5 million and $4.6 million for the nine months ended September 30, 2026 and 2025, respectively. On a per unit basis, workover and other expenses were $0.81 per Boe and $0.74 per Boe for the three months ended September 30, 2026 and 2025, respectively, and $0.75 per Boe and $1.35 per Boe for the nine months ended September 30, 2026 and 2025, respectively. The decrease in workover and other expenses for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 is the result of less workover activity during the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025.
Taxes Other than Income. Taxes other than income were $1.7 million and $2.6 million for the three months ended September 30, 2026 and 2025, respectively, and $7.0 million and $7.9 million for the nine months ended September 30, 2026 and 2025, respectively. Severance taxes are based on realized prices and volumes at the wellhead, while ad valorem taxes are tied to the annual valuation of our properties. As revenues or volumes from oil and natural gas sales increase or decrease, severance taxes on these sales also increase or decrease. On a per unit basis, taxes other than income were $1.65 per Boe and $2.32 per Boe for the three months ended September 30, 2026 and 2025, respectively, and $2.13 per Boe and $2.35 per Boe for the nine months ended September 30, 2026 and 2025, respectively.
Gathering and Other Expenses. Gathering and other expenses were $13.1 million and $10.2 million for the three months ended September 30, 2026 and 2025, respectively, and $36.7 million and $33.2 million for the nine months ended September 30, 2026 and 2025, respectively. Gathering and other expenses include gathering fees paid to third parties on our oil and natural gas production and operating expenses of our gathering support infrastructure. Our gathering and other expenses are primarily driven by the amount and location of natural gas production, the concentration of H2S in our sour gas produced, and the amounts paid to treat our sour gas volumes. On a per unit basis, gathering and other expenses were $12.57 per Boe and $9.02 per Boe for the three months ended September 30, 2026 and 2025, respectively, and $11.08 per Boe and $9.80 per Boe for the nine months ended September 30, 2026 and 2025, respectively. The increase in gathering and other expenses per Boe for the three and nine months ended September 30, 2026 compared to the three and nine months ended September 30, 2025 is primarily related to greater throughput
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volumes resulting from entry into a long-term processing agreement with a publicly traded large-cap midstream provider in January 2026.
General and Administrative Expense. General and administrative expense, excluding stock-based compensation, was $3.8 million and $3.1 million for the three months ended September 30, 2026 and 2025, respectively, and $11.7 million and $10.0 million for the nine months ended September 30, 2026 and 2025, respectively. On a per unit basis, general and administrative expenses were $3.59 per Boe and $2.73 per Boe for the three months ended September 30, 2026 and 2025, respectively, and $3.53 per Boe and $2.96 per Boe for the nine months ended September 30, 2026 and 2025, respectively. The increase in general and administrative expense for the three and nine months ended September 30, 2026 compared with the same prior year periods is primarily due to higher professional fees including legal costs. We incurred $0.1 million and $0.5 million of stock-based compensation expense during the three and nine months ended September 30, 2026, respectively, related to the issuance of restricted stock and the vesting of a restricted stock unit grant issued in prior years to specific executives upon the occurrence of a defined event. Comparatively, we incurred less than $0.1 million of stock-based compensation expense for the nine months ended September 30, 2025.
Depletion, Depreciation, and Amortization Expense. Depletion for oil and natural gas properties is calculated using the unit of production method, which depletes the capitalized costs of evaluated properties plus future development costs based on the ratio of production for the current period to total reserve volumes of evaluated properties as of the beginning of the period.
Depletion expense was $10.8 million and $13.2 million for the three months ended September 30, 2026 and 2025, respectively, and $34.9 million and $39.4 million for the nine months ended September 30, 2026 and 2025, respectively. On a per unit basis, depletion expense was $10.36 per Boe and $11.64 per Boe for the three months ended September 30, 2026 and 2025, respectively, and $10.55 per Boe and $11.64 per Boe for the nine months ended September 30, 2026 and 2025, respectively. The decrease in our depletion rate per Boe is primarily due to a period over period decrease in net oil and natural gas properties resulting from the sale of our West Quito Assets combined with the associated period over period decrease in proved reserves.
Net (loss) gain on derivative contracts. We enter into derivative commodity instruments to hedge our exposure to price fluctuations on our anticipated oil, natural gas and NGLs production. Consistent with prior years, we have elected not to designate any positions as cash flow hedges for accounting purposes, and accordingly, we recorded the net change in the mark-to-market value of these derivative contracts in the unaudited condensed consolidated statements of operations.
For the three months ended September 30, 2026, we recorded a net derivative loss of $44.8 million ($38.4 million net unrealized loss on unsettled contracts and $6.4 million net realized loss on settled contracts). For the three months ended September 30, 2025, we recorded a net derivative gain of $5.2 million ($1.1 million net unrealized gain on unsettled contracts and $4.1 million net realized gain on settled contracts). For the nine months ended September 30, 2026, we recorded a net derivative loss of $79.7 million ($64.4 million net unrealized loss on unsettled contracts and $15.3 million net realized loss on settled contracts). For the nine months ended September 30, 2025, we recorded a net derivative gain of $26.0 million ($20.1 million net unrealized gain on unsettled contracts and $5.9 million net realized gain on settled contracts). At September 30, 2026, we had a $6.5 million derivative asset ($2.7 million current) and a $49.8 million derivative liability ($31.4 million current).
Interest Expense and Other. Interest expense and other totaled $3.6 million and $6.7 million for the three months ended September 30, 2026 and 2025, respectively and $13.5 million and $20.0 million for the nine months ended September 30, 2026 and 2025, respectively. Our weighted average interest rate was approximately 10.39% and 11.20% for the three and nine months ended September 30, 2026, respectively. Comparatively, our weighted average interest rate was approximately 12.19% and 12.20% for the three and nine months ended September 30, 2025, respectively. For the fourth quarter of 2026, our interest rate will be approximately 10.72% on outstanding borrowings.
Loss on extinguishment of debt. We recorded a loss on extinguishment of debt in the amount of $0.9 million for the nine months ended September 30, 2026 to write-off the proportionate amount of deferred financing costs and debt discount associated with the February 24, 2026 principal prepayment under our 2024 Amended Term Loan Agreement.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Instruments and Hedging Activity
We are exposed to various risks, including energy commodity price risk, such as price differentials between the NYMEX commodity price and the index price at the location where our production is sold. When oil and natural gas prices decline, our ability to finance our capital budget and operations may be adversely impacted. We expect energy prices to remain volatile and unpredictable, therefore we have designed a risk management policy which provides for the use of derivative instruments to provide partial protection against declines in oil and natural gas prices by reducing the risk of price volatility and the effect it could have on our operations. The types of derivative instruments that we typically utilize include fixed-price swaps, costless collars, basis swaps and WTI NYMEX rolls. The total volumes that we hedge through the use of our derivative instruments varies from period to period; however, our requirement under our 2026 Term Loan Agreement, as amended, is to hedge approximately 50% to 85% of our anticipated oil and natural gas production, in varying percentages by year, on a rolling basis for the next four years. Our hedge policies and objectives may change significantly as our operational profile and contractual obligations change but remain consistent with the requirements in effect under our Term Loan Agreement, as amended. We do not enter into derivative contracts for speculative trading purposes.
We are exposed to market risk on our open derivative contracts related to potential non-performance by our counterparties. It is our policy to enter into derivative contracts only with counterparties that are creditworthy institutions deemed by management as competitive market makers. At September 30, 2026, we did not post collateral under any of our derivative contracts as they are secured under our Term Loan Agreement, as amended. We account for our derivative activities on the balance sheet as either an asset or liability measured at fair value. See Item 1. Condensed Consolidated Financial Statements (Unaudited)—Note 7, “Derivative and Hedging Activities,” for more details.
Fair Market Value of Financial Instruments
The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information, involve uncertainties, and cannot be determined with precision. The estimated fair value of cash, cash equivalents and restricted cash, accounts receivable and accounts payable approximates their carrying value due to their short-term nature. See Item 1. Condensed Consolidated Financial Statements (Unaudited)—Note 6, “Fair Value Measurements,” for additional information.
Interest Rate Sensitivity
We are also exposed to market risk related to adverse changes in interest rates. Our interest rate risk exposure results primarily from fluctuations in short-term rates, which are Secured Overnight Financing Rate (“SOFR”) based and may result in reductions of earnings or cash flows due to increases in the interest rates we pay on these obligations.
At September 30, 2026, the principal amount of our 2026 Term Loan Agreement was $162.5 million, which bears interest at floating and variable interest rates that are tied to SOFR. Fluctuations in market interest rates will cause our annual interest costs to fluctuate. At September 30, 2026, the weighted average interest rate on our variable rate debt was 11.20% per year. If the balance of our variable interest rate debt at September 30, 2026 were to remain constant, a 10% change in market interest rates would impact our cash flows by approximately $1.7 million per year.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Principal Financial Officer, we evaluated the design and operation of our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act) as of September 30, 2026. On the basis of this review, our management, including our Chief Executive Officer and Principal Financial Officer, concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and
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Exchange Commission and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, in a manner that allows timely decisions regarding required disclosure.
We did not have any change in our internal controls over financial reporting during the three months ended September 30, 2026 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information regarding legal proceedings to which we are a party is set forth in Item 1. Condensed Consolidated Financial Statements (Unaudited)—Note 9, “Commitments and Contingencies,” which is incorporated herein by reference.
ITEM 1A. RISK FACTORS
This Quarterly Report should be read in conjunction with the risk factors included in Item 1A. Risk Factors in our Annual Report. We are not aware of any material changes to the risk factors disclosed in our Annual Report except for the risk factors set forth below.
Our common stock has recently traded below $1.00 per share. If we fail to meet the NYSE American continued listing standards, our common stock could be delisted, which could adversely affect its liquidity and market price and our ability to raise capital.
Our common stock is listed on the NYSE American under the symbol “BATL.” To maintain that listing, we must satisfy the continued listing standards in the NYSE American Company Guide (the “Company Guide”) including standards related to financial condition, stockholders' equity, distribution and market value. Under Section 1003(f)(v) of the Company Guide, the NYSE American may consider suspending trading in or delisting a stock that has sold for a substantial period of time at a low price per share if the issuer does not effect a reverse stock split within a reasonable time after notification. The Company Guide does not set a specific price threshold for this standard, but the NYSE American has generally contacted issuers whose common stock has had a 30-trading-day average price below $1.00. Our common stock has traded below $1.00 since October 20, 2026. On November 10, 2026, the closing price of our common stock was $0.698.
Because we regained compliance with the NYSE American’s continued listing standards on September 16, 2026, under Section 1009(h) of the Company Guide, if we fall below any continued listing standard before September 16, 2027, the NYSE American may truncate the procedures otherwise available to us, including the opportunity to submit a compliance plan, and could immediately commence delisting proceedings.
In addition, NYSE American rule amendments approved by the SEC on August 14, 2026, effective July 1, 2027, will require the NYSE American to immediately suspend trading in and commence delisting proceedings for a listed company’s common stock if it closes below $0.25 on any single trading day. No cure period or compliance plan will be available. Before that date, the NYSE American generally views trading below $0.10 as abnormally low and may suspend trading immediately. The NYSE American may also delist a security after a precipitous price decline to an abnormally low level, even if the price remains above these levels.
If our common stock were delisted from the NYSE American, the liquidity and market price of our common stock could decline, we could lose eligibility to use certain registration statement forms and to make sales under our ATM Program, our ability to raise capital on acceptable terms or at all could be impaired, and we could face reduced analyst coverage and investor interest. We cannot assure you that we will continue to meet the NYSE American continued listing standards, that the NYSE American will not take action against us, or that any action we take will restore or maintain compliance.
The increasing use of artificial intelligence and other emerging technologies presents new risks and challenges.
We increasingly use artificial intelligence (“AI”) and other emerging technologies to improve our business processes, including through the integration of various AI tools into certain of our information systems. However, we
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may not properly implement these technologies into our business, and there can be no assurance that we will realize the anticipated efficiency gains or other benefits from their adoption. Failure to effectively integrate AI and other emerging technologies into our operations could put us at a competitive disadvantage to other oil and natural gas companies who have more successfully implemented such technologies. In addition, the use of AI presents certain risks, including, among other things: (i) the generation of and reliance upon inaccurate, misleading or otherwise flawed content and data in our business processes, (ii) the unauthorized use or disclosure of confidential or proprietary information and (iii) potential exposure to new or enhanced governmental or regulatory scrutiny, all of which could negatively impact our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Trading Arrangements
During the quarter ended September 30, 2026,
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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 | | Ninth Amended and Restated Certificate of Incorporation of Battalion Oil Corporation, dated June 12, 2025 (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed June 18, 2025). |
3.2 | | Seventh Amended and Restated Bylaws of Battalion Oil Corporation (Incorporated by reference to Exhibit 3.2 of our Current Report on Form 8-K filed January 27, 2020). |
10.1 | | Preferred Stock Repurchase and Conversion Agreement, dated August 7, 2026, by and between Battalion Oil Corporation and Gen IV Investment Opportunities, LLC (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed August 7, 2026). |
10.2 | | Voting and Lock-Up Agreement, dated August 7, 2026, by and between Battalion Oil Corporation and Gen IV Investment Opportunities, LLC (Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed August 7, 2026). |
31 | * | Sarbanes-Oxley Section 302 certification of Principal Executive Officer and Principal Financial Officer |
32 | † | Sarbanes-Oxley Section 906 certification of Principal Executive Officer and Principal Financial Officer |
101.INS | * | Inline XBRL Instance Document |
101.SCH | * | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | * | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | * | Inline XBRL Taxonomy Extension Definition Document |
101.LAB | * | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | * | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | * | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* | Attached hereto. |
† | Furnished herewith. |
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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 | |
| | | |
| | | |
November 12, 2026 | | By: | /s/ MATTHEW B. STEELE |
| | | |
| | Name: | Matthew B. Steele |
| | Title: | Chief Executive Officer |
| | | (Principal Executive Officer and Principal Financial Officer) |
| | | |
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